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iminal Appeal No. 83 of 1959.
Appeal from the judgment and order dated July 25, 1958, of the Patna High Court in Criminal Revisions Nos. 593 and 594 of 1958 arising out of the judgment and order dated March 3, 1958, of the Additional Sessions Judge, Monghyr, in Criminal Appeal No. 286 of 1956.
D. P. Singh and R. H. Dhebar, for the appellant.
C. P. Lal, for the respondent.
October 14.
The Judgment of the Court was delivered by KAPUR J.
This is an appeal brought in pursuance of a certificate under article 134(1)(c) of the Constitution against the judgment and order of acquittal of the High Court of Patna.
There were certain disputes between the workmen and the Management of Mankatha Distillery of which the proprietor is the respondent.
On November 23, 1953, a petition was submitted on behalf of the workmen of the Distillery to the Assistant Labour Commissioner, Bhagalpur, which was signed by one Banarsi Choudhuri on behalf of himself and for and on behalf of the workmen of the Distillery.
In this petition, certain grievances of the workmen were set out.
Con ciliation proceedings were started, and there was an agreement on December 5, 1953, which the High Court has described as 'some sort of agreement '.
On January 12, 1954, an application was made for the registration of the Union of the workmen of the Distillery under the Indian Trade Unions Act, and the same was registered on March 23, 1954, under the 3 name and style of Mankaths Distillery Mazdoor Panchayat.
The Distillery was closed and the workmen were discharged, and thereafter on February 19, 1954, the General Secretary of the Mankatha Distillery Mazdoor Panchayat, even though it was not registered at the time, sent a letter to the Management, protesting against the discharge of the workmen without payment of compensation and objecting to the inten tion of the employers to re start the factory after employing other workmen.
It was also stated therein that the workers who had been discharged, had been working for some years and a list of such workmen was attached to the letter.
The following portion of the letter is relevant for the purposes of this appeal: " All the persons, named below, shall work in the factory in legal manner, on monthly salary on permanent basis.
It is not only hoped, rather fully believed that you would consider the above facts and gladly accept the same.
On getting a stisfactory reply, all the workers, who had been working in your factory since years, would report themselves to duty and work according to your orders ".
Although it is addressed to the proprietors of the Dis tillery, it seems to have been sent to the Assistant Commissioner of Labour, Bhagalpur, where it was received on February 25, 1954.
The following endorsements were made on this letter: " Discussed with you.
The management is re.
quested to attend conciliation proceeding on 10th March, 1954, at 11 a.m.
The Union is also informed accordingly ".
Another petition dated March 5,1954, was sent by the General Secretary of the Distillery Mazdoor Panchayat to the Assistant Labour Commissioner, in which the names of all the persons who had been freshly employed by the proprietors, were mentioned and it was prayed that those who were discharged at the time of the closing of the factory, may be reinstated and wages paid, and a request was made to the Assistant Labour 4 and get the workmen reinstated.
The order on this petition was: ", The parties have been called to morrow in my office for conciliation.
The result of the proceeding may be awaited.
" On March 18, 1954, a settlement was arrived at between the management and the workers which is signed by the Conciliation Officer appointed under section 4 of the (Act 14 of 1947) (hereinafter termed, for the sake of brevity, the Act).
This document was signed by the proprietor and the manager of the Distillery and by Banarsi Choudhuri, General Secretary of the Workers ' Panchayat and also by six other members of the Panchayat who were evidently the members of the Executive Committee of the Panchayat.
The terms of the settlement were as follows: " 1.
It is agreed that the workers ' named in Schedule " A " shall be taken to jobs without break in their services.
The new hands appointed after the closure of the factory shall be discharged.
If three shifts will start and any other increased opportunity of employment will be available in the factory, the management shall employ only those workers who are left to day and who had worked in August 1953 and September 1953 in order of seniority.
Shri Banarsi Choudhry, Balmiki Singh, Bhaso Singh and Kaltu (?) Singh are accused in a case pending before the Court at Monghyr.
The Management agrees that if they will be acquitted from the court, they will be given jobs.
All the workers will be put in permanent basis as they were previously.
The order putting them in the temporary basis after the opening of the Mill is cancelled.
The arrears will be paid on monthly basis as before instead of weekly basis as at present after the re opening of the factory.
The grievances raised by the workers and covered by the agreement dated the 5th December, 5 1953, will be decided by the Labour Commissioner Bihar, Patna and his decision shall be acceptable to and final for the parties.
The work of the factory will be resumed immediately.
The workers will continue to have all the benefits and privileges which are guaranteed by law or usage and custom.
The workers will not be victimised for their Trade Union activities".
The prosecution case is that the terms of the settlement were not carried out in that the old workmen were not re employed and the newly employed workmen were not discharged.
Thereupon, the respondent and the manager of the Distillery, one Ram Narain Lal were prosecuted on a complaint filed by the Labour Superintendent, Mr. L. D. Singh, after sanction of the Government of Bihar had been obtained.
Both the accused persons were convicted and sentenced to a fine of Rs. 150 each or, in default, one month 's simple imprisonment.
The learned Magistrate held that there was an industrial dispute within the meaning of the Act, and that the conciliation settlement dated March 18, 1954, was a valid settlement and the respondent failed to implement the first term of the settlement.
Against this order, an appeal was taken to the Sessions Court and the Third Add1.
Sessions Judge dismissed the appeal.
He confirmed the findings of the learned Magistrate.
Against this order of the Sessions Judge, an appeal was taken to the High Court by the respondent only, and the High Court set aside the order of conviction and acquitted the accused.
It held that there was no recognised Union, though there was " some kind of a vague Union " existing, and that because the Conciliation Officer had visited the Distillery without giving a reasonable notice, the " decision of the Conciliation Officer on 18 3 1954, must, therefore, be deemed to be without jurisdiction ", and that there was no agreement arrived at between the proprietor on one side and the " labourers " as a whole on the other, and ": it is preposterous to suppose that because some labourers 6 had signed the settlement that it bound all the labourers.
It seems to me that there is a serious defect in this settlement which is described as a decision of the Conciliation Officer dated 18 3 1954 ".
On the ground, therefore, that the settlement was not a settlement which was binding on the respondent, the conviction was set aside.
It would be an erroneous view if it were said that for a dispute to constitute an industrial dispute it is a requisite condition that it should be sponsored by a recognised union or that all the workmen of an industrial establishment should be parties to it.
A dispute becomes an industrial dispute even where it is sponsored by a union which is not registered as in the instant case or where the dispute raised is by some only of the workmen because in either case the matter falls within section 18(3)(a) and (d) of the Act.
See also Newspapers Limited, Allahabad vs The State Industrial Tribunal, Uttar Pradesh (1).
The settlement of March 18, 1954, arrived at during the conciliation proceedings was signed by the General Secretary and members of the executive committee of the Union though it was unregistered at the time.
We cannot therefore give our accord to the decision that the settlement of March 18, 1954, was not a settlement binding between the parties.
The scope and effect of section 11(2) was raised before us and it was argued that because the conciliation officer did not give any reasonable notice before he came to the Distillery on March 18, 1954, the settlement was not a legal settlement and consequently was not binding on the parties and its breach could not fall within the penal consequences of section 29 of the Act.
Now, section 11(2) provides: " A conciliation officer or a member of a Board or Court or the presiding officer of a Labour Court, Tribunal or National Tribunal may for the purpose of inquiry into any existing or apprehended industrial dispute, after giving reasonable notice, enter the premises occupied by any establishment to which the dispute relates ".
(1) at 38.
7 Section 11 only deals with the procedure and powers of the conciliation officers and sub section 2 authorises the conciliation officer to enter the premises occupied by any establishment to which the dispute relates after giving a reasonable notice.
This notice is only for the purpose of entering the premises to make an enquiry into any existing industrial dispute or an apprehended industrial dispute, and is merely to apprise the establishment that it is the conciliation officer who is coming and not an absolute stranger who has no connection at all with the machinery set up for the purposes of the Act.
The absence of a notice under section 11(2) therefore does not affect the jurisdiction of the Conciliation Officer.
As to what the conciliation officer can and should do, is contained in section 12 of the Act.
Sub section 1 empowers the conciliation officer to hold conciliation proceedings in the case of a public utility service after notice under section 22 whereby a mandatory duty is cast upon him to do so, and in other disputes it is 'his discretion to hold conciliation proceedings in the prescribed manner.
Under sub section
(2) he has to investigate without delay the dispute in all matters affecting the merits of the dispute, and he can do such things as he thinks necessary for inducing the parties to come to a fair and amicable settlement.
Sub section (3) provides that if a settlement of the dispute is arrived at, a report thereof shall be sent to the appropriate Govern ment, and sub section
(4) also provides for the sending of a similar report to the appropriate Government if no settlement is arrived at.
Sub section
(5) deals with the powers of the Government when a report is received as to the non settlement of the dispute, and sub section
(6) which was relied upon provides: section 12(6) " A report under this section shall be submitted within fourteen days of the commencement of the conciliation proceedings or within such shorter period as may be fixed by the appropriate Government.
Provided that the time for the submission of the report may be extended by such period as may be agreed upon in writing by all the parties to the dispute.
" 8 It was argued that because the report had not been sent to the Government within fourteen days of the commencement of the conciliation proceedings, the settlement arrived at was invalid and was not binding.
This contention must be repelled because any contravention of section 12(6) may be a breach of duty on the part of the conciliation officer; that does not affect the legality of the proceedings which terminated as provided in section 20(2) of the Act.
It was so held by this Court in Andheri Marol Kurla Bus Service vs The State of Bombay (1).
It cannot be said, therefore, that the settlement which was arrived at on March 18, 1954, was not a legal settlement and that a breach of it would not attract the penal provisions of section 29 of the Act.
After the case was decided by the Judicial Magistrate the parties arrived at a fresh settlement on October 6, 1956, which recited: " That this settlement made this day the 6th October, 1956, at Patna, settles all the pending grievances and/or demands of workmen whatsoever ".
As a result of this out of the discharged workmen 25, whose names are given in Appendix A attached to the compromise, were reinstated with effect from October 8, 1956.
The claim with regard to the other discharged workmen was withdrawn.
This settlement was accepted by the Industrial Tribunal by an order dated October 10, 1956.
This shows that all disputes between the parties have been settled and workmen have been reinstated.
In view of this in the words of Subba Rao, J., in the State of Bihar vs Hiralal Kejrilal (2) " public interest does not require that the stale matter should be resuscitated ".
Therefore we do not think it necessary to interfere under article 136 with the order of the High Court.
The appeal is therefore dismissed.
Appeal dismissed.
(1) [1969] Supp. 2 S.C.R. 734.
(2) [1960] :S.C.R. 726, 736.
| IN-Abs | A settlement was arrived at between the management of Mankatha Distillery and the workmen 's union before the con ciliation officer.
The Union was not registered under the Indian Trade Unions Act on the date of the said settlement.
The terms of the settlement not having been carried out by the management the respondent, who was the proprietor, and the manager of the said distillery were prosecuted and were convicted by the Magistrate.
The Sessions Court, on appeal by the respondent, confirmed the Magistrate 's order.
On an appeal to the Patna High Court by the respondent the High Court set aside the order of conviction and acquitted the respondent holding that there was no recognised union and that because the conciliation officer had visited the Distillery without giving a reasonable notice, on 18 3 1954 there could be no agreement between the proprietor on one side and the workmen as a whole on the other on the date and it was wrong to suppose that because somu workmen had signed the settlement that it bound all the workmen: Held, that for a dispute to constitute an industrial dispute it is not a requisite condition that it should be sponsored by a recognised union or that all the workmen of an industrial establishment should be parties to it.
A settlement arrived at in course of conciliation proceedings falls within section 18(3)(a) and (d) of the Industrial Disputes Act and as such binds all the workmen though an unregistered union or only some of workmen may have raised the dispute.
The absence of notice under section 11(2) by the Conciliation Officer does not affect the jurisdiction of the conciliation officer and its only purpose is to apprise the establishment that the person who is coming is the conciliation officer and not a stranger.
Any contravention of section 12(6) in not submitting the report within 14 days may be a breach of duty on the part of the conciliation officer ; it does not affect the legality of the proceedings which terminated as provided in section 20(2) of the Act.
1 2 Where a fresh settlement is arrived at between the parties and all disputes are settled, then " public interest does not require that the stale matter should be resuscitated ".
Newspapers Limited, Allahabad vs State Industrial Tribunal, Uttar Pradesh, , referred to.
Andheri Marol Kurla Bus Service vs The State of Bombay, A.I.R. and State of Bihar vs Hiralal Kejrilal, [1960] 1 S.C.R. 726, approved.
|
l Appeals Nos. 178 and 179 of 1960.
Appeals by Special Leave from the Judgment and Decree dated the 18th December, 1958, of the Calcutta High Court in Appeals from Original Orders Nos. 108 and 138 of 1957 respectively.
B. R. L. Iyengar for the Appellants (In both the appeals.) N. C. Chatterjee and D. N. Mukherjee for the Respondents (In both the appeals).
October 7.
The Judgment of the Court was delivered by IMAM J.
These are appeals by special leave against the order of a Division Bench of the Calcutta High Court dated December 18, 1958, setting aside the order of P. B. Mukherjea, J., dated February 8, 1957, whereby he rejected the petition of the respondent for amendment of the plaint, filed in Suit No. 1452 of 1951 in the High Court, in exercise of its Ordinary Original Civil jurisdiction.
The plaint in Suit No. 1452 of 1951 was filed in the name of Manilal & Sons, a firm carrying on business at No. 11A, Malacca Street, Singapore.
The partners of this firm were five in number.
They were (1) Manubhai Maganbhai Amin (2) Pravinbhai Dahyabhai Patel (3) Gangabhai Iswarbhai Patel (4) Bachubhai Manibhai Amin and (5) Dahyabhai Trikambhai.
The defendant was the firm of Purushottam Umedbhai & Co. (now the appellant) a firm registered under the Indian Partnership Act, 1932 carrying on business at No. 55 Canning Street, Calcutta.
In July, 1949, there was a contract between the plaintiff and the defendant under which the defendant was to sell to the former, subject to certain conditions, 950 bales of Heavy Cees gunny bags c. i. f. Singapore to be shipped from Calcutta in August, 1949.
It was also agreed between the plaintiff and the defendant in July August, 1949, that the latter would sell, subject to certain conditions, 600 bales of Heavy Cees gunny bags c. i. f. Hong Kong to be shipped from Calcutta 985 in August, 1949.
According ' to the plaintiff, the defendant did not perform the contract entered into by the parties and as a result of the default on the part of the defendant the plaintiff had suffered loss.
The plaintiff accordingly claimed compensation to the extent of Rs. 2,73,864 and Rs. 7,850 towards expenses incurred, in all Rs. 2,81,714.
The breach of the contract is alleged to have taken place in October and November, 1949.
The suit was instituted on April 2, 1951.
The defendant 's written statement was filed on or about May 21, 1951.
The petition for amendment of the plaint was filed on January 31, 1957.
The amendment sought was to the effect that the name of the firm Manilal & Sons as plaintiff be struck off and in its place and stead the names of the five persons who were the partners of the firm may be entered in the plaint as plaintiffs.
The petitioner also sought 'the necessary consequential amendments in the body of the plaint.
According to the petition praying for amendment, on January 29, 1957, the solicitors of the plaintiff received a letter from the attorney of the defendant to the effect that inasmuch as the firm Manilal & Sons was carrying on business at Singapore, an objection would be taken on behalf of the defendant that the suit, as framed, was null and void and not maintainable.
The suit had been pending in the court of P. B. Mukherjea, J., and appeared on the peremptory list, for the first time, on January 3, 1957.
According to the petition, the petitioner was advised that as the misdescription of the plaintiff was a bona fide one, the names of the partners of the firm Manilal & Sons should be brought on to the record in order to bring the controversy between the proper parties into clear relief.
Accordingly, the petitioner filed the petition for amendment.
On a Chamber Summons being taken out, Mukherjea, J., heard the matter and rejected the petition for amendment.
He was of the opinion that the original plaint was no plaint in law and therefore was a mere nullity of a process.
The proper course, when there is such a mistake, is not to amend, disregarding the conditions of O. I, r. 10 of the Civil Procedure Code, 986 but to seek the Court 's permission to withdraw the suit with liberty to file a fresh suit under 0. xxIII, r. 1 of the Civil Procedure Code on the ground of formal defect and which should be done before limitation.
In his opinion, it was not a case of misnomer or a misdescription.
It was not a case of a nonexistent firm or a non existent person or of a wrong description but of a legal bar; and when a plaint is filed showing that the plaintiff was not a legally recog nised person at all such a plaint must be regarded as a nullity.
He was also dissatisfied with the explanation given for filing the petition for amendment some six years after the institution of the suit.
In appeal, the Division Bench of the High Court came to the conclusion on a consideration of various decisions of the High Courts in India and the courts in England that " the description of a plaintiff by a firm name in a case where the Code of Civil Procedure does not permit a suit to be brought in the firm name should properly be considered a case of description of the individual partners of the business and as such a misdescription, which in law can be corrected and should not be considered to amount to a description of a non existent person ".
It also rejected the contention on behalf of the defendant that the Power of Attorney in favour of Dunderdale was insufficient.
The contention had been that this Power of Attorney did not authorize Dunderdale to act on behalf of the the firm far less the individual members of the firm.
The Division Bench accordingly allowed the amendment prayed for and permitted the names of the individual partners of the firm Manilal & Sons to be substituted as plaintiffs in the place of Manilal & Sons.
The individual partners were permitted either to sign the plaint themselves or through their constituted attorneys.
The Division Bench allowed this amendment on the condition that all the costs of the appellant before us incurred upto the date of the judgment must be paid to it.
The Division Bench also allowed the appeal against the decree of P. B. Mukherjea, J., dismissing the suit, which it set aside.
Appeal No. 179 of 1960 is by 987 special leave against the aforesaid order of the Division Bench.
It was urged on behalf of the appellants that (1) the plaint as filed was a nullity.
The suit, therefore, was incompetent.
To bring on the record the partners of the firm amounted to addition of new parties and if on the date these partners are added as parties and the period of limitation had elapsed then the entire suit would be time barred; (2) even if it be held that the plaint is not a nullity, neither the provisions of 0. 1, r. 10 nor those of 0.
VI, r. 17 have any application to the case; (3) having regard to the provisions of section 45 of the Indian Contract Act a suit by only one partner or one promisee is bad to start with.
There being within the period of limitation no suit by all the partners, any amendment, if allowed, would convert the old suit into a new suit and the new suit would be barred by limitation if the amendment was allowed on a date which was beyond the period of limitation prescribed for such a suit; (4) if the amendment was allowed it would be a case of adding or substituting new plaintiffs and as regards them it would be deemed to have been instituted when they were made parties.
Reference to section 22(1), Indian Limitation Act, was made in this connection.
In the present case, so far as the new plaintiffs were concerned, the suit was barred by time at the date when they were sought to be made parties; (5) the circmstances of the case indicated that there was no suit in the eyes of the law, nor was the plaint verified or signed as required by law.
Consequently, there was no proceeding before the court in which any amendment could be sought and (6) even if it was held that the plaint was not a nullity the plaint had been signed and verified on behalf of the firm Manilal & Sons by Dunderdale on a Power of Attorney executed by one of the partners only.
It was therefore not manifest that all the partners intended to sue.
Furthermore, the Power of Attorney executed in favour of Dunderdale by one of the partners could not be regarded as authorizing him to to act on behalf of the firm of Manilal & Sons.
Very great reliance was placed on the decision of 988 Blackwell, J., in the case of Vyankatesh Oil Mill Co. vs N. V. Velamahomed (1) where the learned Judge held that the suit was brought by an entity which had no legal existence in the eyes of Indian law and there being no mode of procedure whereby such an entity was permitted to sue in India, the suit, as framed, was not maintainable at all.
It followed therefore that the amendment asked for could not be treated as an amendment following upon a mere misdeseription but must be treated as an application for the substitution of the individual persons who composed the entity which the law did not recognize.
This view of Mr. Justice Blackwell was not accepted by Beaumont, C. J., in.the case of Amulakchand Mewaram vs Babulal Kanalal Taliwala (2) where he expressed himself as follows: "I must confess that I have some difficulty in following both the reasons and the conclusions of the learned Judge in that case.
It was a case of a suit brought in the name of a firm carrying on business outside British India, and therefore not justified by the terms of 0. 30, Civil P. C. and the learned Judge expressed the view that the plaintiff firm was a nonexistent entity.
But the order which he subsequently made giving leave to amend seems inconsistent with that finding." He further held: " But I do not see how 0. 30 can affect the question of fact, whether a suit brought in the name of a firm in a case not within 0.
30 is in fact a case of misdescription of existing persons, or a case of a suit brought by a non existent entity.
" In the case of Hajee Sattar Hajee Peer Mahomad vs Khusiram Benarsilal (3), the Calcutta High Court did not accept the view expressed by Blackwell, J. it referred to the following observation of Farwell, L. J., in Sadler vs Whiteman(4): "In English law a firm as such has no legal existence; partners carry on business both as principals and as agents for each other within the scope of the (1) A.I.R. 1928 Bom.
(3) I.L.R. (2) A.I.R. 1933 Bom.
304, 305.
(4) , 889. 989 partnership business; the firm name is a mere expression, not a legal entity, although for convenience under Order XLVIII A it may be used for the sake of suing and being sued.
" In the case of Mura Mohideen vs V.O.A. Mohomed(1) the Madras High Court dissented from the opinion expressed by Blackwell, J. and the, learned Judges stated : "We are unable to agree with Blackwell, J. in his view that a foreign firm not being a legal entity which could as such file a suit under the Civil P. C., by itself determines the question whether the impleading of the members of that firm is the addition of a new party.
The view of Blackwell, J. appears to have been concurred in by two decisions reported in ' Neogi Ghose and Co. vs Nehal Singh ', AIR 1931 Cal. 770 (F) and , L. N. Chettiar Firm vs M.P.R.M. Firm ', AIR 1935 Rang. 240 (G), but we are unable to agree with the soundness of the reasoning in these decisions either of which do not furnish any further reasons in support of the view of Blackwell, J." The Madras High Court then concluded as follows: "If however imperfectly and incorrectly a party is designated in a plaint the correction of the error is not the addition or substitution of a party but merely clarifies and makes apparent what was previously shrouded in obscurity by reason of the error or mistake.
The question in such a case is one of intention of the party and if the Court is able to discover the person or persons intended to sue or to be sued a mere misdescription of such a party can always be corrected provided the mistake was bona fide vide 0.1, R. 10, C.P.C. Such an amendment does not involve the addition of a party so as to attract section 22(1), Limitation Act.
Suits by or on behalf of dead persons stand in a different category.
The principle that a misdescription could be corrected by amendment could not obviously be applied to such a case but this is far from saying that merely because the law does not recognise the firm as being a legal entity, the firm (1) A.I.R. 1955 Mad. 294, 297, 299.
126 990 name could not indicate or designate the individuals Composing the firm.
" "To sum up, the situation is analogous to a case where an individual who has an alias or an abbreviated name by which he is sometimes called initially describes himself in that name but subsequently applies to have it rectified so as to describe in the manner in which he is most generally known.
There cannot be any doubt that by the correction in the name, a new plaintiff is not added so as to attract section 22(1), Limitation Act.
A trade name either of a person or a group of individuals carrying on business in partnership is in true an alias for the person or the group.
" Before the introduction of O. XXX in the Code of Civil Procedure apparently suits were instituted, particularly in the Mofussil courts, in the name of a firm or were instituted against a firm in the firm name and no objection was generally taken.
Presumably this practice was largely based on the assumption that the suit concerned was either by all the partners of the firm or against all the partners of the firm.
If, however, an objection were to be taken that a suit in the name of a firm was not maintainable because it had no legal entity, the courts would have to decide whether the suit had been instituted by non existent persons.
If so, the suit was not maintainable.
In the case of Kasturchand Bahiravdas vs Sagarmal Shriram (1), which was before the introduction of 0.
XXX in the Code, the suit had been brought in the name of the firm Kondanmal Sagarmal by its manager Sagarmal Shriram.
The defendants objected that one Malamchand was also a partner in the firm and should be made a party.
He was accordingly added as a plaintiff on the 27th of January, 1888.
The defendant then contended that the suit was barred under section 22, Limitation Act.
It was held by the Bombay High Court that it was a case of misdescription and not of non joinder for the action was brought in the name of the firm by its manager.
The introduction of 0.
XXX into the Code (1) (1892) I.L.R. i7 Bom.
991 prevents such an objection being taken because it permits two or more persons carrying on business of the firm to sue or be sued in the name of the firm but the firm must be carrying on business in India.
The introduction of this provision in the Code was an enabling one which permitted partners constituting a firm to sue or be sued in the name of the firm.
This enabling provision, however, accorded no such facility or privilege to partners constituting a firm doing business outside India.
The existence of the provisions of 0.
XXX in the Code does not mean that a plaint filed in the 'name of a firm doing business outside India is not a suit in fact by the partners of that firm individually.
Section 4 of the , hereinafter referred to as the Act, states that : " " Partnership " is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
Persons who have entered into partnership with one another are called individually " partners " and collectively " a firm " and the name under which their business is carried on is called the " firm name ".
" It is clear from this provision of the Act that the word " firm " or the " firm name " is merely a compendious description of all the partners collectively.
It follows, therefore, that where a suit is filed in the name of a firm it is still a suit by all the partners of the firm unless it is proved that all the partners had not authorized the suit.
A firm may not be a legal entity in the sense of a corporation or a company incorporated under the Indian Companies Act but it is still an existing concern where business is done by a number of persons in partnership.
When a suit is filed in the name of a firm it is in reality a suit by all the partners of the firm.
XXX had not been introduced into the Code and a suit had been filed in the name of a firm it would not be a case of a suit filed by a nonexistent person.
It would still be a suit by the part ners of a firm, the defect being that they were described as a firm.
In order to clarify matters a court would permit an amendment by striking out the name 992 of the firm and replacing it with the name of the persons forming the partnership.
It would be a case of misdescription.
Even if the provisions of 0. 1, r. 10 and 0.
VI, r. 17 did not strictly apply the amendment could be permitted under section 153 of the Civil Procedure Code because it was not a case of either adding parties or substituting parties.
The High Court referred to a number of decisions to which no particular reference need be made but they do support the view taken by the High Court that in the present case the plaintiff described in the plaint as the firm of Manilal & Sons was a mere misdescription capable of amendment and not a case where a plaint had been filed by a non existent person and therefore a nullity.
We now refer to certain provisions of 0.
XXX, C.P.C. Order XXX, r. 1, C.P.C. states: " (1) Any two or more persons claiming or being liable as partners and carrying on business in India may sue or be sued in the name of the firm (if any) of which such persons were partners at the time of the accruing Of the cause of action, and any party to a suit may in such case apply to the Court for a statement of the names and addresses of the persons who were, at the time of the accruing of the cause of action, partners in such firm, to be furnished and verified in such manner as the Court may direct.
(2) Where persons sue or are sued as partners in the name of their firm under sub rule (1), it shall, in the case of any pleading or other document required by or under this Code to be signed, verified or certified by the plaintiff or the defendant, suffice if such pleading or other document is signed, verified or certified by any one of such persons ".
This rule enables any party to a suit filed in the name of a firm doing business in India to apply to the court for a statement of the names and addresses of the persons who were at the time of the accruing of the cause of action partners in the firm to be furnished and verified in such manner as the court may direct.
Order XXX, r. 2 states: " (1) Where a suit is instituted by partners in the name of their firm, the plaintiffs or their pleader shall, 993 on demand in writing by or on behalf of any defendant, forthwith declare in writing the names and places of residence of all the Persons constituting the firm on whose behalf the suit is instituted.
(2) Where the plaintiffs or their pleader fail to comply with any demand made under sub rule (1), all proceedings in the suit may, upon an application for that purpose, be stayed, upon such terms as the Court may direct.
(3) Where the names of the partners are declared in the manner referred to in sub rule (1), the suit shall proceed in the same manner, and the same consequences in all respects shall follow, as if they had been named as plaintiffs in the plaint: Provided that all the proceedings shall nevertheless continue in the name of the firm ".
This makes it obligatory, in the case of a suit instituted by the partners in the name of the firm, on demand in writing by or on behalf of any defendant, to declare in writing the names and places of residence of all the persons constituting the firm on whose behalf the suit is instituted.
If the plaintiffs fail to comply with the demand made under sub r.
(1) of this rule, all the pro ceedings in the suit may be stayed on such terms as the court may direct.
Under sub r.
(3) if the names of the partners are declared in the manner referred to in sub r.
(1) the suit shall proceed in the same manner and the same consequences in all respects shall follow as if they had been named in the plaint, provided that all the proceedings shall nevertheless be continued in the name of the firm.
Rule 1 of 0.
XXX is a general provision.
Rule 2, however, is confined to a suit instituted by partners in the name of the firm.
It is clear from this rule that although the suit is filed in the name of the firm a disclosure has to be made, on demand in writing by or on behalf of any defendant, of names and places of residence of all the persons constituting the firm on whose behalf the suit is instituted.
The provisions of r. 2 would indicate that although the suit is filed in the name of a firm, it is nonetheless a suit by all the partners of the firm because if a disclosure of the names of the partners is 994 asked for by any defendant, on such disclosure, the suit shall proceed as if the partners had been named as plaintiffs in the suit, even though the proceedings shall nevertheless be continued in the name of the firm.
It is clear, therefore, that the provisions of 0.
XXX, r. 1 and r. 2 are enabling provisions to permit several persons who are doing business as partners to sue or be sued in the name of the firm.
Rule 2 would not have been in the form it is if the suit instituted in the name of the firm was not regarded as, in fact, a suit by the partners of the firm.
The provisions of these rules of 0.
XXX, being enabling provisions, do not prevent the partners of a firm from suing or being sued in their individual names.
These rules also do not prohibit the partners of a firm suing in India in their names individually although they may be doing business outside India.
Indeed, this was not disputed on behalf of the appellant.
Since, however, a firm is not a legal entity the privilege of suing in the name of a firm is permissible only to those persons who, as partners, are doing business in India.
Such privilege is not extended to persons who are doing business as partners outside India.
In their case they still have to sue in their individual names.
If, however, under some misapprehension, persons doing business as partners outside India do file a plaint in the name of their firm they are misdescribing themselves, as the suit instituted is by them, they being known collectively as a firm.
It seems, therefore, that a plaint filed in a court in India in the name of a firm doing business outside India is not by itself a nullity.
It is a plaint by all the partners of the firm with a defective description of themselves for the purposes of the Code of Civil Procedure.
In these circumstances, a civil court could permit, tinder the provisions of section 153 of the Code (or possibly under 0.
VI, r. 17, about which we say nothing), an amendment of the plaint to enable a proper description of the plaintiffs to appear in it in order to assist the court in determining the real question or issue between the parties.
Strictly speaking 0. 1, r. 10(1) has no application to a case of this kind because the suit has not been instituted in the name 995 of a wrong person, nor is it a case of there being a doubt whether it has been instituted in the name of the right plaintiff.
The provisions of 0.
I, r. 10(2) also do not apply because it is not a case of any party having been improperly joined whose name has to be struck out or a case of adding a person or a party who ought to have been joined or whose presence before the court is necessary in order to enable the court effectually and completely to adjudicate upon and settle all the questions involved in the suit.
The suit has been from its very inception a suit by the partners of the firm and no question of adding or substituting any person arises, the partners collectively being described as a firm with a particular name.
One of the partners Manubhai Maganbhai Amin was the Manager of the firm Manilal & Sons.
He had executed a Power of Attorney in favour of four persons including one Dunderdale.
By this Power he authorized any one of these persons to sue for recovery of moneys due to the firm from the firm Puru shottam Umedbhai & Co., the appellant.
It also empowered these persons to appear and to represent the firm in any court, in any jurisdiction civil, criminal, insolvency, original, appellate or otherwise and before any official in any suit or proceeding or matter and to make, sign, verify, present and file any plaint.
Dunderdale had signed and verified the plaint in the present case.
We have no doubt, on a perusal of the Power of Attorney, that it authorized Dunderdale to file the plaint on behalf of the firm Manilal & Sons and also to verify it.
It was suggested that this was a Power of Attorney by Manubhai Maganbhai Amin for himself and not for the firm of Manilal & Sons.
As we understand the Power of Attorney that is not so.
No doubt the Power of Attorney is not signed by all the partners of Manilal & Sons but only by Manubhai Maganbhai Amin.
In our opinion, it was not necessary that the Power should have been signed by all the partners of the firm because Manubhai Maganbhai Amin was the manager of the firm.
Under B. 18 of the Act a partner is an agent of the firm for the purposes of the business of the firm.
Manubhai 996 Maganbhai Amin was therefore the agent of the firm as well as its manager.
It is to be noticed that under section 19(2) of the Act instances are stated where, in the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to do matters mentioned in cls.
(a) to (h).
It is significant that in these clauses there is no prohibition to a partner executing a Power of Attorney in favour of an individual authorizing him to institute a suit on behalf of the firm.
In these circumstances, it cannot be said that at the time the plaint was filed it was defective because the Power of Attorney in favour of Dunderdale was not a Power of Attorney on behalf of the firm and its partners.
As the High Court has pointed out, there is on the record now Powers of Attorney on behalf of all the partners of the firm.
It seems to us that the Division Bench of the High Court took a correct view in holding that the plaint was not a nullity.
It was a case of a suit instituted by all the partners of a firm who were misdescribed as Manilal & Sons, a firm carrying on business at No. 11A Malacca Street, Singapore and., accordingly the learned Judges rightly allowed the plaint to be amended on terms and conditions stated in their order.
It follows therefore that the High Court was also right in setting aside the decree of P. B. Mukherjea, J., dismissing the suit.
These appeals accordingly fail and must be dismissed but, in the circumstances, without costs.
Appeals dismissed.
| IN-Abs | The respondent a firm carrying on business in Singapore filed a plaint in the firm name against the appellants for the breach of contract.
The plaint had been signed and verified on behalf of the firm by one 'D ' on a power of attorney executed by one of the partners only.
After about, 6 years the respondents made an application for the amendment of the plaint.
The amendment sought was to the effect that the name of the firm as plaintiff be struck off, as it was a misdescription and in its place and stead the names of five partners of the firm should be brought on record in order to bring the controversy between the proper parties into clear relief.
The amendment petition was rejected, inter alia, on the grounds that the original plaint was no plaint in law and it was not a case of misnomer or misdescription, nor a case of a nonexistent firm or a non existent person, but a legal bar, as the plaint was a nullity.
The proper course when there is such a mistake is not to amend disregarding the condition of 0.
i r. 10 of the Code of Civil Procedure but to seek the Court 's permission to withdraw the suit with liberty to file a fresh suit under 0.
23 r. i of the Civil Procedure Code on the ground of formal defect and which should be done before limitation.
In appeal the High Court came to the conclusion that the description of a plaintiff by a firm name in a case where the Code of Civil Procedure does not permit a suit to be brought in the firm name should properly be considered a case of description of the individual partners of the business and as such a misdescription, which in law can be corrected and should not be considered to amount to a description of non existent person.
It also rejected the contention that the power of attorney in favour of D was insufficient.
983 Held, that the word, ' firm" or the "firm name " in section 4 Of the Indian Partnership Act is merely a compendious description of all the partners collectively.
Where a suit is filed in the name of a firm it is still a suit by all the partners of the firm unless it is proved that all the partners had not authorised the suit.
The provision of 0.
XXX r. 1 & 2 of the Code of Civil Pro cedure are enabling provisions to permit several firms who are doing business as partners to sue or be sued in the name of the firm and do not prevent the partners of a firm from suing or being sued in their individual names, nor do they prohibit the partners of a firm suing in India in their names individually although they may be doing business outside India; since a firm is not a legal entity the privilege of suing in the name of a firm is permissible only to those persons, who as partners are doing business in India.
Such privilege is not extended to persons who are doing business as partners outside India.
In their case they still have to sue in their individual names.
If however, under some misapprehension, persons doing business as partners outside India do file a plaint in the name of their firm they are misdescribing themselves, as the suit instituted is by them, they being known collectively as a firm.
A plaint filed in a court in India in the name of a firm doing business outside India is not by itself a nullity.
It is a plaint by all the partners of the firm with a defective description of themselves for the purpose of the Code of Civil Procedure.
A civil court could permit under provisions of section 153 of the Code an amendment of the plaint to enable a proper description of the plaintiffs to appear in it in order to assist the court in determining the real question or issue between the parties.
Neither r. 10(i) nor r. 10(2) of Order I have any application to a case of this kind, as the suit had been from its very inception a suit by the partners of the firm and no question of adding or substituting any person arises, the partners collectively being described as a firm with a particular name.
Held, further, that it is not necessary that the power of attorney should be signed by all the partners of the firm.
A partner is an agent of the firm and there is no prohibition to a partner executing a power of attorney in favour of an individual authorising him to institute a suit on behalf of the firm.
Vyankatesh Oil Mill Co. vs Velamahomed, A.I.R. 1928 Bom.
191, disapproved.
Amulakchand Mewaram vs Babulal Kanalal, A.I.R. 1933 Bom.
304, Sadler vs Whiteman, , Mura Mohideen vs V.O.A. Mohomed, A.I.R. 1955 Mad.
294 and Kasturchand Bahiravdas vs Sagarmal Shriyam, Bom.
413, discussed.
Hajee Sattar Hajee Peer Mohomad vs Khusiram Benarsilal, I.L.R. , referred to. 984
|
Appeal No. 196 of 1958.
Appeal by special leave from the judgment and order dated April 27, 1953, of the Assam High Court in Civil Rule No. 66 of 1953.
Sukumar Mitter and Sukumar Ghose, for the appel.
Veda Vyasa and Naunit Lal, for the respondents.
October 18.
The Judgment of the Court was delivered by SHAH J.
The appellants are dealers registered under the Assam Sales Tax Act XVII of 1947 hereinafter referred to as the Act.
For the account period April 1, 1948 to September 30, 1948, the appellants submitted a return of their turnover which included sales in Assam of all goods other than jute.
The Superintendent of Taxes, Dhubri, summarily assessed the appellants under sub section
4 of section 17 of the Act to pay tax on sales of jute despatched by them to Calcutta during the account period.
Appeals against the order of assessment to the Assistant Commissioner of Taxes and to the Commissioner of Taxes, Assam, proved unsuccessful.
The appellants then applied to the Commissioner of Taxes to refer certain questions arising out of the assessment to the High Court in Assam under section 34 of the Act.
The Commissioner referred the following questions and another to the High Court of Judicature in Assam: (1) Whether, in view of the aforesaid facts and circumstances the turnover from 20,515 maunds of 6 42 jute mentioned under item (i) is taxable under the Act ? (2) Whether, in view of the aforesaid facts and circumstances the turnover from 5,500 maunds of jute mentioned under item (ii) is taxable under the Act ? (3) Whether, in view of the aforesaid facts and circumstances, the turnover from 25,209 maunds of jute mentioned under item (iii) is taxable under the Act ? In respect of each of the three questions 1 to 3, the High Court recorded the following answer: section " Not being a sale within the meaning of sub12 of section 2 of the Act, the consignments are riot taxable ".
The High Court, however observed: " As to whether these consignments can hereafter be assessed if they fall within the purview of the Explanation to sub section
12 of section 2, we express no opinion ".
As required by section 32(8) of the Act, the Commissioner of Taxes by his order dated August 1, 1952, directed the Superintendent of Taxes to dispose of the case in accordance with the judgment of the High Court.
The Superintendent of Taxes thereafter issued on January 30, 1953, the following notice to the appellants: " In view of the Hon 'ble High Court 's order in Sales tax Reference No. 3 of 1951, the assessment order dated 30th September, 1950, for the return period 30th September, 1948, has been set aside and you are directed to produce necessary evidence, con.
tract papers, account books, etc. . . in order to see whether the contract of sale involved in this case come within the purview of the Explanation to sub.s.
12 of section 2 of the Act ".
By their letter dated March 23, 1953, the appellants called upon the Commissioner of Taxes to direct the Superintendent of Taxes not to proceed with the notice.
The Commissioner having failed to direct as requested, the appellant petitioned the High Court in Assam under article 226 of the Constitution for a writ 43 prohibiting the Superintendent of Taxes from re opening and proceeding with the assessment of the appellants under the Assam Sales Tax Act and for a writ quashing the order dated August 1, 1952, passed by the Commissioner.
The High Court summarily dismissed the petition.
Against the order passed by the High Court, this appeal is filed with special leave under article 136 of the Constitution.
The High Court, in answering the questions submitted to it, was exercising an advisory jurisdiction and could not and did not give any direction to the sales tax authorities to proceed to assess or not to assess the appellants to sales tax : it merely recorded its opinion that the transactions referred to in the questions were not sales within the meaning of section 2, sub section 12, of the Act and were accordingly not taxable.
Pursuant to the opinion of the High Court, the Commissioner directed the Superintendent of Taxes to dispose of the case " in accordance with" the judgment of the High Court; but the Superintendent of Taxes thought that he was entitled to re open the assessment proceedings and to assess the appellants in the light of the Explanation to section 2, sub section 12.
In so doing, the Superintendent of Taxes, in our judgment, acted without authority.
The Superintendent had made the assessment, and that assessment was confirmed in appeal by the Assistant Commissioner.
On the questions arising out of that assessment, the High Court had opined that the transactions sought to be assessed were not liable to tax.
The Superintendent of Taxes, on this opinion was right in vacating the order of assessment.
But any further proceeding for assessment which he sought to commence by issuing a notice requiring the appellants ' to produce evidence, contract papers, account books, etc.
so as to enable him to determine whether the transactions were taxable under the Explanation to sub section
12 of section 2 had to be supported by some authority under the Act.
The Superintendent of Taxes has not referred to the authority in exercise of which he issued this notice.
It is true that tinder section 19 of the Act, the " taxation Officer " if satisfied upon information coming into his possession that any 44 dealer has been liable to pay tax under the Act in respect of any period and has failed to apply for registration and to make the return required of him, may at any time within three years of the end of the aforesaid period serve on the dealer a notice containing all or any of the requirements which may be included in a notice under sub section 2 of section 16 and may proceed to assess the dealer in respect of such period.
But admittedly, the appellants were registered as dealers and had submitted their returns: the power to reassess could not therefore be exercised by virtue of section 19 of the Act.
Under section 19 A, the Commissioner has also power, if satisfied upon information coming into his possession, that any turnover in respect of sales of any goods chargeable to tax has escaped assessment during the return period, to serve at any time within three years of the aforesaid period, on the dealer liable to pay the tax in respect of such turnover a notice containing all or any of the requirements which may be included in a notice under sub section 2 of section 16 and may proceed to assess or reassess the dealer in respect of such period.
But the Commissioner bad not issued any such notice under section 19A. Nor had the Commissioner in exercise of his revisional authority under section 31 of the Act set aside the original order of assessment.
The Commissioner merely directed under section 32, sub section 8, that the case be disposed of in accordance with the judgment of the High Court, and acting under that direction, the Superintendent of Taxes had no power to reopen the assessment and to call upon the appellants to produce documentary evidence with a view to commence an enquiry whether the sales involved in the case fell " within the purview of the Explanation to section 2 sub section 12 ".
In any event, the account period as has already been observed was April 1, 1948 to September 30, 1948, and three years from the end of that period, expired before the date on which the notice was issued.
Fresh proceedings for reassessment could not be initiated by the Superintendent of Taxes under section 19 after the expiry of three years from the assessment period assuming that this could be regarded as a case of failure to apply for 45 registration and to make a return required of the appellants.
In support of his contention that the Superintendent of Taxes had authority to proceed to reassess the appellants in the light of the observations made in the judgment of the High Court, counsel for the appellants invited our attention to the judgment of the Privy Council in Commissioner of Income Tax, Bombay Presidency and Aden and others vs Bombay Trust Corporation Ltd. (1).
In that case, a foreign company was assessed by the Income Tax authorities in the name of a resident company for profits and gains received by the latter as its agent under sections 42(1) and 43 of the Indian Income tax Act, 1922.
In a reference under section 66 of the Income tax Act, the High Court at Bombay opined that the assessment was illegal.
The Commissioner of Income tax, thereafter sent back the case with a direction to set aside the assessment and to make a fresh assessment after making such further enquiry as the Income tax Officer might think fit.
Acting upon that order, the Income tax Officer requir ed the resident company as agent of the foreign company to produce or cause to be produced books of account for the year of assessment and also to produce such other evidence on which it might seek to rely in respect of its return, and the resident company having failed to produce the books of the foreign company, he proceeded to make an assessment under section 23(4) of the Income tax Act, 1922.
By its petition under section 45 of the Specific Relief Act filed in the High Court at Bombay, the resident company prayed for an order for refund of the taxes already Paid under the original assessment, and for an order for disposal of certain proceedings initiated by it before the Assistant Com missioner and the Income tax Officer.
The High Court made an order directing refund of tax paid, and further directing cancellation of assessment.
In an appeal preferred by the Commissioner of Income tax against the order of the High Court, it was observed by the Privy Council that the Commissioner was not obliged to discontinue proceedings against the resident 46 company as agent of the foreign company in respect of the year of assessment, and it was within the jurisdiction of the Commissioner under section 33(2) of the Income tax Act to direct further enquiry if he thought such an enquiry to be reasonable and to be profitable in the public interest.
The principle of this case has in our judgment no application to the present case.
The High Court at Bombay in its advisory jurisdiction had declared the assessment already made to be illegal.
But the Commissioner was under section 33 of the Indian Income tax Act invested with jurisdiction to direct further enquiry, and he purported to exercise that jurisdiction.
The Privy Council rejected the challenge to the exercise of that jurisdiction.
In the present case, no proceedings were started by the Commissioner of Taxes in exercise of his revisional authority.
The Commissioner of Taxes had directed the Superintendent of Taxes merely to dispose of the case according to the judgment of the High Court, and the Superintendent had to carry out that order.
If he was competent and on that question, we express no opinion he could, if the conditions precedent to the exercise of his jurisdiction existed, proceed to reassess the appellants.
But the proceedings for reassessment were clearly barred because the period prescribed for reassessment had expired.
The Superintendent therefore had no power to issue a notice calling upon the appellants to produce evidence to enable him to start an enquiry which was barred by the expiry of the period of limitation prescribed by the Act.
In the Bombay Trust, Corporation case (supra), the Income tax Officer acted in pursuance of the direction of the Commissioner lawfully given in exercise of revisional authority and reopened the assessment.
In the present case, no such direction has been given by an authority competent in that behalf: and the Superintendent had no power to reassess the income under section 19 assuming that the section applied to a case where the assessee though registered had failed to include his sales in a particular commodity in his turnover, because the period of limitation prescribed in that behalf had expired.
47 The appeal must therefore be allowed and the order passed by the High Court set aside.
In the circumstances of the case, no useful purpose will be served ' by remanding the case to the High Court.
We accordingly direct that a writ quashing the proceedings commenced by the Superintendent of Taxes, Dhubri, by his notice dated January 30, 1953, be issued.
The appellants will be entitled to their costs of the appeal.
Appeal allowed.
| IN-Abs | The appellants who were dealers registered under the Assam Sales Tax Act, 1947, submitted a return of their turnover for the account period April 1, 1948 to September 30, 1948, which included sales in Assam of all goods other than jute.
The Superintendent of Taxes, however, summarily assessed the appellants under sub section
4 of section 17 of the Act by order dated September 30, 1950, to pay tax on sales of jute despatched by them to Calcutta during the account period.
The order of assessment was confirmed by the Commissioner of Taxes.
On an application by the appellants the Commissioner referred certain questions of law arising out of the assessment to the High Court, which then gave its opinion that as the consignments in question were not sales within the meaning of sub section
12 of section 2 of the Act, they were not taxable, and that as to whether the sales could thereafter be assessed if they fell within the purview of the Explanation to sub section
12 of section 2, it expressed no opinion.
On receipt of the opinion the Commissioner directed the Superintendent of Taxes to dispose of the case in accordance with the judgment of.
the High Court.
The Superintendent of Taxes then set aside the order of assessment dated September 30, 1950, and issued a notice to the appellants on January 30, 1953, directing them to produce the necessary evidence in order in the case came within the purview of the Explanation to sub s.12 of section 2 of the Act.
The appellant claimed that the Superintendent had no jurisdiction to commence any further proceeding for assessment as the notice issued to him was beyond three years from the end of the assessment period as provided by section 19 of the Act.
Held, that the High Court in answering the questions referred to it was exercising an advisory jurisdiction and could not and did not give any direction to the sales tax authorities to proceed to assess or not to assess the appellants to sales tax ; it merely gave its opinion that the transactions were not sales within the meaning of section 2, sub section
12 of the Act and were accordingly not taxable.
41 Held, further, that the Commissioner not having issued any notice under section 19A of the Act or exercised his revisional authority under section 31, but having merely directed the case to be disposed of in accordance with the judgment of the High Court, the Superintendent of Taxes had no jurisdiction to initiate fresh proceedings for reassessment under section 19 after the expiry of three years from the assessment period.
Commissioner of Income Tax, Bombay Presidency and Aden and others vs Bombay Trust Corporation Ltd., (1936) L.R. 63 1.
A. 408, distinguished.
|
Appeal No. 408 of 1957.
Appeal by Special Leave from the Judgment and Order dated the 28th September, 1955, of the former Bombay High Court in Income tax Reference No. 5 of 1955.
Sanat P. Mehta, section N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the appellant.
A. N. Kripal, R. H. Dhebar and D. Gupta, for the respondent.
October 18.
The Judgment of the Court was delivered by SHAH J.
To the appellant who was a non resident for the purposes of the Indian Income Tax Act, 1922, had accrued in the assessment years 1943 44, 194445, 1946 47 and 1947 48 certain dividend income within the taxable territory of British India, but the appellant did not submit returns of his income for those assessment years.
In exercise of his powers under section 34 of the Indian Income Tax Act, 1922, the Income Tax Officer, Bombay City, served upon the appellant notices under section 34 read with s, 22(2) of the Act for assessment of tax in respect of those years.
The notice for the year 1943 44 was served on the appellant on March 27, 1952, for the year 1944 45 on February 16, 1953, for the year 1946 47 on April 4, 1951 and for the year 1947 48 on April 2, 1952.
The Income Tax Officer completed the assessments in respect of the years 1943 44, 1944 45 and 1947 48 on May 6, 1953 and for the year 1946 47 on March 19, 1952.
The orders of assessment were confirmed by the Appellate Assistant Commissioner and by the Income Tax Appellate Tribunal.
At the instance of 37 the appellant, the Income Tax Appellate Tribunal drew up a statement of the case under section 66(1) of the Income Tax Act and submitted to the High Court of Judicature at Bombay the following two questions: (I).
Whether the notices issued under section 22(2) of the Act read with section 34 of the Act for the assessment years 1943 44, 1944 45, 1946 47 and 1947 48 were served after the period of limitation prescribed by section 34 of the Act? (2) If the answer to Question No. 1 is in the affirmative, whether the assessments for the years in question were invalid in law? The High Court answered the first question in the negative and observed that on that answer, the second question " did not arise ".
With special leave under article 136 of the Constitution, this appeal is preferred by the appellant against the order of the High Court.
The only question which falls to be determined in this appeal is whether the proceedings for assessment were commenced within the period of limitation prescribed for serving notice of assessment under section 34(1)(a) of the Act.
At the material time, by section 34 (1)(a), the Income Tax Officer was invested with power amongst others to serve at any time within eight years from the end of any year of assessment notice of assessment if he had reason to believe that income, profits or gains had escaped assessment by reason of omission or failure on the part of the assessee to make a return of his income under section 22 for that year, or to disclose fully and truly all material facts necessary for his assessment of that year.
In those cases where the Income Tax Officer had in consequence of information in his possession reason to believe that income, profits or gains had escaped assessment even though there was no omission or failure as mentioned in el.
(a), he could under cl.
(b) within four years from the end of the year of assessment serve a notice of assessment.
Admittedly, the notices issued by the Income Tax Officer for the years in question were issued within eight years from the end of the years of assessment and if el.
(1)(a) of section 34 applied, the assessment was not barred by the law of limitation.
38 But the appellant contended that the notices for assessment were, even though he had not made a return of his income for the years in question, governed not by cl.
(1)(a) of section 34, but by cl.
(1)(b) of section 34.
He contended that being a resident outside the taxable territory in the years of , assessment, a general notice under section 22(1) did not give rise to a liability to submit a return, and his inaction did not amount to omission or failure to submit a return, inviting the applicability of section 34(1)(a).
He submitted that omission or failure to make a return can only arise qua a non resident, if no return is filed after service of an individual notice under section 22(2).
In other words, the plea is that a notice under section 22(1) imposes an obligation upon persons resident within the taxable territory and not upon non residents, and support for this argument is sought to be obtained from section 1 sub section
(2) which extended the Income Tax Act at the material time to British India.
The expression " every person whose total income during the previous year exceeded the maximum amount which is not chargeable to income tax " in section 22(1) includes all persons who are liable to pay tax and there is nothing in the section or in its context which exempts non residents from liability to submit a return pursuant to a notice thereunder.
The fact that a non resident assessee may not come to know of the general notice issued under section 22(1) is not a ground for not giving effect to the plain words used in the section.
In terms, the clause read with r. 18 requires every person who has taxable income to submit his return, and if he fails to do so, under section 34 of the Act the Income Tax Officer may commence proceedings for assessment within the period prescribed by cl.
(1)(a).
Section 34(1)(b) applies only to those cases where there is no omission or failure to make a return of the income or to make a full and true disclosure of facts material to the assessment.
To the appellant though non resident income bad admittedly accrued in the taxable territory and that income exceeded the maximum amount not chargeable to income tax.
, The appellant not having submitted a return in pursuance of the notice issued under section 221 the Income Tax 39 Officer was competent under section 34(1)(a) to issue notice at any time within eight years of the end of the year of assessment for assessing him to tax.
Once a notice is given by publication in the press and in the prescribed manner under section 22(1), every person whose Th.
income exceeds the maximum amount exempt from tax is obliged to submit a return and if he does not do so, it will be deemed that there was omission on his part to a make a return within the meaning of section 34(1)(a).
There is no warrant for the submission that section 22(1) applies to residents only and that an obligation to make a return on the part of a nonresident can only arise if a notice under sub section
(2) is served.
Under sub section
(2) it is open to the Income Tax Officer to serve a special notice upon any person requiring him to furnish a return in the prescribed form, but that provision does not derogate from the liability arising under sub section
(1) to submit a return.
The Income Tax Act extends by section 1(2) to the taxable territory and not beyond; but within that territory, the Income Tax Officer has power to tax income which accrues, arises or is received, and that is not disputed by the appellant.
If power to tax be granted, it is difficult to appreciate the ground on which the plea that the general provision imposing liability upon persons receiving taxable income is subject to an unexpressed limitation that it is to apply only to residents and not to non residents.
The submission that a person liable to pay tax but resident outside the taxable territory must be served with a special notice under section 22(2) before his inaction in the matter of making a return may be deemed omission within the meaning of section 34(1) is without force.
There is no such express provision made by the statute and none can be implied from the context.
The High Court was therefore right in holding that the proceedings for assessment were properly commenced within the period of limitation prescribed by section 34(1)(a) from the close of the year of assessment.
The appeal fails and is dismissed with costs.
Appeal dismissed.
| IN-Abs | The appellant, a non resident for the purposes of the Indian Income tax Act, did not submit returns of certain dividend income accruing to him within the taxable territory.
The Income tax Officer served upon him notices under section 34 read with section 22(2) of the Act for assessment of tax in respect of those years.
The notices in question were issued within eight years from the end of the years of assessment and were within the period prescribed by section 34(i)(a).
The appellant contended that notices for assessment were governed by cl.
(i)(b) of section 34 and not by cl.
(i)(a), even though the appellant had not made a return of his income for the years in question as a general notice under section 22(1) did not give rise to a liability to submit a return and his inaction did not amount to omission or failure to submit a return as he was a non resident, and the assessment proceedings were barred by limitation.
Held, that the expression "every person " in section 22 (1) of the Indian Income tax Act, 1922, includes all persons who are liable to pay tax and non residents are not exempted from liability to submit a return pursuant to the general notice thereunder.
Once a notice is given by publication in the prescribed manner under section 22(i), every person whether resident or non resident whose income exceeds the maximum amount exempt from tax is obliged to submit a return and if he does not do so, 36 it will be deemed that there was omission on his part to make a return within the meaning of section 34(i)(a) of the Indian Income tax Act.
Section 34(1)(b) applied only to those cases where there was no omission or failure to make a return of the income or to make a full and true disclosure of facts material to the assessment.
In the instant case the proceedings for assessment were pro perly commenced within the period of limitation prescribed by section 34(1)(a).
|
Appeal No. 498 of 1958.
Appeal from the judgment and order dated February 11, 1955, of the Andhra Pradesh High Court in T. R. C. No. 120 of 1953 arising out of the judgment and order dated December 29, 1952, of the Sales Tax Tribunal, Madras, in Tribunal Appeal No. 857 of 1951.
A. V. Viswanatha Sastri, M. Ranganatha Sastri and M. section K. Sastri, for the appellants.
D. Narasaraju, Advocate General for the State of 15 Andhra Pradesh., T. V. R. Tatachari, D. Venkatappayya Sastri and T. M. Sen, for the respondent.
October 18.
The Judgment of the Court was delivered by AYYANGAR J.
This appeal on a certificate under article 133 of the Constitution granted by the High Court of Andhra Pradesh raises for consideration principally the question whether hardened or hydrogenated groundnut oil (commonly called Vanaspati) is " groundnut oil " within the meaning of Rule 18(2) of the Madras General Sales Tax (Turnover and Assess ment) Rules, 1939.
Tungabhadra Industries Ltd. the appellant in this appeal has a factory of considerable size at Kurnool in the State of Andhra Pradesh.
The company purchases groundnuts and groundnut kernels within the State and manufactures groundnut oil and also refined oil as well as hydrogenated oil all of which it sells.
The appeal is concerned with the assessment to salestax of this company for the year 1949 50.
Section 3 of the Madras General Sales Tax Act, 1939, enacts: " 3.
(1) Subject to the provisions of this Act, (a) every dealer shall pay for each year a tax on his total turnover for such year; and (b) the tax shall be calculated at the rate of three pies for every rupee in such turnover.
(2). . . . . . . . (3). . . . . . . . (4) For the purposes of this section and the other provisions of this Act, turnover shall be determined in accordance with such rules as may be prescribed: Provided that no such rules shall come into force unless they are approved by a resolution of the Legislative Assembly.
(5) The taxes under sub sections (1) and (2) shall be assessed, levied and collected in such manner and in such installments, if any, as may be prescribed: Provided that (i) in respect of the same transaction of sale, the buyer or the seller, but not both, as determined by 16 (ii) where a dealer has been taxed in respect of the purchase of any goods in accordance with the rules referred to in clause (i) of this proviso, he shall not be taxed again in respect of any sale of such goods effected by him.
" Rules were made by virtue inter alia of these provisions entitled " The Madras General Sales Tax Turnover and Assessment Rules, 1939 ".
Of these, those relevant to the present context are Rules 4 & 5.
Rule 4 reads: "4.(1) Save as provided in sub rule (2) the gross turnover of a dealer for the purposes of these rules shall be the amount for which goods are sold by the dealer.
(2) In the case of the undermentioned goods the gross turnover of a dealer for the purposes of these rules shall be the amount for which the goods are bought by the dealer (a) groundnut ".
The result of the combined operation of section 4(1)&(2) in the ' case of those who purchased groundnut and having crushed them sold the oil obtained was, that they had to pay tax on both their purchases of groundnut and their sales of oil produced therefrom.
This was considered by the rule making authority to be an unfair burden and relief was accordingly provided by Rules 5 and 18 of the same rules, the material portions of which ran: " 5.
(1) The tax or taxes under section 3. shall be levied on the net turnover of a dealer.
In determining the net turnover the amounts specified in clauses (a) to (1) shall, subject to the conditions specified therein, be deducted from the gross turnover of a dealer.
Clause (k) of this rule reads: (k) in the case of a registered manufacturer of groundnut oil and cake, the amount which he is entitled to deduct from his gross turnover under rule 18 subject to the conditions specified in that rule." (This rule was amended by a notification dated November 9, 1951, by the addition of the words 17 " groundnut oil ", but this modification of the rule is not relevant to the present case which is concerned with the assessment of a period anterior to the modification).
Rule 18 referred to here reads, to quote only the material words: " 18.
(1) Any dealer who manufactures groundnut oil and cake from groundnut and/or kernel purchased by him may, on application to the assessing authority having jurisdiction over the area in which he carries on his business, be registered as a manufacturer of groundnut oil and cake.
(2) Every such registered manufacturer of groundnut oil will be entitled to a deduction under clause (k) of sub rule (1) of rule 5 equal to the value of the groundnut and/or kernel, purchased by him and converted into oil and cake if he has paid the tax to the State on such purchases: Provided that the amount for which the oil is sold is included in his net turnover: Provided further that the amount of the turnover in respect of which deduction is allowed shall not exceed the amount of the turnover attributable to the groundnut and/or kernel used in the manufacture of oil and included in the net turnover.
Explanation.
For the purpose of this sub rule(a) 143 lb.
of groundnut shall be taken to be equivalent to 100 lb. of kernel; (b) 143 lb. of groundnut or 100 lb. of kernel when converted into oil will normally be taken to yield 40 lb. of oil; and (c) one candy of oil shall be taken to be equivalent to 500 lb. of oil." Then follow other provisions not relevant for the purposes of the present appeal.
The appellant was registered as a manufacturer of groundnut oil under r. 18(1).
That the appellant purchased the groundnuts, the value of which was claimed as a deduction in the turnover within the State and paid tax on such purchase to the State was not in dispute.
Nor was there any controversy that the sale 18 price of the oil expressed out of and sold either as raw groundnut oil, refined oil or hydrogenated oil was, included in the turnover of the appellant.
The Deputy Commercial Tax Officer, Kurnool, who completed the assessment of the appellant accepted the figures of purchases and sales submitted by it, and dealing with the claim for the deduct ion of the purchase price of.
the groundnuts from the proceeds of the sale of all oil by the company raw, refined and hydrogenated granted a deduction in respect of the purchase price of the groundnuts attributable to the unrefined oil sold by the appellant, but held that the appellant was not entitled to the deduction claimed in respect of the refined and hydrogenated oil for the reason that it was only unrefined or unprocessed groundnut oil that was connoted by the expression groundnut oil ' in rule 5(1)(k) read with rule 18(1) and (2) of the Turnover and Assessment Rules.
This order of the Deputy Commercial Tax Officer was affirmed by the Commercial Tax Officer on appeal and the appellant filed a further appeal to the Sales Tax Appellate Tribunal.
The second appellate authority upfield the contention of the appellant in regard to the sale of refined oil but rejected it in so far as it related to the sales of hydrogenated oil.
The matter was thereafter brought up before the High Court of Andhra Pradesh by a Tax Revision Case filed under section 13(b)(1) of the Act and the learned Judges upheld the view of the Tribunal and disallowed the claim of the appellant to the deduction claimed in regard to the sales turnover of hydrogenated oil.
They granted the certificate under article 133 which has enabled the appellant to file an appeal to this Court.
The claim of the appellant to the deduction under r. 18(2) on the sales of refined groundnut oil is no longer in dispute.
The ground upon which both the Tribunal as well as the High Court decided against the allowance of the deduction in respect of the sales of hydrogenated oil, while upholding the appellants ' case as regards refined oil may be briefly stated thus: The exemption or deduction from the sale turnover under r. 18(2), is on its terms applicable only to the sale of the oil in the form in which it is when extracted 19 out of the kernel.
When raw groundnut oil is converted into refined oil, there is no doubt processing, but this consists merely in removing from raw groundnut oil that constituent part of the raw oil which is not really oil.
The elements removed in the refining process consist of free fatty acids, phosphotides and unsaponifiable matter.
After the removal of this nonoleic matter therefore, the oil continues to be ground.
nut oil and nothing more.
The matter removed from the raw groundnut oil not being oil cannot be used, after separation, as oil or for any purpose for which oil could be used.
In other words, the processing consists in the non oily content of the raw oil being separated and removed, rendering the oily content of the oil 100 per cent.
For this reason refined oil continues to be groundnut oil within the meaning of rules 5(1)(k) and 18(2) notwithstanding that such oil does not possess the characteristic colour, or taste, odour, etc.
of the raw groundnut oil.
But in the case of hydrogenated oil which is prepared from refined oil by the process of passing hydrogen into heated oil in the presence of a catalyst (usually finely powdered nickel), two atoms of hydrogen are absorbed.
A portion of the oleic acid which formed a good part of the content of the groundnut oil in its raw state is converted, by the absorption of the hydrogen atoms, into stearic acid and it is this which gives the characteristic appearance as well as the semi solid condition which it attains.
In the language of the Chemist, an inter molecular or configurational chemical change takes place which results in the hardening of the oil.
Though it continues to be the same edible fat that it was before the hardening, and its nutritional properties continue to be the same, it has acquired new properties in that the tendency to rancidity is greatly removed, is easier to keep and to transport.
Both the Tribunal as well as the learned Judges of the High Court held that the hydrogenated oil (or Vanaspati) ceased to be groundnut oil by reason of the chemical changes which took place which resulted in the acquisition of new properties including the loss of its fluidity.
In other words, 20 they held that Vanaspati or hydrogenated oil was not " groundnut oil " but a product of groundnut oil, manufactured out of groundnut oil and therefore not entitled to the benefit of the deduction under r. 18(2).
The arguments of Mr. Visvanatha Sastri for the appellants were briefly two: (1) The reasons behind the rules 5(k) & 18(2) which were designed to afford relief against what would amount practically to double taxation of the same assessee both when he purchased and when he sold the goods, required that the appellants ' claim should be allowed.
(2) Hydrogenated groundnut oil was no less groundnut oil than either refined or even unrefined oil.
The fact that the quality of the oil had been improved does not negative its continuing to be oil and the materials before the departmental authorities and the Court established that it continued to be oil and was nothing more.
The argument based on the reason of the rule can.
not carry the appellant far, since in the present case it is an exemption from tax which he invokes and of which he seeks the benefit.
If the words of the rule are insufficient to cover the case, the reason behind the rule cannot be availed of to obtain the relief Nor could it be said to be a case of double taxation of the same goods at the purchase and sale points which is forbidden by section 3(5) of the Act.
If the view adopted by the learned Judges of the High Court that hydrogenated groundnut oil is not " groundnut oil " but a product of groundnut oil were correct, learned Coun.
sel cannot urge that he would still be entitled to the deduction for which provision is made in r. 18(2).
Consequently it is the second of the submissions alone which really requires to be examined.
In doing so it would be convenient to consider the reasoning on the basis of which the view ' that hydrogenated oil was not " groundnut oil " was sought to be sustained before us.
The learned Advocate General of Andhra Pradesh who appeared for the respondent Commercial Tax Officer sought to support the decision of the High Court by two lines of reasoning.
The first was that 21 the exemption applied only to the sale of the oil as it emerged from the presser and that any processing of the oil including refining, in order to remove even ' the impurities and free fatty acids, took it out of the category of " groundnut oil " as used in the rule.
In support of this submission he referred us to the Table of Conversion of groundnuts and kernel into oil set out in the Explanation to r. 18(2), extracted earlier, and submitted that the 40 lb. of oil for every 100 lb. of kernel was based on the yield of raw groundnut oil and that this was an indication that nothing other than raw groundnut oil was intended to be covered by the expression " groundnut oil " in the rule.
We must however point out that this last submission has no factual basis to support it.
It is not known whether the proportion of 40 lb. of oil for every 100 lb. of kernel represents the average weight of oil extractable from different varieties of groundnut kernels or is the average of the different types of oils which may be produced out of different varieties of kernels.
In the absence of any definite data in this regard it is impossible to accept the argument that the Table of Conversion justifies any particular construction of what was meant by " groundnut oil " in the main part of the rule.
Nor is the learned Advocate General well founded in his submission that the processing of the oil in order to render it more acceptable to the customer by improving its quality would render the oil a commodity other than " groundnut oil " within the meaning of the rule, For instance, if the oil as extracted were kept still in a vessel for a period of time, the sediment normally present in the oil would settle at the bottom leaving a clear liquid to be drawn out.
The learned Advocate General cannot go so far as to say, that if this physical process was gone through, the oil that was decanted from the sediment which it contained when it issues out of the expresser, ceased to be di groundnut oil " for the purposes of the rule.
If the removal of impurities by a process of sedimentation does not render groundnut oil any the less so, it follows that even the process of refining, by the 22 application of chemical methods for removing impuri ties in the oil, would not detract from the resulting oil being " groundnut oil " for the purpose of the rule.
It may be mentioned that processes have been discovered by which even on extraction from the oil mill, the oil issues without any trace of free fatty acids.
It could hardly be contended that if such processes were adopted what comes out of the expresser is not groundnut oil.
The submission of the learned Advocate General based on a contention that the Tribunal and the learned Judges of the High Court erred in holding that even refined groundnut oil was " groundnut oil " for the purpose of the rule, must be rejected.
The next question is whether if beyond the process of refinement of the oil, the oil is hardened, again by the use of chemical processes it is rendered any the less groundnut oil ".
In regard to this, the learned Advocate General first laid stress on the fact that while normally oil was a viscous liquid, the hydrogenated oil was semi solid and that this change in its physical state was itself indicative of a substantial modification of the identity of the substance.
We are unable to accept this argument.
No doubt, several oils are normally viscous fluids, but they do harden and assume semi solid condition on the lowering of the temperature.
Though groundnut oil is, at normal temperature, a viscous liquid, it assumes a semi solid condition if kept for a long enough time in a refrigerator.
It is therefore not correct to say that a liquid state is an essential characteristic of a vegetable oil and that if the oil is not liquid, it ceases to be oil.
Mowrah oil and Dhup oil are instances where vegetable oils assume a semi solid state even at normal temperatures.
Neither these, nor cocoanut oil which hardens naturally on even a slight fall in temperature, could be denied the name of oils because of their not being liquid.
Other fats like ghee are instances where the physical state does not determine the identity of the commodity.
The next submission of the learned Advocate General was that in the course of hydrogenation the oil 23 absorbed two atoms of hydrogen and that there was an inter molecular change in the content of the substance.
This however is not decisive of the matter.
The question that has still to be answered is whether hydrogenated oil continues even after the change to be " groundnut oil ".
If it is, it would be entitled to the benefit of the deduction from the turnover, or to put it slightly differently, the benefit of, the deduction from the turnover cannot be denied, unless the hydrogenated groundnut oil has ceased to be " groundnut oil ".
To be groundnut oil, two conditions have to be satisfied.
The oil in question must be from groundnut and secondly the commodity must be " oil ".
That the hydrogenated oil sold by the appellants was out of groundnut not being in dispute, the only point is whether it continues to be oil even after hydrogenation.
Oil is a chemical compound of glycerine with fatty acids or rather a glyceride of a mixture of fatty acids principally oleic, linoleic, stearic and palmitic, the proportion of the particular fat varying in the case of the oil from different oil seeds and it remains a glyceride of fatty acids even after the hardening process, though the relative proportion of the different types of fatty acids undergoes a slight change.
In its essential nature therefore no change has occurred and it remains an oil a glyceride of fatty acids that it was when it issued out of the press.
In our opinion, the learned Judges of the High Court laid an undue emphasis on the addition by way of the absorption of the hydrogen atoms in the process of hardening and on the consequent inter molecular changes in the oil.
The addition of the hydrogen atoms was effected in order to saturate a portion of the oleic and linoleic constituents of the oil and render the oil more stable thus improving its quality and utility.
But neither mere absorption of other matter, nor inter molecular changes necessarily affect the identity of a substance as ordinarily understood.
Thus for instance there are absorptions of matter and inter molecular changes which deteriorate the quality or utility of the oil and it might be interesting to see if such additions and alterations could be taken to 24 render it any the less " oil ".
Groundnut oil when it issues out of the expresser normally contains a large proportion of unsaturated fatty acids oleic and linoleic which with other fatty acids which are saturated are in combination with glycerine to form the glyceride which is oil.
The unsaturated fatty acids are unstable, i. e., they are subject to oxidative changes.
When raw oil is exposed to air particularly if humid and warm, i.e., in a climate such as obtains in Madras, oxygen from the atmosphere is gradually absorbed by the unsaturated acid to form an unstable peroxide (in other words the change involves the addition of two atoms of oxygen) which in its turn decomposes breaking up into aldehydes.
It is this oxidative change and particularly the conversion into aldehydes that is believed to be responsible for the sharp unpleasant odour, and the characteristic taste of rancid oil.
If nothing were done to retard the process the rancidity may increase to such extent as to render it unfit for human consumption.
The change here is both additive and inter molecular, but yet it could hardly be said that rancid groundnut oil is not groundnut oil.
It would undoubtedly be very bad groundnut oil but still it would be groundnut oil and if so it does not seem to accord with logic that when the quality of the oil is improved in that its resistance to the natural processes of deterioration through oxidation is increased, it should be held not to be oil.
Both the Tribunal as well as the High Court have pointed out that except for its keeping quality without rancidity and ease of packing and transport without leakage, hydrogenated oil serves the same purpose as a cooking medium and has identical food value as refined groundnut oil.
There is no use to which the groundnut oil can be put for which the hydrogenated oil could not be used, nor is there any use to which the hydrogenated oil could be put for which the raw oil could not be used.
Similarly we consider that hydrogenated oil still continues to be " groundnut oil " notwithstanding the processing which is merely for the purpose of rendering the oil more stable thus improving its keeping qualities for 25 those who desire to consume groundnut oil.
In our opinion the assessee company was entitled to the,, benefit of the deduction of the purchase price of the kernel or groundnut, under r. 18(2), which went into the manufacture of the hydrogenated groundnut oil from the sale turnover of such oil.
One other point which is involved in the appeal relates to the claim of the appellant to a deduction in respect of the freight charges included in the price of the commodity.
Under r. 5(1)(g) of the Turnover and Assessment Rules, in determining the net turnover of a dealer he is entitled to have deducted from his gross turnover " all amounts falling under the following two heads, when specified and charged for by the dealer separately, without excluding them in the price of the goods sold : (i) freight; (ii). . . .
The appellant claimed exemption on a sum of Rs. 3,88,377 13 3 on the ground that it represented the freight in respect of the goods sold by the appellant asserting that they had been charged for separately.
The assessing officer rejected the claim and this rejection was upheld by the departmental authorities and by the High Court in Revision.
It would be seen that in order to claim the benefit of this exemption the freight should (1) have been specified and charged for by the dealer separately, and (ii) the same should not have been included in the price of the goods sold.
The learned Judges of the High Court held that neither of these conditions was satisfied by the bills produced by the appellant.
We consider, the decision of the High Court on this point was correct.
In the specimen bill which the learned Counsel for the appellants has placed before us, after setting out the quantity sold by weight (23,760 lb.) the price is specified as 15 annas 9 pies per lb.
and the total amount of the price is determined at Rs. 23 388 12 0.
From this the railway freight of Rs. 1,439 12 0 is deducted and the balance is shown as the sum on which sales tax has been computed.
26 From the contents of this invoice it would be seen that the appellant has charged a price inclusive of the railway freight and would therefore be outside the terms of r. 5(1)(g) which requires that in order to enable a dealer to claim the deduction it should be charged for separately and not included in the price of goods sold.
The conditions of the rule not having been complied with, the appellant was not entitled to the deduction in respect of freight.
The result therefore is that the appeal is allowed in part and the order of the High Court in so far as it denied to the appellant the benefit of the deduction in the turnover provided by r. 18(2) of the Turnover and Assessment Rules is set aside.
In view of the appellant having succeeded only in part, there will be no order as to costs in this appeal.
Appeal allowed in part.
| IN-Abs | The appellant purchased groundnuts out of which it manu factured groundnut oil ; it also refined the oil and hydrogenated it converting it into Vanaspati.
It sold the oil in all the three states.
Under the Madras General Sales Tax Act, 1939, and the Turnover and Assessment Rules, for determining the taxable turnover the appellant was entitled to deduct the purchase price of the groundnuts from the proceeds of the sale of all groundnut oil.
The High Court held that the appellant was entitled to the deduction in respect of the sales of unrefined and refined groundnut oil but not in respect of the sales of hydrogenated oil on the ground that Vanaspati was not " groundnut oil " but a product of groundnut oil.
Held, that the appellant was entitled to the deduction in respect of the sales of hydrogenated groundnut oil also.
The hydrogenated groundnut oil continued to be " groundnut oil " notwithstanding the processing which was merely for the purpose of rendering the oil more stable.
To be groundnut oil two conditions had to be satisfied it must be from groundnut and it must be " oil ".
The hydrogenated oil was from groundnut and in its essential nature it remained an oil.
It continued to be used for the same purposes as groundnut oil which had not undergone the process.
A liquid state was not an essential characteristic of a vegetable oil ; the mere fact that hydrogenation made it semisolid did not alter its character as an oil.
|
Appeal No. 277 of 1955.
Appeal from the judgment and order dated April 27, 1954, of the Rajasthan High Court in Civil Mis.
Writ No. 1/1954.
N. C. Chatterjee, Suresh Agarwal and Ganpat Rai, for the appellant.
R.K. Rastogi and K. L. Mehta, for the respondents.
October 19.
The Judgment of the Court was delivered by IMAM J.
The appellant was the Jagirdar of Thikana Rakhi in the Marwar (Jodhpur) area of the State of Rajasthan.
Within Thikana Rakhi was the 49 village of Khakharki.
He had a number of tenants under him in the village who paid rent on the basis of a certain share of the produce of the land held.
There was an Act in force in the Marwar area called the Marwar Tenancy Act of 1949, hereafter refer.
red to as the Tenancy Act, which had been passed by His Highness the Maharaja of Jodhpur before the integration of the State of Jodhpur in the State of Rajasthan.
That Act now stands repealed but we are concerned with a period when it was in force.
Section 78 of that Act provides that when rent is payable by a division of the produce or is based on an estimate or appraisement of the standing crop, the landlord or the tenant may apply to the Tahsildar for making the division, estimate or appraisement, when this could not be done amicably.
Section 79 of the Tenancy Act lays down the procedure to be followed at the hearing of such an application and provides that any amount found due as rent by the Tahsildar on that application shall have the effect of a decree for arrears of rent.
On October 31, 1950, the appellant who had some difficulty in realising the rent from his tenants in village Khakharki, made an application under section 78 of the Tenancy Act to the Tahsildar, Merta, within which the village Khakharki was situate.
Before this application was finally disposed of, the Government of Rajasthan issued a Notification under section 85 of the Tenancy Act which is set out below: Jaipur, February 22, 1951.
No. F. 4(74) Rev./1/ 51.
Whereas it has been made to appear that the cultivators of the villages mentioned in the Schedule below have refused to pay rent to the persons entitled to collect the same; Now, therefore, in exercise of the power conferred by sub sec.
(1) of sec.
85 of the Marwar Tenancy Act, 1949 (No. XXXIX of 1949), the Government of Rajasthan is pleased to declare that such rents may be recovered as arrears of land revenue.
7 50 by order of His Highness the Rajpramukh, H. D. Ujwal Secretary to the Government of Rajasthan, Revenue Department.
This Notification was published in the Official Gazette on March 3, 1951, and one of the villages mentioned in the Schedule to it, was Khakharki.
In view of the Notification, the appellant became entitled under section 85, the terms of which will be set out later, to have the rents due to him from the tenants of Kbakharki realised as arrears of land revenue.
Accordingly, on March 9, 1951, he filed an application under that section in the Court of the Collector, Nagaur, within whose jurisdiction lay the village of Khakharki for recovery as arrears of land revenue of the rents due to him for 1950 51 from those tenants of Khakharki who had refused to pay them.
Subsequently, on March 26, 1951, the appellant 's application under section 78 of the Tenancy Act was dismissed for reasons which it is not necessary for the purpose of this appeal to state.
On March 29, 1951, the tenants filed an application in the Court of the Collector of Nagaur stating that the notice of the appellant 's application under section 85 of the Tenancy Act should be served on them and they should be heard on that application as this was required by the rules framed under the Rajasthan Revenue Courts (Procedure and Jurisdiction) Act of 1951, hereinafter referred to as the Revenue Courts Act, which governed that application.
The Revenue Courts Act was an Act passed by the Rajpramukh of the State of Rajasthan with which the State of Jodhpur had integrated prior thereto, and it applied to the whole State of Rajasthan, including the Marwar area.
This Act came into force on January 31, 1951.
This application by the tenants was rejected by the Collector.
Thereafter, on April 5, 1951 the Collector passed an order by which a total sum of Rs. 38,587 3.0 was found due to the appellant from the tenants on account of rent, other charges and court fees.
The 51 Collector then sent the order to the Tahsildar of Merta for recovering that sum as arrears of land revenue.
The tenants filed an appeal before the Additional Commissioner, Jodhpur, challenging the validity of the order of the Collector dated April 5, 1951.
This appeal was dismissed by the Additional Commissioner on November 2, 1951.
The tenants then went in revision to the Board of Revenue, Rajasthan.
The Board of Revenue took the view that the Revenue Courts Act had not affected the procedure to be followed on the hearing of an application under section 85 of the Tenancy Act but it remanded the case to the Additional Commissioner as the tenants contended that the Additional Commissioner had not decided other points that arose in the appeal to him.
The Additional Commissioner heard the tenants on the other points and again dismissed their appeal on July 7,1952.
The tenants moved the Board of Revenue in revision against the order of July 7, 1952, also.
Before the Board of Revenue could decide the revision case, the Government of Rajasthan on November 1, 1952, published another Notification rescinding the earlier Notification dated February 22, 1951, issued under section 85 of the Tenancy Act.
One of the points argued before the Board of Revenue in this revision case was that in view of the rescission of the Notification, no further proceedings could be taken under section 85 of the Tenancy Act for recovery of rent as arrears of land revenue.
The Board of Revenue rejected this and all other contentions raised on behalf of the tenants and dismissed the revision case on September 29, 1953.
Fortythree of the tenants filed a petition in the High Court for Rajasthan for a writ of certiorari to quash the orders of the Collector, the Additional Commissioner and the Revenue Board, earlier mentioned.
The High Court allowed the petition and quashed and set aside these orders and held that the Notification under section 85 of the Tenancy Act having been cancelled, no further proceedings for realisation of arrears of rent as arrears of land revenue could be taken by the Collector of Nagaur.
The High Court however granted a certificate that the case was a fit one for appeal 52 to the Supreme Court.
Hence the present appeal.
The rent found due has not been realised yet by the Tahsildar presumably, in view of the pending proceedings.
The respondents to the appeal are the State of Rajasthan and various Revenue Officers of that State and the tenants.
This appeal has been contested only by some of the tenants and the other respondents have not appeared before us.
Section 85 of the Tenancy Act is in these terms: section 85. " '(1) In case of any general refusal to pay rent to persons entitled to collect the same in any local area the Government may, by notification in, the Official Gazette, declare that such rents may be recovered as arrears of land revenue.
(2) In any local area to which a notification made under sub sec.
(1) applies a landlord or any other person to whom an arrear of rent is due, may notwithstanding anything to the contrary in this or any other enactment for the time being in force, instead of suing for recovery of the arrear under this Act apply in writing to the Deputy Commissioner to realise the same, and the Deputy Commissioner shall after satisfying himself that the amount claimed is due, proceed subject to the rules made by the Government to recover such amount with costs and interest as an arrear of land revenue.
(3) The Deputy Commissioner shall not be made a defendant in any suit in respect of an amount for the recovery of which an order has been passed under this section.
(4) Nothing herein contained and no order passed under this section shall debar: (a) a landlord from recovering by suit or application any amount due to him which has not been recovered under this section; (b) a person from whom any amount has been recovered under this section, in excess of the amount due from him, from recovering such excess by suit against the landlord or other person on whose application the arrear was realised.
The first point raised on behalf of the respondents in the High Court was that section 85 of the Tenancy Act 53 had itself been repealed by the Revenue Courts Act and no action under that section could be taken after the latter Act had come into force.
The Revenue Courts Act was repealed in 1955 after the judgment of the High Court was delivered but this does not affect the question before us.
The long title of the Act states that the Act is intended to provide for and regulate the jurisdiction and procedure of Revenue Courts and Officers, in Rajasthan.
The preamble states " Whereas it is expedient, pending the enactment of a comprehensive law for the whole of Rajasthan relating to agricultural tenancy, land tenures, revenue, rent, survey, record, settlement and other matters connected with land, to provide for and regulate the jurisdiction and procedure of revenue courts and officers in relation to such matters arising under the laws in force in the covenanting States of Rajasthan ".
Jodhpur was one of the covenanting States and one of the laws in force there, was the Tenancy Act.
This Act continued to apply to the territories belonging to the former Jodhpur State which since the integration, formed part of the State of Rajasthan, till that Act was repealed as hereinbefore stated.
Section 2 of the Act provides, " On and from the coming into force of this Act all existing laws shall, in so far as they relate to matters dealt with in this Act, be repealed ".
It is said that the effect of section 2 of the Revenue Courts Act is to repeal section 85 of the Tenancy Act.
The High Court was, unable to accept this contention and we think rightly.
Section 85 of the Tenancy Act would be repealed only if the Revenue Courts Act contained any provision dealing with the matter covered by it.
We find no such provision in the Revenue Courts Act, The Revenue Courts Act deals with matters of jurisdiction and procedure of Revenue Courts.
It does not deal with any substantive right.
This is clear from the provisions of the Revenue Courts Act and, indeed, is not in dispute.
Quite clearly, section 85 creates, on the requisite notification being issued, a substantive right in a landlord to have the rent due to him recovered as arrears of land revenue.
We do not find any provision 54 in the Revenue Courts Act dealing with the substantive right created by section 85 of the Tenancy Act.
There is, therefore, no foundation for the argument that that section has been repealed by section 2 of the Revenue Courts Act.
A reference to schedule 1 to Revenue Courts Act which gives a list of suits and applications triable by a Revenue Court and prescribes the periods of limitation applicable to and court fees payable on them can usefully be made now.
The schedule is divided into several groups, of which group C contains a list of applications triable by a Collector.
Item 2 of this group concerns applications " for realisation of rent as land revenue on the general refusal to pay rent ".
In regard to the period of limitation for such applica tions, it is stated there that none exists.
We have no doubt that item 2 of group C in the schedule does not confer a substantive right to make an application for realisation of rent as land revenue at all.
The purpose of the schedule appears from sections 7, 9 and 10 of the Act which respectively provide that the jurisdiction of the various revenue courts, the periods of limitation for proceedings maintainable in these Courts and the court fees payable thereon are as stated in the schedule.
The schedule is not operative by itself So item 2 of group C in the schedule does not confer any right to apply for collection of rent as arrears of land revenue.
On the other hand, the mention of such an application in the schedule clearly indicates that the Revenue Courts Act recognises that such an application is competent.
Since the Revenue Courts Act itself does not authorise such an application, it must be so competent under other existing laws, reference to which has been made in the preamble and section 2 of the Act.
One of such laws is section 85 of the Tenancy Act.
Therefore it seems to us that the Revenue Courts Act, instead of repealing section 85 of the Tenancy Act contemplates its continuance in force.
It is necessary before leaving this part of the case to refer to Ch.
XIII of the Tenancy Act which deals with procedure and jurisdiction.
It consists of sections 118 to 144.
Section 118 says that all suits and applications of the nature specified in the second schedule to 55 the Act shall be heard and determined by a Revenue Court.
Section 124 states that all suits and other proceedings especified in the second schedule shall be instituted within the time prescribed for them in that schedule.
Section 129 provides that a Deputy Commissioner shall have power to dispose of applications specified in group E of the second schedule.
It is not necessary to refer to the other sections in this Chapter.
Turning to second schedule, we find that group E is concerned with applications triable by a Deputy Commissioner.
Item 4 of this group deals with applications under section 85 " for collection of rent as land revenue in the event of general refusal to pay ".
The period of limitation for such applications is stated there to be " so long as notification remains in force " and this period is stated to commence from the time when the notification under the section is published in the Official Gazette.
Now the Revenue Courts Act provides by section 7 that all suits and applications of the nature specified in the first and second schedules shall be heard and determined by a revenue court.
A revenue court is defined in section 4(xvi) of this Act as including among others, the Board of Revenue, the Commissioners and the Collectors.
We have earlier stated that item 2 of group C in the first schedule to this Act refers to an application under section 85 of the Tenancy Act, and provides that there shall be no period of limitation for making such an application, and that it shall be made to a Collector.
Therefore, for an application under section 85 of the Tenancy Act the Revenue Courts Act specifies a new revenue court, namely, the Collector, in the place of the Deputy Commissioner mentioned in section 85 of the Tenancy Act and also makes it free of the bar of limitation.
It follows that sections 7 and 9 of the Revenue Courts Act deal with matters dealt with in sections 118, 124 and 129 of the Tenancy Act.
By virtue of section 2 of the Revenue Courts Act, sections 118, 124 and 129 of the Tenancy Act will have to be taken as repealed.
There would also consequently be a repeal of item 4 of group E in the second schedule to the Tenancy Act.
The position then is that since the coming into force of 56 the Revenue Courts Act, there is no period of limitation prescribed for making an application under section 85 of the Tenancy Act and that application has to be made to a Collector.
The application under section 85 by the appellant in the present case had been made to the Collector, as at the date when it was made the Revenue Courts Act was in force.
The repeal of sections 118,124 and 129 of the Tenancy Act does not however affect section 85 of this Act except as hereinbefore stated.
Next it is said that even though section 85 of the Tenancy Act may not have been repealed, the procedure to be followed in respect of an application made under it is in view of r. 114 in, Ch.
IV of the rules framed under the Revenue Courts Act is that laid down in Ch.
11 of these rules and that that procedure was not followed.
This, it is contended, constitutes an error apparent on the face of the orders passed by the revenue authorities in this case, and renders them liable to be set aside.
A reference has now to be made to the rules framed under section 85 of the Tenancy Act.
These rules, so far as relevant for our purpose, prescribe that an application by the landlord under the section shall be accompanied by a list in a prescribed form in which is to be stated the dues of the landlord for canal charges, rent, interest and court fees.
Rule 34 provides that the Deputy Commissioner shall check the lists by examining the Patwari or by any other suitable method and thereafter enter in the appropriate column in the form, the amounts passed by him as due to the landlord.
Under r. 35 he has thereafter to send the list to the Tahsildar who shall then proceed to realise the amount stated in the list by the Deputy Commissioner to be due to the landlord.
It is said on behalf of the tenants that the rules under section 85 lay down the procedure for the disposal of an application made under that section, and that these rules have been repealed by section 2 of the Revenue Courts Act, read with r. 114 of the rules framed under that Act.
It is contended that the revenue authorities committed an error in following the rules framed 57 under section 85 of the Tenancy Act and not those prescribed in Ch.
11 of the rules made under the Revenue Courts Act.
Now Ch.
IV of the rules framed under the Revenue Courts Act consists only of r. 114.
That rule provides that the procedure laid down in Ch.
II of the same rules shall be followed, so far as it can be made applicable, in all proceedings in revenue courts.
In view of section 7 of the Revenue Courts Act, an application under a. 85 of the Tenancy Act must, since the coming into force of the former Act, be heard and determined by a revenue court.
Such an application there.
fore gives rise to a proceeding in a revenue court and such a proceeding must, it is said, in view of r. 114 be according to the procedure prescribed by Ch.
11 of the rules framed under the Revenue Courts Act.
It is enough for our purposes to say that Ch.
II lays down a procedure for a contested matter, that is to say, it requires that notice of the proceedings should be issued to the respondent to it and he should be given a hearing.
It is unnecessary to refer to the detailed procedure prescribed in this chapter for, as no notice of the application had in fact been given to the tenants in this case and they had not been heard on it, it must be held that the procedure laid down in that chapter had not been followed.
The High Court accepted the contention of the tenants that the rules framed under section 85 of the Tenancy Act had been repealed and that the rules in Ch.
II of the rules framed under the Revenue Courts Act applied and should have been followed.
It therefore held that there was an error apparent on the face of the record and thereupon set aside the orders of the revenue authorities challenged by the tenants.
We have given our anxious consideration to this question but have been unable to agree with the view taken by the High Court.
It seems to us that the rules made under section 85 of the Tenancy Act had not laid down any special procedure.
The only rule relevant in this connection is r. 34 to which we have earlier referred.
All that that rule does is to require 8 58 the Deputy Commissioner to check the list, a duty which under the section itself he has to perform, and also makes it necessary for him to examine the patwari for the purpose.
The rules do not indicate how the application is to be heard, that is, whether ex parte or on notice.
It seems clear to us that a. 85 itself requires an application made under it to be heard ex parte.
First the section does not say that a notice of the application has to be served on the tenant concerned.
Secondly, an application under the section can be made only after the notification prescribed has been issued.
That notification decides that there has been a general refusal by tenants to pay rent.
Therefore the section could not have contemplated that the question whether a tenant had so refused would be heard again on notice to him.
Thirdly, in proceedings for recovery of land revenue, the persons liable are not heard and therefore when rent is directed to be recovered as land revenue, it is not contemplated that the tenants should be heard.
It is of the essence of such proceedings that there shall be a summary and quick decision.
If the procedure laid down in Ch.
11 of the rules framed under the Revenue Courts Act has to be followed, the entire object of section 85 of the Tenancy Act would, in our view, be defeated.
It seems to us that section 85 would then really become redundant for then it would contemplate an application for realisation of rent giving rise to a contested proceeding governed by the procedure of a suit and would be a duplication of section 78 of the Tenancy Act earlier referred to or of section 80 of the same Act which provides for a suit in a revenue court for the recovery of rent both of which have to be heard as contested proceedings in the presence of the other side.
Fourthly, c1.
(b) of sub sec.
(4) of section 85 of the Tenancy Act plainly indicates that the proceeding on an application under that section is to be ex parte.
That clause contemplates a suit against a landlord by a tenant from whom an amount in excess of what is legally due has been recovered under the section.
Now the amount recovered cannot of course exceed the amount 59 passed as due by the Deputy Commissioner.
So the suit contemplated in section 85(4)(b) would really be one to contest the correctness of the finding of the Deputy Commissioner as to the amount due.
It would be inconceivable that such would be contemplated under the section if the amount has to be decided by the Deputy Commissioner after hearing the tenant.
It is clearly not necessary that two contested proceedings, one after the other, in respect of the same question, between the same parties should be provided for.
It seems, therefore, quite clear to us that section 85 of the Tenancy Act contemplates that the application made under it shall be heard and determined in the absence of the tenant.
Indeed this is not really questioned, for, the contention on behalf of the tenants is that the procedure followed is wrong, Dot because that is not the procedure laid down in the Tenancy Act, but because the Revenue Courts Act and the rules made thereunder had replaced the ex parte procedure provided by the Tenancy Act, by the procedure of a Contested proceeding laid down in Ch.
11 of the rules framed under the Revenue Courts Act and this is the procedure which should have been followed.
Now, once it is found, as we have found, that section 85 of the Tenancy Act has not been repealed by the Revenue Courts Act except to the extent that an application under it has now to be made to a Collector and not to a Deputy Commissioner as provided in it, the whole of it has to be given effect to.
The procedure contemplated by the section is an integral part of the right granted by it, and one cannot be separated from the other.
The application made under it has, therefore, still to be heard and determined ex parte.
Rule 114 of the rules framed under the Revenue Courts Act earlier referred to can be of no assistance to the tenants in the present context.
It does not in terms purport to repeals.
85 of the Tenancy Act.
We have earlier said the Revenue Courts Act contemplated the continuance in force of section 85 of the Tenancy Act, and hence no rule framed under the former Act 60 could intend by implication to repeal that section.
Rule 114 may apply to applications under other provisions of existing laws which are not required by them to be heard ex parte.
In our view, for the reasons aforesaid, the application under that section was properly and correctly heard and determined without notice to the tenants.
Such hearing does not disclose any error at all.
Then it is said that after the rescission of the Notifi cation dated February 22, 1951, no further proceeding could be taken under section 85 of the Tenancy Act.
This contention also found favour with the High Court and with this view again we are unable to agree.
Subsection (1) of that section provides for the issue of a notification declaring that certain rents may be recovered as arrears of land revenue.
Sub section (2) states that " in any local area to which a notification made under sub section (1) applies, a landlord to whom an arrear of rent is due, may apply in writing to the Deputy Commissioner to realise the same, and the Deputy Commissioner shall after satisfying himself that the amount claimed is due, proceed . to recover such amount as an arrear of land revenue.
" It is contended that the words " in any local area to which a notification made under subsection (1) applies " govern both the application by the landlord and the action of the Deputy Commissioner following thereon and therefore the Deputy Commissioner cannot after the rescission of the notification, take any action under the section at all.
It seems to us that this contention of the tenants is not warranted by the language of the section.
The words " in any local area to which a notification made under sub section (1) applies " are concerned with the area and not with the time during which the notification remains in force.
That follows from the words " in any local area ".
There is no reference anywhere to the currency of the notification in point of time.
Item 4 of group E in schedule 11 to the Tenancy Act earlier referred to, leads to the same conclusion.
That item provides that the period of limitation for an application under section 85 is so long as notification 61 remains in force.
It is clear that if in sub sec.
(2) the words ',in any local area to which a notification applies " meant, during the currency of the notification in point to time, there would have been no need to specify a period of limitation in schedule 11.
We have also earlier pointed out that item 4 of group C in schedule II has been repealed by the corresponding provisions in the Revenue Courts Act.
Since the latter Act came into force, the position is that there is no period of limitation for an application under section 85 of the Tenancy Act.
It is impossible, therefore, to contend that the words " in any local area to which a notification made under sub section (1) applies " indicate that the Deputy Commissioner 's power to act when an application under that section is made, exists only so long as the notification remains in force.
It also seems to us that the Deputy Commissioner 's power to act arises on an application having been duly made under sub see.
(2) of section 85.
Even if that application had to be made within the period that the notification remained in force, there would be nothing in sub sec.
(2) to lead to the conclusion that the Deputy Commissioner 's power to act on the application would also depend on the notification remaining in force.
It may be stated here that in the present case the application had been made before the Notification had been rescinded.
Once the notification under section 85 is issued, power is certainly vested in the appropriate Revenue officers to deal with and dispose of an application made under that section at a time the notification was in force and applied to the particular area.
Subsequent cancellation of the notification would not divest the appropriate authority of the power already vested in him to dispose of the application which was properly and duly made under section 85.
In our view, steps can be taken under section 85 of the Tenancy Act by the appropriate Revenue Officer for realisation of rent found due as arrears of land revenue even after the notification under that section has been rescinded.
Reliance is placed by the learned advocate for the respondents on Crown vs Haveli (1).
In that case it (1) A.I.R. 1949 Lah.
62 was held that further proceedings under a temporary Act could not be continued after it had expired.
It is contended that section 85 of the Tenancy Act was really a temporary Act for it was brought into operation only upon a notification which notification was clearly not intended to be of permanent operation.
We are unable to accept this view.
The fact, if this be so, that section 85 is brought into operation by a notification, and that that notification may not be of permanent operation, does not make the section a temporary enactment.
We do not think that the principles applicable to interpretation_ of temporary Acts apply to the case of a provision like section 85 of the Tenancy Act.
reliance is also placed on cl.(a) of sub sec.
(4) of s.85 of the Tenancy Act.
It is said that this clause by permitting suits for recovery of rents which have not been recovered under the section, indicates that after the rescission of the Notification, further proceedings cannot be taken under the section.
It is contended that cl.
(a) contemplates that it may so happen that when a notification is rescinded, the whole amount of rent in respect of which the application under section 85 had been made, had not been recovered and that cl.
(a) permits suit to be filed in respect of the amount which remained unrealised at the date the notification is rescinded.
This argument seems to us to beg the question, for, it proceeds on the basis that the suit contemplated by el.
(a) is for the amount of rent which cannot be recovered under the section any more because of the rescission of the notification.
Clause (a) however may clearly apply to a case where in spite of a notification under the section, the landlord whether during its currency or later, chooses to proceed by way of a suit under the other provisions of the Tenancy Act.
It is then contended on behalf of the tenants that the Notification of February 22, 1951, was not a valid notification because out of 125 tenants in village Khakharki 82 had paid rent and the remaining 43, who are the respondents in this appeal, were willing to pay but could not pay as the appellant was asking 63 for larger sums than what were legitimately due to him.
It is contended that on these facts it could not be said that there was a general refusal to pay rent within the meaning of section 85 of the Tenancy Act.
Hence, it is said that the Notification was ultra vires the section and inoperative.
We do not think that the tenants can be allowed to raise this point in this Court.
It does not appear to have been raised in the High Court.
The High Court 's judgment makes no mention of it.
Whether it is open for a Court to go behind the notification issued under section 85 and decide its validity or not, this contention of the tenants raises a question of fact as to how many tenants had refused to pay rent.
It also raises a question of interpretation of the words "general refusal to pay " in section 85.
None of these questions was raised at any earlier stage.
We are therefore, not inclined to allow the tenants to raise them now.
In the result we allow the appeal with costs here and below.
Appeal allowed.
| IN-Abs | The Marwar Tenancy Act, 1949, now repealed but which was in force in the State of jodhpur at the relevant period, by section 85 authorised the Government in case of any general refusal by tenants to pay rent to declare by notification that such rents might be recovered as arrears of land revenue.
A notification having been issued by the Government of Rajasthan under that section the appellant, a jagirdar, applied to the Collector thereunder for the recovery of rents due to him from his tenants.
The tenants also applied to the Collector stating that notice of the said application should be served on them and they should be given a hearing as required by the rule framed under the Rajasthan Revenue Courts (Procedure and jurisdiction) Act, 1951.
The Collector rejected the tenants ' application and passed an order directing the recovery of the sum found to be due to the appellant as arrears of land revenue.
The Additional Commissioner on appeal and the Board of Revenue in revision upheld the Collector 's order.
But before the Board passed its order the 48 Government rescinded the notification.
The High Court on an application under article 226 of the Constitution held that although section 85 of the Tenancy Act had not been repealed by the Revenue Courts Act, 1951, the rules framed under that section had been, and the non compliance with the rules framed under the latter Act which should have been followed, was an error on the face of the record and quashed the orders directing that since the notification under section 85 of the Tenancy Act had been rescinded no further action thereunder should be taken by the Collector.
Held, that there could be no doubt that section 2 of the Rajasthan Revenue Courts (Procedure and jurisdiction) Act, 1951, had not repealed section 85 of the Marwar Tenancy Act, 1949, and that the former Act contemplated its continuance, unfettered by the bar of limitation, and subject to this modification that an application under the section was no longer to be made to the Deputy Commissioner but to the Collector.
Section 85 of the Tenancy Act clearly contemplated that an application thereunder shall be heard and determined in the absence of the tenant.
The right given by the section was a summary one and the application must be heard ex parte.
It was not, therefore, necessary to serve any notice on the tenants.
It would not be correct to hold that the procedure of a con tested proceeding as prescribed by Ch.
II of the Rules framed under the Revenue Courts (Procedure and jurisdiction) Act, 1951, could apply to the application for to apply them would be to wholly defeat its object.
Once a notification under the section had been issued and an application duly made, subsequent rescission of 'the notification could not divest the appropriate authority of the power already vested in him to dispose of the application.
|
minal Appeal No. 130 of 1960.
Appeal by special leave from the judgment and order dated April 28, 1960, of the Allahabad High Court in Criminal Revision No. 1865 of 1959.
N. C. Chatterjee, D. P. Singh, T. section Venkataraman, R. K. Garg, section C. Agarwal and M. K. Ramamurthi, for the appellants.
G. section Pathak, O. C. Mathur and C. P. Lal, for the respondent.
October 25.
The Judgment of the Court was delivered by SHAH J.
Appellant No. 1 is the editor and appellant No. 2 is the printer and publisher of the ',New Age " an English Weekly news sheet published in Delhi.
On May 15, 1959, the Public Prosecutor, Kanpur, filed a complaint in the Court of Session, Kanpur, against the appellants charging them with having published a news item in the issue of the " New Age " dated November 16, 1958, knowing or having good reasons to believe the same to be false and defamatory of the Chief Minister of the State of Uttar Pradesh " in order to harm his reputation in the eyes of 65 the public in general and among his acquaintances in particular ".
With this complaint was filed an order under the signature of the Home Secretary to the Government of Uttar Pradesh sanctioning under a. 198B(3)(b) of the Criminal Procedure Code the filing of a complaint by the Public Prosecutor for an offence under section 500, Indian Penal Code, against the appellants in respect of the news item published on November 16, 1958, under the caption " Explosive situation in Kanpur ".
The learned Sessions Judge took cognisance of the complaint.
After six witnesses were examined on behalf of the prosecution, he framed a charge against the appellants for the offence of defamation in that they had published the news item under the caption " Explosive situation in Kanpur " intending to harm or knowing that they were likely to harm the reputation of the Chief Minister of Uttar Pradesh.
The appellants then applied to the High Court of Judicature at Allahabad praying that the order of the Court of Session framing a charge for the offence of defamation be set aside.
They submitted that there was no evidence that the Home Secretary to the Government of Uttar Pradesh had applied his mind to the facts of the case before sanctioning prosecution of the appellants; that in any event, the publication was not defamatory of the Chief Minister in respect of his conduct in the discharge of his duties as Chief Minister and that the complaint filed by the Public Prosecutor not having been signed by the Chief Minister who was the aggrieved person, the Sessions Judge had no jurisdiction to entertain the complaint.
The High Court rejected all the contentions raised by the appellants.
Against the order rejecting the contentions, this appeal with special leave under article 136 of the Constitution is preferred by the appellants.
We may state that the observations made by the High Court that whether the publication of the news item in the issue of the "I New Age " dated November 16, 1958, under the caption " Explosive situation in Kanpur " was defamatory of the Chief Minister in respect of his conduct in the discharge of his duties 66 deciding the application in revision submitted to them and were not intended to record a final decision as to the defamatory character of that publication.
It will be for the Trial Judge when the case is tried before him to arrive at a conclusion on the materials placed before him whether the publication is defamatory of the Chief Minister in respect of his conduct in the discharge of his public functions.
The plea that the sanction was accorded by the Home Secretary to the filing of the complaint without applying his mind is without substance.
Siddiqi, an assistant in the Home Department to the Government of Uttar Pradesh, has deposed that he bad received the papers in connection with the sanction for the prosecution of the two appellants from the Superintendent, Rome Department, with " notings ", that he had taken the " notings " and the relevant papers including the offending issue to the Deputy Secretary, that the Deputy Secretary had also made his note on those papers, and that thereafter he the witness had taken those papers to M. G. Kaul, Home Secretary, who had perused the " notings " and the note of the Deputy Secretary as also the article in question and after looking into the papers had approved the draft sanction.
It is not disputed that the Home Secretary was authorised to sanction a complaint for defamation of a Minister of the Government of Uttar Pradesh.
The evidence clearly discloses that the Home Secretary had applied his mind to all the material facts before him and had then granted the sanction.
Mere production of a document which sets out the names of the persons to be prosecuted and the provisions of the statute alleged to be contravened, and purporting to bear the signature of an officer competent to grant the sanction where such sanction is a condition precedent to the exercise of jurisdiction does not invest the court with jurisdiction to try the offence.
If the facts which constitute the charge do not appear on the face of the sanction, it must be established by hose facts were laced 67 before the authority competent to grant the sanction and that the authority applied his mind to those facts before giving sanction.
In the present case, the facts constituting the charge appear on the face of the sanction ; and evidence has also been led that the facts were placed before the sanctioning authority, that the authority considered the facts and sanctioned the prosecution.
Section 198B which deals with a certain category of the offences of defamation of high dignitaries of the State, and of Ministers and public servants in respect of their conduct in the discharge of public functions was incorporated in the Code by Act XVI of 1955.
Prior to the incorporation of section 198B, the only condition precedent to the entertainment of a complaint of defamation by a court competent in that behalf was prescribed by section 198, viz., that there had to be a complaint by the person aggrieved before the court took cognisance of that offence.
By section 198B, several conditions precedent to the trial of offences falling within that section are prescribed.
The material clauses of section 198B are sub sections
(1), (3) and (4).
(1): " notwithstanding anything contained in this Code, when any offence falling under Chapter XXI of the Indian Penal Code (Act XLV of 1860) (other than the offence of defamation by spoken words) is alleged to have been committed against the President or the Vice President, or the Governor or Rajpramukh of a State, or a Minister or any other public servant employed in connection with the affairs of the Union or of a State, in respect of his conduct in the discharge of his public functions, a Court of Session may take cognisance of such offence, without the accused being committed to it for trial, upon a complaint in writing made by the Public Prosecutor.
(3): No complaint under sub section
(1) shall be made by the Public Prosecutor except with the previous sanction, (a)in the case of the President or the Vice President or the Governor of a State, of any Secretary to the Government authorised by him in this behalf 68 (b) in the case of a Minister of the Central Government or of a State Government, of the Secretary to the Council of Ministers, if any, or of any Secretary to the Government authorised in this behalf by the Government concerned; (c) in the case of any other public servant employed in connection with the affairs of the Union or of a State, of the Government concerned.
(4) : No Court of Session shall take cognisance of an offence under sub section
(1) unless the complaint is made within six months from the date on which the offence is alleged to have been committed.
This section provides for a special procedure for the trial of the offence of defamation of certain specified classes of persons.
The conditions necessary for the applicability of sub section
(1) of section 198B are: (1) that the defamation is not by spoken words; (2) that the offence is alleged to have been committed against the President, or the Vice President, or the Governor or Rajpramukh of a State, or a Minister or any other public servant employed in connection with the affairs of the Union or of a State; (3) that the defamation is in respect of the person defamed in the discharge of his public functions; (4) that a complaint is made in writing by the Public Prosecutor; (5) that the complaint is made by the Public Prosecutor with the previous sanction of the authorities specified in sub section
(3); and (6) that the complaint is made within six months from the date on which the offence is committed.
The Court of Session may entertain a complaint of defamation of the high dignitaries and of Ministers and public servants in respect of their conduct in the discharge of their public functions only if these conditions exist.
Section 198 require,% that a complaint for defamation may be initiated by the person aggrieved and no period of limitation is prescribed in that behalf.
Such a complaint can only be entertained by a Magistrate of the First Class.
But section 198 B in the larger public interest, has made a departure from that rule; the accusation is to be entertained not by a 69 Magistrate, but by the Court of Session without a committal within six months of the date of the offence on a complaint in writing by the Public Prosecutor with the previous sanction of the specified authorities.
It is manifest that by the non obstante clause, " notwithstanding anything contained in this Code " in sub.s.
(1), the operation of diverse provisions of the Code relating to the initiation and trial of the offence of defamation is excluded and prima facie section 198 is one of those provisions.
It is however urged on behalf of the appellants that sub section
(13) of section 198 B makes the provisions of section 198 applicable to a complaint for defamation of persons specified in section 198 B(1) and provides that cognisance of the offence of defamation cannot be taken by a court except upon a complaint by the person aggrieved, and that the Chief Minister of Uttar Pradesh alleged to be the party aggrieved not having signed the complaint the Court of Session, Kanpur, had no jurisdiction to take cognisance of the complaint.
Sub section (13) provides that " the provisions of this section shall be in addition to, and not in derogation of, those of section 198 ".
In our judgment, this clause is enacted with a view to state ex abundanti cautela that the right of a party aggrieved by publication of a defamatory statement to proceed under section 198 is not derogated by the enactment of section 198 B.
The expressions, " in addition to " and " not in derogation of " mean the same thing that section 198 B is an additional provision and is not intended to take away the right of a person aggrieved even if he belongs to the specified classes and the offence is in respect of his conduct in the discharge of his public functions, to file a complaint in the manner provided by section 198.
" Derogation " means, taking away, lessening or impairing the authority, position or dignity, and the context in in which sub section
(13) occurs clearly shows that the provisions of section 198 B do not impair the remedy provided by section 198.
It means that by section 198 B the right which an aggrieved person has to file a complaint before a Magistrate under section 198 for the offence of defamation, even if the aggrieved person belongs to the specified classes and the defamation 70 is in respect of his conduct in the discharge of his public functions, is not taken away or impaired.
If sub section
(13) be construed as meaning that the provisions of section 198B are to be read as supplementary to those of section 198, the non obstante clause with which sub section
(1) of section 198B commences is rendered wholly sterile, and unless the context compels such an interpretation, the court will not be justified in adopting it.
There is again inherent indication in sections 198 and 198B, which supports the view that section 198B was not intended to be supplementary to section 198, but was intended to provide an alternative remedy in the case of defamation of persons set out in that section.
The expression " complaint " as defined in section 4, cl.
(h) of the Code means " the allegation made orally or in writing to a Magistrate with a view to his taking action under this Code that some person, whether known or unknown, has committed an offence. .
Every complaint of an offence has to be made to a Magistrate competent to take cognisance thereof and not to a Court of Session.
A Court of Session under the Code of Criminal Procedure unless otherwise expressly provided, is ' not competent to entertain a complaint; it can only try a criminal case committed to it.
The expression ,,complaint" in section 198 is manifestly used in the meaning as defined by section 4(h).
Even a superficial examination of the contention raised by the appellants reveals that if effect be given to it, the utmost confusion would result in working out the provisions of the Code.
If beside the complaint filed by the Public Prosecutor under section 198B, there must also be a complaint by the person aggrieved, two courts would simultaneously be seized of two distinct complaints for the same offence.
The complaint by the Public Prosecutor under section 198B would undoubtedly lie, in the Court of Session and the complaint under section 198 would lie in the court of a Magistrate, because it is a Magistrate who alone can take cognisance of the offence of defamation under section 198.
Thereafter, the complaint under section 198 may have to be committed to the Court of Session by the Magistrate and it is only after the 71 compliant filed by the Public Prosecutor, the case may proceed.
The Legislature could not have intended that in respect of the same offence, there should be two complaints, one in the Court of Session and another in the court of a Magistrate and either both should be tried, or the proceedings should be consolidated after committal.
Reliance was placed on behalf of the appellants upon sub sections
(6) to 11 of section 198B which provide for the award of compensation to the person accused if the court is satisfied that the accusation is false and either frivolous or vexatious, and it was submitted that the Legislature could not have intended that a person who was not the complainant and who was not directly concerned with the proceedings may still be required if so ordered by the court to pay compensation.
But sub section
(5) which provides that a person against whom the offence is alleged to have been committed shall, unless the court for reasons to be recorded otherwise directs, be examined as a witness for the prosecution, clearly indicates that the question whether the complaint was false and either frivolous or vexatious may fall to be determined only if the person complaining to be defamed actively supports the complaint.
It cannot therefore be said that section 198B provides for compensation being awarded against a person who is not concerned with the complaint.
Section 198B is enacted to provide machinery for vindicating the conduct of high dignitaries, Ministers and public servants when they are exposed to defamatory attacks.
The section contemplates the institution of proceedings for defamation of two different classes of persons, (1) high dignitaries like the President, the Vice President, the Governors and Rajpramukhs and (2) Ministers and public servants.
it is not disputed that a provision which enables a prosecution to be launched by the State, and at State expense for defamation of members of the first class, having regard to their status in public life, is pre eminently designed in the public interest, and it would be entirely appropriate that any question of awarding compensation should be raised, even if the complaint for defamation 72 be found to be false and frivolous or vexatious.
There can be no doubt that in a democratic set up, in order to maintain purity of public behaviour and administration, charges of improper conduct against persons in the second class, in so far as such charges relate to the discharge of their public functions should be investigated.
It is also in the public interest that in vindicating his character or conduct, the person defamed should not ordinarily be called upon to bear the burden of what may turn out an expensive and long drawn out proceeding, nor for obvious reasons should he have control over the proceeding.
In the vindication of the character or conduct of a private individual who is defamed, the State is primarily not concerned: the party aggrieved may, if he is so minded, take proceedings for obtaining relief.
But in the investigation of defamatory charges against Ministers and public servants in the discharge of their public functions, the State is as vitally concerned as the individual defamed.
The Legislature has therefore authorised the State to take upon itself the power in appropriate cases to prosecute the offenders.
But lest this procedure be abused, provision has been made for the examination of the person defamed and for awarding against him compensation if it be found that the complaint was false and frivolous or vexatious.
Normally, a Minister or a public servant defamed in respect of his conduct in the discharge of his public functions would himself move the Government under which he functions for taking proceedings for vindicating his character or conduct.
The complaint eo nomine in cases under section 198B, is undoubtedly the Public Prosecutor, but the complaint may, when the person defamed is a Minister or a public servant, properly be regarded as filed at the instance of such Minister or public servant.
He has in any case to support the accusation by evidence, and his conduct is exposed to judicial scrutiny.
In this context, it would be difficult to hold that a person who has either been instrumental in the initiation of a complaint, or in any event has to support it by his evidence, has no concern with the lodging of the complaint.
The court 73 would obviously award compensation only if it is satisfied that the claim made by the person posing to be aggrieved is false and either frivolous or vexatious.
Section 198B does not provide that before taking cognisance of a complaint, the complaint shall be signed by any person other than the Public Prosecutor.
In terms, it contemplates a complaint in writing by the Public Prosecutor and of no one else and it would be an unwarranted addition to sub section
(1) of the words " and also by the person aggrieved " if the contention urged on behalf of the appellants were ac cepted.
The Legislature not having chosen to provide that the complaint of the Public Prosecutor shall also be signed by the person aggrieved, we will not be justified in the absence of compelling reasons to so hold.
The observation made by Mr. Justice Bavdekar in C. B. L. Bhatnagar vs The State (1) " What section 198B(13) . . means. is that any complaint which may be made under section 198B must also satisy the provisions of section 198, that is, the complaint will have to be made both by the person aggrieved, and by the Public Prosecutor ", and by Mr. Justice Raman Nayar in R. Sanker vs The State (2) that a complaint by a person aggrieved is not dispensed with even in regard to cases falling under section 198B, do not, in our judgment, correctly interpret sub.s.
(13) of section 198B.
In the view taken by us, this appeal must fail and is dismissed.
Appeal dismissed.
(1) A.I.R. 1958 Bom.
| IN-Abs | The Public Prosecutor, Kanpur, filed a complaint in the Court of Session, Kanpur, charging the appellants with having published a news item which was false and defamatory of the Chief Minister of Uttar Pradesh.
The complaint complied with the requirements of section 198 B, Code of Criminal Procedure.
The appellants contended that the complaint should have complied with the requirements of section 198 of the Code also and, as it was 64 not signed by the Chief Minister, the Sessions judge had no jurisdiction to entertain it.
Held, that it was not necessary for the Chief Minister also to sign the complaint filed by the Public Prosecutor.
The nonobstante clause " notwithstanding anything contained in this Code " in sub section
(1) of section 198 B excludes the operation of the other provisions of the Code relating to initiation and trial of the offence of defamation, including section 198.
Sub section (13) of section 198 B which provides that the provisions of section 198 B shall be in addition to and not in derogation of section 198 merely preserves the right of the person defamed to file a complaint under section 198.
The two sections provide alternative remedies.
The provisions in section 198 B relating to the award of compensation to the accused in case of false and frivolous or vexatious accusation do not affect this conclusion.
Normally it is the public servant who moves the Government for taking proceedings and under subs.
(5) he is required to be examined as a witness to support the prosecution, and it cannot be said that he has no concern with the lodging of a complaint under section 198 B. C. B. L. Bhatnagar vs The State, A.I.R. 1958 Bom.
196 and R. Sankar vs The State, I.L.R. (1959) Kerala 195, disapproved.
|
Appeal No. 755 of 1957.
Appeal by special leave from the judgment and order dated March 23, 1955, of the former Nagpur High Court in Misc.
Civil Case No. 240 of 1953.
10 K. N. Rajagopal Sastri, R. H. Dhebar and D. Gupta, for the appellant.
Veda Vyasa, section N. Andley, J. B. Dadachanji,_ Rameshwar Nath and P. L. Vohra, for the respondent.
October, 17.
HIDAYATULLAH J.
This appeal, with special leave, has been filed against the judgment of the Nagpur High Court in a reference under section 66(1) of the Indian Income tax Act, 1922, by which the High Court answered the following question in the negative: " Whether the proportionate profits on the goods of the value of Rs. 4,10,785 were received or were deemed to be received in British India, in the year of, account, by or on behalf of the assessee Company within the meaning of Section 4(1)(a) of the Indian Income tax Act, 1922 ".
The Commissioner of Income tax, Madhya Pradesh and Bhopal is the appellant, and the Bhopal Textiles Ltd., Bhopal, is the respondent.
For the assessment year 1944 45, the Company which was non resident was treated as ' resident and ordinarily resident ' under section 4(1)(c) of the Income tax Act.
In the year of account, it had supplied its manufactured articles either to the Government of India or its nominees at Agra, Allahabad and Delhi.
Under the orders of the Government, the goods were sent direct to the persons nominated, who made the payment against the goods.
The goods were all sent for Bhopal, and the railway freight and other charges were to be borne by the buyers to whom the railway receipts made out in the name of the consignees were sent by the Company through the Imperial Bank at Bhopal.
The Bhopal Branch sent the railway receipts to branches of the Bank at Agra, Allahabad and Delhi, which collected the amounts due from the buyers, and transmitted them to the Imperial Bank, Bhopal, to the credit of the Company.
On these facts, a total sum of Rs. 4,40,373 was held by the Department to have been received in British India.
of that sum, an amount of Rs. 29,588 which represented the receipts 11 for supplies direct to Government is no longer in dispute.
The balance represents the sum, which was the subject matter of the reference.
The usual appeals followed, and the contention of the Company that the money was not received in, British India was not accepted by the Tribunal.
The Tribunal did not decide about the place of accrual.
A reference was then made by the Tribunal of the question quoted above.
The High Court in deciding the reference went into the question of passing of property under the Indian , and came to the conclusion that since the property in the goods had passed to the buyers, the Imperial Bank of India, Bhopal, must be " deemed to have received the railway receipts as agents of the buyers ".
Continuing the reason, the learned Judges observed: " So also the branches of the Bank at Agra, Allahabad and Delhi acted as the agents of the buyers when they collected the money from them and transmitted it to the Bhopal branch.
In this view, the profits cannot be said to be received by the assessee Company in British India. ' It received the money only when it reached the Bhopal branch as a credit to its own account and that was not in British India at the material time ".
The case was not decided by the Tribunal on the basis of accrual of the income, profits or gains to the Company.
It was decided on the fact of actual receipt, whether it was in British India or in Bhopal, which was then outside the taxable territories.
We need not, therefore, concern ourselves with the problem whether property in the goods could be said to have passed absolutely to the buyers without any right of disposal being reserved by the Company.
It is a matter of some doubt whether the goods were absolutely at the disposal of the buyers after the rail.
way receipts were handed over to the Bank.
It is in evidence and has been adverted to by the Incometax Officer that the Company, when it handed over the railway receipt to the Imperial Bank at Bhopal, did so along with a covering letter in which it asked the Bank to deliver the railway receipt and the bill to 12 the buyers against payment of the bill amount plus collection charges.
In this view of the matter, though we do not express any final opinion, we doubt whether the right of disposal was parted with by the, Company.
A railway receipt is a document of title to goods, and, for all purposes, represents the goods.
When the railway receipt is handed over to the consignee on payment, the property in the goods is transferred.
In this case, it is a matter of considerable doubt whether the property in the goods can be said to have passed to the buyers by the mere fact of the railway receipts being in the name of the consignees, as has been held by the High Court.
Since we are not deciding the question of accrual, we do not elaborate the point.
Coming now to the question as to where the amount was received, we have no doubt that the view of the Tribunal was correct.
This income was received at Agra, Allahabad or Delhi from the buyers by the Imperial Bank acting as the agent of the Company.
The Company had handed over the railway receipts to the Bank, and asked the Bank not to hand over the railway receipts to the buyers, unless payment was received.
This was sufficient to make the Bank an agent of the Company.
The buyers could not have countermanded the instructions given by the Company to the Bank, which they would, indubitably, have been able to do, if the Bank was their agent.
This was laid down by this Court in The Commissioner of Income tax vs P. M. Rathod and Company (1).
Mr. Veda Vyasa contends that the case is distinguishable on the ground that the railway receipts there were " to self ' whereas here the railway receipts, were made out in the name of the consignee.
Nothing turns upon this distinction.
The document of title to goods was still the property of the Company till payment for it was received and it was handed over.
In this view of the matter, we are of opinion that the ruling in question app lies.
Mr. Veda Vyasa finally contended that the agreement between the parties was that the goods were to (1) ; 13 be sent for Bhopal, and that the price was also to be paid there.
He contended that the handing over of the railway receipts to the Bank at Bhopal was in furtherance of the agreement, that the money was ultimately obtained by the Bank and handed over at Bhopal also, and that, thus, the money must be deemed to have been received there.
This, in our opinion, does not truly represent the character of the transaction.
No doubt, under the agreement, payment was to be made at Bhopal; but the circumstances show that that was departed from, and the ordinary mercantile practice of handing over the railway receipts to one 's own bankers with a request to hand over the receipts against payment to the buyers was followed.
The Bank, as we have shown above, was thus the agent of the sellers, as was laid down in the ruling of this Court, and the fact of payment to the agent determines the place where the money can be said to be received by the Company.
That place was at Agra, Allahabad or Delhi.
In this view, the income, profits or gains must be deemed to have been received in the taxable territories, and the answer to the question ought to have been in the affirmative.
We accordingly allow the appeal, and answer the question in the affirmative.
The appellant will be entitled to his costs here and in the High Court.
Appeal allowed.
| IN-Abs | Respondent, a non resident company, in the accounting year supplied goods which were sent F. O. R. Bhopal to the buyers in British India.
The railway receipts were handed over to a Bank in Bhopal with instructions to hand over the railway receipts to the buyers, who were named as consignees, only on receipt of payment of the bill and collection charges.
The branches of the Bank within the taxable territory collected the amounts due from the buyers and transmitted them to Bhopal to the credit of the respondent.
The question was whether the profits in the goods were received or deemed to be received in British India.
Held, that the decision of this Court in Commissioner of Income tax vs P. M. Rathod & Co. applied to this case; and the income, profits or gain must be deemed to have been received within the taxable territory.
The fact of payment to the agent determines the place where the money can be said to be received by the seller.
Since in the instant case the railway receipts were not to be handed over to the buyers by the Bank, as per instructions of the seller, unless payment for the value of the goods were received by the Bank which instructions the buyers could not countermand, this was sufficient to make the Bank an agent of the seller.
Held, also, that a railway receipt is a document of title to goods, and, for all purposes, represents the goods.
When the railway receipt is handed over to the consignee on payment, the property in the goods is transferred.
The Commissioner of Income tax vs P. M. Rathod and Co., ; , relied on.
|
l Appeals Nos.
152, 167 and 167 A of 1951.
Appeal from the Judgments dated April 25, and May 1, 1950, of the High Court of Judicature for Patiala and East Punjab States Union at Patiala (Teja Singh C. J. and Chopra J.) in T. P. A. R. I. A. O. No. 34 of 1950 and Civil Appeals Nos.
493/494 of Samwat 2005.
Rang Behari Lal (Ram Nivas Sanghi, with him) for the appellants in Civil Appeals Nos. 167 and 167 A. Udai Bhan Chaudhuri for the appellant in Civil Appeal No. 152.
Lachhman Das Kaushal for the respondent in Civil Appeals Nos. 167 and 167 A. Ram Nivas Sanghi for the respondent in Civil Appeal No. 152.
October 24.
The Judgment of the Court was delivered by CHANDRASEKHARA AIYAR J.
These appeals are connected and raise a common question of law.
They come before us on special leave granted by the Pepsu High Court at Patiala under sub clause (e) of clause (1) of article 133 of the Constitution, 754 The facts in Civil Appeal No. 152 of 1951 are different from those in the other two appeals, and the consequences are different also.
The proceedings arise out of the liquidation of two companies called the Marwari Chamber of Commerce Ltd., (in Civil Appeal No. 152 of 1951) and the Aggarwal Chamber of Commerce Ltd., (in the other two appeals).
The Official Liquidator settled the list of contributories, and after various steps taken before the Liquidation Judge of the High Court by way of objection on grounds of law as well as on merits, there were payment orders on 4th June, 1946, in Civil Appeal No. 152 of 1951 and on 18th January, 1949, in the latter two appeals.
The correctness and the validity of the payment order in Civil Appeal No. 152 of 1951 was challenged in appeals taken to the High Court by the Official Liquidator and the contributory.
The order of the Liquidation Judge was modified in favour of the Liquidator, and as against a sum of Rs. 4,762 13 3 ordered to be paid, there was an order for the payment of Rs. 24,005 7 3.
On further appeal by the contributory to the Judicial Committee, it was held that the appeal to the Division Bench was barred by time, and consequently the judgment of the Bench was set aside, and that of the Liquidation Judge restored.
This was on 6th December, 1949.
In the other two appeals, an application for removal of the name of the contributory was granted by the Liquidation Judge, but on appeal a Division Bench of the High Court reversed this order.
On further appeal taken by the company, the Judicial Committee, Patiala, remanded the case for retrial, and the Liquidation Judge made an order for payment of Rs. 8,191 0 9 on 18th January, 1949, as aforesaid.
On 2nd February, 1950, the firm Murari Lal Hari Ram, appellant in Civil Appeal No. 152 of 1951, filed an application under section 152, Civil Procedure Code, for amendment of the order of the Liquidation judge, Kartar Singh J., alleging that there was a 756 clerical or arithmetical error arising from an accidental slip or omission in that a sum of Rs. 24,005 7 3 was taken as due by the firm instead of the correct figure of Rs. 21,805 7 3.
This application was dismissed by the learned Judge on 16th March, 1950.
The firm applied to him for a certificate for leave to appeal, but this again was dismissed.
An appeal was preferred from the order dismissing the amendment petition, but it was thrown out on the ground of want of a certificate from the Single Judge.
This order is dated 1st May, 1950, and is couched in these, terms " We have recently held in Ganpat Rai Hira Lal vs Aggarwal Chamber of Commerce, Ltd., L.P.A. Nos. 493 and 494 of Samvat 2005 (Pepsu) that no appeal lies from an order of a Single Bench to a Division Bench without a certificate by the Single Judge that the case is a fit one for further appeal.
In this case it is admitted that the appellants made an application for a certificate to the Single Bench, from whose decision he is appealing, but the same was refused.
The appeal is.
therefore not competent and is dismissed in limine.
" The reference in the order to the case of Ganpat Rai Hira Lal vs Aggarwal Chamber of Commerce Ltd., L.P. A. Nos. 493 and 494 of Samvat 2005 (Pepsu) is to the order made by the High Court in the connected matter which has given rise to the two Appeals Nos. 167 and 167 A of 1951.
There, an appeal was lodged from the payment order of the Liquidation Judge, but it was dismissed on the same ground, namely, want of a certificate from the Single Judge.
In Civil Appeal No. 152 of 1951, the argument for the appellant is that no certificate front the Single Judge is necessary, as the matter is governed not by Ordinance X of 2005 of the Patiala State but by the Patiala States Judicature Farman Shahi, 1999 Bikarmi, under which no certificate is necessary.
It is true that under section 44 of the earlier Farman a certificate that the case is a fit one for appeal is required only if the judgment, decree, or order sought to be appealed is wade in the exercise of civil 98 756 appellate jurisdiction.
It is, however, clear that we are not governed by this provision.
The amendment application was made on 2nd February, 1950, as stated already.
No appeal is provided under the Civil Procedure Code from an order amending or refusing to amend a judgment, decree or order, though an appeal would lie from the amended decree or order.
There is no warrant for the view that the amendment petition is a continuation of the suit or proceedings therein.
It is in the nature of an independent proceeding, though connected with the order of which amendment is sought.
Such a proceeding is governed by the law prevailing on its date, which admittedly is Pepsu.
Ordinance X of 2005, and which provides in section 52 for a certificate.
The section is in the following terms: " Subject to any other provision of law, an appeal shall lie to the High Court from a judgment, decree or order of one Judge of the High Court and shall be heard by a Bench consisting of two Judges of the High Court: Provided that no such appeal shall lie to the High Court unless the Judge who decides the case or in his absence the Chief Justice certifies that the case is a fit one for appeal. " So far as the appellant firm is concerned, there is no question of any right of appeal vested in it which is sought to be taken away by giving retrospective effect to the Ordinance which came into force in August, 1948.
The order of the High Court holding that no appeal lies from an order of a single Judge without a certificate by him that the case is a fit one for appeal, is, in our opinion, right.
In the other two Appeals Nos. 167 and 167 A, of 1951, different considerations come into play.
The payment order of the Liquidation Judge was on 18th January, 1949, and the appeal was preferred on 19th February, 1949.
In the meantime, as there was some doubt on the question, the appellants took the precaution of applying to the Judge for a certificate, but this was dismissed on 3rd March, 1949.
On the relevant dates, the Patiala States Judicature Farman, 1999, was in force, and the appellants hood a, right of 757 appeal from the payment order without a certificates They could not be deprived of this right by a subsequent change in the law, unless the later enactment provides expressly or by necessary implication for retrospective effect being given.
The learned Judges of the High Court conceded this in their order, but they thought 'that section 116 of Ordinance X of 2005 (1948 49) contained an express provision to the contrary.
The section is in these terms: Notwithstanding anything contained in this Ordinance, all suits, appeals, revisions, applications, reviews, executions and other proceedings, or any of them, whether civil or criminal, pending in the Courts and before judicial authorities in any Covenanting State shall be continued and concluded respectively in Courts or before judicial authorities of the like status in the Union ; and the Courts or authorities in the Union shall have the same jurisdiction in respect, of all such suits, appeals, revisions, reviews, executions, applications and other proceedings, or any of them, as if the same had been duly commenced and continued in such Courts or before such authorities.
" It is fairly obvious that this is a transitory regula tion, providing for a change over of proceedings from one set of Courts in the Covenanting State to others of like status in the Union and for their continuance etc.
in the latter Courts.
It does not say that the proceedings must be treated as having freshly commenced.
What is contemplated in the latter part of the section is a notional commencement, if such a term could be used.
The section obviously means that all rights which arose or are likely to arise in the future shall remain intact notwithstanding the new set up, and that they would be dealt with by the Union Courts in place of the Courts of the Covenanting State.
There is nothing in the section to justify the view that any taking away of a vested right of appeal retrospectively was intended.
The decision in Colonial Sugar Refining Co. vs Irving(1) clearly applies to the facts, and the order of the High Court that (1) 758 the appeals are not competent is, in our opinion, erroneous.
The result is that Appeal No. 152 of 1951 is dismissed with costs throughout, while Appeals Nos. 167 and 167A of 1951 are allowed with costs throughout.
Appeal No. 125 dismissed.
Appeals Nos. 167 and 167A allowed.
Agents for the appellants in Appeals Nos. 167 and 167A: Mohan Behari Lal.
Agent for the appellant in Appeal No. 152: Kundan Lal Mehta.
Agent for respondents in Appeals Nos. 167 and 167A: Naunit Lal.
Agent for respondent in Appeal No. 152: Mohan Behari Lal.
| IN-Abs | Section 116 of the Pepsu Ordinance X of 2005 (1948 1949) is a transitory regulation providing for a change over of proceedings 'from one set of courts in the covenanting State to others of like status in the Union, and for their continuance etc.
in the latter courts.
It does not mean that the proceedings must be treated as having freshly commenced.
What is contemplated in the latter part of the section is a notional commencement, and the section means that all rights which arose or are likely to arise in future shall remain intact not with standing the new set Lip and that they would be dealt with by the Union courts in place of the courts of the covenanting State.
There is nothing in the section to justify the view that any taking away of a vested right of appeal retrospectively was intended.
Under the Patiala States Judicature Farman of 1999 a certificate was necessary for an appeal to a Division Bench from an order of a single Judge of the Patiala High Court only in respect of judgments and orders made in the exercise of civil appellate jurisdiction.
Under the Pepsu Ordinance X of 2005 (1948 49) a certificate was necessary in all cases.
In Appeal No. 152 an application made on 2nd February, 1950, for amendment of an order made by a Liquidation Judge in 1946 was dismissed and an appeal from the order of dismissal to a Division Bench was dismissed on 1st May, 1950, for want of a certificate.
In appeals Nos. 167 and 167A, the payment orders were made on the 18th January, 1949, and appeals from those orders were dismissed on 3rd March, 1949, for want of a certificate: Held, (i) that as a petition for amendment was not a continuation of the earlier proceedings but was in the nature of an 753 independent proceeding though connected with the order sought to be amended, it was governed by the law prevailing on its date, viz., the Pepsu Ordinance of 2005 under which a certificate was, necessary, and in Appeal No. 152 the dismissal of the appeal to the Division Bench for want of a certificate was right; (ii)that with regard to Appeals Nos. 167 and 167 A, as the law in force on the relevant dates was the Patiala States Judicature Farman of 1999 the appellants had a right to appeal from the payment order without a certificate; this vested right could not be taken away by a subsequent change in the law unless the later enactment expressly or by necessary implication was retrospective in operation and deprived them of such a right, that there was nothing in section 116 of the Ordinance to show that it was intended to have retrospective effect and the order of the High Court dismissing the appeals as incompetent was, therefore, erroneous.
Colonial Sugar Refining Company vs Irving referred to.
|
Appeal No. 375 of 1959.
Appeal from the Judgment and Order dated the 12th August, 1958, of the Assam High Court in First Appeal No. 11 of 1958.
L. K. Jha and Sukumar Ghose, for appellants Nos. 1 to 3.
G. section Pathak and Naunit Lal, for respondents Nos. 1 and 2. 1960.
October 27.
The Judgment of the Court was delivered by WANCHOO J.
This is an appeal on a certificate granted by the Assam High Court in an election matter.
An election was held in the double member constituency of Goalpara to the Assam Legislative Assembly.
Nomination papers were filed on the 19th January, 1957, by a number of persons including Anirara Basumatari (hereinafter called the appellant).
He was a candidate for the seat reserved for scheduled tribes.
The nomination paper of the appellant was rejected by the returning officer on the ground that he was disqualified under section 7(b) of the Representation of the People Act, No. XLIII of 1951, (hereinafter called the Act).
The polling took place on February 25,1957, and Khagendranath and H%kim Chandra Rabha were elected, the latter being a member of a scheduled tribe.
Thereupon an election petition was filed by an elector challenging the election of the two successful candidates on a number of grounds.
of these grounds, however, only two are now material, namely, (1) that the nomination paper of the appellant was wrongly rejected, and (2) that a corrupt practice was committed by the successful candidates inasmuch as voters were carried on mechanically propelled vehicles to the polling booths.
The election tribunal held on the, first point that the nomination 135 paper of the appellant had been improperly rejected.
On the second point it hold that the corrupt practice alleged had not been proved.
In the result, the election was set aside.
Thereupon there was an appeal by the two successful candidates to the High Court.
The High Court was of the view that the nomination paper of the appellant was properly rejected; further on the question of corrupt practice the High Court agreed with the conclusion of the tribunal.
In the result the appeal was allowed and the election petition was ordered to be dismissed.
There was then an application to the High Court for a certificate to appeal to this Court which was granted; and that is how the matter has come up before us.
The main contention on behalf of the appellant is that the High Court was wrong in coming to the conclusion that the nomination paper of the appellant was properly rejected under section 7(b) of the Act.
That provision lays down that a person shall be disqualified for being chosen as a member of either House of Parliament or of the Legislative Assembly or Legislative Council of a State if he is convicted by a court in India of any offence and sentenced to imprisonment for not less than two years, unless a period of five years, or such less period as the Election Commission may allow in any particular case, has elapsed since his release.
The appellant in this case was convicted under section 4(b) of the Explosive Substances Act No. VI of 1908, and sentenced to three years rigorous imprisonment on July 10, 1953.
The nomination paper in this case was filed in January 1957 and the election was held in February 1957 and therefore five years had not elapsed since his release.
But though the appellant was sentenced to three years ' rigorous imprisonment, his sentence was remitted by the Government of Assam on November 8, 1954, under section 401 of the Code of Criminal Procedure and he was released on November 14, 1954.
The contention of the appellant before the election tribunal was that in view of this remission his sentence in effect was reduced to a period of less than two years and therefore he could not be said to have incurred disqualification within the meaning of s.7(b).
This contention 136 was accepted by the tribunal and that is why it held that the nomination paper of the appellant was improperly rejected.
When the case came to be argued in the High Court on behalf of the successful candidates, two arguments were addressed in support of the plea that the nomination paper of the appellant was properly rejected.
In the first place, it was urged that in view of the provisions of Articles 72, 73, 161 and 162 of the Constitution read with section 401 of the Code of Criminal Procedure, the State Government had no authority to remit the sentence of the appellant; and secondly even if the remission was properly granted it would not affect the sentence imposed by the Court, though the appellant might not have had to undergo part of the sentence after the date of the remission order.
The High Court did not decide the question as to the power of the State Government to grant remission in this case as it had not full materials before it because the matter was not raised before the tribunal, though it was inclined to the view that the State Government might not have such power.
But the High Court was of the opinion that a remission of sentence did not have the same effect as a free pardon and did not have the effect of reducing the sentence passed on the appellant from three years to less than two years, even though the appellant might have remained in jail for less than two years because of the order of remission.
What section 7(b) lays down is that there should be a conviction by a court in India for any offence and a sentence of imprisonment for not less than two years in order that a person may be disqualified for being chosen as a member of either House of Parliament or of Legislative Assembly or of Legislative Council of a State.
In terms, therefore, the provision applies to the case of the appellant for he was convicted by a court in India and sentenced to imprisonment for more than two years.
Further the period of five years had not expired after his release.
The appellant had applied to the Election Commission for removing the disqualification but it had refused to do so.
The main question therefore that falls for consideration is 137 whether the order of remission has the effect of reducing the sentence in the same way in which an order of an appellate or revisional criminal court has the effect of reducing the sentence passed by the trial court to the extent indicated in the order of the appellate or revisional court.
Now it is not disputed that in England and India the effect of a pardon or what is sometimes called a free pardon is to clear the person from all infamy and from all consequences of the offence for which it is granted and from all statutory or other disqualifications following upon conviction.
It makes him, as it were, a new man: (See Halsbury 's Laws of England, Vol.
VII, Third Edition, p. 244, para 529).
But the same effect does not follow on a mere remission which stands on a different footing altogether.
In the first place, an order of remission does not wipe out the offence; it also does not wipe out the conviction.
All that it does is to have an effect on the execution of the sentence; though ordinarily a convicted person would have to serve out the full sentence imposed by a court, he need not do so with respect to that part of the sentence which has been ordered to be remitted.
An order of remission thus does not in any way interfere with the order of the court; it affects only the execution of the sentence passed by the court and frees the convicted person from his liability to undergo the full term of imprisonment inflicted by the court, though the order of conviction and sentence passed by the court still stands as it was.
The power to grant remission is executive power and cannot have the effect which the order of an appellate or revisional court would have of reducing the sentence passed by the trial court and substituting in its place the reduced sentence adjudged by the appellate or revisional court.
This distinction is well brought out in the following passage from Weater 's " Constitutional Law" on the effect of reprieves and pardons vis a vis the judgment passed by the court imposing punishment, at p. 176, para 134: " A reprieve is a temporary suspension of the 18 138 punishment fixed by law.
A pardon is the remission of such punishment.
Both are the exercise of executive functions and should be distinguished from the exercise of judicial power over sentences.
The judicial power and the executive power over sentences are readily distinguishable, ' observed Justice Sutherland, 1 To render a judgment is a judicial function.
To carry the judgment into effect is an executive function.
To out short a sentence by an act of clemency is an exercise of executive power which abridges the enforcement of the judgment but does not alter it qua judgment '.
" Though, therefore, the effect of an order of remission is to wipe out that part of the sentence of imprisonment which has not been served out and thus in practice to reduce the sentence to the period already undergone, in law the order of remission merely means that the rest of the sentence need not be undergone, leaving the order of conviction by the court and the sentence passed by it untouched.
In this view of the matter the order of remission passed, in this case though it had the effect that the appellant was re.
leased from jail before he had served the full sentence of three years ' imprisonment and had actually served only about sixteen months ' imprisonment, did not in any way affect the order of conviction and sentence passed by the court which remained as it was.
Therefore the terms of section 7(b) would be satisfied in the present case and the appellant being a person convicted and sentenced to three years ' rigorous imprisonment would be disqualified, as five years had not passed since his release and as the Election Commission had not removed his disqualification.
We may now refer to a number of cases on which reliance has been placed on behalf of the appellant.
In Venkatesh Yeshwant Deshpande vs Emperor (1), Bose, J. (as he then was), observed as follows at p. 530: " The effect of an order of remission is to wipe out the remitted portion of the sentence altogether and not merely to suspend its operation; suspension (1) A.I.R. 1938 Nag.
139 is separately provided for.
In fact, in the case of a pardon in England statutory and other disqualification following upon conviction are removed and the pardoned man is enabled to maintain an action against any person who afterwards defames him in respect of the offence for which he was convicted.
That may not apply in full here but the effect of an order of remission is certainly to entitle the prisoner to his freedom on a certain date.
" It is urged that if the effect of an order of remission is to wipe out the remitted portion of the sentence altogether it means that the sentence is reduced to the period already undergone and the order of remission has the same effect as an order of an appellate or revisional court reducing the sentence to the period already undergone.
That case, however, dealt with a different point altogether, namely, whether a remission having been granted and having taken effect it could be cancelled thereafter.
It was in that context that these observations were made.
Even so, the learned judge was careful to point out that there was a difference between a pardon and a remission and the effect of an order of remission is to entitle the prisoner to his freedom on a certain date.
That case is no authority for the view that the order of remission amounts to changing the sentence passed by a competent court and substituting therefor the sentence of imprisonment already undergone up to the date of release following the order of remission.
Reference was also made to a number of election cases in which the view which has been urged on behalf of the appellant seems to have been taken.
We may refer to only one of them, namely, Ganda Singh vs Sampuran Singh (1), which has specifically dealt with this point.
In that case an order was passed by the Maharaja of Nabha granting amnesty to all political prisoners detained or convicted under the Punjab Public Safety Act, 1947, as applied to Nabha State, and releasing them unconditionally.
The same order also provided for grant of remission to persons convicted for offences other than political offences on (1) 140 a certain scale.
The successful candidate in that case was sentenced to more than two years ' rigorous imprisonment under the Punjab Public Safety Act, as applied to Nabha State, and was thus a political prisoner.
He was therefore released before he had served two years imprisonment.
The main plank of the election petition in that case was that the successful candidate was disqualified under section 7(b) of the Act in view of his conviction and sentence and the election tribunal held that remission by government (executive authority) has the same effect as an order passed by a court of law in appeal or on revision and that under section 7 of the Act the court has to look to the amount of sentence imposed on a person and it made no difference whether the sentence was reduced by a court of law on appeal or by revision or by the powers of the government reserved for it under section 401 of the Code of Criminal Procedure, as, the effect in both cases was the same.
We are of opinion that this view is incorrect, though perhaps on the facts of that case the order of the tribunal was right for it seems that political prisoners had been granted a pardon by the Ruler of Nabha and not a mere remission under section 401 of the Code of Criminal Procedure.
We cannot agree that remission by government has the same effect as an order passed by a court of law in appeal or on revision.
It is true that under section 7(b) of the Act one has to look at the sentence imposed; but it must be a sentence imposed by a court.
Now where the sentence imposed by a trial court is varied by way of reduction by the appellate or revisional court, the final sentence is again imposed by a court; but where a sentence imposed by a court is remitted in part under section 401 of the Code of Criminal Procedure that has not the effect in law of reducing the sentence imposed by the court, though in effect the result may be that the convicted person suffers less imprisonment than that imposed by the court.
The order of remission affects the execution of the sentence imposed by the court but does not affect the sentence as such, which remains what it was in spite of the order of remission.
It is also well to remember that 141 section 7(b) speaks of the conviction and sentence passed by a court of law; it does not speak of the period of imprisonment actually suffered by the convicted person.
The other election cases to which our attention was drawn by the learned counsel for the appellant are similar and they are all in our opinion wrongly decided.
We are therefore of opinion that the High Court was right in the view that the nomination paper of the appellant was properly rejected.
The next contention on behalf of the appellants is that both the High Court and the tribunal were wrong in holding that a corrupt practice within the meaning of section 100(1)(b) read with section 123(5) had not been proved in this case.
The case of the appellant was that voters were carried by mechanically propelled vehicles to the polling booths by Birendra Kumar Nath who was in charge of the electioneering campaign on behalf of the Congress Party and Bholaram Sarkar who was president of the Primary Congress Committee of Dhupdhara.
The successful candidates were both contesting the election as nominees of the Congress Party and therefore these two persons who carried electors in mechanically propelled vehicles to the polling booths did so as agents of the successful candidates and with their consent.
The High Court as well as the election tribunal hold that though Birendra Kumar Nath and Bholaram Sarkar might be deemed to be the agents of the successful candidates for purposes of the election and though the hiring of mechanically propelled vehicles by the agents for conveyance of electors to polling booths had been proved, there was no proof that this was done with the consent, express or implied, of the successful candidates.
The High Court pointed out that consent, express or implied, of the candidates was necessary for purposes of section 100(1) (b) and was of the view that on the facts proved in this case such consent could not be inferred and the circumstances did not convincingly lead to an inference that the corrupt practice in question was committed with the knowledge and consent of the successful candidates.
In view of this concurrent finding of the High Court and the 142 tribunal on this question, namely, whether there was consent, express or implied, of the successful candidates to the commission of this corrupt practice, it is in our opinion idle for the appellant now to contend that there was consent express or implied, as required by section 100(1)(b).
The inference whether there was consent or not from the facts and circumstances proved is still an inference of fact from other facts and circumstances and cannot be a question of law as urged by learned counsel for the appellant.
Reference in this connection may be made to Meenakshi Mills, Madurai vs The Commissioner of Income tax, Madras(1), where it was held that a finding of fact, even when it is an inference from other facts found on evidence, is not a question of law and that such an inference can be a question of law only when the point for determination is a mixed question of law and fact.
In the present case the only question is whether the corrupt practice was committed with the consent of the candidates, whether express or implied, and the question whether such consent was given in the circumstances of this case is a question of fact and not a mixed question of law and fact and therefore the finding of the High Court as well as the tribunal that there was no consent, either express or implied, in our opinion, concludes the matter.
There is no force in this point either.
The appeal therefore fails and is hereby dismissed with costs.
Appeal dismissed.
| IN-Abs | The appellant 's nomination paper for election to the Assam Legislative Assembly was rejected by the Returning Officer on the ground of disqualification under section 7(b) of the Representation of the People Act, 195, in that he had been convicted and sentenced to three years ' rigorous imprisonment under section 4(b) of the Explosive Substances Act (VI of 1908) and five years had not expired after his release.
The appellant had applied to the Election Commission for removing the said disqualification but it had refused to do so.
The appellant 's sentence was, however, remitted by the Government of Assam under s 401 of the Code of Criminal Procedure and the period for which he was actually in jail was less than two years.
The Election Tribunal held that the nomination paper had been improperly rejected and set aside the election but the High Court taking a contrary view, dismissed the election petition.
Held, that the High Court was right in holding that the appellant was disqualified under section 7(b) of the Representation of the People Act and that his nomination paper had been rightly rejected.
That section speaks of a conviction and sentence by a Court and an order of remission of the sentence under section 401 of the Code of Criminal Procedure, unlike the grant of a free pardon, cannot wipe out either the conviction or the sentence.
Such order is an executive order that merely affects the execution of the sentence and does not stand on the same footing as an order of Court, either in appeal or in revision, reducing the sentence passed by the Trial Court.
Venkatesh Yeshwant Deshpande vs Emperor, A.I.R. 1938 Nag.
513, distinguished.
Ganda Singh vs Sampuran Singh, , over ruled.
Held, further, that an inference as to whether a successful candidate was a consenting party to the corrupt ractice under 134 section 100(i)(b) of the Act from facts found on evidence was a question of fact and not a mixed question of fact and law.
Meenakshi Mills, Maduyai vs The Commissioner of Income tax, Madyas, ; , referred to.
|
Appeal No. 372 of 1956.
Appeal from the judgment and order dated January 18, 1956, of the Allahabad High Court in Special Appeal No. 43 of 1955.
G. C. Mathur, for the appellant.
G. P. Singh and K. P. Gupta, for the respondent.
section P. Sinha and P. C. Agarwala, for Intervener No. 1.
Radheylal Agarwala and P.C. Agarwala, for intervener No. 2.
Frank Anthony and M. I. Khowaja, for Intervener No. 3. 1960.
October 26.
The Judgment of the Court was delivered by WANCHOO J.
This is an appeal on a certificate granted by the Allahabad High Court.
The respondent is carrying on the trade of hulling rice, milling grains and extracting oil in village Nandganj within the area of Gaon Sabha Barapur.
He obtained licences for the three trades under the United Provinces Rice and Dal Control Order, 1948, as also under the Uttar Pradesh Pure Food Act, 1950.
Further the Gaon 83 of Rs. 8/ on each mill within its jurisdiction and the respondent had been paying that as well.
In 1953 the District Board, Ghazipur, in which district the village is situate, enforced bye laws for the regulation and control of flour, rice and oil mills in the rural areas of the district under which a licence has to be obtained by such mills on payment of Rs. 20/ as licence fee per year per mill.
When the respondent was served with a notice to take out a licence for each mill and to pay the licence fee, he objected to the legality and validity of the levy and thereafter filed a writ petition in the High Court under article 226 of the Constitution.
His contention in this connection was three fold, namely (i) After the constitution of Gaon Sabha Barapur under the U. P. Panchayat Raj Act, No. XXVI of 1947, the District Board had been divested of its power and jurisdiction in the matter of regulation and control of trade under the relevant provisions of the U. P. District Boards Act, No. X of 1922; (ii) the respondent had paid the necessary licence fees under the U.P. Rice and Dal Control Order, 1948 and the U. P. Pure Food Act, 1950 and could not be asked to pay the licence fees over again under the District Boards Act; and (iii) in any case the levy was too high and not in proportion to the actual and probable expenses which the District Board would have to incur in controlling or regulating trade and was meant to augment the general revenues of the District Board.
The writ petition was heard by a learned Single Judge of the High Court who appears to have dismissed it in limine by a reasoned judgment negativing all the three contentions raised by the respondent.
The respondent then went in appeal and the Appeal Court allowed the appeal holding that in view of section 111 of the Panchayat Raj Act, the District Board had lost its power to make bye laws for the regulation and control of trade under section 174 of the District Boards Act.
The Appeal Court was further of the view that the levy was not out of proportion to the expenses to be incurred by the District Board in the matter of regulation and control and was not a tax.
It did not decide the third point raised on behalf of the 84 respondent.
The District Board then applied for a certificate to appeal to this Court, which was granted and that is how the matter has come up before us.
The main question which falls for consideration in this appeal is whether the view of the Appeal Court that the District Board has lost its power to make bye laws under section 174 of the District Boards Act for regulation and control of trade in view of section 111 of the Panchayat Raj Act, is correct.
Learned counsel for the appellant puts his argument on this point in two ways.
In the first place, he urges that the Panchayat Raj Act does not contain any provision by which the Gaon Sabha or the Gaon Panchayat has been given the power to regulate or control trade and therefore even if the Panchayat Raj Act is to prevail over the District Boards Act, where the two deal with the same matter, this particular power remains in the District Board as it is not included within the powers exercisable by Panchayats under the Panchayat Raj Act.
In the alternative, he urges that the intention of the legislature was not that those provisions of the District Boards Act which are common in the two Acts should be repealed by necessary implication, and therefore the District Board 's power to control and regulate trade would remain whatever may be the provision of the Panchayat Raj Act.
We shall therefore examine the first contention raised on behalf of the appellant under this head, for if the Panchayat Raj Act has not provided for the control and regulation of trade by the Gaon Sabha or the Gaon Panchayst, there will be no question of any inconsistency between the District Boards Act and the Panchayat Raj Act and therefore no question of the later Act (i. e., the Panchayat Raj Act) prevailing over the earlier Act (i. e., the District Boards Act).
Section 91 of the District Boards Act provides for what may be called compulsory duties of District Boards and cl.
(q) of this section lays down that every board shall make reasonable provision within the district for regulating offensive, dangerous or obnoxious trades, callings or practices.
Section 106 of the District Boards Act gives power to the Board to charge a fee 85 to be fixed by bye law for any licence, sanction or permission which it is entitled or required to grant by or under the District Boards Act.
Section 174 gives power to the District Board to frame bye laws consistent with the Act and with any rules framed by the State Government for the purpose of promoting or maintaining the health, safety and convenience of the inhabitants of the area and for the furtherance of the administration of the district under the Act.
In particular, power is given by section 174 (2) (k) to the District Board to frame bye laws for regulating slaughter houses and offensive, dangerous or obnoxious trades, callings or practices and prescribing fees to defray the expenditure incurred by it for this purpose.
It is not in dispute that the District Board has power under these provisions to frame bye laws for regulation of these trades, (namely, hulling rice, milling grains and extracting oil).
Therefore, unless this power is taken away expressly or by necessary implication by any provision of the Panchayat Raj Act, the District Board would be entitled to frame the bye laws which it did in 1953 and charge licence fees thereunder.
Turning now to the Panchayat Raj Act, we find that section 15 of this Act provides for what may be called the compulsory duties of a Gaon Panchayat while section 16 provides for what may be called its optional dutiee,.
Section Ill gives power to the prescribed authority to make bye laws for a Gaon Panchayat within its jurisdiction consistent with the Act and the Rules made thereunder for the purpose of promoting or maintaining the health, safety and convenience of persons residing within the jurisdiction of a Gaon Panchayat and for furtherance of the administration of Gaon Panchayats under the Act.
The prescribed authority in this case is the Executive Committee of the District Board (see, section 56 of the District Boards Act) which may be assumed for present purposes to be different from the District Board as such.
The contention on behalf of the appellant is that reading sections 15 and 16 together with section 111 it is obvious that regulation or control of trades, callings and practices is not within the purview of the Panchayat Raj Act.
There 86 is no doubt that neither section 15 nor section 16 contains any provision corresponding to section 91(q) of the District Boards Act.
Therefore, prima facie the Panchayat Raj Act has nothing to do with the regulation or control of offensive, dangerous or obnoxious trades, callings or practices and this power of the District Board is unaffected by anything in the Panchayat Raj Act.
Learned counsel for the respondent, however, urges that though there is no specific provision relating to such regulation or control in the Panchayat Raj Act in sections 15 and 16, this matter of regulation and control is impliedly covered by el.
(c) of section 15 of the Panchayat Raj Act, which enjoins on a Panchayat the duty to make reasonable provision for sanitation and taking curative and preventive measures to remove and to stop the spread of an epidemic.
It is urged that sanitation ' must be given a very wide meaning and that meaning will include the regulation of offensive, dangerous or obnoxious trades.
It may be that on the widest meaning of the word " sanitation " such regula.
tion may be included in it; but looking to the scheme of the District Boards Act as well as the Panchayat Raj Act, it is, in our opinion, not correct to give the widest possible connotation to the word " sanitation " in cl.
(c) of section 15.
Section 91(m) of the District Boards Act provides for " public vaccination, sanitation and the prevention of disease "; but in spite of this entry relating to sanitation there are other provisions in section 91 which deal with what would be covered by " 'sanitation " if it were to be given the widest possible meaning as, for example, cl.
(e) relating to construction and repair of public wells, etc.
and drainage works and the supply of water from them ; el.
(n) relating to provision of a sufficient supply of pure and wholesome water where the health of the inhabitants is endangered by the insufficiency or unwholesomeness of the existing supply, guarding from pollution water used for human consumption and preventing polluted water from being so used; cl.
(r) relating to dissemination of knowledge on such matters as disease, hygiene, sanitation, etc.
This will show that the word " sanitation " in cl.
(m) of section 91 is not used in its widest sense.
87 Similarly in section 92 (which provides for optional duties of District Boards), cl.
(c) refers to reclaiming unhealthy localities; and cl.
(i) to conserving and preventing injury or contamination to or pollution of, rivers and other sources of water supply, which matters would be covered within the wide meaning of sanitation.
It is obvious therefore that when the word " sanitation" is used in the District Boards Act it is used in a restricted sense.
Similarly in the Panchayat Raj Act cl.
(c) of section 15 mentions " sanitation ".
Clause (g) relates to regulation of places for the disposal of ' carcases and of other offensive matters which would clearly be covered by " sanitation " in its widest sense and would have been unnecessary if sanitation was to be given its widest meaning in this section.
Clause (k) of section 15 provides for regulation of sources of water supply for drinking purpose which would again be included within the widest meaning of the word " sanitation ".
Clause (r) provides for allotment of places for storing manure which would again be embraced within the widest meaning of the word " sanitation " and need not have been separately provided for, if sanitation in cl.
(c) had the wide meaning urged for it on behalf of the respondent.
Further section 16 (which deals with discretionary functions of a Gaon Panchayat) provides in cl.
(c) for filling in of insanitary depressions and levelling of land a clause which would be unnecessary if " sanitation " has the widest possible meaning.
Clause (1) of section 16 provides for regulating the collection, removal and disposal of manure and sweepings and making arrangement for the disposal of carcases of animals, which again would be covered by el.
(c), if sanitation is to be given the widest possible meaning.
Clause (m) provides for prohibiting or regulating the curing, tanning and dyeing of skins within 220 yards of the abadi, which again would be covered by the word " sanitation " if it had the wide meaning urged on behalf of the respondent.
It would thus be clear that both in the District Boards Act as well as in the Panchayat Raj Act when the word " sanitation " has been used it has not been used in its widest sense; it seems to have been used in its ordinary meaning i. e., the improvement of sanitary 88 conditions specially with regard to dirt and infection and would thus be confined to matters of conservancy and drainge and the like.
In the context therefore of both the District Boards Act and the Panchayat Raj Act, it seems to us that the word " sanitation " as used in section 91 of the District Boards Act and A. 15 of the Panchayat Raj Act is confined to its ordinary meaning in relation to conservancy and drainage and the like with reference to the necessity of avoiding dirt and disease and cannot be given such a wide meaning as to include control or regulation of trades, callings or practices.
Section 18 of the Panchayat Raj Act gives a clear indication that it is the ordinary meaning that is intended by the word " sanitation " in cl.
(c) of section 15.
Section 18 deals with improvement of sanitation and provides that a Gaon Panchayat may by notice direct the owner or occupier of any land or building, to close, remove, alter, repair, cleanse, disinfect or put in good order any latrine, urinal, water closet, drain, cesspool 'or other receptacle for filth, sullage water, rubbish or refuse and so on; to cleanse, repair, cover, fill up, drain off, deepen or to remove water from a private well, tank, reservoir, pool, pit, depression or excavation therein which may appear to be injurious to health or offensive to the neighbourhood; to clear off any vegetation, undergrowth, prickly pear or scrub jungle; and to remove any dirt, dung, nightson.
manure or any noxious or offensive matter therefrom and to cleanse the land or building.
It must therefore be held that the Panchayat Raj Act does not provide for control and regula tion of trades, callings or practices like section 91 (q) of the District Boards Act.
It is however urged that even though sections 15 and 16 do not specifically deal with control and regulation of trades, callings or practices, section Ill is in very general terms and gives powers to the prescribed authority to frame any bye laws relating to promotion or maintenance of health, safety and convenience of persons residing within the jurisdiction of a Gaon Panchayat.
It is true that these words in section III are of wide amplitude ; but they cannot, in our opinion, be widened 89 beyond the duties imposed on a Gaon Panchayat or Gaon Sabha under as.
15 and 16 or any other provi.
sion of the Panchayat Raj Act.
The bye laws framed under section 111 which are for the promotion or maintenance of health, safety and convenience have also to be in furtherance of the administration of Gaon Panchayats under the Act.
Therefore if Gaon Panchayats have administrative functions under as. 15 and 16 or any other provision of the Act, bye laws can be framed under a. 111 for these purposes in order to further the administration of Gaon Panchayats.
But, if as we have held, Gaon Panchayats are not invested with the duty to control and regulate trades, callings and practices, there can be no question of framing bye laws in that behalf under section 111 on the basis of the wide words used therein.
The power to frame bye laws under section 111 is, in our opinion, conditioned by the duties and functions imposed on a Gaon Panchayat under sections 15 and 16 as well as other provisions of the Panchayat Raj Act.
It is not in dispute that there is no other provision of the Panchayat Raj Act which imposes a duty on Gaon Panchayats to control or regulate trades, callings or practices and therefore the power under section 111 does not extend to prescribing bye laws for that purpose.
The only other section to which our attention is drawn is section 37(d) by which a Gaon Sabha has been given the power to impose a tax on trades, callings and professions, not exceeding such rate as may be prescribed.
This in our opinion has nothing to do with the regulation of trades, callings and practices and levying of licence fees in that behalf.
What this provision refers to is what is provided in item 60 of List II of the Seventh Schedule and not fees properly so called.
We are therefore of opinion that as the Panchayat Raj Act does not provide for control or regulation of the nature mentioned in section 91(q) of the District Boards Act, there is no question of the power of the District Board under section 174 to frame bye laws and to prescribe fees in that behalf being taken away by section 111 of the Panchayat Raj Act.
It seems that this aspect of the matter was not argued in the High Court at all and it 90 appears to have been assumed there that the Panchayat Raj Act also provided for the same matter as was covered by section 91(q) of the District Boards Act and it was probably on that basis that the High Court held that section Ill of the Panchayat Raj Act prevailed over section 174 of the District Boards Act.
In the view we have taken it is not necessary to consider the alternative argument raised on behalf of the appellant in respect of this point.
This brings us to the point which was not considered by the Appeal Court, though the learned Single Judge had dealt with it and held against the respondent.
That contention is that certain fees are being levied on the respondent in respect of these mills under the U. P. Rice and Dal Mills Control Order, 1948 and the U. P.
Pure Food Act and therefore the District Board cannot levy any further licence fee under section 91(q) of the District Boards Act read with section 174.
As pointed out by the learned Single Judge, the fees levied under the Control Order of 1948 which depends for its existence on the Essential Supplies Act and under the U. P.
Pure Food Act are for different purposes of those Acts.
The fee charged by the District Board is for regulation of obnoxious trades and the purpose of this regulation is different from the purpose for which fees are levied under the Essential Supplies Act and the Pure Food Act.
Under these circumstances we see no reason for striking down the regulatory provisions made under the District Boards Act and the licence fee charged thereunder.
The fact that there may be some overlapping between the regulatory provisions made under the U. P.
Pure Food Act and those made under the District Boards Act can have no relevance on the validity of the bye laws and the licence fee charged under them.
In this view of the matter, the appeal is allowed, the order of the Appeal Court set aside and the writ petition dismissed.
However, as the point on which the appellant has succeeded in this Court was not specifically raised in the High Court, we order the parties to bear their own costs throughout.
Appeal allowed.
| IN-Abs | The appellant framed bye laws for the regulation and control of flour, rice and oil mills under which a licence had to be obtained on payment of licence fee for running a mill.
The bye laws were framed under section 174 of the U. P. District Boards Act, 1922.
The respondent contended that the bye laws were ultra vires and void as the District Boards had been divested of their powers to regulate and control trade under the District Boards Act on account of section III of the P. P. Panchayat Raj Act, 1947, which operated in the same field.
Held, that the bye laws had been validly made and that the District Boards were not divested of their powers to regu late and control trade under the District Boards Act, 1922, by the provisions of U. P. Panchayat Raj Act, 1947.
Section 91(q) of the District Boards Act cast a duty on the District Boards to make provisions for regulating offensive, dangerous or obnoxious trades, callings or practices and section 174(2)(k) specifically empowered District Boards to make bye laws in this respect.
There was no similar duty or power conferred upon Village Panchayats under the Panchayat Raj Act and consequently the question of the later enactment prevailing over the former did 82 not arise.
The reference to "sanitation" in section 15(c) of the Panchayat Raj Act did not cover regulation and control of trade.
Though the word " sanitation " in its widest connotation was capable of including this, it was not used in its widest sense in section 15(c) but only in its ordinary sense in relation to conservancy, drainage and the like.
Section III of the Panchayat Raj Act was in general terms, but bye laws could be framed under it only in respect of the functions and duties imposed upon a Gram Panchayat under sections 15 and 16.
Held, further, that the licence fee charged by the District Board could not be struck down on account of fees being charged from the respondent in respect of his mills under the U. P. Rice and Dal Mills Control Order, 1948, and the U. P.
Pure Food Act.
The licence fee charged by the District Board was for the regulation of obnoxious trades and the purpose of this regulation was different from the purpose for which fee was charged from the respondent under the Essential Supplies Act and the Pure Food Act.
|
44 of 1958.
Petition under article 32 of the Constitution of India for enforcement of Fundamental Rights.
Naunit Lal and Gopal Singh, for the petitioners.
H. N. Sanyal, Additional Solicitor General of India, N. section Bindra, K. R. Choudhri and R. H. Dhebar, for the respondent.
October 27.
The petitioners have moved this Court under article 32 of the Constitution for a writ of mandamus against the respondent to verify the claims put forward by the petitioners and to grant compensation in respect thereof; but there is little merit to commend the acceptance of the petition.
The petitioners are displaced persons from West Punjab which is now known as West Pakistan and have taken up their residences in different parts of India.
They put forward certain claims in regard to village houses which they had left in West Pakistan and which were situate in different villages.
The petitioners have in their petition set out their respective claims which were rejected by the Rehabilitation authorities.
It is unnecessary to give details of the properties in the various villages in regard to which claims were made.
It is sufficient to say that the claims were put forward and they were for amounts above Rs. 20,000 in the case of petitioners Nos. 1 and 2 and above Rs. 10,000 in the case of petitioners Nos. 3 The petitioners challenge the vires of two rules Rule 5 under the , (Act 12 of 1954) and r. 65 of the Rules made under the Displaced Persons (Compensation and Rehabilitation Act), Act 44 of 1954.
The challenge is on the ground of violation of article 14 of the Constitution.
It is necessary at this stage to set out the various Acts and regulations which were passed in regard to displaced persons dealing with 122 verification of their claims and the giving of compensation to them.
On April 1, 1948, the East Punjab Refugees (Registration of Claims) Act, 1948, East Punjab Act 8 of 1948, was passed and this was followed by the East Punjab Refugees (Registration of Land Claims) Act 12 of 1948.
In the latter Act " land " was defined in section 2(b) to mean " land which is not occupied as the site of any building in a town or village and is occupied or let for agricultural purposes or for purposes subservient to agriculture or for pasture and includes (i) the sites of buildings and other structures on such land;".
Under section 2(a) " claim " was defined as " a statement of loss or damage suffered by a refugee since the first day of March 1947, in respect of his land within the territory now comprised in the Province of (Punjab in Pakistan), North West Frontier Province, Sind or Baluchistan, or in any State adjac.
ent to the aforesaid Provinces and acceding to Pakistan ".
Section 4(1) of that Act made provision for submission for registration of claims in respect of land abandoned by a refugee.
On November 19, 1949, East Punjab Displaced Persons (Land Settlement Act) 1949, East Punjab Act 36 of 1949, was passed.
By section 2(b) of this Act the word " allottee " was defined and by section 2(d) " land " was defined.
This definition which was slightly different from the definition in the East, Punjab Act (Act 12 of 1948) was as follows: section 2(d). " " Land " means land which is not urban land and is not occupied as the site of any building in a town or village and is occupied or let for agricultural purposes or for purposes subservient to agriculture or for pasture and includes (i) the sites of buildings and other structures on such land;".
On May 18,1950, another Act, the Displaced Persons (Claims) Act 44 of 1950, was passed by the Central Legislature.
In this Act " claim " was defined in 123 section 2(a) as " the assertion of a right to the ownership of, or to any interest in (ii) such class of property in any part of West Pakistan other than in any urban area as may be notified by the Central Government in this behalf in the Official Gazette;".
This Act was in force for two years and then lapsed.
Under section 2(a)(ii) the Central Government issued a notification on May 27, 1950, specifying the property in respect of which claims might be submitted.
The properties were: (1) Any immoveable property in West Pakistan which forms part of the assets of an industrial undertaking and is situate in an area other than an urban area.
(2) Any other immoveable property in West Pakistan comprising of a building situated in an area, other than an urban area, the estimated cost of construction of which at present prevailing rates is not less than Rs. 20,000.
(3) Any agricultural land in any part of West Punjab ".
This shows that claims could only be submitted in regard to building in a rural area which was valued at not less than Rs. 20,000 and there was no such restriction in regard to urban area.
This notification was amended by a notification dated September 13, 1950.
Clause (2) of the previous notification was substituted by a new clause: " (2) Any other immoveable property in West Pakistan comprising of a building situated in an area other than an urban area; provided that where the person making the claim hag been allotted any agricultural land in India (a) where the gricultural land so allotted exceeds 4 acres the value of the building in respect of which the claim is made shall not, according to the present estimated cost of construction, be less than Rs. 20,000.
(b) where the agricultural land so allotted is 4 acres or less, the value of the building in respect of which the claim is made shall not, according to the 124 present estimated cost of construction, be less than Rs. 10,000.
Explanation 1. . . . .
Explanation 11.
For the purpose of this clause a person shall be deemed to have been allotted agricultural land in India if he is allotted such land in any manner whatsoever whether on temporary or quasipermanent basis." On March 23, 1954, the of 1954, was passed and a. 12 provided for the making of rules.
Rule 5 was made in the following terms: " R. 5.
The classes of property in respect of which claims may be verified under these rules shall be the same as under the principal Act and the rules made thereunder, that is to say (1) any immoveable property situated within an urban area in West Pakistan; (2) any immoveable property in West Pakistan, which forms part of the assets of an industrial undertaking and is situated in any area other than an urban area ; (3) any other immoveable property in West Pakistan comprising of a building situated in any area other than an urban area; Provided that where a claimant has been allotted any agricultural land in India and that (a) where the agricultural land so allotted exceeds four acres, the value of the building in respect of which the claim is made shall not, according to the present estimated cost of construction, be less than Rs. 20,000, (b) where the agricultural land so allotted does not exceed four acres, the value of building in respect of which the claim is made, shall not, according to the present estimated cost of construction, be less than Rs. 10,000." Explanation II is in the same terms as in the notification of September 13, 1950.
On October 9, 1954, the 44 of 1954 (to be hereinafter termed Act 44 of 1954) was enacted by Parliament.
Section 2(a) defines compensation pool 125 which is constituted under section 14.
Section 2(e) defines " verified claim " as follows : " " Verified claim " means any claim registered under the Displaced Persons (Claims) Act, 1950 (44 of 1950) in respect of which a final order has been passed under that Act or under the , but does not include Section 4 provided for application for payment of compensation.
Section 7 for the determination of the amount of compensation and section 40 for the making of rules.
Rules were made under this Act by a notification No. section R. O. 1363, dated May 21, 1955.
Rule 2(h) defines " urban area " and a. 2(f) " rural area " which means area which is not an urban area Rule 16 provides for the scale of compensation which is set out in appendix 8 or 9.
Under r. 18 compensation was to be determined on the total value of all claims which included all kinds of properties other than agricultural land left by claimants in West Pakistan.
Rule 44 deals with allotment of acquired evacuee houses in rural areas in lieu of compensation.
Under sub section
(3) of this rule houses in rural areas were graded and under r. 47 payment of compensation was to be made subject to r. 65.
Rule 57 provided for allotment of houses in addition to agricultural land.
This rule provided: R. 57. " A displaced person having a verified claim in respect of agricultural land who has settled in a rural area and to whom agricultural land has been allotted a house in addition to such land in accordance with the following scale (1) Claimants allotted land up to Ten Standard acres Grade (H), (2) Claimants allotted and exceeding Ten Standard acres but not exceeding fifty standard acres . . .
Grade (G) provided that if such person holds a verified claim in respect of any rural building and that claim has been satisfied wholly or partially before the allotment of such land the provisions of rule 65 shall not be 126 applicable in his case but he shall not be entitled to the allotment of a house or a site and building grant in lieu thereof.
Explanation 1 Where no house is available in the same village, an allottee may be granted: (a) if he has been allotted agricultural land not exceeding ten standard acres, a site measuring 400 square yards and a building grant of Rs. 400; and (b) if he has been allotted agricultural land exceeding ten standard acres but not exceeding fifty standard acres a site measuring 600 square yards and a building grant of Rs. 600.
Explanation II The reference to grades in this rule is to the grades of houses specified in rule 44.
" Rule 61 deals with refusal of acceptance of allotment and is as under: Rule 61.
" Where any person refuses to accept the allotment of any agricultural land offered to him the claim for compensation of the allottee shall be deemed to have been satisfied to the extent of the value of the allotted land and such land shall be available for allotment to any other claimant." The impugned rule 65 provided: " (1) Any person to whom more than four acres of agricultural land have been allotted shall not be entitled to receive compensation separately in respect of his verified claim for any rural building the assessed value of which is less than Rs. 20,000.
(2) Any person to whom four acres or less of agricultural land have been allotted shall not be entitled to receive compensation separately in respect of his verified claim for any rural, building the assessed value of which is less than Rs. 10,000 ".
It was argued on behalf of the petitioners that the object of the various Acts and the rules made thereunder was to rehabilitate displaced persons but by the rules a classification had been made which was discriminatory as neither the classes were based on any intelligible differentia nor was there a rational nexus between that differentia and the object sought to be achieved.
The classification, according to the argument was: (1) between urban population and rural 127 population; (2) between refugees from rural areas who owned lands and those who owned only rural houses and (3) between those who had quasi permanent and permanent allotments.
In order to determine the question raised it is necessary to trace in chronological order the various steps taken to rehabilitate the millions of persons who were forced to migrate into India leaving behind properties worth varyingly large amounts.
When displaced persons came from West Punjab and other provinces of India which became Pakistan, the authorities allotted to every agricultural family certain area of agricultural land the object being (1) to give temporary shelter to the displaced persons and (2) to preserve whatever crops bad been left by persons who went away to Pakistan.
At an Inter Dominion Conference between the Governments of India and Pakistan held at Karachi between January 10 and 13, 1949, a permanent Inter Dominion Commission was set up to consider the question of administration, sale and transfer of evacuee property in both the dominions.
In pursuance of this decision the question in respect of shops and houses in rural areas was considered by the Commission at New Delhi on March 11 and 13, 1949.
It was recommended at this meeting that buildings in rural areas of the value of Rs. 20,000 or more should be considered to be substantial buildings and the buildings which were of lesser value than that were to be treated as appendages of agricultural land and as such were to be treated as " agricultural properties " : vide the minutes of that meeting at p. 242 of a compilation known as " Documents concerning Evacuee Property" of the years 1947 51.
Chapter IX of the Land Resettlement Manual for Displaced Persons by Mr. Tarlok Singh, a book of undoubted authenticity and value, deals with allotment of rural houses and sites.
Rule 3 shows how the equitable distribution of houses was to be effected.
In order to ensure fairness the size of the land allotment made to a displaced person and the type of house abandoned by him were considered to be major factors.
For each standard acre allotted 128 one mark was to be given and subject to a maximum of 20 marks houses abandoned in West Punjab were valued at the rate of one mark for each one thousand of the value of the house and houses above the value of Rs. 20,000 were excluded for allotment as they were to be dealt with according to the terms of an earlier agreement between India and Pakistan.
In each village after their relative rights had been valu ed, the allottees could choose houses according to the village list.
In appendix 11 of that book is set out the summary of principles of allotment of rural evacuee houses.
Evacuee houses of kamins (menial servants), artisans, etc.
were to be given to displaced artisans and evacuee shops to evacuee shopkeepers.
Rule 3 provided that temporary allotment did not create any rights of allotment on quasi permanent basis but subject to this, allottees were not to be disturbed if they are otherwise qualified for similar accommodation in the villages.
Elaborate rules are given in that Chapter as to how these allotments were to be made including partition of houses where two or more families could be accommodated.
Rule 20 is important and may be quoted : Rule 20.
"Where necessary, evacuee abadi sites should be extended to suit the layouts of model villages.
The Additional Deputy Commissioner should endeavour to persuade the allottees to surrender a part of their holdings in exchange for land out of the common pool or out of areas excluded from allotment ".
Rule 21 gave effect to another Inter Dominion agreement and therefore houses of the value of Rs. 20,000 or more which were liable to exchange or sale were excluded from allotment.
Thus according to these instructions contained in that book every effort was made to allot houses to persons who were allotted lands and in this manner compensation was sought to be given to displaced persons.
By rule 97 made under Central Act 44 of 1954, rehabilitation grants to allottees of agricultural land of less than 4 acres were to be given as follows: 129 R. 97.
" Any person who has been allotted four acres or less of agricultural land and whose claim in respect of rural buildings left in West Pakistan has, by virtue of such allotment, been totally rejected may be given a rehabilitation great: Provided that (a) he has not accepted such allotment of the agricultural land or such allotment has been cancelled ; (b) he does not hold a verified claim in respect of any other kind of property, that is to say, for any substantial rural building and Provided further that where any such person is given a rehabilitation grant under rule 97 A, he shall not be given a rehabilitation grant under this Rule 97 A provided: " Any person who has been allotted two standard acres or less of agricultural land in the State of Punjab or Patiala and East Punjab States Union under any notification specified in Section 10 of the Act may be given a rehabilitation grant at the rate of Rs. 450 per standard acre of the area allotted to him.
Provided that (a) he has not accepted such allotment of the agricultural land or such allotment has been cancelled; (b) he does not hold a verified claim in respect ,of any other kind of property, that is to say, for any urban property or for any substantial rural building ".
By Rule 57 which has already been quoted, houses of all grades were allotted to persons who were allotted certain areas of land and provision was made for building sites and payment of building grants where no houses were available in the villages.
These rules made under Act 44 of 1954 and those set out in Land Resettlement Manual by Mr. Tarlok Singh show that every one was allotted or was given building sites and money for the purpose of houses in rural areas.
The rule in regard to filing of claims for houses valued at Rs. 10,000 or more where allotment of land was up to 4 acres and Rs. 20,000 or more where allotment of land was in excess of 4 acres was also in pursuance of an Inter Dominion Agreement between the 17 130 two Governments which has received recognition in article 31(5)(b)(iii).
Thus it appears that rules made in regard to fixing of the value of the houses for claim of Rs. 10,000 in one case and Rs. 20,000 in the other was a policy decision arising out of an agreement at a meeting of the Inter Dominion Commission with regard to evaluation of evacuee property.
Rules which have been framed are only restatement of what was contained in the notifications of May 27, 1950, and September 13, 1950, which themselves were the result of decisions arrived at the meetings of the Inter Dominion Commission.
Under article 14 of the Constitution the State shall not deny to any person equality before the law or the equal protection of the laws within the territories of India.
By judicial decisions the doctrine of classification has been incorporated in the equality clause, but the classification cannot be arbitrary but must be based upon differences pertinent to the subject in respect of the purpose for which it is made.
There must be a reasonable nexus between the classification and the object sought to be achieved.
The object of the impugned provisions, read with the relevant Acts, is to rehabilitate the evacuees on an equitable basis.
To implement the scheme of rehabilitation the evacuee law has classified evacuees under different categories.
Broadly speaking, the main division is between persons who were residing in Pakistan in rural areas with agriculture as their avocation and those persons who were residing in urban areas in Pakistan.
Persons from rural areas have been divided into two categories, namely, persons who owned agricultural land with a building as part of the holding and persons who held agricultural land with an independent building which cannot be described as part of the holding.
Separate treatment is given to rural areas and urban areas.
In the rural areas, land with a building is treated as one unit, but when the building is of a substantial value it is put in a different category and separately compensated for.
This classification has certainly a reasonable relation to the object of rehabilitation, for it cannot be denied that the three categories require separate treatments for the purpose of 131 resettlement on new lands and for the payment of compensation.
It cannot be seriously disputed that a house in a rural area and that in an urban area cannot be treated alike, but the real grievance of the petitioners is in respect of the distinction between houses in rural areas.
As to what is a substantial building has to be ascertained and a line must be drawn somewhere.
Here the question arises whether the classification has been made arbitrarily and without any sound basis.
It may perhaps appear odd to say that a property worth Rs. 9,999 in one case or a property worth Rs. 19,999 in another would be a building of unsubstantial character or that the extent of the land, namely, four acres in one case and above four acres in another have any relevant bearing on the substantiality of the building.
This perhaps may lend support to the plea of discrimination but an unprecedented situation bad to be faced and provision made for the rehabilitation of such a vast multitude of humanity who had been uprooted from their homes.
This necessitated an equitable treatment for them all and an equal distribution of the available evacuee properties left in India.
In order to lighten the heavy burden undertaken an Inter Dominion adjustment became necessary and the two Dominions entered into an agreement presumably based upon the relevant circumstances in regard to the treatment of rural house property.
The reasonableness of the classification must therefore be judged after taking these surrounding circumstances and the conditions then prevailing into consideration.
The basis of the classification must be judged by the fact that compensation is given in every case.
Rules 57 and 97 A framed under Act 44 of 1954 afford a reasonable justification for the classification.
Under the Rules every displaced person who has settled in a rural area is allotted a house in addition to such land; if no house is available in the same village the allottee is given a site and a building grant.
But where his claim for a house is rejected he is given 132 a rehabilitation grant.
But under the impugned provisions separate compensation is given for a rural house of value above a prescribed limit.
It will, therefore, be seen that the classification is not arbitrary but is based upon sound principles and on equitable considerations.
A distinction between a rural house which is part of a holding and one which is not a part of a holding but an independent unit is made and different principles of rehabilitation are applied to meet different situations.
The hardship which the division into two categories must cause is diluted by providing to the claimant falling on the wrong side of the line a rural house or a rehabilitation grant.
The attack on the ground of want of intelligible differentia must fail.
Appendix XI of Land Resettlement Manual by Mr. Tarlok Singh illustrates the principles of allotment of rural evacuee houses and the elaborate system of marking which was done in order to either give houses to allottees of land or to give them building sites with subsidy to build houses and finally in r. 97 and r. 97 A of the rules made under Act 44 of 1954 detailed provisions were made for rehabilitation grants including grants to those allottees of agricultural land whose claim for rural property had been rejected or who had refused to take land allotted to them.
Similarly r. 57 which has been quoted above shows that a provision has been made for giving sites as well as subsidy for building houses.
It cannot be said therefore that the rules suffer from any infirmity on the ground of discrimination.
In the result this petition fails and is dismissed with costs of.
Petition dismissed.
| IN-Abs | The petitioners who were displaced persons from West Pakistan put forward certain claims in regard to village houses which they had left there, but which were rejected by the Rehabilitation authorities.
The claims were for amounts above Rs. 20,000 in the case of some of the petitioners and above Rs. 10,000 in the case of the others.
By r. 5 framed under the , claims could be verified provided, inter alia, that where a claimant had been allotted any agricultural land in India and such land so allotted exceeded four acres, the value of the building in respect of which the claim was made shall not be less than Rs. 20,000 and where it did not exceed four acres the claim made was not less than Rs. 10,000 Rule 65 of the , provided that any person to whom more than four acres of agricultural land had been allotted shall not be entitled to receive compensation separately in respect of his verified claim for any rural building the assessed value of which was less than Rs. 20,000, and any person allotted four acres or less was not entitled to receive compensation where the value was less than Rs. 10,000 The petitioners challenged the validity of the aforesaid rules as being discriminatory and thereby contravening article 14 of the Constitution of India on the grounds that the object of the various Acts and the rules made thereunder was to rehabilitate displaced persons but by the rules, classifications had been made with reference to houses in rural areas which were discriminatory as neither the classes were based on intelligible differentia nor was there a rational nexus between that differentia and the object sought to be achieved.
It was found that the impugned rules were made in pursuance of an Inter Dominion Agreement between the two Governments with regard to evaluation of evacuee property, which had received recognition in article 31(5) (b)(iii) of the Constitution.
Held, that the impugned rules afforded a reasonable justifi cation for the classification and did not contravene article 14 of the Constitution.
|
Appeal No. 357 of 1958.
Appeal from the judgment and order dated April 24, 1957, of the Patna High Court in Misc.
Judicial Case No. 57 of 1955.
A. V. Viswanatha Sastri and I. N. Shroff, for the appellant.
K. N. Rajagopal Sastri and R. H. Dhebar, for the respondent.
October 25.
The Judgment of the Court was delivered by SHAH J.
The appellant executed a deed of trust settling certain lands described in schedule " A " and the rents of lands described in schedule " C " for the maintenance of certain temples and Thakoorbaries.
The material terms of the deed of trust are: cl.
6: " And whereas the declarant feels that a Declaration of Trust should be made whereby the income of a part of the Raj properties may be earmarked and specially devoted to the maintenance of the aforesaid institutions as also the Declarant may as hitherto treat himself and be treated by others as a legal Trustee of the said institutions and the properties out of the income of which the said maintenance is being and will be provided for." cl.
7: " The declarant declares that henceforth he holds and will hold the properties detailed at the foot thereof in Schedule " A " in trust for religious purposes of maintaining the religious institutions more fully described in Schedule " B " annexed here to. " cl. 8 : "The declarant further declares that in all lands now held by him in the aforesaid properties as Bakast or proprietor 's private lands as in the schedule " C " which are in direct khas cultivation of the Declarant shall henceforth be or continue to be his tenancy lands for which the Declarant shall pay the rental as noted against such lands, annually to the " trustee for the use and benefit of the aforesaid institutions and the rights of the Declarant in them 76 shall be those of a rayat under the Bihar Tenancy Act.
" The net income of all the lands set out in Schedule A '. ' after providing for the expenses of management and the taxes payable thereon was estimated at Rs. 1,81,717 and the net rental of the properties described in Schedule " C " was estimated at Rs. 10,208 and from the aggregate of these two amounts after deducting 15% as trustee 's remuneration, the balance of the income estimated at Rs. 1,63,136 4 0 was to be utilised for the objects of the trust.
In the assessee 's income determined by the Income Tax Officer for the assessment year 1950 51, Rs. 6,000 were included as income from non agricultural properties of the trust.
In the view of the Income tax Officer, the trust was not a, public religious trust and the income derived from properties not used for agriculture was not exempt from liability to pay tax in the hands of the appellant.
In appeal against the order of assessment, the Appellate Assistant Commissioner held that the income coming to the hands of the appellant from the trust properties was not taxable as private income of the appellant, but in his view, the remuneration amounting to Rs. 21,274 computed at the rate of 15% on the net income of the trust properties in the year in question not being agricultural income in the appellant 's hands was liable to be taxed.
In appeal to the Income tax Appellate Tribunal, Patna Bench, Patna, the order passed by the Appellate Assistant Commissioner in so far as it related to remuneration received by the appellant was affirmed.
The High Court of Judicature at Patna thereafter at the instance of the appellant directed the Income tax Appellate Tribunal to submit a statement of the case on five questions set out in the order.
The fifth question (which is the only question material in this appeal) was as follows: " Whether, in the facts and the circumstances of the case, the amount of Rs. 21,274 being the amount paid to the assessee in his character of a Shebait of the Trust properties should have been held to be exempted from taxation on the ground that it is agricultural income ?" 77 The High Court agreed with the Tribunal that the remuneration was received by the appellant under a contract, and it was not agricultural income, merely because the source of the money was agricultural income.
The High Court accordingly answered the fifth question " against the assessee".
This appeal is filed by the appellant with leave under section 66A(2) of the Indian Income tax Act granted by the High Court limited to the question whether the amount received by the appellant from the trust property in his character as a shebait was exempt from liability to pay The material part of the definition of " Agricultural income " in section 2(1) is as follows: " Agricultural income " means (a) any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in the taxable territories or subject to a local rate assessed and collected by officers of the Government as such.
(b). . . . . . . . . . .
Agricultural income falling under cl. (a) ought manifestly to be received as rent or revenue derived from land used for agricultural purposes.
The income received from agricultural properties of the trust by the appellant as trustee was indisputably agricultural income in his hands and it was by virtue of section 4(3)(viii) exempt from liability to pay tax.
The appellant claims that the remuneration which by the convenant contained in the deed of trust he has received is also exempt under section 4(3)(viii) because, when he appropriated a fraction of the rent or revenue of agricultural lands towards his remuneration, the original character of the income was not altered.
The appellant has no beneficial interest in the lands which are the subject matter of the trust : nor is he given under the trust a right to receive and appropriate to himself the income of the properties or a part thereof in lieu of any beneficial interest in that income.
The source of the right in which a fraction of the net income of the trust is to be appropriated by the appellant as his remuneration is not in the right 78 to receive rent or revenue of agricultural lands, but rests in the covenant in the deed to receive remuneration for management of the trust.
The income of the trust appropriated by the appellant as remuneration is not received by him as rent or revenue of land; the 'Character of the income appropriated as remuneration due is again not the same as the character in which it was received by the appellant as trustee.
Both the source and character of the income are therefore altered when a part of the income of the trust is appropriated by the appellant as his remuneration, and that is so, notwithstanding that computation of remuneration is made as a percentage of the income, a substantial part whereof is derived from lands used for agricultural purposes.
The remuneration not being received as rent or revenue of agricultural lands under a title, legal or beneficial in the property from which the income is received, it ' is not income exempt under section 4(3) (viii).
We may briefly refer to the authorities which illustrate the meaning of " agricultural income " in section 2(1) of the Income tax Act.
In Nawab Habibulla.
vs Commissioner of Income Tax, Bengal(1), the Privy Council held that the remuneration received by a mutwalli of a wakf estate, not depending on the nature of the properties or assets which constitute the wakf nor on the amount of income derived from the wakf estate, is not agricultural income within the meaning of section 2(1) of the Indian Income tax Act even though the income derived by the wakf estate is from properties used for agricultural purposes.
In Premier Construction Co., Ltd. vs Commissioner of Income Tax, Bombay City (2), it was held by the Privy Council that income received by an assessee not itself of a character to fall within the definition of agricultural income does not assume the character of agricultural income by reason of the source from which it is derived, or the method by which it is calculated.
But if the income received falls within (1) (1943) L.R. 70 I.A. 14.
(2) (1948) L.R. 75 I.A. 246.
79 the definition of agricultural income, it earns exemption, in whatever character the assessee receives it.
In that case, the remuneration payable to a managing agent of a company in consideration of services to be rendered was a minimum annual salary of Rs. 10,000 payable irrespective of whether the company made.
any profit; but if 10% of the profits made by the company exceeded Rs. 10,000 the agent was to get an additional remuneration calculated as a percentage upon the profits of the company without regard to the source from which those profits were derived.
One of the sources of income of the company was agricultural income.
It was held by the Privy Council that the assessee received no agricultural income as defined by the Act: he received remuneration under a contract for personal service calculated on the amount of profits earned by the employer.
In Commissioner of Income Tax, Bihar and Orissa vs Kameshwar Singh(1), income received by a mortgagee who went into possession of properties mortgaged to him was held to be agricultural income; but that was because under the deed of mortgage, the mortgagee was to be in possession of the properties and in his relation to the cultivators of the soil, he stood in the position of landlord dealing directly with them and collecting the rents.
The mortgagee had to pay Government revenue, cesses and taxes and his name was registered in the Land Registration Department.
He alone was able to sue for rent whether current or arrears, to sue for enhancement or for ejectment and was able to settle lands with raiyats and tenants in all the properties, in fact, he was in a position to take all proceedings which the mortgagor would have been able to take in the ordinary course if the lands leased and mortgaged had remained in the mortgagor 's possession.
The mortgagee received the income, because of the legal ownership vested in him and even though under the covenant of the mortgage deed, he was required to appropriate the income towards his dues, the income in his hands did not cease to be agricultural income.
In Kameshwar Singh 's case (1), the court was called upon to consider (1) (1935) L.R. 62 I.A. 215.
80 the nature of the primary receipt by the mortgagee and not of the appropriation made under the coven.
ant of the deed of mortgage.
In K. B. Syed Mohammad Isa and another vs Commissioner of Income Tax, Central and United Provinces (1), the assessee was a mutwalli appointed under two deeds.
Under both the deeds, he was to receive agricultural and non agricultural income and to utilise the same for purposes of the trust.
Under one of.
the two deeds of trust, the balance was to be retained by the mutwalli for his personal expenses and in the other in lieu of his services.
It was held by the Allahabad High Court that the residue of the amounts retained by the mutwalli under both the deeds of trust was, as agricultural income, exempt from liability to pay tax.
In the view of the court, though the language used in the two deeds of trust was different, the intention of the settler was the same: the mutwalli was required to perform the functions of his office and so long as he did so, he was entitled in consideration of this service to appropriate the residue of the profits.
But in each case, the mutwalli was a beneficiary with an obligation attached to his enjoyment of the benefit, and had therefore two capacities, one as mutwalli and the other as beneficiary.
The court on those facts held that the balance of the income from the zamindari went" through the mutwalli " to the beneficiary by virtue of an obligation imposed under the terms of the trust deed itself upon the income of the property '.
The mutwalli was the channel through which the beneficiary received the money and the beneficiary was to all intents and purposes the direct recipient of the income, and there was no change of source and no alteration in the character of the income.
It remained agricultural income after it had passed into the hands of the beneficiary.
In the present case, the appellant has no beneficial interest in the trust property.
The appellant so far as his remuneration is concerned is again not the direct recipient of the income of the (1) I,L.R. [1942] All. 425. 81 both altered when agricultural income is appropriated under the covenant in the deed of trust as remuneration for services rendered.
In this view, the appeal fails and is dismissed with costs.
Appeal dismissed.
| IN-Abs | The appellant executed a deed of trust settling some of his lands for the maintenance of certain temples and Thakoorbaries.
He was to be the trustee of the institutions and was to get 15% of the net income of those lands as trustee 's remuneration.
Before the income tax authorities the appellant claimed that as the income received from agricultural properties of the trust by him as trustee was agricultural income in his hands and was by virtue of section 4(3)(viii) of the Indian Income tax Act, 1922, exempt from liability to pay tax, the remuneration which by the covenant contained in the deed of trust he received was also exempt under that section because, when he appropriated a fraction of the rent or revenue of agricultural lands towards his remuneration, the original character of the income was not altered.
Held, that the source of the right in which a fraction of the net income of the trust was to be appropriated by the appellant as his remuneration was not in the right to receive rent or revenue of agricultural lands, but rested in the covenant in the deed to receive remuneration for management of the trust, and the character of the income appropriated as remuneration was not the same as the character in which it was received by the appellant as trustee.
Consequently, the remuneration not being received as rent or revenue of agricultural lands under a title, legal or beneficial in the property from which the income was received, it was not agricultural income within the meaning of section 2(1) of the Indian Income tax Act, 1922, and was not exempt from taxation under section 4(3)(viii) of the Act.
Nawab Habibulla vs Commissioner of Income tax, Bengal, (1943) L.R. 7,D I.A. 14 and Premier Construction Co. Ltd. vs Commissioner of Income tax, Bombay City, (1948) L.R. 75 I.A, 246, relied on.
Commissioner of Income tax, Bihar and Orissa vs Kameshwar Singh, (1935) L.R. 62 I.A. 215, distinguished.
|
, Appeals Nos. 202 and 203 of 1958.
Appeals from the judgment and decree dated October 5, 1956, of the Patna High Court in Misc.
Judicial Cases Nos. 330 and 331 of 1955.
K. D. Chatterjee, section N. Andley and J. B. Dadachanji, for the appellants.
D. P. Singh, for the respondents.
October 26.
The Judgment of the Court was delivered by AYYANGAR J.
These two appeals are from a common judgment of the High Court of Patna dated October 5, 1956, in two petitions under article 226 of the Constitution and have been filed pursuant to a certificate granted by the High Court under article 132.
The Tobacco Manufacturers (India) Ltd., the appellants in the above appeals are an incorporated company manufacturing cigarettes and tobacco in their factory at Monghyr in the State of Bihar, and these 109 appeals are concerned with the legality of the levy of sales tax under the Bihar Sales Tax Act (hereafter referred to as the Act) on the appellants in respect of sales effected during the financial years 1949 50 and 1950 51.
The point urged in these appeals is a very narrow one and relates to the proper construction to be placed on certain orders of the Board of Revenue passed in regard to the tax properly leviable for these two years.
The facts relevant to this point are briefly these The assessment of the appellants for both the years was completed by the Superintendent of Sales Tax, Monghyr, on May 7, 1952, and the total tax liability was determined in the sum of Rs. 6,44,940 2 6 and Rs. 7,46,876 1 3 for the two assessment years 1950 51 and 1951 52 respectively.
Before the assessing officer, the appellants contended that all sales effected by them as a direct result of which the goods were delivered outside the State of Bihar were exempted from tax liability under article 286(1)(a) of the Constitution.
This objection was overruled, the reason assigned being, that the sales were completed in Bihar, and that the entire turnover of the appellants was therefore subjected to tax under the Act.
In taking this view the assessing authority followed a previous ruling of the Board of Revenue of the State in the Bengal Timber case (Case 61 of 1952).
An appeal preferred to the Deputy Commissioner of Sales Tax, Bihar, by the appellants was dismissed on October 8, 1952, on the same grounds.
The appellants paid the tax demanded for both the years and invoked the revisional jurisdiction of the Board of Revenue.
In their petitions to the Board the appellants pointed out, that the sales of goods delivered for consumption outside the State of Bihar which involved a tax liability of Rs. 1,23,813 0 2 in the earlier year and Rs. 7,10,185 12 0 in the later year were made up of two types of transactions: (a) those in which the goods thus delivered were for consumption in the State of first delivery or first destination, (b) those in which the goods thus delivered were 110 for consumption, not in the State of first delivery but in.
other States.
(These two classes would be referred to hereafter for convenience as typo (a) and type (b) respectively).
The appellants claimed that on the proper construction of article 286(1) & (2) they were entitled to have both these types of sales excluded from their taxable turnover.
By the date of the hearing of these petitions by the revisional authority, this Court had rendered the decision in State of Bombay vs United Motors (India) Ltd. and Others (1) expounding the scope of the explanation to article 286(1)(a) and its inter relation to the exemption under article 286(2), and naturally this decision was brought to the attention of the member of the Board at the hearing.
Without examining whether the decision cited did or did not cover both the two (a) & (b) types of sales effected by the appellants, the Board passed on August 28, 1953, a laconic order in these terms: "The two points urged in this Court were among those points urged in the Lower Court and they are (i) No tax should have been levied on the Company 's canteen sales.
(ii) that despatches outside the State for consumption in other States should not have been taxed for the period after the Constitution came into force.
As regards the admitted despatches of goods out.
side the State after the 26th January, 1950, when the Constitution came into force, the learned Lower Court has been guided by the decision of the Board in the Bengal Timber case (Case No. 61 of 1952).
But this ruling of the Board stands superseded by the subsequent decision of the Supreme Court in the United Motor 's case,.
According to the decision of the Supreme Court, no tax can be levied on despatches to the places outside the State after the 26th January, 1950 and on this point the petition are allowed, and the (1) ; 111 sales tax officer directed to recalculate the amount of tax payable by the assessee ".
Apparently the appellants understood this order as meaning that all sales, whereunder goods were delivered outside the State, whether or not for consumption in the State of first delivery (i.e., both types (a)& (b)) were exempted from the tax levy.
The sales tax authorities, however, took the order to mean that only those sales in which deliveries were made outside the State for consumption in the State of first destination, i. e., those of type (a) were intended to be exempted, and these rival interpretations were put forward in the correspondence that passed between the appellants and the sales tax authorities.
The appellants made an application for the refund of the amount of tax attributable to all the sales under which goods were delivered outside the State, but the tax authorities sticking to their interpretation of the order of the Board and of their interpretation of the decision of this Court in the United Motors case (1) refunded the tax collected on the sales falling within type (a) but refused to refund Rs. 20,923 15 2 for the 1st year and Rs. 1,29,823 5.0 for the later year these amounts representing the tax on sales of type (b).
The appellants however persisted in pressing their claim for the refund of these amounts also.
In this state of affairs, the State of Bihar moved the Board of Revenue to review its order dated August 28, 1953, or at any rate clarify it so as to confine its operation to sales falling within type (a), urging that this would bring it in accord with the interpretation of article 286(1) by this Court in the United Motors case (1).
The appellants objected to the jurisdiction of the Board of Revenue to review its previous decision and on April 25, 1955, it passed the following order : " These are what appear to be two miscellaneous petitions filed on behalf of the State of.
Bihar seeking certain clarifications regarding the interpretation of the Board 's order dated 28 8 1953 in Cases Nos.
514 of 1952.
After argument was heard it was conceded (1) ; 112 by both parties that there is no provision in the Act under which the parties concerned may move the court to clarify or explain the order passed, this function essentially being a matter of legal advice.
It was also agreed that no further clarification was really required in view of the specific reference to the judgment of the Supreme Court in the United Motor 's case.
The petitions are, therefore, rejected.
" If the order of the Board dated August 28, 1953, was laconic and ambiguous, the later order dated April 25, 1955, was if anything more obscure.
The appellants, however, considered it an order in their favour, because the petition by the State for clarification of the first order on the lines of the interpretation put upon it by the tax authorities had been dismissed, and when the refusal to refund the two sums of tax referred to earlier was continued, they filed two petitions in the High Court of Patna under article 226 of the Constitution for the issue of writs of mandamus to compel the refund of the tax on the principal ground that a duty to do so had been imposed by the orders of the Board of Revenue, though the petition made an incidental reference to the appellants being entitled to such refund on a proper construction of article 286(1) & (2) of the Constitution, even apart from the order of the Board of Revenue.
The learned Judges of the High Court however in the main considered the question whether on a proper interpretation of the relevant Articles of the Constitution, sales under which goods were delivered outside Bihar but for consumption not in the State of first delivery, were exempt from tax under the Bihar Sales Tax Act and decided the point against the appellants.
They next dealt with the central point urged in the petitions, viz., that the Board of Revenue by its order dated August 28, 1953, had allowed the appellant 's revision in regard to " the second point " which included sales of all categories whether or not for the purpose of consumption in the State of first destination outside Bihar, and directed the Sales tax Officer to recompute the tax by allowing this exemption, and that the officer was therefore statutorily bound to 113 give effect to the order of the Board, be the same right or wrong, particularly when the Board refused to vary or modify it so as to exclude particular types of sales from the scope of the exemption when moved to do so by the State Government.
In regard to this point after stating that the orders of the Board of Revenue were ambiguous, the learned Judges proceeded to answer the question on the assumption that the Board of Revenue had directed the officer to recompute the tax on the basis that all the outside sales both the (a) and the (b) types were exempted from liability.
The learned Judges then pointed out that the order of the Board would be clearly erroneous in regard to the (b) type sales and that the petitioner in a writ of mandamus could not insist on a manifestly wrong order being enforced.
The petitions were therefore dismissed.
The appellants applied to the High Court for certificates under articles 132 and 133, but the learned Judges granted a certificate under article 132 alone and it is on the strength of these certificates that the appeals are before us.
The principal point that Mr. Chatterjee, learned Counsel for the appellants, argued before us related to the duty of the tax authorities to obey the orders of the Board of Revenue and give effect to them, and he submitted that the High Court erred in denying his clients the relief of mandamus on the ground that that order was erroneous.
In support of this argument learned Counsel sought reliance on a recent decision of this Court in Bhopal Sugar Mills V. Com missioner of Income tax (1) in which it was held that when an order was made by a superior tribunal (in that case the Income tax Appellate Tribunal) directing the Income tax Officer to compute the income of an assessee on a particular basis and that order had become final, the subordinate officer had no right to disregard the direction, because it was wrong and that the High Court when approached by the assessee for the issue of a writ of mandamus, was bound to (1) [1961] 1 S.C. R 474 15 114 enforce the final order of the superior Tribunal and could not refuse to do so because it considered the order of the Tribunal to be wrong.
This Court pointed out that when the order which the Tribunal had jurisdiction to pass became final, it bound all parties to it and its correctness could not be challenged collaterally in proceedings for enforcing that order.
The attempt of learned Counsel for the appellants was to bring this case within the scope of the above ruling.
The ratio of this decision is to be found in this passage: " By that order the respondent virtually refused to carry out the directions which a superior tribunal had given to him in exercise of its appellate powers in respect of an order of assessment made by him.
Such refusal is in effect a denial of justice, and is furthermore destructive of one of the basic principles in the administration of justice based as it is in this country on a hierarchy of courts.
If a subordinate tribunal refuses to carry out directions given to it by a superior tribunal in the exercise of its appellate powers, the result will be chaos in the administration of justice and we have indeed found it very difficult to appreciate the process of reasoning by which the learned Judicial Commissioner while roundly condemning the respondent for refusing to carry out the directions of the superior tribunal, yet held that no manifest injustice resulted from such refusal.
" To attract the principle thus enunciated, it is necessary that there should be an order of a superior tribunal clear, certain and definite in its terms, and with.
out any ambiguity, to which the subordinate authority or officer to whom it is addressed, could give effect.
We are clearly of the opinion that the decision referred to cannot apply to the situation in the present case.
Taking the earlier order of the Board first it is to put it at the mildest ambiguous.
The Board referred to the Bengal Timber case which had been followed by the lower authorities in disallowing the appellants ' claim to exemption to both the (a) and (b) type sales,involving out of State deliver.
A reference was then 115 made to the decision of this Court in the State of Bombay vs United Motors (India) Ltd. and others (1) as superseding the previous decision of the Board, adding that according to the decision of this Court no tax could be levied on despatches outside the State after the 26th January, 1950, and on that point the petitions were allowed.
It will be noticed that the member did not set out the precise extent to which the ruling of this Court superseded the previous decision of the Board, and this was left in a state of uncertainty.
It was suggested by learned Counsel for the appellants that Mr. Bakshi, the member of the Board, drew no distinction between sales of type (a) or (b), and bad included both of them as falling within a single category of sales in which delivery had taken place outside the State for consumption in other States, and for that reason we should hold that the member had rightly or wrongly treated the decision in the United Motors ' case as applicable to all such sales.
We find ourselves unable to agree in this construction of the order.
We cannot presume that Mr. Bakshi did not peruse the judgment in the United Motors ' case when he referred to it in his order, nor that he did not acquaint himself with the terms of the Explanation to article 286(1)(a) of the Constitution, the scope and significance of which was analysed and elaborated in that decision.
We are rather inclined to agree with the construction which the member himself put on this order in April, 1955, that he left it to the Sales tax Officer to decide for himself the relief to which the appellants were entitled on that officer 's interpretation of the judgment of this Court.
It may be that this was not a satisfactory method of disposing of the revision petition leaving the point which arose for decision by the member of the Board of Revenue, to be decided by the Sales tax Officer, but we are now only concerned with the simple question whether Mr. Bakshi had or had not determined the true scope and effect of the judgment of this Court and decided it as meaning that all sales as a result of which goods were delivered outside the State (1) ; 116 of Bihar were within the Explanation and so were exempt from the tax liability.
Notwithstanding the cryptic language used by the Member of the Board, we are clearly of the opinion that he did not intend to decide this point in favour of the appellants in the manner contended for by them.
It is now common ground that when the Board of Revenue was approached by the State Government to review or clarify this order, Mr. Bakshi, by his order dated April 25, 1955, expressed himself as having decided earlier that he had directed the sales tax officer to give effect to the judgment of this Court in the United Motors case and had done nothing further.
Learned Counsel for the appellants strongly pressed before us that the member of the Board having accepted the preliminary objection that there was no provision in the Bihar Sales tax Act by which a party concerned might move the Board to clarify or explain the order, he had no jurisdiction to effect any clarification of his previous order and that whatever was said by the Board on the second occasion could not be held to modify the earlier order or deny the appellants such benefits as were granted to them by the earlier order of August 28, 1953.
But as against this, it has to be noted that before the Board both the parties, i.e., the State Government as well as the appellants agreed that clarification was not needed because " of the specific reference to the judgment of the Supreme Court in the United Motors case ".
As this observation was embodied in the later order with the consent of both the parties, we consider that it is too late now for the appellants to raise any technical objection to this sentence being given effect to.
In view, however, of the conclusion that we have reached as to the construction of the earlier order of August, 1953, it is unnecessary to pursue the matter any further.
If, therefore, as a result of the order or orders passed by the Board, the sales tax officer was directed to give effect to the judgment of this Court in the United Motors case, it followed that the interpretation of the judgment was left to that officer.
We have, already pointed out that to such a situation the principle of 117 the decision of this Court in Bhopal Sugar Mills vs Commissioner of Income Tax (1) is inapplicable.
We might also point out that even if the decision applied and the High Court issued an order in the nature of mandamus to the sales tax officer, it could only take the form of a direction to effect the reassessment in the light of the decision in the United Motors case (2) an order which would leave the appellants in the same position in which they now find themselves without such an order by the High Court.
The next question for consideration is whether on a proper construction of the decision in the United Motors case (2) the exclusion of type (b) sales from those exempted under article 286(1) was erroneous.
Mr. Chatterjee, learned Counsel for the appellants sought to establish that this Court had decided in the United Motors case three points: (1) that sales as a result of which goods were delivered in a State for consumption in such State, i.e., the sales falling within the Explanation to article 286(1) were fictionally inside that State for all purposes and so within the taxing power of the State in which such delivery took place, (2) that sales which by the fiction created by the Explanation were inside a particular State, were " outside " all other States, and so exempt from tax levy by all such other States, (3) that further and beyond ' this, all sales which did not satisfy the terms of the Explanation but in which goods were delivered outside the State in which title passed were " outside sales " over which no State would have power to levy a tax.
In other words, the argument was that this Court had laid down that every sale which was not " an Explanation sale " and therefore not an " inside sale " within a particular State was an " outside sale" for all States and therefore exempt from the levy of sales tax by every State in India.
In support of this submission learned Counsel relied on a passage in the judgment of the learned Chief Justice at page 1081 of the Re. port which ran: ". . .
The authors of the Constitution had to devise a formula of restrictions to be imposed on the State power of taxing sales or purchases involving (1) [1961] 1 S.C.R 474 (2) ; 118 inter State elements which would avoid the doubts and difficulties arising out of the imposition of salestax on the same transaction by several Provincial Legislatures in the country before the commencement of the Constitution.
This they did by enacting Clause (1)(a) with the Explanation and clause (2) of Article 286.
Clause (1)(a) prohibits the taxation of all sales or purchases which take place outside the State but a localised sale is a troublesome concept, for, a sale is a composite transaction involving as it does several elements such as agreement to sell, transfer of ownership, payment of the price, delivery of the goods and so forth, which may take place at different places. . . .
To solve the difficulty an easily applicable test for determining what is an outside sale had to be formulated, and that is what, in our opinion, the Explanation was intended to do.
It provides by means of a legal fiction that the State in which the goods sold or purchased are actually delivered for consumption therein is the State in which the sale or purchase is to be considered to have taken place, notwithstanding the property in such goods passed in another State. .
An " outside " sale or purchase is explained by defining what is an inside sale, and why actual delivery and consumption in the State are made the determining factors in locating a sale or purchase will presently appear.
The test of sufficient territorial nexus was thus replaced by a simpler and more easily workable test: Are the goods actually delivered in the taxing State as a direct result of a sale or a purchase, for the purpose of consumption therein ? Then, such sale or purchase shall be deemed to have taken place in that State and outside all other States.
The latter States are prohibited from taxing the sale or purchase ; the former alone is left free to do so.
Multiple taxation of the same transaction by different States is also thus avoided.
" In our opinion, this passage explains the scope of the Explanation and deals with what might be termed " Explanation sales ".
If there is a sale falling within the terms of the Explanation, it is " inside" the State of delivery cum consumption and that State alone can levy the tax.
Such a sale is outside all other 119 States, which are prohibited from taxing such a sale by reason of any territorial nexus however close or cogent.
The passage extracted, however, does not deal with cases where the sale in question does not satisfy the requirements of the Explanation leading to the fixation of the fictional situs of the sale deter mining the State by which the tax might be levied.
Whether any and, if so, which is the State which can levy a tax on a sale not covered by the Explanation, is not dealt with by this decision at all.
From this it would follow that sales of type (a) would be exempt from the levy of tax under the Bihar Sales Tax Act by reason or their being "inside" sales within the State of delivery cum consumption and therefore being " outside" sales quoad the State of Bihar.
Sales of type (b), however, not having been dealt with by the decision in the United Motors case, it would follow that on the orders of the Board of Revenue, the previous decision of the Board in the Bengal Timber case would have still held the field and the transactions would be liable to the levy of tax and the tax levied on those sales would continue to be valid.
Learned Counsel for the appellants was certainly right in his submission that as the orders of the Board of Revenue had became final as between the parties, the liability to tax must be determined on the basis of these orders be they right or wrong.
It is therefore unnecessary to consider whether, apart from the decision of this Court in the United Motors case, the appellants would be entitled to any further relief on the basis of any other decision of this Court interpreting article 286(1) & (2).
As already stated, the appellants have already been granted a refund in regard to the tax collected in respect of the sales falling within type (a).
As, in our opinion, the appellants were not on the orders of the Board of Revenue entitled to a refund of the tax on transactions falling within type (b), the judgment of the High Court dismissing their petitions is clearly right.
The appeals fail and are dismissed, but in the circumstances of the case there will be no order as to costs.
Appeals dismissed.
| IN-Abs | The appellants who were manufacturers of cigarettes and tobacco in the State of Bihar contested the levy of sales tax on sales effected by them during the financial years 1949 5o and 1950 51 on the ground that as a direct result of every sale effected by them the goods concerned were delivered outside the State of Bihar and were, therefore, exempted from tax liability under article 286(i)(a) of the Constitution.
Both the Superintendent of sales tax and the Deputy Commissioner of sales tax, Bihar, overruled the objection of the appellants, and following a previous ruling of the Board of Revenue of Bengal in a case known as the Bengal Timber Case (61 of 1952) held the appellants liable to pay the tax.
The appellants paid the tax demanded but filed an application in revision to the Board of Revenue, claiming a constitutional exemption from tax on every sale effected by them as a result of which goods were delivered outside the State of Bihar whether the delivery was for consumption in the State of first delivery or not.
The Board passed the following order on the revision petition.
" As regards the admitted despatches of the goods outside the State after the 26th January, 1950, when the Constitution came into force, the learned lower court has been guided by the decision of the Board in the Bengal Timber Case (No. 61 of 1952).
But this ruling of the Board stands superseded by the subsequent decision of the Supreme Court in the United Motors Case According to the decision of the Supreme Court, no tax could be levied on despatches to the places outside the state after the 26th January, 1950, and on this point the petitions are allowed, and the sales tax officer directed to recalculate the amount of tax payable by the assessee ".
The appellants taking the above order to be in their favour claimed refund of the tax already paid by them and the sales tax authorities contested the position and claimed that they were bound to refund the tax only on those sales wherein the goods were delivered outside the State for consumption in the State of first delivery.
The department thereafter sought clarification of the above order.
The Board refused to clarify or explain its order and passed an order saying that " no further clarification was really required in view of the specific reference to the judgment of the Supreme Court in the United Motors Case ".
Thereafter as the authorities still refused to refund the balance of the tax the appellants filed two applications in the High Court for the issue of a writ of mandamus to compel the refund.
The High Court held that the Board 's decision that sales in which the goods were delivered outside the State for consumption, not in the State of first delivery but in other States were also exempted from tax, was wrong and that the appellants were not entitled to a writ of mandamus for enforcing a wrong order.
On appeal by special leave, Held, that the proper construction of the Board 's orders was that the sales tax officer was directed to decide the relief that 108 should be given to the assessee on the officers ' interpretation of the decision of this Court in the United Motors Case.
The Board did not determine the effect of that judgment and did not decide that every sale in which the goods were delivered outside the State of Bihar was exempted from liability to tax.
The principle that a subordinate tribunal should not refuse to carry out the directions of a superior tribunal was therefore not applicable to the instant case.
Bhopal Sugar Mills vs Commissioner of Income tax, [1961] 1 S.C.R. 474, held inapplicable.
The United Motors Case merely decided that sales in which goods were delivered outside the State for consumption in the State of first delivery would fall under the Explanation to article 286(1) of the Constitution and would therefore be exempted from tax liability, but it did not deal with other sales in which the goods thus delivered were for consumption, not in the State of first delivery but in other states.
Such sales would on the order of the Board of Revenue which was binding on the appellant be liable to tax in accordance with the previous decision of the Board of Revenue in the Bengal Timber Case.
State of Bombay vs United Motors (India) Ltd. and Ors., ; , explained and applied.
Board of Revenue of the State in the Bengal Timber Case, 61 of 1952, referred to.
|
Appeal No. 287 of 1958.
Appeal from the Judgment and Order dated the 10th September, 1956, of the former Travancore Cochin in Original Petition No. 191 of 1955.
Sardar Bahadur, for the Appellants.
K. P. Abraham, P. George, and M.R. Krishna Pillai, for the Respondent. 1960.
October 31.
The Judgment of the Court was delivered by AYYANGAR J.
This is an appeal from the judgment of the High Court of Travancore Cochin on a certificate of fitness granted by it under article 133(1) of the Constitution and raises for consideration the liability of the respondent The Cochin Coal Company Ltd.to sales ,tax under the United State of Travancore and Cochin General Sales Tax Act, 1125 (1950).
The following are briefly the facts which it is necessary to state in order to appreciate the points in controversy in the appeal.
The Cochin Coal Company Ltd. which will be referred to as the respondent Company are, as their name indicates, dealers in coal.
The commodity, the sales of which have given rise to the dispute in this appeal is what is known as ' Bunker coal '.
The company have their offices at a place called Fort Cochin which was formerly within the State of Madras.
They import and keep stocks of " bunker coal " stacked at a place called Candle Island which at the date relevant to these proceedings was also within the State of Madras.
Part of the activities of the respondent company consist in the supply of " bunker coal " from their depots in Candle Island to steamers arriving in or calling at, the port of Cochin (in the State of Travancore Cochin) for the outward voyage of the steamers from the said port.
The usual procedure by which bunker coal was thus supplied by the respondent company was briefly 221 this: Before the arrival of the steamers, the steamer agents would enter into contracts with the respondent company for trimming coal into the bunker of the steamer.
As soon as a steamer arrived in Cochin port, the steamer agents would inform the respondent company and these agents after securing the necessary papers from the customs and the port authorities for the loading of the coal into the steamer, would take these papers to the respondent company 's office in Fort Cochin for enabling the latter to perform their part of the contract.
The respondent company would thereupon send the goods ordered to the steamer through their transport contractor.
Delivery orders would be issued to the transport contractor on the strength of which goods would be released from their stock in Candle Island.
Coal would then be taken to the steamer berthed in the port in Travancore Cochin State waters.
The Chief Engineer of the steamer would inspect the coal and when the same was to his satisfaction as regards quality, the coal would be per mitted to be trimmed into the bunkers of the ships.
The price of the coal would thereafter be paid to the respondent company on bills drawn on the steamer agent.
The above being the nature of the transactions conducted by the respondent company, sales tax was claimed on the sales of bunker coal by the Travancore Cochin State.
The assessment years with which this appeal is concerned are 1951 52 and 1952 53, and the assessment therefore was completed on February 2, 1954, by the sales tax officer, Circle, Mattancherry.
The respondent company 's contention that no sales tax could be levied on the value of the " bunker coal " supplied, since the sale was either " in the course of export ", or " in the course of inter State trade " and therefore exempted from taxation by the State under sub cl.
(1)(b) or (2) of article 286 was rejected by the assessing officer for the reason that the sales in question fell within the Explanation to article 286 (1)(a) and were therefore " inside " the State of Travancore Cochin, since the delivery in pursuance of the sale took place within the State and the goods were delivered for the purpose of consumption within 222 the State and that notwithstanding that there was an inter State element involved in the sale, by the goods being moved from Candle Island, the same did not affect the power of the delivery State to levy the tax.
The point urged by the company, that the same sales had been assessed to tax in Madras State as sales actually taking place there, was also rejected as irrelevant The respondent company thereafter filed an appeal to the Appellate Assistant Commissioner who allowed the appeal of the company holding that the sales were " in the course of export " within article 286(1)(b), and that even if they were not such but were ',inside" sales falling within the Explanation to article 286(1)(a) of the Constitution, still a notification by the State Government dated February 5, 1954, exempting such sales from tax, operated for the benefit of the assessee.
Thereafter the Deputy Commissioner of sales tax who was the Revisional authority took up the matter suo motu, called upon the assessee to show cause why the appellate order should not be set aside and the entire turnover assessed to sales tax as the sales had taken place inside the State only.
After hearing the assessee company the order of the appellate Assistant Commissioner was set aside and that of the Sales Tax Officer restored.
The respondent company then moved the High Court of Travancore Cochin under articles 226 and 227 of the Constitution to set aside the order in revision and the learned Judges of the High Court ordered accordingly.
They, however, granted a certificate under article 133(1) of the Constitution to enable the State Government to file an appeal to this Court and that is how the matter is now before us.
Though the respondent company appear to have presented before the High Court several lines of argument in support of their contention that they were entitled to exemption from sales tax in respect of bunker coal " trimmed by them into steamers in the waters of Travancore Cochin, the learned Judges rested their decision in favour of the respondent company on practically a single ground.
Their reasoning was briefly as follows: Following the Bengal Immunity case (1), the learned Judges held that, the bans (1) 223 imposed by cls.
1(a) and 2 of article 286 were independent and that the sale of the coal by the respondent company which was in the course of inter State trade was covered by the ban contained in article 286(2) of the, Constitution notwithstanding that the sale might satisfy the terms of the Explanation to sub cl. 1(a).
The learned Government Pleader, however, had submitted that if the exemption was derived, from article 286(2), the, same would not assist the assessee, since the validity of the tax was saved by the Sales tax Law Validation Act, 1956.
The learned Judges how ever held that the validation Act could not avail the State because on their construction of section 26 of the Travancore Cochin General Sales Tax Act, 1125 (corresponding to section 22 of the Madras Sales Tax Act, 1939) no tax had been levied or was leviable on sales in the course of inter State trade or commerce and that the Validation Act having validated only taxes already levied could not enable the State to levy a tax which had not been imposed by the State 's Sales tax Act.
There is no doubt that the transaction of sale in the present case was in the course of inter State trade and would be covered by the ban on taxation imposed by article 286(2).
But the view of the learned Judges of the High Court regarding the construction of section 26 of the Travancore Cochin General Sales Tax Act must now be held to be incorrect in view of the decision of this Court in M. P. V. Sundararamier & Co. vs The State of Andhra Pradesh (1).
If therefore the assessee company could rely only on article 286(2) for claiming relief, it must be held to be not available to them since the Sales Tax Validation Act, 1956, would have validated the levy.
Before us, however, learned Counsel for the respondent company urged two grounds to sustain the decree of the High Court in its favour.
, The first was that as the coal trimmed into the steam ships were.
meant to be carried outside the territory of India, the sale was " in the course of export " within article 286 (1)(b) of the Constitution and was therefore exempt from the levy of sales tax by the State.
This contention however has to be rejected in view of the decision (1) ; 224 of this Court in Burmah Shell Oil Storage & Distributing Co., of India, Ltd. vs The Commercial Tax Officer (1) in which it was held that in the context and setting in which the expression " export out of the territory of India " occurs in Part XIII of the Constitution, it was not sufficient that goods were merely moved out of the territory ' of India but that it was further necessary that the goods should be intended to be transported to a destination beyond India, so that they were in the course of " import " into some other locality outside India and accordingly that aviation spirit sold to an aircraft for enabling it to fly out of the country was not " exported " out of the country.
The reason was that there was no destination at which it could be said that the spirit was imported and that a mere movement of the goods out of the country following a sale would not render the sale one " in the course of export " within article 286 (1)(b) of the Constitution.
In other words, the concept of export in article 286 postulates just as the word import, the existence of two termini as those between which the goods are intended to move or between which they are intended to be transported, and not a mere movement of goods out of the country without any intention of their being landed in specie in some fore ign port.
The other point urged by learned Counsel was that, in any event, the sale fell within the Explanation to article 286(1)(a) inasmuch as the delivery of the coal was effected in the State of Travancore Cochin for the purpose of consumption in that State.
There is no doubt that the goods having originally been located in Candle Island in Madras State were moved out of that State by reason of the contract of sale into the territory of Travancore Cochin.
It had therefore an interState element which rendered the Explanation applicable.
The delivery was admittedly effected in the State of Travanoore Cochin as a direct result of that sale and was trimmed into the steam ships in the Cochin waters.
If the purpose of the delivery was (1) C.A. 751 of 1957 & C.A. 10 of 1958 (Unreported).
225 not export as we have held earlier, it must follow that in the circumstances of this case it was for the purpose of consumption in the State since the delivery was to the ultimate consumer who was to use the goods for his own purposes and not for the purpose of re export or with a view to other transactions of a commercial character in the goods.
It would be noticed that the ultimate buyer the steam ship company could, if it desired, consume the goods in the sense of exhaust the goods by consumption within the State or it could take it outside the State and consume it there, but that was a matter of its choice, dependent on its will and pleasure.
This would not therefore detract from the delivery to it being for consumption within the State.
Goods might be consumed either by destruction or by way of use depending on the nature of the goods.
Thus edible articles are generally consumed in a literal sense while other articles like clothing or furniture etc.
are consumed by being used, though they are not destroyed by such use.
If edible articles are sold and delivered to an ultimate consumer within a State, it is delivered for the purpose of consumption within the State, notwithstanding, that the buyer may not choose to consume the whole of his purchase within the State but takes part of it outside the State and consumes it there.
If, for instance, a vehicle is sold to the actual user and the sale is not in the course of export or with a view to further commercial transactions in it by the purchaser by way of resale etc.
, the delivery to the user is for the purpose of his consumption within the State.
The fact that such a purchaser might in the exercise of the enjoyment of his property by way of use or " consumption " drive the vehicle to other States does not detract from the original delivery to him falling within the Explanation to article 286(1)(a).
In the present case, the coal having been delivered into the ship for being consumed by it, it was open to the master of the vessel to use the coal while the ship was in the waters of Travancore Cochin, or if he so chose take it outside those limits.
The position might be 29 226 different if the buyer were obliged by contract or by law not to use or consume the goods sold within the State of delivery, i.e., where he has no choice to consume it there.
In the case on hand, part of the coal delivered could and would certainly have been used by the ship during the period of her stay in the harbour for loading and if such stay were prolonged owing to unforeseen causes even the entire coal might have been exhausted and of course it would have to be used till the ship left the limits of the port and the limits of State territory.
The crucial fact therefore was that the coal was delivered to the actual consumer who was at liberty to consume it wherever he desired the choice depending on his convenience and necessity.
In the circumstances, therefore, learned Counsel for the respondent was right in his submission that the sale of the "bunker coal" by the assessee company fell within the Explanation to article 286(1)(a).
If there were nothing more and the liability of the assessee had to be judged with reference to the charge imposed by the Sales tax Act of the State, read in the light of the Constitution, the tax liability of the respondent company would not have been open to doubt or dispute.
But the submission of learned Counsel was that the State Government had power to exempt sales of any particular designated type from tax liability under section 6 of the Sales Tax Act, and that the Government had by a notification dated February 5, 1954, and published in the official Gazette, exempted sales such as by the respondent company in the present case from the levy of sales tax during the assessment years now in question.
The exemption under this notification was no doubt not referred to by the learned Judges of the High Court but had been one of the grounds on which the sales tax appellate authority had set aside the tax imposition by the Sales tax Officer and the point had been specifically urged in the petition filed in the High Court under article 226, and the respondent cannot, therefore, be denied the benefit of the notification if it applied.
Section 6 of the Travancore Cochin Sales tax Act enacts: 227 "The Government may, by notification in the Gazette, make an exemption. . . in respect of any tax payable under this Act : (i) on the sale of any specified class of goods at all points or at any specified point or points in the series of sales by successive dealers ; or (ii) of any specified class of persons " in regard to the whole or any part of their turnover".
It is not necessary to set out the rest of the section.
In the Travancore Cochin Gazette dated February 16, 1954, the following notification dated February 5, 1954, appeared: " According to the interpretation given by the Supreme Court to article 286(1) of the Constitution in their judgment in the State of Bombay vs United Motors India Ltd. certain categories of inter State transactions come within the taxing powers of the State Government.
While the judgment enables the Government of Travancore Cochin to levy sales tax on certain categories of non resident dealers selling goods for delivery and consumption in Travancore.
Cochin State from the 1st April 1951, the Government have, after due consideration, decided to levy sales tax on such transactions only from the 1st April 1953 the date immediately following that on which the Supreme Court delivered its judgment and to forego the levy prior to that date ".
Then followed provisions detailing the interim arrangements for submission of returns, of declarations to be filed and the manner in which the tax should be assessed and paid.
Though the learned counsel for the appellant State urged that the notification could not have the statutory effect of granting exemption, we are clearly of the opinion that this was and must be deemed to be one issued in exercise of the power conferred on the State Government by section 6(1) whose relevant terms we have already extracted.
Besides, this is rather a curious submission to make in view of what had transpired earlier.
The appellate Assistant Commissioner who set aside the assessment of the respondent company stated in his order " Even if it is considered that the sale is for 228 consumption in this State, the company need not pay tax on the turnover since Government have exempted from payment of tax on the sales which took place before April 1, 1953 ".
When this appellate order was set aside by the Deputy Commissioner acting suo motu in revision, there is no reference made to the notification in the order and it was not stated that it had no statutory effect.
In its petition to the High Court under article 226, the respondent company claimed the benefit of the exemption granted by the notification dated February 5, 1954, and published in the Gazette of February 16, 1954, relating to the assessment for the period April 1, 1951 to April 1, 1953 and it added that the assessment in question came within the exemption contained in the Gazette notification.
In answer to this a counter affidavit was filed by the sales tax officer who said : " The notification referred to in the petitioner 's affidavit has no application to the case as the sales in question did not come within their orbit ".
In other words, the objection was not that the notification was not a statutory exercise of the power under section 6(1) and effective to grant an exemption to the cases covered by it, but that the transactions of the respondent company were not covered by the notification.
The extract we have quoted from the notification shows that it is specially designed to afford relief to cases of non resident dealers engaged in inter State transactions which were held to be intra State transactions by reason of the application of the Explanation to article 286(1)(a) to such sales by the decision of this Court in the United Motors Case.
As the respondent company 's transactions in question clearly fall within the notification by reason of their nature as well as the assessment years concerned, the respondent company would be entitled to the benefit of the tax exemption conferred by the notification.
The result is that the appeal fails and is dismissed with costs.
Appeal dismissed.
| IN-Abs | The respondent stocked 'bunker coal ' at Candle Island in the State of Madras.
They sold the coal to steamers calling at the port of Cochin in the State of Travancore Cochin and delivered it there.
The respondent was assessed to sales tax on such sales for the year 1951 52 and 1952 53.
, The respondent contended that no sales tax could be levied on these sales since they were either sales ' in the course of export ' or in the course of inter State trade exempt from sales tax under sub cl.
(1) (b) or cl.
(2) of article 286 of the Constitution and in the alternative that they were exempt from tax under a notification dated February 5, 1954, issued by the appellant State under which sales failing within the Explanation to article 286(1)(a) made during the period 4 1 1951 to 31 3 1953 were exempted from liability to pay tax.
Held that the sales were exempt from tax under the Government Notification.
The coal was delivered to the actual consumer, i. e., the steamships in Travancore Cochin and they were at liberty to consume it :wherever they desired, either within the State or outside the choice depending on its convenience and necessity.
The delivery was for consumption within the State and the sales fell within the Explanation to Aft. 286(1)(a).
Though the sales were in the course of inter State trade which were covered by the ban on taxation imposed by article 286(2) the levy was validated by the Sales Tax Validation Act, 1956.
M. P. V. Sundararamier & Co. vs The State of Andhra Pra desh; , , relied on.
The sales were not made 'in the course of export and were not covered by the ban imposed by article 286(1)(b).
For article 286(1)(b) to apply it was not sufficient that the goods merely moved out of the territory of India, but it was further necessary that the goods should be intended to be transported to a destination beyond India.
The concept of 'export ' in article 286 postulated the existence of two termini between which the goods were intended to be transported.
220 Burmah Shell Oil Storage & Distributing Co. of India Ltd. vs The Commercial Tax Officer, C.A. 751 of 957 & C.A. 10 of 1958 (Unreported) followed.
|
59 of 1960.
Petition under Article 32 of the Constitution of India for enforcement of Fundamental Rights.
A. section R. Chari, section N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the Petitioners.
section M. Sikri, Advocate General for the State of Punjab, H. section Doabia, Additional Advocate General for the State of Punjab, M. section Punnu, Deputy Advocate General for the State of Punjab and D. Gupta, for the Respondents.
October 28.
The Judgment of the Court was delivered by section K. DAS J.
This is a writ petition.
The three petitioners before us are (1) R. P. Kapur, a member of was serving as a Commissioner in the State of Punjab, (2) Sheila Kapur, his wife, and (3) Kaushalya Devi, his mother in law.
They have moved this Court under article 32 of the Constitution for the enforcement of their rights under articles 14 and 21 of the Constitution, which rights they say have been violated by the respondents who are the State of Punjab, Sardar Pratap Singh Kairon, Chief Minister thereof, and certain officials, police, administrative and magisterial who have been conducting, or are connected with, the investigation or inquiry into a number of criminal cases.
instituted against the petitioners.
We shall refer to some of these officials later in this judgment in relation to the part which they have played or are playing in those criminal cases.
Briefly stated the case of the petitioners is that petitioner No. 1 had the misfortune to incur the wrath of the Chief Minister of the State.
It is alleged that the Chief Minister was annoyed with petitioner No. 1, because the latter did not show his readiness to give evidence for the prosecution in a case known as the Karnal Murder Case (later referred to as the Grewal case) in which one D. section Grewal, then Superintendent of Police, Karnal, and some other police officials were, along with others, accused of some serious offences.
That case was transferred by this Court to a Special 145 Judge, at Delhi, who commenced the trial sometime in May/June 1959.
Petitioner No. 1 was at the time Com missioner of Ambala, and he alleges that he was told by the Chief Minister that it was proposed to cite the Deputy Commissioner and the Deputy Inspector General of Police as prosecution witnesses in the said case and it would be in the fitness of things that petitioner No. 1 should also figure as a prosecution witness; to this suggestion petitioner No. 1 gave a somewhat dubious reply to the effect that his appearance as a prosecution witness might or might not help the prosecution.
Another reason for the displeasure of the Chief Minister, as alleged in the petition, related to certain orders which petitioner No. 1 had passed as Commissioner, Patiala Division, in a revenue case known as the Sangrur case.
We shall presently give more details of that case, but it is enough to state here that the allegation is that in that case petitioner No. 1 passed certain orders, involving the disposal of properties worth about Rs. 9 lacs, which were adverse to one Surinder Kairon, son of the Chief Minister.
It is stated that as a result of the displeasure which petitioner No. 1 bad incurred for the two reasons mentioned above, a special procedure was adopted in the investigation of the criminal cases instituted against the petitioners; and some new cases were started through the instrumentality of the C. 1.
D. Police with a view to subject the petitioners to harassment and persecution.
The substantial allegation, to quote the language of the petition, is that " a special procedure or rather a technique has been devised for circumventing the mandatory provisions of the law (meaning the Code of Criminal Procedure) as regards the petitioners, two of whom are ladies and who are being dragged about unnecessarily because they happen to be related to petitioner No. 1".
It is stated that there has been a deliberate departure from the normal and legal procedure in the matter of institution and investigation of criminal cases against the petitioners a departure said to be the result of " an evil eye and unequal hand " which the petitioners allege constitutes 146 a denial of the right of equal protection of the laws guaranteed to them under article 14 of the Constitution.
The special procedure or technique of which the petitioners complain is said to consist of, several items, such as (1) entertainment of a criminal complaint personally by the Chief Minister; (2) institution of complaints by the C. 1. D. police; (3) registration of first informations after such complaints ; (4) investigations in advance of the complaints; (5) investigation by specially chosen (hand picked as learned Counsel for the petitioners has suggested) C.I.D. officials, not necessarily of high rank, who have no power to investigate; (6) the arrangement of a special C.I.D. squad to " unearth something " against the petitioners, etc.
In the petition four criminal cases were referred to as illustrative of the special procedure, said to be unwarranted by law, adopted against the petitioners, and in a supplementary petition filed on June 9, 1960, some more cases were referred to.
After we had conveyed to learned Counsel for the petitioners that we could not consider the supplementary petition which the respondent had no opportunity of meeting, the supplementary petition was withdrawn.
Therefore, we do not propose to say anything about the cases which are referred to in the supplementary petition.
The four cases mentioned in the original petition are : (1) F.I.R. No. 304 of 1958, given by one M. L. Sethi, referred to hereinafter for brevity as Sethi 's case ; (2) F.I.R. No. 39 of 1959, instituted on the complaint of one M. L. Dhingra, called hereinafter as Dhingra 's case; (3) F.I.R. No. 135 of 1959, instituted on the complaint of the Civil Supply Officer, Karnal, the accused in this case being the State Orphanage Advisory Board of which petitioner No. I was Vice President at the relevant time and Kartar Singh, farm manager of Kaushalya Devi, called the Orphanage case; and (4) F.I.R. No. 26 of 1960, instituted on the complaint of Daryao Sing, D.S.P., C.I.D., Karnal, (one of the respondent police officials) in which there are three 147 accused persons including petitioner No. 1, called for brevity the Ayurvedic Fund case.
We may say at once that we are not concerned with the merits of any of the aforesaid cases : that is a question which will fall for consideration if and when the cases are tried in Court.
Therefore, nothing said in this judgment shall be construed as affecting the merits of the cases.
Two questions have been posed before us in relation to these cases: one is if in the matter of institution and investigation of these cases a special procedure unknown to law has been adopted; and the other is if the petitioners have been singled out for unequal treatment in administering the law relating to the institution and investigation of criminal cases in the State.
The two questions are in one sense connected, for if a special procedure unknown to law has been adopted against the petitioners, that by itself will be a denial of the right of the equal protection of the 'laws.
Learned Counsel for the petitioners has, however, argued the second question somewhat independently of the first question, and he has submitted that even if the procedure adopted against the petitioners is warranted by law, it is a departure from the normal procedure and has been adopted with " an evil eye and unequal hand " so as to put the petitioners to harassment and persecution.
We shall consider both these questions in relation to the procedure adopted in the four cases referred to above.
It is necessary to state that the petition has been contested by the respondents.
The Chief Minister has himself made no affidavit in respect of the allegations made against him ; but affidavits in reply have been made by the Chief Secretary and the Home Secretary to the Punjab Government and some of the respondent officials.
To these affidavits we shall advert later in somewhat greater detail.
We shall also have something to say about the failure of the Chief Minister to make an affidavit.
It is enough to state here that the respondents have seriously contested both the allegations made on behalf of the petitioners, namely, (1) that a special procedure unknown to law was 148 adopted against them or (2) that the procedure adopted was motivated by " an evil eye and unequal hand " so as to persecute and harass the petitioners.
The respondents have said that the procedure adopted was warranted by law and the employment of the C. 1.
D. officials in the investigation of the cases against the petitioners was due to the special nature of the cases.
The respondents have also contested the correctness of the allegation that petitioner No. 1 had incurred the displeasure of the Chief Minister on account of the two reasons stated in the petition.
In brief, the claim of the respondents is that there has been no violation of the rights of the petitioners guaranteed under articles 14 and 21, and there are no grounds for interference by this Court under article 32 of the Constitution.
It has been stated on behalf of the respondents that in the two cases called Setbi 's case and Dhingra 's case, the petitioners had moved the High Court without success for quashing the proceedings and in Sethi 's case, an appeal to this Court against the order of the High Court also proved unsuccessful.
It is also pointed out that a petition made by petitioner No. 1 in the High Court for proceeding by way of contempt of court against the Chief Minister on some of the allegations now raised or allegations similar in nature, was dismissed in limine and the learned Advocate General of the Punjab has taken us through the order of the High Court in respect of some of the allegations made.
Having stated the respective cases of the parties before us, we shall proceed now to a more detailed examination of the procedure adopted in the four cases instituted against the petitioners.
But before we do so, it is necessary to say a few words about Grewal 's case and Sangrur case which are stated to furnish the reasons why petitioner No. 1 incurred the displeasure of the Chief Minister.
It is alleged that in Grewal 's case petitioner No. 1 was asked to give evidence for the prosecution, but he gave a dubious reply which displeased the Chief Minister.
It is worthy of note, however, that the trial in Grewal 's case began in May June, 1959; Sethi 's complaint was made in 149 December, 1958 and Dhingra 's in February, 1959.
Obviously, those two cases could not be the result of any refusal by petitioner No. 1 to give evidence in Grewal 's case.
On May 28, 1959, petitioner No. 1 wrote to the Chief Secretary about Sethi 's case and Dhingra 's case, but no allegation was made therein against the Chief Minister.
What the petitioner wanted then was that an opportunity should be given to him to explain his position.
On June 9, 1959, petitioner No. 1 again wrote to the Chief Secretary about the complaints of Sethi and Dhingra again there was no allegation against the Chief Minister.
On June 29, 1959, petitioner No. 1 filed two petitions in the Punjab High Court for quashing the proceedings in Sethi 's case and Dhingra 's case; in this petition an allegation was made that powerful influences were operating against the petitioner " to harm him and debar him officially " and Sethi 's case and Dhingra 's case were the result of such influences, but there was no specific mention of Grewal 's case and of any request to the petitioner to give evidence in that case.
It was for the first time on July 20, 1959, when the petition for contempt proceedings was filed that a specific allegation against the Chief Minister was made in paragraphs 35 to 37 thereof (this is annexure 1 to the present petition).
This petition was dismissed in limine, the High Court saying that it was not prima facie satisfied that the allegation was made out.
We do not think that petitioner No. 1 has been able to advance his case any further in spite of the fact that the Chief Minister has made no affidavit, a matter to which we shall advert later.
As to the Sangrur case, that was also referred to in the petition of July 20, 1959, and the High Court did not accept the allegation of petitioner No. 1.
What happened in that case was this.
The late Sardar Mukan Sing of Sangrur left two widows, Sardarni Pritam Kuar and Sardarni Pavitar Kaur Sardarni Pavitar Kaur had three daughters one of whom was married to Surinder Singh Kairon, son of the Chief Minister.
The Sangrur estate was in charge of the Court of Wards, that is, the Financial Commissioner, Punjab.
On June 150 19, 1958, the Court of Wards decided to release the estate after partitioning the immovable property between the two widows.
At one time a question arose as to whether the immovable properties should be partitioned into five equal shares for the two widows and three daughters or into two shares only for the two widows.
Sometime before May 6, 1959, it was decided that the partition would be of two shares only and thereafter a detailed mode of partition was agreed to between the parties.
This is clear from the note of petitioner No. 1 dated May 6, 1959.
Thereafter there was no more dispute left, and the case of petitioner no.1 that he was arrested on July 18, 1959, because he dictated an adverse order some days previously which had been typed but not yet signed does not prima facie appear to be correct, apart altogether from the question whether petitioner No. 1 was acting merely as the channel between the Deputy Commissioner, and the Financial Commissioner, the latter being the only authority competent to pass final orders in the matter.
We have, therefore, come to the conclusion that the petitioners have not established what they have alleged, namely, that R. P. Kapur, one of the petitioners, had incurred the displeasure of the Chief Minister by reason of what happened in the Grewal case and the Sangrur case.
Whether there were other reasons, administrative or otherwise, for the displeasure of the Chief 'Minister is a matter which is not germane to the present case.
In the affidavits filed before us some reference has been made to the past record of R. P. Kapur.
We consider it unnecessary to refer to that record ; firstly , because it is not rele vant to the case before us, and secondly because we think that it is not fair to refer to the confidential record of an officer unless the circumstances in which certain adverse remarks were made are known.
We proceed now to consider the four criminal cases pending against the petitioners or some of them, in relation to the two points urged: (1) whether in the institution and investigation of these cases a special procedure unknown to law has been adopted and (2) 151 if the petitioners have been singled out for unequal treatment in administering the law relating to the institution and investigation of criminal cases in the State.
The first two cases, namely, Sethi 's case and Dhingra 's case need be dealt with at some length.
Sethi 's case started on a complaint which it was said was sent direct to the Chief Minister.
Four material allegations about fraudulent misrepresentation were made in that complaint.
It was alleged that R. P. Kapur had fraudulently misrepresented to Sethi that a particular piece of land which he had sold to Sethi 'had been purchased by him at Rs. 10 per square yard; that he had fraudulently concealed from Sethi the pendency of certain proceedings before the Land Acquisition Collector, Delhi, and of the acquisition of the said land under section 17 of the relevant Act; that he had made a fraudulent misrepresentation as regards the scheme of housing with regard to the area in which the land lay.
Though the complaint was dated December 10, 1958, it appears to have been made over to the Additional Inspector General of Police on December 23, 1958.
The Additional Inspector General of Police then appears to have passed an order to the following effect: " Register" a case and investigate personally ".
This was addressed to Sardar Hardayal Singh, D. section P. Thereupon Sardar Hardayal Singh, Deputy Superintendent of Police, C.I.D., Amritsar, appears to have drawn up a first information report.
The original complaint which Sethi filed has not been produced before us.
What was produced before us was a carbon copy and on that carbon copy was the order of the Additional Inspector General of Police to which we have already made a reference.
The allegation of the petitioners was that the original complaint had been sent to the Chief Minister and the Chief Minister had passed certain orders thereon.
On behalf of the petitioners it was suggested that the original was not produced in order to conceal from the Court the orders which the Chief Minister had passed thereon.
We have stated earlier that the Chief Minister had filed no affidavit in respect of these allegations.
An affidavit has been filed by A.N. Home Secretary 152 to the Government but obviously he was not in a position to say anything about the allegations made against the Chief Minister.
We, therefore, proceed on the basis that so far as Sethi 's case is concerned, a complaint was made or sent to the Chief Minister who thereupon sent it to the Additional Inspector General of Police who in his turn sent it to Sardar Hardayal Singh, Deputy Superintendent of Police, C. I. D., at Amritsar.
The short question before us is does this amount to adopting a procedure unknown to law or even to unequal treatment so as to attract article 14 of the Constitution ? Learned Counsel for the petitioners has taken us through the relevant provisions in Part V, Chapter XIV, of the Code of Criminal Procedure and has submitted that under section 154 of the Code every information relating to the commission of a cognizable offence should be given to an officer in charge of a police station and under section 156 any officer in charge of a police station may, without the order of a Magistrate, investigate any cognizable case which a Court having jurisdiction over the local area would have power to inquire into or try under the provisions of Chapter XV relating to the place of inquiry or trial.
He has also referred to section 157 under which the officer in charge of a police station, shall forthwith send a report of the first information to a Magistrate empowered to take cognizance of the offence and shall proceed in person, or shall depute one of his subordinate officers not being below such rank as the State Government may, by general or special order, prescribe in this behalf, to proceed to the spot to investigate the facts and circumstances of the case, and if necessary to take measures for the discovery and arrest of the offender.
It is contended that the provisions of sections 154, 156 and 157 of the Code have been violated in the case against the petitioners; and thus the petitioners have been subjected to a special procedure unknown to law or, at any rate, to unequal treatment, treatment different from that of other persons against whom informations of a cognizable offence ape made.
We are unable to accept these contentions as 153 correct.
First of all, section 154, Code of Criminal Procedure, does not say that an information of a cognizable offence can only be made to an officer in charge of a police station.
That section merely lays down, inter alia, that every information relating to the commission of a cognizable offence, if given orally to an officer in charge of a police station, shall be reduced to writing by him or under his direction, and be read over to the informant; and every such information shall be signed by the person giving it and the substance thereof shall be entered in a book to be kept by such officer in such form as the State Government may prescribe in that behalf.
Section 156 gives power to an officer in charge of a police station to investigate without the order of a Magistrate any cognizable case which a Court, having jurisdiction in the local area etc.
would have power to inquire into or try; sub section
(2) of section 156 lays down that no proceeding of a police officer in any such case shall at any stage be called in question on the ground that the case was one which such officer was not empowered under this section to investigate.
There has been some argument before us as to the meaning of the expression " any such case " occurring in sub section
(2) of section 156.
As we are not resting our decision on sub section
(2) of section 156, Code of Criminal Procedure, we consider it unnecessary to embark upon a discussion as to the true scope and effect of sub section
(2) of section 156.
Section 157 of the Criminal Procedure Code lays down the procedure which an officer in charge of a police station must follow where information of a cognizable offence is made.
Now, there is another important provision in the Code which is of great relevance in this case and must be read.
That provision is contained in section 551 which is in these terms : "section 551.
Police officers superior in rank to an officer in charge of a police station may exercise the same powers, throughout the local area to which they are appointed, as may be exercised by such officer within the limits of his station.
" The Additional Inspector General of Police to whom 20 154 Sethi 's complaint was sent was, without doubt, a police officer superior in rank to an officer in charge of a police station.
Sardar Hardayal Singh, Deputy Superintendent of Police, C.I.D., Amritsar, was also an officer superior in rank to an officer in charge of a police station.
Both these officers could, therefore, exercise the powers, throughout the local area to which they were appointed, as might be exercised by an officer in charge of a police station within the limits of his police station.
It is not disputed that the jurisdictional area of the Additional Inspector General of Police was the whole of the State.
As to the jurisdictional area of the Deputy Superintendent of Police, C.I.D., the contention on behalf of the respondent State is that though he was posted at Amritsar, his jurisdictional area extended over the whole State.
The learned Advocate General for the respondent State has drawn our attention to Police Rule 21.28 in the Punjab Police Rules, 1934, Vol.
III, issued by and with the authority of the State Government under sections 7 and 12 of the Police Act (V of 1861).
That rule lays down that the Criminal Investigation Department has no separate jurisdiction and the Deputy Inspector General of Police, Criminal Investi gation Department, may decide to take over the control of any particular investigation himself or depute one or more of his officers to work directly under the control of the Superintendent of Police of the district.
Police Rule 21.32 enumerates some of the cases in which the assistance of the Criminal Investigation Department may be sought.
Police Rule 25.14 says that the Criminal Investigation Department is able to obtain expert technical assistance, and in cases where such assistance is required the assistance of the Criminal Investigation Department may be obtained.
In the affidavit made by Sardar Hardayal Singh, he has stated that he was entrusted with the investigation of Sethi 's case because of its technical nature and also because his sphere of duty as a Gazetted Officer attached to the Criminal Investigation Department was the whole of the State in view of the memorandum No. 9581 H 51/7912 dated October 155 26, 1951.
That memorandum shows that the Deputy Inspector General, C.I.D. and all gazetted officers of the Criminal Investigation Department have jurisdiction extending over the whole of the Punjab State.
This is also supported by the affidavit made by Shamshere Singh, Additional Inspector General of Police.
Learned Counsel for the petitioners has pointed out that Sethi 's case involved no technical questions and the ground stated in the affidavits of Shamshere Singh and Sardar Hardayal Singh is not, therefore, correct.
The question before us is not whether the reason for which the investigation was made over to Sardar Hardayal Singh is correct or not.
The question before us is, whether in making over the investigation to Sardar Hardayal Singh a special procedure unknown to law was adopted or the law as to the investigation of cases was administered with an evil eye or unequal hand.
If the police officer concerned thought that the case should be investigated by the C. 1.
D. even though for a reason which does not appeal to us it cannot be said that the procedure adopted was illegal.
We are unable to agree with learned Counsel for the petitioners that any of these two contentions has been made out in the present case.
We are satisfied that the Inspector General of Police, C.I.D. had power to deal with Sethi 's complaint and had further power to direct investigation of the same by Sardar Hardayal Singh who as a police officer superior in rank to an officer incharge of a police station could exercise powers of an officer in charge of a police station in respect of the same.
It cannot, therefore, be said that the procedure adopted was unknown to law.
Nor are we satisfied that the procedure adopted was motivated by any evil purpose, though we are not quite impressed by the reason given by Shamshere Singh or Sardar Hardayal Singh that Sethi 's case was of a technical nature and, therefore, required the assistance of the C.I.D.
Even if it was not of a technical nature, it was open to the Additional Inspector General of Police to make over the investigation to a Deputy Superintendent of Police in view of the status of the petitioners.
In paragraph 31 of his affidavit 156 A. N. Kashyap, Home Secretary, has said that the Inspector General of Police on receiving the complaint from Sethi ordered on his own the registration of the case without any order or direction from the Chief Minister.
The correctness of this statement has been very seriously commented on.
In the absence of any affidavit from the Chief Minister and of the original complaint, we have preferred to proceed in this case on the footing that the Additional Inspector General of Police got the complaint from the Chief Minister and then passed necessary orders thereon.
Even on that footing we are unable to hold that there has been any violation of legal procedure or that an unfair discrimination has been made against the petitioners.
Learned Counsel for the petitioners has relied on certain observations made by this Court in H. N. Rishbud and Inder Singh vs The State of Delhi (1).
The observations occur at page 1160 of the report and are to the effect that it is of considerable importance to an accused person that the evidence collected against him during investigation is collected under the responsibility of an authorised and competent investigating officer.
These observations were Made in a case where the question that fell for decision was whether the provisions in section 5(4) and the proviso to section 3 of the Prevention of Corruption Act, 1947 (Act II of 1947) and the corresponding section 5A of the Prevention of Corruption (Second Amendent) Act, 1952 (Act LIX of 1952), were mandatory or not.
It :was held that they were mandatory and an investigation conducted in violation thereof was illegal.
It was also held that an illegality committed in the course of an investigation did not affect the competence and jurisdiction of the Court for trial; but if any breach of the mandatory pro visions relating to investigation were brought to the notice of the Court at an early stage of the trial, the Court would have to consider the nature and extent of the violation and pass appropriate orders for such re. investigation as might be called for.
We do not think that the observations made and the decision are of any (1) ; 157 assistance to the petitioners.
We have held that there has been no violation of any mandatory provisions as to investigation in Sethi 's case against the petitioners and the investigation procedure followed is legal.
Our attention has been drawn to King Emperor vs Nilkantha (1).
On a certificate by the Advocate General, the case was considered by a Full Bench of the Madras High Court and one of the questions for decision was " Is an Inspector of the Criminal Investigation Department an authority legally competent to investigate the facts within the meaning of section 157, Evidence Act ? " The question was answered in the affirmative by the majority of judges, Abdur Rahim, J. and Sundara Ayyar, J., dissenting.
In the course of the arguments before their Lordships, one of the questions mooted was whether Inspectors of the Criminal Investigation Department were appointed to any local area within the purview of section 551, Code of Criminal Procedure.
Some of the Judges held that the whole Presidency was their local area; some held that that was not so.
On the materials before us, we have no hesitation in holding that the Deputy Superintendent of Police entrusted with the investigation of Sethi 's case bad the necessary authority to hold the investigation.
The decision in Pulin Bihari Ghosh vs The King(1) on which also some reliance has been placed does not appear to us to be in point: that was a case section 202 and section 156(3), Code of Criminal Procedure, and it was held that proceedings under section 202 and investigation under rb.
156(3) could not proceed simultaneously; it was further held that a direction under section 156(3) could only be made to an officer in charge of a police station.
No question arose there of the exercise of powers under section 551, Code of Criminal Pro cedure, and the decision does not establish what the petitioners are seeking to establish in the present case.
More in point is the decision in Textile Traders Syndicate Ltd. vs State of U. P. (3) where it was held that an Inspector of Police in the Criminal Investigation Department was superior in rank to that of an (1) I.L.R, (2) I.L.R. (3) A.I.R. 1959 All.
158 officer in charge of a police station and under section 551, Code of Criminal Procedure, he could exercise the powers of an officer in charge of a police station throughout the State.
Turning now to Dhingra 's case, the position is this.
Admittedly a complaint dated February 27, 1959, was sent to the Chief Minister with a covering letter in which it was stated that " R. P. Kapur had already started tampering with the evidence and 1, therefore, request that orders be passed that the Police should take in hand investigation immediately and collect all material evidence ".
The Chief Minister wrote on this: " Inspector General, Police, is sick.
Will Add1.
Inspector General please take immediate action in taking over papers from Government departments concerned and the papers with Sri Dhingra.
Please give a prima facie report.
" The Additional Inspector General then made the following endorsement: " Please take immediate necessary action.
Depute one of your officers to contact Sri Dhingra and get the necessary records from him.
Immediate action may be taken to take over the record from the various departments.
A case may be registered.
I have informed Chief Secretary and he agrees with this.
" This was addressed to the Deputy Inspector General, C.I.D., and the latter wrote " Case should be regis.
tered and investigated by Bir Singh, D.S.P., under your supervision.
Immediate steps should be taken to get the salient records of Sri Dhingra.
" This was addressed to Ujager Singh, Superintendent of Police, C.I.D. The case was then registered by Sardar Sampuran Singh, Inspector of Police, Police Station Chandigarh, and the investigation was in charge of Sardar Bir Singh, Deputy Superintendent of Police, C.I.D. The legal position as to the institution of Dhingra 's case and its investigation is the same as in Sethi 's case.
The legal sanction for both is section 551, Code of Criminal Procedure, and the reasons which we have given for holding that the procedure followed in instituting and investigating Sethi 's case is legally valid apply to Dhingra 's case also.
On behalf of the 159 petitioners it has been submitted that the hand of the Chief Minister is no longer concealed in respect of Dhingra 's case.
It is pointed out that in 1959, a complaint is made in respect of offences alleged to have been committed about five years ago in 1954 and the Chief Minister, without any enquiry whatsoever, says " Please give a prima facie report, " and the same C.I.D. machinery is again set in rapid motion as in Sethi 's case, and this at a time when Sethi 's case was kept " hanging as a sword " over the petitioners.
It has been further submitted that the direction as to the seizure of papers was not justified in law, as the Chief Minister had no legal power to give such a direc.
We do not think that these submissions establish what the petitioners have to establish in order to succeed on their writ petition, namely, that in the institution of Dhingra 's case and its investigation, a procedure unknown to law has been followed or that the petitioners have been singled out for an unfair and discriminating treatment.
We do not know what reasons led the Chief Minister to make the endorsement on the complaint of Dhingra as he did and why instead of referring the complaint to the officer in charge of the police station concerned, a reference was made to the Additional Inspector General or the Criminal Investigation Department.
These are matters within his special knowledge, and he has chosen to throw no light on them.
Shamshere Singh has said in his affidavit that he dealt with Dhingra 's case in exercise of his powers under section 551, Code of Criminal Procedure.
Sardar Bir Singh has said in his affidavit that this case was also of a technical nature and so the investigation was entrusted to him.
As we have said in Sethi 's case this reason does not appear to us to be a convincing reason, but the Police officers concerned may honestly have thought that the case should be investigated by the Criminal Investigation Department.
We are not called upon to express any opinion on the merits of Dhingra 's case, and all that we say now is that the petitioners have failed to establish either of their two contentions (1) that the procedure adopted was illegal, or (2) that the petitioners were unfairly discriminated against.
160 We go now to the remaining two cases, the Orphanage Case and the Ayurvedic Fund, case.
One was instituted on the complaint of the Civil Supply Officer, Karnal, and the other on the statement of Daryao 'Sing, Deputy Superintendent of Police, C. 1. D., Karnal.
The Orphanage case is against the Orphanage Advisory Board of which R. P. Kapur was the Vice President at the relevant time, and Kartar Sing, farm manager of Kaushalya Devi.
It related to the alleged violation of certain Control Orders in the matter of a brick kiln.
The Ayurvedic Fund case is against R. P. Kapur and certain other persons, who are not petitioners before us.
It alleged criminal breach of trust etc.
in respect of certain funds in the hands of the persons accused therein.
As we are not deciding these cases on merits, it is unnecessary to give further details of the allegations made in those cases.
No specific illegality has been brought to our notice with regard to the institution of the Orphanage case except some allegations of high handedness in the matter of seizure of records of the Orphanage in spite of the protest of the General Manager of the Orphanage and some allegations against Choudhuri Ram Singh, who was then Deputy Inspector General, Ambala Range.
These allegations, be they true or not, do not establish any such illegality as would lead us to quash the investigation.
As to the Ayurvedic Fund case, Daryao Sing said in his affidavit: " I say that the Audit Report contained details of meddling with Orphanage funds and of having made payments to one Kartar Sing, an employee of the petitioner no.1 and the attorney of Shrimati Kaushalya Devi.
It appears that there was excess and double payment of funds.
There were purchases of timber and wood without calling for any quotations.
It disclosed the issue of Orphanage funds to Madhuban Co operative Society and that the materials like cement, iron and steel which were under control were also used in the construction of private building of Shri Kapur and his family and the use of such materials went up to 20,000 Rupees.
" 161 Here again we do not express any opinion as to the correctness or otherwise of the allegations made.
All that need be said at this stage is that the institution of the case is not illegal, nor is its investigation vitiated by discrimination.
It is indeed true that the investigation of these cases has been entrusted to certain officers of the Criminal Investigation Department, whether for good reason or not we cannot say.
But that circumstance does not by itself make the investigation bad in law.
The officers can exercise their powers of investigation under section 551, Code of Criminal Procedure.
Daryao Singh, it may be stated, was an Inspector of the Criminal Investigation Department at Karnal and became a Deputy Superintendent of Police, C. I. D., in December, 1959.
He also could exercise the powers under section 551, Code of Criminal Procedure.
For the reasons given above, we have come to the conclusion that the petitioners are not entitled to succeed and the writ petition must be dismissed, in the circumstances of this case there will be no order for costs.
Before parting with this case we consider it necessary to make some observations with regard to a matter which has caused us some anxiety and concern.
Serious allegations have been made against the Chief Minister in this case.
He is a party respondent and had notice of the allegations made.
In Sethi 's complaint it was alleged that he had passed certain orders on the original complaint, which was sent to the Additional Inspector General of Police with those orders.
The original complaint was not made available to us on the ground that it could not be traced.
The Additional Inspector General of Police said in his affidavit that on receiving the complaint from Sri M. L. Sethi, he ordered the investigation of the case without any order or direction from the Chief Minister.
He did not specifically say if he received the complaint direct from Sethi or through the Chief Minister.
In Dhingra 's case the Chief Minister passed an order which might either mean that he ordered the 21 162 submission of a prima facie report or merely directed that a report should be submitted if a prima facie case was made out.
It is not clear why he ordered the seizure of papers before even a prima facie report was given, in respect of an offence said to have been committed five years ago.
These are all matters on which the Chief Minister alone was in a position to enlighten us.
In view of the allegations made against him, we consider that the Chief Minister owed a duty to this Court to file an affidavit stating what the correct position was so far as he remembered it.
We recognise that it may not be possible for a Chief Minister to remember the circumstances in which a document pass through his hands; there must be many papers which a Chief Minister has to deal with in the day to day business of administration.
If the Chief Minister did not remember the circumstances, it would have been easy for him to say so.
If he remembered the circumstances, he could have refuted the allegations with equal ease.
This is not a case where the refutation should have been left to Secretaries and other officers, who could only speak from the records and were not in a position to say why the Chief Minister passed certain orders.
The petitioners are obviously suffering from a sense of grievance that they have not had a fair deal.
We have held that there is no legal justification for that grievance ; but in an executive as well as judicial administration justice must not only be done but it must appear that justice is being done.
An affidavit from the Chief Minister would have cleared much of the doubt which in the absence of such an affidavit arose in this case.
Petition dismissed.
| IN-Abs | One S sent a complaint against the first petitioner to the Chief Minister who sent it to the Additional Inspector General of Police who in his turn sent it to the Deputy Superintendent of Police C.I.D., with the endorsement " Register a case and investigate personally ".
The Deputy Superintendent of Police drew up a first information report.
There were also three other cases instituted against the petitioners or some of them, which were being investigated into by the C.I.D. Police officers.
The petitioners contended that the respondents had violated the provisions of sections 154, 156 and 157 of the Code of Criminal Procedure and had adopted a procedure unknown to law and had thus singled out the petitioners for unequal treatment in viola tion of article 14 of the Constitution.
Held, that the procedure adopted was authorised by section 551 of the Code and in the first case the Inspector General had power to deal with the complaint and to direct investigation of the same by the Deputy Superintendent of Police.
Even if the reason given for the Inspector General making over the investigation to the Deputy Superintendent of Police that the case was of a technical nature was not correct, it was open to him to make over the investigation to the Deputy Superintendent of Police in view of the status of the petitioners.
The procedure adopted in the other three cases was also not illegal, and there was no unequal treatment of the petitioners in the matter of the institution or investigation of the cases so as to entitle them to invoke in aid article 14 of the Constitution.
H. N. Rishbud and Inder Singh vs The State of Delhi, ; , King Emperor vs Nilkantha, I.L.R. , Pulin Bihari Ghosh vs The King, I.L.R. and Textile Traders Syndicate Ltd. vs The State of U. P., A.I.R. 1959 All. 337, referred to.
Since allegations were made against the Chief Minister by the petitioners, he owed a duty to the Court to file an affidavit stating what the correct position was so far as he remembered it. 144
|
Appeal No. 280 of 1959.
Appeal by special leave from the judgment and order dated the 22nd August, 1956, of the former Bombay High Court in Income tax Reference No. 17 of 1956.
B. Ganapathy Iyer and D. Gupta, for the Appellant.
Sanat P. Mehta, section N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the Respondent. 1960.
November 1.
The Judgment of the Court ' was delivered by HIDAYATULLAH J. The Commissioner of Incometax, Bombay Circle II, has filed this appeal after obtaining special leave, against the judgment of the High Court of Bombay in an Income tax reference 231 under section 66(2) of the Income tax Act.
The National Syndicate, Bombay (referred to in this judgment as the respondent) was a firm consisting of three partners.
This firm acquired on January 11, 1945, a tailoring business as a going concern from one Chambal Singh for Rs. 89,321/ .
Included in this amount was the consideration paid for sewing machines (Rs. 72,000) and a motor lorry (Rs. 8,000).
The assessment concerns the year of account of the respondent, January 11, 1945 to February 28, 1946.
The business of the respondent was to prepare garments for Government departments, and during the war years, this appears to have been a profitable business.
Immediately after the respondent acquired this business, the last war came to an end, and the respondent found it difficult to continue the business.
It, therefore, closed its business in August, 1945.
Between August 16, 1945 and February 14, 1946, sewing machines were sold at a loss of Rs. 41,998.
The motor lorry was also sold on February 14,1946, at a loss of Rs. 3,700.
The respondent closed its account books on February 28, 1946, showing the two losses and writing them off.
For the assessment year, 1946.47, the respondent claimed a deduction of Rs. 45,698 under section 10(2)(vii) of the Indian Income tax Act.
The Income tax Officer disallowed this deduction, holding that the loss was of a capital nature, and that inasmuch as the business of the respondent was not carried on after August 1945 section 10(2)(vii) was not applicable.
This order of assessment was confirmed by the Appellate Assistant Commissioner, who also held that the loss represented capital loss, as the machines and the motor lorry were sold after the closure of the business.
On appeal, the Appellate Tribunal, Bombay, also confirmed the order, holding that the sales of machines and the motor lorry were made in the course of the winding up of the assessee 's business after the business had been stopped, and that, therefore, the deduction could not be claimed under section 10(2Xvii).
The respondent asked the Tribunal to refer the questions of law arising from its order, but the request was refused.
It then moved the High Court, and 232 obtained an order under section 66(2) of the Income tax Act, and the following two questions were referred: " (1) Whether the Tribunal was justified in law in holding that the Petitioner had carried on its business only till twenty eighth day of August one thousand nine hundred and forty five ? (2) Whether on the facts and circumstances of the case, the Income tax Appellate Tribunal was justified in law in not allowing the sum of Rs. 41,998 (Rupees forty one thousand nine hundred and ninety eight) on sale of machines and Rs, 3,700 (Rupees three thousand and seven hundred) on the sale of lorry as a deduction from the total income of the applicant?" The High Court answered the first question in the affirmative, holding that there was evidence on which the Tribunal could reach the conclusion that the business had, in fact, been continued only till August 28, 1945.
On the second question, the High Court was of the opinion that the business having been carried on for at least a part of the account year, section 10(2)(vii) was applicable, and that, therefore, this allowance had to be made under that clause.
The High Court, therefore, answered the question in the negative.
The High Court refused to grant a certificate to appeal to this Court, but the Commissioner of Income tax applied for, and obtained special leave, and this appeal has been filed.
Before we deal with the question whether section 10(2) (vii) of the Indian Income tax Act is applicable to the facts of this case, we may mention that during the course of the argument Mr. section P. Mehta, counsel for the respondent, sought to re open the first question.
According to him, there was no evidence on which the Tribunal or the High Court could reach the conclusion that the business of the respondent had come to a close in August 1945.
We, however, did not permit him to raise this contention, partly because, in our opinion, such a contention could not be allowed to be raised at this stage in an appeal by the Department and partly because, in our opinion, there were adequate materials for the High Court to have based its conclusion.
Inasmuch as we were in agreement 233 with the High Court on the question of the applicability of section 10(2)(vii), we also felt that no useful purpose would be served in examining the matter to find out whether the business had, in fact, closed on August 28, 1945 or had continued till the end of the account year.
We are really concerned in this appeal with the interpretation of section 10(2)(vii) and its applicability to the facts of the case.
It may be assumed for the purposes of this case that the business did, in fact, close down on August 28,1945, even though some in comings and outgoings were taking place for the rest of the year and the books of account were not finally closed till February 28, 1946.
The Commissioner contends that an allowance could only be claimed if the sale of machines etc., took place when the business was being continued and not if the business had come to a close.
The respondent, on the other hand, submits that section 10(2)(vii) would be applicable in a case where the business continued for a part of the account year, even though the sale of the machinery, plant etc., took place after the closure of the business during the course of the account year.
Section 10(2)(vii) reads as follows: " 10(2).
Such profits or gains shall be computed after making the following allowances, namely: (vii) in respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold or its scrap value: Provided that such amount is actually written off in the books of the assessee:".
The Commissioner emphasises the word " such " in the clause, and states that this takes us back to cl.
(iv) where the words " used for the purposes of the business occur.
It is, therefore, contended that if the business itself comes to an end before the sale takes place, the sale is not during the continuance of the 30 234 business but is during the course of the winding up ,of the business, and the condition precedent to the application of section 10 is that the business must be is carried on " by the person claiming the benefit of sub section
Reference in this context is made to the first sub section of section 10, where it is provided that the tax 'shall be payable by an assessee under the head " Pro. fits and gains of business. . in respect of the profits or gains of any business, etc., ' carried on by him '.
" The Department relies upon a decision of this Court reported in The Liquidators of Pursa Limited vs Commissioner of Income tax, Bihar (1).
The respondent also relies upon the same ruling, and contends that it supports the case set up by it.
The respondent also relies on a recent decision of the Madras High Court in Commissioner of Income tax vs Express Newspapers Ltd. (2).
These two cases were decided under the second proviso to section 10(2)(vii) before its amendment in 1949.
The second proviso reads: " Provided further that where the amount for which any such building, machinery or plant is sold whether during the continuance of the business or after the cessation thereof, exceeds the written down value, so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profits of the previous year in which the sale took place.
" The words underlined above were inserted by section 11 of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949.
In both the cases, the business had admittedly closed down before the sales took place, and it was held, applying the proviso as it was before the amendment of 1949, that such receipts were not taxable.
The amendment now renders these cases obsolete.
Reliance is, however, placed on certain observations in these oases, and it is contended that the same reasoning must be applied to a case of loss as to a case of profits.
We shall, therefore, refer briefly to them.
In The Liquidators of Pursa Limited vs Commissioner of Income tax, Bihar (1), the year of, assessment 235 was 1945 46, which corresponded to the accounting year, October 1, 1943 to September 30, 1944.
Pursa Limited were manufacturers of sugar, and sold the business on August 9, 1943, including buildings, machinery and plant but excluding manufactured sugar worth about Rs. 6,00,000.
This sugar was sold till June, 1944; but throughout the accounting period, the machinery, plant or buildings were not used.
Pursa Limited went into voluntary liquidation on June 20, 1945.
In the sale of the buildings, machinery and plant there was an excess, such as is described in the second proviso, and that amount of excess was sought to be taxed.
This was negatived by this Court on two grounds.
They were (a): " If the machinery and plant have not at all been used at any time during the accounting year no allowance can be claimed under clause (vii) in respect of them and the second proviso also does not come into operation "; and (b) " that the intention of the company was to discontinue its business and the sale of the machinery and plant was a step in the process of winding up of its business.
The sale of the machinery and plant was not an operation in furtherance of the business carried on by the Company but was a realisation of its assets in the process of gradual winding up of its business which eventually culminated in the voluntary liquidation of the Company".
Counsel differ as to the ratio of the case.
The Commissioner contends that the ratio is that no sale, whether at a loss, or at a profit can be said to fall within, respectively, cl.
(vii) or the second proviso, if it takes place after the closure of business and during the process of winding up, while the respondent contends that the real ratio was that during the account year the machinery and plant were not at all used.
No doubt, this Court did give two reasons for its decision, but the primary consideration was the second ratio quoted above.
This is clear from the following passage towards the end of the judgment: " Even if the sale of the stock of sugar be regarded as carrying on of business by the Company and not a realisation of its assets with a view to winding up, the 236 machinery or plant not being used during the accounting period at all and in any event not having had any connection with the carrying on of that limited business during the accounting year, section 10(2)(vii) can have no application to the sale of any machinery or plant." Learned Counsel for the respondent relies upon the passage last quoted, and urges that where the buildings, machinery or plant have been used for a part of the accounting period, the ruling cannot apply, and draws attention to the words " at all " used twice in the judgment.
He argues that if the machinery or plant had been used for a part of the accounting year, the result would have been different.
It is not possible to say how the case would have been decided in the changed circumstances, but it is obvious that the case is distinguishable on more than one ground.
The proviso is in a language different from cl.
(vii), as a fiction is introduced and such ' profits ' are taxed to take back what had been given away for depreciation which did not really take place.
But more of it later.
Express Newspapers Ltd. case (1) is also distinguishable.
In that case, the Free Press of India (Madras) Ltd. resolved on August 31, 1946, to transfer the right of printing and publishing its daily newspapers to Express Newspapers Ltd. They rented out their machinery, etc., to the new Company, which took possession on September 1, 1946.
The year of account ended on December 31, 1946.
The Free Press went into voluntary liquidation on October 31, 1946 and on November 1, 1946, its building, machinery and plant were sold to the new Company at a price which exceeded the written down value by Rs. 6,08,666 made up of Rs. 2,14,090 being the excess of the original cost price over the written down value, and Rs. 3,94,576 being the excess over the original cost price.
One question, among others, was whether the second proviso to section 10 (2)(vii).
applied.
The Madras High Court ob.
served : (1) 237 ". in the present case the sale of the machinery took place during the year of account, and it was used by Free Press Company for at least a part of the year.
This would be sufficient to attract liability.
The learned counsel for the assessee is on a firmer ground when he contended that the sale being made in the process of winding up of the company section 10(2)(vii) will not apply.
The second proviso to section 10(2)(vii) would be invoked only where the sale was one made in the course of business carried on by the predecessor.
Where the sale is a closing down sale, that profit could not be brought to tax.
In Liquidators of Pursa Ltd. V. Commissioner of Income tax (1), the Supreme Court held that where in a case the sale of machinery and plant was a step in the process of winding up of its business, the intention of the company having been to discontinue the business, such sale was not an operation in furtherance of the business carried on by the company, but was only a realisation of its assets in the process of gradual winding up of its business which eventually terminated in the voluntary liquidation of the company, and provision of section 10(2)(vii) would not apply.
In the present case, the formation of the new company was to take over the business of the old company.
The lease of the machinery, the transfer of the right to carry on the business of publishing newspapers, and the ultimate sale of the machinery were part of the same scheme for winding up the Free Press Company.
The sale of machinery was undoubtedly a closing down sale and the profit earned therein could not come in for assessment under section 10(2)(vii).
" These two cases deal with the second proviso to section 10(2Xvii).
Clause (vii) deals with loss and the second proviso, with profits; but the proviso is not an exact counterpart of the clause.
The proviso enacts a fiction which the main clause does not enact.
The reason for the introduction of the fiction in the proviso appears to be this: Loss in business may take place in various ways.
If the business requires more to run it than it produces, there is loss.
Loss in (1) ; 238 business may also take place if the equipment with which business is done is lost, destroyed, or depreciates or suffers in value.
The law takes note of the loss, and, provided it has been computed and brought into the books of the business and written off, it can be claimed as a deduction.
Profit in business, on the other hand, primarily, means profit earned in the business.
But if an allowance had been claimed as depreciation and had been allowed, and if the sale of the building, machinery or plant on which depreciation allowance was claimed in the past, shows that there was, in fact, no depreciation but an accretion in value, the law deems that a profit has been made.
The fiction thus converts that which may not be strictly profit of the business in a narrow sense, into a profit for purposes of assessment.
Formerly, it was a matter of doubt whether even this accretion could be deemed a profit when the business had closed down; but now, the legislature has amended the law by saying that this fictional profit must be brought to tax irrespective of the fact that the sale took place " during the continuance of the business or after the cessation thereof" But it is to be noticed that no such amendment was made in cl.
(vii) to exclude loss over buildings, machinery or plant after the clospre of the business.
It is thus clear that the principles which govern the proviso cannot be used to govern the main clause, because profit or loss arise in different ways in business.
The two rulings do not, therefore, apply to the facts here.
We must thus restrict ourselves to the scheme of the Indian Income tax Act and the clause in question.
The scheme of the Income tax Act, as was pointed out by Lord Porter in Indian Iron & Steel Co. Ltd. vs Commissioner of Income tax, Bengal (1), is that income.
tax is assessed and paid in the next succeeding year upon the results of the year before.
It is the income of the previous year which is brought to tax in the succeeding year, which is called the year of assessment.
For the purpose of assessment, the Indian Income Tax Act divides the sources of income, profits (1) , 336. 239 and gains into six heads in section 6.
The fourth head is " Profits and gains of business, profession or vocation ".
Sections 7, 8, 9, 10, 12, 12A and 12B lay down ' the rules of computation under the different heads.
Profits and gains of business are dealt with in section 10.
The first subjection of that section provides: " The tax shall be payable by an assessee under,, the head I Profits and gains of business. ' in respect of the profit or gains of any business. carried on by him." In Commissioner of Income tax vs Shaw Wallace & Co., Ltd. (1), it was pointed out by the Judicial Committee that the words " carried on by him " were " an essential constituent of that which is to produce the taxable income; it is to be the profit earned by a process of production ".
It was further pointed out that " business " had been defined in the Income tax Act to " include any trade, commerce or manufacture, or any adventure or concern in the nature of trade, commerce or manufacture ", and that it involved " a fundamental idea of the continuous exercise of an activity.
" It was, however, pointed out that the source was not necessarily one which was expected to be continuously productive, but one whose object was the production of a definite return, excluding anything in the nature of a mere windfall, and that 'capital ' in most cases was hardly more than an element in the process of production.
We agree with this analysis of the Income tax Act, and indeed, these observations were also applied in the Pursa Limited case (2), to which we have already referred.
It thus follows that capital may, in the process of production, depreciate, get used up or lost.
The Income tax Act, while taxing income, profits or gains, takes note of, and makes allowance for such eventualities.
If the profits or gains of a business for a particular year are to be taxed, they must be computed for the whole year taking into account losses incurred during the same year.
Now, the first condition precedent appears to be that the business must have been (1) (1932) L.R. 59 I.A. 206.
(2) ; 240 " carried on by the assessee ".
This is to be found in the first sub section of section 10.
The second condition is that the building, machinery or plant must have been " used for the purposes of the business ".
This is to be found in of.
(iv) of the second sub section of section 10.
The third condition is that the sale etc., should have taken place during the year of account.
This follows from the nature of the tax which is assessed and levied on the profits of the working of the previous year.
The fourth condition is that the loss should have been brought into the books of the assessee and written off.
This is provided by the first proviso.
There is no other condition to be found expressly in the section or in the Act.
It is nowhere stated that the business of the assessee should have been carried on for the whole year, or that the machinery or plant should have been used for the whole of the accounting period.
There are no words which would show that, if the assessee works only for a part of the year and then sells out, the loss that he incurs is not a business loss, or that he must pay tax on the small profit that he might have made, and bear the lose in addition.
We have shown above that the case of profit referred to in the second proviso stands on a different footing altogether, since profit and loss arise in different ways.
The law has thus treated the two subjects differently, and the legislature has amended the proviso but not the clause.
In view of what we have said above, we are of opinion that the judgment of the High Court was correct in all the circumstances of this case, and this appeal must be dismissed with costs.
Appeal dismissed.
| IN-Abs | The National Syndicate, a Bombay firm, acquired on January 11, 1945, a tailoring business as a going concern for Rs. 89,321 which included the consideration paid for sewing machines and a motor lorry.
Soon after the purchase the respondent found it difficult to continue the business, therefore closed its business in August, 1945.
Between August 16, 1945, and February 14, 1946, sewing machines and the motor lorry were sold at a loss.
The respondent closed its account books on February 28, 1946, showing the two losses and writing them off.
For the assessment year 1946 47, the.
respondent claimed a deduction under section 10(2)(Vii) of the Indian Income Tax Act.
The Appellate Tribunal held that the sales of machines and the motor lorry were made in the course of the winding up of the assessee 's business after the business had been stopped and that, therefore, the deduction could not be claimed under section 10(2)(Vii).
Respondent moved the High Court and obtained an order under section 66(2) of the Income Tax Act, and the following two questions were referred : " (1) Whether the Tribunal was justified in law in holding that the petitioner had carried on its business only till twenty eight day of August, One Thousand Nine Hundred and Forty Five ? (2) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in not allowing the sum of Rs. 41,998 (Rupees forty one thousand nine hundred and ninety eight) on sale of machines and Rs. 3,700 (Rupees three thousand and seven hundred) on the sale of lorry as a deduction from the total income of the applicant ?" The High Court answered the first question in the affirma tive, and the second question in the negative.
The Commissioner of Income tax questioned the finding of the High Court and came up in appeal by special leave and con tended that an allowance could only be claimed if sale of machines, etc.
took place when the business was being continued and not if the business had come to a close.
The respondent on the other hand submitted that section 10(2)(Vii) would be applicable 230 in a case where the business continued for a part of the account year, even though the sale of machinery, plant, etc.
took place after the closure of the business during the course of the account year.
Held, that if the profits or gains of a business for a particular year are to be taxed, they must be computed for the whole year taking into account losses incurred during the same year, provided that the business had been " carried on by the assessee " ; the building, machinery or plant had been " used for the purpose of the business "; the sale etc.
had taken place during the year of account, and the loss had been brought into the books of the assessee and written off.
There is no other condition to be found expressly in the section or in the Act.
It is nowhere stated that the business of the assessee should have been carried on for the whole year, or that the machinery or plant should have been used for the whole of the accounting period.
There are no words which would show that, if the assessee worked only for a part of the year and then sold out, the loss that he incurred was not a business loss, or that he must pay tax on the small profit that he might have made, and bear the loss in addition.
The Liquidators of Pursa Limited vs Commissioner of Income Tax, Bihar, ; , Commissioner of Income tax vs Express Newspapers Ltd. , distinguished.
Indian Iron & Steel Co., Ltd. vs Commissioner of Incometax, Bengal, , Commissioner of Income tax vs Shaw Wallace & Co., Ltd., (1932) L.R. 59 I.A. 206, referred to.
|
Appeal No. 197 of 1954.
Appeal from the Judgment and Order dated the 25th March, 1953, of the Calcutta High Court in Appeal from Original Order No. 54 of 1953.
Sachin Chaudhury, Sukumar Mitter, section N. Mukherjee and D. N. Ghosh, for the appellant.
244 K. N. Rajagopal Sastri and D. Gupta, for the respondents.
November 1.
The Judgment of section K. Das, K. C. Das Gupta and N. Rajagopala Ayyangar, JJ., was delivered by K. C. Das Gupta, J. M. Hidayatullah, J. and J. C. Shah, J., delivered separate Judgments.
DAS GUPTA J.
This appeal is against an appellate decision of a Bench of the Calcutta High Court by which in reversal of the order made by the Trial Judge the Bench rejected the present appellant 's application under article 226 of the Constitution.
The appellant is a private limited company incorporated under the Indian Company 's Act and has its registered office in Calcutta.
It was assessed to income tax for the assessment years, 1942 43, 1943 44 and 1944 45 by three separate orders dated January 26, 1944, February 12, 1944, and February 15, 1945, respectively.
These assessments were,made under section 23(3) of the Indian Income tax Act upon returns filed by it accompanied by statements of account.
The first two assessments were made by Mr. L. D. Rozario the then Income tax Officer and the last one by Mr. K. D. Banerjee.
The taxes assessed were duly paid up.
On March 28, 1951, three notices purporting to be under section 34 of the Indian Income tax Act, 1922, were issued by the income tax Officer calling upon the company to submit fresh returns of its total income and the total world income assessable for the three accounting years relating to the three assessment years, 1942 43 1943 44 and 1944 45.
The appellant company furnished re.
turns in compliance with the notices but on September 18, 1951, applied to the High Court of Calcutta for issue under article 226 of the Constitution of appropriate writs or orders directing the Income tax Officer not to proceed to assess it on the basis of these notices.
The first ground on which this prayer was based was mentioned in the petition in these terms: " The said pretended notice was issued without the existence of the necessary conditions precedent which confers jurisdiction under section 34 aforementioned, whether 245 before or after the amendment in 1948 ".
The other ground urged was that the amendment to section 34 of the Income tax Act in 1948 was not retrospective and that the assessment for the years 1942 43, 1943 44 and 1944 45 became barred long before March 1951.
The Trial Judge held that the first ground was not made out but being of opinion that the amending Act of 1948 was not retrospective, he held that the notices issued were without jurisdiction.
Accordingly he made an order prohibiting the Income tax Officer from continuing the assessment proceedings on the basis of the impugned notices.
The learned Judges who heard the appeal agreed with the Trial Judge that the first ground had not been made out.
They held however that in consequence of the amendment of section 34 in 1948 the objection on the ground of limitation must also fail.
A point of constitutional law which appears to have been raised before the appeal court was also rejected.
The appeal was allowed and the company 's application under article 226 was dismissed with costs.
The Company has preferred the present appeal on the strength of a certificate issued by the High Court under article 133(1)(a) of the Constitution.
The only point raised before us is that the courts below were wrong in holding that the first ground that the notices were issued without the existence of the necessary conditions precedent which confers jurisdiction under section 34 had not been made out.
As it is no longer disputed that section 34 as amended in 1948 applies to the present case we have to consider the section as it stood after the amendment in 1948, in deciding this question of jurisdiction.
The relevant portion of the section was in these words : " 34.
Income escaping assessment. (1) If (a) the Income tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gain chargeable to income tax have escaped assessment for that year, or have been 246 under assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income tax have escaped assessment for any year, or have been under assessed, or assessed at too low a rate or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed.
He may in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub section: Provided that (i) the Income tax Officer shall not issue a notice under this subsection, unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice; (ii) the tax shall be chargeable at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be; and (iii) where the assessment made or to be made is an assessment made or to be made on a person deemed to be the agent of a non resident person under section 43, this sub section shall have effect as if for the periods of eight years and four years a period of one year was substituted.
247 Explanation Production before the Income tax Officer of account books or other evidence from which material facts could with due diligence have been ' discovered by the Income tax Officer will not necessarily amount to disclosure within the meaning of, this section.
" To confer jurisdiction under this section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year two conditions have therefore to be satisfied.
The first is that the Income tax Officer must have reason to believe that income, profits or gains chargeable to income tax have been under assessed.
The second is that he must have also reason to believe that such " under assessment " has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under section 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year.
Both these conditions are conditions precedent to be satisfied before the Income tax Officer could have jurisdiction to issue a notice for the assessment or re assessment beyond the period of four years but within the period of eight years, from the end of the year in question.
No dispute appears to have been raised at any stage in this case as regards the first condition not having been satisfied and we proceed on the basis that the Income tax Officer had in fact reason to believe that there had been an under assessment in each of the assessment years, 1942 43, 1943 44 and 1944 45.
The appellant 's case has all along been that the second condition was not satisfied.
As admittedly the appellant had filed its return of income under section 22, the Income tax Officer could have no reason to believe that under assessment had resulted from the failure to make a return of income.
The only question is whether the Income tax Officer had reason to believe that " there had been some omission or failure to disclose fully and truly all material facts necessary 248 for the assessment " for any of these years in consequence of which the under assessment took place.
Before we proceed to consider the materials on record to see whether the appellant has succeeded ,in showing that the Income tax Officer could have no reason, on the materials before him, to believe that there had been any omission to disclose material facts, as mentioned in the section, it is necessary to examine the precise scope of disclosure which the section demands.
The words used are " omission or failure to disclose fully and truly all material facts necessary for his assessment for that year ".
It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment.
What facts are material, and necessary for assessment will differ from case to case.
In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion.
From the primary facts in his Possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable.
Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be.
There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee.
To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income tax 249 Officer might have discovered, the Legislature has put in the Explanation, which has been set out above.
, In view of the Explanation, it will not be open to the assessee to say, for example " I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account books and the documents".
His omission to bring to the assessing authority 's attention these particular items in the account books, or the particular portions of the documents, which are relevant, amount to " omission to disclose fully and truly all material facts necessary for his assessment.
" Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed.
The Explanation to the section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee 's duty to disclose all of them including particular entries in account books, particular portions of documents and documents, and other evidence, which could have been discovered by the assessing authority, from the documents and other evidence disclosed.
Does the duty however extend beyond the full and truthful disclosure of all primary facts ? In our opinion, the answer to this question must be in the negative.
Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure.
It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn.
It is not for somebody else far less the assessee to tell the assessing authority what inferences whether of facts or law should be drawn.
Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose 32 250 what inferences whether of facts or law he would draw from the primary facts.
If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority.
How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn ? It may be pointed out that the Explanation to the sub section has nothing to do with " inferences " and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Income tax Officer could have discovered them from the facts actually disclosed.
The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose " inferences " to draw the proper inferences being the duty imposed on the Income fax Officer.
We have therefore come to the Conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this.
The position therefore is that if there were in fact some reasonable grounds for thinking that there had been any non disclosure as regards any primary fact, which could have a material bearing on the question of "under assessments that would be sufficient to give jurisdiction to the Income tax Officer to issue the notice,% under section 34.
Whether these grounds were adequate or not for arriving at the conclusion that there was a non disclosure of material facts would not be open for the court 's investigation.
In other words, all that is necessary to give this special jurisdiction is that the Income tax officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non disclosure of material facts.
Clearly it is the duty of the assessee who wants the court to hold that jurisdiction was lacking, to establish that the Income tax Officer had no material at all before him for believing that there had been such 251 non disclosure.
To establish this the company has relied on the statements in the assessment orders for the three years in question and on the statement of Kanakendra Narayan Banerjee in the report made by him to the Commissioner of Income tax for the purpose of obtaining sanction to initiate proceedings tinder section 34 and also on his statement in the affidavit on oath in reply to the writ petition.
The report is in these words: " Profit of Rs. 5,48,002 on sale of shares and securities escaped assessment altogether.
At the time of the original assessment the then I.T.O. merely accepted the company 's version that the sale of shares were casual transactions and were in the nature of mere change of investments.
Now the results of the company 's trading from year to year show that the company has really been systematically carrying out a trade in the sale of investments.
As such the company had failed to disclose the true intention behind the sale of the shares and as such section 34(1)(a) may be attracted.
" The only nondisclosure mentioned in the report is that the company had failed to disclose " the true intention behind the sale of the shares ".
Mr. Choudhury contends that this is not an omission to disclose a material fact within the meaning of section 34.
The question whether sales of certain shares were by way of changing the investments or by way of trading in shares has to be decided on a consideration of different circumstances, including the frequency of the sales, the nature of the shares sold, the price received as compared with the cost price, and several other relevant facts.
It is the duty of the assessee to disclose all the facts which have a bearing on the question; but whether the assessee had the intention to make a business profit as distinguished from the intention to change the form of the investments is really an inference to be drawn by the assessing authority from the material facts taken in conjunction with the surrounding circumstances.
The law does not require the assessee to state the conclusion that could reasonable drawn from the primary facts.
The 252 question of the assessee 's intention is an inferential fact and so the assessee 's omission to state his " true intentions behind the sale of shares " cannot by itself be considered to be a failure or omission to disclose any material fact within the meaning of section 34.
Indeed, an assessee whose contention is that the shares were sold to change the form of investment and not with the intention of making a business profit cannot be expected to say that his true intention was other than what he contended it to be.
Dealing with this question the learned Chief Justice has said: " The expression that the Respondent had failed to disclose " the true intention behind the sale of shares " may lack directness, but that deficiency of language is not sufficient to enable the Respondent to contend, in view of the circumstances alleged, that no failure to disclose facts was being complained of.
On the facts as stated by the Income tax Officer, it is clear that there had been a failure to disclose the fact that the Respondent was a dealer in shares and what the Income tax Officer meant by the language used by him was that the Respondent had not disclosed that the sale of shares had been of the nature of a trading sale, made in pursuance of an intention to make a business profit, and not of the nature of a change of investment, made in pursuance of an intention to put certain capital assets into another form.
If that be so, it is equally clear that the Income tax Officer who, by the way, was a successor to the officers who had made the original assessments, was not merely changing his opinion as to facts previously known, but was taking notice of a new fact.
" The learned Chief Justice seems to have proceeded on the basis that when from certain facts inferences are to be drawn there is a duty on the assessee to state what the correct inference should be and if he has made a wrong statement as regards the inferences to be drawn that also is an " omission or failure to disclose a material fact ".
For the reasons given earlier we do not think that this is the correct position in law.
It is clear therefore that if one looked at this report 253 only it would not be possible to say that the Income.
tax Officer had any non disclosure of material facts by the assessee in mind when he assumed jurisdiction.
It has to be remembered however that in sending a report to the Commissioner the Income tax Officer might not fully set out what he thought amounted to a non disclosure, because it is conceivable that the report may not be drawn up carefully and may not contain a reference to all the non disclosures that operated on his mind.
We have however on the record an affidavit sworn by the same Income tax Officer who started the section 34 proceedings.
It is reasonable to expect that in this affidavit which was his opportunity to tell the court what non disclosure he took into consideration he would state as clearly as possible the material facts in respect of which there had not been in his view a full and true disclosure.
Mr. Banerjee 's statements in this matter are contained in paras.
5, 6 and 7 of his affidavit.
They are in these words: It 5.
With reference to paragraphs 2 and 3 of the said petition, I crave reference to the assessment orders therein mentioned.
The assessment order dated the 15th February, 1945, was made by Sri Kali Das Banerjee now Income tax Officer Companies District II and the other two assessment orders were made by L. D. Rozario who is now in the employment of M/s Lovelock & Lewes.
I find from the notes made by me in the order sheet of the assessment year 1944 45 and my order dated the 7th July, 1944 that Mr. Smith of M/s. Lovelock & Lewes attended before me and stated that the profits of the company arising out of dealings in shares were not taxable as the company was not a dealer in shares and securities.
Subsequently on the 18th August 1944, M/s. Lovelock & Lewes wrote a letter to me setting out the contentions of their clients and inter alia stated that throughout the whole history the company bought no shares what so.
Sri K. D. Banerjee was accordingly led to believe that the dealings in shares were casual transactions and were in the nature of mere change in investments and the profits resulting therefrom were 254 not taxable.
The assessment orders were made on the basis that the petitioner did not carry on any business dealings in shares.
A copy of the said letter dated the 18th August, 1944, as also the relevant portion of the note sheet are included in the schedule hereto annexed and marked " 6.
In the assessments for 1945 46 and 1946 47, which were completed in April 1950, the profits on sale of shares were included in the total assessable income of the company it having been then discovered that the petitioner was in fact carrying on business in shares contrary to its representation that it was not.
The company filed appeals before the Appellate Assistant Commissioner, which were rejected in September 1950, and the assessments were confirmed.
The company thereafter filed a second appeal before the In.
come tax Tribunal which appeals are now pending.
With reference to para.
5 of the said petition, I deny that I pretended to act under section 34 of the Income tax Act as alleged.
I have reasons to believe that by reason of the omission or failure of the company to disclose fully and truly all material facts necessary for its assessments, the income, pro.
fits and gains chargeable to income tax had been under assessed.
I recorded my reasons and made three reports (one for each year) in the prescribed form and submitted them before the Commissioner of Income tax and the latter was satisfied that it was a fit case for issue of a notice under section 34 of the Income tax Act.
Thereafter I issued the prescribed notices under section 34 of the Income tax Act.
The said reports were made and notices issued in respect of all the three years mentioned in the petition and copies of the report and notice for one of such years are included in the schedule hereto annexed and marked " A ".
The report and notices for the two other years are exactly similar.
" It appears from this that the statements made by or on behalf of the company which the assessing authority considered to amount to non disclosure of material facts were these: (i) the company was not 255 whole of its history the company bought no shares whatsoever.
It has not been suggested before us that, in fact at any time up to the conclusion of the assessment proceedings for the years 1942 43, 1943 44 and 1944 45 the company did in fact make a single purchase of shares.
Clearly therefore the Income tax Officer had no reasonable ground for thinking that anything as regards the purchase of shares had not been disclosed.
The company does not dispute that the statement was made on its behalf that it was not a "I dealer " in shares and securities.
It appears clear that the Income tax Officers who made the assessments for the years 1942 43, 1943 44 and 1944 45 proceeded on the basis that this was an investment company and considered the question whether in spite of its being an investment company certain sales of shares wherefrom the company made a profit were by way of trading in shares and not by way of changing the form of investment.
Whether these sales by an investment company should in law be treated as trading transactions, and the profits made from the sales trading profits liable to tax, was the matter which it was the Income tax Officer 's task to decide.
No duty lay on the company to admit that these transactions were by way of trade.
The fact that on behalf of the company Mr. Smith of Lovelock & Lewes stated that the company was not a dealer in shares and securities does not therefore amount to an omission to disclose fully and truly any material fact.
To ascertain whether the Income tax Officer could have had in mind any non disclosure as a ground for thinking that by reason of such non disclosure an under assessment had occurred apart from what was mentioned in the affidavit we enquired from respondent 's counsel whether he could suggest any other non disclosure that might have taken place.
Mr. Sastri suggested two.
One is that the sales had not been disclosed; the other that the memorandum and articles of association of the company had not been shown.
This suggestion is against the record and we have no hesitation in repelling it.
Not only is it not the ground set out by the Income tax Officer at any 256 stage not even in the affidavit in court, but the ,matters mentioned by the officer that the assessee had claimed that the profits realised were of a casual nature obviously indicate that the assessee disclosed ,that a surplus resulted from the sales which were also disclosed.
The assessment orders it is true do not mention the details of the sales.
They state however that the audited accounts of the company were furnished.
The sales of shares were expressly mentioned in the report.
In these circumstances it is reasonable to believe that as regards sale of shares full details were in fact disclosed.
Nor can we believe that the two Income tax Officers L. D. Rozario and K. D. Banerjee concluded the proceedings without referring to the memorandum and articles of association of the company.
These officers known well that the company was claiming to be an investment company only.
They had to consider the question whether sales were of the nature of trade or of the nature of change of investment.
It is unthinkable that they would not examine the memorandum of association.
Besides, it is pertinent to note that in para.
4 of his affidavit Kanakendra Narayan Banerjee refers to the Memorandum and articles of Association and states that " by its memorandum of association the company has been authorised to carry.
on the various kinds of business which have been specified in sub section (1) and (2) of cl. 3 of the said memorandum of associations He does not say that the articles or the memorandum of association were not shown during the assessment proceedings for the years 1942 43, 1943 44 and 1944 45.
If he had any reason to believe that these were not shown he would have certainly mentioned that fact.
For that would undoubtedly to non disclosure of a material fact.
It must therefore be held that the Income tax Officer who issued the notices had not before him any non disclosure of a material fact and so he could have no material before him for believing that there had been any material non disclosure by reason of which an under assessment had taken place.
257 We are therefore bound to hold that the conditions precedent to the exercise of jurisdiction under section 34 of the Income tax Act did not exist and the Income tax Officer had therefore no jurisdiction to issue the impugned notices under section 34 in respect of the years 1942 43, 1943 44 and 1944 45 after the expiry of four years.
Mr. Sastri argued that the question whether the Income tax Officer had reason to believe that under assessment had occurred " by reason of nondisclosure of material facts " should not be investigated by the courts in an application under article 226.
Learned Counsel seems to suggest that as soon as the Income tax Officer has reason to believe that there has been under assessment in any year he has jurisdiction to start proceedings under section 34 by issuing a notice provided 8 years have not elapsed from the end of the year in question, but whether the notices should have been issued within a period of 4 years or not is only a question of limitation which could and should properly be raised in assessment proceedings.
It is wholly incorrect however to suppose that this is a question of limitation only not touching the question of jurisdiction.
The scheme of the law clearly is that where the Income tax Officer has reason to believe that an under assessment has resulted from non disclosure he shall have jurisdiction to start proceedings for re. assessment within a period of 8 years; and where he has reason to believe that an under assessment has resulted from other causes he shall have jurisdiction to start pro ceedings for re assessment within 4 years.
Both the conditions, (i) the Income tax Officer having reason to believe that there has been under assessment and (ii) his having reason to believe that such under assessment has resulted from nondisclosure of material facts, must co exist before the Income tax Officer has jurisdiction to start proceedings after the expiry of 4 years.
The argument that the Court ought not to investigate the existence of one of these conditions, viz., that the Income tax Officer has reason to believe that under assessment has resulted from 33 258 non disclosure of material facts cannot therefore be ,accepted.
Mr. Sastri next pointed out that at the stage when the Income tax Officer issued the notices he was not acting judicially or quasi judicially and so a writ of certiorari or prohibition cannot issue.
It is well settled however that though the writ of prohibition or certiorary will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction.
Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, it is well settled, will issue appropriate orders or directions to prevent such consequences.
Mr. Sastri mentioned more than once the fact that the company would have sufficient opportunity to raise this question, viz., whether the Income tax Officer had reason to believe that under assessment had resulted from non disclosure of material facts, before the Income tax Officer himself in the assessment proceedings and, if unsuccessful there, before the appellate officer or the appellate tribunal or in the High Court under section 66(2) of the Indian Income tax Act.
The existence of such alternative remedy is not however always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action.
In the present case the company contends that the conditions precedent for the assumption of jurisdiction under section 34 were not satisfied and come to the court at the earliest opportunity.
There is nothing in its conduct which would justify the refusal of proper relief under article 226.
When the Constitution confers on the High Courts the power to give relief it becomes the duty of the courts to give such relief in fit cases and the courts would be failing to perform their duty if relief is refused without adequate reasons.
In the present case we can find no reason for which relief should be refused.
259 We have therefore come to the conclusion that the company was entitled to an order directing the Income tax Officer not to take any action on the basis of the three impugned notices.
We are informed that assessment orders were in fact made on March 25, 1952, by the Income tax Officer in the proceedings started on the basis of these impugned notices.
This was done with the permission of the learned Judge before whom the petition under article 226 was pending, on the distinct understanding that these orders would be without prejudice to the contentions of the parties on the several questions raised in the petition and without prejudice to the orders that may ultimately be passed by the Court.
The fact that the assessment orders have already been made does not therefore affect the company 's right to obtain relief under article 226.
In view however of the fact that the assessment orders have already been made we think it proper that in addition to an order directing the Income tax Officer not to take any action on the basis of the impugned notices a further order .quashing the assessment made be also issued.
In the result, we allow the appeal, set aside the order made by the appellate Bench of the Calcutta High Court and restore the order made by the Trial Judge, Bose, J. The assessment orders made in the proceedings started under section 34 of the Income Tax Act are also quashed.
The appellant will get its costs here and below.
HIDAYATULLAH J. I have had the advantage of reading the judgments prepared by my brethren, Das Gupta and Shah, JJ.
The point involved in the case is a very short one, and the answer, as it appears to me, equally so.
The appellant Company 's income, profits and gains for the assessment years, 1942 43, 1943 44 and 1944 45, were duly assessed and taxed.
The orders were respectively passed on January 26, 1944, February 12, 1944, and February 15, 1945.
On March 28, 1951, three notices under section 34 of the Indian Income tax Act were issued calling upon the appellant Company to submit fresh returns in respect 260 of the previous years relative to each of the assessment years above mentioned.
Since this action was taken after more than four years, the matter fell to be governed by section 34(1)(a) of the Indian Income tax Act, as amended in 1948.
The clause provided an extended period for sending a notice calling for a return for the purpose of assessing or reassessing income, profits and gains which had escaped assessment or had been under assessed for any year within eight years, if the Income tax Officer " has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year ", the income, profits or gains chargeable to income tax have escaped assessment etc.
In the present case, the appellant Company, which is an investment Company, had produced in the back years a list of the shares sold by it, the statements of profit and loss account, and, I am prepared to assume, also the Memorandum and Articles of Association.
But the appellant Company gave out that the sales of shares were casual transactions of change of investments.
This statement was accepted, though it was found that in later years the Company was dealing in stocks and shares as a business venture, and its statement which was accepted, was not perhaps true.
The Income tax Officer reported the matter to the Commissioner, and stated as follows: "Profits of Rs. 5,48,002/ on sale of shares and securities escaped assessment altogether.
At the time of the original assessment the then I.T.O. merely accepted the company 's version that the sales of shares were casual transactions and were in the nature of mere change of investments.
Now the results of the company 's trading from year to year show that the company has really been systematically carrying out a trade in the sale of investments.
As such, the company has failed to disclose the true intention behind the sale of the shares and as such section 34(1)(a) may be attracted.
" The appellant Company applied to the Calcutta 261 High Court for a writ Under article 226 which was granted by a learned single Judge; but the order was, reversed on appeal in the High Court.
The appellant Company has now appealed on a certificate under article 133(1)(c) of the Constitution.
The contention of the appellant Company is that all the facts necessary to be disclosed were, in fact, disclosed, that it was not required further to concede that it was trading in shares, which was a matter of inference, from ' the proved facts, for the Income tax Officer to draw, and that there was thus no question of any non disclosure.
This argument overlooks the addition of the Explanation to the section, which explains cl.
(a) of the first sub section.
It reads: " Explanation.
Production before the Income tax Officer of account books or other evidence from which material facts could with due diligence have been discovered by the Income tax Officer will not necessarily amount to disclosure within the meaning of this section." This means quite clearly that the mere production of evidence is not enough, and that there may be an omission or failure to make a full and true disclosure if some material fact necessary for the assessment lies embedded in that evidence which the assessee can uncover but does not.
If there is such a fact, it is the duty of the assessee to disclose it.
The evidence which is produced by the assessee discloses only primary facts, but to interpret the evidence, certain other facts may be necessary.
Thus, questions of status, agency, benami nature of transactions, the nature of trading and like matters may not appear from the evidence produced, unless disclosed.
If it be merely a question of interpretation of evidence by an Income tax Officer from whom nothing has been hidden and to whom everything has been fully disclosed, then the assessee cannot be subjected to section 34, merely because the Income tax Officer miscarried in his interpretation of evidence.
But it is otherwise, if a contention which is contrary to fact, is raised and the Income tax Officer is set to discover the hidden truth for himself In the latter case, there is suppression of material fact, or, in 262 other words, that lack of full and true disclosure which would entitle action under section 34 of the Act.
The following example explains the meaning.
Taking the present case, I set below two statements, one .,involving full disclosure and a contention, and the other, only a contention with a material fact suppressed : " (1).
We are a trading company and our business is according to our memorandum of association 'to acquire, hold, exchange, sell and 'deal in shares, stocks, etc. '.
These sales, however, were not business sales but only change of investments into trustee securities as decided by the trustees.
(2) We changed industrial shares into trustee securities because I in or about 1934, the trustees decided to convert the Indian Industrial Shares held by the appellant into trustee securities '.
" If the first is decided in favour of the assessee, there is an inference or decision by the Income tax Officer from a full and true disclosure.
If the second is decided in favour of the assessee, the question would arise if there was full and true disclosure.
In the present case, the question whether the transactions were casual transactions of changing investments or regular trading in stocks and shares involves not merely an inference, because the inference depends upon the fact that the appellant Company was formed to trade in stocks and shares.
It was open to the appellant Company to contend that in spite of its business, a particular transaction was this and not that.
But, if the appellant Company was an investment Company dealing in stocks and shares ' and knowing this for a fact, did not disclose the fact, the statement was neither full nor true, as it involved a suppression of a material fact necessary for the assessment.
The Explanation is quite obviously meant to reach an identical situation.
The appellant Company might have placed the evidence before the income tax Officer, but the Income tax Officer had reason to believe that the disclosure was neither full nor true, because the fact that the Company was and shares 263 was not disclosed.
The Income tax Officer in his report meant no more than this.
He, therefore, felt that, prima facie, there was not only concealment of a fact but, on the contrary, maintaining of a falsehood, and this was sufficient to bring this matter within the extended period.
Every contention contrary to the Income tax Officer 's opinion is not necessarily concealment of a material fact, but some contentions made with a mental reservation as to the true state of affairs may amount to such concealment, if they involve non disclosure of facts related to other facts and known to the assessee.
The Company still persists that the sales of shares were casual transactions, and this contention will, no doubt, be decided hereafter.
But the question will be decided after taking into consideration the nature of the business of the Company, and till that is done, the Income tax Officer believes that the contention raise before and persisted in is not a mere contention but maintenance of a falsehood about the nature of the transactions and the business of the Company.
The existence of such a belief is sufficiently established by the report of the Income tax Officer and the satisfaction of the Commissioner, and this has not been gainsaid.
In my opinion, the Divisional Bench of the High Court rightly refused a writ in the circumstances, and I would dismiss this appeal with costs.
SHAH J. I regret inability to agree with the judgment delivered by my learned brother Mr. Justice Das Gupta.
The facts which give rise to this appeal have been fully set out by my learned brother and it is not necessary to reiterate the same.
Sub section (1) of section 34 of the Indian Income Tax Act, 1922 (in so far it is material) stood at the relevant date when the proceedings were commenced, as follows: section 34: (1) If (a) the Income tax Officer has reason to believe that by reason of the omission or failure on the part of an 264 for any year or to disclose fully and truly all material ,facts necessary for his assessment for that year, income, profits or gains chargeable to income tax have escaped assessment for that year, or have been under assessed or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or (b) notwithstanding that there has been no omission or failure as mentioned in cl.
(a) on the part of the assessee, the Income tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income tax have escaped assessment for any year, or have been under assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under cl.
(a) at any time within eight years and in cases falling under cl.
(b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub section
(2) of section 22 and may proceed to assess or re assess such income, profits or gains or re compute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub section: Provided that (i) the Income tax Officer shall not issue a notice under this sub section, unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice; (ii) the tax shall be chargeable at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be; and (iii) where the assessment made or to be made is 265 an assessment made or to be made on a person deemed to be the agent of a non resident person under section 43, this sub section shall have effect as if for the periods of eight years and four years a period of one year was substituted.
Explanation: Production before the Income tax Officer of account books or other evidence from which material facts could with due diligence have been discovered by the Income tax Officer will not necessarily amount to disclosure within the meaning of this section.
This section provides machinery for assessment or reassessment if it be found that income, profits or gains " have escaped assessment or have been under assessed or assessed at too low a rate or have been made subject to excessive relief under the Act or excessive loss or depreciation allowance has been computed ", which expression may for convenience of reference be compendiously referred to as are or have been under assessed.
Notice under section 34(1)(a) may be issued if the Income Tax Officer has reason to believe that income in any year has been under assessed by reason of the failure on the part of the assessee to make a return of his income, or to disclose fully and truly all material facts necessary for assessment for the year in question.
The authority of the Income Tax Officer is manifestly circumscribed by certain conditions, and may be exercised only if those conditions exist and not otherwise.
In the case in hand, we are concerned with the operation of cl.
(1)(a) of section 34.
If that clause does not apply, notices of reassessment having been served more than four years after the end of the relevant year of assessment, must fail.
On an analysis of the relevant provisions, the material conditions proscribed for the exercise of the power to commence proceedings for reassessment under section 34(1)(a) are these: ' (1) The Income Tax Officer has reason to believe, (a) that income, profits or gains have been underassessed, (b) that this under assessment is by reason of 266 omission or failure to make a return under section 22 or by reason of failure to disclose fully and truly all material facts necessary for assessment for any year; (2) that a notice containing all or any of the requirements of section 22(2) is served on the assessee within eight years from the end of the year of assessment; (3) that the Income Tax Officer has recorded his reasons for issuing the notice and the Commissioner is satisfied on such reasons recorded that it is a fit case for issue of such notice.
The notices issued by the Income Tax Officer in the case before us undoubtedly fulfil conditions (2) and (3).
Notices of reassessment were served before the expiry of eight years of the end of the relevant years of assessment.
The Income Tax Officer also recorded his reasons in the reports submitted by him to the Commissioner and the Commissioner was satisfied that they were fit cases for the issue of such notices.
The dispute in the appeal relates merely to the fulfilment of the two branches of the first condition and that immediately raises the question about the true import of the expression "has reason to believe" in section 34(1)(a).
The expression " reason to believe " postulates belief and the existence of reasons for that belief.
The belief must be held in good faith: it cannot be merely a pretence.
The expression does not mean a purely subjective satisfaction of the Income Tax Officer: the forum of decision as to the existence of reasons and the belief is not in the mind of the Income Tax Officer.
If it be asserted that the Income Tax Officer had reason to believe that income had been underassessed by reason of failure to disclose fully and truly the facts material for assessment, the existence of the belief and the reasons for the belief, but not the sufficiency of the reasons, will be justiciable.
The expression therefore predicates that the Income Tax Officer holds the belief induced by the existence of reasons for holding such belief.
It contemplates existence of reasons on which the belief is founded, and not merely a belief in the existence of reasons inducing the belief; in other words, the Income Tax Officer must on information at his disposal believe that 267 income has been underassessed by reason of failure fully and truly to disclose all material facts necessary for assessment.
Such a belief, be it said, may not be based on mere suspicion: it must be founded upon information.
That the Income Tax Officer has reason to believe that there was under assessment in the material years was not challenged by the appellant and in our opinion rightly.
There are on the record the reports of the Income Tax Officer in which the belief is expressly set out.
It also appears from the assessment orders for the years 1945 46 and 1946 47 that tax has been assessed on the profits made by sale of shares by the company in those years.
Had the Income Tax Officer reason to believe that by reason of failure to disclose fully and truly all material facts necessary for assessment for the three years in question, there had resulted underassessment ? The learned Trial judge, after setting out the evidence, held that the Income Tax Officer had materials before him showing that the company 's trading from year to year disclosed that it had been systematically carrying on a trade in the sale of shares and securities.
He observed: " Whether the materials were sufficient or not or whether the belief or opinion is erroneous or not, cannot. . be enquired into by the court.
If the Income Tax Officer has made a wrong decision as to the existence of the conditions precedent, the remedy is by way of appeals as provided by the Income Tax Act and by stating a case under section 66 of the Act." In appeal, the High Court confirmed the order.
The High Court observed that " the use of the expression " the true intention behind the sale of shares " used in the report made by the Income Tax Officer under section 34 to the Commissioner may lack directness, but that deficiency of language was not sufficient to enable the company to contend in view of the circumstances alleged that there was no failure to disclose facts being complained of ".
The High Court also observed: "On the facts as stated by the Income Tax Officer, it is clear that there had been a failure to 268 disclose the fact that the respondent was a dealer in ,shares and what the Income Tax Officer meant by the language used by him was that the respondent had not disclosed that the sale of shares had been of the ,nature of a trading sale, made in pursuance of an intention to put certain capital assets into another form.
If that be so, it is equally clear that the Income Tax Officer who, by the way, was a successor to the officers who had made the original assessments, was not merely changing his opinion as to facts previously known, but was taking notice of a new fact.
" Prima facie, the finding recorded by the Court of First Instance and confirmed by the Court of Appeal is one on a question of fact and this court would not be justified in entering upon a reappraisal of the evidence.
But it is contended on behalf of the company that the finding is based on no materials, and to that plea I may advert.
By section 22 of the Income Tax Act, a duty is imposed upon every tax payer whose total income exceeds the maximum which is not chargeable to income tax to make a return in the prescribed form and verified in the prescribed manner, setting forth his total income during that year.
If the tax payer making the return fails to disclose fully and truly all material facts necessary for the assessment of the year in question, the jurisdiction of the Income Tax Officer to reassess is invited.
The company in its petition for the issue of a writ contended by paragraph 7 that the notices were ultra vires and illegal and that the Income Tax Officer was not invested with jurisdiction to proceed thereunder, inter alia, for the reason that the " pretended notice was issued without the existence of the necessary conditions precedent which confers jurisdiction under section 34 aforementioned, whether before or after amendment in 1948.
" The Income Tax Officer, by his affidavit, submitted: Para 4: " The statements made in paragraph 1 of the said petition are substantially correct.
By its Memorandum of Association, the company has been authorised to carry on the various kinds of business which have been specified in sub cls.
(1) to (32) of cl.
(3) of the said Memorandum of Association.
269 Para 5: " With reference to paragraphs 2 and 3 of the said petition, I crave reference to the assessment orders therein mentioned.
The assessment order dated the 15th February, 1945, was made by Shri Kali Das Banerjee now Income Tax Officer Companies District in II and the other two assessment orders were made by Mr. L. D. Razario who is now in the employment of M/s. Lovelock & Lewis.
I find from the notes made by me in the order sheet of the assessment year 1944 45 and my order dated the 7th July, 1944, that Mr. Smith of Messrs. Lovelock & Lewis attended before me and stated that the profits of the company arising out of dealings in shares were not taxable as the company was not a dealer in shares and securities.
Subsequently on the 18th August, 1944, Messrs. Lovelock & Lewis wrote a letter to me setting out the contentions of their clients and inter alia stated that throughout the whole of its history the company bought no shares whatsoever.
Shri K. D. Banerjee was accordingly led to believe that the dealings in shares were casual transactions and were in the nature of mere change in investments and the profits resulting therefrom were not taxable.
The assessment orders were made on the basis that the petitioner did not carry on any business dealing in shares.
A copy of the said letter dated the 18th August, 1944, as also the relevant portion of the note sheet are included in the schedule hereto annexed and marked " A ".
" Para 6: " In the assessments for 1945 46, and 1946 47 which were completed in April, 1950, the profits on sale of shares were included in the total assessable income of the company it having been then discovered that the petitioner was in fact carrying on business in shares contrary to its representation that it was not.
The company filed appeals before the Appellate Assistant Commissioner which were rejected in September, 1950, and the assessments were confirmed.
The company thereafter filed a second appeal before this Income tax Tribunal which appeals are now pending.
" Para 7: " With reference to paragraph 5 of the said petition, I deny that I pretended to act under 270 section 34 of the Income Tax Act as alleged.
I have reasons to believe that by reason of the omission or failure of the company to disclose fully and truly all material facts necessary for its assessments, the income, profits or, and gains chargeable to income tax had been underassessed.
I recorded my reasons and made 3 reports (one for each year) in the prescribed form and submitted them before the Commissioner of Income Tax and the latter was satisfied that it was a fit case for issue of a notice under section 34 of the Income Tax Act.
Thereafter issued prescribed notices under section 34 of the Income Tax Act.
The said reports were made and notices issued in respect of all the three years mentioned in the petition and copies of the report and notice for one of such years are included in the schedule hereto annexed and marked " A ".
The report and notices for the two other years are exactly similar.
By these averments, the Income Tax Officer asserted (a) that he had reasons to believe that by reason of the omission or failure of the company to disclose fully and truly all material facts necessary for the assessment, income chargeable to income tax has been underassessed and that he had recorded his reasons in that behalf in the three reports submitted by him to the Commissioner; (b) that in the course of the assessment proceeding for the year 1944 45, it was represented on behalf of the company that the sales of shares in that year were casual transactions and were in the nature of " mere change in investments " ; (c) that in the orders of assessment for the years 1945 46 and 1946 47 passed in April, 1950, profits earned by sale of shares held by the company were included in the total assessable income of the company, it having been discovered that the company was in fact carrying on the business of selling shares contrary to its earlier representations; and (d) that by its Memorandum and Articles of Association, the company was authorised to carry on the business of diverse kinds specified in sub cls.
(1) to (32) of cl.
(3) thereof.
Whereas by a mere bald assertion made by the company in its petition it was averred that the conditions precedent to the exercise of jurisdiction to 271 re assess did not exist, the Income Tax Officer stated in his rejoinder that he had reasons to believe that income bad been underassessed and he also set out the grounds on which that belief was founded.
The existence of the reasons to believe that income was underassessed has, as already observed, not been challenged; nor is the court concerned with the question whether the materials may be regarded by a court before which a dispute is raised, sufficient to sustain the belief entertained by the Income Tax Officer.
It is clear that the Income Tax Officer asserted on oath that when he issued the notice for reassessment, he had reasons to believe that income of the company had been underassessed and he set out the reasons in support of the belief.
Counsel for the company submitted that all the material facts necessary for the assessment were fully and truly disclosed in the course of the assessment for the years in question, and if the Income Tax Officer did not draw the correct inference, the jurisdiction to reassess could not be invoked.
He urged that it was for the Income Tax Officer, on the preliminary facts disclosed to him, to raise his inference of fact and to base his conclusions on the preliminary as well as the inferential facts, and if, in arriving at his conclusion on the preliminary and the inferential facts.
, the Income Tax Officer committed an error, he could not seek to commence proceedings for reassessment on being apprised of the error.
It was said that the Income Tax Officer knew that the company was an investment corporation, that the shares held by the company were sold from time to time, and that profits were earned by the sale of those shares, and that on these materials the Income Tax Officer might have held that the company was a dealer in shares, but if he did not draw that inference, the under assessment, if any, was not by reason of failure to disclose fully and truly all material facts.
Counsel submitted that the condition of the exercise of jurisdiction under section 34 is failure to disclose fully and truly all material facts necessary for assessment and not failure to 272 instruct the Income Tax Officer about the legal inference to be drawn from the facts disclosed.
The duty imposed by the Act upon the tax payer is to make a full and true disclosure of all material facts necessary for the assessment; he is not required to inform the Income Tax Officer as to what legal inference should be drawn from the facts disclosed by him nor to advise him on questions of law.
Whether on the facts found or disclosed, the company was a dealer in shares, may be regarded as a conclusion on a mixed question of law and fact and from the failure on the part of the company to disclose to the Income Tax Officer this legal inference no fault may be found with the company.
But on the evidence in the case, the plea raised by the company that all material facts were disclosed cannot be accepted.
The Income Tax Officer has in para.
6 of his affidavit referred to the assessment of the years 1945 46 and 1946 47: he has also referred to the Memorandum and Articles of Association of the company therein.
In the assessment order for the year 1945 46, the Income Tax Officer has set out cls.
(1) and (2) of the Memorandum and Articles of Association of the company.
They are: (1) " To acquire, hold, exchange, sell and deal in shares, stocks, debenture stock, bonds, obligations and securities issued or guaranteed by any company, Government or public body constituted or carrying on business in British India or elsewhere; " (2) " Generally to carry on business as financiers and to undertake and carry out all such operations and transactions (except the issuing of policies of assurances on human life) as an individual capitalist may lawfully undertake or carry out; ".
The Income Tax Officer in his order of assessment for that year observed that those clauses indicated the purposes for which the company was formed, and also that " whenever the shares were first acquired, these became the commodities which could either be held or sold according to the best interests of the company, that whenever such a commodity is sold, it comes within the activities or properly speaking the profit making scheme as enumerated in the object 273 clauses stated above.
These shares sold in course of ten or twelve years whenever opportunities occurred for earning profits on making the sales. . .
This company was not an ordinary trader investing its surplus funds in shares and securities quite unconnected with its regular course of business so that the profit or loss also on sale of such shares or securities may be treated as not arising out of its regular business carried on.
On the other hand, it is an Investment company of which the very first object clause is to hold and deal in shares.
Profit on sale of such shares therefore arises out of its regular course of business and it must be taxable.
" From that order of assessment, it is manifest that the Assessing Officer held that the company was formed with the object of acquiring, holding, exchanging, selling and dealing in shares, that the shares acquired became the trading assets of the company to be disposed of when opportunities occurred for earning profits; and that the activities of selling shares in which surplus assets of the company were invested were a part of the regular business carried on by the company.
There is no evidence that the Memorandum and Articles of Association referred to in para 4 of the affidavit were produced in the course of the assessment of the relevant years; nor is there evidence to show that it was disclosed that the acquisition of shares was incidental to the business activities and out of the surplus assets of the company and that the same were sold at profit as opportunities arose.
There is also no ground for assuming that these facts must have been known to the Income Tax Officer.
Counsel for the company suggested somewhat casually that under the Income Tax Rules and the practice prevailing with the Income Tax Officer, the Memorandum and Articles of Association of every company which was being assessed to tax are to be filed with the Income Tax Officer.
But our attention has not been invited to any rule or any material to support the existence of a practice requiring a private limited company to file with the Income Tax Officer the Memorandum and Articles of Association.
274 The plea raised by counsel for the company must be examined in the light of the Explanation to sub section (1) of section 34.
The Explanation provides that " Production before the Income Tax Officer of account books or other evidence from which material facts could with due diligence have been discovered by the Income Tax Officer will not necessarily amount to disclosure within the meaning of the section.
" If pro duction of documents or other evidence from which material facts could with due diligence have been discovered does not necessarily amount to disclosure, it would be difficult to hold that a presumption about the production of a document at sometime in the past and its possible existence in the files of the Income Tax Officer relating to earlier years may be regarded as sufficient disclosure.
Disclosure of some facts, but not all, though the facts not disclosed may have come to the knowledge of the Income Tax Officer, if he had carefully prosecuted an enquiry on the facts and materials disclosed, will not amount to a full and true disclosure of all material facts necessary for the purpose of assessment.
A tax payer cannot resist reassessment on the plea that non disclosure of the true state of affairs was due to the negligence or inadvertence on the part of the Income Tax Officer, and but for such negligence or inadvertence, a full and true disclosure of all material facts necessary, for the assessment would have been resulted.
There is no evidence on the record that the Memorandum and Articles of Association were ever produced before the Income Tax Officer in the course of proceedings for assessment.
Again, the report of the Income 'tax Officer discloses that his predecessor in office was told that the sales of shares effected by the company were casual transactions and were in the nature of a mere " change of investments".
This was not strictly accurate.
The record therefore clearly shows that the company bad failed to disclose fully and truly all material facts in relation to assessment in two respects, (1) that it failed to produce the Memorandum and Articles of Association showing the purposes for which the company was incorporated, and 275 (2)that the shares were acquired as part of the business of financiers.
The company also made a statement which is partially untrue when it stated that sales were mere casual transactions.
There were materials before the Income Tax Officer on which he had reason to believe that by reason of the failure of the company to fully and truly disclose material facts, its income was underassessed.
Whether on these facts, a conclusion that in fact the company was carrying on the business of trading in shares could be founded, is at this stage entirely immaterial.
If there was reason to believe, the alleged inadequacy of the materials on which the belief could be founded is of no moment.
The Income Tax Officer has commenced proceedings for reassessment by issuing notices against the company and he has placed all the materials before the court on which it could be said that he had reason to believe that income of the company had been underassessed by reason of failure on the part of the company to disclose fully and truly all material facts relating to the assessment and if, on those materials, the Income Tax Officer could hold the belief which he says he did, the court in seeking to hold an enquiry into the question whether the Income Tax Officer, notwithstanding his affidavit and materials placed in support thereof, had reason to hold the requisite belief, would be arrogating to itself jurisdiction which it does not possess.
If the conditions precedent do not exist, the jurisdiction of the High Court to issue high prerogative, writs under article 226 of the Constitution to prohibit action under the notice may be exercised.
But if the existence of the conditions is asserted by the authority entrusted with the power and the materials on the record prima facie Support the existence of such conditions, an enquiry whether the authority could not have reasonably held the belief which he says he had reason to hold and he did hold, is, in my judgment, barred.
In that view, the proper order to pass in this appeal would be one of dismissal with costs.
BY COURT.
In view of the majority opinion, the appeal is allowed with costs here and below.
| IN-Abs | The appellant, a private limited company, was assessed to income tax for the assessment years 1942 43, 1943 44 and 1944 45 by three separate orders dated January 26, 1944, February 12, 1944, and February 15, 1945, under section 23(3) of the Indian Income Tax Act on returns filed by it with statements of account.
On March 28, 1951, three notices under section 34 of the Act were issued calling upon it to submit fresh returns for the said assessment years.
The appellant filed the returns but thereafter applied to the High Court under article 226 of the Constitution for writs restraining the Income tax Officer from initiating assessment proceedings on the basis of the said notices on the ground, inter alia, that he had no jurisdiction to issue the said notices.
In his report to the Commissioner of Income tax for obtaining sanction to initiate the said proceedings the Income tax Officer had stated as follows : " Profit of Rs. 5,46,002 on sale of shares and securities escaped assessment altogether.
At the time of the original assessment the then I. T. O. merely accepted the company 's version that the sale of shares were casual transactions and were in the nature of mere change of investments.
Now the results of the company 's trading from year to year show that the company has really been systematically carrying out a trade in the sale of investments.
As such the company had failed to disclose the true intention behind the sale of the shares as such section 34(1)(a) may be attracted".
The question for determination was whether in the circum stance the Income tax Officer was right in issuing notices on the assessee under section 34(1)(a) of the Act.
Held, (per section K. Das, K. C. Das Gupta and N. R. Ayyangar, jj.), that before the Income tax Officer could issue a notice under $ '.
34(1)(a) of the Indian Income tax Act, two conditions precedent must co exist, namely, that he must have reason to believe (i) that income, profits or gains had been under assessed and (2) that such under assessment was due to non disclosure of material facts by the assessee.
242 Although what facts would be necessary and material for the assessment in a particular case must depend on the facts of that case, there could be no doubt that the burden of disclosing all the primary facts must invariably be on the assessee.
The Explanation to section 34(1) made it clear that that burden could not be fully discharged by simply producing the account books and other documents, but the assessee must also disclose such specific items or portions thereof as are relevant to the assessment.
But once he has done so, it is for the Income tax Officer to draw the proper inferences of fact and law therefrom and the assessee cannot further be called upon to do so for him.
The Explanation does not enlarge the scope of the section so as to include " the disclosure " of such inferences.
The question whether by the sale of shares the assessee in the instant case intended to change the form of investment or to make a business profit was one of an inferential fact and the failure to disclose such intention could not by itself amount to a failure or omission to disclose a material fact within the meaning of section 34(1)(a) of the Act.
Where, however, the Income tax Officer has prima facie reasonable grounds for believing that there has been a non disclosure of a primary material fact, that by itself gives him the jurisdiction to issue a notice under section 34 of the Act, and the adequacy or otherwise of the grounds of such belief is not open to investigation by the Court.
It is for the assessee who wants to challenge such jurisdiction to establish that the Income tax Officer had no material for such belief.
Since, in the instant case, there was no non disclosure of a primary material fact which the assessee was bound to disclose under section 34(1)(a) of the Act, the Income tax Officer had no jurisdiction to issue the notices in question.
It is incorrect to say that the question of under assessment by reason of non disclosure of a material fact was relevant only for the purpose of applying either the longer or the shorter period of limitation prescribed by the section and not for jurisdiction and, therefore, not a proper matter for investigation under article 226 of the Constitution.
The High Courts have ample powers under article 226 of the Constitution, and are in duty bound thereunder, to issue such appropriate orders or directions as are necessary in order to prevent persons from being subjected to lengthy proceedings and unnecessary harassments by an executive authority acting without jurisdiction.
Alternative remedies such as are provided by the Income tax Act cannot always be a sufficient reason for refusing quick relief in a fit and proper case.
Per Hidayatullah, J. The Explanation to section 34(1) of the Indian Income tax Act clearly indicates that the duty of the assessee thereunder does not end by merely producing evidence or disclosing the primary facts, but also extends to the disclosure 243 of such other facts relating to status, agency, benami nature of the transaction, the nature of the trading and the like, which he knows but do not appear from the evidence, and which may be necessary for interpreting the evidence.
If the evidence produced hides nothing and discloses everything, the assessee cannot be subjected to section 34 merely because the Income tax Officer misinterprets such evidence.
But it is otherwise if the assessee raises a contention that is contrary to fact and requires the Income tax Officer to discover the truth for himself for that would be to suppress a material fact that would attract the section.
Since, in the present case, an investment company dealing in stocks and shares, not only knowingly suppressed that fact but contended otherwise, there was non disclosure of a material fact necessary for its assessment, and sufficient to attract section 34(1) (a) of the Act.
Per Shah, J.
The expression " has reason to believe " in section 34(1)(a) of the Indian Income tax Act does not mean a purely subjective satisfaction of the Income tax Officer but predicates the existence of reasons on which such belief has to be founded.
That belief, therefore, cannot be founded on mere suspicion and must be based on evidence and any question as to the adequacy of such evidence is wholly immaterial at that stage.
Whether all the material facts necessary for the assessment had or had not been fully and truly disclosed in a particular case has to be examined, in the fight of the Explanation to section 34(1)(a).
If there is disclosure of some facts but not all, a tax payer cannot resist reassessment on the plea that such non disclosure was due to the negligence or inadvertence on the part of the Income tax Officer to scrutinise the materials before him.
Where the existence of reasonable belief that there bad been under assessment due to non disclosure by the assessee, which is a condition precedent to exercise of the power under section 34(1)(a) is asserted by the assessing authority and the record prima facie supports its existence, any enquiry as to whether the authority could reasonably hold the belief that the under assessment was due to non disclosure by the assessee of material facts necessary for the assessment must, be barred.
|
Appeal No. 210 of 1959.
Appeal by special leave from the judgment and order dated January 16, 1958, of the Patna High Court in Mis.
Judicial case No. 156 of 1957.
B. C. Ghose and P. K. Chatterjee, for the Appellant.
section P. Varma, for Respondents Nos. 1 to 5.
R. C. Dutta, for Respondents Nos.
6 to 20. 1960.
November 7.
The Judgment of Hidayatullah, Das Gupta and Ayyangar, JJ., was delivered by Ayyangar, J., and that of section K. Das and Shah, JJ., was delivered by Shah, J. AYYANGAR.
The sole question which arises in this appeal, which comes by way of special leave is as to whether sales under which goods were delivered outside the State of Bihar for the purpose of consumption but not within the State of first delivery or first destination, are exempt from the levy of sales tax by the Bihar State by virtue of article 286(1)(a) of the Constitution as it stood before the recent amendment.
The India Copper Corporation Ltd. (referred to hereafter as the assessee company) carries on business in copper and various other materials and mineral pro.
ducts and the office of its General Manager is in the district of Singhbhum in Bihar.
The period covered by the assessment now in dispute is January 26, 1950 to March 31, 1950.
The normal practice of the assessee company was to deposit sums of money from time to time provisionally towards payment of sales tax in advance and have the amount finally adjusted after the completion of the assessment of each year.
The assessee company followed this practice in respect of the amount of sales tax due by it for the year 1949 50.
For the financial year April 1, 1949 to March 31, 1950, the Superintendent of Sales tax, Singhbhum, 278 computed the tax liability of the company in the sum of Rs. 3,60,703 4 0 by an order of assessment dated November 13,1950, and the company made payment of the amount due by it beyond the sums already paid.
It would be noticed that this financial year comprised two periods (1) before the Constitution, viz., April 1, 1949 to January 25, 1950, and (2) the post Constitution period from January 26, 1950 to March 31, 1950.
There is now no controversy as regards the sales tax payable in respect of sales effected during the pre Constitution period.
The assessee company however raised a dispute that in respect of the post Constitution period, it was not liable to pay any sales tax in respect of sales to buyers, under which though the property in the goods passed within the State, delivery of the goods was effected outside the State of Bihar for consumption outside that State on the ground that such sales were exempted from tax by article 286(1)(a) of the Constitution as it originally stood.
It addressed a formal letter to the Commissioner of Commercial Taxes, Bihar, on December 30, 1952, making this demand enclosing a statement showing full particulars of the goods sold, the bill numbers, the date and the amount etc., to enable the refund claimed to be calculated.
The assessee company followed it up by a formal petition for review of the assessment order by filing a revised return under section 12(2) of the Bihar Sales tax Act together with an application for refund.
The departmental authorities rejected these applications by order dated July 20, 1953.
Further proceedings before the department by way of revision etc.
failed to secure to the assessee company the relief which it claimed and thereafter it filed an application under articles 226 and 227 of the Constitution before the High Court of Patna praying for the issue of a writ to quash the order of assessment dated November 30, 1950, and the orders rejecting the prayers for review, reassessment and refund and for a direction to the departmental authorities to refund the sum realised by them in so far as the tax related to sales as a result of which goods were delivered outside the State of Bihar.
279 The learned Judges of the High Court held that the order of the Superintendent of Sales tax, Singhbhum, dated November 13, 1950, should be set aside and that the matter should go back to the Superintendent to make a reassessment according to law for the post Constitution period.
A further direction was added requiring the respondent to refund to the assessee so much of the tax as had been paid in excess of the amount of reassessment to be made by the Superinten dent in accordance with the law as laid down by the Court.
In formulating the law applicable, the learned Judges drew a distinction between sales as a direct result of which goods were delivered in a State outside the State of Bihar and consumed in that State and those cases in which the goods thus delivered, were not consumed in the State of first destination but were re exported from the State of first destination to other States.
They held that the first category of sales were covered by the Explanation to article 286 (1)(a) of the Constitution and were " inside " the State of first delivery and consequently " outside " the State of Bihar within the meaning of the Article and therefore exempt from tax by the Bihar State.
In regard, however, to the second category of sales, it was held that they were not within the Explanation and were therefore outside the constitutional exemption under article 286(1)(a).
The assessee company not being satisfied, filed an application to the High Court for a Certificate of fitness under articles 132 and 133 of the Constitution, but this having been rejected, they applied to and obtained special leave from this Court under article 136 of the Constitution and that is how the appeal is now before us.
Three points were urged before us by Mr. B. C. Ghose, learned Counsel for the appellants: (1) that on a proper construction of article 286(1)(a) and the Explanation thereto (as it stood before the Article was amended by the Constitution Sixth Amendment Act, 1956) every sale as a direct result of which goods were delivered for consumption outside the State, was not within the taxing power of the State in which the 280 goods were at the time of the sale, and ,in which property passed as a result thereof, and that it was immaterial whether the delivery was for the purpose of consumption in the State of first destination or whether the delivery in such State was not for the purpose of consumption therein but, for re export to other States, (2) that even if article 286(1)(a) exempted only sales in which as a direct result of the sale the goods were delivered for the purpose of consumption in the State of first destination, on the pleadings and the evidence before the Court the assessee company must be taken to have established that all the sales effected by it and in regard to which exemption from payment of tax was claimed, conformed to this requirement, (3) a narrower submission, that even it be that to fall within the Explanation the delivery has to be for the Purpose of consumption in the State of first destination, the learned Judges of the High Court erred in requiring the assessee company to prove not merely that the goods were delivered for the purpose of consumption but further that the goods so delivered were actually consumed within that State.
We shall now deal with these points in that order.
Article 286(1)(a) together with the Explanation on whose construction the first point depends ran in these terms: " Article 286(1).
No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State; or (b). . . . . . . . . . . Explanation.
For the purposes of sub clause (a) a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State.
" The scope and the purpose of this Explanation was 281 discussed and explained by this Court in The State of Bombay vs Unitea Motors (India) Ltd. (1) and it is the passage in this judgment extracted below on which reliance was placed by the learned Counsel in support of his submission: ". . .
The authors of the Constitution had to devise a formula of restrictions to be imposed on the State power of taxing sales or purchases involving inter State elements which would avoid the doubts and difficulties arising out of the imposition of sales tax on the same transaction by several Provincial Legislatures in the country before the commencement of the Constitution.
This they did by enacting clause (1) (a) with the Explanation and clause (2) of Article 286.
Clause (1)(a) prohibits the taxation of all sales or purchases which take place outside the State but a localised sale is a troublesome concept, for, a sale is a composite transaction involving as it does several elements such as agreement to sell, transfer of ownership, payment of the price, delivery of the goods and so forth, which may take place at different places.
To solve the difficulty an easily applicable test for determining what is an outside sale had to be formulated, and that is what, in our opinion, the Explanation was intended to do.
It provides by means of a legal fiction that the State in which the goods sold or purchased are actually delivered for consumption therein is the State in which the sale or purchase is to be considered to have taken place, notwithstanding the property in such goods passed in another State .
An " outside " sale or purchase is explained by defining what is an inside sale, and why actual delivery and consumption in the State are made the determining factors in locating a sale or purchase will presently appear.
The test of sufficient territorial nexus was thus replaced by a simpler and more easily workable test: Are the goods actually delivered in the taxing State, as a direct result of a sale or purchase, for the purpose of consumption therein ? Then, such sale or purchase shall be deemed to have taken place (1) ; , 1081 36 282 in that State and outside all other States.
The latter States are prohibited from taxing the sale or purchase; the former alone is left free to do go.
Multiple taxation of the same transaction by different States is also thus avoided.
" It might be mentioned that this portion of the judgment is unaffected by the dissent expressed in the later decision in The Bengal Immunity Company Ltd. vs The State of Bihar (1).
The argument based upon this passage was broadly on these lines: Article 286 (1)(a) imposes a ban on the legislative power to levy a tax on sales which are outside " the taxing State.
What sales are " outside is not easy to decide because that depends upon " the situs " of a sale, which cannot, in most cases, be located in any one place with certainty being dependent on a variety of factors which might or might not converge.
The Constitution makers did not directly define what was meant by a ,sale that was " outside the State " but achieved the same purpose by explaining an " inside " sale with the result that what was not an " inside " sale should be held to bean ,outside" sale.
It must however be pointed out that it was not disputed that the terms of the " Explanation " would not be satisfied unless the delivery was for the purpose of consumption therein, i.e. in the State of first destination, If the terms of the Explanation were satisfied, the State of " delivery.
cum consumption ", (to coin a convenient expression to designate the State in which goods are delivered as a direct result of the sale for the purpose of consumption therein), used in the Explanation, would have power to tax the sale as being one fictionally " inside " it.
In such an event all the other States in India, barring that State would be prevented from taxing that sale because the sale would be " outside " those States.
This however, it was urged, would not exhaust the operation of the Explanation, but further that the Explanation was exhaustive of what the Constitution makers conceived to be a sale which alone may be the subject of tax by a State.
The deduction learned Counsel made from these premises was twofold (1) that (1) 283 in cases where goods were as a direct result of the sale delivered outside the State of Bihar for the purpose of consumption in the State of first destination, the conditions of the Explanation were satisfied and the sales being " outside " the State of Bihar could not be taxed by that State.
So far there is no dispute and indeed the learned Judges of the High Court have, subject to a matter of detail to which reference will be made later, accepted the contention of the assessee.
(2) a further consequence, that in cases where goods were delivered as a result of the sale outside the State of Bihar, but not for the purpose of consumption in such State of first destination, the terms of the Explanation were no doubt not satisfied and consequently the, sale was not inside such State of delivery and indeed not " inside " any State in India within the Explanation, but that such sales also must be held to be " outside " every State in India within article 286 (1)(a).
The learned Judges of the High Court repelled this contention and, in our opinion, correctly.
The passage in the judgment of the United Motors case extracted earlier dealt with Explanation sales and with none else.
When the terms of the Explanation were satisfied such sales were by a fiction deemed to be " inside " the State of delivery cum consumption and therefore " outside " all other States.
In such cases therefore, only the State " inside " which the sale is deemed to take place by virtue of the Explanation, is exempt from the ban imposed by article 286(1)(a).
All other States would be subject to that ban in respect of such sales.
The learned Chief Justice however did not, in the passage extracted, deal with the case of sales which did not satisfy the terms of the Explanation.
The situs of what might be termed 1 non Explanation ' sales has therefore to be determined independently of the terms of the Explanation.
Such sales would be exempt from tax only if the sale took place " outside the State but not otherwise.
The next question is, does a sale take place " outside " the State, where as a result of the contract of 284 sale, the property in the goods passes to the purchaser within the State; in other words, is a sale completed by the passing of property within the State not " inside" a State, for the more reason that as a direct result of the sale the goods are delivered outside the State.
The answer depends on the meaning to be attributed to the words " a sale or purchase which has taken place " outside the State occurring in the body of article 286 (1).
The expression " outside the State " is capable of being understood in more senses than one.
It could be understood as comprehending cases where no element or ingredient which constitutes a sale takes place within the State; in other words as applying solely to those cases where there exists no territorial nexus between the State imposing the tax and the sale.
Obviously, this could not have been intended to be incorporated in article 286(1) because the tax in such cases would be beyond the legislative power of the State under Entry 54 of the State List read with article 246 of the Constitution.
The expression " outside " has therefore to be understood not as a sale so " outside " as not to have any territorial connection between the State in question and the sale, but in a somewhat narrower sense.
The real difficulty arises in ascertaining the precise content of the narrower sense in which the word is used as meaning a sale in substance " outside " the State, though there might be some elements of the sale which if the exemption under article 286(1)(a) were not enacted, would enable a State to levy a tax on the sale on the ground that it was within the legislative power of the State under article 246 read with Entry 54.
As already pointed out, the situs of a sale is not easy to determine and several factors which constitute a completed transaction of sale including the delivery of the goods, lay claim to be considered as in themselves constituting sufficient next to justify their being treated as determining the locus of a sale.
Thus, merely by way of illustration, the place where the goods are at the time of the contract of sale, the place where the contract of sale is concluded, the place where the property in the goods passes and that 285 in which the delivery takes place compete for recognition as constituting the locus of a sale.
Before the Constitution, these and other similar factors were treated as affording sufficient territorial connection to endow the State in which any of the events occurred with legislative competence to tax the sale.
This led to a multiplicity of the taxation of the same transaction of sale by a plurality of States, with the result that the consumer was hard hit and trade itself, and national economy suffered in the process.
It has been pointed out that article 286(1)(a) was designed to counteract that state of affairs.
If a single State was designed to have the power to tax any particular transaction of sale, the question that next falls to be considered is the determination of that State in regard to which it could be predicated that the sale in question was not " outside " that State or in other words, the determination of the particular State in regard to which it could be said that the sale was " inside " that State.
The key to the problem is afforded by two indications in the Article itself: (1) the opening words of Article 286(1) which speak of a sale or purchase taking place and (2) the non obstante clause in the Explanation which refers to the general law relating to " sale of goods under which property in the goods has, by reason of such sale or purchase, passed in another State.
" These two together indicate that it is the passing of property within the State that is intended to be fastened on, for the purpose of determining, whether the sale in question is " inside " or " outside " the State, and therefore, subject to the operation of the " Explanation " that State in which property passes would be the only State which would have the power to levy a tax on the sale.
As was explained in the recent decision of this Court in Burmah Shell Oil Storage & Distributing Co., of India, Ltd. vs The Commercial Tax Officer (1) : " By sale here (article 286(1)(a) ) is meant a completed transaction by which property in the goods passes.
Before the property in the goods passes, the contract (1) C.A. 751 of 1957 & C.A. 10 of 1958 (Unreported).
286 of sale is only executory, and the buyer has only a chose in action. . . .
The Constitution thinks in terms of a completed sale by the passing of property and not in terms of an executory contract for the sale of goods.
" Notwithstanding that is not an " outside " sale, the power of the State to tax might be negatived by the operation of the Explanation which by its non obstante clause shifts the situs of the sale and renders the sale transaction one within the delivery cum consumption State, i.e. as the State in which the sale transaction must be deemed to take place.
Where the terms of the Explanation are satisfied, the sale transaction will, by a legal fiction created by it, be deemed to take place "inside" the State of delivery and therefore " outside " the State in which the property passes.
The conclusion reached therefore is that where the property in the goods passes within a State as a direct result of the sale, the sale transaction is not outside the State for the purpose of article 286(1)(a), unless the Explanation operates.
We need also add that the power of the State to impose the tax might still not be available unless the transaction in question is unaffected by the other bans imposed under sub cl.
(1)(b), (2) and (3) of article 286.
The submission therefore of learned Counsel for the appellants, that in respect of non Explanation sales the State of Bihar has no power to levy a tax by reason of such sales being 'outside " the State within article 286(1)(a) must be rejected.
The second contention urged by the learned Counsel for the appellant was that even assuming he was wrong on the first point, all the sales by the assessee company fell within the terms of the Explanation to article 286(1)(a) being sales as a direct result of which the goods were delivered for consumption in the State of first destination, and that the learned Judges of the High Court were in error in considering, that some of the sales did not conform to this requirement.
In support of this submission learned counsel drew our attention to two matters.
He first referred us to the application dated December 30, 1952 made on behalf 287 of the assessee company to the Commissioner of Commercial Taxes, Bihar, Patna in which the claim for refund of the tax paid was rested on the following ground : After getting out that the tax on sales effected between the period January 26, 1950 to March 31, 1950 was not assessable by virtue of article 286 of the Constitution, the application stated: " Total sales of raw materials of copper and brass sheet and circles sold by us and despatched under railway receipts for buyers ' consumption are as follows".
Then followed the sales effected and the tax paid in respect of the sales.
The claim in this form was annexed to and made part of the petition to the High Court under article 226 and 227 of the Constitution and in paragraph 9 of the petition, this letter was referred to and a copy thereof was incorporated and marked as 1A.
In this paragraph which was the other matter relied on the claim for refund was said to be " on sales made to buyers outside Bihar State for consumption ".
Learned Counsel strongly pressed upon us that paragraph 9 and the annexure had clearly asserted that the sales which were the, subject of the claim for refund involved a delivery of the goods outside the State of Bihar for consumption in the State of first destination and the State of Bihar not having filed any counter affidavit challenging the correctness of these allegations, the High Court should have held that the terms of the Explanation were satisfied and should have ordered the refund claimed.
We however consider that this submission is without force.
Neither in the claim put forward in Exh. 'A ' nor in para graph 9 of the petition was any distinction drawn between sales under which deliveries were effected outside the State of Bihar for the purpose of consumption in the State of first destination and those in which the deliveries outside the State were effected for the purpose of consumption not in the State of first destination but in other States.
In fact, this was made clear in the later paragraphs of the petition to the High Court from which it is apparent that the assessee company made a claim for tax exemption in 288 respect of sales in which the delivery took place outside the State of Bihar, whether the delivery was for the purpose of consumption in the State of first destination or otherwise.
In paragraph 17(1) of the petition to the High Court the assessee stated: " (the petitioner was not liable to pay tax on goods delivered outside the State of Bihar which was also for consumption outside the State of Bihar ", and again in clause (iii) of the same paragraph this was repeated: " the goods being outside the State of Bihar, delivered outside the State of Bihar and consumed outside the State of Bihar were not liable to sales tax by the State of Bihar " and similarly in cl.
(v) of the same paragraph a reference was made to " goods delivered outside the State of Bihar for consumption outside the State of Bihar ".
The same idea is emphasized in paragraph 19 also which contained the prayer of the petition.
On these averments it is clear that the claim made by the assessee was that to invoke the exemption contained in article 286(1)(a) it was sufficient that the goods were delivered outside the State of Bihar and that it was immaterial whether the delivery was for the purpose of consumption in the State of first destination or otherwise.
This involved the same argument which was raised by the learned Counsel that we have dealt with earlier.
The learned Judges of the High Court were therefore right in drawing a distinction between the two types of sales which we have already indicated.
The last point that was urged by the learned Counsel was that the learned Judges of the High Court erred in requiring the assessee to prove that the goods delivered outside the State of Bihar were actually consumed in the State of first destination before the exemption from tax could be availed of In their judgment now under appeal the learned Judges have stated: "The petitioner would not be entitled to exemption if the goods were not consumed in the State of first destination but were re exported from the State of first destination to other States) '.
Learned Counsel for the appellant complained that 289 under the Explanation to article 286(1)(a) there need be no proof of actual consumption of the goods delivered in the State of first destination but that the Explanation was satisfied if the purpose of the delivery tinder the sale was for consumption in that State.
If after a sale that satisfied that requirement, viz., for the purpose of consumption in the State of first destination, the buyer under such a sale for his own purposes reexported the goods that was not a matter with which the seller was concerned and would not affect the character of the sale as one falling within the Explanation to article 286(1)(a).
Learned Counsel therefore urged that the learned Judges of the High Court went wrong in requiring proof on the part of the assessee that the goods were actually consumed within the State of first delivery outside Bihar and that this was an unwarranted addition to the requirements of the Explanation.
We consider this submission well founded and indeed the learned Counsel for the respondent did not dispute that the actual order of the High Court went beyond the terms of the Explanation to article 286(1)(a).
The order of the High Court will, therefore, be modified by making it clear that if the goods were as a direct result of the sale delivered outside the State of Bihar for the purpose of consumption in the State of first delivery the assessee would be entitled to exemption of the sales tax imposed and that it would not be necessary for the assessee to prove further that the goods so delivered were actually consumed in the State of first destination.
Subject to this modification, the appeal fails, but in the circumstances of the case there will be no order as to costs.
SHAH J.
We agree with the conclusion of Mr. Justice Rajagopala Ayyangar, J., but because our approach to the question is somewhat different, we propose to record our reasons separately.
The Bihar Sales Tax Act, 1947, was enacted in exercise of legislative authority conferred upon the Provincial Legislatures by entry 42 in List II read 37 290 with section 100(3) of the Government of India Act, 1935.
By section 2(g) of the Act, " sale " was defined (in so far as it is material) as meaning any " transfer of property in goods for cash or deferred payment or other valuable consideration. . provided. . provided further that notwithstanding anything to the contrary in the Indian Sales of Goods Act, 1930, the sale of any goods (i) which are actually in Bihar at the time when, in respect thereof, the contract of sale as defined in section 4 of that Act is made, or (ii) which are produced or manufactured in Bihar by the producer or manufacturer thereof, shall, wherever the delivery or contract of sale is made, be deemed for the purposes of this Act to have taken place in Bihar." Under entry 42 of List II of the Government of India Act, 1935, the Provincial Legislatures could tax sales by selecting some fact or circumstance which provided a territorial nexus with the taxing power of the State even if the property in the goods sold passed outside the Province or the delivery under the contract of sale took place outside the Province.
Legislation taxing sales depending solely upon the existence of a nexus, such as production or manufacture of the goods, or presence of the goods in the Province at the date of the contract of sale, between the sale and the Legislating Province could competently be enacted under the Government of India Act, 1935 see the Tata Iron and Steel Co., Ltd. vs The State of Bihar and Poppatlal Shah vs The State of Madras (2).
By article 286 of the Constitution, certain fetters were placed upon the legislative powers of the States as follows: article 286: " (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State ; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India.
(1) (2) ; 291 Explanation:For the purposes of sub cl.
(a) a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State.
(2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter State trade or commerce : Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencement of this Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty first day of March, 1951.
(3) No law made by the Legislature of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent.
" With a view to impose restrictions on the taxing power of the States under the pre Constitution statutes, amendments were made in these statutes by the Adaptation of Laws Order.
By the Adaptation of Laws Order, 1951, in the Bihar Sales Tax Act was incorporated with retrospective operation from January 26, 1950, section 33, which provided: " ' (1) Notwithstanding anything contained in this Act, (a) a tax on the sale or purchase of goods shall not be imposed under this Act (i) where such sale or purchase takes place outside the State of Bihar ; or 292 (ii) where such sale or purchase takes place in the course of import of the goods into, or export of the goods out of, the territory of India ; (b) a tax on the sale or purchase of any goods shall not, after the 31st day of March, 1951, be imposed where such sale or purchase takes place in the course of inter State trade or commerce except in so far as Parliament may by law otherwise provide; (2) The Explanation to cl.
(1) of article 286 of the Constitution shall apply for the interpretation of sub cl.
(1) of cl.
(a) of sub section
" By this amendment, on the taxing power of the Bihar State the same restrictions were engrafted on the pre Constitution statute as were imposed by article 286 of the Constitution upon post Constitution statutes.
This court has held in the Bengal Immunity Co., Ltd. vs The State of Bihar (1) that the operative provisions of the several parts of article 286 namely cl.
(1) (a), (1)(b) and (2) and cl.
(3) were intended to deal with different topics and one could not be projected or read into another.
Therefore, by the incorporation of section 33 in the Bihar Sales Tax Act read with article 286, notwithstanding the amplitude of the power otherwise granted by the charging section read with the definition of " sale ", a cumulative fetter of triple dimension was imposed upon the taxing power of the State.
The Legislature of the Bihar State could not since January 26, 1950, levy a tax on sale of goods taking place outside the State or in the course of import of the goods into, or export of the goods out of the territory of India, or on sale of any goods where such sale took place in the course of inter State trade or commerce.
By the Explanation to article 286(1)(a) which is incorporated by sub section
(2) section 33 of the Bihar Sales Tax Act, a sale is deemed to take place in the State in which the goods are actually delivered as a direct result of such sale for the purpose of consumption in that State even though under the law relating to sale of goods the property in the goods has by reason of such sale passed in another State.
In the State of Bombay vs The United Motors (India) Ltd. (2), it was held that (1) (2) ; 293 since the enactment of article 286(1)(a), a sale described in the Explanation which may for convenience be called an " Explanation sale " is taxable by that State alone in which the goods sold are actually delivered as a direct result of sale for the purpose of consumption in that State.
The right to tax arises because the sale is deemed to take place in that State and outside all other States and the latter States are prohibited from taxing the sale ; the former alone is left free to do so.
The Bihar Sales Tax Act enacted in exercise of the power conferred by entry 42 of List II of the Government of India Act, 1935, upon the Provincial Legislatures is saved by article 372 of the Constitution as existing law, but by the combined operation of sub sections
(1) and (2) of section 33, the Bihar State is incompetent to tax sales of goods in the course of imports into and exports out of the territory of India, and after March 31, 1951, sales of goods in the course of inter State trade or commerce.
In view of the exposition of the content of the Explanation to article 286(1)(a) by this court in the United Motors case (1), the Bihar State is also incompetent to tax " Explanation sales " where the goods are delivered in another State as a direct result of the sale for consumption in that State.
By this last ban, to the extent provided by subs.
(1)(a)(i) and sub section
(2) of section 33, the State of Bihar is deprived of its power to tax sales; but the ban does not wholly extinguish the power of the State to tax sales relying upon a real territorial nexus between the sale and the State.
In other words, by enacting that a tax shall not be imposed under the Act when the sale takes place outside the State of Bihar in section 33(1)(a)(i), only the power to tax " Explanation sales " which do not take place within the State of Bihar in taken away, but not the power to tax " non Explanation sales " in which though under the general law of sale of goods the property passes outside the State, there exists between the taxing power of the State and the sale a nexus as contemplated by the definition of sale in section 2(g).
If the sale is one in which the goods have been delivered outside the State of (1) ; 294 Bihar, but not as a direct result of the sale or not for the purpose of consumption in the State of first delivery, the sale will not be covered by the Explanation, and the right to tax the sale, if arising otherwise under the Act relying upon the territorial nexus, will not be impaired by the prohibition imposed by cl.
(1)(a)(i) of section 33.
The right of the State of Bihar to tax a sale relying upon a real territorial nexus not being impaired by section 33 of the Act, all sales as defined by section 2(g) of the Bihar Sales Tax Act are liable to be taxed, except those falling within section 33(1)(a)(ii), section 33(2) and " Explanation sales " outside the State of Bihar.
The appellant company carries on the business of manufacturing copper and other mineral products in the State of Bihar.
It has its registered office and its place of business in the District of Singhbhum in the State of Bihar and is registered as a " dealer " under the Bihar Sales Tax Act, 1947.
The appellant company sent out its products to various places in India in the year of assessment ending on March 31, 1950 and has paid the tax assessed by the Sales Tax Officer.
The appellant is now seeking to obtain a refund of the tax paid for the period between January 26 and March 31, 1950, on the plea that the tax was paid under a misapprehension of the law.
The High Court in an application under article 226 of ' the Constitution directed the Sales Tax authorities to refund so much of the tax as was not proved to have been paid in respect of sales of goods delivered and consumed in the State of first destination.
On the goods delivered and consumed in the State of first destination outside Bihar, the appellant could not be called upon to pay sales tax.
That is undisputed.
The appellant also claimed that on the goods delivered for consumption in the State of first delivery outside Bihar, it was not liable to pay sales tax, even if there was no evidence to prove that the goods were in fact consumed in such State.
In our judgment, the High Court was in error in directing that the exemption provided by article 286(1)(a) read with the Explanation which was at the material time incorporated by section 33 in the Bihar Sales Tax Act by the Adaptation of 295 Laws Order, 1951, only applied to all sales of goods delivered and consumed in the State of first destination.
If the goods were delivered for consumption, it is immaterial whether they were in fact consumed in the State where they were delivered.
The power of the State to levy sales tax relying upon the territorial nexus between the taxing power of the State and the sale, is impaired for reasons already set out to the extent to which it is restricted by the incorporation of article 286(1)(a)(i) and the Explanation thereto, in that Act.
Therefore, sales effected on or after January 26, 1950, where goods are as a direct result of the sale delivered in another State for consumption in that other State, are not liable to be taxed.
The directions issued by the High Court will therefore be modified as follows: The order of the Superintendent of Taxes is set aside.
He is directed to grant refund of tax paid in the light of this judgment.
The appellant will be entitled to exemption from payment of tax if the goods are, as a direct result of the sale, delivered in another State for the purpose of consumption in that State.
Appeal dismissed subject to modification.
| IN-Abs | The appellant effected sales during the period 26 1 1950 to 31 3 1950, whereunder the property in the goods passed in the State of Bihar but delivery was effected outside Bihar for consumption outside Bihar.
In some of these sales the goods were delivered in the State of first destination for consumption therein whilst in other cases the goods were not for consumption in the State of first delivery of destination.
The appellant contended that both these categories of sale were exempt from tax under article 286(1)(a) as they were outside sales.
Held (per Hidayatullah, Das Gupta and Rajagopala Ayyangar, JJ.) that the sales where delivery in the State of first destination was for consumption therein, were outside the State of Bihar within the Explanation to article 286(1)(a) and Bihar could not tax them, but the sales where delivery in the State of first destination was not for consumption therein were not " Explanation Sales " and were not " outside " sales and Bihar could tax them.
Where the property in the goods passed within the State as a direct result of the sale the sale was not an " outside " sale for the purpose of article 286(1)(a) unless it fell within the Explanation.
In the first category of sales the appellant was entitled to the.
exemption and it was not necessary for it to prove that the goods delivered for consumption in the State of first destination were actually consumed therein.
The State of Bombay vs United Motors (India) Ltd., and Bengal Immunity Company Ltd. vs The State of Bihar, , referred to.
Burmah Shell Oil Storage & Distributing Co. of India Ltd. vs The Commercial Tax Officer, C. A. No. 751 of 57 and C. A. No. 10 of 1958 (Unreported), relied on.
Per section K. Das and Shah, Jj.
Section 33 introduced in the Bihar Sales Tax Act by the Adaptation of Laws Order, 1951, engrafted the same restrictions on the taxing power of the State on the pre Constitution statutes as were imposed by article 286 upon post Constitution statutes.
Section 33(1)(a)(1) of the Act took away only the power to tax " Explanation Sales " but not the power to tax " non Explanation Sales ".
A sale in which goods had been delivered outside Bihar, but not as a direct result of 277 the sale or not for the purpose of consumption in the State of first delivery was not covered by the Explanation, and the right to tax the sale, if it arose otherwise under the Act, was not impaired by section 33(1)(a)(i).
|
ases Nos. 20 and 21 of 1950.
Appeals under article 132(1)of the Constitution of India from the judgment and order dated the 19th May, 1950, of the High Court of Judicature at Bombay (Dixit and Shah, JJ.) in Confirmation Case No. 4 of 1950 and Criminal Appeals Nos. 190 and 199 of 1950, arising out of judgment dated the 13th March, 1950, of the Court of the Special Judge at Ahmedabad in Special Cases Nos. 2 and 3 of 1949.
N.C. Chatterjee and Ram Lal Anand (Hardyal Hardy and S.L. Chibber, with them) for the appellants.
712 M.C. Setalvad, Attorney General for India (G. N. Joshi, with him) for the respondent.
A.A. Peerbhoy and J.B. Dadachanji lot the Intervener.
May 20.
The judgment of Mehr Chand Mahajan, Mukherjea, Das and Chandrasekhara Aiyar, JJ.
was deliv ered by Das J. Patanjali Sastri delivered a separate dissenting judgment.
PATANJALI SASTRI C.J.
I regret I am unable to a gree with the reasoning and conclusion of my learned brother Das J. whose judgment I have had the advantage of reading.
The appellants were convicted and sentenced to death and varying terms of imprisonment by the Special Judge, Ahmeda bad, on charges of murder and other offences under the Indian Penal Code, the Arms Act and the Bombay Police Act.
The Special Judge was appointed by a notification issued under the Bombay Security Measures Act, 1947, (hereinafter referred to as the impugned Act) and on August 6, 1949, the State Government, in exercise of the powers conferred by section 12 of the impugned Act, directed the Special Judge to try the case of the appellants who were implicated in what was known as the Central Bank Robbery Case.
Charges were framed on January 13, 1950, without any preliminary enquiry and committal by a Magistrate which had been dis pensed with by the impugned Act, and seventeen witnesses for the prosecution were examined before January 26, 1950, when the Constitution came into force.
The proceedings continued, and after the examination of sixty witnesses in all, ended in the conviction of the appellants on March 13, 1950.
Separate appeals were preferred by the present appel lants to the High Court which, however, confirmed the con viction and sentence in each case.
An objection that the trial was illegal as the impugned Act was void under article 13 (1) of the Constitution, read with article 14, was over ruled on the ground that 713 those provisions had no retrospective operation and did not affect proceedings already started in the Court of the Special Judge.
the learned Judges followed the decision of a Special Bench of their own Court in In re Keshav Madbar Menon(1) which has since been affirmed by this Court in ; It is urged on behalf of the appellants that the deci sion relied on by the High Court is distinguishable and that the present case is governed by the decision of this Court in The State of West Bengal vs Anwar Ali Sarkar(2) to the effect that section 5 of the Bengal Act (which is in identi cal terms with section 12 of the impugned Act) is discrimi natory and void in so far, a any rate, as it empowers the State Government to direc "cases" to be tried by a Special Court under a special procedure.
Accordingly, it was claimed that the Special Judge had no jurisdiction to try the appellant applying the special procedure prescribed by the impugned Act.
Granting, however, that section 12 of the impUgned Act must, in view of the decision in Anwar Ali Sarkar ' case (2), be held to be discriminatory and void in so far as it empow ers the State Government to refer individual cases to a Special Judge for trial, it does no seem to me to follow that the trial of the appellants which had validly started before the Special Judge who had been duly empowered to try the case, is vitiated by reason of the Constitution subse quently coming into force.
It is to be noted that the West Bengal case(2) was argued on the basis that article 12 of the Constitution was applicable to the proceeding from their inception, although the notification directing the trial of some of the persons accused in that case was issued on the day before the commencement of the Constitution.
The posi tion here is different The appellant 's case was sent to the Special Judge for trial by notification dated 6th August, 1949, and the Judge took cognisance of it, framed the charges and proceeded with the trial to a considerable extend before the commencement of the Constitution on 26th (1) (1950) 52 Born.
L.R. 540.
(2) [5952] S.C.R. 284.
714 January, 1950.
There could be no question, therefore, of the appellants ' fundamental right under article 14 being in fringed up to that point, as it has been held by this Court in Keshavan Madhava Menon 's case(1) that the provisions of the Constitution relating to fundamental rights have no retrospective operation and do not affect a criminal prose cution commenced before the Constitution came into force.
On and after 26th January, 1950, the appellants, no doubt, had the right to the equal protection of the law; but, as has been repeatedly pointed out, that right only meant that the State, including the executive and the legis lature, should apply the same law, substantive and procedur al, to all persons alike in the same situation without discrimination.
It is said that after the commencement of the Constitution persons who commit the same offences with which the appellants stood charged would, according to Anwar All Sarkar 's case (2) not be liable to be tried by the Special Judge under the special procedure and, if so, the trial of the appellants, too, could not be continued by the Special Judge under such procedure after 26th January, 1950, because such of the departures from the normal procedure of trial under the Criminal Procedure Code as were applied to the appellants during the rest of their trial, being disad vantageous to them in some respects, involved discrimination against them.
It is, therefore, claimed that the continued application of such discriminatory procedure after the Constitution came into force rendered the trial and the resulting conviction illegal.
I am unable to agree.
In the first place, as already pointed out: equal protection of the laws postulates persons in the same situation and in the same circumstances claiming that the same law should be applied to them.
Can it be said that the appellants, whose trial by the Special Judge had been lawfully com menced and was pending at the commencement of the Constitu tion, were in the same situation with persons who committed the same offences after the Constitution came into (1) (2) ; 715 force ? It seems to me that the situation and circumstances are different in the two cases and no complaint of dis criminatory treatment by reason only of the trial having been continued under the special procedure can be sustained, even assuming that the ordinary procedure under the Crimi nal Procedure Code became applicable to the appellants on and after 26th January, 1950.
Such assumption, however, seems to be open to ques tion.
Section 1, sub section (2), of the Criminal Procedure Code enacts that "Nothing herein contained shall affect . . any special jurisdiction or power con ferred or any special form of procedure prescribed, by any other law for the time being in force . .
The juris diction conferred on the Special Judge by the impugned Act, which, as pointed out already, was perfectly valid and fully operative down to the 26th ,January, 1950, thus remained unaffected and application to the appellants of the ordinary procedure prescribed by the Code was excluded.
It cannot, therefore, be said that on the 26th January, 1950.
the appellants were in a position to claim that they were enti tled to be tried under the ordinary procedure like those who committed the same offences after that date or who, having committed them before such date, had not been direct ed to be tried 'by the Special Judge.
It was said that sec tion 1 (2) of the Criminal Procedure ' Code pre supposes a valid law conferring a special juris diction or prescribing a special form of procedure and, inasmuch as such parts of the special procedure as could still be applied to trials continued after the commencement of the Constitution are void under article 13(1) read with article 14, section 1(2) of the Code could not stand in the way of the appellants being tried under the ordinary procedure.
This argument seems to me to beg the question.
It assumes that the special procedure is discriminatory and void to the extent to which it could have been applied to the trial of the appellants after 26th January, 1950.
But the assumption would not be valid unless the appellants could be tried 716 under the normal procedure after 26th January, 1950, in which case alone they could say "Why not try us under the Code; why discriminate?" But, having regard to section 1 (2) of the Code, the normal procedure would become applica ble only if the special procedure is excluded as being discriminatory and void.
The argument thus proceeds in a circle.
Again, it is difficult to see on what principle the jurisdiction of the Special Judge, validly created and exercised over the appellants ' case, could cease to continue on and after 26th January, 1950.
According to the appel lants ' contention.
the special procedure prescribed by the impugned Act became discriminatory and void after 26th Janu ary, 1950, and, therefore, inapplicable to what remained of their trial.
But, could this circumstance affect the compe tence of the Special Judge to try their case of which he had validly taken cognisance ? In Keshoram Poddar vs Nundo Lal Mullick(1) the Judicial Committee of the Privy Council held that the cessation of the jurisdiction of a Rent Control Tribunal after 31st March, 1924, over properties beyond a certain rental value did not affect its power to deal with a case after such cessation if the case was within its juris diction when it was filed and related to a period prior to such cessation.
Their Lordships observed: "The application of the Act is when the parties begin to move under it.
This was done in the present case before March 1924.
The rest is merely the working out of the application".
The position here seems to me to be closely analogous.
The Special Judge was competent to try the appellants ' case when the trial commenced before 26th January, 1950, and the impugned Act was validly applied to the case.
The rest was merely working out the application of the impugned Act.
I find it diffi cult to see why the competency of the Special Judge to try the case should cease after 26th January, 1950, any more than that of the Rent Control Tribunal to deal with a pend ing matter after 31st March, 1924, when its jurisdiction was restricted.
(1) (1927) 54.
I.A.152.
717 If, then, the jurisdiction of the Special Judge to continue the trial of the appellants remained unaffected by the advent of the Constitution, it would be impracticable for the Judge to switch the pending trials to a different procedure from 26th January, 1950, so as to give effect to the equal protection claims of under trial prisoners.
The impugned Act, for instance, enacts that "Notwithstanding anything contained in the Code the trial of offences before a Special Judge shall not be by jury or with the aid of assessors" (section 20).
The trials having been held so far without a jury or assessors as the case may be.
it would obviously be impossible in such cases to continue them after 26th January, 1950, with a jury or with the aid of asses sors, where such trials are required to be so conducted under the ordinary procedure.
Again, the impugned Act provides that no case shall be transferred from any Special Judge, a necessary consequence of the exclusive jurisdiction of the Special Judge and the special mode of proceeding prescribed for him.
If a right of transfer under section 526 of the Code were to be recognised as accruing after 26th January, 1950, to persons undergoing trial before the Spe cial Judge, the scheme of trial by Special Courts may well break down.
The alternative courses open to the Court would, therefore, seem to be either to hold that article 13(1), read with article 14, does not affect pending trials even in respect of procedural matters, as it has been held not to affect such trials in respect of substantive rights and liabilities accrued before the date of the Constitution in Keshavan Madhava Menon 's case(1), or to go back on that decision and give those provisions of the Constitution retrospective, effect.
I am clearly of opinion that the principle of the above said decision must rule the present case.
That principle has been stated thus: "Article 13(1) cannot be read as obliterating the entire operation of the inconsistent laws, or to wipe them out altogether from the statute book, for, to do so will be to give them retrospec tive effect which, we have said, they do not possess.
Such laws exist for all past transactions and ,.for enforcing all (1) ; 718 rights and liabilities accrued before the date of the Con stitution", (Italics mine).
Indeed, the last few words are apt to cover the present case, though, as a party to that decision, I am sensible that we did not have in mind a case precisely like the one now before us.
But, it is well to remember that over fine distinctions sometimes lead to unsuspected traps.
In the foregoing discussion I have assumed that such departures from the normal procedure as were still applica ble to what remained of the appellants ' trial after the 26th January, 1950, were so materially prejudicial to them as to amount to a denial of the equal protection of the laws within the meaning of article 14 of the Constitution.
I am, however, by no means satisfied that that is the position.
One of these deviations relates to the recording of evi dence. '1 he SpeCial Judge is empowered to record only a memorandum of the substance of the evidence of each witness examined, whereas the Criminal Procedure Code requires the evidence to be recorded in full.
Another relates to the summoning of witnesses for the defence, the Special Judge being given a discretion to refuse to summon a witness ' 'if satisfied after examination of the accused that the evidence of such witness will not be material" (section 13), while under section 257(1)of the Code the Magistrate has the discretion to refuse to summon witnesses if he considers that the application for the issue of process for compelling the attendance of any witness is made "for the purpose of vexa tion or delay or for defeating the ends of justice".
And lastly, the impugned Act provides that no court shall have jurisdiction to transfer any case from any Special Judge (section 18 (3)), whereas transfers under section 526 of the Code are allowed on certain specified grounds.
The more important departures from the procedure under the Code such as dispensation of preliminary enquiry and committal and the elimination of jury and assessors had already been applied, and validly applied, to the trial of the appellants before the Constitution came into force.
and there can be no ques tion of such departures vitiating the trial.
I am unable to regard the 719 procedural variations in the recording of evidence and the summoning of witnesses as so serious as to amount to a denial of the equal protection of the laws within the mean ing of article 14.
Even if the appellants were to be tried under the normal procedure of the Code after 26th January, 1950, the omission to record the evidence in full and the refusal to summon a witness in the circumstances mentioned in section 13 may well be regarded as mere irregularities curable under section 537 of the Criminal Procedure Code.
As regards transfer, it does not, as already pointed out, fit in with the scheme of trial before a Special Judge, and, unless any system of trials by Special Courts is to be condemned as violative of article 14 the decision of this Court in Kathi Raning Rawat vs The State of Saurashtra(1) shows that it can be validly instituted in appropriate circumstances a prohibition of transfer cannot be regarded as falling within the inhibition of article 14.
I have emphasised elsewhere, and I do so again, that in applying the dangerously wide and vague language of the equality clause to the concrete facts of life, a doctrinaire approach should be avoided.
In all the circumstances of this case, I do not feel impelled to set aside the trial and conviction of the appel lants and I accordingly dismiss the appeals.
DAs J.
These two appeals are from the judgment of a Division Bench of the Bombay High Court (Dixit and Shah JJ.) dated May 19, 1950, dismissing the appeals preferred by the appellants against the order made by Shri M.S. Patti on March 13, 1950, as the Special Judge appointed under the Bombay Public Security Measures Act, 1947, whereby he con victed and sentenced them to death and to different terms of imprisonment under the different charges.
The prosecution case is shortly as follows: On the morning of May 26, 1949, between the hours of 10 30 a.m. and 11 a.m. in the city of Ahmedabad the two appellants with another companion, after injuring, by gunshot, the driver and a peon of the Central (1) ; 720 Bank of India Ltd, forcibly removed motor van No.
BY 4388 belonging to the bank in which a large sum of money was being carried from its head office at Gandhi Road to its branch office at Maskati.
After abandoning the motor van at a distance of threefourths of a mile, the three gunmen forcibly took possession of the bicycles of some persons who were riding the same and continued their escape.
In course of their flight, they fired and injured several people.
Eventually, however, the two appellants were arrested by the police but their companion made good his escape.
The driver and the peon of the bank who had been injured succumbed to their injuries, one dying on the spot and the other in the hospital on the next day.
After investigation, the Ahmedabad Police, on July 19, 1949, submitted to the City Magistrate, Ahmedabad, two charge sheets Nos. 183 and 188 A against the two appellants and the then unknown absconder in respect of several of fences committed in course of the transaction that took place on May 26, 1949.
The charge sheet No. 183 was in respect of offences under sections 394, 397, 302, 307 read with section 84 of the Indian Penal Code, section 19 (e) of the Arms Act, and section 68 (1) of the Bombay District Police Act.
The charge sheet No. 183 A was in respect of offences punishable under sections 307, 392 read with sec tion 84 of the Indian Penal Code, section 19 (e) of the Arms Act and section 68 (1) of the Bombay District Police Act.
In each of these charge sheets there was appended a note to the effect that the District Superintendent of Police, Ahmedabad City, had requested the District Magistrate.
Ahmedabad, to move the Government of Bombay/or the constitu tion of a Special Court to hear the cases and that the said charge sheets might be transferred to the Special Court as and when one was so constituted.
In view of this note the City Magistrate did not hold any enquiry but only re manded the appellants.
By a Notification dated August 6, 1949, the Government of Bombay exercising its powers under section 10 ofthe Bombay Public Security Measures Act, 1947, 721 constituted a Special Court of criminal Jurisdiction for the Ahmedabad District and under section 11 of that Act appoint ed Shri M.S. Patil, District and Sessions Judge, Ahmedabad, as a Special Judge to preside over the Special Court.
By another Notification made on the same date, the Government of Bombay in exercise of powers conferred by section 12 the Act directed the Special Judge to try two particular cases, namely, the Postal Van dacoity case in which there were 9 accused and the Central Bank robbery with murder case in which the two appellants before us were the accused under the two charge sheets.
In view of the above Notification the City Magistrate, Ahmedabad, transferred the two cases against the appellants to the Court of the Special Judge and they came to be numbered as cases Nos. 2 and 3 respectively of 1949.
On December 31, 1949, the Government of Bombay directed that the trial of the appellants should be held by the Special Judge in the Ahmedabad Central Prison.
There was no order of committal by any Committing Magistrate nor was there any preliminary enquiry by the Special Judge.
On January 13, 1950, the Special Judge consolidated the two cases against the appellants with a view to holding a joint trial.
On the same day he framed five several charges, namely, four under different sections of the Indian Penal Code and one under section 19 (e) of the Indian Arms Act and section 68 (1)of the Bombay District Police Act.
On January 19, 1950, the 'first prosecution witness was examined and up to January 25, 1950, seventeen prosecution witnesses were examined.
The Constitution came into operation on January 26, 1930.
The hearing proceeded thereafter and the deposi tion of the last witness was recorded on February 9, 1950.
Altogether sixty two witnesses were examined.
The two appellants were examined under section 342 of the Code of Criminal Procedure on February 10, 1950.
One handwriting expert was examined as a Court witness on February 13, 1950, and arguments for the prosecution commenced on the following day.
After the conclusion of the 722 arguments for the defence on February 23, 1950, the Special Judge delivered his judgment on March 13, 1950.
According to his findings both the appellants had committed eleven different offences punishable under several penal provisions of law as specified by him and he convicted both the appel lants of the said eleven offences and sentenced both of them to death under section 302/34, Indian Penal Code, and to transportation for life under section 307/34, Indian Penal Code, and to various terms of imprisonment under various other sections of the Indian Penal Code, Arms Act and Bombay District Police Act.
The capital sentences were, of course, subject to the confirmation by the High Court.
Both the appellants appealed to the Bombay High Court.
The appeals along with the reference for the confirma tion of the sentences of death were heard together by Dixit and Shah JJ.
who by their judgments dated May 19, 1950, dismissed the appeals and confirmed the sentences of death.
The appellants applied to the High Court for certificates under articles 132 (1) and 134 (1) (c) of the Constitution to enable them to appeal to this Court.
The High Court (Bhagwati and Dixit JJ.), however, granted the appellants a certificate only under article 132 (1) but declined to issue any under article 134 (1) (c).
The appellants thereupon filed the present appeals pursuant to the certificate under article 132 (1).
A petition was filed before us under arti cle 132 (3) for leave to urge, as an additional ground, that the trial was vitiated by reason of misjoinder of charges.
No such ground was actually advanced before the High Court and as this Court did not think fit to permit the appellants to raise a new point at this stage it disallowed that peti tion.
Accordingly these appeals must be limited to attack ing the judgment of the High Court on the ground that a substantial question of law as to the interpretation of the Constitution has been wrongly decided.
The only substantial question of law as to the interpre tation of the Constitution urged before us is that 723 the Bombay Public Safety Measures Act, 1947, or, at any rate, that part of section 12 of that Act which authorises the State government to direct specific "cases" to be tried by a Special Judge appointed under that Act, offends against the equal protection of law guaranteed by article 14 of the Constitution and is as such void under article 13 on the principle laid down by this Court in the cases of The State of West Bengal vs Anwar Ali Sarkar(1) and Kathi Raning Rawat vs The State of Saurashtra(2).
In order to appreciate the point in issue, it is necessary to consider in some detail the provisions of the impugned Act.
The Act came into force on March 23, 1947.
It was then instituted as "An Act to consolidate and amend the law relating to public safety, maintenance of public order and the preservation of peace and tranquillity in the Province of Bombay".
The preamble recited the expediency of consoli dating and amending the law relating to those several mat ters.
By section 9 (3) the Act was to remain in force for a period of three years.
The Act was amended by Bombay Act I of 1950 and, amongst other things, the words "security of the State, maintenance of public order and maintenance of supplies and services essential to the community in the State of Bombay" were substituted for the words "public safety, maintenance of public order and the preservation of peace and tranquillity in the Province of Bombay" occurring in the long title and preamble of the Act.
The word "six" was substituted for the word "three" in section 2(3).
The remaining sections of the Act are grouped under several heads.
Thus sections 3 (A1) to 5B are grouped under the heading "Restrictions of movements etc.
" A contravention of an order made under some of these sections is made an offence punishable as mentioned therein.
The subject of "collective fines" is dealt with under that heading in section 6. "Control of. camps etc.
and uniforms" are covered by sections 7 and 8, each of which makes a contra vention (1) ; (2) ; 94 724 of any order made under it an offence.
Section 9 prescribes whipping as a punishment for certain offences under certain Acts in addition to any other punishment to which the of fender may be liable under those Acts.
Section 9A is set down under the heading "Control of Publications etc." and section 9B under the heading "Control of Commodities etc.
" Each of those sections makes a contravention of any order made thereunder an offence punishable as provided therein.
Sections 10 to 20 which are collected under the heading "Special Courts" are material for the purposes of the point in issue before us and will have to be carefully noted.
The rest of the sections are set out under the headings "Miscel laneous" and "Amendments to Acts".
Turning to the group of sections under the heading "Special Courts", it will be noticed that section 10, like section 3 of the West Bengal (Special Courts) Act.
1950, and section 9 of the Saurashtra State Public Safety Measures Ordinance, 1948, authorises the government by notification in the Official Gazette to constitute Special.
Courts of criminal jurisdiction for such ' area as may be specified in the notification.
Section 11 which corresponds to section 4 of the West Bengal Act and section 10 of the Saurashtra Ordinance empowers the government to appoint as a Special Judge to preside over a Special Court any person possessing the requisite qualifications mentioned therein.
Section 12 is expressed in precisely the same terms in which section 5(1)of the West Bengal Act and section 11 of the Saurashtra Ordinance are ' expressed, namely: "A Special Judge shall try such offences or class of offences or such cases or class of cases as the Provincial Government may, by general or special order in writing direct.
" It will be noticed that the offences mentioned in the above section are not limited to offences created by this Act only but also cover offences under any other law, e.g, the Indian Penal Code, Section 13 runs thus 725 "13.
(1) A Special Judge may take cognizance of of fences without the accused being committed to his Court for trial.
(2) A Special Judge shall ordinarily record a memoran dum only of the substance of the evidence of each witness examined, may refuse to summon any witness if satisfied after examination of the accused that the evidence of such witness will not be material and shall not be bound to adjourn any trial for any purpose unless such adjournment is, in his opinion, necessary in the interests of justice.
(3) In matters not coming within the scope of sub sections (1) and (2), the provisions of the Code, in so far as they are not inconsistent with the provisions of sections 10 to 20, shall apply to the proceedings of a Special Judge; and for the purposes of the said provisions, the Court of the Special Judge shall be deemed to be a Court of Session." Under section 14 the Special Judge may in his discretion direct the evidence of a person who is not in a position to attend the Court to be recorded on commission.
Enhanced punishments are provided for certain offences by section 15 as follows: "Notwithstanding anything contained in the Indian Penal Code, whoever commits an offence of attempt to murder may, in lieu of any punishment to which he is liable under the said Indian Penal Code, be punishable with death, and whoever commits an offence of voluntarily causing hurt by stabbing may.
in lieu of any punishment to which he is liable under the said Indian Penal Code, be punishable with death or transportation for life.
" Section 16 authorises the Special Judge to pass any sentence authorised by law and section 17 prescribes a special rule of procedure for recovery of fines.
Section 18 gives a right of appeal to a person convicted on a trial held by a Special Judge within a period of fifteen days from 'the date of sentence and also empowers the High Court to call for the records of the proceedings of any 726 case tried by a Special Judge and in respect of such case exercise any of the powers conferred on a Court of appeal by sections 423, 426 and 428 of the Code.
Sub section (3) of section 18 runs thus: "No Court shall have jurisdiction to transfer any case from any Special Judge or to make any order under section 491 of the Code in respect of any person triable by a Spe cial Judge or, save as herein otherwise provided, have jurisdiction of any kind in respect of proceedings of any Special Judge." Thus the right to apply for transfer of the case and the right to apply for revision are denied to an accused who is tried by a Special Judge.
Ordinary law is, by section 19 made applicable in so far as it is not inconsistent with the provisions of sections 10 to 20.
Section 20 provides as follows : "Notwithstanding anything contained in the Code, the trial of offences before a Special Judge shall not be by jury or with the aid of assessors.
" Thus, besides providing for enhanced punishment and whipping the Act eliminates the committal proceedings [section 13 (1)], permits the Special Judge to record only a memorandum of the evidence, confers on him a larger power to refuse to summon a defence witness, than what is conferred on a Court by section 257(1) of the Code of Criminal Proce dure and also deprives the accused of his right to apply for a transfer or for revision.
That these departures from the ordinary law cause prejudice to persons subjected to the procedure prescribed by the Act cannot for a moment be denied.
This Court has, by its decisions in the State of West Bengal vs Artwar Ali Sarkar (supra) and in Kathi Raning Rawat v The State of Saurashtra (supra).
recognised that article 14 condemns discrimination not only by a sub stantive law but also by a law of procedure and that the procedure prescribed by the corresponding provisions in the West Bengal Special Courts Act and the Saurashtra Ordinance which introduced similar departures from the ordinary law of procedure constituted a discrimination 727 against persons tried by the Special Judge according to procedure prescribed by those pieces of legislation and finally that, in any event, section 5 (1) of the West Bengal Act and section 11 of the Saurashtra Ordinance, both of which corresponded to section 12 of the Bombay Public Secu rity Measures Act, in so far as they authorised the govern ment to direct specific and particular "cases" to be tried by the Special Judge, was unconstitutional and void.
In view of the departures from the ordinary law brought about by the Bombay Public Safety Measures Act, 1947, which are noted above, it cannot but be held, on a parity of reason ing, that at any rate section 12 of the Act, in so far as it authorises the Government to direct particular "cases" to be tried by a Special Judge, is also unconstitutional.
Learned Attorney General appearing for the State of Bombay does not controvert the legal position as discussed above but he points out that the offences were committed in May, 1949, that the Special Court was constituted and the Special Judge was appointed in August, 1949, and these "cases" were directed to be tried by the Special Judge in August, 1949, that the Special Judge actually framed charges against the appellants on January 13, 1950, and that the depositions of seventeen witnesses had been taken before the Constitution came into force and when the Bombay Public Safety Measures Act, 1947, was valid in its entirety.
He contends, on the authority of the decision of this Court in Keshavan Madhava Menon vs The State of Bombay(1).
that the Constitution has no retroactive operation and that it does not affect the rights acquired or the liabilities incurred under laws which, before the advent of the Constitution, were valid, and, quoting from the jud ment of the majority of the Bench in that case, that "such laws exist for all past transactions and for enforcing all rights and liabili ties accrued before the date of the Constitution", he urges that the legal proceedings commenced before the Constitution came into (1) ; 728 operation are in no way affected by it and may well be proceeded with.
In Keshavan Madhava Menon 's case, the appellant was the Secretary of People 's Publishing House, Ltd., of Bombay.
In September, 1949, he was alleged to have published a pamphlet which, according to the Bombay Government authorities was a "news sheet" within the meaning of section 2 (6) of the Indian Press (Emergency Powers) Act, 1931.
On December 9, 1949, he was arrested and a prosecution was started against him in the Court of the Chief Presidency Magistrate at Bombay for having published the pamphlet without the author ity required by section 15(1) of the Act and for having thereby committed an offence punishable under section 18 of that Act.
During the pendency of the proceedings the Con stitution of India came into force on January 26, 1950.
On March 3, 1950, the petitioner filed a written statement submitting, inter alia, that the definition of "news sheet" as given in section 2(6) of that Act, and sections 15 and 18 thereof were inconsistent with article 19(1)(a) and, as such, void under article 13 of the Constitution.
This was followed up by a petition filed in the High Court on March 7, 1950, under article 228 of the Constitution.
The Bombay High Court considered it unnecessary to deal with the ques tion whether sections 15 and 18 were inconsistent with article 19(1)(a) but held that, Assuming that they were inconsistent, the proceedings commenced under section 18 before the commencement of the Constitution could neverthe less be proceeded with.
The High Court took the view that the word "void" was used in article 13(1) in the sense of repealed" and that consequently it attracted section 6 of the General Clauses Act which by article 367 was made ap plicable for the interpretation of the Constitution.
The High Court having dismissed the applicant the appellant came up on appeal before this Court after having obtained a certificate granted by the High Court under ' article 132 (1) of the Constitution.
the majority of this Court held that the Constitution and no retrospective effect but was wholly prospective 729 in its operation and as the existing laws, in so far as they were inconsistent with the fundamental rights, were rendered void only to the extent of their inconsistency, they were not void for all purposes but were void only to the extent they came into conflict with the fundamental rights.
In other words, the majority of this Court held that while on and after the commencement of the Constitution no existing law could, by reason of article 13 (1), be permitted to stand in the way of the exercise of any of the fundamental rights, that article could not be read as wiping out the inconsistent law altogether from the statute book and as obliterating its entire operation on past transactions, for to do so would be to give it retrospective effect which it did not possess.
Such law, it was held, existed for all past transactions and for enforcement of rights and liabilities accrued before the date of the Constitution.
To the same effect were the observations of Mahajan J. who delivered a separate but concurrent judgment, namely, that a provision that with effect from a particular date an existing law would be void to the extent of the repugnancy had no retro spective operation and could not affect pending prosecutions or actions taken under such law, and there was in such a situation no necessity for introducing a saving clause and that it did not need the aid of a legislative provision of the nature contained in the Interpretation Act or the Gener al Clauses Act.
According to him, not being retrospective in its operation, the Constitution could not, therefore, in any way affect prosecutions started for punishing offences that were complete under the law in force at the time they were committed.
It will be noticed that in that case the prose cution was started according to the ordinary law of proce dure.
The only question there was whether a criminal pro ceeding instituted for a contravention of the provisions of the Indian Press (Emergency Powers) Act which amounted to a completed offence before the date of the Constitution could be continued after the Constitution came into force where no change in procedure was involved.
The result of that deci sion iS that although 730 the acts which before the Constitution constituted an of fence under that Act would not, if done after the date of the Constitution, amount to an offence, nevertheless as the Constitution had no retrospective operation it did not obliterate the offence completed before the date of the Constitution and the offender could, therefore, be proceeded against after the Constitution came into force.
It was in this sense that it was stated in Keshavan Madhava Menon 's case that the law existed for the past transactions and for enforcing all rights acquired or liabilities incurred before the date of the Constitution.
If the law did not exist, the offence created by it would ipso facto disappear and no question of punishing the non existing offence could arise.
The observations made in that case related to the substan tive rights acquired or liabilities incurred under the Act before the Constitution came into force.
Under what proce dure the rights and liabilities would be enforced did not come up for consideration in that case, as the procedure adopted throughout was the same.
namely, the procedure prescribed by the Code of Criminal Procedure.
The law of procedure regulates legal proceedings gener ally from its inception up to its termination and usually connotes a continuous process. ]he Bombay Public Safety Measures Act, 1947, by sections 10 to 70 under the heading "Special Courts" prescribes a special procedure for the trial by the Special Judge of "such offences or class of offences or cases or class of cases as the government may by general or special order in writing direct".
The offences or cases so directed to be tried by the Special Judge need not be, or relate to, the special offences created by the Act itself but may be or relate to, any offence under any law, e.g., Indian Penal Code.
Arms Act and the Bombay District Police Act.
It has been seen that the special procedure prescribed by the impugned Act constitutes a departure from the ordinary law of procedure and is, in some important respects, detrimental to the interest of the persons subjected to it and as such is discriminatory.
The 731 discrimination does not end with the taking of cognizance of the case by the Special Judge without the case being commit ted to him but continues even in subsequent stages of the proceedings in that the person subjected to it cannot, even at those subsequent stages, have the benefit of having the evidence for or against him recorded in extenso, may not get summons for all witnesses he wishes to examine in defence only on the ground that the Special Judge does not consider that such evidence will be material and cannot exercise his right to apply to a superior Court for transfer.
of the case even though the Special Judge has exhibited gross bias against him or to apply for revision of any order made by the Special Judge.
As the Act 'was valid in its entirety before the date of the Constitution, that part of the pro ceeding before the Special Judge, which, up to that date, had been regulated by this special procedure cannot be questioned, however discriminatory it may have been, but if the discriminatory procedure is continued after the date of the Constitution, surely the accused person may legitimately ask: "Why am I to day being treated differently from other persons accused of 'similar offences in respect of proce dure? It is stated in Maxwell 's Interpretation of Statutes, 9th Edn., p. 232 "No person has a vested right in any course of proce dure.
He has only the right of prosecution or defence in the manner prescribed for the time being by or for the Court in which he sues, and, if an Act of Parliament alters that mode of procedure, he has no other right than to proceed according to the altered mode.
" If in the absence of any special provision to the con trary, no person has a vested right in procedure it must follow as a corollary that nobody has a vested liability in matters of procedure in the absence of any special provision to the contrary.
If this is the position when the law of procedure is altered by statute, why should the position be different when the Act prescribing the discriminatory proce dure becomes 732 void by reason of its repugnancy to the equal protection clause of the Constitution? Although the substantive rights and liabilities acquired or accrued before the date of the Constitution remain enforceable, as held in Keshavan Madhava Menon 's case, nobody can claim, after that date, that those rights or liabilities must be enforced under that particular procedure although it has, since that date, come into con flict with the fundamental right of equal protection of laws guaranteed by article 14.
It is said, in reply, that in this case there is, in law, no discrimination which can be said to be within the mischief sought to be prevented by article 14.
The appel lants are persons whose "cases" had been properly sent for trial to the Special Court before the Constitution came into force and, therefore, they cannot complain if the procedure prescribed by the Act is continued to be applied to their "cases" although such procedure cannot be applied to "cases" which had not been referred to the Special Court up to that date, for the appellants cannot claim to be similarly situ ated with persons whose "cases" had not been directed to be tried by the Special Court before the date of the Constitu tion or who committed similar offences after that date.
In the circumstances.
the continued application of the proce dure laid down in the impugned Act to the "cases" of the appellants cannot.
it is contended, amount to discrimination in the eye of the law and is, therefore, not within the inhibition of the equal protection clause of the Constitu tion.
Article 14 being thus out of the way, the procedure laid down in the impugned Act continues to be valid in law as regards the persons whose ' 'cases" had been subjected to it before the advent of the Constitution I and so far as those persons are concerned there has been no change in the procedure and, therefore, their "cases" must continue to be regulated by that procedure.
We are unable to accept this argument as sound.
It is now well established that while article 14 forbids class legislation it does not forbid reasonable Classification for the purposes of legis lation.
In 733 order, however, to pass the test of permissible classifica tion, two conditions must be fulfilled, namely, (i) that the classification must be founded on an intelligible dif ferentia which distinguishes persons or things that are grouped together from others who are left out of the group and (ii) that differentia must have a rational relation to the object sought to be achieved by the Act.
What is necessary is that there must be a nexus between the basis of classification and the object of the Act.
To take an exam ple: Under section 11 of the Contract Act persons who have not attained majority cannot enter into a contract.
The two categories are adults and minors.
The basis of classifica tion is the age.
That basis obviously has a relation to the capacity to enter into a contract.
Therefore, the section satisfies both the requirements of a permissible classifica tion.
In the present case, although the first part of section 12of the Bombay, Act, like section 5 (1)of the West Bengal Actor section 11 of the Saurashtra Ordinance, may indicate and imply a process of classification, the section, in so far as it authorises the government to direct particu lar "cases" to be tried by the Special Court, does not purport to proceed upon the basis of any classification at all.
Further, the supposed basis of the alleged classifica tion, namely the fact of reference to the Special Court before the Constitution came into effect, has no reasonable relation to the objects sought to be achieved by the Act.
The avowed objects of the Act recited in the preamble are the expediency of consolidating and amending the law relat ing to the security of the State, maintenance of public order and maintenance of supplies and services essential to the community in the State of Bombay.
If the consideration of the security of the State or the maintenance of public order requires the application of the special procedure there is no obvious reason why it should be applied to "cases" already referred and not to cases not yet referred at the date of the Constitution.
The same consideration applies equally to both categories of cases.
It is, there fore, clear that there is no nexus 734 which connects the basis on which the supposed classifica tion is founded with the objects of the Act, for the object of the Act is wide enough to cover both categories of "cases ".
Therefore, it is not a permissible classification.
Indeed, it is an instance of fanciful classification which has no rational basis at all.
We see no particular reason why the special procedure should be applied to the appel lants ' "cases" any more than it should be applied to "cases" not referred to the Special Court up to the 26th January, 1950.
No special or peculiar circumstances have been shown to exist which may make the appellants ' "cases" specially suited to this special procedure.
In the absence of a rational basis of classification, as explained above, there can be no justification, after the advent of the Constitu tion, for depriving the appellants of the right to move the Court for transfer or for revision or to obtain process for the attendance of defence witnesses or of having the evi dence of the witnesses recorded as in an ordinary trial which is available to other persons accused of similar offences and prosecuted according to the ordinary procedure laid down in the Code of Criminal Procedure.
It is, there fore, clear that in this case the discrimination continued after the Constitution came into force and such continuation of the application of the discriminatory procedure to their cases after the date of the Constitution constituted a breach of their fundamental right guaranteed by article 14 and being inconsistent 'with the provisions of that article the special procedure became void under article 13 and as there is no vested right or liability in matters of proce dure the appellants are entitled to be tried according to the ordinary procedure after the date of the Constitution.
Their complaint is not for something that had happened before 26th January, 1950, but is for unconstitutional discrimination shown against them since that date.
Their grievance, their cause of action as it were, is post consti tution and, therefore, must be scrutinised and examined in the light of their constitutional rights.
So viewed, there can be no doubt or 735 question that they have been discriminated against after the date of the Constitution in the matter of procedure.
It has already been held in the West Bengal and the Saurashtra cases that discrimination can lie in procedure just as much as in a substantive law.
Therefore, the continuation of the trial after that date according to the discriminatory proce dure resulting in their conviction and sentence cannot be supported.
Indeed in a sense the Special Judge 's jurisdic tion came to an end, for he was enjoined to proceed only according to the special procedure and that procedure having become void as stated above, he could not proceed at all as a Judge of a Special Court constituted under the impugned Act.
The learned Attorney General relied on the decision of the Privy Council in Keshoram Poddar vs Nundo Lal Mallick(1).
The Calcutta Rent Act, 1920, enabled the land lord or tenant of premises in Calcutta to obtain from the Controller of Rents a certification of the standard rent of the premises and also gave a right to apply to the President of the Calcutta Improvement Tribunal for revision of the order of the Controller.
The Act was originally to be in force for a period of three years which was subsequently extended until the end of March, 1924, and finally the figure 1927 was substituted for 1924 with a proviso "that after 31st March, 1924, this Act shall cease to apply to any premises the rent of which exceeded Rs. 250 a month".
The appellant was let into possession on 1st June, 1920, but the rent payable was not then fixed.
He remained in possession until March, 1923, and the question raised by the case was what rent ought to be paid for that period of occupation.
Disputes having arisen, the appellant applied to the Con troller and on 23rd October, 1922, the Controller fixed the rent at Rs. 4,500 per month.
On 25th November, 1922, the appellant appealed to the President of the Improvement Tribunal to revise that decision.
The revision application could not be taken up by the President until long after 31st March, 1924, and when it was eventually (1) I.L.R. ; 54 I.A. 152.
736 posted before him on 3rd August, 1924, he held that had no jurisdiction to determine the matter, for the Act had ceased to apply to the premises.
It will be observed that the application to the President was made long before 31st March, 1924, and that the period for which the rent had to be determined was between June, 1920, and March, 1923.
The Privy Council held that the application of the Act was when the parties began to move under it and that was done before March, 1924, and that the President accordingly had jurisdiction to decide it.
That decision appears to us to have no application to the facts of the present case, for the problem before us does not relate to a period anterior to the Constitution when the Act was good and the Special Judge had authority to apply the special procedure.
The point for decision now is whether the continuation of the procedure prescribed by the Act after the Constitution came into force operates to the prejudice of the appellants and, as such, offends against their newly acquired fundamental right of equal protection of law guaranteed by article 14.
The Constitution has no retrospective operation to invali date that part of the proceedings that has already been gone through but the Constitution does not permit the special procedure to stand in the way of the exercise or enjoyment of post constitutional rights and must, therefore, strike down the discriminatory procedure if it is sought to be adopted after the Constitution came into operation.
To that situation, the decision of the Privy Council referred to above can have no application.
For reasons Stated above, the conviction of the appel lants on trial held by the Special Judge after the date of the Constitution according to the special procedure pre scribed by the impugned Act and the sentences passed on them cannot be supported and these appeals must, therefore, be allowed and the convictions and sentences must be set aside.
The appellants are entitled, after the Constitution, not to be discriminated against in matters of procedure and are entitled to be tried according to law.
We, therefore, 737 direct that they be tried for the offences alleged to have been committed by them according to law and in the meantime they be retained in custody as undertrial prisoners.
Appeals allowed.
Agent for the intervener: Rajinder Narain.
| IN-Abs | Held, per MAHAJAN, MUKHERJEA, DAs and CHANDRASEKHARA AIYAR, JJ.
(PATANJALI SASTRI C.J. dissenting).
Section 12 of the Bombay Public Safety Measures Act, 1947, in so far, at any rate, as it authorises the Government to direct particular "cases" to be tried by a Special Judge appointed under the Act does not purport to proceed on any classifica tion and therefore contravenes article 14 of the Constitution and is void under article 13 on the principles laid down in the cases of State of West Bengal vs Anwar Ali Sarkar ([1952] S.C.R. 284) and Kathi Raning Rawat vs Tht State of Saurash tra ([1952] S.C.R. 435).
The appellants who were accused of having committed murder and other serious offences were directed by the Government of Bombay by an order made on the 6th August, 1949, to be tried under the Bombay Public Safety Measures Act by a Special Judge appointed under the Act, charges were framed against them on the 13th January, 1950, and they were convicted in March, 1950.
On appeal it was contended before the High Court that the trial and conviction were illegal as the Bombay Public Safety Measures Act was void under article 13 read with article 14of the Constitution which came into force on the 26th January, 1950, but the High Court held that as the proceedings against the accused had commenced before the Constitution, the provisions of articles 13 and 14 did not apply and the conviction was not illegal.
Held,by a majority, that although substantive rights and liabilities acquired or accrued before the date of the Constitution remain enforceable, it cannot be held that after that date, those rights or liabilities must be en forced under the particular procedure that was in force before that date, although it has since that date been repealed or come into conflict with the fundamental right to equal protection of the laws guaranteed by the 711 Constitution, as there is no vested right in procedure.
The fact of reference of "cases" to the Special Judge before the Constitution came into force has no reasonable relation to the objects sought to be achieved by the Act, the discrimi nation therefore continued after the Constitution came into force and such continuation of the application of the dis criminatory procedure to the cases of the appellants after the date of the Constitution constituted a breach of the fundamental right guaranteed by article 14, and the appellants were therefore entitled to be tried under the ordinary procedure after the date of the Constitution.
PATANJALI SASTRI C.J. (contra).
Granting that section 12 of the Bombay Act must, in view of the decision in Anwar Ali Sarkar 's case, be held to be discriminatory and void in so far as it empowers the State Government to refer individual cases to a Special Judge for trial, the trial of the appel lants which had validly started before the Special Judge who had been empowered to try the case cannot be vitiated by the Constitution subsequently coming into force.
The provisions of the Constitution relating to fundamental rights have no retrospective operation and do not affect a criminal prose cution commenced before the Constitution came into force.
The jurisdiction of the Special Judges validly created and exercised before the Constitution and their competence to try the cases referred to them cannot be affected by the special procedure becoming discriminatory.
The correct view is that article 14 does not affect pending trials even in matters of procedure.
Moreover the appellants against whom proceedings had been commenced before the Special Judge, were not in the same situation as others and there was nothing discriminatory in a law which permits them to be tried under the special procedure which was applicable to them when the proceedings were started against them.
|
Appeal No. 387 of 1960.
Appeal by special leave from the judgment and order dated February 12, 1960, of the Andhra Pradesh High Court, in Writ Petition No. 5 of 1960.
P. A. Choudhuri and K. R. Choudhuri, for the appellants.
P. Ram Reddy, for respondents Nos. 1, 2 and 6 to 11. 1960.
November 7.
The Judgment of Gajendragadkar, Subha Rao, Wanchoo and,.
Mudholkar, JJ., 38 298 was delivered by Subba Rao, J. Sarkar, J., delivered a separate judgment.
SUBBA RAO J.
This appeal by special leave is directed against the judgment of the High Court of Judicature at Hyderabad dismissing the petition filed by the appellants under article 226 of the Constitution to issue a writ of quo warranto against respondents 1 to 10 directing them to exhibit an information as to the authority under which they are functioning as members of the Vicarabad Municipal Committee and to restrain them from selling certain plots of land belonging to the Municipality to third parties.
Vica rabad was originally situate in the Part B State of Hyderabad and is now in the State of Andhra Pradesh.
The Municipal Committee of Vicarabad was constituted under the Hyderabad Municipal and Town Committees Act (XXVII of 1951).
In the year 1953 respondents 1 to 10 were elected, and five others, who are not parties before us, were nominated, to that Committee.
On November 27, 1953, the Rajpramukh of the State of Hyderabad published a notification under the relevant Acts in the Hyderabad Government Gazette Extraordinary notifying the above persons as members of the said Committee.
Presumably with a view to democratize the local institutions in that part of the country and to bring them on a par with those prevailing in the neighbouring States, the Hyderabad District Municipalities Act, 1956 (XVIII of 1956), (hereinafter referred to as the Act), was passed by the Hyderabad _ Legislature and it received the assent of the President on August 9, 1956.
Under section 320 of the Act the Hyderabad Municipal and Town Committees Act, 1951 (XXVII of 1951) and other connected Acts were repealed.
As a transitory measure, under the same section any Committee constituted under the enactment so repealed was deemed to have been constituted under the Act and the members of the said Committee were to continue to hold office till the first meeting of the Committee was called under section 35 of the Act.
Under that provision respondents 1 to 10 and the five nominated members continued to function as members 299 of the Municipal Committee.
In or about the year 1958 the said Committee acquired land measuring acres 15 7 guntas described as " Varad Raja Omar Bagh " for Rs. 18,000 for the purpose of establishing a grain market (gunj).
For one reason or other, the Municipal Committee was not in a position to construct the grain market and run it departmentally.
The Committee, therefore, after taking the permission of the Government, resolved by a requisite majority to sell the said land to third parties with a condition that the vendee or vendees should construct a building or buildings for running a grain market.
There after the Committee sold the land in different plots to third parties ; but the sale deeds were not executed in view of the interim order made in the writ petition by the High Court and subsequently in the appeal by this Court.
In the writ petition the appellants contended, inter alia, that the respondents ceased to be members of the Municipal Committee on the expiry of three years from the date the new Act came into force and that, therefore, they had no right to sell the land, and that, in any view, the sale made by the Committee of the property acquired for the purpose of constructing a market was ultra vires the provisions of the Act.
The respondents contested the petition on various grounds.
The learned Judges of the High Court dismissed the petition with costs for the following reasons: 1.
The old Committee will continue to function till a new Committee comes into existence.
" Section 76 contemplates that property vested in it under section 72(f), 73 and 74 should be transferred only to Government.
Here, the transfer is not in favour of the Government.
That apart we are told that in this case sanction of the Government was obtained at every stage.
It cannot be predicated that the purpose for which the properties are being disposed of is not for a, public purpose.
It is not disputed that the properties are being sold only to persons who are required to build grain market ".
The act now opposed is not in any way in conflict with the provisions of sections 244, 245 and 247.
300 4.
" It looks to us that the petitioners lack in bona fides and that this petition is not conceived in the interests of the public ".
The present appeal, as aforesaid, was filed by special leave granted by this Court.
Mr. P. A. Chowdury, learned counsel for the appellants, canvassed the correctness of the findings of the High Court.
His first argument may be summarized thus: Under section 320 of the Act any Committee constituted under the repealed enactment shall be deemed to have been constituted under the Act and the members of the said Committee shall continue to hold office till the first meeting of the Committee is called under section 35 of the Act.
Under section 35 of the Act, the first meeting of the Committee shall not be held on a date prior to the date on which the term of the outgoing members expires under section 34.
Section 34 of the Act provides that the members shall hold office for a term of three years.
Therefore, the term of the members of the Committee deemed to have been constituted under section 320 is three years from the date on which the Act came into force.
If the term fixed Under section 34 does not apply to the members of the said Committee, the result will be that the said members will continue to hold office indefinitely, for the first meeting of the Committee could not be legally convened under the Act as section 16 which enables the Collector to do so imposes a duty on him to hold a general election within three months before the expiry of the term of office of the members of the Committee as specified in section 34, and, as no definite term has been prescribed for the members of the Committee under section 320, the election machinery fails, with the result that the members of the " deemed " Committee would continue to be members of the said Committee indefinitely.
On this inter pretation learned counsel contends that the section would be void for the following reasons: (1) section 320(1)(a) of the Act would be ultra vires the powers of the State Legislature under article 246 of the Constitution, read with entry 5, List II, VII Schedule; (2) the said section deprives the appellants of the right to equality and protection of the laws guaranteed under article 14 301 of the Constitution; (3) section 320 would be void also as inconsistent with the entire scheme of the provisions of the Act.
Let us first test the validity of the construction of section 320 of the Act suggested by the learned counsel.
The material part of section 320 reads: " (1) The Hyderabad Municipal and Town Committees Act, 1951, (XXVII of 1951). . . . (is) hereby repealed ; provided that: (a) any Committee constituted under the enactment so repealed (hereinafter referred to in this section as the said Committee) shall be deemed to have been constituted under this Act, and Members of the said Committee shall continue to hold office till the first meeting of the Committee is called under section 35;".
The terms of the section are clear and do not lend any scope for argument.
The section makes a distinction between the " said" Committee and the Committee elected under the.
Act and says, " Members of the said Committee shall continue to hold office till the first meeting of the Committee is called under section 35 ".
Though the word " Committee" is defined in section 2(5) to mean a Municipal or Town Committee established or deemed to be established under the Act, that definition must give way if there is anything repugnant in the subject or context.
As the section makes a clear distinction between the " said " Committee and the Committee elected under the Act, in the context, the Committee in section 320 cannot mean the Committee elected under the Act.
The term fixed for the members of the Committee constituted under the Act cannot apply to the members of the Committee deemed to have been constituted under the Act.
Section 32 which provides for the culminating stage of the process of election under the Act says that the names of all members finally elected to any Committee shall be forthwith published in the official Gazette.
Section 34 prescribes the term of office of the members so elected.
Under it, " except as is otherwise provided in this Act, members shall hold office for a term of three years." Section 320(1)(a) provides a different term for the 302 members of the Committee deemed to have been constituted under the Act.
Thereunder, the term is fixed not by any number of years but by the happening of an event.
The Committee constituted under section 320 clearly falls under the exception.
But it is suggested that the exception refers only to section 28 whereunder a member of a, Committee ceases to be one by a supervening disqualification.
Firstly, this section does not fix a term but only imposes a disqualification on the basis of a term fixed under section 34; secondly, assuming that the said section also fixes a term, the exception may as well cover both the deviations from the normal rule.
That apart, sub section
(2) of section 34 dispels any doubt that may arise on the construction of sub section (1) of the section.
Under sub section
(2), the term of office of such members shall be deemed to commence on the date of the first meeting called by the Collector under section 35.
Section 35 directs the Collector to call a meeting after giving at least five clear days notice within thirty days from the date of the publication of the names of members under section 32.
This provision clearly indicates that the members of the Committee mentioned in section 34 are only the members elected under the Act and not members of tile Committee deemed to have been elected under the Act, for, in the case of the latter Committee, no publication under section 32 is provided for and therefore the provisions of section 35 cannot apply to them.
It is, therefore, manifest that the term prescribed in section 34 cannot apply to a member of the deemed " Committee.
Let us now see whether this interpretation would necessarily lead us to hold that the members of the " deemed " Committee under section 320(1)(a) would have an indefinite duration.
This result, it is suggested, would flow from a correct interpretation of the relevant provisions of section 16 of the Act.
The judgment of the High Court does not disclose that any argument was addressed before that Court on the basis of section 16 of the Act.
But we allowed the learned counsel to raise the point as in effect it is only a link in the chain of his argument to persuade us to hold in his favour on the construction of section 320.
303 Before we consider this argument in some detail, it will be convenient at this stage to notice some of the well established rules of Construction which would help us to steer clear of the complications created by the Act.
Maxwell " On the Interpretation of Statutes", 10th Edn., says at p. 7 thus: ". . . if the choice is between two inter pretations, the narrower of which would fail to achieve the manifest purpose of the legislation, we should avoid a construction which would reduce the legislation to futility and should rather accept the bolder construction based on the view that Parliament would legislate only for the purpose of bringing about an effective result.
" It is said in Craies on Statute Law, 5th Edn., at p. 82 Manifest absurdity or futility, palpable injustice, or absurd inconvenience or anomaly to be avoided. ') Lord Davey in Canada Sugar Refining Co. vs R. provides another useful guide of correct perspective to such a problem in the following words: " Every clause of a statute should be construed with reference to the context and the other clauses of the Act, so as, so far as possible, to make a consistent enactment of the whole statute or series of statutes relating to the subject matter.
" To appreciate the problem presented and to give an adequate answer to the same, it would be necessary and convenient to notice the scheme of the Act as reflected in the relevant sections, namely, sections 16, 17, 18, 20, 32, 34 and 320.
The said scheme of the Act may be stated thus: Under the Act, there are general elections and elections to casual vacancies.
The general elections may be in regard to the first election after the Act came into force or to the subsequent elections under the Act.
Section 5 imposes a duty on the Government to constitute a Municipal Committee for each town and notify the date when it shall come into existence.
Section 17 enjoins on the Government to issue a notification calling upon all the constituencies to elect members in accordance (1) 304 with the provisions of the, Act on or before such date or dates as may be specified in the said notification.
Section 16 imposes a duty upon the Collector to hold a general election in the manner prescribed within three months before the expiry of the term of office of the members of the Committee as specified in section 34 of the Act.
Sub section (2) of section 16 provides for a bye election for filling up of a casual vacancy.
Section 18 enables the Collector with the approval of the Government to designate or nominate a Returning Officer.
Section 19 imposes a duty upon such an officer to do all such acts and things as may be necessary for effectually conducting the election in the manner provided by the Act and the rules made there under.
Section 20 authorizes the Collector to issue a notification in the Official Gazette appointing the dates for making nominations, for the scrutiny of nominations, for the withdrawal of candidatures and for the holding of the poll.
After the elections are held in the manner prescribed, the names of all the members finally elected to any Committee shall be published in the Official Gazette.
Except as other,wise provided in the Act, section 34 prescribes the term of three years for a member so elected.
As a transitory provision till such an election is held, section 320 says that the members of the previous Committee constituted under the earlier Act shall be deemed to be constituted under the Act and the members thereof shall hold office till the first meeting of the Committee is called under section 35 of the Act.
It is clear from the aforesaid provisions that the Government notifies the dates calling upon all the constituencies to elect the members before such date or dates prescribed; the Collector holds the election and fixes the dates for the various stages of the process of election ; the Returning Officer appointed by the Collector does all acts and things necessary for effectually conducting the election.
On the general scheme of the Act we do not see any legal objection to the Collector holding the first elections under the Act.
The legal obstacle for such a course is sought to be raised on the wording of section 16(1).
305 Every general election requisite for the purpose of this Act shall be held by the Collector in the manner prescribed within three months before the expiry of the term of office of the members of the Committee as specified in section 34.
" The argument is that the Collector 's power to hold a general election is confined to section 16(1) and, as in the case of the members of the Committee deemed to have been constituted under the Act the second limb of the section cannot apply and as the Collector 's power is limited by the second limb of the section, the Collector has no power to hold the first general election under the Act.
If this interpretation be accepted, the Act would become a dead letter and the obvious intention of the Legislature would be defeated.
Such a construction cannot be accepted except in cases of absolute intractability of the language used.
While the Legislature repealed the earlier Act with an express intention to constitute new Committees on broad based democratic principles, by this interpretation the Committee under the old Act perpetuates itself indefinitely.
In our view, section 16(1) does not have any such effect.
Section 16(1) may be read along with the aforesaid other relevant provisions of the Act.
If so read, it would be clear that it could not apply to the first election after the Act came into force, but should be confined to subsequent elections.
So far as the first general election is concerned, there is a self contained and integrated machinery for holding the election without in any way calling in aid the provisions of section 16(1).
Section 17 applies to all elections, that is, general as well as bye elections.
It applies to the first general election as well as subsequent general elections.
The proviso to that section says that for the purpose of holding elections under sub section
(1) of section 16 no such notification shall be issued at any time earlier than four months before the expiry of the term of office of the members of the Committee as specified in section 34.
The proviso can be given full meaning, for it provides only for a case covered by section 16(1) and, as the first general election is outside the scope of section 16(1), 39 306 it also falls outside the scope of the proviso to section 17.
Under section 17, therefore, the Government, in respect of the first general election, calls upon all the constituencies to elect members before the date or dates fixed by it.
Under section 20, the Collector fixes the dates for the various stages of the election.
The Returning Officer does all the acts and things necessary for conducting the election and when the election process is completed, the names of the members elected are published.
All these can be done without reference to section 16(1), for the Collector is also empowered under section 20 to hold the elections.
In this view, there cannot be any legal difficulty for conducting the first election, after the Act came into force.
If so, the term of the members of the Committee deemed to have been elected would come to an end when the first meeting of the Committee was called under section 35.
The Legislature in enacting the law not only assumed but also expected that the Government would issue the requisite notification under section 17 of the Act within a reasonable time from the date when the Act came into force.
The scheme of the Act should be judged on that basis; if so judged, the sections disclose an integrated scheme giving section 320 a transitory character.
It is conceded by learned counsel that if section 320(1)(a) is constructed in the manner we do, the other points particularised above do not arise for consideration.
Before leaving this part of the case we must observe that the difficulty is created not by the provisions of the Act but by the fact of the Government not proceeding under section 17 of the Act within a reasonable time from the date on which the Act came into force.
This is a typical case of the legislative intention being obstructed or deflected by the inaction of the executive.
Mr. Ram Reddy, learned counsel for the respondents, states that there are many good reasons why the Government did not implement the Act.
There may be many such reasons, but when the Legislature made an Act in 1956, with a view to democratize municipal administration in that part of the country so as to bring it on a par with that obtaining in other 307 States, it is no answer to say that the Government had good reasons for not implementing the Act.
If the Government had any such reasons, that might be an occasion for moving the Legislature to repeal the Act or to amend it.
If the affected parties had filed a writ of mandamus in time, this situation could have been avoided ; but it was not done.
We hope and trust that the Government would take immediate steps to hold elections to the Municipal Committee so that the body constituted as early as 1953, under a different Act could be replaced by an elected body under the Act.
Even so, learned counsel for the appellants contends that the Municipal Committee had no power to sell the land acquired by it for constructing a market.
To appreciate this contention it would be convenient to notice the relevant provisions of the Act.
Under section 72(f) all land or other property transferred to the Committee by the Government or the District Board or acquired by gift, purchase, or otherwise for local purposes shall vest in and be under the control of the Committee.
Section 73 enables the Government, in consultation with the Committee, to direct that any property, movable or immovable, which is vested in it, shall vest in such Committee.
Section 74 empowers the Government on the request of the Committee to acquire any land for the purposes of the Act.
Under section 76, the Committee may, with the sanction of the Government, transfer to the Government any property vested in the Committee under sections 72(f), 73 and 74, but not so as to affect any trust or public right subject to which the property is held.
Learned counsel contends that, as the land was acquired by the Committee for the construction of a market, the Committee has power to transfer the same to the Government only subject to the conditions laid down in section 76, and that it has no power to sell the land to third parties.
This argument ignores the express intention of section 77 of the Act.
Section 77 says: " Subject to such exceptions as the Government may by general or special order direct, no Committee shall transfer any immovable property except in pursuance of a resolution passed at a meeting by a 308 majority of not less than two third of the whole number of members and in accordance with rules made under this Act, and no Committee shall transfer any property which has been vested in it by the Government except with the sanction of the Government: Provided that nothing in this section shall apply to leases of immovable property for a term not exceeding three years ".
This section confers on the Committee an express power couched in a negative form.
Negative words are clearly prohibitory and are ordinarily used as a legislative device to make a statute imperative.
If the section is recast in an affirmative form, it reads to the effect that the Committee shall have power to transfer any immovable property, if the conditions laid down under the section are complied with.
The conditions laid down are: (1) there shall be a resolution passed at a meeting by a majority of not less than two third of the whole number of members of the Committee; (2) it shall be in accordance with the rules made under the Act; (3) in the case of a property vested in it by the Government, the transfer can be made only with the sanction of the Government; and (4) the sale is not exempted by the Government, by general or special order, from the operation of section 77 of the Act.
It is not disputed that the relevant conditions have been complied with in the present case.
If so, the power of the Committee to alienate the property cannot be questioned.
Learned counsel contends that the provisions of section 76 govern the situation and that section 77 may apply only to a property vested in the Committee under provisions other than those of sections 72(f), 73 and 74, and that further, if a wider interpretation was given to section 77, while under section 76 the transfer in favour of the Government would be subject to a trust or public right, under section 77 it would be free from it if it was transferred to a private party.
The first objection has no force, as there are no sections other than sections 72, 73 and 74 whereunder the Government vests property in a Committee.
The second objection also has no merits, for the trust or public right mentioned in section 76 309 does not appear to relate to the purpose for which the property is purchased but to the trust or public right existing over the property so alienated by the Committee.
Further the proviso to section 77, which says, " nothing in this section shall apply to leases of immovable property for a term not exceeding three years ", indicates that the main section applies also to the property vested in the Committee under the previous section, for it exempts from the operation of the operative part of section 77 leases for a term not exceeding three years in respect of properties covered by the preceding section and other sections.
This interpretation need not cause any apprehension that a Com mittee may squander away the municipal property, for section 77 is hedged in by four conditions and the conditions afford sufficient guarantee against improper and improvident alienations.
In this context learned counsel for the appellants invoked the doctrine of law that an action of a statutory corporation may be ultra vires its powers without being illegal and also the principle that when a statute confers an express power, a power inconsistent with that expressly given cannot be implied.
It is not necessary to consider all the decisions cited, as learned counsel for the respondents does not canvass the correctness of the said principles.
It would, therefore, be sufficient to notice two of the decisions cited at the Bar.
The decision in Elizabeth Dowager Baroness Wenlock vs The River Dee Company (1) is relied upon in support of the proposition that when a corporation is authorised to do an act subject to certain conditions, it must be deemed to have been prohibited to do the said act except in accordance with the provisions of that Act which confers the authority on it.
Where by Act 14 & 15 Viet.
a company was empowered to borrow at interest for the purposes of the concerned Acts, subject to certain conditions, it was held that the company was prohibited by the said Act from borrowing except in accordance with the provisions of that Act.
Strong reliance is placed on the decision in Attorney General vs Fulham Corporation (1) (2) 310 There, in exercise of the powers conferred under the Baths and Wash houses Acts the Metropolitan Borough of Fulham propounded a scheme in substitution of an earlier one whereunder it installed a wash house to which persons resorted for washing their clothes bringing their own wash materials and utilised the facilities offered by the municipality on payment of the prescribed charges.
Sarjant, J., held that the object of the legislation was to provide for persons who became customers facilities for doing their own washing, but the scheme provided for washing by the municipality itself and that, therefore, it was ultra vires the statute.
In coming to that conclusion the learned Judge, after considering an earlier decision on the subject, applied the following principle to the facts of the case before him : " That recognises that in every case it is for a corporation of this kind to show that it has affirmatively an authority to do particular acts; but that in applying that principle, the rule is not to be applied too narrowly, and the corporation is entitled to do not only that which is expressly authorised but that which is reasonably incidental to or consequential upon that which is in terms authorized.
" The principle so stated is unobjectionable.
The correctness of these principles also need not be canvassed, for the construction we have placed on the provisions of the Act does not run counter to any of these principles.
We have held that section 77 confers an express power on the Municipal Committee to sell property subject to the conditions mentioned therein.
Therefore, the impugned sales are not ultra vires the powers of the Committee.
In view of the said express power, no prohibition can be implied from the provisions of section 76.
Learned counsel further contends that the statutory power can be exercised only for the purposes sanctioned by the statute, that the sales of the acquired land to private persons were not for one of such purposes, and that, therefore, they were void.
The principle that a statutory body can only function within the statute is unexcecutionable; but the 311 Legislature can confer a power on a statutory corporation to sell its land is equally uncontestable.
In this case we have held that the statute conferred such a power on the Municipal Committee, subject to stringent limitations.
Many situations can be visualized when such a sale would be necessary and would be to the benefit of the corporation.
of course the price fetched by such sales can only be utilised for the purposes sanctioned by the Act.
The last point raised is that the learned Judges of the High Court were not justified in holding on the materials placed before them that the appellants lacked bona fides and that the petition filed by them was not conceived in the interests of the public.
We do not find any material on the record to sustain this finding.
Indeed, but for the petitioner appellants the extraordinary situation created by the inaction of the Government in the matter of implementing the Act, affecting thereby the municipal administration of all the districts in Telangana area, might not have been brought to light.
We cannot describe the action of the appellants either mala fide or frivolous.
In the result, the appeal fails and is dismissed but, in the circumstances, without costs.
SARKAR, J.
The first question is whether the first ten respondents are still members of the Municipal Committee of Vicarabad.
These persons had been elected to the Committee in the elections held in 1953 under the Hyderabad Municipal and Town Commit tees Act, 1951 (Hyderabad Act XXVII of 1951), hereafter called the repealed Act.
That Act was repealed by the Hyderabad District Municipalities Act (Hyderabad Act XVIII of 1956), hereafter called the new Act, which came into force in August 1956.
The appellants, who are rate payers of the Municipality, contend that on a proper reading of the new Act, it must be held that these ten respondents have ceased to be members of the Committee, and they seek a writ of quo warranto against the respondents.
Section 320 of the new Act provides that any Committee constituted under the repealed Act shall be deemed to have been constituted under the new Act 312 and its members shall continue to hold office till the first meeting of the Committee is called under section 35 of the new Act.
The ten respondents contend that as admittedly the meeting under section 35 has not been called, their term of office has not yet expired.
Now section 35, so far as is material, provides that the first meeting of the Committee shall be called by the Collector within thirty days of the date of publication of the names of members under section 32.
Section 32 states that the names of members finally elected to any Committee shall be forthwith published in the official Gazette.
It is quite clear, therefore, that the Committee mentioned in this section, is a Committee constituted by an election held under the new Act.
It would follow that the meeting contemplated in section 35 is a meeting of a Committee constituted by an election held under the new Act.
The provisions of that section put this beyond doubt.
In order, therefore, that a meeting of the Committee contemplated in section 35 may be held, there has first to be an election under the new Act to constitute the Committee.
No such election has yet been held.
It is the provision concerning election in the new Act that has given rise to the difficulty that arises in this case.
Section 16, sub section
(1), gives the power to hold the general elections.
It is in these words: Every general election requisite for the purpose of this Act shall be held by the Collector in the manner prescribed within three months before the expiry of the term of office of the members of the Committee as specified in section 34 ".
Section 34 in substance states that except as other.
wise provided members of the Committee shall hold office for a term of three years and that term of office shall be deemed to commence on the date of the first meeting called under section 35.
It would therefore appear that the members whose term of office is sought to be specified by section 34 are members elected under the new Act, for their term is to commence on the date that they first meet under section 35 and as earlier stated, the meeting under section 35 is a meeting of members elected under the new Act.
313 The contention for the appellants is that if a. 34 is construed in the way mentioned above, the first general election under the new Act cannot be held under section 16, for an election can be held under that section only within three months before the expiry of the term of office of members elected under the new Act and in the case of first election there are ex hypothesi, no such members.
It is said that as there is no other provision in the new Act for holding a general election, the Act would then become unworkable, for if the first general election cannot be held no subsequent election can be held either.
, The result, it is contended, is that the Committee elected under the repealed Act would continue for ever by virtue of section 320.
Such a situation, it is said, could not have been intended by the new Act.
It is therefore suggested that section 34 should be construed as specifying a term of office of three years from the commencement of the new Act for members elected under the repealed Act who are under section 320, to be deemed to form a Committee constituted under the new Act.
If section 34 is so construed, then the first general election under the new Act can properly be held under section 16.
It is on this basis that the appellants contend that the ten respondents ' term of office expired in August, 1959, and they are in possession of the office now without any warrant.
There is no doubt that the Act raises some difficulty.
It was certainly not intended that the members elected to the Committee under the repealed Act should be given a permanent tenure of office nor that there would be no elections under the new Act.
Yet such a result would appear to follow if the language used in the new Act is strictly and literally interpreted.
It is however well established that " Where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or in justice, presumably not intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence. . . 40 314 Where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftsman 's unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intractability of the language used.
Nevertheless, the courts are very reluctant to substitute words in a Statute, or to add words to it, and it has been said that they will only do so where there is a repugnancy to good Bense.": see Maxwell on Statutes (10th ed.) p. 229.
In Seaford Court Estates Ltd. vs Asher (1), Denning, L. J., said, " when a defect appears a judge cannot simply fold his hands and blame the draftsman.
He must set to work on the constructive task of finding the intention of Parliament. . . and then he must supplement the written word so as to give " force and life " to the intention of the legislature. . .
A judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out ? He must then do as they would have done.
A judge must not alter the material of which the Act is woven, but he can and should iron out the creases.
" I conceive it my duty, therefore, so to read the new Act, unless I am prevented by the intractability of the language used, as to make it carry out the obvious intention of the legislature.
Now there does not seem to be the slightest doubt that the intention of the makers of the new Act was that there should be elections held under it and that the Municipal Committees should be constituted by such elections to run the administration of the municipalities.
The sections to which I have so far referred and the other provisions of the new Act make this perfectly plain.
Thus section 5 provides for the establishment of municipal committees and section 8 states that the committees shall consist of a certain number of elected members.
The other sections show that the Committees shall have charge of the administration of the municipalities for the benefit of the dwellers within them.
It is plain (1) ,164. 351 that the entire object of the new Act would fail if no general election could be held under it.
The question then is, How should the Act be read so as to make it possible to hold general elections under it ? I agree with the learned advocate for the appellants that the only section in the new Act providing for general elections being held, is section 16(1).
In my view, section 20 does not authorise the holding of any general election; it only provides for a notification of the date on which the poll shall, if necessary, be taken.
There is no doubt that under section 16(1) the second and all subsequent general elections can be held ; in regard to such general elections, no difficulty is created by the language of the section.
It would be curious if section 20 also provided for general elections, for then there would be two provisions in the Act authorising general elections other than the first.
Then I find hat all the sections referring to general elections refer to such elections being held under section 16(1) and not under section 20.
Thus section 31 provides that if at a general election held under section 16, no member is elected, a fresh election shall be held.
It would follow that if in an election under section 20, assuming that that section authorises an election, no member is elected, no fresh election can be held.
There would be no reason to make this distinction between elections held under section 16 and under section 20.
Again the proviso to section 17 requires a certain notification to be issued within a prescribed time for holding elections under section 16(1).
If an election can be held under section 20, no such notification need be issued for there is no provision requiring it.
This could not have been intended.
For all these reasons it seems to me that section 20 does not confer any power to hold any election.
I have earlier said that the suggestion for the appellants is that the best way out of the difficulty is to read section 34 as specifying a term of office of three years commencing from the coming into force of the new Act, for the members elected under the repealed Act who are to be deemed under section 320 to be a committee constituted under the new Act.
It seems to me that this is not a correct solution of the problem.
First, 316 the object of continuing the members elected under the repealed Act in office is clearly to have, what may be called a caretaker committee to do the work of the Municipality till a committee is constituted by election under the new Act.
It could not have been intended that the committee of the members elected under the repealed Act would function for three years after the new Act has come into operation nor that such members would have the same term of office as members elected under the new Act.
Secondly, I do not find the language used in section 34 sufficiently tractable to cover by any alteration, a member elected under the repealed Act.
To meet the suggestion of the appellants, a new provision would have really to be enacted and added to section 34 and this I do not think is permissible.
It would be necessary to add to the section a provision that in the case of members elected under the old Act the term of office of three years would start running from the commencement of the new Act, a provision which is wholly absent in the section as it stands.
Lastly, so read, section 34 would come into conflict with section 320 which expressly provides that the term of office of the members elected under the repealed Act would continue till the first meeting of the committee constituted under the new Act is held under section 35.
This portion of section 320 would have to be completely struck out.
It seems to me that the real solution of the difficulty lies in construing section 16(1) so as to authorise the holding of the first general election under it and remove the absurdity of there being no provision directing the first general election to be held.
Now that section applies to ,every general election requisite for the purpose of this Act.
" It therefore applies to the first and all other general elections.
The clear intention hence is that the first general election will also be held under this provision.
But such election cannot be held within the time mentioned therein for that time has to be calculated from the expiry of the term of office of the Committee elected under the Act and in the case of the first general election under the new Act, there is no such Committee.
The requirement 317 as to time cannot apply to the first general election.
The section has therefore to be read as if there was no such requirement in the case of the first general election.
It will have to be read with the addition of the words " provided that every general election excepting the first general election shall be held " between the words " prescribed " and " within ".
That would 'carry out the intention of the legislature and do the least violence to the language used.
So read, there would be clear power under the Act to hold the first general meeting.
There would of course then be no indication as to when this election is to be held but that would only mean that it has to be held within a reasonable time of the commencement of the new Act.
The course suggested by me is not without the support of precedents.
Thus in Salmon vs Duncombe (1), the Judicial Committee in construing a statute omitted from it the words " as if such natural born subject resided in England " because the retention of those words would have prevented the person contemplated getting full power to dispose of his immovable property by his will which it was held, the object of the statute was, he should get.
With regard to the other point argued in this .appeal, namely, whether the Municipal Committee even if properly constituted, has power to sell the land mentioned in the petition, I agree, for the reasons mentioned in the judgment delivered by the majority of the members of the bench, that it has such power and have nothing to add.
The appeal therefore fails.
Appeal dismissed.
| IN-Abs | The respondents were the elected members of the Vicarabad 296 Municipal Committee, constituted in 1953, under the Hydera bad Municipal and Town Committees Act, 1951 That Act was repealed by section 320 of the Hyderabad District Municipalities Act, 1956, which came into force in 1956.
That section provided that the committee constituted under the repealed enactment was to be deemed to have been constituted under the Act and the members thereof should hold office till the first meeting of the committee was called under section 35 of the Act.
No election was held under the new Act; the old committee, which continued to function, after duly passing a resolution and obtaining the necessary sanction from the Government, sold certain municipal lands to third parties.
The appellants, who were rate payers of the said Municipality, moved the High Court for the issue of a writ of quo warranto challenging the said sales under article 226 of the Constitution.
The High Court dismissed the petition.
The contention of the appellants in this Court was that the members of the said committee were functus officio on expiry of three years from the commencement of the Act for section 34 of the Act prescribed a term of three years and section 320 of the Act did not provide any definite term for them.
But if section 34 was held to be inapplicable, neither could the first general election under the Act, for which section 16 of the Act was the only provision, be held, nor could the first meeting of the committee called under section 35 of the Act and the result would be that the old committee would continue indefinitely.
Held, that the contention must be negatived.
The word 'committee ' in section 320 of the Hyderabad District Municipalities Act, 1956, did not mean a committee elected under the Act and the term of three years prescribed by section 34 of the Act could not, therefore, apply to it.
Construed in the light of well recognised principles of interpretation of statutes and the scheme as envisaged by sections 16, 17, 18, 20, 32, 34, and 320 of the Act, section 320 of the Act could be no more than a transitory provision and it would be unreasonable to suggest that the Legislature which repealed the earlier Act with the express intention of constituting committees on broad based democratic principles, intended to perpetuate old committees constituted under the repealed Act.
Section 16(1) of the Act, properly construed, was clearly inapplicable to the first general election under the Act and could apply only to subsequent elections.
So far as the first general election under the Act was concerned, sections 17 and 20 of the Act provided a self contained and integrated machinery therefor independent of section 16(1) of the Act.
Canada Sugar Refining Co. vs R., , referred to.
The Legislature in enacting the new Act assumed and expected that the Government would, within a reasonable time issue notifications for holding the first general election under section 17 of the Act and its failure to do so and thus implement the 297 Act, and not any inherent inconsistency in the Act itself, prolonged the life of the old committee.
Since section 77 of the Act expressly authorised the Municipal Committee to sell municipal property subject to the conditions specified therein, no prohibition could be implied from the provisions of s 76 of the Act and the impugned sales, effected in conformity with the conditions precedent laid down by section 77 of the Act, could not be said to be ultra vires the powers of the committee.
Elizabeth Dowager Baroness Wenlock vs The River Dee Company, and Attorney General vs Fulhan Corpora tion, , considered.
Per Sarkar, J.
It is well settled that where the language of a statute leads to manifest contradiction of the apparent purpose of the enactment, as the language of section 16(i) does in the present case, the Court has the power so to read it as to carry out the obvious intention of the Legislature.
The intention of the Legislature in enacting the new Act clearly was that elections should be held and committees constituted under it.
Seaford Court Estates Ltd. vs Asher, , referred to.
Section 16(1) is the only section of the Act which authorises the holding of a general election but, since the requirements as to time in section 16(i) of the Act could not apply to the first general election, that section must be read to carry out the obvious intention of the Legislature as if there was no such requirement in the case of the first general election under the Act.
Although this would not indicate when that election was to be held, the obvious implication would be that it must be held within a reasonable time of the commencement of the Act.
Section 20 of the Act does not authorise the holding of a general election.
Salmon vs Duncombe, , referred to.
|
Appeal No. 790 of 1957.
Appeal from the judgment and decree dated February 10, 1954, of the Allahabad High Court in Civil Misc.
Writ No. 280 of 1950.
C. B. Aggarwala, G. C. Mathur and C. P. Lal, for the appellants.
G. section Pathak and D. N. Mukherjee, for the respondent No. 1. 1960.
November 11.
The Judgment of the Court was delivered by MUDHOLKAR J.
This is an appeal by the State of Uttar Pradesh against the decision of the Full Bench of the Allahabad High Court in a writ petition.
In the writ petition the respondents challenged certain orders made by the Government of Uttar Pradesh under section 3, cl.
(b) of the United Provinces , (XXVIII of 1947) requiring the respondents to pay bonus at certain rates for the years 1947 48 and 1948 49 to their workers and also payment of retaining allowances to the skilled seasonal workmen and clerical staff.
The circumstances under which the orders were made are briefly these: 333 The Indian National Sugar Mills Workers ' Federation, Lucknow, served notices on various sugar factories in Uttar Pradesh on December 15, 1949, in which they made six demands.
We need, however, mention only one of them as that alone is in controversy in this appeal.
That demand related to the bonus for the year 1948 49 and to the restoration of the reduction which had been made in the previous year 's bonus.
By that notice the Federation threatened a strike in the industry with effect from January 16, 1960, if the demands were not met by the sugar factories.
Since this situation brought into existence an industrial dispute, the Government of Uttar Pradesh, in exercise of the power conferred by sections 6 and 10 of the , (XIV of 1947) appointed a Court of Inquiry and referred the dispute to it.
The notification also stated the points which were referred to the Court of Inquiry.
That notification was twice amended but nothing turns on those amendments.
A full enquiry was held by the Court of Inquiry at which the representatives of both the employers as well as the employees were represented and material was placed before the Court of Inquiry by both the sides.
The Court of Inquiry submitted its report to the Government on April 15, 1950.
On receipt of this report the Government of Uttar Pradesh published the report in the Uttar Pradesh gazette on May 8, 1950, as provided for in section 17 of the .
On July 5, 1950, the Government of Uttar Pradesh, in exercise of the powers conferred by section 3(b) of the Uttar Pradesh , issued a notification directing the various sugar factories to pay bonus to their workmen for the year 1948 49 as well as to pay certain amounts as bonus for the year 1947 48.
A further direction was made in the notification for payment of retaining allowance to the skilled seasonal workmen and clerical staff with effect from the off season in the year 1950.
Thereupon the Indian Sugar Millers Association, which is an Association of sugar factories in India and is registered under the Trade Union Act made a petition before the High Court at Allahabad under 334 article 226 of the Constitution for the issue of a writ against the Government of Uttar Pradesh prohibiting the Government from enforcing the notification.
The writ petition was dismissed by the High Court on September 14, 1950, on the ground that the Association had no legal interest in the matter.
Thereupon various sugar mills preferred separate writ petitions before the High Court, the respondents before us being one of them.
As many as fourteen grounds were taken on their behalf in their writ petition.
We are, however, concerned with only three of them to which Mr. G. section Pathak, who appears for the respondents confined his arguments.
Before we refer to those grounds we would complete the narration of facts.
The High Court of Allahabad allowed the writ petitions, in so far as the question of payment of bonus was concerned, though Sapru, J., one of the judges constituting the Full Bench, expressed a doubt as to the correctness of the view that the order of the State Government as regards the payment of bonus was invalid.
After the decision of the High Court, the State of Uttar Pradesh applied for a certificate under article 133(1)(b) and article 133(1)(c) of the Constitution.
The High Court having granted the certificate, the present appeal has been brought to this Court.
In order to appreciate the points raised by Mr. G. section Pathak, it is necessary to set out the provisions of section 3 of the Uttar Pradesh .
They are as follows: " If, in the opinion of the State Government, it is necessary or expedient so to do for securing the public safety or convenience, or the maintenance of public order or supplies and services essential to the life of the community, or for maintaining employment, it may, by general or special order, make provision (a) for prohibiting, subject to the provisions of the order, strikes or look outs generally, or a strike or lock out in connection with any industrial dispute; (b) for requiring employers, workmen or both to observe for such period, as may be specified in the order, such terms and conditions of employment as may be determined in accordance with the order; 335 (c) for appointing industrial courts; (cc) for appointing committees representative both of the employer and workmen for securing amity and good relations between the employer and workmen and for settling industrial disputes by conciliation; for consultation and advice on matters relating to production, organization, welfare and efficiency; (d) for referring any industrial dispute for conciliation or adjudication in the manner provided in the order ; (e) for requiring any public utility service, or any subsidiary undertaking not to close or remain closed and to work or continue to work on such conditions as may be specified in the order; (f) for exercising control over any public utility service, or any subsidiary undertaking, by authorising any person (hereinafter referred to as an authorised controller) to exercise, with respect to such service, undertaking or part thereof such functions of control as may be specified in the order; and, on the making of such order the service, undertaking or part thereof such functions of control as may be specified in the order; and, on the making of such order the service, undertaking or part, as the case may be, shall so long as the order continues to be carried on in accordance with any directions given by the authorised controller in accordance with the provisions of the order and every person having any functions of management of such service, undertaking or part thereof shall comply with such directions; (g) for any incidental or supplementary matters which appear to the State Government necessary or expedient for the purposes of the order: Provided that no order made under clause (b) (i) shall require an employer to observe terms and conditions of employment less favourable to the workmen than those which were applicable to them at any time within three months preceding the date of the order; (ii) shall, if an industrial dispute is referred for adjudication under clause (d), be enforced after the decision of the adjudicating authority is announced be or with the consent of, the State Government.
" 336 The view taken by the High Court was that clause (b) of section 3 of the Uttar Pradesh , is prospective in operation in that thereunder it is open to the State Government to ask an employer or an employee to observe a term or a condition of employment in future and that consequently it is not competent thereunder to require an employer to pay bonus to workmen in respect of a period of employment which is already past.
The view of the High Court was challenged before us on behalf of the State.
According to the State the provisions of the aforesaid clause are wide enough to permit the making of such a direction to the employer because by doing so the State Government would only be imposing a condition of employment in future.
In answer to this contention Mr. Pathak has, as already stated, raised three points and they are as follows: (1) Clause (b) of section 3 does not operate retrospectively and must be construed as having a prospective operation only.
(2) This clause does not apply at all where an industrial dispute has arisen and that the appropriate provision under which the State Government can take action where an industrial dispute has arisen is cl.
(3) If cl.
(b) is susceptible of the interpretation that it is applicable even when an industrial dispute has arisen then it is ultra vires in as much as it would enable the State Government to discriminate between an industry and an industry or an industrial unit and another industrial unit or between a workman and a workman by referring some cases for adjudication to an industrial court under cl.
(d) and passing executive order itself in respect of others.
The provisions of cl.
(b), according to him, are violative of article 14 of the Constitution.
Further, according to him, they are also violative of the provisions of article 19(1)(g) of the Constitution in as much as they confer an arbitrary power on the State Government to require an employer to pay whatever it thinks fit to an employee and thus place an unreasonable restriction on the rights of the employer to carry on his business.
337 We entirely agree with the learned judges of the Allahabad High Court that cl.
(b) of section 3 cannot be given a retrospective effect.
But we are unable to agree with them that the State Government in making a direction to the employers to pay bonus for the years in question purported to give a retrospective operation to the provisions of that clause.
The order made by the State Government in regard to bonus is to the effect that it shall be paid for the year 1947 48 to those persons who worked during that year and for the year 1948 49 to those persons who worked in that year.
This payment was directed to be made within six weeks of the making of the order.
By giving this direction the State Government did no more than attach a condition to the employment of workmen in the year 1950 51 in sugar factories affected by the order.
That is all that it has done.
Mr. Pathak contended that bonus has certain attributes of a wage and wage being a matter of contract can only be a term of employment agreed to between the employer and the employee but could not be a condition of employment which could be imposed by a statute or which could be imposed by a Government acting under a statute.
We agree that normally wage is a term of contract but it would be futile to say that it cannot be made a condition of employment.
The Minimum Wages Act provides for the fixation of a statutory minimum wage payable to a worker in respect of certain types of employments and is an instance of wage being made a condition of employment.
That apart, whether wage or bonus is a term of a contract or a condition of employment it is clear that section 3 empowers the State Government to require the employers and workmen or both to observe any term or condition of employment for a specified period.
Since the law enables the State Government to impose a term it is apparent that the legislature which enacted that law did not import into that word a con.
sensual sense.
We cannot, therefore, accept the argument that under cl.
(b) it was not open to the State Government to make the payment of bonus to 338 workmen a condition of their employment in future and thus augment their past wages.
Mr. Pathak then referred to the following observations in the judgment of Bhargava, J. s " Obviously there can be no question of requiring any one to observe for a future period terms and conditions of employment which have already remained effective and have already been carried out by those persons ".
According to Mr. Pathak the effect of the order of the Government is to add a new term or a condition with regard to employment for a period which is already over.
We would again point out that this is not the effect of the order of the Government.
The effect of that order is merely to require the employer to pay an additional sum of money to his employees as a term and condition of work in future.
Mr. Pathak, however, said that this would involve payment of bonus even to new employees, that is, those who had not participated in earning the profits in the past and that this would be contrary to the very conception of bonus.
The answer to that is that under the order of the Government such bonus is payable only to those workers who had worked during the years in question and not to new employees.
It is further to be borne in mind that in the dispute in question the employees were bargaining in their collective capacity and, therefore, the question whether the personnel forming the employees of the factories in July, 1950, when the order was made by the Government, and in the years 1947 48 and 1948 49 to which the dispute relates was the same is quite immaterial.
As has been rightly pointed out by Sapru, J., " The employees might well have taken in the industrial dispute the line that the payment of bonus in respect of the years 1947 48 and 1948 49 to the workmen employed in those years was regarded by those who were employed in future as a preliminary and essential condition for not only the settlement of the industrial dispute in progress but also for carrying on their future work in sugar factories ".
We also concur with the observations of the learned judge that by coming 339 conceded the State Government was not passing an order which will have retrospective effect but was passing an order which was to ensure that the work.
men to be employed in the year 1950 would work in a contented manner.
It must not be forgotten that the dispute was in the present, that is, it existed when the impugned order was made, though its origin was in the past.
What the order did was to resolve that dispute and this it could only do by removing its cause.
Mr. Pathak then relied upon the following observations of Bhargava, J., in L. D. Sugar Mills vs U. P. Government (1): " The expression 1 to observe for such period as may be specified, such terms and conditions of employment as may be determined ' gives an indication that clause (b) of section 3 of the U. P. , is meant for the purpose of passing orders by which the Government gives directions about what the terms and conditions of employment should be and not how a particular term and condition of employment already in existence should be acted upon.
" Bhargava, J. 's decision was, however, reversed in Ram Nath Koeri and Another vs Lakshmi Devi Sugar Mills and Ors.
(2) by a division bench of the Allahabad High Court in Letters Patent Appeal brought against Bhargava, J. 's decision.
We agree with the view taken by the Appellate Bench.
In our opinion, therefore, there is nothing in cl.
(b) of section 3 of the Act which prohibited the State Government from making a direction to the sugar factories with regard to the payment of bonus for the years 1947 48 and 1948 49 in their order of July 7, 1950 and that by making such a direction the State Government was not giving a retrospective effect to the provisions of that clause.
In this connection it is relevant to remember that any direction as to payment of bonus must inevitably be based on the available surplus, and such surplus can be determined only at the end of a given year.
Therefore, what the impugned (1) A.I.R. 1954 All. 705, 714.
(2) (1956) II L. L. J. 11.
340 order purports to do is to require the employers to pay specified amounts in future, though the said ,amounts are fixed by reference to the profits made in the two preceding years.
If a direction as to payment ;of bonus can be issued under section 3(b) it cannot, therefore, be said to be retrospective.
The next argument of Mr. Pathak appears, at first sight, to be more formidable.
He points out that undoubtedly an industrial dispute had arisen, and indeed it is upon that basis that the State Government proceeded to appoint a Court of Inquiry.
Therefore, according to Mr. Pathak resort could be taken by the State Government only to the special provisions of cl.
(d) and not to the more general provisions of cl.
(b) of section 3.
In other words, where there is an industrial dispute, the appropriate thing for the Government to do is to refer it for conciliation or adjudication under the provisions of cl.
(d) and not to deal with the matter by an executive order as it has done in this case.
Mr. Pathak then refers to a further passage from the judgment of Bhargava, J., just cited which is as follows: " It appears from the language that this provision was not meant for the purpose of dealing with individual disputes arising out of the application of a term or condition of employment and no power was granted to the State Government under this provision of law, to sit as an adjudicator to decide a dispute that might have arisen relating to the working and actual application of terms and conditions of employment already in force.
The provision was for the purpose of enabling the State Government to vary the agreed terms and conditions of employment for purposes specified in a. 3 of U. P. , under the pressing necessities or expediency justifying such course of action.
" We entirely agree with Mr. Pathak that the normal way of dealing with an industrial dispute under the Act would be to have it dealt with judicially either by conciliation or by adjudication and that judicial process cannot be circumvented by resort to executive action.
The proceeding before a conciliator or an 341 adjudicator is, in a sense, a judicial proceeding because therein both the parties to the dispute would have the opportunity of being heard and of placing the relevant material before the conciliator or adjudicator.
But there may be an emergency and the Government may have to act promptly " for securing the public safety or convenience or the.
maintenance of public order or supplies and services essential to the life of the community or maintaining employment.
" It was, therefore, necessary to arm it with additional powers for dealing with such an emergency.
Clause (b) of section 3 was apparently enacted for this purpose.
An order made thereunder would be in the nature of a tempor ary or interim order as would be clear from the words " for such period as may be specified " appearing therein and from the second proviso to section 3.
Under this proviso where an industrial dispute is referred for adjudication under cl.
(d) an order made under cl.
(b) cannot be enforced after the decision of the adjudicating authority is announced by or with the consent of the State Government.
It would, therefore, follow from this that where the Government has made an executive order, as it did in this case, under cl.
(b) of section 3, it is open to the aggrieved party to move the Government to refer the industrial dispute for conciliation or adjudication under cl.
(d) of section 3.
Mr. Pathak, however, stated that under this section, the Government has a discretion whether or not to refer a dispute for conciliation or adjudication under cl.
But in our opinion where once the Government has acted under cl.
(b) on the ground that it was in the public interest to do so, it would not be open to the Government to refuse to refer the dispute under cl.
(d) for conciliation or adjudication.
Mr. C. B. Agarwal, who appeared for the State of Uttar Pradesh conceded, and we think rightly, that this would be so and added that in case the State Government was recalcitrant it could be forced to do its duty by the issue of a writ of mandamus by the High Court under article 226 of the Constitution.
There is a further argument of Mr. Pathak which must be noticed and that argument is that there is 342 nothing in cl.
(b) which limits its operation to an emergency and that it is, therefore, not open to us to place a construction thereon of the kind we are placing.
The opening words of section 3 themselves indicate that the provisions thereof are to be availed of in an emergency.
It is true that even a reference to an arbitrator or a conciliator could be made only if there is an emergency.
But then an emergency may be acute.
Such an emergency may necessitate the exercise of powers under cl.
(b) and a mere resort to those under cl.
(d) may be inadequate to meet this situation.
Whether to resort to one provision or other must depend upon the subjective satisfaction of the State Government upon which powers to act under section 3 have been conferred by the legislature.
No doubt, this result is arrived at by placing a particular construction on the provisions of that section but we think we are justified in doing so.
As Mr. Pathak himself suggested in the course of his arguments, we must try and construe a statute in such a way, where it is possible to so construe it, as to obviate a conflict between its various provisions and also so as to render the statute or any of its provisions constitutional.
By limiting the operation of the provisions of cl.
(b) to an emergency we do not think that we are doing violence to the language used by the legislature.
Further, assuming that the width of the language could not be limited by construction it can be said that after the coming into force of the Constitution the provisions can, by virtue of article 13, have only a limited effect as stated above and to the extent that they are inconsistent with the Constitution, they have been rendered void.
In our view, therefore, the provisions of cl.
(b) of section 3 are not in any sense alternative to those of cl.
(d) and that the former could be availed of by the State Government only in an emergency and as a temporary measure.
The right of the employer or the employee to require the dispute to be referred for conciliation or adjudication would still be there and could be exercised by them by taking appropriate steps.
Upon the construction we place on the 343 provisions of cl.
(b) of section 3 it is clear that no question of discrimination at all arises.
Similarly the fact that action was taken by the Government in an emergency in the public interest would be a complete answer to the argument that that action is violative of the pro visions of article 19(1)(g).
The restriction placed upon the employer by such an order is only a temporary one and having been placed in the public interest would fall under cl.
(6) of article 19 of, the Constitution.
Upon this view we hold that the High Court was in error in issuing a writ against the State Government quashing their order in so far as it related to payment of bonus.
The appeal is allowed and order of the High Court is set aside.
Costs of this appeal will be paid by the respondents.
Appeal allowed.
| IN-Abs | The Government of U. P. appointed a Court of enquiry under sections 6 and 10 of the United Provinces , and referred to it the present dispute.
The Court of enquiry submitted its report to the Government, whereupon the Government issued a notification in July, 1950, directing the various sugar factories to pay bonus to their workmen for the years 1948 49 as well as to pay certain amounts as bonus for the years 1947 48.
331 Court against the Government, prohibiting it from enforcing the notification.
The State Government came up in appeal, urging, that the provisions of cl.
(b) of section 3 of the United Provinces , were wide enough to permit it to issue such a direction to the employer because by doing so the State Government would be imposing a condition of employment in future.
The respondents, inter alia, contended that (1) clause (b) of section 3 of the Act does not operate retrospectively ; (2) bonus could only be a term of employment by agreement and could not be imposed by statute ; (3) where there was an industrial dispute cl.
(d) and not cl.
(b) of section 3 of the Act would apply and (4) if cl.
(b) was applicable it was ultra vires being discriminatory and violative of article 14 of the Constitution and also violative of article 19(i) of the Constitution as it confers arbitrary powers on the State Government.
Held, that (i) though cl.
(b) of section 3 of the United Provinces , could not be given a retrospective effect, yet there was nothing therein which prohibited the State Government from giving a direction with regard to the payment of bonus and by giving such a direction the State Government was not giving retrospective effect to the provisions of that clause nor did it add a new term or a condition for a period which was over, it merely required the employer to pay an additional sum of money to their employees as a term and condition of employment in future; (ii) though normally wage is a term of contract it can be made a condition of employment by statute, and it was open to the State Government under cl.
(b) of section 3 to make the payment of bonus to workmen a condition of their employment in future; (iii) where the employees bargained in their collective capacity, the fact that the personnel of the factory when the order for the payment of bonus was made by the Government and in the year to which dispute related were not the same, did not affect the power of the Government as the order would apply only to those employees who had worked during the period in question and not to new employees ; (iv) the normal way of dealing with an industrial dispute would be to have it dealt with judicially and not by resort to executive action, but cl.
(b) of section 3 empowers the Government to act promptly in case of an emergency and arms it with additional powers to deal with such an emergency in the public interest; (v) when the Government had made an executive or per under cl.
(b) of section 3 on the ground that it was in the public interest to do so it was open to the aggrieved party to move the Government to refer the industrial dispute for conciliation or adjudication under cl.
(b) of section 3 of the Act.
332 (vi) the provisions of cl.
(b) of section 3 are not in any sense alternative to those of cl.
(d) and the former could be availed of by the State Government only in an emergency and as a temporary measure.
The right of the employer or the employee to require the dispute to be referred for conciliation or adjudication would still be there and could be exercised by them by taking appropriate steps; (vii) clause (b) of section 3 of the Act is not violative of the provisions of article 19(1)(g) of the Constitution as it permits action to be taken thereunder by the Government only in an emergency and in the public interest.
The restriction placed upon the employer is only a temporary one and having been placed in the public interest falls under cl.
(6) of article 19 of the Constitution.
Ram Nath Koeri and Anr.
vs Lakshmi Devi Sugar Mills and Ors., , approved.
L. D. Mills vs U. P. Government, A.I.R. 1954 All. 705, overruled.
|
Criminal Appeal No. 173/1956.
Appeal from the judgment and order dated May 23, 1956, of the Punjab High Court in Criminal Revision No. 1058/1954.
K. L. Arora, for the appellant.
N. section Bindra and R. H. Dhebar, for the respondent.
November 11.
The Judgment of the Court was delivered by AYYANGAR J.
This appeal on a certificate under articles 132 and 134(1) of the Constitution granted by the High Court of Punjab raises for consideration the constitutionality of section 7(1) of the Punjab Trade Employees Act, 1940.
The appellant Manohar Lal has a shop at Ferozepore Cantt.
in which business is carried on under the name and style of I Imperial Book Depot '.
Section 7 of the Punjab Trade Employees Act, 1940 (hereinafter called the Act), enacts: " 7.
(1) Save as otherwise provided by this Act, every shop or commercial establishment shall remain closed on a close day.
(2)(i).
The choice of a close day shall rest with the occupier of a shop or commercial establishment and shall be intimated to the prescribed authority within two months of the date on which this Act comes into force." to extract the provision relevant to this appeal.
The 345 appellant had chosen Friday as " the close day ", i.e., the day of the week on which his shop would remain closed.
The Inspector of Shops and Commercial Establishments, Ferozepore Circle, visited the appellant 's shop on Friday, the 29th of January, 1954, and found the shop open and the appellant 's son selling articles.
Obviously, if section 7(1) were valid, the appellant was guilty of a contravention of its terms and he was accordingly prosecuted in the Court of the Additional District Magistrate, Ferozepore, for an offence under section 16 of the Act which ran: " Subject to the other provisions of this Act, whoever contravenes any of the provisions of this Act . . . . . . . . shall be liable on conviction to a fine not exceeding twenty five rupees for the first offence and one hundred rupees for every subsequent offence ".
The appellant admitted the facts but he pleaded that the Act would not apply to his shop or establishment for the reason that he had engaged no strangers as employees but that the entire work in the shop was being done by himself and by the members of his family, and that to hold that section 7(1) of the Act would apply to his shop would be unconstitutional as violative of the fundamental rights guaranteed by articles 14, 19(1)(f) and (g) of the Constitution.
The additional District Magistrate rejected the plea raised by the appellant regarding the constitutionality of section 7(1) in its application to shops where no " employees " were engaged and sentenced him to a fine of Rs. 100 and simple imprisonment in default of payment of the fine (since the appellant had been convicted once before).
The appellant applied to the High Court of Punjab to revise this order, but the Revision was dismissed.
The learned Judges, however, granted a cer tificate of fitness which has enabled the appellant to file the appeal to this Court.
Though the validity of section 7(1) of the Act was challenged in the High Court on various grounds, learned Counsel who appeared before us rested his attack on one point.
He urged that the provision violated the 44 346 appellant 's right to carry on his trade or business guaranteed by article 19(1)(g) and that the restriction imposed was not reasonable within article 19(6) because it was not in the interest of the general public.
Learned Counsel drew our attention to the long title of the Act reading " An Act to limit the hours of work of Shop Assistants and Commercial Employees and to make certain regulations concerning their holidays, wages and terms of service " and pointed out that the insistence on the appellant to close his shop, in which there were no " employees ", was really outside the purview of the legislation and could not be said to subserve the purposes for which the Act was enacted.
In short, the submission of the learned Counsel was that the provision for the compulsory closure of his shop for one day in the week served no interests of the general public and that it was unduly and unnecessarily restrictive of his freedom to carry on a lawful trade or business, otherwise in accordance with law, as he thought best and in a manner or mode most con venient or profitable.
We are clearly of the opinion that the submissions of the learned Counsel should be repelled.
The long title of the Act extracted earlier and on which learned Counsel placed considerable reliance as a guide for the determination of the scope of the Act and the policy underlying the legislation, no doubt, indicates the main purposes of the enactment but cannot, obviously, control the express operative provisions of the Act, such as for example the terms of section 7(1).
Nor is the learned counsel right in his argument that the terms of section 7(1) are irrelevant to secure the purposes or to subserve the underlying policy of the Act.
The ratio of the legislation is social interest in the health of the worker who forms an essential part of the com munity and in whose welfare, therefore, the community is vitally interested.
It is in the light of this purpose that the provisions of the Act have to be scrutinized.
Thus,, section 3 which lays down the restrictions subject to which alone "I young persons ", defined as those under the age of 14, could be employed in any shop or commercial establishment, is obviously with a view to 347 ensuring the health of the rising generation of citizens.
Section 4 is concerned with imposing restrictions regarding the hours of work which might be extracted from workers other than " young persons ".
Section 4(1) enacts: " Subject to the provisions of this Act, no person shall be employed about the business of a shop or commercial establishment for more than the normal maximum working hours, that is to say, fifty four hours in any one week and ten hours in any one day.
bringing the law in India as respects maximum working hours in line with the norms suggested by the International Labour Convention.
Sub clauses (4) and (5) of this section are of some relevance to the matter now under consideration: " (4) No person who has to the knowledge of the occupier of a shop or commercial establishment been previously employed on any day in a factory shall be employed on that day about the business of the shop or commercial establishment for a longer period than will, together with the time during which he has been previously employed on that day in the factory, complete the number of hours permitted by this Act.
(5) No person shall work about the business of a shop or commercial establishment or two or more shops or commercial establishments or a shop or commercial establishment and a factory in excess of the period during which he may be lawfully employed under this Act.
" It will be seen that while under sub cl.
(4) employers are injuncted from employing persons who had already worked for the maximum number of permitted hours in another establishment, sub cl.
(5) lays an embargo on the worker himself from injuring his health by overwork in an endeavour to earn more.
From this it would be apparent that the Act is concerned and properly concerned with the welfare of the worker and seeks to prevent injury to it, not merely from the action of the employer but from his own.
In other words, the worker is prevented from attempting to earn more wages by working longer hours than is good 348 for him.
If such a condition is necessary or proper in the case of a worker, there does not seem to be anything unreasonable in applying the same or similar principles to the employer who works on his own business.
The learned Judges of the High Court have rested their decision on this part of the case on the reasoning that the terms of the impugned section might be justified on the ground that it is designed in the interest of the owner of the shop or establishment himself and that his health and welfare is a matter of interest not only to himself but to the general public The legislation is in effect the exercise of social control over the manner in which business should be carried on regulated in the interests of the health and welfare not merely of those employed in it but of all those engaged in it.
A restriction imposed with a view to secure this purpose would, in our opinion, be clearly saved by article 19(6).
Apart from this, the constitutionality of the impugned provision might be sustained on another ground also, viz., with a view to avoid evasion of provisions specifically designed for the protection of workmen employed.
It may be pointed out that acts innocent in themselves may be prohibited and the restrictions in that regard would be reasonable, if the same were necessary to secure the efficient enforcement of valid provisions.
The inclusion of a reasonable margin to ensure effective enforcement will not stamp a law otherwise valid as within legislative competence with the character of unconstitutionality as being unreasonable.
The provisions could, therefore, be justified as for securing administrative convenience and for the proper enforcement of it without evasion.
As pointed out by this Court in Manohar Lal vs The State (1) (when the appellant challenged the validity of this identical provision but on other grounds): " The legislature may have felt it necessary, in order to reduce the possibilities of evasion to a minimum, to encroach upon the liberties of those who would not otherwise have been affected. .
To require a shopkeeper, who employs one or two men, (1) ; , 675. 349 to close and permit his rival, who employs perhaps a dozen members of his family, to remain open, clearly places the former at a grave commercial disadvantage.
To permit such a distinction might well engender discontent and in the end react upon the relations between employer and employed.
" We have, therefore, no hesitation in repelling the attack on the constitutionality of section 7(1) of the Act.
The appeal fails and is dismissed.
Appeal dismissed.
| IN-Abs | The appellant who was a shopkeeper was convicted for the second time by the Additional District Magistrate for contravening the provisions of section 7(1) of the Punjab Trade Employees Act, 1940, under which he was required to keep his shop closed on the day which he had himself chosen as a " close day ".
He raised the plea that the Act did not apply to his shop as he did not employ any stranger but that himself alone worked in it and that the application of section 7(1) to his shop would be violative of his fundamental rights under articles 14, 19(1)(f) and (g) of the Constitution and also that the restriction imposed was not reasonable within article 19(6) as it was not in the interest of the general 344 public.
The High Court dismissed his application for revision of the Magistrate 's order.
On appeal on a certificate of the High Court, Held, that the main object of the Act was the welfare of the employees and to protect their as well as the employers ' health by preventing them from over work.
Such a restriction being in the interest of the general public was reasonable within the meaning of article 19(6) of the Constitution.
The provisions of section 7(1) were constitutionally valid and were justified as for securing administrative convenience and avoiding evasion of those provisions designed for the protection of the workmen.
Manohar Lal vs The State, ; , referred to.
|
Appeal No. 5 of 1959.
Appeal from the judgment and order dated February 16, 1954, of the former Hyderabad High Court in Reference No. 347/B 5/2 of 1953 54.
C. K. Daphtary, Solicitor General of India, K. N. Rajagopala Sastri and D. Gupta, for the appellant.
Sanat P. Mehta and J. B. Dadachanji, for the respondent.
November 8.
The Judgment of the Court was delivered by section K. DAS J.
This is an appeal on a certificate of fitness granted by the High Court of Judicature at Hyderabad under s.66 A (2) of the Indian Income tax Act, 1922.
The Commissioner of Income tax, Hyderabad, is the appellant before us.
The respondent is Dewan Bahadur Ramgopal Mills Ltd., a public limited company incorporated in the erstwhile State of Hyderabad.
The respondent company was assessed under the Hyderabad Income tax Act in respect of the assessment years 1357 F, 1358 F and 1359 F.
In the assessment for those years depreciation allowance was given to it on the basis of the written down value of its assets, such as buildings, machinery, plant, etc., in accordance with the provisions of cl.
(c) of section 12(5) of the Hyderabad Income tax Act.
That clause provided that in the case of assets acquired before the previous year and before the commencement of the Act, the written down value would be the actual cost to the assessee less (i) depreciation at the rates applicable to the assets calculated on the actual cost for the first year since acquisition and for the next year on the actual cost diminished by the depreciation allowance for one year and so on, for each year upto the commencement of the Act, and (ii) depreciation actually allowed to the assessee on such assets for each financial year after the commencement of the 321 Act.
The erstwhile State of Hyderabad merged in the Union of India on January 26, 1950, and became a Part B State.
The Finance Act, 1950, by section 13 thereof repealed the taxation laws in force in Part B States except for certain purposes not relevant to this case, and by section 3 extended the Indian Income tax Act, 1922, to the whole of India except the State of Jammu and Kashmir.
In exercise of the powers conferred by section 12 of the Finance Act, 1950, the Central Government was pleased to make the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950 (hereinafter referred to as the Removal of Difficulties Order, 1950), by a notification dated December 2, 1950.
Paragraph 2 of the said Order, in so far as it is relevant to this case, was in these terms: " Computation of aggregate depreciation allowance and written down value: In making any assessment under the Indian Income tax Act, 1922, all depreciation actually allowed under any laws or rules of a Part B State, relating to Income tax and Super tax, or any law relating to tax on profits of business, shall be taken into account in computing the aggregate depreciation allowance referred to in sub clause (c) of the proviso to clause (vi) of sub section (2) and the written down value under clause (b) of sub section (5) of sec.
10 of the said Act".
For the assessment year 1951 52 which was in respect of the account year ending June 30, 1950, the respondent was assessed for the first time under the Indian Income tax Act, 1922, read with paragraph 5 of the Part B States (Taxation Concessions) Order, 1950.
Basing its claim on paragraph 2 of the Removal of Difficulties Order, 1950, the respondent asked for depreciation allowance in respect of its assets such as buildings, machinery, plant, etc., to the tune of Rs.8,12,244.
It worked out the value of the assets at their inception and deducted therefrom such depreciation as was allowed for the three assessment years in which the respondent was assessed under the Hyderabad Income tax Act and calculating the written down 322 value in that manner, it claimed depreciation according to the prescribed rates.
By his order dated November 30, 1951, the Income tax Officer disallowed this claim.
He held that the claim of the respondent was against the principle inherent in granting depreciation allowance which must decrease from year to year, and further held that the word " allowed " in paragraph 2 of the Removal of Difficulties Order, 1950, should be construed as meaning " considered " only.
Accordingly, he took the figures of the written down value from the income tax proceedings of 1359 F and allowed depreciation at the prescribed rate on those figures.
Against the order of the Income tax Officer, the respondent went in appeal to the Appellate Assistant Commissioner, Hyderabad Division.
That Officer by an order dated May 23, 1952, upheld the view of the Income tax Officer and dismissed the appeal.
Then there was an appeal to the Income tax Appellate Tribunal which was heard by the Bombay Bench of the said Tribunal.
By its order dated December 12, 1952, the Appellate Tribunal held that in view of the pro visions in paragraph 2 of the Removal of Difficulties Order, 1950, the contention of the respondent must prevail, and it pointed out that the words used in paragraph 2 were " depreciation actually allowed under any laws or rules of a Part B State ", and those words did not mean the aggregate allowance for depreciation taken into account in computing the written down value under the Hyderabad Act; therefore, the respondent was entitled to the depreciation allowance which it claimed.
It directed the Income tax Officer to compute the written down value on the basis of the actual cost to the assessee of the assets in question minus the depreciation allowance actually allowed to the assessee under the Hyderabad Income tax Act.
The appellant herein then moved the Appellate Tribunal for a reference to the High Court under section 66(1) of the Indian Income tax Act.
In the meantime, that is, on March 9, 1953, the Central Government purporting to exercise its powers conferred by section 60 A of the Indian Income tax Act, 1922, added an Explanation 323 to paragraph 2 of the Removal of Difficulties Order, 1950.
Explanation said: " Explanation : For the purpose of this paragraph, the expression " all depreciation actually allowed under any laws or rules of a Part B State " means and shall be deemed to have always meant the aggregate allowance for depreciation taken into account in computing the written down value under any laws or rules of a Part B State or carried forward under the said laws or rules ".
The Explanation in terms gave effect to the contention urged on behalf of the Department and said that what has to be allowed is the aggregate allowance for depreciation taken into account in computing the written down value under any law or rules of a Part B State.
In support of the application for a reference, the appellant relied on the aforesaid Explanation and contended that in view of the Explanation the respondent could not claim depreciation allowance on the basis of actual cost minus the depreciation allowances actually allowed under the Hyderabad Income tax Act.
On this application the Tribunal expressed the view that if the Explanation applied to the case on hand, then the contention of the Department was correct and must be upheld.
It said, however, that it had no power to review its own order and, therefore, considered it unnecessary to express any opinion whether the Explanation was valid and affected the case before it.
It said finally that the following question of law did arise out of its order and accordingly stated a case thereon: " Whether in making the assessment for the year 1951 52 under the Indian Income tax Act is the assessee company entitled to claim depreciation allowance on the basis of the written down value computed at the time of the assessment for the year 1359 F, or is to be computed on the basis of the actual cost minus the depreciation allowances granted under the Hyderabad Income tax Act".
The reference was then heard by the High Court of Judicature at Hyderabad which by its order dated February 16, 1954, held that the Explanation added 324 to paragraph 2 of the Removal of Difficulties Order, 1950, by the notification dated March 9, 1953, was void on certain grounds one of which was that the Explanation was ultra vires the powers of the Central Government under section 60 A of the Indian Income tax Act.
Therefore, it answered the question in favour of the respondent.
The appellant then obtained the necessary certificate of fitness and preferred the present appeal.
In the meantime, there was a further change of law.
On May 8, 1956, the Central Government made a notification (No. section R. O. 1139) in exercise of the powers conferred on it by section 12 of the Finance Act, 1950, whereby an Explanation in identical terms as the earlier Explanation made under section 60 A of the Indian Income tax Act, was added to paragraph 2 of the Removal of Difficulties Order, 1950.
The arguments before us have proceeded on the basis of the Explanation added by the notification aforesaid and it is not disputed that if the Explanation is valid and applies to the present case, then the appeal must be allowed and the question of law answered in favour of the appellant.
If, on the contrary, the Explanation is not valid or it does not apply to the present case, then the appeal must be dismissed.
We proceed now to a consideration in detail of the different contentions urged before us on behalf of the appellant and the respondent.
We may first read section 12 of the Finance Act, 1950, under which notification No. section R. O. 1139 dated May 8, 1956, was made.
Section 12 reads: " If any difficulty arises in giving effect to the provisions of any of the Acts, rules or orders extended by section 3 or section 11 to any State or merged territory, the Central Government may by order, make such provision, or give such direction, as appears to it to be necessary for removing the difficulty ".
On behalf of the appellant it has been argued that the notification was validly made in exercise of the powers conferred on the Central Government under section 12 aforesaid; that it does not suffer from any of the defects pointed out by the High Court in regard 325 to the earlier notification of 1953 made under section 60 A of the Income tax Act; and that it adds an Explanation which in terms gives effect to the contention of the appellant and this Court must consider the change in law made thereby and give effect to it in answering the question of law arising out of the Tribunal 's order.
On the other hand, the validity of the notification has been very strenuously contested before us by learned Counsel for the respondent.
He has challenged its validity and also its applicability to the present case on the following grounds : (1) that it is ultra vires the powers conferred on the Central Government by section 12; (2) that it can have no retrospective effect; and (3) that it contravenes article 14 of the Constitution.
We shall consider these arguments in the order in which we have stated them.
The first question is whether the notification is validly made under section 12 or is it ultra vires the powers conferred on the Central Government by that section ? On behalf of the respondent it is urged that a condition for the exercise of the power under section 12 is contained in the opening clause, which says : " If any difficulty arises in giving effect to the provisions of any of the Acts, rules or orders extended by section 3 or section II to any State etc.
" The contention is that no difficulty arose in giving effect to the provisions of any of the Acts, rules or orders referred to in the opening clause, to any State etc.
and, therefore, the condition for the exercise of the power is not fulfilled and on that ground the notification is invalid.
We are unable to accept this argument as correct.
Section 10 of the Income tax Act says, in its first subsection, that the tax shall be payable by an assessee in respect of the profits or gains of any business, profession or vocation carried on by him.
Sub section
(2) thereof says that such profits or gains shall be computed after making certain allowances, and one of these allowances is in respect of the depreciation of such buildings, machinery, plant, etc.
as are used for the purpose of the business (cl.
The depreciation except in certain cases is calculated on the written down value, which expression is explained 326 in sub section
(5) of section 10.
Clause (b) of the sub section states: "S.10(5) (a). . . . . . . . (b) In the case of assets acquired before the previous year the actual cost to the assessee less all depreciation actually allowed to him under this Act, or any Act repealed thereby or under executive orders issued when the Indian Income tax Act, 1886 (11 of 1886), was in force ".
It is obvious that in applying cl.
(b) to an assessee in a Part B State there would be an initial difficulty, in as much as prior to 1950 when the Indian Income tax Act came into force in a Part B State no depreciation could have been actually allowed to such an assessee under the Income tax Act or under any Act repealed thereby; for example, the Hyderabad Income tax Act was repealed by the Finance Act, 1950 and not by the Income tax Act, and would not therefore be covered by cl.
Such and other difficulties led to the Removal of Difficulties Order, 1950, which has not been seriously challenged before us.
Indeed, the High Court said that it was not open to the respondent to challenge the validity of the Removal of Difficulties Order, 1950, because such a point was not taken before the Tribunal.
Learned Counsel for the respondent has then submitted that what.
ever initial difficulty there might have been in giving effect to the Indian Income tax Act in a Part State, that difficulty was solved by paragraph 2 of the Removal of Difficulties Order, 1950, and, in any view, there was no fresh difficulty which could necessitate the addition of an Explanation in 1953 or 1956.
Here again we think that the submission is not correct.
The basic and normal scheme of depreciation under the Indian Income tax Act is that it decreases every year, being a percentage of the written down value which in the first year is the actual cost and in suc ceeding years actual cost less all depreciation actually allowed under the Income tax Act or an Act repealed thereby etc.
The Hyderabad Income tax Act not having been repealed by the Income tax Act but by the Finance Act, 1950, there was a difficulty in 327 allowing depreciation to an assessee in a Part B State in the first year of assessment under the Indian Income tax Act.
This difficulty was sought to be removed by paragraph 2 of the Removal of Difficulties Order, 1950.
If, however, depreciation actually allowed under the Hyderabad Income tax Act was taken into account in computing the aggregate depreciation allowance and the written down value, an anomalous result would follow as in the present case, namely, depreciation allowance to be allowed to the assessee in the accounting year under the Indian Income tax Act would be more than what was allowed in previous years under the Hyderabad Income tax Act.
This would create a disparity and be against the scheme of the Indian Income tax Act.
It was therefore necessary to explain paragraph 2 of the Removal of Difficulties Order, 1950, to assimilate or harmonise the position regarding depreciation allowance, and the Explanation added in 1953 or 1956 was obviously intended to remove the difficulty arising out of that disparity or disharmony.
Furthermore, the true scope and effect of section 12 seems to be that it is for the Central Government to determine if any difficulty of the nature indicated in the section has arisen and then to make such order, or give such direction, as appears to it to be necessary to remove the difficulty.
Parliament has left the matter to the executive; but that does not make the notification of 1956 bad.
In Pandit Banarsi Das Bhanot vs The State of Madhya Pradesh & Ors.
(1) we said at page 435: " Now, the authorities are clear that it is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods and the like ".
We are, therefore, of the view that the notification of 1956, was validly made under section 12 and is not ultra vires the powers conferred on the Central Government by that section.
The second question is does the notification apply (1) ; 328 to the assessment in the present case, which is an assessment for the year 1951 52 ? The notification was made in 1956 and it added an Explanation to paragraph 2 of the Removal of Difficulties Order, 1950.
It says that a particular expression occurring in that paragraph means and shall be deemed always to have meant the aggregate allowance for depreciation taken into account in computing the written down value etc., under any law of a Part B State.
The argument on behalf of the respondent is that the law which governs an assessment for the assessment year 1951 52 is the law in force at the time when the Finance Act, 1951, came into force; accordingly, so the argument proceeds, paragraph 2 of the Removal of Difficulties Order, 1950, as it stood on April 28, 1951, when the Finance Act, 1951, came into force, will apply in the present case.
We consider this argument to be unsound.
The Explanation, though added in 1956, explains the meaning of paragraph 2 of the Removal of Difficulties Order, 1950 and says in express terms that the paragraph shall be deemed always to have had that meaning.
Section 12 by the very nature of its intent and purpose confers on the Central Government power to make an order to remove a difficulty which has already arisen, and the power to re.
move the difficulty must necessarily include the power to remove the difficulty from the time it arose.
The Central Government has, therefore, the power to make an order or give a direction so as to remove the difficulty from the very beginning, and that is what the notification of 1956 does.
It applies to the assessment of 1951 52 indeed it applies to all assessments made under the Indian Income tax Act in which paragraph 2 of the Removal of Difficulties Order, 1950, operates.
The last challenge to the validity of the notification of 1956 is that it contravenes article 14 of the Constitution, because it discriminates between different classes of tax payers.
Learned Counsel for the respondent has asked us to consider the cases of assessees in three different areas which subsequently come in a Part B State: in one area there was no law relating to 329 income tax; in, the second there was a law relating to income tax under which written down value was computed on the basis of depreciation actually allowed year after year, while in the third the written down value was computed in the manner provided under the Hyderabad Income tax Act; it is pointed out that on the extension of the Indian Income tax Act (read with paragraph 2 of the Removal of Difficulties Order, 1950 and the Explanation) to those areas, the assessee in the first area will get depreciation allowance on the actual cost; in the second area he will get such allowance on the basis of actual cost less depreciation actually allowed; and in the third area he will get such allowance on the actual cost less depreciation taken into account.
It is contended that this resultant discrimination is arbitrary and without any rational justification, We think that learned Counsel for the respondent has ignored one essential consideration which clearly vitiates his argument.
In the matter of depreciation allowance, the assessee in the three areas in the example given by him do not stand on the same footing; they are not situated alike so as to be entitled to be treated alike.
It is obvious that an assessee from an area where there was no income tax law at all can never say that in the matter of depreciation allowance as respects buildings, machinery, plant etc., he is on a par with a person in an area where there was a law relating to income tax allowing depreciation on such buildings, machinery, plant etc.
The same would be the position with regard to areas where the previous law as to depreciation was different.
Indeed, to treat all these persons alike would be tantamount to unequal treatment.
In our view, the notification of 1956 creates no unequal treatment of persons in a like situation ; it applies to all who are in a like situation, namely, all those to whom paragraph 2 of the Removal of Difficulties Order, 1950, applies.
We consider that the challenge to the notification based on article 14 is wholly unsubstantial.
It has not been disputed before us that a change in 42 330 law validly made and applicable to a case pending in appeal must be considered and given effect to by the Appellate Court.
The conclusion we have reached is that the notification of 1956 was validly made and applies to the present case.
In view of this conclusion we have considered it unnecessary to examine the notification of 1953 or the reasons for which the High Court held that notification to be bad.
For the reasons given above, we allow this appeal and set aside the judgment and order of the High Court dated February 16, 1954.
The question referred to the High Court is answered in favour of the appellant.
The appellant has succeeded by reason of the notification of 1956 and taking that circumstance into consideration, we direct that there will be no order for costs for the hearing in this Court.
Appeal allowed.
| IN-Abs | Prior to January 26, 1950, when the erstwhile State of Hyderabad merged in the Union of India and became a Part B State the respondent company was assessed to income tax under the Hyderabad Income tax Act, by which depreciation allowance was given to it on the basis of the written down value of its assets, such as buildings, machinery, plants, etc., in accordance with cl.
(C) of section 12(5) of that Act, which provided that in the case of assets acquired before the previous year and before the commencement of the Act, the written down value would be the actual cost to the assessee less (1) depreciation at the rates applicable to the assets calculated on the actual costs for the first year since acquisition and for the next year on the actual cost diminished by the depreciation allowance for one year and so on, for each year upto the commencement of that Act, and, (ii) depreciation actually allowed to the assessee on such assets for each financial year after the commencement of the Act.
After the merger of Hyderabad with the Union of India, by sections 3 and 13 of the Finance Act, 950, the taxation laws in force in the State were repealed and the Indian Income tax Act, 1922, was extended to that area; and in exercise of the powers conferred by section 12 of the Finance Act, 1950, the Central Government issued a notification dated December 2, 1950, called the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950.
Paragraph 2 of the Order provided that " in making any assessment under the Indian Income tax A ct, 1922, all depreciation actually allowed under any laws or rules of a Part B State. shall be taken into account in computing the aggregate depreciation allowance referred to in proviso (c) to section 10(2)(vi) and the written down value under section 10(5)(b) of the said Act ".
For the assessment year 1951 52 the respondent was assessed for the first time under the Indian Income tax Act, and basing its claim on para.
2 of the aforesaid Order it asked for 319 the value thereof at their inception and deducting therefrom such depreciation as was allowed for the three assessment years in which it was assessed under the Hyderabad Income tax Act.
7 By order dated November 30, 1951, the Income tax Officer disallowed the respondent 's claim on the ground that it was against the principle inherent in granting depreciation allowance which must decrease from year to year.
The matter was taken up to the Supreme Court and while it was pending there, on May 8, 1956, the Central Government issued a notification in exercise of its powers conferred on it by section 12 of the Finance Act, 1950, whereby an explanation was added to the aforesaid para.
2 as follows: "For the purpose of this paragraph, the expression "all depreciation actually allowed under any laws or rules of a Part B State " means and shall be deemed to have always meant the aggregate allowance for depreciation taken into account in computing the written down value under any laws or rules of a Part B State or carried forward under the said laws or rules.
" The respondent challenged the validity of the notification of 1956 and also its applicability to the present case on the grounds (1) that it was ultra vires the powers conferred on the Central Government by section 12 of the Finance Act, 1950, (2) that it contravened article 14 of the Constitution, and (3) that, in any case, it could have no retrospective effect.
Held : (1) that the true scope and effect of section 12 was that it was for the Central Government to determine if any difficulty of the nature indicated in the section had arisen and then to make such order, or give such direction, as appeared to it to be necessary to remove the difficulty, the legislature having left the matter to the executive.
Pandit Banarsi Das Bhanot v The State of Madhya Pradesh and Others, ; , relied on.
In the present case, a difficulty had arisen, because if depreciation actually allowed under the Hyderabad Income tax Act was taken into account in computing the aggregate depre ciation allowance and the written down value, an anomalous result would follow, namely, depreciation allowance to be allowed to the assessee in the accounting year under the Indian Income tax Act would be more than what was allowed in previous years under the Hyderabad Income tax Act.
Consequently, the Central Government was within its power under section 12 in making the notification dated May 8, 1956.
(2) that the notification of 1956 applied to all those to whom para.
2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was applicable and created no unequal treatment of persons in the like situation.
Accordingly, the notification did not contravene article 14 of the Constitution.
(3) that the Central Government had the power under section 12 of the Finance Act, 1950, to make an order or give a direction so as to remove difficulties which arose in the very beginning 320 and, therefore, the notification, though added in 1956, was valid and was applicable to the assessment of 1951 52.
|
Appeal No. 429 of 1959.
Appeal by special leave from the judgment and order dated December 6, 1957 of the former Bombay Sales Tax Tribunal in Appeal No.6 of 1956.
C. K. Daphtary, Solicitor General of India, H. R. Khanna and R. H. Dhebar, for the appellant.
N. A. Palkhivala, section P. Mehta, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the respondents.
November 15.
The Judgment of the Court was delivered by HIDAYATULLAH, J.
The State of Bombay has appealed to this Court with special leave, against an order of the Sales Tax Tribunal, Bombay, dated December 6, 1957, by which the Tribunal allowing the appeal before it, set aside an order of the Collector of Sales Tax passed under section 27 of the Bombay Sales Tax Act, 1953.
The respondents, Ratilal Vadilal & Bros., are commission agents doing business as clearing and transport contractors.
On June 25, 1954, they applied to the Collector of Sales Tax, Bombay, under sections 27(a), (b) and (c) of the Act describing the nature of their business, citing one instance thereof, for determination of the question whether they could be called "dealers " within the Act.
The Collector by his order held that they were dealers, and were required to register themselves under the Act.
On appeal, the Tribunal held otherwise, and hence this appeal by the State of Bombay.
369 It appears that no action was taken to ask for 'a reference to the High Court of Bombay under section 34(1) read with sections 30(1) and (2) of the Act.
We have frequently noticed that all the remedies which are open to an appellant are not first exhausted before moving this Court.
Ordinarily, this Court will not allow the High Court to be bypassed in this manner, and the proper course for an appellant is to exhaust all his remedies before invoking the jurisdiction of this Court under article 136.
In the present case, however, the matter is simple, and the learned counsel for the respondent requested us to determine the question, stating that his client who was a small trader and who made the application for the clarification of the law, would be dragged through Courts once again, if we were to decide this appeal on this short point.
In view of this, though we decide this appeal, we must not be held to lay down a cursus curiae for this Court.
The matter relates to a time after the Colliery Control Order, 1945, came into force.
Under that Order, no person could acquire or purchase coal from a colliery except under authority of the Central Government for which purpose he had to obtain a priority certificate from the State Coal Controller.
Under the scheme of the Order, del credere agents were allowed to act and to charge a commission of one rupee per ton of coal.
One Nanalal Karsandas, a brick manufacturer, was allotted a priority certificate in respect of 22 tons of coal on June 17, 1954.
He dealt with M/s. S.C. Rungta Colliery, Burhar, through the respondents.
The consignment was in the name of Karsandas, but the bill was sent by the Colliery to the respondents, and the respondents, in their turn, made out a bill in which they charged, in addition to the amount of the bill of the Colliery, a sum of Rs. 22 as their commission.
The liability to pay the Colliery rested upon the respondents, but they claimed to be acting as mere "middlemen " between the Colliery and Karsandas.
The respondents stated that their business was along these lines with other constituents also, and asked the Collector to determine whether they could be described as "dealers" within the Act, and required registration.
370 "Dealer " in the Bombay Sales Tax Act, 1953, is defined as follows: "dealer " means any person who carries on the business of selling goods in the State of Bombay, whether for commission, remuneration or otherwise. " (Explanation omitted).
It would appear that to be a dealer, the person must carry on the business of selling goods in the State of Bombay.
The short question in this case, therefore, was whether the respondents were carrying on such a business in respect of coal.
The scheme of the Control Order shows that no sale of coal could take place except to a person holding a certificate.
A sale otherwise was in contravention of the Control Order.
The certificate which has been produced in the case, though made out in the name of the respondents, shows the consumer as the consignee.
It is thus plain that there was no sale by the Colliery to the respondents, but directly to Karsan das, though through the agency of the respondents.
The respondents also, when they made out the bill to Karsandas, mentioned that he was the consignee, and that they were only charging their " middlemen " commission.
In these circumstances, it is difficult to hold that the Colliery sold coal to the respondents, and that they, in turn, sold it to Karsandas.
There were no two sales involved; there was only one sale, and that was by the Colliery to the consumer.
The respondents never became owners by purchase from the Colliery, because the Colliery would not have sold coal to them, nor could they have bought it unless they had obtained a certificate.
The position of the respondents was merely that of agents, arranging the sale to a disclosed purchaser, though guaranteeing payment to the Colliery on behalf of their principal.
In view of what we have said, no business of selling coal was disclosed in the instance cited before the Collector, and the order of the Tribunal was correct on the facts placed before it.
In the result, the appeal fails and will be dismissed with costs.
Appeal dismissed.
| IN-Abs | One Nanalal Karsandas, who was a brick manufacturer, held a priority certificate for purchasing coal under the Colliery Control Order and purchased a certain quantity of coal from M/s. section G. Rungta Colliery through the respondents who were commission agents.
The respondents applied to the Collector for determining whether they could be described as "dealers" under the Bombay Sales Tax Act, 1953.
The Collector held that they were dealers but the Sales Tax Tribunal held otherwise.
No step was taken thereafter for a reference to the High 368 Court under sections 34(1) and 30(1) of the Act.
On appeal by the State of Bombay by special leave, Held, that the respondents could not be described as "dealers" under the Act as the nature of their business as disclosed by them did not show that they were carrying on the business of selling goods in the State of Bombay but were only commission agents arranging sales to other persons.
The proper course for the appellant was to move the High Court and exhaust all his remedies before invoking the jurisdiction of this court under article 136 of the Constitution.
|
Appeal No. 761 of 1957.
Appeal by special leave from the judgment and order dated February 24, 1955, of the former Bombay High Court in I.T.R. 48/X of 1954.
Hardayal Hardy and D. Gupta, for the appellant.
N. A. Palkhivala and I. N. Shroff, for the respondent.
November 17.
The Judgment of the Court was delivered by SHAH, J.
The Income Tax Appellate Tribunal, Bombay Bench "A", referred under section 66(1) of the Indian Income Tax Act, 1922 hereinafter referred to as the Act the following question: "Whether the sum of Rs. 15,608 should have been included in the assessee Company 's "profit" for the purpose of determining whether the payment of a larger dividend than that declared by it would be unreasonable ?" The High Court answered the question in the negative.
Against the order of the High Court, with special leave under article 136 of the Constitution, this appeal is preferred.
M/s. Bipinchandra Maganlal & Co., Ltd. hereinafter referred to as the Company is registered under the Indian Companies Act, The Company is one in 495 which the public are not substantially interested within the meaning of section 23A Explanation of the Act.
Its paid up capital at the material time was Rs. 20,800 made up as follows: 20 shares of Rs. 50 each fully paid up and 1980 shares of Rs. 50 each, Rs. 10 being paid up per share.
In December 1945, the Company purchased certain machinery for Rs. 89,000 and sold it sometime in March, 1947, for the price for which it was originally purchased.
In the books of account of the Company, the written down value of the machinery in the year of account 1946 47 (April 1, 1946 to March 31, 1947) was Rs. 73,392.
The trading profits of the Company as disclosed by its books of account for the year 194647 were Rs. 33,245.
At the General Meeting held on October 21, 1947.
the Company declared a dividend of Rs. 12,000 for the year of account.
In assessing tax for the year of assessment 1947 48, the Income Tax Officer computed the assessable income of the Company for the year of account 1946 47 at Rs. 48,761 after adding back to the profit of Rs. 33,245 returned by the Company, Rs. 15,608 realised in excess of the written down value of the machinery sold in March, 1947.
The Income Tax Officer passed an order under section 23A of the Act that Rs. 15,429 (being the undistributed portion of the assessable income of the Company as reduced by taxes payable) shall be deemed to have been distributed as dividend amongst the shareholders as at the date of the General Meeting, and the proportionate share of each shareholder shall be included in his total income.
Appeals preferred against his order to the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal proved unsuccessful, but the Appellate Tribunal at the instance of the Company referred the question set out hereinbefore to the High Court at Bombay under a. 66(1) of the Act.
Section 23A(1) of the Act as it stood at the relevant time (in so far as it is material) was as follows: "Where the Income Tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company upto the end 496 of the sixth month after its accounts for that previous year are laid before the company in general meeting are less than 60% of the assessable income of the company of that previous year, as reduced by the amount of income tax and super tax payable by the company in respect thereof, he shall, unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profit made, the payment of a dividend or a larger dividend than that declared would be unreasonable, make with the previous approval of the Inspecting Assistant Commissioner an order in writing that the undistributed portion of the assessable income of the company of that previous year as computed for income tax purposes and reduced by the amount of income tax and super tax payable by the company in respect thereof shall be deemed to have been distributed as dividends amongst the share holders as at the date of the general meeting aforesaid. . .
Clearly, by section 23A, the Income Tax Officer is required to pass an order directing that the undistributed portion of the assessable income of any company (in which the public are not substantially interested) shall be deemed to have been distributed as dividends amongst the shareholders if he is satisfied that (i) the company has not distributed 60% of its assessable income of the previous year reduced by the Income tax and super tax payable, (ii) unless payment of a dividend, or a larger dividend than that declared, having regard to (a) losses incurred by the company in the earlier years or (b) the smallness of the profits made in the previous year, be unreasonable.
The total assessable income of the Company for the year of account was Rs. 48,761 and the tax payable thereon was Rs. 21,332: 60% of Rs. 27,249 (assessable income reduced by the income tax and super tax due) exceeded the dividend declared by Rs. 4,458.
The first condition to the exercise of jurisdiction by the Income Tax Officer under section 23A was therefore indisputably fulfilled.
But the Income Tax Officer had 497 still to be satisfied whether having regard to the smallness of the profit (there is no evidence in this case that loss was incurred by the Company in earlier years), it would be unreasonable to distribute dividend larger than the dividend actually declared.
The Income Tax Officer did not expressly consider this question: he rested his decision on the rejection of the contention raised by the Company that the difference between the price of the machinery realised by sale and the written down value in the year of account could not be taken into account in passing an order under section 23A.
He, it seems, assumed that if that difference be taken into account, distribution of larger dividend was not unreasonable, and the Tribunal proceeded upon the footing that the assumption was correctly made.
Counsel for the Revenue submits in support of the appeal that the expression " smallness of profit " means no more than smallness of the assessable income, and that in any event, in the computation of profits, the amount realised by sale of the machinery in the year of account in excess of its written down value was liable to be included in considering whether the condition relating to "smallness of profit" was fulfilled.
At the material time, section 2(6C) of the Act defined "income" as inclusive amongst others of any sum deemed to be profits under the second proviso to cl.
(vii) of sub section
(2) of section 10.
By section 10, in the computation of profits or gains of an assessee under the head "Profits and gains of business, profession or vocation" carried on by him, the amount by which the written down value of any building, machinery or plant which has been sold, discarded or demolished.
or destroyed exceeds the amount for which the building, machinery or plant is actually sold or its scrap value is to be allowed as a deduction.
This allowance is however subject to an exception prescribed by the second proviso to el.
(vii) sub section
(2) of section 10 that where the amount for which any building, machinery or plant is sold exceeds the written down value, so much of the 63 498 excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profit of the previous year in which the sale took place.
In computing the profits and gains of the Company under section 10 of the Act, for the purpose of assessing the taxable income, the difference between the written down value of the machinery in the year of account and the price at which it was sold (the price not being in excess of the original cost) was to be deemed to be profit in the year of account, and being such profit, it was liable to be included in the assessable income in the year of assessment.
But this is the result of a fiction introduced by the Act.
What in truth is a capital return is by a fiction regarded for the purposes of the Act as income.
Because this difference between the price realized and the written.
down value is made chargeable to income tax, its character is not altered, and it is not converted into the assessee 's business profits.
It does not reach the assessee as his profits: it reaches him as part of the capital invested by him, the fiction created by section 10(2)(vii) second proviso notwithstanding.
The reason for introducing this fiction appears to be this.
Where in the previous years, by the depreciation allowance, the taxable income is reduced for those years and ultimately the asset fetches on sale an amount exceeding the written down value, i.e., the original cost less depreciation allowance, the Revenue is justified in taking back what it had allowed in recoupment against wear and tear, because in fact the depreciation did not result.
But the reason of the rule does not alter the real character of the receipt.
Again, it is the accumulated depreciation over a number of years which is regarded as income of the year in which the asset is sold.
The difference between the written down value of an asset and the price realized by sale thereof though not profit earned in the conduct of the business of the assessee is nationally regarded as profit in the year in which the asset is sold, for the purpose of taking back what had been allowed in the earlier years.
A company normally distributes dividends out of its business profits and not out of its assessable income.
499 There is no definable relation between the assessable income and the profits of a business concern in a commercial sense.
Computation of income for purposes of assessment of income tax is based on a variety of artificial rules and takes into account several fictional receipts, deductions and allowances.
In considering whether a larger distribution of dividend would be unreasonable, the source from which the dividend is to be distributed and not the assessable income has to be taken into account.
The Legislature has not provided in section 23A that in considering whether an order directing that the undistributed profits shall be deemed to be distributed, the smallness of the assessable income shall be taken into account.
The test whether it would be unreasonable to distribute a larger dividend has to be adjudged in the light of the profit of the year in question.
Even though the assessable income of a company may be large, the commercial profits may be so small that compelling distribution of the difference between the balance of the assessable income reduced by the taxes payable and the amount distributed as dividend would require the company to fall back either upon its reserves or upon its capital which in law it cannot do.
For instance, in the case of companies receiving income from property, even though tax is levied under section 9 of the Act on the bona fide annual value of the property, the actual receipts may be considerably less than the annual value and if the test of reasonableness is the extent of the assessable income and not the commercial profit, there may frequently arise cases in which companies may have to sell off their income producing assets.
The Legislature has deliberately used the expression "smallness of profit" and not "smallness of assessable income" and there is nothing in the context in which the expression "smallness of profit" occurs which justifies equation of the expression "profit" with "assessable income".
Smallness of the profit in section 23A has to be adjudged in the light of commercial principles and not in the light of total receipts, actual or fictional.
This view appears to have been taken by the High Courts in India without any dissentient 500 opinion, see Sir Kasturchand Ltd. vs Commissioner of Income Tax, Bombay City (1), Ezra Proprietary Estates Ltd. vs Commissioner of Income Tax, West Bengal (2) and Commissioner of income Tax, Bombay City vs F. L. Smith & Co., (Bombay) Ltd. (3).
By the fiction in section 10(2)(vii) second proviso, read with section 2(6C), what is really not income is, for the purpose of computation of assessable income, made taxable income: but on that account, it does not become commercial profit, and if it is not commercial profit, it is not liable to be taken into account in assessing whether in view of the smallness of profits a larger dividend would be unreasonable.
In our judgment, the High Court was right in holding that the amount of Rs. 15,608 was not liable to be taken into account in considering whether having regard to the smallness of the profit made by the Company, it would be unreasonable to declare a larger dividend.
The appeal therefore fails and is dismissed with costs.
Appeal dismissed.
(1) (1940) XVII I.T.R. 493.
(2) (1950) XVIII I.T.R. 762.
(3) (1959) XXXV I.T.R. 183.
| IN-Abs | The respondent company purchased certain machinery for Rs. 89,000 and sold it for the same value, but in the books of account the written down value of the machinery was shown in the year of account as Rs. 73,392.
The Income Tax Officer in computing the assessable income of the company added the difference, i.e. Rs. 15,608, between the actual value and the written down value to the profit of the company.
The Income Tax Officer also passed an order under section 23A of the Income Tax Act, and directed that the undistributed portion of the assessable income, shall be deemed to have been distributed amongst the shareholders as dividend.
Appeals against the order of the Income tax Officer proved unsuccessful and the Appellate Tribunal referred the following question to the High Court under section 66(1): "Whether the sum of Rs. 15,608 should have been included in the assessee company 's "profit" for the purpose of deter mining whether the payment of a larger dividend than that declared by it would be unreasonable.
" The High Court answered the question in the negative.
On appeal by special leave, Held, that the view taken by the High Court was correct.
494 By the fiction in section 10(2)(Vii) second proviso, read with s.2(6C), what is really not income is, for the purpose of computation of assessable income, made taxable income: but on that account, it does not become commercial profit, and if it is not commercial profit, it is not liable to be taken into account in assessing whether in view of the smallness of profits a larger dividend would be unreasonable.
"Smallness of profit" should not be equated with "smallness of assessable income" but should be determined in accordance with commercial principles.
Sir Kasturchand Ltd. vs Commissioner of Income tax, Bombay City, (1949) XVII I.T.R. 493, Ezra Proprietary Estates Ltd. vs Commissioner of Income tax, West Bengal, (1950) XVIII I.T.R. 762 and Commissioner of Income tax Bombay City vs F. L. Smith & Co. (Bombay) Ltd., (1959) XXXV I.T.R. 183, referred to.
|
Appeal No. 761 of 1957.
Appeal by special leave from the judgment and order dated February 24, 1955, of the former Bombay High Court in I.T.R. 48/X of 1954.
Hardayal Hardy and D. Gupta, for the appellant.
N. A. Palkhivala and I. N. Shroff, for the respondent.
November 17.
The Judgment of the Court was delivered by SHAH, J.
The Income Tax Appellate Tribunal, Bombay Bench "A", referred under section 66(1) of the Indian Income Tax Act, 1922 hereinafter referred to as the Act the following question: "Whether the sum of Rs. 15,608 should have been included in the assessee Company 's "profit" for the purpose of determining whether the payment of a larger dividend than that declared by it would be unreasonable ?" The High Court answered the question in the negative.
Against the order of the High Court, with special leave under article 136 of the Constitution, this appeal is preferred.
M/s. Bipinchandra Maganlal & Co., Ltd. hereinafter referred to as the Company is registered under the Indian Companies Act, The Company is one in 495 which the public are not substantially interested within the meaning of section 23A Explanation of the Act.
Its paid up capital at the material time was Rs. 20,800 made up as follows: 20 shares of Rs. 50 each fully paid up and 1980 shares of Rs. 50 each, Rs. 10 being paid up per share.
In December 1945, the Company purchased certain machinery for Rs. 89,000 and sold it sometime in March, 1947, for the price for which it was originally purchased.
In the books of account of the Company, the written down value of the machinery in the year of account 1946 47 (April 1, 1946 to March 31, 1947) was Rs. 73,392.
The trading profits of the Company as disclosed by its books of account for the year 194647 were Rs. 33,245.
At the General Meeting held on October 21, 1947.
the Company declared a dividend of Rs. 12,000 for the year of account.
In assessing tax for the year of assessment 1947 48, the Income Tax Officer computed the assessable income of the Company for the year of account 1946 47 at Rs. 48,761 after adding back to the profit of Rs. 33,245 returned by the Company, Rs. 15,608 realised in excess of the written down value of the machinery sold in March, 1947.
The Income Tax Officer passed an order under section 23A of the Act that Rs. 15,429 (being the undistributed portion of the assessable income of the Company as reduced by taxes payable) shall be deemed to have been distributed as dividend amongst the shareholders as at the date of the General Meeting, and the proportionate share of each shareholder shall be included in his total income.
Appeals preferred against his order to the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal proved unsuccessful, but the Appellate Tribunal at the instance of the Company referred the question set out hereinbefore to the High Court at Bombay under a. 66(1) of the Act.
Section 23A(1) of the Act as it stood at the relevant time (in so far as it is material) was as follows: "Where the Income Tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company upto the end 496 of the sixth month after its accounts for that previous year are laid before the company in general meeting are less than 60% of the assessable income of the company of that previous year, as reduced by the amount of income tax and super tax payable by the company in respect thereof, he shall, unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profit made, the payment of a dividend or a larger dividend than that declared would be unreasonable, make with the previous approval of the Inspecting Assistant Commissioner an order in writing that the undistributed portion of the assessable income of the company of that previous year as computed for income tax purposes and reduced by the amount of income tax and super tax payable by the company in respect thereof shall be deemed to have been distributed as dividends amongst the share holders as at the date of the general meeting aforesaid. . .
Clearly, by section 23A, the Income Tax Officer is required to pass an order directing that the undistributed portion of the assessable income of any company (in which the public are not substantially interested) shall be deemed to have been distributed as dividends amongst the shareholders if he is satisfied that (i) the company has not distributed 60% of its assessable income of the previous year reduced by the Income tax and super tax payable, (ii) unless payment of a dividend, or a larger dividend than that declared, having regard to (a) losses incurred by the company in the earlier years or (b) the smallness of the profits made in the previous year, be unreasonable.
The total assessable income of the Company for the year of account was Rs. 48,761 and the tax payable thereon was Rs. 21,332: 60% of Rs. 27,249 (assessable income reduced by the income tax and super tax due) exceeded the dividend declared by Rs. 4,458.
The first condition to the exercise of jurisdiction by the Income Tax Officer under section 23A was therefore indisputably fulfilled.
But the Income Tax Officer had 497 still to be satisfied whether having regard to the smallness of the profit (there is no evidence in this case that loss was incurred by the Company in earlier years), it would be unreasonable to distribute dividend larger than the dividend actually declared.
The Income Tax Officer did not expressly consider this question: he rested his decision on the rejection of the contention raised by the Company that the difference between the price of the machinery realised by sale and the written down value in the year of account could not be taken into account in passing an order under section 23A.
He, it seems, assumed that if that difference be taken into account, distribution of larger dividend was not unreasonable, and the Tribunal proceeded upon the footing that the assumption was correctly made.
Counsel for the Revenue submits in support of the appeal that the expression " smallness of profit " means no more than smallness of the assessable income, and that in any event, in the computation of profits, the amount realised by sale of the machinery in the year of account in excess of its written down value was liable to be included in considering whether the condition relating to "smallness of profit" was fulfilled.
At the material time, section 2(6C) of the Act defined "income" as inclusive amongst others of any sum deemed to be profits under the second proviso to cl.
(vii) of sub section
(2) of section 10.
By section 10, in the computation of profits or gains of an assessee under the head "Profits and gains of business, profession or vocation" carried on by him, the amount by which the written down value of any building, machinery or plant which has been sold, discarded or demolished.
or destroyed exceeds the amount for which the building, machinery or plant is actually sold or its scrap value is to be allowed as a deduction.
This allowance is however subject to an exception prescribed by the second proviso to el.
(vii) sub section
(2) of section 10 that where the amount for which any building, machinery or plant is sold exceeds the written down value, so much of the 63 498 excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profit of the previous year in which the sale took place.
In computing the profits and gains of the Company under section 10 of the Act, for the purpose of assessing the taxable income, the difference between the written down value of the machinery in the year of account and the price at which it was sold (the price not being in excess of the original cost) was to be deemed to be profit in the year of account, and being such profit, it was liable to be included in the assessable income in the year of assessment.
But this is the result of a fiction introduced by the Act.
What in truth is a capital return is by a fiction regarded for the purposes of the Act as income.
Because this difference between the price realized and the written.
down value is made chargeable to income tax, its character is not altered, and it is not converted into the assessee 's business profits.
It does not reach the assessee as his profits: it reaches him as part of the capital invested by him, the fiction created by section 10(2)(vii) second proviso notwithstanding.
The reason for introducing this fiction appears to be this.
Where in the previous years, by the depreciation allowance, the taxable income is reduced for those years and ultimately the asset fetches on sale an amount exceeding the written down value, i.e., the original cost less depreciation allowance, the Revenue is justified in taking back what it had allowed in recoupment against wear and tear, because in fact the depreciation did not result.
But the reason of the rule does not alter the real character of the receipt.
Again, it is the accumulated depreciation over a number of years which is regarded as income of the year in which the asset is sold.
The difference between the written down value of an asset and the price realized by sale thereof though not profit earned in the conduct of the business of the assessee is nationally regarded as profit in the year in which the asset is sold, for the purpose of taking back what had been allowed in the earlier years.
A company normally distributes dividends out of its business profits and not out of its assessable income.
499 There is no definable relation between the assessable income and the profits of a business concern in a commercial sense.
Computation of income for purposes of assessment of income tax is based on a variety of artificial rules and takes into account several fictional receipts, deductions and allowances.
In considering whether a larger distribution of dividend would be unreasonable, the source from which the dividend is to be distributed and not the assessable income has to be taken into account.
The Legislature has not provided in section 23A that in considering whether an order directing that the undistributed profits shall be deemed to be distributed, the smallness of the assessable income shall be taken into account.
The test whether it would be unreasonable to distribute a larger dividend has to be adjudged in the light of the profit of the year in question.
Even though the assessable income of a company may be large, the commercial profits may be so small that compelling distribution of the difference between the balance of the assessable income reduced by the taxes payable and the amount distributed as dividend would require the company to fall back either upon its reserves or upon its capital which in law it cannot do.
For instance, in the case of companies receiving income from property, even though tax is levied under section 9 of the Act on the bona fide annual value of the property, the actual receipts may be considerably less than the annual value and if the test of reasonableness is the extent of the assessable income and not the commercial profit, there may frequently arise cases in which companies may have to sell off their income producing assets.
The Legislature has deliberately used the expression "smallness of profit" and not "smallness of assessable income" and there is nothing in the context in which the expression "smallness of profit" occurs which justifies equation of the expression "profit" with "assessable income".
Smallness of the profit in section 23A has to be adjudged in the light of commercial principles and not in the light of total receipts, actual or fictional.
This view appears to have been taken by the High Courts in India without any dissentient 500 opinion, see Sir Kasturchand Ltd. vs Commissioner of Income Tax, Bombay City (1), Ezra Proprietary Estates Ltd. vs Commissioner of Income Tax, West Bengal (2) and Commissioner of income Tax, Bombay City vs F. L. Smith & Co., (Bombay) Ltd. (3).
By the fiction in section 10(2)(vii) second proviso, read with section 2(6C), what is really not income is, for the purpose of computation of assessable income, made taxable income: but on that account, it does not become commercial profit, and if it is not commercial profit, it is not liable to be taken into account in assessing whether in view of the smallness of profits a larger dividend would be unreasonable.
In our judgment, the High Court was right in holding that the amount of Rs. 15,608 was not liable to be taken into account in considering whether having regard to the smallness of the profit made by the Company, it would be unreasonable to declare a larger dividend.
The appeal therefore fails and is dismissed with costs.
Appeal dismissed.
(1) (1940) XVII I.T.R. 493.
(2) (1950) XVIII I.T.R. 762.
(3) (1959) XXXV I.T.R. 183.
| IN-Abs | The respondent company purchased certain machinery for Rs. 89,000 and sold it for the same value, but in the books of account the written down value of the machinery was shown in the year of account as Rs. 73,392.
The Income Tax Officer in computing the assessable income of the company added the difference, i.e. Rs. 15,608, between the actual value and the written down value to the profit of the company.
The Income Tax Officer also passed an order under section 23A of the Income Tax Act, and directed that the undistributed portion of the assessable income, shall be deemed to have been distributed amongst the shareholders as dividend.
Appeals against the order of the Income tax Officer proved unsuccessful and the Appellate Tribunal referred the following question to the High Court under section 66(1): "Whether the sum of Rs. 15,608 should have been included in the assessee company 's "profit" for the purpose of deter mining whether the payment of a larger dividend than that declared by it would be unreasonable.
" The High Court answered the question in the negative.
On appeal by special leave, Held, that the view taken by the High Court was correct.
494 By the fiction in section 10(2)(Vii) second proviso, read with s.2(6C), what is really not income is, for the purpose of computation of assessable income, made taxable income: but on that account, it does not become commercial profit, and if it is not commercial profit, it is not liable to be taken into account in assessing whether in view of the smallness of profits a larger dividend would be unreasonable.
"Smallness of profit" should not be equated with "smallness of assessable income" but should be determined in accordance with commercial principles.
Sir Kasturchand Ltd. vs Commissioner of Income tax, Bombay City, (1949) XVII I.T.R. 493, Ezra Proprietary Estates Ltd. vs Commissioner of Income tax, West Bengal, (1950) XVIII I.T.R. 762 and Commissioner of Income tax Bombay City vs F. L. Smith & Co. (Bombay) Ltd., (1959) XXXV I.T.R. 183, referred to.
|
Appeal No. 53 of 1958.
Appeal by special leave from the Decision dated February 28, 1957, of the Labour Appellate Tribunal, Bombay, in Appeal No. 111 160 of 1956.
section P. Varma, for the appellants.
360 L. K. Jha, Janardan Sharma, R. C. Prasad and Maqbool Ahmad Khan, for the respondents.
November 14.
The Judgment of the Court was delivered by GAJENDRAGADKAR, J.
This appeal by special leave arises from an industrial dispute between the appellant Messrs. Swadeshi Cotton Mills and the respondents, its employees, and the short preliminary question which is raised for our decision is whether an order should not be passed in this appeal in terms of the compromise agreement alleged to have been reached between the appellant and the respondents.
It appears that on December 28, 1955, an industrial dispute between the parties was referred by the Government of Uttar Pradesh to the Industrial Tribunal, U. P., Allahabad, for adjudication under sections 3, 4 and 8 of the U. P. (U.P. Act XXVIII of 1947) and in pursuance of the provisions of cl. 11 of G. O. No. U 464(LL)/XXXVI B 257 (LL)/1954 issued on July 14, 1954.
The dispute thus referred was whether the existing rates of wages of jobbers mentioned in the annexure employed in the weaving department of the appellant need any revision; if so, with what details and from what date ? The Tribunal tried this issue and came to the conclusion that no case for revision had been made out by the respondents.
Against this decision of the Tribunal the respondents preferred an appeal before the Labour Appellate Tribunal.
Their appeal succeeded and the Appellate Tribunal directed that the award of the original Tribunal should be set aside, and that the appellant " shall introduce from the date of reference a uniform rate of two annas in both the old and new sheds irrespective of the number of looms assigned to the line jobbers ".
It would be noticed that as a result of this decision the existing rates have been revised and the revision has been ordered to take effect retrospectively from the date of reference.
It is against this decision of the Labour Appellate Tribunal that the appellant has preferred the present appeal by special leave.
361 Pending this appeal in this Court the appellant purported to enter into a compromise with the respondents and the terms of the compromise were reduced to writing, and in pursuance of the said compromise an application was made to this Court on February 26,1958, signed by Mr. Bagla, on behalf of the appellant in his capacity as a Director of the appellant, and Mr. Maqbool Ahmad Khan, for the respondents, in his capacity as the General Secretary of the Suti Mill Mazdoor Sabha, Kanpur.
This application set out the material terms of the compromise.
One of the terms of the compromise is that the revised rate should take effect not from December 28, 1955, which is the date of reference but from July 1, 1957.
Certain other modifications have also been made in the decision under appeal.
Before the appeal could be placed on the Board for passing orders in terms of this compromise an application was made on behalf of some of the respondents alleging that the General Secretary Mr. Khan had no authority or power to enter into any compromise as a representative of the respondents, and that the compromise alleged to have been entered into by him with the appellant was not acceptable to the respondents.
In support of this case the application referred to a resolution passed by the General Council of the Mazdoor Sabha whereby it was declared that no office bearer could conclude an agreement with an employer about an industrial dispute without the consent of the General Council, and reliance was also placed on the relevant provisions in the constitution of the Mazdoor Sabha.
Thereafter the petition for compromise was placed before this Court for hearing on April 10, 1960, and the Court directed that the application for recording compromise as well as the appeal itself should both be placed together for hearing before the Court as soon as the parties file their respective statements of the case.
After the statements were filed the appeal and the petition were placed before this Court on May 5, 1960, and the Court by an interlocutory judgment 46 362 sent two issues to the Tribunal with a direction that the Tribunal should hear the parties on those issues and make its findings thereon.
The two issues were: (1) Has the compromise set up by the appellant taken place between the parties; (2) If yes, is the compromise valid ? In pursuance of this order the Tribunal has recorded evidence, heard the parties and made its findings.
It has found that the compromise in fact has taken place as alleged in the petition made before this Court in that behalf, and that the said compromise is valid.
In dealing with the first question of fact the Tribunal has considered the evidence exhaustively in the light of the background of the dispute between the parties; it has found that negotiations went on between the parties for a fairly long time during which period the parties discussed the pros and cons of the compromise, that during these negotiations Mr. Khan was watchful of the interests of the respondents, that the compromise had been approved by the workmen concerned, that on the whole it is to their advantage and does not at all militate against the accepted principles of industrial adjudication, and what is more it has been acted upon and has not remained a mere paper transaction.
It has explained that the opposition to the compromise proceeded sub stantially from the dispute between Mr. Khan, the Secretary, and Mr. Bajpai, the President, and the Tribunal felt no doubt that the compromise was the result of bona fide attempt on the part of both the parties to settle the dispute amicably in order to create goodwill and co operation amongst the employer and the employees.
On the question of law raised by the second issue the Tribunal has held that the compromise is perfectly valid.
It has considered the relevant provisions of the constitution of this Sabha, the practice prevailing in regard to such compromises and to several agreements of compromise entered into consistently with the said practice.
It was urged before the Tribunal that the compromise is invalid under section 6 B of the U.P. , as well as section 2(vi).
(c) of the (Act 4 of 1936).
363 These contentions have been rejected by the Tribunal.
In the result the findings recorded on both the issues are in favour of the compromise.
After these findings were received in this Court, the ' appeal and the compromise petition have now come before us for final disposal.
The finding of fact recorded by the Tribunal on the first issue has not been and cannot be challenged before us.
It must( therefore be taken to have been established that at the relevant time Mr. Khan was the General Secretary of the respondents Sabha, and as such was entitled to represent them and did represent them during the course of the present adjudication proceedings, and that the compromise reached between him and the appellant is the result of mutual discussions carried on for some time and its terms on the whole are beneficial to the respondents.
The practice prevailing in this Sabha and a large number of precedents which are consistent with the said practice indicate clearly that the Secretary of the Union who represents the workmen in industrial disputes has always been authorised and has exercised his authority to settle such disputes when it was thought reasonable and proper to do so.
As we have often indicated it is always desirable that industrial disputes should be amicably settled because such settlement conduces to happy industrial relationship and encourages co operation between the parties.
That is why when industrial disputes are brought before this Court under article 136 of the Constitution this Court generally appreciates attempts made to settle disputes amicably, and in proper cases encourages such settlements.
Mr. Jha, for the respondents, however, contends that though amicable settlement of industrial disputes may otherwise be desirable, in law such settlement or compromise is illegal.
If we come to the conclusion that compromise of industrial disputes pending an appeal is prohibited by law, or is otherwise inconsistent with such provisions it may be necessary to hold that the present compromise is bad in law however much amicable settlement of industrial disputes may otherwise be desirable.
Therefore the question which arises for our 364 decision on the present compromise petition is: Is the contention raised by Mr. Jha correct that the compromise is invalid in law ? The first point urged by Mr. Jha in support of this argument is that the present compromise is prohibited by a. 23 of the .
This Act has been passed to regulate the payment of wages to certain classes of persons employed in industry, and there is no doubt that the wages as revised by the Labour Appellate Tribunal in the present case would constitute wages under section 2 (vi) of this Act.
Section 23 provides that any contract or agreement, whether made before or after the commencement of this Act, whereby an employed person relinquishes any right conferred by this Act shall be null and void in so far as it purports to deprive him of such right.
The relevant provisions of this Act require the fixation of wage periods, provide for the time of payment of wages, authorises certain deductions, and permits the imposition of fines only subject to the conditions specified in that behalf.
Section 15 of the Act provides for the determination of claims arising out of deduction of wages or delay in payment of wages and penalty for malicious or vexatious claims.
Section 16 prescribes for the making of an application in which such claims can be set up; and a. 18 provides for the powers for the authorities appointed under the Act.
Mr. Jha contends that the revised wage structure directed by the Labour Appellate Tribunal entitles the respondents to claim the respective amounts there indicated as their wages, and the effect of the impugned compromise is that the respondents are relinquishing a part of their right in that behalf.
Mr. Jha con.
tends that in giving up their claim for the retrospec tive operation of the decision of the Labour Appellate Tribunal for a substantial part of the period the res pondents are required to contract themselves out of their legal rights conferred by the award and there.
fore referable to this Act, and that makes the compromise invalid.
This argument is misconceived because it fallaciously assumes that the decision under appeal has become final and that the rights accruing under 365 the said decision would not be and cannot be affected by any compromise.
The most significant fact to remember in this connection is that the decision on( which the alleged rights are based is itself subject to an appeal before this Court, and in that sense it is not a final decision at all; it is liable to be reversed or modified, and that being so the rights claimable under the said decision are also liable to be defeated, or materially affected.
In such a case the industrial ' dispute would undoubtedly be pending before this Court, and it would be idle for Mr. Jha to contend that an attempt to settle such a dispute and not to invite a decision of this Court contravenes the provisions of a. 23 of this Act.
Just as an industrial dispute could have been settled between the parties either before it was referred for adjudication to the Industrial Tribunal, or after it was referred and before the award was pronounced by the Tribunal, so would it be open to the parties to settle the dispute so long as it was pending either before the Labour Appellate Tribunal or before this Court.
The provisions of section 23 of this Act postulate certain definite rights which are not likely or liable to be modified or reversed in any pending judicial proceedings, and since this factor is absent in cases where an appeal is pending before this Court it would not be reasonable to rely on the said provisions and contend that they in substance prevent or prohibit amicable settlement of disputes.
The other argument urged against the validity of the compromise is based on the provisions of section 6 C of the U. P.
This section corresponds substantially to section 19 of the XIV of 1947.
It provides, inter alia, that an award shall in the first instance remain in operation for the period of one year or such shorter period as may be specified therein, and gives the State Government power to extend the period of operation from time to time if it thinks fit.
It also provides that the State Government, either on its own motion or on the application of any party bound by the award, shorten the period of its operation, if it is shown that there has been a material change in the circumstances 366 on which the award was based.
The argument is that any modification in the award can only be made by adopting the procedure prescribed by section 6 C.
In our opinion there is no substance in this argument.
Section 6 C undoubtedly confers upon the State Government certain powers to fix the duration of the operation of the award, but there can be no doubt that the section can have no bearing on the powers of this Court in dealing with an industrial dispute brought before it under article 136 of the Constitution.
The award to which section 6 C refers is an award which has become final in the sense that it is no longer subject to consideration by any Tribunal or Court.
So long as an award is pending before a Tribunal or a Court the jurisdiction of the Tribunal or the Court to deal with it in accordance with law is not affected by section 6 C, and the competence of the parties to settle their dispute pending before the Tribunal or the Court is also not affected or impaired by the said section.
In other words, what we have said about the argument based on the provisions of section 23 of the applies with equal force to the present argument as well.
Then it is contended that the impugned compromise is a settlement within the meaning of section 2(t) of the U. P. Act and as such it can be executed only in the manner prescribed by the Act.
Section 2(t) defines a settlement as one which is arrived at in the course of conciliation proceedings and as including a written agreement between the employer and the workmen arrived at otherwise than in the course of conciliation proceedings when such an agreement has been signed between the parties thereto in such manner as may be prescribed and a copy thereof has been sent to the State Government and the conciliation officer.
Rule 5(1) of the U. P. Industrial Disputes Rules, 1957, prescribes the procedure for recording a settlement as defined by section 2(t).
It is true that this procedure has not been followed, but it is difficult to understand how section 2(t) or the procedure prescribed by r. 5(1) can have any application to a compromise agreement which has been entered into between the parties pending the 367 appeal in this Court.
The compromise in question is intended to be filed in this Court for the purpose of enabling the parties to request this Court to pass an, order in terms of the said compromise.
The procedure for obtaining such an order which has to be followed is the procedure prescribed by the rules of this Court, just as if a compromise was reached before the Tribunal the procedure to be followed before it would be, the procedure prescribed by its rules.
Therefore we have no doubt that the compromise in question cannot attract the procedure prescribed by r. 5(1).
The result is that the finding recorded by the Tribunal that the compromise in question is valid is obviously right and must be confirmed.
Since it is found that the compromise in fact has taken place and is otherwise valid, we have no hesitation in directing that an order should be drawn in terms of the said compromise in the present appeal.
Order accordingly.
| IN-Abs | While this appeal by special leave, relating to an industrial dispute was pending in this Court a Director of the appellant employer and a representative of the respondents employees made an application to the Court praying that an order might be passed in terms of a compromise since an agreement was alleged to have been entered into by the appellants and the respondents.
Some of the respondents contested this compromise and the court sent issues to the Tribunal for finding whether the alleged com promise actually took place between the parties, and if so, was it valid.
The Tribunal returned findings to the effect that the compromise did actually take place and was valid.
Those findings were contested in the appeal.
Held, that a compromise agreement seeking to settle an industrial dispute which was still pending decision in this Court would not contravene the provisions of section 23 of the Payment of Wages Act which contemplated rights not likely to be modified or reversed in any judicial proceedings.
The procedure prescribed by section 6 C of the U. P. and the provisions thereof did not affect the powers of this Court, or the competence of the parties, to amicably settle a dispute pending before it.
The procedure for obtaining an order in terms of the com promise entered into between the parties pending the appeal in this Court is prescribed by its own rules and the provisions of section 2(t) of the U. P. and rule 5(1) of the Rules made thereunder have no application to such case.
|
Appeal No. 4 of 1960.
Appeal by special leave from the Judgment and Order dated January 28, 1959 of the Punjab High Court in Letters Patent Appeal No. 52 of 1958 arising out of the Judgment and Order dated February 17, 1958 of the said High Court in Civil Writ Application No. 124 of 1957.
C. B. Aggarwala, Daya Swarup Mehra and R. section Gheba, for the appellants.
section M. Sikri, Advocate General for the State of Punjab, N.S. Bindra and D. Gupta, for respondent No. 1.
C.K. Daphtary, Solicitor General of India and section N. Andley, for Respondent No. 2.
C.K. Daphtary, Solicitor General of India and T.M. Sen, for the Attorney General for India (Intervener). 1960.
November 16.
The Judgment of the Court was delivered by SINHA, C. J.
This appeal, by special leave granted on May 29, 1959, is directed against the decision of the Letters Patent Bench (G. D. Khosla, C. J., and Dulat, J.) dated January 28, 1959, affirming that of the learned single Judge (Bishan Narain, J.) dated February 17, 1958, whereby he dismissed the 461 appellants ' Writ Petition under article 226 of the Constitution.
It appears that the appellants are the owners of, what is said to be, agricultural land, measuring about 86 bighas odd, in village Munda Majra, Tehsil Jagadhari, in the district of Ambala.
On October 27, 1954, the Additional District Magistrate of Ambala ordered the land aforesaid to be requisitioned under the Punjab Requisitioning & Acquisition of Immoveable Property Act (XI of 1953) for the construction of houses by members of the Thapar Industries Co operative Housing Society Ltd., Yamuna Nagar.
Possession of the land was taken on November 5, 1954.
The appellants, at once, instituted a suit on November 14, 1954, in the Court of the Subordinate Judge, Jagadhari, challenging the requisition proceedings.
The suit was ultimately decreed by the Court on June 21, 1955, and the possession of the property in question was restored to the petitioners.
On May 27, 1955, the first respondent, i. e., the State of Punjab, through the Secretary, Labour Department, issued a notification under section 4 of the Land Acquisition Act (1 of 1894) (which hereinafter will be referred to as the Act).
The notification, under section 4 is in these terms.
"No. 4850 S LP 55/14144.
Whereas it appears to the Governor of Punjab that land in the locality hereunder specified is likely to be needed by the Government for a public purpose, namely, for the construction of a Labour Colony under the Government sponsored Housing Scheme for the Industrial Workers of the Thapar Industrial Workers ' Co operative Housing Society Limited, Jamna Nagar (District Ambala), it is hereby notified that the land described in the specifi cations below is likely to be required for the above purpose.
This notification is made under the provisions of Section 4 read with section 17 of the Land Acquisition Act, 1894, as amended by the Land Acquisition (Punjab Amendment) Act, 1953, to all to whom it may concern and the Collector shall cause public notice of the substance of this notification to be given at convenient places in the said locality; 462 In exercise of the powers conferred by the aforesaid sections, the Governor of the Punjab is pleased to authorise the President of the above said Society with the members and servants to enter upon and survey any land in the locality and do all other acts required or permitted by that section.
Further in exercise of the powers conferred by sub section (4) of Section 17 of the said Act the Governor of Punjab is pleased to direct that, on the grounds of urgency, the provisions of Section 5(a) of the said Act, shall not apply in regard to this Acquisition".
Later, the same day, another notification, under section 6 of the Act, was issued.
This notification, under section 6, states that it appeared to the Governor of Punjab that the land is required to be taken by Government for a public purpose, namely, for the construction of a Labour Colony under the Government sponsored Housing Scheme for the ' Industrial Workers of the Thapar Industrial Workers ' Co operative Housing Society Limited (which is the second respondent in this case).
It also says that under the provisions of section 7 of the Act, the Collector, Ambala, is directed to take order for the acquisition of the land.
The Patwari effected delivery of possession of the lands in question to the second respondent on August 21, 1955.
Even before the delivery of possession had been effected, the appellants promptly instituted their suit on August 20, 1955, in the Court of the Subordinate Judge Class 1, Jagadhari, for a perpetual injunction restraining the second respondent from entering upon or taking possession of the land in question, or making any construction thereon.
The trial Court dismissed the suit on June 25, 1956, on the preliminary ground that the suit was not competent in the absence of a previous notice under section 59 of the Punjab Co operative Societies Act, 1955 (XIV of 1955).
The appellants appealed to the Senior Sub Judge, Ambala, who dismissed their appeal, upholding the decision of the trial Court that the notice was a condition precedent to the institution of the suit.
Their second appeal was dismissed by the Punjab High Court on February 6,1957.
During the pendency of the civil litigation aforesaid, in spite of the fact that the second respondent had 463 obtained delivery of possession through Government agency, by an Order of Injunction issued by the Court, construction had been stayed.
As soon as the High Court decided the suit in favour of the respondents, the second respondent "started making huge constructions on the land in dispute in a very speedy manner", as alleged by the appellants in their petition under article 226 of the Constitution, which they filed on February 13, 1957.
From the High Court also, they obtained similar Stay Orders whereby building operations were stopped.
In their Writ Petition, the appellants, as petitioners in the High Court, challenged the acquisition proceedings on a number of grounds, of which it is only necessary to notice the one which has formed the subject matter of decision in the High Court, namely, that the proceedings were void for want of compliance with the procedure laid down in Chapter VII (mistake for Part VII) of the Act.
It is not necessary to refer to the other contentions raised in the Writ Petition, because it is common ground before us that the whole controversy must be determined by the answer to the question, 'whether or not the proceedings were vitiated by reason of the admitted fact that no proceedings under Part VII of the Act had been taken in making the acquisition '.
The matter was heard, in the first instance, by Bishan Narain, J.
The learned Judge dismissed the petition, holding that the acquisition was by the Government for a public purpose, namely, of construction of tenements for industrial workers, under a schempeal against the order to the Collector of the district or such other officer as may, by notification, be authorised in this behalf by the State Government.
629 Section 6 imposes a restriction on the transport of agricultural cattle for slaughter and reads: "section 6.
No person shall transport or offer for trans port or cause to be transported any agricultural cattle from any place within the State to any place outside the State, for the purpose of its slaughter in contra.
vention of the provisions of this Act or with the knowledge that it will be or is likely to be, so slaugh tered.
" Section 7 prohibits the sale, purchase or disposal otherwise of certain kinds of animals.
It reads .
"section 7.
No person shall purchase, sell or otherwise dispose of or offer to purchase, sell or otherwise dis pose of or cause to be purchased, sold or otherwise disposed of cows, calves of cows or calves of she buffaloes for slaughter or knowing or having reason to believe that such cattle shall be slaughtered.
" Section 8 relates to possession of flesh of agricultu ral cattle and is in these terms: "section 8.
Notwithstanding anything contained in any other law for the time being in force, no person shall have in his possession flesh of any agricultural cattle slaughtered in contravention of the provisions of this Act.
" Section 10 imposes apenalty for a contravention of section 4(l)(a) and section 11 imposes penalty for a contraven tion of any of the other provisions of the Act.
On behalf of the petitioners it has been pointed out, and rightly in our opinion, that cl.
(a) of sub section
(2) of section 4 of the Act imposes an unreasonable restriction on the right of the petitioners.
That clause in its first part lays down that the cattle (other than cows and calves) must be over 20 years of age and must also be unfit for work or breeding; and in the second part it says, "or has become permanently incapacitated from work or breeding due to age, injury, deformity or an incurable disease.
" It is a little difficult to understand why the two parts are juxtaposed in the section.
In any view the restriction that the animal must be over 20 years of age and also unfit for work or breeding is an excessive or unreasonable restriction as we have 80 630 pointed out with regard to a similar provision in the Uttar Pradesh Act.
The second part of the clause would not be open to any objection, if it stood by it self.
If, however, it has to be combined with the age limit mentioned in the first part of the clause, it will again be open to the same objection; if the animal is to be over 20 years of age and also permanently in capacitated from work or breeding etc.
,then the age limit is really meaningless.
Then, the expression 'due to age ' in the second part of the clause also loses its meaning.
It seems to us that cl.
(a) of sub section
(2) of section 4 of the Act as drafted is bad because it imposes a dis proportionate restriction on the slaughter of bulls, bullocks and buffaloes it is a restriction excessive in nature and not in the interests of the general public.
The test laid down is not merely permanent incapa city or unfitness for work or breeding but the test is something more than that, a combination of age and unfitness ' Learned Counsel for the petitioners has plac ed before us an observation contained in a reply made by the Deputy Minister in the course of the debate on the Bill in the Madhya Pradesh Assembly (see Madhya Pradesh Assembly Proceedings, Vol.
5 Serial No. 34 dated April 14, 1959, page 3201).
He said that the age fixed was very much higher than the one to which any animal survived.
This observation has been placed before us not with a view to an interpre tation of the section, but to show what opinion was held by the Deputy Minister as to the proper age limit.
On behalf of the respondent State our atten tion has been drawn to a book called The Miracle of Life (Home Library Club) in which there is a state ment that oxen, given good conditions, live about 40 years.
Our attention has also been drawn to certain extracts from a Hindi book called Godhan by Girish Chandra Chakravarti in which there are statements to the effect that cows and bullocks may live up to 20 or 25 years.
This is an aspect of the case with which we have already dealt.
The question before us is not the maximum age upto which bulls, bullocks and buffaloes may live in rare cases.
The question before us is what is their average longevity and at what age 631 they become useless.
On this question we think that the opinion is almost unanimous, and the opinion which the Deputy Minister expressed was not wrong.
Section 5 in so far as it imposes a restriction as to the time for slaughter is again open to the same ob jection as has been discussed by us with regard to a similar provision in the Uttar Pradesh Act.
A right of appeal is given to any person aggrieved by the order.
In other words, a member of the public, if he feels aggrieved by the order granting a certificate for slaughter, may prefer an appeal and hold up for a long time the slaughter of the animal.
We have pointed out that for all practical purposes such a restriction will really put an end to the trade of the petitioners and we are unable to accept a restriction of this kind as a reasonable restriction within the meaning of cl.
(6) of article 19 of the Constitution.
Section 6 standing by itself, we think, is not open to any serious objection.
It is ancillary in nature and tries to give effect to the provision of the Act prohibiting slaughter of cattle in contravention of the Act.
Section 7 relates to the prohibition of sale, purchase etc., of cows and calves and inasmuch as a total ban on the slaughter of cows and calves is valid, no ob jection can be taken to section 7 of the Act.
It merely seeks to effectuate the total ban on the slaughter of cows and calves (both of cows and she buffaloes).
Sec tion 8 is also ancillary in character and if the other provisions are valid no objection can be taken to the provisions of section 8.
Sections 10 and 11 impose penal e subsidised by the Government out of public funds; that Part VII of the Act had no application to the present proceedings, and that, therefore, the noti fication under section 6 was not invalid.
The appellants preferred an appeal, under the Letters Patent.
The Letters Patent Bench dismissed the appeal, but for different reasons.
After an examination of the precedents of the different High Courts, bearing on the controversy in this case, the Bench came to the conclusion, which may better be expressed in its own words: "There is thus considerable authority for the 464 view advanced by the learned counsel for the appellants that compliance with the provisions of Part VII is obligatory in the case of all acquisitions for a company.
In the present case the acquisition was undoubtedly for the benefit of a company.
I have given this matter my most anxious consideration, and, with great respect to the learned Judges, whose decisions have been noted above, I find myself unable to subscribe to the views expressed by them.
It seems to me that their views were coloured by the background of the provisions of the Constitution.
Article 31 of the Constitution prohibits compulsory acquisition of property for anything except a public purpose.
Therefore, acquisition for anything which is not a public purpose cannot now be done compulsorily, but it has never been disputed that before the Constitution came into force land could have been acquired compulsorily by Government for a purpose which was not public.
There is nothing in the Land Acquisition Act to warrant the assumption that the embargo placed by Article 31 of the Constitution found place in the Act.
It seems to me that the Land Acquisition Act contem plates two categories of acquisitions".
After an examination of the provisions of the Act, the High Court observed that the Land Acquisition Act came into force when there was no bar to compulsory acquisition for private purposes.
Such a bar was only imposed, for the first time, by article 31 of the Constitution.
After the Constitution came into force, Part VII of the Act became redundant or null and void.
But, in its view, the present acquisition proceedings were saved from all attack based on non compliance with the provisions of Part VII of the Act.
The reason for this conclusion, according to the High Court, was that as the land was acquired for a public purpose, there was no need to comply with the provisions of Part VII, even though the Company is to bear all the expenses for the acquisition.
It is manifest that the main point for determination in this appeal is: Whether or not the acquisition proceedings had been vitiated by reason of the admitted fact that there was no attempt made by the 465 Government to comply with the requirements of Part VII of the Act.
It is equally clear that the Letters Patent Bench of the High Court was misled in its conclusions, because all the provisions of article 31 of the Constitution had not been brought to their notice.
It is not correct to say that Part VII of the Act had become redundant or null and void, as suggested by the High Court, because that Part provided for acquisition for a private purpose.
As held by this Court in a recent decision, in the case of Babu Barkaya Thakur vs The State of Bombay (1), the Act deals with two kinds of acquisitions: (1) for a public purpose, at the cost of the Government, and (2) for a purpose akin to such a purpose, at the cost of a Company, and to the latter class of acquisition, the provisions of Part VII are attracted.
It was further held in that case that acquisition of a site for building residential houses for industrial labour was a public purpose, and that the Land Acquisition Act was immune from attack based on the provisions of article 31(2) of the Constitution, in view of the provisions of cl.
5(a) of that Article, which saved an existing law of the nature of the Act in question.
As will presently appear, the conclusion of the High Court is entirely correct, but the process of reasoning by which it has reached that conclusion is erroneous.
That process suffers from the initial error arising from the fact that the provisions of article 31(5) of the Constitution had not been brought to the notice of that Bench.
If the Bench were cognizant of the true legal position that the Land Acquisition Act, in its entirety, including Part VII dealing with the acquisition of Land for Companies, was not subject to any attack under article 31(2) of the Constitution, it would not have based that conclusion on that ratio.
Otherwise, there would be no answer to the contention in which the appellants had persisted throughout the long course of litigation in which they have indulged in their vain effort to save the land from being used for the public purpose aforesaid.
The Letters Patent Bench has also fallen (1) 59 466 into another error in assuming that "the compensation was paid in its entirety by the Company".
It is better to clear the ground by showing that this assumption is not well founded in fact.
In their Writ Petition, as originally filed in the High Court, it was not categorically stated by the appellants that the compensation in respect of the land in question was paid, or was to be paid, by the Company.
It may be stated here, by the way, that it is common ground that the second respondent is a Company within the meaning of the Act, being a registered society under the Co operative Societies Act.
It is also common ground that the purpose for which the land was being acquired was for erecting residential quarters for industrial labour, which had organised itself into the Co operative Housing Society, the second respondent.
It was only at a later stage of the proceedings in the High Court, that is to say, in the replication filed on behalf of the appellants to the Written Statement filed by the Government, in answer to the appellant 's Writ Petition, that, for the first time, it was alleged by the appellants that "the entire amount of compensation has been borne by the res pondent society".
This allegation has not been either supported or countered by evidence on either side.
But it has been pointed out by the learned single Judge that it was clear from the Government Housing Scheme that a substantial amount to be expended on this Scheme comes out of the Revenues, in the form of subsidies and loans.
It was stated at the Bar, with reference to the terms and conditions of the Government Housing Scheme, that 25% to 50% of the cost of land and structures to be built upon the land was to be advanced by Government out of public funds, in the shape of subsidy and loan.
It would, thus, appear that the High Court was not right in the assumption made as aforesaid.
It is clear from the statement of facts on record that the respondent No. 2 is a 'Company ', within the meaning of the Act; that the land is acquired for the.
benefit of the Company, and at its instance, and that a large proportion of the compensation money was to 467 come out of public funds, the other portion being supplied by the Company or its members.
There is also no doubt that the structures to be made on the land would benefit the members of the Co operative Society.
But, the private benefit of a large number of industrial workers becomes public benefit within the meaning of the Land Acquisition Act.
In this connection, it may be mentioned that section 17 of the Act was amended by the Land Acquisition (Punjab Amendment) Act (11 of 1954) in these terms "17(2)(b).
Whenever in the opinion of the Collector it becomes necessary to acquire the immediate possession of any land for the purpose of any library or educational institution or for the construction, ex.
tension or improvement of any building or other structure in any village for the common use of the inhabitants of such village, or any godown for any society registered under the (II of 1912), or any dwelling house for the poor, or the construction of labour colonies under a Government sponsored Housing Scheme, or any irrigation tank, irrigation or drainage channel, or any well, or any public road, the Collector may, immediately after the publication of the notice mentioned in sub section (1), and with the previous sanction of the appropriate Government enter upon and take possession of such land, which shall thereupon vest absolutely in the Government free from all encumbrances".
It will appear from the (amended) section 17(2)(b), quoted above, that the construction of labour colonies, under a Government sponsored Housing Scheme, has been included in the category of 'works of public utility '.
As already indicated, even apart from the indication given by the (amended) section 17, quoted above, this Court has held, in the recent decision (1) that building of residential quarters for industrial labour is public purpose.
Hence, even apart from the amended provisions of section 17, it is clear on the authorities that the purpose for which the land was being acquired was a public purpose.
(1) 468 Having cleared the ground, it now remains to consider the terms of section 6, on which great reliance was placed on behalf of the appellants.
There is no doubt that, as pointed out in the recent decision of this Court (1), the Act contemplates acquisition for a public purpose and for a Company, thus conveying the idea that acquisition for a Company is not for a public purpose.
It has been held by this Court, in that decision, that the purposes of public utility, referred to in sections 40 41 of the Act, are akin to public purpose.
Hence, acquisition for a public purpose as also acquisitions for a Company are governed by considerations of public utility.
But the procedure for the two kinds of acquisitions is different, in so far as Part VII has made substantive provisions for acquisitions of land for Companies.
Where acquisition is made for a public purpose, the cost of acquisition for payment of compensation has to be paid wholly or partly out of Public Revenues, or some fund controlled or managed by a local authority.
On the other hand, in the case of an acquisition for a Company, the compensation has to be paid by the Company.
But, in such a case, there has to be an agreement, under section 41, for the transfer of the land acquired by the Government to the Company on payment of the cost of acquisition, as also other matters not material to our present purpose.
The agreement contemplated by section 41 is to be entered into between the Company and the Appropriate Government only after the latter is satisfied about the purpose of the proposed acquisition, and subject to the condition precedent that the previous consent of the Appropriate Government has been given to the acquisition.
The ` previous consent ' itself of the Appropriate Government is made to depend upon the satisfaction of that Government that the purpose of the acquisition was as laid down in section 40.
It is, thus, clear that the provisions of sections 39 41 lay down conditions precedent to the application of the machinery of the Land Acquisition Act, if the acquisition is meant for a Company.
Now, section 6 itself contains the prohibition to the making of the necessary declaration under that section in these terms (1) (1961] 1 S.C.R. 128.
469 "Provided that no such declaration shall be made unless the compensation to be awarded for such property is to be paid by a Company, or wholly or partly out of public revenues or some fund controlled or managed by a local authority".
Section 6 is, in terms, made subject to the provisions of Part VII of the Act.
The provisions of Part VII, read with section 6 of the Act, lead to this result that the declaration for the acquisition for a Company shall not be made unless the compensation to be awarded for the property is to be paid by a company.
The declaration for the acquisition for a public purpose, similarly, cannot be made unless the compensation, wholly or partly, is to be paid out of public funds.
Therefore, in the case of an acquisition for a Company simpliciter, the declaration cannot be made without satisfying the requirements of Part VII.
But, that does not necessarily mean that an acquisition for a Company for a public purpose cannot be made otherwise than under the provisions of Part VII, if the cost or a portion of the cost of the acquisition is to come out of public funds.
In other words, the essential condition for acquisition for a public purpose is that the cost of the acquisition should be borne, wholly or in part, out of public funds.
Hence, an acquisition for a Company may also be made for a public purpose, within the meaning of the Act, if a part or the whole of the cost of acquisition is met by public funds.
If, on the other hand, the acquisition for a Company is to be made at the cost entirely of the Company itself, such an acquisition comes under the provisions of Part VII.
As in the present instance, it appears that part at any rate of the compensation to be awarded for the acquisition is to come eventually from out of public revenues, it must be held that the acquisition is not for a Company simpliciter.
It was not, therefore, necessary to go through the procedure prescribed by Part VII.
We, therefore, agree with the conclusion of the High Court, though not for the same reasons.
The appeal, accordingly, is dismissed with costs.
Appeal dismissed.
| IN-Abs | The Punjab Government issued notification under sections 4 and 6 of the Land Acquisition Act, 1894, and started proceedings for acquisition of lands for the construction of a labour colony under the Government sponsored Housing Scheme for the workers of the Thapar Industrial Workers ' Co operative Hous ing Society Ltd. The appellants challenged the acquisition proceedings under article 226 of the Constitution on the ground, inter alia, that the procedure prescribed by Part VII of the said Act had not been admittedly complied with.
The Division Bench in affirming the order of dismissal passed by the trial judge held that although article 31 of the Constitution by prohibiting compulsory acquisition of property except for a public purpose had made Part VII of the Act redundant, the present proceedings were saved since the acquisition was for a public purpose.
Held, that the High Court was in error in holding that the Constitution had rendered Part VII of the Land Acquisition Act, 1894, redundant or null and void, although it was right in dismissing the appeal.
That Act, as an existing Act, was saved by article 31(5)(a) from being affected by article 31(2) of the Constitution.
Acquisition of building sites for residential houses for industrial labour is for a public purpose even apart from section 17(2) 460 (b)of the Act as amended by ':the Land Acquisition (Punjab Amendment) Act of 1953.
Babu Barkava Thakur vs The State of Bombay [1961] 1 S.C.R. 128, referred to.
Although in the case of an acquisition for a company simpliciter, no declaration under section 6 of the Act can be made without complying with the provisions of Part VII of the Act, it is not correct to say that no acquisition for a company for a public purpose can be made except under Part VII of the Act.
If the cost of the acquisition is borne either wholly or partially by the Government, the purpose would be a public purpose within the meaning of the Act.
But if the cost is entirely borne by the company it would be an acquisition for the company simpliciter and Part VII would apply.
Since in the instant case a part of the compensation was to be borne by the Government, it was not necessary to comply with the provisions of Part VII of the Act.
|
Appeal No. 337 of 1960.
Appeal by special leave from the judgment and order dated January 19, 1960, of the Punjab High Court in Civil Revision No. 596 of 1959.
N. section Bindra and D. Gupta, for the appellant.
Gopal Singh, for the respondent.
H. M. Seervai, Advocate General for the State of Maharashtra and R. H. Dhebar, for the Intervener.
November 15.
The judgment of B. P. Sinha, C. J., P. B. Gajendragadkar, J. and K. N. Wanchoo, J. was delivered by P. B. Gajendragadkar, J. J. L. Kapur, J. and K. Subba Rao, J., delivered separate judgments.
375 GAJENDRAGADKAR, J.
This appeal raises for our decision a question of law of general importance under sections 123 and 162 of the , (hereafter called the Act).
Originally the same point had been raised in another civil appeal before this Court, Civil Appeal No. 241 of 1955.
The said appeal was the result of a dispute between Dowager Lady Dinbai Dinshaw Petit on the one hand and the Union of India and the State of Bombay on the other.
Having regard to ' the importance of the point raised by the said appeal a Division Bench of this Court before whom it first came for hearing directed that it should be placed for disposal before a Constitution Bench, and accordingly it was placed before us.
The appellant and the respondent in the present appeal then applied for permission to intervene because the same point arose for decision in this appeal as well; that is how this appeal was also placed before us to be heard after the Bombay appeal.
After the Bombay appeal was heard for some days parties to the said appeal amicably settled their dispute and a decree by consent was passed.
In the result the point of general importance raised by the said appeal fell to be considered in the present appeal; and so the appellant and the respondent in the said appeal asked for permission to intervene in the present appeal, and we directed that the arguments urged by Mr. Viswanatha Sastri and Mr. Seervai, for th appellant and the State of Bombay respectively, should be treated as arguments urged by interveners in the present appeal.
Mr. Bindra, who appears for the appellant State of Punjab in the present appeal, and Mr. Gopal Singh who represents the respondent Sodhi Sukhdev Singh, have substantially adopted the arguments urged by Mr. Seervai and Mr. Sastri respectively and have also addressed us on the special facts in their appeal; that is how the point of law in regard to the scope and effect of sections 123 and 162 of the Act has to be decided in the present appeal.
This appeal has been brought to this Court by special leave granted by this Court, and it arises from a suit filed by the respondent against the appellant on May 5, 1958.
It appears that the respondent was 376 a District and Sessions Judge in the erstwhile State of Pepsu.
He was removed from service on April 7, 1953, by an order passed by the President of India who was then in charge of the administration of the said State.
The respondent then made a representation on May 18, 1955.
This representation was considered by the Council of Ministers of the said State on September 28, 1955, because in the meantime the President 's rule had come to an end and the administration of Pepsu was entrusted to the Council of Ministers.
The Council expressed its views in the form of a Resolution on the representation of the respondent; but before taking any action it invited the advice of the Public Service Commission.
On receiving the said advice the Council again considered the said representation on March 8, 1956, and views on the merits of the representation were expressed by the Members of the Council.
These were recorded in the minutes of the proceedings.
Finally, on August 11, 1956, the representation was considered over again by the Council, and it reached a final conclusion in respect of it.
In accordance with the said conclusion an order was passed which was communicated to the respondent.
The order read thus: " Reference his representation dated the 18th May, 1955, against the order of his removal from service; the State Government have ordered that he may be re employed on some suitable post ".
After this order was communicated to him the respondent filed the present suit against the appellant and claimed a declaration, inter alia, that his removal from service on April 7, 1953, was illegal, void and inoperative and prayed 'for the recovery of Rs. 62,700 6 0 as arrears of his salary.
, The appellant disputed the respondent 's claim on several grounds.
Issues were accordingly framed by the trial judge on January 27, 1959.
Meanwhile the respondent had filed an application under O. 14, r. 4 as well as O. 11, r. 14 of the Civil Procedure Code for the production of documents mentioned in the list annexed to the application.
The trial court issued notice against the appellant for the reduction of the said documents.
377 In reply to the notice Mr. E. N. Mangat Rai, Chief Secretary of the appellant, made an affidavit claiming privilege under section 123 of the Act in respect of certain documents whose production had been ordered, and gave reasons in support of the claim.
On the same day Mr. Mangat Rai made another affidavit in which he gave reasons for claiming similar privilege in respect of certain other documents.
The statements made in these affidavits were challenged by the respondent who submitted a counter affidavit.
After the affidavits had thus been filed by the parties the trial court heard their arguments on the question of privilege, and on August 27, 1959, it upheld the claim of privilege made by the appellant for the production of some documents, and accepted the reasons given by Mr. Mangat Rai in support of the said claim of privilege.
The respondent then moved the High Court of Punjab under section 115 of the Code of Civil Procedure and article 227 of the Constitution for the quashing of the said order.
The petition for revision (C. R. 596 of 1959) first came up for decision before D. K. Mahajan, J., at Chandigarh.
The learned judge took the view that the question raised by the petition was of considerable importance, and so he ordered that the papers should be placed before the learned Chief Justice to enable him to direct that the matter be decided by a larger Bench.
Thereupon the petition was placed for decision before Dulat and Dua, JJ., who, after hearing the parties, reversed the order under revision in respect of four documents, and directed that the said documents be produced by the appellant.
The appellant then applied to the High Court for a certificate under article 133 but its application was dismissed.
It then came to this Court and applied for and obtained special leave to challenge the validity of the order passed by the Punjab High Court; and in the appeal the only question which has been urged before us is that having regard to the true scope and effect of the provisions of as. 123 and 162 of the Act the High Court was in error in refusing to uphold the claim of 48 378 privilege raised by the appellant in respect of the documents in question.
The question thus posed will naturally have to be answered on a fair and reasonable construction of the two statutory provisions of the Act.
It has, how ever, been very strenuously urged before us by Mr. J. Seervai that before proceeding to construe the said provisions it is necessary that the Court should bear in mind the historical background of the said provisions.
His argument is that sections 123 and 162 as they were enacted in the Act in 1872 were intended to introduce in India the English Law in regard to what is commonly described as the Crown privilege in the same form in which it obtained in England at the material time; and so he has asked us to determine in the first instance what the true state of English Law was in or about 1872 A. D.
In order to decide this question three representative English decisions must be considered.
In Home vs Lord F. C. Bentinck (1) the Court was dealing with a claim made by H who had sued the president of the enquiry for a libel alleged to be contained in the report made by him.
It appears that H was a commissioned officer in the Army and the Commander in Chief of the said Army had directed an assemblage of commissioned military officers to hold an enquiry into the conduct of H. According to H the said report contained libellous matter, and so he had sued the president of the enquiry.
At the trial H desired that the report submitted by the court of enquiry should be produced and this request was resisted by the defendant on the ground that the document in question was a privileged commu nication.
This plea was upheld.
Dallas, C. J., referred to the precedents relevant to the decision of the point, and observed that the basis of the said precedents was that the disclosure would cause danger to the public good.
He then considered the nature of the enquiry which had been directed against H, and observed that in the course of the enquiry a number of persons may be called before the court and may give information as witnesses which they would not choose to (1) ; : ; . 379 have disclosed ; but, if the minutes of the court of enquiry are to be produced on an action brought by the party, they reveal the name of every witness and the evidence given by each.
Not only this but they also reveal what has been said and done by each member of the existing court of enquiry; and, according to ,the learned judge, the reception of the said minutes would tend directly to disclose that which is not permitted to be disclosed; and so, independently of the character of the court the production of the report was privileged on the broad rule of public policy and convenience that matters like those covered by the report are secret in their nature and involve delicate enquiry and the names of persons who ought to stand protected.
The next decision to which our attention has been invited is Smith vs The East India Company (1).
In that case the dispute with which the Court was concerned had arisen with respect to a commercial transaction in which the East India Company bad been engaged with a third party; and privilege was claimed in regard to the correspondence which had been carried oil by the defendant with the Board of Control.
It was held that the said correspondence was, on the ground of public policy, a privileged communication, and so the Company were not bound to produce or set forth the contents of it in answer to a bill of discovery filed against them by the third party in relation to the transaction to which it referred.
Lord Lyndhurst upheld the claim of privilege not because the correspondence purported to be confidential nor because it was official, but because of the effect of the provisions of c. 85 of Act 3 & 4 W. 4 on which the claim of privilege was founded.
It was noticed that the Company had been prohibited from carrying on any commercial transactions except for the purpose of winding up their affairs or for the purposes of the Government of India; and it was held that the result of the relevant provisions, and particularly of is.
29 was that the Directors of the East India Company were required to make communication of all their (1) [1841] 1 Ph.50: 41 E.R. (Chancery) 550.
380 acts, transactions and correspondence of every description to the Board of Control.
That is why a claim for privilege in respect of the said correspondence was upheld.
This decision shows that a claim for privilege could have been made even for correspondence which had reference to a commercial transaction in circumstances similar to those in that case.
The last decision on which considerable reliance has been placed by Mr. Seervai is the case of Beatson vs Skene (3).
It may incidentally be pointed out that Chief Baron Pollock 's observations in this judgment are frequently cited in judicial decisions where the question of privilege falls to be considered.
In that case the plaintiff had been a general who commanded a corps of irregular troops during the war in Crimea.
Complaint having been made about the insubordination of troops the corps was placed under the superior command of V. Thereupon the plaintiff resigned his command.
V directed S to inspect and report upon the state of the corps, and referred S for information to the defendant who was a Civil Commissioner.
The defendant, in a conversation with S, made a defamatory statement respecting the conduct of the plaintiff.
The plaintiff brought an action against the defendant for slander.
The defence set up against the plaintiff 's claim was that what had passed between the defendant and S was a privileged communication.
The jury had found a verdict for the defendant.
A new trial was claimed by the plaintiff, inter alia, on the ground that the learned judge had declined to compel the production of certain documents.
It appeared that the Secretary for War had been subpoenaed to produce certain letters written by the plaintiff to him and also the minutes of the court of enquiry as to the conduct of S in writing the letter to V.
The plea for a new trial was rejected on the ground that the Court was of the opinion that the non production of the said documents furnished no ground for a new trial.
There was a difference of opinion among the members of the Court on the question as to whether Bramwell, J., was justified in upholding the claim of privilege.
, Pollock, (3) ; 381 C. B., Bramwell, B., and Wilde, B., held that the claim for privilege was properly upheld, whereas Martin, B., took a contrary view.
Dealing with the claim made that the production of the documents would be injurious to the public service Pollock, C. B., observed that the general public interest must be considered paramount to the individual interest of a suitor in a Court of Justice, and he posed the question: How is this to be determined ? Then Pollock, C. B., proceeded to observe that the question must be determined either by a presiding judge or by the responsible servant of the Crown in whose custody the paper is; and he remarked that the judge would be unable to determine it without ascertaining what the document is and why the publication of it would be injurious to public service an enquiry which cannot take place in private, and which taking place in public may do all the mischief which it is proposed to guard against.
He further held that " the administration of justice is only a part of the general conduct of the affairs of any State or nation, and we 'think is (with respect to the production or non production of a State paper in a Court of Justice) subordinate to the general welfare of the community".
Martin, B., however, was of the opinion that whenever the judge is satisfied that the document may be made public without prejudice to the public service the judge ought to compel its production notwithstanding the reluctance of the head of the department to produce it.
It would thus be seen that according to the majority view the question as to whether any injury to public interest would be caused by the production of the document could not be determined by the Court, because such an enquiry would tend to defeat the very purpose for which privilege is claimed, whereas, according to the minority view it was for the Court to hold an enquiry and determine whether any injury would follow the production of the document.
Mr. Seervai contends that these decisions correctly represent the legal position in regard to the Crown privilege in England in the second half of the Nineteenth Century, and, according to him, when the 382 was drafted by Sir James Fitzjames Stephen he intended to make provisions in the Act which would correspond to the said position in the English Law.
In other words, the argument is that sections 123 and 162 are intended to lay down that, when a privilege is claimed by the State in the matter of production of State documents, the total question with regard to the said claim falls within the discretion of the head of the department concerned, and he has to decide in his discretion whether the document belongs to the privileged class and whether its production would cause injury to public interest.
It is in the light of this background that Mr. Seervai wants us to construe the relevant sections of the Act.
In support of this argument Mr. Seervai has also referred us to the draft prepared by Sir James Fitzjames Stephen at the instance of Lord Coleridge for adoption by the English Parliament, and has relied on article 112 in the said draft.
article 112 provides, inter alia, that no one can be compelled to give evidence relating to any affairs of State, or as to official communications between public officers upon public affairs, unless the officer at the head of the department concerned permits him to do so.
It also refers to some other matters with which we are not concerned.
This part of article 112 as framed by Sir James Fitzjames Stephen seems to include the provisions of sections 123 and 124 of the Act.
It is significant that there is nothing in this Article which corresponds to section 162 of the Act.
Mr. Seervai concedes that the draft prepared by Sir James Fitzjames Stephen was not adopted by Parliament, and even now there is no statutory law of evidence in England; even so, he contends that the intention which Sir James Fitzjames Stephen had in drafting the relevant sections of the must have been similar to his intention in drafting article 112, and that is another fact which we may bear in mind in construing the relevant sections of the Act.
We ought, however, to add that though Mr. Seervai elaborately argued this part of his case he fairly conceded that recourse to extrinsic aid in interpreting a statutory provisions would be justified only 383 within well recognised limits; and that primarily the effect of the statutory provisions must be judged on a fair and reasonable construction of the words used by the statute itself.
Let us now turn to section 123.
It reads thus: " No one shall be permitted to give any evidence derived from unpublished official records relating, to any affairs of State, except with the permission of the officer at the head of the department concerned, who shall give or withhold such permission as he thinks fit." This section refers to evidence derived from unpublished official records which have a relation to any affairs of State, and it provides that such evidence shall not be permitted to be given unless the head of the department concerned gives permission in that behalf.
In other words, as a result of this section a document which is material and relevant is allowed to be withheld from the Court, and that undoubtedly constitutes a very serious departure from the ordinary rules of evidence.
It is well known that in the administration of justice it is a principle of general application that both parties to the dispute must produce all the relevant and material evidence in their possession or their power which is necessary to prove their respective contentions; that is why the Act has prescribed elaborate rules to determine relevance and has evolved the doctrine of onus of proof.
If the onus of proof of any issue is on a party and it fails to produce such evidence, section 114 of the Act justifies the inference that the said evidence if produced would be against the interest of the person who withholds it.
As a result of section 123 no such inference can be drawn against the State if its privilege is upheld.
That shows the nature and the extent of the departure from the ordinary rule which is authorised by section 123.
The principle on which this departure can be and is justified is the principle of the overriding and paramount character of public interest.
A valid claim for privilege made under section 123 proceeds on the basis of the theory that the production of the document in 384 that, where a conflict arises between public interest and private interest, the latter must yield to the former.
No doubt the litigant whose claim may not succeed as a result of the non production of the relevant and material document may feel aggrieved by the result, and the Court, in reaching the said decision, may feel dissatisfied; but that will not .affect the validity of the basic principle that public good and interest must override considerations of private good and private interest.
Care has, however, to be taken to see that interests other than that of the public do not masquerade in the garb of public interest and take undue advantage of the provisions of section 123.
Subject to this reservation the maxim silus populi est supreme les which means that regard for public welfare is the highest law is the basis of the provisions contained in section 123.
Though section 123 does not expressly refer to injury to public interest that principle is obviously implicit in it and indeed is its sole foundation.
Whilst we are discussing the basic principle underlying the provisions of section 123, it may be pertinent to enquire whether fair and fearless administration of justice itself is not a matter of high public importance.
Fair administration of justice between a citizen and a citizen or between a citizen and the State is itself a matter of great public importance; much more so would the administration of justice as a whole be a matter of very high public importance ; even so, on principle, if there is a real, not imaginary or fictitious, conflict between public interest and the interest of an individual in a pending case, it may reluctantly have to be conceded that the interest of the individual cannot prevail over the public interest.
If social security and progress which are necessarily included in the concept of public good are the ideal then injury to the said ideal must on principle be avoided even at the cost of the interest of an individual involved in a particular case.
That is why Courts are and ought to be vigilant in dealing with a claim of privilege made under section 123.
If under section 123 a dispute arises as to whether the 385 evidence in question is derived from unpublished official records that can be easily resolved ; but what presents considerable difficulty is a dispute as to whether the evidence in question relates to any affairs of State.
What are the affairs of State under section 123 ? In the latter half of the Nineteenth Century affairs of State may have had a comparatively narrow content.
Having regard to the notion about governmental functions and duties which then obtained, affairs of State would have meant matters of political or administrative character relating, for instance, to national defence, public peace and security and good neighbourly relations.
Thus, if the contents of the documents were such that their disclosure would affect either the national defence or public security or good neighbourly relations they could claim the character of a document relating to affairs of State.
There may be another class of documents which could claim the said privilege not by reason of their contents as such but by reason of the fact that, if the said documents were disclosed, they would materially affect the freedom and candour of expression of opinion in the determi nation and execution of public policies.
In this class may legitimately be included notes and minutes made by the respective officers on the relevant files, opinions expressed, or reports made, and gist of official decisions reached in the. course of the determination of the said questions of policy.
In the efficient admit of public affairs government may reasonably treat such a class of documents as confidential and urge that its disclosure should be prevented on the ground of possible injury to public interest.
In other words, if the proper functioning of the public service would be impaired by the disclosure of any document or class of documents such document or such class of documents may also claim the status of documents relating to public affairs.
It may be that when the Act was passed the concept of governmental functions and their extent was limited, and so was the concept of the words " affairs of State " correspondingly limited; but,.
as 'is often 386 said, words are not static vehicles of ideas or concepts.
As the content of the ideas or concepts conveyed by respective words expands, so does the content of the words keep pace with the said expanding content of the ideas or concepts,, and that naturally tends to widen the field of public interest which the section wants to protect.
The inevitable consequence of the change in the concept of the functions of the State is that the State in pursuit of its welfare activities undertakes to an increasing extent activities which were formerly treated as purely commercial, and documents in relation to such commercial activities undertaken by the State in the pursuit of public policies of social welfare are also apt to claim the privilege of documents relating to the affairs of State.
It is in respect of such documents that we reach the marginal line in the application of section 123; and it is precisely in determining the claim for privilege for such border line cases that difficulty arises.
It is, however, necessary to remember that where the Legislature has advisedly refrained from defining the expression " affairs of State " it would be inexpedient for judicial decisions to attempt to put the said expression into a strait jacket of a definition judicially evolved.
The question as to whether any particular document or a class of documents answers the description must be determined in each case on the relevant facts and circumstances adduced before the Court.
" Affairs of State ", according to Mr. Seervai, are synonymous with public business and he contends that section 123 provides for a general prohibition against the production of any document relating to public business unless permission for its production is given by the head of the department concerned.
Mr. Seervai has argued that documents in regard to affairs of State constitute a genus under which there are two species of documents, one the disclosure of which will cause no injury to public interest, and the other the disclosure of which may cause injury to public interest.
In the light of the consequence which may flow from their disclosure the two species of documents can be described as innocuous and noxious respectively.
According to Mr. Seervai the effect of section 123 387 is that there is a general prohibition against the pro duction of all documents relating to public business subject to the exception that the head of the department can give permission for the production of such documents as are innocuous and not noxious.
He contends that it is not possible to imagine that the section contemplates that the head of the department G. would give permission to produce a noxious document.
It is on this interpretation of section 123 that Mr. Seervai seeks to build up similarity between section 123 and the English Law as it was understood in 1872.
In other words, according to Mr. Seervai the jurisdiction of the Court in dealing with a claim of privilege under section 123 is very limited and in most of the cases, if not all, the Court would have to accept the claim without effective scrutiny.
On the other hand it has been urged by Mr. Sastri that the expression " documents relating to any affairs of State " should receive a narrow construction; and it should be confined only to the class of noxious documents.
Even in regard to this class the argument is that the Court should decide the character of the document and should not hesitate to enquire, incidentally if necessary, whether its disclosure would lead to injury to public interest.
This contention seeks to make the jurisdiction of the Court wider and the field of discretion entrusted to the department correspondingly narrower.
It would thus be seen that on the point in controversy between the parties three views are possible.
The first view is that it is the head of the department who decides to which class the document belongs; if he comes to the conclusion that the document is innocuous he will give permission to its production; if, however, he comes to the conclusion that the document is noxious he will withhold such permission; in any case the Court does not materially come into the picture.
The other view is that it is for the Court to determine the character of the document, and if necessary enquire into the possible consequences of its disclosure; on this view the jurisdiction of the Court is very much wider.
A third view which does not 388 accept either of the two extreme positions would be that the Court can determine the character of the document, and if it comes to the conclusion that the document belongs to the noxious class it may leave it to the head of the department to decide whether its production should be permitted or not ; for it is not the policy of section 123 that in the case of every noxious document the head of the department must always withhold permission.
In deciding the question as to which of these three views correctly represents the true legal position under the Act it would be necessary to examine section 162.
Let us therefore, turn to that section.
Section 162 reads thus: " A witness summoned to produce a document shall, if it is in his possession or power, bring it to Court, notwithstanding any objection which there may be to its production or to its admissibility.
The validity of any such objection shall be decided on by the Court.
The Court, if it sees fit, may inspect the document, unless it refers to matters of State, or take other evidence to enable it to determine on its admissibility.
" The first clause of section 162 requires that a witness summoned to produce a document must bring it to the Court and then raise an objection against either its production or its admissibility.
It also authorises the Court, and indeed makes it its obligation, to decide the validity of either or both of the said objections.
It is significant that the objections to the production or admissibility of evidence specified in section 162 relate to all claims of privilege provided by the relevant sections of Chapter IX of Part III of the Act.
Section 123 is only one of such privileges so that the jurisdiction given to the Court to decide the validity of the objections covers not only the objections raised under section 123 but all other objections as well.
Take for instance the privilege claimed under section 124 of the Act which provides that no public officer shall be compelled to disclose communications made to him in official confidence when he considers he considers that the public interest 389 would suffer by the disclosure.
It is clear, and indeed it is not.
disputed, that in dealing with an objection against the production of a document raised under section 124 the Court would have first to determine whether the communication in question has been made in official confidence.
If the answer to the said question is in the negative then the document has to be produced ; if the said answer is in the affirmative then it is for the officer concerned to decide whether the document should be disclosed or not.
This illustration brings out the character and the scope of the jurisdiction conferred on the Court dealing with an objection raised under section 162.
The second clause of section 162 in terms refers to the objection as to the admissibility of the document.
It seems to us that this clause should be construed to refer to the objections both as to the production and the admissibility of documents; otherwise, in the absence of any limitation on its power the Court would be justified in exercising its authority under, and discharging its obligation imposed by, cl. 1 of section 162 by inspecting the document while holding an enquiry into the validity of the objection raised against its production under section 123, and that would be inconsistent with the material provision in cl. 2 of section 162.
That is why we hold that the second clause covers both kinds of objections.
In other words, admissibility in the context refers both to production and admissibility.
It may be added that " matters of State " referred to in the second clause are identical with " affairs of State " mentioned in section 123.
Reading this clause on this assumption what is its effect ? It empowers the Court to inspect the document while dealing with the objection; but this power cannot be exercised where the objection relates to a document having reference to matters of State and it is raised under section 123.
In such a case the Court is empowered to take other evidence to enable it to determine the validity of the objection.
Mr. Seervai contends that the first part of cl. 2 which deals with the inspection of the document is confined to the objection relating to the production of the document, 390 and on that basis he contends that since inspection is not permissible in regard to the document falling under section 123 the Court can do nothing else but record its approval to, and uphold the validity of, the objection raised by the head of the department.
In regard to the objection as to the admissibility of the said document, however, he concedes that the Court can take other evidence, if necessary, and then determine its validity.
According to him, such evidence would be necessary and permissible when the objection to admissibility is based for instance on want of stamp or absence of registration.
In our opinion, this con struction though ingenious is not supportable on a plain and grammatical construction of the clause read as a whole; it breaks up the clause artificially which is plainly not justified by rules of grammar.
We are satisfied that the Court can take other evidence in lieu of inspection of the document in dealing with a privilege claimed or an objection raised even under section 123.
If the privileged document cannot be inspected the Court may well take other collateral evidence to determine its character or class.
In other words, the jurisdiction conferred on the Court to deal with the validity of an objection as to the production of a docu ment conferred by the first clause is not illusory or nominal ; it has to be exercised in cases of objections raised under section 123 also by calling for evidence permissible in that behalf.
It is perfectly true that in holding an enquiry into the validity of the objection under section 123 the Court cannot permit any evidence about the contents of the document.
If the document cannot be inspected its contents cannot indirectly be proved ; but that is not to say that other collateral evidence cannot be produced which may assist the Court in determining the validity of the objection.
This position would be clear if at this stage we consider the question as to how an objection against the production of document should be raised under section 123.
it is well settled and not disputed that the privilege should not be claimed under section 123 because it is apprehended that the document if produced would defeat the defences raised by the State.
Anxiety 391 to suppress a document may be natural in an individual litigant and so it is checked and kept under control by the provisions of section 114 of the Act.
Where, however, section 123 confers wide powers on the bead of the department to claim privilege on the ground that the disclosure may cause injury to public interest scrupulous care must be taken to avoid making a claim for such a privilege on the ground that the disclosure of the document may defeat the defence raised by the State.
It must be clearly realised that the effect of the document on the ultimate course of litigation or its impact on the head of the department or the Minister in charge of the department, or even the government in power, has no relevance in making a claim for privilege under section 123.
The apprehension that the disclosure may adversely affect the head of the department or the department itself or the Minister or even the government, or that it may provoke public criticism or censure in the Legislature has also no relevance in the matter and should not weigh in the mind of the head of the department who makes the claim.
The sole and the only test which should determine the decision of the head of the department is injury to public interest and nothing else.
Since it is not unlikely that extraneous and collateral purposes may operate in the mind of the person claiming the privilege it is necessary to lay down certain rules in respect of the manner in which the privilege should be claimed.
We think that in such cases the privilege should be claimed generally by the Minister in charge who is the political head of the department concern ed; if not, the Secretary of the department who is the departmental head should make the claim; and the claim should always be made in the form of an affidavit.
When the affidavit is made by the Secretary the Court may, in a proper case, require an affidavit of the Minister himself.
The affidavit should show that each document in question has been carefully read and considered, and the person making the affidavit is satisfied that its disclosure would lead to public injury.
If there are a series of documents included in a file it should appear from the affidavit that each one of the documents, whose disclosure is objected to, has been 392 duly considered by the authority concerned.
The affidavit should also indicate briefly within permissible limits the reason why it is apprehended that their disclosure would lead to injury to public interest.
This last requirement would be very important when privilege is claimed in regard to documents which prima, facie suggest that they are documents of a commercial character having relation only to commercial activities of the State.
If the document clearly falls within the category of privileged documents Do serious dispute generally arises; it is only when Courts are dealing with marginal or border line documents that difficulties are experienced in deciding whether the privilege should be upheld or not, and it is particularly in respect of such documents that it is expedient and desirable that the affidavit should give some indication about the reasons why it is apprehended that public interest may be injured by their disclosure.
It is conceded by Mr. Seervai that if the affidavit produced in support of the claim for privilege is found to be unsatisfactory a further affidavit may be called, and in a proper case the person making the affidavit whether be is a Minister or the Secretary should be summoned to face cross examination on the relevant points.
Mr. Seervai, however, contends that the object of such cross examination must be limited to test the credibility of the witness and nothing more.
We do not see why any such a limitation should be imposed on cross examination in such a case.
It would be open to the opponent to put such relevant and permissible questions as he may think of to help the Court in determining whether the document belongs to the privileged class or not.
It is true that the scope of the enquiry in such a case is bound to be narrow and restricted ; but the existence of the power in the Court to hold such an enquiry will itself act as a salutary check on the capricious exercise of the power conferred under section 123; and as some of the decisions show the existence of this power is not merely a matter of theoretical abstraction (Vide for instance, Ijjat Ali Talukdar vs Emperor (1)).
(1) 393 Thus our conclusion is that reading ss.123 and 162 together the Court cannot hold an enquiry into the possible injury to public interest which may result from the disclosure of the document in question.
That is a matter for the authority concerned to decide; but the Court is competent, and indeed is bound, to hold a preliminary enquiry and determine the validity of the objections to its production, and that necessarily involves an enquiry into the question as to whether the evidence relates to an affair of State under section 123 or not.
In this enquiry the Court has to determine the character or class of the document.
If it comes to the conclusion that the document does not relate to affairs of State then it should reject the claim for privilege and direct its production.
If it comes to the conclusion that the document relates to the affairs of State it should leave it to the head of the department to decide whether he should permit its production or not.
We are not impressed by Mr. Seervai 's argument that the Act could not have intended that the head of the department would permit the production of a document which belongs to the noxious class.
In our opinion, it is quite Conceivable that even in regard to a document falling within the class of documents relating to affairs of State the head of the department may legitimately take the view that its disclosure would not cause injury to public interest.
Take for instance the case of a document which came into existence quite some time before its production is called for in litigation; it is not unlikely that the head of the department may feel that though the character of the document may theoretically justify his refusing to permit its production, at the time when its production is claimed no public injury is likely to be caused.
It is also possible that the head of the department may feel that the injury to public interest which the dis closure of the document may cause is minor or insignificant, indirect or remote; and having regard to the wider extent of the direct injury to the cause of justice which may result from its non production he may 394 decide to permit its production.
In exercising his discretion under section 123 in many cases the head of the department may have to weigh the pros and cons of the problem and objectively determine the nature and extent of the injury to public interest as against the injury to the administration of justice.
That is why we think it is not unreasonable to hold that section 123 gives discretion to the bead of the department to permit the production of a document even though its production may theoretically lead to some kind of injury to public interest.
While construing sections 123 and 162, it would be irrelevant to consider why the enquiry as to injury to public interest should not be within the jurisdiction of the Court, for that clearly is a matter of policy on which the Court does not and should not generally express any opinion.
In this connection it is necessary to add that the nature and scope of the enquiry which, in our opinion, it is competent to the Court to hold under section 162 would remain substantially the same whether we accept the wider or the narrower interpretation of the expression "affairs of State".
In the former case the Court will decide whether the document falls in the class of innocuous or noxious documents; if it finds that the document belongs to the innocuous class it will direct its production; if it finds that the document belongs to the noxious class it will leave it to the discretion of the head of the department whether to permit its production or not.
Even on the narrow con struction of the expression "affairs of State" the Court will determine its character in the first instance; if it holds that it does not fall within the noxious class which alone is included in the relevant expression on this view an order for its production will follow; if the finding is that it belongs to the noxious class the question about its production will be left to the discretion of the head of the department.
We have already stated how three views are possible on this point.
In our opinion, Mr. Seervai 's contention which adopts one extreme position ignores the effect of section 162, whereas the contrary position which is also extreme in character ignores the provisions of section 123.
The view 395 which we are disposed to take about the authority and jurisdiction of the Court in such matters is based on a harmonious construction of section 123 and section 162 read together; it recognises the power conferred on the Court by cl.
(1) of section 162, and also gives due effect to the discretion vested in the head of the department by section 123.
It would thus be clear that in view of the provisions of section 162 the position in India in regard to the Court 's power and jurisdiction is different from the position under the English Law as it obtained in England in 1872.
It may be true to say that in prohibiting the inspection of documents relating to matters of State the second clause of section 162 is intended to repel the minority view of Baron Martin in the case of Beatson (1).
Nevertheless the effect of the first clause of section 162 clearly brings out the departure made by the Indian Law in one material particular, and that is the authority given to the Court to hold a preliminary enquiry into the character of the document.
That is why we think that the arguments so elaborately and ingeniously built up by Mr. Seervai on the basis of the background of the breaks down in the light of the provisions of section 162.
We may add that in substance and broadly stated the consensus of judicial opinion in this country is in favour of this conclusion.
(Vide: e.g., Kaliappa Udayan vs Emperor (2); R. M. D. Chamarbaugwala vs Y. R. Parpia (3); Governor General in Council vs H. Peer Mohd. Khuda Bux & Ors.
(4); The Public Prosecutor, Andhra vs Venkata Narasayya (5); and ljjat Ali Talukdar vs Emperor (6)).
Therefore we think it is unnecessary to refer to these decisions in detail or to examine the reasons given by them in support of the conclusion reached by them.
There are, however, two decisions which have struck a note of dissent, and so it is necessary to examine them.
In W. section Irwin vs D. J. Reid (7) it appears that the Court was incidentally dealing with (1) ; ; (2) A.I.R. 1937 Mad.
(3) A.I.R. 1950 Bom.
(4) A.I.R. 1950 East Punjab 228.
(5) A.I.R. 1957 Andhra 486.
(6) I.L.R. [1944] 1 Cal 410.
(7) (192I) I.L.R 396 the scope and effect of section 123 of the Act.
In that case the plaintiff was one of the members of the committee, known as the Champaran Agrarian Enquiry Committee, and as such member he had effected a settlement between the indigo planters and the tenants about the partial refund of tawan or remission of sarabeshi.
The defendant Irwin wrote three letters to the members after the settlement which taken together would import that his consent to the settlement was obtained by misrepresentation and all facts were not disclosed to him.
Thereupon Reid filed a suit claiming Rs. 50,000 as damages against Irwin for making the said defamatory statements which according to him greatly injured his credit and reputation and had brought him into public odium and contempt.
It appears that at the trial an attempt was made to compel the production of the minutes of the com mittee.
The, said attempt failed because the Government of Bihar and Orissa claimed privilege under section 123.
In appeal it was urged that the privilege should not have been upheld, but the appellant 's plea was not accepted by the Court.
"The public officer concerned", observed Mookerjee, A. C. J., "and not the judge is to decide whether the evidence referred to shall be given or withheld.
If any other view were taken the mischief intended to be avoided would take place as the judge could not determine the question without ascertaining the contents of the document, and such enquiry, if it did take place, must, for obvious reasons take place in public".
In support of this decision the learned judge referred to some English decisions; amongst them was the case of Beatson vs Skene (1).
It would be noticed that in making these incidental observations the Court has not considered the true effect of the provisions of section 162.
Indeed no reference was made to the said section and the matter does not appear to have been seriously argued and naturally, because the point was not directly raised for decision.
In this connection we ought to point out that in a subsequent decision of the said High Court in Ijjat Ali Talukdar 's case (2) a contrary view has been (1) ; (2) I.L.R. [1944] I Cal.
397 taken and it is the subsequent view which has prevailed in the Calcutta High Court thereafter.
In Khawaja Nazir Ahmad vs The Crown (1) the High Court of Judicature at Lahore has held that when a privilege is claimed under section 123 the Court simply gives effect to the decision of the head of the department by adding its own command to it but the Court.
has no power to examine the document in order to verify the correctness of the allegations or the grounds on which the privilege is claimed.
Abdur Rahman, J., who delivered the judgment of the Bench in that case, has considered the relevant Indian and English decisions, and has based his conclusion substantially on the judgment of the House of Lords in Duncan vs Cammell Laird & Co. Ltd. (2), to which we will presently refer.
The learned judge appears to have con strued section 162 in the manner suggested by Mr. Seervai.
In fact Mr. Seervai 's argument was that the construction placed by Abdur Rahman, J. on section 162 had not been considered by the other Indian decisions when they brushed aside his conclusion.
"I feel convinced", said Abdur Rahman, J., "that the objection as to the production of the document, apart from its admissibility (for want of registration or contravening the rule as to when secondary evidence of a document can be admitted if the document is merely a copy and not original) can only be decided by its inspection by the Court, followed, as it must necessarily.
have been, by an order of production, although not in the sense of its contents having been disclosed to the party summoning the document at any rate at that stage".
We have already indicated our reasons for not accepting this artificial construction of the second clause in section 162.
This decision also has been dissented from by a Full Bench of the Lahore High Court in Governor General in Council vs H. Peer Mohd. Khuda Bux & Ors.
(3) and the view taken by the Full Bench in that case prevails in the Punjab High Court ever since.
In the course of arguments before us a large number of English decisions have been cited by the learned (1) Lah.
(2) ; (3) A.I.R. 1950 East Punjab 228.
398 counsel appearing for both the parties.
Having regard to the fact that our decision ultimately rests, as it must, on the construction of the relevant provisions of the Act, we do not think it necessary to refer to all the cases to which our attention was drawn; we propose to confine ourselves to three decisions which have made a substantial contribution to the discussion of the problem, and which represent three distinct and different trends of judicial opinion on the point with which we are dealing.
The first case to which we would refer is the decision of the Privy Council in Robinson vs State of South Australia In that case the appellant had brought an action in the Supreme Court of South Australia against the respondent State claiming damages for alleged negligence in the care of wheat placed in the control of the State under the Wheat Harvests Acts, 1915 17.
Upon an order for discovery the respondent State, by an affidavit made by a civil servant, claimed privilege in respect of 1892 documents tied in three bundles, and stated to be State documents comprising communications between officers administering the department concerned.
There was exhibited to the affidavit a minute by the responsible Minister stating, inter alia, that the disclosure of the documents would be contrary to the interests of the State and of the public.
The claim for privilege had been upheld by the Australian Courts but it was rejected by the Privy Council which held that the minute was inadequate to support the claim; it was too vague in the circumstances of the case, and was not a statement on oath showing that the Minister had himself considered each of the documents, or indicating the nature of the suggested injury to the interests of the public.
The Privy Council, therefore, directed that the Supreme Court of South Australia should exercise its power under O. 31, r. 14, sub r. (2), to inspect the documents, because it thought that the said course was less likely to cause delay than an order for a further and better affidavit of documents.
The litigation in that case had been preceded by another litigation, and on the (1) 399 facts thus disclosed the Privy Council was satisfied that the action in question was one of a large number which were then pending, and against which a similar relief was claimed, all being alike dependent for success upon the establishment of the same facts.
That is how full discovery by the respondent had become "the immediately vital issue between the parties".
Dealing with the merits of the privilege the Privy Council cited with approval Taylor 's observation that "the principle of the rule is concern for public interest, and the rule will accordingly be applied no further than the attainment of that object requires"(1).
Lord Blanesburgh, who delivered the judgment of the Board observed that "it cannot be assumed that documents relating to trading, commercial or contractual activities of the State can never be claimed to be protected under this head of privilege", but he added that "the cases in which this is so must, in view of the sole object of the privilege, and especially in time of peace, be rare indeed".
Then he referred to the fact that in view of the increasing extension of State activities into the spheres of trading business and commerce, and of the claim of privilege in relation to the liabilities arising therefrom which were frequently put forward, it is necessary for the Courts to remember that while they must duly safeguard genuine public interests they must see to it that the scope of the admitted privilege is not, in such litigation, extended.
The judgment then proceeds to add that in truth the fact that documents if produced might have any such effect upon the fortunes of the litigation is of itself a compelling reason for their production one only to be overborne by the gravest considerations of State policy or security.
Then the power of the Court to call for the production of documents for which privilege was claimed was examined in the light of previous decisions, and in the light of the provisions of O. 31, r. 14, sub r.
"Where, as in the present case", it was observed, "the State is not only sued as defendant under the authority of statute, but is in the suit bound to give discovery, there seems little, if any, (1) Taylor on "Evidence", s.939.
400 reason why the Court in relation to this privileged class of its documents should have any less power than it has to inspect any other privileged class of its documents, provided of course, that such power be exercised so as not to destroy the protection of the privilege in any case in which it is found to exist".
The procedure which should be adopted in claiming the privilege was then considered, and it was held that the affidavit produced, which in its sweep covered no fewer than 1892 documents in number, was of the vaguest generality and as such unsatisfactory.
The Privy Council then considered the question as to whether a further opportunity should be given to the State to make a better affidavit but it thought that it would be inexpedient to adopt such a course because it ,would involve further serious delay, "without, it may be, advancing any further the final solution to the question at issue".
That is why the Supreme Court was asked to exercise its power under the relevant rule to inspect the documents and then decide whether the privilege should be upheld or not.
It is significant that even when giving such a direction their Lordships took the precaution of adding that the judge, in giving his decision as to any document, will be careful to safeguard the interest of the State and will not, in any case of doubt, resolve the doubt against the State without further enquiry from the Minister.
It only remains to add that so far as Australia is concerned it does not appear that there is any statutory provision corresponding to section 162 of the Act, and so, even after this judgment was pronounced by the Privy Council, Courts in India have not given effect to the operative part of the order in regard to the inspection of the document by Courts having regard to the statutory prohibition imposed by section 162 in that behalf.
This pronouncement of the Privy Council was subsequently criticised by the House of Lords in Duncan & Anr.
vs Cammell Laird & Co. Ltd. (1).
It appears that the submarine Thetis which had been built up by the respondents under contract with the Admiralty was undergoing her submergence tests in Liverpool Bay, and, while engaged in the operation of a 401 trial drive, sank to the bottom owing to the flooding of her two foremost compartments and failed to return to the surface with the result that all who were in her, except four survivors were overwhelmed.
This unfortunate accident gave rise to a large number of actions against the respondents for damages for negligence.
Pending the trial of the said claims the plaintiffs wanted discovery of certain specified documents to which the defendants objected, and the objection of the defendants was supported by Mr. Alexander who was the First Lord of the Admiralty 'in his affidavit made in that behalf.
The documents to the production of which an objection was thus raised included (either in original or as a copy) the contract for the hull and machinery of the Thetis and other letters and reports.
The Master before whom the objection was raised refused to order inspection.
His decision was confirmed by Hilbery, J., sitting in Chambers, and the Court of Appeal unanimously confirmed the judge 's order.
The plaintiffs, however, were given leave to appeal to the House of Lords; that is how the matter reached the House of Lords.
Viscount Simon, L. C., who pronounced a composite judgment on behalf of himself and on behalf of Lord Thankerton, Lord Russel of Killowen and Lord Clauson, exhaustively considered the whole law on the subject of Crown Privilege; and in his speech he made the categorical statement that in his opinion the Privy Council was mistaken in regarding the Australian rule of procedure as having any application to the subject matter and in ordering the inspection of the documents which were in question before the Privy Council.
Viscount Simon began his speech with the consideration of the previous decisions of the House of Lords, and held that the matter in substance was concluded by previous authorities in favour of upholding the objections.
He observed that the common law principle is well established that, where the Crown is a party to a suit, discovery of documents cannot be demanded from it as a matter of right, though in practice, for reasons of fairness and.
in the 51 402 interests of justice, all proper disclosure and production would be made.
As a result of the examination of the several decisions Viscount Simon deduced the principle which has to be applied in such cases in these words: "Documents otherwise relevant and liable to production must not be produced if the public interest requires that they should be withheld.
This test may 'be found to be satisfied either (a) by having regard to the contents of the particular document, or (b) by the fact that the document belongs to a class which, on grounds of public interest, must as a class be with held from production".
In this connection he stated that public interest may be damnified where disclosure would be injurious to national defence, or to good diplomatic relations, or where the practice of keeping a class of documents secret is necessary for the proper functioning of the public service.
Then he proceeded to examine the question as to whether when objection has been duly taken the judge should treat it as conclusive; and his answer was that an objection validly taken to production on the ground that this would be injurious to public interest is conclusive; but, of course, he proceeded to make pertinent observations for the guidance of those who are entrusted with the power to make a claim.
It would be noticed that even this decision would not be of material assistance to us because, as we have repeatedly pointed out, our decision must ultimately rest on the relevant statutory provisions contained in the ; and so, the conclusion that a valid certificate issued by the Minister in charge is conclusive may not be strictly applicable to a claim for privilege similarly made by a Minister in charge in India.
As we have already indicated, the preliminary enquiry contemplated by the first clause of section 162 has to be held by the Court, and it is after the Court has found in favour of the character of the document pleaded by the State that the occasion arises for the head of the department to exercise his discretion conferred by section 123.
Incidentally, we may point out that Lord Thankerton and Lord Russel of Killowen, who were parties to this 403 decision, were also parties to the decision of the Privy Council in the case of Robinson (1).
In regard to the decisions in the cases of Robinson (1) and Duncan (2 ) respectively, it may be permissible to make one general observation.
In both these cases the nature of the documents for which privilege was claimed, the time at which the dispute arose and the other surrounding circumstances were very unusual and special though in different ways, and so, as often happens, the shift in emphasis from one aspect of the same principle to another and the strong language used took colour from the nature of the special facts.
Incidentally we may also add that the epilogue to the decision in Robinson 's case (1) illustrates what untoward consequences may follow from an erroneous decision or a miscalculation as to the injury to public interest which may be caused by disclosure.
* Nearly five years after the judgment in Duncan 's case (2) was pronounced, the Crown Proceedings Act (10 & 11 Geo. 6, c. 44) was passed in 1947, and the Crown Privilege recognised under the common law of England is now regulated by section 28 of the said Act.
Section 28 which deals with discovery provides in substance that subject to the rules of court in any civil proceedings there specified the Crown may be required by the Court to make discovery of documents and produce documents for inspection, and that in such proceedings the Crown may also be required to answer interrogatories.
This legislative invasion of the Crown 's prerogative is, however, subject to the proviso that the said section shall be without prejudice to any rule of law which authorises or requires the withholding of any document or the refusal to answer any question on the ground that the disclosure of the document or the answering of the question would be injurious to public interest.
It would be noticed that section 28 read with the proviso confers on the Courts specified by it powers which are much narrower than (1) (2) ; *For a graphic account of the aftermath of the enquiry held by the Supreme Court of South Australia, pursuant to the Privy Council 's decision in Robinsons 's case (i), see "Law and Orders" by Sir C. K. Allen, 2nd Ed.
,P. 374, foot note 5a.
404 those which are conferred on the Indian Courts under cl. 1 of section 162 of the Act.
In the decision in Duncan 's case (1) Viscount Simon had assumed that the law as laid down by the said decision was equally applicable to Scotland.
This assumption has been seriously challenged by another decision of the House of Lords in Glasgow Corporation vs Central Land Board (2).
In that case Viscount Simonds has referred to a large number of earlier decisions dealing with the relevant law as it is administered in Scotland and commented on the decision in Duncan 's case (1) by saying that the observations in the said case, in so far as they relate to the law of Scotland must be regarded as obiter dicta.
"In the course of the present appeal", added Lord Simonds, "we have had the advantage of an exhaustive examination of the relevant law from the earliest times, and it has left me in no doubt that there always has been, and is now, in the law of Scotland an inherent power of the Court to override the Crown 's objections to produce documents on the ground that it would injure the public interest to do so", though he added that " very rarely in recent times has this inherent right been exercised".
Lord Radcliffe, who agreed with the conclusion of the House with some reluctance, has made strong comments on the plea of privilege which is raised on behalf of the Crown in such matters.
Adverting to the contention that the public interest may be injured by the production of the document Lord Radcliffe observed that more than one aspect of the public interest may have to be surveyed in reviewing the question whether a document which would be available to a party in a civil suit between private parties is not to be available to the party engaged in a suit with the Crown.
According to Lord Radcliffe it was not unreasonable to expect that the Court would be better qualified than the Minister to measure the importance of such principles in application to the particular case that is before it.
It is on that assumption that the Scottish Law has reserved to the Courts the duty of making some assessment of the relative (1) ; (2) (1956) Soots Law Times Reports 41.
405 claims of the different aspects of public interest where production of a document is objected to by the Crown.
Then, in his characteristic style Lord Radcliffe has observed "I should think it a very great pity indeed if a power of this kind, a valuable power, came to be regarded as a mere ghost of theory having no practical substance, and the Courts abdicated by disuse in the twentieth century a right of control which their predecessors in the earlier centuries have been insistent to assert".
The learned law Lord has also made some strong comment on the formula which has been evolved by Viscount Simon in Duncan 's case (1), and had stated, that the phrase "necessary for the proper functioning of the public service" is a familiar one, and I have a misgiving that it may become all too familiar in the future".
The result of this decision appears to be that in Scotland, where the common law doctrine of the Crown Privilege is not strictly enforced, a privilege can be claimed by the Minister on grounds set forth by him in his affidavit.
The certificate would be treated as very strong presumptive evidence of the claim made but the Court would nevertheless have inherent power to override the said certificate.
It is unnecessary for us to consider the true nature and effect of this power because in India in this particular matter we are governed by the provisions of section 162 which confer power on Courts to determine the validity of the objection raised under section 123, and so there would be no occasion or justification to exercise any inherent power.
Though we do not propose to refer to the other decisions to which our attention was invited, we may incidentally observe that the decision in Duncan 's case (1) has been followed by English Courts, but sometimes the learned judges have expressed a sense of dissatisfaction when they are called upon to decide an individual dispute in the absence of relevant and material documents.
(Vide: Ellis vs Home Office (2)).
Before we part with this topic we may also indicate, that it appears that in the long history of reported judicial decisions only on three occasions the right to (1) ; (2) 406 inspect documents has been either theoretically asserted or actually exercised in England.
In Hennessy vs Wright (1), Field, J., observed that he would consider himself entitled to examine privately the documents to the production of which the Crown objected, and to endeavour by this means and that of questions addressed to the objector to ascertain whether the fear of injury to public service was the real motive in objecting.
In point of fact, however, the learned Judge did not inspect the documents.
From the judgment of the Court of Appeal in Asiatic Petroleum Co., Ltd. vs Anglo Persian Oil Co., Ltd. (2), it appears that Scrutton, J., had inspected the documents to the production of which an objection was raised.
The learned judge has, however, added that having seen the documents he thought that the.
government may be right in the view that they ought not to be produced to others, and that he would not take the res ponsibility of ordering them to be produced against the wishes of the government.
In Spigelmann vs Hocker & Anr.
(3), Macnaghten, J., inspected the document to the production of which an objection was raised.
The result of these decisions is that in England a valid certificate issued by the Minister in support of the privilege claimed is conclusive; while in Scotland, though it would normally be treated as such, Courts reserve to themselves an inherent right to revise or review the certificate in a proper case.
It now remains to consider whether the High Court was right in holding that the privilege claimed by the appellant in respect of the four documents in question was not justified, and that takes us to the consideration of the relevant facts in the present appeal.
The documents of which discovery and inspection were claimed are thus described by the respondent: (1) Original order passed by Pepsu Government on September 28, 1955, on the representation dated May 18, 1955, submitted by Sodhi Sukhdev Singh; (2) Original order passed by the Pepsu Government (1) (2) (3) (1933 34) 1 Times L.R. 87. 407 on March 8/9, 1956, reaffirming the decision passed on September 28, 1955, referred to above; (3) Original order passed by the Pepsu Government in their cabinet Meeting dated August 11, 1956, revising their previous order on the representation of Sodhi Sukhdev Singh dated May 18, 1955; and (4) Report of the Public Service Commission on the representation of Sodhi Sukhdev Singh dated May 18, 1955, after the Pepsu Government 's decision on September 28, 1955.
In dealing with this question and in reversing the order passed by the trial court by which the privilege had been upheld, the High Court has purported to apply the definition of the expression "affairs of State" evolved by Khosla, J., as he then was, in the case of Governor General in Council vs H. Peer Mohd. Khuda Bux & Ors.
(1): "It is, therefore, sufficiently clear", said the learned judge, "that the expression "affairs of State" as used in section 123 has a restricted meaning, and on the weight of authority, both in England and in this country, I would define "affairs of State" as matters of a public nature in which the State is concerned, and the disclosure of which will be prejudicial to the public interest or injurious to national defence or detrimental to good diplomatic relations".
It is this definition which was criticised by Aft.
Seervai on the ground that it purported to describe the genus, namely, affairs of State, solely by reference to the characteristics of one of its species, namely, documents whose disclosure was likely to cause injury to public interest.
Having adopted this definition the High Court proceeded to examine whether any injury would result from the disclosure of the documents, and came to the conclusion that it was difficult to sustain the plea that the production of the documents would lead to any of the injuries specified in the definition evolved by Khosla, J.
On this ground the High Court allowed the contention of the respondent and directed the State to produce the documents in question.
We have already held that in dealing with the (1) A.I.R. 1950 East Punjab 228.
408 question of privilege raised under section 123 it is not a part of the Court 's jurisdiction to decide whether the disclosure of the given document would lead to any injury to public interest;, that is a matter for the head of the department to consider and decide.
We have also held that the preliminary enquiry where the character of the documents falls to be considered is within the jurisdiction and competence of the Court, and we have indicated how within the narrow limits prescribed by the second clause of a. 162 such an enquiry should be conducted.
In view of this conclusion we must hold that the High Court was in error in trying to enquire into the consequences of the disclosure; we may add that the decision of the High Court suffers from the additional infirmity that the said enquiry has been confined only to the specified classes of injury specified by Khosla, J., in his definition which cannot be treated as exhaustive.
That being so, we think the appellant is justified in complaining against the validity of the decision of the High Court.
Let us then consider whether the documents in question do really fall within the category of documents relating to "affairs of State".
Three of the documents the discovery of which the respondent claimed are described as original orders passed by the Pepsu Cabinet on the three respective dates.
It is difficult to understand what was exactly meant by describing the said documents as original orders passed on those dates; but quite apart from it the very description of the documents clearly indicates that they are documents relating to the discussions that took place amongst the members of the Council of Ministers and the provisional conclusions reached by them in regard to the respondent 's representation from time to time.
Without knowing more about the contents of the said documents it is impossible to escape the conclusion that these documents would embody the minutes of the meetings of the Council of Ministers and would indicate the advice which the Council ultimately gave to the Rajpramukh.
It is hardly necessary to recall that advice given by the 409 Cabinet to the Rajpramukh or the Governor is expressly saved by article 163, sub article
(3), of the Constitution; and in the case of such advice no further question need to be considered.
The same observation falls to be made in regard to the advice tendered by the Public Service Commission to the Council of Ministers.
Indeed it is very difficult to imagine how advice thus tendered by the Public Service Commission can be excluded from the protection afforded by section 123 of the Act.
Mr. Gopal Singh attempted to argue that before the final order was passed the Council of Ministers had decided to accept the respondent 's representation and to reinstate him, and that, according to him, the respondent seeks to prove by calling the two original orders.
We are unable to understand this argument.
Even if the Council of Ministers had provisionally decided to reinstate the respondent that would not prevent the Council from reconsidering the matter and coming to a contrary conclusion later on, until a final decision is reached by them and is communicated to the Rajpramukh in the form of advice and acted upon by him by issuing an order in that behalf to the respondent.
Until the final order is thus communicated to the respondent it would be open to the Council to consider the matter over and over again, and the fact that they reached provisional conclusions on two occasions in the past would not alter the character of the said conclusions.
The said conclusions, provisional in character, are a part of the proceedings of the Council of Ministers and no more.
The report received by the Council from the Public Service Commission carries on its face the character of a document the disclosure of which would lead to injury of public interest.
It falls in that class of document which "on grounds of public interest must as a class be withheld from production".
Therefore, in our opinion, the conclusion appears inescapable that the documents in question are protected under section 123, and if the head of the department does not give permission for their production, the Court cannot compel the appellant to produce them.
We should have 52 410 stated that the two affidavits made by the Chief Secretary in support of the plea of the claim of privilege satisfied the requirements which we have laid down in our judgment, and no comment can be effectively made against them.
The argument that in its pleadings the appellant accepted the description of the respondent that the document contained orders is hardly relevant or material.
The affidavits show what these documents purport to be and that leads to the inference which irresistibly follows from the very descrip tion of the documents given by the respondent himself in his application by which he called for their production and inspection.
Before we part with this appeal we may incidentally refer to another point which was argued at some length before us by both the learned counsel for interveners.
Mr. Viswanatha Sastri contended that the provisions of section 162 can be invoked only where a witness has been summoned to produce a document and a privilege is claimed by him in respect of it.
According to him the said provisions cannot be invoked where the Court is called upon to decide the validity of the claim of privilege at the stage of inspection of the documents.
In other words, where the State is a party to the suit and an application for inspection of documents is made against it by its opponent, and a claim for privilege is put forward by the State, the Court is entitled under 0. 11, r. 19, sub a. (2), to inspect the documents for the purpose of deciding as to the validity of the claim of privilege.
That is the clear provision of 0. 11, r. 19, sub r.
(2), and the power conferred on the Court by the said provision is not subject to section 162 of the Act.
This position is seriously disputed by Mr. Seervai.
The procedural law in regard to discovery, production and inspection of documents is contained in 0. 11, rr. 12, 21.
It is true that 0. 11, r. 19, sub r. (2) provides that in dealing with a claim of privilege "it shall be lawful for the Court to inspect the document for the purpose of deciding the validity of the claim of privilege".
The question is, what is the effect of this provision when it is considered along with section 162 of the Act ? 411 Before briefly indicating our conclusion on this point we may observe that this contention does not appear to have been raised in any judicial decisions to which our attention was drawn.
Indeed it appears generally to have been assumed that in the matter of deciding a claim for privilege made by the State the provisions of section 162 of the Act would apply whether the said claim is made at the earlier stage of inspection or later when evidence is formally tendered.
That, however, is another matter.
It is true that section 162 in terms refers to a witness who is summoned to produce a document and provides for the procedure which should be adopted and the powers which should be exercised in dealing with a privilege claimed by such a witness; but there is no doubt that the provisions of the Act are intended to apply to all judicial proceedings in or before any Court; that in terms is the result of section 1 of the Act, and the proceedings before the Court under 0. 11, r. 19, are judicial proceedings to which prima facie section 162 would.
apply.
Similarly, section 4, sub section
(1), of the Code of Civil Procedure provides, inter alia, that in the absence of any specific provisions to the contrary nothing in the Code shall be deemed to limit or otherwise affect any special or local law in force; that is to say, in the absence of any provisions to the contrary the Evidence Act would apply to all the proceedings governed by the Code.
Besides, it would be very strange that a claim for privilege to which 0. 1 1, r. 19 sub r.
(2), refers is allowed to be raised under a. 123 of the Act, whereas, the procedure prescribed by the Act in dealing with such a claim by section 162 is inapplicable.
If section 123 of the Act applies and a claim for privilege can be raised under it, prima facie there is no reason why section 162 should not likewise apply.
But apart from these general considerations the relevant scheme of the Code of Civil Procedure itself indicates that there is no substance in the argument raised by Mr. Sastri.
Order 27 prescribes the procedure which has to be adopted where suits are filed by ,or against the government; a plaint or written statement proposed to be filed by the government has to be 412 signed under r. 1 by such person as the government may by general or special order appoint in that behalf, which means that the government can only act through its agent duly appointed in that behalf.
The Minister who is the political head of the department or the Secretary who is its administrative head is not the government; and so whenever the government sues or is sued and makes its pleadings it always acts through its duly authorised agents.
The scheme of the relevant rules of 0.
27 is consistent with this position.
Section 30 of the Code empowers the Court either on its own motion or on an application of a party to issue summonses to persons whose attendance is required either to give evidence or produce document, and to order that any fact may be proved by an affidavit.
Order 4, r. 5, contemplates that, at the time of issuing the summons, the Court has to determine whether the summons should be for the settlement of issues only or for the final disposal of the suit; and the relevant form of the summons (No. 1 in First Schedule, Appendix B) shows that in the case of a suit against the government of a State a summons can be issued to compel the attendance of any witness and the production of any document.
This shows that where the State is a party a summons may have to be issued to its appropriate officer calling upon him to produce the documents for inspection.
The provisions of rr.
14, 15 and 16 of 0.
11 show that affidavits have to be filed by the parties, and the filing of affidavits which is permitted by 0.
19 is undoubtedly one mode of giving evidence.
Order 16, r. 1, provides for the issue of a summons to persons whose attendance is required inter alia to produce documents; and r. 21 of the said order expressly provides that where any party to a suit is required to give evidence or to produce a document the provisions as to witnesses shall apply to him so far as are applicable.
Thus there can be little doubt that where a privilege is claimed at the stage of inspection and the Court is required to adjudicate upon its validity, the relevant provisions of the Act 413 under which the privilege is claimed as well as the pro visions of section 162 which deal with the manner in which the said privilege has to be considered are equally applicable; and if the Court is precluded from inspecting the privileged document under the second clause of section 162 the said prohibition would apply as much to a privilege claimed by the State through its witness at the trial as a privilege similarly ' claimed by it at the stage of inspection.
It is hardly necessary to point out that a contrary vie* would lead to this manifestly unreasonable result that at the stage of inspection the document can be inspected by the Court, but not at the subsequent stage of trial.
In our opinion, the provisions of 0. 11, r. 19, sub r.
(2), must, therefore, be read subject to section 162 of the Act.
The result is that the appeal is allowed, the order passed by the High Court set aside and that of the trial court restored with costs throughout.
KAPUR, J. I have read the judgment prepared by my learned brother Gajendragadkar, J., and agree with the conclusion but in my opinion the Court cannot take other evidence in regard to the nature of document, for which privilege is claimed, and my reasons are these: In India the law of privilege in regard to official documents is contained in section 123 of the which has to be read with section 162 of that Act.
The various kinds of privileges claimable under the Evidence Act are contained in Chapter IX, two sections amongst these are sections 123 and 126, the former dealing with state privilege relating to "affairs of State" and the latter with communications with a legal adviser.
In section 123 the opening words are "no one shall be permitted " and in the latter "no barrister etc., shall at any time be permitted In the other sections dealing with privilege the opening words are "no person shall be compelled This difference in language indicates that the legislature intended to place the privilege of the State in regard to official documents on a different footing than the other forms of privileges mentioned in the 414 Act in so far as it put a ban on the court permitting any evidence of the kind mentioned in.
section 123 from being given, so that if, unwittingly any evidence mentioned therein was sought to be given, the court would not permit it unless the other conditions were satisfied.
In section 123 the provision is against the giving of evidence which is derived from unpublished official records relating to any affairs of State except when the head of the department concerned in his discretion gives permission for the evidence to be given.
The important words are "derived", "unpublished" and "affairs of State".
The word "derived" means coming out of the source and therefore refers to original as well as secondary evidence of documents whether oral or documentary.
The words " unpublished official records" are not very difficult of interpretation and must depend upon the circumstances of each case.
If the record is shown to have already been published, it ceases to be an unpublished record.
But the difficulty arises as to the meaning of the words "affairs of State", because the ban is put on evidence derived from official documents relating to affairs of State.
At the time when the was enacted, affairs of State were confined to governmental or political activities of Government, but with the expanding of the activities of the State, which, because of the changed concept of the State, comprise also socioeconomic, commercial and industrial activities the words "affairs of State" must necessarily have a much wider meaning than it originally had.
But the language of the sections remains the same and so also the limitation on the giving of evidence derived from such documents and therefore what was considered to be within the discretion of the head of the department to disclose or not to disclose still remains within his discretion and merely because the scope of the words "affairs of State" had been extended, the extent of the discretion has not thereby decreased or become limited and the words "who shall give or withhold such permission as he thinks fit" indicate that the discretion to remove the ban vests in the head of the department and no one else.
415 The real difficulty arises in the interpretation of the words "affairs of State".
What are they? How is the meaning of the words to be determined and by whom? When a claim is made by a proper authority in a proper form, is that conclusive of the nature of the document or has the court to proceed to determine the efficacy of the claim by taking other evidence as to its nature or the effect of its disclosure.
It was contended that the decision, whether the document belongs to the category falling within the expression "affairs of State" or not has to be of the court and not of the official mentioned in the section.
In a way that is correct because the conduct of the trial must always remain in the hands of the court but what is implied in the contention raised was that the court must first decide whether the document belongs to the class comprised in the expression "affairs of State" and then the official concerned may give or withhold his consent.
It was also submitted that in order to enable the court to determine the validity of the claim of privilege the official concerned, when making the claim, may have to state the nature of the document or at least the nature of the injury to the public interests or to the efficient working of the public service, as the case may be, which the disclosure of the document or evidence derived therefrom would result in.
Section 162 of the Evidence Act was relied upon in support of the above contention.
That section applies to all documents in regard to which claim of privilege of any kind may be claimable including that falling under section 123 and therefore the language of section 162 had necessarily to be wide.
It has been described as not being clear by Bose, J., as he then was, in Bhaiya Saheb vs Ram Nath Bampratap Bhadupote (1).
The section requires a witness summoned to produce a document to bring it to the court in spite of any objection which he may take to it& production or to its admissibility and the court is empowered to decide both the questions.
It is the next part which is relied upon in support of the contention that the court can (1) I.L.R. , 247.
416 take other evidence to decide both the questions of production and the question of admissibility.
The words are "the court, if it sees fit may inspect the document, unless it refers to matters of State,.
or take other evidence to enable it to determine on its admissibility".
It was argued that this part of the section empowered the court to take other evidence not only to decide the question of admissibility of the document but also its production.
The language of this part of the section does not lend support to this contention because it gives discretion to the court to inspect the document or take other evidence to enable it to determine the admissibility of the document.
The interposing of the words "unless it refers to matters of State", has reference to privilege under section 123 and therefore it disentitles the court to inspect the document.
The sequence envisaged by the section is that a witness summoned to produce a document is bound to bring it to the court.
He may then take objection to its production under any of the sections, viz., 121 to 131 or he may object to its admissibility and both these objections have to be decided by the court.
Then comes the second part of the section.
If the document refers to "matters of State" there is no distinction in the meaning of the word "matters" and "affairs of State" then the court may not inspect the document, but if the document is not of that class, then the court can inspect it and if it finds any objection to the admissibility, it may take other evidence to determine its admissibility.
To take a concrete case, if a document is produced which is compulsorily registerable and it is not so registered, it would not be admissible in evidence under section 49 of the Registration Act, but evidence may be led as to its admissibility for certain purposes, e.g., section 53 A of the Transfer of Property Act.
If it refers to that class of documents then the second, part of section 162 becomes applicable, i.e., the, court may inspect the document which will help it in deciding the question of privilege and admissibility.
But if a claim is properly made by a proper official on the ground that it refers to matters of State, the court will stay its hands and refrain from inspecting it.
417 The words "or to take. its admissibility" on their plain language do not apply to production and consequently the taking of evidence must have reference to the admissibility of the document.
All the High Courts in India are in accord that the Supreme court will not inspect the document if it relates to matters of State.
If that is so it would be difficult to sustain the contention that it can decide the question whether the matter relates or does not relate to affairs of State.
If the original cannot be inspected, no other evidence can be produced as to its contents.
The effect of this prohibition is not only as if the document had been destroyed, but as if it never existed.
If that is the position, then it becomes difficult to see how the question of its production can be decided by the court by taking other evidence or how the court can decide whether a particular document falls within the prohibition imposed by section 123 of the Evidence Act.
In this connection the words of Lord Kinnear in The Lord Commissioner of the Admiralty vs Aberdeen Steam Trawling & Fishing Co., Ltd. (1) are quite apposite.
It was there said: "I think it is not improbable that even if an officer of the department were examined as a witness, we should not get further forward, because the same reasons which induced the department to say that the report itself ought not to be produced might be thought to preclude the department from giving explanation required".
If the court cannot inspect the document, if no secondary evidence can be given as to its contents and if the necessary materials and the circumstances which would indicate the injury to the public interests or detriment to the proper functioning of the services cannot be before the court it cannot be in a position to decide whether the document relates to affairs of State or not and the logical conclusion would be that the court is debarred from overruling the discretion of the head of the department concerned, because the court cannot say whether the disclosure or non disclosure would be detrimental or not.
If, on the other (1) , 343.
53 418 hand, the contention is accepted that the court can decide by taking other evidence as to whether the document relates to the affairs of State then the discretion to ban its production by the head of the department must necessarily become illusory.
If the court takes upon itself the task of deciding the nature of the document, then it will be taking upon itself the very grave duty of deciding a vital question as to what are the affairs of State without having the necessary material before it or without knowing the exigen cies of the public service or the effect of the disclosure of the State secret or how far the disclosure will injure the public interests and it may thus unwittingly become the instrument of giving publicity to something which the head of the department considered injurious to the public interests, the law having given to the head of the department concerned to make this determination ' No doubt the discretion is wide and covers all classes of documents which may fall within the phrase "affairs of State", some noxious and others innocuous and may even appear to be unduly restrictive of the rights of the litigant but if that is the law the sense of responsibility of the official concerned and his sense of fair play has to be trusted.
The second.
part of section 162 therefore cannot be said to permit the taking of other evidence, ie., other than the document to determine the question of its production when it is of the category falling under section 123.
That part does not entitle the court to determine the nature of the document or the adequacy of the reasons which impelled the proper official to claim privilege.
It would be relevant Co quote the observations of Isaacs, J., in Marconi 's Wireless Telegraph, Co. vs The Common.
wealth "I distinctly adverted to the necessary fact that: the right of discovery given, to the litigant for the furtherance of public justice must be subject to the still higher consideration of the general welfare that the order to make proper discovery does not destroy the privilege of public interest, and, that the ground of, public policy may intervene and ', prevent the injury, to (1) (1913) 16 C.L.R. 178, 201.
419 the community which coercive 'disclosure might produce.
If that were not so, every gun in every fort and every safe in the Treasury would be open through the medium of the Court to the observation of any ,plaintiff of any nationality who could make a prima facie case of the infringement to which it was relevant.
One of the authorities to which I referred in that connection was the judgment of Turner, L. J. in Wadeer vs East India Co., at p. 191 and that, judgment is, I think, of great value in this case also".
It will be helpful to refer to the law on the subject in England as laid down in English cases because the basis of the Indian Law is the law of that country.
The question of privilege has been described by Viscount Simon L. C., in Duncan vs Cammell Laird & Co., Ltd. (1) as a question of high constitutional importance because it involves a claim by the Executive Government to restrict the material which might otherwise be available for the court trying the case and this description was repeated by the House of Lords in the Scottish case Corporation of Glasgow vs Central Land Board (2).
It may be the material which a party to the litigation may desire in its own interest and without which equal justice may be prejudiced.
The question of privilege may not only arise in cases where the State is party to the suit but may equally arise where the contestants in a suit are private parties and whether as a party to the suit or not the State may decline to produce a document.
In Dun can 's case (1) the privilege of the crown, though it was described as not a happy expression, was upheld on the ground that the interest of the State must not be put in jeopardy by the production of a document which would injure it and which is also a principle to be observed in administering justice, "quite unconnected with the interests or claims of the particular parties in litigation and, indeed, is a rule upon which the Judge if necessary, insist even though no objection is taken at all.
" The sort of grounds to afford justification for.
withholding the documents were,given by Viscount Simon as follows. (1) ; (2) 1956 S.C. I (H.L.), 420 "It would not be a good ground that, if they were produced the consequences might involve the department or the government in Parliamentary discussion or in public criticism, or might necessitate the attendance as witnesses or otherwise of officials who have pressing duties elsewhere.
Neither would it be a good ground that production might tend to expose a want of efficiency in the administration or tend to lay the department open to claims for compensation.
In a word, it is not enough that the minister or the department does not want to have the document produced.
The minister, in deciding whether it is his duty to object, should bear these considerations in mind, for he ought not to take the responsibility of with holding production except in cases where the public interest would otherwise be damnified e.g. where disclosure would be injurious to national defence, or to good diplomatic relations or where the practice of keeping a class of documents secret is necessary for the proper functioning of the public service.
" Thus the documents, which are protected from production, are those the production of which would be prejudicial to the public interests or those which belong to that class which as a matter of practice, are kept secret for the proper maintenance of the efficient working of the public service.
Objection has been taken to the authority of this rule enunciated by Viscount Simon L. C., on the ground that it is in serious conflict with another principle that the proper administration of justice is also a matter of public interest, i. e., "fiat justitia ruat caelum" but as was said by Viscount Simonds in Glasgow Corporation vs Central Land Board (1), "The paramountcy of the public interest has been recognized and preserved".
This principle, which was re enunciated by Viscount Simon, L. C., had been the law of England for over a century before Duncan 's case (2).
In Earl vs Vass (3) it was held that public officers are not entitled or compellable to produce written communications made by them officially relative to the character and conduct of a party applying (1) ; (2) ; (3) 421 for a public office when the production is demanded in an action for damages against the writer.
Lord Eldon L. C., at p. 230 observed: "I apprehend, in all cases in which it has been held, upon the principle of public policy, that you shall not be compellable to give evidence of, or produce s such instruments that is, wherever it is held you are not on grounds of public policy, to produce them you cannot produce them and that it is the duty of the judge to say you shall not produce them. " Lord Eldon referred with approval to the decision in Home vs Lord William Bentinck (1) which was of the year 1820.
The principle there laid down was that production of instruments and papers must be shut out if it was against public policy.
At p. 919 the learned Chief Justice said: "It seems therefore that the reception of the minutes would tend directly to disclose that which is not permitted to be disclosed; and therefore, independently of the character of the court, I should say, on the broad rule of public policy and convenience that these matters, secret in their nature, and involving delicate enquiry and the names of persons, stand protected".
The injury to public service was recognized in Beatson vs Skene (2) where Pollock, Q. B., said: "It appears to us, therefore, that the question, whether the production of the documents would be injurious to the public service, must be determined, not by the Judge but by the head of the department having the custody of the papers; and if he is in attendance and states that in his opinion the production of the document would be injurious to the public service, we think the Judge ought not to compel the production of it.
The administration of justice is only a part of the general conduct of the affairs of any State or Nation, and we think is (with respect to the production or non production of a State paper in a Court of Justice) subordinate to the general welfare of the community.
If indeed, the head of the (1) ; (2) ; 422 department does not attend personally to say that the production will be injurious but sends the documents to be produced or not as the Judge may think proper, or as was the case in Dickson vs The Earl of Wilton beford Lord Campbell (reported in Foster and Finla son 's N. P. Rep., p. 425), where a subordinate was sent with the document with instructions to object but nothing more, the case may be different." Martin B. did not entirely agree with the view of the other three learned Barons and he was of the opinion that if the document could be produced without prejudice to public service he ought to compel its production notwithstanding the reluctance of the head of the department to produce it.
It was pointed out by Pollock, C. B., that this might apply to extreme cases and "extreme cases throw little light on the practical rules of life".
In Smith vs East India Company (1) which related to a commercial transaction as to the liability to pay freight a similar privilege was upheld.
It was argued that communications between officials and communications between Directors and Board of Control were official correspondence and were privileged.
On appeal the Lord Chancellor held that in order that superintendence and control should be exercised effectively and for the benefit of the public it was necessary that unreserved communication should take place between the East India Company and the Board of Control.
In Homer vs Ashford (2) which was of the year 1825,Best, C. J., said: "The first object of the law is to promote public interest; the second to preserve the rights of individuals".
In this connection it may not be out of place to recall the striking language of Knight Bruce, V. C., quoted at p. 401 of Macintosh vs Dun (3) in the judgment of Lord Macnaughten: "Truth like other good things, may be loved unwisely may be pursued too keenly may cost too (1) (1841) 1 Ph. 50: (2) ; ; , 539.
(3) 423 much".
And then he points out that the meanness and the mischief of prying into things which are regarded as confidential, with all the attending consequences, are "too great to pay for truth itself." Thus the law as stated in these old English cases shows that what was injurious to the public interest or prejudicial to the proper functioning of the public services was not to be disclosed and if the objection was based on these grounds it must prevail.
As to who was to determine this, the judge or the official, Pollock C. B. decided in favour of the official because the enquiry could not be held in private and if it was held in public the mischief would have been done.
Beatson vs Skene (1).
It was with this background of the state of the English law that Sir James Fitzjames Stephen drafted the law of evidence which was enacted into the (Act 1 of 1872).
Scrutton, T., in Asiatic Petroleum Company Ltd. vs Anglo Persian Oil Company Ltd. (2) which was a case between private parties inspected the document to the production of which objection was taken, and having seen it he said that he would not take the responsibility of ordering it to be produced against the wishes of the Government.
When the matter was taken in appeal, Swinfen Eady, L. J., was of the opinion that the rule was not confined to documents of political or administrative character.
The foundation of the rule was that the information cannot be disclosed without injury to the public interest and not that the document was confidential or official, and that if the production would be injurious to the public service, the general public interest must be considered paramount to the individual interest of the suitor.
This was a document which was written by the defendants, who owned a pipeline from Persia to their refinery in the Persian Gulf, to their agents in Persia which contained confidential information from the Board of Admiralty.
The Scottish cases have also upheld the privilege of.
the Crown in regard to production although it has (1) ; ; (2) 424 been stated that the inherent power of the court to itself see the document and to override but not to review the certificate of the official of the department concerned has always existed in Scottish courts.
In Duncan 's case (1) Viscount Simon, L. C., quoted with approval the observation of Lord Dunedin, the Lord President in the Lord Commissioners of the Admiralty vs The Aberdeen Steam Trawling & Fishing Co., Ltd. (2).
That was a case where a Government department objected to the production of the document on the ground that the production would be prejudicial to public services and it was held that the view of the government department was final and the court will refuse production even in action in which the Government department was a party.
The objection there was taken on an affidavit.
At p. 340, the Lord President (Dunedin) said: "It seems to me that if a public department comes forward and says that the production of a document is detrimental to the public service,, it is a very strong step indeed for the Court to overrule that statement by the department.
The Lord Ordinary has thought that it is better that he should determine the question.
I do not there agree with him, because the question of whether the publication of a document is or is not detrimental to the public service depends so much upon the various points of view from which it may be regarded, and I do not think that the Court is in possession of these various points of view.
In other words, I think that, sitting as Judges without other assistance, we might think that something was innocuous, which the better informed officials of the public department might think was noxious.
Hence, I think the question is really one for the department, and not for your Lordships".
And Lord Kinnear agreed with Lord Dunedin and at p. 343 said: "I agree that we cannot take out of the hands of the Department the decision of what is or what is not detrimental to the public service.
There are only two possible courses.
We must either say that it is a good (1) ; , (2) , 343.
425 ground of objection or we must overrule it altogether.
I do not think that we should decide whether it would be detrimental to the public service or not; and I agree with what both your Lordships have said as to the position of the Court in reference to that question.
We do not know the conditions under which the production of the document would or would not be injurious to the public service.
I think it is not improbable that even if an officer of the Department were examined as a witness we should not get further for ward, because the same reasons which induced the Department to say that the report itself ought not to be produced might be thought to preclude the Department from giving the explanations required.
A department of Government, to which the exigencies of the public service are known as they cannot be known to the Court, must, in my judgment, determine a question of this kind for itself, and therefore I agree we ought not to grant the diligence.
" In a later Scottish case Henderson v.M 'Gown (1) where in a suit between private parties income tax returns were sought to be produced, the court held that it had the power, in the exercise of its discretion, to order production of documents in the custody of a public department in spite of its objection but in the circumstances it did not order production as it was unnecessary.
Lord Johnston said at p. 826: "That is not to say that the court never can and never will overrule such a statement but merely that it would be a very strong step, and therefore a step for which the Court would require very grave justification.
The Admiralty and the War Office are charged with the duty of providing for the safety of the realm, and, if either say that the production of a document in their hands would be prejudicial to the public interest, I think that we should naturally implicitly accept the statement.
But there are distinctions between public departments.
The interest of such a department as the Inland Revenue is that the public should be able to rely on all returns to them and (1) 54 426 communications made to them being treated as confidential.
This also is the public interest.
" The latest Scottish case relied upon is a decision of the House of Lords in Glasgow Corporation vs Central Land Board (1).
In that case privilege was claimed by the Central Land Board on the ground that its production would adversely affect the public interests.
The question for decision was whether Scottish courts were bound to give effect to the certificate of the Secretary of State or whether the court had an inherent jurisdiction not to review the certificate but to override it.
The House of Lords was of the opinion that Duncan 's case (2) did not affect the Law of Scotland and the Scottish courts possessed the inherent power to override the objections of the Minister and it did not exclude the court from making an order of production but in that case the power was not exercised.
Viscount Simonds, L. C., said at p. 10 that Duncan 's case (2) had settled that according to the Law of England an objection validly taken to production of documents on the ground that this would be injurious to the public interest is conclusive but to cite the case of Lords Commissioners of the Admiralty (3 ) as authoritative without regard to the earlier cases and the later case of Henderson vs M 'Gown (4) must give an imperfect view of the law of Scotland.
But even in Scotland the power had been rarely, very rarely, exercised by the courts; its exercise had been refused even where the result had been the prejudice of the private individual and the paramountcy of the public interest had been recognised and preserved.
(p. II).
Lord Normand observed that for a 100 years the uniform track of authority asserted the inherent power of the court to disregard the crown 's objection but the power had been seldom exercised; only the courts had emphatically said that it must be used with the greatest caution and only in special circumstances.
In this connection Lord Normand said at p. 16: "It was also a firmly established rule that the courts could not dispute the certificate and that the (1) ; (2) ; (3) , 343.
(4) 427 question whether production would be contrary to public interest was for minister or the department concerned.
" Lord Radcliffe in his speech said that Duncan 's case ought not to be treated as a decision which affected the law of Scotland.
Dealing with the case before the court and the power reserved to the court to overrule the crown objection he said at p. 18: "I do not understand that the existence of the power involves that in Scotland, any more than in England, it is open to the court to dispute with the minister his view that production would be contrary to the public interest is well founded or to arrive at a view, contradictory of his that production would not in fact be at all injurious to that interest.
If weight is given to the argument that the Minister in forming his view may have before him a range of considerations that is not open to the Court and that he is not under any obligation to set out these considerations in public, I think that it must follow that the Minister 's view must be accepted by the Court as incapable of being displaced in by its own opinion".
The view expressed in Admiralty Commissioners vs Aberdeen(1) was dissented from.
After referring to another aspect of public interest that impartial justice should be done in the courts of law, not least between citizen and Crown, the Lord Normand observed: "If in the past the power to disregard the objection has hardly ever been exercised, that has been due, I think, to a very proper respect for the Crown 's position and to a confidence that objections of this nature would not be advanced, or at any rate persisted in, unless the case was one in which production would involve material injury to the public welfare".
Thus, as was said by Lord Normand, there is a difference between the law of England and the law of Scotland on an important constitutional question.
But in practice the difference was little as the exercise of the inherent power by the Scottish Courts had been rare.
(1) ; (2) 343.
428 As the Privy Council judgment in Robinson 's case (1) was from Australia it will be useful to refer to two Australian cases: In Marconi 's Wireless Telegraph Company Limited vs The Commonwealth(2) where inspection was claimed of wireless telegraphic apparatus, Isaacs, J., in his minority judgment at p. 205 enunciated the following propositions which are relevant for the purpose of the present case: "(1) The rule of exclusion of State secrets applies, necessarily without distinction to the facts, documents and other objects.
This was admitted by Mr. Irvine, and is established by such cases as B. vs Watson ; at p. 148; B. vs Hardy , at col. 753; R. vs Watson , at cols.
100 101.
(2)The rule proceeds on the same grounds whether the parties called on to produce the documents, &c., are or are not parties to the suit, that is, on the grounds of the prejudice to the public interests, which production would occasion (per Turner, L. J. in Wadeer 's case section D. M. & G., 1882; Admiralty Commissioners vs Aberdeen Trawling Co. (1909) Sess.
Ca., 335.
(3) The right to protection depends upon the "character" of the documents, &c. (ib.).
(4) If the documents, &c., are prima facie private, as where they are in private hands then in the absence of Ministerial claim for protection, the Court, in case of objection by the private defendant on the ground of public policy, will ascertain their character that is, whether they are really governmental and, if they are, the next succeeding paragraph applies: Smith vs East India Company I Ph. 50.
(5) If the documents, & are of a political that is, a governmental "character", then even in the absence of any Ministerial claim for protection, it is the duty of the Court, on objection by private person holding them, to ascertain whether public prejudice will or may ensue from production, and, if it appears that public policy requires confidence between the objector and the Government, they are presumed (1) (2) (1913) 16 C.L.R. 178, 201.
429 prima facie to be confidential: Smith vs East India Company I Ph. 50 and per Wills, J. in Hennessy vs Wright 21 Q.B.D. 509, 518 519.
(6) If either by proof or undisplaced presumption confidence is required, then it is a rule of law, not of discretion, that the documents shall be excluded: Marks vs Beyfus at pp.
498 500; Stace v Griffith ; at p. 428.
(7) If the documents, &c., are in fact "State documents", that is, "in possession of a government department", and the Minister having custody of them assures the Court that public prejudice will or may ensue from production, that, in the absence of what are called extreme cases and are practically negligible, is conclusive evidence of their, character, that is, that they are confidential public documents, and that such prejudice will or may ensue, and the Court must act upon it: Stace vs Griffith L.R. 2 P.C. 420 at p. 428; Beatson vs Skene ; ; The Bellerophon ; Hughes vs Vargas 9 R. 661; Halsbury 's Laws of England, Vol.
XI, p. 85; Taylor on Evidence, 10th ed., pp. 673, 674; Powell on Evidence, 9th ed., p. 273.
Conclusiveness in such a case is not unique.
Even a private claim for privilege in an ordinary affidavit of documents is (with certain exceptions immaterial here), taken as conclusive with respect even to the grounds stated for claiming privilege; See Halsbury 's Laws of England, Vol.
XI, p. 61 and Morris vs Edwards 15 App.
" The learned Judge dealing with the matter of privilege in public interest and the principles based on prevention of injury to the community observed at p. 203: "Such a doctrine is inherent in all systems of law; for the first requirement of every organised society is to live, and so far as possible to live securely, and the next is to live with the greatest advantage to the community at large ; and to these essentials the strict administration of justice in particular cases amongst members must yield.
" Thus the principle is that private inconvenience must yield to public ;interest; in other words Fiat justitia 430 ruat coelum is not always the right of a suitor because the proper maxim applicable is salus populi suprema est lex which transcends all other considerations.
The majority of the Court in that case had held that there was nothing to warrant the conjecture that the inspection could disclose anything that could reasonably be called secret in any sense of the word.
The matter was taken to the Privy Council but special leave to appeal was refused.
The Lord Chancellor there said: (See Griffins case; , , 386) "Of course the Minister 's statement or certificate must be conclusive on a particular document.
How can it be otherwise?. . . .
If the Minister certifies quite specifically, his certificate is to be taken as conclusive.
The ground on which special leave to appeal was refused in that case appears to have been that, having regard to the form of the order, which carefully limited the right of inspection and reserved liberty to apply, it was not a convenient case in which to raise a great question of principle.
" In Griffin vs The State of South Australia (1) objection to the production for inspection of documents was upheld on the ground that the statement of the Attorney General for the State that their production for inspection would be prejudicial to the public interest is conclusive.
That was a case in which inspection of documents was sought in an action brought in the High Court of Australia by the plaintiff against the State of South Australia to recover damages for negligent storage of wheat.
Knox, C. J., in the course of his judgment referred to the observations of the Lord Chancellor in Marconi 's case, (2) which have been quoted above.
Isaacs, J., reiterated his previous opinion.
Starke, J., was doubtful and he was of the opinion that there was no reason why the courts should not use the power confided in them for discovery.
If some real doubt was established as to the accuracy of the Minister 's statement there was no reason for refusing the power in a proper case particularly when the commercial activities of the Government were becoming more and more extensive and (1) ; , (2) (1913) 16 C.L.R. 178,201.
431 the sphere of political and administrative action correspondingly wider.
He was also of the opinion that the courts should be able to fully protect the public interests and do nothing to imperil them.
The learned Judge in that particular case was not fully satisfied with the affidavit of the Minister.
The matter of privilege in Australia was taken to the Privy Council in Robinson vs State of South Australia (1).
This case arose out of an action similar to Griffin 's case (2) and a similar privilege was claimed.
The Privy Council was of the opinion that the Minister 's minute was inadequate to support the claim of privilege but it had not been lost by the inefficiency of the form in which it was claimed and the matter was a proper one for the court to exercise its power of inspection for which privilege was sought in order to determine whether their production will be prejudicial to public interest or to the efficient working of the public services.
Lord Blanesburgh said at p. 714: " As the protection is claimed on the broad principle of State policy and public convenience, the papers protected, as might have been expected, have usually been public official documents of a political or administrative character.
Yet the rule is not limited to these documents.
Its foundation is that the information cannot be disclosed without injury to the public interests and not that the documents are confidential or official, which alone is no reason for their nonproduction: See Asiatic Petroleum Co. vs Anglo Persian Oil , 829 830 and Smith vs East India Co. 1 Ph. 50." and at p. 715 it was observed: "It must not be assumed from these observations of the Lord Justice that documents relating to the trading, commercial or contractual activities of a State can never be claimed to be protected under this head of privilege.
It is conceivable that even in connection with the production of such documents there may be "some plain overruling principles of public interest concerned which cannot be disregarded"." (1) (2) ; 432 After referring to various cases that have been set out above the Privy Council was of the opinion that the court was entitled to prescribe in any particular case the manner in which the claim of privilege should be made.
It may accept unsworn testimony of the Minister in one case but in another where the circumstances seems to be to so require call for an affidavit from him.
It may be that objection merely on ground of public policy may not be sufficient but it ought to appear that the mind of a responsible Minister had been brought to bear on the question of expediency in the public interest of giving or refusing the information asked for.
This would be a guarantee that the opinion of the Minister which the court is asked to accept is one which has not been expressed inadvisedly or as a matter of mere departmental routine but is one put forward with the solemnity necessarily attaching to the sworn statements and that the privilege could not be asserted in relation to documents the contents of which had already been published.
In that particular case the Minister had merely stated that he had considered this mass of documents and not that he had read them and considered each one of them.
Lord Blanesburgh said at p. 722: "In view specially of the fact that the documents are primarily commercial documents he should have condescended upon some explanation of the particular and far from obvious danger or detriment to which the State would be exposed by their production.
Above all, and especially in view of the last paragraph of the minute, the claim was one which should have been put forward under the sanction of an oath by some responsible Minister or State official.
" Continuing it was observed that there may be some among the scheduled documents to which privilege may be genuinely attached and to give inspection of which without more would destroy the protection of the privilege and therefore it would or might be contrary to public interest to deprive the State of opportunity of regularising its claim to protection.
The Board would have given this advice had it not been for the fact that it would have involved serious delay 433 without advancing further the final solution of the question.
The case was therefore remitted to the Supreme Court with a direction that it was a proper one for the exercise by that court of the power of inspecting documents.
The Privy Council was careful to add that the Judge in giving his decision as to, any document would safeguard the interests of the State and would not resolve the doubt against the State without further enquiring from the Minister.
In that case also the paramountcy of the consideration of public interest was recognized but as the privilege was not properly claimed and the document related to commercial activities of the State and it would have involved unnecessary prolongation of the action the Privy Council remitted the case for the court to exercise its power of inspection under the Rules and Orders of the court but with the further direction of safeguarding the interest of the State.
In Duncan vs Cammell Laird & Co. (1), the Court of Appeal held that the affidavit of the First Lord of Admiralty was conclusive if it stated that such production would be contrary to public interest, and the order for production was therefore refused.
Du Parcq, L. J., pointed out that the Privy Council case (Robinson 's case (2)) was not the final word on the subject in regard to production.
The House of Lords in appeal did not agree with the judgment of the Privy Council and it is significant that two of the seven Law Lords in the House of Lords were parties to the Privy Council judgment.
The House of Lords held that the affidavit of the Minister was conclusive and that inspection of a document by a court in private would be communicating with one party to the exclusion of the other and it accepted the principle that if it was prejudicial to the public interests or the document belonged to that class of documents which are kept secret for the proper functioning of the public services the production of the document would be refused.
It was recognized in that case that it is the Judge who is in control of the trial and not the executive but the proper ruling for the judge to give (1) ; (2) 55 434 would be that an objection validly taken to the production on the ground of its being injurious to public interest is conclusive.
The English cases which were decided after the pronouncement of the House of Lords in Duncan 's case (1) naturally followed the decision of the House of Lords.
In Ellis vs Home Office (2) where a prisoner who had been attacked in jail by another prisoner who was a mental case asked for certain reports and privilege was claimed, the privilege was upheld but it was said that although it was essential that Government department should be entitled to claim privilege against disclosure of documents on the ground of public interest the ambit of privileges should be carefully scrutinized and each document should be examined.
It may be mentioned that in that case Devlin, J., felt grave concern about the claim of this privilege because the result was that documents were to be treated as destroyed and no secondary evidence could be led and this concern of the trial judge was shared by the Court of Appeal.
In Broome vs Broome (3) which was a defended suit for divorce, the wife wanted certain documents of the Soldiers ', Sailors ' and Airmen 's Families Association but the Secretary of State issued a certificate in which he stated that the production would not be in public interest.
It was held that Crown privilege from disclosure attached to all documents irrespective of where they originated or in whose custody they reposed provided that they had emanated from or came into the possession of some servant of the Crown.
In Auton vs Rayner & Ors.
(4) it was pointed out at page 572 that the sole concern of the Minister was whether the interests of the State in the sphere for which he was responsible would be affected and therefore the documents or evidence should be withheld from the court.
It was added that the Minister should accept and recognize that the proper administration of justice would be impeded or may be unattainable if any document or any evidence was withheld.
In that case an action was brought against the (1) ; (2) (3) (4) 435 defendants, one of whom was a Police Officer, charging them with conspiracy to injure and defraud him, false imprisonment and malicious prosecution.
The documents required by the plaintiff were reports made by the Police Officer to his superior officers and the communication which passed between the Metropolitan Police Force and other police force and the Secretary of State swore an affidavit indicating that the document should be withheld from production and that he had formed an impartial judgment that in the public interest and for the proper functioning of the public services the document should be withheld. 'The Court of Appeal held that the determination of the Secretary of State ought reasonably to be accepted and that the affidavit was, in the circumstances, conclusive.
The law in England may thus be summed up: (1) That a document need not be produced for inspection either on discovery or at the trial when objection is taken by the Minister that disclosure of the document would be contrary to public policy or detrimental to public interest or services.
This privilege attaches irrespective of where the document originates or in whose custody it is provided it emanated from or came into possession of some servant of the crown; (2) the privilege can be claimed or waived by the authority of the Minister or the head of the department; (3) secondary evidence may not be given of a document for which privilege is established; (4) official correspondence per se is not privileged on the ground of its being confidential or official nor is it a valid ground that production would involve the Government in criticism or expose 'want of efficiency in the administration or open up claims to compensation but the ground for privilege is that the production would be detrimental to the interest of the public or interfere with the efficient working of the public service or it belongs to class of documents which it is the practice of the department to keep secret; (5) the minister 's objection may be conveyed by a letter or by the official who attends at a trial but 436 the court may require an affidavit by or the attendance of the Minister; (6) before a privilege is claimed it is desirable that each document should be examined by the department concerned and inspection permitted of all documents which cannot harm the public interest; (7) if a minister claims privilege the court will accept his statement and ought not to examine the document to see if the objection is well founded; (8) public interest must not be put in jeopardy by the production of a document which could injure it and the court should, if necessary, prohibit the production even though no objection has been taken by the Government department.
It may be pointed out that the privilege was expressly reserved when by the Civil Proceedings Act, 1947, the Crown was made liable to.
give discovery in civil proceedings.
It is no doubt true and it must be recognized that the administration of public justice is also a part of public interest but as was pointed out by Viscount Simon L. C. in Duncan 's case (1) the interest of the State is the interest of the citizen and if the former suffers the interest of the litigant also suffers and therefore public interest transcends the individual interest of a citizen.
In Duncan 's case (1) it was emphasised that the Minister in deciding whether it was his duty to object should bear in mind the considerations which justify withholding production, i.e., the public interest would otherwise be damnified, i.e., the disclosure would be injurious to national defence, or to good diplomatic relations or where the practice of keeping a class of documents secret is necessary for the pro per functioning of the public service.
And that is the safeguard which both in England and India the law seems to have found sufficient for the protection of an individual 's rights.
Even in Scotland where the inherent right of the courts to override official discretion has been recognized the occasions for the exercise of that power have indeed been rare and even in the (1) [1942) A.C. 624.
437 latest case Glasgow Corporation vs Land Board (1) that position was reiterated.
Although the consensus of opinion in India is that under the second part of section 162 the court will not inspect the document if it relates to matters of State yet there is a track of decision which has taken the view that it is not for the head of the department claiming the privilege but for the court to decide whether the document falls within the category mentioned in section 123.
But in some other cases a different view has been taken.
A reference to cases which fall on both sides of the line will be helpful.
In Irwin vs Reid (2) Mukherjea, A. C. J., held that the language of section 123 showed that the court cannot be invited to discuss the nature of the document and the public official concerned and not the court is to decide whether the evidence referred to shall be given or withheld.
"If any other view were taken, the mischief intended to be averted would take place, as the judge could not determine the question without ascertaining the contents of the document, and such inquiry, if it did take place must, for obvious reasons, take place in public: Beatson vs Skene (3), Hennessy vs Wright (4), Jehangir vs Secretary of State (5).
The result practically is, that if the objection is raised by a proper authority the court cannot compel disclosure by primary or by secondary evidence." The Lahore High Court in Khawja Nazir Ahmad vs Emperor (6) held that the head of the department who is in possession of the documents is the sole judge of the fact whether the documents should be protected from production on the ground of their being related to affairs of State and therefore though the decision would be that of the court, it would have to rule in favour of the privilege claimed by the head of the department.
It was also held that the interests of the State must not be put in jeopardy by production of documents which would injure them and that was a principle to be observed in administering justice and (1) ; L.) (2) Cal.
(3) ; ; (4) (5) , 160.
(6) I.L.R. 438 indeed a rule on which the judge should insist even though no objection is taken at all.
In that case there were certain confidential files of the Special Enquiry Agency containing notes, correspondence etc., relating to the case and containing a record of statements of various persons and a proper affidavit had been filed by the head of the department stating that the production would be injurious to public interests.
Abdul Rahman, J., said "I feel convinced in my mind that the objection as to its production apart from its admissibility (e.g., for want of registration or contravening the rule as to when secondary evidence of a document can be admitted if the document is merely a copy and not original) can only be decided by its inspection by the Court followed as it must necessarily have been by an order for its production, although not in the sense of its contents having been disclosed to the party summoning the document at any rate at that stage.
If the Court is debarred under the statute from inspecting it, I cannot see how the objection as to its production can otherwise be decided".
In I. M. Lal vs Secretary of State (1) this privilege was upheld.
In that case it was held that section 162 divided the privilege of documents into two categories.
At p. 212 Abdul Rashid, J. (as he then was) observed: "The Court can inspect documents for the purpose of deciding the question of privilege only if those documents do not refer to matters of State.
In other words an exception is made in respect of documents that refer to matters of State.
Such documents cannot be inspected by the Court while all other documents for which privilege is claimed are open to inspection by the Court for the purpose of deciding the validity of the objection regarding privilege.
" The Bombay High Court in re Mantubhai Mehta in construing sections 123, 124 and 162 has held that the officer summoned to produce the document is bound 'to bring it and if he takes objection to its production it is for the court to decide whether the objection is well founded or not but the court is not entitled to inspect it.
This track of reasoning suffers from the (1) A.I.R. 1944 Lah.
(2) I.L.R. 439 same difficulty that has been pointed out that without looking at the document and taking into consideration the wide words of section 123 it becomes difficult to hold that the court can decide as to whether the document relates to "affairs of State" and whether it should or should not be produced.
In that Bombay judgment the learned Judge referred to the observations of Viscount Simon, L.C., in Duncan 's case (1).
Besides the learned Judge also referred to section 124 the effect of which is not the same as of section 123 of the Evidence Act.
Bhagwati J. (as a Judge of the Bombay High Court) in R.M.D. Chamarbaghwala vs Y. R. Parpia (2) held that the court cannot inspect the document in order to determine whether they are unpublished official records relating to any affairs of State, but its jurisdiction to determine is not taken away by section 162 and it is for the court to decide the question of production by taking all the circumstances into consideration barring inspection of the document.
The learned Judge mainly referred to Robinson 's case (3) and it appears that the learned Judge was not satisfied as to the documents being unpublished but the criterion he laid down was that only such documents are privileged which relate to affairs of State and the disclosure of which would be detrimental to public interest.
The question really is the same as to who is to decide whe ther it is "matters" of "affairs of State".
The Calcutta High Court in a later judgment in Ijjat Ali Talukdar vs Emperor (4) took a contrary view different from its older view and held that the court is to decide whether conditions precedent to sections 123 & 124 have been established.
That was a case under the Excise Act and the Excise Commissioner was called upon to produce certain documents.
The Commissioner claimed privilege under section 123 on the ground that the files contained unpublished official records relating to affairs of State and Das J., as he then was, was of the opinion that the occasion for claiming privilege under section 123 arose when it was sought to give evidence derived from unpublished official records (1) ; (2) A.I.R. 1950 Bom.
(3) (4) I.L.R. 440 relating to any public affairs which was a condition precedent.
He then referred to section 124 of the Evidence Act.
The second part of section 162 provided the method or means to enable the court to decide the question, namely, by inspecting the document or by taking other evidence.
Although the court was disentitled from inspecting the document, the duty of deciding the question was still on the court.
At p. 419 the learned Judge observed: "In case of documents relating to affairs of State it may be difficult for the Court to decide the question, yet it need not be necessarily impossible for the Court to do it.
Ordinarily no difficulty will arise, because heads of departments or public officers are not expected to act capriciously and ordinarily the Court will accept their statement.
If necessary, the Court will require the officer to claim the privilege in the manner indicated in the Judgment of Lord Blanesburgh in the Australian case.
If, however, the Court finds that an over zealous officer is capriciously putting forward a claim of privilege, the Court will decide, as best as it can, by the means available to it, whether the claim is well founded." As has already been said above the second part does not afford the means or methods to the Court to decide the question of privilege.
The only method is inspection and that is denied to the court in cases falling under section 123.
The second case which is on the other side of the line is the judgment of Bose J., as he then was, in Bhaiya Saheb vs Ramnath Rampratap Bhadupote (1).
In that case the learned Judge was of the opinion that the insertion of the words "unless it refers to matters of State" in the middle of the paragraph seemed to indicate that the court might not inspect the document in respect of which the privilege was claimed until it had opportunity of determining upon its admissibility and for that purpose it could take other evidence which meant evidence other than the document produced.
This line of reasoning is similar to that adopted in Ijjat Ali 's (2) case.
(1) I.L.R. , 247.
(2) I.L.R. 441 The Andhra Pradesh High Court in Public Prosecutor, Andhra vs Damera Venkata Narsayya (1) was of the opinion that when an objection under section 123 is taken the court has no power to inspect the document but may take other evidence for the purpose of deciding the objection and if it comes to the conclusion that the evidence will be derived from the unpublished records relating to the affairs of the State the objection will have to be upheld and it will be left to the head of the department to give or withhold the permission and the criterion for the head of the department was whether or not the disclosure would cause injury to public interest and he was the sole judge of the matter with which the court cannot interfere.
This case does not support the contention of the respondent.
The Patna High Court in Lakhuram Hariram vs The Union of India (2) held that the head of the department must first examine the document and he may then raise an objection but he is not absolved from the obligation of appearing in court and satisfying the court that the objection taken is valid and the court may require him to give an affidavit or further questions may be put in regard to the validity of the claim but the court is not entitled to inspect the docu ment.
A. P. Srivastava, J., in Tilka & Ors.
vs State, (3) held that under section 162 of the Evidence Act the court may inspect a document unless it relates to affairs of State and in such a case it will have to take other evidence relating to the nature of the document.
The words of section 123 are very wide; and the discretion to produce or not to produce a document is given to the head of the department and the court is prohibited from permitting any evidence to be given which is derived from any unpublished documents relating to affairs of State.
Section 162 does not give the power to the court to call for other evidence which will indicate the nature of the document or which will (1) I.L.R. [1957] And.
Prad. 174.
(2) A.I.R. 1960 Pat.
(3) A.I.R. 1960 All.
56 442 have any reference to the reasons impelling the head of the department to withhold the document or documents.
In the very nature of things when the original cannot be looked at and no secondary evidence is allowable the court will only be groping in the dark in regard to the nature of the document or the evidence.
The correct way of looking at the Indian statute, therefore, is to interpret in the manner which is in accord with the English law, i.e., the court has not the power to override ministerial certificate against production.
It is permissible for the court to determine the collateral facts whether the official claiming the privilege is the person mentioned in section 123, or to require him to file proper affidavit or even to cross examine him on such matters which do not fall within the enquiry as to the nature of the document or nature of the injury but he may be cross examined as to the existence of the practice of the department to keep documents of the class secret but beyond that ministerial discretion should be accepted and it should neither be reviewed nor overruled.
For these reasons I concur in the decision that this appeal must be allowed.
SUBBA RAO, J. I have perused the judgments prepared by my learned brethren, Kapur and Gajendragadkar, JJ.
I agree with them in maintaining the claim of privilege in regard to the three items described as "original orders" passed by the PEPSU Government, but regret my inability to agree with them in regard to the report of the Service Commission.
This appeal raises the question of the scope and content of the law of privilege attached to affairs of State and the procedure to be followed for ascertaining it.
The facts are fully stated in the said judgments and I need not restate them; but I would prefer to give my own reasons for my conclusion.
It would be convenient at the outset to clear the ground.
The arguments at the Bar have covered a wide field, but we are not concerned here with the law of privilege pertaining to the field of discovery and inspection of documents.
We are called upon only to decide its 443 scope during the trial of a suit when a witness, who is summoned to produce a document, claims privilege on the ground that the document relates to affairs of State.
I should not be understood to have expressed any opinion on the difficult question whether when the defendant is a State, the Court is not entitled to inspect the documents under 0.
XI, rule 19(2), Code of Civil Procedure.
The question falls to be considered on a true construction of two of the provisions of the (hereinafter called the Act), namely, sections 123 and 162.
They read: Section 123: "No one shall be permitted to give any evidence derived from unpublished official records relating to any affairs of State, except with the permission of the officer at the head of the department concerned, who shall give or withhold such permission as he thinks fit.
" Section 162: "A witness summoned to produce a document shall, if it is in his possession or power, bring it to Court, notwithstanding any objection which there may be to its production or to its admissibility.
The validity of any such objection shall be decided on by the Court.
The Court, if it sees fit, may inspect the document, unless it refers to matters of State, or take other evidence to enable it to determine on its admissibility.
If for such a purpose it is necessary to cause any document to be translated, the Court may, if it thinks fit, direct the translator to keep the contents secret, unless the document is to be given in evidence; and if the interpreter disobeys such direction, he shall be held to have committed an offence under section 166 of the Indian Penal Code (45 of 1869).
" The relevant parts of the foregoing sections may be summarized thus .
Section 123 prohibits the giving of any evidence derived from unpublished official records relating to affairs of State except with the permission of the officer at the head of the department; while section 162 enjoins on a witness summoned to produce a document to bring it to Court and empowers 444 the Court to decide on the validity of any objection raised in respect of its production or admissibility.
The argument of the Advocate General is that the words "affairs of State" mean "the business of State", and, therefore, evidence derived from any unpublished official document relating to that business cannot be given as evidence except with the permission of the head of the department concerned, and that the Court under section 162 of the Act must automatically accept the affidavit filed by the head of the department claiming such a privilege.
Learned counsel for the respondent, on the other hand, defines the words "affairs of State" only to take in documents whose production would be against public interest, confines the power of the head of a department to permit or withhold the user of such a document in evidence, and sustains the Court 's power to decide the question of privilege in respect of such a document on relevant materials without inspecting the document.
The crucial words in section 123 are, "unpublished official records relating to any affairs of State".
Under that section no one shall be permitted to give any evidence derived from such records except with the permission of the officer at the head of the department concerned.
The words "affairs of State" have not been defined.
Though in section 123 the words used are & 'affairs of State", in section 162 the words used are "matters of State".
There does not appear to be any practical difference between the two sets of words.
In Shorter Oxford Dictionary, III edition (1956), "matter" has been defined as "a thing, affair, concern" and "affairs of State" as "public business".
These Dictionary meanings do not help to decide the content of the said words.
The content of the said words, therefore, can be gathered only from the history of the provision.
It has been acknowledged generally, with some exceptions, that the was intended to and did in fact consolidate the English Law of Evidence.
It has also often been stated with justification that Sir James Stephen has attempted to crystallize the principles contained in Taylor 's work into substantive propositions.
In case of doubt or 445 ambiguity over the interpretation of any of the sections of the Evidence Act we can with profit look to the relevant English common law for ascertaining their true meaning.
In English common law the words "affairs of.
State" do not appear.
The basis of the doctrine of Crown privilege is the injury to the public interests.
The Judicial Committee in Robinson vs State of South Australia (1) says at p. 714, "The principle of the rule is concern for public interest, and the rule will accordingly be applied no further than the attainment of that object requires.
" The House of Lords in Duncan vs Cammell Laird & Co. (2) restated the same idea when it observed that the State should not withhold the production of documents except in cases where the public interest would otherwise be damnified.
The earlier decisions of the English courts indicate that the Crown privilege was sustained only in regard to documents pertaining to matters of administration, defence, and foreign relations whose disclosure would be against the public interest: see Home vs Lord F. C. Bentinck (3), Smith vs The East India Company (4) and Beatson vs Skene, (5).
The decisions of the High Courts in India over a long period of time consistently gave the same meaning to the said words.
It may also be stated that in and about the time when the Evidence Act was passed, the concept of a welfare State had not evolved in India and as such the words "affairs of State" could not have been, at that time, intended to take in the commercial or the welfare activities of the State.
But when the words are elastic there is no reason why they should not :be so construed as to include such activities also, provided the condition of public injury is also satisfied.
It is, therefore, clear that the words "affairs of State" have acquired a secondary meaning, namely, those matters of State whose disclosure would cause injury to the public interest.
(1) (2) ; (3) ; (4) (1841) 1 Ph. 50; 41 E.R. (Chancery) 550.
(5) ; 446 The learned Advocate General contends that this construction, if accepted, would give a meaning to the provisions of section 123 of the Act which would be contrary to its tenor.
He classifies documents relating to "affairs of State" into noxious and innocuous documents, and contends that documents, whose disclosure would affect the public interest, are noxious documents and that if the records which relate to the affairs of State mean only noxious documents, the said construction would bring out a result directly opposite to that contemplated by the section.
When the section intends to prohibit the disclosure of noxious documents, the argument proceeds, the construction enables their disclosure if the head of the department permits it.
Shortly stated, his contention is that the expression "affairs of State", that is, business of State, is the genus and the document, the disclosure of which is against the public interest, is the species, and that the head of the department is only empowered to permit the disclosure of documents falling outside the said species.
This argument is apparently logical and rather attractive, but it is an oversimplification of the problem and is based upon a disregard of the legislative history and the long track of decisions of this country.
If accepted, it enlarges the scope of the said privilege to such an extent that in effect and substance the control of the admissibility of documents shifts from the Court to the State or its subordinate officers, for every document relating to the business of State would be a privileged document unless the head of the department in his discretion permits the giving of evidence derived therefrom.
Nor can I accept the construction that an absolute privilege is attached to every noxious document, i.e., to every State document the disclosure of which may cause injury to the public interest.
This is giving too narrow a meaning to the words "public interest".
If the non disclosure of a particular State document is in public interest, the impartial and uneven dispensation of justice by Courts is also in public interest.
They are indeed two aspects of public interest.
There is no conflict or dichotomy between the two.
In particular 447 circumstances one aspect may be paramount and in a different set of circumstances the other may be given precedence.
In the last analysis, it is the question of balancing of the two aspects having regard to the circumstances of a particular case.
The head of a department may as well permit the disclosure of a document even if ordinarily its disclosure affects public interest, if in his opinion the counter balancing circumstances are in favour of disclosure rather than non disclosure.
I cannot, therefore, give a wide meaning to the words "records relating to affairs of State" so as to take in every unpublished document pertain ing to the entire business of State, but confine them only to such of the documents whose disclosure would be injurious to public interest.
The next question is, who is empowered to decide the said question whether a particular document relates to affairs of State ? whether it is the Court or the State.
That is found in section 162 of the Act.
The learned Advocate General contends that the first part of section 162 makes a distinction between the production of a document and the admissibility of a document and that the first limb of the second part of the section provides for the production of a document and the second limb for its admissibility.
He illustrates his argument thus: privilege may be raised in respect of production of a document on the ground that it pertains to matters of State, or on the ground that it is inadmissible for want of registration deficiency of stamp, or similar other defects.
The first clause of the second part of section 162, the argument proceeds, enables the Court to inspect a document when the objection is to its production unless the document refers to a matter of State, and the second clause thereof empowers the Court to take evidence only when the objection is not to its production but to its admissibility.
If this contention be accepted, it will lead to an anomaly, for grammatically construed the two limbs of the second part can be applied only to the question of admissibility and in that event, on the hypothesis suggested by the learned counsel, the Court will be entitled to look into a document even if it relates to a 448 matter of State if the objection is only to its production and not to its admissibility.
The more reasonable construction of the section is to give a wider meaning to the word "admissibility" so as to comprehend both production as well as admissibility, for the question of admissibility arises only after the document is produced and a party seeks to get it admitted in evidence.
In this view, the second part of section 162 can only mean that when an objection is raised either to the production or to the admissibility of a document, a Court can inspect the document and if it thinks necessary other evidence may be taken to decide on the objection raised.
By the express terms of the section the Court is precluded from inspecting a document if it refers to matters of State.
But in other respects the jurisdiction of the Court to decide on the objection raised is not different from that it possesses in respect of other privileged documents.
If so understood there cannot be any ambiguity in the scope of section 162 of the Act.
It says in express terms that when an objection is raised to the production of a document or to its admissibility, the validity of any such objection shall be decided by the court.
The second part of the section states the material on the basis of which such an objection can be decided.
It can either inspect the document or take other evidence to enable it to decide the validity of any objection raised.
The only limitation in the case of a document referring to matters of State is that the court cannot inspect it.
It is implicit in the limitation that in the case of documents pertaining to matters of State the court is precluded not only from inspecting the documents but also from permitting parties to adduce secondary evidence of their contents.
"The other evidence" must necessarily be de hors the contents of the documents.
Even in England there is no divergence of view on the question who has to decide, when an objection to the production of a document is raised on the ground of privilege, the validity of the objection.
In Robinson 's case (1), the Judicial Committee observed at p. 716 thus: (1) 449 "The result of the discussion has been. . . wherein effect he concludes that the Court has in those cases always had in reserve the power to inquire into the nature of the documents for which protection is sought, and to require some indication of the nature of the injury to the State which would follow its production.
The existence of such a power is in no way out of harmony with the reason for the privilege provided that its exercise be carefully guarded so as not to occasion to the State the mischief which the privilege, where it exists, is designed to guard against." The House of Lords in Duncan 's case (1), also recognized this power though it whittled down its scope by holding that the judge had to accept automatically the affidavit filed by a minister.
Viscount Simon, L. C., states at p. 642 as follows: "Although an objection validly taken to production, on the ground that this would be injurious to the public interest, is conclusive, it is important to remember that the decision ruling out such documents is the decision of the judge. . .
It is the judge who is in control of the trial, not the executive, but the proper ruling for the judge to give is as above expressed.
" On the other hand, in Scotland the inherent right of courts to override official discretion is recognized.
The House of Lords in Glasgow Corporation vs Land Board (2) gave a clear exposition of the law of that country.
Viscount Simonds derives the principle of the court 's power from the fact that the fair administration of justice between subject and subject and the Crown is a public interest of higher order and the protection is the care of the courts.
Lord Radcliffe finds it on the doctrine that the interest of the Government for which the minister should speak with authority does not exhaust the public interest, for another aspect of that interest is seen in the need that impartial justice should be done in courts of law.
These judgments of the high authority also recognized the fact that it is the court that has to decide an objection (1) ; (2) ; 57 450 raised by the State on the ground of privilege.
There is a strong current of Indian decisions taking the same view: see Khawja Nazir Ahmad vs Emperor (1), re Mantubhai Mehta (2), B. M. D. Chamarbaugwala vs
Y. R. Parpia (3 ), Lijat Ali Talukdar vs Emperor Bhaiya Saheb vs Ramnath Rampratap Bhadupote Public Prosecutor, Andhra vs Damera Venkata Narasayya Lakhuram Hariram vs The Union of India Tilka vs State (8).
In a few cases a different view is expressed.
It may, therefore, be stated without contradiction that the preponderance of authority is in favour of a court deciding the question of State privilege.
Some objections are raised in decided cases in England and restated in Duncan 's case (9) against conferring such a power on courts.
Apart from the fact that the statute expressly confers such a power, there are no merits in the objections raised.
The objections are: (i) the judges are not well qualified to appreciate the highly technical matters which may arise with regard to some kinds of State secrets; (ii) if a judge is allowed to decide on evidence the question of privilege, it may prejudice a fair trial; and (iii) it is a first principle of justice that the judge should have no dealings on the matter in hand with one litigant save in the presence of and to the equal knowledge of the other.
The objections raised have no substance.
The first objection, if accepted, disqualifies a judge from deciding complicated technical questions that arise before him.
A judge is trained to look at things objectively and can certainly decide, without inspecting the documents on the material supplied whether the production of a document will affect the public interest having regard to the circumstances of each case.
Nor are there any merits in the second objection.
In the words of Sir C. K. Allen, a judge worthy of his office can put out of his mind all issues except those which are raised and decided by the forensic process.
It is common place that a judge is trained to decide a case only on (1) I.L.R. (2) I.L. R. (3) A.I.R. 1950 Bom.
(4) I.L.R. (5) I.L.R. (1940] Nag. 240.
(6) I.L.R. (7) A.L.R. 1960 Pat.
(8) A.I.,R. 1960 All, 543, (9) [1942) A.C. 624.
451 the admissible evidence actually adduced before him and not on any extraneous considerations.
The third objection also has no basis in fact.
So long as a judge takes care to rule out any question on the contents of a document in respect whereof privilege is claimed, he can certainly decide the question in the presence of both the parties.
The objections have, therefore, no substance.
On the other hand, there is every reason why the duty to decide on the question of State privilege must be left to a judge and not to the State.
That is the reason why the legislature rightly conferred that power on the court.
A judge is as much a part of a department of the State as an executive officer.
But unlike the executive officer, a judge is trained to decide cases objectively not only between indi viduals inter se but also between the State and individuals.
He can, therefore, be trusted to decide impartially on the question whether the production of a document in a case will affect the public interest.
State documents in a secretariat, I presume, will be ' looked into by many officers dealing with the said documents, sometimes from the lowest to the highest in the department.
It would be unrealistic to suggest that the disclosure of a State document to any one of those officers would not affect the public interest whereas the decision of its character by a judge would do so.
It is, therefore, the duty of the court, whenever an objection is raised on the ground of State privilege to decide on relevant evidence whether the document relates to affairs of State.
Even if the wide construction of the words "affairs of State", namely, business of State, be accepted, the result will not be different.
The section says that no one shall be permitted to give any evidence derived from unpublished official records relating to affairs of State, except with the permission of the officer at the head of the department concerned.
The expression "affairs of State" in its ordinary significance is of the widest amplitude and will mean the entire business of State.
It takes in the routine day to day administration and also highly confidential acts involving defence and foreign relations, and also in modern times 452 the multifarious activities of a welfare State.
The object of the section is simply to prohibit the use of undisclosed documents of State in evidence by persons who in the course of their duties deal with or look into those documents, without the permission of the officer at the head of the department concerned.
The words used in the section "as he thinks fit" confer an absolute discretion on the head of the department to give or withhold such permission.
The section does not lay down that the head of the department concerned should refuse permission only if the disclosure injures public interests, though ordinarily he may refuse permission on such matters affecting the State.
One can visualize a situation when the officer in exercise of his absolute discretion refuses to give permission for the use of not only noxious documents but even of innocuous ones.
The only limitation on his power is his reason and experience.
The absolute discretion is capable of giving rise to mistake or even conscious abuse.
The section does not really involve any doctrine of State privilege but is only a rule of commonsense and propriety.
If the officer gives permission, there is an end of the matter; but, if he refuses, the party affected may take out necessary summons to the State Government to produce the document.
The State Government may depute one of its officers to produce the document in court.
Then only the occasion for raising the question of privilege arises and section 162 governs that situation.
An overriding power in express terms is conferred on a court under section 162 of the Act to decide finally on the validity of the objection raised on the ground of privilege.
The court will disallow the objection if it comes to the conclusion that the document does not relate to affairs of State or that the public interest does not compel its non disclosure, or that the public interest served by the administration of Justice in a particular case overrides all other aspects of public interest.
This conclusion flows from the fact that in the first part of section 162 of the Act there is no limitation on the scope of the court 's decision, though in the second part the 453 mode of enquiry is hedged in by conditions.
In England, in the absence of a provision or a rule of common law similar to that of section 162, there was room for conflict of views on the scope of the court 's power.
On the other hand, in Scotland the common law corresponding to section 162 was invoked and the House of Lords recognized the inherent power of the Court to reject a claim of Privilege if the Court comes to a conclusion that the paramount interest of the administration of justice demands or compels such a disclosure.
Section 162 of the Act in terms confers a similar power on courts and though it may have to be used with circumspection, it is a real and effective power.
There is no conflict between section 123 and section 162 of the Act: the former confers a power on a head of a department to withhold permission from the stand point of State administration, whereas section 162 recognizes the overriding power of a court in the interest of higher public interest to overrule the objection of privilege.
The next point is, what is the procedure to be followed by a judge for deciding on the said objection? When an officer of the State is summoned as a witness to produce a document, if the State seeks to take a plea of privilege then it is the duty of the minister in charge of the department concerned to file an affidavit at the first instance.
The affidavit so filed shall ex facie show that the minister concerned has read and considered each of the documents in respect of which the privilege is claimed.
It shall also contain the general nature of the document and the particular danger to which the State would be exposed by its production.
If the court is not satisfied with the contents of the affidavit, to enable it to decide whether the document in question refers to the affairs of State, it can summon the minister to appear as a witness.
In effect and substance the said procedure has been suggested in Robinson 's case (1) at p. 722.
The same procedure is also indicated in Duncan 's case (2) at p. 638.
In the second case above referred, Viscount Simon L.C. says at p. 638 thus: (1) (1931] A.C. 704.
(2) ; 454 "If the question arises on subpoena at the hearing it is not uncommon in modern practice for the minister 's objection to be conveyed to the court, at any rate in the first instance, by an official of the department who produces a certificate which the minister has signed, stating what is necessary.
I see no harm in that procedure, provided it is understood that this is only for convenience and that if the court is not satisfied by this method, it can request the minister 's personal attendance.
" It may be suggested that this procedure may cause some inconvenience to the minister concerned.
But if one realizes that every act of the exercise of the right of privilege detracts from the fair disposal of a case before the court and that the administration of justice is also part of the general conduct of the affairs of any State and that its impartiality and purity are as important as any other public interests, one will also appreciate that the requirement of the personal attendance of a minister, if necessary, to support his affidavit would be to a large extent a guarantee against unjust objections that may other wise be raised.
It is suggested that an affidavit of the head of a department, such as the Secretary, would do as well as that of a minister, but there is an essential distinction between a Secretary and a minister: the former may be frequently tempted to take the opposite view, particularly in cases where a claim against the State seems to him to be harsh or unfair, while the latter, being the political head subject to parliamentary control, may be expected, if he carefully scrutinizes a particular document, not to take such objection which obstructs the cause of justice unless absolutely necessary.
I would, therefore, hold that the affidavit which states that a particular document relates to affairs of State must be sworn to only by a minister in charge of the department wherefrom the document or documents are summoned.
The next point is, what are the well established rules which help the court to decide whether a particular document pertains to affairs of State or not? The following relevant rules may be extracted from 455 the decision of the Judicial Committee in Robinson 's case (1): (1) the privilege is a narrow one most sparingly to be exercised; (2) the principle of the rule is concern for public interest and the rule will accordingly be applied no further than the attainment of that object requires; (3) as the protection is claimed on the broad principle of State policy and public convenience, the papers protected, as might have been expected, have usually been public official documents of a political or administrative character; (4) its foundation is that the information cannot be disclosed without injury to the public interests and not that the documents are confidential or official, which alone is no reason for their non production; (5) even in the case of documents relating to the trading, commercial or contractual activities of a State, it is conceivable that there may be some plain overruling principle of public interest.
concerned which cannot be disregarded; though in times of peace such cases must be very rare.
The House of Lords in Duncan 's case (2) has laid down the following negative and positive tests for deciding the question of privilege of the State.
The negative tests are: (1) it is not a sufficient ground that the documents are State documents or official or marked confidential ; (2) it would not be a good ground that, if they were produced, the consequences might involve the department or the government in parliamentary discussion or in public criticism, or might necessitate the attendance as witnesses or otherwise of officials who have pressing duties elsewhere; (3) neither would it be good ground that production might tend to expose a want of efficiency in the administration or tend to lay the department open to claims of compensation.
The positive test is, where the public interest would otherwise be damnified, for example, where disclosure would be injurious to national defence, or to good diplomatic relations, or where the practice of keeping a class of documents secret is necessary for the proper functioning of the public service.
The last test has given rise to mild but definite protests within the limits of judicial propriety by the learned judges who (1) (2) ; 456 had the occasion to deal with the question of privilege and to vehement protests from jurists.
Sir C. K. Allen, in his book "Law and Orders" (2nd edition), has observed at p. 384 thus: "Everybody is agreed that public security and foreign relations are necessary heads of privilege.
Both are wide in scope, and it is doubtful whether any other 'head ' needs to be specified. . .
It would be of great advantage if statute could put an end to the pernicious doctrine that privilege can be claimed for classes of documents.
" The argument of the learned Advocate General is based upon an apprehension, which in my view is unfounded, that the court may always refuse the affidavit of a minister and insist on his personal attendance.
The unpublished documents relating to defence, foreign relations and other documents of great public importance rarely come before municipal courts.
Occasionally documents of day to day administration of the State may be relevant evidence, but very often documents pertaining to mercantile or welfare activities of the State would be summoned to establish a particular claim.
In the case of documents of undoubted public importance, when the minister swears to an affidavit that in his discretion their production is against public interest, it may reasonably be expected that the judge would accept the statement.
But the real difficulty is in the case of other documents, where the interests of private individuals and the State come into conflict, the judge should be in a position to examine the minister and others to ascertain by evidence collateral to the contents of the documents whether the assertion of the minister is justi fied.
The aforesaid discussion yields the following propositions: (1) under section 162 of the Evidence Act the court has the overriding power to disallow a claim of privilege raised by the State in respect of an unpublished document pertaining to matters of State; but in its discretion, the court will exercise its power only in exceptional circumstances when public interest demands, that is, when the public interest served by the 457 disclosure clearly outweighs that served by the non disclosure.
One of such instances is where the public interest served by the administration of justice in a particular case overrides all other aspects of public interest.
(2) The said claim shall be made by an affidavit filed by the minister in charge of the department concerned describing the nature of the document in general and broadly the category of public interest its non disclosure purports to serve.
(3) Ordinarily the court shall accept the affidavit of a minister, but in exceptional circumstances, when it has reason to believe that there is more than what meets the eye, it can examine the minister and take other evidence to decide the question of privilege.
(4) Under no circumstances can a court inspect such a document or permit giving of secondary evidence of its contents.
(5) Subject to the overriding power of the court to disallow the claim of privilege in exceptional cases, the following provide working rules of guidance for the courts in the matter of deciding the question of privilege in regard to unpublished documents pertaining to matters of State: (a) "records relating to affairs of State" mean documents of State whose production would endanger the public interest; (b) documents pertaining to public security, defence and foreign relations are documents relating to affairs of State; (e) unpublished documents relating to trading, commercial or contractual activities of the State are not, ordinarily, to be considered as documents relating to affairs of State; but in special circumstances they may partake of that character; (d) in cases of documents mentioned in (c) supra, it is a question of fact in each case whether they relate to affairs of State or not in the sense that if they are disclosed public interest would suffer.
Bearing the aforesaid principles in mind, I shall construe the nature of the documents in respect of which privilege is claimed in the present appeal.
The so called order of the PEPSU Government is really the minutes recorded in the course of cabinet discussions.
Under article 163(3) of the Constitution, the question 58 458 whether any, and if so what, advice was tendered by ministers to the Governor shall not be inquired into in any court.
In view of the constitutional protection, and the reason underlying such protection, I hold that in the present case the district court was right in sustaining the claim of privilege in regard to the said document.
In regard to the report of the Service Commission, on the assumption that it is a relevant document, I cannot see how public interest suffers by its disclosure.
Service Commission is a statutory body constituted with definite powers conferred on it under the Constitution.
Under article 320(3)(c) of the Constitution the State Public Service Commission shall be consulted on all disciplinary matters affecting a person serving under the Government of a State.
This is one of the constitutional protections conferred on public servants.
I cannot visualize how public interest would suffer if the report submitted by the Service Commission to the Government is disclosed, and how the disclosure of such a report prevents the Service Commission from expressing its views on any other case in future passes my comprehension.
It may expose the Government if it ignores a good advice; but such ' an exposure is certainly in public interest.
The Constitution does not put a seal of secrecy on the document; nor, in my view, public interest demands such secrecy.
In a conflict between the administration of justice and the claim of privilege by the State, I have no hesitation to overrule the claim of privilege.
Before closing, I must notice one fact.
In this case, the Chief Secretary filed an affidavit.
But, in my view, the minister should have done it.
The respondent did not object to this either in the district court or in the High Court.
In the circumstances, I would not reject the claim of privilege on the basis of this procedural defect.
In the result, I would allow the appeal in respect of the minutes of the cabinet and dismiss it in other respects.
As the parties have succeeded and failed in part, I direct them to bear their own costs throughout.
459 BY COURT: In accordance with the opinion of the majority, this appeal is allowed, the order passed by the High Court is set aside and that of the trial court restored with costs throughout.
Appeal allowed.
| IN-Abs | The respondent who was a District and Sessions Judge in the erstwhile State of Pepsu was removed from service on April 7, 1953 by an order passed by the President of India who was then in charge of the administration of the State.
A representation made by the respondent on May 18, 1955, was considered by the Council of Ministers of the State as in the meantime the President 's rule had come to an end, and its views were expressed in the form of a Resolution dated September 28, 1955; but before taking any action it invited the advice of the Public Service Commission.
On receipt of the report of the Public Service Commission, the Council of Ministers considered the matter again on March 8, 1956, and its views were recorded in the minutes of the proceedings.
On August 11, 1956, the representation made by the respondent was considered over again by the Council and a final conclusion was reached in respect of it.
In accordance with the said conclusion an order was passed which was communicated to the respondent to the effect that he might be re employed on some suitable post.
On May 5, 1958, the respondent instituted a suit against the State of Punjab for a declaration that the removal of his service on April 7, 1953, was illegal, and filed an application under O. 14, r. 4, and O. 11, r. 14, of the Code of Civil Procedure for the production of certain documents, which included the proceedings of the Council of Ministers dated September 28, 1955, March 8, 1956, and August 11, 1956, and the report of the Public Service Commission.
The State objected to the production of the said documents claiming privilege under section 123 of the , and the Chief Secretary of the State filed an affidavit giving reasons in support of the claim.
The question was whether having regard to the true scope and effect of the provisions of sections 123 and 167 of the Act the claim of privilege raised by the State was sustainable.
Held, that the documents dated September 28, 1955, March 8, 1956, and August II, 1956, which embodied the minutes of 372 the meetings of the Council of Ministers indicating the advice which the Council ultimately gave to the Rajpramukh, were expressly saved by article 163(3) of the Constitution of India and fell within the category of documents relating to " affairs of State " within the meaning of section 123 of the .
Accordingly, they were protected under section 123, and as the head of the department, the Chief Secretary, did not give permission for their production, the Court cannot compel the State to produce them.
Held, further (Subba Rao, J., dissenting), that the report of the Public Service Commission being the advice tendered by it, was also protected under section 123 of the Act.
Held, also (Kapur, J., dissenting), that the words "records relating to affairs of State " in section 123 cannot be given a wide meaning so as to take in every document pertaining to the entire business of State, but should be confined only to such documents whose disclosure may cause injury to the public interest.
The second clause of section 162 refers to the objections both as to the production and admissibility of the document and entitles the court to take other evidence in lieu of inspection of the document in dealing with a privilege claimed or an objection raised under section 123, to determine the validity of the objections.
Case law reviewed.
Per Sinha, C. J., Gajendragadkar and Wanchoo, jj.
Though under sections 123 and 162 the Court cannot hold an enquiry into the possible injury to public interest which may result from the disclosure of the document in question, the matter being left for the authority concerned to decide, the Court is competent to hold a preliminary enquiry and determine the validity of the objection to its production and that necessarily involves an enquiry into the question as to whether the document relates to affairs of State under section 123.
Where section 123 confers mide powers on the head of the department to claim privilege on the ground that the disclosure may cause injury to public interest, scrupulous care must be taken to avoid making a claim for such a privilege on the ground that the disclosure of the document may defeat the defence raised by the State.
The apprehension that the disclosure may adversely affect the head of the department or the Minister in charge of the department or even the Government in power, or that it may provoke public criticism or censure in the Legislature, should not weigh in the mind of the head of the department and the sole test which should determine his decision is injury to public interest and nothing else.
The privilege under section 123 should be claimed generally by the Minister in charge who is the political head of the department concerned ; if not, the Secretary of the department should 373 make the claim, and the claim should always be made in the form of an affidavit.
When the affidavit is made by the Secretary, the Court may in a proper case, require an affidavit of the Minister himself.
The affidavit should show that each document in question has been carefully read and considered, and the person making the affidavit is satisfied that its disclosure would lead to public injury.
If there are series of documents included in a file it should appear from the affidavit that each one of the documents, whose disclosure is objected to, has been duly considered by the authority concerned.
The affidavit should also indicate briefly within permissible limits the reason why it is apprehended that their disclosure would lead to injury to public interest.
If the affidavit produced in support of the claim ' for privilege is found to be unsatisfactory a further affidavit may be called, and in a proper case the person making the affidavit whether he is a Minister or the Secretary should be summoned to face cross examination on the relevant points.
The provisions of O. 11, r. 19(2), of the Code of Civil Procedure must be read subject to section 162 of the and where a privilege is claimed at the stage of inspection under O. 11, r. 19(2), of the Code, the Court is precluded from inspecting the privileged document in view of section 162 of the Act.
Per Kapur, J.
The words of section 123 of the Act are very wide and cover all classes of documents which may fall within the phrase " affairs of State ", some noxious and others inno cuous, and may even appear to be unduly restrictive of the rights of the litigant but if that is the law the sense of responsibility of the official concerned and his sense of fair play has to be trusted.
Under that section discretion to produce or not to produce a document is given to the head of the department and the court has not the power to override the ministerial certificate against production.
The words " or take other evidence to enable it to determine on its admissibility" in section 162 on their plain language do not apply to production and the taking of evidence must have reference to admissibility.
The section does not entitle the court to take other evidence i.e., other than the document, to determine the nature of the document or the reasons impelling the head of the department to withhold the production of the document.
It is permissible for the Court to determine the collateral facts whether the official claiming the privilege is the person mentioned in section 123, or to require him to file a proper affidavit or even to cross examine him on such matters which do not fall within the enquiry as to the nature of the document or nature of the injury.
He may also be cross examined as to the existence of the practice of the department to keep documents of the class 374 secret but beyond that the ministerial discretion should be accepted and it should neither be reviewed nor overruled.
Per Subba Rao, J. (1) " Records relating to affairs of State" in section 123 of the Act mean documents of State whose production would endanger the public interest; documents pertaining to public security, defence and foreign relations are documents relating to affairs of State; unpublished documents relating to trading, commercial or contractual activities of the State are not, ordinarily, to be considered as documents relating to affairs of State, but in special circumstances they may partake of that character and it is a question of fact in each case whether they relate to affairs of State or not in the sense that if they are disclosed public interest would suffer.
(2) Under no circumstances can a court inspect such a docu ment or permit giving of secondary evidence of its contents.
(3) Under section 162 the Court has overriding power to disallow a claim of privilege raised by the State, but in its discre tion, the court will exercise its power only in exceptional circumstances when public interest demands.
The said claim shall be made by an affidavit filed by the Minister in charge of the department concerned describing the nature of the document in general and broadly the category of public interest its non disclosure purports to serve.
Ordinarily, the court shall accept the affidavit of a Minister, but in exceptional circumstances, when it has reason to believe that there is more than what meets the eye, it can examine the Minister and take other evidence to decide the question of privilege.
(4) The disclosure of the report of the Public Service Com mission may expose the Government if the latter ignores a good advice, but such an exposure is certainly in public interest and in a conflict between the administration of justice and the claim of privilege by the State, the claim must be overruled.
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On 13 December 2006 the appellant Mohammed al Ghabra, referred to in these proceedings as G, was informed that a direction had been made against him by HM Treasury (the Treasury) under article 4 of the Terrorism (United Nations Measures) Order 2006 (SI 2006/2657) (the TO) and that he was a designated person for the purposes of that Order.
He was told that the direction had been made because the Treasury had reasonable grounds for suspecting that he was, or might be, a person who facilitated the commission of acts of terrorism.
He was also told that, in light of the sensitive nature of the information on which the decision had been taken, it was not possible to give him further details and that the effect of the direction was to prohibit him from dealing with his funds and economic resources and to prevent anyone notified of the freeze from making funds, economic resources or financial services available to him or for his benefit.
On 2 August 2007 the appellants Mohammed Jabar Ahmed, Mohammed Azmir Khan and Michael Marteen (formerly known as Mohammed Tunveer Ahmed), referred to in these proceedings as A, K and M, received letters in almost identical terms telling them that a direction had been made against them under article 4 of the TO by the Treasury.
A few days after G had been told that he had been designated under the TO he received a letter from the Foreign and Commonwealth Office saying the Sanctions Committee of the Security Council of the United Nations (otherwise known as the 1267 Committee: see para 18 below) had added his name to its Consolidated List, that this meant that he was subject to a freezing of his funds, assets and economic resources and that these measures were binding on all UN member states with immediate effect and had been implemented in UK law.
No mention was made at that stage of the domestic measure under which the restrictions were being imposed on him.
But in March 2007 he was told that his listing meant that he was deemed to be a designated person under the Al Qaida and Taliban (United Nations Measures) Order 2006 (SI 2006/2952) (the AQO).
In September 2005 Hani El Sayed Sabaei Youssef (or Hani al Sebai), referred to in these proceedings as HAY, was told that his name had been added to the Consolidated List by the 1267 Committee.
As a result he too was deemed to be a designated person under the AQO.
His interest in these proceedings is virtually identical to those of G and A, K and M. So, although his case comes before this court on an appeal by the Treasury to which he is the respondent (see paras 35 37, below), I shall refer to him and to G and A, K and M as the appellants when I need to refer to all these designated persons collectively.
The TO and the AQO were made by the Treasury in purported exercise of the power to make Orders in Council which was conferred on them by section 1 of the United Nations Act 1946 (the 1946 Act).
In each case the Orders were made to give effect to resolutions of the United Nations Security Council which were designed to suppress and prevent the financing and preparation of acts of terrorism.
The Orders provide for the freezing, without limit of time, of the funds, economic resources and financial services available to, among others, persons who have been designated.
Their freedom of movement is not, in terms, restricted.
But the effect of the Orders is to deprive the designated persons of any resources whatsoever.
So in practice they have this effect.
Persons who have been designated, as Sedley LJ observed in the Court of Appeal, are effectively prisoners of the state: A and others v HM Treasury [2008] EWCA Civ 1187; [2009] 3 WLR 25, para 125.
Moreover the way the system is administered affects not just those who have been designated.
It affects third parties too, including the spouses and other family members of those who have been designated.
For them too it is intrusive to a high degree: see R(M) v HM Treasury (Note) [2008] UKHL 26, [2008] 2 All ER 1097.
In that case, which concerned the payment of social security benefits to the spouses of listed persons living in the United Kingdom, the House of Lords referred a question to the Court of Justice of the European Communities for a preliminary ruling on the interpretation of Council Regulation (EC) No 881/2002 to which the Al Qaida and Taliban (United Nations Measures) Order 2002 (SI 2002/111) gave effect.
The procedure that section 1 lays down enables Orders under it to be made by the executive without any kind of Parliamentary scrutiny.
This is in sharp contrast to the scheme for the freezing of assets that has been enacted by Parliament in Part 2 of the Anti terrorism, Crime and Security Act 2001.
Orders made under that Act must be kept under review by the Treasury, are time limited and must be approved by both Houses of Parliament: sections 7, 8 and 10.
The systems that have been provided for in the TO and the AQO are far more draconian.
Yet they lie wholly outside the scope of Parliamentary scrutiny.
This raises fundamental questions about the relationship between Parliament and the executive and about judicial control over the power of the executive.
The case brings us face to face with the kind of issue that led to Lord Atkins famously powerful protest in Liversidge v Anderson [1942] AC 206, 244 against a construction of a Defence Regulation which had the effect of giving an absolute and uncontrolled power of imprisonment to the minister.
In The Case of Liversidge v Anderson : The Rule of Law Amid the Clash of Arms (2009) 43 The International Lawyer 33, 38 Lord Bingham of Cornhill, having traced the history of that judgment, said that we are entitled to be proud that even in that extreme national emergency there was one voice eloquent and courageous which asserted older, nobler, more enduring values: the right of the individual against the state; the duty to govern in accordance with law; the role of the courts as guarantor of legality and individual right; the priceless gift, subject only to constraints by law established, of individual freedom.
The consequences of the Orders that were made in this case are so drastic and so oppressive that we must be just as alert to see that the coercive action that the Treasury have taken really is within the powers that the 1946 Act has given them.
Even in the face of the threat of international terrorism, the safety of the people is not the supreme law.
We must be just as careful to guard against unrestrained encroachments on personal liberty.
The legislative background: the history
To set the scene for the discussion that follows, it is necessary to trace the history of the various measures that have led to the appellants being dealt with in this way.
An examination of the legislative background must begin with the Charter of the United Nations.
It was signed in San Francisco on 26 June 1945 as the Second World War was coming to an end.
It came into force on 24 October 1945.
The Preamble records the determination of the United Nations to save succeeding generations from the scourge of war, to reaffirm faith in fundamental human rights and to establish conditions under which justice and respect for the obligations arising from treaties and other sources of international law can be maintained.
Member states bound themselves to maintain international peace and security, to take collective measures for the prevention and removal of threats to the peace and to promote and encourage respect for human rights and for fundamental freedoms: article 1.
No principled objections were raised against a strong Security Council.
In order to achieve the goal of maintaining peace states were willing to submit to a central organ in a manner that hitherto had been unprecedented: The Charter of the United Nations, A Commentary, ed Bruno Simma, 2nd ed (2002), p 703 (Professor Joachim Frowein and Dr Nico Krisch).
Article 2 of the Charter states: The Organisation and its Members, in pursuit of the Purposes stated in Article 1, shall act in accordance with the following Principles. 2.
All Members, in order to ensure to all of them the rights and benefits resulting from membership, shall fulfil in good faith the obligations assumed by them in accordance with the present Charter.
Article 24 confers the primary responsibility on the Security Council for the maintenance of international peace and security.
Article 25 provides: The Members of the United Nations agree to accept and carry out the decisions of the Security Council in accordance with the present Charter.
Chapter VII sets out the action to be taken with respect to threats to the peace, breaches of the peace and acts of aggression.
Article 39, which introduces this Chapter, provides that it is for the Security Council to determine the existence of any such threat and to make recommendations or decide what measures shall be taken in accordance with articles 41 and 42 to maintain or restore international peace and security.
Article 41 states: The Security Council may decide what measures not involving the use of armed force are to be employed to give effect to its decisions, and it may call upon the Members of the United Nations to apply such measures.
These may include complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations.
Article 42 provides for the measures that may be taken if the Security Council considers that measures provided for in article 41 would be or have proved to be inadequate.
An example of its use can be found in Resolution 1546 which was adopted by the Security Council on 8 June 2004 which gave authority for a multi national force to take all necessary measures to contribute to the maintenance of peace and security in Iraq: see R (Al Jedda) v Secretary of State for Defence (JUSTICE intervening) [2007] UKHL 58, [2008] AC 332.
This case is concerned with measures that have been taken under article 41.
Among a number of miscellaneous provisions in Chapter XVI is article 103, with which the complementary provision in article 25 must be read.
It provides: In the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail.
Treaty provisions that are incompatible with ius cogens are void.
As for the rest, article 103 does not say that treaty provisions between states which are incompatible with the Charter are void.
What it says is that the Charter has higher rank, and that obligations derived from the Charter must prevail.
As Professor Rudolf Bernhardt observes at p 1295 of the Commentary, the Charter aspires to be the constitution of the international community accepted by the great majority of states.
Obligations under decisions and enforcement measures under Chapter VII prevail over other commitments of the members concerned in international law.
As article 103 is concerned only with treaty obligations between member states it says nothing about the relationship between the Charter and the rights and freedoms of individuals in domestic law.
In that regard, article 55(c) states that the United Nations shall promote universal respect for, and observance of, human rights and fundamental freedoms.
But the obligation in article 25 is unqualified, and the regime in Chapter VII leaves it to the Security Council to judge whether the measures that it decides upon are consistent with the objects of the Charter.
The United Kingdom gave effect to the Charter in domestic law by means of the United Nations Act 1946.
Section 1 of that Act provides: (1) If, under article 41 of the Charter of the United Nations signed at San Francisco on 26 June 1945 (being the article which relates to measures not involving the use of armed force) the Security Council of the United Nations call upon His Majestys Government in the United Kingdom to apply any measures to give effect to any decision of that Council, His Majesty may by Order in Council make such provision as appears to Him necessary or expedient for enabling those measures to be effectively applied, including (without prejudice to the generality of the preceding words) provision for the apprehension, trial and punishment of persons offending against the Order.
Subsection (4) of that section as originally enacted provided that any such Order was not to be deemed to be or contain a statutory rule to which section 1(1) of the Rules Publication Act 1893 applied.
That section which was repealed by section 12 of the Statutory Instruments Act 1946, required publication of an Order in the London Gazette at least 40 days before it was made.
As I said in R (Stellato) v Secretary of State for the Home Department [2007] UKHL 5, [2007] 2 AC 70, para 10, the opportunity for scrutiny of delegated legislation by Parliament is determined by the provisions of the enabling Act.
Four procedures are available: affirmative resolution procedure; negative resolution procedure; simply laying; and no parliamentary stage at all.
In the case of Orders in Council made under section 1 of the 1946 Act the procedure is simply laying before Parliament.
All statutory instruments that are laid before Parliament are considered by the Joint Committee on Statutory Instruments.
But its role is confined to assessing the technical qualities of the instrument.
This is to be contrasted with the procedure which applies to an instrument upon which proceedings may be taken in either House.
Under that procedure every draft instrument is considered by the Merits of Statutory Instruments Committee with a view to determining whether or not the special attention of the House should be drawn to it on grounds of a more general character.
These include (a) that it is politically or legally important or gives rise to issues of public policy likely to be of interest to the House and (b) that it may be inappropriate in view of changed circumstances since the enactment of the parent Act.
This level of scrutiny does not apply to the procedure that was chosen for Orders in Council made under section 1 of the 1946 Act.
They are not instruments upon which proceedings may be taken in either House.
They are laid before Parliament for its information only, not for scrutiny of their merits or for debate.
The effect of section 1 of the 1946 Act is that decisions as to the provisions that Orders made under it may or should contain lie entirely with the executive.
When he introduced the United Nations Bill at its Second Reading in the House of Lords on 12 February 1946 the Lord Chancellor, Lord Jowitt, said that article 41 was the only article of the Charter that required immediate legislation in order to put His Majestys Government in a position to fulfil their obligations as a member of the United Nations, and that when the Security Council took a decision there was an obligation on the Government to give effect to it: Hansard, HL Debates, 12 February 1946, vol 139, cols 373 375.
For the opposition, Viscount Swinton said that he believed that a Bill to enable the Government to do things by Order in Council would have the complete, unanimous and enthusiastic support of everybody in the House, as if the United Nations was to succeed it must be able to take effective action and that action must be prompt and immediate: col 377.
Viscount Samuel, supporting the motion, said that the Bill made provision for the eventuality that coercive measures might become necessary by the United Nations against some State which is indulging, or is apparently about to indulge in acts of aggression: col 378.
The Lord Chancellor did not suggest, in his brief reply, that this was an incorrect summary of the purpose of the enactment: col 379.
Remarks made during the Second Reading of the Bill in the House of Commons on 5 April 1946 cast further light as to what its purpose was understood to be at that time.
Introducing the Bill, the Minister of State, Mr Philip Noel Baker, said that it would play its part in the vitally important measures for keeping the peace, as clashes between Governments such as those which might have become wars might occur again: Hansard, HC Debates, vol 421, col 1516.
Other speakers referred during the debate to the use of non military, diplomatic and economic sanctions as a means of deterring aggression between states.
There was no indication during the debates at Second Reading in either House that it was envisaged that the Security Council would find it necessary under article 41 to require states to impose restraints or take coercive measures against their own citizens.
The question whether it would be appropriate, if it were to do so, for the Government to be given power to introduce such measures by Orders in Council in the manner envisaged by the Bill was not discussed.
The Security Council Resolutions
The world has not, of course, been immune to threats to international peace and security since 1945.
Numerous Security Council Resolutions (SCRs) have been made calling upon the members of the United Nations to take measures under article 41.
Prior to the terrorist attacks that were perpetrated on 11 September 2001 (9/11) in New York, Washington and Pennsylvania they were directed primarily to the interruption by means of sanctions of economic and other relations between states.
As the Security Councils practice evolved they were directed to what states themselves might or might not do.
For example, by SCR 1189(1998) the Security Council declared that every state has the duty to refrain from organizing, instigating, assisting or participating in terrorist acts in another state or acquiescing in organised activities within its territory directed towards the commission of such acts.
But the bombing of United States embassies in Nairobi and Dar es Salaam in 1999 showed that the spectre of international terrorism was not capable of being defeated by measures directed to the transactions of states as such.
In response to these outrages the Security Council directed its attention
to the activities of the ruling regimes.
SCR 1267(1999) provided for the freezing of funds and other financial resources derived from or generated from property owned or controlled by the Taliban or by any undertaking owned or controlled by them: paragraph 4(b).
A sanctions Committee was established to oversee implementation of these measures, known as the 1267 Committee.
SCR 1333(2000) took this process a step further.
It provided by paragraph 8(c) that all states should freeze funds and other financial assets of Usama bin Laden and individuals and entities associated with him to ensure that no funds were made available for the benefit of any person or entity associated with him, including the Al Qaida organisation.
Although previous practice did not go that far, it has not been suggested that it lay outside the powers of the Security Council under article 41 to direct the taking of collective measures at an international level against individuals.
The drafting history indicates the contrary.
The wording of article 41 was the product of the agreement reached by the Four Powers at Dumbarton Oaks that it should contain an enumeration of the non military measures that could be taken which was illustrative and non exhaustive: Simma, op cit, p 737.
SCR 1333(2000) was followed by a series of resolutions refining and updating the measures that were to be taken to deal with Al Qaida, Usama bin Laden, the Taliban and other individuals, groups, undertakings and entities associated with them as designated by the committee established pursuant to SCR 1267.
At the hearing of this appeal the most recent was SCR 1822(2008).
It was followed and reaffirmed by SCR 1904(2009), which was adopted on 17 December 2009.
The preamble to SCR 1822(2008) declared that terrorism in all its forms and manifestations constitutes one of the most serious threats to peace and security, reiterated the Security Councils condemnation of these persons and stressed that terrorism could only be defeated by a sustained and comprehensive approach involving the active participation and collaboration of all states.
By paragraph 1 it required all states to take all the measures previously imposed by previous Resolutions with respect to Al Qaida, Usama bin Laden and the Taliban and other individuals, groups, undertakings and entities associated with them, as referred to in the list created pursuant to Resolutions 1267(1999) and 1333(2000) (the Consolidated List), including: (a) Freeze without delay the funds and other financial assets or economic resources of these individuals, groups, undertakings and entities, including funds derived from property owned or controlled directly or indirectly, by them or by persons acting on their behalf or at their direction, and ensure that neither these nor any other funds, financial assets or economic resources are made available, directly or indirectly for such persons benefit, or by their nationals or by persons within their territory.
Paragraph 8 of SCR 1822(2008) reiterated the obligation of all Member States to implement and enforce the measures set out in paragraph 1 and urged all states to redouble their efforts in that regard.
Paragraph 9 encouraged all Member States to submit to the 1267 Committee for inclusion on the Consolidated List names of individuals, groups, undertakings and entities participating by any means in the financing or support of acts or activities of Al Qaida, Usama bin Laden and the Taliban and other individuals, groups, undertakings and entities associated with them.
The persons on that list are the persons to whom the prohibitions in SCR 1267(1999) and subsequent Resolutions applied.
Provision was made in paragraphs 1923 for de listing and in paragraphs 24 26 for review and maintenance of the Consolidated List.
Individuals, groups, undertakings and entities have the option of submitting a petition for de listing directly to a body known as the Focal Point.
The Committee is directed to work, in accordance with its guidelines, to consider petitions for removal from the Consolidated List of those who no longer meet the criteria established in the relevant Resolutions.
On 28 September 2001, as part of its response to 9/11, the Security Council broadened its approach to the problem still further.
It decided that action required to be taken against everyone who committed or attempted to commit terrorist acts or facilitated their commission.
It adopted SCR 1373(2001).
The preamble to this Resolution recognised the need for states to complement international co operation by taking additional measures to prevent and suppress, in their territories through all lawful means, the financing and preparation of any acts of terrorism.
In paragraph 1 it was declared that the Security Council had decided that all States shall: (a) Prevent and suppress the financing of terrorist acts; (b) Criminalize the wilful provision or collection of funds by their nationals or in their territories with the intention that the funds should be used to carry out terrorist acts; (c) Freeze without delay funds and other financial assets or economic resources of persons who commit, or attempt to commit, terrorist acts or participate in or facilitate the commission of terrorist acts; of entities owned or controlled by such persons; and of persons and entities acting on behalf of, or at the direction of such persons and entities; [and] (d) Prohibit their nationals or any persons and entities within their territories from making funds, financial assets or economic resources or financial or other related services available for the benefit of persons who commit or attempt to commit or facilitate or participate in the commission of terrorist acts, of entities owned or controlled by such persons and of persons and entities acting on behalf of or at the direction of such persons.
In paragraph 2 it was declared that the Security Council had decided that all States shall, among various other measures (d) Prevent those who finance, plan, facilitate or commit terrorist acts from using their respective territories for those purposes against other States or their citizens; (e) Ensure that any person who participates in the financing, planning, preparation or perpetration of terrorist acts or in supporting terrorist acts is brought to justice.
Provision was made in paragraph 6 for establishing a Committee of the Security Council, consisting of all its members, to monitor implementation of the Resolution.
In paragraph 8 the Security Council expressed its determination to ensure the full implementation of the Resolution, in accordance with its responsibilities under the Charter.
This Resolution was followed by SCR 1452(2002) which was adopted on 20 December 2002.
In order to give effect to SCR 1333(2000) and its successors within the
European Community, the Council adopted Regulation (EC) No 881/2002 ordering the freezing of the funds and other economic resources of the persons and entities whose names appear on a list annexed to that Regulation.
Practice has varied among member states as to whether to implement their obligations under the UN Charter in parallel with their obligation to legislate in their national legal orders in conformity with Regulation 881.
Reports of the member states to the 1267 Committee indicate that eleven of the twenty seven member states appear to have relied on Regulation 881 alone.
The remaining sixteen member states, including the United Kingdom, have adopted their own legislative measures which run in parallel with the Regulation.
The Orders in Council: the Terrorism Orders
The United Kingdom Parliament had already enacted the Terrorism Act 2000 for the creation of a criminal regime dealing with the funding of terrorism.
It received the Royal Assent on 20 July 2000.
In response to the events of 9/11 the Bill which became the Anti terrorism, Crime and Security Act 2001 was presented to Parliament on 12 November 2001.
It received the Royal Assent on 14 December 2001.
It was followed by the Prevention of Terrorism Act 2005, which received the Royal Assent on 11 March 2005, the Terrorism Act 2006 which received the Royal Assent on 30 March 2006 and the Counter Terrorism Act 2008 which received the Royal Assent on 26 November 2008.
Part 2 of the 2001 Act provided for the making of freezing orders.
The 2005 Act provided for the making of control orders.
The 2006 Act, among other things, amended the definition of terrorism in the 2000 and 2001 Acts to eliminate disparities between its definition in domestic law and that in various international conventions to which the United Kingdom is a party.
The 2008 Act introduced a procedure for setting aside financial restrictions decisions taken by the Treasury.
The restrictions that were imposed on the appellants in this case were made by the Treasury under section 1 of the 1946 Act.
They were not made under powers that were specifically designed for that purpose by primary legislation.
Effect was first given to SCR 1373 by the Terrorism (United Nations Measures) Order 2001 (SI 2001/3365), which was made on 9 October 2001, laid before Parliament on the same day and came into force on 10 October 2001.
The wording of its leading provision was modelled on that of the SCR.
Article 3 of the Order provided: Any person who, except under the authority of a licence granted by the Treasury under this article, makes any funds or financial (or related) services available directly or indirectly to or for the benefit of (a) a person who commit, attempts to commit, facilitates or participates in the commission of acts of terrorism, (b) a person controlled or owned directly or indirectly by a person in (a), or (c) a person acting on behalf, or at the direction of, a person in (a), is guilty of an offence under this Order.
The Terrorism (United Nations Measures) Order 2006 (SI 2006/2657) (the TO) was laid before Parliament on 11 October 2006 and came into force on 12 October 2006.
As its preamble records, it was made to give effect to SCR 1373(2001) and SCR 1452(2002).
By article 20(1) it revoked the 2001 Order.
In place of article 3 of that Order there is a new article 3, which is in these terms: (1) For the purposes of this Order a person is a designated person if (a) he is identified in the Council Decision, or (b) he is identified in a direction. 2) In this Part direction (other than in articles 4(2)(d) and 5(3)(c)) means a direction given by the Treasury under article 4(1).
Article 4 provides: (1) Where any condition in paragraph (2) is satisfied, the Treasury may give a direction that a person identified in the direction is designated for the purposes of this Order. (2) The conditions are that the Treasury have reasonable grounds for suspecting that the person is or may be (a) a person who commits, attempts to commit, participates in or facilitates the commission of acts of terrorism; (b) a person identified in the Council Decision; (c) a person owned or controlled, directly or indirectly, by a designated person; or (d) a person acting on behalf of or at the direction of a designated person. (4) The Treasury may vary or revoke a direction at any time.
Article 5(4) provides that the High Court or, in Scotland, the Court of Session may set aside a direction on the application of the person identified in the direction.
Article 7 of the TO provides: (1) A person (including the designated person) must not deal with funds or economic resources belonging to, owned or held by a person referred to in paragraph (2) unless he does so under the authority of a licence granted under article 11. (2) The prohibition in paragraph (1) applies in respect of (a) any person who commits, attempts to commit, participates in or facilitates the commission of acts of terrorism; (b) any designated person; (c) any person owned or controlled , directly or indirectly, by a person referred to in sub paragraph (a) or (b); and (d) any person acting on behalf or at the direction of a person referred to in sub paragraph (a) or (b). (3) A person who contravenes the prohibition in paragraph (1) is guilty of an offence.
Article 7(6) defines the phrase deal with in terms which are designed to catch every conceivable kind of transaction in respect of funds and economic resources.
Article 8 provides that a person must not make funds, economic resources or financial services available, directly or indirectly, to or for the benefit of a person referred to in article 7(2) unless he does so under the authority of a licence granted under article 11.
Licences under article 11 may be general or granted to a category of persons or to a particular person, may be subject to conditions and may be of indefinite duration or subject to an expiry date.
The Treasury may vary or revoke the licence at any time.
On 8 July 2009 a further Order in this sequence, the Terrorism (United Nations Measures) Order 2009 (SI 2009/1747), was laid before Parliament.
It came into force on 10 August 2009.
Like the 2001 and 2006 Terrorism Orders, it was made under section 1 of the 1946 Act to give effect to SCR 1373(2001).
It revoked the 2006 Order, but it provided that persons such as A, K, and M and G who had been designated under the 2006 Order were to remain subject to its terms until 31 August 2010 unless their designation was revoked by that date: article 26(4).
On 22 October 2009, two weeks after the hearing of these appeals had been concluded, G was informed that his designation under the 2006 Order had been revoked and that he had been redesignated under the 2009 Order.
On 30 October 2009 A, K and M were redesignated under the 2009 Order and their designations under the 2006 Order were likewise revoked.
There are some differences between the 2006 and the 2009 Orders, such as to the definition of dealing with an economic resource, which ameliorate to some degree the onerous effects of the regime on spouses and other third parties who interact with the designated person.
The prohibitions that the 2009 Order imposes on making funds, financial services available for his benefit, and on making economic resources available to him or for his benefit, apply only if the benefit that he obtains or is able to obtain is significant: articles 12(4)(a), 13(3)(a), 14(4)(a).
An additional pre condition for designation has been introduced by article 4(1)(b).
The Treasury must consider that the direction is necessary for purposes connected with protecting members of the public from the risk of terrorism.
But, subject to these minor adjustments, the impact of the regime on the designated person himself is just as rigorous as it was under the 2006 Order, and the phrase reasonable grounds for suspecting in article 4(2) of the 2006 Order has been retained in the 2009 Order: see article 4(2).
So, although the 2009 Order is not before the court in these proceedings, the arguments that have been directed to the 2006 Order (the TO) can be taken to apply to it also.
They have not been superseded by the action that the Treasury has taken since the end of the hearing on 8 October 2009.
The Al Qaida and Taliban Order
The Treasurys response to the Security Councils direction by a series of resolutions including SCR 1452(2002) that measures that were to be taken to deal with Al Qaida, Usama bin Laden, the Taliban and other individuals, groups undertakings and entities associated with them as designated by the committee established pursuant to SCR 1267 was to make the Al Qaida and Taliban (United Nations Measures) Order 2002 (SI 2002/111).
It was replaced by Al Qaida and Taliban (United Nations Measures) Order 2006, which was laid before Parliament on 15 November 2006 and came into force on 16 November 2006.
As in the case of the TO, this Order sets out a rigorous system of prohibitions and licences which is applied to persons who are designated persons for its purposes.
Article 3 defines the expression designated persons.
It provides: (1) For the purposes of this Order (a) Usama bin Laden, (b) any person designated by the Sanctions Committee, and (c) any person identified in a direction, is a designated person. (2) In this Part direction means a direction given by the Treasury under article 4(1).
Article 4 sets out the Treasurys power to designate in these terms: (1) Where any condition in paragraph (2) is satisfied, the Treasury may give a direction that a person identified in the direction is designated for the purposes of this Order. (2) The conditions are that the Treasury have reasonable grounds for suspecting that the person is or may be (a) Usama bin Laden, (b) a person designated by the Sanctions Committee, (c) a person owned or controlled, directly or indirectly, by a designated person; or (d) a person acting on behalf of or at the direction of a designated person. (4) The Treasury may vary or revoke a direction at any time.
Article 5(4) provides that the High Court or, in Scotland, the Court of Session may set aside a direction on the application of the person identified in the direction or any other person affected by the direction.
The facts
Two of the three cases before this court are appeals against orders made by the Court of Appeal on 30 October 2008.
In the first case, A, K and M are brothers aged 31, 35 and 36.
They are UK citizens and, at the time of their designation, lived in East London with their respective wives and children.
A and K no longer live with their families, and their current whereabouts are unknown.
Their solicitor, with whom they have not been in contact for a number of months, attributes their disappearance to the damaging effects upon them and their families of the regimes to which they were subjected by the Treasury.
It placed an extraordinary burden on their wives, created significant mental health difficulties and led ultimately to the breakdown of their marriages.
Ms marriage has also broken down, but he has continued to have a close relationship with his children.
He lives at his ex wifes address where his children live also.
A, K and M have never been charged or arrested for terrorism related offences.
By letters dated 2 August 2007 they were informed that directions had been made in respect of each of them under article 4 of the TO.
They received letters which stated that the direction had been made because the Treasury had reasonable grounds for suspecting that you are, or may be, a person who facilitates the commission of acts of terrorism but that, in light of the sensitive nature of the information on which it was taken, they were unable to give them further details.
Their solicitors requested further information.
By a letter dated 12 September 2007 the Treasury provided further details about the factual basis for the decision to make the directions, to the extent that this was said to be possible given the sensitive nature of some of the material relied upon.
It was said that an Al Qaida linked operative had identified A and M as East London based Al Qaida facilitators and that M and his brother K had travelled to Pakistan with the intention of delivering money to contacts there and participating in terrorist training.
In the second case, G was informed by a letter dated 13 December 2006
in almost identical terms to that received by A, K and M that a direction had been made against him under article 4 of the TO.
A few days later he received a letter from the Foreign and Commonwealth Office saying that the 1267 Committee of the Security Council had added him to its Consolidated List and that this meant that he was subject to a freezing of his funds, assets and economic resources.
He was told that these measures were binding on all United Nations member states and had been implemented in UK law.
He was told that he could petition the Committee to seek de listing.
He was not told until later that his listing had been at the request of the United Kingdom.
It was not until March 2007 that he was told that his listing meant that he was a designated person under the AQO.
Article 3(1)(b) provides that for the purposes of that Order any person designated by the Committee is a designated person.
It appears to have been assumed on his behalf that a direction was made against him under article 4(1) of the AQO.
But there is no evidence that this ever happened, and it would have been unnecessary as he was a designated person for the purposes of that Order simply by reason of the fact that he had been listed.
A, K, M and G issued proceedings in the Administrative Court seeking orders under article 5(4) of the TO setting aside the directions made against them in pursuance of that Order by the Treasury.
G also sought an order under article 5(4) of the AQO setting aside the direction made against him under article 4(1) of that Order in so far as the court considers that such a direction has been lawfully made.
The proceedings were consolidated.
On 24 April 2008 Collins J held that the TO and the AQO were ultra vires and he quashed both Orders: [2008] EWHC 869 (Admin), [2008] 3 All ER 361.
He gave the Treasury permission to appeal, and the orders that he made were stayed pending the hearing of an appeal.
On 30 October 2008 the Court of Appeal (Sir Anthony Clarke MR and Wilson LJ, Sedley LJ dissenting in part) allowed the appeal in part.
It held that the words or may be in article 4(2) of the TO were not warranted by the SCR, and that, although these words could be severed from the rest of article 4(2), as all the directions had included these words it was necessary to quash the directions.
It also held that the provisions of the AQO were lawful but that a person who was designated under article 3(1) was entitled to seek judicial review of the merits of the decision.
A, K, M and G were given leave to appeal by an appeal committee of the House of Lords on 3 March 2009.
The third proceedings were brought by HAY, who also is resident in the United Kingdom.
He is 49 years of age, is married and lives in London with his wife and four of his children.
He and his wife are Egyptian nationals and have lived in the United Kingdom since 1994.
His name was added to the Consolidated List by the 1267 Committee on 29 September 2005.
As a result he became a designated person for the purposes of the AQO in terms of article 3(1)(b).
Unlike G, the proposal that his name be added to the list was not made by the United Kingdom.
It provided no information to the 1267 Committee in relation to its decision to add his name to the list.
But, as it is a member of the 1267 Committee, the United Kingdom had access to all the information available to the Committee that was relied upon at the time of its decision.
In December 2005 his solicitors wrote both to the Treasury and to the Foreign and Commonwealth Office requesting disclosure of the state that had proposed HAYs addition to the Consolidated List and of the information that the Committee had relied on in reaching its decision.
The Foreign and Commonwealth Office made repeated requests over a long period to the nominating state and to the Committee in an attempt to satisfy these requests.
As a result an Interpol Red Note relating to HAY was sent to his solicitors under cover of a letter dated 26 September 2008.
It was made clear in this letter that this was not the only information provided to the Committee.
But the United Kingdom did not have permission to release any other information, and the nominating state refused to allow its identity to be disclosed.
HAY issued a claim for judicial review on 9 February 2009 in which he sought a merits based review of the information relied upon by the 1267 Committee.
In the alternative he sought an order quashing the AQO, at least in so far as it applied to him.
On 7 April 2009 he submitted an amended claim form which indicated that he was proceeding only on the basis that the AQO was ultra vires.
Shortly before the hearing the Foreign Secretary completed a review of the information available to him as to whether HAY continued to meet the criteria applied by the 1267 Committee to determine whether or not a person should be on the Consolidated List.
The 1267 Committee, for its part, is presently undertaking a review of the cases of all persons whose names appeared on the list as at June 2008.
HAY is in the second tranche of these cases.
A decision in his case is unlikely to be reached in the near future.
The Foreign Secretary has made an application for HAYs name to be removed from the list, as he considers that HAYs listing is no longer appropriate: see para 82, below.
Owen J granted HAYs application for judicial review and made a declaration that the AQO was unlawful in so far as it applied to HAY: [2009] EWHC 1677 (Admin).
He concluded that the AQO was ultra vires the 1946 Act but he declined to make a quashing order.
He held that the practical effect of the AQO was to preclude access to the court for protection of what HAY contended were his basic rights: para 45.
The Treasury appealed against this decision, and by an order dated 14 July 2009 Owen J gave it permission under the leap frog provisions to appeal to the House of Lords so that its appeal could be heard together with the appeals by A, K, M and G.
In response to representations made by HAYs solicitors the Treasury amended his licence conditions which enable his wife to obtain welfare benefits, with the result that she is no longer required to provide monthly reports on how the family spend their money.
Otherwise, despite the Foreign Secretarys view that listing is no longer appropriate, the freezing regime remains in place.
The Treasurys position is that HAY and his family must remain subject to the AQO unless and until the 1267 Committee decides to remove him from the Consolidated List.
The effect of the regimes that the TO and the AQO impose is that every transaction, however small, which involves the making of any payments or the passing of funds or economic resources whatever directly or indirectly for the benefit of a designated person is criminalised.
This affects all aspects of his life, including his ability to move around at will by any means of private or public transport.
To enable payments to be made for basic living expenses a system of licensing has been created.
It is regulated by the Treasury, whose interpretation of the sanctions regime and of the system of licensing and the conditions that it gives rise to is extremely rigorous.
The overall result is very burdensome on all the members of the designated persons family.
The impact on normal family life is remorseless and it can be devastating, as the cases of A and K illustrate.
As already mentioned (see para 28, above), the effects on third parties have been ameliorated to some extent in the case of designations made under the 2009 Order.
Some transactions are affected only if they are significant.
But, taken overall, the regime that is imposed under it remains to a high degree restrictive and, so far as the designated person himself is concerned, just as paralysing.
Sir Anthony Clarke MR accepted that the orders are oppressive in their nature and that they are bound to have caused difficulties for the appellants and their families: [2009] 3 WLR 25, para 25.
Wilson LJ said that they imposed swingeing disabilities upon those who were designated: para 152.
In R(M) v HM Treasury [2008] 2 All ER 1097 the House of Lords described the regime as applied to HAYs wife as disproportionate and oppressive and the invasion of the privacy of someone who was not a listed person as extraordinary: para 15.
The appellants have all been subjected to a regime which indefinitely freezes their assets under which they are not entitled to use, receive or gain access to any form of property, funds or economic resources unless licensed to do so by the executive.
For example, HAY has been denied access to any funds since September 2005.
His only permitted subsistence support is in kind provided by his wife.
She is permitted, by licence from the Treasury, to access welfare benefits, which are the familys sole source of support.
But she may spend money only on what the Treasury determines are basic expenses.
Until recently she was required to report to the Treasury on every item of household expenditure, however small, including expenditure by her children.
The issues
As Mr Owen QC for A, K and M said at the outset of his submissions, the fundamental issue in this case is whether the Treasury was empowered by section 1 of the 1946 Act to introduce an asset freezing regime by means of an Order in Council.
He submitted that the TO was ultra vires on three grounds: (1) illegality because it was passed without Parliamentary approval, (2) lack of legal certainty and proportionality and (3) the absence of procedures that enabled designated persons to challenge their designation.
For G, Mr Rabinder Singh QC submitted that the AQO was likewise ultra vires the 1946 Act, and that both the TO and the AQO were unlawful by virtue of section 6 of the Human Rights Act 1998 because they were incompatible with article 8 of the European Convention on Human Rights and with article 1 of Protocol 1.
For HAY, Mr Husain submitted that the AQO was ultra vires the 1946 Act because it violated his clients right of access to a court for an effective remedy.
Some of the issues raised by these submissions are common to both Orders, and others arise under only one of them.
They can perhaps best be grouped as follows: Both Orders 1.
Are the Orders ultra vires the 1946 Act by reference to the principle of legality? 2.
Are the Orders incompatible with the Convention rights under the Human Rights Act 1998? The TO 3.
If it is not ultra vires on one or other of the previous grounds, is the TO ultra vires the 1946 Act because its terms go beyond those required by the SCR? The AQO 4.
Is the AQO ultra vires the 1946 Act because it violates the right of effective judicial review?
Section 1 of the 1946 Act
As the scope of the power conferred by section 1(1) of the 1946 Act is in issue, it is first necessary to examine its wording: see para 12 above, where its full terms are set out.
It provides that if the Security Council of the United Nations calls upon the Government to give effect to any of its decisions under article 41 His Majesty may by Order in Council make such provision as appears to Him necessary or expedient for enabling those measures to be effectively applied, including (without prejudice to the generality of the preceding words) provision for the apprehension, trial and punishment of persons offending against the Order.
The question is what limits, if any, there are on the power conferred by this subsection.
According to its own terms, it extends to any measures mandated by the Security Council.
The word any gives full weight to the obligation to accept and carry out the decisions of the Security Council that article 25 of the Charter lays down.
But the provisions that may be imposed by this means in domestic law must be either necessary or expedient to enable those measures to be applied effectively.
Mr Swift for the Treasury said that the words necessary and expedient were directed to the content of the Order in Council, not the legislative route by which its provisions were given the force of law.
I agree, but I do not think that the legislative route that section 1 contemplated can be left out of account.
The exclusion of section 1(1) of the Rules Publication Act 1893 by section 1(4) and the direction that the Order is to be forthwith after it is made laid before Parliament are important pointers to the kind of measure that was envisaged when this provision was enacted.
They indicate that it was anticipated that the measures that the Security Council was likely to call for would require urgent action rendering Parliamentary scrutiny impracticable.
As Mr W S Morrison said in the course of the debate at Second Reading, the procedure possessed the necessary combination of speed and authority to enable instant effect to be given to the international obligations to which we are pledged: Hansard, HC Debates, vol 421, col 1517.
The section leaves the question whether any given measure is necessary or expedient to the judgment of the executive without subjecting it, or any of the terms and conditions which apply to it, to the scrutiny of Parliament.
In the context of what was envisaged when the Bill was debated in 1946, which was the use of non military, diplomatic and economic sanctions as a means of deterring aggression between states, the surrender of power to the executive to ensure the taking of immediate and effective action in the international sphere is unsurprising.
The use of the power as a means of imposing restraints or the taking of coercive measures targeted against individuals in domestic law is an entirely different matter.
A distinction must be drawn in this respect between provisions made for the apprehension, trial and punishment of persons offending against the Order (see the concluding words of section 1(1)) and those against whom the Order is primarily directed.
So long as the primary purpose of the Order is within the powers conferred by the section, ancillary measures which are carefully designed to ensure their efficacy will be also.
The crucial question is whether the section confers power on the executive, without any Parliamentary scrutiny, to give effect in this country to decisions of the Security Council which are targeted against individuals.
It cannot be suggested, in view of the word any, that the power is
available only for use where the Security Council has called for non military, diplomatic and economic sanctions to deter aggression between states.
But the phrase necessary or expedient for enabling those measures to be effectively applied does require further examination.
The closer those measures come to affecting what, in R v Secretary of State for the Home Department, Ex p Simms [2000] 2 AC 115, 131, Lord Hoffmann described as the basic rights of the individual, the more exacting this scrutiny must become.
If the rule of law is to mean anything, decisions as to what is necessary or expedient in this context cannot be left to the uncontrolled judgment of the executive.
In Chester v Bateson [1920] 1 KB 829, 837, Avory J referred to Lord Shaw of Dunfermlines warning in R v Halliday [1917] AC 260, 287 against the risk of arbitrary government if the judiciary were to approach actions of government in excess of its mandate in a spirit of compliance rather than that of independent scrutiny.
The undoubted fact that section 1 of the 1946 Act was designed to enable the United Kingdom to fulfil its obligations under the Charter to implement Security Council resolutions does not diminish this essential principle.
As Lord Brown says in para 194, the full honouring of these obligations is an imperative.
But these resolutions are the product of a body of which the executive is a member as the United Kingdoms representative.
Conferring an unlimited discretion on the executive as to how those resolutions, which it has a hand in making, are to be implemented seems to me to be wholly unacceptable.
It conflicts with the basic rules that lie at the heart of our democracy.
If authority were needed for these propositions it is to be found in R v
Secretary of State for the Home Department, Ex p Pierson [1998] AC 539.
At p 573 Lord Browne Wilkinson said: I consider first whether there is any principle of construction which requires the court, in certain cases, to construe general words contained in the statute as being impliedly limited.
In my judgment there is such a principle.
It is well established that Parliament does not legislate in a vacuum: statutes are drafted on the basis that the ordinary rules and principles of the common law will apply to the express statutory provisions.
At p 575, having examined the authorities, he said: From these authorities I think the following proposition is established.
A power conferred by Parliament in general terms is not to be taken to authorise the doing of acts by the donee of the power which adversely affect the legal rights of the citizen or the basic principles on which the law of the United Kingdom is based unless the statute conferring the power makes it clear that such was the intention of Parliament.
I would approach the language of section 1 of the 1946 Act, therefore,
on the basis that Parliament did not surrender its legislative powers to the executive any more than must necessarily follow from the words used by it.
The words necessary and expedient both call for the exercise of judgment.
But this does not mean that its exercise is unlimited.
The wording of the Order must be tested precisely against the words used by the Security Councils resolution and in the light of the obligation to give effect to it that article 25 lays down.
A provision in the Order which affects the basic rights of the individual but was unavoidable if effect was to be given to the resolution according to its terms may be taken to have been authorised because it was necessary.
A provision may be included which is expedient but not necessary.
This enables provisions to be included in the Order which differ from those used by the resolution or are unavoidably required by it.
But it does not permit interference with the basic rights of the individual any more that is necessary and unavoidable to give effect to the SCR and is consistent with the principle of legality.
The points that I have just made may be taken from the wording of section 1 itself.
But underlying them is a more fundamental point, which is whether measures of the kind which are before us in this case should have been made by Order in Council at all.
Concern about excessive use of the power that section 1 of the 1946 Act confers is not new.
In February 1999 the House of Commons Foreign Affairs Committee drew attention to the way a resolution of the Security Council about the imposition of sanctions against Sierra Leone had been implemented by an Order in Council made under section 1 of the 1946 Act.
The SCR did not define Sierra Leone, leaving the extent of its application ambiguous.
The Order in Council defined it in terms which removed any ambiguity but arguably went beyond the scope of the SCR.
This was thought by the Committee to create a significant pitfall for anyone inside or outside the Foreign and Commonwealth Office who had read the SCR but not the Order in Council.
In its report the Committee said that the way in which the Order in Council was dealt with was unacceptable as it was subject to no parliamentary procedure.
Had it been necessary for a Minister to appear before a Standing Committee on Delegated Legislation or to defend the Order on the floor of the House of Lords, it was likely that wider attention would have been given to its true meaning and extent.
It recommended that the 1946 Act be amended so that delegated legislation made under section 1 was subject to affirmative resolution in both Houses of Parliament and that any sanctions order approved by a Minister of the Foreign and Commonwealth Office be brought specifically to the attention of the Foreign Affairs Committee: Second Report of the Foreign Affairs Select Committee on Sierra Leone, Session 1998 1999, HC 116 I, 9 February 1999.
In its response (Cm 4325, 1999) the Government said that it was willing to keep the working of the 1946 Act under review, but that application of the affirmative procedure to sanctions orders would put the United Kingdom in breach of its international obligations if an Order was not approved.
The recommendation that such Orders be brought to the attention of the Committee has not been adopted, nor has section 1 of the 1946 Act been amended.
The Governments reason for declining to follow the Select Committees recommendations may have appeared sufficient at the time of its response.
But the case for avoiding scrutiny in the interests of certainty has been weakened by the change of direction that the Security Council has adopted for the freezing of assets to suppress terrorism.
Other member states have not found it necessary in this context to rely exclusively on an unlimited delegation of the power to give effect to Security Council resolutions to the executive.
Australia gave effect to the post 9/11 SCRs initially by means of regulations passed under the Charter of the United Nations Act 1945.
But it then made provision for an asset freezing regime by the Suppression of the Financing of Terrorism Act 2002 which inserted a new Part IV into the 1945 Act.
New Zealand initially implemented SCR 1373(2001) by means of regulations made under its United Nations Act 1946, but has replaced them by an asset regime under the Terrorism Suppression Act 2002.
The regimes that both Australia and New Zealand have introduced by means of primary legislation are exacting.
But they contain various, albeit limited, safeguards and in so far as they interfere with basic rights of the individual that interference has been expressly authorised by their respective legislatures.
As I have already noted (see para 23, above), the United Kingdom Parliament had already enacted the Terrorism Act 2000 for the creation of a criminal regime dealing with the funding of terrorism before the events of 9/11.
In response to those events, at a time when the general perception was that further terrorist attacks of that kind were likely to occur, the Anti terrorism, Crime and Security Act 2001 was enacted.
It received the Royal Assent on 14 December 2001.
The focus of attention now was on threats to the United Kingdom and its residents from foreign states and foreign nationals.
No mention was made of the Security Councils resolutions in the long title.
But Part 2 of the Act, which makes provision for the making of freezing orders, appears to have been modelled on the initiatives that it had already taken both by the Security Council and, under section 1 of the 1946 Act, by the Treasury by means of the Terrorism (United Nations Measures) Order 2001 (see para 24, above).
Section 4 of the 2001 Act provides: (1) The Treasury may make a freezing order if the following two conditions are satisfied. (2) The first condition is that the Treasury reasonably believe that (a) action to the detriment of the United Kingdoms economy (or part of it) has been or is likely to be taken by a person or persons, or (b) action constituting a threat to the life or property of one or more nationals of the United Kingdom or residents of the United Kingdom has been or is likely to be taken by a person or persons. (3) If one person is believed to have taken or to be likely to take the action the second condition is that the person is (a) the government of a country or territory outside the United Kingdom, or (b) a resident of a country or territory outside the United Kingdom. (4) If two or more persons are believed to have taken or to be likely to take the action the second condition is that each of them falls within paragraph (a) or (b) of subsection (3); and different persons may fall within different paragraphs.
Where the conditions that section 4 sets out are satisfied, the prohibitions contained in the freezing order extend to all persons in the United Kingdom and all persons elsewhere who are United Kingdom nationals: section 5(2).
It prohibits persons from making funds available to or for the benefit of a person or persons specified in the order.
Section 5(3) provides: The order may specify the following (and only the following) as the person or persons to whom or for whose benefit funds are not to be made available (a) the person or persons reasonably believed by the Treasury to have taken or to be likely to take the action referred to in section 4; (b) any person the Treasury reasonably believe has provided or is likely to provide assistance (directly or indirectly) to that person or any of those persons.
Detailed provision is made in Schedule 3 for the content of freezing orders, including a system for the granting of licences authorising funds to be made available.
Orders made under the Act are subject to the affirmative resolution procedure (section 10), and they cease to have effect after two years (section 8).
To a large degree, the power to make freezing orders under this Act enables the Treasury to do what paras 1(d) and 2(d) of SCR 1373(2001) require (see para 21 above).
But it is more precisely worded, and it contains various safeguards.
Although the test in section 4(2)(b) is that action which is a threat to the life or property of one or more nationals or residents of the United Kingdom has been or is likely to be taken, it is by no means obvious that the power that it confers was not available for use in the appellants cases.
In their letter dated 12 September 2007 to A, K and Ms solicitors, in which further details were given about the factual basis for the decision to make the directions in their cases, the Treasury referred to various contacts between those appellants and persons in Pakistan who were engaged in terrorist activities.
The persons with whom they are said to have been in contact would appear to satisfy the conditions in subsection (2)(b) of section 4, and they would appear to be persons of the kind referred to in section 5(3)(b).
Yet the Treasury have, it seems, chosen not to make use of the powers given to them by this Act, preferring to use the general power under section 1 of the 1946 Act.
Mr Swift said that this was a matter for political control.
By this I think he meant it was no business of the court to interfere.
For the reasons already given in para 45, above, I disagree.
In my opinion the rule of law requires that the actions of the Treasury in this context be subjected to judicial scrutiny.
Against that background I now turn to the issues that have been raised about the validity of the TO and the AQO, and the directions that have been made under them, in these appeals.
The TO
The Treasurys initial response to SCR 1373(2001) was to make the Terrorism (United Nations Measures) Order 2001.
The key provision in this Order is to be found in article 3: see para 24, above.
For convenience I will set it out again here.
It was in these terms: Any person who, except under the authority of a licence granted by the Treasury under this article, makes any funds or financial (or related) services available directly or indirectly to or for the benefit of (a) a person who commits, attempts to commit, facilitates or participates in the commission of acts of terrorism, (b) a person controlled or owned directly or indirectly by a person in (a), (c) a person acting on behalf, or at the direction, of a person in (a), is guilty of an offence under this Order.
The wording of this article was closely modelled on that of para 1(d) of the SCR.
Article 4, which was headed Freezing of Funds and was modelled on para 1(c) of the SCR, provided that where the Treasury had reasonable grounds for suspecting that the person by, for or on behalf of whom any funds were held was or might be a person described in article 3, it might by notice direct that those funds were not to be made available to any person, except under the authority of a licence granted by the Treasury under that article.
The TO, which was made in 2006 and replaced the 2001 Order, introduced the system, to which objection is taken in this case, for persons to be designated if they are identified in a direction given by the Treasury.
The power to designate is set out in Article 4: see para 25, above.
It provides in para (2)(a) that the Treasury may give a direction if they have reasonable grounds for suspecting that the person is or may be a person who commits, attempts to commit, participates in or facilitates the commission of acts of terrorism.
The question is whether, by introducing the words have reasonable grounds for suspecting that the person is or may be, the Treasury exceeded their powers under section 1 of the 1946 Act.
The Court of Appeal held that the introduction of the reasonable grounds for suspecting test was within the ambit of that section, provided that the persons right to challenge the direction was preserved: but that there was no warrant in the SCR for the addition of the words or may be and that, as the directions under the TO were made by reference to those words, they should be quashed: [2009] 3 WLR 25, paras 46, 124 and 135.
There is no appeal against its decision as to the inclusion of or may be, and the Treasury have made fresh directions against A, K, M and G which do not include these words.
The validity of the reasonable grounds for suspecting test remains in issue.
SCR 1373(2001) is not phrased in terms of reasonable suspicion.
It refers instead to persons who commit, or attempt to commit, terrorist acts.
The preamble refers to acts of terrorism.
The standard of proof is not addressed.
The question how persons falling within the ambit of the decision are to be identified is left to the member states.
Transposition of the direction into domestic law under section 1 of the 1946 Act raises questions of judgment as to what is necessary on the one hand and what is expedient on the other.
It was not necessary to introduce the reasonable suspicion test in order to reproduce what the SCR requires.
It may well have been expedient to do so, to ease the process of identifying those who should be restricted in their access to funds or economic resources.
But widening the scope of the Order in this way was not just a drafting exercise.
It was bound to have a very real impact on the people that were exposed to the restrictions as a result of it.
The facts of these cases show how devastating their imposition can be on the restricted persons and their families.
This raises fundamental questions, such as the standard of proof that should be required, whether the directions should be capable of being challenged by an effective form of judicial review and whether they should last indefinitely or be time limited.
The validity of the introduction of the reasonable grounds test must be assessed in the light of the entire system that the TO provides for.
Is it acceptable that the exercise of judgment in matters of this kind should be left exclusively, without any form of Parliamentary scrutiny, to the executive?
Mr Swift submitted that the reasonable grounds test was within the scope of the SCR.
He accepted that the less direct the link to the wording of the SCR, the greater the scope for argument about the Orders legality.
But he submitted that the test was needed to enable restrictions directed by the Security Council to work effectively and that it was soundly based on international practice.
Mr Guthrie, the Head of HM Treasurys Asset Freezing Unit, said in his witness statement that this is the standard that is applied by the United Nations International Task Force.
It had overall support among states.
The SCR contemplated interference with the economic and other rights of those affected by it.
The objection that the designated person had no access to an effective judicial remedy had been met by Part 6 of the Counter Terrorism Act 2008, which introduced a scheme for subjecting financial restrictions decisions of the Treasury under the UN Terrorism Orders and orders made under Part 2 of the 2001 Act to proceedings for judicial review.
I do not think that these arguments are sufficient to meet the basic objection to the use of the powers of section 1 of the 1946 to impose the restrictions provided for by the TO on the grounds of a reasonable suspicion only.
I can leave aside the use of unsupervised delegated powers to block access to the courts which Sedley LJ in the Court of Appeal, I think rightly, regarded as a fatal flaw in the Order: para 147.
It was common ground that, given the intensity of judicial review that would be appropriate under Part 6 of the 2008 Act, this objection has been met by the fact that decisions of the Treasury under the UN terrorism orders are subject to its provisions: see section 63(1)(a) of the 2008 Act.
There remains however the objection that the restrictions strike at the very heart of the individuals basic right to live his own life as he chooses.
Collins J, in his impressive judgment, described the range of powers that it conferred on the Treasury as draconian, and the AQO as even more so: [2008] 3 All ER 361, para 11.
It is no exaggeration to say, as Sedley LJ did in para 125, that designated persons are effectively prisoners of the state.
I repeat: their freedom of movement is severely restricted without access to funds or other economic resources, and the effect on both them and their families can be devastating.
I would hold that, by introducing the reasonable suspicion test as a means of giving effect to SCR 1373(2001), the Treasury exceeded their powers under section 1(1) of the 1946 Act.
This is a clear example of an attempt to adversely affect the basic rights of the citizen without the clear authority of Parliament a process which Lord Browne Wilkinson condemned in R v Secretary of State for the Home Department, Ex p Pierson [1998] AC 539.
As Lord Hoffmann said in R v Secretary of State for the Home Department, Ex p Simms [2000] 2 AC 115, 131, fundamental rights cannot be overridden by general or ambiguous words.
The absence of any indication that Parliament had the imposition of restrictions on the freedom of individuals in mind when the provisions of the 1946 Act were being debated makes it impossible to say that it squarely confronted those effects and was willing to accept the political cost when that measure was enacted.
In my opinion the TO is ultra vires section 1(1) of the 1946 Act and, subject to what I say about the date when these orders should take effect, it together with the directions that have been made under it in the cases of A, K, M and G must be quashed.
Various subsidiary arguments were advanced to the effect that the TO was ultra vires because in certain material respects it lacked legal certainty.
As I consider that it is open to attack on more fundamental grounds, however, I prefer to express no opinion as to whether any of these criticisms of its terms were well founded and, if so, what would be the consequences.
The AQO
Mr Singh QC submits for the appellant G that the AQO is ultra vires section 1 of the 1946 and that it is also unlawful by virtue of section 6(1) of the Human Rights Act 1998.
He adopted Mr Owens submissions as part of his argument on the first point.
Mr Husain for HAY, who has the benefit of a decision in his favour by Owen J in the administrative court, submitted that the AQO was ultra vires because it violated his right of access to a court as he was unable to obtain an effective remedy.
G, it will be recalled (see para 33, above), was listed by the 1267 Committee at the request of the United Kingdom.
HAYs name, on the other hand, was added to the list at the request of another state in September 2005 (see para 35).
His listing is regarded by the United Kingdom as no longer appropriate.
But its efforts so far to obtain the de listing of HAYs name have proved to be unsuccessful.
Unlike the TO, the AQO does not rely for its application, at least in the first instance, on a reasonable grounds to suspect test.
To this extent it does, as Lord Brown says in para 197, faithfully implement the relevant SCRs.
The persons who are designated persons for its purposes are (a) Usama bin Laden, (b) any person designated by the Sanctions Committee and (c) any person identified in a direction: article 3.
A reasonable grounds to suspect test is introduced by article 4, which provides that the Treasury may give a direction that a person is designated for the purposes of the Order if they have reasonable grounds for suspecting that the person is or may be Usama bin Laden or a person designated by the Sanctions Committee or a person owned or controlled by a designated person or acting on his behalf.
Mr Swift explained that the latitude that had been built into article 4 was explicable, at least in part, by problems caused by the widespread use of assumed names by those who were engaged in terrorist activities.
It is not necessary to explore the consequences of its use in the context of the AQO any further in this case, however.
Both G and HAY are designated persons because their names are on the list maintained by the 1267 Committee.
As they have not been subjected to freezing orders on the basis of a reasonable suspicion, the grounds on which I would hold that the TO was ultra vires do not apply to their designation under the AQO.
The question which is common to both G and HAY is whether the AQO is ultra vires section 1 of the 1946 Act because there is no effective judicial remedy against a listing by the 1267 Committee.
But I must deal first with Mr Singhs argument that the AQO is unlawful under section 6(1) of the Human Rights Act 1998 which, as he explained, he advanced as an alternative to his main submission that the AQO was ultra vires section 1 of the 1946 Act.
Mr Singhs case under section 6(1) of the Human Rights Act is that the AQO is unlawful because it interferes with Gs rights protected by articles 6 and 8 of the European Convention on Human Rights and article 1 of Protocol 1.
He submits that Gs rights under article 8 and article 1 of Protocol 1 are obviously interfered with, and that his rights under article 6 are interfered with too as his designation under the AQO interfered with his civil rights but did not give him a meaningful right of access to a court which was capable of granting him an effective remedy.
He frankly acknowledged that the decision of the House of Lords in R (Al Jedda) v Secretary of State for Defence [2008] AC 332 was against him on this branch of his argument.
But he invited this court to reconsider that decision, especially in the light of the decision of the European Court of Justice in Kadi v Council of the European Union (Joined Cases C 402/05P and C 415/05P) [2009] AC 1225.
In Kadi v Council of the European Union the ECJ was asked to consider Council Regulation (EC) No 881/2002 implementing UN resolutions under Chapter VII of the Charter of the United Nations for the freezing of the funds and economic resources controlled directly or indirectly by persons associated with Osama bin Laden, Al Qaeda (sic) or the Taliban.
It ordered the freezing of the funds and other economic resources of the person and entities whose names appeared on a list annexed to that regulation.
Mr Kadi was one of those named on that list, as his name was on the list kept by the Sanctions Committee of the United Nations.
He sought annulment of the regulation on the grounds that it was not competent for the Council to adopt it and that it infringed several of his fundamental rights, including his right to property and his right to be heard and to an effective judicial review.
The case is important and deserves close attention because of the way the ECJ dealt with the argument about the protection of fundamental rights.
Advocate General Maduro observed in para 51 of his opinion that the Community institutions had not afforded any opportunity to Mr Kadi to make known his views on whether the sanctions against him were justified and whether they should be kept in force: The existence of a de listing procedure at the level of the United Nations offers no consolation in that regard.
That procedure allows petitioners to submit a request to the Sanctions Committee or to their government for removal from the list.
Yet, the processing of that request is purely a matter of intergovernmental consultation.
There is no obligation on the Sanctions Committee actually to take the views of the petitioner into account.
Moreover, the de listing procedure does not provide even minimal access to the information on which the decision was based to include the petitioner in the list.
In para 52 he said that the right to effective judicial protection holds a prominent place in the firmament of fundamental rights.
In paras 54 and 55 he said that had there been a genuine and effective mechanism of judicial control by an independent tribunal at the level of the United Nations this might have released the Community from the obligation to provide this within the Community legal order but that, as this was not so, Mr Kadis claim that the regulation infringed his rights was well founded.
In its judgment the ECJ endorsed this approach.
In paras 281 283 it said that the Community was based on the rule of law, inasmuch as neither its member states nor its institutions could avoid review of conformity of their acts with the EC treaty, that an international agreement could not affect the autonomy of the Community legal system and that according to settled case law fundamental rights formed an integral part of the general principles of law whose observance the Court ensured.
In para 285 it said: It follows from all those considerations that the obligations imposed by an international agreement cannot have the effect of prejudicing the constitutional principles of the EC Treaty, which include the principle that all Community acts must respect fundamental rights, that respect constituting a condition of their lawfulness which it is for the Court to review in the framework of the complete system of legal remedies established by the Treaty.
The court went on to say that it did not follow from the principles governing the international legal order under the United Nations that any judicial review of the internal lawfulness of the contested regulation in the light of fundamental freedoms was excluded by virtue of the fact that that measure is intended to give effect to a resolution of the Security Council adopted under Chapter VII of the Charter of the United Nations: para 287.
The existence within the United Nations of the re examination procedure could not give rise to generalised immunity from jurisdiction within the internal legal order of the Community, and the Community judicature must ensure the full review of all Community acts including measures designed to give effect to resolutions adopted by the Security Council under Chapter VII: paras 299 and 326.
In his paper, Terrorism and the ECJ: Empowerment and democracy in the EC legal order (2009) 34 EL Rev 103, 126 Professor Takis Tridimas said that the ECJs commitment to the protection of fundamental rights was to be applauded, but that as regards the exercise of finding a balance between the overriding interests of public security and the rights of the individual it marked the beginning rather than the end of the inquiry.
The ECJ is not alone in regarding the way the decisions under the listing system administered by the 1267 Committee are dealt with as incompatible with the fundamental right that there should be an opportunity for a review by an independent tribunal of their lawfulness.
In Abdelrazik v The Minister of Foreign Affairs [2009] FC 580 Zinn J sitting in the Federal Court of Canada said in para 51: I add my name to those who view the 1267 Committee regime as a denial of basic legal remedies and as untenable under the principles of international human rights.
There is nothing in the listing or de listing procedure that recognises the principles of natural justice or that provides for basic procedural fairness.
It can hardly be said that the 1267 Committee process meets the requirement of independence and impartiality when, as appears may be the case involving Mr Abdelrazik, the nation requesting the listing is one of the members of the body that decides whether to list or, equally as important, to de list a person.
The accuser is also the judge.
He found that Mr Abdelraziks right under the Canadian Charter of Rights and Freedoms to enter Canada, his country of citizenship, which had been denied to him because he was listed and facilitating his return by purchasing an airline ticket on his behalf was precluded by the ban on transferring assets to a listed entity, had been breached.
He held that the remedy to which Mr Abdelrazik was entitled required the Canadian government to take immediate action so that he be returned to Canada.
In KindHearts for Charitable Humanitarian Development Inc v
Timothy
Geithner, Case 3.08c v 02400, 18 August 2009, the United States District Court for the Northern District of Ohio upheld a challenge to a provisional determination under President Bushs Executive Order no. 13224 of 24 September 2001 by the Office of Foreign Assets Control of the US Treasury Department that KindHearts was a specially designated global terrorist on the ground that blocking access to its assets pending investigation was contrary to its Fourth Amendment right to be secure against unreasonable search and seizure.
The judge held that the Offices handling of KindHearts request for access to blocked assets to pay counsels fees had been arbitrary and capricious without individualised consideration of the facts of the case.
It is worth noting that the Presidents EO was issued before the Security Council adopted SCR 1373(2001).
This appears to be the first time that a challenge to the taking of action of that kind has been successful in the United States.
Caution must however be exercised in drawing any firm conclusions from these cases.
The decisions of the courts in Canada and the United States were not made under reference to an international human rights instrument such as the European Convention.
It should be noted too that in Diggs v Shultz, 470 F.2d 461 (DC Cir 1972) the US Federal Court of Appeals held that it lacked the authority to compel the President to comply with a UNSCR obligation regarding sanctions against Rhodesia, as subsequent legislation by Congress which plainly contravened the SCR had equal status to the obligation under the treaty: see also Whitney v Robertson 124 US 190 (1888).
The ECJ was not faced in Kadi v Council of the European Union with the problem that article 103 of the UN Charter gives rise to in member states in international law, as the institutions of the European Community are not party to the UN Charter.
We must take our guidance from R (Al Jedda) v Secretary of State for Defence [2008] AC 332.
In that case the House was unanimous in holding that the obligation under article 25 of the Charter was, by virtue of article 103, to prevail over any other international agreement, including the Convention.
It had regard to a passage in Behrami v France; Saramati v France, Germany and Norway (2007) 45 EHRR SE 85, para 149, which in para 36 of his opinion in Al Jedda Lord Bingham of Cornhill said was a strong statement.
In that paragraph the Strasbourg court said that the Convention cannot be interpreted in a manner which would subject the acts and omissions of contracting parties which are covered by UNSCRs to the scrutiny of the court, as to do so would be to interfere with the fulfilment of the UNs key mission to secure international peace and security.
Lord Bingham gave this explanation for the conclusion that the House had reached in Al Jeddas case: 35.
Emphasis has often been laid on the special character of the European Convention as a human rights instrument.
But the reference in article 103 to any other international agreement leaves no room for any excepted category, and such appears to be the consensus of learned opinion.
The decisions of the International Court of Justice (Questions of Interpretation and Application of the 1971 Montreal Convention Arising from the Aerial Incident at Lockerbie (Libyan Arab Jamahiriya v United Kingdom) [1992] ICJ Rep 3, para 39; and Application of the Convention on the Prevention and Punishment of the Crime of Genocide [1992] IJC Rep 325, 439 440, paras 99 100 per Judge ad hoc Lauterpacht) give no warrant for drawing any distinction save where an obligation is jus cogens and according to Judge Bernhardt it now seems to be generally recognised that binding Security Council decisions taken under Chapter VII supersede all other treaty commitments (The Charter of the United Nations: A Commentary 2nd ed, ed Simma, pp 1299 1300). 36.
I do not think that the European court, if the appellants article 5(1) claim were before it as an application, would ignore the significance of article 103 of the Charter in international law.
In para 39, acknowledging that there was clash between a power or duty to detain exercisable on the express authority of the Security Council and a fundamental human right which the United Kingdom had undertaken to secure to those within its jurisdiction, he said that there was only one way that they could be reconciled.
This was by ruling that the United Kingdom might exercise the power of detention authorised by the Security Council but must ensure that the detainees rights under article 5 were not infringed to any greater extent than was inherent in such detention.
The Security Council resolutions that were in issue in that case were made pursuant to article 42 of the Charter not, as in this case, under article 41.
But Mr Singh did not suggest, in my view rightly, that it could be distinguished on that ground.
What he did suggest was that the Grand Chamber of the European Court of Human Rights, before which the Al Jedda case is to be heard, might reach a different view on this matter, especially in the light of the decision of the ECJ in Kadi v Council of the European Union.
He pointed out that, as the prohibition on the death penalty, unlike that against torture, was not ius cogens, the logical conclusion of the Al Jedda approach was that a direction by the Security Council that those found guilty of terrorist acts must be sentenced to death would have to prevail over article 2 of the Convention and article 1 of Protocol 13 (the Death Penalty Protocol).
It was arguable that this was to drive the effect of article 103 too far: see Soering v United Kingdom (1989) 11 EHRR 439.
The same could be said of the breaches of Convention rights that resulted from the SCRs directing the kind of freezing regime that the AQO was designed to give effect to, especially in view of their indefinite effect and the lack of effective access to an independent tribunal for the determination of challenges to decisions about listing and de listing.
I do not think that it is open to this court to predict how the reasoning of the House of Lords in Al Jedda would be viewed in Strasbourg.
For the time being we must proceed on the basis that article 103 leaves no room for any exception, and that the Convention rights fall into the category of obligations under an international agreement over which obligations under the Charter must prevail.
The fact that the rights that G seeks to invoke in this case are now part of domestic law does not affect that conclusion.
As Lord Bingham memorably pointed out in R (Ullah) v Special Adjudicator [2004] 2 AC 323, para 20, the Convention is an international instrument, the correct interpretation of which can be authoritatively expounded only by the Strasbourg court.
It must be for the Strasbourg court to provide the authoritative guidance that is needed so that all the contracting states can adopt a uniform position about the extent to which, if at all, the Convention rights or any of them can be held to prevail over their obligations under the UN Charter.
But this leaves open for consideration how the position may be regarded under domestic law.
Mr Singh submitted that the obligation under article 25 of the Charter to give effect to the SCRs directing the measures to be taken against Usama bin Laden, Al Qaida and the Taliban had to respect the basic premises of our own legal order.
Two fundamental rights were in issue in Gs case, and as they were to be found in domestic law his right to invoke them was not affected by article 103 of the UN Charter.
One was the right to peaceful enjoyment of his property, which could only be interfered with by clear legislative words: Entick v Carrington (1765) 19 Howell's State Trials 1029, 1066, per Lord Camden CJ.
The other was his right of unimpeded access to a court: R (Anufrijeva) v Secretary of State for the Home Department [2004] 1 AC 604, para 26, per Lord Steyn.
As it was put by Viscount Simonds in Pyx Granite Co Ltd v Ministry of Housing and Local Government [1960] AC 260, 286, the subjects right of access to Her Majestys courts for the determination of his rights is not to be excluded except by clear words.
As Mr Singh pointed out, both of these rights are embraced by the principle of legality, which lies at the heart of the relationship between Parliament and the citizen.
Fundamental rights may not be overridden by general words.
This can only be done by express language or by necessary implication.
So it was not open to the Treasury to use its powers under the general wording of section 1(1) of the 1946 Act to subject individuals to a regime which had these effects.
I would accept Mr Singhs proposition that, as fundamental rights may not be overridden by general words, section 1 of the 1946 Act does not give authority for overriding the fundamental rights of the individual.
It does not do so either expressly or by necessary implication.
The question is whether the effect of Gs designation under the AQO has that effect.
To some extent this must be a question of degree.
Some interference with the right to peaceful enjoyment of ones property may have been foreseen by the framers of section 1, as it authorises the making of provision for the apprehension, trial and punishment of persons offending against the Order.
To that extent coercive steps to enable the measures to be applied effectively can be regarded as within its scope.
But there must come a point when the intrusion upon the right to enjoyment of ones property is so great, so overwhelming and so timeless that the absence of any effective means of challenging it means that this can only be brought about under the express authority of Parliament.
Has that point been reached in the case of those who are designated persons under the AQO?
The opportunity to seek judicial review under Part 6 of the 2008 Act is not available in the case of persons such as G who are subject to the AQO only because they have been listed by the 1267 Committee.
No direction under article 4(1) of the AQO was made in his case.
Even if such a direction had been made he would still be a designated person to whom the AQO applied as he has been designated by the Committee: see article 3(1)(b).
In the Court of Appeal Sir Anthony Clarke MR summarised the position in which G found himself in this way [2009] 3 WLR 25, para 108: It is common ground that G is subject to the AQO only because he has been listed by the UN Sanctions Committee (the committee).
He has never had any contact with the committee, has no idea who precisely made the decision or upon what evidence it was based, although he does now know that it was the UK Government which requested that he be listed.
It presumably had some evidential basis for its request.
Indeed, it was presumably on the same basis as that relied upon by HMT in making a direction for his designation under the TO and was thus said to be so sensitive that G could not be given details.
As to the committee, Mr Singh stresses that there is no information in the public domain that throws any light on who its members are, what degree of independence they enjoy, what evidential test they apply and what, if any, safeguards are in place to protect the rights of the individuals affected.
Some further details can be obtained from the Guidelines of the Security Council Committee established pursuant to Resolution 1267(1999) Concerning Al Qaida and the Taliban and Associated Individuals and Entities of 9 December 2008.
They state that the committee is comprised of all the members of the Security Council from time to time, that decisions of the committee are taken by consensus of its members and that a criminal charge or conviction is not necessary for a persons inclusion in the consolidated list that the committee maintains, as the sanctions are intended to be preventative in nature.
It would appear that listing may be made on the basis of a reasonable suspicion only.
It is also clear that, as the committee works by consensus, the effect of the guidelines is that the United Kingdom is not able unilaterally to procure listing, but it is not able unilaterally to procure de listing either under the Focal Point procedure established under SCR 1730(2006).
Although the Security Council has implemented a number of procedural reforms in recent years and has sought improvement in the quality of information provided to the 1267 Committee for the making of listing decisions, the Treasury accepted in its response of 6 October 2009 (Cm 7718) to the House of Lords European Union Committees Report into Money Laundering and the Financing of Terrorism (19th Report, Session 2008 2009, HL Paper 132) that there is scope to further improve the transparency of decisions made by the 1267 Committee and the effectiveness of the de listing process.
On 17 December 2009 the Security Council adopted SCR 1904(2009) which provides in paras 20 and 21 that, when considering de listing requests, the Committee shall be assisted by an Ombudsperson appointed by the Secretary General, being an eminent individual of integrity, impartiality and experience, and that the Office of the Ombudsman is to deal with requests for de listing from individuals and entities in accordance with procedures outlined in an annex to the resolution.
While these improvements are to be welcomed, the fact remains that there was not when the designations were made, and still is not, any effective judicial remedy.
Mr Swift accepted that the principle of legality requires that the power to impose restrictions such as those that flow from designation under the AQO should be subject to judicial review.
But he said that it was vital to identify the decision that had to be scrutinised.
In Gs case the proper focus was on article 3(1)(b) of the AQO.
Its effect was that all those designated by the 1267 Committee were subject to the Order.
The reasons why the person had been so designated were not relevant in domestic law.
He added that the United Kingdom would be setting a bad example if it were to default on its obligation to give effect to the resolutions that had this effect.
It was not open to Member States to go behind the system that had been set up to meet the global challenge that was presented by terrorism.
While I recognise the force of Mr Swifts argument, it seems to me that it does not meet the essence of Mr Singhs complaint.
Nor does the fact that the AQO does what SCR 1267 and subsequent resolutions required of it.
In part Mr Singhs complaint was about the inability of the 1267 Committees procedures to provide an effective remedy.
But it was also about the means that had been used in domestic law to subject G to the AQOs regime.
As Zinn J said in Abdelrazik v The Minister of Foreign Affairs [2009] FC 580, para 51, there is nothing in the listing or de listing procedure that recognises the principles of natural justice or that provides for basic procedural fairness.
Some steps have been taken to address this problem, but there is still much force in these criticisms.
The essential point that Mr Singh makes is that G ought not to have been subjected to this by an Order made under section 1 of the 1946 Act which avoids Parliamentary scrutiny.
This is a fundamental objection which, as in the case of the TO, is directed to the dangers that lie in the uncontrolled power of the executive.
I would hold that G is entitled to succeed on the point that the regime to which he has been subjected has deprived him of access to an effective remedy.
As Mr Swift indicates, seeking a judicial review of the Treasurys decision to treat him as a designated person will get him nowhere.
G answers to that description because he has been designated by the 1267 Committee.
What he needs if he is to be afforded an effective remedy is a means of subjecting that listing to judicial review.
This is something that, under the system that the 1267 Committee currently operates, is denied to him.
I would hold that article 3(1)(b) of the AQO, which has this effect, is ultra vires section 1 of the 1946 Act.
It is not necessary to consider for the purposes of this case whether the AQO as a whole is ultra vires except to say that I am not to be taken as indicating that article 4 of that Order, had it been applicable in Gs case, would have survived scrutiny.
I would treat HAYs case in the same way.
He too is a designated person by reason of the fact that his name is on the 1267 Committees list.
As has already been observed, the United Kingdom is now seeking that his name should be removed from it.
By letter dated 1 October 2009 the Treasurys Sanctions Team informed his solicitors that the de listing request was submitted on 26 June 2009 but that at the committees first consideration of it a number of States were not in a position to accede to the request.
Further efforts to obtain de listing are continuing, but this has still not been achieved.
So he remains subject to the AQO.
In this situation he too is being denied an effective remedy.
Conclusion
I would allow the appeals by A, K, M and G. I would declare that the
TO is ultra vires and I would quash that Order.
I would allow Gs appeal as regards the AQO to the extent of declaring that article 3(1)(b) of that Order is ultra vires.
Had the Terrorism (United Nations Measures) Order 2009 under which A, K, M and G have now been re designated been before us, I would have quashed that Order too as it is open to objection on the same grounds.
I would allow the Treasurys appeal in HAYs case to the extent of setting aside the declaration by Owen J that the AQO as a whole is ultra vires and substituting for it the order that I would make in Gs case.
I would however suspend the operation of the orders that I would make as regards the AQO for a period of one month from the date of the judgment to give the Treasury time to consider what steps, if any, they should now take.
I would have suspended the operation of the orders in the appeals of A, K, M and G as regards the TO had it not been for the fact that they have all been re designated under the 2009 Order.
The designations made under that order are not before the court in these proceedings.
It will be for the administrative court to consider whether the Treasury need time to consider their position should an application be made to it for these fresh designations to be set aside.
It is perhaps arguable that suspension of the order relating to the AQO is not needed in HAYs case in view of the steps that are currently being taken for him to be de listed by the 1267 Committee.
But so long as he remains on the list the United Kingdom is bound by article 25 of the Charter to treat him as a designated person and must take steps to subject him to a freezing order in this country.
So I think that suspension of the order is needed in his case to enable the Treasury, if so minded, to take the steps to give effect to this obligation pending the proceedings for HAYs de listing.
LORD PHILLIPS
It is particularly appropriate that these should be the first appeals to be heard in the Supreme Court of the United Kingdom, for they concern the separation of powers.
At issue is the extent to which Parliament has, by the United Nations Act 1946 (the 1946 Act), delegated to the executive the power to legislate.
Resolution of this issue depends upon the approach properly to be adopted by the court in interpreting legislation which may affect fundamental rights at common law or under the European Convention on Human Rights (the Convention).
I am grateful to Lord Hope for the clarity with which he has performed the laborious task of describing the legislative background and history of these appeals.
Although we have held that anonymity cannot be justified in this case it is convenient to continue to refer to the individuals who have been subjected to freezing orders by initials and I shall follow the example of Lord Hope in referring to them all collectively as the appellants.
I shall also adopt his references to the different forms of freezing order by the initials TO and AQO.
The appellants claim, for a variety of reasons, that the freezing orders made against them were ultra vires, that is, beyond the power conferred by section 1 of the 1946 Act, which is set out by Lord Hope at paragraph 12.
That section confers power on, in effect, the Government, by Order in Council to make such provision as appears necessary or expedient for enabling measures to be effectively applied.
The measures in question are those that the Security Council has, pursuant to article 41 of the Charter, decided should be employed to give effect to its decisions and called upon Members to apply.
The Security Council embodies such decisions in Resolutions.
There are three different bases for contending that the freezing orders are ultra vires: i) The freezing orders violate rights protected by the European Convention on Human Rights (the Convention). ii) The relevant Security Council Resolutions do not fall within the scope of the 1946 Act. iii) The terms of the freezing orders do not fall within the powers of the 1946 Act.
Convention Rights
The appellants did not put reliance on Convention rights at the forefront of their case, but I propose to start with this ground of appeal.
Section 1 of the 1946 Act was passed in order to provide a way of giving effect to this countrys treaty obligations under the United Nations Charter.
Executive action in the form of an Order in Council can be used to implement decisions of the Security Council under article 41 of the Charter.
The Human Rights Act 1998 (the HRA) was passed to give effect to this countrys obligations under the Convention.
Section 6(1) of the HRA prohibits the executive from action that infringes a Convention right.
It provides: It is unlawful for a public authority to act in a way which is incompatible with a Convention right.
The appellants contend that the freezing orders are incompatible with a number of Convention rights and that, accordingly it was unlawful to make them.
There is another way that the HRA can be deployed.
Section 3 of the Act requires, in so far as possible, that legislation be read and given effect in a way which is compatible with the Convention rights.
It can be argued that the power to make Orders in Council conferred by section 1 of the 1946 Act must be read subject to the implied proviso that such Orders must not violate Convention rights.
The appellants argue that the freezing orders violate their right to respect for family life under article 8 of the Convention, their peaceful enjoyment of their possessions under article 1 of the First Protocol and their right to a fair trial under article 6.
Mr Swift, for the Treasury, does not accept that, if these articles are applicable, they have been infringed by the freezing orders.
His primary submission is, however, that in so far as there is a conflict between the duty of the United Kingdom to comply with Security Council Resolutions under article 41 of the Charter and a duty to secure human rights under the Convention, the former duty prevails.
He contends that no claim will lie under section 6(1) of the HRA in respect of breach of Convention rights which are trumped in this way by obligations under the Charter.
The starting point of this argument is article 103 of the UN Charter.
Article 25 requires members of the United Nations to carry out decisions of the Security Council in accordance with the Charter.
Article 103 provides In the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail.
Next one must turn to the definition of the Convention in section 21 of the HRA: the Convention for the Protection of Human Rights and Fundamental Freedoms, agreed by the Council of Europe at Rome on 4th November 1950 as it has effect for the time being in relation to the United Kingdom (my emphasis).
In R (Quark Fishing Ltd) v Secretary of State for Foreign and Commonwealth Affairs [2005] UKHL 57; [2006] 1 AC 529 the House of Lords held that this definition reflected the policy of the HRA, which was to bring rights home, so that no claim for breach of section 6(1) would lie unless the Strasbourg Court would also find a violation of the Convention by the United Kingdom.
It follows that the provision of section 6(1) rendering unlawful action incompatible with Convention rights will not render unlawful the making of the freezing orders if the Strasbourg Court accepts that the duty to comply with the Security Council Resolutions takes precedence over the duty to comply with the Convention.
That is not a question that the Strasbourg Court has had, directly, to resolve.
The Grand Chamber did, however, make some very relevant comments when giving its decision as to admissibility in Behrami v France; Saramati v France, Germany and Norway (2007) 45 EHRR SE 85.The applicants in those cases complained of the action and inaction of members of an international security force (KFOR) that had been deployed in Kosovo pursuant to Security Council Resolution 1244(1999).
The Grand Chamber ultimately held that the applications were not admissible on the ground that the Court was not competent ratione personae.
This was because the individual respondents fell to be treated as part of KFOR and KFOR was exercising powers lawfully delegated under Chapter VII of the Charter by the UN Security Council.
In these circumstances the actions of the respondents were directly attributable to the UN, an organisation of universal jurisdiction fulfilling its imperative collective security objective (para 151).
Under the heading Relevant Law and Practice the Court made the following observations about article 103 of the UN Charter: The ICJ considers article 103 to mean that the Charter obligations of UN member states prevail over conflicting obligations from another international treaty, regardless of whether the latter treaty was concluded before or after the UN Charter or was only a regional arrangement (Nicaragua v United States of America, ICJ Reports, 1984, p 392, at para 107.
See also Kadi v Council and Commission, para 183, judgment of the Court of First Instance of the European Communities (CFI) of 21 September 2005 (under appeal) and two more recent judgments of the CFI in the same vein: Yusuf and Al Barakaat v Council and Commission, 21 September 2005, paras 231, 234, 242 243 and 254 as well as Ayadi v Council, 12 July 2006, para 116).
The ICJ has also found article 25 to mean that UN member states obligations under a UNSC Resolution prevail over obligations arising under any other international agreement (Orders of 14 April 1992 (provisional measures), Questions of Interpretation and Application of the 1971 Montreal Convention arising from the Aerial Incident at Lockerbie (Libyan Arab Jamahiriya v United States of America and Libyan Arab Jamahiriya v United Kingdom), ICJ Reports, 1992, p.16, para 42 and p 113, para 39, respectively).(para 27).
Later in its judgment the Grand Chamber cited the first paragraph of article 30 of the Vienna Convention on the Law of Treaties: 1.
Subject to article 103 of the Charter of the United Nations, the rights and obligations of states parties to successive treaties relating to the same subject matter shall be determined in accordance with the following paragraphs.(para 35)
The Court went on to make the following observations about the Convention and the UN acting under Chapter VII of its Charter: 147.
The Court first observes that nine of the twelve original signatory parties to the Convention in 1950 had been members of the UN since 1945 (including the two respondent States), that the great majority of the contracting parties joined the UN before they signed the Convention and that currently all contracting parties are members of the UN.
Indeed, one of the aims of this Convention (see its preamble) is the collective enforcement of rights in the Universal Declaration of Human Rights of the General Assembly of the UN.
More generally, it is further recalled, as noted at para 122 above, that the Convention has to be interpreted in the light of any relevant rules and principles of international law applicable in relations between its contracting parties.
The Court has therefore had regard to two complementary provisions of the Charter, articles 25 and 103, as interpreted by the International Court of Justice (see para 27 above). 148.
Of even greater significance is the imperative nature of the principle aim of the UN and, consequently, of the powers accorded to the UNSC under Chapter VII to fulfil that aim.
In particular, it is evident from the Preamble, articles 1, 2 and 24 as well as Chapter VII of the Charter that the primary objective of the UN is the maintenance of international peace and security.
While it is equally clear that ensuring respect for human rights represents an important contribution to achieving international peace (see the Preamble to the Convention), the fact remains that the UNSC has primary responsibility, as well as extensive means under Chapter VII, to fulfil this objective, notably through the use of coercive measures.
The responsibility of the UNSC in this respect is unique and has evolved as a counterpart to the prohibition, now customary international law, on the unilateral use of force (see paras 18 20 above). 149.
In the present case, Chapter VII allowed the UNSC to adopt coercive measures in reaction to an identified conflict considered to threaten peace, namely UNSC Resolution 1244 establishing UNMIK and KFOR.
Since operations established by UNSC Resolutions under Chapter VII of the UN Charter are fundamental to the mission of the UN to secure international peace and security and since they rely for their effectiveness on support from member states, the Convention cannot be interpreted in a manner which would subject the acts and omissions of contracting parties which are covered by UNSC Resolutions and occur prior to or in the course of such missions, to the scrutiny of the Court.
To do so would be to interfere with
the fulfilment of the UNs key mission in this field
These passages suggest that the Grand Chamber was prepared to recognise the primacy of obligations under the UN Charter over obligations under the Convention.
That the Strasbourg Court would take such an approach was accepted by the House of Lords in R(Al Jedda) v Secretary of State for Defence (JUSTICE intervening) [2007] UKHL 58; [2008] AC 332.
The claimant in that case had been detained by British forces in Iraq, acting pursuant to Security Council Resolution 1546 made under article 42 of the Charter.
He claimed under the HRA a declaration that his detention infringed his rights under article 5(1) of the Convention.
The Court of Appeal [2006] EWCA Civ 327; [2007] QB 621 held that the United Kingdoms obligations under Resolution 1546 prevailed over its obligations under the Convention and that accordingly, applying Quark Fishing, no action could be founded on the HRA.
The House of Lords upheld the Court of Appeal.
In paragraph 21 of his opinion Lord Bingham cited the passage from Behrami that I have set out at paragraph 97 above.
He went on to hold: I do not think that the European court, if the appellants article 5(1) claim were before it as an application, would ignore the significance of article 103 of the Charter in international law.
The court has on repeated occasions taken account of provisions of international law, invoking the interpretative principle laid down in article 31(3)(c) of the Vienna Convention on the Law of Treaties, acknowledging that the Convention cannot be interpreted and applied in a vacuum and recognising that the responsibility of states must be determined in conformity and harmony with the governing principles of international law: see, for instance, Loizidou v Turkey (1996) 23 EHRR 513, paras 42 43, 52; Bankovic v Belgium (2001) 11 BHRC 435, para 57; Fogarty v United Kingdom (2001) 34 EHRR 302, para 34; Al Adsani v United Kingdom (2001) 34 EHRR 273, paras 54 55; Behrami and Saramati, 45 EHRR SE 85, para 122.
In the latter case, in para 149, the court made the strong statement quoted in para 21 above.
Mr Rabinder Singh QC, in argument advanced on behalf of G which was adopted by the other appellants, recognised that the reasoning of the House of Lords in Al Jedda, which was equally applicable to obligations arising under article 41 of the UN Charter, would be fatal to the appellants claim of breach of section 6(1) of the HRA.
He contended, however, that the landscape had been changed by the recent decision of the European Court of Justice (ECJ)
The background to Kadi was the practice adopted by the European Council of adopting Regulations to give effect in the Community to UN resolutions under Chapter VII of the Charter.
Pursuant to this practice the Council adopted Regulation 881/2002 in order to implement the Security Council resolutions that the United Kingdom has sought to implement by the freezing orders.
Mr Kadi is one of those whose name is on the list kept by the 1267 Committee and brought proceedings seeking the annulment of the Regulation on the grounds (i) that it was not competent for the Council to adopt it and (ii) that it infringed his fundamental rights.
Before the Court of First Instance both grounds failed.
Before the ECJ the challenge to the Councils competence failed, but the challenge based on infringement of his fundamental rights succeeded.
The ECJ emphasised that it was concerned with the legitimacy of Regulation 881 as a matter of Community law.
It held: 285the obligations imposed by an international agreement cannot have the effect of prejudicing the constitutional principles of the EC Treaty, which include the principle that all Community acts must respect fundamental rights, that respect constituting a condition of their lawfulness which it is for the Court to review in the framework of the complete system of legal remedies established by the Treaty. 286.
In this regard it must be emphasised that, in circumstances such as those of these cases, the review of lawfulness thus to be ensured by the Community judicature applies to the Community act intended to give effect to the international agreement at issue, and not to the latter as such. 287.
With more particular regard to a Community act which, like the contested Regulation, is intended to give effect to a Resolution adopted by the Security Council under Chapter VII of the Charter of the United Nations, it is not, therefore, for the Community judicature, under the exclusive jurisdiction provided for by article 220EC, to review the lawfulness of such a Resolution adopted by an international body, even if that review were to be limited to examination of the compatibility of that Resolution with jus cogens. 288.
However, any judgment given by the Community judicature deciding that a Community measure intended to give effect to such a Resolution is contrary to a higher rule of law in the Community legal order would not entail any challenge to the primacy of that Resolution in international law.
The ECJ went on to find that the regime imposed by Regulation 881 did not respect fundamental rights in a number of respects.
There was no communication to those who were put on the 1267 Committees list of the evidence relied upon to justify their inclusion.
In these circumstances their rights of defence, and in particular the right to be heard, were not respected.
The right to an effective legal remedy was not observed (paragraphs 347 to 350).
Because Mr Kadi suffered a significant restriction of his right to property in circumstances where he was not enabled to put his case to the relevant authorities his plea that his fundamental right to respect for property had been infringed was well founded.
Regulation 881, insofar as it concerned him (and another appellant whose case was heard with his), had to be annulled (paras 369 to 372).
It is important to note that this decision was about the legitimacy of a Council Regulation judged against the rules of the autonomous and self contained regime instituted under the EC Treaty.
Advocate General Maduro in his opinion had gone so far as to suggest at para 30, p 1241 that: if the Court were to annul the contested Regulation on the ground that it infringed Community rules for the protection of fundamental rights, then, by implication, member states could not possibly adopt the same measures without in so far as those measures came within the scope of Community law acting in breach of fundamental rights as protected by the court.
Mr Singh did not suggest that the decision in Kadi had any direct effect on the legitimacy of the freezing orders.
He simply submitted that it gave cause to reconsider the premise on which the decision of the House of Lords in Al Jedda had been based.
I do not believe that any firm conclusion can be drawn from the decision in Kadi as to the approach that the Strasbourg Court will take to the Do the Resolutions fall within the scope of the 1946 Act?
I turn to the second basis for contending that the freezing orders are ultra vires, namely that the relevant Security Council Resolutions do not fall within the scope of the 1946 Act.
Two separate arguments are advanced in respect of this basis.
The first applies both to the TO and to the AQO.
The argument was advanced by Mr Owen QC on behalf of A, K and M but adopted by the other appellants, and is as follows.
The 1946 Act only permits the making of orders that transpose specific measures directed by the Security Council.
The relevant Resolutions do not simply direct Members to implement specific measures but require them to fashion the legislative design that gives effect to the measures.
This is a task for Parliament, not the executive.
The other argument relates only to the AQO.
It is that the relevant Resolutions require Member States to interfere with fundamental rights of individuals within their territories on grounds that those individuals will have no right to challenge before a court.
It is argued that section 1 of the 1946 Act does not extend to such a Resolution.
The issues raised by this argument are issues of statutory interpretation.
Treaties entered into by the United Kingdom do not take direct effect.
Treaties are entered into by the Government under the Royal Prerogative, but unless and until Parliament incorporates them into domestic law, they confer no powers upon the executive nor rights or duties upon the individual citizen JH Rayner (Mincing Lane) Ltd v Department of Trade and Industry [1990] 2 AC 418, 499 500.
The 1946 Act is designed to provide a means of giving effect to the international obligations imposed upon the United Kingdom under article 41 of the UN Charter.
The primary arguments advanced by the appellants relate to the true interpretation of section 1 of that Act.
Their arguments in relation to this have not turned on the natural meaning of the section.
Rather they have relied upon a principle of construction that requires limitations to be placed on the scope of statutory powers as a matter of presumption or implication.
This they have described as the principle of legality.
The principle of legality
The appellants have put this principle at the forefront of their argument on the interpretation of the 1946 Act.
Under this principle the court must, where possible, interpret a statute in such a way as to avoid encroachment on fundamental rights, sometimes described as constitutional rights.
Lord Hope at paragraph 46 has cited the passages in the speech of Lord Browne Wilkinson in Pierson in which he described this principle.
Equally pertinent is the oft cited passage in the speech of Lord Hoffmann in Simms at p 131: Parliamentary sovereignty means that Parliament can, if it chooses, legislate contrary to fundamental principles of human rights.
The Human Rights Act 1998 will not detract from this power.
The constraints upon its exercise by Parliament are ultimately political, not legal.
But the principle of legality means that Parliament must squarely confront what it is doing and accept the political cost.
Fundamental rights cannot be overridden by general or ambiguous words.
This is because there is too great a risk that the full implications of their unqualified meaning may have passed unnoticed in the democratic process.
In the absence of express language or necessary implication to the contrary, the courts therefore presume that even the most general words were intended to be subject to the basic rights of the individual.
In this way the courts of the United Kingdom, though acknowledging the sovereignty of Parliament, apply principles of constitutionality little different from those which exist in countries where the power of the legislature is expressly limited by a constitutional document.
Lord Hoffmann went on to say that the principle of legality applied as much to subordinate legislation as to Acts of Parliament.
Lord Hoffmann made it plain that the principle of legality was one that applied to the interpretation of general or ambiguous words in the absence of express language or necessary implication to the contrary.
At the time of his judgment the Human Rights Act had not yet come into effect and Lord Hoffmann commented that the principle of legality had been expressly enacted as a rule of construction in section 3 of the Act.
I believe that the House of Lords has extended the reach of section 3 of the HRA beyond that of the principle of legality.
Section 3(1) provides: So far as it is possible to do so, primary legislation and subordinate legislation must be read and given effect in a way
which is compatible with the Convention rights
The Convention rights are defined in section 1 to mean the rights and fundamental freedoms set out in articles 2 to 12 and 14 of the Convention, articles 1 to 3 of the First Protocol and article 1 of the Thirteenth Protocol.
The effect of section 3 has been the subject of extensive academic discussion see the literature referred to in footnote 27 to paragraph 4.08 in the Second Edition (2009) of The Law of Human Rights by Clayton and Tomlinson.
It has also been the subject of judicial consideration on a number of occasions in the House of Lords.
It is not necessary to refer in detail to this body of authority.
It suffices to note that it accords to section 3 a role of constitutional significance.
By enacting section 3, Parliament has been held to direct the courts to interpret legislation in a way which is compatible with Convention rights, even where such interpretation involves departing from the unambiguous meaning the legislation would otherwise bear, or the legislative intention of Parliament see Ghaidan v Godin Mendoza [2004] UKHL 30; [2004] 2 AC 557 at paragraph 30 per Lord Nicholls and Sheldrake v Director of Public Prosecutions [2004] UKHL 43; [2005] 1 AC 264 at paragraph 24 per Lord Bingham.
Such an interpretation must, however, be one that is possible having regard to the underlying thrust or intention of the legislation.
Bennion on Statutory Interpretation, 5th ed (2008), at section 270, p.823, comments that the term principle of legality is likely to lead to confusion but goes on to suggest that the so called principle of legality was widened by a majority of the House of Lords in R (Anufrijeva) v Secretary of State for the Home Department [2003] UKHL 36; [2004] 1 AC 604 so as to contradict what Lord Bingham (who dissented) called a clear and unambiguous legislative provision (para 20), the provision in question being contained in delegated legislation.
The other members of the House did not, however, purport to depart from wording that was clear and unambiguous see Lord Steyn at para 31, Lord Hoffmann at para 37, Lord Millett at para 43 and Lord Scott at para 58.
I do not consider that the principle of legality permits a court to disregard an
Transposition and legislative design
Mr Owen QC for A, K and M put at the forefront of his submissions the contention that the 1946 Act authorised Orders in Council that gave effect to specific measures directed by the Security Council but not Orders in Council that themselves directed what measures should be taken.
He contrasted transposition that was authorised by the Act and legislative design that was not.
He submitted that this distinction was one that fell within the principle of legality.
In a written note he clarified his submission as follows: The constitutional principle at issue in the instant case is that the recognition by the common law of the supremacy of Parliament is based on an assumption that Parliament will not surrender its law making powers to the Executive (or an international body) on an uncontrolled and uncertain basis.
Unless the contrary intention is clearly and expressly indicated, no Act of Parliament will be construed as delivering a blank cheque to the Executive to legislate at will in any area, simply because it is called upon to do so by an international body.
This submission was supported by the intervener.
On behalf of JUSTICE, Mr Fordham QC submitted that, under the principle of legality, only Parliament could impose an asset freezing regime.
Because such a regime interfered with fundamental rights, it was necessary that the controls imposed should be necessary, proportional and certain and attended with basic procedural safeguards under which the individual would secure a fair hearing and effective judicial protection.
These were matters for Parliament, not the executive.
These submissions overlapped with the submission that the 1946 Act could not, on its true construction, authorise Orders in Council which interfered with fundamental rights.
Mr Owen turned to two New Zealand cases for support for his submission.
In Reade v Smith [1959] NZLR 996 Turner J sitting in the Supreme Court had to consider the scope of section 6 of the Education Amendment Act 1915 (No 2), which was in the following terms: The Governor General in Council may make such Regulations as he thinks necessary or expedient for avoiding any doubt or difficulty which may appear to him to arise in the administration of the principal Act by reason of any omission or inconsistency therein, and all such Regulations shall have the force of law, anything to the contrary in the principal Act notwithstanding.
He observed at pp 1003 1004: To anyone accustomed to the notion that the law giving powers of the people are reposed by them in Parliament, it may come as a surprise to learn that since 1915 the Legislature appears to have surrendered these powers to the Executive as regards such matters as are covered by this section; and that not content with delegating its principal function to the Governor General, it has purported to sign a blank cheque and to ratify in advance whatever he shall do by regulation, even if it is in conflict with the express provisions of the Education Act itself.
In construing a section which at first sight may appear to carry self abnegation so far, the Court will strive to give it a restricted interpretation, preferring to regard Parliament as not having made any more complete surrender of its powers than must necessarily follow from the plain words used.
In Brader v Ministry of Transport [1981] 1 NZLR 73 the Court of Appeal had to consider the scope of section 11 of the Economic Stabilisation Act 1948 which gave the Minister power by Order in Council to make such regulations as appear to him to be necessary or expedient for the general purpose of this Act.
At p 78 Cooke J remarked: It may be added that the recognition by the common law of the supremacy of Parliament can hardly be regarded as given on the footing that Parliament would abdicate its function.
This remark was made, however, in the context of restricting the power conferred on the Minister to within reasonable limits.
The Court went on to hold that the Minister had acted intra vires in making it a criminal offence to drive a private car on specified carless days with the object of saving petrol.
These decisions fall short of supporting the proposition that the principle of legality raises a general presumption against Parliament delegating to the executive the power to make regulations that call for legislative design.
Brader points in the opposite direction.
I reject Mr Owens submissions on this point.
I would accept, however, that a statutory provision which delegates to the executive the power to make regulations should be strictly construed and that, where the power is conferred in general terms, it may be necessary to imply restrictions in its scope in order to avoid interference with individual rights that is not proportionate to the object of the primary legislation.
Mr Owen was on stronger ground when he submitted that some limitations had to be placed upon the power conferred by the 1946 Act.
He drew attention to paragraph 2(d) of UN SCR 1373 which decides that all States shall Prevent those who finance, plan, facilitate or commit terrorist acts from using their respective territories for those purposes against other States or their citizens.
He submitted that on the Treasurys interpretation of the 1946 Act there would have been no obstacle to the Government imposing by Order in Council the provisions contained in the Anti terrorism, Crime and Security Act 2001, permitting indefinite detention of foreign nationals, or preventative measures such as control orders now contained in the Prevention of Terrorism Act 2005.
When pressed in argument, Mr Swift for the Treasury accepted, with some reluctance, that such was indeed his position.
I do not accept that the 1946 Act authorises such wide ranging legislation.
The natural meaning of the wording of section 1, when read with the wording of article 41 of the Charter, imposes limits on the power granted by section 1.
That power is to make such provision as appears necessary or expedient for enabling the effective application of measures not involving the use of armed force which the Security Council has decided are to be employed to give effect to its decisions.
Measures to which the 1946 Act refers must necessarily have a degree of specificity.
They have to be capable of being employed or effectively applied.
They will often be the means to an objective rather than the objective itself.
Preventing terrorists from using the territory of the United Kingdom for terrorist acts is an objective, it is not a measure.
It is not something that can be employed or applied.
Detention of foreign nationals or the imposition of control orders are measures, but they are not measures the employment of which forms any part of the decision of the Security Council that is set out in paragraph 2(d) of Resolution 1373.
The generality of the provisions of paragraph 2(d) contrasts with the specificity of paragraph 1(b)(c) and (d) of the same Resolution.
It is to these provisions that the TO gives effect.
These provisions are specific measures.
They fall within the scope of the wording of section 1 of the 1946 Act in that one can sensibly speak of provisions that are necessary or expedient to enable them to be effectively applied.
They can also properly be described as measures that the Security Council has decided are to be employed to give effect to its decisions under article 41.
The TO involves a degree of legislative design, including the creation of offences and the range of penalties that relate to them, but legislation of this type is expressly provided for by section 1 of the 1946 Act.
For these reasons I reject the submission that, whether under the natural meaning of section 1 of the 1946 Act, or under the application of the principle of legality, the TO falls outside the powers conferred by the section simply because the TO involves a degree of legislative design rather than mere transposition.
I propose to defer consideration of the argument that the Resolutions to which the AQO relates fall outside the scope of the 1946 Act in order to deal first, in relation to the TO, with the third basis for arguing that the freezing orders are ultra vires, which is that the terms of the freezing orders fall outside the scope of what is permitted by the 1946 Act.
Do the terms of the TO fall outside the powers of the 1946 Act?
The following points are advanced by the appellants: i) The TO goes further than the relevant Security Council Resolution requires. ii) The freezing orders are disproportionate and oppressive. iii) The terms of the freezing orders are uncertain. iv) In the case of the TO adequate provision is not made to enable those designated to challenge their designation.
Does the TO go further than the Resolution requires?
Resolution 1373 recited that the Security Council decided that all States should: 1 (c) Freeze without delay funds and other financial assets or economic resources of persons who commit, or attempt to commit, terrorist acts or participate in or facilitate the commission of terrorist acts; of entities owned or controlled directly or indirectly by such persons; and of persons and entities acting on behalf of, or at the direction of such persons and entities, including funds derived or generated from property owned or controlled directly or indirectly by such persons and associated persons and entities; (d) Prohibit their nationals or any persons and entities within their territories from making any funds, financial assets or economic resources or financial or other related services available, directly or indirectly, for the benefit of persons who commit or attempt to commit or facilitate or participate in the commission of terrorist acts, of entities owned or controlled, directly or indirectly, by such persons and of persons and entities acting on behalf of or at the direction of such persons;
Section 1 of the 1946 Act empowers the making by Order in Council of such provision as appears necessary or expedient for enabling the measures in the Resolution to be effectively applied.
The conditions laid down by the 2006 TO for making a freezing order are set out in paragraph 4(2): (2) The conditions are that the Treasury have reasonable grounds for suspecting that the person is or may be (a) a person who commits, attempts to commit, participates in or facilitates the commission of acts of terrorism; (c) a person owned or controlled, directly or indirectly, by a designated person; or (d) a person acting on behalf of or at the direction of a designated person. (b) a person identified in the Council Decision;
The wording of the TO tracks the wording of the Resolution, save that those who can be made subject to the Order are not only those described in the Resolution but those whom the Treasury have reasonable grounds for suspecting fall or may fall within that description.
The issue is whether it can properly be said to be necessary or expedient to apply this test of reasonable suspicion in order to ensure that the measures in the Resolution are effectively applied to those described in the Resolution.
This question goes not merely to the legitimate scope of the TO but to the legitimacy of the entire TO regime.
The Court of Appeal concluded that a reasonable suspicion test fell within the scope of what appeared necessary or expedient to give effect to the measures in the Resolution.
The Master of the Rolls treated this as essentially a question of the standard of proof and observed that such a test had been accepted by the Strasbourg Court in relation to a similar problem arising out of the risk of terrorism.
He concluded: I would accept such a test as lawful provided that the person concerned has a proper opportunity to challenge the decision made against him (para 42).
He went on to hold, however, that the inclusion of the words or may be went beyond what was necessary or expedient.
He considered that these words widened the test of reasonable suspicion to an extent that was not legitimate, albeit that there is scope for argument as to how much difference this will make (paras 47 49).
There may be a tendency to approach the requirements of the Resolution by reference to other measures that have been taken in this jurisdiction to combat terrorism, such as control orders imposed on the basis of reasonable suspicion.
Such, however, are exceptional measures, treading the boundaries of what is compatible with respect for fundamental rights and the rule of law.
They should not be treated as the norm.
Identification of the requirements of Resolution 1373 should be approached, in the first instance, by consideration of the natural meaning of its provisions.
That natural meaning appears to me to be relatively clear.
The object of the Resolution appears from the following statement in its preamble: Recognizing the need for States to complement international cooperation by taking additional measures to prevent and suppress, in their territories through all lawful means, the financing and preparation of any acts of terrorism.
The first specific measure called for by the Resolution in paragraph 1(b) is that States shall: Criminalize the wilful provision or collection, by any means, directly or indirectly, of funds by their nationals or in their territories with the intention that the funds should be used, or in the knowledge that they are to be used, in order to carry out terrorist acts.
Paragraph 2(e) adds to this: Ensure that any person who participates in the financing, planning, preparation or perpetration of terrorist acts or in supporting terrorist acts is brought to justice and ensure that, in addition to any other measures against them, such terrorist acts are established as serious criminal offences in domestic laws and regulations and that the punishment duly reflects the seriousness of such terrorist acts;
Paragraph 1(c) requires the freezing of the assets of those who commit the acts that the Resolution has required should be criminalised and their agents.
Thus what the Resolution requires is the freezing of the assets of criminals.
The natural way of giving effect to this requirement would be by freezing the assets of those convicted of or charged with the offences in question.
This would permit the freezing of assets pending trial on a criminal charge, but would make the long term freezing of assets dependent upon conviction of the relevant criminal offence to the criminal standard of proof.
The Resolution nowhere requires, expressly or by implication, the freezing of the assets of those who are merely suspected of the criminal offences in question.
Such a requirement would radically change the effect of the measures.
Even if the test were that of reasonable suspicion, the result would almost inevitably be that some who were subjected to freezing orders were not guilty of the offences of which they were reasonably suspected.
The consequences of a freezing order, not merely on the enjoyment of property, but upon the enjoyment of private and family life are dire.
If imposed on reasonable suspicion they can last indefinitely, without the question of whether or not the suspicion is well founded ever being subject to judicial determination.
It may be argued that it is expedient to throw the net wide in order to ensure that the criminals are caught within it, even if this is at the expense of enmeshing those who are not.
But I would not give expedient, as used in the 1946 Act, so extravagant a scope.
Whether in so deciding I am applying the principle of legality, or a simple rule of construction that confines general words within reasonable limits where fundamental rights are in play, matters not.
Bennion would probably say that they are one and the same see p 823.
It is, I think, legitimate to look at the parallel series of Resolutions adopted by the Security Council under article 41 that have led to the AQO for guidance on the intended scope of Resolution 1373.
I have done so, but found nothing to indicate that the Security Council has decided that freezing orders should be imposed on a basis of mere suspicion.
Resolution 1333 first made provision for the Committee to keep what subsequently became the Consolidated List of individuals and entities designated as being associated with Usama bin Laden.
The scheme is that the Committee determines what names should be included on the list in the light of information provided by Member States.
In recent years there has been an increasing emphasis on the duty of States to specify the evidence justifying the proposal that a name be placed on the list see Resolution 1617 (2005), paragraph 4; Resolution 1735 (2006), paragraph 5 and Resolution 1822 (2008) paragraph 12.
The Guidelines of the Committee for the Conduct of its Work, as amended up to 9 December 2008 provide in paragraph 6(d): Member States shall provide a detailed statement of case in support of the proposed listing that forms the basis or justification for the listing in accordance with the relevant resolutions.
The statement of case should provide as much detail as possible on the basis(es) for listing indicated above, including: (1) specific findings demonstrating the association or activities alleged; (2) the nature of the supporting evidence (e.g. intelligence, law enforcement, judicial, media, admissions by subject, etc.) and (3) supporting evidence or documents that can be supplied.
States should include details of any connection with a currently listed individual or entity.
States shall identify those parts of the statement of case that may be publicly released, including for the use by the Committee for development of the summary described in paragraph (h) below or for the purpose of notifying or informing the listed individual or entity of the listing, and those parts that may be released upon request to interested States.
Paragraph 6 (c) of the Guidelines provides: Before a Member State proposes a name for addition to the Consolidated List, it is encouraged, if it deems it appropriate, to approach the State(s) of residence and/or nationality of the individual or entity concerned to seek additional information.
States are advised to submit names as soon as they gather the supporting evidence of association with Al Qaida and/or the Taliban.
A criminal charge or conviction is not necessary for inclusion on the Consolidated List as the sanctions are intended to be preventative in nature.
The Committee will consider proposed listings on the basis of the associated with standard described in paragraphs 2 and 3 of Resolution 1617 (2005), as reaffirmed in paragraph 2 of Resolution 1822 (2008).
When submitting names of groups, undertakings and/or entities, States are encouraged, if they deem it appropriate, to propose for listing at the same time the names of the individuals responsible for the decisions of the group, undertaking and/or entity concerned.
The Resolutions cited lay down specific factual tests for association with Al Qaida and the Taliban.
The statement that a criminal charge or conviction is not necessary, if applied to the TO regime, opens the door to the suggestion that freezing orders should be imposed not merely where ancillary to a criminal charge or conviction, but in circumstances where there are reasonable grounds for believing that the subject of the order has been guilty of the relevant offending see, by way of example, the test for a freezing order under section 4 of the Anti terrorism, Crime and Security Act 2001.
Whether an Order in Council providing for the making of freezing orders on the basis of reasonable belief would fall within the scope of the 1946 Act is not a question that I would resolve in the abstract.
It would be manifestly preferable for any such measure to be imposed by primary legislation, which would not be restricted by the need to keep strictly within the requirements of the relevant Resolution.
For the reasons that I have given I would quash the TO on the ground that, by applying a test of reasonable suspicion, it goes beyond what is necessary or expedient to comply with the relevant requirements of Resolution 1373 and thus beyond the scope of section 1 of the 1946 Act.
It is not necessary to address the alternative reasons advanced by the appellants for contending that the terms of the TO fall outside the powers of the 1946 Act, but I will record my agreement with the conclusions expressed by Lord Mance in paragraphs 232 to 236 of his judgment.
The challenge to the AQO
The common law rights of G and HAY to the enjoyment of their property, to privacy and to family life are very severely invaded by the AQO.
Their counsel have adopted the submissions that were advanced on behalf of A, K and M to the effect that the principle of legality renders ultra vires orders that have such draconian effect and that lack certainty.
If, however, they have justifiably been placed on the Consolidated List on the ground that they have been supporting the activities of Al Qaida, Usama bin Laden or the Taliban they can reasonably expect serious interferences with those rights.
Their primary complaint is that they have no right to challenge before a court their inclusion on that list.
Access to a court to challenge interference with rights is, they submit, a fundamental right protected by the principle of legality.
Access to a court to protect ones rights is the foundation of the rule of law.
Mr Swift accepted that if the AQO purported to exclude access to a court it would be ultra vires.
He submitted, however, that it did no such thing.
Designation by the Sanctions Committee was a fact that, under English law as embodied in the AQO, resulted in the imposition of severe restrictions on the rights of the person listed.
It was open to any individual who experienced such restrictions, to challenge, by judicial review proceedings, whether the AQO rendered such interference lawful.
In such proceedings the appellant could put in issue the assertion that he was a person designated on the Sanction Committees list.
He could challenge the validity of the Order, as indeed G and HAY had done.
What he could not do was challenge the basis upon which the Sanctions Committee had placed him on the list, for that question had no relevance to his rights under English law.
I find this argument unreal.
On the Treasurys case, the relevant Resolutions and the 1946 Act, when read together, have had a devastating effect on Gs and HAYs rights and left them unable to make an effective judicial challenge to the reasons for treating them in this way.
That results from the fact that, by the 1946 Act Parliament, in effect, granted to the Security Council the power to specify legislation that it required Member States to enact and granted to the executive the power to enact that legislation by Order in Council.
The stark issue is, having regard to the principle of legality did the AQO fall outside limitations, express or implied, to the scope of this legislation?
I have already, in paragraphs 124 to 126 identified some limitations on the scope of section 1 of the 1946 Act, derived from the language of the
section.
As I explained, those limitations did not place the TO outside the ambit
The list is, however, the primary object of the challenge brought by G and HAY to the legitimacy of the AQO.
Names are placed on the list at the suggestion of Member States.
A Member State has to give particulars of its reasons for putting forward a name, but it can place an embargo on disclosing those reasons to the name, or even on disclosing the fact that it was the State responsible for the inclusion of the name on the list.
That is precisely what has occurred in the case of HAY.
The Security Council has shown an appreciation of the need to provide a means whereby an individual can challenge the inclusion of his name on the Consolidated List.
The Guideline that I have quoted at paragraph 140 above makes provision for notifying a listed individual of those parts of a Member States statement of the case against him that the State identifies may be publicly released and Resolutions make express provision for de listing, including the establishment of a focal point for submitting requests for de listing see Resolution 1730.
But these provisions fall far short of the provision of access to a court for the purpose of challenging the inclusion of a name on the Consolidated List, and far short of ensuring that a listed individual receives sufficient information of the reasons why he has been placed on the list to enable him to make an effective challenge to the listing.
Does an Order in Council that subjects individuals to severe interference with their rights to the enjoyment of property, to privacy and to family life on the ground that they are associated with terrorists, in circumstances where they are denied the right to know the case against them or to have access to a court to challenge that case, fall within the power conferred by section 1 of the 1946 Act? The natural meaning of section 1 is wide enough to extend to implementation of the measures in Resolution 1267 and the later relevant Resolutions that are reproduced in the AQO.
Are those measures none the less implicitly excluded from the ambit of the section under the principle of legality?
The first question to address is whether the provisions of section 1 are subject to any implied limitation at all.
As to this there was no dispute between the parties.
Mr Swift accepted that, if the Security Council decided, by a Resolution under article 41, that Member States should obtain information from terrorist suspects by the application of torture, section 1 of the 1946 Act would not apply to that measure.
I think that at the very least the powers
conferred by section 1 must be limited to measures imposed by the Security
It has not, however, been suggested on behalf of any of the appellants that the relevant Resolutions were ultra vires.
None the less they are of a kind that Parliament cannot reasonably have anticipated when enacting the 1946 Act.
Article 41 gives, by way of example of the measures not involving the use of armed force to which it relates, complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations.
These were measures against rogue States, not by States against individuals within them, and it is no cause for surprise that, when debating the Bill in the House of Lords, Viscount Samuel remarked: This particular Bill makes provision for the eventuality that coercive measures may become necessary by the United Nations against some State which is indulging, or is apparently about to indulge, in acts of aggression.
Those coercive measures may be either military or non military what we are accustomed to speak of under the name of sanctions, economic sanctions, or similar sanctions.
Hansard 12 February 1946 col 378 HL.
The fact that Parliament may not have anticipated the nature of the measures upon which the Security Council decided over sixty years after the 1946 Act was passed does not mean that the Act cannot, on its true construction, apply to them see Royal College of Nursing of the United Kingdom v Department of Health and Social Security [1981] AC 800 at p 822.
It is necessary to consider the intention of Parliament, reading the statute in the historical context of the situation which led to its enactment per Lord Bingham of Cornhill R(Quintavalle) v Secretary for Health [2003] UKHL 13; [2003] 2 AC 687 para 8.
Reference to Hansard demonstrates the enthusiasm in 1946 of all sections of both Houses for the new United Nations and the Security Council, of which the United Kingdom was a permanent member.
Parliament should not be presumed to have intended that the measures covered by section 1 of the 1946 Act would be restricted to measures similar to the examples in article 41 of the Charter.
Different considerations apply, however, to the question of whether Parliament would have appreciated the possibility that the Security Council would, under article 41, decide on measures that seriously interfered with the rights of individuals in the United Kingdom on the ground of the behaviour of those individuals without providing them with a means of effective challenge before a court.
I conclude that Parliament would not have foreseen this possibility, having particular regard to the reference to human rights in the preamble and article 1.3 of the Charter and to the fact that the 1946 Act was passed at a time when the importance of human rights was generally recognised, as exemplified two years later by the adoption by the General Assembly of the Universal Declaration of Human Rights.
This is material, for it makes the principle of legality a realistic guide to the presumed intention of Parliament.
Applying that principle, I share with the majority of the court the conclusion that the Resolutions to which the AQO relates, insofar as they call for measures to be applied to those on the Consolidated List, fall outside the scope of section 1 of the 1946 Act.
I agree with Lord Mance, for the reasons that he gives, that in so far as the Resolutions relate to Usama bin Laden himself, their validity is not impugned.
For these reasons I would grant the relief proposed by Lord Hope in paragraph 83 of this judgment.
I endorse his comments in relation to the 2009 Order.
I agree for the reasons that he gives that the operation of the Order in HAYs case shall be suspended for one month from the date of judgment.
Nobody should conclude that the result of these appeals constitutes judicial interference with the will of Parliament.
On the contrary it upholds the supremacy of Parliament in deciding whether or not measures should be imposed that affect the fundamental rights of those in this country.
LORD RODGER, with whom Lady Hale agrees
The Court is asked to decide whether, by virtue of section 1(1) of the United Nations Act 1946, Her Majesty in Council had power to enact the Al Qaida and Taliban (United Nations Measures) Order 2006 (AQO Order) and the Terrorism (United Nations Measures) Order 2006 (TO 2006).
The same question arises in respect of the Terrorism (United Nations Measures) Order 2009 (TO 2009).
At the time of the hearing TO 2006 was the current embodiment of the measures by which the United Kingdom implemented SCR 1373, which was adopted by the Security Council on 28 September 2001, in the aftermath of the 9/11 attacks on the United States.
But SCR 1373 was by no means the first resolution which the Council had adopted to deal with terrorist attacks.
What marks it out is that the other resolutions relate to specific incidents and specific individuals, or organisations.
SCR 1373 is, by contrast, generic: it deals with international terrorism, with threats to international peace and security caused by terrorist acts.
Previous resolutions, such as SCR 1189 (1998), had, of course, included calls for States to take measures for the prevention of terrorism.
But SCR 1373 was intended to go much further: the aim was to create a permanent international system for combating terrorism.
This helps to explain certain unique, or unusual, features of SCR 1373.
The Security Council envisages that its other resolutions relating to terrorist acts will have a limited life before being reconsidered and renewed, if appropriate.
There is no such time limit in SCR 1373: it is intended to apply indefinitely unless and until the Security Council decides to revoke it.
The other SCRs are targeted at a particular threat for example, SCR 1333 (2000) is directed at the Taliban and Osama bin Laden, Al Qaida and their associates.
In para 1(a) of SCR 1373, by contrast, the Security Council simply decides that all States shall prevent and suppress the financing of terrorist acts.
Para 1(c) requires States to freeze without delay funds etc of persons who commit, or attempt to commit, terrorist acts or participate in or facilitate the commission of terrorist acts.
The same thinking runs through the resolution.
If, in these respects, SCR 1373 looks more like an international convention, this is not surprising since it really comprises selected measures which had been included in the International Convention for the Suppression of the Financing of Terrorism that was adopted by the General Assembly in December 1999.
By September 2001 only a few States had ratified the Convention.
So SCR 1373, in effect, imposed on all States the selected obligations which would otherwise have bound them only if they had eventually decided to ratify the Convention.
Given its focus on terrorist acts, it is striking that the resolution does not define terrorism or terrorist acts.
This is no accident.
It would have been impossible to get agreement on a single definition.
So, at the risk of some inconsistency and incoherence in their response, SCR 1373 leaves it up to States to adopt measures to combat what they regard as terrorism.
In both TO 2006 and TO 2009 the definition adopted by the United Kingdom is to be
found in article 2(3) (6).
It is important to notice that this definition is
These wide provisions are entirely appropriate in a measure that is intended to allow the requirements of SCR 1373 to be effectively applied in the United Kingdom.
The freezing orders that are under consideration in these appeals relate to the funds and assets of individuals who live in this country.
It is therefore tempting to think of such cases as the paradigm.
But that would be a fundamental error.
The very premise of SCR 1373 is that terrorism is an international phenomenon.
For example, someone living in Ruritania may facilitate acts of terrorism against the government of Utopia by transferring funds from his account in a bank in the United Kingdom to an account controlled by the terrorist in a bank in Erewhon.
The hope and intention behind paras 1(b) and 2(e) of SCR 1373 is that the authorities in Ruritania will have the necessary laws and resources to prosecute the individual concerned for financing and facilitating terrorism.
Equally, it is hoped that the Erewhon authorities will have the necessary powers to freeze any funds that reach the account in the bank there.
But the reality may well be that, for a variety of reasons, Ruritania is not actually in a position to arrest and prosecute the individual concerned for his actions and Erewhon may not have the necessary legislation to freeze his funds.
Terrorists may indeed choose to live or operate in States which are too weak to take effective action against them.
And, of course, in all probability the British courts will not have jurisdiction to prosecute the individual for facilitating terrorist acts in Utopia even supposing that he could ever be arrested or extradited to this country from Ruritania.
Nevertheless, the intention behind SCR 1373 is that the United Kingdom should be able to counter the threat of terrorist acts in Utopia by freezing the individuals assets in the British bank.
And the United Kingdom aims to assist in fulfilling the Security Councils intention by giving the Treasury power under TO 2006 and TO 2009 to designate the individual and to freeze his funds in the British bank.
It follows that it could never have been the intention of the Security
Council that a State should freeze only the funds of individuals whom it could
The appellants, A, K, M and G, argue, however, that TO 2006 is ultra vires because it goes further and allows the Treasury to designate an individual and to freeze his assets if they have reasonable grounds for suspecting that [he] is or may be a person who commits, attempts to commit, participates in or facilitates the commission of acts of terrorism.
The argument is that this goes further than the terms of para 1(c) of SCR 1373 and that it is neither necessary nor expedient, in terms of section 1(1) of the United Nations Act 1946, for the Treasury to be given power to designate and freeze on the basis of reasonable grounds for suspicion.
As Lord Mance puts it, at para 230, this is to freeze the assets of a different and much wider group of persons on an indefinite basis and to change the essential nature and target of the freezing order.
I acknowledge the force of the argument, but I have come to the conclusion that it should be rejected.
In the first place, as is perhaps apparent from the variety of approaches adopted in the judgments, para 1(c) of SCR 1373 does not provide any express guidance.
It simply prescribes the result that is to be achieved: freezing without delay the funds etc of persons who commit etc terrorist acts.
It does not indicate how States are to identify the people in question.
There will, of course, be no difficulty if the authorities of a State catch someone red handed committing a terrorist act or handing over cash to a terrorist organisation.
The State will freeze his assets if there are any within its
jurisdiction.
And, if satisfied that the information provided is accurate, other
Often, however, things will not be so clear cut.
Items of information may come from a variety of sources which, if pieced together, indicate, more or less clearly, what an individual or a group is doing.
How is effect to be given to para 1(c) of SCR 1373 in that situation? Lord Phillips, at para 136 of his opinion, seems to envisage that a long term freezing order should be dependent on conviction of the relevant criminal offence to the criminal standard of proof or that it would be merely ancillary to a criminal charge or conviction (para 142).
I have just explained why I cannot accept that approach which would emasculate the international system that the Security Council wishes to create.
I infer from what Lord Mance says, at para 230, that in his view the Security Council envisages that a (long term) freezing order should be made only against individuals who, the State is satisfied, on the balance of probabilities, have committed etc a terrorist act.
In other words, even if the State thinks that there is, say, a 40% chance that the individual is busy financing terrorist activities, he should be allowed to continue.
I would reject that approach because it would leave a lot of loop holes and would be unlikely to conduce to achieving the Security Councils overall aim of preventing terrorist acts.
I understand Lord Brown to opt, at para 199, for a requirement that the Treasury should have reasonable grounds for believing that the person in question is committing, or has committed, etc terrorist acts.
That seems to me to be one possible approach which would be likely to identify many people whose funds etc are to be frozen in terms of para 1(c).
Plainly, however, if a State applies that test, it will be liable to freeze the assets of a number of people who, it turns out, are not committing, or have not committed etc, terrorist acts.
Nevertheless, in my view, a measure which adopted that approach could be said to be expedient for enabling the United Kingdom to fulfil its obligation under SCR 1373 to freeze the assets of those who facilitate terrorist acts.
The actual test in the TOs, based on reasonable grounds for suspecting, is just a little less stringent than the one favoured by Lord Brown.
In other words, while it may (slightly) increase the chances of catching individuals who are actually committing etc terrorist acts, it correspondingly increases the chances that someone who is not committing etc a terrorist act will have his assets frozen.
Lord Hope, at para 58, considers that it may well have been expedient to introduce the reasonable suspicion test to reproduce what the SCR requires, but he is of the view that the formulation of the text should be left to Parliament.
In his view, therefore, TO 2006 really fails, not because it is framed too widely, but because of the principle of legality (para 61).
As Lord Hope points out, there is evidence that the reasonable grounds for suspecting test would be consistent with the approach of the United Nations International Task Force.
It seems to me that the expediency of the United Kingdom adopting that test really depends on a whole range of practical matters with which the members of this Court are largely unfamiliar.
Inevitably, much of the information about terrorist activities that is available to national authorities will come from other countries and, often, in the form of intelligence provided by overseas security services.
In the case of the United Kingdom, the Treasury and indeed the British security services may well be in no position to make an independent assessment of the material.
Similarly, it may well be that, in a significant number of cases, because of its variable quality and fragmentary nature, the available information does not permit the Treasury to go further than to say that they have reasonable grounds for suspecting that the person concerned is committing or facilitating terrorist acts.
If so, then it may be better to base designation on reasonable grounds for suspicion rather than on some higher standard which could not be readily achieved and which, if applied faithfully, would mean that the Treasury failed to freeze a significant number of assets which were actually under the control of people who committed etc terrorist acts.
I therefore see no sufficient reason to conclude that the test in the TOs is not expedient for enabling the United Kingdom to fulfil its obligations under para 1(c) of SCR 1373.
Nevertheless, adopting that test does mean that, sooner or later, someone will be designated who has not actually been committing or facilitating terrorist acts.
That is inevitable.
The availability of judicial review under Part 6 of the Counter Terrorism Act 2008 is, of course, a palliative.
But, in my view, for the reasons given by Lord Hope, at paras 60 and 61, the making of an Order, which, in effect, amounts to permanent legislation conferring powers to affect, directly, very basic domestic law rights of citizens and others lawfully present in the United Kingdom goes well beyond the general power to make Orders in Council conferred by section 1(1) of the United Nations Act 1946.
If such measures are to be taken, it is for Parliament to deliberate and to determine that the benefits of giving the Treasury such powers outweigh the potential disadvantages and that it is accordingly expedient to adopt these measures in order to enable the United Kingdom to fulfil its obligations under SCR 1373.
That is so, even though, for the reasons given by Lord Hope, at paras 70 73, the Court must proceed on the basis that, having regard to articles 25 and 103 of the Charter, the United Kingdoms obligations under the SCRs would trump any relevant obligations under the European Convention.
I consider, however, that section 1(1) would authorise Her Majesty to make an Order in Council, even with these far reaching effects, provided that it had only a limited life span and was replaced, as soon as practically possible, by equivalent legislation passed by Parliament.
In this way the United Kingdom could promptly fulfil its obligations under the United Nations Charter.
For these reasons TO 2006 was ultra vires and TO 2009, which is, so far as relevant, in similar terms, must also be ultra vires.
I am accordingly satisfied that the designation orders relating to A, K and M under TO 2006 were void and that the new orders made under TO 2009 must also be void.
I turn now to the AQO.
The history of the matter has been described by Lord Hope and Lord Mance.
In para 4(b) of SCR 1267 (1999) the Security Council decided that all States should in broad terms freeze funds and other financial resources owned or controlled directly or indirectly by the Taliban, or by any undertaking owned or controlled by the Taliban, as designated by the Committee that was to be established under para 6 of the SCR.
This committee, comprising all the members of the Security Council, came to be known as the 1267 Committee.
The following year, in SCR 1333 (2000), the Security Council decided that all States were to freeze without delay, inter alia, funds and other financial assets of Usama bin Laden and individuals and entities associated with him as designated by the 1267 Committee, including those in the Al Qaida organisation.
After the 9/11 atrocity, at the instigation of the United States, the Committee added a large number of names to its list of groups and individuals associated with Osama bin Laden and Al Qaida.
SCR 1267 was aimed at the Taliban regime.
So the role of the Committee was to designate Taliban funds which States were to freeze.
But, from SCR 1333 onwards, the Security Council has targeted the funds and assets of individuals and entities associated with Osama bin Laden and the Al Qaida organisation.
And the role of the 1267 Committee has, therefore, been to designate those individuals whose funds are then to be frozen.
As Lord Mance explains, at para 215, this was not a new device: the Security Council had previously adopted resolutions which left it to a committee to designate individuals to whom particular sanctions were to apply.
Those resolutions had been directed, however, at individuals associated with a particular rgime in a particular country.
By contrast, from SCR 1333 onwards, the 1267 Committee
was having to identify individuals and groups associated with a much more
Obviously, preventing terrorists from obtaining funds and other assets is a crucial part of any system for combating terrorism.
Equally obviously, if there is to be a successful international effort to combat terrorism all over the world, a central organisation which gathers information and co ordinates action is going to play a vital role.
Assessing the information and deciding whether to act on it involved matters of political judgment.
Obviously, again, much of the necessary information will come from the security services of different countries and there may well be problems about revealing it.
The 1267 Committee acts as the central co ordinating body and is not in the habit of revealing much about the basis for its decisions.
It would, of course, be absurd to expect the Committee to notify individuals of any proposal to list them: any funds would quickly be disposed of.
But, even after the reforms introduced in the last two years, there is little that individuals can do to launch an effective challenge to their listing after it has occurred.
The Committee is not obliged to publish more than a narrative summary of reasons for their listing.
There is no appeal body outside the Committee to which they can complain.
The individuals themselves cannot apply directly to the Committee to have their names removed from the list.
Such requests now go to the Ombudsperson.
And, if a State applies on their behalf, the name will still not be removed unless all members of the Committee agree.
There is an obvious danger that States will use listing as a convenient means of crippling political opponents whose links with, say, Al Qaida may be tenuous at best.
The Security Council is a political, not a judicial, body as is the 1267 Committee.
And it may be that the Committees procedures are the best that can be devised if it is to be effective in combating terrorism.
But, again, the harsh reality is that mistakes in designating will inevitably occur and, when they do, the individuals who are wrongly designated will find their funds and assets frozen and their lives disrupted, without their having any realistic prospect of putting matters right.
On one view, they are simply the incidental but inevitable casualties of the measures which the Security Council has judged it proper to adopt in order to counter the threat posed by terrorism to the peace and security of the world.
The Council adopts those measures in order to prevent even worse casualties those who would be killed or wounded in terrorist attacks.
On the assumption that the Human Rights Act is not in play, Parliament can pass legislation to give effect in our domestic law to the obligations imposed on the United Kingdom by the Security Council resolutions relating to Osama bin Laden, Al Qaida etc however grave the interference with rights of
property and even though there is no effective remedy against an unjustified
Can the same be done by Order in Council under section 1(1) of the United Nations Act 1946? In other words, does section 1(1) authorise Her Majesty in Council to make legislation which encroaches to such an extent on individuals basic common law rights of property and access to the courts?
Undoubtedly, given the terms of article 41 of the Charter which envisages interruption of economic relations, Parliament must have envisaged that, for example, an Order in Council giving effect to a ban on trade with a particular country would interfere significantly with the rights of individuals or companies to export their goods or to use their funds to make payments to individuals or companies in the country concerned.
But, having regard to the principle stated by Lord Browne Wilkinson in R v Secretary of State for the Home Department, Ex p Pierson [1998] AC 539, 575, I have come to the conclusion that, by enacting the general words of section 1(1) of the 1946 Act, Parliament could not have intended to authorise the making of AQO 2006 which so gravely and directly affected the legal right of individuals to use their property and which did so in a way which deprived them of any real possibility of challenging their listing in the courts.
Lord Brown rejects that conclusion because, he says, there could surely be no political cost in doing what, unless we were flagrantly to violate our UN Charter obligations, the United Kingdom had no alternative but to do.
I accept that there might be no real political cost in enacting the measure.
But the essential point is that these matters should not pass unnoticed in the democratic process and that the democratically elected Parliament, rather than the executive, should make the final decision that this system, with its inherent problems, should indeed be introduced into our law.
The need for Parliamentary endorsement is all the more important if the ordinary human rights restraints do not apply.
I would accordingly hold that article 3(1)(b) of the AQO is ultra vires and void.
For these reasons I agree that the appeals of A, K, M and G should be allowed and the appeal by the Treasury should be dismissed.
LORD BROWN
The principal question for the Courts decision on these appeals is whether the Terrorism (United Nations Measures) Order 2006 (The Terrorism Order) or the Al Qaida and Taliban (United Nations Measures) Order 2006 (The Al Qaida Order) or both fall to be quashed as having been made ultra vires the enabling power section 1 (1) of the United Nations Act 1946 (the 1946 Act).
Section 1(1) is central to the appeals: If, under Article 41 of the Charter of the United Nations . (being the Article which relates to measures not involving the use of armed force) the Security Council of the United Nations call upon His Majestys Government in the United Kingdom to apply any measures to give effect to any decision of that Council, His Majesty may by Order in Council make such provision as appears to Him necessary or expedient for enabling those measures to be effectively applied, including (without prejudice to the generality of the preceding words) provision for the apprehension, trial and punishment of persons offending against the Order.
The appellants (together with JUSTICE who intervene in these proceedings in support of their case) submit (and I simplify) that the Terrorism Order and the Al Qaida Order are ultra vires the 1946 Act, first, because they offend the common law principle of legality and, secondly, because they necessarily involve violations of Convention rights.
Essentially what are challenged here are not the designations of the individual appellants and the directions made against them by the Treasury as such, but rather the Orders themselves.
I gratefully adopt without repetition Lord Hopes detailed recitation of the facts of these appeals and the relevant provisions of all the main instruments under consideration: the United Nations Charter, the various United Nations Security Council Resolutions, the impugned Orders and, indeed, a number of other relevant Orders in Council made under the 1946 Act.
This enables me to proceed at once to what I regard as the core issues.
Although, as I shall come to explain, my final conclusion on these appeals is that the Terrorism Order should be struck down but the Al Qaida Order should stand, let me first make one or two brief introductory observations applicable to both.
The draconian nature of the regime imposed under these asset freezing Orders can hardly be over stated.
Construe and apply them how one will and to my mind they should have been construed and applied altogether more benevolently than they appear to have been they are scarcely less restrictive of the day to day life of those designated (and in some cases their families) than are control orders.
In certain respects, indeed, they could be thought even more paralysing.
Undoubtedly, therefore, these Orders provide for a regime which considerably interferes with the article 8 and article 1 of Protocol 1 rights of those designated.
Similarly, it is indisputable that serious questions arise as to the sufficiency of protection of the article 6 rights of those designated.
This is so, moreover, even if one superimposes upon the regime (as the Court of Appeal thought permissible) the services of a special advocate when required and the means of overcoming the potentially unfair effect of section 17 of the Regulation of Investigatory Powers Act 2000 with regard to the use of intercept evidence.
These, then, are powerful reasons for questioning the legitimacy of introducing such restrictive measures by executive order instead of by primary legislation.
As Lord Hoffmann famously said in R v Secretary of State for the Home Department, Ex p Simms [2000] 2 AC 115, 131: Parliamentary sovereignty means that Parliament can, if it chooses, legislate contrary to fundamental principles of human rights.
But the principle of legality means that Parliament must squarely confront what it is doing and accept the political cost.
Fundamental rights cannot be overridden by general or ambiguous words.
This is because there is too great a risk that the full implications of their unqualified meaning may have passed unnoticed in the democratic process.
In the absence of express language or necessary implication to the contrary, the courts therefore presume that even the most general words were intended to be subject to the basic rights of the individual.
I shall call this for simplicitys sake the Simms principle.
There is, however, an important countervailing principle also in play here.
Chapter VII of the UN Charter concerns action to be taken with regard to threats to international peace and security and by article 41 authorises the Security Council to decide on measures to be taken short of armed force to maintain peace and security and to call upon member states to apply such measures.
When one considers the ravages of terrorism and war and the gross invasions of human rights which they inevitably entail, it is difficult to think of any greater imperative than that member states should fully honour their international law obligation to implement Security Council decisions under article 41.
The existence of such an obligation could not be plainer.
Article 25 of the Charter mandates it and article 103 expressly dictates that it is to prevail over any conflicting international law obligation.
It follows that these appeals involve the clash of conflicting principles, each of profound importance.
As it seems to me, almost any Order made under section 1(1) of the 1946 Act is likely to interfere with somebodys fundamental rights.
Take a UN resolution imposing trading actions against some state.
Any domestic measure giving effect to such a decision is bound to interfere with someones contractual dealings and impinge on their article 1 Protocol 1 rights and quite likely their article 8 rights too.
Obviously the Simms principle cannot operate to emasculate the section 1(1) power entirely.
What, then, are the touchstones by which to decide whether a particular executive Order falls within the scope of the power? As it seems to me, two paramount considerations will always arise: first, the degree of specificity of the UN decision which the UK is called upon to implement; second, the extent to which the implementing measure will interfere with fundamental human rights.
Of course, the legislation affords the Minister some margin of appreciation as to just what is necessary or expedient for enabling the effective implementation of the United Nations resolution.
But, the more invasive of the human rights of those affected the proposed provision is, the narrower that margin will be until, indeed, the point is reached where, unless the UK could not consistently with its obligations under the Charter introduce provisions any less invasive of human rights than those proposed, they could not properly be introduced by Order in Council at all but only by primary legislation.
Where, as here, those to be designated under the proposed measure will suffer very considerable restrictions under the regime, I would hold that it can only properly be introduced by executive Order in Council if the measure is in all important respects clearly and categorically mandated by the UN resolution which it is purporting to implement.
If the implementing measure is to go beyond this, then, consistently with the Simms principle, it can only properly be introduced by primary legislation.
Turning to the impugned Orders, there seems to me a crucially important distinction between them.
The fundamental reason why I for my part would strike down the Terrorism Order but not the Al Qaida Order as ultra vires the 1946 Act is that whereas I cannot regard the former as sufficiently mandated by SCR 1373 to which it purports to give effect, the Al Qaida Order to my mind does faithfully implement SCRs 1267, 1333 and 1390.
Let me explain.
First, the Terrorism Order.
SCR1373, by paragraph 1(c), decided that all States shall [f]reeze without delay funds and other financial assets or economic resources of persons who commit, or attempt to commit, terrorist acts or participate in or facilitate the commission of terrorist acts .
The Terrorism Order, however, provides for designation by HM Treasury on the basis merely that it has reasonable grounds for suspecting that the person is (I omit the words or may be, struck out by the Court of Appeal) a person who commits, attempts to commit, participates in or facilitates the commission of acts of terrorism.
This goes well beyond the strict requirements of Resolution 1373.
To my mind, it was not open to the Minister to introduce such a provision by Order in Council under the 1946 Act.
By contrast, paragraph 2 of SCR 1390 required that all States [f]reeze without delay the funds and other financial assets or economic resources of Osama Bin Laden, members of the Al Qaida organisation and the Taliban and others associated with them as referred to in the Sanctions Committee list.
And that, as it seems to me, is precisely what the implementing Al Qaida Order sets out to achieve, no more and no less.
What essentially it provides for is the designation of all those designated by the UN Sanctions Committee.
I cannot see why the Simms principle should apply to limit the power of the executive to accomplish this.
I have found it instructive in this regard to see how certain other Commonwealth countries have given effect to these same UNSCRs.
Australia, New Zealand and Canada all have legislation akin to our 1946 Act.
All three countries initially implemented both SCR 1267 and SCR 1373 by Regulations made under that legislation but in 2002 Australia and New Zealand (although not Canada) replaced these by primary legislation.
As I understand it, both the Regulations and the legislation have directly implemented the Sanctions Committee designations under Resolution 1267 i.e. they automatically freeze the listed persons assets in just the same way as our Al Qaida Order.
On the other hand, the provisions implementing Resolution 1373 are altogether more tightly drawn than our Terrorism Order.
Unless designated by the Sanctions Committee, people cannot be subjected to executive designation and asset freezing unless the following conditions are met: in Australia only when the Minister is satisfied that the person is involved in terrorism; in Canada only when the Governor General is satisfied that there are reasonable grounds to believe this; in New Zealand only if the Prime Minister believes this on reasonable grounds (except that he can make an interim designation for 30 days if he has good cause to suspect it).
Contrast all this with the position under the Terrorism Order where HM Treasury can designate on a long term basis merely on reasonable grounds for suspecting the person to be involved in terrorism.
As I pointed out in a very different context in R v Saik [2007] 1 AC 18, 61, at para 120: To suspect something to be so is by no means to believe it to be so: it is to believe only that it may be so.
The way Australia, New Zealand and Canada have dealt with these UNSCRs to my mind tends to support the conclusions I have reached about the impugned Orders.
It suggests that whilst SCR 1267 is regarded as mandating the automatic asset freezing of those designated by the Sanctions Committee, SCR 1373 certainly cannot be regarded as mandating the long term asset freezing of people not designated by the Sanctions Committee merely on the ground of reasonable suspicion.
With regard to the Terrorism Order I add only this.
The logic of the Treasurys argument is that not only is that Order sufficiently mandated by the terms of Resolution 1373 but so too would have been Orders in Council introducing the various other regimes aimed at combating terrorism in fact introduced over recent years by primary legislation.
Consider for example paragraph 2(b) of Resolution 1373, deciding that all states should [t]ake the necessary steps to prevent the commission of terrorist acts.
Why should not the control order regime or, indeed, the earlier regime involving the executive detention of suspected terrorists unable to be deported have been the subject of Orders in Council under section 1(1) of the 1946 Act? The answer to my mind is plain.
Both regimes were hugely invasive of human rights.
Plainly they would have had to be mandated in the clearest and most categoric terms by a Chapter VII Resolution before they could properly have been introduced by Orders in Council.
Equally clearly they were not.
But by the same token that the control order regime itself similarly triggered by the Minister merely having reasonable grounds for suspecting someone of terrorist activity was lawfully introduced by legislation, so too, provided always, of course, that Parliament was persuaded to enact it, could the asset freezing regime have been.
I am unimpressed by the alternative grounds on which the Order is challenged, those of certainty and proportionality.
Primary legislation introducing this same asset freezing regime could not have been declared incompatible on those grounds.
It is only because the Order was plainly insufficiently mandated by the SCR 1373 that I would hold it invalid.
I return to the Al Qaida Order which, as I have suggested, does precisely what SCR 1267 (and subsequent Resolutions) expressly required the UK to do.
I recognise, of course, that the UKs international law obligations give rise to no domestic law rights or obligations unless and until they are given effect in domestic law.
But here the Resolution was given domestic law effect.
The only question is whether that could properly be done by Order in Council under the 1946 Act.
Inevitably in considering this question one is struck by the dramatic consequences of implementing SCR 1267: the long term radical restrictions upon the lives of those designated by the Sanctions Committee without their being afforded any judicial means of challenging that designation. (I cannot accept the Court of Appeals suggestion that a merits based review can somehow be achieved within the scope of this regime.) In these circumstances it is perhaps unsurprising that the European Court of Justice in Kadi v Council of the European Union (Joined Cases C 402/05P and C 415/05P) [2009] AC 1225 struck down an implementing EC Regulation for want of any procedure for telling those designated of the evidence against them or for a hearing on the merits of the case for (and against) their inclusion in the Sanction Committees list.
But, of course, the European Community is not a member state of the UN: unlike the UK, it is not under an international law obligation to implement Security Council decisions under article 41 of Chapter VII of the Charter and, more particularly, to do so in the light of article 103 of the Charter: In the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail.
The UKs position as a member state is quite different.
Not merely was the UK entitled to introduce this asset freezing scheme in respect of those designated by the Sanctions Committee; it was (under international law) bound to do so.
And given that it was bound to do so, I can see no good reason why that should not have been achieved under the 1946 Act.
I accept, of course, that the regime introduced by the Al Qaida Order is contrary to fundamental principles of human rights (to use Lord Hoffmanns phrase in Simms).
But that was the inevitable consequence of implementing Resolution 1267.
Obviously, as it seems to me, it could have been implemented by primary legislation.
Certainly, whilst R (Al Jedda) v Secretary of State for Defence (JUSTICE intervening) [2008] AC 332 stands, such legislation could not be declared incompatible with Convention Rights.
What purpose then, one asks, would be served by adopting this course rather than making use of the 1946 Act?
The Simms principle is intended to ensure that human rights are not interfered with to a greater extent than Parliament has already unambiguously sanctioned.
The loss of such rights is not to be allowed to [pass] unnoticed in the democratic process.
Parliament must squarely confront what it is doing and accept the political cost.
But in this case the Security Council by Resolution 1267 unambiguously stated what was required of the UK and the 1946 Act equally unambiguously provided that that measure could be implemented by Order in Council.
There could surely be no political cost in doing what, unless we were flagrantly to violate our UN Charter obligations, the UK had no alternative but to do.
I do not accept that such an approach carries with it the implication that the 1946 Act could similarly be used to introduce by Order in Council the sort of internment regime mandated by the Security Council Resolution under consideration in Al Jedda.
Given the obvious extent to which internment interferes with fundamental human rights, such a resolution would need a degree of specificity at least as great as that characterising SCR 1267 to satisfy my suggested criteria (see para 196 above) for the proper use of the 1946 Act power.
Internment where this is necessary for imperative reasons of security (the terms of the resolution providing for internment in post war Iraq with which the House was concerned in Al Jedda), understandable as that was in its particular context, would not sufficiently clearly mandate a comprehensive internment regime in the UK pursuant to Executive Order; internment of named individuals in certain circumstances might.
Since, however, it now appears that the approach I favour is not one which commends itself to the majority of the Court, it would be unhelpful to pursue the matter further.
I content myself with the hope that the view of the majority will not be thought to indicate any weakening in this countrys commitment to the UN Charter.
LORD MANCE
Introduction
These appeals concern the validity of (i) the Terrorism (United Nations Measures) Order 2006 and (ii) the Al Qaida and Taliban (United Nations Measures) Order 2006.
I shall refer to these as the Terrorism Order 2006 and the Al Qaida Order.
Both were made in reliance on the power contained in section 1(1) of the United Nations Act 1946, providing: Measures under article 41 If under article forty one of the Charter of the United Nations signed at San Francisco on the twenty sixth day of June, nineteen hundred and forty five (being the Article which relates to measures not involving the use of armed force) the Security Council of the United Nations call upon His Majestys Government in the United Kingdom to apply any measures to give effect to any decision of that Council, His Majesty may by Order in Council make such provision as appears to Him necessary or expedient for enabling those measures to be effectively applied, including (without prejudice to the generality of the preceding words) provision for the apprehension, trial and punishment of persons offending against the Order.
Article 41 appears in Chapter VII of the Charter of the United Nations which is headed Action with respect to threats to the peace, breaches of the peace, and acts of aggression and provides: 39.
The Security Council shall determine the existence of any threat to the peace, breach of the peace, or act of aggression and shall make recommendations, or decide what measures shall be taken in accordance with Articles 41 and 42, to maintain or restore international peace and security. 41.
The Security Council may decide what measures not involving the use of armed force are to be employed to give effect to its decisions, and it may call upon the Members of the United Nations to apply such measures.
These may include complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations. 42.
Should the Security Council consider that measures provided for in article 41 would be inadequate or have proved to be inadequate, it may take such action by air, sea, or land forces as may be necessary to maintain or restore international peace and security.
Such action may include demonstrations, blockade, and other operations by air, sea, or land forces of Members of the United Nations.
In the cases of A, K, M and G v Her Majestys Treasury [2008] EWCA Civ 1187, [2009] 3 WLR 25, the Court of Appeal, overruling Collins J [2008] EWHC 869 (Admin), [2008] 3 All ER 361, held by a majority (Sir Anthony Clarke MR and Wilson LJ) that both Orders were valid, subject only to the excision from the former Order of the words or may be.
Sedley LJ dissented on the issue of the validity of the Terrorism Order.
The majority reasoning was that the Orders fell, subject to the excision, within the scope of section 1(1), that they were certain and proportionate and that their operation could be accompanied by sufficient procedural safeguards to preclude any objection to their validity at common law or under the Human Rights Act 1998.
Against those conclusions, appeals have been brought with leave by A, K, M and G
(who, in the light of our ruling on the first day of the appeal, can be given his
Lord Hope has set out the background to and salient terms of the Terrorism Order 2006 and the Al Qaida Order in paras 21 to 27, and the circumstances and effect of application of these Orders to A, K, M, G and HAY in paras 1 to 4 of his judgment.
A, K, M and G were each made the subject of a direction by the Treasury under article 4 of the Terrorism Order 2006.
They were entitled to challenge the Treasurys direction under article 5(4)(a) of that Order.
In late October 2009 (subsequent to the hearing of these appeals), their designations under the Terrorism Order 2006 were revoked and replaced, as Lord Hope recounts in para 27, by designations under the Terrorism (United Nations Measures) Order 2009 (SI 2009/1747), which was itself framed to replace the Terrorism Order 2006.
For the reasons which Lord Hope gives in para 28 and without pre judging any contrary argument which may be raised, this redesignation does not appear to make the central issues argued before us under the Terrorism Order 2006 either academic or of past interest only.
G and HAY were persons designated by the Sanctions Committee and were accordingly covered without more by article 3(1)(b) of the Al Qaida Order.
They were not entitled to bring any challenge under article 5(4)(a) of the Al Qaida Order, since that applies only to persons covered by virtue of a Treasury direction.
Gs application to the court under article 5(4)(a) of the Al Qaida Order was thus treated by Collins J as an application for judicial review.
HAYs application was brought from the outset as an application for judicial review.
Section 1(1) of the 1946 Act
The primary argument of the appellants A, K, M and G, supported by the interveners JUSTICE, is that, notwithstanding the wide wording of section 1(1), the Terrorism Order 2006 was by its nature a measure falling outside the scope of section 1(1).
Section 1(1) was, they submit, conceived with measures in mind arising from disputes between states, while the Terrorism Order 2006 was an executive order directed in the first place to individuals and interfering with their fundamental rights in a manner which could not, as a matter of constitutional propriety, have been contemplated without legislation in Parliament.
A similar argument is mounted in respect of the Al Qaida Order,
reinforced by the consideration that, in that case, the Order purports to
Section 1(1) of the 1946 Act was introduced to provide a quick and simple means by which the United Kingdom could honour its international obligations and impose upon its citizens the duty to comply with decisions of the Security Council under article 41 of the United Nations Charter.
In these circumstances, I agree with views expressed in the Court of Appeal in Oakley Inc v Animal Ltd (Secretary of State for Trade and Industry intervening) [2005] EWCA Civ 1191; [2006] Ch 337.
The Court there said that the power under the European Communities Act 1972 to give effect to this countrys international (Community) obligations was a power sui generis and should not be construed narrowly.
The same applies to the power conferred by section 1(1) to give effect to Security Council Resolutions under article 41.
In considering whether the general language of section 1(1) extends to the implementation of any such Resolution, however radical its effect on individual rights, it is nonetheless of some relevance that section 1(1) involves purely executive action, to implement inter governmental decisions taken in the Security Council, free in each case of any procedure for direct Parliamentary scrutiny.
Not surprisingly, article 41 itself illustrates its application in its second sentence by reference to the interruption of economic relations or communications and the severance of diplomatic relations familiar measures directed against states.
In the debates in Parliament, these examples were cited by the Lord Chancellor (Hansard 12 February 1946, col 375) and by the Minister of State in the Commons (Hansard 5 April 1946, col 1516).
But section 1(1) of the 1946 Act expressly contemplates that sanctions against another state may, in order to be effective, require to be supported at the domestic level by criminal prohibitions addressed directly to and enforceable against persons (individual or corporate).
The present appeal concerns measures taken at the international level, but addressed to and enforceable against non state actors and individuals, and the issue is how far section 1(1) enables effect to be given to such measures.
That the line between measures against state and non state actors is not as great as might appear is demonstrated by the history of Security Council Resolutions leading to the Terrorism and Al Qaida Orders.
Initially, the focus was on the control by the Taliban (described in Resolution 1267 as the Afghan faction known as the Taliban, which also calls itself the Islamic Emirate of Afghanistan) of part of Afghanistan, accompanied by pretensions to control the whole country, and its making available the areas that it controlled to Al Qaida for the purposes of international terrorism against other states.
No doubt the threat to international peace by rogue states or states under rogue leadership was in the forefront of everyones mind in 1945 46.
But a threat to peace by an organisation which has succeeded in taking over a significant part of a state cannot sensibly be distinguished.
Nor indeed can a threat posed by an international organisation which establishes itself outside the jurisdiction, or without taking over any particular part, of any state and presents a threat to international peace.
Under article 39 of the United Nations Charter, it is the Security Councils role to identify the existence of a threat to international peace from any such organisation, not just from states.
What matters is such a threat, not whether it originates in a traditional subject of international law.
Earlier instances exist of Security Council Resolutions under Chapter VII directing states to take measures against non state actors: for example, measures under Resolution 841(1993) to freeze within their territories funds of the de facto authorities in Haiti, as well as funds of the legitimate, though ousted government of President Aristide; measures under Resolution
864(1993) against the UNITA movement in Angola; measures under
Where the present Resolutions can be said to go further is that they are directed in the case of Resolutions 1267, 1333 and 1390 not only at particular non state actors, the Al Qaida organization and the Taliban and at Usama bin Laden, but at all members of the Al Qaida organization and the Taliban and other individuals, groups, undertakings and entities associated with them, and in the case of Resolution 1373 at individuals engaging in terrorism.
In the case of the latter, the means of identifying such individuals were to be established in domestic law, but in the case of the former the Resolutions provided for identification of the associated individuals, groups, undertakings and entities at the international level by the committee consisting of all Security Council members.
The appellants did not challenge indeed they said expressly that they accepted the legitimacy of Resolution 1373 under article 41 of the United Nations Charter.
In any event, the legitimacy of such measures is not as such justiciable at a domestic level.
It is all the same worth noting the opinion expressed by Sir Michael Wood in his first Hersch Lauterpacht lecture (delivered 7 November 2006) on The Legal Framework of the Security Council that: Depending on the nature of the threat, such measures may be specific, addressed, for example, to the threat emanating from North Korea, or they may be general, addressed, for example, to the global threat from terrorist groups.
I do not see any great principle involved here, though the circumstances in which general measures are considered necessary and appropriate may prove to be rare.
At a domestic level, the question does, however, arise as to how far all such measures are capable of being reflected by Orders in Council made under section 1(1) of the United Nations Act 1946.
Essentially, the question is whether the power in section 1(1) is subject to implicit limitations, arising from the background against which it was passed and the need for express language to override what would otherwise be regarded as basic rights.
A similar issue was raised by Hazel Fox (Lady Fox) in 1997 in relation to an order implementing the Resolution 827(1993), whereby the Security Council established the International Tribunal for the former Yugoslavia.
The United Nations (International Tribunal) (Former Yugoslavia) Order 1996 (SI 1996/716), made in reliance on section 1(1), providing for, inter alia, the arrest and transfer out of the jurisdiction of individuals for trial to and sentence by the Tribunal.
Hazel Fox described the Security Councils Resolution as a wholly novel exercise of power and questioned the legitimacy of the use of section 1(1) for the purpose of its implementation: The objections to transfer of criminal jurisdiction to the UN Tribunal (1997) 46 ICLQ 434.
Professor Christopher Greenwood, as he then was, later responded, arguing that the wording of section 1(1) is unconfined: see V Gowlland Debbas (ed.), National Implementation of United Nations Sanctions: a Comparative Study (2004, Martinus Nijhoff), 581, esp at pp 601 603.
The Terrorism Order 2006 general
The aim of section 1(1) was to enable the United Kingdom government to respond, with despatch, to any call by the Security Council to apply any measures to give effect to any decision of that Council.
Section 1(1) is in my view apt to cover Security Council decisions under article 41 requiring every state to take domestic measures against persons who that state identified as involved in terrorist activities.
Section 1(1) expressly envisages that Security Council decisions under article 41 will, in order to be effective, require to be accompanied by prohibitions and sanctions addressed to domestic individuals or entities, and impacting, therefore, on rights or freedoms that they would otherwise have particularly to make contracts and deal with or dispose of property.
This might be the case either because the Security Council Resolution expressly so required, or because its effective domestic application appeared to the executive to make it necessary or expedient.
On the face of it, therefore, it was open to the executive government to react by Order in Council to Security Council Resolutions 1267 and 1373 and their successive resolutions in the same series, by introducing provisions freezing the assets of persons who were identified at the domestic level as terrorists, and thereby enabling measures required by article 4(2) of Resolution 1267 and article 1 of Resolution 1373 to be effectively applied in the United Kingdom.
The Terrorism Order 2006 necessary or expedient
The essential question is whether the Terrorism Order 2006 was in terms which can be regarded as making such provision as appears to [Her Majesty in Council] necessary or expedient for enabling those measures to be effectively applied.
Before the Supreme Court, though it appears to a lesser extent below, considerable emphasis was placed upon the extent to which Parliament had been asked to enact and had enacted anti terrorist measures by primary legislation (in particular the Terrorism Act 2000, passed on 20 July 2000, and ACTA 2001, passed on 14 December 2001) and the suggested constitutional impropriety of the Government by passing Parliament and deciding what powers to accord itself through the Terrorism Orders 2001 and later 2006 and 2009.
One can certainly feel concern about the development and continuation over the years of a patchwork of over lapping anti terrorism measures, some receiving Parliamentary scrutiny, others simply the result of executive action.
However, the primary legislation does not implement all measures required by the United Nations Resolutions and the primary and secondary legislation are not actually inconsistent.
More particularly, Part III of the Terrorism Act 2000 introduced a series of offences relating to terrorist property, defined to include money or other property likely to be used for the purposes of terrorism, as well as the proceeds of, or of acts carried out for the purposes of, terrorism.
But these offences are all defined in terms which require mens rea such as an intention, knowledge or reasonable suspicion that money or other property will be used for terrorist purposes.
In contrast, the Terrorism Orders 2001 and 2006 both included absolute prohibitions on certain dealings with designated persons.
The 2001 Order included a precursor (article 3) to article 8 of the 2006 Order (article 3 was confined to making available any funds or financial (or related services)), as well as a precursor (article 4) to articles 4 and 7(1) of the 2006 Order (article 4 only gave power to the Treasury to direct that funds be not made available to any person by a person by, for or on behalf of whom such funds were held where the Treasury had reasonable grounds for suspecting that the latter person is or may be within one of the three categories matching article 4(2)(a), (b) and (d) of the 2006 Order).
As to the ACTA 2001, this was passed over two months after the Terrorism Order 2001.
In theory at least, Parliament had the opportunity, when enacting the ACTA 2001 to consider whether the Terrorism Order 2001 should be allowed to continue in force.
The same may be said in relation to the enactment of the Terrorism Act 2006.
However there is little, if anything, to suggest that Parliamentary attention was ever focused on or drawn to this
opportunity.
The Explanatory Notes to the 2001 and 2006 Acts make no
The extensive power to make freezing orders under Part 2 of ACTA 2001 is limited by pre conditions, the first that the Treasury should reasonably believe that action to the detriment of the United Kingdom economy or constituting a threat to the life or property of one or more United Kingdom nationals has been or is likely, but the second, critically, that the person taking or likely to take such action is a foreign government or overseas resident.
The Terrorism Orders 2001 and 2006 extend, and have regularly been used, in relation to purely domestic threats.
It may well be thought desirable that such measures should be debated in Parliament alongside the primary legislation which Parliament did enact, and correspondingly undesirable that there should be developed and continued, as a result of executive Orders, a patchwork of measures that have and have not been debated in Parliament.
But I cannot view the making of the Orders under section 1(1), or their continuation in force, as constitutionally improper merely because of these considerations.
This however leaves open whether the measures introduced by executive Order were of a nature falling within the scope of section 1(1) of the United Nations Act 1946.
The argument in the courts below focused on the prescribed pre conditions to the making of any direction under article 4, and, in particular, on the words that the Treasury have reasonable grounds for suspecting that the person is or may be .
While Collins J and the Court of Appeal considered that the words or may be lowered the threshold too far, the majority in the Court of Appeal accepted that the executive could properly conclude that it was expedient to provide that reasonable grounds for suspicion was an appropriate test (paras 42 and 155 157).
The Master of the Rolls observed that Resolution 1373 was silent on the standard of proof to be satisfied on the question whether a particular person commits, or attempts to commit, terrorist acts before a state can freeze his assets within paragraph 1(c) or prohibit certain activities within paragraph 1(d) (para 42).
In this context, because of the nexus with domestic law arising from the language of section 1(1) itself, it is necessary to form a view about the scope of Security Council Resolution 1373.
I see its scope differently to the Master of the Rolls.
The relevant wording of Security Council Resolution 1373 article 1(c) and (d) is directed at the prevention and suppression and the criminalisation and prosecution of actual terrorist acts; at the freezing of funds or other financial assets or economic resources of persons who commit, or attempt to commit, terrorist acts or participate in or facilitate the commission of terrorist acts and of entities owned or controlled, or acting on behalf of or at the direction of such persons and entities; and at prohibiting nationals or persons and entities within their territories from making any funds, financial assets or economic resources or financial or related services available for the benefit of any such persons.
This wording does not suggest that the Security Council had in mind reasonable suspicion as a sufficient basis for an indefinite freeze.
When, following the terrorist bombing on 14 February 2005 which killed former Lebanese Prime Minister Rafiq Hariri, the Security Council adopted Resolution 1636 (2005) under Chapter VII, it decided, as a step to assist in the investigation of this crime and without prejudice to the ultimate judicial determination of the guilt or innocence of any individual, that all individuals designated by the [international investigation] Commission [S/2005/662] or by the Government of Lebanon as suspected of involvement in this terrorist act, upon notification of such designation to and agreement of the Committee [established by the Security Council for the purpose] should be prohibited entry to or transit through states other than their own, and that all states should freeze all such individuals funds, financial assets and economic resources.
The absence of any similar reference to persons suspected in Resolution 1373 is notable.
Further, the freezing measures prescribed by Resolutions 1267, 1333 and 1390 (which in turn led to the Al Qaida Order 2006) have been explained as preventative in nature and not reliant upon criminal standards set out under national law: see recitals to Resolutions 1735 (2006), 1822 (2008) and 1904 (2009).
Resolutions 1735 and 1822 themselves called on states not merely to freeze the assets of individuals on the Sanctions Committee list, but also to prevent the supply, sale or transfer to such individuals of arms and related material.
The latter would have to be proscribed at the domestic level, at which level issues would arise as to the standard of proof contemplated.
The wording of the recitals to Resolutions 1735 and 1822, post dating that of Resolution 1636 (2005), does not suggest that reasonable suspicion was contemplated as the appropriate test, but rather an ordinary civil standard of proof of relevant allegations.
In so far as the Court of Appeal justified its decision on the basis that the Security Council Resolutions contemplate indefinite freezing orders based not on proof but on reasonable suspicion, I therefore disagree.
That is not the end of the matter, because of the power to make such provision as appears to Her Majesty in Council necessary or expedient for enabling the relevant Security Council Resolutions to be effectively applied.
That undoubtedly justifies provisions going beyond those of the Resolutions, and expediency goes wider than necessity.
To that extent, I cannot accept the description of section 1(1) given by Mr Fordham QC as a mere transposition power.
An example of such a provision under section 1(1) itself is found in R v Her Majestys Treasury, Ex p Centro Com [1994] CLC 628 (CA).
The Order in Council there went beyond Security Council Resolution 757 (1992) relating to the conflict in the former Yugoslavia, in so far as it enabled the Treasury to prohibit the making of payments from funds held in the United Kingdom even of medical supplies and foodstuffs, and the Treasury determined that it would refuse permission for payment of all supplies (even supplies already made), other than medical supplies and foodstuffs supplied from the United Kingdom.
The reason was the risk that payments were being made from funds held in the United Kingdom, for supplies from other countries which were ostensibly but were not in fact medical supplies or foodstuffs, and the impracticality of eliminating this risk in relation to goods supplied from abroad.
The Court of Appeal (unanimous on this point) upheld the validity of the Treasurys determination in principle, with Glidewell LJ dissenting only in relation to its retrospective application to past supplies.
The court mentioned that its decision did not prevent the supply of medical supplies or foodstuffs from any country.
It merely imposed a limitation on the origin of the funds which the purchasers could use to pay for such supplies.
In the present case, the Order as worded imposes an indefinite freeze on the use of funds or economic resources by any person designated by the Treasury for the purposes of the Order on the basis that the Treasury have reasonable grounds for suspecting that he is or may be (a) a terrorist or (b) a person identified in Council Decision 2006/379(EC) or (c)/(d) a person owned or controlled or acting on behalf or at the direction of any person so designated.
Only on the basis that the Treasury did not have reasonable grounds for suspecting this, could a person seek under article 5(4) to set aside a Treasury direction made under article 4.
The courts below held that the phrase or may be was outside the scope of the power in section 1(1), as lowering the threshold too far.
Mr Swift for the Treasury does not concede that this conclusion was correct (though there has been no cross appeal against it), but said frankly that the reason there was no cross appeal in respect of the deletion of the words or may be was because the Treasury did not really need to, if it had the words have reasonable grounds for suspecting.
In my opinion, there is an objective limit to the extent to which section 1(1) permits the executive by Order in Council to enact any measure that appears to it expedient to enable the effective application of the core prohibition mandated by Resolution 1373 and summarised in para 225 above.
A measure cannot be regarded as effectively applying that core prohibition, if it substitutes another, essentially different prohibition freezing the assets of a different and much wider group of persons on an indefinite basis.
I accept that it could have been regarded as necessary or expedient to freeze the funds and economic resources of suspects on a temporary basis, in order to ensure the effectiveness of any permanent freezing order, once their terrorist activity had been shown or they had had, at the least, the opportunity of disproving it to a civil standard.
I also accept that the indefinite freezing of funds and economic resources of suspects may make it probable that the group of persons whose funds, etc. are frozen will include more actual terrorists, etc.
But it does so by changing the essential nature and target of the freezing order.
That being the case, it is no longer possible to say that the Order is either necessary or expedient for enabling those measures [those decided by Resolution 1373] to be effectively applied.
It is enabling or applying different measures.
Further and in any event, since the Treasurys case involves interpreting the words necessary or expedient in section 1(1) of the United Nations Act 1946 as authorising a major inroad, on the basis of reasonable suspicion alone, into the rights of individuals to dispose of their assets and live their lives free of executive interference, the principle of legality, which I discuss in more detail below in relation to the Al Qaida Order, argues for the more limited interpretation.
For these reasons, I consider that the Terrorism Order 2006 was outside the power conferred upon the Treasury under section 1(1).
It was not submitted that, in these circumstances, not only the words or may be but also the words that the Treasury have reasonable grounds for suspecting in article 4(2) could be blue pencilled, so as to leave the Order valid on that changed basis.
But, in any event, such a suggestion would, even if accepted, have made no difference to the appeals of A, K, M and G in respect of the Terrorism Order 2006, since their designation was based on too relaxed a test.
In these circumstances, I consider that we should allow the appeal in respect of this Order, declare that the Order was ultra vires and quash it.
Since A, K, M and G are all now subject to designation under the Terrorism Order 2009, which could only be quashed in separate proceedings, there is no point in staying the operation of our order quashing the Terrorism Order 2006 for any period.
The alternative grounds of challenge to the Terrorism Order
I add some words on the alternative grounds on which the appellants sought to challenge the Terrorism Order 2006.
They were presented under the heads of certainty and proportionality, in each case in reliance on the Human Rights Convention.
The prohibitions in articles 7(1) and 8(1) of the Order were said to amount to an unlawful interference with Convention rights, particularly the right to peaceful protection of possessions protected by article 1 of Protocol 1 and the right to respect for private and family life protected by article 8.
The same prohibitions, in combination with the criminal sanctions provided by articles 7(3) and 8(2), are said to have been insufficiently certain to comply with article 7 of the Convention.
Three particular aspects of alleged uncertainty are identified: the first, the scope of the prohibition in article 7(2)(d) in respect of any person acting on behalf or at the direction of a person referred to sub paragraph (a) or (b); the second, the scope of the words make economic resources available, directly or indirectly in article 8(1); and the third, the scope of the further words in that article to or for the benefit of a person referred to in article 7(2).
The requisite standard governing certainty under article 7 was summarised by the European Court of Human Rights in Kafkaris v Cyprus (2008) 49 EHRR 877 as follows: the 141.
Furthermore, implies qualitative requirements, including those of accessibility and foreseeability (see, among other authorities, Cantoni v France, judgment of 15 November 1996, Reports of Judgments and Decisions 1996 V, p 1627, para 29; Come v Belgium, cited above, para 145; and EK v Turkey (2002) 35 EHRR 1344, para 51).
These qualitative requirements must be satisfied as regards both the definition of an offence and the penalty the offence in question carries (see Achour v France (2006) 45 EHRR 9, para 41).
An individual must know from the wording of the relevant provision and, if need be, with the assistance of the courts' interpretation of it, what acts and omissions will make him criminally liable and what penalty will be imposed for the act committed and/or omission (see, among other authorities, Cantoni, cited above, para 29).
Furthermore, a law may still satisfy the requirement of foreseeability where the person concerned has to take appropriate legal advice to assess, to a degree that is reasonable in the circumstances, the consequences which a given action may entail (see, among other authorities, Cantoni, cited above, p 1629, para 35; and Achour, cited above, para 54). term law 142.
The Court has acknowledged in its case law that however clearly drafted a legal provision may be, in any system of law, including criminal law, there is an inevitable element of judicial interpretation.
There will always be a need for elucidation of doubtful points and for adaptation to changing circumstances.
Again, whilst certainty is highly desirable, it may bring in its train excessive rigidity and the law must be able to keep pace with changing circumstances.
Accordingly, many laws are inevitably couched in terms which, to a greater or lesser extent, are vague and whose interpretation and application are questions of practice (see, mutatis mutandis, Sunday Times No 1, cited above, p 31, para 49, and Kokkinakis, cited above, p 19, para 40).
The role of adjudication vested in the courts is precisely to dissipate such interpretational doubts as remain (see, mutatis mutandis, Cantoni, cited above).
Article 7 of the Convention cannot be read as outlawing the gradual clarification of the rules of criminal liability through judicial interpretation from case to case, provided that the resultant development is consistent with the essence of the offence and could reasonably be foreseen (see SW v United Kingdom, cited above, para 36, and Streletz, Kessler and Krenz vs Germany GC, nos 34044/96, 35532/97 and 44801/98, para 50, ECHR 2001 II).
Judged by these standards, I agree with the Court of Appeals reasoning and conclusion that the relevant provisions of articles 7 and 8 were and are sufficiently certain to be valid.
That difficult cases may arise is not the point.
Further, both under domestic law and under the jurisprudence of the European Court of Human Rights, criminal law provisions will, in case of real doubt, be construed restrictively, in the accused's favour: see Kafkaris, para 138.
Among other points, it is relevant to note that article 7(1) read with 7(2)(d) is addressing a situation where a person (A) deals with funds or economic resources belonging to, owned or held by a person (B) acting on behalf or at the direction of a terrorist or designated person (usually C, though it could be A) rather than with funds owned or held by A.
In relation to make economic resources available in article 8(1), it is relevant to note that economic resources are defined to mean assets which are not funds, but can be used to obtain funds, goods or services.
This would be unlikely to be the case in respect of a number of the examples canvassed in argument (supply of a cooked meal or a bed for the night, for example).
The appellants were able to point to the stringent interpretation of the words for the benefit of, for which the Treasury has argued under Council Regulation (EC) 881/2002 in R(M) v HM Treasury (Note) [2008] UKHL 26; [2008] 2 All ER 1097.
The interpretation advanced there by the Treasury would, if correct, preclude the payment (without Treasury licence) to the wife of a designated person of social
security benefits, enabling her to expend money on domestic expenses such as
I am at present also unpersuaded that the content of the Orders could be challenged on grounds of lack of proportionality, although I need express no final view about this.
Combating terrorism, and the freezing of funds or resources which can be used for terrorist purposes, are undoubtedly matters of first importance.
Those introducing legislative measures in this area have to make a judgment as to the nature and stringency of the measures required.
The severity of impact of the freezing order provisions in the Terrorism Orders 2001 and 2006 on designated individuals in respect of whom there is only a reasonable suspicion of terrorism and on others such as members of their families is relevant when considering whether such measures could be introduced as delegated legislation under section 1(1) of the 1946 Act.
But, assuming this otherwise to be permissible, designation was not automatic and the Treasury was under the Terrorism Order 2006 empowered to grant licences to make available or deal with funds or economic resources in a manner which would otherwise be prohibited.
The appellants complained about the stringency with which and way in which the Treasury has in fact operated its licensing system, but this does not appear as a complaint which can affect the validity of the Orders themselves, as opposed to the propriety of the Treasurys interpretation or use of its powers under the Orders.
The latter aspect is not in issue before us.
The appellants in their printed case also sought in relation to the Terrorism Order 2006 to rely upon the absence of any statutory provisions for the use of closed material by way of the special advocate procedure, and for the disapplication of the statutory prohibition under section 17 of the Regulation of Investigatory Powers Act (RIPA) 2000.
The Counter Terrorism Act 2008 now makes express provision covering both points (ss.67 69).
The original designations under the Terrorism Order 2006 were quashed, as a result of the conclusion in the courts below that the words or may be were inadmissibly included in the Order.
Fresh designations were made after the Court of Appeals decision, and have in turn been replaced by those now in existence under the Terrorism Order 2009.
The procedures in the Counter Terrorism Act 2008 would apply to any challenges to these fresh designations.
The points raised below regarding the absence of an express special advocate procedure and the disapplication of section 17 of RIPA are therefore academic under the Terrorism Order 2006, and I need say no more about them in that connection.
The Al Qaida Order
I turn to the Al Qaida Order, relevant to both G and HAY.
G and HAY are persons designated by the Sanctions Committee within article 3(1)(b), and subject accordingly to the prohibitions in articles 7 and 8, of the Order.
It is at the heart of both the Treasurys and Gs and HAYs cases that the application to them of such prohibitions was required by the Security Council Resolutions to which the Order was intended to give effect, and that, once their designation by the Sanctions Committee was accepted, the merits of their designation were and are a matter external to and incapable of challenge in any domestic court.
The Treasury derives from this the conclusion that the making of the Order incorporating article 3(1)(b) was authorised and valid under section 1(1).
G and HAY submit that, precisely because domestic law can in these circumstances offer them no effective recourse, the making of the Order was invalid.
In the case of G, where the United Kingdom had sought and obtained Gs listing, it was held (at least by Wilson LJ: para 157) that effective recourse consisted in no more than a merits based judicial review of the executives response to [Gs] application that it should request or support his own request, for delisting by the Sanctions Committee.
In the case of HAY, Owen J held, after reviewing the Court of Appeals reasoning, that no effective recourse existed in respect of HAY, because of the lack of any certainty that he would be delisted, despite the United Kingdoms support, in circumstances where another unidentified state had sought his listing.
The appellants put their case on two distinct bases, one common law, the other based on the Human Rights Act.
At common law, the submission is that section 1(1) cannot be taken to have contemplated or permitted Orders which would interfere with, or at all events violate, fundamental rights.
Under the Human Rights Act, they recognise an obstacle in the reasoning in R(Quark Fishing Ltd.) v Secretary of State for Foreign and Commonwealth Affairs [2005] UKHL 57; [2006] 1 AC 529, particularly at paras 25 and 88, per Lord Bingham and Lord Hope, and in the decision in R(Al Jedda) v Secretary of State for Defence (JUSTICE intervening) [2007] UKHL 58; [2008] AC 332.
In Al Jedda the House of Lords held, in the light of article 103 of the Charter, that a power to detain authorised by Security Council Resolution 1546 and successive further Resolutions under Chapter VII prevailed over the limitations on the power to detain otherwise contained in article 5 of the Convention (although a detainees rights under article 5 were not to be infringed to any greater extent than was inherent in such detention: para 39, per Lord Bingham).
G and HAY invite the Supreme Court to reconsider both these cases and to depart from them so far as necessary.
As noted above (para 218), section 1(1) of the United Nations Act 1946 contemplates that Orders in Council implementing Security Council Resolutions under Chapter VII may interfere with individual persons rights to enter into contracts or to deal with or dispose of their business.
The limitations imposed by the Al Qaida Order on Gs and HAYs rights to use their property and on their privacy or family life were not, as such, of a character falling outside the scope of the section 1(1) power to give effect to Security Council Resolutions.
The real issue is whether section 1(1) permits the making of an Order which interferes with such rights on a basis which is immune from any right of challenge on the merits before a court or other judicial tribunal.
G and HAY submit that section 1(1) does not embrace the making of an Order in Council which deprived them of any effective right of access to a court or judicial tribunal to challenge the basis upon which they had been categorised as associates of Al Qaida or the Taliban, with the limitations on their rights to use their property and on their privacy and family life that followed from that categorisation.
It is not suggested that the Sanctions Committee equates with a court or judicial tribunal, though steps have been taken to respond to the General Assemblys call in September 2005 on the Security Council to ensure that fair and clear procedures exist for placing individuals and entities on sanctions lists and removing them, as well as for granting humanitarian exemptions (UNGA Resolution 60/1 of 16 September 2005).
The Committees procedures are set out in Guidelines first adopted on 7 November 2002 and now current in a version adopted on 9 December 2008.
The Committee usually meets in closed session, and it determines what information about its proceedings or considered by it should be made public or otherwise disclosed.
Its decisions are usually taken by consensus, but if none is achieved the matter may be submitted to the Security Council itself, which decides by majority.
The Committee receives applications for removal of a name from the list either by states, or, through the Focal Point procedure established by Resolution 1730 (2006), from any person or entity on the list.
But there is no judicial procedure enabling a person or entity affected to know and respond to the full case regarding it.
The identity of the member state seeking a listing or seeking to uphold a listing may not even be known or disclosed to that person or entity.
Under Resolution 1822 (2008) para 12, the member state proposing inclusion on the list identifies those parts of the detailed statement of case that may be publicly released, and about which the person affected should under para 17 be notified.
The most recent Resolution 1904 (2009) adopted on 17 December 2009 reflects in a number of respects concerns expressed about the effects of the United Nations Resolutions and the Committees procedures; it reverses the onus by deciding that the statement of case shall be releasable upon request, except for the parts a Member State identifies as being confidential to the Committee, and may be used to develop the narrative summary of reasons for listing to be published on the Committees website (para 11); and it provides for an Ombudsperson (an eminent individual of high moral character, impartiality and integrity with high qualifications and
experience in relevant fields, such as legal, human rights, counter terrorism and
G and HAY invoke under English law the statement of principle in Lord Browne Wilkinsons speech in R v Secretary of State for the Home Department, Ex p Pierson [1998] AC 539, 575C D to the effect that: A power conferred by Parliament in general terms is not to be taken to authorise the doing of acts by the donee of the power which adversely affect the legal rights of the citizen or the basic principles on which the law of the United Kingdom is based unless the statute conferring the power makes it clear that such was the intention of Parliament.
Lord Browne Wilkinson dissented in that case only as to whether the principle applied on its particular facts.
In R v Secretary of State for the Home Department, Ex p Simms [2000] 2 AC 115, 131E G, Lord Hoffmann developed the principle of legality in these terms: Parliamentary sovereignty means that Parliament can, if it chooses, legislate contrary to fundamental principles of human rights.
The Human Rights Act 1998 will not detract from this power.
The constraints upon its exercise by Parliament are ultimately political, not legal.
But the principle of legality means that Parliament must squarely confront what it is doing and accept the political cost.
Fundamental rights cannot be overridden by general or ambiguous words.
This is because there is too great a risk that the full implications of their unqualified meaning may have passed unnoticed in the democratic process.
In the absence of express language or necessary implication to the contrary, the courts therefore presume that even the most general words were intended to be subject to the basic rights of the individual.
In this way the courts of the United Kingdom, though acknowledging the sovereignty of Parliament, apply principles of constitutionality little different from those which exist in countries where the power of the legislature is expressly limited by a constitutional document.
In Pyx Granite Co Ltd v Ministry of Housing and Local Government [1960] AC 260, 286, Viscount Simonds referred to the principle that the subjects right of recourse to Her Majestys courts for the determination of his rights as a fundamental rule and as not by any means to be whittled down.
In Ex p Pierson Lord Browne Wilkinson referred with approval to R v Lord Chancellor, Ex p Witham [1998] QB 575, where the right of access to the courts was treated as a basic constitutional right, the abrogation of which was not to be taken as authorised by the general words of a statutory provision, so that the setting of court fees at a level precluding access to the court by some litigants was not authorised by a general power to prescribe fees.
Applying the principles recognised in these cases, I put aside, as circular in this context, the submission made by Mr Swift for the Treasury that Gs and HAYs right of access to a court is unaffected since the only right they have under the Al Qaida Order is to challenge the fact of their listing or their identity with any listed person.
That is a relevant submission once the courts adjudicative power is shown to be excluded or limited by some valid and applicable legislative provision or common law principle: Holland v Lampen Wolfe [2000] 1 WLR 1573 provides an example.
But here the question is whether the Al Qaida Order (or more particularly article 3(1)(b) of that Order) is valid.
That depends upon whether section 1(1) of the 1946 Act enables the executive not merely to legislate in a manner which interferes with individual property rights that is as such clearly contemplated by section 1(1) but to restrict them so directly and radically as severely to curtail personal and family life on an indefinite basis, without affording any means of judicial recourse (domestic or international) to test the underlying premise of the restriction, namely association with an organisation identified by the Security Council as a threat to international peace.
In arguing for a negative answer to this question, G and HAY suggest as an analogy the reasoning and decision of the European Court of Justice in Kadi v Council of the European Union (Joined Cases C 402/05P and C 415/05P) [2009] AC 1225.
That case concerned Regulation 881/2002(EC), the aim of which, since the Community is not as such a member of the United Nations, was to ensure a uniform application of the United Nations Resolutions 1267 and 1390 within the member states of the Community.
The Regulation set out in Annex I the names of persons designated by the United Nations Sanctions Committee as associated with Al Qaida and the Taliban and contained provisions mirroring those of the Security Council Resolutions freezing their assets.
The Court held that the European Community was an autonomous legal
system, based on the rule of law and in which fundamental rights formed an
Mr Swift points out that the decision in Kadi turned on the Courts view of the Community as an autonomous legal order (and not itself a member of the United Nations, although this factor does not appear explicitly in the Courts reasoning).
The United Kingdom is, in contrast, a member of the United Nations, bound by its Charter, and committed in international law to giving effect to Security Council Resolutions under Chapter VII.
Counsel for G and HAY, supported by Mr Fordham for Justice, point out in response that the United Kingdom takes a dualist view of international law, and that international law has no domestic effect unless and until implemented at a domestic level: J H Rayner (Mincing Lane) Ltd v Department of Trade and Industry [1990] 2 AC 418.
The force of this submission is weakened by the consideration that the whole purpose of section 1(1) is to address the consequences of the dualist view by facilitating the implementation at domestic level of the United Kingdoms international legal obligations under Chapter VII.
Nevertheless, the issue remains, whether section 1(1) covers any and every Security Council Resolution that might be passed, including even a Resolution directed at what would otherwise be regarded as basic constitutional rights under domestic law.
In considering this issue, it is relevant background that the United Nations is itself an institution committed to the promotion of human rights.
The preamble to the Charter reaffirms faith in fundamental human rights and article 1 includes among its purposes, in addition to maintaining international peace and security and developing friendly relations among nations: 3.
To achieve international co operation in solving international problems of an economic, social, cultural, or humanitarian character, and in promoting and encouraging respect for human rights and for fundamental freedoms for all without distinction 4 To be a centre for harmonising the actions of nations in the attainment of these common ends.
It is also of note that the Security Council by Resolution 1456 on 20 January 2003 adopted the following declaration on the issue of combating terrorism: 1.
All States must take urgent action to prevent and suppress all active and passive support to terrorism, and in particular comply fully with all relevant resolutions of the Security Council, in particular resolutions 1373 (2001), 1390 (2002) and 1455 (2003): 6.
States must ensure that any measure taken to combat terrorism comply with all their obligations under international law, and should adopt such measures in accordance with international law, in particular international human rights, refugee, and humanitarian law; .
In its second report (S/2005/83) to the United Nations Sanctions Committee, the Analytical Support and Sanctions Monitoring Team established pursuant to Resolution 1526(2004) identified the challenges made to European Community and national measures implementing Security Council Resolution 1267 and acknowledged, as the High Level Panel before it had, that at that date: The way entities or individuals are added to the terrorist list maintained by the Council and the absence of review or appeal for those listed raise serious accountability issues and possibly conflict with fundamental rights, norms and conventions (para 53).
More recently, Resolution 1822 (2008) reaffirms the need to combat by all means, in accordance with the Charter and international law, including applicable international human rights, refugee and humanitarian law.
Against this background, it is open to question at an international level how far the United Nations Security Council Resolutions can have been intended either to require member states to enact domestic legislation that would violate fundamental principles of human rights under their domestic constitutions or laws or to exclude domestic review of the compatibility of such legislation with such rights.
Be that as it may, the relevant question at the domestic level is how far the United Kingdom Parliament in enacting section 1(1) of the 1946 Act can have envisaged that a Security Council Resolution could or would be used as the basis for introducing a domestic measure that would conflict with such rights.
The basic common law right at issue on these appeals is Gs and HAYs right to access to a domestic court or tribunal to challenge the basis for including their names in the list of persons associated with Al Qaida or the Taliban and so freezing their property with the severe personal consequences already indicated.
This was also the limit of the equivalent right identified under European Community law by the Court of Justice in Kadi.
There was no suggestion in Kadi that Mr Kadi was entitled to an opportunity to challenge the basic premise of Security Council Resolution 1267 and of Regulation 881/2002 (EC), viz that the Taliban (or Al Qaida) was and is a terrorist organisation.
In the traditional sphere of decision making under article 41 (that is action, in the form of, say, sanctions, against a member state of the United Nations or against a non state actor, such as the Taliban or Al Qaida), a person affected by a domestic prohibition aimed at giving effect to such sanctions could not sensibly suggest that he had a fundamental right to access to a domestic court to challenge the premise of that prohibition.
He could not demand access to a domestic court to challenge the proposition that the member state or non state actor was in some way a threat to international peace meriting the imposition of sanctions.
Equally, a head of a state or senior minister or other person closely identifiable with (an alter ego of) a state or non state actor could, I think, find it hard to suggest that he had any basic right to challenge the legitimacy of a Security Council Resolution requiring the sanctions to extend to his movements or his dealings with property.
He could of course be expected to have a right of access to a domestic court to challenge any suggestion that the prohibition applied to him (eg that he was the head of state) or his activities or that he had infringed it.
But, if one takes Usama bin Laden himself, who is identified in Resolutions 1267 read with 1333 as an individual whose assets are required to be frozen and appears on this basis in the United Nations list and in article 3(1)(a) of the Terrorism Order 2006, as well as in Annex I to Regulation 881/2002 (EC), it must be very doubtful whether the European Court of Justice would have held in Kadi that he should have a right to challenge his listing.
Several points can be made about this.
First, the listing of Usama bin Laden was directly determined by the Security Councils legally binding decision, rather than by any listing decision of the Sanctions Committee.
Second, the position of Usama bin Laden, in relation to a non state actor like Al Qaida, parallels that of a head of state in relation to sanctions against a state; while,
The Security Council and Sanctions Committee are closely related.
To describe the former as legislating and the latter as executing or adjudicating upon the implementation of measures determined by the former is hardly realistic.
The former was delegating listing to the latter, composed of representatives of all states sitting on the former.
In these circumstances, I do not think that the Al Qaida Order was outside the scope of section 1(1) merely because it gave effect to a determination made by the Sanctions Committee, rather than the Security Council.
But I do consider that there is a relevant distinction between, on the one hand, measures directed at states or non state actors such as Al Qaida identified by the Security Council as threats to international peace, or at their acknowledged heads or alter egos, and, on the other hand, measures directed in entirely general terms at anyone associated with such non state actors.
In the case of the Terrorism Order, it was left to domestic legal systems to determine the identity of persons active as terrorists on whom the sanctions should bite.
In the case of the Al Qaida Order, the determination was undertaken by non judicial process at the international level, by which member states were to be bound without more.
The words of section 1(1) are general, but for that very reason susceptible to the presumption, in the absence of express language or necessary implication to the contrary, that they were intended to be subject to the basic rights of the individual: see Ex p Simms, per Lord Hoffmann (above).
In the event of the Security Council establishing under Chapter VII a rgime requiring the internment of individuals (as was held to be the case in Al Jedda), section 1(1) could hardly enable the executive by Order in Council to introduce provisions for such internment within the United Kingdom.
As an extreme form of restriction of individual liberty, internment without the right to challenge its basis before any court or judicial tribunal would, if it were to be possible at all, at the least require primary legislation.
Designation as an associate of a rogue state or non state organisation under Resolutions 1267, 1333 and 1390, and the consequential freezing of assets, also has radical consequences for personal and family life.
It is a matter which one would expect to be subject to judicial control, before or after the designation.
So here, in my view, section 1(1) was and is an inappropriate basis for the Al Qaida Order, freezing indefinitely the ordinary rights of individuals to deal with or
dispose of property on the basis that they were associated with Al Qaida or the
This makes it unnecessary to consider the alternative submissions developed under article 5 of the European Convention on Human Rights.
The Houses previous decision in Al Jedda is about to be reviewed in proceedings brought by Mr Al Jedda before the European Court of Human Rights.
I would in these circumstances decline the invitation to re consider that decision at this stage.
It is also unnecessary to express any views on the fairness of the procedure available (particularly in the absence of any special provision for the use of special advocates), had it been the position that G and HAY were entitled under English law to challenge domestically the basis for their listing as associates of Al Qaida or the Taliban.
Conclusion
Hilary Term [2010] UKSC 5 On appeal from: [2008] EWCA Civ 1187 JUDGMENT (Appellants) Her Majestys Treasury (Respondent) v Mohammed Jabar Ahmed and others (FC) Her Majestys Treasury (Respondent) v Mohammed al Ghabra (FC) (Appellant) R (on the application of Hani El Sayed Sabaei Youssef) (Respondent) v Her Majestys Treasury (Appellant) (no. 2) before Lord Phillips, President Lord Hope, Deputy President Lord Rodger Lord Walker Lady Hale Lord Brown Lord Mance JUDGMENT GIVEN ON 4 February 2010 Heard on 28 January 2010 Appellants A, K, M and Raza Husain (Instructed by Birnberg Peirce and Partners) Appellant G Alex Bailin (Instructed by Tuckers) Respondent Jonathan Swift Andrew OConnor (Instructed by Treasury Solicitor) Respondent HAY Raza Husain (Instructed by Birnberg Peirce and Partners) LORD PHILLIPS, with whom Lord Rodger, Lord Walker, Lady Hale, Lord Brown and Lord Mance agree. 1.
When judgment was given on 27 January 2010 an issue arose in respect of the order that the court proposed to make.
The court has held that the TO and article 3(1)(b) of the AQO were ultra vires.
This means that the restrictions imposed on individuals pursuant to these Orders have been imposed without authority and are of no effect in law.
Because this has not been appreciated there has been compliance with these restrictions, not least by third parties, including banks holding funds of those purportedly affected by the Orders.
Thus the Orders have, in practice, achieved the effect that the Treasury intended when making them. 2.
The Treasury is anxious that this state of affairs should persist until the invalid restrictions can be replaced by restrictions that have the force of law.
To this end Mr Swift has submitted that the court should suspend the operation of the orders that it proposes to make declaring the TO and article 3(1)(b) of the AQO ultra vires and quashing them, in the case of the former for a period of 8 weeks to 25 March 2010 and in the case of the latter for a period of 6 weeks to 11 March 2010. 3.
This submission is a variation and extension of a limited suspension to the operation of its orders that Lord Hope had proposed that the court should make in paragraph 84 of his judgment.
I had concurred in this proposal, but having considered the matter further I have concluded that it would not be appropriate to suspend any part of the courts order. 4.
Mr Swift submitted that this court has power to suspend the effect of any order that it makes.
Counsel for the appellants conceded that this was correct and that concession was rightly made.
The problem with a suspension in this case is, however, that the courts order, whenever it is made, will not alter the position in law.
It will declare what that position is.
It is true that it will also quash the TO and part of the AQO, but these are provisions that are ultra vires and of no effect in law.
The object of quashing them is to make it quite plain that this is the case. 5.
The effect of suspending the operation of the order of the court would be, or might be, to give the opposite impression.
It would suggest that, during the period of suspension of the quashing orders, the provisions to be quashed would remain in force.
Mr Swift acknowledged that it might give this impression.
Indeed, he made it plain that this was the object of seeking the suspension. 6.
Mr Swifts submissions are described in the dissenting judgment of Lord Hope.
He did not suggest that the court could or should give temporary validity to the unlawful provisions.
He did not suggest that the court could or should purport prospectively to overrule them.
He did not suggest that suspension was necessary in order to permit action by the executive which might otherwise appear to be flouting the decision of the court, as it was in Koo Sze Yiu v Chief Executive of the Hong Kong Special Administrative Region, Final Appeal Nos 12 & 13 of 2006 (Civil) 12 July 2006.
He did not suggest that the suspension would have any effect in law. 7.
Mr Swift urged the court to suspend the operation of its judgment because of the effect that the suspension would have on the conduct of third parties.
He submitted that the banks, in particular, would be unlikely to release frozen funds while the courts orders remained suspended.
I comment that if suspension were to have this effect this would only be because the third parties wrongly believed that it affected their legal rights and obligations. 8.
The ends sought by Mr Swift might well be thought desirable, but I do not consider that they justify the means that he proposes.
This court should not lend itself to a procedure that is designed to obfuscate the effect of its judgment.
Accordingly, I would not suspend the operation of any part of the courts order.
That order should provide as follows: THE COURT ORDERS that (1) the appeals of Mohammed Jabar Ahmed, Mohammed Azmir Khan and Michael Marteen and of Mohammed al Ghabra as regards the Terrorism (United Nations Measures) Order 2006 (S.I. 2006/2657) be allowed it be declared that the Terrorism (United Nations Measures) (2) Order 2006 is ultra vires and the Order quashed the appeal of Mohammed al Ghabra as regards the Al Qaida (3) and Taliban (United Nations Measures) Order 2006 (S.I. 2006/2952) be allowed to the extent that it be declared that article 3(1)(b) of the Order is ultra vires and the Order quashed (4) the appeal of HM Treasury be allowed to the extent only of setting aside the declaration made by Mr Justice Owen on 10 July 2009 in the Administrative Court of the Queens Bench Division of the High Court (5) the respondent pay, or cause to be paid, to the appellants, Mohammed Jabar Ahmed, Mohammed Azmir Khan and Michael Marteen, their costs in the House of Lords, the Supreme Court, the Court of Appeal and the Administrative Court, to be subject to detailed assessment if not agreed (6) the parties in the appeal of R (on the application of Hani El Sayed Sabaei Youssef) vs HM Treasury and in the appeal of HM Treasury vs Mohammed al Ghabra make written submissions on costs in the House of Lords, the Supreme Court, the Court of Appeal and the Administrative Court by 18 February 2010 (7) there be a detailed assessment of the publicly funded costs in all three appeals.
LORD HOPE, dissenting 9.
I have the greatest possible respect for the views of my colleagues and for the reasons which Lord Phillips has set out so carefully in his judgment.
I regret however that I am unable to agree with what he proposes.
As the issue is important, was not the subject of any decision by the House of Lords and has not previously been considered by this Court, I should like to explain in my own words why I am of that opinion. 10.
In para 84 of my judgment which was given on 27 January 2010 I said that I would suspend the operation of the orders that I would make as regards article 3(1)(b) of the Al Qaida and Taliban (United Nations Measures) Order 2006 (SI 2006/2952) (the AQO) in the case of Hani El Sayed Sabaei Youssef (referred to previously as HAY in these proceedings) for a period of one month.
This was to enable the Treasury, if so minded, to take the steps that were needed to give effect to the obligation by which the United Kingdom is bound by article 25 of the Charter of the United Nations pending the proceedings that are currently being taken by the United Kingdom for him to be de listed by the United Nations Security Council 1267 Committee.
Lord Phillips said in para 156 that, for the reasons that I gave, he agreed that the operation of the order in HAYs case should be suspended for one month from the date of judgment.
Lord Mance said in para 249 that the declaration that he would make that article 3(1)(b) of the AQO was invalid generally should be subject to a stay of one month on its operation on respect of HAY.
There was no dissent from this proposal, although Lord Brown did not agree with the view of the majority that article 3(1)(b) of the AQO was ultra vires. 11.
In accordance with Supreme Court Practice Direction 6.8.3 the parties were provided in advance with a copy of the Courts judgment and a draft of the orders that the Court proposed to make.
Written submissions on behalf of the Treasury, Mohammed al Ghabra (referred to previously as G) and HAY were shown to the Court before it sat to deliver the judgment.
Counsel for HAY did not object to the proposal that the operation of the Courts order in his case should be suspended for a period of one month.
Mr Husain adhered to this position on HAYs behalf when the proposed orders were discussed in more detail the day after judgment was given.
He informed the Court that his position was one of neutrality.
He then said that, on instructions, he agreed with Mr Swift for the Treasury that the judgment was not self executing and that the Court had power to suspend the operation of the orders that it proposed to make in his case.
He said that HAY welcomed the opportunity that the Courts judgment gave for the orders that the Treasury proposed to make to receive proper Parliamentary scrutiny, and that he would prefer a stay to a resort to emergency legislation without such scrutiny to cover the period until the steps that were necessary to achieve this could be taken.
His attitude may well be: better the devil you know than the devil you dont.
But, whatever his reasons, it is clear that HAYs position is that he does not oppose the order that I was proposing.
Had the matter rested there, I would have been satisfied that the order that I was proposing should be made. 12.
But the matter does not rest there.
Mr Swift for the Treasury asks the Court to suspend the operation of the order for the quashing of the Terrorism (United Nations Measures) Order 2006 (SI 2006/2657) (the TO 2006) for a period of 8 weeks to 25 March 2010 to enable the Treasury to address the effects of the Courts judgment in relation to that Order by introducing primary legislation for consideration by Parliament.
He also asks the Court to suspend the operation of the orders that it proposes to make in relation to the AQO for a period of 6 weeks to 11 March 2010, not the 4 weeks that I had suggested, and that it should extend this suspension to the order that quashed the AQO generally, not just in the case of HAY as I had suggested.
This was to enable the Treasury to made an order under section 2 of the European Communities Act 1972 containing enforcement measures in support of Council Regulation (EC) No 881/2002 implementing UN resolutions under Chapter VII of the Charter of the United Nations for the freezing of the funds and economic resources of persons associated with Osama bin Laden, Al Qaeda or the Taliban.
In each case the suspension is sought for the purpose of enabling steps to be taken to ensure that the United Kingdom remains in compliance with its international obligations under the UN Charter.
These applications have made it necessary for the Court to look more closely at the question whether it has power to make orders of that kind and, if so, whether it should do so in this case. 13.
Before considering these issues I should mention some other matters by way of background.
The Court was told that at present 13 persons remain designated under the TO 2006.
There are also 25 persons or entities who remain designated under the Terrorism Order 2001 and 21 persons who have been designated under the Terrorism Order 2009.
As I indicated in para 84 of my judgment, I had assumed that the existence of the 2009 Order under which A, K, M and G were re designated had removed the need for a short period to be given for the Treasury to address the consequences of the Courts judgment in regard to the TO 2006.
On the facts that are now before the Court the web created by these Orders is more far reaching than I had imagined.
As for the AQO, the court was told that 18 persons including G and HAY, and 4 other entities present in the United Kingdom who are named on the Consolidated List, have been designated by the 1267 Committee.
The United Kingdom will be in breach of its obligations under UN Security Council Resolution 1904/ 2009, which replaced Resolution 1822/2008 with effect from 17 December 2009, and under EC Regulation 881/2002 if effect is not given to these designations in domestic law. 14.
Having regard to these obligations, in a letter dated 9 October 2009 copies of which were sent to the other parties solicitors, the Treasury sought a widening of the opportunity that is provided by Practice Direction 6.8.3, which enables judgments to be released to counsel, solicitors and in house legal advisers six days before the delivery of the judgment.
Permission was sought for the judgment in this case to be released also to 38 named individuals in relevant government departments and an unspecified number in the Security Service, to allow for contingency planning to safeguard national security should the Treasury be unsuccessful in the appeals.
As this was an open letter, the reasons for this request were not fully explained.
But the point was made that operational concerns might arise in the form of an increased risk of previously frozen funds being withdrawn from unfrozen bank accounts and diverted for terrorist purposes or being used as a conduit to this end.
It was made clear at the same time that the Treasury would, for operational reasons, strongly oppose provision of the embargoed judgment to A, K, M, G and HAY for any period additional to the 24 hours provided for in the Practice Direction.
The Court was not willing to accede to this request.
But the reasons why it was made have not gone away. 15.
I was aware of the Treasurys request when I proposed in my judgment that the order quashing article 3(1)(b) of the AQO should be suspended for one month in HAYs case.
It is worth noting also that in Kadi v Council of the European Union (Joined Cases C 402/05P and C 415/05P) [2009] AC 1225, para 373, the European Court of Justice recognised that the immediate effect of its decision would be capable of seriously and irreversibly prejudicing the effectiveness of the restrictive measures imposed by Regulation 881/2002 which the Community was required to implement because, for example, steps might be taken to prevent any further measures freezing funds from being applied to them.
So it delayed effect being given to its judgment by three months.
The risk of serious and perhaps irreversible damage to efforts to defeat international terrorism in our case too must weigh heavily with this Court in deciding what it should do to meet the concerns that have been expressed by the Treasury.
This is not simply a matter of meeting international obligations.
The national interest in resisting threats to our own security is just as important.
The power to suspend 16.
Mr Swift submitted that it was clear, as a matter of simple vires, that the court had power to make the orders he seeks.
Rule 29 of the Supreme Court Rules 2009 (SI 2009/1603) states that the Court has all the powers of the court below, and section 40(5) of the Constitutional Reform Act 2005 gives the Court power to determine any question necessary to be determined for the purposes of doing justice in an appeal.
CPR 40.7(1) provides: A judgment or order takes effect from the day when it is given or made, or such later date as the court may specify.
This rule reflects the well established principle that it is the order that the court makes that disposes of the proceedings and provides the basis for an appeal, not the issuing of the reasons for it in the form of the courts judgment: Lake v Lake [1955] P 336; Re Mathew [2001] BPIR 531 per Lawrence Collins J at 532A G. Examples of the application of that principle can be found in this case, as Mr Swift pointed out.
They can be seen in the orders that Collins J made suspending the effect of his judgment pending appeal to the Court of Appeal and in the orders made by the Court of Appeal pending applications for leave to appeal to the House of Lords.
The situation in which the Supreme Court finds itself is different, as there is no further right of appeal.
This has a bearing on the question whether the orders that it proposes to make should be suspended.
But I do not think that the Court lacks the power to specify a later date for the taking effect of the orders it proposes to make should it consider that it should do so. 17.
There was some discussion in the course of the hearing of the question whether the Court should declare that the orders that it proposed to make should have effect prospectively only.
The usual rule, of course, is that an order quashing an order or other measure as ultra vires operates retrospectively as well as prospectively.
The question whether there was power to place temporal limitations on the effect of its judgments was considered by the House of Lords in In re Spectrum Plus Ltd [2005] UKHL 41, [2005] 2 AC 680.
The focus in that case was on the prospective overruling of decisions on points of law.
The House held that it had jurisdiction to make such an order, although it declined to do so on the facts of that case.
In A Time for Everything under the Law: Some Reflections on Retrospectivity (2005) 121 LQR 57, 77 Lord Rodger of Earlsferry acknowledged that prospective overruling might be particularly useful in cases involving the application of Convention rights. 18.
The situation in this case is quite different.
For the reasons that the Court has given, the TO 2006 and article 3(1)(b) of the AQO were ultra vires and void from the moment that the Orders were made.
It would be entirely contrary to the reasoning on which that conclusion is based for the ruling to be applied only to the future and not to the past.
But I do not think that it is necessary to explore the point further because Mr Swift, very properly, made it clear that the Treasury were not seeking prospective overruling in this case.
He accepted that the Courts orders, when made, will apply retroactively as usual.
What he is seeking is simply a delay in the date as from which that consequence will take effect.
That being so, I would hold that the Court has power to make the orders that he seeks.
I do not think that there is any difference of view between us on that point.
The more difficult question is whether it should do so.
The view of the majority, as Lord Phillips has explained, is that this would not be appropriate.
Should the power be exercised? 19.
The first question that needs to be considered is the effect, if any, that suspension would have in practice.
It would be wrong to regard the suspension as giving any kind of temporary validity to the provisions that are to be quashed.
As Mr Justice Bokhary PJ said in Koo Sze Yiu v Chief Executive of the Hong Kong Special Administrative Region, Final Appeal Nos 12 & 13 of 2006 (Civil), 12 July 2006, para 63, there is no shield from legal liability for functioning pursuant to what has been declared to be ultra vires during the period of the suspension.
Mr Swift did not seek to argue the contrary.
He made it clear that the Treasury accepted that suspension would do no more than delay the taking effect of the Courts orders, which would then operate retrospectively as from the specified date.
It would have no effect whatever on remedies for what had happened in the past or during the period of the suspension. 20.
It was suggested in the course of the hearing that this was an absurd result.
After all, now that the Courts judgment has been made public everyone knows what the Court proposes to do.
The prohibitions that the Orders have imposed will remain in place, but to use them as a fetter on the designated persons access to funds would be contrary to what is now known to be the law.
Any person who contravenes the prohibition in article 7(1) of the TO 2006 in the meantime would on paper be committing a criminal offence.
But that would be a pointless restriction.
Mr Swifts answer was that, while technically that was so, it would be obvious by the time any prosecutions were brought that the Order was ultra vires.
So any prosecutions that might be brought for what was done during this period would not be proceeded with.
I agree that to prosecute would plainly be a waste of time and public money.
So, to the extent that it may be thought to prolong the effect of the criminal sanctions, it can be seen that nothing would be gained by a suspension. 21.
Mr Swift insisted that a suspension would nevertheless have practical effect.
This was because it would not be ignored by the banks and other institutions, which would continue to give effect to the prohibitions and obligations in the TO and the AQO until they were directed otherwise by an order of the Court.
That, he indicated, is how these institutions conduct their affairs in practice and what they could be expected to do in this case.
Judging by the grounds that the Treasury gave for seeking a relaxation on the embargo under the Practice Direction, this is a matter of far greater significance to combating international terrorism than breaches of the prohibitions by individuals such as the friends and family members of those who have been designated.
For obvious reasons the Court has not been given any detailed information about the whereabouts or amounts of the funds that may be in the hands of the financial institutions, of the damage that would be caused to the national interest if the institutions were to feel able to release them or disregard the conditions that may have been attached to any licences that may have been issued to them without notifying the Treasury or whether or not that damage would be irreparable.
Nor has it been given any indication by the financial institutions themselves, who have not been named, that they would not release any funds during the period of the suspension.
But I think that it would be wrong for the Court not to accept Mr Swifts assurance that in this respect suspension would achieve something that would be of real practical value. 22.
Although the situation now is different from that which the courts below faced when they suspended the effect of their orders, it is comparable in this respect.
We have recognised that the breaches of fundamental law which render the Orders in question ultra vires are capable of being remedied.
In their case there was the possibility of their decisions being reversed on appeal.
In our case there is the possibility indeed more than that, the likelihood that the remedial measures will be approved by Parliament.
If that were not so, there would be no grounds for any delay in making the orders that are needed to give effect to the courts judgment.
As it is, it would seem that there is everything to be said for not letting the cat whose dimensions and capacity to inflict damage we can only guess at out of the bag in the meantime.
I think that the national interest, as well as respect for our international obligations, requires the Court to do what it can to see that this does not happen. 23.
There was also some discussion at the hearing of measures that the Treasury might itself take to achieve the same result.
In para 176 of the judgment Lord Rodger said that in his opinion section 1(1) of the United Nations Act 1946 would authorise Her Majesty to make an Order in Council, even with the far reaching effects that are to be seen in the current Orders, provided it only had a limited life span and was replaced as soon as practically possible by equivalent legislation passed by Parliament.
Mr Swift said that the Treasury had given some thought to this suggestion but had concluded, after studying the judgment as a whole, that it would not be appropriate for it to adopt it.
Emergency legislation by Parliament is also in theory not impossible.
But that would mean achieving the desired result by two Acts of Parliament in quick succession, not one.
It was suggested that this would be an absurd way to proceed, but it may be the only practicable alternative.
Conclusion 24.
There is an obvious attraction in putting the orders that the Court proposes to make into effect as soon as possible.
There is perhaps a risk, as Lord Phillips has said, that suspension would tend to obfuscate the effect of the Courts judgment.
But I would not myself regard that as a decisive factor in deciding where the balance of advantage lies.
The judgment itself has been promulgated, and the Treasury accepts that suspension would have no effect whatever on its effect once the period of suspension has been lifted.
Furthermore, the steps that the Treasury proposes to take to comply with the international obligations are now known.
So it is possible to assess the advantages of a suspension as against the disadvantages.
The periods proposed are short indeed they have been shortening by the day as time has gone by since the judgment was issued.
In view of the way the financial institutions can be expected to respond to a suspension, it cannot be said that this would be of no practical value.
On the contrary, not to suspend could result in damage to the effectiveness of the measures that the international obligations require which might well be, as the ECJ indicated in Kadi, serious and irreversible.
Bearing in mind too, as Mr Swift concedes, that suspension would have no effect whatsoever on remedies for what had happened in the past or during the period of the suspension, I consider that the balance lies in favour of suspension in the terms requested by the Treasury. 25.
I would therefore have directed that the order quashing the TO 2006 should not take effect until 25 March 2010 and that the orders quashing article 3(1)(b) of the AQO should not take effect until 11 March 2010.
I would therefore dispose of the appeals and make orders in respect of the Terrorism Order 2006 as indicated in paragraph 231 and the Al Qaida Order as indicated in paragraph 249 above.
| UK-Abs | In response to various incidents of international terrorism, including the attacks on 9/11, the UN Security Council (the UNSC) passed resolutions (UNSCRs) requiring member states to take steps to freeze the assets of: (i) Usama Bin Laden, the Taliban and their associates; and (ii) those involved in international terrorism.
The UNSC established a list of persons whose assets member states were obliged to freeze (the Consolidated List).
Those included in the Consolidated List are not informed of the basis for their inclusion or afforded the right to challenge the decision before an independent and impartial judge.
The Appeals concern the legality of the Terrorism (United Nations Measures) Order 2006 (the TO) and the Al Qaida and Taliban (United Nations Measures) Order 2006 (the AQO).
The TO and AQO were made by Her Majestys Treasury (the Treasury) pursuant to s.1 of the United Nations Act 1946 (the 1946 Act), which authorises the making of such Orders in Council as are necessary or expedient to give effect to UNSCRs.
The TO goes beyond the requirements imposed by the relevant UNSCRs by providing that a persons assets can be frozen on the basis of a reasonable suspicion.
The AQO transposes the UNSCRs concerning the Taliban into domestic law.
Crucially, if a person is named in the Consolidated List, the AQO provides that his assets in the UK will automatically be frozen.
A person whose name is on the list has no right to challenge his listing before a court.
Freezing measures under the TO and AQO, which are not subject to any time limit, place very severe limitations on the ability of persons who have been designated to deal with their property.
They have an extremely grave effect upon their freedom of movement, their liberty and private and family lives, and those of their families and their associates.
A, K and M were the subject of asset freezes under the TO.
The effect on them and their families has been severe.
G and HAY are named in the Consolidated List and so were both automatically designated as subject to asset freezing by the AQO.
G was included in the Consolidated List at the request of the UK, which continues to support his listing.
HAY was added at the behest of an undisclosed UN member state.
The UK opposes his inclusion in the Consolidated List and is engaged, to date unsuccessfully, in efforts to de list him.
The issue before the Court was whether s.1(1) of the 1946 Act gave the Treasury the power to make the TO and AQO, having regard to: (i) the gravity of the interference with fundamental rights which the asset freezes bring about; (ii) the fact that the TO allowed asset freezing on grounds of reasonable suspicion; and (iii) the fact that the AQO entirely deprived those named in the Consolidated List of any right of access to a court.
Following the hearing in the case, the Treasury issued new designations in respect of A, K, M and G under the authority of the Terrorism Order (United Nations Measures) 2009 (the TO 2009).
The terms of the TO 2009 are substantially similar to those of the TO.
The Supreme Court has unanimously held that the TO should be quashed as ultra vires s.1(1) of the 1946 Act.
It also held by a majority of six to one (Lord Brown dissenting) that Article 3(1)(b) of the AQO must also be quashed as ultra vires.
It was noted that if the designations in respect of A, K, M and G imposed subsequent to the hearing pursuant to the TO 2009 had been before the Supreme Court these too would have been quashed.
General Remarks Lord Hope (with the agreement of Lord Walker and Lady Hale) giving the leading judgment, noted the far reaching and serious effect of the asset freezing measures on the individuals concerned and their families [paras [4], [38], [39] and [60]]. s.1(1) of the 1946 Act allows Orders in Council to be made without even the most basic Parliamentary scrutiny [paras [48] [50]].
In the absence of Parliamentary control the Court must carefully examine such drastic measures [paras [5], [6] and [53]].
Australia and New Zealand gave effect to their UNSCR obligations by primary legislation that was subjected to the scrutiny and approval of their respective legislatures.
Also, the Anti terrorism, Crime and Security Act 2001 enacted an asset freezing regime that is significantly less onerous and attended by greater safeguards than the system established by the TO and AQO [paras [51] [54]].
The legislative history of the 1946 Act demonstrates that Parliament did not intend that the 1946 Act should be used to introduce coercive measures which interfere with UK citizens fundamental rights [paras [16] and [44]].
The principle of legality requires that general or ambiguous statutory words should not be interpreted in a manner that infringes fundamental rights [paras [45] and [46]], and s.1(1) of the 1946 Act must be interpreted in this light.
Orders made under s.1(1) would therefore only be legitimate when the interference with fundamental rights to which they give rise is no greater than that which the underlying UNSCR requires [para [47]].
The TO The relevant UNSCRs did not address the standard of proof for imposing asset freezes.
The reasonable suspicion standard in the TO must be assessed in light of the entire system that the TO establishes, particularly the seriousness of the interferences with fundamental rights that it effects [paras [58] [60]].
By introducing a test of reasonable suspicion the Treasury exceeded the power conferred by s.1(1) of the 1946 Act [para [61]].
The AQO
Lord Hope noted that the effect of the AQO, in this case, did not rely upon a reasonable suspicion criterion and that in contrast to the TO the AQO does not go beyond the relevant UNSCRs [para [64]].
But there are no means whereby G or HAY can challenge the decision to list them as terrorists, with the consequence that their assets are frozen automatically, before an independent and impartial judge [paras [77] [80]].
Article 3(1)(b) of the AQO must therefore be quashed [paras [81] and [82]].
The Status of the Designations Against A, K, M and G pursuant to the TO 2009 The principal criticisms directed against the TO apply equally to the TO 2009 [paras [28]].
Had the TO 2009 been before the Court it would have been quashed [para [83]].
Other Comments Nobody should form the impression that in quashing the TO and the operative provision of the AQO the Court displaces the will of Parliament.
On the contrary, the Courts judgment vindicates the primacy of Parliament, as opposed to the Executive, in determining in what circumstances fundamental rights may legitimately be restricted [para [157] per Lord Phillips].
The features of the AQO that are characterised as objectionable are the ineluctable consequence of giving effect to the relevant UNSCRs the same apparent deficiency would apply to primary legislation.
Accordingly, the AQO should be upheld [paras [203] [204] per Lord Brown (dissenting)].
|
This is a judgment of the Court.
This appeal requires a revisiting of a vexed but highly important topic.
The significance of parenthood in private law disputes about residence and contact has exercised many courts over many years but one might have thought that the final word on the subject had been uttered in the comprehensive and authoritative opinion of Baroness Hale of Richmond in In re G (Children) (Residence: Same sex Partner) [2006] UKHL 43, [2006] 1 WLR 2305.
As this case illustrates, however, misunderstandings about the true import of that decision and the applicable principles persist.
The case concerns a young boy whom we will call Harry, although that is not his real name.
Harry will be four years old in December of this year.
Until recently, apart from at weekends, he has lived continuously with the appellant, GB, who is his maternal grandmother.
On 6 March 2009 Lowestoft Family Proceedings Court made a residence order in favour of GB.
A contact order allowing staying contact with both parents was also made.
The orders of the Family Proceedings Court were appealed by Harrys father RJB to the Family Division.
His Honour Judge Richards, sitting as a High Court Judge, heard the appeal on 3 April 2009 and he made an order which, among other things, directed that there should be a transfer of residence to the father on 25 April.
GB appealed Judge Richards order and her appeal was heard by the Court of Appeal (Wall and Elias LJJ) on 21 May 2009.
At the conclusion of the hearing, the court dismissed the appeal and stated that the reasons for dismissal would be given later.
Permission to appeal to the House of Lords was refused.
The reasons for dismissing the appeal were provided in a judgment handed down on 11 June 2009.
A stay on the transfer of residence was granted on that date to allow GB to petition the House of Lords for permission to appeal.
It was a condition of the grant of the stay, however, that Harry should have contact with his father from Thursday afternoon until 4 pm on Monday each week.
That level of contact continued until the hearing of the appeal before this court.
Permission to appeal was granted on 30 July 2009 and the appeal was heard on 14 October.
Both GB and RJB were represented on the appeal.
Harrys mother, GLB, appeared on her own behalf and her only albeit important submission to this court was to the effect that she wanted the best for her son.
When the hearing ended, this court announced that the appeal would be allowed for reasons that we would provide at a later date.
This judgment contains those reasons.
Family Background
Harrys parents met in the autumn of 2004.
They separated in April 2005, eight months before Harry was born.
GB has been principally responsible for caring for him from the time of his birth.
Indeed, she was present when he was born and immediately afterwards he went to live in her home.
Until the order of the Court of Appeal giving extended contact to his father, Harry has lived there ever since.
Neither of Harrys parents was able to care for him satisfactorily in the first years of his life.
His mother, GLB, lived with her mother and Harry intermittently at GBs home from the time that he was born until July 2006.
She left GBs home then and has not returned.
On 9 November 2006 GB was granted a residence order.
This was made on consent.
At the same time a parental responsibility order was made in favour of Harrys father, RJB.
This also appears to have been made on consent.
Thereafter he spent a night and a day of every weekend with each of his parents in turn.
In July 2007, Harrys father was convicted of racially aggravated assault.
He was sentenced to a term of imprisonment.
It is not clear whether this term was twelve or eighteen months but that is not important in relation to the issues which arise on the appeal.
While in prison RJB met SB, the sister of another inmate.
On his release in March 2008 they formed a relationship and they married some time later.
On 11 February 2009 their daughter was born.
SB also has an older daughter of about the same age as Harry from an earlier relationship.
The older daughter lives with RJB, SB and the daughter born in February 2009.
RJB has a much older son from another relationship but there is no contact between this son and his father.
GB has not been without difficulties in her personal life.
Tests have revealed that she has had a high alcohol consumption level in the past.
She has a conviction for driving with excess alcohol and she has been the victim of domestic violence.
Some episodes of this violence occurred in Harrys presence but the person who was responsible for them no longer lives with GB.
The Family Proceedings Court Hearing
On 28 May 2008 Harrys mother applied for a residence order.
In the course of the proceedings which followed, Harrys father made his own application for a residence order.
Despite having applied herself for a residence order, Harrys mother supported the fathers application.
The order of 9 November 2006 in favour of GB was, of course, still in force at this time and she made plain her wish to continue to care for Harry.
A report from a social care manager of the local authority, AW, was prepared for the hearing pursuant to section 7 of the Children Act 1989.
It is dated 4 January 2009.
It is not clear whether AW spoke to SB, the wife of Harrys father, but he certainly spoke to Harrys grandmother and to both his parents.
AW considered that Harry was thriving in the care of his grandmother.
He enjoyed contact with other family members, however, and had developed positive relationships with them.
AW concluded that Harrys mother was not capable of providing a safe and stable environment for Harry.
While there were some concerns about GB, AW reached the view that she had proved capable of meeting Harrys needs.
In relation to Harrys father, AW said this: In my opinion, there is very little in [RJBs] commitment, motivation and capabilities to indicate that he could not meet [Harrys] needs.
He is in a secure relationship and can provide stability to his son.
He and his wife possess the necessary knowledge and skills to raise a child healthily.
Their situation with the birth of their child places them in an untested situation that only a period of time would resolve.
AW considered that to transfer Harrys residence to his mother or father would have a significant impact on him.
In his view, the stability and security that Harry enjoyed was due to the consistency and predictability of his grandmothers care.
He had begun to form his first significant peer relationships at nursery and a move away from this would be disruptive for him.
AW concluded therefore that, while Harrys placement with GB was not perfect, on balance it should continue.
A sentence in the conclusion section of AWs report has proved to be somewhat controversial in the case.
It was to this effect: In my opinion there needs (sic) to be compelling reasons to disrupt [Harrys] continuity of care and the consistency and predictability that accompanies (sic) it.
The justices used the same formulation in the pro forma document that recorded the reasons for their decision.
Incongruously, however, this appeared as the final paragraph in the section of the form that recorded findings of fact.
It read: We have not found compelling reasons to disrupt [Harrys] continuity of care and the consistency and predictability that accompanies (sic) it.
Plainly, this was a verbatim quotation from AWs report.
It has been suggested that the justices fell into error in stating that they required compelling reasons to remove Harry from his grandmothers care.
We do not accept that suggestion.
In the first place, the justices did not say that they required compelling reasons merely that they did not find such reasons.
More importantly, taken as a whole, the pro forma that the justices prepared points unmistakably to their having conducted a careful weighing of the various factors that bore directly on what was in Harrys best interests.
Thus, for instance, they reviewed his development while in the care of GB; noted that she had facilitated contact with both Harrys parents, even when his father was in prison; noted the risk of harm if he was moved; recorded that he had good relationships with both parents and his grandmother, all of whom were significant in his life; and expressly stated that they had balanced all interests in making their decision and had treated Harrys welfare as paramount.
We are satisfied, therefore, that the justices did not consider that compelling reasons were an essential prerequisite to any alteration of the status quo.
It is perhaps unfortunate that the social care manager made the compelling reasons reference and unfortunate too that it was incorporated by the justices in their statement of reasons but one should guard against an overly fastidious approach in parsing the contents of such statements.
Isolated from its context, the phrase is redolent of an over emphasis on the importance of continuing what had gone before but we have concluded that, on a fair reading of the entire statement, it can be confidently said that this did not happen.
The decision of Judge Richards
In para 21 of his judgment, Judge Richards acknowledged that the justices had taken all the evidence into account and that their recorded reasons betokened a very careful weighing of that evidence.
He concluded, however, that they had been distracted by their consideration of the settled way in which [Harry] has been brought up. (para 29)
The judge referred to the decision of In re G, (which had received a passing reference in the justices statement of reasons that we will consider later in this judgment).
He suggested, at para 23, that the House of Lords had made clear in that case that in the ordinary way the rearing of a child by his or her biological parents can be expected to be in the childs best interests, both in the short term and, more importantly, in the longer term.
For reasons that we shall give presently, we do not consider that this is a proper representation of the decision in In re G and we believe that it was the failure to properly understand the burden of the decision in that case that led the judge into error.
The theme that it was preferable for children to be raised by their biological parent or parents was developed by the judge in paras 24 and 25 of his judgment.
He stated that it was the right of the child to be brought up in the home of his or her natural parent. (It is clear from the context that the judge was using the term natural parent to mean biological parent.) We consider that this statement betrays a failure on the part of the judge to concentrate on the factor of overwhelming indeed, paramount importance which is, of course, the welfare of the child.
To talk in terms of a childs rights as opposed to his or her best interests diverts from the focus that the childs welfare should occupy in the minds of those called on to make decisions as to their residence.
The distraction that discussion of rights rather than welfare can occasion is well illustrated in the latter part of Judge Richards judgment.
In paras 28 and 30 he suggested that, provided the parenting that Harrys father could provide was good enough, it was of no consequence that that which the grandmother could provide would be better.
We consider that in decisions about residence such as are involved in this case; there is no place for the question whether the proposed placement would be good enough.
The courts quest is to determine what is in the best interests of the child, not what might constitute a second best but supposedly adequate alternative.
As the Court of Appeal pointed out at para 61, the concept of good enough parenting has always been advanced in the context of public law proceedings and of care within the wider family as opposed to care by strangers.
Judge Richards acknowledged that he could only reverse the decision of the justices if he came to the conclusion that they were plainly wrong.
He explained his reasons for coming to that conclusion in the following passage from para 29: I have come to the view, applying as I do the test of whether this was plainly wrong, that in circumstances where it is clear that the father can meet this childs needs that he would have a settled and established home with his own family, that the justices were plainly wrong in coming to their conclusion that [Harry] should remain with his grandmother.
After the judge had delivered his judgment, counsel on behalf of Harrys grandmother applied for leave to appeal.
She submitted that the judge had attached undue importance to what he perceived to be the desirability of Harry being brought up by his biological parent and that he had been thereby distracted from concentrating on Harrys welfare.
The judge rejected that submission, stating: For my part, I hope I made it clear that [Harrys] welfare is, and remains, the paramount consideration.
The test that the justices should have applied was the welfare test.
That is the test that I apply as well.
In fact, at no point in his judgment did the judge say that Harrys welfare was the paramount consideration.
We do not suggest that this statement requires to be intoned like a mantra on every occasion that a judgment on the residence of a child is given.
Often it will be clear from the approach of the judge that this fundamental consideration underlay his or her reasoning.
In the present case, however, we are satisfied that the judge, notwithstanding what he said in refusing leave to appeal, did not afford Harrys welfare the dominant position that it should have occupied in the decision as to his residence.
Instead, he allowed the question of the childs so called right to be raised by his biological parent to influence indeed to define the outcome of the residence debate.
The judgment of the Court of Appeal
The Court of Appeal concluded at para 24 that the justices had made what were described as two important errors of law.
The first of these related to their treatment of In re G.
At para 14 of the section in the justices statement of reasons entitled findings of fact the following appeared: In re G (Residence: Same sex Partner) [2005] EWCA Civ 462, [2005] 2 FLR states a child should not be removed from primary care of biological parents. [Harry] has never resided with his father.
Grandmother has been his psychological parent.
Wall LJ, who delivered the judgment of the court, observed at para 23 that it was unfortunate that the justices had referred to the decision of the Court of Appeal in In re G since that had been reversed by the House of Lords.
In fairness to the justices, the incorrect citation appears to have derived from the skeleton argument of counsel for the father.
In any event, it is clear from the reference in para 14 that the justices had considered (to the extent that they had considered it at all) the decision of the House of Lords rather than that of the Court of Appeal.
In her skeleton argument, counsel for RJB had quoted the virtual entirety of the short speech of Lord Nicholls of Birkenhead.
It would appear that this provided the source material for the justices statement that a child should not be removed from the primary care of biological parents.
Despite the fact that Baroness Hale had delivered the leading opinion in In re G and that all the other members of the appellate committee had expressed their unqualified agreement with it, her speech does not appear to have been extensively considered indeed a single sentence of her opinion was all that was quoted in the skeleton argument submitted on behalf of the father.
It was to the effect that parenthood is to be regarded as an important and significant factor in considering which proposals advance the welfare of the child ([2009] 1 WLR 2305, para 31).
As we shall see, the significance of Baroness Hales speech to the outcome of this case went far beyond this somewhat selective quotation.
In developing its first criticism of the justices approach the Court of Appeal suggested that there had not been a sufficient discussion of the respective roles of parents and grandparents in a childs life.
As a consequence, the court concluded that the justices had fallen into error in referring to the grandmother as Harrys psychological parent while failing to acknowledge his fathers role beyond recording that he was capable of meeting Harrys needs.
When considering the criticism that the justices had failed to in the words of Wall LJ at para 24 grapple adequately with the fundamental issue in the case one must keep closely in mind that the context in which discussion of the respective roles of the father and the grandmother in Harrys life should take place is how those roles and the manner in which the parent and grandparent fulfil them can conduce to the childs welfare.
Whether this particular criticism is justified depends, therefore, on the sufficiency of the justices consideration of the roles of the father and grandmother in terms of the contribution that they could make to Harrys welfare.
The pro forma document that the justices prepared giving the reasons for their decision should not, we believe, be treated as containing an exhaustive record of all the material that was considered by them.
From the note of the evidence given in the family proceedings court it is clear that the role that the father could play in Harrys life and the care that he had provided in the past were comprehensively canvassed and debated.
Both GB and AW were cross examined extensively about these issues and it is difficult to accept that the justices did not have them in mind in making the decision about residence.
It would perhaps have been preferable if the justices had placed on record that they had considered the role of his father in Harrys life but it is not easy to see what they might have said beyond that.
They had commented that RJB had helped with Harrys care in the past and had expressed himself willing to do so again; they acknowledged that he was capable of meeting Harrys needs; and they accepted that Harry had enjoyed a good relationship with his father.
It is clear that they were alert to the role that he had played in this young boys life.
We cannot therefore agree that they failed to grapple with the respective roles of father and grandmother.
The second important error of law identified by the Court of Appeal was the justices statement in relation to compelling reasons.
Wall LJ said this about that statement: 25. in our judgment, it was clearly an error of law for the justices to say, as they did, that it required compelling reasons to remove H from his grandmother's care.
Whilst they make it clear that [Harry's] welfare was their paramount consideration, the question which they had to decide was whether or not it was in [Harry's] interests in both the short and the long term to live with his grandmother or his father.
The introduction of 'compelling reasons' clearly means, we think, that the justices gave too much weight to the 'status quo' argument, and too little to the role of his father in [Harry's] life and care.
Indeed, they appear to have created a presumption that the status quo should prevail unless there are compelling arguments to the contrary.
As we have pointed out at [14] above, the justices did not say that they required such reasons, merely that they had not found them.
When one examines the statement of reasons as a whole and has in mind that this was a direct quotation from AWs report, it is not difficult to reach the conclusion that the justices did not regard this as an essential pre condition to Harrys residence being transferred to his father.
We find it impossible to agree with the judgment of the Court of Appeal that this statement betokened an over emphasis by the justices on preserving the status quo.
In re G
The Court of Appeal acknowledged that In re G had given the final quietus to the notion that parental rights have any part to play in the assessment of where the best interests of a child lay.
Indeed, (correctly in our view) it identified this as the principal message provided by the case.
It is certainly the principal message that was pertinent to the present case.
It appears, however, that the urgency of that message has been blunted somewhat by reference to the speech of Lord Nicholls and some misunderstanding of the opinion that he expressed.
Having agreed that the appeal should be allowed for the reasons to be given by Baroness Hale, Lord Nicholls said at para 2: He then said: The present unhappy dispute is between the children's mother and her former partner Ms CW.
In this case, as in all cases concerning the upbringing of children, the court seeks to identify the course which is in the best interests of the children.
Their welfare is the court's paramount consideration.
In reaching its decision the court should always have in mind that in the ordinary way the rearing of a child by his or her biological parent can be expected to be in the child's best interests, both in the short term and also, and importantly, in the longer term.
I decry any tendency to diminish the significance of this factor.
A child should not be removed from the primary care of his or her biological parents without compelling reason.
Where such a reason exists the judge should spell this out explicitly.
As we have observed, it appears to have been in reliance on the latter passage that the justices stated that a child should not be removed from the primary care of biological parents.
A careful reading of what Lord Nicholls actually said reveals, of course, that he did not propound any general rule to that effect.
For a proper understanding of the view that he expressed, it is important at the outset to recognise that Lord Nicholls comment about the rearing of a child by a biological parent is set firmly in the context of the childs welfare.
This he identified as the court's paramount consideration.
It must be the dominant and overriding factor that ultimately determines disputes about residence and contact and there can be no dilution of its importance by reference to extraneous matters.
When Lord Nicholls said that courts should keep in mind that the interests of a child will normally be best served by being reared by his or her biological parent, he was doing no more than reflecting common experience that, in general, children tend to thrive when brought up by parents to whom they have been born.
He was careful to qualify his statement, however, by the words in the ordinary way the rearing of a child by his or her biological parent can be expected to be in the child's best interests (emphasis added).
In the ordinary way one can expect that children will do best with their biological parents.
But many disputes about residence and contact do not follow the ordinary way.
Therefore, although one should keep in mind the common experience to which Lord Nicholls was referring, one must not be slow to recognise those cases where that common experience does not provide a reliable guide.
Although the factual background to the case of In re G was, as Baroness Hale described it, novel (a lesbian couple decided to have children together, arranged for anonymous donor insemination and brought up the children together until their relationship broke down) the issues arising and the legal principles that applied were, as Baroness Hale pointed out, just the same as would arise in the case of a heterosexual couple.
After conducting what the Court of Appeal rightly described as a scholarly analysis of the statute and the authorities which pre dated the 1989 Act, Baroness Hale turned to consider the recommendations of the Law Commission report on private law cases relating to child care.
She said this at para 30: law and [30] My Lords, the [Children Act 1989] brought together the Government's proposals in relation to child care the Law Commission's recommendations in relation to the private law.
In its Working Paper No 96, Family Law: Review of Child Law: Custody (1986), at para 6.22, having discussed whether there should be some form of presumption in favour of natural parents, the Law Commission said: We conclude, therefore, that the welfare of each child in the family should continue to be the paramount consideration whenever their custody or upbringing is in question between private individuals.
The welfare test itself is well able to encompass any special contribution which natural parents can make to the emotional needs of their child, in particular to his sense of identity and self esteem, as well as the added commitment which knowledge of their parenthood may bring.
We have already said that the indications are that the priority given to the welfare of the child needs to be strengthened rather than undermined.
We could not contemplate making any recommendation which might have the effect of weakening the protection given to children under the present law.
Nor should we.
The statutory position is plain: the welfare of the child is the paramount consideration.
As Lord MacDermott explained in J v C [1070] AC 668, 711, this means that it rules upon or determines the course to be followed.
There is no question of a parental right.
As the Law Commission explained: the welfare test itself is well able to encompass any special contribution which natural parents can make to the emotional needs of their child or, as Lord MacDermott put it, the claims and wishes of parents can be capable of ministering to the total welfare of the child in a special way.
This passage captures the central point of the In re G case and of this case.
It is a message which should not require reaffirmation but, if and in so far as it does, we would wish to provide it in this judgment.
All consideration of the importance of parenthood in private law disputes about residence must be firmly rooted in an examination of what is in the childs best interests.
This is the paramount consideration.
It is only as a contributor to the childs welfare that parenthood assumes any significance.
In common with all other factors bearing on what is in the best interests of the child, it must be examined for its potential to fulfil that aim.
There are various ways in which it may do so, some of which were explored by Baroness Hale in In re G, but the essential task for the court is always the same.
For the reasons that we have given, we consider that the justices decision cannot be characterised as plainly wrong.
True it is that they misapprehended the real import of In re G and it was, as we have said, unfortunate that they repeated the phrase compelling reasons from AWs report but we do not consider that these detract from their careful evaluation of the evidence and their weighing of the various competing factors involved in their determination of the question of Harrys residence.
Nor do they detract from their important recognition that his welfare was the paramount consideration in that determination.
It follows that Judge Richards erred in his conclusion that it was open to him to reverse the justices findings.
The judge was correct in his view that G v G [1985] 1 WLR 647 forbade interference with the exercise of the justices discretion unless the decision was plainly wrong.
Where he fell into error was in deciding that his analysis of their statement of reasons supported his conclusion that it was so.
The Court of Appeal recognised some of the deficiencies in the judges analysis, in particular his apparent application of the principles relevant only in public law cases to private law proceedings under the 1989 Act; his pronouncement of something which came close to a presumption that a child should live with his biological parent or parents; and of the relevance of the concept of good enough parenting in this case.
But the court considered that it could overlook these shortcomings because the judges fundamental [approach] was not plainly wrong (para 62).
This in turn depended on their acceptance of the judges conclusion that the justices decision was plainly wrong.
Since we have concluded that it was not, the basis on which the Court of Appeal felt able to uphold Judge Richards decision falls away.
As we have said earlier, many disputes about residence and contact do not follow the ordinary way.
This case is one such.
Harry has lived virtually all of his young life with his grandmother.
He has naturally formed a strong bond with her.
There is reason to apprehend that, if that bond is broken, his current stability will be threatened.
Harrys father had undergone significant changes in his own domestic arrangements at the time that the justices made their decision.
While he was assessed as capable of meeting Harrys needs, those arrangements remained untested at the time the justices had to determine where Harry should live.
There was therefore ample material available to the justices to reach the determination they did.
That determination lay comfortably within the range of the decisions that the justices, in the exercise of their discretion, could reasonably make.
For these reasons we allowed the appeal.
What we heard of the contact and residence arrangements made as a result of the conditions imposed by the Court of Appeals order granting a stay confirmed the view that considerable disruption to Harrys life would have been involved in a transfer to live with his father.
The distance between the homes of his grandmother and his father exceeds thirty miles, we were told.
It seems inevitable that, if he were to live with his father, he would no longer be able to attend the nursery where he has already made good progress.
Transfer of his residence would involve a great deal more than a change of address.
Many of the familiar aspects of his life which anchor his stability and sense of security would be changed.
The justices were therefore right to give significant weight to the desirability of preserving the status quo.
This is a factor which will not always command the importance that must be attached to it in the present case but we are satisfied that it was of considerable significance in the debate as to where this childs best interests lay.
For that reason, it is perhaps regrettable that such a radical change to Harrys residence and contact arrangements came about as a result of the conditions imposed by the Court of Appeal.
Conscious of the need to minimise the sense of bewilderment that can accompany abrupt and substantial changes to a childs living arrangements, we made a transitional order that provided for a phased return to those that were in place before.
We consider that, as a general rule, conditions such as were imposed by the Court of Appeal in this case should not be made where a party seeks permission to appeal, not least because these might be seen as an unwarranted disincentive to the pursuit of what proved in this case to be a fully merited application.
| UK-Abs | H is a three year old child whose parents separated before his birth.
From the date of his birth until very recently, H has lived with his maternal grandmother, GB.
Hs mother, GLB, lived with her mother and H intermittently at GBs home from the time he was born until July 2006.
She left GBs home then and has not returned.
In November 2006, GB was granted, by consent, a residence order in respect of H.
On the same occasion orders for contact were made in favour of Hs father, RJB.
In May 2008, RJB applied for a residence order in respect of H. By the time the application was heard in the Family Proceedings Court in March 2009, RJB had married and his new wife was expecting their child.
RJBs application, which was supported by Hs mother, was refused.
In making their decision, the justices noted that they had not found compelling reasons to disrupt the continuity of care that GB provided H. RJB appealed the justices decision.
That appeal was successful in the High Court, the judge finding that the justices had been plainly wrong in making the residence order in favour of GB, having been distracted by the settled way in which H had been brought up by GB.
In April 2009, the High Court made an order that H should reside with RJB.
The order of the High Court was appealed by GB in the Court of Appeal.
The Court of Appeal dismissed the appeal holding that in giving disproportionate weight to the status quo the justices had made an error of law sufficient to entitle the circuit judge to overrule their decision.
Applying Re G (Children) (Residence: Same Sex Partner) [2006] 1 WLR 2305, and in particular the observations in that case of Lord Nicholls, the Court of Appeal held that although a childs welfare was the courts paramount consideration, the court should always bear in mind that, ordinarily, the rearing of a child by his biological parent could be expected to be in his best interests.
The Supreme Court unanimously allowed the appeal by GB.
In doing so, it reaffirmed the central message in Re G that, where in a case between private individuals a childs custody or upbringing is in question, the welfare of the child is the paramount consideration.
The judgment delivered by Lord Kerr was the judgment of the court to which all of its members contributed.
A childs welfare is the paramount consideration in the determination of the question of his or her residence. (Paragraphs [18] [19], [32] [37]) The justices decision was not plainly wrong.
They had recognised that Hs welfare was the paramount consideration and had carefully evaluated the evidence before them, correctly weighing up the various competing factors.
For this reason, both the judge and the Court of Appeal had erred in overturning the justices decision. (Paragraphs [9] [15], [37] [39]) Both the judge and the Court of Appeal misinterpreted Re G.
When, in that case, Lord Nicholls said that courts should keep in mind that the interests of a child will normally be best served by being reared by his or her biological parent, he was doing no more than reflecting common experience that, in general, children tend to thrive when brought up by parents to whom they have been born.
All consideration of the importance of parenthood in private law disputes about residence must be firmly rooted in an examination of what is in the childs best interests.
This is the paramount consideration.
It is only as a contributor to the childs welfare that parenthood assumes any significance.
In common with all other factors bearing on what is in the best interests of the child, it must be examined for its potential to fulfil that aim. (Paragraphs [1], [17], [23] [25], [32] [37]) Any discussion of a childs right to be brought up by its natural parents is misplaced.
The only consideration for the court is the childs welfare; to talk of a childs rights detracts from that consideration. (Paragraphs [18] [19]) In this case, there was reason to believe that if Hs bond with GB were broken his current stability would be threatened.
Whilst RJB was assessed as capable of meeting Hs needs, he had recently undergone significant changes in his own domestic position and his arrangements were untested at the time the justices made their decision.
In deciding where Hs best interests lay the justices were therefore right to give significant weight to maintaining the status quo in Hs living arrangements. (Paragraphs [40] [41])
|
A is a former senior member of the Security Service, B its Director of Establishments.
A wants to publish a book about his work in the Security Service.
For this he needs Bs consent: unsurprisingly, A is bound by strict contractual obligations as well as duties of confidentiality and statutory obligations under the Official Secrets Act 1989.
On 14 August 2007, after lengthy top secret correspondence (and following final consideration by the Director General), B refused to authorise publication of parts of the manuscript.
The correspondence (and annexures) described in detail the Security Servicess national security objections to disclosure.
On 13 November 2007 A commenced judicial review proceedings to challenge Bs decision.
He claims that it was unreasonable, vitiated by bias and contrary to article 10 of the European Convention on Human Rights, the right to freedom of expression.
Is such a challenge, however, one that A can bring in the courts or can it be brought only in the Investigatory Powers Tribunal (the IPT)? That is the issue now before the Court and it is one which depends principally upon the true construction of section 65(2)(a) of the Regulation of Investigatory Powers Act 2000 (RIPA): (a) they are proceedings against any of the intelligence services; (2) The jurisdiction of the Tribunal shall be (a) to be the only appropriate tribunal for the purposes of section 7 of the Human Rights Act 1998 in relation to any proceedings under subsection (1)(a) of that section (proceedings for actions incompatible with Convention rights) which fall within subsection (3) of this section;
Subsection (3) provides that proceedings fall within this section if
Collins J decided that the Administrative Court had jurisdiction to hear As challenge: [2008] 4 All ER 511 (4 July 2008).
The Court of Appeal (Laws and Dyson LJJ, Rix LJ dissenting) reversed that decision, holding that exclusive jurisdiction lies with the IPT: [2009] 3 WLR 717 (18 February 2009).
Before turning to the rival contentions it is convenient to set out the legislative provisions most central to the arguments advanced.
The Human Rights Act 1998 (HRA) by section 7 provides: (1) A person who claims that a public authority has acted (or proposes to act) in a way which is made unlawful by section 6(1) may (a) bring proceedings against the authority under this Act in the appropriate court or tribunal, or (b) rely on the Convention right or rights concerned in any legal proceedings, but only if he is (or would be) a victim of the unlawful act. (2) In subsection (1) (a) appropriate court or tribunal means such court or tribunal as may be determined in accordance with rules; and proceedings against an authority include a counterclaim or similar proceeding. (9) In this section rules means (a) in relation to proceedings before a court or tribunal outside Scotland, rules made by . the Lord Chancellor or the Secretary of State for the purposes of this section or rules of court.
Pursuant to section 7(9), CPR 7.11 (introduced, like HRA, with effect from 2 October 2000) provides: (1) A claim under section 7(1)(a) of the Human Rights Act 1998 in respect of a judicial act may be brought only in the High Court. (2) Any other claim under section 7(1)(a) of that Act may be brought in any court.
The only tribunals upon whom section 7(1)(a) HRA jurisdiction has been conferred by rules made under section 7(9) are the Special Immigration Appeals Commission (SIAC) and the Proscribed Organisations Appeal Commission (POAC) not, contrary to the Court of Appeals understanding (see paras 20, 33 and 56 of the judgments below), the Employment Tribunal.
I have already set out section 65(2)(a) of RIPA.
Section 65(1) made provision for the establishment of the IPT and schedule 3 to the Act provides for its membership.
Currently its President is Mummery LJ and its Vice President, Burton J. Section 67(2) provides: Where the tribunal hear any proceedings by virtue of section 65(2)(a), they shall apply the same principles for making their determination in those proceedings as would be applied by a court on an application for judicial review.
Section 67(7) empowers the Tribunal to make any such award of compensation or other order as they think fit.
Section 67(8) provides: Except to such extent as the Secretary of State may by order otherwise provide, determinations, awards, orders and other decisions of the Tribunal (including decisions as to whether they have jurisdiction) shall not be subject to appeal or be liable to be questioned in any court.
Subject to any rules made under section 69, the Tribunal shall be entitled to determine their own procedure in relation to any proceedings, complaint or reference brought before or made to them.
Section 68(1) provides: Section 68(4) provides: Where the Tribunal determine any proceedings, complaint or reference brought before or made to them, they shall give notice to the complainant which (subject to any rules made by virtue of section 69(2)(i)) shall be confined, as the case may be, to either (a) a statement that they have made a determination in his favour; or (b) a statement that no determination has been made in his favour.
Section 69 confers on the Secretary of State the rule making power pursuant to which were made the Investigatory Powers Tribunal Rules 2000 (SI No 2000/2665) (the Rules).
Section 69(6) provides: In making rules under this section the Secretary of State shall have regard, in particular, to the need to secure that matters which are the subject of (a) proceedings, complaints or references brought before or made to the Tribunal are properly heard and considered; and (b) the need to secure that information is not disclosed to an extent, or in a manner, that is contrary to the public interest or prejudicial to national security, the prevention or detection of serious crime, the economic well being of the United Kingdom or the continued discharge of the functions of any of the intelligence services.
Rule 13(2) provides that where the Tribunal make a determination in favour of the complainant they shall provide him with a summary of that determination including any findings of fact (to this extent qualifying section 68(4)(a) of the Act).
Rule 6(1) gives effect to section 69(6)(b) by providing that the Tribunal shall carry out their functions in such a way as to meet the stipulated need with regard to the non disclosure of information.
The effect of rules 6(2) and (3) is that, save with the consent of those concerned, the Tribunal may not disclose to the complainant or any other person any information or document disclosed or provided to them in the course of any hearing or the identity of any witness at that hearing.
Rule 9 provides that the Tribunal are under no duty to hold oral hearings and may hold separate oral hearings for the complainant and the public authority against which the proceedings are brought.
Rule 9(6) provides that: The Tribunals proceedings, including any oral hearings, shall be conducted in private.
In Applications Nos.
IPT/01/62 and IPT/01/77 (23 January 2003) the IPT
ruled on various preliminary issues of law regarding the legality of a number of the rules.
They held that rule 9(6) was ultra vires section 69 of RIPA as being incompatible with article 6 of the Convention but that in all other respects the Rules are valid and binding on the Tribunal and are compatible with articles 6, 8 and 10 of the Convention (para 12 of the IPTs 83 page ruling which is itself the subject of a pending application before the European Court of Human Rights (ECtHR)).
Consequent on their ruling on rule 9(b) the IPT published the transcript of the hearing in that case and now hear argument on points of law in open court.
A accepts that the legal challenge he is making to Bs decision is properly to be characterised as proceedings under section 7(1)(a) of HRA within the meaning of section 65(2)(a) of RIPA (and not, as he had argued before the judge at first instance, that he should be regarded merely as relying on his article 10 rights pursuant to section 7(1)(b) HRA), and that these are proceedings against one of the Intelligence Services within the meaning of section 65(3)(a) (and not, as he had argued before the Court of Appeal, against the Crown).
He nevertheless submits that he is not required by section 65(2)(a) to proceed before the IPT.
His first and main argument the argument which prevailed before Collins J and was accepted also by Rix LJ is that he is entitled to proceed either by way of judicial review or before the IPT, entirely at his own choice.
Section 65(2)(a), he submits, excludes the section 7(1)(a) jurisdiction of any other tribunal but not that of the courts.
His second and alternative argument (not advanced in either court below) is that, even if section 65(2)(a) is to be construed as conferring exclusive section 7(1)(a) jurisdiction on the IPT, it does so only in respect of proceedings against the intelligence services arising out of the exercise of one of the investigatory powers regulated by RIPA.
This, of course, would involve narrowing the apparent width of the expression proceedings against any of the intelligence services in section 65(3)(a) and, if correct, means that A here could not proceed before the IPT even if he wished to do so.
Justice have intervened in the appeal in support of As submissions.
Like A, they urge us to adopt as narrow a construction of section 65 as possible, first, so as not to exclude the jurisdiction of the ordinary courts and, secondly, to avoid a construction which they submit will inevitably give rise to breaches of other Convention rights, most notably the article 6 right to a fair hearing.
Argument 1 Section 65(2)(a) excludes only the jurisdiction of other tribunals
This argument focuses principally upon the use of the word tribunal in the expression only appropriate tribunal in section 65(2)(a).
A says it that it means tribunals only and not courts; B says that it encompasses both.
A says that if it was intended to exclude courts as well as tribunals it would have used the same expression, the appropriate forum, as was used in section 65(2)(b), 65(4) and 65(4A) of RIPA.
B points out that those three provisions all deal with complaints, for which provision had originally been made in the Security Service Act 1989 and the Intelligence Services Act 1994 and which are not the same as legal claims, forum being, therefore, a more appropriate term to describe the venue for their resolution.
Plainly the word tribunal, depending on the context, can apply either to tribunals in contradistinction to courts or to both tribunals and courts.
As B points out, section 195(1) of the Extradition Act 2003 describes the appropriate judge (a designated District Judge) as the only appropriate tribunal in relation to section 7(1)(a) HRA proceedings.
So too section 11 of the Prevention of Terrorism Act 2005 describes the court (as thereafter defined) as the appropriate tribunal for the purposes of section 7 of the Human Rights Act.
Section 7(2) of HRA itself appears to require that a court or tribunal is designated as the appropriate court or tribunal, not that both are designated.
Couple with that the use of the word only before the phrase appropriate tribunal in section 65 and it seems to me distinctly unlikely that Parliament was intending to leave it to the complainant to choose for himself whether to bring his proceedings in court or before the IPT.
There are, moreover, powerful other pointers in the same direction.
Principal amongst these is the self evident need to safeguard the secrecy and security of sensitive intelligence material, not least with regard to the working of the intelligence services.
It is to this end, and to protect the neither confirm nor deny policy (equally obviously essential to the effective working of the services), that the Rules are as restrictive as they are regarding the closed nature of the IPTs hearings and the limited disclosure of information to the complainant (both before and after the IPTs determination).
There are, however, a number of counterbalancing provisions both in RIPA and the Rules to ensure that proceedings before the IPT are (in the words of section 69(6)(a)) properly heard and considered.
Section 68(6) imposes on all who hold office under the Crown and many others too the widest possible duties to provide information and documents to the IPT as they may require.
Public interest immunity could never be invoked against such a requirement.
So too sections 57(3) and 59(3) impose respectively upon the Interception of Communications Commissioner and the Intelligence Services Commissioner duties to give the IPT all such assistance as it may require.
Section 18(1)(c) disapplies the otherwise highly restrictive effect of section 17 (regarding the existence and use of intercept material) in the case of IPT proceedings.
And rule 11(1) allows the IPT to receive evidence in any form, and [to] receive evidence that would not be admissible in a court of law.
All these provisions in their various ways are designed to ensure that, even in the most sensitive of intelligence cases, disputes can be properly determined.
None of them are available in the courts.
This was the point that so strongly attracted Dyson LJ in favour of Bs case in the court below.
As he pithily put it at [2009] 3 WLR 717, para 48: It seems to me to be inherently unlikely that Parliament intended to create an elaborate set of rules to govern proceedings against an intelligence service under section 7 of the 1998 Act in the IPT and yet contemplated that such proceedings might be brought before the courts without any rules.
A further telling consideration against the contention that section 65(2)(a) is intended only to exclude other tribunals with jurisdiction to consider section 7(1)(a) HRA claims is that there are in fact none such with section 7(1)(a) jurisdiction over the categories of claim listed in section 65(3).
As stated (at para 4 above), only SIAC and POAC have section 7(1)(a) jurisdiction and in each instance that is with regard to matters outside the scope of section 65.
The Court of Appeal were under the misapprehension that the Employment Tribunal too had section 7(1)(a) jurisdiction and were accordingly mistaken in supposing, as Rix LJ put it at para 33, that [t]herefore, section 65(2)(a) of the 2000 Act has content as referring to the IPT as the only appropriate tribunal.
In the light of these various considerations it is hardly surprising that A himself recognises that this construction produces a slightly unsatisfactory legislative outcome, although he submits that this is a small price to pay for protecting the article 6 rights of claimants and respecting the principle that access to the courts should not be denied save by clear words, a submission to which I shall come after considering As alternative contended for construction.
Argument 2 Section 65(2)(a) confers exclusive jurisdiction on the IPT but only in respect of proceedings arising out of the exercise of one of the RIPA regulated
investigatory powers
Although this was not an argument advanced at any stage below, I confess to having been attracted to it for a while.
After all, in enacting RIPA, Parliament must have had principally in mind the use and abuse of the particular investigatory powers regulated by the Act and there would not appear to be the same need for secrecy, the withholding of information and the neither confirm nor deny policy in the case of an ex officer as in the case of someone outside the intelligence community.
The difficulties of such a construction, however, are obvious and in the end, to my mind, insurmountable.
As already observed, it would involve reading into section 65(3)(a) limiting words which are simply not there.
This would be difficult enough at the best of times.
Given, however, that other paragraphs of section 65(3) are in fact more obviously directed to complaints of abuse of the intelligence services regulatory powers (see particularly section 65(3)(d) read with sections 65(5)(a) and 65(7), none of which I have thought it necessary to set out), it seems to me quite impossible to construe the section as this argument invites us to do.
Nor, indeed, on reflection, does it seem right to regard proceedings of the kind intended here as immune from much the same requirement for non disclosure of information as other proceedings against the intelligence services.
As B points out, it is perfectly possible that the security service will ask the tribunal hearing this dispute to consider additional material of which A may be unaware (and of which the security service is properly concerned that he should remain unaware) which leads it to believe that the publication of As manuscript would be harmful to national security.
On any view, moreover, the proceedings by which any tribunal comes to determine whether the disputed parts of the manuscript can safely be published would have to be heard in secret.
Again, therefore, the existence of the IPT Rules designed to provide for just such proceedings and the lack of any equivalent rules available to the courts points strongly against this alternative construction also.
Are there, however, sufficiently strong arguments available to A (and Justice) to compel the court, with or without resort to section 3 of HRA, to adopt a contrary construction of section 65? It is convenient to consider these arguments under three broad heads.
i. Ouster
A and Justice argue that to construe section 65 as conferring exclusive jurisdiction on the IPT constitutes an ouster of the ordinary jurisdiction of the courts and is constitutionally objectionable on that ground.
They pray in aid two decisions of high authority: Pyx Granite Co Ltd v Ministry of Housing and Local Government [1960] AC 260 and Anisminic Ltd v Foreign Compensation Commission [1969] 2 AC 147.
To my mind, however, the argument is unsustainable.
In the first place, it is evident, as the majority of the Court of Appeal pointed out, that the relevant provisions of RIPA, HRA and the CPR all came into force at the same time as part of a single legislative scheme.
With effect from 2 October 2000 section 7(1)(a) HRA jurisdiction came into existence (i) in respect of section 65(3) proceedings in the IPT pursuant to section 65(2)(a), and (ii) in respect of any other section 7(1)(a) HRA proceedings in the courts pursuant to section 7(9) and CPR 7.11.
True it is, as Rix LJ observed, that CPR 7.11(2) does not explicitly recognise the exception to its apparent width represented by section 65(2)(a).
But that is not to say that section 65(2)(a) ousts some pre existing right.
This case, in short, falls within the principle recognised by the House of Lords in Barraclough v Brown [1897] AC 615 where, as Lord Watson said at p 622: The right and the remedy are given uno flatu, and the one cannot be dissociated from the other. rather than the principle for which Pyx Granite stands (p 286): It is a principle not by any means to be whittled down that the subjects recourse to Her Majestys courts for the determination of his rights is not to be excluded except by clear words.
Distinguishing Barraclough v Brown, Viscount Simonds pointed out that the statute there in question could be construed as merely providing an alternative means of determining whether or not the company had a pre existing common law right to develop their land; it did not take away the inalienable remedy . to seek redress in [the courts].
Before 2 October 2000 there was, of course, no pre existing common law or statutory right to bring a claim based on an asserted breach of the Convention.
Section 65(2)(a) takes away no inalienable remedy.
Nor does Anisminic assist A.
The ouster clause there under consideration purported to remove any judicial supervision of a determination by an inferior tribunal as to its own jurisdiction.
Section 65(2)(a) does no such thing.
Parliament has not ousted judicial scrutiny of the acts of the intelligence services; it has simply allocated that scrutiny (as to section 7(1)(a) HRA proceedings) to the IPT.
Furthermore, as Laws LJ observed at para 22: [S]tatutory measures which confide the jurisdiction to a judicial body of like standing and authority to that of the High Court, but which operates subject to special procedures apt for the subject matter in hand, may well be constitutionally inoffensive.
The IPT . offers . no cause for concern on this score.
True it is that section 67(8) of RIPA constitutes an ouster (and, indeed, unlike that in Anisminic, an unambiguous ouster) of any jurisdiction of the courts over the IPT.
But that is not the provision in question here and in any event, as A recognises, there is no constitutional (or article 6) requirement for any right of appeal from an appropriate tribunal.
The position here is analogous to that in Farley v Secretary of State for Work and Pensions (no. 2) [2006] 1 WLR 1817 where the statutory provision in question provided that, on an application by the Secretary of State for a liability order in respect of a person liable to pay child support, the court . shall not question the maintenance assesment under which the payments of child support maintenance fall to be made.
Lord Nicholls, with whom the other members of the Committee agreed, observed, at para 18: The need for a strict approach to the interpretation of an ouster provision . was famously confirmed in the leading case of Anisminic .
This strict approach, however, is not appropriate if an effective means of challenging the validity of a maintenance assessment is provided elsewhere.
Then section 33(4) is not an ouster provision.
Rather, it is part of a statutory scheme which allocates jurisdiction to determine the validity of an assessment and decide whether the defendant is a liable person to a court other than the magistrates court.
Convention rights
A and Justice submit that to force this article 10 challenge into the IPT would inevitably result in breaches of article 6.
In support of this submission they rely principally upon the following features of the IPTs procedures: first, that the entire hearing (save for purely legal argument) will be not only private but secret, indeed claimants may not even be told whether a hearing has been or will be held; secondly, that the submissions and evidence relied on respectively by the claimant and the respondent may be considered at separate hearings; thirdly, that only with the respondents consent will the claimant be informed of the opposing case or given access to any of the respondents evidence; fourthly, that no reasons will be given for any adverse determination.
All of this, runs the argument, is flatly contrary to the basic principles of open justice: that there should be a public hearing at which the parties have a proper opportunity to challenge the opposing case and after which they will learn the reasons for an adverse determination.
As, however, already explained (at para 14), claims against the intelligence services inevitably raise special problems and simply cannot be dealt with in the same way as other claims.
This, indeed, has long since been recognised both domestically and in Strasbourg.
It is sufficient for present purposes to cite a single paragraph from the speech of Lord Bingham of Cornhill in R v Shayler [2003] 1 AC 247, para 26 (another case raising article 10 considerations): The need to preserve the secrecy of information relating to intelligence and military operations in order to counter terrorism, criminal activity, hostile activity and subversion has been recognised by the European Commission and the Court in relation to complaints made under article 10 and other articles under the Convention: see Engel v The Netherlands (No 1) (1976) 1 EHRR 647, paras 100 103; Klass v Federal Republic of Germany (1978) 2 EHRR 214, para 48; Leander v Sweden (1987) 9 EHRR 433, para 59; Hadjianastassiou v Greece (1992) 16 EHRR 219, paras 45 47; Esbester v United Kingdom (1993) 18 EHRR CD 72, 74; Brind v United Kingdom (1994) 18 EHRR CD 76, 83 84; Murray v United Kingdom (1994) 19 EHRR 193, para 58; Vereniging Weekblad Bluf! v The Netherlands (1995) 20 EHRR 189, paras 35, 40.
The thrust of these decisions and judgments has not been to discount or disparage the need for strict and enforceable rules but to insist on adequate safeguards to ensure that the restriction does not exceed what is necessary to achieve the end in question.
The acid test is whether, in all the circumstances, the interference with the individuals Convention right prescribed by national law is greater than is required to meet the legitimate object which the state seeks to achieve.
The OSA 1989, as it applies to the appellant, must be considered in that context.
In one of the Strasbourg cases there referred to, Esbester v United Kingdom, and indeed in a series of other cases brought against the UK at about the same time, the Strasbourg Commission rejected complaints as to the form of proceedings adopted by the Security Service Tribunal and the Interception of Communications Tribunal, not least as to the absence of a reasoned determination.
I acknowledge that later in his opinion in Shayler (at para 31) Lord
Bingham, contemplating the possibility that authority to publish might have been refused without adequate justification (or at any rate where the former member firmly believed that no adequate justification existed), said: In this situation the former member is entitled to seek judicial review of the decision to refuse, a course which the OSA 1989 does not seek to inhibit.
In that case, however, the disclosures had been made before the enactment of RIPA and the creation of the IPT and it is plain that the House had not been referred to section 65(2)(a), still less had had occasion to consider its scope.
It cannot sensibly be supposed that the case would have been decided any differently had it been recognised that after 2 October 2000 such a challenge would have had to be brought before the IPT.
Admittedly the Esbester line of cases were decided in the context of article 8 (rather than article 10) and, understandably, Strasbourg attaches particular weight to the right to freedom of expression.
Neither A nor Justice, however, were able to show us any successful article 10 cases involving national security considerations save only for Sunday Times v UK (no. 2) (1991) 14 EHRR 229 (Spycatcher) where, of course, the disputed material was already in the public domain.
For my part I am wholly unpersuaded that the hearing of As complaint in the IPT will necessarily involve a breach of article 6.
There is some measure of flexibility in the IPTs rules such as allows it to adapt its procedures to provide as much information to the complainant as possible consistently with national security interests.
In any event, of course, through his lengthy exchanges with B, A has learned in some detail why objections to publication remain.
Article 6 complaints fall to be judged in the light of all the circumstances of the case.
We would, it seems to me, be going further than the Strasbourg jurisprudence has yet gone were we to hold in the abstract that the IPT procedures are necessarily incompatible with article 6(1).
Consistently with the well known rulings of the House of Lords in R (Ullah) v Special Adjudicator [2004] 2 AC 323 para 20 and R (Al Skeini) v Secretary of State for Defence [2008] 1 AC 153 paras 105, 106, I would decline to do so, particularly since, as already mentioned, the IPTs own decision on its rules is shortly to be considered by the ECtHR.
Over and above all this is the further and fundamental consideration, that even if the IPTs Rules and procedures are in any way incompatible with article 6, the remedy for that lies rather in their modification than in some artificially limited construction of the IPTs jurisdiction.
It is, indeed, difficult to understand which of the appellants contended for constructions is said to be advanced by this submission.
On any view the IPT has some jurisdiction.
Yet the argument involves a root and branch challenge to its procedures in all cases.
Anomalies
The Court of Appeals construction of section 65(2)(a) is said to give rise to a number of anomalies.
Under this head I shall touch too upon certain other points advanced variously by A and Justice.
The first anomaly is said to be that while section 7(1)(a) HRA proceedings have to be brought before the IPT, other causes of action or public law grounds for judicial review need not.
This point troubled Rix LJ who asked ([2009] 3WLR 717, para 39): what is so special about section 7 proceedings under the 1998 Act against the intelligence services . ? The answer surely is that such claims are the most likely to require a penetrating examination of the justification for the intelligence services actions and, therefore, close scrutiny of sensitive material and operational judgment.
But it may well be (as, indeed, Rix LJ foresaw) that section 65(2)(d) of RIPA will be brought into force so that the Secretary of State can allocate other proceedings too exclusively to the IPT.
Meantime, subject always to the courts abuse of process jurisdiction and the exercise of its discretion in public law cases, proceedings outside section 7(1)(a) can still be brought in the courts so that full effect is given to the preservation of such rights by section 11 of HRA.
It is similarly said to be anomalous that whereas A, responsibly seeking prior clearance for the publication of his manuscript, is driven into the IPT, someone in a similar position, although perhaps facing injunctive proceedings for having sought to publish without permission, would be entitled pursuant to section 7(1)(b) HRA to rely in those ordinary court proceedings on their article 10 rights.
Whilst I readily see the force of this, the answer to it may be that defences were not sufficiently thought through at the time of this legislation and that more, rather than fewer, proceedings involving the intelligence services should be allocated exclusively to the IPT.
A further anomaly is said to be that Special Branch police officers and Ministry of Defence special forces may well carry out work of comparable sensitivity to that undertaken by the intelligence services and yet section 7(1)(a) HRA claims brought against them would proceed in the ordinary courts and not in the IPT.
Part of the answer to this is to be found in the special position of those employed in the security and intelligence services, and the special nature of the work they carry out (Lord Binghams opinion in Shayler at para 36); the rest in the same response as to the earlier points: perhaps the IPTs exclusive jurisdiction should be widened.
Sitting a little uneasily alongside the last suggested anomaly is the contention that section 65(2)(a) vests in the IPT exclusive jurisdiction over various kinds of proceedings against people quite other than the intelligence services which may involve little if anything in the way of sensitive material for example, pursuant to section 65(3)(c), proceedings under section 55(4) of RIPA with regard to accessing encrypted data.
Whatever view one takes about this, however, it is impossible to see how it supports either of the alternative constructions of section 65 for which A contends.
In short, none of the suggested anomalies resulting from the Court of Appeals construction seems to me to cast the least doubt on its correctness let alone to compel some strained alternative construction of the section.
I see no reason to doubt that the IPT is well able to give full consideration to this dispute about the publication of As manuscript and, adjusting the procedures as necessary, to resolve it justly.
Quite why A appears more concerned than B about the lack of any subsequent right of appeal is difficult to understand.
Either way, Parliament has dictated that the IPT has exclusive and final jurisdiction in the matter.
I would dismiss the appeal.
I agree with Lord Browns opinion.
I wish only to add a few brief footnotes.
LORD HOPE
The Rules
As Lord Brown has explained (see para 14, above), among the factors that reinforce the conclusion that is to be drawn from the terms of the statute that Parliament did not intend to leave it to the complainant to choose for himself whether to bring his proceedings in a court or before the IPT are the provisions that RIPA contains about the rules that may be made under it.
In Hanlon v The Law Society [1981] AC 124, 193 194 Lord Lowry set out the circumstances in which a regulation made under a statutory power was admissible for the purpose of construing the statute under which it was made.
The use of the rules themselves as an aid to construction, in addition to what RIPA itself says about them, needs however to be treated with some care.
In Deposit Protection Board v Dalia [1994] 2 AC 367 the issue was as to the meaning of the word depositor, and the regulations that were prayed in aid were made four years after the date of the enactment.
At p 397 Lord Browne Wilkinson said that regulations could only be used an aid to construction where the regulations are roughly contemporaneous with the Act being construed.
In Dimond v Lovell [2000] QB 216, para 48 Sir Richard Scott VC said that he did not think that the content of regulations which postdated the Consumer Credit Act 1974 by some nine years could be taken to be a guide to what Parliament intended by the language used in the Act.
One must also bear in mind, as Lord Lowry said in Hanlon at p 193 194, that regulations cannot be said to control the meaning of the Act, as that would be to disregard the role of the court as interpreter.
In this case the statute received the Royal Assent on 28 July 2000.
The Investigatory Powers Tribunal Rules 2000 (SI 2000/2665) were made on 28 September 2000 and laid before Parliament the next day.
The interval was so short that, taken together, they can be regarded as all part of same legislative exercise.
But, as Mr Crow QC for B submitted, it is not the content of the rules as such that matters here.
Rather it is the fact that the Act itself put a specialist regime in place to ensure that the IPT was properly equipped to deal with sensitive intelligence material.
Section 68(4) of RIPA limits the information that the Tribunal may give to a complainant where they determine any complaint brought before them to a statement that a determination either has been or has not been made in the complainants favour.
Section 69(4) states that the Secretary of States power to make rules under that section includes power to make rules that limit the information that is given to the complainant and the extent of his participation in the proceedings.
Section 69(6)(b) states that in making rules under that section the Secretary of State shall have regard in particular to the need to secure that information is not disclosed to an extent that is contrary to the public interest or prejudicial to national security.
The fact that this regime was so carefully designed to protect the public interest by the scheme that is set out in the statute is in itself a strong pointer to the conclusion that Parliament did not intend by section 65(2)(a) that the jurisdiction of the IPT in relation to claims of the kind that A seeks to bring in this case was to be optional.
I do not think that it is necessary to go further and look at the Rules themselves, as the indication that the statute itself gives is so clear on this point.
Anomalies
Although he adopted a different stance before Collins J, as the judge recorded in para 20 of his opinion [2008] EWHC 1512 (Admin), A now accepts that the legal challenge that he is making to Bs decision is properly to be characterised as proceedings under section 7(1)(a) of the Human Rights Act 1998 and not under section 7(1)(b) of that Act.
Section 7(1)(a) of the 1998 Act provides that a person who claims that a public authority has acted (or proposes to act) in a way which is made unlawful by section 6(1) may bring proceedings against the authority under this Act in the appropriate court of tribunal.
Section 7(1)(b) provides, in the alternative, that he may rely on the Convention right or rights concerned in any legal proceedings.
As Clayton & Tomlinson, The Law of Human Rights, 2nd ed (2009), para 22.03, puts it: This section contemplates two ways in which a person may advance a contention that a public authority has acted in a way which is incompatible with his Convention rights: either by making a free standing claim based on a Convention right in accordance with section 7(1)(a) or by relying on a Convention right in proceedings in accordance with section 7(1)(b).
In R v Kansal (No 2) [2002] 2 AC 69, 105 106 I said that section 7(1)(a) and section 7(1)(b) are designed to provide two quite different remedies.
Section 7(1)(a) enables the victim of the unlawful act to bring proceedings under the Act against the authority.
It is intended to cater for free standing claims made under the Act where there are no other proceedings in which the claim can be made.
It does not apply where the victim wishes to rely on his Convention rights in existing proceedings which have been brought against him by a public authority.
His remedy in those proceedings is that provided by section 7(1)(b), which is not subject to the time limit on proceedings under section 7(1)(a) prescribed by section 7(5); see also Wilson v First County Trust Ltd (No 2) [2004] 1 AC 816, para 90.
The purpose of section 7(1)(b) is to enable persons against whom proceedings have been brought by a public authority to rely on the Convention rights for their protection.
The fact that section 65(2)(a) requires proceedings under section 7(1)(a) to be brought before the IPT, while relying on section 7(1)(b) was not subject to this requirement, was said by Mr Millar QC to be anomalous.
Why, he said, should a claim be so restricted when a defence relying on Convention rights to injunctive proceedings by a public authority, or a counterclaim, was not? I am reluctant to conclude that the omission of a reference to section 7(1)(b) was due to an oversight, and I do not think that when regard is had to the purpose of these provisions there is any anomaly.
I would reject the suggestion that a counterclaim against a public authority on the ground that it has acted (or proposes to act) in a way that is made unlawful under section 6(1) of the 1998 Act should be regarded as having been made under section 7(1)(b).
This issue is not to be resolved by reference to the procedural route by which the claim is made but by reference to the substance of the claim.
A counterclaim against a public authority for a breach of Convention rights is to be treated as a claim for the purposes of section 7(1)(a): see section 7(2) which states that proceedings against an authority include a counterclaim or similar proceedings.
It will be subject to the time limit on proceedings under that provision in section 7(5).
As for defences, the scheme of the 1998 Act is that a person who is (or would be) a victim of an act that it is made unlawful by section 6(1) because the public authority has acted (or proposes to act) in that way is entitled to raise that issue as a defence in any legal proceedings that may be brought against him.
Section 7(1)(b) contemplates proceedings in which it would be open to the court or tribunal to grant relief against the public authority on grounds relating to a breach of the persons Convention rights, such as those guaranteed by article 6.
The scope for inquiry is relatively limited in comparison with that which may be opened up by a claim made under section 7(1)(a).
It is possible, however, to envisage a situation in which a defence to an application for injunctive relief by the intelligence services would open up for inquiry issues of the kind that section 65(2)(a) of RIPA reserves for determination by the IPT if they were to be subject of a claim under section 7(1)(a), the disclosure of which would be contrary to the public interest or prejudicial to national security.
It is true that the legislation does not address this problem, perhaps because it was thought inappropriate to reserve to the IPT proceedings that were initiated by and in the control of the intelligence services or any other person in respect of conduct on their behalf.
But the situation that this reveals is, I think, properly to be regarded as a product of the way the legislative scheme itself was framed.
It does not provide a sound reason for thinking that Parliament intended to leave it to the complainant to choose whether to bring his proceedings in a court rather than before the IPT.
Like Lord Brown, I can find nothing in this alleged anomaly, or in any of the others that have been suggested, that supports the construction of section 65(2)(a) for which A contends.
| UK-Abs | A is a former member of the Security Service, B its Director of Establishments.
A wants to publish a book about his work in the Security Service.
A duty of confidentiality binds A and he cannot publish material relating to the Security Service without Bs consent.
B refused As application for consent to publish.
As a result, A began proceedings in the High Court to challenge Bs decision.
He claimed, amongst other things, that his right to freedom of expression under article 10 of the European Convention on Human Rights had been breached.
B argued that section 65(2)(a) of the Regulation of Investigatory Powers Act 2000 (RIPA) provided that the Investigatory Powers Tribunal (the IPT) was the only appropriate tribunal in relation to proceedings under section 7(1)(a) of the Human Rights Act 1998 brought against the intelligence services, such that the High Court did not have jurisdiction to entertain As article 10 claim.
The High Court held that it had jurisdiction to hear As challenge.
The Court of Appeal, by a majority, reversed the High Courts decision, holding that exclusive jurisdiction did lie with the IPT.
A appealed to the Supreme Court.
Justice (an all party law reform and human rights organisation) intervened in the appeal in support of As submissions.
The Supreme Court unanimously dismissed As appeal.
Lord Brown, with whom all the members of the Court agreed, gave the leading judgment.
Lord Hope gave a concurring opinion.
Two alternative arguments were advanced by A: Section 65(2)(a) excludes the section 7(1)(a) jurisdiction of any other tribunal but not that of the courts.
Even if section 65(2)(a) is to be construed as conferring exclusive section 7(1)(a) jurisdiction on the IPT, it does so only in respect of proceedings against the intelligence services arising out of the exercise of one of the investigatory powers regulated by RIPA.
As to the first argument, Lord Brown noted that the language of section 7(2) of the 1998 Act and the use of the word only before appropriate tribunal in section 65(2)(a) indicated that it was unlikely that Parliament was intending to leave it to a complainant to choose for himself whether to bring proceedings in court or before the IPT (Para 13).
Whilst the IPT rules made under RIPA were restrictive (e.g. in relation to the limited disclosure of information to a complainant), there were various provisions in RIPA and the IPT rules which were designed to ensure that, even in the most sensitive cases, disputes could be properly determined.
None of these provisions would be available in the courts (Para 14).
A further telling consideration against As construction was that there were in fact no other tribunals with section 7(1)(a) jurisdiction over the categories of claim listed in section 65(3) of RIPA (Para 15).
As to the second argument, Lord Brown considered that As submission would involve reading into section 65(3)(a) (which contains the phrase proceedings against any of the intelligence services) words which were simply not there.
There were, in addition, other provisions in RIPA which were more obviously directed to complaints of abuse of the intelligence services regulatory power which made it impossible to adopt As construction (Para 18).
It also did not seem right to regard proceedings of the kind intended here as immune from the same requirement for non disclosure of information as other proceedings against the intelligence services (Para 19).
Lord Brown then went on to consider whether there were sufficiently strong arguments available to A which would require the Court to construe section 65 in a way which was contrary to Lord Browns initial conclusions as to its construction.
For the reasons set out below, Lord Brown concluded that there were no such arguments available to A. Lord Brown rejected As argument to the effect that to construe section 65 as conferring exclusive jurisdiction on the IPT would constitute an ouster of the jurisdiction of the courts that would be constitutionally objectionable (Para 21).
RIPA, the 1998 Act and the Civil Procedure Rules all came into force at the same time as part of a single legislative scheme and it could not be said that section 65(2)(a) was ousting some pre existing right (Paras 21 22).
Parliament had not ousted judicial scrutiny of the acts of the intelligence services, but had simply allocated that scrutiny (as to section 7(1)(a) proceedings) to the IPT (Para 23 24).
Lord Brown also rejected the argument that forcing As article 10 challenge into the IPT would result in breaches of article 6 of the Convention.
Claims against intelligence services inevitably raise special problems that cannot be dealt with in the same way as other claims and this was recognised both domestically and by the European Court of Human Rights (Para 26).
The Court would be going further than the Strasbourg jurisprudence if it were to hold that the IPT procedures are necessarily incompatible with article 6(1) and it would decline to do so here (Para 30).
Even if the IPTs rules are in any way incompatible with article 6, the remedy would be to modify them, instead of adopting some artificially limited construction of the IPTs jurisdiction (Para 31).
The anomalies which A alleged would arise if the Court of Appeals construction were to be adopted also did not cast doubt on the correctness of the Court of Appeals decision (Paras 32 37).
|
When a court grants a decree of divorce, nullity of marriage or judicial separation it has the power to order ancillary relief.
Ancillary relief governs the financial arrangements between the husband and the wife on the breakdown of their marriage.
Sometimes the husband and wife have already made an agreement governing these matters.
The agreement may have been made before the marriage (an ante nuptial agreement) or after the marriage (a post nuptial agreement).
Post nuptial agreements may be made when the husband and wife are still together and intend to remain together, or when they are on the point of separating or have already separated.
The latter type of post nuptial agreement can be described as a separation agreement.
We shall use the generic description nuptial agreements to embrace both ante nuptial and post nuptial agreements.
A court when considering the grant of ancillary relief is not obliged to give effect to nuptial agreements whether they are ante nuptial or post nuptial.
The parties cannot, by agreement, oust the jurisdiction of the court.
The court must, however, give appropriate weight to such an agreement.
This appeal raises the question of the principles to be applied by the court when considering the weight that should be attached to an ante nuptial agreement.
The Privy Council recently considered this question in relation to a post nuptial agreement in MacLeod v MacLeod [2008] UKPC 64, [2010] 1 AC 298 and it will be necessary to consider the implications of that decision.
The approach of English law to nuptial agreements differs significantly from the law of Scotland, and more significantly from the rest of Europe and most other jurisdictions.
Most jurisdictions accord contractual status to such agreements and hold the parties to them, subject in some cases to specified safeguards or exceptions.
Under English law it is the court that is the arbiter of the financial arrangements between the parties when it brings a marriage to an end.
A prior agreement between husband and wife is only one of the matters to which the court will have regard.
The uncertainty as to the weight that the court will attach to such agreements has led to calls for reform.
The history of steps taken towards the reform of our law is set out in the judgment of Thorpe LJ at paras 16 to 23 of his judgment in this case in the Court of Appeal.
For present purposes it suffices to note the following.
Families, which included the following statement in para 4.21: In 1998 the Home Office published a consultation document, Supporting The Government is considering whether there would be advantage in allowing couples, either before or during their marriage, to make written agreements dealing with their financial affairs which would be legally binding on divorce.
In para 4.23 the Government proposed that any such agreement should be
subject to six safeguards.
It would not be legally binding: where there is a child of the family, whether or not that child was alive or a child of the family at the time the agreement was made where under the general law of contract the agreement is unenforceable, including if the contract attempted to lay an obligation on a third party who had not agreed in advance where one or both of the couple did not receive independent legal advice before entering into the agreement where the court considers that the enforcement of the agreement would cause significant injustice (to one or both of the couple or a child of the marriage) where one or both of the couple have failed to give full disclosure of assets and property before the agreement was made where the agreement is made fewer than 21 days prior to the marriage (this would prevent a nuptial agreement being forced on people shortly before their wedding day, when they may not feel able to resist).
There are many, including some members of the Family Bar and Bench, who would favour a reform along the lines proposed, but the Government has not taken its proposals further.
The Law Commission is, however, currently considering this area of the law and is expected to report in 2012.
There can be no question of this Court altering the principle that it is the Court, and not any prior agreement between the parties, that will determine the appropriate ancillary relief when a marriage comes to an end, for that principle is embodied in the legislation.
What the Court can do is to attempt to give some assistance in relation to the approach that a court considering ancillary relief should adopt towards an ante nuptial agreement between the parties.
Earlier this year Resolution, an organisation of over 5,700 family lawyers, published an updated paper on Family Agreements, which proposes legislative reform to the law of ante nuptial and post nuptial agreements.
This quotes statistics that show that about 45% of marriages are likely to end in divorce.
It comments on the strain and expense that are involved in disputes about ancillary relief, which are increased by the uncertainty of the outcome.
In order to address the facts of this particular case it will be necessary, in due course, to set these out in a little detail.
At this stage we propose to give a summary that will provide a context for the consideration of the relevant principles that will follow.
The appellant (the husband) is a French national.
The respondent (the wife) is a German national.
They signed the ante nuptial agreement in Germany on 1 August 1998.
The husband was then aged 27 and the wife 29.
They were married in London on 28 November 1998.
They had two children, Chiara, born on 4 September 1999 and Chloe, born on 25 May 2002.
In October 2006, after 8 years of marriage, they separated.
The wife petitioned for divorce in the Principal Registry of the Family Division that same month.
The husband cross petitioned in November.
They agreed to proceed undefended on cross decrees and were divorced in July 2007.
Meanwhile, the wife had applied for permission to take the girls to live in Germany.
In September 2007, His Honour Judge Collins granted that application but made a shared residence order providing that the children should divide their time between their parents.
Under his order, they were to spend just under one third of the time with their father and two thirds with their mother.
The husband made an unsuccessful application for permission to appeal that order to the Court of Appeal.
The wife took the children to live in Germany in February 2008.
However, in November 2008 (after the judgment of Baron J in the ancillary relief proceedings), she applied to the German court for permission to take them to live in Monaco.
The husband resisted this, but permission was granted in May 2009 and that is where they now live.
The ante nuptial agreement was drawn up in Germany by a notary.
It contained a choice of law clause that provided that the effects of their marriage, including the laws of matrimonial property and succession, were to be subject to the law of the Federal Republic of Germany.
The main part of the agreement provided first for separation of property.
In clause 3 it was declared that the statutory matrimonial regime was to be excluded, and that each party was to manage his or her assets entirely independently.
By clause 4 the parties excluded the equalisation of pension rights.
By clause 5 they waived claims for maintenance after the marriage was terminated.
Clause 6 contained a waiver of the statutory right to a portion of the estate of the first one of them to die.
The effect of the agreement was that neither party was to derive any interest in or benefit from the property of the other during the marriage or on its termination.
It made no provision for what was to happen in the event of their having children.
The parties entered into this ante nuptial agreement at the instigation of the wife.
She came from an extremely rich family.
Some of the family wealth had already been transferred to her, so that she enjoyed substantial unearned income.
She expected to receive a further portion of the family wealth if, but only if, she entered into the ante nuptial agreement to protect this.
Her father insisted upon this.
She herself was anxious that the husband should show, by entering into the agreement, that he was marrying her for love and not for her money.
The husband was working for JP Morgan & Co and, at the time of the ante nuptial agreement, was earning about 120,000 a year and had excellent prospects.
These were realised inasmuch as he earned about $475,000 dollars in 2001 and about $320,000 in 2002.
He then became disenchanted with banking and embarked on research studies at Oxford with the object of obtaining a D Phil in biotechnology.
Despite the terms of the ante nuptial agreement the husband brought a claim for ancillary relief, seeking an order against the wife both for periodical payments and for a lump sum.
The hearing of his claim began before Baron J on 23 June 2008 and she handed down her judgment on 28 July 2008: [2008] EWHC 1532 (Fam) [2009] 1 FCR 35.
The issue that lay at the heart of the proceedings was the weight that should be given to the ante nuptial agreement.
Baron J held that the circumstances surrounding the conclusion of the agreement fell foul of a number of the safeguards set out in para 4.23 of the Home Office consultation document (see para 5 above), and for that reason, the weight to be attached to it fell to be reduced.
None the less, she held that his award should be circumscribed to a degree to reflect the fact that he had signed the agreement.
Her award also had to make provision for the two children, whose arrival had not been anticipated in the agreement.
In the event she awarded the husband a total of 5,560,000, on the basis that this would provide him with an annual income of 100,000 for life and enable him to buy a home in London, where the two children could visit him.
She awarded him periodical payments of 35,000 a year for each child until they ceased full time education.
In addition she awarded a sum to enable him to buy a home in Germany (which would remain owned by the wife) where the two children could stay with him.
The wife appealed successfully to the Court of Appeal against Baron Js order.
The Court held that Baron J had been wrong to find that the circumstances in which the ante nuptial agreement had been reached reduced the weight to be attached to the agreement.
It was not evident that the fact of the agreement had had any significant impact on her award.
In the circumstances of the case she should have given the agreement decisive weight.
The award should make provision for the husbands role as the father of the two children, but should not otherwise make provision for his own long term needs.
The case was remitted to Baron J.
Ancillary relief
The power to grant a decree of divorce was conferred on a new Court for Divorce and Matrimonial Causes by the Matrimonial Causes Act 1857.
Section 32 of that Act gave the court power to order the husband to secure maintenance for the wifes life.
The Matrimonial Causes Act 1866 gave the court power to order the husband to pay unsecured maintenance to the wife.
Having identified this starting point of the power to award ancillary relief we can jump to 1969.
The Divorce Reform Act 1969 revolutionised the English law of divorce by replacing the old grounds of divorce which were based on fault with the single ground that the marriage had irretrievably broken down.
This change was accompanied by a fresh approach to the financial consequences of divorce, which was supplied initially by the Matrimonial Proceedings and Property Act 1970, the provisions of which were largely re enacted as Part II of the Matrimonial Causes Act 1973 (the 1973 Act).
Significant changes were made to these provisions by the Matrimonial and Family Proceedings Act 1984 and the Family Law Act 1996.
The following provisions of the 1973 Act, as amended, are particularly material.
Section 23 gives the court the power, on granting a decree of divorce, of nullity of marriage or of judicial separation to make a wide variety of orders.
These include an order that either party pay to the other, or pay for the benefit of any child of the family, periodical payments, and that either party pay to the other, or for the benefit of any child of the marriage, a lump sum.
Section 24 gives the court power to direct a party to transfer specified property to the other party or to or for the benefit of a child.
No power is given to vary a property adjustment order.
Section 24B gives the court power to make a pension sharing order.
Section 31 gives the court power to vary a periodical payments order but not an order to pay a lump sum.
Section 25 provides that it shall be the duty of the court when deciding whether, and in what manner to exercise powers including those referred to above to have regard to: all the circumstances of the case, first consideration being given to the welfare while a minor of any child of the family who has not
attained the age of eighteen
The section goes on to provide that as regards the exercise of its powers in relation to a party to the marriage the court shall in particular have regard to the following matters: the standard of living enjoyed by the family before the the income, earning capacity, property and other financial (a) resources which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire; the financial needs, obligations and responsibilities which (b) each of the parties to the marriage has or is likely to have in the foreseeable future; (c) breakdown of the marriage; (d) marriage; (e) marriage; the contributions which each of the parties has made or is (f) likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family; the age of each party to the marriage and the duration of the any physical or mental disability of either of the parties to the (g) the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it; (h) in the case of proceedings for divorce or nullity of marriage, the value to each of the parties to the marriage of any benefit which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.
The principles to be applied to the grant of ancillary relief have twice been considered by the House of Lords, in cases involving substantial assets.
In White v White [2001] 1 AC 596 the parties had been married for 33 years, during which time they had together carried on the business of farming.
Their net assets were some 4.6 million.
The judge awarded the wife a lump sum of a little less than 1 million, on the basis that this would meet her reasonable needs.
The Court of Appeal allowed her appeal and held that she was entitled to a lump sum of 1.5 million, reflecting her contribution both to the business and to the family.
In the House of Lords, where the decision of the Court of Appeal was upheld, Lord Nicholls of Birkenhead gave the leading speech.
He identified the following principles.
Fairness, and indeed the 1973 Act itself, required the court to have regard to all the circumstances of the case, and there was one principle of universal application.
No distinction should be drawn between the different ways in which husband and wife contributed to the welfare of the family.
There should be no bias in favour of the money earner against the home maker and the child carer.
As a general guide equality in the division of assets should only be departed from for good reason (p 605).
Lord Nicholls went on to draw a distinction between property that one party brought to the marriage, or inherited during the marriage (inherited property) and property acquired by the labours of one or both parties during the marriage (matrimonial property).
Lord Nicholls recognised that there was a case for saying that a party should be allowed to keep inherited property, but commented: Plainly, when present, this factor is one of the circumstances of the case.
It represents a contribution made to the welfare of the family by one of the parties to the marriage.
The judge should take it into account.
He should decide how important it is in the particular case.
The nature and value of the property, and the time when and circumstances in which the property was acquired, are among the relevant matters to be considered.
However, in the ordinary course, this factor can be expected to carry little weight, if any, in a case where the claimants financial needs cannot be met without recourse to this property. (p 610)
In Miller v Miller; McFarlane v McFarlane [2006] UKHL 24; [2006] 2 AC 618 two appeals were heard together, one in respect of a marriage that had lasted less than three years.
Lord Nicholls started his judgment under the heading The requirements of fairness by observing that under the 1973 Act the first consideration had to be given to the welfare of the children of the marriage.
After this a number of strands could be identified.
The first was financial needs.
He commented at para 11: The parties share the roles of money earner, home maker and child carer.
Mutual dependence begets mutual obligations of support.
When the marriage ends fairness requires that the assets of the parties should be divided primarily so as to make provision for the parties' housing and financial needs, taking into account a wide range of matters such as the parties' ages, their future earning capacity, the family's standard of living, and any disability of either party.
Most of these needs will have been generated by the marriage, but not all of them.
Needs arising from age or disability are instances of the latter.
A second strand was compensation.
This is aimed at redressing any significant prospective economic disparity between the parties arising from the way they conducted their marriage.
For instance, the parties may have arranged their affairs in a way which has greatly advantaged the husband in terms of his earning capacity but left the wife severely handicapped so far as her own earning capacity is concerned.
Then the wife suffers a double loss: a diminution in her earning capacity and the loss of a share in her husband's enhanced income.
This is often the case.
Although less marked than in the past, women may still suffer a disproportionate financial loss on the breakdown of a marriage because of their traditional role as home maker and child carer. (para 13)
A third strand was sharing.
Lord Nicholls postulated that marriage was a partnership.
When a marriage ended each was entitled to an equal share of the assets of the partnership unless there was good reason to the contrary, albeit that the yardstick of equality was to be applied as an aid, not a rule.
One good reason might be the difference between matrimonial property generated during the marriage and non matrimonial property property brought by one party to the marriage or inherited by or given to one party during the marriage.
There was general agreement among the other members of the House with these propositions, although not all agreed on the precise definition of matrimonial property nor on the relevance of the length of the marriage to the principle of sharing.
Lady Hale, with whom Lord Mance agreed, identified a sub category of matrimonial property, which the parties treated as separate property and which might not be subject to the sharing principle.
The implications of these two decisions were considered by the Court of Appeal, Sir Mark Potter P, Thorpe and Wilson LJJ in Charman v Charman (No 4) [2007] EWCA Civ 503; [2007] 1 FLR 1246.
The court observed that in Miller the House had unanimously identified three main principles which governed distribution of property in ancillary relief proceedings need (generously interpreted), compensation and sharing and that each of the matters set out in sub paragraphs (b) to (h) of section 25(2) of the 1973 Act could be assigned to one of the three (paras 68 69).
As to the principle of sharing, the court said this, at para 66: To what property does the sharing principle apply? The answer might well have been that it applies only to matrimonial property, namely the property of the parties generated during the marriage otherwise than by external donation; and the consequence would have been that non matrimonial property would have fallen for redistribution by reference only to one of the two other principles of need and compensation to which we refer in para 68, below.
Such an answer might better have reflected the origins of the principle in the parties' contributions to the welfare of the family; and it would have been more consonant with the references of Baroness Hale of Richmond in Miller at paras 141 and 143 to sharing the fruits of the matrimonial partnership and to the approach of roughly equal sharing of partnership assets.
We consider, however, the answer to be that, subject to the exceptions identified in Miller to which we turn in paras 83 to 86, below, the principle applies to all the parties' property but, to the extent that their property is non matrimonial, there is likely to be better reason for departure from equality.
It is clear that both in White at p 605 F G and p 989 respectively, and in Miller, at paras 24 and 26, Lord Nicholls of Birkenhead approached the matter in that way; and there was no express suggestion in Miller, even on the part of Baroness Hale of Richmond, that in White the House had set too widely the general application of what was then a yardstick.
The exceptions identified in Miller referred to the possible exception in respect of assets that the parties had treated as separate property.
As to these the court commented that the discussion about these perhaps foreshadowed future, albeit no doubt cautious, movement in the law towards a more frequent distribution of property upon divorce in accordance with what, by words or conduct, the parties appear previously to have agreed.
Nuptial agreements, separation agreements and public policy
It used to be contrary to public policy for a married couple who were living together, or a couple about to get married, to make an agreement that provided for the contingency that they might separate.
Marriage involved a duty to live together and an agreement making provision for the possibility of separation might act as an encouragement to separate.
Such agreements were void and the court would pay no regard to them: Cocksedge v Cocksedge (1844) 14 Sim 244; 13 LJ Ch 384; H v W (1857) 3 K & J 382.
The same was not true of an agreement to separate or an agreement that governed a separation that had already taken place.
Lord Atkin in Hyman v Hyman [1929] AC 601 at p 625 626 gave a short history of such contracts and commented on their effect: We have to deal with a separation deed, a class of document which has had a chequered career at law.
Not recognized by the Ecclesiastical Courts, such contracts were enforced by the common law.
Equity at first frowned.
Lord Eldon doubted but enforced them: cf.
St. John vs St. John (1803) Ves. 525, 529 and Bateman vs Countess of Ross (1813) 1 Dow 235; and see the arguments of Sir Fitzroy Kelly and Mr Turner and of Mr Bethell in Wilson vs Wilson (1848) 1 H. L. C. 538, 550 553, 564, 565.
Finally they were fully recognized in equity by Lord Westburys leading judgment in Hunt vs Hunt (1861) 4 D. F. & J. 221, in which he followed Lord Cottenhams decision in Wilson vs Wilson 1 H. L. C. 538, 550 553, 564, 565, where his argument for the respondent had prevailed.
Full effect has therefore to be given in all courts to these contracts as to all other contracts.
It seems not out of place to make this obvious reflection, for a perusal of some of the cases in the matrimonial courts seems to suggest that at times they are still looked at askance and enforced grudgingly.
But there is no caste in contracts.
Agreements for separation are formed, construed and dissolved and to be enforced on precisely the same principles as any respectable commercial agreement, of whose nature indeed they sometimes partake.
As in other contracts stipulations will not be enforced which are illegal either as being opposed to positive law or public policy.
But this is a common attribute of all contracts, though we may recognize that the subject matter of separation agreements may bring them more than others into relation with questions of public policy.
In Hyman v Hyman the husband had left the wife for another woman.
Adultery by the husband was not at the time a ground for divorce unless there were aggravating circumstances, such as incest.
The parties had entered into a deed of separation under which the husband had paid two lump sums and agreed to make weekly payments of 20 for the life of the wife.
The deed included a covenant by the wife that she would not institute any proceedings to make him pay more than this.
When the Matrimonial Causes Act 1923 gave the wife the right to petition for divorce on the grounds of her husbands adultery alone, the wife divorced her husband and applied to the court for maintenance pursuant to section 190(1) of the Supreme Court of Judicature (Consolidation) Act 1925.
This gave the court the power, on any decree for divorce, to order the husband to pay maintenance.
The husband argued that the wife was precluded by her covenant from bringing this claim.
The House rejected this argument.
Lord Hailsham LC held at p 614 that: the power of the court to make provision for a wife on the dissolution of her marriage is a necessary incident of the power to decree such a dissolution, conferred not merely in the interests of the wife, but of the public, and that the wife cannot by her own covenant preclude herself from invoking the jurisdiction of the court or preclude the court from the exercise of that jurisdiction.
Lord Atkin made the same point at p 629.
The subsequent history was set out by Lady Hale in MacLeod v MacLeod at paras 21 to 23.
The same principle was applied to other statutory powers to award maintenance.
In Bennett v Bennett [1952] 1 KB 249 the wife sought to enforce an agreement to pay maintenance given by her husband in consideration of her agreement not to seek a court order for maintenance.
The Court of Appeal held that because that agreement was of no effect it did not constitute valid consideration for her husbands agreement and her claim failed.
This unfortunate situation was remedied by the Maintenance Agreements Act 1957.
The preamble to this Act stated: An Act to make provision with respect to the validity and alteration by the court of financial arrangements in connection with agreements between the parties to a marriage, whether made during the continuance or after the dissolution or annulment of the marriage, for the purposes of those parties living separately; and for purposes connected therewith.
The Act provided: 1.(1) This section applies to any agreement in writing made, whether before or after the commencement of this Act, between the parties to a marriage for the purposes of their living separately, being (a) an agreement containing financial arrangements, whether made during the continuance or after the dissolution or annulment of the marriage; or (b) a separation agreement which contains no financial arrangements in a case where no other agreement in writing between the same parties contains such arrangements. (2) If an agreement to which this section applies includes a provision purporting to restrict any right to apply to a court for an order containing financial arrangements, that provision shall be void but any other financial arrangements contained in the agreement shall not thereby be rendered void or unenforceable but, unless void or unenforceable for any other reason, and subject to the next following subsection, shall be binding on the parties to the agreement: . (3) Where an agreement to which this section applies is for the time being subsisting and the parties thereto are for the time being either both domiciled or both resident in England, and on an application by either party the High Court or, subject to the next following subsection, a magistrates court is satisfied either (a) that by reason of a change in the circumstances in the light of which any financial arrangements contained in the agreement were made or, as the case may be, financial arrangements were omitted therefrom, the agreement should be altered so as to make different, or, as the case may be, so as to contain, financial arrangements; or (b) that the agreement does not contain proper financial arrangements with respect to any child of the marriage, the court may by order make such alterations in the agreement by varying or revoking any financial arrangements contained therein or by inserting therein financial arrangements for the benefit of one of the parties to the agreement or of a child of the marriage as may appear to the court to be just having regard to all the circumstances or, as the case may be, as may appear to the court to be just in all the circumstances in order to secure that the agreement contains proper financial arrangements with respect to any child of the marriage; and the agreement shall have effect thereafter as if any alteration made by the order had been made by agreement between the parties and for valuable consideration.
These provisions are largely reproduced in sections 34 and 35 of the 1973 Act, albeit that the definition of a maintenance agreement does not state that it is an agreement made for the purposes of their living separately.
Wilson LJ at para 134 of his judgment in this case remarks that sections 34 and 35 have been dead letters for more than 30 years.
It seems likely that issues as to maintenance have, since the 1973 Act came into force, been pursued in ancillary relief proceedings.
As to these section 35(6) provides For the avoidance of doubt it is hereby declared that nothing in this section or in section 34 above affects any power of a court before which any proceedings between the parties to a maintenance agreement are brought under any other enactment (including a provision of this Act) to make an order containing financial arrangements or any right of either party to apply for such an order in such proceedings.
Although separation agreements do not override the powers of the Court to grant ancillary relief, they have been held to carry considerable weight in relation to the exercise of the courts discretion when granting such relief.
In Edgar v Edgar [1980] 1 WLR 1410 the husband and wife had separated and in 1976, without any pressure from the husband but rather at the instigation of the wife, concluded a deed of separation which had been negotiated through solicitors.
Under this the husband agreed to purchase a house for the wife, to confer on her capital benefits worth approximately 100,000, to pay her 16,000 a year and to make periodical payments for the children of the marriage.
The wife agreed that if she obtained a divorce she would not seek a lump sum or property transfer orders.
The husband complied with all his obligations under the separation deed but, in 1978, the wife petitioned for divorce and applied for ancillary relief, including a lump sum payment.
Ormrod LJ said this about the weight to be given to the separation agreement at p 1417: To decide what weight should be given, in order to reach a just result, to a prior agreement not to claim a lump sum, regard must be had to the conduct of both parties, leading up to the prior agreement, and to their subsequent conduct, in consequence of it.
It is not necessary in this connection to think in formal legal terms, such as misrepresentation or estoppel; all the circumstances as they affect each of two human beings must be considered in the complex relationship of marriage.
So, the circumstances surrounding the making of the agreement are relevant.
Undue pressure by one side, exploitation of a dominant position to secure an unreasonable advantage, inadequate knowledge, possibly bad legal advice, an important change of circumstances, unforeseen or overlooked at the time of making the agreement, are all relevant to the question of justice between the parties.
Important too is the general proposition that formal agreements, properly and fairly arrived at with competent legal advice, should not be displaced unless there are good and substantial grounds for concluding that an injustice will be done by holding the parties to the terms of their agreement.
There may well be other considerations which affect the justice of this case; the above list is not intended to be an exclusive catalogue.
I agree with Sir Gordon Willmer in Wright v Wright [1970] 1WLR 1219, 1224, that the existence of an agreement, at least makes it necessary for the wife, if she is to justify an award of maintenance, to offer prima facie proof that there have been unforeseen circumstances, in the true sense, which make it impossible for her to work or otherwise maintain herself.
Adapting that statement to the present case, it means that the wife here must offer prima facie evidence of material facts which show that justice requires that she should be relieved from the effects of her covenant in clause 8 of the deed of separation, and awarded further capital provision.
Oliver LJ summarised his conclusions as follows at p 1424: in a consideration of what is just to be done in the exercise of the courts powers under the Act of 1973 in the light of the conduct of the parties, the court must, I think, start from the position that a solemn and freely negotiated bargain by which a party defines her own requirements ought to be adhered to unless some clear and compelling reason, such as, for instance, a drastic change of circumstances, is shown to the contrary.
The court held that no good reason had been shown not to hold the wife to her agreement.
Sitting in the Court of Appeal after his retirement, Sir Roger Ormrod in Camm v Camm (1982) 4 FLR 577 at p. 579, which was another case where ancillary relief was claimed in the face of the terms of a separation agreement, said: It has been stressed all through those same cases that the court must attach considerable importance, the amount of importance varying from case to case, to the fact that there was an agreement, because the court, naturally, will not lightly permit parties who have made a contractual agreement between themselves, even if it is not legally enforceable, to depart from that contractual agreement unless some good reason is shown.
In that case the court did not hold the wife to her agreement, which she had entered into under great pressure and which failed to make adequate provision for her needs.
In Smith v McInerney [1994] 2 FLR 1077 the husband, who had entered into a separation agreement with his wife, sought a lump sum and property adjustment order when his circumstances changed as a result of being made redundant.
Thorpe J cited Edgar v Edgar and Camm v Camm and remarked at p 1081: As a matter of general policy I think it is very important that what the parties themselves agree at the time of separation should be upheld by the courts unless there are overwhelmingly strong considerations for interference.
The approach of the courts to separation agreements, as evidenced by the cases cited above, differed markedly from the approach to nuptial agreements that merely anticipated the possibility of separation or divorce and which were consequently considered to be void as contrary to public policy.
Contrast the statement of Thorpe J in Smith v McInerney quoted above with what he said at about the same time in F v F (Ancillary Relief: Substantial Assets) [1995] 2 FLR 45.
In the latter case a rich German husband relied on a marital property regime which confined the wife to the pension of a retired German judge in the event of their divorce (the wife was in the judicial civil service at the time of the marriage).
Thorpe J accepted that such agreements were commonplace in the society from which the parties came, but he did not attach any significant weight to the ante nuptial agreement, and said (at p 66): The rights and responsibilities of those whose financial affairs are regulated by statute cannot be much influenced by contractual terms which were devised for the control and limitation of standards that are intended to be of universal application throughout our society.
Judges sitting in the Family Division were prepared to give some weight to ante nuptial agreements, but certainly not to the extent of holding that they should govern the terms of ancillary relief unless there were strong reasons for departing from them.
In S v S (Matrimonial Proceedings: Appropriate Forum) [1997] 1 WLR 1200, Wilson J suggested at pp 1203 1204 that there might come a case where the circumstances surrounding the prenuptial agreement and the provision therein contained might, when viewed in the context of the other circumstances of the case, prove influential or even crucial.
Where other jurisdictions, both in the United States and in the European Community, have been persuaded that there are cases where justice can only be served by confining parties to their rights under prenuptial agreements, we should be cautious about too categorically asserting the contrary.
I can find nothing in section 25 to compel a conclusion, so much at odds with personal freedoms to make arrangements for ourselves, that escape from solemn bargains, carefully struck by informed adults, is readily available here.
In N v N (Jurisdiction: Pre nuptial agreement) [1999] 2 FLR 745, 752, Wall J recognised that although they were unenforceable, ante nuptial agreements might have evidential weight in subsequent proceedings for divorce.
Some weight was given to an ante nuptial agreement in C v C (Divorce: Stay of English Proceedings) [2001] 1 FLR 624 (Johnson J) (where a French ante nuptial agreement was a significant factor in staying English proceedings); M v M (Prenuptial Agreement) [2002] 1 FLR 654, para 44 (tending to guide the court to a more modest award than might have been made without it, per Connell J); and G v G (Financial Provision: Separation Agreement) [2004] 1 FLR 1011 (CA) (where parties had been married before).
But contrast Haneef v Haneef [1999] EWCA Civ 803 (a decision on leave to appeal); J v V (Disclosure: Offshore Corporations) [2003] EWHC 3110 (Fam), [2004] 1 FLR 1042 (Coleridge J) (agreement signed on the eve of marriage without advice or disclosure and without allowance for arrival of children).
See also X v X (Y and Z Intervening) [2002] 1 FLR 508, paras 78 103 (Munby J), and K v K (Ancillary Relief: Prenuptial Agreement) [2003] 1 FLR 120, 131 132 (R Hayward Smith QC sitting as Deputy High Court Judge) for a review of the authorities.
Some judges cited dicta in Edgar v Edgar in the context of ante nuptial agreements without observing that those dicta were made in the very different context of a separation agreement see N v N at p 753; M v M at para 21, K v K at p 131.
A change of attitude on the part of Thorpe LJ was apparent from his decision in Crossley v Crossley [2007] EWCA Civ 1491, [2008] 1 FLR 1467, 1472, at para 15 Thorpe LJ described the ante nuptial agreement there as a factor of magnetic importance.
The marriage was a short marriage between two wealthy individuals who entered into an ante nuptial agreement after having taken legal advice.
Mrs Crossley asserted that her husbands disclosure had been inadequate and therefore the agreement should be avoided.
The issue before the court concerned disclosure.
Thorpe LJ drew attention to these facts: the marriage was a childless marriage of very short duration, for a substantial portion of which the parties were living apart; the marriage was between mature adults, both of whom had been previously married and divorced; both parties had very substantial independent wealth; the ante nuptial agreement provided for the retention by each of the parties of their separate properties and division of joint property (of which there was in fact none).
He accepted that the combination of these factors gave rise to a very strong case that a possible result of the section 25 exercise would be that the wife receives no further financial award, and concluded (at para 15): All these cases are fact dependent and this is a quite exceptional case on its facts, but if ever there is to be a paradigm case in which the court will look to the prenuptial agreement as not simply one of the peripheral factors in the case but as a factor of magnetic
importance, it seems to me that this is just such a case
Cases of post nuptial settlements other than separation agreements are rare.
One such was NA v MA [2006] EWHC 2900 (Fam); [2007] 1 FLR 1760.
That case is of interest because, on one view, it anticipated the approach of the Privy Council in MacLeod.
The very wealthy husband had discovered that his wife had committed adultery with one of his friends.
He pressurised her into signing an agreement that provided that she would receive a specified lump sum and annual payments if their marriage ended in divorce.
The wife signed it because the husband insisted that she should do so if the marriage was to continue.
Despite this, Baron J held at para 67 that as the idea of an agreement evolved it hardened into a legal, post nuptial agreement.
It was on this basis, as we understand it, that the husband sought to have the agreement converted into an order of the court.
When dealing with the law the judge did not distinguish clearly between ante nuptial, post nuptial and separation agreements.
She said at para 12: It is an accepted fact that an agreement entered into between husband and wife does not oust the jurisdiction of this court.
For many years, agreements between spouses were considered void for public policy reasons but this is no longer the case.
In fact, over the years, pre nuptial contracts have become increasingly common place and are, I accept, much more likely to be accepted by these courts as governing what should occur between the parties when the prospective marriage comes to an end.
That is, of course, subject to the discretion of the court and the application of a test of fairness/manifest unfairness.
It may well be that Parliament will provide legislation but, until that occurs, current authority makes it clear that the agreements are not enforceable per se, although they can be persuasive (or definitive) depending upon the precise circumstances that lead to their completion.
The judge went on to apply the law of undue influence, holding at paras 20 and 21 I am clear that, to overturn the agreement, I have to be satisfied that this wifes will was overborne by her husband exercising undue pressure or influence over her.
I am also clear that if I do not overturn the agreement per se, I still have to consider whether it is fair and should be approved so as to become a court order.
She overturned the agreement on the ground of undue influence.
MacLeod v MacLeod
This was an appeal to the Privy Council from the High Court of Justice of the Isle of Man.
It involved a claim for ancillary relief under the Manx Matrimonial Proceedings Act 2003, which contained provisions identical to sections 23 to 25 and 34 to 36 of the 1973 Act.
The husband and wife had married in Florida in 1994, after signing an ante nuptial agreement.
A year later they moved to the Isle of Man.
Six years and five children later the marriage ran into difficulties and the parties executed a deed which made substantial variations to the ante nuptial agreement.
By August 2003 the marriage had totally broken down and in October 2004 a provisional decree of divorce was made.
The wife sought ancillary relief, arguing that the deed of variation should be disregarded.
The husband contended that it should be upheld, subject to one variation in favour of the wife.
The Board, in an advice delivered by Lady Hale, summarised the law in relation to nuptial agreements that we have set out above and pointed out the distinction between separation agreements and agreements providing for the consequences of a possible future separation.
At para 31 the Board referred to the position of ante nuptial agreements: The Board takes the view that it is not open to them to reverse the long standing rule that ante nuptial agreements are contrary to public policy and thus not valid or binding in the contractual sense.
The Board has been referred to the position in other parts of the common law world.
It is clear that they all adopted the rule established in the 19th century cases.
It is also clear that most of them have changed that rule, and provided for ante nuptial agreements to be valid in certain circumstances.
But with the exception of certain of the United States of America, including Florida, this has been done by legislation rather than judicial decision.
The Board went on to draw a distinction between ante nuptial and post nuptial agreements, holding that the latter did constitute contracts.
We do not agree with this distinction and, in order to explain where we part company with the reasoning of the Board, we must set this out in detail. 35 In the Boards view the difficult issue of the validity and effect of ante nuptial agreements is more appropriate to legislative rather than judicial development.
It is worth noting, for example, that in the Florida case of Posner v Posner (1970) 233 So 2d 381, where such agreements were recognised, attention was drawn to the statutory powers of the courts to vary such agreements.
The Board is inclined to share the view expressed by Baron J in NG v KR (Pre nuptial Contract) [2009] 1 FCR 35, para 130, that the variation power in section 50 of the 2003 Act (section 35 of the 1973 Act) does not apply to agreements made between people who are not yet parties to a marriage.
Yet it would clearly be unfair to render such agreements enforceable if, unlike post nuptial agreements, they could not be varied. 36 Post nuptial agreements, however, are very different from pre nuptial agreements.
The couple are now married.
They have undertaken towards one another the obligations and responsibilities of the married state.
A pre nuptial agreement is no longer the price which one party may extract for his or her willingness to marry.
There is nothing to stop a couple entering into contractual financial arrangements governing their life together, as this couple did as part of their 2002 agreement.
There is a presumption that the parties do not intend to create legal relations: see Balfour v Balfour [1919] 2 KB 571.
There may also be occasional problems in identifying consideration for the financial promises made (now is not the time to enter into debate about whether domestic services constitute good consideration for such promises).
But both of these are readily soluble by executing a deed, as was done here. 37 There is also nothing to stop a married couple from entering into a separation agreement, which will then be governed by sections 49 to 51 of the 2003 Act (sections 34 to 36 of the 1973 Act).
As already noted, section 49 applies to any agreement in writing made at any time between the parties to a marriage.
There is nothing to limit this to people who are already separated or on the point of separating.
It is limited to agreements containing financial arrangements or to separation agreements which contain no financial arrangements.
And financial arrangements are limited to those governing their rights and liabilities towards one another when living separately.
But section 49(1)(b) provides that such financial arrangements shall be binding unless they are void or unenforceable for any other reason. 38 Leaving aside the usual contractual reasons, such as misrepresentation or undue influence, the only other such reason might be the old rule that agreements providing for a future separation are contrary to public policy.
But the reasons given for that rule were founded on the enforceable duty of husband and wife to live together.
This meant that there should be no inducement to either of them to live apart: see, for example, H v W 3 K & J 382, 386.
There is no longer an enforceable duty upon husband and wife to live together.
The husbands right to use self help to keep his wife at home has gone.
He can now be guilty of the offences of kidnapping and false imprisonment if he tries to do so: see R v Reid [1973] QB 299.
The decree of restitution of conjugal rights, disobedience to which did for a while involve penal sanctions, has not since the abolition of those sanctions been used to force the couple to live together: see Nanda v Nanda [1968] P 351.
It was abolished by the Matrimonial Proceedings and Property Act 1970, at the same time as the Law Reform (Miscellaneous Provisions) Act 1970 abolished all the common law actions against third parties who interfered between husband and wife. 39 Hence the reasoning which led to the rule has now disappeared.
It is now time for the rule itself to disappear.
It has long been of uncertain scope, as some provisions which contemplate future marital separation have been upheld: see, for example, Lily, Duchess of Marlborough v Duke of Marlborough [1901] 1 Ch 165.
This means that sections 49 to 51 of the 2003 Act (sections 34 to 36 of the 1973 Act) can apply to such agreements in just the same way as they do to any other.
In particular, they can be varied in either of the circumstances provided for in section 50(2).
The first is that there has been a change in the circumstances in the light of which any financial arrangements were made or omitted; following the amendment proposed by the Law Commission in 1969, this now includes a change which the parties had actually foreseen when making the agreement.
The second is that the agreement does not contain proper financial arrangements with respect to any child of the family. 40 In the Boards view, therefore, the 2002 agreement was a valid and enforceable agreement, not only with respect to the arrangements made for the time when the parties were together, but also with respect to the arrangements made for them to live separately.
However, the latter arrangements were subject to the courts powers of variation and the provisions which purported to oust the jurisdiction of the court, whether on divorce or during the marriage, were void.
The existence of such powers does not deprive such agreements of their utility.
Countless wives and mothers benefited from such agreements at a time when it was difficult for them to take their husbands to court to ask for maintenance.
Enforcing an existing agreement still has many attractions over going to court for discretionary relief. 41 The question remains of the weight to be given to such an agreement if an application is made to the court for ancillary relief.
In Edgar v Edgar [1980] 1 WLR 1410, the solution might have been more obvious if mention had been made of the statutory provisions relating to the validity and variation of maintenance agreements.
One would expect these to be the starting point.
Parliament had laid down the circumstances in which a valid and binding agreement relating to arrangements for the couples property and finances, not only while the marriage still existed but also after it had been dissolved or annulled, could be varied by the court.
At the same time, Parliament had preserved the parties rights to go to court for an order containing financial arrangements.
It would be odd if Parliament had intended the approach to such agreements in an ancillary relief claim to be different from, and less generous than, the approach to a variation application.
The same principles should be the starting point in both.
In other words, the court is looking for a change in the circumstances in the light of which the financial arrangements were made, the sort of change which would make those arrangements manifestly unjust, or for a failure to make proper provision for any child of the family.
On top of that, of course, even if there is no change in the circumstances, it is contrary to public policy to cast onto the public purse an obligation which ought properly to be shouldered within the family. 42 The Board would also agree that the circumstances in which the agreement was made may be relevant in an ancillary relief claim.
They would, with respect, endorse the oft cited passage from the judgment of Ormrod LJ in Edgar v Edgar [1980] 1 WLR 1410, 1417, in preference to the passages from the judgment of Oliver LJ, both quoted above, at para 25.
In particular the Board endorses the observation that It is not necessary in this connection to think in formal legal terms, such as mispresentation [sic] or estoppel.
Family relationships are not like straightforward commercial relationships.
They are often characterised by inequality of bargaining power, but the inequalities may be different in relation to different issues.
The husband may be in the stronger position financially but the wife may be in the stronger position in relation to the children and to the home in which they live.
One may care more about getting or preserving as much money as possible, while the other may care more about the living arrangements for the children.
One may want to get out of the relationship as quickly as possible, while the other may be in no hurry to separate or divorce.
All of these may shift over time.
We must assume that each party to a properly negotiated agreement is a grown up and able to look after him or herself.
At the same time we must be alive to the risk of unfair exploitation of superior strength.
But the mere fact that the agreement is not what a court would have done cannot be enough to have it set aside.
We wholeheartedly endorse the conclusion of the Board in paras 38 and 39 that the old rule that agreements providing for future separation are contrary to public policy is obsolete and should be swept away, for the reasons given by the Board.
But for reasons that we shall explain, this should not be restricted to post nuptial agreements.
If parties who have made such an agreement, whether ante nuptial or post nuptial, then decide to live apart, we can see no reason why they should not be entitled to enforce their agreement.
This right will, however, prove nugatory if one or other objects to the terms of the agreement, for this is likely to result in the party who objects initiating proceedings for divorce or judicial separation and, arguing in ancillary relief proceedings that he or she should not be held to the terms of the agreement.
We now turn to explain why we would not draw the distinction drawn by the Board between ante and post nuptial agreements.
The Board advances two reasons for this, one specific the other general.
The specific reason is that section 35 of the 1973 Act applies to post nuptial but not to ante nuptial settlements and it would be unfair to render the latter enforceable if they could not be varied (para 35).
The general reason is that post nuptial agreements are very different from ante nuptial agreements.
We shall deal with each in turn.
The specific reason
Our first reservation in relation to this reason is that we question whether the Board was right to hold that sections 34 and 35 apply to all post nuptial agreements rather than just to separation agreements.
We consider that the original provisions in the Maintenance Agreements Act 1957 applied only to separation agreements.
The preamble to the Act and the statement in section 1(1) that the section applies to any agreement between the parties to a marriage for the purpose of their living separately so indicate.
Furthermore post nuptial agreements of couples living together that provided for the contingency of future separation were void, so Parliament cannot have intended the Act to apply to them.
When the provisions of the 1957 Act were incorporated into the 1973 Act, they did not include the preamble or the words that we have emphasised above.
But it remained the case that post nuptial agreements that made provision for the contingency of separation were considered to be contrary to public policy.
For this reason we find it hard to accept that Parliament intended to extend the ambit of the relevant provisions.
More fundamentally, we do not accept that the protection of section 35 must be a precondition to holding that a nuptial agreement takes effect as a contract.
If Wilson LJ is right to say that section 35 is a dead letter, the theoretical scope of its protection cannot be critical to the question of whether nuptial agreements have contractual effect.
The general reason
Is there a material distinction between ante nuptial and post nuptial agreements? Wilson LJ was not persuaded that there is (paras 125 126) and nor are we.
The question should be tested by comparing an agreement concluded the day before the wedding with one concluded the day after it.
Nuptial agreements made just after the wedding are not unknown and likely to become more common if the law distinguishes them from ante nuptial agreements.
between ante and post nuptial agreements: In MacLeod the Board made the following comments about the differences There is an enormous difference in principle and in practice between an agreement providing for a present state of affairs which has developed between a married couple and an agreement made before the parties have committed themselves to the rights and responsibilities of the married state purporting to govern what may happen in an uncertain and unhoped for future. (para 31)
This is true, but does not apply fully to a post nuptial agreement entered into at the start of married life, for that also purports to govern what may happen in an uncertain and unhoped for future.
Post nuptial agreements, however, are very different from pre nuptial agreements.
The couple are now married.
They have undertaken towards one another the obligations and responsibilities of the married state.
A pre nuptial agreement is no longer the price which one party may extract for his or her willingness to marry. (para 36)
As to the last sentence, this focuses on one possible type of duress.
But duress can be applied both before and after the marriage.
The same principle applies in either case.
In either case the duress will lead to the agreement carrying no, or less, weight.
As to the first two sentences, we do not see why different principles must apply to an agreement concluded in anticipation of the married state and one concluded after entry into the married state.
This is not to say that there are no circumstances where it is right to distinguish between an ante nuptial and a post nuptial agreement.
The circumstances surrounding the agreement may be very different dependent on the stage of the couples life together at which it is concluded, but it is not right to proceed on the premise that there will always be a significant difference between an ante and a post nuptial agreement.
Some couples do not get married until they have lived together and had children.
Does contractual status matter?
Is it important whether or not post nuptial or ante nuptial agreements have contractual status? The value of a contract is that the court will enforce it.
But in ancillary relief proceedings the court is not bound to give effect to nuptial agreements, and is bound to have regard to them, whether or not they are contracts.
Should they be given greater weight because in some other context they would be enforceable? Or is the question of whether or not they are contracts an irrelevance? This can be tested in this way.
Did the identification of the fact that there were no public policy reasons not to treat post nuptial agreements as contracts alter the weight that the Board attached to them in MacLeod? The Board did not say that they had to be given more weight as a result of sweeping away the public policy objections to them.
Those objections had long ceased to be relevant and had not inhibited courts from giving some and, in some circumstances, decisive weight to ante nuptial agreements.
The circumstances surrounding the conclusion of a contract will either result in the contract being of full effect, or of no effect at all.
The courts have always adopted a more nuanced approach to ante and post nuptial agreements.
We cannot see why it mattered whether or not the agreement in MacLeod was a contract.
In summary, we consider that the Board in MacLeod was wrong to hold that post nuptial agreements were contracts but that ante nuptial agreements were not.
That question did not arise for decision in that case any more than in this and does not matter anyway.
It is a red herring.
Regardless of whether one or both are contracts, the ancillary relief court should apply the same principles when considering ante nuptial agreements as it applies to post nuptial agreements.
The Boards approach to post nuptial agreements
What was the approach that the Board held in MacLeod should be applied to post nuptial agreements? The Board held that the court should adopt the same approach as that laid down by Parliament for varying maintenance agreements in section 35 of the 1973 Act, looking for a change in the circumstances in the light of which the financial arrangements were made, the sort of change which would make those arrangements manifestly unjust (para 41).
The Board also endorsed the oft cited passage from the judgment of Ormrod LJ in Edgar, which we have cited at para 38 above.
These tests are appropriate for a separation agreement.
They are not necessarily appropriate for all post nuptial agreements.
A separation agreement is designed to take effect immediately and to address the circumstances prevailing at the time that it is made, as well, of course, as those contemplated in the future.
It will have regard to any children of the family, to the assets of husband and wife, to their incomes and to their pension rights.
Thus it makes sense to look for a significant change of circumstances as the criterion justifying a departure from the agreement.
The same will be true to a lesser extent where a post nuptial agreement is made well on in a marriage, as in NA v MA and MacLeod itself, or at the start of a marriage if one or both parties bring significant property to it.
But where a young couple enter into an agreement just after embarking on married life, owning no property of value, there will be no relevant circumstances prevailing at the time of their agreement.
In that event change of circumstances will not be such a useful test.
The circumstances will almost inevitably have changed by the time the marriage founders and the effect to be given to the post nuptial agreement will depend on wider considerations.
MacLeod has done a valuable service in sweeping away the archaic notions of public policy which have tended to obfuscate the approach to nuptial agreements.
But for the reasons that we have given we have not found that it assists in approaching the problem at the heart of this appeal for we have been able to accept neither its thesis that ante nuptial agreements are fundamentally different from post nuptial agreements nor, without reservation, its approach to post nuptial settlements.
The issues raised
The issues raised on the facts of this case can be placed under three heads: a. Were there circumstances attending the making of the agreement that detract from the weight that should be accorded to it? b.
Were there circumstances attending the making of the agreement that enhance the weight that should be accorded to it; the foreign element? c.
Did the circumstances prevailing when the courts order was made make it fair or just to depart from the agreement? We shall have to consider these questions in the context of the facts of this case, but at this stage we propose to address the issues of principle that they raise.
Factors detracting from the weight to be accorded to the agreement
If an ante nuptial agreement, or indeed a post nuptial agreement, is to carry full weight, both the husband and wife must enter into it of their own free will, without undue influence or pressure, and informed of its implications.
The third and fifth of the six safeguards proposed in the consultation document (see para 5 above) were designed to ensure this.
Baron J applied these safeguards, found that they were not satisfied, and accorded the agreement reduced weight for this reason.
The Court of Appeal did not consider that the circumstances in which the agreement was reached diminished the weight to be attached to it.
In so far as the safeguards were not strictly satisfied, this was not material on the particular facts of this case.
The safeguards in the consultation document are designed to apply regardless of the circumstances of the particular case, in order to ensure, inter alia, that in all cases ante nuptial contracts will not be binding unless they are freely concluded and properly informed.
It is necessary to have black and white rules of this kind if agreements are otherwise to be binding.
There is no need for them, however, in the current state of the law.
The safeguards in the consultation document are likely to be highly relevant, but we consider that the Court of Appeal was correct in principle to ask whether there was any material lack of disclosure, information or advice.
Sound legal advice is obviously desirable, for this will ensure that a party understands the implications of the agreement, and full disclosure of any assets owned by the other party may be necessary to ensure this.
But if it is clear that a party is fully aware of the implications of an ante nuptial agreement and indifferent to detailed particulars of the other partys assets, there is no need to accord the agreement reduced weight because he or she is unaware of those particulars.
What is important is that each party should have all the information that is material to his or her decision, and that each party should intend that the agreement should govern the financial consequences of the marriage coming to an end.
It is, of course, important that each party should intend that the agreement should be effective.
In the past it may not have been right to infer from the fact of the conclusion of the agreement that the parties intended it to take effect, for they may have been advised that such agreements were void under English law and likely to carry little or no weight.
That will no longer be the case.
As we have shown the courts have recently been according weight, sometimes even decisive weight, to ante nuptial agreements and this judgment will confirm that they are right to do so.
Thus in future it will be natural to infer that parties who enter into an ante nuptial agreement to which English law is likely to be applied intend that effect should be given to it.
In relation to the circumstances attending the making of the nuptial agreement, this comment of Ormrod LJ in Edgar v Edgar at p 1417, although made about a separation agreement, is pertinent: It is not necessary in this connection to think in formal legal terms, such as misrepresentation or estoppel; all the circumstances as they affect each of two human beings must be considered in the complex relationship of marriage.
The first question will be whether any of the standard vitiating factors: duress, fraud or misrepresentation, is present.
Even if the agreement does not have contractual force, those factors will negate any effect the agreement might otherwise have.
But unconscionable conduct such as undue pressure (falling short of duress) will also be likely to eliminate the weight to be attached to the agreement, and other unworthy conduct, such as exploitation of a dominant position to secure an unfair advantage, would reduce or eliminate it.
The court may take into account a partys emotional state, and what pressures he or she was under to agree.
But that again cannot be considered in isolation from what would have happened had he or she not been under those pressures.
The circumstances of the parties at the time of the agreement will be relevant.
Those will include such matters as their age and maturity, whether either or both had been married or been in long term relationships before.
For such couples their experience of previous relationships may explain the terms of the agreement, and may also show what they foresaw when they entered into the agreement.
What may not be easily foreseeable for less mature couples may well be in contemplation of more mature couples.
Another important factor may be whether the marriage would have gone ahead without an agreement, or without the terms which had been agreed.
This may cut either way.
If the terms of the agreement are unfair from the start, this will reduce its weight, although this question will be subsumed in practice in the question of whether the agreement operates unfairly having regard to the circumstances prevailing at the time of the breakdown of the marriage.
Factors enhancing the weight to be accorded to the agreement; the foreign
element
The issue raised under this heading is whether the foreign elements of a case can enhance the weight to be given to an ante nuptial agreement.
In this case the husband was French and the wife German and the agreement had a German law clause.
We have already explained why we do not consider it material in English ancillary relief proceedings whether the nuptial agreement under consideration is or is not a contract.
The court can overrule the agreement of the parties, whether contractual or not, and applies the same criteria when considering whether to do so.
When dealing with agreements concluded in the past, and the agreement in this case was concluded in 1998, foreign elements such as those in this case may bear on the important question of whether or not the parties intended their agreement to be effective.
In the case of agreements made in recent times and, a fortiori, any agreement made after this judgment, the question of whether the parties intended their agreement to take effect is unlikely to be in issue, so foreign law will not need to be considered in relation to that question.
Fairness
White v White and Miller v Miller establish that the overriding criterion to be applied in ancillary relief proceedings is that of fairness and identify the three strands of need, compensation and sharing that are relevant to the question of what is fair.
If an ante nuptial agreement deals with those matters in a way that the court might adopt absent such an agreement, there is no problem about giving effect to the agreement.
The problem arises where the agreement makes provisions that conflict with what the court would otherwise consider to be the requirements of fairness.
The fact of the agreement is capable of altering what is fair.
It is an important factor to be weighed in the balance.
We would advance the following proposition, to be applied in the case of both ante and post nuptial agreements, in preference to that suggested by the Board in MacLeod: The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.
That leaves outstanding the difficult question of the circumstances in which it will not be fair to hold the parties to their agreement.
This will necessarily depend upon the facts of the particular case, and it would not be desirable to lay down rules that would fetter the flexibility that the court requires to reach a fair result.
There is, however, some guidance that we believe that it is safe to give directed to the situation where there are no tainting circumstances attending the conclusion of the agreement.
Children of the family
Section 25 of the 1973 Act provides that first consideration must be given to the welfare while a minor of any child of the family who is under 18.
A nuptial agreement cannot be allowed to prejudice the reasonable requirements of any children of the family.
Autonomy
The reason why the court should give weight to a nuptial agreement is that there should be respect for individual autonomy.
The court should accord respect to the decision of a married couple as to the manner in which their financial affairs should be regulated.
It would be paternalistic and patronising to override their agreement simply on the basis that the court knows best.
This is particularly true where the parties agreement addresses existing circumstances and not merely the contingencies of an uncertain future.
Non matrimonial property
Often parties to a marriage will be motivated in concluding a nuptial agreement by a wish to make provision for existing property owned by one or other, or property that one or other anticipates receiving from a third party.
The House of Lords in White v White and Miller v Miller drew a distinction between such property and matrimonial property accumulated in the course of the marriage.
That distinction is particularly significant where the parties make express agreement as to the disposal of such property in the event of the termination of the marriage.
There is nothing inherently unfair in such an agreement and there may be good objective justification for it, such as obligations towards existing family members.
As Rix LJ put it at para 73 if the parties to a prospective marriage have something important to agree with one another, then it is often much better, and more honest, for that agreement to be made at the outset, before the marriage, rather than left to become a source of disappointment or acrimony within marriage.
Future circumstances
Where the ante nuptial agreement attempts to address the contingencies, unknown and often unforeseen, of the couples future relationship there is more scope for what happens to them over the years to make it unfair to hold them to their agreement.
The circumstances of the parties often change over time in ways or to an extent which either cannot be or simply was not envisaged.
The longer the marriage has lasted, the more likely it is that this will be the case.
Once again we quote from the judgment of Rix LJ at para 73.
I have in mind (and in this respect there is no real difference between an agreement made just before or just after a marriage) that a pre nuptial agreement is intended to look forward over the whole period of a marriage to the possibility of its ultimate failure and divorce: and thus it is potentially a longer lasting agreement than almost any other (apart from a lease, and those are becoming shorter and subject to optional break clauses).
Over the potential many decades of a marriage it is impossible to cater for the myriad different circumstances which may await its parties.
Thorpe LJ has mentioned the very relevant case of a second marriage between mature adults perhaps each with children of their own by their first marriages.
However, equally or more typical will be the marriage of young persons, perhaps not yet adults, for whom the future is an entirely open book.
If in such a case a pre nuptial agreement should provide for no recovery by each spouse from the other in the event of divorce, and the marriage should see the formation of a fortune which each spouse had played an equal role in their different ways in creating, but the fortune was in the hands for the most part of one spouse rather than the other, would it be right to give the same weight to their early agreement as in another perhaps very different example? The answer to this question is, in the individual case, likely to be no.
Of the three strands identified in White v White and Miller v Miller, it is the first two, needs and compensation, which can most readily render it unfair to hold the parties to an ante nuptial agreement.
The parties are unlikely to have intended that their ante nuptial agreement should result, in the event of the marriage breaking up, in one partner being left in a predicament of real need, while the other enjoys a sufficiency or more, and such a result is likely to render it unfair to hold the parties to their agreement.
Equally if the devotion of one partner to looking after the family and the home has left the other free to accumulate wealth, it is likely to be unfair to hold the parties to an agreement that entitles the latter to retain all that he or she has earned.
Where, however, these considerations do not apply and each party is in a position to meet his or her needs, fairness may well not require a departure from their agreement as to the regulation of their financial affairs in the circumstances that have come to pass.
Thus it is in relation to the third strand, sharing, that the court will be most likely to make an order in the terms of the nuptial agreement in place of the order that it would otherwise have made.
So far as concerns the general approach of the court to ante nuptial agreements, Wilson LJ at para 130 endorsed the following comments of Baron J at first instance 111.
I am certain that English courts are now much more ready to attribute the appropriate (and, in the right case, decisive) weight to an agreement as part of all the circumstances of case [within the meaning of section 25(1) of the Act of 1973] 119.
Upon divorce, when a party is seeking quantification of a claim for financial relief, it is the court that determines the result after applying the Act.
The court grants the award and formulates the order with the parties agreement being but one factor in the process and perhaps, in the right case, it being the most compelling factor We also would endorse these comments.
We now turn to apply these principles to the facts of this case.
The background to the signing of the agreement
At the time the parties met in November 1997 they were both living in London.
The wife comes from a very rich German family, whose wealth is derived primarily from two very successful businesses in chromatography, filtration and the processing/refinement of paper, and the manufacture of paper.
The husband comes from a family which is well off, his father having been a senior executive with IBM, at one time in charge of its European operations.
He now resides in London for tax reasons, but retains property in Antibes.
When the couple met the husband had been working in London for about 2 years with JP Morgan & Co, and was earning about 50,000, which was a substantial sum at that date, particularly given his age, and which had increased to about 120,000 by the time the ante nuptial agreement was executed.
They became engaged in June 1998 and were married in November 1998.
They made London their home.
It was the wife who suggested that the parties should enter into an ante nuptial agreement.
Although the judge was sure that the wife wanted her husband to love her for herself, the wife emphasised her fathers insistence, because she felt it made her seem less insensitive to her future spouse, given that the terms excluded all his potential rights (even in times of crisis).
The wife did not make it obvious that she personally demanded it as a precondition of marriage.
The judge found that the husband was eager to comply because he did not want the wife to be disinherited, he wanted to marry her, and he could not perceive of circumstances where he would wish to make a claim.
The wifes family decided that this agreement would be drawn up in Germany by a notary, Dr N Magis, who had undertaken other work for the family.
The instructions to Dr Magis came originally from the wifes mother on 6 July, 1998, who told him that the marriage was to be in London in the autumn and that neither of the parties wished to make any claim on the other in the event of divorce.
Dr Magis pointed out that such a deal might leave a young mother with children in difficulty but he was informed that the daughters income was some DM500,000 a year plus other monies managed by their father and so despite the future son in law's excellent income even in the worse case scenario there would be no risk to their daughter.
On the same day, 6 July, 1998, Dr Magis spoke by telephone to the wife.
She confirmed the facts given by her mother.
It was agreed that the draft was to be prepared as quickly as possible in order to give the husband an opportunity to prepare for the conclusion of the contract which was to be signed on the first weekend of August.
Dr Magis was insistent that the husband had sufficient time so that he could take advice if he wished and fully understand the implications of what he was signing.
On 17 July, 1998 Dr Magis sent by fax to the wife a draft of the agreement, under cover of a letter in which he wrote: You wanted to discuss the content of the agreement with your future spouse and have it translated into a language convenient for him.
In the draft, which was in German, there was a clause for the parties to insert the approximate value of their respective assets; but the wife telephoned Dr Magis that day and said that the clause should be deleted and that she and the husband would separately notify each other of the value of their assets.
A second draft was produced by 20 July, 1998 and it was sent to the wife's father.
On 23 July, 1998 the wife telephoned Dr Magis and told him that she had discussed the draft with her father and he wanted additions in relation to company shares specifically that the husband should not be able to inherit them directly or circuitously via their children.
It was agreed that this would be dealt with by the wifes drawing up a will.
A final draft version was made available to the wife in London at about this date.
The judge found that it was highly unlikely that the wife showed the husband the first draft, or that she informed him about her mothers or fathers involvement in the drawing up the terms of the agreement.
But the judge rejected the husbands evidence that he did not see the draft at all.
The judge found that the wife showed him the final draft which was available on about 24 July, 1998, about one week before the signing ceremony.
The basic terms were made clear to the husband, but the husband was not made aware that Dr Magis wanted him to have a translation to give him a proper opportunity to consider the precise terms and see a lawyer.
On 1 August, 1998 the parties attended at the office of Dr Magis near Dsseldorf.
Their meeting with him lasted for between two and three hours.
The husband told Dr Magis that he had seen the draft agreement but that he did not have a translation of it.
Dr Magis was angry when he learned of the absence of a translation, which he considered to be important for the purpose of ensuring that the husband had had a proper opportunity to consider its terms.
Dr Magis indicated that he was minded to postpone its execution but, when told that the parties were unlikely again to be in Germany prior to the marriage, he was persuaded to continue.
Dr Magis, speaking English, then took the parties through the terms of the agreement in detail and explained them clearly; but he did not offer a verbatim translation of every line.
The parties executed the agreement (which bears the date of 4 August, 1998) in his presence.
Not only did the husband not take advantage of Dr Magis wish to postpone execution so that he could take independent legal advice, but in the 4 months or so following the execution of the agreement at the beginning of August 1998 until the marriage in London on 28 November, 1998, the husband did not take the opportunity to seek independent advice.
Events leading up to the breakdown of the marriage
The parties lived together in London for more than a year after the marriage.
In April 2000 the husband was posted to New York by his employers, J P Morgan.
The family moved there, but the wife did not find life in America congenial.
So she returned to London in May 2001.
The husband was transferred back to London in October of that year.
Their older daughter (now 11) was born here in September 1999 before they left and their younger daughter (now 8) in May 2002 after their return.
In July 2003 he left his employers and embarked on his research studies at Oxford.
Both parties accepted that [he] was miserable and discontented [and] a change of tack was inevitable.
He embarked upon research for a doctorate in biotechnology at Oxford University, thinking that a combination of scientific knowledge and his banking experience would put him in a good position to capitalise upon and exploit his financial expertise in future years (Baron J, paras 50 and 51).
During the first five years of the marriage, while he was working for J P Morgan, the husband generated a very substantial amount of income.
He had amassed about $500,000 of capital out of his earnings, but during the next two years he expended it for the benefit of the family.
Meantime the wifes father had transferred to her a substantial amount of capital, which raised her shareholding in the two groups of companies to their present level.
He also paid her a substantial sum in return for her surrender of any entitlement under German law to a portion of his estate on her death.
The husbands work at Oxford led him to spend many nights away from home.
By this time the marriage was already in difficulties.
By August 2006 separation had become inevitable and the wife moved with the children from the matrimonial home, a rented flat in Knightsbridge where the husband still lives into another rented flat in Knightsbridge.
From then on there was no way back, and proceedings for divorce followed soon afterwards.
Wilson LJs assessment was that throughout the marriage the familys standard of living had been extremely comfortable, albeit tempered by the wifes aversion to profligacy: para 117.
It was originally the husbands intention to return to the financial sector once he had obtained his doctorate, but he no longer wishes to do so and Baron J held that this course would not be open to him in any event.
The foreign element and the agreement
The wife was German, and the husband was French.
The agreement was drafted by a German lawyer under German law.
They were then living in London and London was plainly intended to be their first matrimonial home.
The agreement stated (in recital 2) that (a) the husband was a French citizen and, according to his own statement, did not have a good command of German, although he did, according to his own statement and in the opinion of the officiating notary (Dr Magis), have an adequate command of English; (b) the document was therefore read out by the notary in German and then translated by him into English; (c) the parties to the agreement declared that they wished to waive the use of an interpreter or a second notary as well as a written translation; and (d) a draft of the text of the agreement had been submitted to the parties two weeks before the execution of the document.
Clause 1 stated the intention of the parties to get married in London and to establish their first matrimonial residence there.
By clause 2 the parties agreed that the effects of their marriage in general, as well as in terms of matrimonial property and the law of succession, would be governed by German law.
Clause 3 provided for separation of property, and the parties stated: Despite advice from the notary, we waive the possibility of having a schedule of our respective current assets appended to this deed.
Clause 5 provided for the mutual waiver of claims for maintenance of any kind whatsoever following divorce: The waiver shall apply to the fullest extent permitted by law even should one of us whether or not for reasons attributable to fault on that person's part be in serious difficulties.
The notary has given us detailed advice about the right to maintenance between divorced spouses and the consequences of the reciprocal waiver agreed above.
Each of us is aware that there may be significant adverse consequences as a result of the above waiver.
Despite reference by the notary to the existing case law in respect of the total or partial invalidity of broadly worded maintenance waivers in certain cases, particularly insofar as such waivers have detrimental effects for the raising of children and/or the public treasury, we ask that the waiver be recorded in the above form Each of us declares that he or she is able, based on his or her current standpoint, to provide for his or her own maintenance on a permanent basis, but is however aware that changes may occur.
Clause 7(2) recorded that Dr Magis had pointed out to the parties that, despite the choice of German law, foreign law might, from the standpoint of foreign legal systems, apply to the legal relationships between the parties, in particular in accordance with the local law of the matrimonial residence, the law of the place and/or nationality of the husband, with nationality and the place where assets were located being especially relevant to inheritance.
The agreement said: The notary has pointed out that he has not provided any binding information about the content of foreign law, but has recommended that we obtain advice from a lawyer or notary practising in the respective legal system.
By letter to the parties dated 3 August, 1998 Dr Magis again stressed that, before taking up permanent residence abroad, they should take the advice of a local lawyer in relation to the effect of the agreement there.
The unchallenged evidence before the judge was that: (a) the agreement was valid under German law; (b) the choice of German law was valid; (c) there was no duty of disclosure under German law; (d) the agreement would be recognised as valid under French conflict of laws rules.
The terms of the agreement recite that the parties intend to establish their first matrimonial residence in London and it confirms by clause 7(2) that the law of their matrimonial residence may come to apply to their legal relationship as spouses.
It was therefore inherent in the agreement that another system of law might apply its terms and so it could never be regarded as foolproof.
Applicable law
In England, when the court exercises its jurisdiction to make an order for financial relief under the Matrimonial Causes Act 1973, it will normally apply English law, irrespective of the domicile of the parties, or any foreign connection: Dicey, Morris and Collins, Conflict of Laws, vol 2, 14th ed 2006, Rule 91(7), and e.g. C v C (Ancillary Relief: Nuptial Settlement) [2004] EWCA Civ 1030, [2005] Fam 250, at para 31.
The United Kingdom has made a policy decision not to participate in the results of the work done by the European Community and the Hague Conference on Private International Law to apply uniform rules of private international law in relation to maintenance obligations.
Although the United Kingdom Government has opted in to Council Regulation (EC) No 4/2009 of 18 December, 2008 on jurisdiction, applicable law and enforcement of decisions and cooperation in matters relating to maintenance obligations, the rules relating to applicable law will not apply in the United Kingdom.
That is because the effect of Article 15 of the Council Regulation is that the law applicable to maintenance obligations is to be determined in accordance with the 2007 Hague Protocol on the law applicable to maintenance obligations, but only in the Member States bound by the Hague Protocol.
The United Kingdom will not be bound by the Hague Protocol, because it agreed to participate in the Council Regulation only on the basis that it would not be obliged to join in accession to the Hague Protocol by the EU.
The United Kingdom Governments position was that there was very little application of foreign law in family matters within the United Kingdom, and in maintenance cases in particular the expense of proving the content of that law would be disproportionate to the low value of the vast majority of maintenance claims.
For the purposes of the present appeal it is worth noting that the Hague Protocol allows the parties to designate the law applicable to a maintenance obligation, but also provides that, unless at the time of the designation the parties were fully informed and aware of the consequences of their designation, the law designated by the parties shall not apply where the application of that law would lead to manifestly unfair or unreasonable consequences for any of the parties (Article 8(1), (5)).
The ante nuptial agreement had provision for separation of property and exclusion of community of property of accrued gains (clause 3), in relation to which the chosen law would have governed: Dicey, Morris and Collins, vol 2, para 28 020.
But although the economic effect of Miller/Macfarlane may have much in common with community of property, it is clear that the exercise under the 1973 Act does not relate to a matrimonial property regime: cf Case C 220/95 Van den Boogaard v Laumen (Case C 220/95) [1997] ECR I 1147, [1997] QB 759; Agbaje v Agbaje [2010] UKSC 13, [2010] 2 WLR 709, para 57.
In summary, the issues in this case are governed exclusively by English law.
The relevance of German law and the German choice of law clause is that they clearly demonstrate the intention of the parties that the ante nuptial agreement should, if possible, be binding on them (see para 74 above).
The decision of the trial judge
Baron J held that the ante nuptial agreement was not a valid contract under English law: paras 129, 132.
Nevertheless she said that in assessing the husbands needs she would take account of all the circumstances of the case and that his award should be circumscribed to a degree to reflect the fact that at the outset he agreed to sign the agreement.
As she explained in para 139: he understood the underlying premise that he was not entitled to anything if the parties divorced.
In essence, he accepted that he was expected to be self sufficient.
As a man of the world that was abundantly clear.
His decision to enter into the agreement must therefore affect the award.
Baron J found that the ante nuptial agreement fell foul of a number of the safeguards set out in para 4.23 of the Home Office consultation document and was, prima facie, unfair: para 38.
She said that its preparation was very one sided and therefore was demonstrably not neutral: para 76(d).
She held that it was defective under English law because the husband received no independent advice; that it deprived him of all claims to the furthest permissible legal extent even in a situation of want, which was manifestly unfair; that there was no disclosure by the wife; that there were no negotiations; and that two children had been born of the marriage: para 137.
It was with these factors in mind that she conducted her assessment.
In the result the judge awarded the husband 700,000 to put towards his then debts of 800,000 and 25,000 to buy a car; 2.5m to buy a home of his own in London; 630,000 to buy a home in Germany (to remain owned by the wife or an entity set up by her) for the purpose of caring for his children in accordance with a shared residence order during his periods of residence with them (for 15 years); and 2.335m as a capitalised revenue Duxbury fund to provide the husband with a total annual income for life of 100,000, taking into account an annual gross taxable earning capacity of 30,000 until retirement at age 65.
Thus the husbands award amounted in total to 5.560m (excluding the award of 630,000 for housing in Germany).
She also awarded him periodical payments of 35,000 for each child until they ceased full time education.
No indication is given in the judgment of the extent of the discount, if any, that she made to take account of the terms of the ante nuptial agreement.
The decision of the Court of Appeal
The wife sought and was granted permission to appeal against this order to the Court of Appeal.
On 2 July 2009 the Court of Appeal (Thorpe, Rix and Wilson LJJ) set aside the order of Baron J: [2009] EWCA Civ 649.
Thorpe LJ said that, despite the appearance of the ante nuptial contract as a factor, the impression given by the judges award was of a negligible resulting discount: para 43.
He held that, in order to give proper weight to the ante nuptial contract, the sum of 2.5m for housing should not be the husbands absolutely but should be held by him only for the years of parenting.
The income fund should be capitalised at a rate to cover his needs only until the younger childs 22nd birthday.
Thus, while he would not interfere with the awards for the car, for the payment of the husbands debts, for housing in Germany and the periodical payments for the children, the major funds should be provided for his role as a father rather than as a former husband: para 50.
Wilson LJ, who delivered the leading judgment on the facts, said that the judges application of the law to the facts was plainly wrong.
She erred in the exercise which she conducted under section 25 of the Matrimonial Causes Act 1973 in not giving decisive weight to the ante nuptial contract.
The result was that relief should have been granted to the husband only indirectly, in his capacity as a home maker for the girls: paras 135, 149.
Rix LJ, agreeing with both judgments, also said that the ante nuptial contract should be given decisive weight in the section 25 exercise: para 81.
The husband cross appealed on the sum awarded for housing in Germany based on fresh evidence.
His appeal on that matter was allowed and it was remitted to the judge to determine the appropriate figure in the fresh circumstances.
Wilson LJ noted that the wife had conceded that, notwithstanding her success in the appeal and thus of her submission that the husbands claim should be limited to that of a home maker for the girls, it was appropriate for her to be ordered to meet the costs of the financial proceedings up to July 2008 when Baron J delivered her judgment and to clear the husbands other debts: para 152.
Nevertheless the costs of the appeal were awarded to the wife.
She was ordered to pay the costs of the cross appeal.
Discussion
The circumstances in which the ante nuptial agreement was made
The Court of Appeal differed from the finding of the trial judge that the ante nuptial agreement was tainted by the circumstances in which it was made.
Wilson LJ, with whom the other two members of the court agree, dealt with these matters in detail.
The judge had found that the husband had lacked independent legal advice.
Wilson LJ held that he had well understood the effect of the agreement, had had the opportunity to take independent advice, but had failed to do so.
In these circumstances he could not pray in aid the fact that he had not taken independent legal advice.
The judge held that the wife had failed to disclose the approximate value of her assets.
Wilson LJ observed that the husband knew that the wife had substantial wealth and had shown no interest in ascertaining its approximate extent.
More significantly, he had made no suggestion that this would have had any effect on his readiness to enter into the agreement.
The judge held that the absence of negotiations was a third vitiating factor.
Wilson LJ observed that the judge had given no explanation as to why this was a vitiating factor, and that the absence of negotiations merely reflected the fact that the background of the parties rendered the entry into such an agreement commonplace.
We agree with the Court of Appeal that the judge was wrong to find that the ante nuptial agreement had been tainted in these ways.
We also agree that it is not apparent that the judge made any significant reduction in her award to reflect the fact of the agreement.
In these circumstances, the Court of Appeal was entitled to replace her award with its own assessment, and the issue for this court is whether the Court of Appeal erred in principle.
Baron J had held that the ante nuptial agreement was manifestly unfair in that it made no provision for the possibility that the husband might be reduced to circumstances of real need.
Wilson LJ at para 144 appears to have thought that there was nothing unfair about this and, inferentially, that had the husband been in a situation of real need the agreement would none the less have been good reason for the court to decline to alleviate this by an order of ancillary relief.
We would not go so far as this.
We stated at para 73 above that the question of the fairness of the agreement can often be subsumed in the question of whether it would operate unfairly in the circumstances prevailing at the breakdown of the marriage, and this is such a case.
Had the husband been incapacitated in the course of the marriage, so that he was incapable of earning his living, this might well have justified, in the interests of fairness, not holding him to the full rigours of the ante nuptial agreement.
But this was far from the case.
On the evidence he is extremely able, and has added to his qualifications by pursuing a D Phil in biotechnology.
Furthermore the generous relief given to cater for the needs of the two daughters will indirectly provide in large measure for the needs of the husband, until the younger daughter reaches the age of 22.
Finally the Court of Appeal did not upset the judges order that the wife should fund the discharge of debts of 700,000 owed by the husband, only a small part of which she had challenged.
In these circumstances we consider that the Court of Appeal was correct to conclude that the needs of the husband were not a factor that rendered it unfair to hold him to the terms of the ante nuptial agreement, subject to making provision for the needs of the children of the family.
Compensation
There is no compensation factor in this case.
The husbands decision to abandon his lucrative career in the city for the fields of academia was not motivated by the demands of his family, but reflected his own preference.
Sharing
This dispute raises the question of whether, as a result of his marriage, the husband should be entitled to a portion of the wealth that his wife has received from her family, in part before the marriage and in part during, but quite independently of it.
When he married her he agreed that he should have no such entitlement.
Our conclusion is that in the circumstances of this case it is fair that he should be held to that agreement and that it would be unfair to depart from it.
We detect no error of principle on the part of the Court of Appeal.
For these reasons we would dismiss this appeal.
LORD MANCE
I concur with the conclusion reached by the majority and with most of the majoritys reasoning.
I address only three specific areas: (i) whether ante and post nuptial agreements have contractual force; (ii) the starting point when considering the weight such agreements bear; and (iii) the Court of Appeals exercise of its discretion.
(i) Do ante and post nuptial agreements have contractual force? In the old cases, the public policy objections, seen as existing to both ante and post nuptial agreements, were based on the policy of the law, founded upon the relation which exists between the husband and wife, and the importance to society of maintaining that relation between them: Cartwright v Cartwright (1853) de G, M & G 982 p.990; and see H v W (1857) 3 K & J 382, where a provision in an ante nuptial settlement, whereby income would be paid to the husband instead of the wife if the wife lived separately from him through any fault of her own was held void, because it might induce the husband to consent to her living apart and to refuse to take steps to enforce the restitution of conjugal rights: p.386.
The reasoning in these cases is, as Lady Hale observed in MacLeod v MacLeod [2010] 1 AC 298, in legal terms obsolete.
The objections thus swept away are not however the only objections which would exist to any regime which made ante or post nuptial agreements binding tout court.
Parties who make such agreements are not necessarily on an equal standing, above all emotionally.
They may not have a full appreciation of such an agreements significance and likely impact.
Above all, they may well not foresee, or cater adequately for, the way in which not only their relationship but their whole lives and individual circumstances may change, especially over time and very often as a direct or indirect result of their marriage.
In a context, like the present, where the English courts have jurisdiction and grant a decree of divorce or nullity, the further objections identified in the preceding paragraph are catered for by Part II of the Matrimonial Causes Act 1973.
Hence, the majoritys description in para 63 of the legal effect of any ante or post nuptial agreement as a red herring in this case.
The principle established in Hyman v Hyman [1929] AC 601, precluding the ousting of the courts statutory jurisdiction after such a decree, must in my view apply to any such agreement.
Like Lady Hale, para 138 (1) and (2) and para 156, I go no further and express no view on the binding or other nature of an ante nuptial agreement.
It is not difficult to envisage circumstances in which, if such an agreement were to be regarded as having contractual force, its enforcement could be sought before a court, particularly an overseas court, lacking the jurisdiction under Part II of the 1973 Act which applies only when the forum is an English divorce court.
I also agree in this respect with what Lady Hale says in para 159.
(ii) The starting point: The majority (para 75) and Lady Hale (para 169) both accept the overriding criterion or guiding principle for exercise of the statutory discretion as being one of fairness.
But they suggest differently worded tests for approaching this exercise where there has been an ante nuptial agreement.
I cannot think the difference in wording likely to be important in practice.
It appears to relate primarily to the starting point or onus, when feeding into the discretionary exercise the circumstances as they currently appear compared with those that existed or were contemplated at the date of the ante nuptial agreement.
The words intending it to have legal effect in Lady Hales first sentence must, in relation to any future ante nuptial agreement, be implicit in the majoritys formulation freely entered into by each party with a full appreciation of its implications.
If Lady Hales second sentence had used the word unfair, rather than fair, its effect would, as I see it, match precisely that of the second part of the majoritys formulation (unless in the circumstances, etc .).
My own inclination, in agreement with the majority, is that this is how the application of the overriding criterion should be approached.
Given an ante nuptial agreement, made freely and with full appreciation of the circumstances, it is natural in the first instance to ask whether there is anything in the circumstances as they now appear to make it unfair to give effect to the agreement.
But the ultimate question remains on any view what is fair, and the starting point or onus is, as I have said, unlikely to matter once all the facts are before the court.
(iii) The Court of Appeals exercise of discretion: I agree with the majority that there is no reason to set aside the Court of Appeals re exercise of the statutory discretion, undertaken after concluding that Baron J had erred in principle.
Baron J held the husband to be entitled to a house of his own (para 140(a)).
The Court of Appeal limited this aspect of the award confining his entitlement to the period, generously assessed, during which he could be expected to provide a home for the children, and concluding that he had no further needs requiring him to retain such a house outright or for a longer period.
Viewing the position overall, I do not see that we would be justified in concluding that the husband has or is likely after that period to have needs generated as a result of parenthood which will not be covered by the Court of Appeals order or his own resources.
It follows that I agree with Rix LJs conclusion (para 81) that: The provision of a home for the husband and for his needs as a father, carer and home maker for the children will, in the circumstances, more than adequately provide him with the means to support his own needs.
There is no case for making that home and financial support his to command for the whole of his life time.
LADY HALE
The issue in this case is simple: what weight should the court hearing a claim for ancillary relief under the Matrimonial Causes Act 1973 give to an agreement entered into between the parties before they got married which purported to determine the result? I propose to call these ante nuptial agreements because our legislation already uses the term ante nuptial to refer to things done before a marriage.
I should also point out that, although our judgments talk only of marriage and married couples, our conclusions must also apply to couples who have entered into a civil partnership.
The issue may be simple, but underlying it are some profound questions about the nature of marriage in the modern law and the role of the courts in determining it.
Marriage is, of course, a contract, in the sense that each party must agree to enter into it and once entered both are bound by its legal consequences.
But it is also a status.
This means two things.
First, the parties are not entirely free to determine all its legal consequences for themselves.
They contract into the package which the law of the land lays down.
Secondly, their marriage also has legal consequences for other people and for the state.
Nowadays there is considerable freedom and flexibility within the marital package but there is an irreducible minimum.
This includes a couples mutual duty to support one another and their children.
We have now arrived at a position where the differing roles which either may adopt within the relationship are entitled to equal esteem.
The question for us is how far individual couples should be free to re write that essential feature of the marital relationship as they choose.
A further question is how far this question can and should be determined by this Court and how far it should be left to Parliament, preferably with the advice and assistance of the Law Commission.
There is not much doubt that the law of marital agreements is in a mess.
It is ripe for systematic review and reform.
The Commission has a current project to examine the status and enforceability of agreements made between spouses and civil partners (or those contemplating marriage or civil partnership) concerning their property and finances and a consultation paper will be published shortly (see Law Commission, Annual Report 2009 10, 2010, Law Com No 323, paras 2.68 to 2.75).
This is just the sort of task for which the Law Commission was established by the Law Commissions Act 1965 and in which it has had such success, particularly in the field of family law.
The Commission can research and review the law over the whole area, not just the narrow section which is presented by the facts of an individual case.
It can consider such research as there is into the use and abuse of marital agreements of all kinds.
It can commission research into the experience and attitudes of practitioners and the public.
It can identify and discuss the full range of policy arguments, including a detailed examination of the experience of legislative reform in other common law countries (see, for example, I M Ellman, Marital Agreements and Private Autonomy in the United States, where initial enthusiasm has been tempered by experience in practice).
It can examine critically their economic impact, and in particular whether they can be expected to increase certainty and decrease cost, or whether in fact the reverse may happen, and in any event whether the suggested benefits will outweigh the suggested costs (see, for example, R H George, P G Harris and J Herring, Pre Nuptial Agreements: For Better or Worse? [2009] Fam Law 934).
It can develop options for reform across the whole field, upon which it can consult widely.
In the light of all this, it can make detailed proposals for legislative reform, which can be put before Parliament.
In short, that is the democratic way of achieving comprehensive and principled reform.
There is some enthusiasm for reform within the judiciary and the profession, and in the media, and one can well understand why.
But that does not mean that it is right.
This is a complicated subject upon which there is a large literature and knowledgeable and thoughtful people may legitimately hold differing views.
Some may regard freedom of contract as the prevailing principle in all circumstances; others may regard that as a 19th century concept which has since been severely modified, particularly in the case of continuing relationships typically (though not invariably) characterised by imbalance of bargaining power (such as landlord and tenant, employer and employee).
Some may regard people who are about to marry as in all respects fully autonomous beings; others may wonder whether people who are typically (although not invariably) in love can be expected to make rational choices in the same way that businessmen can.
Some may regard the recognition of these factual differences as patronising or paternalistic; others may regard them as sensible and realistic.
Some may think that to accord a greater legal status to these agreements will produce greater certainty and lesser costs should the couple divorce; others may question whether this will in fact be achieved, save at the price of inflexibility and injustice.
Some may believe that giving greater force to marital agreements will encourage more people to marry; others may wonder whether they will encourage more people to divorce.
Perhaps above all, some may think it permissible to contract out of the guiding principles of equality and non discrimination within marriage; others may think this a retrograde step likely only to benefit the strong at the expense of the weak.
These difficult issues cannot be resolved in an individual case, in particular a case with such very unusual features as this one.
Different people will naturally react to this particular human story in different ways, depending upon their values and experience of life.
There may be some, for example, who are astonished that an intelligent young man, who was apparently happy to sign away all claims upon his bride to bes considerable fortune, should now be seeking to make any claims upon her at all.
There may be others who are astonished that a fabulously wealthy young woman should begrudge what is a very small proportion of her estate to ensure that the father of her children can live in reasonable comfort for the rest of his days.
Above all, perhaps, the court hearing a particular case can all too easily lose sight of the fact that, unlike a separation agreement, the object of an ante nuptial agreement is to deny the economically weaker spouse the provision to which she it is usually although by no means invariably she would otherwise be entitled (see, for example, G F Brod, Premarital Agreements and Gender Justice (1994) 6 Yale Journal of Law and Feminism 229).
This is amply borne out by the precedents available in recent text books (see, for example, I Harris and R Spicer, Prenuptial Agreements: A Practical Guide (2008, Appendix D), or H Wood, D Lush, D Bishop, and A Murray, Cohabitation: Law, Practice and Precedents (2009, 4th ed, pp 583 592)).
Would any self respecting young woman sign up to an agreement which assumed that she would be the only one who might otherwise have a claim, thus placing no limit on the claims that might be made against her, and then limited her claim to a pre determined sum for each year of marriage regardless of the circumstances, as if her wifely services were being bought by the year? Yet that is what these precedents do.
In short, there is a gender dimension to the issue which some may think ill suited to decision by a court consisting of eight men and one woman.
It is for that reason that I have chosen to write a separate judgment, for although there is much within the majority judgment with which I agree, there are some points upon which I disagree.
Specifically: (1) I disagree with the view, mercifully obiter to the decision in this case, that ante nuptial agreements are legally enforceable contracts. (2) I disagree with the view, also mercifully obiter to the decision in this case, that it is open to this court to hold that they are. (3) I disagree with the view that, in policy terms, there are no relevant differences between agreements made before and agreements made after a marriage. (4) I disagree with the way in which the majority have formulated the test to be applied by a court hearing an application for financial relief, which I believe to be an impermissible gloss upon the courts statutory duties.
However, I agree that the court must consider the agreement in the light of the circumstances as they now exist and that the way the matter was put by the Privy Council in MacLeod v MacLeod [2008] UKPC 64, [2010] 1 AC 298, was too rigid, and in some cases, too strong; and I broadly agree with the majority upon the relevant considerations which the court should take into account. (5) I disagree with the approach of the Court of Appeal to the actual outcome of this case, which the majority uphold.
In my view it is inconsistent with the continued importance attached to the status of marriage in English law.
This is independent of the weight to be attached to the agreement in this case. (6) I consider that the reform of the law on ante and post nuptial agreements should be considered comprehensively, not limited to agreements catering for future separation or divorce.
I understand that Lord Mance shares my misgivings on points (1) and (2) above.
He also takes the view that the difference between our formulations of the test, referred to in point (4) above, is unlikely to be important in practice.
As the ultimate question is what is fair, the starting point is unlikely to matter once all the facts are before the court.
I hope that he is right.
The story so far: the different types of agreement between husband and wife
It may be helpful to give a brief account of how the law has got into its current mess (for which I must take some of the blame).
The common law regarded husband and wife as one person, and that person was the husband.
He acquired ownership or control over all his wifes property and income, along with liability for her pre marriage debts.
She had no contractual capacity of her own and so of course they could not make contracts with one another.
If the wifes family had property, it became common to make a marriage settlement which would preserve property for the wifes separate use.
This was for the purposes of avoiding the property getting into her husbands hands, providing some security for the wife, and preserving it for their children or to revert to the wifes family if the couple were childless.
Legislation in the 19th century progressively extended the concept of the wifes separate property, so that after the Married Womens Property Act 1882 everything which a woman owned on marriage or acquired thereafter remained or became her separate property.
The system of separate property thus established remains the only matrimonial property regime applicable in the law of England and Wales.
It also meant that the wife eventually acquired full contractual capacity and so a husband and wife could now make contracts with one another as well as with third parties.
Agreements between a husband and a wife fall into three broad categories: (a) those made during their cohabitation, (b) those made upon or during their separation, and (c) those made in connection with current matrimonial proceedings.
Of these, separation (type (b)) agreements have the longest history.
Unlike modern ante nuptial agreements, their original purpose was usually to make some sort of provision for the wife rather than to deprive her of it.
At common law, the husband did have an obligation to support his wife, but until statute intervened she could only enforce this by pledging his credit for necessaries.
There is no need here to trace the evolution of the statutory remedies but two points are worth noting: first, the obligation to maintain while living apart generally depended upon the husband either having committed a matrimonial offence or having agreed to maintain his wife in a separate household; and secondly, the obligations of husband and wife only became fully mutual with the major reforms which came into force in 1971 and are now largely contained in the Matrimonial Causes Act 1973.
Moreover, until then there were many more people who lived apart for a long time without ever taking divorce or other matrimonial proceedings.
An enforceable contractual obligation was therefore usually a great advantage for the wife.
There is nothing to stop a husband and wife from making legally binding arrangements, whether by contract or settlement, to regulate their property and affairs while they are still together (type (a) agreements).
These days, the commonest example of this is an agreement to share the ownership or tenancy of the matrimonial home, bank accounts, savings or other assets.
Agreements for housekeeping or personal allowances, on the other hand, might run into difficulties.
In Balfour v Balfour [1919] 2 KB 571, a husband agreed to pay his wife 30 per month when he returned to his work in Ceylon while she remained in England for medical reasons.
Duke LJ doubted whether the wife had given consideration for the husbands promise.
Atkin LJ would have had no difficulty in finding that her promise to spend the money for its intended purposes was consideration, but held that the couple had never intended that the arrangement should have contractual force: . the small courts of this country would have to be multiplied one hundredfold if these arrangements were held to result in legal obligations (p 579).
But any problems posed by the doctrine of consideration or the need to express contractual intent could be solved by making the agreement by deed.
However, agreements between husband and wife were also subject to two quite separate rules, each of which has a basis in public policy.
The first rule (public policy rule 1) was that agreements between husband and wife (or indeed between third parties and husband and/or wife) which provided for what was to happen in the event of their future separation or divorce were contrary to public policy and therefore void.
This rule was developed in the context of agreements or settlements which made some or better financial provision for the wife if she were to live separately from her husband (for a comparatively recent example, see Re Johnsons Will Trusts [1967] Ch 387).
Such an agreement could be seen as encouraging them to live apart for example, by encouraging her to leave him, if it was sufficiently generous or more than she would get if she stayed with him, or encouraging him to leave her, or to agree to her going, if it were not so generous.
Such encouragement was seen as inconsistent with the fundamental, life long and enforceable obligation of husband and wife to live with one another.
The second rule (public policy rule 2) was developed in the context of separation agreements (type (b) agreements).
Agreements for an immediate or existing separation between the spouses were not caught by public policy rule 1.
Their purpose was usually two fold.
They relieved the couple of the duty to live together: this meant that neither was guilty of the matrimonial offence of desertion and neither could petition for or enforce a decree of restitution of conjugal rights.
They might also make provision for the wife and any children.
In return she might agree not to go to court for a maintenance order.
However, in the leading case of Hyman v Hyman [1929] AC 601 it was firmly established that such agreements could not oust the statutory powers of the courts to award financial provision should the couple divorce.
As recounted in MacLeod v MacLeod [2008] UKPC 64, [2010] 1 AC 298, at paras 20 to 24, that rule was later held to apply to other statutory powers to award maintenance.
But in Bennett v Bennett [1952] 1 KB 249, it was held that, at least if the wifes promise not to go to court was the main consideration for the husbands promise to pay and could not be severed, the whole agreement (although made by deed) was contrary to public policy and therefore the husbands promise to pay was unenforceable.
Following consideration by the Royal Commission on Marriage and Divorce 1951 1955 (see Report, (1956) (Cmd) 9678, pp 192 195), that problem was resolved, and the rule in Hyman v Hyman confirmed, by the Maintenance Agreements Act 1957.
The promise not to go to court was void but this did not render void or unenforceable the other financial arrangements in the agreement.
Recognising that this might cause hardship to the payer as well as the payee, the quid pro quo was a power to vary or revoke those arrangements, if there was a change in the circumstances in the light of which they were made or the agreement did not contain proper financial arrangements for a child of the family.
The provisions in the 1957 Act were later amended in two significant respects by the Matrimonial Proceedings and Property Act 1970 and are now consolidated in the Matrimonial Causes Act 1973, ss 34 to 36.
First, while the 1957 Act applied only to agreements made between husband and wife for the purposes of their living separately, sections 34 to 36 of the 1973 Act apply to any agreement in writing made [at any time] between the parties to a marriage.
Secondly, the agreement may be varied even if the change in circumstances is one which the parties had foreseen when making the agreement.
Subject to this, agreements for a present or immediate separation were and remain valid and enforceable like any other contract.
The Court of Appeal in this case suggested (at para 134) that the power to vary such agreements has become a dead letter.
It is easy to see why this might be so.
Matrimonial practice has changed out of all recognition since the days of the 1957 Act.
In those days, many couples separated without ever obtaining a divorce.
A divorce could only be obtained if one of the parties had been guilty of a matrimonial offence (or had been incurably of unsound mind for at least five years).
The theory was that the innocent spouse was punishing the guilty one by divorcing him or her.
There could be no question of divorce by consent.
Until 1963, collusion was an absolute bar to obtaining the relief which, often enough, both parties desperately wanted.
So the parties had to be very cautious about anything which made it look as if they had agreed terms for their divorce.
And the powers of the divorce court to award financial provision were much more limited than they are now.
The parties might well agree terms in a separation agreement which were quite different from, and perhaps more generous than, anything which the court might order.
All of that has now changed.
One of the first priorities of the Law Commission was the reform of family law, and their efforts led to the radical changes brought about by the Divorce Reform Act 1969, the Matrimonial Proceedings and Property Act 1970, and the Law Reform (Miscellaneous Provisions) Act 1970.
All of these came into force on 1 January 1971.
The first two were consolidated in the Matrimonial Causes Act 1973.
The sole ground for divorce is now that the marriage has irretrievably broken down; separation and consent to a divorce is one of the ways of proving this.
The theory of the innocent party punishing the guilty has gone.
Divorce has become a great deal simpler and easier to obtain.
It is fair to assume that there are now far fewer married couples living apart for long periods without divorcing than there were in the 1950s.
The court also has comprehensive powers to award financial provision, to transfer and settle property, and to share out pension rights.
So the court can now do most things that the couple might want to agree.
Divorcing spouses are actively encouraged to agree between themselves what the consequences of their divorce should be.
Indeed, despite the impression given in the high profile cases which reach the press, that is what the great majority of people do (see, for example, J Eekelaar, M Maclean and S Beinart, Family Lawyers: The Divorce Work of Solicitors (2000); M Maclean and J Eekelaar, Family Law Advocacy (2009)).
If they do reach agreement, it is standard practice to embody its terms in a consent order.
This is, on the one hand, because public policy rule 2 means that they cannot oust the jurisdiction of the court in any event and, on the other hand, because a properly drafted court order can finally dispose of the parties claims against one another (see, for example, Dinch v Dinch [1987] 1 WLR 252).
So another type of marital agreement (a type (c) agreement) has come on the scene, an agreement to compromise the parties mutual financial and property claims on divorce.
Unlike orders made by consent in ordinary civil proceedings, however, the matrimonial order derives its authority from the court and not from the parties agreement, even if embodied in a deed (see, for example, de Lasala v de Lasala [1980] AC 546).
The court has an independent duty to check the agreed arrangements and to approve them (see Xydhias v Xydhias [1999] 2 All ER 386, at p 394).
As Butler Sloss LJ put it in Kelley v Corston [1998] QB 686, at p 714, The court has the power to refuse to make the order although the parties have agreed to it.
The fact of the agreement will, of course, be likely to be an important consideration but would not necessarily be determinative.
The court is not a rubber stamp.
In fact, as Xydhias itself showed, this too can cut both ways.
The fact that the order derives its authority from the court rather than the parties agreement also means that the court can treat them as having agreed upon the essentials of their arrangements, even if their agreement would not be contractually binding because they have not agreed upon all the details.
The court may therefore decide to give effect to these, even though it is not a legally binding contract.
Thus it is not surprising if practitioners have forgotten about the power to vary marital agreements.
Most couples can be persuaded to get a divorce instead.
The focus has therefore changed, away from the technical question of whether or not the agreement between the spouses is enforceable as an ordinary contract, in favour of the broader question which is before us now: what is the weight to be given to an agreement between a husband and a wife as to the financial consequences of their separation or divorce by a court which is invited to make orders about it?
But before turning to that question, it is necessary to consider the fate of the public policy rule 1 (see para 143 above) and the decision of the Judicial Committee of the Privy Council in MacLeod v MacLeod [2008] UKPC 64, [2010] 1 AC 298.
MacLeod was concerned with an agreement made by deed between a married couple while they were still living together.
It provided partly for what was to happen while they were still together and partly for what was to happen in the (by then not unlikely) event of their divorcing in the future.
Its terms were similar, but not identical, to the terms of an ante nuptial agreement entered into before the couple married in the State of Florida, where such agreements are legally binding.
The Board held that the rationale for the first rule of public policy no longer held good.
Since the abolition of the decree of restitution of conjugal rights by the Matrimonial Proceedings and Property Act 1970, s 20, the spouses no longer have a legally enforceable obligation to live together.
Providing for what is to happen in the event of a future separation or divorce no longer conflicts with the legally enforceable obligations of marriage.
Hence the Board held that a post nuptial agreement providing for future separation was valid and enforceable in the same way as any other contract between spouses.
The Board would not, however, have felt able to take that step had there not been a power to vary such a contract in the light of changes in the circumstances since it was made or for the sake of the children for whom they were responsible.
The injustice of enforcing maintenance agreements without any power of variation had been recognised by Parliament when it enacted the 1957 Act and confirmed in what is now section 35 of the 1973 Act.
Secondly, the Board held that these powers of alteration applied, not only to agreements for a current or immediate separation, but also to agreements for a future separation.
Although the financial arrangements contained in the agreement must relate to a period when the couple are living separately, section 34(2) defines a maintenance agreement as any agreement in writing made . between the parties to a marriage.
It was no longer limited to agreements made for the purpose of their living separately.
The Board did express the view, obiter, that sections 34 to 36 did not apply to agreements made between people who were not yet husband and wife and offered some observations, again obiter, about why the matter should be left to Parliament.
To sum up the position relating to agreements between husband and wife: (1) There is nothing to stop husbands and wives from making legally enforceable agreements about their property and finances which are to operate while they are living together, subject to the normal contractual requirements. (2) There is nothing to stop husbands and wives who are on the point of separating, or who are already separated, from making legally enforceable agreements about their financial rights and obligations while they are living apart. (3) Following MacLeod v MacLeod, there is also nothing to stop husbands and wives who are not yet separated from making legally enforceable agreements about their financial rights and obligations while they are living apart. (4) However, the court has power to vary the financial arrangements for their separation, made in agreements between husbands and wives, under sections 35 and 36 of the 1973 Act. (5) None of these agreements can oust the jurisdiction of the court to make financial orders should the parties separate or divorce. (6) Even if the parties have agreed what the courts order should be, the order derives its authority from the court and not from the parties agreement. (7) The court therefore has its own independent duty to check the arrangements agreed between the parties and to evaluate them in the light of its statutory duties under section 25 of the 1973 Act.
Ante nuptial agreements
So where does this leave ante nuptial agreements, made, not between husband and wife, but in contemplation of the couples impending marriage, and providing, perhaps among other things, for the possibility of their eventual separation or divorce? If the rationale for public policy rule 1 no longer applies to post nuptial agreements, following MacLeod, it is hard to see how it can still apply to ante nuptial agreements.
So why should these not also be regarded as valid and enforceable in the same way as separation agreements and, if MacLeod is right, other post nuptial agreements?
It was not necessary for the Board to decide that question in MacLeod and it is not necessary for this Court to decide it now.
The Court of Appeal in this case accepted that the law could only be changed by legislation and neither party has suggested otherwise to this Court.
Without legislation, it is not self evident what the right answer should be.
There are many different permutations. (i) It could be that MacLeod was right to hold that sections 34 to 36 of the 1973 Act apply to post nuptial agreements providing for a future separation and also right to express the view, obiter, that they do not apply to such agreements made before marriage. (ii) It could be that MacLeod was wrong to hold that sections 34 to 36 apply to any post nuptial agreement, other than an agreement for a present or immediate separation. (iii) It could be that the Board was wrong to consider that the words made between the parties to a marriage in section 34(2) apply only to agreements made while the parties are in fact married. (iv) It could be that the existence of a power of variation is not as important as the Board thought that it was, in assessing whether there are still public policy objections to holding such agreements contractually binding.
It will come as little surprise that I adhere to the views expressed by the Board in MacLeod.
They accord with the wording of the Act.
This was not a particularly adventurous piece of statutory construction, once it is realised that the change in the definition of the agreements covered by sections 34 to 36 was made in the same Act of Parliament, the Matrimonial Proceedings and Property Act 1970, which also swept away the basis of public policy rule 1, the enforceability of the duty to live together.
Indeed, that change of wording may be said to strengthen the Boards construction.
Making such agreements enforceable, subject to a power of variation, would be entirely logical and consistent.
It would, however, have been considerably more adventurous to interpret the words made between the parties to a marriage, in section 34(2) of the 1973 Act, to include a couple who were not yet husband and wife when the agreement was made.
After all, another feature of the reforms which came into force on 1 January 1971 was the abolition of the action for breach of promise of marriage.
Furthermore, without a power of variation, there remain serious policy objections, albeit different from the original ones, to recognising ante nuptial agreements as valid and enforceable in the contractual sense.
Is it to be assumed that, although section 34(1) does not apply, public policy rule 2 (the rule in Hyman v Hyman) does? If it does, what is the answer to the Bennett v Bennett problem if the beneficiary spouse wishes to sue upon the agreement? If it does not, can it be right that the intending spouses can oust the jurisdiction of the courts before their marriage but are unable to do so afterwards? If, on the other hand, either of the spouses wishes to enforce the agreement without going to the family court, can it be right that they should be able to do so without any power of variation no matter what the circumstances?
It is no answer to these questions, it seems to me, that these days most people do go to the divorce courts.
They should not be obliged to do so.
The existence of a power of variation means that they are likely to agree a variation for themselves without going to court.
There are still people with conscientious objections to divorce.
There are still people who are reluctant to accept that their marriage is over even though there may be temporary difficulties.
There are other people who will not be able to go to the divorce courts here because they have been pipped to the post by the first to file jurisdictional rules in the Brussels II Revised Regulation (Council Regulation (EC) No 2201/2003).
But in any event, this Court should not be developing the common law in such a way as to produce an injustice and thus to encourage people to seek a divorce when they would not otherwise wish to do so.
Even if the old rationale for public policy rule 1 has gone, I still believe that it is the public policy of this country to support marriage and to encourage married people to stay married rather than to encourage them to get divorced.
A better answer, it may be, is that MacLeod did not need to decide whether post nuptial contracts providing for a future separation were legally binding either.
It too was a case about the weight to be given to such an agreement when the couple came to divorce.
Some may think that the question whether an agreement is contractually binding has little if any relevance to the weight which it should be given by the court.
Others, however, may think differently, especially if the agreement contains provisions to be implemented during cohabitation which have in fact been honoured.
At all events, as the author of (but not the only contributor to) the Boards unanimous advice in MacLeod, I must accept some of the blame for the mess in which we now find ourselves.
All of this is to emphasise that this Court is not deciding whether ante nuptial agreements are contractually binding.
Nor is it overruling MacLeod on the question of post nuptial agreements.
The matter is obviously one for the Law Commission to sort out.
My only plea is for a comprehensive and rational approach.
Should public policy rule 2 (the rule in Hyman v Hyman) apply to all marital agreements, before or after marriage, before or after separation, and to all its terms, whether operating during cohabitation or after the couple have separated? Or if that rule is to be disapplied to any or all of them, to what extent and in what circumstances? Should there be a power to vary all marital agreements and all their terms, and if so in what circumstances and on what grounds? Should all, some or none of their terms be legally enforceable? By what rules of private international law should such agreements be governed? This last is a particularly complicated question, particularly in a case such as this, where the agreement included both a choice of matrimonial property regime and also a choice of applicable law.
It would be a great help if we could clarify our choice of law rules relating to matrimonial property regimes.
All of these questions require careful consideration.
Once again, I adhere to the view expressed in MacLeod, that there may be important policy considerations justifying a different approach as between agreements made before and after a marriage.
This is recognised in those jurisdictions which have legislated to make ante nuptial agreements enforceable.
It is, for example, common for them to contain safeguards which do not apply to agreements made after the marriage.
Most important is whether, and if so in what circumstances, couples should be allowed to contract out of the fundamental obligations of the married state which they are about to enter.
Taking the agreement into account
It follows from the well established principles outlined in paragraph 149 above that, as the court always has to exercise its own discretion, if there is to be a starting point for the exercise of that discretion it has to be the statutory duty under section 25 of the 1973 Act.
This applies to all applications for orders for financial provision, property adjustment and pension provision ancillary to divorce, judicial separation and nullity decrees.
It is in mandatory terms (see paras 20 and 21 above).
Furthermore, the same rules and considerations apply to (now almost unheard of) applications to the divorce court under section 27 of the 1973 Act for financial provision in cases of neglect to maintain (see section 27(3)) and to applications for financial provision in magistrates courts under the Domestic Proceedings and Magistrates Courts Act 1978 (see section 3(1) and (2) of that Act, which mirror section 25(1) and (2)(a) to (g) of the 1973 Act).
Corresponding provisions also apply between civil partners (see Civil Partnership Act 2004, s 72(1) and (2) and Scheds 5 and 6).
Until 1984, as is well known, section 25 contained a tailpiece which directed the court as to the overall objective of its discretion.
This was so to exercise its powers: . as to place the parties, so far as it is practicable . to do so, in the financial position in which they would have been if the marriage had not broken down and each had properly discharged his or her financial obligations and responsibilities towards the other.
This was deleted from section 25 by the Matrimonial and Family Proceedings Act 1984.
Implicitly, as Lord Nicholls of Birkenhead said in White v White [2001] 1 AC 596, at p 604, the objective must be to achieve a fair outcome.
But in deciding what was fair, the courts had, perforce, to work out some principled reasons for making any order at all, in the context of a separate property regime.
The House of Lords eventually did so in the trio of cases, White v White (above) and Miller v Miller, McFarlane v McFarlane [2006] UKHL 24, [2006] 2 AC 618.
Put simply, the House discerned three possible rationales for making an order: the sharing of matrimonial assets, meeting needs arising from or during the marriage, and compensating for sacrifices made because of the marriage.
I do not understand the majority judgment in this Court to be casting any doubt, either on the overall objective of a fair outcome, or upon the three possible reasons for the redistribution.
White is important for another reason.
The leading opinion, with which Lord Hoffmann, Lord Hope of Craighead and Lord Hutton agreed, was delivered by Lord Nicholls.
He emphasised that there should be no discrimination between the different contributions of the spouses to the welfare of the family which should be seen as equally valuable.
But he also emphasised at pp 605 606: This is not to introduce a presumption of equal division under another guise. a presumption of equal division would go beyond the permissible bounds of interpretation of section 25.
In this regard section 25 differs from the applicable law in Scotland.
A presumption of equal division would be an inpermissible judicial gloss on the statutory provision.
That would be so even though the presumption would be rebuttable.
It is largely for this reason that I do not accept [counsels] invitation to enunciate a principle that in every case the starting point in relation to a division of the assets of the husband and wife should be equality.
He sought to draw a distinction between a presumption and a starting point.
But a starting point principle of general application would carry a risk that in practice it would be treated as a legal presumption, with formal consequences regarding the burden of proof. [My emphasis]
These observations are, in my opinion, equally applicable to the consideration of any nuptial or ante nuptial agreement in the mandatory exercise under section 25.
It would be an inadmissible judicial gloss to introduce a presumption or a starting point or anything which suggested that there was a burden of proof upon either party.
In any event, the concept of an onus or burden of proof is inapplicable in a discretionary exercise such as this.
He or she who asserts a fact must, of course, prove it.
But it is for the court to carry out the exercise of discretion in the way in which Parliament requires it to do.
In my opinion, the test adopted by the majority (in para 75) comes close to introducing such a presumption.
For this once again I must accept some responsibility.
In MacLeod v MacLeod , at para 41, the Board said this: It would be odd if Parliament had intended the approach to such agreements in an ancillary relief claim to be different from, and less generous than, the approach to a variation application.
The same principles should be the starting point in both.
In other words, the court is looking for a change in the circumstances in the light of which the financial arrangements were made, the sort of change which would make those arrangements manifestly unjust, or for a failure to make proper provision for any child of the family.
On top of that, of course, even if there is no change in the circumstances, it is contrary to public policy to cast onto the public purse an obligation which ought properly to be shouldered within the family. (emphasis supplied) This may have come as a surprise to those former practitioners, such as Wilson LJ, who (for the reasons explained earlier) had never had occasion to look at section 35.
But it would of course have been odd for Parliament to adopt one test when looking at the variation of a legally enforceable contract and another test when looking at the weight which should be given to such a contract in proceedings for ancillary relief.
With the benefit of hindsight, I would qualify that statement heavily in two ways.
First, and most important, there seems no warrant for the inclusion of the word manifestly before unjust.
That is nowhere to be found in the legislation.
Secondly, in so far as it may be derived from cases on separation agreements, such as Edgar v Edgar [1980] 1 WLR 1410, it fails to acknowledge the manifold factual differences which there may be between the different types of marital agreement.
It is, as the majority point out, one thing to look for a very significant change of circumstances in a case such as Edgar, which concerned a deed of separation made when the parties were already separated and quite shortly before the divorce proceedings were begun, or indeed in MacLeod, where the marriage was already in serious trouble and the parties had the possibility of early separation and divorce very much in mind.
It is another to adopt the same approach when the agreement was made many years ago, before there was any question of the couple separating, and there are bound to have been many changes in the circumstances in which it was made.
In this respect, therefore, I agree with the majority that the MacLeod test was too strict.
It seems to me clear that the guiding principle in White, Miller and McFarlane is indeed fairness: but it is fairness in the light of the actual and foreseeable circumstances at the time when the court comes to make its order.
Those circumstances include any marital agreement made between the parties, the circumstances in which that agreement was made, and the events which have happened since then.
The test to be applied to such an agreement, it seems to me, should be this: Did each party freely enter into an agreement, intending it to have legal effect and with a full appreciation of its implications? If so, in the circumstances as they now are, would it be fair to hold them to their agreement? That is very similar to the test proposed by the majority, but it seeks to avoid the impermissible judicial gloss of a presumption or starting point, while mitigating the rigours of the MacLeod test in an appropriate case.
It allows the court to give full weight to the agreement if it is fair to do so and I adhere to the view expressed in MacLeod that it can be entirely fair to hold the parties to their agreement even if the outcome is very different from what a court would order if they had not made it.
It may well be that Lord Mance is correct in his view that the difference between my formulation and that of the majority is unlikely to be important in practice.
I would prefer not to take that risk.
As Lord Nicholls emphasised in Miller, at paras 26 to 29, there can be no inflexible rule about how a judge should approach the task.
It may be that a judge, if called upon to decide matters, will find it convenient to conduct the usual section 25 exercise before deciding what weight to give to the agreement.
He or she will then have a view of how the usual principles would apply to the particular facts of the case.
It may be, on the other hand, that the case is so clear cut, as in Crossley v Crossley [2007] EWCA Civ 1491, [2008] 1 FLR 1467, that it is more convenient to begin with the agreement.
If, for example, all the agreement seeks to do is to preserve property acquired before the marriage for the benefit of the spouse to whom it belongs, the court would be most unlikely to interfere unless the outcome would put a spouse or children in real need.
It is not for this Court to be prescriptive about how a trial judge should conduct the statutory exercise.
In principle, though, I agree that the test should be the same, whether the agreement is a compromise of the proceedings, a separation agreement, a post nuptial agreement made while the couple are together, or an ante nuptial agreement.
But the way in which it works out may be very different, depending upon the facts of the case.
I therefore also agree that it is difficult to be prescriptive about the factors to be taken into account, and the weight to be given to them, because this would be to fetter the flexibility that the court requires to reach a just result (para 76, above).
It may be, however, that the court will generally attach more weight to a separation agreement, made to cater for the existing and future separation of the parties, than to a post nuptial agreement, made while the parties are still together but also to cater for the possibility of a future separation, and more weight to such an agreement than to an ante nuptial agreement, catering for a marriage which has not yet taken place and for a separation which the parties neither want nor expect to happen.
The circumstances in which the agreement was made
The court will be looking first for a clear indication that the parties intended a divorce court to give effect to their agreement.
The textbook and other precedents which I have seen certainly do their best to make this clear.
The court should also take into account the parties understanding as to the legal effect of their agreement.
This is bound to change as a result of MacLeod and this case.
People who entered into separation agreements should always have been advised that they were legally binding as contracts unless and until varied and although not binding upon the divorce court would often be respected on the Edgar principles.
People who entered into post nuptial agreements in England and Wales will have been given rather different legal advice until MacLeod and people who enter into ante nuptial agreements will have been given rather different advice until this case.
People who have entered into such agreements in other countries will also have been given different advice.
The parties expectations and understandings as to the effect of their agreement should they later divorce will therefore be an important factor in deciding what is fair.
If the parties did expect the court to give effect to their agreement, the court will then ask whether there were any vitiating factors, such as fraud, duress or misrepresentation, which would make a contract voidable in English law.
If there were, the agreement should in principle be ignored.
But that is not all.
It would be wrong to take a more legalistic view of such factors in the case of ante and post nuptial agreements than has long been taken in the case of separation agreements.
Hence the wise words of Ormrod LJ in Edgar v Edgar [1980] 1 WLR 1410, 1417 (quoted in para 38 above) that it is not necessary in this connection to think in formal legal terms, such as misrepresentation or estoppel.
There may be something in the circumstances in which the agreement was made which, while falling short of a vitiating factor in the usual contractual sense, indicates that one party has taken an unfair advantage over the other.
Relevant to whether one party has taken advantage of the other will be whether there were the safeguards which have generally been regarded as essential in those countries in the common law world which have legislated to give validity to such agreements.
These normally include mutual disclosure of assets, independent legal advice, and a degree of distance in time between the agreement and the wedding.
These were also included in the safeguards proposed in the Home Office Consultation Paper referred to in the majority judgment at para [5].
These factors should be taken into account in deciding how much weight should be given to the agreement whether or not they are sufficient to vitiate it in the Edgar sense.
On the other hand, in the case of an ante nuptial agreement, the court cannot avoid also asking itself whether the marriage would have taken place at all without it, difficult though it may be to discern an accurate answer to that question in the light of later events.
This too can cut both ways, because it may or may not indicate that one has taken an unfair advantage of the other.
Later events
The focus both of my test and that of the majority is upon whether it is now fair to give effect to the agreement.
The longer it is since the agreement was made, the more likely it is that later events will have overtaken it.
Marriage is not only different from a commercial relationship in law, it is also different in fact.
It is capable of influencing and changing every aspect of a couples lives: where they live, how they live, who goes to work outside the home and what work they do, who works inside the home and how, their social lives and leisure pursuits, and how they manage their property and finances.
A couple may think that their futures are all mapped out ahead of them when they get married but many things may happen to push them off course misfortunes such as redundancy, bankruptcy, illness, disability, obligations to other family members and especially to children, but also unexpected opportunities and unexplored avenues.
The couple are bound together in more than a business relationship, so of course they modify their plans and often compromise their individual best interests to accommodate these new events.
They may have no choice if their marriage is to survive.
And these are events which take place while it is still hoped that the marriage will survive.
There may be people who enter marriage in the belief that it will not endure, but for most people the hope and the belief is that it will.
There is also a public interest in the stability of marriage.
Marriage and relationship breakdown can have many damaging effects for the parties, their children and other members of their families, and also for society as a whole.
So there is also a public interest in encouraging the parties to make adjustments to their roles and life styles for the sake of their relationship and the welfare of their families.
All of this means that it is difficult, if not impossible, to predict at the outset what the circumstances will be when a marriage ends.
It is even more difficult to predict what the fair outcome of the couples financial relationship will be.
A couple who always thought that one would be the breadwinner and one would be the homemaker may be astonished to find that the homemaker has become a successful businesswoman who is supporting her homemaker husband rather than the other way about.
A couple who assumed that each would run their own independent professional life and keep their finances entirely separate may find this quite impossible when they have children, especially if they have more than one or one of them has special needs.
An older couple who marry a second time round may think it fair at the time to preserve their assets for the sake of the children of their first marriages, but may find that one has to become a carer for the other and will be left homeless and in reduced circumstances if the grown up children take priority even though they are now well established in life and have no pressing need of their inheritance.
All of these are changes which would entitle the court to vary a separation (or post nuptial) agreement which turned out to be unfair, even if the parties had foreseen them, and should now be taken into account in deciding whether it is fair to uphold their agreement.
On the other hand, if things have indeed turned out much as the parties expected and intended, it could well be fair to give effect to their agreement.
Some of the precedents I have seen are of comparatively wealthy couples making a prediction of comparatively generous sums which ought to provide for the reasonable requirements of the recipient spouse in a way which might well have attracted the millionaires defence in the days before White v White.
In effect, therefore, they are contracting out of sharing but not out of compensation and support.
Provided that the provision made is adequate, why should they not be able to do so? On the one hand, the sharing principle reflects the egalitarian and non discriminatory view of marriage, expressly adopted in Scottish law (in section 9(1)(a) of the Family Law (Scotland) Act 1985 and adopted in English law at least since White v White.
On the other hand, respecting their individual autonomy reflects a different kind of equality.
In the present state of the law, there can be no hard and fast rules, save to say that it may be fairer to accept the modification of the sharing principle than of the needs and compensation principles.
The relevance of conduct?
It must also be borne in mind that these are often complicated agreements, providing not only for what is to happen on divorce or death, but also for what is to happen during the marriage.
The parties subsequent conduct in relation to the agreement must be among the relevant circumstances when considering what weight should be given to it.
Both parties may have conducted, and continued to conduct, their lives on the basis that their affairs are and will be governed by their agreement.
In MacLeod, for example, the agreement made provision for the wife while they were still together and the husband had put this into effect.
In this case, the wife acquired further assets from her father, which would not have happened had the agreement not been in place.
Such factors obviously increase the weight which should be given to the agreement.
Conduct in relation to the agreement itself is one thing.
But what about conduct in the relationship generally? In the section 25 exercise, the courts do not take conduct into account unless there is a substantial imbalance between the parties, such that it would be inequitable to disregard it.
Such cases are very rare.
But what if the agreement were to provide for different outcomes, depending upon how the parties have behaved during the marriage? What, for example, if the precedent referred to earlier, providing for the wife to have a predetermined sum for each year of marriage, were also to provide that she should only have this if she has been a good housewife? These are deep waters indeed, but in my view the court would be just as reluctant to enter into such an inquiry in relation to a nuptial agreement as it is now in relation to the section 25 exercise and correspondingly reluctant to hold the couple to their agreement.
All the examples that I have seen, both in textbooks and in real cases, are scrupulous in making no reference to marital conduct.
The foreign element
In strict legal terms the so called foreign element is irrelevant.
If the proceedings take place in England and Wales, the applicable law is that of England and Wales, irrespective of where the parties come from, how long they have been here, or how close their connection is with this jurisdiction.
The United Kingdom has made a deliberate choice not to adopt the Hague Protocol on the law applicable to maintenance obligations and has only agreed to participate in the Council Regulation (EC) No 4/2009 on the basis that it would not be required to do so.
English family lawyers seem to have a horror of having to apply foreign law which must appear strange to European lawyers who are quite used to doing so.
Anyone who chooses to divorce here must be advised that the court will apply English law and not the law of the country which the parties have chosen or with which the marriage has the closest connection.
In another sense, however, the foreign element cannot be totally irrelevant.
It may affect the relevant considerations in a number of ways.
It may be a crystal clear indication that the parties intended their agreement to be legally binding, not only upon themselves, but also on the court.
On the other hand, a foreign couple may have been warned, as this couple were warned, that their agreement might not have the same effect in other countries as it did in the country where it was made.
But it means that their expectations may have been very different.
The agreement may also have affected their later behaviour to a greater extent than it would have done had they not regarded it as legally binding.
None of this is to suggest that evidence of foreign law will be necessary in a foreign case.
The relevance is not as to the effect of a foreign agreement in English law because, by the time the case gets to the divorce court, it has none.
The relevance is as to the parties intentions and expectations at the time when they entered into it.
This case
The agreement with which we are concerned was ante nuptial, in the sense that it was made before the marriage.
However, it did more than provide for what was to happen should the couple separate or divorce.
It purported to choose German law as the law applicable to all aspects of the marriage; it determined the matrimonial property regime which would govern the marriage, in this case separation of property rather than the deferred community of property which is the default position in German law; it excluded the statutory equalisation of their German pension rights; each party waived the right to a compulsory portion of the estate of the first to die which they would otherwise have under German law; and each party waived any claim to maintenance of any kind whatsoever in the event of their divorce.
Most of this is already English law.
The matrimonial property regime of England and Wales has to all intents and purposes been a separate property regime since 1882.
English law does not provide for the compulsory equalisation of pension rights or for the survivor automatically to inherit a compulsory portion of the estate of a deceased spouse.
The difficulty lies with the exclusion of all claims to maintenance on divorce, because in English law this cannot be done (nor, it appears, is it entirely effective in German law).
No one has argued that this agreement should be ignored.
That might have been a tenable view while public policy rule 1 survived (and even while it was still thought to have survived, the courts were increasingly inclined to take these agreements into account) but that view is no longer tenable now that the rule has gone.
Equally no one has argued in this Court that the agreement should be presumptively dispositive.
As we have seen, that would be inconsistent with the statutory regime governing financial relief.
As may often be the case with these agreements, if the judge had first asked herself what would have been the fair outcome without the agreement and then asked herself what difference the agreement should make, she might well have come closer to the solution adopted by the Court of Appeal.
She would have asked herself whether any of the three principles identified by the House of Lords in White, Miller, and McFarlane would justify an award to the husband.
She would have concluded that there was no scope for the sharing of matrimonial assets, because in effect there were none.
Unusually, this couple had acquired no matrimonial home or other property together.
The wife was already independently wealthy before they married and was given even greater wealth during the marriage.
But this was undoubtedly intended for her alone.
It would not have come to her had her family not been confident that it would remain her separate property.
The judge might well also have concluded that there was no scope for compensating the husband for sacrifices made for the sake of the marriage and the family, although I have some reservations about this.
The husband had (perhaps) sacrificed a career in investment banking for a much less lucrative career in scientific research.
But it could be said that that was for his own sake rather than for the sake of the family.
In the circumstances, he was probably right to concede that the basis of any award should be needs rather than sharing or compensation.
However, needs is a convenient shorthand for a rather more complicated concept, which is the (now) mutual commitment which each spouse makes to support the other.
Under the former tailpiece or statutory objective, this was a life long commitment, surviving divorce although ending on the receiving partys remarriage.
Under the present law, it is no longer life long.
Each party has a responsibility to try to adjust to living without such support.
But they may still be entitled to support for requirements which arose as a result of or during the marriage.
Usually, of course, this is because of the demands of child rearing and the (often life long) financial disadvantage which results.
But among the statutory factors is disability.
If this arises during the marriage, it may be entirely proper to expect the normal support commitment to continue after the marriage ends.
In some cases, the support requirement generated by the marriage might go further than this.
Most spouses want their partners to be happy partly, of course, because they love them and partly because it is not much fun living with a miserable person.
So, choices are often made for the sake of the overall happiness of the family.
The couple may move from the city to the country; they may move to another country; they may adopt a completely different life style; one of them may give up a well paid job that she hates for the sake of a less lucrative job that she loves; one may give up a dead end job to embark upon a new course of study.
These sorts of things happen all the time in a relationship.
The couple will support one another while they are together.
And it may generate a continued need for support once they are apart.
Whether this is seen as needs or compensation may not matter very much.
It can only be for this reason that the husband in this case had any real claim upon his wife apart from his claims as the father of her children.
In those circumstances, is it fair to give effect to their agreement? First, did the parties intend it to have legal effect? There can be no doubt that they did.
Second, were there any contractually vitiating circumstances? There is nothing to suggest that there were.
Thirdly, is there anything in the circumstances in which it was made to suggest that the wife to be was taking an unfair advantage of her husband to be? I think not.
He did not have an English translation and he did not have independent legal advice.
He was presented with a take it or leave it agreement.
This must have been what the judge meant when she referred to the lack of negotiations, and it could be an indication that an unfair advantage has been taken.
But in this case the husband did know the essence of what he was agreeing to and there is nothing at all to suggest that he wanted to negotiate for something different.
He was not a nave young person in a vulnerable position.
He was a financially sophisticated and highly educated young man.
He was marrying for love and not for money.
In common with the Court of Appeal, therefore, I see nothing in the circumstances in which the agreement was made to make it unfair to hold the parties to it (although I worry that this very experienced and thoughtful judge who had the advantage of seeing and hearing the parties may have seen something which we have not).
However, that does not inevitably mean that it is fair to give the agreement its full weight in the circumstances as they now are.
We would not, for example allow this wife to cast the burden of supporting her husband onto the state.
More relevantly, the agreement did not cater for the fact that they might have children together.
It is common ground that provision must be made for their two children.
His Honour Judge Collins CBE decided that it is in their best interests to spend time living with each of their parents.
These are the children of an extremely rich mother, although she did not want the family to have an unduly lavish life style.
Nevertheless, since there are ample means available to enable them to do so, the children should be able to enjoy the same standard of living while they are with their father as they have when they are with their mother.
Hence it was accepted that he should have a home for them, not only in England, but also when they were spending time with him in Germany or (now) near the mothers home in Monaco, and also the means to support them generously in their homes with him.
The issue is whether this should all come to an abrupt end when the youngest child grows up.
When unmarried parents separate, the court has no power to make provision for the parents.
It can only provide for the child and indirectly for the parent by taking the childs need for care into account when making provision for the child.
Provision for the child has to cease when the child ceases education or vocational training, unless there are special circumstances (Children Act 1989, Sched 1, para 3(2)).
And the courts have held that capital payments, or property settlements, to provide the child with a home should revert to the other parent when the child grows up.
There is therefore no power to provide for an unmarried parent whose financial position has been irredeemably compromised by the demands of bringing up children or looking after the family.
Married parents are different, in that the court has power to make provision, not only for the child, but also for the parent.
There is no reason in principle why the court should limit its support in the same way that it has to limit its support for the unmarried parent.
Quite the reverse: this is what distinguishes marriage from cohabitation in our law.
Where parents are married, the court can look beyond the needs of the child while growing up and look independently at the needs of the parent, and in particular those generated as a result of parenthood.
Not only this, these days parents often expect to continue to be a resource for their grown up children, a base to which they can return and a source of the unconditional love and support which is what parenthood is all about.
That may well be why the wife agreed to discharge most of the husbands debts and also acknowledged before Baron J that the husband should have a house, not just while the children were growing up, but for life.
The Court of Appeal appeared so anxious to disagree with the obiter views of the Board in MacLeod that it decided to treat these parents as if they had never been married.
That cannot be the right approach.
This couple were married in England.
They intended to make their matrimonial home in England.
They had been advised that their agreement might not be effective under the laws of another country where they chose to live.
The main concern of the wife and her family was to ensure that the husband acquired no proprietary claim to shares in the wifes family companies which might then become forfeit.
This was in no way prejudiced, as the judge made clear, by a lump sum order which the wife could readily meet out of her cash income.
In my view the Court of Appeal erred in principle in treating a parent who has been married to the other parent in the same way as they would treat a parent who has not.
If, for example, a parent has irredeemably compromised her position in the labour market as a result of her caring responsibilities, she is entitled to at least some provision for her future needs, even after the children have grown up.
It would not be fair for an ante or post nuptial agreement to deprive her of that.
Where parents are not married to one another, there is nothing the court can do to compensate her.
But where they are, there is.
A nuptial agreement should not stand in the way of producing a fair outcome.
I would therefore have varied the judges order so that the husband was entitled to his English home, or any home bought to replace it, for life.
I would also have asked myself whether there were likely to be any continuing support needs attributable to his parental status after the children grew up.
The answer to that is probably no although I also consider that the husbands decision to leave his lucrative career in banking and acquire further qualifications with a view to changing direction was not as completely selfish as some may have thought it to be.
The wife appears to have agreed with it at the time.
And why should she not? The couple were rich enough each to be able to pursue their own dreams.
She had not been happy in New York and perhaps she understood why her husband was no longer happy in banking.
If the decision was taken for the good of the family as a whole, this would have been for the benefit of the children as well as their parents.
Happy parents make for happy children.
Discontented parents make for discontented children.
The judge found that, once that step had been taken, there was no going back.
It may be that the case should have gone back to the judge on this basis, as well as on the cross appeal, for we are not in a position to make findings of fact which she did not make.
But while I am clear that she did not give enough weight to the agreement in this case, I am equally clear that the Court of Appeal erred in equating married with unmarried parenthood.
Marriage still counts for something in the law of this country and long may it continue to do so.
| UK-Abs | This appeal concerns the principles to be applied when a court, in considering the financial arrangements following the breakdown of a marriage, has to decide what weight should be given to an agreement between the husband and wife made before the marriage (an ante nuptial agreement, often referred to as a pre nuptial agreement).
The appellant and respondent were married in London in 1998.
The husband is French and the wife German.
They entered into an ante nuptial agreement before a notary in Germany three months before the marriage at the instigation of the wife, to whom a further portion of her familys considerable wealth would be transferred if an agreement was signed.
The agreement was subject to German law and provided that neither party was to acquire any benefit from the property of the other during the marriage or on its termination.
The husband, who at the time worked as a banker, declined the opportunity to take independent advice on the agreement.
The parties separated in October 2006 after 8 years of marriage.
They have two daughters, born in 1999 and 2002.
By this time the husband had left banking and had embarked on research studies at Oxford.
The husband applied to the court for financial relief.
In the High Court he was granted a sum in excess of 5.5m which would afford him an annual income of 100,000 for life and allow him to buy a home in London where his children could visit him.
The judge took into account the existence of the ante nuptial agreement but reduced the weight she attached to it because of the circumstances in which it was signed.
The wife appealed successfully to the Court of Appeal, which held that in this case the agreement should have been given decisive weight.
The husband should only be granted provision for his role as the father of the two children and not for his own long term needs.
The husband appealed to the Supreme Court.
The Supreme Court (by a majority of 8 to 1) dismisses the appeal.
The substantive judgment is given by Lord Phillips (President), with an additional judgment from Lord Mance.
Lady Hale gives a dissenting judgment.
Lord Phillips observed that it used to be contrary to public policy for a couple who were married or about to be married to make an agreement which provided for the contingency that they were about to separate, on the basis that this might encourage them to do so, and the court paid no regard to them [31].
After 1957 separation agreements were given considerable weight, as increasingly were post nuptial agreements, in marked distinction to the treatment of ante nuptial agreements [42].
But the reasons for sweeping away the old rule for separation agreements applied equally to ante nuptial agreements [52].
There was not necessarily a material difference between the two [57] and the court was entitled to overrule the agreement in either case [63].
The question was how the court should approach the task of deciding what weight should be given to an ante nuptial agreement.
Three issues arose in relation to the agreement in this case for the court to consider: (i) Were there circumstances attending the making of the agreement which should detract from the weight which should be accorded to it? Parties must enter into an ante nuptial agreement voluntarily, without undue pressure and be informed of its implications.
The question is whether there is any material lack of disclosure, information or advice [69]. (ii) Did the foreign elements of the case enhance the weight that should be accorded to the agreement? In 1998, when this agreement was signed, the fact that it was binding under German law was relevant to the question of whether the parties intended the agreement to be effective, at a time when it would not have been recognised in the English courts.
After this judgment it will be natural to infer that parties entering into agreements governed by English law will intend that effect be given to them [74] (iii) Did the circumstances prevailing at the time the court made its order make it fair or just to depart from the agreement? An ante nuptial agreement may make provisions that conflict with what a court would otherwise consider to be fair.
The principle, however, to be applied is that a court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless, in the circumstances prevailing, it would not be fair to hold the parties to their agreement [75].
A nuptial agreement cannot be allowed to prejudice the reasonable requirements of any children of the family [77], but respect should be given to individual autonomy [78] and to the reasonable desire to make provision for existing property [79].
In the right case an ante nuptial agreement can have decisive or compelling weight [83].
Applying these principles to the facts, the Court of Appeal was correct to conclude that there were no factors which rendered it unfair to hold the husband to the agreement.
He is extremely able and his own needs will in large measure be indirectly met from the generous relief given to cater for the needs of his two daughters until the younger reaches the age of 22 [120].
There is no compensation factor as the husbands decision to abandon his career in the city was not motivated by the demands of his family but reflected his own preference [121].
Fairness did not entitle him to a portion of his wifes wealth, received from her family independently of the marriage, when he had agreed he should not be so entitled when he married her [122].
Lord Mance agreed with the conclusion of the majority but, in common with Lady Hale, expressed no view on the binding or other nature of an ante nuptial agreement, which did not arise for decision.
Lady Hale (dissenting) stated that modern marriage still possesses an irreducible minimum, which includes a couples mutual duty to support one another and their children.
The issue in this case was how far individuals should be free to rewrite that essential feature of the marital relationship as they chose [132].
The law of marital agreements is in a mess and ripe for systematic review and reform.
The Law Commission has a current project to examine the status and enforceability of agreements and
can then make detailed proposals for legislative reform that Parliament can consider.
That is the democratic way of achieving comprehensive and principled reform [135].
The facts of this particular case obscure the fact that the object of an ante nuptial agreement is to deny the economically weaker spouse (usually the wife) the provision to which she would otherwise be entitled [137].
The points on which Lady Hale dissents from the majority are summarised at [138] and include the upholding of the Court of Appeals decision as to the actual outcome of the case.
In her view, there remain important policy considerations justifying a different approach for agreements made before and after a marriage [162].
The test to be applied by the court when considering an ante nuptial agreement should not introduce a presumption or starting point in favour of holding the parties to it: the guiding principle should be fairness in the light of the actual and foreseeable circumstances at the time when the court comes to make its order [169].
In this case the Court of Appeal appeared wrongly to treat the parties as if they had never married but only cohabited, and failed to recognise that a parent often expects to continue to be a resource for his or her grown up children [192].
Lady Hale would have varied the judges award to give greater weight to the agreement but would have granted the husband his English home for life [194].
|
The Palmers Wood Oil Field is a naturally occurring reservoir of petroleum and petroleum gas, the north eastern part of which extends beneath the Oxted Estate of which the appellant Bocardo (Bocardo) is the freehold owner.
The rest of the Oil Field lies under land in different ownerships.
Petroleum cannot be recovered from an underground reservoir without carrying out works of some kind below the surface of the land.
An oil company such as the first respondent, Star Energy Weald Basin Ltd, which has a licence under section 2 of the Petroleum (Production) Act 1934 (now repealed and replaced by section 3 of the Petroleum Act 1998, Schedule 3, para 4 of which preserves pre existing licences) to search, bore for and get petroleum will have to sink wells into the substratum by means of drilling in order to recover it.
It may have to do this by means of wells that are drilled diagonally rather than vertically from the well head.
A particular feature of this case is that the apex of the Oil Field lies beneath Bocardos land.
The most efficient means of recovering the petroleum is to sink a well as close to the apex as possible.
If this is not done, and the well is sunk to a point that is substantially below the apex, much of the oil that could otherwise be recovered will be lost.
It was for this reason that the respondents predecessors sunk three wells from the well head by what is known as deviated or directional drilling from one of the two drilling sites that were created for the extraction of petroleum from the Palmers Wood Oil Field.
The wells enter the substrata below the Oxted Estate at depths of about 1,300, 800 and 950 feet beneath the surface respectively.
Two of them are known as PW5 and PW8.
They are used to extract petroleum and petroleum gas from the reservoir beneath the Oxted Estate and terminate at about 2,900 and 2,800 feet below the surface of its land respectively.
The third, known as PW9, passes through the substrata beneath the Oxted Estate at a depth of about 950 feet below the surface and ends beyond its perimeter at a point in the reservoir at about 1,400 feet below ground level.
It is used for injecting water into the Oil Field to maximise and speed recovery.
The respondents predecessors, Conoco (UK) Ltd, did not seek to negotiate any contractual licence or wayleave from Bocardo to drill the wells, lay the casing and tubing within them or extract the petroleum and petroleum gas by this means from the Oil Field.
Nor did they apply for any statutory right to do this under the Mines (Working Facilities and Support) Act 1966 or the Pipelines Act 1962.
The respondents in their turn did not seek to do this when they acquired the petroleum production licence from their predecessors.
It appears to have been assumed all along that this was not necessary.
The evidence at the trial of the respondents expert was that, although deviated or directional drilling has been common industry practice for some years, he was not aware that any onshore oil company had applied for ancillary rights to permit deviated drilling on UK onshore operations.
Bocardo was unaware until July 2006 that petroleum and petroleum gas was being extracted by this means from beneath its land.
The issues that this case raises fall into two parts.
First, there is the question whether the drilling of the three wells under Bocardos land was an actionable trespass.
Peter Smith J held that it was: [2008] EWHC 1756 (Ch); [2009] 1 All ER 517.
His decision was affirmed by the Court of Appeal (Jacob, Aikens and Sullivan LJJ): [2009] EWCA Civ 579; [2009] 3 WLR 1010; [2010] Ch 100.
Secondly, if there was an actionable trespass, there is the question what is the correct measure of damages.
The measure that was adopted by the trial judge was rejected by the Court of Appeal, which made a very substantial reduction in the award of damages.
Bocardo appeal to this court on the damages issue, and the respondents cross appeal on the issue of trespass.
(a) Trespass
On 21 July 2006 Bocardo commenced proceedings against the respondents for trespass.
The question which this issue raises is whether an oil company which has been granted a licence to search, bore for and get petroleum in the licensed area which is beneath land belonging to another, and drills wells at depth beneath that land in order to recover petroleum from within the licensed area without obtaining the landholders agreement or an ancillary right under the Mines (Working Facilities and Support) Act 1966 to do so, is committing a trespass.
The respondents accept that, if a trespass was committed by drilling the wells in the first place, it will have continued until now.
In the Court of Appeal Aikens LJ said that it was logical to examine the question of whether there was a trespass as at July 2000 when, having taken account of the fact that the limitation period under section 2 of the Limitation Act 1980 for a claim in trespass is six years, the cause of action arose: [2009] 3 WLR 1010, [2010] Ch 100, para 48.
But I agree with him that nothing turns on the precise date at which the issue is considered.
It is common ground that a trespass occurs when there is an unjustified intrusion by one party upon land which is in the possession of another: Blackstone, Commentaries on the Laws of England, vol 3, p 209; Clerk & Lindsell on Torts, 19th ed (2006), para 19.01.
It is common ground too that Bocardo did not, and does not, own any of the petroleum in the reservoir that is situated beneath its land.
Nor does it possess, or have the right to possess, any of that petroleum.
Those rights belonged to the holder of the licence granted by the Secretary of State under section 2 of the Petroleum (Production) Act 1934, Conoco (UK) Ltd. They now belong to the respondents (currently the first respondent, Star Energy Weald Basin Ltd) as the original holders assignees.
By virtue of section 1 of the 1934 Act, which vested the property in petroleum existing in its natural condition in strata in Great Britain in the Crown, at no time did Bocardo have any right to search, bore for or get that petroleum from the reservoir beneath its land.
Only the Crown or its licensee had the right to do so.
The question whether the drilling of the three wells under Bocardos land, and the continued presence of the well casing and tubing within them, was an actionable trespass raises the following issues: (1) whether Bocardos title to the land extends down to the strata below the surface through which the three wells and their casing and tubing pass; (2) whether possession or a right to possession is a pre condition for bringing a claim for trespass and, if so, whether Bocardo has or is entitled to possession of the subsurface strata through which these facilities pass; (3) whether the respondents have a right under the 1934 Act (and subsequently the 1998 Act) to drill and use the three wells and their casing and tubing to extract petroleum from beneath Bocardos land which gives them a defence to a claim in trespass.
Ownership: how far below the surface?
There is, of course, nothing new in one person carrying out works under land whose surface is in the ownership or the possession of another.
Operations of that kind have been familiar since at least Roman times.
They ranged from great public works such as catacombs on the one hand to modest cellars for the storage of wine or other commodities on the other.
What is new is the depth at which the operations that are said to constitute a trespass in this case have been carried out.
The advance of modern technology has led to the discovery of things below the surface, and the desire to obtain access to and remove them, that were unimaginable when the depths to which people could go were limited by what manual labour could achieve.
Bocardos case is that it is trite law that a conveyance of land includes the surface and everything below it, unless there have been exceptions from the grant such as commonly occurs in the case of minerals.
The respondents do not dispute this proposition as a general rule that applies where the rights of the surface owner are interfered with.
But they maintain that it does not extend to the depth at which the operations were and are being carried out in this case.
The minimum depth was 800 feet, while for the most part the depths were greatly in excess of this.
Mr Driscoll QC for the respondents said that he accepted that in law the surface owner owned the substrata to some depth, but not that far.
He submitted that the wells and their tubes and casing did not interfere with or enter upon land in any meaningful way at all.
Moreover the right to search, bore for and get the petroleum was vested in the Crown.
Bocardo did not own, and had no right to possess, the petroleum.
It has often been said that prima facie the owner of the surface is entitled to the surface itself and everything below it down to the centre of the earth: see, for example, Rowbotham v Wilson (1860) 8 HL Cas 348, 360, per Lord Wensleydale; Bowser v Maclean (1860) 2 De G F & J 415, 419, per Lord Campbell LC; Pountney v Clayton (1883) 11 QBD 820, 838, per Bowen LJ; Elwes v Brigg Gas Co (1886) 33 Ch D 562, 568, per Chitty J; and National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675, 708, per Lord Russell of Killowen.
The proposition that prima facie everything below the surface belongs to the surface owner is often linked to the proposition that everything above it belongs to him too: everything up to the sky, as Sir William James VC put it in Corbett v Hill (1870) LR 9 R 671, 673, or everything under the sky in the words of Bowen LJ in Pountney v Clayton.
In Mitchell v Mosley [1914] 1 Ch 438, 450, Cozens Hardy MR said that the grant of the land includes the surface and all that is supra houses, trees and the like and everything that is infra mines, earth and clay, etc.
Agreeing with him, Swinfen Eady and Phillimore LJJ said that this was a recognised rule of law.
Plainly, the source for these remarks was the well known Latin brocard cuius est solum, eius est usque ad coelum et ad inferos.
The soundness of this brocard as a proposition of law was questioned in Commissioner for Railways v Valuer General [1974] AC 325.
The subject of the appeal was a property in the centre of Sydney beneath which there had been extensive excavations to a depth of 40 feet or more.
The question was how the property was to be valued for rating purposes.
The statute proceeded on the basis that it was a parcel of land that had to be valued.
The Commissioner said that this meant land defined only by vertical boundaries land usque ad coelum et ad inferos, in other words.
The Valuer General said that it was only possible to value as land that which had a recognisable connection with the surface.
Otherwise it had to be valued as stratum, to which special provisions applied.
As Lord Wilberforce explained at p 351, the question that the Valuer Generals argument gave rise to was whether there was a complete dichotomy between land and strata beneath it and, if so, what that dichotomy was.
The statutory definition did not answer the question how, in the context of the legislation, layers defined by horizontal boundaries were to be treated.
It is in relation to this question, he said, that the Latin tag usque ad coelum et ad inferos has been introduced and given a prominent place in the argument.
Lord Wilberforce did not think much of the brocard, or tag as he called it.
As he explained at p 351: It is well known that this brocard cannot be traced in the Digest or elsewhere in Roman Law.
The first recognised appearance is in the 13th century gloss of the Bolognese Accursius upon Digest VIII.2.1.
It appears there in the form cuius est solum eius esse debet usque ad coelum (cf in the law of Scotland Stairs Institutions II.7.7).
In the form of a maxim, it only has authority at common law in so far as it has been adopted by decisions, or equivalent authority.
The earliest recognition appears to be recorded in Bury v Pope (1587) Cro.
Eliz 118 where reference is made to its use Temp.
Ed I in the form cuius est solum, eius est summitas usque ad coelum, but the context of this statement in the reign of Edward I has not been identified.
Then, after referring to Coke Litt. 4a, which he said contained an uncritical adoption of the maxim, and to Blackstone, Commentaries II, 21st ed (1844) c2, p 18 who followed Coke, he said: There are a number of examples of its use in judgments of the 19th century, by which time mineral values had drawn attention to downwards extent as well as, or more than, extent upwards.
But its use, whether with reference to mineral rights, or trespass in the air space by projections, animals or wires, is imprecise and it is mainly serviceable as dispensing with analysis: cf Pickering v Rudd (1815) 4 Camp 219 and Ellis v Loftus Iron Co (1874) LR 10 CP 10.
In none of these cases is there an authoritative pronouncement that land means the whole of the space from the centre of the earth to the heavens: so sweeping, unscientific and unpractical a doctrine is unlikely to appeal to the common law mind.
At most the maxim is used as a statement, imprecise enough, of the extent of the rights, prima facie, of owners of land: Bowen LJ was concerned with these rights when, in a case dealing with rights of support, he said: Prima facie the owner of the land has everything under the sky down to the centre of
the earth: Pountney v Clayton (1883) 11 QBD 820, 838
In the Court of Appeal Aikens LJ, referring to Lord Wilberforces remarks in Commissioner for Railways v Valuer General, said that he had no doubt that Accursiuss maxim or brocard was not part of English law: [2009] 3WLR 1010, [2010] Ch 100, para 59.
Asking himself what the general rule is at common law about the ownership of the substrata below the surface of land, he said that he found it in Mitchell v Mosley [1914] 1 Ch 438, but shorn of its references to Accursiuss maxim.
In short, he said, the registered freehold proprietor of the surface will also be the owner of the strata beneath the surface of his land, including the whole minerals, unless there has been some express or implied alienation of the whole or a particular part of the strata to another.
In his view, at para 60, Bocardos title certainly extended to the strata (other than the petroleum) to be found at the depth of the wells up to 2,800 feet below the surface of the Oxted Estate.
Precisely how much further into the earths crust that ownership might go was a question that he did not need to decide.
But if it carried to the centre of the earth landowners, he said, all have a lot of neighbours.
I think, with respect, that Aikens LJ was perhaps a little too hasty in asserting that the brocard is not part of English law.
It is true that Lord Wilberforce appears to have had little enthusiasm for it.
He regarded it as an excuse for dispensing with analysis.
But those remarks were made in a case where the question was what was meant by the word land in the statute.
He seems to have been prepared to accept it as having some relevance as a statement, imprecise though it is, of the rights, prima facie, of owners of land: see his reference to Bowen LJs observation in Pountney v Clayton (1883) 11 QBD 820, 838.
Furthermore, although Aikens LJ adopted what Cozens Hardy MR said in Mitchell v Mosley [1914] 1 Ch 438, 450 as an accurate statement of the law if shorn of his references to Accursiuss maxim, it must be acknowledged that it was by reference to that maxim that Cozens Hardy MR said what he did.
As Lord Wilberforce pointed out, the maxim only has authority at common law in so far as it has been adopted by decisions, or equivalent authority.
I am inclined to think that the observations by the Court of Appeal in Mitchell v Mosley, seen against the background of various dicta in the 19th Century cases including Pountney v Clayton, measure up to that requirement.
In the present context, therefore, I believe that the brocard does have something to offer us.
The particular relevance of the brocard to the dispute in this case is that, taken literally, it answers Mr Driscolls point that the wells in question were too deep for the landowners interest in his land to be affected.
If the brocard is accepted as a sound guide to what the law is, there is no stopping point.
This makes it unnecessary to speculate as to how it can be applied in practice as one gets close to the earths centre.
The depths to which the wells in question were drilled in this case do not get anywhere near to approaching the point of absurdity.
The fact that there were substances at that depth which can be reached and got by human activity is sufficient to raise the question as to who, if anybody, is the owner of the strata where they are to be found.
The Crown has asserted ownership of the petroleum, but it does not assert ownership of the strata that surround it.
The only plausible candidate is the registered owner of the land above, which is exactly what the brocard itself indicates.
Mr Driscoll was unable to point to any contrary authority.
It is perhaps worth looking more closely at the words used by the glossator.
The earliest source that we have for them is the Glossa Ordinaria which was compiled by Accursius, a professor at the University of Bologna, in the 13th century.
He set for himself the task of collecting and arranging a vast number of annotations to the Digest that had been made by his predecessors in one great work.
He supplemented these with annotations of his own.
For the most part at least, the authors of these annotations are not identified.
The gloss that led to the brocard with which we are all familiar is not attributed to anybody.
We have no means of knowing when it was first written down.
Francis Lyall, The maxim cuius est solum in Scots Law [1978] JR 147, 148, observed that the history of its development is obscure.
It may have been one of Accursiuss own annotations, but it seems just as likely that it was much older.
All we can say with confidence is that it was not part of Roman law but that it had been recognised by 1250 when the Glossa Ordinaria was completed.
The wording of the gloss itself is instructive.
Paulus, speaking of urban praedial servitudes, is quoted in the Digest, 8.2.1.pr, as follows: Si intercedat solum publicum vel via publica, neque itineris actusve, neque altius tollendi servitutes impedit; sed immitendi protegendi prohibendi item fluminum et stillicidiorum servitutem impedit: quia coelum quod supra id solum intercedit, liberum esse debet.
The words quia coelum are then glossed in this way: Quia coelum. Nota.
Cujus est solum ejus debet esse usque ad coelum.
Lyall says that in later editions of the Glossa Ordinaria this gloss itself is noted with the comment: cujus solum, ejus coelum: [1978] JR 147, 148.
I think that it is significant that the glossator took as his starting point the rule that applied to the underlying strata and then applied it to what took place above the surface.
The context for the annotation was the proposition that, while the owner may erect structures as high as he likes on the solum of land in his ownership, his freedom to do so is restricted by the praedial servitude non altius tollendi which protects his neighbours right to light and prospect.
The owner of the dominant tenement is entitled to insist that there should be no interference with the sky over his land.
The assumption appears to have been that it was generally understood that the ownership of land carried with it the right to everything that lay below the surface.
The point that the glossator was making, as an explanation for the praedial servitude, was that the existing rule as to what lay below (cuius est solum) should be (debet esse) applied to the air space above it.
The rule that applied to the underlying strata appears to have been of greater antiquity.
The problems that a rule in these terms might give rise to as mans understanding of the earths structure improved, airspace began to be used for the passage of aircraft and means were developed to penetrate deep below the surface were not, of course, obvious in the 13th century.
But the simple notion that each landowner is the proprietor of a column or cylinder of land that stretches down to the centre of the earth and upwards indefinitely into outer space is plainly no longer tenable.
The earth is not flat, as the glossator may have supposed.
A greater understanding of geology has taught us that most of the earths interior, due to extremes of pressure and temperature, is a complex and inhospitable structure that is beyond mans capacity to enter or make use of.
It has been observed that anything that is drilled below a depth of about 8.7 miles or 14 kilometres would be crushed by the earths pressure of 50,000 pounds per square inch and vaporised by a temperature of 1,000 degrees Fahrenheit: see John G Sprankling, Owning the Center of the Earth, (2008) 55 UCLA L Rev 979, 993, fn 84.
As Sprankling explains at p 994, productive human activity is possible only within the shallowest portion of the earths crust, and humans have never penetrated below it.
As for that portion of it, the development of heat mining and carbon capture, storage and sequestration technologies to reduce greenhouse gas emissions, which he discusses at pp 1030 1032, would be difficult to achieve if the subsurface within which it is sought to carry out these activities in the public interest were to be broken up into columns of rock owned by the surface owners.
As for the position above the surface, the development of powered flight has made it impossible to apply the brocard usque ad coelum literally.
In Bernstein of Leigh (Baron) v Skyviews & General Ltd [1978] QB 479 Baron Bernstein failed in his claim that the defendants, who had flown over his land to take an aerial photograph of his property which they then offered to sell to him, were guilty of trespass.
Griffiths J noted at p 485 that the proposition that an owner has certain rights in the air space above his land was well established by authority.
In Kelsen v Imperial Tobacco Co (of Great Britain and Northern Ireland) Ltd [1957] 2 QB 334, for example, a mandatory injunction was granted ordering the defendants to remove a sign which projected 8 inches over the plaintiffs property on the ground that, applying the brocard, this was a trespass.
Griffiths J was willing to accept, as a sound and practical rule, that any incursion into air space at a height which may interfere with the ordinary user of land was a trespass.
But he said that wholly different considerations arise when considering the passage of aircraft at a height which in no way affects the user of the land.
In his judgment, at p 488, the balance was best struck by restricting the rights of the owner to such height as necessary for the ordinary use and enjoyment of his land and the structures upon it, and declaring that above that height he has no greater rights in the air space than any other member of the public.
The respondents say that this analysis should be applied to subsurface ownership too.
They submit that a sensible and pragmatic solution would be for each surface owner to own directly down beneath the boundaries of his land as far down as is necessary for the use and enjoyment of the surface, the buildings on the surface and any minerals which have not been excluded from his ownership by conveyance, common law or statute which lie beneath it.
Mr Driscoll was unable to point to any English authority that provided direct support for this approach to the position beneath the surface.
But there is some support for it in the United States.
In Boehringer v Montalto 142 Misc 560 (1931) the New York Supreme Court held that a sewer laid 150 feet below the surface was not included in the surface owners title.
The judge said that title above the surface was now limited to the extent to which the owner of the soil might reasonably make use of it, and that by analogy his title was not to be extended to a depth below ground beyond which the owner might reasonably make use of it.
In US v Causby 328 US 256 (1946) the US Supreme Court held that there was a taking of the respondents property within the meaning of the Fifth Amendment by frequent and regular flights of army and navy aircraft over their land at low altitudes.
But in para 3, at p 261, of the courts opinion Douglas J said that the doctrine expressed in the brocard has no place in the modern world: The air is a public highway, as Congress has declared.
Were that not true, every transcontinental flight would subject the operator to countless trespass suits.
Common sense revolts at the idea.
To recognise such private claims to the airspace would clog these highways, seriously interfere with their control and development in the public interest, and transfer into private ownership that to which only the public has a just claim.
That was a case about limitations on the absolute rights of surface owners above the surface, as was Willoughby Hills v Corrigan 278 NE2d 658, 664 (Ohio 1972) in which the court said that the doctrine of the common law that the ownership of land extends to the periphery of the universe has no place in the modern world.
But in Chance v BP Chemicals Inc 670 NE2d 985 (Ohio 1996) the Supreme Court of Ohio took the same approach to subsurface ownership rights.
In para 8, at p 992, of the courts opinion the judge said: we do not accept the appellants assertion of absolute ownership of everything below the surface of their property.
Just as a property owner must accept some limitations on the ownership rights extending above the surface of the property, we find that there are also limitations on property owners subsurface rights.
We therefore extend the reasoning of Willoughby Hills, that absolute ownership of air rights is a doctrine which has no place in the modern world, to apply as well to ownership of subsurface rights.
The court held that some type of physical damage or interference with the use of the land must be shown for the owner to recover for a trespass and that the use of lateral migration of injection technology to dispose of refining by products below the surface did not meet this test.
Sprankling, Owning the Center of the Earth, (2008) 55 UCLA L Rev 979, 991 992, points out however that most modern US legal texts continue to endorse the centre of the earth theory and that almost all modern cases continue to embrace it too: see, for example, Kankakee County Board of Review v Property Tax Appeal Board 871 NE2d 38 (Illinois 2007) and Orr v Mortvedt 735 NW2d 610 (Iowa 2007).
Addressing himself to the question, how far below the earths surface do property rights extend, he asserts at p 1033 that the surface owner should certainly hold property rights to a portion of the subsurface.
After exploring four alternative models ownership of the entire crust, ownership based on first in time exploitative use, ownership for reasonable and foreseeable uses and ownership to a specified depth he comes down in favour of a specified depth such as 1000 feet, but he acknowledges that reasonable minds may differ as to the appropriate extent.
The goal of his article, he said, was to ignite that debate, not to extinguish it: p 1039.
Spranklings article suggests that the debate as to the extent of subsurface rights remains alive in the United States.
In Canada, Griffiths Js approach in Bernstein of Leigh (Baron) v Skyviews & General Ltd [1978] QB 479 to the right to use air space above the land was described by the Alberta Court of Appeal as most persuasive in Didow v Alberta Power Ltd [1988] 5 WWR 606, 613.
But we were not referred to any Canadian or Australian authority that extends that approach to ownership below the surface.
In Todd, The Law of Torts in New Zealand (5th ed, 2009), p 426, it is stated that it appears to be generally accepted that any intrusion into the subsoil beneath the owners land will constitute trespass, and that there appears to be no case in the Commonwealth where a plaintiff has failed on the basis that the area of subsoil invaded was so deep that the surface occupiers possessory rights did not extend that far.
In a footnote to that passage, in which Spranklings article is referred to, the editors note that American authority points both ways: see fn 22.
Coming closer to home, Dr Jean Howell, Subterranean Land law: Rights below the Surface of Land, (2002) 53 Northern Ireland Legal Quarterly 268, 270 acknowledges that it might be argued that the same test as that which Griffiths J applied in Bernstein of Leigh (Baron) v Skyviews & General Ltd [1978] QB 479 should be used for land below the surface.
But, as she also notes, it was implicit in that case that even above the notional height at which the land owners usable rights stop, there is not a free for all in the airspace above.
To characterise the surface owners rights as following technological advances as to the depth at which land can be exploited, she says, would offend against all notions of property whose defining quality in land is certainty.
She concludes, at p 285, that any intrusion into land which is not sanctioned by some countervailing property right will be a trespass and that, although the surface owner will not usually wish to or be able to utilise the ground below the surface, he has rights in the land which could be valuable.
In my opinion the brocard still has value in English law as encapsulating, in simple language, a proposition of law which has commanded general acceptance.
It is an imperfect guide, as it has ceased to apply to the use of airspace above a height which may interfere with the ordinary user of land: Bernstein of Leigh (Baron) v Skyviews & General Ltd [1978] QB 479.
The position in Scotland may be different: see Stair Memorial Encyclopaedia, vol 19, Property, para 198, where the question is seen as relating to the extent of ownership rather than the balancing of rights in the airspace.
But I think that the reasons for holding that the brocard has no place in the modern world as regards what goes on below the surface, even in England, are not by any means as compelling as they are in relation to the use of airspace.
In US v Causby 328 US 256 (1946) the US Supreme Court regarded the airspace as a public highway to which only the public had a just claim.
The same cannot be said of the strata below the surface.
As Aikens LJ said in the Court of Appeal, it is not helpful to try to make analogies between the rights of an owner of land with regard to the airspace above it and his rights with regard to the strata beneath the surface: [2009] 3 WLR 1010, [2010] Ch 100, para 61.
Although modern technology has found new ways of making use of it in the public interest, there is no question of it having become a public highway.
The test applied in Chance v BP Chemicals Inc 670 NE2d 985, that some type of physical damage or interference with the use of the land must be shown, would lead to much uncertainty.
It overlooks the point that, at least so far as corporeal elements such as land and the strata beneath it are concerned, the question is essentially one about ownership.
As a general rule anything that can be touched or worked must be taken to belong to someone.
The better view, as the Court of Appeal recognised [2009] 3 WLR 1010, [2010] Ch 100, para 59, is to hold that the owner of the surface is the owner of the strata beneath it, including the minerals that are to be found there, unless there has been an alienation of them by a conveyance, at common law or by statute to someone else.
That was the view which the Court of Appeal took in Mitchell v Mosley [1914] 1 Ch 438.
Much has happened since then, as the use of technology has penetrated deeper and deeper into the earths surface.
But I see no reason why its view should not still be regarded as good law.
There must obviously be some stopping point, as one reaches the point at which physical features such as pressure and temperature render the concept of the strata belonging to anybody so absurd as to be not worth arguing about.
But the wells that are at issue in this case, extending from about 800 feet to 2,800 feet below the surface, are far from being so deep as to reach the point of absurdity.
Indeed the fact that the strata can be worked upon at those depths points to the opposite conclusion.
I would hold therefore that the appellants title extends down to the strata
through which the three wells and their casing and tubing pass.
Possession
The next question is whether possession or a right to possession is a pre condition for bringing a claim in trespass.
The respondents maintain that possession, not ownership, is essential and that the claim should fail because the appellant is not in possession of the substrata where the wells entered the substrata at least 800 feet below the surface of its land.
In Powell v McFarlane (1977) 38 P & CR 452, 470 Slade J said: In the absence of evidence to the contrary, the owner of land with the paper title is deemed to be in possession of the land, as being the person with the prima facie right to possession.
The law will thus, without reluctance, ascribe possession either to the paper owner or to persons who can establish a title as claiming through the paper owner.
In Pye (JA) (Oxford) Ltd v Graham [2003] UKHL 30, [2003] 1 AC 419, para 40 Lord Browne Wilkinson approved of this definition, making the point that, without the requisite intention, in law there can be no possession.
This is highly relevant if the law is to attribute possession of land to a person who cannot establish a paper title to possession.
But in this case the appellant has the paper title.
That, in the absence of evidence to the contrary, is enough for it to be deemed to be in possession of the land.
As Aikens LJ said in the Court of Appeal, it is difficult to say that the appellant has actual possession of the strata below the Oxted Estate as it has done nothing to reduce those strata into its actual possession: [2009] 3 WLR 1010, [2010] Ch 100, para 66.
But he held that the appellant, as the paper title owner to the strata and all within it (other than any gold, silver, saltpetre, coal and petroleum which belong to the Crown at common law or by statute), has the prima facie right to possession of those strata so as to be deemed to be in factual possession of them.
I think that he was right to conclude that this was the effect of Slade Js dictum.
As the paper title carries with it title to the strata below the surface, the appellant must be deemed to be in possession of the subsurface strata too.
There is no one else who is claiming to be in possession of those strata through the appellant as the paper owner.
Does either common law or the 1934 Act provide a defence to the claim in trespass?
There remains the question whether the respondents have a defence to the claim of trespass either under the common law or under the statute.
I think that there is nothing in the argument that there is a defence at common law.
It would be different, as Aikens LJ said in the Court of Appeal [2009] 3 WLR 1010, [2010] Ch 100, para 74, if the right to extract the petroleum had been granted to the respondents by the appellant.
The principle of non derogation from grant would prevent the appellant from doing anything that would hamper the respondents use of the strata for the purpose that both parties contemplated at the time of the grant.
But the right to search and bore for and get the petroleum was obtained by the respondents under licence from the Crown.
I do not think that there is any common law principle that the respondents can invoke in that situation to regulate their position in relation to a landowner who was not a party to that arrangement.
This leaves the question whether the matter can be said to have been regulated by the statute.
Section 10(3) of the Petroleum (Production) Act 1934 (now repealed and re enacted as section 9(2) of the Petroleum Act 1998) provided: Nothing in this Act shall be construed as conferring, or as enabling the [Secretary of State] to confer, on any person, whether acting on behalf of His Majesty or not, any right which he does not enjoy apart from this Act to enter on or interfere with land.
The respondents say that they had a right under the licence granted under section 2(1) of the 1934 Act to search and bore for and get the petroleum to penetrate the strata under Bocardos land and that as a matter of ordinary language drilling the pipelines diagonally into the substrata would not be considered as entering on it or as interfering with Bocardos use and enjoyment of it.
They were not sunk on the surface of Bocardos land, but were justified by the statutory right to search and bore for and get the petroleum.
Moreover there were no minerals which were capable of being enjoyed as such under the surface of Bocardos land that were entered on or interfered with.
In the Court of Appeal Aikens LJ, albeit with some reluctance, concluded that it was impossible to say that the 1934 Act, when read with the Mines (Working Facilities and Support) Act 1923 (later replaced by the 1966 Act) and the existing common law, granted a licensee under the 1934 Act the express or implied right to bore pipelines at depth through the land of another within the licensed area in the absence of agreement or the grant of an ancillary right under those Acts: [2009] 3 WLR 1010, [2010] Ch 100, paras 80 83.
His reasoning was based in part on the wording of section 10(3) itself.
In his opinion the words enter on land were intentionally general and broad enough to include entering land beneath the surface.
It was also based on the provisions of section 3(1) of that Act read with section 3(2)(b) of the 1923 Act.
The opening words of section 3(1) of the 1934 Act provided that the 1923 Act was to apply for the purpose of enabling a person holding a licence under this Act to acquire such ancillary rights as may be required for the exercise of the rights granted by the licence, and shall have effect accordingly.
Section 3(2)(b) of the 1923 Act provided that the expression ancillary right in relation to minerals was to include a right of air way, shaft way or surface or underground wayleave.
The word wayleave, he said, was broad enough to encompass a right to bore a pipe through strata as well as create and use a passage to get to and carry minerals such as coal.
The wording of section 10(3) indicated that the licensee could continue to enjoy such rights as he already has to enter on or interfere with land, but that it was not within the power of the Secretary of State to confer on him any other right to do so.
Despite Mr Driscolls submissions to the contrary, I have not been able to detect any flaw in this reasoning.
The subsurface strata through which the wells and pipelines were sunk is Bocardos land.
There is nothing in section 10(3) or the context in which it was enacted that restricts the reference to land in that subsection to things that happen only on the surface.
In the context of a statute which is concerned with the right to search for and bore for and get petroleum existing in its natural condition in strata below ground, the words enter on in that subsection are apt to apply to underground workings as well as workings on the surface itself.
The words interfere with are not restricted, as was suggested, to interfering with the owners use and enjoyment of the land for the time being.
The owner of the subsurface is entitled to say that his land is being interfered with when it is bored into by someone else.
His right to object is inherent in his right of ownership of the land.
It is nothing to the point that he is not making any use of it.
The fact that an underground wayleave is included in the ancillary rights referred to in section 3(2)(b) of the 1923 Act reinforces the conclusion that is to be drawn from the provisions of the 1934 Act that a licensee who does not already enjoy a right to enter upon someone elses land needs to acquire an ancillary right from the owner of that land if he wishes to do this.
For all these reasons I would hold, in agreement with the Court of Appeal, that the respondents have trespassed on Bocardos land and that, subject to their submissions as to the amount of the damages, they have no defence to Bocardos claim.
I would dismiss the cross appeal.
(b) Damages
The parties are agreed that, if damages are to be assessed on a wayleave or user basis, their measure is the price that reasonable persons in the position of the parties would have negotiated for a grant of a contractual right for the licensee to extract the oil through the sub strata below the Oxted Estate using wells PW5, PW8 and PW9: Statement of Facts and Issues, Principal Issue 2, para 2(a).
It is also agreed that, in assessing the price that reasonable parties would have negotiated, the negotiation must be assumed to have taken place against the relevant statutory background, which at the relevant date would have included the Petroleum (Production) Act 1934 and the Mines (Working Facilities and Support) Act 1966.
I gratefully adopt Lord Clarkes description of the general background and the statutory framework.
Section 8(2) of the 1966 Act provides that the compensation or consideration is to be assessed on the basis of what would be fair and reasonable between a willing grantor and a willing grantee, having regard to the conditions subject to which the right is, or is to be, granted.
The word consideration is included in this subsection because the rights that may be granted under section 1 of the Act include the right to search for, work and take away minerals such as coal.
In the present case, however, the relevant word is compensation.
This is because the transaction which is in issue is the acquisition of the right to sink the wells under Bocardos land which, as Lord Brown says in para 62, Bocardo had no option but to allow the respondents to do.
Had it refused to grant them a wayleave, the respondents would have been able to go to the court for an order granting them the necessary ancillary rights under section 3(2)(d) of the 1966 Act.
I agree with Lord Walker, Lord Brown and Lord Collins, for the reasons they give, that this must be taken to be a case of compulsory acquisition.
So the general principles of compulsory acquisition law must be applied, including the value to owner principle and the no scheme rule in particular: see Lord Collins, paras 101 and 102.
Accordingly, an increase in value which is consequent on the scheme for which the land is being acquired must be disregarded.
The basis on which compensation is awarded is the value of the land to the owner, not its value when taken by the promoter of the scheme.
But if the land has a special value because it is the key to the development of other land, that will represent part of its value to the owner which may be taken into account in the assessment of compensation in just the same way as it would if the owner was negotiating to realise its value in the open market: Waters v Welsh Development Agency [2004] UKHL 19, [2004] 1 WLR 1304, paras 64 65 per Lord Nicholls of Birkenhead.
It would be wrong to approach bringing this element of value into account as amounting to the exercise of a right of veto, as Harman LJ suggested in Edwards v Minister of Transport [1964] 2 QB 134, 156; see also Logan v Scottish Water [2005] CSIH 73, 2006 SC 178, para 102 where his approach was adopted.
It is a legitimate element of the value of the land to the owner, so long as it is justified by the facts of the case.
What then is one to make of the facts of this case? In respectful disagreement with Lord Walker, Lord Brown and Lord Collins, I would not attribute the key value of Bocardos land in the hypothetical negotiation that must be imagined entirely to the scheme underlying the acquisition by the respondents of the right to obtain access to the petroleum.
It seems to me that the key to its value lies in the geographical position which it occupies on top of the apex to the reservoir.
It is, of course, clear that after the coming into force of the 1934 Act only the Crown or someone holding a licence from the Crown had the right to search, bore for and get the petroleum.
The market that has to be envisaged was therefore a limited one.
There could be only one licence holder at any one time.
But this does not mean that the respondents must be taken to be the only possible bidder in the hypothetical market for the right to obtain access to the apex of the reservoir.
The scheme which the respondents devised was dictated by the position of the drilling sites which they had created, but it has not been suggested that it was the only way that access could be obtained to it.
I agree with that part of Lord Clarkes judgment in which he examines this question on the assumption that the Pointe Gourde principle applies to the assessment of compensation under section 8(2): see paras 158 163.
Support for Lord Clarkes reasoning is to be found in the decision of the Lands Tribunal in Chapman, Lowry & Puttick Ltd v Chichester District Council (1984) 47 P & C R 674, to which Lord Clarke refers in para 161.
Lord Walker sees that case differently: para 55.
But I prefer Lord Clarkes interpretation of it.
The approach which the Tribunal took was to ask itself whether the acquiring authoritys need for the strip of waste land as access for the land which it owned to the rear was special or peculiar to the authority itself.
This question could not be determined unless the needs of other possible owners of the rear land were considered and taken into account.
It was reasonable to assume that such hypothetical owner or developer could expect to receive precisely the same planning permission for precisely the same residential development as that obtained by the acquiring authority and subject to the same constraints in relation to the highway.
From this it followed that any owner of the rear land would have precisely the same need for the waste strip as had the acquiring authority: pp 679 680.
I think that exactly the same points can be made in this case.
Anyone who had obtained a licence to search, bore for and get the petroleum under Bocardos land would have had precisely the same need to obtain a wayleave to obtain access to it if it was not to commit a trespass.
So it was not the respondents scheme that gave the relevant strata beneath Bocardos land its peculiar and unusual value.
It was the geographical position that its land occupies above the apex of the reservoir, coupled with the fact that it was only by drilling through Bocardos land that any licence holder could obtain access to that part of the reservoir that gives it its key value.
I agree with Lord Clarke that this case is on the side of the line identified by Mann LJ in Batchelor v Kent County Council (1989) 59 P & CR 357, 361 in which the land has a key value which was pre existent to the scheme proposed by the respondents for their development.
I do not think that it would be right to take into account what Viscount Hailsham said during the Second Reading of the Bill which became the 1934 Act as reported in Hansard (HL Debates), 19 April 1934, cols 691 692.
What he said does not fall within the limited exception to the general rule that resort to Hansard is inadmissible which was recognised in Pepper v Hart [1993] AC 593.
This is available to prevent the executive seeking to place a meaning on words used in legislation which is different from that which ministers attributed to those words when promoting legislation in Parliament; see R v Secretary of State for the Environment, Transport and the Regions, Ex parte Spath Holme Ltd [2001] 2 AC 349, 407 408.
Viscount Hailsham was the Secretary of State for War, but he was not the promoter of the Bill.
That task was being undertaken by the Secretary of State for Air, the Marquess of Londonderry, in whose support Viscount Hailsham spoke when the Bill was being debated.
Moreover this is not a case where the executive is seeking to put a different meaning on words used in the 1934 Act from that which the Minister attributed to those words when promoting the Bill.
Nor do I find clear and convincing support in the wording of the 1934 Act for the argument that all that was to be compensated for was the amenity value of the land.
The 10% uplift in the compensation provided for by section 3(2)(b) of the 1934 Act as an allowance on account of the acquisition being compulsory appears to me to be a neutral factor, for the reasons that Lord Clarke gives in para 142.
On all the remaining issues, including the way the amount of the damages ought to have been quantified, I agree with Lord Clarke.
I think that the trial judge went too far in applying his figure of 9% to all the oil extracted or to be extracted during the period covered by his award until the oil and gas extraction was exhausted.
In my opinion the sum of 621,180 plus interest that he awarded as damages was excessive, as it was not restricted to the amount that was attributable to the key value of the land.
I would not be averse to using his figure of 9%, so long as it was applied only to the extra amount of oil and gas that was obtained by drilling into the apex of the reservoir.
If this had been a live issue it would have been necessary to remit the case to the High Court so that it could assess the amount of the extra value and complete the exercise of calculating, on this much more limited basis, the amount of the damages.
Having dismissed the cross appeal on the trespass issue, I would allow the appeal and remit the issue of damages to the High Court.
LORD WALKER
I agree with the judgment of Lord Hope on the trespass issue and with that of Lord Brown on the damages issue.
What follows should be read as no more than footnotes to Lord Browns judgment.
It is common ground (see para 2.2 of the Statement of Issues) that if damages are to be assessed on a wayleave basis, the measure of damages is the price that reasonable persons in the position of the parties would have negotiated for a grant of the appropriate contractual rights, against the statutory background of the Petroleum (Production) Act 1934 and the Mines (Working Facilities and Support) Act 1966.
I am inclined to think that that starting point might have been open to argument, on the lines indicated in the comprehensive and scholarly judgment of Warren J in Field Common Ltd v Elmbridge Borough Council [2008] EWHC 2079 (Ch) [2009] 1 P & CR1, paras 55 99.
But I put that aside.
The starting point, therefore, is (in the words of section 8(2) of the 1966 Act): What would be fair and reasonable between a willing grantor and a willing grantee, having regard to the conditions subject to which the right is or is to be granted.
The statute requires the adjudicator to predict the outcome of a hypothetical negotiation, between willing negotiators, which reaches a concluded agreement.
In my opinion this statute (in conjunction with section 3 of the 1934 Act) is plainly concerned with compulsory acquisition of rights in or over land.
Indeed section 3(2) of the 1934 Act (requiring an uplift of at least 10%) says as much.
I cannot accept the appellants submission that there is a fundamental distinction between a statute which gives a public authority a right to acquire property and one which regulates property rights between private parties.
The whole law of compulsory purchase began and developed with infrastructure projects (first canals, then railways) undertaken by companies in the private sector.
The oldest of the statutory formulae was in section 63 of the Land Clauses Consolidation Act 1845.
It was also the simplest: .
The value of the land to be purchased or taken by the promoters . (There was also compensation for injurious affection).
There was then a long period of judicial interpretation of this simple phrase, resulting in the firmly established value to the owner principle.
This was explained by Lord Collins in Transport for London v Spirerose Ltd [2009] 1 WLR 1797, paras 119 129, in his exposition of the Pointe Gourde principle (see Pointe Gourde Quarrying & Transport Co Ltd v Sub Intendent of Crown Lands [1947] AC 565).
It is a principle of statutory construction, and in the Transport for London case I suggested (at para 24) that the principles vigour is now channelled and restrained by a much more complex statutory scheme (especially sections 14 17 of and Schedule 1 to the Land Compensation Act 1961).
One way of looking at the principle is to see it as an answer (at least in part) to the question: in the hypothetical negotiation called for by the statute, how far are the actual purpose and circumstances of the compulsory purchase to be taken into account? The principle tells us that compensation cannot include an increase in value which is entirely due to the scheme underlying the acquisition (Lord MacDermott in Pointe Gourde at p572, emphasis supplied).
Similarly Lord Nicholls in Waters v Welsh Development Agency [2004] 1 WLR 1304, para 18 referred to the disregard of enhancement in the value of land attributable solely to the particular purpose for which it is being compulsorily acquired (emphasis supplied).
This can be summarised, with some loss of precision, by saying that the hypothetical negotiation takes place in a no scheme world.
Statutory hypotheses are notoriously troublesome.
In East End Dwellings Co Ltd v Finsbury Borough Council [1952] AC 109 the issue was whether a hypothetically rebuilt block of flats would have been subject to the Rent Restriction Acts.
Lord Asquith of Bishopstone said (at pp132 133, a passage that has since been cited in many different contexts), If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it.
One of these in this case is emancipation from the 1939 level of rents.
The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.
But the need for the case to go to the House of Lords suggests that there was room for argument about what were the inevitable corollaries of the hypothesis.
There is no difficulty about extreme cases such as Stebbing v Metropolitan Board of Works (1870) LR 6 QB37, the graveyards case.
The hypothetical sale of the graveyards was not to take place in a world in which hundreds of graves containing human remains (whose presence precluded any normal development) were to be exhumed so that a road could be built.
The enhancement in value was entirely due to the road building scheme.
But other cases are more difficult.
One such case is the so called Indian case [1939] AC 302.
It is difficult partly because of the unusual facts (the proposed anti malarial works consisted of closing unhealthy wells which supplied several different villages, and the spring was seen as a source of fresh water both for the new harbour undertaking and for the villages) and partly because of Lord Romers rather discursive discussion of an imaginary auction.
I agree with Lord Brown that it may not be necessary, or helpful, to refer to the Indian case again.
Another case which illustrates the tangles which hypothesis can lead to is Porter v Secretary of State for Transport [1996] 3 All ER 693, considered by Lord Collins in Transport for London at paras 115 118.
The no scheme rule required the actual proposal for a by pass round Evesham to be disregarded, but because the town really did need a by pass somewhere, the valuation was made on the basis that a relief road would be built on another route.
So the court posited a world in which the scheme actually proposed did not exist, but an imaginary scheme did exist.
This convoluted approach was altered for the future by amending legislation.
The case now before the Court is on very unusual facts, but its unusual facts do not to my mind make it more difficult.
It is an extreme case in that Star Energys operations did not (in the words of Peter Smith J) interfere one iota with Bocardos enjoyment of its land.
Subject to a contrary argument put forward by Bocardo, the value of the right granted to Star Energy was entirely due to the scheme, which was (as Aikens LJ said in the Court of Appeal, para 111) the exploitation of the petroleum licence in the specified area.
The contrary argument (picking up the well known observations of Mann LJ in Batchelor v Kent County Council (1989) 59 P & CR 357, 361) is that the value was not entirely due to the scheme underlying the acquisition but was pre existent.
It is true that the natural petroleum was pre existent.
It had been there, no doubt, for tens of thousands of years.
But the petroleum did not belong to Bocardo.
It is true that Bocardo held a key (not, I think, the only possible key) to the most efficient exploitation of the petroleum by diagonal drilling to the apex of the oilfield.
But the keys value depended entirely on the scheme, unlike a ransom strip for which there might have been a variety of possibilities of profitable realisation, some not involving compulsory purchase, as in Chapman, Lowry & Puttick Ltd v Chichester District Council (1984) 47 P & CR 674.
For these reasons, and for the fuller reasons in the judgment of Lord Brown, I would dismiss this appeal.
LORD BROWN
What sum would the Court have assessed as the proper compensation to be paid by Star to secure their right to install deviated wells or pipelines beneath Bocardos land had Star sought to enforce that right pursuant to the Mines (Working Facilities and Support) Act 1966 (the 1966 Act)? Agreeing, as I do, with Lord Hopes judgment on all the issues raised by Stars cross appeal on liability, and concerned, as I am, to address only the issues arising on Bocardos appeal as to damages, that is what I regard as the ultimate question for the Courts determination.
For this purpose I shall take as my starting point the scenario described in the next 4 paragraphs (based partly on a somewhat simplified account of the facts and partly on what I understand to be common ground between the parties as to the proper measure of damages for trespass in this particular case given that Bocardo succeed on all issues of liability).
Pursuant to section 2 of the Petroleum (Production) Act 1934 (the 1934 Act) Star held a licence issued by the Secretary of State on behalf of the Crown giving them the exclusive right to search and bore for and get the petroleum lying underground (the property in which section 1 of the 1934 Act had vested in the Crown) in a part of Surrey including the Palmers Wood oil field.
Under the licence Star are required to pay royalties to the Crown equal to 5% of the market value of the petroleum won (potentially rising, depending upon the amount won, to 12.5%).
The apex of this oil field lies at a depth of some 2,800 ft below ground within the Oxted Estate, land in Bocardos freehold ownership.
To win the petroleum, Star needed to drill and install three pipelines, two (PW5 and PW8) down towards the apex, one (PW9) so as to inject water into a different part of the oil field (not within the Oxted Estate) to maximise petroleum recovery.
These three pipelines were drilled diagonally from a site (known as the Coney Hill well head) outside Bocardos Oxted Estate: PW5 entering the estate at about 1300 ft below ground level, running for about 500m and terminating at about 2,900 ft below; PW8 entering at about 800 ft below, running for about 700m and terminating at about 2,800 ft below; PW9 entering at about 950 ft below, crossing a corner of the estate and exiting deeper still after about 250m.
The pipelines are variously of 8 inches and 12 inches diameter and lined with steel casing.
Their drilling and installation occasioned no harm whatsoever to the estate.
It did not interfere with Bocardos use or enjoyment of its land one iota.
Pursuant to section 3 of the 1934 Act, Part I of the Mines (Working Facilities and Support) Act 1923 (the 1923 Act) applied and, upon the replacement of the 1923 Act as amended by the 1966 Act, the 1966 Act applied to enable Star as licence holder to acquire such ancillary rights as they required in order to win the petroleum.
The ancillary right which Star required was, or was akin to, that described in section 2(1)(b) of the 1966 Act, as amended by section 27 of the Petroleum Act 1987, as a right of . shaft way . or underground way leave, or other right for the purpose of access to or conveyance of minerals.
Section 3(2)(d) of the 1966 Act (replacing section 4(1)(d) of the 1923 Act) provided that, had Bocardo unreasonably refused to grant Star such ancillary right or demanded unreasonable terms for its grant, Star was entitled to ask the Minister to refer the matter to the court both for it to grant the right and to assess the compensation or consideration payable for it under section 8(2) of the 1966 Act (section 9(2) of the 1923 Act).
Section 8(2) provides, so far as material in the present context: The compensation or consideration in respect of any right . shall be assessed by the court on the basis of what would be fair and reasonable between a willing grantor and a willing grantee .
By section 3(2)(b) of the 1934 Act it was provided that: in determining the amount of any compensation to be paid in respect of the grant of any right, an additional allowance of not less than 10% shall be made on account of the acquisition of the right being compulsory.
In the light of those basic facts and those governing statutory provisions I return to the question I posed at the outset, what sum should the court have assessed as proper compensation to be paid to Bocardo for having no option but to allow Star to install their pipelines under Bocardos land?
The answer to that question ultimately determinative of this appeal must in turn depend upon the answers to two fundamental other questions.
First, do the principles ordinarily governing the approach to valuation in the field of compulsory land purchase apply equally to the construction and application of section 8(2) of the 1966 Act with regard to the compulsory acquisition of ancillary rights over (or, as here, under) land? Secondly, even assuming (contrary to Bocardos argument) that compulsory purchase principles do apply in this context, do they operate to deny Bocardo what would otherwise be regarded as the powerful bargaining position of a landowner able to control access to a valuable oil field partially sited beneath their land?
Bocardos core argument is to be found in their printed case (para 48) as follows: This is a classic key case.
The second party does not own the treasure but he does own the key to the treasure chest.
The key has little or no intrinsic value.
Its value is what it gives access to.
What the owner of the key has is purely a bargaining position.
He is in the position of the owner of land which is needed to give the access necessary for the exploitation of a valuable asset.
Bocardo then contend (para 53) that, there being no direct comparables, in order to determine a fair and reasonable price, [i]t was accordingly necessary to approach the valuation by enquiring what would be a fair share of the spoils for the landowner to receive for granting a right of access to the oil deposit.
It was an acceptance of essentially this argument that led Peter Smith J at first instance to assess Bocardos damages at 621,180 (being 9% of the gross revenue from the oil extracted during the relevant period up to trial) plus interest (together with 9% of all future revenue derived from the pipelines the price of suspending an injunction otherwise imposed in respect of their further use).
The Court of Appeal by contrast held that ordinary compulsory purchase principles apply to the assessment of compensation under section 8(2) and that pursuant to these Bocardo had no key value to exploit, were suffering no loss whatever, and would be amply compensated by an award of 1,000 (to include the 10% uplift under section 3(2)(b) of the 1934 Act) in respect of both past and continuing trespass.
I turn then to the first of the two underlying questions earlier identified: do compulsory purchase principles of valuation apply to section 8(2)? First and foremost of these principles is what is commonly known as the no scheme rule or the Pointe Gourde rule.
This rule was stated by Lord MacDermott in Pointe Gourde Quarrying & Transport Co Ltd v Sub Intendent of Crown Lands [1947] AC 565, 572 as follows: It is well settled that compensation for the compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition.
The two most authoritative recent decisions on the proper approach to compensation for compulsory purchase are Waters v Welsh Development Agency [2004] 1 WLR 1304 (Waters) and Transport for London v Spirerose Ltd [2009] 1 WLR 1797 (Spirerose).
Waters was concerned principally with the correct identification of the extent of the scheme whose effect in increasing the value of the land is to be disregarded; Spirerose was concerned rather with the value of the acquired lands pre existing potential for development and more particularly with whether that has to be discounted for future uncertainties.
Whilst it is unnecessary to traverse again most of the ground covered by those cases, it is important to note, first, Lord Nicholls of Birkenheads description of the Pointe Gourde principle (at para 42 of Waters) as no more than the name given to one aspect of the long established value to the owner principle; secondly, Lord Walkers observation (at para 12 of Spirerose) that the Pointe Gourde principle is essentially concerned with statutory construction . not . with the meaning of a particular word or phrase which has appeared in a succession of statutes dealing with the same subject matter, but with the general attitude and expectation with which the Court should approach a statute dealing with compensation for the compulsory acquisition of land [operating, as it is put in Bennion, Statutory Interpretation, 5th ed (2008), p442, as a special interpretative convention]; and, thirdly, as was clearly held by the majority in Waters, that it is the Pointe Gourde principle as explained in the cases, rather than the statutory rules for assessing compensation contained in section 5 of the Land Compensation Act 1961 (rules originally enacted in section 2 of the Acquisition of Land (Assessment of Compensation) Act 1919), which nowadays principally governs the approach to compensation in compulsory purchase cases although it nonetheless seems to me worth noting too the terms of section 5(3) of the Land Compensation Act 1961 (as amended by Schedule 15(I) of the Planning and Compensation Act 1991): The special suitability or adaptability of the land for any purpose shall not be taken into account if that purpose is a purpose to which it could be applied only in pursuance of statutory powers, or for which there is no market apart from the requirements of any authority possessing compulsory purchase powers.
The policy underlying the principle is, of course, that identified by Lord Nicholls in Waters (para 18): When granting a power to acquire land compulsorily for a particular purpose Parliament cannot have intended thereby to increase the value of the subject land.
Parliament cannot have intended that the acquiring authority should pay as compensation a larger amount than the owner could reasonably have obtained for his land in the absence of the power.
For the same reason there should also be disregarded the special want of an acquiring authority for a particular site which arises from the authority having been authorised to acquire it.
As Lord Nicholls then added (para 19): This approach is encapsulated in the time hallowed pithy, if imprecise, phrase that value in this context means value to the owner, not value to the purchaser.
Bocardo contend that section 8(2) is simply not subject to the compulsory purchase principles of valuation exemplified by the Pointe Gourde rule.
There is no mention, either in the 1923 Act or the 1966 Act, of the statutory rules governing the approach to compensation to be found in the 1919 Act or the 1961 Act, in contrast to a number of other statutes similarly conferring compulsory powers to acquire subterranean land or rights: notably, the Channel Tunnel Act 1987, the Water Resources Act 1991, the Electricity Act 1989, the Pipelines Act 1962 and the Gas Act 1986.
Instead there is in section 8(2) an unadorned provision for fair and reasonable compensation as between a willing grantor and a willing grantee without even an entitlement to seek the Courts assessment unless and until it is shown to be not reasonably practicable to obtain the right by private arrangement because the person with power to grant the right unreasonably refuses to grant it or demands terms which, having regard to the circumstances, are unreasonable (section 3(2)(d) of the 1966 Act).
Accordingly, submit Bocardo, they are in no worse negotiating position under the 1966 Act than they would be at common law indeed better placed because under the Act a willing seller cannot merely hold out for a price which properly reflects the value of the right to the purchaser but can also act so as to delay the acquisition of the right and (pursuant to section 3(2)(c) of the 1934 Act) put the purchaser to considerable expense by way of irrecoverable costs.
And, of course, the seller gets a minimum 10% uplift.
Ably though these arguments were presented, for my part I cannot accept them.
That the present context is one of compulsory acquisition of rights over land seems to me indisputable.
How, indeed, could this be more clearly demonstrated than by the express requirement under section 3(2)(b) of the 1934 Act for a 10% or greater uplift in compensation on account of the acquisition of the right being compulsory? Quite why the 1923 Act (and, in turn, the 1966 Act) do not incorporate the statutory rules contained in the general land compensation legislation is unclear, but it may be because the 1923 Act (and the 1966 Act) provide not only (as is directly relevant here) for compensation for rights over land to win minerals not in the landowners ownership, but also for consideration, for example for the working of coal whereby the property in the mineral passes from the grantor to the grantee and so calls for a valuation of that property right on an ordinary commercial basis.
For the life of me, however, I can think of no sound reason why Parliament in 1934 should have intended an ancillary right of the kind under consideration here to be valued on a different and altogether more generous basis than comparable rights acquired under general compulsory purchase powers or, indeed, under the several Acts mentioned above.
Quite the contrary.
A strongly arguable case in fact arises here for saying that Stars diagonal wells are actually to be regarded as pipelines within the meaning of the Pipe lines Act 1962 (in which event the ordinary approach to compensation for compulsory acquisition most obviously applies).
Like the Court of Appeal I think it unnecessary to reach my conclusion on the argument.
But the mere fact that it arises to my mind underlines the oddity of the proposition that an entirely different compensation requirement exists for the ancillary right here in question depending upon whether it is enforceable under the 1923/1966 legislation or under the Pipe lines Act 1962.
It would seem to me most odd had Parliament in 1934 expropriated with no compensation whatever the property in all subterranean petroleum together with the exclusive right to search, bore for and win it, and yet at the same time intended that the landowner, beneath whose land the Crowns licence holder must necessarily bore to achieve the statutory purpose of maximising petroleum recovery in the national interest, should thereby become entitled to a fair share of the spoils as the appellants contend.
And to my mind such a supposition becomes more bizarre still when one recognises that Parliament expressly stipulated for not less than a 10% uplift in the statutory compensation payable on account of the landowner being powerless to deny the licence holder the ancillary right he requires.
Why would Parliament both allow him to exploit his bargaining position for all the world as if the parties negotiation was taking place in a routine commercial context beyond the reach of legislation and then add upwards of 10% simply because he cannot at the end of the day refuse to grant the ancillary right required and is unable to charge for it more than is fair and reasonable? Is the licence holder, as Peter Smith J held, really required to pay not merely a 5% (rising to 12 %) royalty to the Crown but in addition compensation amounting to a further 9% of the value of the petroleum won in order to be able to avail himself of his statutory entitlement to win the petroleum?
This issue cannot be resolved by reference simply to the language of section 8(2): what is fair and reasonable compensation as between a willing grantor and a willing grantee must inevitably depend upon whether the willing grantee is or is not entitled in the notional negotiation between the parties to exploit the position he would be in but for the grant of compulsory purchase powers to deny the licence holder access to the petroleum he is statutorily empowered to win.
It depends, in short, upon whether the Court construing section 8(2) should approach it with the same general attitude and expectation as ordinarily it brings to the construction of statutory provisions dealing with compensation for compulsory land acquisition.
If so, the Pointe Gourde principle applies: the landowners compensation should not be assessed at more than he could reasonably have attained for the grant of the ancillary right had the licence holder not enjoyed a statutory power to acquire it compulsorily for a particular purpose (plus, of course, upwards of 10%).
I recognise, of course, that the word value (which had appeared in section 63 of the Land Clauses Consolidation Act 1845) is not to be found in section 8(2).
But, as Lord Walker observed in Spirerose (see para 12 above), the Pointe Gourde approach is not dependant on a particular word or phrase but rather on the correct approach to statutory construction in this particular context.
If the Court is to construe section 8(2) consistently with other legislative provisions governing compulsory acquisition, it falls to be approached on the basis that what is fair and reasonable depends not on what the grantee is gaining but rather on what the grantor is losing.
It is for this reason too that the wealth of authority concerning damages for trespass (user damages) damages measured by the benefit received by the trespasser, namely, by his use of the land, as Lord Nicholls put it in AG v Blake [2001] 1 AC 268, 278 seems to me of no assistance in the present case, Bocardo having conceded throughout that their entitlement to damages can be no more than they would have received as compensation under section 8(2).
As already indicated, it seems clear to me that Parliament in 1934 must have intended compensation under the 1923 Act to be assessed on similar principles to the assessment of compensation under other compulsory purchase legislation (save only that there was to be added the 10% or greater uplift payable for such ancillary rights as were required to win petroleum, notwithstanding that by section 2(1) of the 1919 Act Parliament had abolished the 10% addition for compulsory purchase that had earlier characterised compensation awards).
Were, however, Parliaments intention in 1934 to be unclear and resort to be had to the Hansard Reports of the day as Bocardo themselves pray in aid the speech of the Marquess of Londonderry, the Secretary of State for Air and the Minister promoting the Bill, in support of their contention (which indeed I accept) that section 10(3) was inserted into the Act to remove any possible doubt as to whether a licence holder wishing to enter upon or interfere with land needed to obtain an ancillary right to do so under the 1923 Act; clearly they did it could only serve to support my understanding of the position with regard to the intended basis of compensation.
It is sufficient for this purpose to set out a passage from the speech of Viscount Hailsham, the Secretary of State for War supporting the Bill on its second reading in the House of Lords (see Hansard (HL Debates),19 April 1934, cols 691 692): Now it is said .
You are not compensating the owners for the value of the oil which is under their land.
It is quite true we are not.
We are not compensating them for the value of the oil that is under their land, or, for the matter of that, for the value of oil which is under their neighbours land.
But it is fair to remember that at this moment and that is one reason why the Bill to be introduced and passed, as we think, at this stage there is no value in the oil under their land, or under their neighbours land.
In the three cases in which licences have been granted and are being worked [licences under the Petroleum (Production) Act 1918 pursuant to which landowners were demanding royalty payments for the right to drill for oil under their land] we have been careful to exclude those areas altogether from the provisions of the Bill, because we recognise that, in accordance with our principles it would not be right to say that, where vested interests have been created and there is a chance of land having appreciated by the possibility of oil being found there, that value should be taken away without due compensation being given.
In the cases with which this Bill deals the rest of the country there is no value at all today in the possible oil rights, in the chances of finding oil under the soil.
But we have been careful to provide that where in any particular place arrangements are made, or asked for, for the sinking of wells or for bore holes, or in any way interfering with the actual rights that exist, interfering with the surface rights, there shall be paid not merely full compensation in the sense of the full market value, not merely full compensation for any loss of amenity value, but in addition to that it is expressly provided in the Bill that there shall be an addition of 10% because the acquisition is a compulsory one and the owner may not necessarily desire to realise that asset.
So that we are careful to give full compensation in every case in which any valuable right is interfered with.
All we do is to say before there is any value established, before any vested right is created, that the oil if it exists which nobody knows shall belong to the state in future; but that any interference with the rights of property on the soil, or with the value of the property under which the oil is situated, shall be fully compensated for to the owner whose property is interfered with.
It seems to my mind perfectly clear that the compensation and the only compensation contemplated by Parliament in enacting the 1934 Act was for any loss of amenity value consequent on interference with actual rights that exist, in particular the surface rights.
For any such loss full compensation in the sense of the full market value was to be paid, plus 10% because the owner may not necessarily desire to realise that asset.
Compensation was to be for interference with any valuable right.
Landowners, however, had no right at all in the oil or in the chances of finding oil under the soil.
It seems clear that Parliament in 1934 was not contemplating the boring of deep wells diagonally beneath land but that, had they done so, they would not have regarded that as an interference with any actual existing right or as involving any loss of amenity value or at any rate not such an interference as required more than essentially nominal compensation.
I pass now to the second of the two fundamental questions arising: even supposing ordinary compulsory purchase principles apply to the assessment of compensation under section 8(2), can Bocardo nevertheless assert and benefit from the key value of the ancillary right which Star needed to acquire here? Bocardo submit that their control over the necessary right of passage of wells through their land is in principle indistinguishable from the ownership of a ransom strip of land giving necessary access to other land: in the latter case, without acquisition of the ransom strip, the second plot is landlocked; here, without acquisition of the required ancillary right of passage, the petroleum is earth locked.
For my part I readily acknowledge the closeness of the parallel between the two situations.
But to point to the parallel is by no means to answer the question arising.
It merely invites the posing of the question in another form: suppose a 1934 Act licence holder needs to acquire a strip of wasteland to be able to exploit his statutory right to search, bore for and get petroleum, would the owner of that strip be entitled to its key value?
said there under the heading Ransom value: It is convenient at this stage to return to Waters to see what Lord Nicholls 64 One last point should be noted before returning to the present case.
This concerns so called ransom value or, less pejoratively, key value.
I have already mentioned that under the value to the owner principle or the Pointe Gourde principle, whichever nomenclature is preferred, the pressing need of an acquiring authority for the subject land as part of a scheme should be disregarded when assessing its value for compensation purposes.
The value of the land is not the price a driven buyer would be prepared to pay.
But a strip of land may have special value if it is the key to the development of other land.
In that event this feature of the land represents part of its value as much for purposes of compensation as on an actual sale in the open market. 65.
The intersection of these two principles was identified neatly by Mann LJ in Batchelor v Kent County Council (1989) 59 P &CR 357, 361: If a premium value is entirely due to the scheme underlying the acquisition then it must be disregarded.
If it was pre existent to the [scheme] it must in my judgment be regarded.
To ignore the pre existent value would be to expropriate it without compensation and would be to contravene the fundamental principle of equivalence . 66.
In the present case the claimants contend their land had key value because of its importance as compensatory wetlands required for completion of the Cardiff Bay barrage project.
Whether this contention is well founded for compensation purposes depends, in accordance with the principle enunciated by Mann LJ, on the ambit of the scheme of which the subject lands acquisition was an integral part.
In reality Bocardo are advancing here essentially the same argument as was advanced by the owners of the wetlands in Waters which I there identified (at para 153) as their second argument and (at para 156) rejected, observing that: If correct, it would emasculate the no scheme rule to the point of extinction.
Like Lord Nicholls, I too (at para 157) cited Mann LJs judgment in Batchelor v Kent County Council and (at para 158) concluded: Assuming, however, that any premium value, or indeed any other particular value, of the land were entirely due to the scheme underlying the acquisition (or, if one prefers Lord Nicholls formulation in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111, 136, due to the very scheme of which the [acquisition] forms an integral part), then in my judgment, notwithstanding that it represents the lands unrealised potentiality . , it clearly falls to be disregarded.
To my mind there can be no doubt as to what constitutes the scheme in the present case: the Court of Appeal (para 111) correctly identified it as: The exploitation of the petroleum licence in the specified area.
Nor can there be any doubt that, whatever particular value existed in the ancillary right here required to facilitate that exploitation (any premium or key or ransom value), it existed exclusively (entirely or solely are other words used in this context) because of the scheme.
But for the scheme, there was no potential use or value whatever in the right being granted.
It thus fell to be disregarded under the Pointe Gourde principle as, indeed, to my mind, had it been a ransom strip of land, it would no less obviously have fallen to be disregarded whether under that principle or under section 5(3) of the 1961 Act: the purpose served by the suitability of such land for providing access could only have been achieved in pursuance of statutory powers, there being no market for such right of access apart from the requirements of the statutorily empowered licence holder.
To my mind it is impossible to characterise the key value in the ancillary right being granted here as pre existent to the scheme.
There is, of course, always the chance that a statutory body with compulsory purchase powers may need to acquire land or rights over land to accomplish a statutory purpose for which these powers have been accorded to them.
But that does not mean that upon the materialisation of such a scheme, the key value of the land or rights which now are required is to be regarded as pre existent.
This is well illustrated by Fletcher Moulton LJs judgment in In Re Lucas & Chesterfield Gas and Water Board [1909] 1 KB 16 where land had been compulsorily purchased for the construction of a reservoir.
Having stated (pp29 30) the absolute rule that the landowner is only to receive compensation based upon the market value of his lands as they stood before the scheme was authorised by which they are put to public uses, the Lord Justice turned to consider the question of the special adaptability of land for purposes for which lands are required only when used for works of public utility and continued (pp30 31): Ought the owner to be entitled to higher compensation by reason of the, to him, useless peculiarities which the lands possess? No better example of the problem could be found than that which we have in the present case.
The land in question is by its position and conformation marked out as a favourable site for an impounding reservoir to collect water for the public supply of a district.
The peculiarities which make it suitable for that purpose add nothing to its value as agricultural or grazing land, which I will assume to be the only alternative uses.
A public authority obtains powers to take it for a reservoir; ought it to pay any higher price than is represented by its agricultural or grazing value? Is not any price in excess of this a violation of the canon that you are only to give that which represents its worth to the seller, and that you are to disregard all questions of its worth to the buyer? The decided cases seem to me to have hit upon the correct solution of this problem.
To my mind they lay down the principle that where the special value exists only for the particular purchaser who has obtained powers of compulsory purchase it cannot be taken into consideration in fixing the price, because to do otherwise would be to allow the existence of the scheme to enhance the value of the lands to be purchased under it.
But when the special value exists also for other possible purchasers, so that there is, so to speak, a market, real though limited, in which that special value goes towards fixing the market price, the owner is entitled to have this element of value taken into consideration, just as he would be entitled to have the fertility or the aspect of a piece of land capable of being used for agricultural purposes.
Towards the end of his judgment (p35) Fletcher Moulton LJ concluded: The scheme which authorises the new reservoir only entitles the owner of the land to receive as compensation the value of the land unenhanced by that scheme, and, unless its situation and peculiarities create a market for it as a reservoir site for which other possible bidders exist, I do not think that the single possible purchaser that has obtained parliamentary powers can be made to pay a price based on special suitability merely by reason of the fact that it was easy to foresee that the situation of the land would lead to compulsory powers being some day obtained to purchase it.
Now it is perfectly true to say that subsequently, in Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer, Vizagapatam [1939] AC 302 (the Indian case) the Privy Council preferred the view expressed in the Lucas case by Vaughan Williams LJ (p28), namely that in assessing the award for the land the Umpire may value the possibility of the site going into the market as being required for the enlargement of the waterworks, [albeit] not on the basis of a realised possibility, or on account of the promoters having obtained from Parliament compulsory powers.
But there are two important points to be made.
The first is that the Indian case affords no assistance at all as to how much the acquiring authority should be regarded as willing to pay for the particular value of the land to him.
Although the Board was critical of Rowlatt Js view in Sidney v North Eastern Ry.
Co. [1914] 3 KB 629, 637 that the acquiring authority should pay for the lands existing use value or development potential no more than the highest price realisable from any competing prospective purchaser, there is certainly nothing to suggest that they disagreed with his view that compensation was plainly not to be assessed on the basis of the owner obtaining for himself a share in [the] value [of the land to the promoter for his scheme].
As Lord Nicholls said in Waters (para 36) with regard to the Indian case: Potentiality is part of the market value of land and must be taken into account when assessing compensation.
Potentiality should be valued even if the only likely purchaser is the acquiring authority itself.
That was decided in the Indian case.
But market value does not include enhanced value attributable solely to the particular use proposed to be made of the land under a scheme of which compulsory acquisition of the subject land is an integral part.
This element of value is not part of market value because it is not an element the owner could have realised in the open market.
That is the traditional view, which has long been acted upon in this country.
In practice, it appears, a more or less token increase on what otherwise would be assessed as the lands market value tends to be made in deference to the Indian case for example, in BP Petroleum Developments Ltd v Ryder [1987] 2 EGLR 233, 248, an increase from 40 per annum per acre to 45 for the rights over the additional land sought by the special purchaser there (the increase being made for him to be certain that he will acquire the rights he seeks); and, indeed, the increase from 50 to 75 which the Court of Appeal in para 116 of the present case suggested would be made by a court assessing compensation here to account for the fact that Star, as the holder of the petroleum licence, was a special purchaser.
The basic 50, I should note, is the standard compulsory purchase compensation paid for a deep tunnel.
The second point to be made, to my mind more important still, is that made by Lord Nicholls in paragraph 38 of Waters: The legislation under consideration in the Indian case contained no equivalent of rule 3.
Rule 3 is expressed in absolute terms which appear to leave no room for taking into account a potential use of the land where the acquiring authority is the only person who could turn this potentiality into an actuality.
In this regard rule 3 is more restrictive of compensation than the value to the owner principle as clarified on this point by the decision of the Privy Council in the Indian case.
Indeed, as Lord Nicholls had earlier noted (para 28), rule 3 in section 5 of the 1919 Act (section 5(3) of the 1961 Act see para 12 above), constituted legislative affirmation of the approach adopted on this point by Fletcher Moulton LJ in [the Lucas case] an observation reiterated by Lord Walker in Spirerose (para 18).
In my opinion, therefore, it is now to be regarded as clearly established in English law that the Fletcher Moulton (or rule 3) approach is to apply to the assessment of compensation for compulsory purchase, whether of land or rights over land, and that this approach must be recognised as an integral part of the Pointe Gourde principle.
I go so far as to question, therefore, whether it will be necessary, or indeed helpful, ever again to refer to the Indian case.
Lord Clarke suggests (para 140) that, had the owners of the Oxted Estate before the 1934 Act been aware of the oilfield and its potential, the key value of their land as the necessary (or best) access route to the apex of the field would already have been apparent.
He then asks (para 158) whether Parliament increased the key value of the land when it enacted the 1934 Act and (para 161) concluded not: the key value was not created or enhanced by the scheme or the 1934 Act because the Oxted Estate already had a key value in the market.
To my mind, however, this approach is to overlook the true effect of the 1934 Act.
It must be recognised that by this Act, Parliament in terms (a) vested the property in all petroleum in the Crown, (b) gave the Crown the exclusive right of searching and boring for and getting such petroleum (a right that could be licensed to others, as here to Star) and (c) enabled any licencee compulsorily to acquire any necessary ancillary right (as here to access the petroleum through Bocardos land).
The correct analysis seems to me to be this: that by these provisions Parliament was at one and the same time extinguishing whatever pre existing key value Bocardos land might be thought to have had in the open market and creating a new world in which only the Crown and its licencees had any interest in accessing the oilfield and in which they had been empowered to do so (to turn the key if one wants to persist in the metaphor) compulsorily and thus on terms subject to the Pointe Gourde approach to compensation.
As from 1934 all exploitation of petroleum was pursuant to the new statutory licensing scheme; all, that is, save for the petroleum won pursuant to the three licences previously granted under the 1918 Act which consistently with the first of the two paragraphs quoted above (para 76) from Viscount Hailshams speech promoting the 1934 Bill was expressly excluded from the 1934 Act Scheme (by the proviso to section 1(1)).
As, however, the second quoted paragraph from the speech makes plain, save for those previously licensed areas, there was to be no value at all in possible oil rights or the chances of finding oil under the soil.
The 1934 Act marked the end of key values and the payment of royalties.
As I have sought to explain, compensation thereafter was to be paid on the usual basis in compulsory acquisition cases (with, of course, a 10% uplift).
In summary, I reject Bocardos contentions, first, that the principles governing the approach to valuation in compulsory purchase cases have no application to the assessment of compensation under section 8(2); second, that in any event there is here no relevant scheme to be discounted under the Pointe Gourde principle; third, that Bocardos power of control over the passage by wells or pipes through their land gave a pre existing key value to the ancillary rights which Star needed to acquire from them; and, fourth, that for purely geographical reasons the land through which access was required always had potential value so long as petroleum resources lay underground.
Each contention is in reality a re formulation of the same essential argument, namely that Bocardo are entitled to some share of the value of the petroleum being accessed through their land.
If they are, then no doubt substantial damages such as those awarded here at first instance are appropriate (although there are detailed criticisms to be made of the precise calculation arrived at).
If not, however, then the 1,000 awarded by the Court of Appeal can be regarded as positively generous: compensation under section 8(2) would have been assessed at no more than 82.50 including the 10% uplift.
There is frankly no coherent basis for any intermediate award.
As will already be apparent, the Court of Appeals approach here (following as it does Peter Gibson Js decision in very similar circumstances in BP Petroleum Developments v Ryder) is to my mind strongly to be preferred.
I would dismiss this appeal.
LORD COLLINS
I agree with Lord Hopes reasons for concluding that Stars cross appeal should be dismissed, and with Lord Browns reasoning on the quantum of damages.
The principles for the award of damages in cases such as this are fully canvassed in Pell Frishmann Engineering Ltd v Bow Valley Iran Ltd [2009] UKPC 45, [2010] Bus LR 73, per Lord Walker at [46] [54].
It is common ground that the measure of damages is to be assessed by reference to the amount which Bocardo would have been awarded under section 8(2) of the Mines (Working Facilities and Support) Act 1966, had Star obtained an order from the court granting it the necessary ancillary rights over Bocardos land.
The statutory scheme is simple.
The issues would now be regulated by the Petroleum Act 1998 and the Mines (Working Facilities and Support) Act 1966, but the licence to Star in the present case was issued pursuant to the Petroleum (Production) Act 1934.
Section 1 of the 1934 Act vested in the Crown the property in petroleum existing in its natural condition in strata in Great Britain and gave the Crown the exclusive right to search and bore for and get such petroleum.
By section 2 the Crown had the power to grant licences to search and bore for and get petroleum.
Star held a licence from the Crown under the 1934 Act which gave it the exclusive right to search and bore for and get the petroleum lying under (among other land) Bocardos land.
The royalty payable by Star to the Crown is 5% of the market value of the petroleum extracted, rising, depending on the amount of petroleum, to 12.5%.
By section 3 of the 1934 Act, Part I of the Mines (Working Facilities and Support) Act 1923 applied to enable a person holding a licence under the 1934 Act to acquire such ancillary rights as may be required for the exercise of the rights granted by the licence.
The 1923 Act as amended was replaced by the Mines (Working Facilities and Support) Act 1966, a consolidating Act.
By section 1 of the 1966 Act the court may confer any ancillary right on a person having the right to work minerals, who is working or desirous of working the minerals, if the right is required in order that the minerals may be properly and conveniently worked by the licensee, and the proper and efficient working of the minerals is unduly hampered by his inability or failure to obtain that right.
Among the relevant ancillary rights are a right of . shaft way . or underground way leave, or other right for the purpose of access to or conveyance of minerals (section 2(1)(b)).
By section 3 no such right is to be granted under section 1 unless the court is satisfied that the grant is expedient in the national interest, and it is not reasonably practicable to obtain the right by private arrangements because (among other reasons) the person with power to grant the right unreasonably refuses to grant it or demands terms which, having regard to the circumstances, are unreasonable (section 3(2)(d)).
The licensee may then apply to the Secretary of State for Energy, who may refer the matter to the court: section 4.
The court may grant the right and such compensation or consideration as in default of agreement may be determined by the court shall be paid or given by the applicant (section 5(1), (2)).
By section 8(1), where a right is granted under section 1, the court may determine the amount and nature of compensation or consideration to be paid or given.
By section 8(2): The compensation or consideration in respect of any right . shall be assessed by the court on the basis of what would be fair and
reasonable between a willing grantor and a willing grantee
Section 3(2)(b) of the 1934 Act provided that in determining the amount of any compensation to be paid in respect of the grant of any right, an additional allowance of not less than ten per cent. shall be made on account of the acquisition of the right being compulsory.
Even without the express reference in section 3(2)(b) to the acquisition of the right being compulsory, there can be no doubt that this would have been a case of compulsory acquisition and that any general principles of compulsory acquisition law are applicable.
For present purposes the most plainly relevant is the value to the owner principle, expressed in the first edition of Cripps on Compensation (1881) as follows (at 144): The basis on which all compensation for lands required or taken should be assessed, is their value to the owner, and not their value when taken to the promoters.
The question is not, what the persons who take the land will gain by taking it; but what the person from whom it is taken will lose, by having it taken from him.
One aspect of the value to the owner is the principle known as the Pointe Gourde rule or the no scheme rule, namely that compensation for the compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition (Pointe Gourde Quarrying & Transport Co Ltd v Sub Intendent of Crown Lands [1947] AC 565, 572 (PC, per Lord McDermott), extensively discussed in Waters v Welsh Development Agency [2004] UKHL 19, [2004] 1 WLR 1304, especially at [40] et seq by Lord Nicholls and [124] et seq by Lord Brown, and in Transport for London v Spirerose Ltd [2009] UKHL 44, [2009] 1 WLR 1797, at [19] et seq by Lord Walker, and at [119] et seq by myself).
It is not necessary to repeat what is said there, except to say that it has long been recognised that increase in value consequent upon the execution of the undertaking for or in connection with which the purchase is made must be disregarded (South Eastern Ry Co v London County Council [1915] 2 Ch 252, at 258, per Eve J).
In this case there can be no doubt that Bocardo will have suffered no quantifiable physical loss.
It has no property rights in the petroleum.
The most that it can say is that the ancillary right which Star would have asked the court to value was the ransom value or key value in the hypothetical negotiation.
Plainly a strip of land may have special value if it is the key to the development of other land, but if the premium value is entirely due to the scheme underlying the acquisition then it must be disregarded: Waters v Welsh Development Agency at [64] [65], per Lord Nicholls, approving Batchelor v Kent County Council (1989) 59 P &CR 357, 361, per Mann LJ.
Put differently, the question in this case is whether the legislature intended the landowner, under whose land petroleum was discovered but who did not hold a licence to exploit the petroleum and in relation to whose land the licence holder needed access, to have a share in the enterprise or in the prospective value of the petroleum.
In my judgment the whole scheme of the legislation against the background of well established principles of compensation for compulsory acquisition demonstrates that that was not the intention.
The 10% uplift in the compensation would make no sense if the landowner were entitled to rely on the ransom value of the ancillary right.
In Edwards v Minister of Transport [1964] 2 QB 134, 156 (applied in Logan v Scottish Water, [2005] CSIH 73, 2006 SC 178, at [102]) Harman LJ said: I do not find anywhere in the textbooks or in any of the authorities any suggestion that a kind of ransom value, to which a man having a power of veto might hold the promoting authority, was the measure of his damage; for in fact he does not have a right of veto and the question, therefore, does not really arise.
In this case Bocardo would have had no right of veto, and is not entitled on the hypothetical valuation to compensation for a right which it would never have had.
The true key to the oil is not Bocardos ownership of the land, but Stars licence, which gives it alone the right to bore for and produce petroleum: see Peter Gibson J in BP Petroleum Developments Ltd v Ryder [1987] 2 EGLR 233, at 247.
I have come to this conclusion in the light of the legislation and general principles of law applicable to compulsory acquisition.
It is true that what was said on the second reading of what became the 1934 Act (quoted by Lord Brown at [76]) supports the view that what was envisaged was loss of amenity value.
But I prefer not to take that into account in the light of the continuing controversy over Pepper v Hart [1993] AC 593 and its limits: Kavanagh, Pepper v Hart and Matters of Constitutional Principle (2005) 121 LQR 98; Sir John Baker, Our Unwritten Constitution (2010) 167 Proceedings of the British Academy 91, 99 100.
LORD CLARKE Introduction I.
This appeal raises two questions of some interest and, perhaps, importance.
The first is whether the principle sometimes known by the proposition that a landowner owns the land usque ad coelum et ad inferos is part of English law (and, if so, to what extent) and the second is the measure of damages for trespass in circumstances in which the trespasser could have sought a licence to acquire ancillary rights under section 3 of the Petroleum (Production) Act 1934 (the 1934 Act) and, if it had obtained such a licence, would have had to pay compensation under section 8(2) of the Mines (Working Facilities and Support) Act 1966 (the 1966 Act).
In a judgment given on 24 July 2008 Peter Smith J (the judge) held that the respondents had committed a trespass and awarded the appellant damages in the sum of 621,180 plus interest.
The Court of Appeal (Jacob, Aikens and Sullivan LJJ) reduced the damages to 1,000.
Permission to appeal against the quantum of damages was refused by the Court of Appeal but granted by this Court.
The respondents were subsequently granted permission to cross appeal against the finding that they were liable in trespass.
The facts
The appellant is and has since 1974 and 1988 been the freehold owner of Barrow Green Court and Barrow Green Farm respectively.
They are near Oxted in Surrey and form the Oxted Estate.
The Palmers Wood Oil Field (the Oil Field) is a naturally occurring reservoir of petroleum and petroleum gas, the north eastern part of which extends beneath the Oxted Estate.
The remainder of the Oil Field lies under land in different ownerships.
The respondents (Star) were successive holders of a petroleum production licence (the licence) issued by the Secretary of State for Energy on behalf of the Crown on 17 November 1980 under the 1934 Act.
The licence granted the licensee exclusive licence and liberty to search and bore for, and get, petroleum in an area which included the Oil Field.
The licence incorporated specified clauses of the then model clauses and required the licensee to pay royalties to the Crown as percentages of the market value of the petroleum obtained as follows: 5 per cent in respect of the first 100,000 tonnes won in any half year, 7.5 per cent of the next 50,000 tonnes, 10 per cent of the next 50,000 tonnes and 12.5 per cent of the tonnes in excess of 200,000 tonnes, all in the same half year.
There are two drilling sites for the extraction of petroleum from the Oil Field, although we are concerned only with that at Coney Hill, which is immediately next to the Oxted Estate.
The three wells which are the subject of this dispute are PW5, PW8 and PW9.
They were drilled by Stars predecessors from the Coney Hill site.
Importantly, they were not drilled vertically down from Coney Hill but diagonally so that they entered the substrata under the Oxted Estate at substantial depths beneath the surface.
The wells were lined with steel casing with tubing inserted.
The casing of PW5, PW8 and PW9 is of 8 inches and 12 inches in diameter.
PW5 and PW8 begin at the Coney Hill site and then deviate, entering the substrata below the Oxted Estate at about 1,300 and 800 feet respectively below ground level and continue until termination at about 2,900 feet and 2,800 respectively below ground level.
They run under the Oxted Estate for distances of about 0.5 and 0.7 kilometres respectively.
Both wells are production wells to extract petroleum and petroleum gas from the reservoir which lies beneath the Oxted Estate and neighbouring lands.
PW9 passes between the substrata beneath the Oxted Estate at about 950 feet below ground level and ends beyond it terminating at a point on the reservoir at about 1,400 feet below ground level.
PW9 is used for injecting water into the Oil Field so as to maximise and speed recovery.
PW5 was first drilled as an exploration well in 1986.
PW8 and PW9 were drilled in July 1992.
Production from PW5 began in October 1990 and from PW8 in September 1992.
PW9 was used to inject water into the Oil Field from August 1992.
The reason the wells were drilled diagonally under neighbouring land rather than vertically under Stars land was to maximise recovery of oil from the north eastern part of the Oil Field.
Since oil is lighter than water, in order to maximise recovery it is necessary to drill the well into or close to the apex of the field, which lay under the Oxted Estate.
The experts at the trial agreed that, if the wells had not been drilled under the Oxted Estate, the recovery of the petroleum from the Oil Field would not have been maximised.
At no stage was permission sought from the appellant to drill beneath its land.
The issues
There are two principal issues in this appeal, namely whether the appellant is in principle entitled to recover damages in trespass and, if so, what is the measure of damages.
Trespass
Both the judge and the Court of Appeal held that the appellant is in principle entitled to recover damages in trespass.
This issue has been considered in detail by Lord Hope, who has answered the question in the affirmative, as both the judge and the Court of Appeal did.
I agree with his conclusion and his reasons and there is nothing I wish to add in this regard.
V. Limitation of action
As explained by Aikens LJ (with whom Jacob and Sullivan LJJ agreed) at para 9, the judge held that the appellants claim was time barred in respect of any trespass committed before 22 July 2000.
He held that it was only entitled to damages for the trespass committed by Star from 22 July 2000 until the trial and to damages (in lieu of an injunction) for the continued trespass until the oilfield was exhausted.
The judges conclusions on limitation have been accepted both in the Court of Appeal and in this Court.
Damages at common law
The appellants case is that it is entitled to damages on what has sometimes been called the user (or here the wayleave) basis.
It is and has throughout been accepted by and on behalf of the appellant that it has suffered no damage or loss as a result of the trespass.
As Aikens LJ stressed at para 112, the drilling of three pipelines at depths of 800 to 2,800 feet below the appellants land would not disturb or detract from its use of the land (to use the judges phrase) one iota.
However Mr Gaunt submitted on behalf of the appellant that it does not follow from that that it is not entitled to substantial damages because it is now well settled that, where a claimant cannot show loss or damage, he may be entitled to user damages.
For my part, I would accept Mr Gaunts analysis of the position at common law.
The courts have held that, in the case of trespass to land, damages may be recovered equal to the value to the defendant of the use he has made of the claimants land even though the claimant has suffered no consequential loss and the value of his land has not been diminished.
The principle originated in cases not unlike this, where the defendant trespassed by carrying coals along an underground way through the claimants land.
The damages were assessed by determining what the claimant would have received if he had been paid for a wayleave: se eg Stoke on Trent City Council v W&J Wass Limited [1988] 1 WLR 1406 at 1410G to 1411E and the cases there cited.
Those principles were then applied to cases of wrongful trespass on the surface of land and wrongful retention of the possession of land in circumstances where the claimant would not otherwise have made use of the land: see Whitwham v Westminster Brymbo Coal and Coke Co [1896] 2 Ch 538 per Rigby LJ at 543.
Much more recently Lord Nicholls put the principle thus in AG v Blake [2001] 1 AC 268 at 278: A trespasser who enters anothers land may cause the landowner no financial loss.
In such a case damages are measured by the benefit received by the trespasser, namely by his use of the land.
The same principle is applied where the wrong consists of use of anothers land for depositing waste, or by using a path across the land or using passages in an underground mine.
In this type of case the damages recoverable will be, in short, the price a reasonable person would pay for the right of user.
Lord Nicholls restated the principle in Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 and 5) [2002] 2 AC 883 at paras 87 to 90 and in Sempra Metals Limited v IRC [2008] 1 AC 561 at para 116; see also Lord Scott at para 140 and Lord Mance at para 230.
The same principle applies where a landowner is awarded mesne profits, whether or not he would have re let the property during the relevant period: Swordheath Properties Limited v Tabet [1979] 1 WLR 285, which was applied by the Privy Council in Inverugie Investments Limited v Hackett [1995] 1 WLR 713.
The same principles have been applied in assessing damages in lieu of an injunction: see eg Bracewell v Appleby [1975] Ch 408 and Jaggard v Sawyer [1995] 1 WLR 269, both of which were cases of obtaining access to a newly built house, and Horsford v Bird [2006] 1 EGLR 75, per Lord Scott at paras 12 and 13.
It was in this connection that Lord Nicholls said in AG v Blake at page 281G that the measure of damages is often analysed as a loss of a bargaining opportunity or, which (he said) comes to the same, the price payable for the compulsory acquisition of a right.
Many other examples could be given, including the leading case of Wrotham Park Estate Co Limited v Parkside Homes Limited [1974] 1 WLR 798, where damages were awarded on this basis in respect of an unlawful act which had been committed and it was too late to restrain it by injunction.
It was a case where land had been developed in breach of a restrictive covenant and where the existence of the new houses did not diminish the value of the benefited land by one farthing, which is perhaps not very different from the iota referred to by both the judge and Aikens LJ.
Other well known examples are Experience Hendrix LLC v PPX Enterprises Inc [2003] 1 All ER (Com) 830, WWF World Wide Fund for Nature v World Wrestling Federation Entertainment Inc [2008] 1 WLR 445 and Lunn Poly Limited v Liverpool and Lancashire Properties Limited [2006] 2 EGLR 29.
Finally, the most recent case in this area is the decision of the Privy Council in Pell Frischmann Engineering Limited v Bow Valley Iran Limited [2009] UKPC 45, [2010] BLR 73, where Lord Walker, giving the judgment of the Board, reviewed the principles in detail at paras 46 to 54.
At para 48 he set out five general principles established by the authorities.
They included the following (omitting the case references): 1. Damages (often termed user damage) are readily awarded at common law for the invasion of rights to tangible moveable or immoveable property (by detinue, conversion or trespass). 2. 3.
Damages under Lord Cairns's Act are intended to provide compensation for the court's decision not to grant equitable relief in the form of an order for specific performance or an injunction in cases where the court has jurisdiction to entertain an application for such relief.
Most of the recent cases are concerned with the invasion of property rights such as excessive user of a right of way.
The breach of a restrictive covenant is also generally regarded as the invasion of a property right since a restrictive covenant is akin to a negative easement. the decision of the House of Lords in Blake decisively covers what their Lordships have referred to as a non proprietary breach of contract. 4.
Damages under this head (termed negotiating damages by Neuberger LJ in Lunn Poly at para 22) represent such a sum of money as might reasonably have been demanded by [the claimant] from [the defendant] as a quid pro quo for [permitting the continuation of the breach of covenant or other invasion of right] (Lunn Poly at para 25). 5.
Although damages under Lord Cairns's Act are awarded in lieu of an injunction it is not necessary that an injunction should actually have been claimed in the proceedings, or that there should have been any prospect, on the facts, of it being granted:
Lord Walker added at para 49: 49.
Several of the recent cases have explored the nature of the hypothetical negotiation called for in the assessment of Wrotham Park damages.
It is a negotiation between a willing buyer (the contract breaker) and a willing seller (the party claiming damages) in which the subject matter of the negotiation is the release of the relevant contractual obligation.
Both parties are to be assumed to act reasonably.
The fact that one or both parties would in practice have refused to make a deal is therefore to be ignored:
I recognise that it is common ground that the measure of damages in this case must have regard to the statutory context and thus to the 1934 and 1966 Acts in particular.
However, subject to that, the correct measure of damages for the trespass on the facts here would be to award the appellant user or wayleave damages and to assess them by reference to a hypothetical negotiation of the kind referred to by Lord Walker in para 49 of the judgment of the Board in Pell Frischmann.
The question would be what would be a fair and reasonable figure for Star to agree to pay and for the appellant to agree to receive for the use of the part of the appellants land which was in fact used by Star as described above.
That figure would reflect the key value of the wayleave.
It is inconceivable that it would be only the 1,000 awarded on the facts here by the Court of Appeal.
Since both the reservoir which forms the Oil Field and the Oxted Estate have been there for very many years and long before the enactment of any of the statutes relevant in this appeal, it follows that, if Star or their predecessors in title had committed the trespass that was in fact committed in order to remove oil from the Oil Field before, say, 1934, the correct measure of damages would have been user or wayleave damages calculated as stated above.
I turn to the statutory framework.
The statutory framework
The property in petroleum existing in its natural condition in strata in Great Britain was originally vested in the owner of the land above it: see eg the decision of the Court of Appeal in Singapore in NV De Bataafsche Petroleum Maatschappij v The War Damage Commission, (1956) 23 ILR 810.
However, by section 1(1) of the 1934 Act the property in such petroleum was vested in the Crown, which was given the exclusive right of searching and boring for and getting such petroleum.
By section 2(1) the Board of Trade (later the Secretary of State for Energy) was given the power, on behalf of the Crown, to grant licences to search and bore for and get petroleum.
By section 2(2) any such licence was to be granted for such consideration (whether by way of royalty or otherwise) as the Board of Trade with the consent of the Treasury may determine, and upon such other terms and conditions as the Board of Trade think fit.
Section 3(1) provided that Part 1 of the Mines (Working Facilities and Support) Act 1923 (the 1923 Act) should apply for the purposes of enabling a person holding such a licence to acquire such ancillary rights as might be required for the exercise of the rights granted by the licence.
Those rights were stated to include a right to enter upon land and to sink bore holes therein for the purpose of searching for and getting petroleum and a right to use and occupy land for the erection of such buildings, the laying and maintenance of such pipes as may be required for the purpose of searching and boring for and getting, carrying away, storing, treating and converting petroleum.
Section 3(2)(b) of the 1934 Act provided that, in determining the amount of compensation to be paid in respect of the grant of any right, which included any ancillary right, an additional allowance of not less than ten per cent was to be made on account of the acquisition of the right being compulsory.
Section 10(3) provided: Nothing in this Act shall be construed as conferring, or as enabling the Board of Trade to confer, on any person, whether acting on behalf of His Majesty or not, any right which he does not enjoy apart from this Act to enter on or interfere with land.
Part 1 of the 1923 Act, which contained provisions for ancillary rights in section 3 and for compensation in section 9, was repealed and consolidated by the Mines (Working Facilities and Support) Act 1966 (the 1966 Act), which provided that the reference to Part 1 of the 1923 Act in section 3 of the 1934 Act was now a reference to the 1966 Act.
Section 1 of the 1966 Act empowered the court to confer any rights described in a Table, which included in paragraph 5 ancillary rights, which were defined in section 2 and included by section 2(1)(b) a right of airway, shaft way or surface or underground wayleave or other right for the purpose of access to or conveyance of minerals or the ventilation or drainage of the mines.
It is clear from these provisions that a grant of a petroleum licence under the 1934 Act did not itself entitle its licensee to enter land belonging to another party and that the Act did not empower the Secretary of State to grant a licence to enter such land.
If the licensee wished to drill a deviated well beneath another persons land, he needed to negotiate or apply under the 1966 Act for an ancillary right, here an underground wayleave.
This is important because it shows that Parliament was drawing a distinction between the oil on the one hand and the access to the oil on the other.
It provided for the licensee to pay a royalty to the Crown for the oil but provided a different scheme in relation to access to the oil.
That scheme involved the obtaining of ancillary rights.
Section 4 of the 1966 Act provided for applications for ancillary licences to be made to the Minister, who is now the Secretary of State for Energy, and for him to refer the matter to the court.
Section 5(1) of the 1966 Act provides that, where the matter is referred to the court, the court may grant an ancillary licence.
Section 5 (2) provides: (2) Where a right is granted, such compensation or consideration as in default of agreement may be determined by the court shall be paid or given by the applicant in respect of the acquisition of the right to such persons as the court may determine to be entitled thereto.
Section 8 provides, so far as relevant: 8 Compensation (1) Where a right is granted under section 1 of this Act, the court may determine the amount and nature of compensation or consideration to be paid or given and the persons to whom it is to be paid or given, either at the time when it determines whether the right should be granted or the restrictions imposed or at any subsequent time. (2) The compensation or consideration in respect of any right, , shall be assessed by the court on the basis of what would be fair and reasonable between a willing grantor and a willing grantee, having regard to the conditions subject to which the right is or is to be granted.
Section 8 thus replaced section 9 of the 1923 Act, which was in similar terms. VIII.
The correct approach to section 8(2)
It is, to my mind, striking that the negotiation contemplated by section 8(2) is, at any rate on the face of it, essentially the same as is deployed by the common law in assessing wayleave damages.
Its purpose is, again on the face of it, the same, namely to ascertain what would be a fair and reasonable figure for Star to agree to pay and for the appellant to agree to receive for the use of the part of the appellants land which was in fact used by Star as described above.
There is nothing in the language of the subsection about the value of the land used or taken and there is no suggestion that the purpose for which the right is to be acquired is to be ignored during the postulated negotiation.
Nor is there any reference in section 8(2) or elsewhere in the 1934 or 1966 Acts to the basis upon which compensation is to be assessed, as for example in section 63 of the Land Clauses Consolidation Act 1845 (the 1845 Act), section 2 of the Acquisition of Land (Assessment of Compensation) Act 1919 (the 1919 Act) or section 5 of the Land Compensation Act 1961 (the 1961 Act).
See also the Pipe lines Act 1962, the Gas Act 1986, the Channel Tunnel Act 1987, the Electricity Act 1989 and the Water Resources Act 1991.
In particular section 2 of the 1919 Act provided detailed rules for the assessment of compensation in respect of land acquired compulsorily.
It is to my mind striking that those rules were not incorporated into the 1923 Act.
Moreover, section 5 of the 1961 Act in turn set out detailed rules for the assessment of compensation, which again were not incorporated into the 1966 Act.
There are many different types of compulsory acquisition legislation.
The 1934 and 1966 Acts are one example and the 1919 and 1961 Acts are another.
I can see no principled basis for applying the provisions of the latter Acts to the assessment of compensation under the former.
If Parliament had intended those provisions to apply it would have so provided in 1923 and 1966.
In this regard I agree with the reasoning of Judge Hague QC in Mercury Communications Ltd v London & India Dock Investments Ltd [1994] 1 EGLR 229.
If section 8(2) of the 1966 Act is given its ordinary and natural meaning, it postulates a negotiation in which it is assumed that both parties are willing to reach agreement and that they both act reasonably.
In such a negotiation, the seller will naturally stress the value of the right being sold (here the wayleave) to the purchaser.
On the facts of this case, that value is the key to unlocking the oil in the reservoir because it was necessary to dig diagonal tunnels in order to maximise the oil recovered from the reservoir.
On this approach, the figure agreed at the postulated negotiation would be the same as it would be at common law.
Moreover, it would, as I see it, be the same whether it is treated or described as compensation or consideration.
That is because what is being negotiated is a fair price for the wayleave.
In the absence of authority to the contrary, I would approach the matter in that way.
In the particular context of the 1934 and 1966 Acts, I see no reason not to do so.
The position can be tested by a comparison between the position immediately before and after the 1934 Act came into force.
Before the Act, assuming that the parties were aware of the reservoir of petroleum and its potential, and the owner of the reservoir and its oil wanted to exploit it, he would need to obtain a wayleave through the Oxted Estate.
If he acted lawfully, he would have to seek a wayleave from the owner and would (it is assumed) pay a fair price.
If he acted unlawfully and committed trespass, the measure of damages at common law would be the notional price of the wayleave, which is to be a fair and reasonable price arrived at after a postulated negotiation between a willing seller and a willing buyer.
The strength of the sellers position (and the price or damages arrived at) would depend upon the existence and physical position of the oil on the one hand and the existence and position of the land through which it was necessary to obtain a wayleave in order to be able to exploit it on the other.
Why, so far as the wayleave is concerned, should the position be any different after the 1934 Act? The effect of the Act is to transfer the oil to the Crown without compensation.
That was no doubt a political decision.
After the Act the Crown is in the same position as the owner of the reservoir was in before the Act.
It now has the right to exploit the oil, either itself or by granting a licence.
In order to exploit the oil to its full extent, it (or its licensee) needs to obtain a wayleave.
It is entitled to do so but only if it pays compensation under section 8(2).
That compensation is to be assessed by postulating a negotiation as described above.
As I see it, the seller of the wayleave is in the same position before and after the Act.
The reason it is in that position is not because of the Act, and certainly not solely because of the Act, but because of the physical position of the sellers land in relation to the reservoir.
In these circumstances, absent authority to the contrary, I would hold that the measure of compensation under the Act is the same as at common law.
It is true that section 3(2)(b) provides for an additional allowance of ten per cent but that is expressed to be because the acquisition of the right was compulsory.
It was at one time common for such a provision to be included in statutory provisions which provided for compensation for compulsory purchase.
By section 2(1) of the 1919 Act, the ten percent allowance was abolished in respect of cases to which the 1919 Act applied.
That very fact, coupled with the enactment of section 3(2)(b) of the 1934 Act, demonstrates clearly that the 1919 regime does not apply to the new provisions of the 1934 Act.
It appears that Parliament took the view that in this different regime an additional payment should be made over and above the amount arrived at in the postulated negotiation, which of course assumes that there is a willing seller and a willing buyer and thus that the seller (or more accurately the grantor) cannot refuse to sell.
This factor tells us nothing about what would be a fair and reasonable figure to arrive at as a result of the negotiation.
It is said that the approach I have described is the wrong approach to the construction of the subsection because of the Pointe Gourde principle to which I now turn.
The Pointe Gourde principle
This principle, which is also known as the no scheme rule, takes its name from the decision of the Privy Council in Pointe Gourde Quarrying and Transport Co Ltd v Sub Intendent of Crown Lands [1947] AC 565.
The principle has been considered in some detail in two comparatively recent cases in the House of Lords.
They are Waters v Welsh Development Agency [2004] UKHL 19, [2004] 1 WLR 1304, and Transport for London v Spirerose Ltd [2009] UKHL 44, [2009] 1 WLR 1797 (TFL).
In both Waters and TFL the compensation fell to be calculated in accordance with the 1961 Act.
Lord Brown summarised the principle thus in one sentence in Waters at para 125: Pointe Gourde has long been regarded as authority for the principle that compensation for compulsory purchase cannot include any increase in value which is entirely due to the scheme underlying the acquisition There are two questions which arise under this head.
The first is whether this principle applies to compensation assessed under section 8(2) of the 1966 Act.
The second is, if so, whether there has been an increase in the value of the wayleave entirely or solely due to the scheme.
There has been some discussion in the cases as to the juridical basis of the principle.
However, it is in my opinion now clear that it is a principle of statutory construction.
This is clear from paras 127 and 128 of the speech of Lord Collins in TFL with which the other members of the appellate committee agreed.
He put it thus: 127.
What is the juridical basis of the Pointe Gourde principle? Lord Nicholls said in Waters para 42 that the principle is no more than the name given to one aspect of the long established value to the owner principle. 128.
In my opinion it is a principle of statutory interpretation, mainly designed and used to explain and amplify the expression value.
It is in this sense that it has sometimes been referred to as a common law principle: see e.g. Fletcher Estates (Harlescott) Ltd v Secretary of State for the Environment [2000] 2 AC 307, 315, per Lord Hope of Craighead; Waters para 142, per Lord Brown of Eaton under Heywood.
In Rugby Joint Water Board v Shaw Fox [1973] AC 202, 213 215 Lord Pearson reviewed the authorities and concluded, at p 214, that although the Pointe Gourde principle had been described as a common law principle", it could not be such a principle because compulsory acquisition and compensation for it are entirely creations of statute.
He went on, at pp 214 215: The Pointe Gourde principle in my opinion involves an interpretation of the word value in those statutory provisions which require the compensation for compulsory acquisition to include the value of the lands taken.
I am satisfied that this the right approach and that there is nothing in Lord Nicholls speech in Waters which is inconsistent with this view.
It is clear from those conclusions that the question is whether the Pointe Gourde principle applies to compensation under section 8(2) of the 1966 Act as a matter of construction of that sub section.
In Waters Lord Nicholls gave the leading speech in which he analysed in some detail the approach to compensation under the various different statutes referred to above, although he did not analyse the position under the 1934 or 1966 Acts.
All the statutes he analysed either expressly referred to value or contained a compensation code.
Thus from para 15 he discussed the meaning of value in section 63 of the 1845 Act.
He recognised at para 17 that land may have a special value and gave an example based on Inland Revenue Commissioners v Clay [1914] 3 KB 466: Thus a house, worth 750 as a house but 1,000 as an annex to an adjoining nursing home, has a market value of 1,000.
Lord Nicholls then said this at para 18: 18.
In principle, subject to one qualification, this approach is equally applicable when assessing value for the purposes of compensation.
It is this qualification which has given rise to difficulty.
The qualification is that enhancement in the value of the land attributable solely to the particular purpose for which it is being compulsorily acquired, and an acquiring authority's pressing need of the land for that purpose, are to be disregarded.
If statute authorises an authority to acquire some ancient graveyards in the City of London and use the land for new buildings and a new street from Blackfriars to the Mansion House, the increased value the land will have when applied to these more profitable secular purposes should be left out of account.
This is implicit in the yardstick of 'value' in the Lands Clauses Consolidation Act 1845.
When granting a power to acquire land compulsorily for a particular purpose Parliament cannot have intended thereby to increase the value of the subject land.
Parliament cannot have intended that the acquiring authority should pay as compensation a larger amount than the owner could reasonably have obtained for his land in the absence of the power.
For the same reason there should also be disregarded the 'special want' of an acquiring authority for a particular site which arises from the authority having been authorised to acquire it.
Lord Nicholls added at para 19 that it was in this context that the cases distinguish between value to the owner and value to the purchaser, which he further described at para 21: Drawing a distinction between value to the owner and value to the purchaser makes it necessary to distinguish the one from the other.
It is necessary to separate from the market value of land any enhancement in value attributable solely to the presence of the acquiring authority in the market as a purchaser of the land in exercise of its statutory powers.
It is important to recognise that, for this purpose, it is not the existence of a power of compulsory acquisition which increases the value of land.
What is relevant, because this may affect the value of the land, is the use the acquiring authority proposes to make of the land it is acquiring.
Accordingly, in identifying any enhanced value which must be disregarded it is always necessary to look beyond the mere existence of the power of compulsory purchase.
It is necessary to identify the use proposed to be made of the land under the scheme for which the land is being taken.
Hence the introduction of the concept of the 'scheme' or equivalent expressions such as project or undertaking.
Lord Nicholls then considered the 1919 Act, The Indian Case, namely Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer, Vizagapatam [1939] AC 302, the Pointe Gourde principle and the 1961 Act.
In the context of the Pointe Gourde principle he said it was one aspect of the value to the owner principle.
In TFL Lord Collins summarised the position thus in part of a section of his speech entitled Principles of valuation: 88.
It is well settled that compensation for the compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition": Pointe Gourde [1947] AC 565, 572, per Lord MacDermott. 89.
Some elementary principles of the law of compensation for compulsory acquisition provide a starting point.
First, the underlying principle is that fair compensation should be given to the owner claimant whose land has been compulsorily taken.
The aim of compensation is to provide a fair financial equivalent for the land taken.
The owner is entitled to be compensated fairly and fully for his loss, but the owner is not entitled to receive more than fair compensation: Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111, 125; Waters para 4. 90.
Second, the basis of compensation is the value to the owner, and not its value to the public authority.
In the first edition of Cripps (later Lord Parmoor), Principles of the Law of Compensation (1881) it was said, at p 144: The basis on which all compensation for lands required or taken should be assessed, is their value to the owner, and not their value when taken to the promoters.
The question is not, what the persons who take the land will gain by taking it; but what the person from whom it is taken will lose, by having it taken from him. 91.
The classic example mentioned by Cripps is Stebbing v Metropolitan Board of Works (1870) LR 6 QB 37, 42 where Cockburn CJ said that it was intended that the landowner should be compensated to the extent of his loss and his loss shall be tested by what was the value of the thing to him, not by what will be its value to the persons acquiring it. 92.
Third, and directly in point on this appeal, one plainly relevant element in the value to the owner is the prospect of exploiting the property.
I have already mentioned R v Brown [(1867)] LR 2 QB 630, in which Cockburn CJ, at p 631, said that the jury assessing compensation under the 1845 Act had to consider the real value of the land, and may take into account not only the present purpose to which the land is applied, but also any other more beneficial purpose to which in the course of events at no remote period it may be applied, just as an owner might do if he were bargaining with a purchaser in the market.
In cases where those principles apply, the critical question is what was the value to the owner, which is arrived at by excluding the value to the acquirer.
This is not, however, to say that the value to the owner may not have regard to the use which will be made of the land.
In a case like this, where the value of the land is that it has a ransom or key value because it is needed by the buyer to exploit his land, as I see it, the value to the owner is (or includes) the ransom or key value.
Both this principle and its relation to the Pointe Gourde principle can be seen from paras 64 and 65 of Lord Nicholls speech in Waters.
Lord Nicholls said at paras 64 and 65: 64.
One last point should be noted before returning to the present case.
This concerns so called 'ransom' value or, less pejoratively, 'key' value.
I have already mentioned that under the 'value to the owner' principle or the Pointe Gourde principle, whichever nomenclature is preferred, the pressing need of an acquiring authority for the subject land as part of a scheme should be disregarded when assessing its value for compensation purposes.
The value of the land is not the price a 'driven' buyer would be prepared to pay.
But a strip of land may have special value if it is the key to the development of other land.
In that event this feature of the land represents part of its value as much for purposes of compensation as on an actual sale in the open market. 65.
The intersection of these two principles was identified neatly by Mann LJ in Batchelor v Kent County Council (1989) 59 P & CR 357, 361: If a premium value is "entirely due to the scheme underlying the acquisition" then it must be disregarded.
If it was pre existent to the [scheme] it must in my judgment be regarded.
To ignore the pre existent value would be to expropriate it without compensation and would be to contravene the fundamental principle of equivalence. '
The part of para 64 which I have italicised shows that the key value is part of the value to the owner.
This view was also expressed by Lord Brown in Waters at para 140, where he said this: 140.
True it is that in the Indian case [1939] AC 302, 312, Lord Romer said: The disinclination of the vendor to part with his land and the urgent necessity of the purchaser to buy must alike be disregarded.
Neither must be considered as acting under compulsion.
It by no means follows, however, that the open market value to the seller will exclude whatever key value the land may have.
On the contrary, any such value properly falls to be taken into account, as it was in Stokes v Cambridge Corpn (1961) 13 P&CR 77, Land is not to be valued merely by reference to the use to which it is being put at the valuation date but by reference to any unusual features or potentialities it may have: see the Indian Case per Lord Romer, giving the judgment of the Privy Council at page 312 313.
Thus value to owner includes or potentially includes key value but is to be disregarded in the circumstances identified if, as Mann LJ put it in Batchelor, at p 361, the premium or key value is entirely due to the scheme underlying the acquisition.
As I see it that approach encapsulates the Pointe Gourde principle and is a gloss on or modification (or perhaps explanation) of the value to owner principle.
On the other hand, if on the facts of the particular case, the premium value or key value was pre existent to the scheme it is taken into account and not disregarded.
The question is whether these principles apply to compensation under section 8(2) of the 1966 Act.
It is difficult to see how they do as a matter of construction of the Act.
I have already expressed the view that the codes in the 1919 and 1961 Acts do not form part of the approach identified in section 8(2) of the 1966 Act and thus in the 1934 Act.
There is moreover no reference to value in that subsection.
In these circumstances, although it is a compensation provision, as Lord Pearson put it in the passage approved by Lord Collins in para 128 of his speech in TFL quoted above (and thus by the House), the Pointe Gourde principle involves an interpretation of the word value.
Since the word value does not appear in section 8(2), it is difficult to see why it should be construed as if it did.
For these reasons I would hold that the subsection should be construed by the application of the language used in it as explained above without reference either to the codes or to the Pointe Gourde principle.
In this regard I prefer the reasoning of Judge Hague in Mercury Communications to that of Peter Gibson J in BP v Ryder [1987] 2 EGLR 233.
I should, however, say a word about the Hansard materials relied upon by the respondents.
I agree with Lord Hope for the reasons he gives in para 43 that there is no legitimate basis for using Hansard as an aid to construction of the simple terms of the 1923, the 1934 or the 1966 Acts.
Like section 9 of the 1923 Act, section 8(2) of the 1966 Act is in simple terms.
It can readily be applied to the facts of this case.
It is true that there is no reference to key value in the Hansard materials; nor is there any reference to the Pointe Gourde principle.
There is accordingly no reference to the distinction drawn in Batchelor; so that no assistance can be obtained from Hansard as to the principles the court must apply to the postulated negotiation other than those stated in the sub section.
It appears to me that no consideration was given at all to the problems that have arisen in this connection and that the correct approach is for the court to construe the statute in accordance with its language and having regard to its statutory purpose.
This can readily be done without the assistance of Hansard.
I recognise that others do not take the same view of the subsection.
I therefore turn to the question what, on the assumption that the Pointe Gourde principle applies to the assessment of compensation under section 8(2), is the correct approach to the key value.
Again, in a case of this kind the starting value is the key value, which must only be disregarded if it represents an increase in value which is entirely due to the scheme underlying the acquisition.
I take this to refer to the acquisition of the wayleave.
The contrast is that identified by Mann LJ in Batchelor as approved by Lord Nicholls in para 65 of Waters.
The question is whether the key value was entirely due to the scheme underlying the acquisition or whether it was pre existent to the scheme.
Another way of putting what seems to me to be essentially the same question is to ask, as Lord Nicholls does in para 18 of Waters, whether Parliament increased the key value of the land when it enacted the 1934 Act.
It is important to note that this approach does not disregard the key or ransom value but encapsulates it.
It is expressly accepted as relevant by Lord Nicholls in para 64 of Waters set out above.
In this connection I should mention two cases which are referred to by Lord Collins at para 105 but which were not I think relied upon in argument.
They are Edwards v Minister of Transport [1964] 2 QB 134, per Harman LJ at page 156, and Logan v Scottish Water [2005] CSIH 73, 2006 SC 178, which applied his analysis.
Harman LJ there said that the possibility of assessing damages by reference to a ransom value did not really arise because such a value would only be relevant if the postulated seller had a right of veto, which he does not because the rights are being compulsorily purchased.
In my opinion that approach cannot be correct in the light of Waters, at any rate under section 8(2).
The figure to be arrived at as a result of the postulated negotiation in a case of this kind is the key or ransom value of the wayleave, that is a fair and reasonable price for the access to the oil reservoir, but on the assumption of a willing seller or grantor and a willing buyer or grantee.
Thus the value reflects the importance of the particular access to the particular oil.
I note in passing that, in these circumstances, it seems to me that the ten per cent uplift is also understandable as reflecting the fact that the seller was compelled to sell.
The critical question is thus that stated above, namely whether the key value was entirely due to the scheme underlying the acquisition or whether it was pre existent to the scheme.
In my opinion the key value was not created or enhanced by the scheme or the 1934 Act because the Oxted Estate already had a key value in the market.
As I see it, this is a case like Chapman, Lowry & Puttick Limited v Chichester District Council (1984) 47 P&CR 674, where the acquiring authority owned a plot of housing land to the rear of a small quantity of waste land which was necessary to gain access to the housing land.
The question was whether the purpose for which the land was required was to be taken into account.
It was held that it was.
The Tribunal (VG Wellings QC) said at page 680: It appears to me that the reference land is the key which unlocks the development value of the rear land in whosoevers hands the rear land happens to be.
By reason of that fact the reference land has acquired naturally a value in excess of its existing use value.
The matter can be tested by analogy with the Pointe Gourde principle as was done by the Court of Appeal in Lambe v Secretary of State for War [[1955] 2 QB 612].
It is not the scheme underlying the acquisition which gives value to the reference land in excess of its existing use value; it is its geographical position, coupled with the fact that there is no other suitable access for residential development on the rear land.
I would accept the appellants submission that that is essentially the position on the facts here.
This a case which is on the side of the line identified by Mann LJ in Batchelor in which the land had a key value which was pre existent to the Act and the scheme.
That key value depended upon the juxtaposition of two physical features of the land, namely the existence of the reservoir of oil and the existence of the land which was part of the Oxted Estate and which was above the apex of the oil deposit and, given the absence of any other suitable or optimal access to that apex, would be needed by anyone who exploited the oil in the reservoir in order to maximise the recovery of the oil.
Moreover it had and has this key value even if, as is likely, there is only one owner or licensee who wishes to exploit the oil.
In these circumstances, the key value cannot in my opinion fairly be described as solely or entirely due to the scheme because it pre existed it.
Whenever the owner of the oil chose to exploit it fully he would need a wayleave over the Oxted Estate.
That is so, whether the owner was a private landowner before the oil was nationalised or was the Crown after the 1934 Act and, in that case, whether the Crown exploited the oil itself or granted a petroleum licence to another to do so.
In short, the key value was not created by the 1934 Act or the grant of the petroleum licence to Star.
It was pre existing key value.
For my part, save perhaps for BP v Ryder, I would not accept the submission that, if that is the case here, it must follow that any of the decided cases was wrongly decided.
There was no equivalent of the existing reservoir in Waters or TFL.
In these circumstances, assuming (contrary to my view) that the no scheme rule derived from Pointe Gourde applies to the assessment of compensation under section 8(2) of the 1966 Act and thus to the 1934 Act, I do not accept that this approach would emasculate the no scheme rule to the point of extinction.
Whether the relevant value falls to be disregarded depends upon which side of the line drawn by Mann J in Batchelor and approved in Waters the facts of a particular case falls.
If this case does not fall on what may be called the appellants side of the line, it is difficult to see what case would.
For these reasons I have reached a different conclusion from the Court of Appeal on this part of the case.
Since writing the above paragraphs I have seen Lord Browns response at paras 89 to 91.
I remain unpersuaded.
The key value attaches to the access land and not to the oil.
Both before and after the 1934 Act it was or would have been necessary for the person seeking to exploit the oil to obtain access through the Oxted Estate by acquiring ancillary rights.
It would thus have been necessary for that person to obtain such rights, whether as owner of the oil or licensee from the Crown.
In both cases he would have needed a wayleave and in both cases he would have had to pay a price that reflected the key value of the access land (not the oil).
In these circumstances I remain of the view that the key value was not solely attributable to the scheme.
It was at least in part attributable to the physical juxtaposition of the access land and the reservoir.
The Pipe lines Act 1962
The respondents rely in the alternative on the Pipe lines Act 1962 (the 1962 Act).
They say that it is part of the background of statutory legislation against which the hypothetical negotiation would have taken place and that they could have obtained a right to drill or maintain oil wells and pipelines through the appellants land under sections 11 and 12 of the 1962 Act, which provided for compensation under the 1961 Act.
The appellants response is two fold.
The first is that, since neither the respondents nor their experts or lawyers thought of this point when they were considering the matter in detail before the judge or when they prepared the grounds of appeal to the Court of Appeal upon which permission to appeal was granted, it is hardly likely to have played any part in hypothetical negotiations in the 1980s.
It was certainly never suggested in evidence that it would have done, although that is hardly surprising since nobody thought of the point until it appeared in the respondents revised skeleton argument in the Court of Appeal.
I would be reluctant to rest a decision on this analysis.
The appellants second response is that the 1962 Act does not apply.
Section 65 provides, so far as relevant: (1) In this Act pipe line (except where the context otherwise requires) means a pipe for the conveyance of any thing other than air, water, water vapour or steam It is submitted that the pipes in this case were not for the conveyance of substances and that this can be seen from section 57 of the 1962 Act, which amended section 3(2)(b) of the 1923 Act.
In its unamended form section 3(2)(b) provided that ancillary rights included (b) [a] right of underground wayleave, or other right for the purpose of access to or conveyance of minerals or the ventilation or drainage of the mines; Section 57 of the 1962 Act amended section 3(2)(b) of the 1923 Act by excluding from it rights for the conveyance of minerals by means of a pipe, thus (as Mr Gaunt puts it) leaving all other ancillary rights, including the right to bore wells, to be covered by the 1923 Act.
Section 57 was repealed in 1966 when the amendment to the 1923 Act was reflected in the definition of ancillary rights in section 2(1)(b) of the 1966 as quoted above.
He submits that, in these circumstances, the correct conclusion is that the 1962 Act was not intended to apply to pipes constituting the oil well itself.
That seems to me to be correct.
A third point has occurred to me under this head.
Where it applies, the effect of the 1962 Act is to apply the compensation scheme under the 1961 Act; so that, if it applies here, those principles, including the Pointe Gourde principles would apply.
It seems to me to follow that compensation would be payable for the reasons given in section IX above, namely that the key value was not solely or entirely due to the scheme.
The Human Rights Act
The appellant sought permission to rely upon the Human Rights Act 1998 on the basis that compensation of so little as was awarded by the Court of Appeal would infringe its rights under Article 1 of Protocol 1 of the European Convention on Human Rights.
However, since, if the conclusions I have already expressed were correct, the appellant would be no better off in terms of damages than he would be under section 8(2), there is no need for me to express a view under this head.
Measure of damages
This topic would of course only arise if I were right so far.
Since the majority of the court take a different view on that question, the measure of damages is not relevant.
It seems to me that, if it were relevant, the correct approach would be to assess a fair and reasonable amount to reflect the key value of the wayleave, in the words of section 8(2), as between a willing grantor and a willing grantee, and to add ten per cent in accordance with the statute.
However, as I see it, that key value would not reflect the value of the access to all the oil in the reservoir.
Its particular value was to provide access to the apex (or attic) oil.
I am not, at least at present, persuaded that that was the basis upon which the figure was arrived at by the judge.
In these circumstances, if this were a live issue, I would remit it to the High Court for determination.
CONCLUSION
For the reasons I have given I would allow the appeal and would remit the issue of damages to the High Court.
| UK-Abs | The appellant, Bocardo, is the freehold owner of the Oxsted Estate, Surrey.
The apex of an oil field (the Palmers Wood oil field) lies at a depth of some 2,800 ft below ground within the Oxsted Estate.
Pursuant to section 2 of the Petroleum (Production) Act 1934 Star held a licence issued by the Secretary of State for Energy on behalf of the Crown giving them the exclusive right to search and bore for and get the petroleum lying underground (the property in which section 1 of the 1934 Act had vested in the Crown) in a part of Surrey including the Palmers Wood oil field.
To win the petroleum, Star needed to drill and install three wells.
These three wells were drilled diagonally from a site outside Bocardos Oxsted Estate.
They each entered the estate at various depths below ground level (between about 800 ft and 1,300 ft), ran through the estate for between about 250 m and 700 m and then exited the estate at a depth below ground level that was even greater than the depth at which they entered the estate.
Their drilling and installation occasioned no harm whatsoever to the estate.
There was no interference with Bocardos use or enjoyment of its land.
The Mines (Working Facilities and Support) Act 1966 applied to enable Star to acquire such ancillary rights as they required in order to win the petroleum.
Stars predecessors did not seek to negotiate any contractual licence or way leave from Bocardo to drill and install the wells.
Nor did they apply for any statutory right to do this under the 1966 Act or the Pipelines Act 1962.
Star in turn did not seek to do this when they acquired the licence from their predecessors.
So far as material, section 8(2) of the 1966 Act provides that [t]he compensation or consideration in respect of any right. shall be assessed. on the basis of what would be fair and reasonable between a willing grantor and a willing grantee.
And section 3(2)(b) of the 1934 Act gave the grantor a minimum uplift in compensation of 10% on account of the acquisition of the right being compulsory.
The issues that this case raises fall into two parts: The trespass issue: was the drilling of the wells under Bocardos land an actionable trespass? The High Court held that it was and its decision was affirmed by the Court of Appeal.
The damages issue: if there was an actionable trespass, what is the correct measure of damages? The measure that was adopted by the High Court was rejected by the Court of Appeal, which made a very substantial reduction in the award of damages.
Bocardo appealed to the Supreme Court on the damages issue, and the respondents cross appealed on the trespass issue.
The Supreme Court unanimously dismisses the respondents cross appeal on the trespass issue, with Lord Hope giving the judgment of the Court on this issue.
By a majority (Lord Walker, Lord Brown and Lord Collins), the Supreme Court dismisses Bocardos appeal on the damages issue, with Lord Brown giving the judgment of the majority on this issue.
The trespass issue The question whether the drilling of the wells under Bocardos land, and the continued presence of the well casing and tubing within them, was an actionable trespass raises the following issues: (1) Whether Bocardos title to the land extends down to the strata below the surface through which the three wells and their casing and tubing pass. (2) Whether possession or a right to possession is a pre condition for bringing a claim for trespass and, if so, whether Bocardo has or is entitled to possession of the subsurface strata through which these facilities pass. (3) Whether the respondents have a right under the 1934 Act to drill and use the three wells and their casing and tubing to extract petroleum from beneath Bocardos land which gives them a defence to a claim in trespass.
As to (1), the Court holds that the owner of the surface is the owner of the strata beneath it, including the minerals that are to be found there, unless there has been an alienation of them by conveyance, at common law or by statute, to someone else.
There must obviously be some stopping point, as one reaches the point at which physical features such as pressure and temperature render the concept of the strata belonging to anybody so absurd as to be not worth arguing about.
But the wells that are at issue in this case are far from being so deep as to reach the point of absurdity.
Indeed the fact that the strata can be worked upon at those depths points to the opposite conclusion [para 27].
As to (2), as the paper title carries with it title to the strata below the surface, Bocardo must be deemed to be in possession of the subsurface strata too.
There is no one else who is claiming to be in possession of those strata through Bocardo as the paper owner [para 31].
As to (3), the right to search and bore for and get the petroleum was obtained by the respondents under licence from the Crown.
There is no common law defence against a claim of trespass in relation to a landowner who was not a party to that arrangement [para 32].
The relevant statutory provisions (and the context in which they were enacted) also do not give the respondents a defence to Bocardos trespass claim [paras 33 35].
The damages issue The answer to the damages issue depends upon the answers to two fundamental questions: (1) Do the principles ordinarily governing the approach to valuation in the field of compulsory land purchase apply equally to the construction of the application of section 8(2) of the 1966 Act with regard to the compulsory acquisition of ancillary rights over (or, as here, under) land? (2) Even assuming that compulsory purchase principles apply to the assessment of compensation under section 8(2), can Bocardo nevertheless assert and benefit from the key value of the ancillary right which Star needed to acquire here?
As to the first question, that the present context is one of compulsory acquisition of rights over land seems to Lord Brown indisputable.
Lord Brown notes that this could not be more clearly demonstrated than by the express requirement under section 3(2)(b) of the 1934 Act for a 10% or greater uplift in compensation on account of the acquisition of the right being compulsory [para 71].
If the Court is to construe section 8(2) consistently with other legislative provisions governing compulsory acquisition, it falls to be approached on the basis that what is fair and reasonable depends not on what the grantee is gaining but rather on what the grantor is losing [para 74].
As to the second question, Lord Brown referred to the decision of the House of Lords in Waters v Welsh Development Agency [2004] 1 WLR 1304, in which it was reaffirmed that if any premium value of a strip of land was due to the very scheme of which the acquisition forms an integral part, that value fell to be disregarded (the no scheme rule).
However, it was also recognised in Waters that a strip of land may have special value if it is key to the development of other land.
In that event this feature of the land represents part of its value as much for purposes of compensation as on an actual sale in the open market [paras 80 81].
The scheme in the present case is the exploitation of the petroleum licence in the specified area.
There cannot be any doubt that, whatever particular value existed in the ancillary right here required to facilitate that exploitation (any premium or key or ransom value), it existed exclusively because of the scheme.
But for the scheme, there was no potential use of value whatever in the right being granted [para 82].
It is impossible to characterise the key value in the ancillary right being granted here as pre existent to the scheme [para 83].
It must be recognised that by the 1934 Act, Parliament in terms (a) vested the property in all petroleum in the Crown, (b) gave the Crown the exclusive right of searching and boring for and getting such petroleum (a right that could be licensed to others, as here to Star) and (c) enabled any licencee compulsorily to acquire any necessary ancillary right (as here to access the petroleum through Bocardos land).
The correct analysis is that by these provisions Parliament was at one and the same time extinguishing whatever pre existing key value Bocardos land might be thought to have had in the open market and creating a new world in which only the Crown and its licencees had any interest in accessing the oilfield and in which they had been empowered to do so compulsorily and on terms subject to the no scheme rule approach to compensation [para 90].
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Part III of the Matrimonial and Family Proceedings Act 1984 was enacted to give the English court the power to grant financial relief after a marriage had been dissolved (or annulled) in a foreign country.
This appeal raises for the first time at this appellate level the proper approach to the operation of Part III of the 1984 Act.
Mr and Mrs Agbaje (the husband and the wife) were married for 38 years prior to their divorce in 2005 on the husbands petition in Nigeria.
They were born in Nigeria, but both have British and Nigerian citizenship.
All five children of the family were born in England.
The wife has been living in England continuously since 1999, when the marriage broke down.
The assets are about 700,000, of which 530,000 represents two houses in London in the husbands name, and the balance represents properties in Nigeria.
The Nigerian court awarded the wife a life interest in a property in Lagos (which, as found by the Nigerian court, had a capital value of about 86,000) and a lump sum which was the equivalent of about 21,000.
Munby J acceded to an ex parte application by the wife for leave to make an application under Part III, and confirmed his decision on the husbands application to set it aside.
On the substantive hearing Coleridge J made an order which was intended to enable the wife to house and maintain herself in London by providing her with 65% of the proceeds of sale (expected to be about 275,000) of the house in which she has been living.
His order is the equivalent of a 39% award to the wife.
The Court of Appeal (Ward, Longmore and Jackson LJJ) allowed the husbands appeal, principally on the ground that the judge had given insufficient weight to the connections of the case with Nigeria: [2009] EWCA Civ 1, [2009] 3 WLR 835.
An Appeal Committee of the House of Lords granted leave to appeal from that decision.
Matrimonial and Family Proceedings Act 1984, Part III
The background to Part III of the 1984 Act
The background to Part III was concern at the hardship to wives and children caused by the effect of a combination of the liberality of the rules relating to recognition of foreign divorces and the restrictive approach of some foreign jurisdictions to financial provision.
The problem became apparent in a series of cases in the 1970s in which there had been a foreign divorce in proceedings (both judicial and extra judicial) instituted by the husband in which no financial provision had been made for the wife.
In those cases the divorce was entitled to recognition in England, e.g. because of a real and substantial connection with the foreign country (under the rule in Indyka v Indyka [1969] 1 AC 33) or because of the husbands citizenship of that country (Recognition of Divorces and Legal Separations Act 1971, now the Family Law Act 1986).
As a result the parties were regarded as no longer married, and the court was not able to make an order in her favour for financial relief: Turczak v Turczak [1970] P 198, in which it was held that, following a Polish divorce, there was no power to order maintenance under the Matrimonial Causes Act 1965 because the parties were no longer husband and wife; Torok v Torok [1973] 1 WLR 1066, in which Ormrod J drew attention to the fact that, if a divorce were obtained in Hungary on the basis of the husbands Hungarian nationality, it would have to be recognised, and the English court would have no jurisdiction under the Matrimonial Proceedings and Property Act 1970 to deal with the house in England where the wife and children were living, even though the Hungarian court was unlikely to award maintenance.
As a result of these cases there were calls for legislation to give the English court jurisdiction to grant ancillary relief after a foreign divorce: e.g. Karsten (1970) 33 MLR 205 and (1972) 35 MLR 299; Pearl [1974] CLJ 77.
In Quazi v Quazi [1980] AC 744, which was decided in 1979, the husband had pronounced a talaq in Pakistan.
The question was whether the English court had jurisdiction on the wifes petition to dissolve the marriage and make consequential orders relating to a house in Wimbledon in which the wife was living with their son and which belonged to the husband, and to make provision for their financial support.
It was held by the House of Lords that the talaq was to be recognised under the 1971 Act.
Consequently there was no subsisting marriage and no power in the English court to make financial provision.
In the Court of Appeal Ormrod LJ (as he had become) drew attention to the urgent need for attention by Parliament to deal with the problem.
In the House of Lords Lord Scarman agreed (at 819) that there was need for reform, and expressed the hope that the matter would be referred to the Law Commissions.
The matter was then referred to the Law Commissions.
In 1980 the Law Commission for England and Wales published a Working Paper on Financial Relief after Foreign Divorce (Working Paper No 77 (1980)), which was supplemented by a Scottish Law Commission Consultation Paper in 1981.
Both Commissions published Reports in 1982: Law Com No 117 and Scot Law Com No 72.
The Law Commissions recommended that the law be reformed to allow financial provision to be ordered after a foreign divorce not only in cases where no financial provision had been made, or could have been made, in the country where the divorce was granted, but also where the provision was inadequate.
The Law Commission for England and Wales also recommended a filter mechanism requiring leave of the court to make an application to the English court.
Part III of the 1984 Act
As a result of the work of the Law Commissions, Part III (applying to England and Wales) and Part IV (applying to Scotland) of the Matrimonial and Family Proceedings Act 1984 were enacted.
The law in Northern Ireland is equivalent to Part III of the 1984 Act: SI 1989 No 677 (NI 4).
There are significant differences between Part III and Part IV, to which it will be necessary to revert.
Part III applies to annulment and judicial separation as well as to divorce, but for ease of exposition only divorce will be referred to in this account.
By section 12, where a marriage has been dissolved, by means of judicial or other proceedings in an overseas country, and the divorce is entitled to be recognised as valid in England and Wales, either party to the marriage may apply to the court in the manner prescribed by rules of court for an order for financial relief under Part III.
A filter mechanism is established by section 13: (1) No application for an order for financial relief shall be made under this Part of this Act unless the leave of the court has been obtained in accordance with rules of court; and the court shall not grant leave unless it considers that there is substantial ground for the making of an application for such an order. (2) The court may grant leave under this section notwithstanding that an order has been made by a court in a country outside England and Wales requiring the other party to the marriage to make any payment or transfer any property to the applicant or a child of the family. (3) Leave under this section may be granted subject to such conditions as the court thinks fit.
Section 15(1) sets out the jurisdictional requirements: (a) domicile in England and Wales of either of the parties on the date of the application for financial provision or on the date when the divorce in the foreign country took effect; or (b) habitual residence of either of the parties for one year ending on the date of the application or the foreign divorce; or (c) a beneficial interest by either or both, at the date of the application, in a dwelling house in England and Wales which was at some time during the marriage used as a matrimonial home.
Section 16 provides: the connection which the parties to the marriage have with (1) Before making an order for financial relief the court shall consider whether in all the circumstances of the case it would be appropriate for such an order to be made by a court in England and Wales, and if the court is not satisfied that it would be appropriate, the court shall dismiss the application. (2) The court shall in particular have regard to the following matters (a) England and Wales; (b) the connection which those parties have with the country in which the marriage was dissolved or annulled or in which they were legally separated; (c) country outside England and Wales; (d) any financial benefit which the applicant or a child of the family has received, or is likely to receive, in consequence of the divorce, annulment or legal separation, by virtue of any agreement or the operation of the law of a country outside England and Wales; in a case where an order has been made by a court in a (e) country outside England and Wales requiring the other party to the marriage to make any payment or transfer any property for the benefit of the applicant or a child of the family, the financial relief given by the order and the extent to which the order has been complied with or is likely to be complied with; the connection which those parties have with any other (f) any right which the applicant has, or has had, to apply for financial relief from the other party to the marriage under the law of any country outside England and Wales and if the applicant has omitted to exercise that right the reason for that omission; the availability in England and Wales of any property in (g) respect of which an order under this Part of this Act in favour of the applicant could be made; (h) is likely to be enforceable; (i) divorce, annulment or legal separation. the length of time which has elapsed since the date of the
the extent to which any order made under this Part of this Act
On the substantive hearing the court is given power by section 17 to make (inter alia) the orders in sections 23 (financial provision orders) and 24 (property adjustment orders) of the Matrimonial Causes Act 1973, and pension sharing orders within the meaning of Part I of the 1973 Act.
The powers of the court to make orders are more restrictive where jurisdiction depends on the matrimonial home having been in England and Wales: section 20.
In deciding whether to apply its powers under section 17, and, if so, in what manner, the court must (by section 18) have regard, so far as material to this appeal, to three matters.
First, the court is to have regard to all the circumstances of the case, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen (section 18(2)).
Second, as regards the exercise of those powers in relation to a party to the marriage, the court is to have regard to the matters mentioned in section 25(2)(a) (h) of the 1973 Act (section 18(3)).
Third, where a foreign court has made an order for payments or the transfer of property by a party to the marriage, in considering the financial resources of the other party to the marriage, the court is to have regard to the extent to which that order has been, or is likely to be, complied with (section 18(6)).
Section 18(2) of the 1984 Act is in the same terms as section 25(1) of the Matrimonial Causes Act 1973, which also directs attention to all the circumstances of the case, and section 25(2) of the 1973 Act contains the familiar list of factors to be taken into account in the exercise of the statutory discretion, which is designed to achieve a fair outcome: White v White [2001] 1 AC 596; McFarlane v McFarlane [2006] UKHL 24, [2006] 2 AC 618.
The facts
The husband is aged 71, and is a barrister in Nigeria.
He lives in Lagos.
The wife is aged 68.
She lives in a house in Lytton Road, New Barnet, Hertfordshire (the Lytton Road property) which is in the husbands sole name.
She undertakes occasional work as a carer, and is in receipt of a basic state pension supplemented by pension credit as well as a small Nigerian occupational pension.
Both parties were born in Nigeria.
In the 1960s each of them came to England to live.
The husband came in 1961 to read for the Bar, and the wife came in 1962 to study and work.
They met in December 1965 and were married in London in May 1967.
There were five children of the family, the eldest born to the wife in 1965 shortly before she had met the husband and four children of the marriage, born in 1967, 1969, 1973 and 1980.
All the children were born in England.
In 1972 the parties acquired United Kingdom citizenship and each now has dual British and Nigerian nationality.
In September 1973 the husband returned to Nigeria to qualify there and to set up a legal practice.
In May 1974 the wife and the children joined the husband in Nigeria, but all the children were educated in England except the youngest.
In November 1975 the husband purchased the Lytton Road property.
The wife says that it was a matrimonial home, and the husband says that it was purchased for the purpose of providing a home for the children (and their nanny) when they were in England.
Between 1978 and 1982 the family lived at 76 Ijeshatado Road, Lagos, and from 1982 to 1999 at Plot 2, Tin Can Island, Lagos (Tin Can Island).
In 1999, the parties separated after 32 years of marriage.
The wife moved to England and settled at the Lytton Road property, where she has since lived.
The husband remained in Nigeria although he purchased an investment property in Windmill Drive, NW2 (the Windmill Drive property) in 2002 which he says (and which the Nigerian court accepted) was bought for the youngest child.
The husband issued divorce proceedings in the High Court of Lagos on June 4, 2003.
The wifes case was that, although she knew that the husband had initiated divorce proceedings in Nigeria, she did not receive a copy of the husbands petition until December 10, 2003.
She issued her divorce petition on December 8, 2003 in Barnet County Court based on her habitual residence in England and Wales for at least one year.
On February 24, 2004, the wife filed an answer and cross petition in the Lagos proceedings seeking ancillary relief, including a claim that Tin Can Island and the Lytton Road property (and subsequently the Windmill Drive property) be settled on her.
The wife also sought two cars, and a lump sum of 10 million naira (about 42,000) as a maintenance allowance for her during her lifetime.
The husband made an application in England for a stay of the wifes divorce proceedings.
The wife made an application in Lagos for a stay of the Lagos proceedings, and also applied in England for an anti suit injunction restraining the Lagos proceedings.
In November 2004 Ryder J dismissed the wifes application for an anti suit injunction, but he envisaged that she might apply in England for an order under Part III of the 1984 Act.
The husbands application for a stay was adjourned pending the wifes application for a stay in the Lagos proceedings.
In the course of those proceedings, the wife sought to withdraw her claim for ancillary relief and gave evidence that she wanted her ancillary relief claims to be determined in London.
On June 2, 2005 the judge in Nigeria, Nicol Clay J, granted a decree nisi on the husbands petition (based on three years separation), and dismissed the wifes cross petition.
The judge refused the wifes request that her ancillary relief claims should be determined in London.
She ordered that Tin Can Island, the former matrimonial home, be settled on the wife for life (as the husband had agreed) under the Nigerian Matrimonial Causes Act 1990, section 72(1).
That section gives the court power to require the parties to make such a settlement of property to which the parties are, or either of them is, entitled, as the court considers just and equitable; but it does not give power to the court to order an outright transfer.
She also ordered the husband to make a payment of a lump sum of 5 million naira (about 21,000) as maintenance for life.
The judge dismissed the wifes claims in respect of the London properties (and a Nigerian property) on the basis that she had failed to prove any financial contribution towards their purchase.
Decree absolute was granted by the High Court of Lagos on September 2, 2005.
The application for leave
It is necessary to set the course of the application for leave out in some detail for two reasons.
The first reason is that the Court of Appeal was critical of Coleridge J for his reliance on Munby Js judgment on the husbands application to set aside the order for leave.
The second reason is that the enormous delay caused by the husbands application to set aside gives rise to considerable disquiet about the procedure in Part III proceedings.
At the end of September 2005, the wife sought leave to apply for an order for financial relief pursuant to section 13(1) of Part III.
Leave was granted by Munby J at the end of November 2005: [2005] EWHC 3459 (Fam).
Munby J referred to the very considerable discrepancy between the aggregate value of what the English court would consider to be the relevant matrimonial assets and the actual provision to the wife, and concluded (at [7]): that that very significant discrepancy, and the very modest amount of the provision made for this wife following a marriage of that length in relation to a case where there appear to be significant assets, is such that, having regard, as I do, to each of the facts and matters set out in section 16(2) of the Act, there are established substantial grounds for making this application within the meaning of section 13(1).
In February 2006, the wife issued her application for periodical payments, a property adjustment order in respect of the Lytton Road property, and a lump sum order.
At the end of April 2006, the husband issued an application to set aside the grant of leave.
He conceded that the court had jurisdiction to make an order under Part III on the basis of the wifes habitual residence in England.
In July, 2006 Charles J ordered that the application be listed for a one day hearing fixed for November 17, 2006 before Munby J, and gave directions for the filing of evidence.
Munby J delivered a reserved judgment on December 18, 2006 in which he set out the facts and the law in the fullest detail over 28 single spaced pages: [2006] EWHC 3285 (Fam).
He reaffirmed the views expressed in his judgment on the ex parte application about the effect of the significant discrepancy between the matrimonial assets and what the wife was awarded.
He accepted that it was not necessary to make a finding of exceptional circumstances.
He was satisfied that there were exceptional circumstances and that the wife would suffer hardship real hardship if leave were not given, being faced with the unenviable choice of either remaining homeless in England, where she was based and wanted to stay, or returning to Nigeria: [57] [60].
Munby J ordered that the application for relief be limited to (a) a periodical payments order; (b) a property adjustment order in relation to the Lytton Road property; and (c) a lump sum order.
Leave was made subject to a number of conditions pursuant to section 13(3), in particular that the principal findings of fact made by Nicol Clay J were to stand in the Part III proceedings; and that neither party was permitted to adduce valuation evidence of the Nigerian properties.
The matter was further delayed until the question of costs was dealt with, and an order was not entered until March 16, 2007.
Munby J refused the husband permission to appeal.
The husband applied to the Court of Appeal for permission to appeal on April 11, 2007.
His application was refused on paper by Thorpe LJ, and on June 18, 2007 the husband renewed his application for permission before Wilson and Wall LJJ, who dismissed the application: [2007] EWCA Civ 681.
The consequence was that the leave process took from September 2005 until June 2007 to be completed, and that the substantive hearing did not come on until April 2008.
This is a shocking delay, to which has to be added the time taken in appeals to the Court of Appeal and this court.
As indicated above, the filter mechanism for leave in section 13 was recommended by the Law Commission.
The Working Paper suggested that the ground for leave be that in all the circumstances the case was a proper one to be heard, but it added (para 53, n 195) that the court would have an inherent power to deal with individual cases in the most convenient way, e.g. by adjourning an application for leave to enable evidence to be filed by the other side; and by dealing with applications for leave inter partes and (if leave is given) with the substantive matters at the same hearing.
The Law Commission Report recommended that the filter should require the applicant to establish a substantial ground for the making of the application, and if necessary Rules of Court could specify the circumstances in which the respondent could object: para 2.3.
Rule 3.17 of the Family Proceedings Rules provides for the ex parte application where leave is sought under Part III.
But a subsequent application to set aside is not specifically provided for under the Rules, although it is of course a fundamental rule of procedure that the court may set aside the making an ex parte order on the application of the respondent.
Concern has been expressed at the delay caused by applications to set aside: see Jordan v Jordan [2000] 1 WLR 210, 222 per Thorpe LJ, and Munby J and Ward and Longmore LJJ in the present proceedings.
It is clear that something must be done to prevent the waste of costs and court time, and prejudice to the applicant, caused by applications to set aside which have only questionable chances of success.
That must of course be balanced by a proper application of the threshold of substantial ground.
But as Deane J said in the Federal Court of Australia in an entirely different context, the word substantial is not only susceptible of ambiguity: it is a word calculated to conceal a lack of precision: Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees Union (1979) 42 FLR 331, 348.
In the present context the principal object of the filter mechanism is to prevent wholly unmeritorious claims being pursued to oppress or blackmail a former spouse.
The threshold is not high, but is higher than serious issue to be tried or good arguable case found in other contexts.
It is perhaps best expressed by saying that in this context substantial means solid.
Once a judge has given reasons for deciding at the ex parte stage that the threshold has been crossed, the approach to setting aside leave should be the same as the approach to setting aside permission to appeal in the Civil Procedure Rules, where (by contrast with the Family Proceedings Rules) there is an express power to set aside, but which may only be exercised where there is a compelling reason to do so: CPR r 52.9(2).
In practice in the Court of Appeal the power is only exercised where some decisive authority has been overlooked so that the appeal is bound to fail, or where the court has been misled: Barings Bank plc v Coopers & Lybrand [2002] EWCA Civ 1155; Nathan v Smilovitch [2007] EWCA Civ 759.
In an application under section 13, unless it is clear that the respondent can deliver a knock out blow, the court should use its case management powers to adjourn an application to set aside to be heard with the substantive application.
The substantive hearing: Coleridge J and the Court of Appeal
The matter came before Coleridge J on April 3 and 4, 2008 and he delivered an unreserved judgment.
He relied on Munby Js second judgment for the chronology and the relevant law.
He directed himself that he was unfettered by any hardship test, and if an order was appropriate the provision made after a foreign order should be the minimum required to overcome the injustice, i.e. not a complete re run of the proceedings as if these were domestic ancillary relief proceedings, relying on A v S (Financial Relief after Overseas US Divorce) [2003] 1 FLR 431 (Bodey J).
He took into account the following matters in particular.
The parties had a longstanding real connection with the United Kingdom, its culture and way of life.
In particular they were British citizens, and all the children were British and were born in England.
The wife had been resident in England for nearly 10 years, had strong connections there and would continue to make her main home there.
The parties had bought two properties in England.
But it was not an English ancillary relief case.
He took into account, in particular, the length of the marriage and the needs of the wife.
He ordered that the wife should receive a lump sum equal to 65% of the gross proceeds of sale of the Lytton Road property.
This would be about 275,000 comprising 225,000 to meet her housing need and 50,000 to supplement her income and provide for her when she could not work.
As a condition of the order, the wife agreed to relinquish her life interest in Tin Can Island.
The award of 275,000 represented 39% of the total assets.
Coleridge J refused the husbands application for permission to appeal, and on an application to the Court of Appeal for permission, Wilson LJ adjourned the application to be heard with appeal to follow if permission were granted.
The Court of Appeal (Ward, Longmore and Jackson LJJ) gave permission to appeal and allowed the appeal: [2009] EWCA Civ 1, [2009] 3 WLR 835.
The main judgment was given by Ward LJ.
The principal elements of his reasoning were as follows.
The true question was whether the foreign order provided an unjust result.
Disparity in potential awards was an obvious factor to which regard must be had, but it should not be permitted to dominate because (as he put it) London was perceived to be the divorce capital of the world.
The focus should be on whether, objectively speaking, substantial justice or injustice was done overseas, a fortiori when the foreign court was the appropriate forum for granting the divorce and regulating the financial consequences of the dissolution.
Coleridge J had not adequately referred to the parties connection with Nigeria.
He had not addressed the need for respect and deference to be paid to the Nigerian court.
He had not expressly addressed the factors in section 16(2)(d),(e) and (f) (the right to apply in Nigeria and the award in Nigeria).
It was not enough to find that a serious injustice was done to the wife in Nigeria simply because there was no power to make a transfer of property order there, and it was not in accord with the purpose of section 16 for the English court to sit on appeal from the judgment of a foreign court, which was effectively what Coleridge J had done.
Coleridge J had relied too much on Munby Js judgment.
He had not explained why the case hinged on the parties connection with England, why the connection with Nigeria was not the more important factor, why the Nigerian proceedings did not command full deference for reasons of comity, why no substantial injustice was done to the wife in Nigeria and why justice would be done to the husband if, within months of the conclusion of those proceedings, he were to be forced to litigate the matters afresh in England notwithstanding the earlier acceptance by the courts of Nigeria as the appropriate forum for the resolution of the divorce and ancillary relief claims.
In view of those matters the discretion was to be exercised afresh by the Court of Appeal.
The parties had a more significant connection with Nigeria than with England, and Nigeria, not England, was the natural and appropriate forum for the resolution of the wifes claims.
No substantial injustice was done to the wife in Nigeria notwithstanding the absence of a power to transfer the Tin Can Island property to her.
Although she would suffer real hardship in England, having exhausted the lump sum designed to provide for her sustenance in Nigeria (as she asked for it there), comity commanded respect for the overseas order and it would not be appropriate to grant her what Ward LJ described as even another nibble at the cherry.
The appeal
There is little difference between the approach of Coleridge J and the Court of Appeal, and this appeal could be disposed of simply by considering whether Coleridge J had taken the relevant factors into account and weighed them properly.
But the approach of the judge and the Court of Appeal does raise a number of questions of principle which require attention before the question whether there were any grounds for interference with the exercise of discretion is addressed.
Those questions are these: (1) To what issue the matters listed in section 16(2) are directed. (2) What role (if any) forum non conveniens principles or comity have to play in the exercise of the discretion. (3) Whether the applicant must show exceptional circumstances, or hardship, or serious injustice, before an order can be made. (4) To what matters the court should have regard in deciding whether, and in what way, to exercise its powers under section 17, and in particular whether there is a principle that the court is limited to making an order which represents the minimum necessary to remedy the hardship or injustice.
The relevance of the section 16(2) factors
Munby J [2006] EWHC 3285 (Fam), ([37]) and Coleridge J (at page 3 of his judgment), and the Court of Appeal (at [16]) considered that the question for determination in section 16 is whether it was appropriate for an order to be made.
This is in error.
On the substantive hearing Part III directs the court to two principal areas of fact or appreciation.
First, section 16(2) sets out matters to which the court must have regard for the purposes of section 16(1).
Second, section 18(2) and (3) refer to the matters to which the court is to have regard in deciding whether to exercise the powers under section 17.
The factors in section 16(2) are not expressed to be relevant to the question whether an order is to be made.
They are the matters to which regard must be had in considering whether it would be appropriate for such an order to be made by a court in England and Wales (section 16(1)).
There is no ambiguity in the language, and it is therefore not necessary to resort for confirmation to the sidenote to section 16 or the Law Commission Report.
The sidenote is Duty of the court to consider whether England and Wales is appropriate venue for application.
The Law Commissions explanatory note on the draft Bill included this on what became section 16: It is intended that it should be possible to raise the issue of appropriateness of the English court separately from, or together with, the matters relevant to the exercise of the courts discretion in deciding whether to exercise its powers and if so in what way (Report, page 29)
Consequently both Munby J and Coleridge J and the Court of Appeal, were in error to the extent that they treated section 16 itself as determining the criteria by which the question whether the order for financial provision was to be made.
That question depends on the combined effect of sections 17 and 18, to which it will be necessary to revert.
The error is not likely, however, to have any significant practical importance.
By section 18(2) the court is to have regard to all the circumstances of the case, and several of the factors in section 16(2) will plainly be relevant to the question of whether an order is to be made, and, if so, what order: for example, the financial benefit which the applicant has received; or whether the applicant has failed to take advantage of a right under the foreign law to claim financial relief.
So also because the list in section 16(2) is not exhaustive (The court shall in particular have regard ), matters which are not expressly referred to in section 16(2), such as hardship or injustice, may be taken into account for the purpose of determining whether it is appropriate that the English court should make an order, just as they can be taken into account under section 18.
Forum non conveniens and comity
The second question relates to the role of forum non conveniens and principles of comity in the exercise under section 16.
The doctrine of forum non conveniens, it hardly needs to be said, is that a stay of English proceedings will be granted if another forum is more appropriate in the sense of more suitable for the ends of justice.
It was definitively adopted from Scots law by the decisions of the House of Lords in The Abidin Daver [1984] AC 398 and Spiliada Maritime Corpn v Cansulex Ltd [1987] AC 460, and was applied to stays of English matrimonial proceedings in de Dampierre v de Dampierre [1988] AC 92.
The doctrine was in its infancy in England when the Law Commission reported and when the 1984 Act was enacted substantially in line with the Law Commissions draft Bill.
In several decisions the Court of Appeal has drawn an analogy between the exercise in Part III, of determining whether it is appropriate for an order to be made by a court in England and Wales, and the grant of stays on the ground of forum non conveniens.
For example, in Jordan v Jordan [2000] 1 W.L.R. 210, 220, a Part III case, Thorpe LJ said that de Dampierre v de Dampierre [1988] AC 92 establishes the importance of fixing the primary jurisdiction before competitive litigation in more than one jurisdiction has unnecessarily depleted available assets.
It is equally important to outlaw unnecessary competitive litigation after the primary jurisdiction identified by common consent has performed its essential function to divide assets and income.
See also Holmes v Holmes [1989] Fam 47, 54 55, 59; Moore v Moore [2007] 2 FLR 339, at [109].
In the present case Ward LJ relied (at [44] [45]) on the classic stay cases, Spiliada Maritime Corpn v Cansulex Ltd and de Dampierre v de Dampierre, to conclude that substantial justice had been done in Nigeria, and that an order should not have been made in England under Part III.
Having referred to the fact that Ryder J had refused to grant the wife an anti suit injunction (and no doubt would have granted the husband a stay of the English proceedings), Ward LJ concluded that it would need some compelling reason to conclude one day that the husband would be entitled to a stay of the English proceedings on the basis that substantial justice could be done in the appropriate forum (or that the wife would not be entitled to an anti suit injunction), only to decide very soon afterwards that a serious injustice had been inflicted on the wife in the proceedings concluded by the court overseas.
Ward LJ considered (at [53]) that there should be: symmetry between the rules relating to stays and anti suit injunctions on the one hand and the exercise of jurisdiction under section 16 on the other.
It is through that prism that section 16 must be viewed in a case like the one before us.
But the forum non conveniens principles were developed to deal with cases in which it was necessary to decide which of two jurisdictions was the appropriate one in which proceedings were to be brought.
Section 16 does not impose a statutory forum non conveniens test.
It does not require the court to determine the only appropriate forum where the case may be tried more suitably for the interests of the parties and the ends of justice.
No choice between jurisdictions is involved.
The whole basis of Part III is that it may be appropriate for two jurisdictions to be involved, one for the divorce and one for ancillary relief.
Many of the factors in section 16(2) have much in common with those which would be relevant in a forum non conveniens enquiry, but they are not directed to the question of which of two jurisdictions is appropriate.
They are directed to the question whether it would be appropriate (which is the meaning of the word conveniens in forum conveniens) for an order to be made by a court in England and Wales when ex hypothesi there have already been proceedings in a foreign country (including proceedings in which financial provision has been made).
Little assistance can therefore be obtained from the stay cases (and still less from the anti suit injunction cases) in the Part III exercise.
The task for the judge under Part III is to determine whether it would be appropriate for an order to be made in England, taking account in particular of the factors in section 16(2), notwithstanding that the divorce proceedings were in a foreign country which may well have been the more appropriate forum for the divorce.
The next question is whether principles of comity will add anything useful to the analysis.
Comity is a term of very elastic content: Dicey, Morris & Collins, Conflict of Laws, 14th ed (2006), paras 1 008 et seq; Collins, in Reform and Development of Private International Law (ed Fawcett, 2002), 89.
But in the present context it may be relevant in three respects.
First, comity is sometimes used not simply in the sense of courtesy to foreign states and their courts, but also in the sense of rules of public international law which establish the proper limits of national legislative jurisdiction in cases involving a foreign element.
In that sense it will be contrary to comity for United Kingdom legislation to apply in a situation involving a foreign country when the United Kingdom has no reasonable relationship with the situation.
That is not the case here.
There is nothing internationally objectionable in legislation which gives a court power to order financial provision notwithstanding a foreign decree of divorce, whether or not the foreign court has ordered financial provision, provided that the forum has an appropriate connection with the parties or their property.
The whole point of the factors in section 16(2) is to enable the court to weigh the connections of England against the connections with the foreign jurisdiction so as to ensure that there is no improper conflict with the foreign jurisdiction.
That is why in Holmes v Holmes [1989] Fam 47, at 53, Purchas LJ was right to note that section 16 reflected the principles of comity as between competent courts.
The second relevant sense in which comity is used is that a court in one country should not lightly characterise the law or judicial decisions of another country as unjust.
But in the present context it is hardly necessary to resort to comity to establish that elementary principle.
The third sense in which comity may be relevant is that it is said to be the basis for the enforcement and recognition of foreign judgments.
Part III allows the court to supplement the order of a foreign court.
Nigerian maintenance orders are enforceable in England under the Maintenance Orders (Facilities for Enforcement) Act 1920: SI 1959/377.
But there is no obligation to recognise such orders in the sense that they must be regarded as determining the rights of the spouses to financial relief.
It is not likely that the Nigerian order is to be regarded in England as a final judgment, since it is subject to variation by the court which made it: Nigerian Matrimonial Causes Act 1990, section 73(1)(j).
It is not necessary to consider whether it was capable of creating any issue estoppels because Munby J ordered that the crucial findings of fact in the Nigerian proceedings were to stand in the Part III proceedings, including the fact that the wife had failed to prove that she had contributed to the acquisition of the London properties.
But, although the point does not arise on this appeal, a warning note must be struck about the position with regard to States to which Council Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the Brussels I Regulation) applies.
The effect of sections 15(2) and 28(4) of the 1984 Act is that the jurisdictional provisions of Part III and Part IV respectively are subject to the Brussels I Regulation (and the Lugano Convention).
Those sections do not address the question whether a judgment in a Brussels I Regulation State making financial provision on divorce (or refusing to make such provision) would be entitled to recognition so as to prevent an award under Part III or Part IV.
For the purposes of the Brussels I Regulation and the Lugano Convention there is a distinction between maintenance which is within the scope of the Regulation (Article 5(2), which confers jurisdiction on the courts of the maintenance creditors domicile, in addition to that of the debtors domicile under Article 2); and rights in property arising out of a matrimonial relationship (rgimes matrimoniaux) which are expressly excluded from the scope of the Regulation.
These are autonomous concepts: Case 143/78 de Cavel v de Cavel (No 1) [1979] ECR 1055; Case 120/79 de Cavel v de Cavel (No 2) [1980] ECR 731.
The Brussels II Revised Regulation (Council Regulation (EC) 2201/2003 on jurisdiction and the recognition of judgments in matrimonial matters and matters of parental responsibility) does not apply to the property consequences of the marriage or any other ancillary measures (Recital (8)), or to maintenance obligations (Recital (11)).
It is only necessary to mention that if an award of maintenance had been made in another Member State, the question might arise as to whether the application in England under Part III would be precluded on the basis that the issue of maintenance had been determined in the other jurisdiction and that that determination was entitled to recognition.
That would depend, at least in part, on whether the application was to be characterised as relating to maintenance or to rights in property arising out of a matrimonial relationship.
Case C 220/95 Van den Boogaard v Laumen [1997] ECR I 1147, [1997] QB 759 shows that a transfer of property may be in the nature of maintenance if it is intended to ensure the support of a spouse; but a transfer of property which serves only the purpose of a division of property is not in the nature of maintenance, and concerns rights in property arising out of a matrimonial relationship.
See also Schlosser Report on the Accession Convention to the Brussels Convention ([1979] OJ C59), para 50; Moore v Moore [2007] 2 FLR 339 (CA).
This is an area which involves difficult questions which do not arise for decision on this appeal.
Hardship, injustice, exceptionality and an award of the minimum extent
necessary to remedy the injustice
In its Working Paper (para 48) the Law Commission said that the proposals should be concerned primarily to give a remedy in those exceptional cases where a spouse, usually the wife, had been deprived of financial relief in circumstances where an English court might be driven to hold that it would be unjust to recognise the foreign decree.
It went on to say (at para 51): 51 [W]e think that it should be made clear by express statutory provision that the object of the discretion is to provide for the occasional hard case.
We consider, therefore, that the court should be given power to entertain an application for a financial provision or property adjustment order notwithstanding the existence of a valid foreign divorce, if in the light of all the circumstances of the case (and in particular certain specified circumstances) the case would otherwise be one where serious injustice might arise.
Our present inclination is not to favour any requirement that the applicant must establish the facts of the case to be exceptional since he may well belong to a religious or ethnic group in which it is not uncommon, for example, for a wife to be divorced abroad without having a right to claim financial relief.
The Report did not revert to the question of an express provision for hardship, and Part III contains no express reference to hardship, injustice or exceptionality.
There has been a tendency in the Family Division and in the Court of Appeal to regard hardship as a condition for the exercise of the jurisdiction rather than as an important factor to be taken into account where it is present.
There has been a similar tendency in the Court of Appeal to treat the element of exceptionality in the same way, by saying that the jurisdiction should be exercised only in exceptional circumstances: Holmes v Holmes [1989] Fam 47, 59; Hewitson v Hewitson [1995] Fam 100, 105.
It is true that at least one of the purposes of Part III is to remit hardships which have been experienced in the past in the presence of a failure in a foreign jurisdiction to afford appropriate financial relief: Holmes v Holmes at P57, per Purchas LJ.
But hardship is not a pre condition of the exercise of the jurisdiction.
Thorpe LJ pointed out, correctly, in Jordan v Jordan [2000] 1 WLR 210, 221: as a matter of logic it does not follow that hardship is a necessary prerequisite and I doubt that it was open to Cazalet J. [in N v N (Foreign Divorce: Financial Relief) [1997] 1 FLR 900] to hold that an applicant must prove some hardship or injustice in order to obtain the court's leave.
Parliament might have so legislated, but it did not.
The statutory criteria are fully expressed.
A case in which the applicant crosses the barriers contained in sections 13 and 16 without proving some specific hardship or injustice is perfectly conceivable.
The proposal in the Law Commission Working Paper that the court should have the power to order financial relief following a foreign divorce if the case would otherwise be one where serious injustice might arise was not followed through in the Law Commission Reports draft Bill and finds no place in Part III.
Thorpe LJ was right to say in Jordan v Jordan (in the same passage at 221) that injustice is not a necessary pre condition.
Although they are not pre conditions, both hardship and injustice will of course be relevant factors for the court to take into consideration under both section 16 and section 18.
The next question is on what basis the order for financial provision should be made.
Among the provisional recommendations of the Law Commission Working Paper were that English law should govern the principles on which a court granted financial relief, the court should be able to make any financial order it might have made in English divorce proceedings, and should exercise its powers in accordance with the guidelines laid down in section 25 of the Matrimonial Causes Act 1973: paras 56 57, and recommendations (8) and (9).
This recommendation was also made in the Report, and in the provisions of the draft Bill which became sections 17 and 18.
In decisions at first instance, however, it has been held that it is only appropriate for the English court to intervene with financial relief to the minimum extent necessary so as to remedy the injustice perceived to exist without intervention: A v S (Financial Relief after Overseas US Divorce and Financial Proceedings) [2003] 1 FLR 431, at [98], a decision of Bodey J, applied by Coleridge J in the present case.
There is no statutory basis for this limitation, and it is contrary to principle.
For a example a talaq entitled to recognition may be granted abroad in a big money case when almost all relevant connecting factors are with England.
In those circumstances there would be no reason not to apply English law so as to give the same provision for the wife as she would have obtained had there been divorce proceedings in England.
There would be no need for any enquiry as to the minimum required to remedy the injustice.
Nor, if the wife had independent means, would an enquiry into hardship be necessary or relevant.
But equally it is not the intention of the legislation in England and Wales to allow a simple top up of the foreign award so as to equate with an English award.
This is apparent from a comparison of Part III with the Scottish provisions of Part IV.
The Scottish provisions have the effect that if certain jurisdictional criteria, and certain conditions, are fulfilled, then the application for financial relief is treated as a purely domestic application in Scottish matrimonial proceedings.
The explanation is to be found in the Scottish Law Commission Report (Scot.
Law Com.
No 72, 1982): 2.12 The problem is to find a solution which will enable financial provision after a foreign divorce to be claimed and awarded in appropriate cases, but will not enable it to be claimed or awarded in inappropriate cases 2.13 It is here that we find ourselves differing from the Law Commission.
They prefer a solution in which there are wide grounds of jurisdiction and in which it is left to the courts, guided by a list of factors to be taken into account, to sift out cases where an award would be inappropriate.
We prefer a solution in which there are stricter grounds of jurisdiction and the legislation identifies certain cases as inappropriate in advance.
In our view, a system based on rules is likely to be fairer to defenders and less objectionable to other countries than a system which depends almost entirely on judicial self restraint.
We accept that strict rules on jurisdiction may exclude some cases which a judge in his discretion might allow to proceed.
A power to award financial provision after a foreign divorce is, however, a new and exceptional one in our law, and we would rather proceed with caution .
The consequence was that the Scottish provisions in Part IV of the 1984 Act provided that the court could entertain an application for an order for financial provision in Scotland after a divorce in a foreign country, if certain jurisdictional requirements and conditions were satisfied: section 28(1).
But once these were satisfied, the case was to be treated as if it were a Scottish divorce.
The jurisdictional requirements were that (a) the applicant was domiciled or habitually resident in Scotland on the day when the application was made; and (b) the other party to the marriage was domiciled or habitually resident in Scotland when the application was made; or was domiciled or habitually resident in Scotland when the parties last lived together as husband or wife; or was, when the application was made, an owner or tenant of, or had a beneficial interest in, property in Scotland which had at some time been a matrimonial home of the parties: section 28(2).
The conditions were that: (a) the divorce fell to be recognised in Scotland; (b) the other party to the marriage initiated the proceedings for divorce; (c) the application was made within 5 years after the date when the divorce took effect; (d) a court in Scotland would have had jurisdiction to entertain an action for divorce between the parties if such an action had been brought in Scotland immediately before the foreign divorce took effect; (e) the marriage had a substantial connection with Scotland; and (f) both parties were living at the time of the application: section 28(3).
Once these conditions were fulfilled, in disposing of the application under section 28, the court shall exercise its powers so as to place the parties, in so far as it is reasonable and practicable to do so, in the financial position in which they would have been if the application had been disposed of, in an action for divorce in Scotland, on the date on which the foreign divorce took effect: section 29(2).
In determining what is reasonable and practicable the court shall have regard to the parties resources and any order of the foreign court: section 29(3).
This is not the solution adopted in Part III.
Section 18 could have provided that, once England and Wales was to be regarded as the appropriate forum under section 16, then the case was to be treated as a purely English proceeding for financial relief.
But it did not do so.
Instead a more flexible approach was deliberately adopted.
There will be some cases, with a strong English connection, where it will be appropriate to ask what provision would have been made had the divorce been granted in England.
There will be other cases where the connection is not strong and a spouse has received adequate provision from the foreign court.
Then it will not be appropriate for Part III to be used simply as a tool to top up that provision to that which she would have received in an English divorce.
The proper approach
To take up some of the points made in the preceding paragraphs, the proper approach to Part III simply depends on a careful application of sections 16, 17 and 18 in the light of the legislative purpose, which was the alleviation of the adverse consequences of no, or no adequate, financial provision being made by a foreign court in a situation where there were substantial connections with England.
There are two, inter related, duties of the court before making an order under Part III.
The first is to consider whether England and Wales is the appropriate venue for the application: section 16(1).
The second is to consider whether an order should be made under section 17 having regard to the matters in section 18.
There are two reasons why the duties are inter related.
First, neither section 16(2) nor section 18(2) and (3) refers to an exhaustive list of matters to be taken into account.
Section 16(1) directs the court to have regard to all the circumstances of the case and section 16(2) refers the court to certain matters in particular.
Second, some of the matters to be considered under section 16 may be relevant under section 18, and vice versa.
An obvious example would be that section 16(2)(e) refers the court to the financial provision which has been made by the foreign court.
Plainly that would be relevant under section 18.
So also the direction in section 18(6) to the court, in considering the financial resources of a party, to have regard to whether an order of a foreign court has been complied with would plainly be relevant in considering whether England is the appropriate venue.
It is not the purpose of Part III to allow a spouse (usually, in current conditions, the wife) with some English connections to make an application in England to take advantage of what may well be the more generous approach in England to financial provision, particularly in so called big money cases.
There is no condition of exceptionality for the purposes of section 16, but it will not usually be a case for an order under Part III where the wife had a right to apply for financial relief under the foreign law, and an award was made in the foreign country.
In such cases mere disparity between that award and what would be awarded on an English divorce will certainly be insufficient to trigger the application of Part III.
Nor is hardship or injustice (much less serious injustice) a condition of the exercise of the jurisdiction, but if either factor is present, it may make it appropriate, in the light of all the circumstances, for an order to be made, and may affect the nature of the provision ordered.
Of course, the court will not lightly characterise foreign law, or the order of a foreign court, as unjust.
The amount of financial provision will depend on all the circumstances of the case and there is no rule that it should be the minimum amount required to overcome injustice.
The following general principles should be applied.
First, primary consideration must be given to the welfare of any children of the marriage.
This can cut both ways as the children may be being supported by the foreign spouse.
Second, it will never be appropriate to make an order which gives the claimant more than she or he would have been awarded had all proceedings taken place within this jurisdiction.
Third, where possible the order should have the result that provision is made for the reasonable needs of each spouse.
Subject to these principles, the court has a broad discretion.
The reasons why it was appropriate for an order to be made in England are among the circumstances to be taken into account in deciding what order should be made.
Where the English connections of the case are very strong there may be no reason why the application should not be treated as if it were made in purely English proceedings.
The full procedure for granting ancillary relief after an English divorce does not apply in Part III cases.
The conditions which can be attached to leave, together with the courts case management powers, can be used to define the issues and to limit the evidence to be filed, as was done by Munby J in this case.
This enables the jurisdiction to be tailored to the needs of the individual case, so that the grant of leave does not inevitably trigger a full blown claim for all forms of ancillary relief.
This case
To the extent, therefore, that Coleridge J considered that there was a rule that the provision made under Part III should be the minimum required to overcome an injustice, he was in error, but there is no cross appeal on quantum.
It is not therefore necessary to consider whether a different result would have been justified, particularly since the total provision ordered in both jurisdictions did not fall markedly short of what the wife would have received in a purely English proceeding.
The Court of Appeal erred in principle in applying traditional forum non conveniens principles, and its criticisms of Coleridge Js conclusions did not meet the necessary threshold for interference with the exercise of discretion.
To the extent that the Court of Appeal took the view that Coleridge J relied too much on Munby Js judgment, the criticism is in reality one of lack of adequate reasoning.
Coleridge Js judgment was an unreserved judgment given after a 2 day hearing against the background of a full exposition of the facts and the law (over, to repeat, some 28 single spaced pages) in the same case by Munby J. Coleridge J was fully entitled to incorporate by reference Munby Js account of the background facts.
To the very limited extent that further facts were to be found (principally as regards the wifes earnings) Coleridge J made appropriate findings.
He cannot be criticised for failing to refer to every relevant factor in section 16(2).
What the wife received and to what she was entitled in Nigeria were obvious.
The judges reasons (particularly in the light of his incorporation of Munby Js judgment) have to be read on the assumption that the judge knew how he should perform his functions and which matters he should take into account, particularly when those matters had not only been fully set out by Munby J but are familiar to every experienced judge in the Family Division: cf.
Piglowski v Piglowska [1999] 1 WLR 1360, 1372 (in relation to the exercise of discretion by reference to the factors in section 25 of the Matrimonial Causes Act 1973).
Because the Court of Appeal wrongly applied traditional forum non conveniens principles, it erred in criticising Coleridge J for failing to identify which court had the closest and most appropriate connection with the parties or for failing to identify Nigeria as the natural and appropriate forum to deal with the divorce.
The English connections were substantial, if not overwhelming, and Coleridge J plainly took the relevant matters in section 16(2) into account.
It was not so much that there was a very large disparity between what the wife received in Nigeria and what she would have received in England, but that there was also a very large disparity between what the husband received and what the wife received such as to create real hardship and a serious injustice.
There was no basis for interference with the exercise of discretion.
The appeal will be allowed and the order of Coleridge J restored.
| UK-Abs | Mr and Mrs Agbaje were married for 38 years.
Both Nigerian by birth, they had met in England in the 1960s and acquired UK citizenship in 1972.
All five of their children were born (and all but one educated) in England, and in 1975 Mr Agbaje bought a property in England called Lytton Road in which their children stayed with a nanny.
But for the majority of their married life Mr and Mrs Agbaje lived in Nigeria.
They separated in 1999, at which point Mrs Agbaje came to live in Lytton Road.
She has lived here ever since.
In 2003 Mr Agbaje issued divorce proceedings in the Nigerian courts in which Mrs Agbaje sought ancillary relief.
The Nigerian court awarded her a life interest in a property in Lagos (with a capital value of about 86,000) and a lump sum equivalent to about 21,000.
Part III of the Matrimonial and Family Proceedings Act 1984 was enacted to give the English court the power to grant financial relief after a marriage has been dissolved (or annulled) in a foreign country.
Mrs Agbaje sought such relief.
The High Court granted her leave (as required under Part III) and ultimately ordered that she should receive a lump sum equal to 65% of the sale proceeds of Lytton Road (equivalent to about 275,000) on condition that she relinquish her life interest in the Lagos property.
The award represented 39% of the total assets.
The Court of Appeal set aside the whole of the English award principally on the ground that the High Court had given insufficient weight to the connections of the case with Nigeria.
Put broadly, the overarching issue for the Supreme Court was: what is the proper approach for courts to take when considering applications made under Part III?
The Supreme Court unanimously allowed the wifes appeal and restored the order of the High Court.
The judgment of the Court was delivered by Lord Collins.
The Court held that Part III is to be applied in light of the purpose of the Act, which was the alleviation of the adverse consequences of no, or no adequate, financial provision being made by a foreign court in a situation where the parties had substantial connections with England ([71]).
In applying Part III, the English courts should not be deciding whether it would be appropriate for an order to be made by a court in England or Wales as opposed to a foreign court.
The whole point of Part III is to allow for relief in circumstances where there have already been proceedings in a foreign country ([50]).
Relevant to the question of whether an order should be made and, if so, what order, will be a number of factors such as the financial benefit which the applicant has already received, or whether the applicant has failed to take advantage of a right under the foreign law to claim financial relief.
The hardship or the injustice which would result if no award were made will be relevant factors, although neither are pre conditions to an award under Part III ([41] [44] and [60] [61]).
Although there was no principle that an English court could only make an award that was the minimum necessary to remedy the injustice which would otherwise occur, it was equally not the intention of the legislation to allow a simple top up of the foreign award so as to equate with an English award in every case ([62] [65]; [72]).
If the connection with England is not strong and a spouse has received adequate provision from the foreign court, it will not be appropriate for Part III to be used to top up the award.
If the English connections are strong, however, it may be appropriate to do so ([70]).
The amount of financial provision awarded under Part III will depend on all the circumstances of the case.
But three general principles should be applied.
First, primary consideration should be given to the welfare of any child of the marriage.
Second, it will never be appropriate to make an order which gives the claimant more than she or he would have been awarded had all proceedings taken place within this jurisdiction.
Third, where possible the order should have the result that provision is made for the reasonable needs of each spouse ([73]).
|
These appeals are concerned with a little used provision in article 1F(c) of the Geneva Convention on the Status of Refugees (the Refugee Convention).
This excludes from refugee status and protection any person with respect to whom there are serious reasons for considering that . he has been guilty of acts contrary to the purposes and principles of the United Nations.
For the time being at least, however, the Home Secretary accepts that these appellants cannot be returned to their home countries because they face a real risk of torture or inhuman or degrading treatment or punishment there.
It is the grant of refugee status, rather than the right to stay in this country, which is in issue in these proceedings.
The issues in the two cases are different.
In Al Sirri, the question is whether all activities defined as terrorism by our domestic law are for that reason alone acts contrary to the purposes and principles of the United Nations, or whether such activities must constitute a threat to international peace and security or to the peaceful relations between nations.
In DD, the question is whether armed insurrection is contrary to the purposes and principles of the United Nations if directed, not only against the incumbent government, but also against a United Nations mandated force supporting that government, specifically the International Security Assistance Force (ISAF) in Afghanistan.
Although the issues are different, many of the relevant materials are the same, as must be the general approach to article 1F(c), and so we deal with them in one judgment to avoid unnecessary repetition.
In all article 1F cases, there is also the issue of the standard of proof: what is meant by serious reasons for considering a person to be guilty of the acts in question? (1) The general approach
Relevant treaty and legislative provisions
Article 1F of the Refugee Convention excludes three types of person from the definition of refugee: The provisions of this Convention shall not apply to any person with respect to whom there are serious reasons for considering that: (a) he has committed a crime against peace, a war crime, or a crime against humanity, as defined in the international instruments drawn up to make provision in respect of such crimes; (b) he has committed a serious non political crime outside the country of refuge prior to his admission to that country as a refugee; (c) he has been guilty of acts contrary to the purposes and principles of the United Nations.
It will be apparent that a particular act may fall within more than one of these categories.
In particular, terrorism may be both a serious non political crime and an act contrary to the purposes and principles of the United Nations.
Member States of the European Union are, moreover, bound to observe the standards laid down in Council Directive 2004/83/EC on minimum standards for the qualification and status of third country nationals or stateless persons as refugees or as persons who otherwise need international protection and the content of the protection granted (the Qualification Directive).
Its main objective is to ensure common standards in the identification of people genuinely in need of international protection and a minimum level of benefits for them in all Member States (recital 6).
Recital 22 deals with article 1F(c): Acts contrary to the purposes and principles of the United Nations are set out in the preamble and articles 1 and 2 of the Charter of the United Nations and are, amongst others, embodied in the United Nations Resolutions relating to measures combating terrorism, which declare that acts, methods and practices of terrorism are contrary to the purposes and principles of the United Nations and that knowingly financing, planning and inciting terrorist acts are also contrary to the purposes and principles of the United Nations.
Article 12 of the Qualification Directive both reflects and expands slightly upon article 1F of the Refugee Convention (the changes and additions are italicised): 2.
A third country national or a stateless person is excluded from being a refugee where there are serious reasons for considering that: (a) he or she has committed a crime against peace, a war crime, or a crime against humanity, as defined in the international instruments drawn up to make provision in respect of such crimes; (b) he or she has committed a serious non political crime outside the country of refuge prior to his or her admission [to that country] as a refugee; which means the time of issuing a residence permit based on the granting of refugee status; particularly cruel actions, even if committed with an allegedly political objective, may be classified as serious non political crimes; (c) he or she has been guilty of acts contrary to the purposes and principles of the United Nations as set out in the Preamble and articles 1 and 2 of the Charter of the United Nations. 3.
Paragraph 2 applies to persons who instigate or otherwise participate in the commission of the crimes or acts mentioned therein.
The Qualification Directive is transposed into United Kingdom law by the Refugee or Person in Need of International Protection (Qualification) Regulations 2006 (SI 2006/2525).
Regulation 2 provides that refugee means a person who falls within article 1(A) of the Geneva Convention and to whom regulation 7 does not apply.
Regulation 7(1) states that A person is not a refugee, if he falls within the scope of article 1D, 1E or 1F of the Geneva Convention.
The Immigration Rules provide, in paragraph 334, that a person will be granted asylum, inter alia, if (ii) he is a refugee, as defined in regulation 2 of The Refugee or Person in Need of International Protection (Qualification) Regulations 2006.
However, section 54 of the Immigration, Asylum and Nationality Act 2006 (the 2006 Act), provides: (1) In the construction and application of article 1F(c) of the Refugee Convention the reference to acts contrary to the purposes and principles of the United Nations shall be taken as including, in particular (a) acts of committing, preparing or instigating terrorism (whether or not the acts amount to an actual or inchoate offence), and (b) acts of encouraging or inducing others to commit, prepare or instigate terrorism (whether or not the acts amount to an actual or inchoate offence). (2) In this section the Refugee Convention means the Convention relating to the Status of Refugees done at Geneva on 28 July 1951, and terrorism has the meaning given by section 1 of the Terrorism Act 2000.
There is no need to set out the definition of terrorism contained in section 1 of the 2000 Act.
The essence is the use or threat of certain dangerous actions designed to influence this or any other government or intimidate the public for the purpose of advancing a political, religious, racial or philosophical cause.
But if firearms or explosives are involved, the act or threat need not be designed to influence the government or intimidate the public.
Terrorism designed solely to achieve political change within the United Kingdom, with no international repercussions, is clearly covered, as is terrorism committed here with a view to achieving internal political change in another country.
The Preamble to the Charter of the United Nations recites the determination of the peoples of the United Nations to save succeeding generations from the scourge of war; to reaffirm faith in fundamental human rights, in the dignity and worth of the human person, in the equal rights of men and women and of nations large and small; to maintain justice and respect for international law; and to promote social progress and better standards of life in larger freedom; and for these ends to live together in peace, unite to maintain international peace and security, ensure that armed force is used only in the common good, and employ international machinery for the economic and social advancement of all peoples.
The purposes of the United Nations are set out in article 1 of the Charter.
The first purpose is 1.
To maintain international peace and security, and to that end: to take effective collective measures for the prevention and removal of threats to the peace, and for the suppression of acts of aggression or other breaches of the peace, and to bring about by peaceful means, and in conformity with the principles of justice and international law, adjustment or settlement of international disputes or situations which might lead to a breach of the peace.
The second is to develop friendly relations among nations based on respect for the principle of equal rights and self determination of peoples, and to take other appropriate measures to strengthen universal peace; the third is to achieve international cooperation in solving international problems of an economic, social, cultural, or humanitarian nature, and in promoting and encouraging respect for human rights and for fundamental freedoms for all; and the fourth is to be a centre for harmonising the actions of nations in the attainment of these common ends.
Article 2 of the Charter requires the United Nations and its Member States to act in accordance with the seven Principles set out therein.
These are: the sovereign equality of all Members; the duties of all Members to fulfil their obligations under the Charter in good faith; to settle their disputes by peaceful means; to refrain from the threat or use of force against the territorial integrity or political independence of any state; to give the United Nations every assistance in taking action in accordance with the Charter and to refrain from assisting any state against which it is taking action; the duty of the United Nations to ensure that non member states act in accordance with these principles so far as may be necessary to maintain international peace and security; and, finally, that Nothing contained in the present Charter shall authorise the United Nations to intervene in matters which are essentially within the domestic jurisdiction of any state .
The general approach to article 1F(c)
The appellants, with the support of the UNHCR, argue that article 1F must be interpreted narrowly and applied restrictively because of the serious consequences of excluding a person who has a well founded fear of persecution from the protection of the Refugee Convention.
This was common ground in R (JS (Sri Lanka)) v Secretary of State for the Home Department [2010] UKSC 15, [2011] 1 AC 184, in the context of article 1F(a), and must apply a fortiori in the context of article 1F(c).
Concern was expressed during the drafting of the Convention that the wording was so vague as to be open to misconstruction or abuse.
Professor Grahl Madsen comments that It seems that agreement was reached on the understanding that the phrase should be interpreted very restrictively: The Status of Refugees in International Law, 1966, p 283.
Secondly, article 1F(c) is applicable to acts which, even if they are not covered by the definitions of crimes against peace, war crimes or crimes against humanity as defined in international instruments within the meaning of article 1F(a), are nevertheless of a comparable egregiousness and character, such as sustained human rights violations and acts which have been clearly identified and accepted by the international community as being contrary to the purposes and principles of the United Nations.
The appellants rely on Pushpanathan v Canada, Minister of Citizenship and Immigration (Canadian Council for Refugees intervening) [1998] 1 SCR 982 (Pushpanathan) per Bastarache J at para 65: .In my view, attempting to enumerate a precise or exhaustive list [of acts contrary to the purposes and principles of the United Nations] stands in opposition to the purpose of the section and the intentions of the parties to the Convention.
There are, however, several types of acts which clearly fall within the section.
The guiding principle is that where there is consensus in international law that particular acts constitute sufficiently serious and sustained violations of fundamental human rights as to amount to persecution, or are explicitly recognised as contrary to the purposes and principles of the United Nations, then article 1F(c) will be applicable.
On the other hand, not every act which is condemned by the United Nations is for that reason alone to be deemed contrary to its purposes and principles.
In Pushpanathan itself, the majority held that international drug trafficking did not fall within article 1F(c), despite the co ordinated efforts of the international community to suppress it, through United Nations treaties, declarations and institutions.
As the UNHCR explains, in its Background Note on the Application of the Exclusion Clauses: Article 1F (September 2003), at para 47: The principles and purposes of the United Nations are reflected in myriad ways, for example by multilateral conventions adopted under the aegis of the UN General Assembly and in Security Council resolutions.
Equating any action contrary to such instruments as falling within article 1F(c) would, however, be inconsistent with the object and purpose of this provision.
Rather, it appears that article 1F(c) only applies to acts that offend the principles and purposes of the United Nations in a fundamental manner.
Article 1F(c) is thus triggered only in extreme circumstances by activity which attacks the very basis of the international communitys co existence under the auspices of the United Nations.
The key words in article 1F(c) acts contrary to the purposes and principles of the United Nations should therefore be construed restrictively and its application reserved for situations where an act and the consequences thereof meet a high threshold.
This threshold should be defined in terms of the gravity of the act in question, the manner in which the act is organised, its international impact and long term objectives, and the implications for international peace and security.
Thus, crimes capable of affecting international peace, security and peaceful relations between states would fall within this clause, as would serious and sustained violations of human rights.
Thirdly, for exclusion from international refugee protection to be justified, it must be established that there are serious reasons for considering that the person concerned had individual responsibility for acts within the scope of article 1F(c): see the detailed discussion at paras 50 to 75 of the UNHCR Background Note.
This requires an individualised consideration of the facts of the case, which will include an assessment of the persons involvement in the act concerned, his mental state and possible grounds for rejecting individual responsibility.
As a general proposition, individual responsibility arises where the individual committed an act within the scope of article 1F(c), or participated in its commission in a manner that gives rise to individual responsibility, for example through planning, instigating or ordering the act in question, or by making a significant contribution to the commission of the relevant act, in the knowledge that his act or omission would facilitate the act.
In Bundesrepublik Deutschland v B and D (Joined Cases C 57/09 and C 101/09) [2011] Imm AR 190 (B and D) the Grand Chamber of the Court of Justice of the European Union confirmed the requirement of an individualised assessment and held that it was not justifiable to base a decision to exclude solely on a persons membership of a group included in a list of terrorist organisations.
This too is consistent with the approach adopted by this Court in R (JS (Sri Lanka)) v Secretary of State for the Home Department [2011] 1 AC 184.
In our view, this is the correct approach.
The article should be interpreted restrictively and applied with caution.
There should be a high threshold defined in terms of the gravity of the act in question, the manner in which the act is organised, its international impact and long term objectives, and the implications for international peace and security.
And there should be serious reasons for considering that the person concerned bore individual responsibility for acts of that character.
However, those general observations are not enough in themselves to resolve the questions raised by the two cases before us, to which we now turn. (2) The case of Al Sirri
The facts
The appellant is a citizen of Egypt.
He arrived in the United Kingdom in April 1994 and claimed asylum then.
His claim was eventually turned down on 11 October 2000, on the ground that article 1F(c) of the Refugee Convention applied to him, but he was told that he would be granted exceptional leave to enter the United Kingdom.
That never happened, but on 1 April 2004 he was granted discretionary leave to enter which has been extended for periods of six months at a time ever since.
Under section 83 of the Nationality, Immigration and Asylum Act 2002, the grant of discretionary leave for an aggregate of more than a year also gave him the right to appeal against the refusal of asylum.
This he did in September 2006.
On 2 August 2007, the Asylum and Immigration Tribunal (the AIT) (Hodge J, President, Senior Immigration Judge Lane and Immigration Judge Woodhouse) dismissed his appeal.
On 18 March 2009, the Court of Appeal (Sedley, Arden and Longmore LJJ) set aside the Tribunals determination and remitted the case to be determined afresh by a differently constituted tribunal: [2009] EWCA Civ 222, [2009] INLR 586.
Nevertheless, the appellant has appealed to this Court because he takes issue with some aspects of the leading judgment given by Sedley LJ.
The Home Secretary relied upon seven matters to show that there are serious reasons for considering that the appellant has been guilty of acts contrary to the purposes and principles of the United Nations.
Four of these are accepted facts: (i) that the appellant had published and written the Foreword to an Arabic language book, Bringing to light some of the most important judgments in Islam; the author, Rifai Ahmed Musa, has been credibly named as having been a member of the Egyptian organisation, al Gamma al Islamiyya; the AIT pointed out that that organisation is proscribed under the Terrorism Act 2000, and also in Canada and the United States and within the European Union by Council Common Position 2005/936/CFSP; (ii) that the appellant was in possession of an unpublished Arabic manuscript, Expectations of the Jihad Movement in Egypt; the author, Ayman Al Zawahiri, is a former leader of the organisation, Egyptian Islamic Jihad; (iii) that the appellant possesses books and videos relating to Osama bin Laden and Al Qaeda; (iv) that the appellant had transferred money to and from foreign countries, allegedly in sums greater than his known income could explain.
The AIT relied upon a long and detailed statement from Acting Detective Inspector Dingemans of the Counter Terrorism Command at Scotland Yard, containing what Sedley LJ described as a damaging account and analysis of the material found at Mr Al Sirris premises (para 67).
Sedley LJ commented that the preferable course would have been for the AIT to be shown the documentary material supporting the allegations, to hear what both sides had to say about it, to consider any explanations given by the appellant, and to make up their own mind about it.
The Court of Appeal was not satisfied that this material, together with the more serious allegation referred to in para 22 below, would inevitably have led the AIT to conclude that the appellant fell within article 1F(c); it follows that they would not have been so satisfied on the basis of the above material alone.
Two of the matters relied upon were more serious, but the Court of Appeal ruled that the AIT was required by law to give them no weight, and the Home Secretary has not appealed against that ruling: (i) that the appellant has twice been convicted in his absence by the Supreme Military Court of Egypt: in March 1994, when he was sentenced to death for conspiracy to kill Dr Atef Sidqi, Prime Minister of Egypt; and in January 1999, when he was sentenced to 15 years imprisonment for membership of a terrorist organisation.
These convictions cannot be relied upon because they were probably secured by the use of torture.
Although the AIT placed little weight upon them, the Court of Appeal correctly ruled that this was a serious error of law, and the only principled way of dealing with them was to afford them no weight at all (para 44); (ii) that a grand jury in the United States District Court for the Southern District of New York had indicted him for allegedly providing material support to a terrorist organisation, al Gamma al Islamiyya, and soliciting the commission of a crime of violence.
The AIT had accorded this substantial weight, although none of the evidence on which the indictment was based had been disclosed, and as a result (under extradition law as it then stood) the Home Secretary had declined to authorise an extradition request based upon the indictment to proceed.
The Court of Appeal ruled that it should be accorded no evidential weight whatsoever.
This leaves the most important matter relied upon: that the appellant had conspired in the murder of General Ahmad Shah Masoud in Afghanistan on 9 September 2001, just two days before the atrocities of 11 September 2001.
The background to this is common knowledge, some of which is confirmed by the witness statement of General Masouds brother, Charg dAffaires in London for the Islamic State of Afghanistan.
This was then the recognised government of Afghanistan and General Masoud was its Vice President and Defence Minister.
But at the time the Taliban were in control of most of the country, apart from the territory in the north east of the country which was under the control of the Northern Alliance.
General Masoud was leader of the Northern Alliance.
Earlier that year he had travelled to Europe to address the European Parliament on the situation in Afghanistan and it is said that he had warned of an impending Al Qaeda attack upon the United States on a larger scale than the bombing of the US embassies in Kenya and Tanzania in 1998.
It is also believed that his assassination may have been ordered by Osama bin Laden to cut off the most obvious source of support for US retaliation against such an attack.
Be that as it may, the appellant was indicted at the Old Bailey for conspiracy to murder General Masoud.
The case against him was described by the Common Serjeant as follows.
The General had been murdered by two Arab suicide bombers posing as a journalist and photographer who had been granted an interview with him.
A letter of introduction, purportedly signed by the appellant, from the Islamic Observation Centre (IOC) which was run by the appellant in London, and informing the reader that the two were journalists of Arab News International, a TV subsidiary of the IOC, had played a part in securing this interview.
However, the letters actually carried by the assassins at the time of the murder were in fact, as the Common Serjeant put it, careful and elaborate forgeries of the letters that the appellant had created.
So did the appellant know that the letters which he created were to be used to secure an interview with the General at which he would be killed? Or were they used by the assassins as a template for the letters which they would forge, the appellant being an innocent fall guy who knew nothing of their intended use? The Common Serjeant concluded that the evidence was as consistent with the innocence of the accused (who had made no secret of his authorship of the templates which could easily be traced to him and had not destroyed any of the relevant documentation in his possession) as it was with his guilt.
Accordingly, on 16 May 2002, he dismissed the charge on the ground that the evidence would not be sufficient for a jury properly to convict.
The AIT reminded themselves that the standard of proof in criminal proceedings is not the same as that under article 1F(c).
They concluded that the evidence seriously points to some knowing involvement of the appellant in the events which led to the death of General Masoud (para 46).
Sedley LJ considered whether this conclusion, together with the Dingemans evidence referred to in para 19 above, would have been bound to lead to a finding adverse to the appellant (para 62).
He concluded that there was a realistic possibility that a tribunal of fact, confining itself to the admissible evidence and excluding the two items ruled inadmissible by the Court of Appeal, might have rejected the submission that the appellant fell within article 1F(c) (para 64).
Hence the case was remitted to be determined afresh on the basis of the admissible evidence.
Why then this appeal?
The appellant originally took issue with the Court of Appeal on three matters: (1) The Court of Appeal rejected his argument that article 1F was aimed only at state actors people who had in some way abused the powers of a sovereign state.
Although this had the support both of academic commentators on the Refugee Convention and of the UNHCR, it had been rejected as an absolute rule by the Supreme Court of Canada in Pushpanathan.
The appellant was originally given permission to argue the point in this Court, but has now abandoned it in the light of the later decision of the Court of Justice of the European Union in B and D. In these proceedings, Mr Fordham QC, who appears for the UNHCR, has accepted that it is possible for non state actors to be guilty of acts contrary to the purposes and principles of the United Nations. (2) Sedley LJ saw the force of the appellants submission that terrorism must have an international character or aspect in order to come within article 1F(c) (paras 29 and 32).
However, he did not think that this helped the appellant.
On the face of it, the assassination was in support of a domestic Afghan quarrel.
The international repercussions were referred to but not described by the AIT.
But what in his view gave it a dimension which brought it within the purposes and principles of the United Nations was that, if true, it involved the use of a safe haven in one state to destabilise the government of another by the use of violence (para 51).
The appellant wishes, therefore: (i) clearly to establish that the act in question must have an international character, because the relevant purposes and principles of the United Nations are limited to matters which significantly affect international peace and security; and (ii) clearly to establish that it is not enough to supply that international character that actions are taken in one state to destabilise the government of another. (3) Sedley LJ rejected the submission that serious reasons for considering the appellant to be guilty of acts falling within article 1F(c) imported the criminal standard of proof (paras 33 to 35).
The appellant was originally refused permission to appeal on this ground.
But he now wishes to appeal on the different ground that, for there to be such serious reasons, it must be found more likely than not that the appellant is guilty of the relevant acts.
This is of particular importance in his case, because of the Common Serjeants finding that the evidence was as consistent with his innocence as with his guilt.
An international dimension?
The question is whether labelling an act as terrorism or a person as a terrorist is sufficient to bring the act or the person within the scope of article 1F(c).
Before the Court of Appeal, Mr Eicke QC, on behalf of the Home Secretary, did not dispute that article 1F(c) was not as wide as the definition of terrorism in section 1 of the Terrorism Act 2000 (see para 29).
Further, by common consent the Qualification Directive conditions and qualifies the application of section 1 of the Terrorism Act to article 1F proceedings (see para 28).
Before this Court, Mr Eicke has withdrawn any such concession and argues that, because the United Nations has condemned terrorism but not defined it, Member States are free to adopt their own definitions and that, therefore, acts falling within the domestic definition of terrorism will also be acts contrary to the purposes and principles of the United Nations, whether or not they have any international dimension or repercussions for international peace and security.
In support of his argument, he cites the numerous General Assembly and Security Council resolutions on the subject of terrorism, sometimes with and sometimes without the adjective international.
In 1994, the General Assembly of the United Nations adopted, by resolution 49/60, the annexed Declaration on Measures to Eliminate International Terrorism.
By article 1: The States Members of the United Nations solemnly reaffirm their unequivocal condemnation of all acts, methods and practices of terrorism, wherever and by whomever committed, including those which jeopardise the friendly relations among states and peoples and threaten the territorial integrity and security of states.
By article 2: Acts, methods and practices of terrorism constitute a grave violation of the purposes and principles of the United Nations, which may pose a threat to international peace and security, jeopardise friendly relations among states, hinder international cooperation and aim at the destruction of human rights, fundamental freedoms and democratic bases of society.
And by article 3: Criminal acts intended or calculated to provoke a state of terror in the general public, a group of persons or particular persons for political purposes are in any circumstance unjustifiable, whatever the considerations of a political, philosophical, ideological, racial, ethnic, religious or any other nature that may be invoked to justify them.
By article 5(f), states were required to take effective measures before, among other things, granting asylum to ensure that the asylum seeker has not engaged in terrorist activities.
In 1996, the General Assembly adopted, by resolution 51/210, the Declaration to Supplement the 1994 Declaration on Measures to Eliminate International Terrorism.
By article 3: The States Members of the United Nations reaffirm that States should take appropriate measures in conformity with the relevant provisions of national and international law, including international standards of human rights, before granting refugee status, for the purpose of ensuring that the asylum seeker has not participated in terrorist acts, . and, after granting refugee status, for the purpose of ensuring that that status is not used for the purpose of preparing or organising terrorist acts intended to be committed against other states or their citizens.
Declarations are not, of course, binding in international law.
Resolution 51/210 referred to the possibility of considering in the future the elaboration of a comprehensive convention on international terrorism and established an ad hoc committee to that end; a draft text has been prepared for discussion but as yet no such Convention has been agreed.
In the meantime, a number of specific Conventions requiring states to criminalise certain particular acts of terrorism have been agreed.
The Security Council has passed numerous resolutions concerning threats to international peace and security caused by acts of terrorism, including Resolution 1624 of 2005.
Paragraph 8 of the Preamble to this reaffirms that acts, methods, and practices of terrorism are contrary to the purposes and principles of the United Nations, as is knowingly financing, planning and inciting terrorist acts.
But paragraph 2 also stresses that States must ensure that any measures taken to combat terrorism comply with all their obligations under international law, and should adopt such measures in accordance with international law, in particular international human rights law, refugee law, and humanitarian law.
Mr Fitzgerald QC, on behalf of the appellant, argues that an act of terrorism can only be contrary to the purposes and principles of the United Nations if it impacts in some significant way upon international peace and security.
In the Guidelines on International Protection: Application of Exclusion Clauses: Article 1F of the 1951 Convention relating to the Status of Refugees, 2003, para 17, the UNHCR takes a view of terrorism which is consistent with the general principles quoted above at para 14: In cases involving a terrorist act, a correct application of article 1F(c) involves an assessment as to the extent to which the act impinges on the international plane in terms of its gravity, international impact, and implications for international peace and security.
This position is maintained in the UNHCRs Note on the Impact of Security Council Resolution 1624 (2005) on the Application of Exclusion under Article 1F of the 1951 Convention relating to the Status of Refugees: The focus should . continue to be on the nature and impact of the acts themselves.
In many cases, the acts in question will meet the criteria for exclusion as serious non political crimes within the meaning of article 1F(b).
In others, such acts may come within the scope of article 1F(a), for example as crimes against humanity, while those crimes whose gravity and international impact is such that they are capable of affecting international peace, security and peaceful relations between states would be covered by article 1F(c) of the 1951 Convention.
Thus, the kinds of conduct listed in [preambular paragraph] 8 of Resolution 1624 ie acts, methods and practices of terrorism and knowingly financing, planning and inciting terrorist acts qualify for exclusion under article 1F(c), if distinguished by these larger characteristics. (Emphasis supplied)
B and D was decided by the Grand Chamber of the CJEU after the decision of the Court of Appeal in Al Sirri.
The principal question referred by the Bundesverwaltungsgericht was whether mere membership of or support for an organisation listed in the Annex to the Council Common Position of 17 June 2002 on the application of specific measures to combat terrorism constituted a serious non political crime within article 12(2)(b) or an act contrary to the purposes and principles of the United Nations within article 12(2)(c) of the Qualification Directive.
The Advocate General drew a distinction between terrorist acts in general, which depending upon the circumstances were likely to be categorised as serious non political crimes, and terrorist acts which were contrary to the purposes and principles of the United Nations.
As to the latter, in his view, the UNHCR Guidelines and Background Note suggested that it is nevertheless necessary to verify whether they have an international dimension, especially in terms of their seriousness and their impact and implications for international peace and security.
Within those limits, it therefore seems permissible to make a distinction between international terrorism and domestic terrorism (para 70, Adv Gen).
The Grand Chamber confirmed that terrorist acts, even if committed with a purportedly political objective, fall to be regarded as serious non political crimes (para 81).
Coming on to acts contrary to the principles and purposes of the United Nations, the Grand Chamber thought it clear from the Security Council Resolutions that the Security Council takes as its starting point the principle that international terrorist acts are generally speaking, and irrespective of any state participation, contrary to the purposes and principles of the United Nations (para 83).
It is for that reason that the appellant has conceded that non state actors can be guilty of such acts.
The Grand Chamber continued (para 84): It follows that as is argued in their written observations by all the governments which submitted such observations to the court, and by the European Commission the competent authorities of the Member States can also apply article 12(2)(c) of Directive 2004/83 to a person who, in the course of his membership of an organisation which is on the list forming the Annex to Common Position 2001/931, has been involved in terrorist acts with an international dimension.
The B and D case is prayed in aid on each side of the argument.
Mr Eicke, for the Secretary of State, correctly points out that the international dimension was not what the case was all about.
The principal issue was whether mere membership of and support for a listed organisation was sufficient for either article 12(2)(b) or (c) to apply.
The answer to this question was clearly no.
The national authorities had first to consider whether the acts committed by the organisation fell within those provisions and secondly whether individual responsibility for carrying out those acts could be attributed to the persons concerned.
In that context, little weight could be attached to the references to international terrorism and terrorist acts with an international dimension.
Against that, argues Mr Fitzgerald, it is clear that both the Advocate General and the Grand Chamber were drawing a distinction between paragraphs (b) and (c) of article 12(2).
There is no mention of an international element in the terrorist acts which could fall within paragraph (b), whereas the international element is referred to whenever reference is made to paragraph (c).
Discussion and conclusions
Approaching the matter in the light of the general principles discussed earlier, it is clear that the phrase acts contrary to the purposes and principles of the United Nations must have an autonomous meaning.
It cannot be the case that individual Member States are free to adopt their own definitions.
As Lord Steyn said in R v Secretary of State for the Home Department, Ex p Adan [2000] UKHL 67, [2001] 2 AC 477, In principle, there can be only one true interpretation of a treaty.
There is, at least as yet, no specialist international court or other body to adjudicate upon Member States compliance with the Refugee Convention.
The guidance given by the UNHCR is not binding, but should be accorded considerable weight, in the light of the obligation of Member States under article 35 of the Convention to facilitate its duty of supervising the application of the provisions of the Convention (see R v Asfaw [2008] AC 1061, per Lord Bingham at para 13, and R v Uxbridge Magistrates Court, Ex p Adimi [2001] QB 667, 678).
Within the European Union the Qualification Directive is designed to lay down minimum standards with which Member States must comply.
Sedley LJ correctly concluded that the adoption by section 54(2) of the 2006 Act of the meaning of terrorism contained in the 2000 Act has where necessary to be read down in an article 1F[(c)] case so as to keep its meaning within the scope of article 12(2)(c) of the Directive.
The United Nations Security Council has declared that acts, methods, and practices of terrorism are contrary to the purposes and principles of the United Nations and this is repeated in recital 22 to the Qualification Directive.
But it has done so in a context where there is as yet no internationally agreed definition of terrorism, no comprehensive international Convention binding Member States to take action against it, and where the international declarations adopted by the General Assembly are headed Measures to eliminate international terrorism.
Above all, however, the principal purposes of the United Nations are to maintain international peace and security, to remove threats to that peace, and to develop In those circumstances, it is our view that the appropriately cautious and friendly relations among nations.
It is also noteworthy that the CJEU, despite recital 22 to the Directive, consistently referred to international terrorism, when discussing article 12(2)(c) in B and D.
restrictive approach would be to adopt para 17 of the UNHCR Guidelines: Article 1F(c) is only triggered in extreme circumstances by activity which attacks the very basis of the international communitys coexistence.
Such activity must have an international dimension.
Crimes capable of affecting international peace, security and peaceful relations between states, as well as serious and sustained violations of human rights would fall under this category.
The essence of terrorism is the commission, organisation, incitement or threat of serious acts of violence against persons or property for the purpose of intimidating a population or compelling a government or international organisation to act or not to act in a particular way (see, for example, the definition in article 2 of the draft comprehensive Convention), as Sedley LJ put it in the Court of Appeal, the use for political ends of fear induced by violence (para 31).
It is, it seems to us, very likely that inducing terror in the civilian population or putting such extreme pressures upon a government will also have the international repercussions referred to by the UNHCR.
In this particular case, the AIT did not consider that any such repercussions were required, but commented that if we are wrong about that we consider the killing itself to be an act of terrorism likely to have significant international repercussions, as indeed it appears to have done (para 47).
When the case returns to the Tribunal, the Tribunal will have to consider the totality of the evidence and apply the test set out above.
Finally, is it enough to meet that test that a person plots in one country to destabilise conditions in another? This must depend upon the circumstances of the particular case.
It clearly would be enough if the government (or those in control) of one state offered a safe haven to terrorists to plot and carry out their terrorist operations against another state.
That is what the Taliban were doing by offering Osama bin Laden and Al Qaeda a safe haven in Afghanistan at the time.
As the UNHCR says, this would have clear implications for inter state relations.
The same may not be true of simply being in one place and doing things which have a result in another.
The test is whether the resulting acts have the requisite serious effect upon international peace, security and peaceful relations between states. (3) The case of DD
The facts
The appellant is a citizen of Afghanistan.
He arrived in the United Kingdom on 18 January 2007 and applied for asylum on the same day.
The basis of his claim was that he feared persecution because of his association with his brother AD, who was a well known Jamiat e Islami commander in Afghanistan.
Following the fall of the Najibullah government in 1992, the appellants brother became responsible for other commanders in the north of Afghanistan and formed a number of strategic alliances, ultimately allying himself with the Taliban.
The appellant acted as his deputy and commanded between 50 and 300 men.
He was later demoted and reduced to the command of no more than 20 men.
Following US military intervention in Afghanistan, the appellant and his brother fled to Pakistan.
In 2004, the appellants brother was assassinated in Pakistan by his enemies who held positions in the Karzai government of Afghanistan.
The appellant was also a target of the assassination attempt and sustained gunshot injuries.
After about a month, he returned to Afghanistan and sought protection from his enemies by joining a military grouping, Hizb e Islami.
He commanded 10 15 people and engaged in both offensive and defensive military operations against both the Afghan government and the forces of ISAF.
The appellants nephew (the son of his deceased brother) was killed in Peshawar in about September 2006.
The appellant was ordered to fight in his home area.
He decided that it would be too dangerous for him to do so as he had enemies there who were high ranking members of the Karzai government.
He fled once again to Pakistan and arrangements were made through an agent for him to travel from there to the United Kingdom.
He claimed asylum saying that he feared that, if he were returned to Afghanistan, he would be killed by his deceased brothers enemies or by Hizb e Islami as a traitor.
By letter dated 27 April 2007, the Secretary of State refused the claim on the grounds that the appellants account was not credible.
In particular, he did not accept the account that he gave of his role in Hizb e Islami.
By letter dated 6 August 2007, the Secretary of State gave supplementary reasons for the refusal.
These were that, even if the appellants claimed activities in Afghanistan were substantiated, he was not entitled to asylum in any event.
This was because his claim that he had fought against ISAF, if accepted, meant that he had been guilty of acts contrary to the purposes and principles of the United Nations and was therefore excluded from the definition of refugee by reason of article 1F(c) of the Refugee Convention.
The appellant appealed to the Asylum and Immigration Tribunal (AIT).
IJ Morgan found the appellant to be credible and allowed his appeal under the Refugee Convention and under article 3 of the European Convention on Human Rights (ECHR).
He had a well founded fear of persecution by his brothers enemies some of whom were members of the Karzai government.
The judge was not persuaded that the appellant had been guilty of acts contrary to the purposes and principles of the United Nations.
For reasons that are immaterial to the present appeal, a second stage reconsideration was ordered by SIJ Moulden.
The second stage reconsideration was conducted by IJ Simpson who, by a determination promulgated on 28 August 2008, allowed the appellants appeal on both asylum and article 3 of the ECHR grounds.
The judge found the appellant to be credible, except that she rejected his assertion that his actions with Hizb e Islami in Afghanistan were defensive.
He had a longstanding history of military involvement in Afghanistan, including at a high level, deputy to his Commander brother, and independently a Commander in Hizb e Islami Hekmatayar in Kunar.
There were prima facie grounds for considering his actions were both offensive and defensive.
As regards article 1F(c), the judge concluded that section 54 of the 2006 Act (see para 7 above), which came into effect on 31 August 2006, appeared to have effected a substantive change in the law and that, as a matter of natural justice, it applied only to acts after it came into force, that is from September 2006.
She concluded at para 151: Having regard to the combined lack of specificity of evidence of the appellants conduct with Hizb e Islami and the highly reasonable likelihood, given the chronology, that his involvement with Hizb e Islami was at its end stage after September 2006 and the coming into effect of section 54, I find in sum there are not serious grounds for considering he committed a barred act(s).
I find article 1F(c) does not apply.
The Court of Appeal
The issues before the Court of Appeal concerned (i) the interpretation and applicability of the 2006 Act and (ii) whether and, if so, to what extent on the AITs findings the appellant had been guilty of acts contrary to the purposes and principles of the United Nations within the meaning of article 1F(c) of the Refugee Convention.
Pill LJ (with whom Rimer and Black LJJ agreed) allowed the Secretary of States appeal.
He held that, on the findings of the AIT, the appellant had not committed any acts of terrorism within the meaning of section 54 of the 2006 Act.
The nub of the courts reasoning on the article 1F(c) point is contained in para 64 of Pill LJs judgment: The UN Security Council has mandated forces to conduct operations in Afghanistan.
The force is mandated to assist in maintaining security and to protect and support the UNs work in Afghanistan so that its personnel engaged in reconstruction and humanitarian efforts can operate in a secure environment.
Direct military action against forces carrying out that mandate is in my opinion action contrary to the purposes and principles of the United Nations and attracts the exemption provided by article 1F(c) of the Convention.
As we explain below, we substantially agree with this conclusion.
The Court of Appeal nevertheless remitted the case for reconsideration by the Upper Tribunal because the AIT had failed to consider the appellants individual responsibility as required by this Court in JS (Sri Lanka) (and by the CJEU in B and D) and whether he had been guilty of acts contrary to the purposes and principles of the United Nations.
The United Nations and Afghanistan
Ever since the Soviet withdrawal from Afghanistan in 1989, the United Nations has been trying to bring an end to the fighting that has been taking place in that country.
As long ago as 28 August 1998, Security Council Resolution 1193 called for a ceasefire and expressed grave concern about the continuing Afghan conflict and the Taliban forces offensive which was causing a serious and growing threat to regional and international peace and security, as well as extensive human suffering.
Similar resolutions followed.
For security reasons, all international United Nations personnel were withdrawn from Afghanistan in September 2001.
On 5 December 2001, the participants in the United Nations Talks on Afghanistan entered into the Bonn Agreement on Provisional Arrangements in Afghanistan Pending the Re establishment of Permanent Government Institutions.
The participants pledged their commitment to do all within their means and influence to ensure that security was provided in Afghanistan.
They agreed that an Interim Authority should be established (to be the repository of Afghan sovereignty) and that, pending the establishment and training of new Afghan security and armed forces, they would request the United Nations Security Council to consider authorising the early deployment in Afghanistan of a United Nations mandated force to assist in the maintenance of security in Kabul and its surrounding areas.
By Resolution 1383 (6 December 2001), the Security Council endorsed the Bonn Agreement.
By Resolution 1386 (20 December 2001), acting under Chapter VII of the United Nations Charter, the Security Council authorised the establishment for 6 months of ISAF to assist the Afghan Interim Authority in the maintenance of security in Kabul and its surrounding areas, so that the Afghan Interim Authority as well as the personnel of the United Nations can operate in a secure environment.
The resolution (i) authorised the Member States participating in ISAF to take all necessary measures to fulfil its mandate; called upon ISAF to work in close consultation with the Afghan Interim Authority in the implementation of the force mandate; (ii) called upon all Afghans to cooperate with ISAF; and (iii) called upon the Member States participating in ISAF to provide assistance to help the Afghan Interim Authority in the establishment and training of new Afghan security and armed forces.
On 18 March 2002, the Secretary General submitted a long report entitled The situation in Afghanistan and its implications for international peace and security.
The report contained a good deal of detail about the situation and expressed the hope that the Security Council would support the wish of the Afghan people for the expansion of the operation of ISAF.
At para 95, it said: the next step, to ensure that all United Nations efforts are harnessed to fully support the implementation of the Bonn Agreement, would be to integrate all the existing United Nations elements in Afghanistan into a single mission, the United Nations Assistance Mission in Afghanistan (UNAMA).
The missions mandate would be (i) to fulfil the tasks and responsibilities, including those related to human rights, the rule of law and gender issues, entrusted to the United Nations in the Bonn Agreement, which were endorsed by the Security Council in its resolution 1383 (2001); (ii) to promote national reconciliation and rapprochement throughout the country; and (iii) to manage all United Nations humanitarian relief, recovery and reconstruction activities in Afghanistan under the overall authority of the United Nations Special Representative and in coordination with the Interim Authority and successor administrations of Afghanistan.
By Resolution 1401 (28 March 2002), the Security Council endorsed the establishment of UNAMA for an initial period of 12 months with the mandate and structure set out in the Secretary Generals report of 18 March 2002.
By Resolution 1413 (23 May 2002), the Security Council extended the mandate of ISAF for a further 6 months from 20 June 2002, authorising the Member States participating in ISAF to take all necessary steps to fulfil its mandate.
By one of its recitals, the Security Council determined that the situation in Afghanistan still constituted a threat to international peace and security.
The mandate was extended for a further year beyond 20 December 2002 by Resolution 1444 (27 November 2002).
Once again, the threat to international peace and security posed by the situation in Afghanistan was recorded.
The mandate of UNAMA was extended for a further period of 12 months by Resolution 1471 (28 March 2003).
On 23 July 2003, the Secretary General reported on the situation in Afghanistan and its implications for international peace and security.
At para 67 of his report, he said that the consequences of failing to provide for sufficient security for the Bonn process to succeed may have implications far beyond Afghanistan.
On 11 August 2003, NATO assumed command of ISAF.
By Resolution 1510 (13 October 2003), the Security Council extended ISAFs mandate for a further 12 months to allow it, as resources permit, to support the Afghan Transitional Authority and its successors in the maintenance of security in areas of Afghanistan outside Kabul and its environs, so that the Afghan Authorities as well as the personnel of the United Nations and other international civilian personnel engaged, in particular in reconstruction and humanitarian efforts, can operate in a secure environment, and to provide security assistance for the performance of other tasks in support of the Bonn Agreement.
It called upon ISAF to continue to work in close consultation with the Afghan Transitional Authority and its successors as well as the Special Representative of the Secretary General.
By its recitals, the Security Council recognised that the responsibility for providing security and law and order throughout the country resided with the Afghans themselves and welcomed the continuing cooperation of the Afghan Transitional Authority with ISAF.
Yet again, the resolution recorded that the situation still constituted a threat to international peace and security.
By Resolution 1536 (26 March 2004), the Security Council extended the mandate of UNAMA for a further 12 months.
By Resolution 1563 (17 September 2004), the mandate of ISAF was extended for a further 12 months beyond 13 October 2004.
In subsequent years, the mandates of UNAMA and ISAF were again extended for periods of 12 months at a time.
As will become apparent, the differences between ISAF and UNAMA have assumed some importance in this case.
ISAF is an armed force, but it is not a United Nations force.
It has never been under direct United Nations command.
It was initially under the lead command of single nations (starting with the United Kingdom).
Since August 2003 it has been under the command of NATO.
On the other hand, UNAMA is an assistance mission under United Nations control.
It is not an armed force.
But the objectives of ISAF and UNAMA are essentially the same, although the means by which they seek to achieve them differ.
In particular, they both aim to promote the Bonn Agreement and to maintain peace and security in Afghanistan, thereby reducing the threat to international peace and security posed by the situation in Afghanistan.
Some of the more recent Security Council resolutions explicitly make the link between the two organisations.
Thus, recital 7 to Resolution 1776 (19 September 2007) is in these terms: Stressing the central role that the United Nations continues to play in promoting peace and stability in Afghanistan, noting, in the context of a comprehensive approach, the synergies in the objectives of the United Nations Assistance Mission in Afghanistan (UNAMA) and of ISAF, and stressing the need for further sustained cooperation, coordination and mutual support, taking due account of their respective designated responsibilities (underlining added).
Similar language appears in the recitals to Resolution 1806 (20 March 2008), Resolution 1833 (22 September 2008), Resolution 1868 (23 March 2009) and subsequent resolutions.
The appellants case on article 1F(c)
Mr Drabble QC, on behalf of DD, relies upon the general approach to article 1F(c) discussed earlier.
In particular, he argues that participation in an armed attack against forces operating under and carrying out a United Nations mandate does not without more engage article 1F(c).
Armed insurrection is not, in itself, contrary to the purposes and principles of the United Nations.
Internal armed conflict is now covered by international humanitarian law, in the shape of the 1949 Geneva Conventions.
United Nations mandated forces are often deployed during or after an armed conflict, where international humanitarian law provides the appropriate legal framework for determining the lawfulness of armed attacks against them.
The distinction between ISAF and UNAMA is crucial to the argument.
Armed attacks on UNAMA could be characterised as contrary to the purposes and principles of the United Nations.
UNAMA is a non combatant peacekeeping force which is protected under the 1994 Convention and the 2005 Protocol on the Safety of United Nations and Associated Personnel, whereas ISAF is not.
Article 1(a)(i) of the 1994 Convention defines United Nations Personnel as persons engaged or deployed by the Secretary General of the United Nations as members of the military, police or civilian components of a United Nations operation.
Article 1(c) defines a United Nations operation as an operation established by the component organ of the United Nationsand conducted under United Nations authority and control.
Article 9 provides that various specified acts against any United Nations or associated personnel (including murder or other attacks) shall be made by each State Party a crime under its national law.
But article 2(2) provides that the Convention is not to apply to a United Nations operation authorised by the Security Council as an enforcement action under Chapter VII of the Charter of the United Nations in which any of the personnel are engaged as combatants against organised armed forces and to which the law of international armed conflict applies.
Article 2(2) is consistent with the broad principle that the laws of war apply to UN forces engaged in hostilities, and therefore such forces do not have immunity from attack: p 624 of Documents on the Laws of War, ed Roberts and Guelff, 3rd ed (2000).
The distinction between combatants and peacekeeping personnel was considered by the Special Court for Sierra Leone in Prosecutor v Issa Hassan Sesay, Morris Kallon & Augustine Gbao (Case No SCSL 04 15T, 2 March 2009).
In that case, the Special Court handed down the first convictions for the war crime of attacking personnel involved in a peacekeeping operation, namely members of the United Nations Assistance Mission in Sierra Leone, who were entitled to the protection given to civilians under the international law of armed conflict.
Therefore, it is argued, military activities against United Nations mandated forces should only provide a basis for exclusion under article 1F(c) where (i) the act or acts in question constitute a crime in international law; or (ii) the act or acts, which must be of sufficient gravity to have a negative impact on international peace and security, have been specifically identified as contrary to the purposes and principles of the United Nations, either by clear decision of the Security Council acting within its competence, or by way of agreement or consensus among states at large; and (iii) there are serious reasons for considering that the individual concerned was personally responsible for the act or acts in question.
Discussion and conclusions
The acts relied on by the Secretary of State are acts of violence by the appellant against ISAF, the international force that was mandated by the United Nations for the express purpose of maintaining peace and security in Afghanistan, thereby assisting in the maintaining of international peace and security.
Time and again, the resolutions of the Security Council recorded that the role and responsibility of ISAF was to assist in the maintaining of international peace and security.
This is one of the most important purposes set out in article 1 of the United Nations Charter (see para 10 above).
In these circumstances, it might be thought to be obvious at first sight that such acts are contrary to the purposes and principles of the United Nations.
It is noteworthy that Mr Drabble (rightly) accepts that, if the appellant had been guilty of fighting UNAMA, he would in principle have been guilty of acts contrary to the purposes and practices of the United Nations.
We say in principle, because it would still be necessary to examine all the facts (as per B and D).
So why does it make any difference that the appellant was fighting ISAF rather than attacking UNAMA? That the aims and objectives of ISAF and UNAMA are congruent is amply borne out by the Security Council Resolutions: see para 58 above.
The answer given by Mr Drabble and Mr Fordham is that the 1994 Convention and 2005 Protocol would apply to attacks on UNAMA, but not to attacks on ISAF.
Peacekeeping forces, unlike combat forces, are entitled to the same protection against attack as that accorded to civilians under international humanitarian law, as long as they are not taking a direct part in hostilities.
Under the Statute of the International Criminal Court (articles 8(2)(b)(iii) and 9(e)(iii)), intentionally directed attacks against personnel involved in a peacekeeping mission in accordance with the Charter of the United Nations constitute a war crime: see rule 33 in Customary International Humanitarian Law vol 1:Rules (2005, International Committee of the Red Cross).
We accept the points made by Mr Drabble and Mr Fordham about the differences between ISAF and UNAMA which are summarised at paras 60 and 61 above.
These differences are not in doubt.
But they are not material to the issue of whether the appellant is excluded from the refugee status by article 1F(c).
The question which rules of law apply to attacks on ISAF and UNAMA is categorically different from (and irrelevant to) the question whether an attack against either body is contrary to the purposes and principles of the United Nations.
This latter question must be determined on an examination of all the relevant facts.
These include the terms of the Security Council Resolutions by which ISAF was mandated in the first place, and by which its mandate was renewed from time to time.
Mr Drabble submits that it is relevant to the issue in this case that, although the Security Council has mandated many military enforcement operations, it has never sought to characterise opposition, even armed opposition, as contrary to the purposes and principles of the United Nations.
In some cases, a United Nations resolution explicitly states that a particular activity is contrary to the purposes and principles of the United Nations. (One example is the condemnation of international terrorism in General Assembly resolution 49/60, referred to in para 27 above.) However, it is not suggested, either by the UNHCR or by the Supreme Court of Canada in Pushpanathan, that this is the only criterion.
In our view, the principled test is that put forward by the UNHCR in para 17 of its Guidelines and quoted at para 38 above.
In Pushpanathan, the court did not have to consider whether an attack on a United Nations body or a United Nations mandated body constitutes acts contrary to the purposes and principles of the United Nations.
We conclude that there is no basis for the view that such an attack can only be regarded as an act contrary to the purposes and principles of the United Nations in circumstances where (i) it is by consensus in international law explicitly recognised as being contrary to these purposes and principles, or (ii) it amounts to a serious and sustained violation of fundamental human rights.
This conclusion is consistent with Mr Drabbles acceptance that an attack on UNAMA is in principle capable of satisfying article 1F(c), despite the fact that there appears to be no United Nations resolution (or other formal international decision) which explicitly recognises that an attack against UNAMA would be contrary to the purposes and principles of the United Nations.
In short, an attack on ISAF is in principle capable of being an act contrary to the purposes and principles of the United Nations.
The fundamental aims and objectives of ISAF accord with the first purpose stated in article 1 of the United Nations Charter.
By attacking ISAF, the appellant was seeking to frustrate that purpose.
To hold that his acts are in principle capable of being acts contrary to the purposes and principles of the United Nations accords with common sense and is correct in law.
This conclusion accords with that of Hogan J in the High Court of Ireland in B v Refugee Appeals Tribunal and others [2011] IEHC 198 at para 56.
For these reasons, we agree with the conclusion of the Court of Appeal, quoted in para 47 above.
(4) Standard of proof
This issue arises in an acute form in Al Sirri but could arise in any proposed exclusion under article 1F.
The article requires that there be serious reasons for considering that the individual asylum seeker has committed the crimes referred to in article 1F(a) or (b) or been guilty of the acts referred to in article 1F(c).
In Al Sirri, it was argued in the Court of Appeal that this imported the criminal standard of proof beyond reasonable doubt.
In rejecting that submission, Sedley LJ said this, at para 33: . it clearly sets a standard above mere suspicion.
Beyond this, it is a mistake to try to paraphrase the straightforward language of the Convention: it has to be treated as meaning what it says.
In JS (Sri Lanka), at para 39, Lord Brown was inclined to agree with this
passage, having also pointed out that . serious reasons for considering obviously imports a higher test for exclusion than would, say, an expression like reasonable grounds for suspecting.
Considering approximates rather to believing than to suspecting.
In Al Sirri, the Common Serjeant had considered that the evidence admissible in a criminal trial for conspiracy to murder General Masoud was as consistent with innocence as with guilt.
Thus he, at least, was not satisfied of Al Sirris guilt even on the balance of probabilities.
Mr Fitzgerald QC argues that it is not possible to have serious reasons for considering a person to have committed a crime or be guilty of a particular act unless you can be satisfied that it is more likely than not that he did it.
In this he is less ambitious than the UNHCR.
Its 2003 Guidelines, at para 35, state that clear and credible evidence is required.
It is not necessary for an applicant to have been convicted of a criminal offence, nor does the criminal standard of proof need to be met.
However, the 2003 Background Note, at para 107, also states that: . in order to ensure that article 1F is applied in a manner consistent with the overall humanitarian objective of the 1951 Convention, the standard of proof should be high enough to ensure that bona fide refugees are not excluded erroneously.
Hence, the balance of probabilities is too low a threshold.
He also relies upon the Australian case of W97/164 v Minister for Immigration and Multicultural Affairs [1998] AATA 618, in which Mathews J said this at para 42: The article provides a direction to decision makers in words that are clear of meaning and relatively easy of application.
To re state this test in terms of a standard of proof is unnecessary and may in some cases lead to confusion and error.
But she went on in para 43 to say this: I find it difficult to accept that the requirement that there be serious reasons for considering that a crime against humanity has been committed should be pitched so low as to fall, in all cases, below the civil standard of proof.
The seriousness of the allegation itself and the extreme consequences which can flow from an alternative finding upon it would, in my view, require a decision maker to give substantial content to the requirement that there be serious reasons for considering (emphasis added) that such a crime has been committed.
On the other hand, in Arquita v Minister for Immigration and Multi cultural Affairs [2000] FCA 1889, 106 FCR 465, at para 54, Weinberg J disagreed.
There must be evidence available upon which it could reasonably and properly be concluded that the applicant has committed the crime alleged.
To meet that requirement, the evidence must be capable of being regarded as strong.
But evidence could properly be characterised as strong without meeting either the criminal or the civil standard of proof.
He did, however, say at para 58 that it would have to go beyond establishing merely that there was a prima facie case.
The New Zealand courts have followed the Court of Appeal in Al Sirri in taking the view that the Refugee Convention simply means what it says and that adding glosses by analogy with civil litigation or criminal prosecution simply confuses matters: see Hammond J in Tamil X v Refugee Status Appeals Authority; Attorney General (Minister of Immigration) v Y [2009] NZCA 488, [2009] 2 NZLR 73, paras 77, 79; upheld by the Supreme Court in Attorney General (Minister of Immigration) v Tamil X [2010] NZSC 107, [2011] 1 NZLR 721, para 39.
In Canada, the courts have adopted a lower standard of proof than the balance of probabilities: see Ramirez v Minister of Employment and Immigration (1992) 89 DLR (4th) 173, para 5.
But in Cardenas v Canada (Minister of Employment and Immigration) [1994] FCJ No 139, it was said that the Board must base its decision to exclude only on clear and convincing evidence, not simply on suspicion and speculation.
And the German Bundesverwaltungsgericht has said that as a rule, reasons are good when there is clear, credible evidence that such crimes have been committed (BVerwG 10 C 2.10).
We are, it is clear, attempting to discern the autonomous meaning of the words serious reasons for considering.
We do so in the light of the UNHCR view, with which we agree, that the exclusion clauses in the Refugee Convention must be restrictively interpreted and cautiously applied.
This leads us to draw the following conclusions: (1) Serious reasons is stronger than reasonable grounds. (2) The evidence from which those reasons are derived must be clear and credible or strong. (3) Considering is stronger than suspecting.
In our view it is also stronger than believing.
It requires the considered judgment of the decision maker. (4) The decision maker need not be satisfied beyond reasonable doubt or to the standard required in criminal law. (5) It is unnecessary to import our domestic standards of proof into the question.
The circumstances of refugee claims, and the nature of the evidence available, are so variable.
However, if the decision maker is satisfied that it is more likely than not that the applicant has not committed the crimes in question or has not been guilty of acts contrary to the purposes and principles of the United Nations, it is difficult to see how there could be serious reasons for considering that he had done so.
The reality is that there are unlikely to be sufficiently serious reasons for considering the applicant to be guilty unless the decision maker can be satisfied on the balance of probabilities that he is.
But the task of the decision maker is to apply the words of the Convention (and the Directive) in the particular case.
(5) Disposal
We would dismiss the appeal in DD.
The object of his argument was to establish that his activities could not be contrary to the principles and purposes of the United Nations.
In this he has failed.
However, the Court of Appeal were correct to hold that there were material errors of law in the AITs findings in that they failed to examine the appellants conduct in the manner prescribed by this court in JS and to consider whether he had been guilty of acts contrary to the purposes and principles of the United Nations.
The order remitting the case to the Upper Tribunal for reconsideration should stand.
The appeal in Al Sirri is rather different.
Technically, the appellant has challenged the decision of the Court of Appeal to remit his case to the tribunal, rather than to find that he was not excluded from the status of refugee.
We would dismiss that appeal.
But the reality is that he was challenging certain aspects of the guidance given to the tribunal which would hear the remitted case.
In that he has succeeded to some extent.
Consideration will also have to be given to whether it is more appropriate for the case to be remitted to the First tier or to the Upper Tribunal, given that the evidence will have to be examined afresh.
The parties therefore have 14 days from the date of judgment to file their submissions as to the precise form of the order and as to costs.
| UK-Abs | These appeals concern a little used provision in article 1F(c) of the Geneva Convention on the Status of Refugees.
This excludes from protection any person with respect to whom there are serious reasons for considering thathe has been guilty of acts contrary to the purposes and principles of the United Nations.
Both appellants have been refused the grant of refugee status by the respondent on this ground.
Al Sirri is a citizen of Egypt who arrived in the UK in 1994.
The facts relied on for the refusal of his asylum claim included his possession of and contribution to books connected with Al Qaeda and other proscribed organisations and his alleged involvement in the murder of General Masoud in Afghanistan in 2001.
The issue raised by his case is whether all activities defined as terrorism by United Kingdom domestic law are for that reason acts falling within article 1F(c), or whether such activities must constitute a threat to international peace and security.
DD is a citizen of Afghanistan who came to the UK in 2007.
His claim for asylum was based on his fear of persecution as the brother of the leader of forces allied with the Taliban, who had fought against both the Afghan government and the UN mandated International Security Assistance Force (ISAF).
In his case the question is whether armed insurrection against not only the incumbent government but also a UN mandated force supporting that government falls within article 1F(c).
In both appeals the issue also arises as to what is meant by serious reasons for considering a person to be guilty of the act in question.
The appellants appealed against the respondents refusal to grant asylum.
On 18 March 2009 the Court of Appeal set aside the determination of the Asylum and Immigration Tribunal (AIT) in Al Sirris case and remitted it to be determined afresh omitting certain matters on which the respondent had sought to rely.
DD was initially successful in his appeals but the Court of Appeal remitted his case for reconsideration by the Upper Tribunal because the AIT had failed to consider DDs individual responsibility and whether he fell within article 1F(c).
Both appellants have nonetheless pursued an appeal to the Supreme Court in order to challenge the approach of the Court of Appeal to the interpretation of article 1F(c) in a number of respects.
The Supreme Court unanimously dismisses both appeals.
Both cases will now be remitted to the relevant tribunal for reconsideration in accordance with the orders of the Court of Appeal.
In the case of Al Sirri the guidance given to that tribunal should be in line with the judgment of the Supreme Court.
The judgment is given by Lady Hale and Lord Dyson, with whom the other justices agree.
The general approach to article 1F(c) Article 1F(c) should be interpreted restrictively and applied with caution.
There should be a high threshold defined by the gravity of the act in question, the manner in which the act is organised, its international objectives and its implications for international peace and security.
There should be serious reasons for considering that the person concerned bore individual responsibility for acts of that character [16].
International dimension It is clear that the phrase acts contrary to the purposes and principles of the United Nations must have an autonomous meaning and member states are not free to adopt their own definitions.
There is as yet no internationally agreed definition of terrorism.
It was appropriately cautious therefore to adopt paragraph 17 of the United Nations High Commissioner for Refugees (UNHCR) Guidelines which provided that article 1F(c) was only triggered in extreme circumstances by activity which attacks the very basis of the international communitys co existence.
Such activity must have an international dimension.
Crimes capable of affecting international peace, security and peaceful relations between States, as well as serious and sustained violations of human rights would fall under this category [36 38].
It could be enough if one person plotted in one country to destabilise another.
The test was whether the resulting acts had the requisite serious effect upon international peace [40].
Armed insurrection against UN mandated forces DD had been engaged in fighting against ISAF in Afghanistan.
ISAF was an armed force under the lead command of individual nations authorised by the UN from 2001, and was distinct from the United Nations Assistance Mission in Afghanistan (UNAMA), which was established in 2002 as a peacekeeping force.
Both ISAF and UNAMA had the same objective to maintain peace and security in Afghanistan.
DD argued that simple participation in an attack against UN mandated forces did not engage article 1F(c).
The Supreme Court agreed that the protection for ISAF against attack was not the same as for peacekeeping forces.
This was not however material to the issue under article 1F(c) which was to be judged under the same principle in paragraph 17 of the UNHCR Guidelines quoted above [66].
The fundamental aims and objectives of ISAF accorded with the purposes stated in the UN Charter and DD was seeking to frustrate that purpose [68].
Standard of proof This issue arose in acute form in Al Sirri.
Al Sirri had been indicted at the Old Bailey in relation to the murder of General Masoud but the charge was dismissed on the ground that the evidence was as consistent with his innocence as it was with his guilt.
Article 1F(c) required that there be serious reasons for considering that the asylum seeker had been guilty of the acts.
This had an autonomous meaning, and was not the same as the criminal standard of proof beyond reasonable doubt, or any domestic standard.
Serious reasons was stronger than reasonable grounds, strong or clear and credible evidence had to be present and the considered judgment of the decision maker was required.
The reality was that there were unlikely to be sufficiently serious reasons for considering an applicant to be guilty unless the decision maker could be satisfied that it was more likely than not that he was.
But the task of the decision maker was to apply the words of article 1F(c) in the particular case [75].
|
The appellant is the brother of the late Alan Austin (the deceased) who was the tenant of a dwelling house at 52 Michael Faraday House, Thurlow Street, London.
The London Borough of Southwark (the Council) granted the deceased a tenancy of the premises on 12 July 1983.
It was a secure tenancy under the Housing Act 1980.
The provisions of that Act were consolidated in the Housing Act 1985 (the 1985 Act).
In June 1986 the Council brought a claim against the deceased in Lambeth County Court for possession of the premises, relying on the fact that he was in arrears of rent.
An order for possession was made against him on 4 February 1987.
It was a conditional suspended possession order, issued in the form then current which was Form N28.
It provided that it was not to be enforced so long as the deceased paid the arrears of rent, amounting to 3,312.98, by 4 March 1987.
The deceased failed to comply with the terms of the order, so on 4 March 1987 it became enforceable.
But he remained in the premises, paying rent plus amounts towards the arrears, until his death 18 years later on 8 February 2005.
Prior to his death the deceased had been suffering from a chronic illness which proved to be terminal.
The appellant maintains that he moved in to live with his brother in October 2003 and became the deceaseds full time carer.
The Council does not accept the appellants claim that he resided at the premises prior to the deceaseds death.
This has not yet been established as a fact.
The deceased died intestate.
No grant of probate or administration has been made, and he has no personal representative.
On 11 September 2006 the Council served a notice to quit on the appellant, and in January 2007 it issued proceedings against him in Lambeth County Court for possession of the premises.
Those proceedings are currently stayed, pending the outcome of this appeal.
On 29 March 2007 the appellant lodged an application in Lambeth County Court seeking to be appointed to represent the deceaseds estate in the possession proceedings which had been brought in 1986, pursuant to CPR 19.8.
If so appointed, his intention is to apply to the County Court under section 85(2)(b) of the 1985 Act for postponement of the date for possession in the order that was issued against the deceased in 1987.
If that application is successful, it would have the effect of reviving the deceaseds secure tenancy.
The appellant would then seek to show that he was resident in the premises throughout the period of twelve months that ended with the deceaseds death.
If that is found to have been the case, the deceaseds secure tenancy will vest in the appellant by virtue of section 87 of the 1985 Act.
On 5 September 2007 the appellants application to be appointed to represent the deceaseds estate in the original possession proceedings was dismissed by HHJ Welchman.
On 29 January 2008 Flaux J dismissed the appellants appeal against its dismissal: [2008] EWHC 355 (QB).
On 16 February 2009 the Court of Appeal (Pill, Arden and Longmore LJJ) dismissed the appellants appeal against the order of Flaux J: [2009] EWCA Civ 66.
He now appeals to this Court.
The issues
It has until now been assumed that a secure tenancy ends at the moment when the tenant is in breach of the terms of a conditional suspended possession order.
In his annotations to the 1985 Act in Current Law Statutes the annotator, Andrew Arden, seems to have entertained no doubt on the point.
He said of section 82(2) that when the tenancy is brought to an end by the court under that subsection it ends on the date the court specifies, not at any later date when the tenant is actually evicted.
In Thompson v Elmbridge Borough Council [1987] 1 WLR 1425, 1430 1431 Russell LJ described the effect of the subsection in this way: In my judgment, once the defendant in proceedings of this kind where there is a suspended order for possession, ceases to comply with the conditions of the order, namely, the punctual payment of the current rent and arrears, and there is a breach of the terms of the order, the tenancy, whatever it may be, from that moment comes to an end.
In Burrows v Brent London Borough Council [1996] 1 WLR 1448, 1457 Lord Jauncey of Tullichettle, referring to the decision in Thompson, said that if the court makes an order but postpones the date of possession the tenancy will not be terminated under section 82(2) until any condition imposed under subsection (3) has been breached by the tenant.
He added these words: However, the courts power to make an order postponing the date of possession is not restricted to exercise on the first application for an order for possession but may be exercised on the application of either party at any time prior to execution of that order and even after the secure tenancy has ended by reason of section 82(2).
This is made clear by the words in section 85(2) or at any time before the execution of the order: see also Greenwich London Borough Council v Regan, 28 HLR 469, 476, per Millett LJ.
In such an event the secure tenancy is reinstated or revived subject to any conditions imposed under subsection (3).
Encouraged by observations to the contrary effect by Lord Neuberger of Abbotsbury in Knowsley Housing Trust v White [2009] AC 636, para 91, the appellant now seeks to challenge this assumption.
He submits that a secure tenancy does not end on breach of a conditional suspended possession order but endures until the order for possession is executed.
That is the first issue in this appeal.
On the assumption that a secure tenancy ends on breach of the terms of a conditional suspended possession order, a former tenant who continues in occupation assumes an unusual status.
It has come to be known as that of a tolerated trespasser.
Commenting on this expression in Knowsley, paras 3 4, Lord Walker of Gestingthorpe described the phrase as rather unfortunate, but he concluded that it was too firmly embedded to be dislodged.
If the appellant is right on the first issue, however, the deceased was still a tenant when he died.
The description of him and so many other secure tenants who are in the same position as he was as tolerated trespassers will be consigned to history.
The appellant has an alternative argument, should he not succeed on the first issue.
Until now it has been assumed that the right of a former secure tenant to apply for postponement of the date for possession to enable him to remedy the default, and thus revive a secure tenancy under section 85(2) of the 1985 Act according to the principles described by Millett LJ in Greenwich London Borough Council v Regan (1996) 28 HLR 469, 476, did not survive the death of the former secure tenant.
In Brent London Borough Council v Knightley (1997) 29 HLR 857, 862 Aldous LJ said that the right to apply for a postponement of an order for possession was not an interest in land capable of being inherited.
It was held that the daughter of a deceased tolerated trespasser who had resided with her could not apply under that subsection for the revival of the tenancy.
The appellant submits that that case was wrongly decided.
So the second issue is whether the former tenants statutory right to apply to postpone the date for possession, and thus revive the secure tenancy, survives his death and passes to the estate of the deceased former tenant.
In support of the position which he seeks to advance on the second issue the appellant submits that the statutory right to apply to the court under section 85(2) is a possession, the enjoyment of which is protected within the meaning of article 1, Protocol 1 of the European Convention on Human Rights.
If so, he submits that a construction of section 85(2) which holds that the right determines on death would be contrary to that provision and should not be adopted.
Those are the third and fourth issues.
The fifth issue is whether, if the statutory right to apply under section 85(2) endures beyond the death of a former tenant, the deceased was a person who had an interest in a claim for the purposes of CPR 19.8 and, if so, what claim.
But the respondent accepts that, if the claimed right did exist at the date of the deceaseds death, the appellant would be entitled to apply to the court under that rule.
The statutory provisions
It is not necessary to do more to describe the general background than to refer to Lord Neubergers summary of the law governing residential security of tenure in Knowsley [2009] AC 636, paras 30 47.
There were three appeals in that case.
They raised issues about the effect of suspended possession orders on the status and rights of secure tenants under the 1985 Act and assured tenants under the Housing Act 1988.
It was held that an assured tenancy subject to a suspended possession order ended only when possession was delivered up, but that reconsideration of the approach that had been adopted to secure tenancies under the 1985 Act was inappropriate since it derived from long standing authority, had been applied in numerous cases and would be resolved by section 299 of and Schedule 11 to the Housing and Regeneration Act 2008 (the 2008 Act) which had amended and clarified the law.
I shall come back to examine that part of the decision in Knowsley later.
As we are concerned in this case only with secure tenancies, I shall concentrate on the relevant provisions of the 1985 Act as originally enacted and on the amendments that were introduced by the 2008 Act.
It should be noted that the relevant provisions of the 2008 Act were, for the most part, prospective only.
They took effect from the commencement date of Schedule 11, which was 20 May 2009: Housing and Regeneration Act 2008 (Commencement No 5) Order 2009 (SI 2009/1261).
Section 79(1) of the 1985 Act provides that a tenancy under which a dwelling house is let as a separate dwelling is a secure tenancy at any time when the conditions described in sections 80 and 81 as the landlord condition and the tenant condition are satisfied.
Section 80(1) provides that the landlord condition is that the interest of the landlord is vested in one or more of the authorities or bodies listed in that subsection, which include a local authority.
Section 81 provides that the tenancy condition is satisfied if the tenant is an individual and occupies the dwelling house as his only or principal home.
Section 82 deals with security of tenure.
As originally enacted, subsections (1) to (3) of this section were in these terms: (1) A secure tenancy which is either (a) a weekly or other periodic tenancy, or (b) a tenancy for a term certain but subject to termination by the landlord, cannot be brought to an end by the landlord except by obtaining an order of the court for the possession of the dwelling house or an order under subsection (3). (2) Where the landlord obtains an order for the possession of the dwelling house, the tenancy ends on the date on which the tenant is to give up possession in pursuance of the order. (3) Where a secure tenancy is a tenancy for a term certain but with a provision for re entry or forfeiture, the court shall not order possession of the dwelling house in pursuance of that provision, but in a case where the court would have made such an order it shall instead make an order terminating the tenancy on a date specified in the order and section 86 (periodic tenancy arising on termination of a fixed term) shall apply.
As amended by para 2 of Part 1 of Schedule 11 to the 2008 Act with effect from 20 May 2009, the opening subsections of section 82 now provide: (1) A secure tenancy which is either (a) a weekly or other periodic tenancy, or (b) a tenancy for a term certain but subject to termination by the landlord, cannot be brought to an end by the landlord except as mentioned in subsection 1A. (1A) The tenancy may be brought to an end by the landlord (a) obtaining (i) an order of the court for the possession of the dwelling house, and (ii) the execution of the order, (b) obtaining an order under subsection (3), or (c) obtaining a demotion order under section 82A. (2) In the case mentioned in subsection (1A)(a), the tenancy ends when the order is executed.
Section 83 provides that the court shall not entertain proceedings for the possession of a dwelling house let under a secure tenancy unless the landlord has served on the tenant a notice complying with the provisions of that section.
Section 84 deals with the grounds on which an order for possession may be made.
In cases where the tenant is in arrears of rent they require the landlord to satisfy the court that it is reasonable to make such an order before the court will order possession.
In such a case the court is given very wide and flexible powers by section 85.
Subsections (1) (2) and (3) of this section, as originally enacted, were in these terms: (1) Where proceedings are brought for possession of a dwelling house let under a secure tenancy on any of the grounds set out in . ([being] cases in which the court must be satisfied that it is reasonable to make a possession order), the court may adjourn the proceedings for such period or periods as it thinks fit. (2) On the making of an order for possession of such a dwelling house on any of those grounds, or at any any time before the execution of the order, the court may (a) stay or suspend the execution of the order, or (b) postpone the date of possession, for such period or periods as the court thinks fit. (3) On such an adjournment, stay, suspension or postponement the court (a) shall impose conditions with respect to the payment by the tenant of arrears of rent (if any) and rent or payments in respect of occupation after the termination of the tenancy (mesne profits), unless it considers that to do so would cause exceptional hardship to the tenant or would otherwise be unreasonable, and (b) may impose such other conditions as it thinks fit.
By para 3(2) of Part 1 of Schedule 11 to the 2008 Act the reference to mesne profits in section 85(3)(a) was omitted with effect from 20 May 2009.
The first issue
The question to which this issue is directed is about the effect of section 82(2) of the 1985 Act.
Does the secure tenancy end when the tenant is in breach of the conditions of the suspended possession order? Or does it end only when possession is delivered up when the possession order is executed? As I said earlier, it was for a long time assumed that the law was as stated in Thompson v Elmbridge Borough Council [1987] 1 WLR 1425.
In that case a secure tenant had fallen into arrears of rent.
The local authority obtained an order for possession in the same form as that which was set out in the order which the Council obtained against the deceased in this case.
It stated that it was not to be enforced for 28 days in any event, and for so long thereafter as the tenant paid the arrears of rent by stated instalments in addition to the rent.
She failed to comply with the terms of the order and the question was whether, and if so when, the secure tenancy had come to an end.
Russell LJ rejected an analogy which was sought to be drawn with the position under the Rent Acts.
Basing his decision simply on the terms of section 82(2), he said that where there was a breach of the terms of the order the tenancy came to an end from the moment of the breach: see para 5, above, where the words that he used are set out.
In Burrows v Brent London Borough Council [1996] 1 WLR 1448 a secure tenant had fallen into arrears with the rent and the council obtained a final order for possession of the premises.
Shortly before the order was due to take effect the council entered into an agreement with the tenant that she would not be evicted provided she complied with certain conditions, which she failed to do.
The question was whether a new tenancy had been created by this agreement.
Reference was made to the Court of Appeals decision in Thompson [1987] 1 WLR 1425, but the soundness of that decision was not questioned by either side.
Lord Browne Wilkinson referred to it at p 1453 when he was summarising the local authoritys argument that the old tenancy came to an end when the tenant failed to comply with the conditions imposed by the possession order.
Lord Jauncey, with whom Lord Griffiths and Lord Steyn agreed, at p 1457 went further.
He summarised the law in a way that indicated that in his opinion Thompson, which by then had been followed by the Court of Appeal in Greenwich London Borough Council v Regan (1996) 28 HLR 469, was rightly decided.
There the matter rested until it came under the scrutiny of the House of Lords more than a decade later in Knowsley Housing Trust v White [2009] AC 636.
Lord Neuberger observed in that case at para 73 that a number of cases in the Court of Appeal had proceeded on the assumption that the law was as stated in Thompson: see, for example, Harlow District Council v Hall [2006] 1 WLR 2116.
He also said that there would also have been tens of thousands of cases in the county courts, many negotiations, much legal advice and many actions which had also proceeded on that assumption.
In para 91 however, having added that he strongly suspected that, if the point had not been determined in Burrows [1996] 1 WLR 1448, he would have reached the same conclusion in relation to section 85 of the 1985 Act as that which he had reached in relation to section 9 of the Housing Act 1988 in relation to assured tenancies, he said: There is a powerful case for saying that the date on which the tenant is to give up possession in pursuance of the order in section 82(2) of the 1985 Act can, and therefore should, mean the date specified in a warrant of possession which is duly executed (or acted on by the tenant).
Furthermore section 121 of the 1985 Act [circumstances in which the right to buy cannot be exercised] appears to me to be arguably inconsistent with the decisions in Thompson [1987] 1 WLR 1425 and in Hall [2006] 1 WLR 2116, in that it appears expressly to assume that a tenant who is, as well as a tenant who will be, obliged to give up possession pursuant to a court order, would remain entitled to pursue the right to buy, and only a person who is a secure tenant can have that right.
Despite these reservations, he refrained from moving the House to hold that Thompson [1987] 1 WLR 1425 and Hall [2006] 1 WLR 2116 were wrongly decided so far as secure tenancies were concerned.
He set out his reasons for doing so in paras 92 and 93.
One was the response that was received from counsel in that case, all highly experienced in the field of social housing law.
Mr Luba QC said that it was simply too late to take that course, as Thompson had been assumed to be right, and had been acted on, in many tens of thousands of cases over the past 20 years or so.
The other was that, by section 299 of and Schedule 11 to the 2008 Act, Parliament had amended and clarified the law so that secure and assured tenancies would only end when the order for possession was executed by means of provisions that were largely prospective in their effect.
Agreeing with these submissions, Lord Neuberger said that it would be wrong for the House effectively to go back on its previous approval of Thompson in Burrows [1996] 1 WLR 1448, when there was in place amending legislation having the same effect as such a reversal, in which Parliament had decided to amend the law only prospectively.
Mr Lubas position for the appellant in this case, as he frankly accepted, is the reverse of that which he adopted in Knowsley [2009] AC 636.
He submits nevertheless that this Court should now take the step from which the House held back in that case and hold that Thompson [1987] 1 WLR 1425 was wrongly decided.
There are, then, two questions that must be addressed.
The first is whether, as Lord Neuberger indicated, section 82(2) can be read as meaning that, notwithstanding that the tenant is in breach of the conditions in the possession order, the tenancy continues until the date specified in a warrant for possession which is duly executed or acted upon.
The second is whether, if it can be so read, it should now be held that this is indeed its meaning and Thompson should be overruled.
As to the first question, it is a remarkable fact that a conclusion about the meaning of section 82(2) which, admittedly with the benefit of hindsight, is so obviously unsatisfactory and conceptually confusing should have been reached with so little reasoning.
The Court of Appeals decision on the point in Thompson [1987] 1 WLR 1425 was expressed by Russell LJ in a single sentence at pp 1430 1431.
It amounted to little more than an assertion.
No attempt was made to see whether the meaning that he attributed to the subsection was consistent with provisions that were to be found elsewhere in the 1985 Act.
As for the references to Thompson in Burrows [1996] 1 WLR 1448, I think that Lord Neuberger was perhaps being a little generous when he said in Knowsley [2009] AC 636, para 72 that Lord Browne Wilkinson and Lord Jauncey expressly stated that Thompson was rightly decided.
Lord Browne Wilkinson referred to that case at p 1453 when summarising the submissions that were before the court in Greenwich London Borough Council v Regan (1996) 28 HLR 469 and accepting counsels analysis of that case.
Lord Jauncey went further in endorsing what was said in Thompson, but I do not detect in his treatment of it any attempt on his part to reach a view of his own as to whether section 82(2) had to be read in the way that Russell LJ had indicated.
I would not attach much weight to the uncritical way in which the decision in Thompson was treated by the House of Lords in Burrows.
The wording of section 82(2) needs therefore to be examined more closely in its context.
There are, of course, other ways in which a tenancy may come to an end.
But, as the section as a whole is concerned with security of tenure, it deals with the steps that must be taken by the landlord.
The landlord must first obtain an order for possession of the dwelling house.
In the case of a secure tenancy for a term certain with a provision for re entry or forfeiture, the court is required to make an order terminating the tenancy on a date specified in the order, which unless the court orders that both termination and possession are to take effect on the same date will be followed by a periodic tenancy: section 82(3).
Section 82(2) adopts a different approach.
It does not say, as it could have done, that the date specified in the order is to be the date when the tenancy terminates.
It refers instead to the date when the tenant is to give up possession in pursuance of the order.
That phrase can, I think, be read as indicating that the date when the tenancy is to terminate is to be found in the possession order itself.
That is how Russell LJ read it in Thompson [1987] 1 WLR 1425, at pp 1430 1431.
But the words is to give up possession can also be read, as Lord Neuberger said in Knowsley [2009] AC 636, para 91, as contemplating the date when possession will actually be given up under a warrant for possession which is duly executed or acted upon.
I think that the context tends to favour Lord Neubergers indication that the tenancy ends only when the order for possession is executed.
The fact that the court is given such wide powers by section 85, including the power to discharge or rescind the possession order if the conditions are complied with, suggests that it was envisaged that the tenancy could still be in existence during the period when the court can exercise this control.
Then there are the indications in section 121, to which Lord Neuberger referred in para 91, that the section was drafted on the assumption that a tenant who is obliged to give up possession pursuant to a court order is nevertheless still entitled to exercise the right to buy which is a right that, as section 118 makes clear, only a secure tenant can have.
The reference in section 85(3) to payments after the termination of the tenancy and mesne profits might seem to indicate the contrary.
But, as Lord Neuberger pointed out in paras 87 and 88, this is best seen as an example of torrential drafting as the same wording appears in section 100(3) of the Rent Act 1977 where it cannot have that effect.
Apart from this point, I do not find anything in the context that supports the interpretation that was given to section 82(2) in Thompson [1987] 1 WLR 1425.
The conclusion which I would draw is that there is much to be said for Lord Neubergers interpretation.
Perhaps the strongest point in its favour is that reading section 82(2) in the way he has suggested avoids what he described in Knowsley [2009] AC 636, para 80 as the anomalous and potentially retrospectively reversible status of tolerated trespassers.
The conceptual problems that this gives rise to do not seem to have been anticipated by the judges who guided the law in a different direction in Thompson [1987] 1 WLR 1425 and Burrows [1996] 1 WLR 1448.
A fair and practical reading would, as Lord Neuberger suggests, eliminate these difficulties.
But it seems to me that the contrary view is not unarguable.
The question then is whether this Court should now hold that the interpretation of section 82(2) that Lord Neuberger has suggested is indeed what this subsection means and that Thompson [1987] 1 WLR 1425 should be overruled.
As is of course very well known, the House of Lords issued a Practice Statement on 26 July 1966 which stated that it would still treat former decisions of the House as normally binding, but that it would depart from a previous decision when it appeared right to do so: Practice Statement (Judicial Precedent) [1966] 1 WLR 1234.
Its application was considered and applied from time to time by the Appellate Committee during the 40 years or so that were to elapse until 1 October 2009 when the appellate jurisdiction was transferred from the House of Lords to this Court: see, for example, R v National Insurance Commissioner, Ex p Hudson [1972] AC 944, 966 per Lord Reid; R v Knuller (Publishing, Printing and Promotions) Ltd [1973] AC 435, 455 per Lord Reid; Miliangos v George Frank (Textiles) Ltd [1976] AC 443; Fitzleet Estates Ltd v Cherry [1977] 1 WLR 1345, 1349 per Lord Wilberforce ; Hesperides Hotels Ltd v Aegean Turkish Holidays Ltd [1979] AC 508; Vestey v Inland Revenue Commissioners (Nos 1 and 2) [1980] AC 1148; R v Secretary of State for the Home Department, Ex p Khawaja [1984] AC 74; R v Howe [1987] AC 417; R v Kansal (No 2) [2002] 2 AC 69; Rees v Darlington Memorial Hospital NHS Trust [2004] 1 AC 309; and Horton v Sadler [2007] 1 AC 307, para 29 per Lord Bingham of Cornhill.
The Supreme Court has not thought it necessary to re issue the Practice Statement as a fresh statement of practice in the Courts own name.
This is because it has as much effect in this Court as it did before the Appellate Committee in the House of Lords.
It was part of the established jurisprudence relating to the conduct of appeals in the House of Lords which was transferred to this Court by section 40 of the Constitutional Reform Act 2005.
So the question which we must consider is not whether the Court has power to depart from the previous decisions of the House of Lords which have been referred to, but whether in the circumstances of this case it would be right for it to do so.
In R v Knuller (Publishing, Printing and Promotions) Ltd [1973] AC 435, 455 Lord Reid made the following observations about the Practice Statement which I think are particularly in point in this case: I have said more than once in recent cases that our change of practice in no longer regarding previous decisions of this House as absolutely binding does not mean that whenever we think that a previous decision was wrong we should reverse it.
In the general interest of certainty in the law we must be sure that there is some very good reason before we so act.
I think that however wrong or anomalous the decision may be it must stand and apply to cases reasonably analogous unless or until it is altered by Parliament.
In R v National Insurance Commissioner, Ex p Hudson [1972] AC 944, 966, on the other hand, he said that it might be appropriate to do so if to adhere to the previous decision would produce serious anomalies or other results which were plainly unsatisfactory.
In Rees v Darlington Memorial Hospital NHS Trust [2004] 1 AC 309, para 31 Lord Steyn said that, without trying to be exhaustive, a fundamental change in circumstances such as was before the House in Miliangos v George Frank (Textiles) Ltd [1976] AC 443, or experience showing that a decision of the House results in unforeseen serious injustice, might permit such a departure.
In Horton v Sadler [2007] 1 AC 307, para 29 Lord Bingham said that the power had been exercised rarely and sparingly but that too rigid an adherence to precedent might lead to injustice in a particular case and unduly restrict the development of the law.
The House, he said, will depart from a previous decision where it appears right to do so.
Two previous decisions of the House are before us in this case: Burrows v Brent London Borough Council [1996] 1 WLR 1448 and Knowsley Housing Trust v White [2009] AC 636.
Of these the one that gives rise to most concern is Knowsley.
In para 92 of his speech in that case Lord Neuberger addressed the question directly as to whether, given that the point at issue was not actually debated in Burrows, the cases of Thompson [1987] 1 WLR 1425 and Hall [2006] 1 WLR 2116 were rightly decided.
His answer, as he explained in para 93, was that it should not reconsider the view expressed by the House in Burrows that Thompson was rightly decided so far as secure tenancies were concerned.
It is true that this was the approach that had been contended for by counsel.
But there was much more in it than that.
The fact that the decision in Thompson was of such long standing and had been acted upon in so many cases was a powerful factor in his assessment.
So too was the way the need for an amendment of the law had been dealt with by Parliament.
I am not persuaded that we should depart from the decision which the House took in Knowsley [2009] AC 636 that the view expressed about Thompson [1987] 1 WLR 1425 in Burrows [1996] 1 WLR 1448 should not be reconsidered and departed from.
It is true that we have had the benefit of a more complete argument on the point than was before the House in Knowsley.
But the fact remains that the law was regarded as having been settled by Thompson and the effects of reversing that decision now are incalculable.
As Lord Neuberger said, it has been assumed to be right and has been acted upon in many tens of thousands of cases.
The area of greatest concern is the effect that a retrospective reversal would have on social landlords who for so long have assumed that those who had failed to comply with the conditions in a suspended possession order were no longer tenants with a right to enforce the implementation of repairing covenants.
Although we have not seen any direct evidence on the point, it is a reasonable assumption that the consequences of reviving these covenants and the opportunity that this would give for claiming damages for breach of these obligations was one of the factors that led to the decision that the law should be amended by the Housing and Regeneration Act 2008 only prospectively.
In August 2007 the Department for Communities and Local Government issued a consultation paper on tolerated trespassers.
It set out four options for changes to the legislation relating to secure and assured tenancies.
One was to do nothing.
The second was to deal only with tenants who were subject to future possession orders.
The third was to restore tenancy status to all existing tolerated trespassers.
The fourth was to restore this status to tolerated trespassers who had complied with the terms of the possession order.
In its summary of responses to the consultation in April 2008 the Department noted that the overwhelming majority of those who responded were in favour of legislation to prevent the creation of future tolerated trespassers.
It also noted that, while there was strong support for amending the legislation to restore the tenancies of all existing tolerated trespassers, there were dissenting voices.
Those who opposed this option suggested that it could be seen to reward tenants who had repeatedly failed to meet their obligations and that it would remove potential leverage against difficult tenants.
They drew attention too to the need to protect landlords from liability for actions taken in accordance with the law at the time.
The Governments position was that the opportunity should be taken to prevent the creation of future tolerated trespassers and restore tenancy status to all existing tolerated trespassers.
In an impact assessment issued in November 2008 it was indicated that, following consultation, the options had been narrowed down to two: do nothing, and restore tenancy status to all tolerated trespassers.
The 2008 Act received the Royal Assent on 22 July 2008.
Section 299 introduces Schedule 11.
Part 1 of the Schedule amends the relevant legislation for the future.
Part 2 restores tenancy status to existing tolerated trespassers.
These provisions were brought into force by the Housing and Regeneration Act 2008 (Commencement No 5) Order 2009 (SI 2009/1261).
Significantly, however, what Part 2 of the Schedule does is to provide for the creation of replacement tenancies.
As paragraph 16 states, these are new tenancies.
Paragraph 18 provides that the new tenancy is to have effect on the same terms and conditions that were applicable to the original tenancy immediately before it ended.
Absent from the Schedule however is any provision for the revival or restoration of the pre existing tenancy.
This carefully crafted system avoids the problems to which the dissenting voices had drawn attention during the consultation process.
For us now to declare that Thompson [1987] 1 WLR 1425 was no longer good law would undermine the system with the result that those problems would, after all, become unavoidable.
Such a result would contradict the will of Parliament.
Reverting to what Lord Reid said in R v Knuller (Publishing, Printing and Promotions) Ltd [1973] AC 435, 455, I think that, far from there being some very good reasons for reversing the decision that the House took in Knowsley [2009] AC 636, the position in this case is the other way round.
There are very good reasons for accepting that the law as declared in Thompson [1987] 1 WLR 1425, however unsatisfactory it can now be seen to be, should not be disturbed.
I would therefore reject the appellants argument on the first issue.
The second issue
This issue is directed to the effect of section 85(2) of the 1985 Act.
The question is whether the former tenants statutory right to apply to postpone the date for possession, and thus revive the secure tenancy, survives death and passes to the estate of the deceased former tenant.
The answer to it depends on how the wording of this subsection should be construed in the context of the scheme of Part IV of the 1985 read as a whole.
In the Court of Appeal it was submitted that the short answer to this question was that the point was decided in Brent London Borough Council v Knightley (1997) 29 HLR 857 and that that case was binding authority in that court for the proposition that the right to apply for the postponement of the order for possession under section 85(2) is not an interest in land capable of being inherited.
So it could not survive the deceaseds death.
Having examined the decision, Arden LJ, with whom Pill LJ agreed, concluded that it bound the court to hold that the former tenants right to apply under section 85(2) terminates on the tenants death: [2009] EWCA Civ 66, para 42.
Longmore LJ said that, even if the matter had not been expressly decided by Knightley, the correct view must be that the right is not exercisable by a deceaseds personal representatives: para 54.
The appellant in Knightley (1997) 29 HLR 857 was the daughter of the tenant under a secure tenancy.
Upon her mothers death she claimed the right to succeed to the tenancy under section 89 of the 1985 Act.
The council refused to accept her claim on the ground that, as the mother had died, there was no tenancy to which the daughter could succeed as it had been terminated pursuant to a conditional possession order for non payment of rent.
In other words, the mother was no more than a tolerated trespasser.
The judgment of the Court of Appeal was delivered by Aldous LJ.
At p 862 he noted that the law as to the effect of section 82(2) had recently been clarified by the decision of the House of Lords in Burrows [1996] 1 WLR 1448.
Given that, at her mothers death, there was no tenancy to which the daughter could succeed, everything depended on whether it was open to her to apply for an order under 85 to postpone the order for possession and revive the tenancy.
He concluded that her submissions to that effect were untenable.
Aldous LJ set out the reasoning on which that conclusion was based in the following paragraph at p 862: The right to apply for a postponement of an order for possession is not an interest in land capable of being inherited.
Further, the right to apply under section 85 is a right given to the tenant and in subsection (5) to the tenants spouse or former spouse.
Section 87 also gives a right to apply to a person who is qualified to succeed as a tenant under a secure tenancy.
That section only applies where there is a tenancy in existence.
That was not the case here.
To be a tolerated trespasser of the kind contemplated in Burrows, the person must be a trespasser tolerated by the law.
The appellant was not such a person.
In my view, there is no right given to a person in Miss Knightleys position to apply to revive a tenancy and no tenancy existed at the time when her mother died.
Endorsing that decision in the Court of Appeal [2009] EWCA Civ 66, Longmore LJ introduced his remarks with this comment in para 53: Aldous LJ, with whom the other members of the court agreed, said in terms that the right was incapable of being transmitted.
That conclusion applies to transmission by will or on intestacy just as much as any other transmission eg by assignment between living persons.
What Aldous LJ actually said, in the passage which I quoted in para 35, was that the right was not capable of being inherited.
There is an important distinction between these two phrases.
Had Aldous LJ appreciated that the question which is really at issue here is whether the right is capable of being transmitted, not whether it is capable of being inherited, he might perhaps have arrived at a different answer.
The right to apply to the court for the exercise of the powers that are given to it by section 85(2) is a right conferred by the statute.
So the answer to the question whether the right can be exercised after the tenant has died is to be found by construing the statute.
It does not depend on whether it is thought to be a right that is capable of being inherited at common law.
Addressing himself, in para 54, to the terms of the statute, Longmore LJ said that Parliament plainly intended that the person who would otherwise be entitled to a secure tenancy if it had been revived should not be able to revive it in his or her own name.
To hold that the deceaseds estate can apply to revive it for the purpose of enabling that person to obtain a secure tenancy would be to circumvent, if not flout, that intention by means of a legal device.
I have to confess that I do not follow this reasoning.
It seems to confuse the provisions about succession on the death of the tenant under a secure tenancy with the situation that section 85 is dealing with, which is the exercise of powers by the court on the making of a possession order.
Of course, one thing may lead to another.
But the sections must be taken in the order in which they appear, and they must be taken separately.
The first thing that strikes one, on reading the words of the subsection, is that the powers that it refers to are said to be exercisable at any time before the execution of the order.
The possibility that the tenant may have died in the meantime is not mentioned.
If it had been the intention that the powers should not be exercisable on the tenants death it would have been easy to say so.
Indeed, given the width of the phrase that is actually used, one would have expected words to that effect to have been inserted.
Cases could arise, for example, where the tenant has died before the possession order has taken effect to end the tenancy.
There would seem to be no reason why the deceaseds personal representative should not be able to seek the exercise of the power to postpone giving effect to the possession order, for example to enable the deceaseds affairs to be put in order and any licensee or sub tenant to be re housed.
Another example of a case where one would expect the personal representative to be able to apply would be where the deceased tenant, having made good a previous default, has applied for the date for possession to be postponed but dies the day before his application is to be heard.
The wording of the subsection does not compel a reading that would deny the jurisdiction of the court to exercise its powers in such circumstances.
There are other indications in this Part of the Act that support this approach.
When it contemplates what is to happen on death, it says so.
Sections 87 to 90, which deal with succession on the tenants death, constitute the prime example.
It is worth noting too that section 90, which deals with fixed term tenancies, contemplates that the tenancy may continue after the secure tenant dies and vest in someone else in the circumstances referred to in subsection (3).
One would expect the powers under section 85(2) to be exercisable after the tenants death in such circumstances, and there is nothing in its wording that suggests the contrary.
Also, the rights that were given to the tenants spouse or former spouse who is in occupation when proceedings for possession are brought by section 85(5) are not said to come to an end when the secure tenant dies.
That subsection was repealed by section 299 of and Schedule 11, paras 1 and 3 to the 2008 Act.
But it was there when section 85 was enacted, and it indicates the width and variety of the circumstances in which the powers under section 85(2) were intended to be available.
For these reasons I would hold that Knightley (1997) 29 HLR 857 was wrongly decided and that it should be overruled.
In my opinion the fact that the former secure tenant has died does not deprive the court of its jurisdiction to exercise the power conferred on it by section 85(2)(b) of the 1985 Act to postpone the date of possession under a possession order.
It follows that it is open to the appellant, who seeks to represent the estate of the person who was served with a claim for possession, to apply under CPR 19.8 for the date for possession to be postponed.
I have to say that I regard this solution to his case to be preferable to the solution for which Mr Luba contended under the first issue.
It is directed precisely to the situation that arises where a former tenant who has become a tolerated trespasser has died.
Above all, it preserves the discretion of the court under section 85(2) to do what is just in all the circumstances.
This is a protection for the landlord which would be entirely absent if the first solution were to be adopted.
Conclusion
In view of the conclusion that I have reached in the appellants favour on the second issue I do not need to say anything about the remaining issues.
Mr Drabble QC for the Council did not suggest that, if the second issue were to be answered in the appellants favour, the deceased was not a person who had an interest in a claim for the purposes of CPR 19.8 which in the events that have happened could be invoked by his estate.
The claim which the appellant can invoke for this purpose is the claim for possession that was issued against the deceased in 1986.
I would allow the appeal.
I would order that the appellant be appointed to represent the estate of the deceased under CPR 19.8(1)(b) and would remit his application under section 85(2) of the 1985 Act for postponement of the 1987 possession order to Lambeth County Court for determination.
LORD WALKER
I am in full agreement with the reasoning and conclusions in Lord Hopes judgment.
I have nothing to add except to express my admiration for the concurring judgment of Lady Hale, who has written the definitive obituary of the tolerated trespasser.
Indeed her trenchant analysis clearly demonstrates that this unfortunate zombie like creature achieved a sort of half life only through a series of judicial decisions in which courts failed, or did not need, to face up to the theoretical and practical contradictions inherent in the notion.
But in common with all the members of the Court I agree that Parliament is best fitted to give the tolerated trespasser his quietus, as it has by the Housing and Regeneration Act 2008.
LADY HALE
I agree that this appeal should be allowed for the reasons given by Lord Hope but wish to add a few words on the issue of tolerated trespassers.
In my view, had it not been for Parliaments intervention, it would have been the duty of this Court to set the matter right.
There is no reason to believe that Parliament intended that such an anomalous status should arise as a result of the provisions of the 1980 and 1985 Housing Acts.
There is little reason to believe that the full implications of their decision were apparent to the Court of Appeal when they decided Thompson v Elmbridge Borough Council [1987] 1 WLR 1425.
That decision was assumed to be correct by the House of Lords in Burrows v Brent London Borough Council [1996] 1 WLR 1448 but it suited both parties in that case for them to do so.
And the issue did not strictly arise in Knowsley Housing Trust v White [2008] UKHL 70, [2009] AC 636, which was concerned with a different statutory regime.
Thus there is no House of Lords case which has addressed the issue full on and reached a reasoned conclusion about it.
If there had been, it would have had to address all the conceptual and practical problems which have arisen since Thompson.
These were forcefully spelled out by Lord Neuberger in Knowsley, but it is worth reiterating them here, because in Knowsley the parties did not want the House to address the matter, whereas in this case the Court has expressly been asked to do so.
A tolerated trespasser is an oxymoron.
A trespasser is someone who should not be there.
But tolerated trespassers were allowed to be there.
Indeed, in some cases the local authority had no right to evict them.
The Court of Appeal decided in Harlow District Council v Hall [2006] 1 WLR 2116 that if the order fixed a date for possession, but postponed its enforcement on terms, the tenancy came to an end on the date fixed, even if the trespasser complied with the terms.
In other cases, the local authority had expressly agreed that the trespasser could stay.
The House of Lords decided in Burrows v Brent London Borough Council [1996] 1 WLR 1448 that even a written agreement not to evict the trespasser if she complied with certain terms did not create a new tenancy.
Even without such an agreement, the local authority were often quite uninterested in enforcing the order.
They may not have realised that the order had been breached; they may have realised that the order had been breached but also that this was not the trespassers fault but the result of the way the housing benefit system worked; they may have obtained the order without any intention of actually evicting the trespasser, but in order to obtain a money judgment and encourage more punctual payment of what both still regarded as rent; and they may not have wanted to have to rehouse a trespasser, who was by definition homeless, if she was in priority need.
These were not people whom the local authority were reluctant to have there and were waiting for the machinery of eviction to take its course.
These were people whom the authority wanted to have there, provided that they could be persuaded to pay most, if not all, of their rent.
In normal circumstances this would give rise to some sort of right to be there, whether a licence or (more probably, given Street v Mountford [1985] AC 809) a tenancy and, if the landlord and tenant conditions required by section 79 were satisfied, this would be a secure tenancy.
But the House of Lords was persuaded in Burrows to hold that a new tenancy would not arise, save in special circumstances.
The practical reason for this was that local authorities did not want to have to go back to court for a new possession order if the new agreement was breached.
The chain of reasoning which persuaded the House relied mainly on the decision in Greenwich London Borough Council v Regan (1996) 28 HLR 469, that the old tenancy could be revived by a successful application under section 85(2) at any time before the possession order was actually executed.
No one argued that the same sensible policy result could have been reached by overruling Thompson.
So we had a situation in which people became trespassers in their own homes, whether they or their landlords knew that this was so and irrespective of whether the landlords were content for them to stay.
During the time that they were trespassers, neither the landlord nor the tenant could enforce the covenants under the tenancy agreement, although the tenant might be able to sue the landlord for nuisance.
The statutory scheme for determining the rent did not apply.
The trespasser could not exercise the right to buy even if he was now fully paid up.
His spouse, partner or member of his family living there with him could not succeed.
Technically, they were all homeless.
Yet all these consequences could be retrospectively reversed by a successful application under section 85(2).
The tenancy miraculously sprang back into life and it was as if the trespasser had been a tenant all along.
Whether the court always realised that this would be the effect of its order may be doubted.
The standard form of possession order granted in the county courts has changed over the years.
The pre 1993 form N28, which was used in this case, did not specify a date upon which possession was to be given up.
It merely adjudged that the landlord do recover against the defendant possession of the land mentioned.
It ordered that the judgment for possession should not be enforced for 28 days in any event and for so long thereafter as the defendant punctually pays to the plaintiff or his agent the arrears of rent, mesne profits and costs by 4th March 1987.
This was in fact 28 days after the date of the order, which was 4th February 1987.
The order was also most unusual in ordering the defendant to pay off the whole arrears plus costs within that time rather than by the more usual instalments.
This does not induce confidence that either the plaintiff landlord or the court had addressed their minds to the exact consequences if this was not done.
Was it an order for possession forthwith, postponed for 28 days and suspended on terms? Or was it an order for possession on 4th March? Or was it an order for possession at some indeterminate future date? The standard form changed in 1993 and again in 2001.
Paragraph 1 of the 2001 order required that the defendant give the claimant possession of [. ] on or before [. ].
If this form was used, the Court of Appeal held in Harlow District Council v Hall that the tenant became a trespasser on that date, even if she faithfully complied with the terms for postponing enforcement.
But the standard form did not have to be used and, in Bristol City Council v Hassan [2006] 1 WLR 2582, the Court of Appeal approved an order providing that the date on which the defendant is to give up possession of the premises to the claimant is postponed to a date to be fixed by the court on an application by the claimant.
It is a fair assumption that there are many old possession orders around which had an effect which the court making them would have avoided if it had known how to do so.
The acquisition of trespasser status was accidental not intentional.
It was also very common.
Strict compliance with the terms of suspension would, in Lord Neubergers view, be rare.
All of this nonsense could have been avoided if a different construction had been put upon section 82(2) of the Housing Act 1985.
The whole edifice was built upon the extempore judgment of a two judge Court of Appeal in Thompson.
Section 82(1), so far as is material, provides that a secure tenancy cannot be brought to an end by the landlord except by obtaining an order of the court for the possession of the dwelling house .
This does not affect the ways in which the tenancy may be brought to an end by the tenant or by agreement between the landlord and the tenant.
But it does mean that the landlord cannot end the tenancy without getting a possession order.
Section 82(2) then provided that where the landlord obtains an order for the possession of the dwelling house, the tenancy ends on the date on which the tenant is to give up possession in pursuance of the order.
Clearly, the construction put upon section 82(2) in Thompson and in subsequent cases is a tenable one.
The subsection did say is to give rather than actually gives up possession.
Equally clearly, as Lord Neuberger demonstrated in Knowsley, it is not the only tenable construction.
The order made in this case did not specify a date on which the tenant had to give up possession, so why choose an unspecified and indeterminate date upon which the tenant puts himself in a position whereby he may be required to give up possession in pursuance of the order? Even if the order does specify a date or an event upon which possession is in theory to be given up, that is never the end of the story.
Unless the tenant leaves voluntarily, the landlord will have to get and have executed a warrant for possession.
The tenant is not obliged to leave until a warrant has been obtained and cannot be forced to do so until the date specified in the warrant.
So an even more tenable interpretation is that it refers to the date specified in a warrant of execution.
But that too is not the end of the story, because the landlord may obtain a warrant and never execute it.
That, in fact, is what happened in Thompson; the possession order was obtained on 31 January 1985; its terms were breached at the latest by 5 September 1985; and a warrant was obtained on 8 January 1986; the proceedings by the tenants husband then ensued.
It is therefore difficult to say that the tenant is to give up the property until he actually does so, whether of his own accord or with the encouragement of the bailiffs.
This construction is reinforced by section 85(2), which allows the court to stay or suspend execution or postpone the date of possession at any time before the execution of the order.
If the tenancy continues until then, there is no need for it to be resurrected with retrospective effect.
This construction is also, as Lord Neuberger observed in Knowsley, arguably more consistent with section 121.
This provides that the right to buy cannot be exercised by a tenant who is obliged to give up possession of the dwelling house in pursuance of an order of the court, thus assuming that even if a person is currently obliged to give up possession he is nevertheless still a tenant until he actually does so.
Arguably inconsistent with this construction was section 85(5), which gave the current or former spouse or civil partner of a tenant the same rights in relation to adjournment, stay, suspension or postponement of possession proceedings under section 85 as he or she would have if his or her home rights had not been affected by the termination of the tenancy.
This may be explained as an example of torrential drafting in which the same provision is inserted into different statutory schemes irrespective of its applicability.
Thus there is indeed a powerful case for construing the date referred to in section 82(2) as the date specified in a warrant of possession which is duly executed (or acted on by the tenant), as Lord Neuberger put it in Knowsley, at para 91.
When the linguistic case is put together with the conceptual and practical problems which arise from any other construction, the case becomes overwhelming.
Legislation designed to protect residential tenants should be clear, simple and consistent in its effects, not dubious, complex and arbitrary.
It is scarcely surprising that the Governments view, when consulting on what became Schedule 11 to the Housing and Regeneration Act 2008, was that the result of Thompson had been unintended.
Were it not for that Act, I would consider it right for this Court to sort the matter out.
The decisions in Thompson and the cases which proceeded on the unquestioned basis that Thompson was correct were not merely wrongly decided.
They set the law on a course which was wrong in principle and wrong in practice.
They produced a position with which no one was happy neither the landlords nor the tenants as is shown by the response to the Governments consultations.
Even if some local authority landlords might have welcomed not being under a contractual obligation to repair properties for which the occupier was not paying the full rent, they would also have acknowledged that it could not be right for them to be able to charge the equivalent of the full rent which was calculated on the basis that they did have an obligation to repair.
In such circumstances, it would ordinarily be our duty to recognise that the law had always been what we hold it to be.
Does the 2008 Act make a difference? I am persuaded that, in this case, it does.
It has abolished the problem for tenancies granted after it came into force.
It has given those formerly considered tolerated trespassers a new tenancy which is in most respects the same as the tenancy they would otherwise still have had.
In other respects, of which repairing covenants are likely to be the most important, the court has the discretion to tailor a just solution.
The only gap which counsel have identified is the gap exemplified by this case where the tolerated trespasser has died before an application under section 85(2) has been made or determined.
But this case solves that problem.
Parliament has therefore recently devised a considered and carefully balanced solution to the problem.
We would be obliged to respect the will of Parliament if it had devised a wholly new scheme or amended a scheme which we thought had been properly interpreted by the courts.
I am persuaded that we should also do so in this case even if we believe that the premise which led them to devise the new scheme was wrong.
In agreement with the other members of the Court, therefore, I would reluctantly dismiss the appeal on the first issue but happily allow it on the second.
| UK-Abs | The Appellants brother, who is now deceased (the Deceased), held a secure tenancy under the Housing Act 1985 (the 1985 Act) of a property owned by the London Borough of Southwark (the Authority).
The Appellant contends that he lived in his brothers home for the 12 months preceding his death, caring for him during his terminal illness.
The Appeal arises from the efforts of the Appellant to resist the Authoritys efforts to evict him from the property.
On 4 February 1987, a conditional suspended possession order (the CSPO) was issued by the court against the Deceased on the ground he was in arrears of rent.
The CSPOs terms provided that it would not become enforceable if he paid the sum due by 4 March 1987.
He failed to pay by the specified deadline and so the CSPO became enforceable.
However, the Authority did not take any action to evict him and he remained in the premises until his death some 18 years later, paying the rent as it became due plus sums towards the outstanding arrears.
Two principal issues arise in the Appeal.
Firstly, whether pursuant to s.82(2) of the 1985 Act the secure tenancy was terminated by the Deceaseds failure to pay the arrears of rent by the date specified in the CSPO so that he remained in the property as a so called tolerated trespasser; or, alternatively, whether the tenancy continued until his death, with the effect that the tenancy could transmit to the Appellant via the Deceaseds estate.
Secondly, whether the statutory right of a former secure tenant to apply to the court to postpone enforcement of a possession order, pursuant to s.85(2) of the 1985 Act, terminates on the death of a tenant, or is capable of transferring to the Appellant so as to allow him to apply to the court to postpone the possession order.
The Supreme Court unanimously allows the appeal, holding that the tenants right to apply to the court to postpone enforcement of a possession order, and thus revive the secure tenancy, can survive death and transmit to a successor.
The case is remitted to the county court for determination of the Appellants application for postponement of the possession order.
Lord Hope delivered the leading judgment and Lady Hale delivered a separate concurring judgment.
The First Issue: The Effect of s.82(2)
It has been assumed since the Court of Appeals decision in Thompson [1987] 1 WLR 1425 that a secure tenancy is terminated immediately upon any term of a conditional possession order being breached [Lord Hope, para [15]].
Thompson was criticised in the House of Lords decision of Knowsley [2009] AC 636.
However, notwithstanding reservations concerning the merits of the decision, the House of Lords refrained from disturbing it on the basis that: (i) 20 years had elapsed and tens of thousands of cases had proceeded on the basis that it accurately stated the law; and (ii) Parliament had legislated in respect of the issue in the Housing and Regeneration Act 2008 (the 2008 Act), and had opted to change the law only with prospective effect.
A subsequent judicial decision with retrospective effect would thus run contrary to the will of Parliament [Lord Hope, paras [17] [18]].
There is much to said for the view that s.82(2) should be interpreted as only terminating a secure tenancy when the possession order is actually executed: (i) the conclusion in Thompson was unsupported by reasoning and no examination was conducted of the consistency of the courts interpretation with the other provisions of the 1985 Act; (ii) subsequent references to Thompson by the House of Lords were cursory and/or uncritical and could not be regarded as lending it any great support; (iii) the 1985 Act contemplates circumstances in which a secure tenancy would remain in force notwithstanding that a conditional possession order was outstanding; and (iv) this construction would avoid the creation of so called tolerated trespassers [Lord Hope, paras [20] [23]].
However, the alternate interpretation of s.82(2) is not unarguable and so the question is whether the Supreme Court should depart from the view taken by the House of Lords in Knowsley.
The House of Lords 1966 Practice Statement on departure from its own previous decisions applies equally to the Supreme Court [Lord Hope, paras [24] [25]].
For the same reasons identified in Knowsley, essentially the passage of time and the need to respect the will of Parliament as expressed in the 2008 Act, it would not be appropriate for the Supreme Court to disturb the understanding of s.82(2) that has prevailed since Thompson [Lord Hope, paras [28] [31]].
The Second Issue: The Effect of s.85(2) The effect of s.85(2) must be resolved by construing the 1985 Act as a whole.
The right is created and defined by a statute and it is the legislation which determines it metes and bounds; its ambit cannot be determined by what the common law would treat as an inheritable right [Lord Hope, para [36]].
The statutory language used in s.85(2) is wide and unqualified.
There is no suggestion that the power of the court to order the postponement of the enforcement of a possession order is not exercisable after the tenants death.
Given the broad character of the words used, it would be reasonable to expect express provision to be made if any such limitation was intended.
Moreover, there are a number of readily foreseeable circumstances in which it would be desirable for the court to exercise the power after the tenant had died.
The wording of the section does not compel the conclusion that the court would be powerless to provide relief in these circumstances [Lord Hope, para [38]].
Part IV of the 1985 Act contains other indications that support this construction [Lord Hope, para [39]].
The tenants death does not prevent the court from exercising its power under s.85(2) of the 1985 Act to postpone the effect of a possession order.
This preserves the discretion of the court to do what is just in all the circumstances of the case, which itself provides a protection
for the landlord that would be absent if an alternate construction was adopted [Lord Hope, paras [40] [41]].
Lady Hale noted the unforeseen and undesirable consequences of the notion of tolerated trespass to which the decision in Thompson had given rise.
If Parliament had not legislated in the field, in the form of the 2008 Act, then it would have been incumbent upon the Supreme Court to set the matter aright [paras [44] [56]].
|
This appeal is about the right conferred by the Water Industry Act 1991 (the Act) on a property owner to connect his private drain or sewer to a public sewer for the purpose of discharging his sewage into the public sewer.
The principal issue raised is whether it is the property owner or the sewerage undertaker who is entitled to determine the point at which the property owners drain or sewer is to connect to the public sewer.
This narrow issue of statutory construction conceals, however, wider and more fundamental issues that are less easily resolved.
I propose first to resolve the narrow issue, before commenting on these wider issues.
Llanfoist is a village near Abergavenny in Monmouthshire.
Its surface water and foul water drainage requirements are met by a public sewerage system that terminates in a waste water treatment works (the Treament Works) about 1/3 mile to the East of the village and below it.
This system is about 60 years old.
Approximately mid way between the village and the Treatment Works, at manhole SO29125900 (the CSO), the sewage pipe that links the two reduces from a diameter of 225 mm to a diameter of 150 mm and continues for a distance of 282m before it increases, at manhole SO29127901 to a diameter of 300mm for the final stretch to the Treatment Works.
The narrow section, described as a pipe bridge determines the capacity of the system, or at least all that part of it that lies upstream of manhole SO29127901.
The Respondents, Barratts, are in the process of building a substantial development of 98 houses and a primary school on a greenfield site contiguous to the East side of Llanfoist.
They constructed a private sewer to receive the sewage from this development.
They claimed a statutory right to connect their private sewer to the public sewer at a point of their own choosing, which was in the close vicinity of their development.
This point of connection was not satisfactory to Welsh Water, as it would overload the system upstream of manhole SO29127901.
They claimed a statutory right to refuse connection at this point, offering instead connection at manhole SO29127901, an option that would saddle Barratts with the cost of the link from their development to manhole SO29127901.
Thus arose the narrow issue of the interpretation of the relevant provisions of the 1991 Act.
At first instance, in a judgment delivered on 1 August 2008, Wyn Williams J found in favour of Welsh Water [2008] EWHC 1936 (QB).
His decision was reversed by the Court of Appeal on 28 November 2008 [2008] EWCA Civ 1552.
Barratts then proceeded to connect the developments sewer to the public sewer at the place of their choice.
Welsh Water do not seek, by this appeal, to effect a physical reversal of what has taken place.
They accept that what has taken place in this case is now water under the bridge.
They are anxious to establish, however, that a sewerage undertaker has a right to refuse to permit connection to be made to one of their sewers when they consider that the proposed point of connection is not suitable.
Should they establish this right of refusal a further issue arises as to the effect of a statutory time limit for giving notice of refusal.
The Water Industry Act 1991
The law in relation to sewers has its origin in the reign of Henry VIII, but the modern law begins with the Public Health Act 1848.
There followed a series of Acts which consolidated and amended the law, of which the 1991 Act is one.
The provisions of that Act which are directly relevant to this appeal can be traced back to the Victorian legislation.
They provide as follows: 94 General duty to provide sewerage system (1) It shall be the duty of every sewerage undertaker (a) to provide, improve and extend such a system of public sewers (whether inside its area or elsewhere) and so to cleanse and maintain those sewers and any lateral drains which belong to or vest in the undertaker as to ensure that that area is and continues to be effectually drained; and (b) to make provision for the emptying of those sewers and such further provision (whether inside its area or elsewhere) as is necessary from time to time for effectually dealing, by means of sewage disposal works or otherwise, with the contents of those sewers. 106 Right to communicate with public sewers (1) Subject to the provisions of this section (a) the owner or occupier of any premises, or (b) the owner of any private sewer which drains premises, shall be entitled to have his drains or sewer communicate with the public sewer of any sewerage undertaker and thereby to discharge foul water and surface water from those premises or that private sewer. (2) Subject to the provisions of Chapter III of this Part, nothing in subsection (1) above shall entitle any person (a) to discharge directly or indirectly into any public sewer (i) any liquid from a factory, other than domestic sewage or surface or storm water, or any liquid from a manufacturing process; or (ii) any liquid or other matter the discharge of which into public sewers is prohibited by or under any enactment; or (b) where separate public sewers are provided for foul water and for surface water, to discharge directly or indirectly (i) foul water into a sewer provided for surface water; or (ii) except with the approval of the undertaker, surface water into a sewer provided for foul water; or (c) to have his drains or sewer made to communicate directly with a storm water overflow sewer. (3) A person desirous of availing himself of his entitlement under this section shall give notice of his proposals to the sewerage undertaker in question. (4) At any time within twenty one days after a sewerage undertaker receives a notice under subsection (3) above, the undertaker may by notice to the person who gave the notice refuse to permit the communication to be made, if it appears to the undertaker that the mode of construction or condition of the drain or sewer (a) does not satisfy the standards reasonably required by the undertaker; or (b) is such that the making of the communication would be prejudicial to the undertakers sewerage system. (5) For the purpose of examining the mode of construction and condition of a drain or sewer to which a notice under subsection (3) above relates a sewerage undertaker may, if necessary, require it to be laid open for inspection.
In this judgment I shall, where appropriate, refer to the developer as shorthand for the owner or occupier of premises who enjoys rights under section 106.
Section 106(6) provides that any question as to the reasonableness of an undertakers refusal to permit a communication to be made or of a requirement under subsection (5) may be referred for determination by the Director of the Office of Water Services (OFWAT).
Section 107 entitles the sewerage undertaker to give notice within 14 days of receipt of a notice under section 106(3) that the undertaker intends to make the communication himself.
In that event the developer has to pay the reasonable cost of the work.
The point of connection
Submissions
Mr Porten QC for Barratts submitted that the provisions of section 106 of the 1991 Act were clear.
Subsection (1) gave a property owner the right to connect to a public sewer, subject only to such limitations as were imposed by other provisions of the section itself.
That right was a right to connect at whatever point the property owner chose to do so.
The only restrictions on that right were those set out in subsection (4).
Those restrictions were very limited.
They gave the undertaker the right to refuse to permit the connection only on grounds of the inadequacy of the mode of construction or condition of the private drain or sewer that was to be joined to the public sewer.
No objection could be made to the point of connection, however inconvenient that might be for the undertaker.
Lord Pannick QC for Welsh Water submitted that the Court should not accept this interpretation, for its consequences ran counter to the object of the legislation.
That object was the protection of health and of the environment.
Parliament cannot have intended that a property owner should be entitled to insist on a specific point of connection however great the harm that this would cause to the environment or to public health and however reasonable it might be to require the property owner to connect elsewhere.
The potential harm identified by Lord Pannick was damage to the environment or to health as a result of the escape of foul water from the sewage system.
The overload on the system consequent upon the point of connection chosen by Barratts had increased the risk of escape of foul water at the CSO.
The CSO was intended to act as an escape point for sewage to a limited extent deemed acceptable in conditions of overload caused by exceptional rainfall in storm conditions.
The additional loading on the system as a result of connecting Barratts sewer upstream rather than downstream of the pipe bridge was calculated to lead to escape of foul water beyond the limit that was acceptable.
Such escape would result in Welsh Water committing criminal offences of strict liability under section 85 of the Water Resources Act 1991 and would infringe provisions of Directive 91/271/EEC concerning the collection, treatment and discharge of urban waste water (the Directive) and the Urban Waste Water Treatment (England and Wales) Regulations 1994 (SI 1994/2841) (the 1994 Regulations) passed to give effect to the Directive.
Lord Pannick treated the facts of the present case as illustrative of the general effect of an interpretation of section 106 of the 1991 Act that permits a developer to select the point of connection between his sewer and a public sewer.
That is the only relevance of the facts of this case to the issue of interpretation that is raised and I shall defer a more detailed consideration of those facts to later in this judgment.
Lord Pannick further submitted that the escape of waste water consequent upon a property owner connecting to a public sewer at an inappropriate point could include pollution and risk to health, thereby infringing Articles 2, 3 or 8 of The European Convention on Human Rights.
The Court was bound, if possible, so to interpret section 106 of the 1991 Act as to avoid these consequences see Marsleasing SA v La Comercial Internacional de Alimentacion SA (Case C 106/89) [1990] ECR 1 4135 and section 3 of the Human Rights Act 1998.
Lord Pannick submitted that such interpretation could be achieved by reading the provisions of section 106 in a manner that implicitly incorporated express provisions in earlier legislation that the 1991 Act had replaced.
Lord Pannick advanced two alternative ways of interpreting section 106 that produced the result for which he contended.
The first involved reading the mode of construction of the drain or sewer in subsection (4) as embracing the point of connection.
This interpretation was, he submitted, supported by the legislative history.
Section 21 of the Public Health Act 1875 (the 1875 Act) provided: The owner or occupier of any premises within the district of a local authority shall be entitled to cause his drains to empty into the sewers of that authority on condition of his giving such notice as may be required by that authority of his intention so to do, and of complying with the regulations of that authority in respect of the mode in which the communications between such drains and sewers are to be made, and subject to the control of any person who may be appointed by that authority to superintend the making of such communications.
The Public Health Act 1936 (the 1936 Act) replaced the provisions of the 1875 Act with provisions that more closely resemble those of the 1991 Act.
Section 34 provided: (1) Subject to the provisions of this section, the owner or occupier of any premises, or the owner of any private sewer, within the district of a local authority shall be entitled to have his drains or sewer made to communicate with the public sewers of that authority, and thereby to discharge foul water and surface water from those premises or that private sewer: . (3) A person desirous of availing himself of the foregoing provisions of this section shall give to the local authority notice of his proposals, and at any time within twenty one days after receipt thereof, the authority may by notice to him refuse to permit the communication to be made, if it appears to them that the mode of construction or condition of the drain or sewer is such that the making of the communication would be prejudicial to their sewerage system, and for the purpose of examining the mode of construction and condition of the drain or sewer they may, if necessary, require it to be laid open for inspection: Provided that any question arising under this subsection between a local authority and a person proposing to make a communication as to the reasonableness of any such requirement of the local authority, or of their refusal to permit a communication to be made, may on the application of that person be determined by a court of summary jurisdiction.
Lord Pannick submitted that the legislature can have had no intention of restricting the rights of the local authority and that mode of construction in the 1936 Act should be given the same meaning as mode in which the communicationsare to be made in the 1875 Act.
The latter phrase was wide enough to embrace the point at which the communication should be made.
The same interpretation should be given to mode of construction in section 106 of the 1991 Act.
Alternatively, Lord Pannick submitted that section 106(1) did not confer any entitlement on a property owner to connect at any point of his choosing and that it was open to an undertaker to respond to a proposal under section 106(3) by identifying a location at which connection might be made, such a response being subject to dispute resolution under section 106(6).
Lord Pannick relied in support of these submissions on observations by Walton J in Beech Properties v GE Wallis & Sons Ltd [1977] EG 735, to which I shall return.
The Judgments below
Wyn Williams J accepted the first of Lord Pannicks approaches to the construction of section 106, then advanced on behalf of Welsh Water by Mr Maurice Sheridan.
In doing so he relied upon the judgment of Walton J in Beech Properties.
He added that he considered it would be objectionable to construe the statute in such a way as to preclude an undertaker from refusing a connection that would have potentially deleterious environmental consequences.
In the leading judgment of the Court of Appeal, reversing the decision of the trial judge, Carnwath LJ held that section 34 of the 1936 Act, which was essentially reproduced in section 106 of the 1991 Act, provided only narrow grounds on which an undertaker could refuse connection.
These related solely to the mode of construction or condition of the connecting drain.
This formulation was even narrower than under the 1875 Act, which permitted the authority to regulate the mode of communication.
Furthermore, the reason why Welsh Water objected to the point of connection was that connection would overload the public sewer and there was clear authority that an undertaker could not resist connection on this ground.
Lawrence Collins LJ agreed with the judgment of Carnwath LJ.
Pill LJ also agreed.
He held at paragraph 54: I am unable to conclude that the expression mode of construction and condition of the drain or sewer in section 106(4), repeated in section 106(5) of the 1991 Act, has any bearing upon the location of the communication with the public sewer contemplated in section 106(1)(b) and section 106(4).
Mode of construction has nothing to do with location.
He added in the following paragraph that he would not accept the submission of Mr Porten that the owner or occupier could dictate the precise location of the connection.
Circumstances may be such as to allow a modest discretion to the sewerage undertaker where good reason is shown, for example, that the precise location chosen by the applicant is not a feasible or sensible location at which to connect.
That was not this case.
Welsh Water were seeking to dictate a communication situated about 300 metres from that requested and across land in third party ownership and control.
The Statutory scheme
The right to connect to a public sewer afforded by section 106 of the 1991 Act and its predecessors has been described as an absolute right.
The sewerage undertaker cannot refuse to permit the connection on the ground that the additional discharge into the system will overload it.
The burden of dealing with the consequences of this additional discharge falls directly upon the undertaker and the consequent expense is shared by all who pay sewerage charges to the undertaker.
Thus in Ainley v Kirkheaton Local Board (1891) 60 LJ (Ch) 734 Stirling J held that the exercise of the right of an owner of property to discharge into a public sewer conferred by section 21 of the 1875 Act could not be prevented by the local authority on the ground that the discharge was creating a nuisance.
It was for the local authority to ensure that what was discharged into their sewer was freed from all foul matter before it flowed out into any natural watercourse.
described the right under section 21 as an absolute right, adding that: In Brown v Dunstable Corporation [1899] Ch 378 at p. 390 Cozens Hardy J This absolute right is no doubt subject to any regulations in respect of the mode of making connections and subject to the control of any person appointed to superintend the making of the connections; but no regulations can justify an absolute refusal to allow a connection to be made on any terms.
In Smeaton v Ilford Corporation [1954] Ch 450 the Corporation was the authority responsible for sewerage in Ilford.
They were sued by the plaintiff in nuisance caused by the escape of sewage from a sewer.
Upjohn J held that they were not liable.
The nuisance was not caused by the Corporation but arose because the Corporation were bound by section 34 of the 1936 Act to permit occupiers or premises to make connections with the sewer and to discharge their sewage into it.
Smeaton was cited with approval by the House of Lords in Marcic v Thames Water Utilities Ltd [2003] UKHL 66; [2004] 2 AC 42.
Lord Nicholls of Birkenhead remarked at paragraph 34 that Thames Water had no control over the volume of water entering their sewers.
A sewerage undertaker was unable to prevent connections being made to the existing system, and the ingress of water through those connections, even if this risked overloading the existing sewers.
It follows that the duty imposed on Welsh Water by section 94 of the 1991 Act requires them to deal with any discharge that is made into their sewers pursuant to section 106.
It does not follow, however, that where a new development is constructed, Welsh Water are obliged, at their own expense, to construct a sewer to accept the sewage from the development if one does not already exist.
Section 98 entitles a developer, among others, to requisition a public sewer, or a lateral drain linking with a public sewer, in order to service the buildings being constructed, but on terms that he meets the costs of so doing.
Section 101 provides that the place or places where the public sewer and drain are to be located are to be agreed between the requisitioner and the undertaker or, in default of agreement, to be determined by OFWAT.
Sections 102 and 103 of the 1991 Act make provision for a sewerage undertaker to adopt private sewers, lateral drains and disposal works.
Section 104 makes provision for a person who is constructing or who proposes to construct a sewer, lateral drain or disposal works to enter into an agreement with a sewerage undertaker under which the undertaker will adopt the works at or after their completion.
Section 112 of the 1991 Act provides: Requirement that proposed drain or sewer be constructed so as to form part of general system (1) Where (a) a person proposes to construct a drain or sewer; and (b) a sewerage undertaker considers that the proposed drain or sewer is, or is likely to be, needed to form part of a general sewerage system which that undertaker provides or proposes to provide, the undertaker may require that person to construct the drain or sewer in a manner differing, as regards material or size of pipes, depth, fall, direction or outfall or otherwise, from the manner in which that person proposes, or could otherwise be required by the undertaker, to construct it. (2) If any person on whom requirements are imposed under this section by a sewerage undertaker is aggrieved by the requirements, he may within twenty eight days appeal to [OFWAT].
Any additional cost that this involves has to be paid by the undertaker.
Section 113 of the 1991 Act provides: Power to alter drainage system of premises in area (1) Where any premises have a drain or sewer communicating with a public sewer or a cesspool, but that system of drainage, though sufficient for the effectual drainage of the premises (a) is not adapted to the general sewerage system of the area; or (b) is, in the opinion of the sewerage undertaker for the area, otherwise objectionable, the undertaker may, at its own expense, close the existing drain or sewer and fill up the cesspool, if any, and do any work necessary for that purpose. (2) The power conferred on a sewerage undertaker by subsection (1) above shall be exercisable on condition only that the undertaker first provides, in a position equally convenient to the owner of the premises in question, a drain or sewer which (a) is equally effectual for the drainage of the premises; and (b) communicates with the public sewer.
The scheme of the legislation, as reflected in the above provisions and as affecting a developer, can be summarised as follows: i) Where connection of a development to a public sewer requires consequential works to accommodate the increased load on the public sewer, the cost of these works falls exclusively upon the undertaker. ii) Where works are done, whether by or on the requisition of the developer, that will be used exclusively by the development, the costs of such works fall exclusively on the developer.
In specified circumstances the undertaker is entitled to require the developer to carry out the works in a manner other than that proposed by the developer, or to alter the works carried out by the developer.
In either case the undertaker has to bear the costs involved. iv) Costs that are borne by the undertaker are passed on to all who pay sewerage charges.
These include those who occupy the houses in the development. iii)
The natural meaning of section 106
It is plain from section 106(5) that the drain or sewer referred to in section 106(4) is the private drain or sewer that the developer proposes to connect to the public sewer, and Lord Pannick accepted that this was so.
I agree with the Court of Appeal that it is impossible to extend the natural meaning of the mode of construction of the existing drain or sewer so as to include the point at which it is proposed to connect that drain or sewer to the public sewer.
Lord Pannick argued that one reason why this extension of mode of construction should be made was that it was unlikely that the mode of construction of the private sewer or drain would be of concern to the undertaker if that phrase were given its natural meaning.
As to this, we received no evidence as to why the condition or mode of construction of the private drain or sewer should be of concern to the undertaker, but I note that section 114 gives the undertaker a right to open a private drain or sewer for inspection if, inter alia, there are reasonable grounds for believing that any such drain or private sewer is so defective as to admit subsoil water.
I see no justification for approaching section 106(4) on the premise that the condition or mode of construction of the private drain or sewer is unlikely to be of concern to the undertaker.
The provisions of section 106(4) of the 1991 Act contrast with the equivalent provisions in relation to sewerage in Scotland set out in section 12 of the Sewerage (Scotland) Act 1968: (3) The owner of any premises who proposes to connect his drains or sewers with the sewers or works of a local authority, or to alter a drain or sewer connected with such sewer or works in such a manner as may interfere with them, shall give to the authority notice of his proposals, and within 28 days of the receipt by them of the notice the authority may refuse permission for the connection or alteration, or grant permission for the connection or alteration, subject to such conditions as they think fit, and any such permission may in particular specify the mode and point of connection and, where there are separate public sewers for foul water and surface water, prohibit the discharge of foul water into the sewer reserved for surface water, and prohibit the discharge of surface water into the sewer reserved for foul water. (4) A local authority shall forthwith intimate to the owner their decision on any proposals made by him under subsection (3) above, and, where permission is refused, or granted subject to conditions, shall inform him of the reasons for their decision and of his right of appeal under subsection (5) below. (5) If a person to whom a decision has been given under subsection (4) above is aggrieved by the decision or any conditions attached thereto, he may appeal to the Secretary of State who may confirm the decision and any such conditions either with or without modification or refuse to confirm it.
This merely underlines the fact that mode of construction does not naturally embrace the point of connection.
No explanation was offered to us as to why those who drafted the Scottish Act chose different language from that of the 1991 Act.
So far as Lord Pannicks alternative approach to construction is concerned, I can see no basis, if the wording of section 106 is given its natural meaning, for inferring that it confers a right on the part of the undertaker to refuse permission to communicate with a public sewer on the ground that the intended point of connection is not satisfactory.
Beech Properties v
Wallis
The issue in this case was whether a vendor of property had satisfied an obligation to provide the purchaser with the right to run foul and surface water from the land sold to a public sewer.
The vendor contended that this obligation was satisfied by the right of the purchaser to connect a 12 inch diameter pipe to a 9 inch diameter public sewer at a particular location, pursuant to section 34 of the 1936 Act.
Walton J held, essentially because of uncertainty as to this right, that the condition was not satisfied.
His judgment contained the following observations at pp. 748 9: However, it does appear to me that, wide as the words of subsection (1) may be, and for the moment ignoring the opening qualification, they do not confer upon an individual the right to connect his sewer to the water authoritys sewer at any point which he may choose.
In most cases, of course, the matter will be quite academic.
There will be the water authoritys sewer, going along the road; a new house is built in the road; and quite obviously and clearly the owner will expect to have a right to drain into that sewer, and it would be very difficult, assuming that there are no problems under the proviso to subsection (1), to imagine a set of circumstances where the water authority would be entitled to say that he must not connect to that sewer but to some other sewer.
Even so, if the new house was built at a crossroads and there were available sewers in both roads, I can see no reason why the owner should be entitled to drain into the sewer of his choice if the water authority required him to drain into the other, which might, for example, well be a relief sewer expressly provided for the district because the other sewer was approaching capacity.
Similarly, I see no reason why the owner is entitled to connect at point X rather than an adjacent point Y, if the water authority requires him to connect at Y.
This passage sounds eminently sensible, but the judge gave no satisfactory explanation as to how the authoritys option to select the point of connection could be derived from section 34.
This decision cannot sustain the weight placed upon it by the trial judge and by Lord Pannick.
The requirements of European Law and the Human Rights Convention.
Lord Pannick submitted that if the words of section 106 did not naturally bear the meaning for which he contended, they should be so interpreted as to carry that meaning nonetheless in order to avoid infringement of the Directive, the 1994 Regulations and the Human Rights Convention.
While he relied upon the facts of the present case as illustrating his thesis, much of the argument focussed on a rather different scenario.
Mr Porten argued that Pill LJ had erred in suggesting that an undertaker enjoyed a modest discretion to refuse to connect at the precise location chosen by an applicant where this was not a feasible or sensible location at which to connect.
He submitted that a developers proposals under section 106(3) could specify the precise point of connection and that the undertaker had no right to insist on deviation from that point by so much as a metre.
Lord Pannick seized on this reductio ad absurdum as demonstrating that the construction for which Barratts contended could not possibly be correct.
The scenario postulated is indeed absurd.
It is impossible to conceive of any reason why a developer should not be prepared, indeed eager, to co operate with the sewerage undertaker in selecting the point of connection that is most suitable, provided that this is within reasonable proximity of the development.
In the present case the evidence placed before us shows that Barratts were prepared to contemplate any one of a number of manholes in the vicinity of their development as the connection point.
It is, I believe, significant that, in nearly a century and a half since the 1875 Act was passed, this is the first occasion upon which the English court has been required to resolve a dispute between property owner and sewerage undertaker as to the point of connection of a private sewer or drain to a public sewer.
The 1875 Act permitted Local Authorities to make regulations in respect of the mode in which the communications between such drains and sewers are to be made.
There is no evidence that any regulations relevant to the issues raised on this appeal were ever made.
Nor is there any evidence that suggests that the change to the single ground for refusing a connection made by the 1936 Act led to any practical difficulties.
Pill LJ did not identify the source of the modest discretion that he suggested would exist on the part of an undertaker to object to the precise point of connection selected by the developer should this prove not feasible or sensible.
I suggest that section 108(1) of the 1991 Act probably provides the answer.
This requires the developer, before commencing the work of making the communication, to give reasonable notice to any person directed by the undertaker to superintend the carrying out of the work and to afford such person all reasonable facilities for superintending the carrying out of the work.
The sub section is silent as to the powers of the superintendent, but his role can be traced back to section 21 of the 1875 Act, which provided that the making of the communication should be subject to the control of any person who may be appointed by that authority to superintend the making of such communications (my emphasis).
It is at least arguable that section 108 of the 1991 Act implicitly confers on the undertakers superintendent power to control the making of the connection and thus to insist that the precise point of communication is one where it is technically feasible and sensible to make the connection.
There is a lacuna in the Act in that the powers of the superintendent are not spelt out and no machinery is provided for resolving any dispute between the superintendent and the developer.
Once again this may reflect the fact that the possibility of a dispute between the supervisor and the developer is one that exists in theory rather than in practice.
I now turn from the unlikely scenario of a dispute as to the precise point of
connection to the situation that has led to the dispute in the present case.
The real problem
The real problem that is demonstrated by the facts of this case arises out of the absolute right conferred by section 106 of the 1991 Act on the owner or occupier of premises to connect those premises to a public sewer without any requirement to give more than 21 days notice.
While this might create no problem in the case of an individual dwelling house, it is manifestly unsatisfactory in relation to a development that may, as in the present case, add 25% or more to the load on the public sewer.
The public sewer may well not have surplus capacity capable of accommodating the increased load without the risk of flooding unless the undertaker has received sufficient advance notice of the increase and has been able to take the necessary measures to increase its capacity.
This problem is accentuated by the fact that the budgets of sewerage undertakers and the charges that they are permitted to make have to be agreed by OFWAT and that this process takes place at five yearly intervals so that forward planning may have to be carried out five years in advance.
This is not a problem that arises because, if it be the case, the developer has the right to select the point of connection.
It is fortuitous that in this case there was spare capacity in the final short section of Welsh Waters sewer that led to the Treatment Works.
In many cases there will be no alternative point of connection that will avoid overload on the public sewer.
Welsh Water has presented this appeal as if the problem to be addressed relates to the point of connection whereas in truth the problem relates to the right of a developer, on no more than 21 days notice, to connect to a public sewer that lacks the relevant capacity.
The Court of Appeal suggested that the practical answer to this problem lies in the fact that the building of a development requires planning permission under the Town and Country Planning Act 1990.
The planning authority can make planning permission conditional upon there being in place adequate sewerage facilities to cater for the requirements of the development without ecological damage.
If the developer indicates that he intends to deal with the problem of sewerage by connecting to a public sewer, the planning authority can make planning permission conditional upon the sewerage authority first taking any steps necessary to ensure that the public sewer will be able to cope with the increased load.
Such conditions are sometimes referred to as Grampian conditions after the decision of the House of Lords in Grampian Regional Council v Secretary of State for Scotland [1983] 1 WLR 1340.
Thus the planning authority has the power, which the sewerage undertaker lacks, of preventing a developer from overloading a sewerage system before the undertaker has taken steps to upgrade the system to cope with the additional load.
Mr David Holgate QC, whose expertise in the field of planning led Lord Pannick to delegate to him this area of the case, sought to persuade us that planning law did not provide a satisfactory answer to the problem.
He demonstrated that there are some projects that have a major impact on sewerage that are not subject to any planning control.
Further, the planning authority may not always take the right decision so far as demands on the sewerage system are concerned.
Article 10 of the Town and Country Planning (General Development Procedure) Order 1995 (SI 1995/419) sets out a wide range of bodies that must be consulted by the local planning authority on an application in relation to a development such as Barratts.
They include the Health and Safety Executive, highway authorities, the Environment Agency, English Heritage, Natural England, the Countryside Council for Wales and the National Assembly for Wales, but not sewerage undertakers.
If conditions of planning permission are to provide the answer to the problem of the connection of private sewers to public sewers which are not adequate to bear the additional load, it would seem essential that there should be input to planning decisions from both the relevant sewerage undertaker and OFWAT.
In the present case there was input from each, but in the submission of Welsh Water the County Councils planning department made an erroneous decision.
Before looking briefly at what occurred, it is instructive to note that Welsh Water and OFWAT were approaching the situation from different viewpoints.
In 1997 an appeal was made to OFWAT, purportedly under section 106 of the 1991 Act, by the Post Office against a refusal by Yorkshire Water to allow a connection to a sewer in Sheffield on the sole ground of lack of capacity in the sewer.
OFWAT ruled that this was not a valid ground for refusing connection.
Subsequently, on 28 November, OFWAT sent a letter to all sewerage undertakers about this decision.
It included the following passages: The key issue, which the Director was required to consider when making his recent determination, is whether the Act allows companies to refuse, or impose conditions upon, a connection of a surface water drain to its public combined sewer on the grounds of limited capacity in the latter.
The Director concluded in his determination that the company was not able to refuse a connection solely on the grounds of lack of capacity.
The Act refers only to the condition or construction of the private drain or sewer which is to be connected.
This cannot, in the Directors view, extend to a consideration of the additional flows to be discharged into the public sewer, except in very specific circumstances.
For example, if the additional flows were to be discharged at such high pressure as to potentially cause damage to the receiving sewer.
The Director also considers that companies are not able to make connection conditional upon works, by the person requesting the connection, designed to reduce flows and therefore address capacity problems in the companies own systems.
The Director also acknowledges that it is not in anybodys interest for new connections to lead to flooding from the public sewers.
Although there is no specific provision in the Act to allow conditions to be imposed as to the timing of the connection, there may be circumstances in which it would be desirable to seek a deferment of the connection date to allow the company time to carry out necessary works to prevent flooding.
However, if the company has had warning of a development and ought reasonably to have foreseen a likely connection (for example, if it is included in the local structure plan), but fails to act, then a deferment condition is unlikely to be defensible.
In this context, the companies duty under Section 94 of the Act to provide, improve and extend the system of public sewers so as to ensure that the area is effectually drained is relevant.
Finally, all of the comments above regarding rights of connection assume a situation in which there are no specific planning conditions upon a development specifying the nature of the connection or works to be completed prior to making the connection.
There may be cases in which a planning condition would prohibit making a connection to a particular sewer, or place conditions upon that connection.
There are mechanisms by which developers may appeal against such planning conditions, in which the Director has no role.
Despite this advice, Mr Ian Wyatt, the New Business Manager of Welsh Water, made it clear in a statement in these proceedings that Welsh Water believed that fairness required that a developer such as Barratts should bear any costs caused by the connection of the developments private sewer to a public sewer.
Welsh Water had not budgeted for the cost of upgrading their system to cope with the demands that Barratts proposed to make on it by connecting at their chosen point.
Upgrading involved replacing the pipe bridge with a pipe of larger diameter at a cost of about 200,000.
Welsh Waters attitude throughout has been that Barratts should pay for this to be done or alternatively requisition Welsh Water under section 98 of the 1991 Act to build a parallel sewer to link the development to the public sewer at SO29127901, again at Barratts expense.
The facts in this case
In 1999 a pre deposit draft of Monmouthshire County Council (MCC)s Unitary Development Plan was sent to Welsh Water for purposes of consultation.
This made provision for, inter alia, the Llanfoist development.
Welsh Waters response was that they objected to this proposed development because their sewerage system was already overloaded and improvements to it were not included in their relevant development programme.
On 18 August 2005 Barratts applied to MCC for planning permission for a development of 120 dwellings.
Welsh Water were consulted and, on 14 September 2005, objected to this development for the same reason given in 1999.
They added, however, that it might be possible for the developer to fund the accelerated provision of replacement infrastructure or to requisition a new sewer under sections 98 to 101 of the 1991 Act.
Barratts revised their planning application, reducing the number of dwellings to 98 but adding a primary school.
On 14 May 2007 MCC granted planning permission, subject to a number of conditions, which included: 10.
No development shall take place until a scheme of foul drainage, and surface water drainage has been submitted to, and approved, by the Local Planning Authority and the approved scheme shall be completed before the building(s) is/are occupied.
Meanwhile, negotiations proceeded between Barratts and Welsh Water under the common assumption that, if the development was to proceed, Barratts would have to fund either upgrading of the public sewer to accommodate the increased load or the construction of a new sewer to link with the public sewer at manhole SO29127901.
On 29 May 2007 Barratts served a notice under section 106 of the 1991 Act, on a standard form provided by Welsh Water, of their intention to make a foul water connection to the public sewer on or after June 07 at SO29131302, this being a manhole in close proximity to the development.
A parallel application was made in relation to surface water.
Welsh Water replied on 26 June 2007 as follows: Thank you for your application to connect the foul and surface water flows from the above proposed development into the public sewerage systems.
We are in a position to approve the connections, however, the foul water connection must be made into or downstream of manhole SO29127901, as shown on the attached plan (ref.
ConF1).
Please note that if you encounter problems with third party landowners you may requisition, under Sections 98 to 101 of the Water Industry Act 1991, one of the following: A new sewer from the boundary of your site to this point of adequacy, or, The necessary improvement works as identified in the hydraulic assessment dated November 2006.
It is now accepted that this somewhat confusing letter is to be treated as a refusal of Barratts proposal.
Discussions continued between Barratts and Welsh Water on the premise that, in one way or another, Barratts would be funding the cost of dealing with Welsh Waters capacity problem.
However, on 11 September 2007 Barratts wrote to Welsh Water, referring to their letter of 26 June, asserting that Welsh Water had no right under section 106 to set the point of connection and asking Welsh Water to approve the connection.
Welsh Waters response on 26 September was to contend that Barratts had served a requisition notice under section 98 and that this precluded any right to connect under section 106.
On 25 January 2008 OFWAT, who had been kept informed of these developments, wrote to Welsh Water with a copy to Barratts, stating that there was no impediment on a developer pursuing simultaneously rights under sections 98 and 106.
This letter concluded with the following statement: In any case, it is apparent that the application under section 106 of the Act by Barratt Homes was made on 29 May 2007, received by Welsh Water on 30 May 2007 and the company did not respond to the application until 26 June 2007.
The response on 26 June 2007 was outside the statutory 21 days provided under section 106(4) and the company was not, therefore, entitled to refuse the application as made.
That being the case, please confirm by 1 February, that Barratt Homes proposal for connection as notified on 29 May 2007 can proceed.
It is for Barratt Homes to confirm with the Planning Authority that it can satisfy the planning condition No 10.
This letter was, I suspect, something of a bombshell.
If so, it was as nothing compared to the next development.
Barratts, with the aid of OFWATs letter and an opinion from Mr Porten, the content of which has never been disclosed, persuaded MCC to treat condition 10 as discharged.
The present proceedings followed.
Conclusions on the point of connection
On its natural construction section 106 of the 1991 Act gives the developer the right to connect his private drain or sewer to a public sewer subject only to (i) the right of the sewerage undertaker to give notice refusing permission to make the communication on the ground of deficiencies in the condition of the private drain or sewer (section 106(4)) and (ii) the right of the sewerage undertaker to give notice that he will make the connection himself (section 107).
The section confers no express right on the sewerage undertaker to select the point of connection or to refuse permission to make the communication on the ground that the point of connection proposed by the developer is open to objection.
Lord Pannick has argued that, despite its natural meaning, the section must be interpreted as conferring such a right if the operation of the relevant provisions of the 1991 Act are not to be rendered insensible, absurd or ineffective to achieve its evident purpose the phrase used by Lord Bridge of Harwich as justifying the disregard of particular words or phrases in a statute in McMonagle v Westminster City Council [1990] 2 AC 716 at p. 726E.
I have not been persuaded by this argument.
The lengthy history of the right to communicate with a public sewer does not suggest that the point of connection has ever given difficulty in practice.
The facts of this case do not illustrate that section 106 gives rise to a problem with the point of connection.
It illustrates the more fundamental problem that can arise as a result of the fact, accepted by Lord Pannick, that no objection can be taken by a sewerage undertaker to connection with a public sewer on the ground of lack of capacity of the sewer.
As OFWAT has pointed out, although the 1991 Act affords no such right, there is a case for deferring the right to connect to a public sewer in order to give a sewerage undertaker a reasonable opportunity to make sure that the public sewer will be able to accommodate the increased loading that the connection will bring.
The only way of achieving such a deferral would appear to be through the planning process.
Some difficult issues of principle arise however: Is it reasonable to expect the sewerage undertaker to upgrade a public sewerage system to accommodate linkage with a proposed development regardless of the expenditure that this will involve? How long is it reasonable to allow a sewerage undertaker to upgrade the public sewerage system? Is it reasonable to allow the sewerage undertaker to delay planned upgrading of a public sewer in the hope or expectation that this will put pressure on the developer himself to fund the upgrading?
The facts of this case suggest that a sewerage undertaker may well take a different view from OFWAT as to how these questions should be answered.
Be that as it may, it would seem desirable that the sewerage undertaker and OFWAT should at least be consulted as part of the planning process.
I would endorse the comment made by Carnwath LJ, at para 48, that more thought may need to be given to the interaction of planning and water regulation systems under the modern law to ensure that the different interests are adequately protected.
These comments are an aside from the narrow issue of statutory interpretation raised in relation to the point of connection.
For the reasons that I have given I would endorse the judgments of the Court of Appeal in holding that a sewerage undertaker has no right to select the point of connection or to refuse a developer the right to connect with a public sewer because of dissatisfaction with the proposed point of connection.
The 21 day limit.
Section 106(4) of the 1991 Act provides that the sewerage undertaker has 21 days from receipt of a notice under section 106(3) in which to give notice of refusal to permit the communication to be made.
The issue arises of whether this time limit results in an absolute bar on giving such a notice once it has expired.
In the light of my conclusion that the right of a sewerage undertaker to refuse permission to connect under section 106 of the 1991 Act arises only where there is reason to question the condition of the private drain or sewer that is to be connected, this issue is of limited importance, and of no significance at all on the facts of this case.
A similar issue arises in relation to section 107(1), which gives the sewerage undertaker 14 days in which to give notice that it intends itself to make the communication.
In the Court of Appeal both Carnwath LJ and Pill LJ inclined to the view that the 21 day time limit was not mandatory but refrained from deciding the point.
I take the opposite view.
Notices given under sections 106(4) and 107(1) remove a right to connect which is otherwise vested in the developer.
Under the provisions of sections 107 and 109 respectively it is a criminal offence to cause a drain or sewer to communicate with a public sewer after a notice has been given under section 106(4) or section 107(1).
In these circumstances it seems to me that the time limits in those two subsections must be strictly applied.
For the reasons that I have given I would dismiss this appeal.
LADY HALE (Dissenting)
It is curious that it should have taken so long for a dispute of this sort to reach the courts.
One might have thought that developers and sewerage undertakers were quite frequently at odds with one another about how best to accommodate a new housing development within the sewerage system and how the costs should be borne.
But there is no English or Welsh case directly in point.
Wyn Williams J reached one conclusion on the meaning of the legislation and the Court of Appeal reached another.
Most members of this Court agree with the Court of Appeal, but the legislative history of the matter leads me to disagree.
Section 106 of the Water Industry Act 1991 can be traced back to section 21 of the Public Health Act 1875 and before that to section 8 of the Sanitary Act 1866.
The 1875 Act consolidated with amendments the patchwork of public health legislation which began with the Public Health Act 1848.
The 1848 Act, together with the Local Government Act 1858, provided for the setting up of Local Boards of Health with a variety of powers dealing with sewers and drains, road cleaning, water supply and the like.
Under those Acts, the Local Boards had the duty of effectually draining their Districts.
There was no right to connect to their sewers without their consent.
But the drive was to get new and existing houses to connect.
The Board could direct how any new house built within 100 feet of a sewer was to connect to it and could require old houses within the same distance to connect.
But Local Boards did not cover the whole country.
The Sewage Utilization Act 1865 set up Sewer Authorities in other areas and gave them all the powers of the Local Boards.
Section 8 of the Sanitary Act 1866 gave owners or occupiers of premises within the district of a Sewer Authority the conditional right to cause his drains to empty into the Authoritys sewers in almost identical terms to section 21 of the 1875 Act.
The Public Health Act 1872 rationalised the administration by dividing the whole of England and Wales (apart from the Metropolis) into urban and rural sanitary districts.
The Metropolis was included in 1874 and the whole legislative scheme consolidated in the 1875 Act.
Section 21 provided that the owner or occupier of any premises within the district of a local authority shall be entitled to cause his drains to empty into the sewers of that authority, subject to giving the authority such notice as they required of his intention to do so and by complying with the regulations of that authority in respect of the mode in which the communications between such drains and sewers are to be made and subject to superintendence of its making.
In Ainley v Kirkheaton Local Board (1891) 60 LJ (Ch) 734, the plaintiff was already connected to the authoritys sewer but they wanted to cut him off because the sewer emptied into an open stream and proceedings had been taken against the authority for fouling the stream.
Stirling J held that the owners right to drain into the existing sewers was not affected by the authoritys obligation under section 17 of the Act not to allow its sewers to convey untreated sewage into a natural stream or watercourse.
It was for the authority to provide sufficient sewers and to treat the sewage before discharging it into the stream.
This case was followed in Brown v Dunstable Corporation [1899] 2 Ch 378, where Cozens Hardy J held that he could not grant an injunction to prevent the authority from allowing new connections to a sewer.
Following Ainley in preference to Charles v Finchley Local Board (1883) 23 Ch D 767, at 390, he held that the absolute right is no doubt subject to any regulations in respect of the mode of making connections and subject to the control of any person appointed to superintend the making of the connections; but no regulations can justify an absolute refusal to allow a connection to be made on any terms .
It is obvious that under this by law the surveyor can only prescribe the manner of connection.
He cannot refuse to allow any connection.
In Wilkinson v Llandaff and Dinas Powis Rural District Council [1903] 2 Ch 695, CA, the main issue was whether a roadside surface water drain was a sewer within the meaning of the Act.
If it was, the authority had to keep it clean.
One of the arguments against its being a sewer was that section 21 would then give everyone the right to connect their own drains into it.
Romer LJ bluntly observed, at p 702, that it does not follow that, because this channel is a sewer within the definition of the Act, it can be used by any inhabitants of the district for sewage or faecal matter.
Stirling LJ (as he had become) thought, at p 703, that the argument was an exaggeration of the effect of section 21: Section 21 does not provide that every owner or occupier of premises within the district of a local authority shall be entitled as of right to connect every drain which he has with every sewer belonging to the local authority.
That is not the meaning of the section.
All that is given by that section to the owner and occupier is a right to have the drain connected or made to communicate with the sewers of the local authority, subject to compliance with certain conditions amongst others, that he is to comply with the regulations of the local authority in respect of the mode in which the communication with the sewers is to be made.
So that, in my opinion, the local authority may define by regulation the particular sewer with which the communication is to be made.
Each party in this case can get something from these three authorities.
For the developer, the fact that continuing an existing connection or allowing a new one would cause a nuisance to the public or to a private individual was not by itself a reason to stop up or prohibit the connection.
For the undertaker, on the other hand, the mode in which the communication . is to be made could be regulated and this could cover the time and the place where the connection was to be made.
The Public Health Act 1875 was consolidated with other enactments and some amendments in the Public Health Act 1936.
Section 21 of the 1875 Act became section 34 of the 1936 Act.
Once again, the owner or occupier of any premises, or the owner of any private sewer, within the district of a local authority was entitled to have his drains or sewer made to communicate with the public sewers of that authority.
This was subject to various restrictions in the section itself, and to the requirement in section 34(3) that a person wanting to avail himself of this right should give notice to the local authority and at any time within 21 days after receipt thereof, the authority may by notice to him refuse to permit the communication to be made, if it appears to them that the mode of construction or condition of the drain or sewer is such that the making of the communication would be prejudicial to their sewerage system .
Disputes about the reasonableness of any refusal could be determined by a magistrates court.
Lord Pannick has referred us to the Report which led up to the 1936 Act (Cmd 5059 of 1936).
There is nothing in that report to suggest that the change in language, from the mode in which the communications between such drains and sewers are to be made to the mode of construction or condition of the drain or sewer, was intended to cut down the existing scope of the local authoritys power to control the place and manner of the connection.
Yet one would expect such a significant change to be flagged up in any report proposing consolidation with amendments.
It would be very strange if Parliament had intended to make such a change.
The public interest in ensuring that connections were made in ways which were not prejudicial to the sewerage system remained the same.
There were no other means available of doing so.
It could not have been contemplated, for example, that the developer could knock a big hole into an existing sewer and simply stick his own perfectly sound drain through it without making good.
It would also be strange if Parliament had legislated for such a change in England and Wales, while leaving the position in Scotland, under section 110 of the Public Health (Scotland) Act 1897, the same as it had been in England and Wales under section 21 of the 1875 Act.
And further that Parliament should later re enact and clarify that provision in section 12(1) of the Sewerage (Scotland) Act 1968, which provided that the Scottish local authorities could specify the mode and point of connection.
It is inexplicable why provisions which began in the same legislation covering the whole United Kingdom should diverge in this respect.
It is much more likely that Parliament intended them to mean the same thing.
Then came the well known case of Smeaton v Ilford Corporation [1954] 1 Ch 450.
The local authoritys Victorian sewers were over loaded and from time to time sewage erupted from a manhole near the plaintiffs house and overflowed into his premises.
Despite section 31 of the 1936 Act, providing that a local authority shall so discharge their functions as not to create a nuisance, the plaintiffs claim in nuisance failed.
The local authority were not causing or adopting the nuisance.
Upjohn J explained, at pp 464 5: It is not the sewers that constitute the nuisance; it is the fact that they are overloaded.
That overloading, however, arises not from any act of the defendant corporation but because, under section 34 of the Public Health Act 1936, subject to compliance with certain regulations, they are bound to permit occupiers of premises to make connections to the sewer and to discharge their sewage therein .
Nor, in my judgment, can the defendant corporation be said to continue the nuisance, for they have no power to prevent the ingress of sewage into the sewer.
The real problem in such a case, as both Lord Nicholls of Birkenhead and Lord Hoffmann pointed out in Marcic v Thames Water Utilities Ltd [2004] 2 AC 42, is that the every new house built has an absolute right to connect (para 34) and the undertaker has a duty to accept whatever water and sewage the owners of property in their area choose to discharge (para 53).
The overflow is not caused by any failure to clean or maintain the existing sewers but by a failure to build new or bigger ones.
And there is a long line of authority, dating back to Glossop v Heston and Isleworth Local Board (1879) 12 Ch D 102, that the authoritys duty to provide sufficient sewers effectually to drain the area is to be enforced through the statutory scheme and not by private action.
The decisions in Smeaton and Marcic were predicated on the authoritys or undertakers duties to allow connections and to accept sewage, but they did not decide what that duty entailed.
The only other relevant observations to which we have been referred are in Beech Properties Ltd v GE Wallis & Sons Ltd [1977] EG 735, where the question was whether a condition in a contract for the sale of land had been performed.
Part of this depended upon whether the purchaser would have the right to connect to the public sewer at a particular point.
Walton J thought it obvious that the right given by section 34 of the 1936 Act is not an absolute, but a qualified, right (p 747).
He continued (pp 748 9): . wide as the words of subsection (1) may be, . , they do not confer upon an individual the right to connect his sewer to the water authoritys sewer at any point which he may choose.
In most cases, of course, the matter will be quite academic.
There will be the water authoritys sewer, going along the road; a new house is built in the road; and quite obviously and clearly the owner will expect to have a right to drain into that sewer .
Even so, if the new house was built at a crossroads and there were available sewers in both roads, I can see no reason why the owner should be entitled to drain into the sewer of his choice if the water authority required him to drain into the other, which might, for example, well be a relief sewer expressly provided for the district because the other sewer was approaching capacity.
Similarly, I see no reason why the owner is entitled to connect at point X rather than an adjacent point Y, if the water authority requires him to connect at Y.
So we have three propositions for which there is respectable authority going back over many years and which are not inconsistent with one another.
The first is that the sewerage authority or undertaker cannot refuse to allow an owner or occupier to connect at all.
He must allow some sort of connection even if the system is already overloaded or will thereby become so overloaded that a nuisance will result.
The second is that the authority or undertaker is not liable for nuisances which result from such over loading.
The remedy lies in the statutory procedures to oblige them to build more sewers.
But the third is that all courts which have addressed themselves specifically to the point at issue here, the place and manner in which a particular connection is to be made, have expressed the view that the authority or undertaker can refuse to agree to the developers proposals.
There is no material difference between the 1936 and 1991 Acts for this purpose.
The 1936 Act provided that disputes between developers and authorities should go to a magistrates court.
The 1991 Act provides that a developer who argues that an authoritys refusal is unreasonable can take the dispute to OFWAT, which is a much more appropriate body to resolve such matters.
The 1936 Act provided that a local authority could refuse on the ground that the making of the communication would be prejudicial to their sewerage system and section 106(4)(b) provides the same.
This is obviously capable of including the deleterious effects of connecting at point A rather than point B. This too may help cast some light on the meaning of the words mode of construction or condition: it is easier to think of ways in which the place and manner of making the connection would be deleterious to the system than of ways in which the physical condition of the developers drain would be so.
In the light of the historical development of this difficult legislation, therefore, I would hold that the words mode of construction or condition do cover the way in which it is proposed to connect that private drain or sewer to the public sewer, including the place.
Whether the undertakers reasons for refusing to allow the proposed connection are reasonable is another matter, which in my view it is for OFWAT to resolve.
If that were the only issue in the case, therefore, I would have allowed this appeal.
| UK-Abs | The Respondents, Barratt Homes Limited, were engaged in building a substantial development of homes and a primary school in Llanfoist, near Abergavenny in Monmouthshire.
They sought to exercise the right of a property owner under s 106 Water Industry Act 1991 to connect the drains to the public sewer at a point close to the development.
The appellant sewerage undertakers, Welsh Water, argued that it was entitled to insist on a connection at point some 300m further downstream, as the sewer did not have the capacity to deal with the increased load until that point.
Welsh Water succeeded in the High Court but the decision was reversed on appeal and Barratt Homes made the connection at the place of its choice.
Welsh Water pursued an appeal to the Supreme Court, seeking to establish that s 106 gave a sewerage undertaker the right to refuse to permit connection to the public sewer at an unsuitable point.
The Supreme Court dismissed the appeal (Lady Hale dissenting).
The judgment of the majority was given by Lord Phillips.
The exercise of the right of a property owner to discharge into a public sewer pursuant to s 106 Water Industry Act 1991 (the 1991 Act) was an absolute right which could not be prevented on the ground that the additional discharge would create a nuisance.
That was for the sewerage undertaker to deal with [paras 23 26].
The right to object to the mode of construction in s 106(4) did not extend to the point of connection [para 32].
It was significant that in nearly a century and a half since the first enactment conferring this right was passed, this was the first dispute between an owner and sewerage undertaker as to the point of connection to a public sewer to have reached the courts [para 38].
The real problem behind the dispute in this case lay in the requirement to give only 21 days notice to a sewerage undertaker before exercising the absolute right in s 106.
This was manifestly unsatisfactory in relation to a development which in this case would add 25% or more to the load on the public sewer [para 41].
The only way to achieve a deferral of the
right was through the planning process, in which both the sewerage undertaker and OFWAT should be consulted.
More thought might need to be given to the interaction of planning and water regulation systems under modern law to ensure that the different interests were adequately protected [paras 57 58].
The 21 day limit for refusing applications to connect to the public sewer in s 106(4) was mandatory, in view of the fact that it was a criminal offence to connect a drain after such notice had been given [para 62].
Lady Hale would have allowed the appeal on the construction of s 106(4).
The legislative history led her to conclude that Parliament had not intended to cut down the scope of the local authoritys power to control the place and manner of connection in the Public Health Act 1936 (the predecessor to the 1991 Act), while leaving the position in Scotland unchanged [para 73].
The words mode of construction or condition in s 106(4) should be interpreted as including the place of connection to the public sewer [para 79].
|
By its judgment in this appeal dated 24 March 2010 the Supreme Court referred to the Court of Justice five questions regarding the nature and assessment of the concept of paid annual leave in articles 7 of Council Directives 93/104/EC and 2003/88/EC and clause 3 of the European Agreement annexed to and intended to be implemented under Council Directive 2000/79/EC (the Aviation Directive).
The Court of Justice by its judgment dated 15 September 2011 gave its response: British Airways plc v Williams (Case C 155/10) [2012] ICR 847.
The parties are now at odds as to its consequences for the dispute between them.
Clause 3 of the European Agreement reads: (1) Mobile staff in civil aviation are entitled to paid annual leave of at least four weeks, in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice. (2) The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated."
In the United Kingdom, The Civil Aviation (Working Time) Regulations 2004 (SI 2004/756) (the Aviation Regulations) were introduced to comply with this countrys obligations to give effect to Directive 2000/79/EC.
The Aviation Regulations provide:
(1) A crew member is entitled to paid annual leave of at least four weeks, or a proportion of four weeks in respect of a period of employment of less than one year. (2) Leave to which a crew member is entitled under this regulation (a) may be taken in instalments; (b) may not be replaced by a payment in lieu, except where the crew member's employment is terminated. 4.
As the Supreme Court explained in its judgment dated 24 March 2010 the Aviation Regulations are part of a wider complex of legislation requiring paid annual leave, starting with a general requirement introduced by Directive 93/104/EC (the Working Time Directive).
The Working Time Directive excluded various sectors, including air transport.
Further, when the Working Time Directive was implemented by the Working Time Regulations 1998 (SI 1998/1833) (the Working Time Regulations), these made specific reference to sections 221 to 224 (and by implication sections 234 to 235) of the Employment Rights Act 1996, which contain a detailed scheme (originally introduced in the context of redundancy pay) for ascertaining a weeks pay in the cases of employments with and without normal working hours.
In contrast, the Aviation Regulations neither contain nor refer to any such scheme.
They leave the concept of paid annual leave undefined.
Hence, the issues arising in this appeal.
The appellants are British Airways pilots.
Their terms of employment, negotiated by their union, British Air Line Pilots Association (BALPA), are found in a Memorandum of Agreement (MOA) which requires them to take 30 days annual leave and entitles them to take a further two weeks leave, save in the case of pilots with a Gatwick base, who are obliged to take 35 days holiday and are entitled to a further seven days of leave.
The MOA provides for pilots to receive (a) a fixed annual sum, plus two supplementary payments varying according to the time spent flying, consisting of (b) the Flying Pay Supplement (FPS) paid at 10 per flying hour and (c) the Time Away from Base allowance (TAFB) paid at 2.73 per hour.
British Airways explains that TAFB was introduced to replace meal allowances, sundries and the Gatwick Duty Allowance and to be increased in accordance with the UK Retail Prices Index for Catering Restaurant Meals.
Her Majestys Revenue and Customs attitude is that the TAFB is over generous and that 18% of it is taxable, in effect as pure remuneration.
The history of the case to date
When the appeal first came before the Supreme Court, British Airways primary submission was that the United Kingdom legislator, by omitting to introduce any detailed scheme for the calculation of paid annual leave like that provided under the Working Time Regulations, must be taken to have left this to be determined by collective or individual agreement between the parties, whatever might be the effect of the Aviation Directive.
The Supreme Court was not at that time persuaded by this submission, and thought it likely to be possible to construe the Aviation Regulations to reflect what meaning the Aviation Directive might have.
Hence, the reference made to the Court of Justice.
British Airways second submission was that the Aviation Directive was to like effect, leaving the calculation of paid annual leave to collective or individual agreement between the parties.
Its third submission, if this was wrong, was that the only constraint imposed by the Directive was that pay during annual leave must not be so low as to prevent or inhibit the taking of leave.
Finally, it submitted that the fixed annual sum (a) above constituted the pilots normal pay and was sufficiently comparable to remuneration received while working to satisfy the requirement for paid annual leave.
The questions referred to the Court of Justice by the Supreme Court were in these circumstances: (1) Under (a) articles 7 of Council Directives 93/104/EC and 2003/88/EC and (b) clause 3 of the European Agreement annexed to the Council Directive 2000/79/EC: (i) to what, if any, extent does European law define or lay down any requirements as to the nature and/or level of the payments required to be made in respect of periods of paid annual leave; and (ii) to what, if any, extent may member states determine how such payments are to be calculated? (2) In particular, is it sufficient that, under national law and/or practice and/or under the collective agreements and/or contractual arrangements negotiated between employers and workers, the payment made enables and encourages the worker to take and to enjoy, in the fullest sense of these words, his or her annual leave; and does not involve any sensible risk that the worker will not do so? (3) Or is it required that the pay should either (a) correspond precisely with or (b) be broadly comparable to the worker's "normal" pay? Further, in the event of an affirmative answer to question (3)(a) or (b): (4) Is the relevant measure or comparison: (a) pay that the worker would have earned during the particular leave period if he or she had been working, instead of on leave, or (b) pay which he or she was earning during some other, and if so what, period when he or she was working? (5) How should "normal" or "comparable" pay be assessed in circumstances where: (a) a worker's remuneration while working is supplemented if and to the extent that he or she engages in a particular activity; (b) where there is an annual or other limit on the extent to which, or time during which, the worker may engage in that activity, and that limit has been already exceeded or almost exceeded at the time(s) when annual leave is taken, so that the worker would not in fact have been permitted to engage in that activity had he been working, instead of on leave?
The Court of Justice gave a compendious answer.
It ruled (para 31) that article 7 of Directive 2003/88/EC and clause 3 of the European Agreement: must be interpreted as meaning that an airline pilot is entitled, during his annual leave, not only to the maintenance of his basic salary, but also, first, to all the components intrinsically linked to the performance of the tasks which he is required to carry out under his contract of employment and in respect of which a monetary amount, included in the calculation of his total remuneration, is provided and, second, to all the elements relating to his personal and professional status as an airline pilot.
It is for the national court to assess whether the various components comprising that worker's total remuneration meet those criteria.
The Court of Justices reasoning makes clear that it was ruling against British Airways on questions (2), (3) and (5)(a): 20 The purpose of the requirement of payment for that leave is to put the worker, during such leave, in a position which is, as regards remuneration, comparable to periods of work 21 remuneration paid in respect of annual leave must, in principle, be determined in such a way as to correspond to the normal remuneration received by the worker.
It also follows that an allowance, the amount of which is just sufficient to ensure that there is no serious risk that the worker will not take his leave, will not satisfy the requirements of European Union law.
The court went on, in further answer, to say that where, as here, pay was structured to involve several components, a specific analysis was required (para 22), because (para 23): that structure cannot affect the worker's right to enjoy, during his period of rest and relaxation, economic conditions which are comparable to those relating to the exercise of his employment and 24 Accordingly, any inconvenient aspect [sic] which is linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment and in respect of which a monetary amount is provided which is included in the calculation of the worker's total remuneration, such as, in the case of airline pilots, the time spent flying, must necessarily be taken into account for the purposes of the amount to which the worker is entitled during his annual leave. 25 By contrast, the components of the worker's total remuneration which are intended exclusively to cover occasional or ancillary costs arising at the time of performance of the tasks which the worker is required to carry out under his contract of employment, such as costs connected with the time that pilots have to spend away from base, need not be taken into account in the calculation of the payment to be made during annual leave. 26 In that regard, it is for the national court to assess the intrinsic link between the various components which make up the total remuneration of the worker and the performance of the tasks which he is required to carry out under his contract of employment.
That assessment must be carried out on the basis of an average over a reference period which is judged to be representative and in the light of the principle established by the case law , according to which Directive 2003/88 treats entitlement to annual leave and to a payment on that account as being two aspects of a single right. 27 That stated, it must also be pointed out that the court has already held that an employee, working as a purser for an airline company and transferred, by reason of her pregnancy, temporarily to ground work, was entitled, during her temporary transfer, not only to maintenance of her basic salary but also to pay components or supplementary allowances relating to her professional status as an employee.
Accordingly, allowances relating to her seniority, her length of service and her professional qualifications had to be maintained: see, to that effect, Parviainen v Finnair Oyj (Case C 471/08) [2011] ICR 99; [2010] ECR I 6529, para 73.
That case law also applies to a pregnant worker who has been granted leave from work: see Gassmayr v Bundesminister fr Wissenschaft und Forschung (Case C 194/08) [2010] ECR I 6281, para 65. 28 It follows that, in addition to the components of the total remuneration set out in para 24 of the present judgment, all those which relate to the personal and professional status of an airline pilot must be maintained during that worker's paid annual leave.
The court ended its reasoning by repeating that It is for the national court to assess whether the various components comprising that worker's total remuneration meet those criteria (para 31).
The court therefore drew a distinction relevant to TAFB between, on the one hand, remuneration, including remuneration based on personal or professional status, for all activities whether basic or inconvenient undertaken during employment (para 24) and, on the other hand, payments intended exclusively to cover occasional or ancillary costs (para 25) costs which would not of course be incurred during holiday periods.
The court made clear in para 26 that it is for the national court to assess into which of the two categories identified in paras 24 and 25 any payment fell.
When it went on in para 26 to state that That assessment must be carried out on the basis of an average over a reference period which is judged to be representative, the most natural reading of the statement is that the court understood that this assessment was also something that the national court could and would judge for itself.
The courts reasoning in para 26 further indicates that it contemplated an average over a reference period judged to be representative of normal working and remuneration, rather, therefore, than a calculation based on what the employee might have earned during the holiday period, had she or he then been working.
The concept of a reference period judged to be representative recognises the exercise of judgment inherent in words like representative and normal.
The Court of Justice was not prescriptive as to what might or might not constitute a representative period.
The court did not expressly address the question how far a member state or national court might adopt a standard period, applicable to a range of employees, like that required under sections 221 to 226 of the Employment Rights Act 1996.
Different British Airways pilots may earn different supplementary amounts of FPS (or TAFB) according to their different flying patterns during different periods.
This could no doubt be one factor to bear in mind in arriving at any reference period, whether for pilots generally or for a particular pilot.
Further, the court did not specifically answer question (5)(b), which is potentially relevant since Regulation 9 of the Aviation regulations provides: in any month (a) no person shall act as a crew member during the course of his working time, if during the period of 12 months expiring at the end of month before the month in question the aggregate block flying time of that person exceeds 900 hours; and (b) no crew member employed by him shall have a total annual working time of more than 2,000 hours during the period of 12 months expiring at the end of the month before the month in question".
If a reference period of the previous 10 or 11 months at work were taken, a pilot might in that period have exhausted his or her permitted 900 hours.
If an average is in such circumstances to be calculated including all 900 hours, the pilot would (as he or she arguably should) receive paid holiday pay higher than that receivable by a pilot who had only flown 800 hours in the same 10 or 11 months.
The current issues
In the light of the Court of Justices judgment, the appellants submit that (i) each of their claims can and should now be remitted to the Employment Tribunal for assessment by that tribunal of a representative period and of the relevant remuneration earned during that period, and that (ii) such remuneration should include not merely basic pay and FPS, but also 18% of TAFB.
British Airways, on the other hand, submits that (i) the Aviation Regulations are too unspecific to give effect to the Aviation Directive, in the absence of any relevant legislative scheme, and (ii) that the whole of the TAFB should be excluded from remuneration for the purposes of any calculation.
It is common ground that clause 3 of the European Agreement annexed to the Aviation Directive does not have direct effect against British Airways.
In Dominguez v Centre Informatique du Centre Ouest Atlantique (Case C 282/19) [2012] ICR D23, the Court of Justice treated the equivalently worded article 7 of the Working Time Directive as directly effective against the State.
But British Airways is not an emanation of the State.
Clause 3 of the European Agreement can only therefore be invoked against British Airways if it has been effectively implemented at domestic level.
In support of its first, general submission, British Airways thus argues that this has not occurred; that the concept of an average over a reference period which is judged to be representative is open ended and so open to differing assessments that implementation of the Aviation Directive in national law requires legislation; and that the mere echoing in regulation 4(1) of the phrase paid annual leave which appears in clause 3 is insufficient for effective implementation of the Directive.
At the European legal level, British Airways invokes the principle of legal certainty; at the domestic level, it submits that no possibility exists of interpreting the Aviation Regulations as implementing the Aviation Directive effectively, pursuant to the well established duty to interpret domestic legislation so far as possible in a manner conforming with any obligations imposed by a Directive: see, inter alia, Marleasing SA v La Comercial Internacional de Alimentacin SA (Case C 106/89)[1990] ECR I 4135 and Pfeiffer v Deutsches Rotes Kreuz, Kreisverband Waldshut eV (Joined Cases C 397 403/01) [2005] ICR 1307, paras 109 120.
The impossibility of a conforming interpretation is reinforced, British Airways submits, by the consideration that the Merchant Shipping (Hours of Work) Regulations 2002 (SI 2002/2125), although not directly in issue, provide (in regulation 12) for the same entitlement to paid annual leave, but go on to provide not for civil liability, but for criminal liability in the event of any contravention of regulation 12.
British Airways argue that the need for legal certainty and the obstacles to any form of interpretive solution are all the greater when the concept of paid annual leave has, albeit in the context of other Regulations, penal implications.
British Airways invokes in this connection the principle that the interpretive obligation recognised in cases such as Marleasing should not be used with the effect of determining or aggravating domestic criminal liability: Criminal Proceedings against Kolpinghuis Nijmegen BV (Case 80/86) [1987] ECR 3969, para 14 and Criminal Proceedings against Arcaro (Case C 168/95) [1997] All ER (EC) 82, para 42.
British Airways notes that the present situation has only arisen because pilots have been successful in the Court of Justice in challenging the parties collective agreement in the MOA, according to which basic pay was to be taken as the measure of paid annual leave and increments in basic pay were from time to time negotiated.
Had the Court of Justice restricted the payment required during annual leave to basic pay or allowed the parties to do so, there would have been no problem in knowing what the Directive required or in giving effect to it at national level.
As it is, however, British Airways submits, the requirements of the Directive, as explained by the court, require a detailed legislative scheme, which is not found in the Aviation Regulations and could not be supplied by an employment tribunal.
Finally, British Airways seeks to gain support for its case from the absence in regulation 18 of the Aviation Regulations of any explicit power in the employment tribunal to assess or award compensation for paid annual leave.
That, British Airways submits, is precisely because no one conceived that paid annual leave could, under the Aviation Regulations, mean anything other than basic pay, as had been collectively agreed by the MOA.
Now that it is clear that it means more, the absence of any such power confirms the absence of any legislative scheme regarding paid annual leave sufficient to implement the Aviation Directive or to have any domestic effect.
Analysis on issue of uncertainty and domestic effect
I do not accept British Airways submissions.
Their foundation is the open endedness of the exercise of judgment inherent in the concept of an average over a reference period which is judged to be representative.
The domestic legislator may well have assumed, as British Airways submits, that the assessment of paid annual leave would be a simple matter, with any problems being resolved by collective agreement.
The more sophisticated assessment now revealed to be necessary and the absence of any collective agreement leave scope for differences of view about the period to be taken.
On the other hand, a general legislative scheme of the sort that British Airways maintains to be required could itself have risked being over prescriptive.
Be that as it may, the legislator chose in the Aviation Regulations simply to repeat the relevant language of the Aviation Directive.
The Court of Justice having explained the principles behind article 7 of the Working Time Directive and clause 3 of the European Agreement, the same principles must be taken to have been intended to govern the same wording where it appears in regulation 4 of the Aviation Regulations.
The solution, in my opinion, is that, in these circumstances and in the absence of any other means of ascertaining a representative reference period, the choice of a reference period is in the first instance for British Airways to make.
This is a choice to be made by British Airways within the parameters of what can (reasonably) be judged to be representative.
Failing such a choice, British Airways cannot complain if a court or tribunal takes its own view of what best represents a representative period in the case of an individual employee who brings a case to it.
This in my opinion matches the Court of Justices own expectations: see para 13 above.
It would be surprising if domestic courts or tribunals were to conclude that they could not give effect to a domestic article using identical language to the Aviation Directive in the way in which the Court of Justice contemplated that the language of the Directive envisages.
This is reinforced by the Court of Justices conclusion that, in a context where the employer is the State, article 7 is directly effective (and so, by necessary implication, sufficiently certain for that purpose).
I am unimpressed by the submission that, on the basis that the same approach is to be transposed to the same language in the Merchant Shipping (Hours of Work) Regulations 2002, the result would be to expose employers to criminal liability for failing to make an appropriate choice within uncertain parameters.
So long as an employers choice is within those parameters, no problem arises, and, if a bona fide choice were to fall outside such parameters, the likelihood of a criminal prosecution would appear remote.
If the problem were to prove a real one, then the difference between the present regulations and those imposing criminal liability might itself also require a different approach to the issue of enforceability if it arose in the latter context.
I am also unimpressed by the submission that regulation 18 militates against or prevents a conclusion that, in the absence of a choice by British Airways, the employment tribunal can make its own assessment of an average over a reference period which is judged to be representative.
Regulation 18 provides: Remedies 18.(1) A crew member may present a complaint to an employment tribunal that his employer has refused to permit him to exercise any right he has under regulation 4, 5(1), (4), 7(1) or 7(2)(b). (2) An employment tribunal shall not consider a complaint under this regulation unless it is presented (a) before the end of the period of three months beginning with the date on which it is alleged (i) that the exercise of the right should have been permitted (or in the case of a rest period or annual leave extending over more than one day, the date on which it should have been permitted to begin), or (ii) the payment under regulation 4(2)(b) should have been made; as the case may be; or (b) within such further period as the tribunal considers reasonable in a case where it is satisfied that it was not reasonably practicable for the complaint to be presented before the end of that period of three months. (3) Where an employment tribunal finds a complaint under regulation 4, 5(1), (4), 7(1) or 7(2)(b) well founded, the tribunal (a) shall make a declaration to that effect; and (b) may make an award of compensation to be paid by the employer to the crew member. (4) The amount of the compensation shall be such as the tribunal considers just and equitable in all the circumstances having regard to (a) the employer's default in refusing to permit the crew member to exercise his right; and (b) any loss sustained by the crew member which is attributable to the matters complained of.
British Airways submission is that regulation 18(1) only contemplates complaints based on a refusal to permit an employee to take paid annual leave, not complaints about the level of payment for such leave.
The only reference to a complaint based on failure to make a payment is in regulation 18(2)(a)(ii).
There it is linked to a failure on termination of employment to make a payment in lieu of leave under regulation 4(2)(b), and that is a payment which is based necessarily on an assessment of what the employee would have earned during a defined period.
British Airways contrasts this position with that under certain other regulations, such as the Working Time Regulations 1998.
Regulation 16 of the Working Time Regulations entitles a worker to be paid at the rate of a weeks pay in respect of each week of the annual leave required under regulation 13 and regulation 30 (Remedies) goes on specifically to deal in regulation 30(1)(a)(i) with refusal to permit a worker to exercise any right he has under regulation 13, and in regulation 30(1)(b) with failure to pay him the whole or any part of any amount due to him under regulation . 16(1), while regulation 30(5) provides that, where an employment tribunal finds such a failure, it shall order the employer to pay to the worker the amount which it finds to be due to him.
It is true that the Aviation Regulations, unlike the Working Time Regulations, do not explicitly address complaints relating to the payments for annual leave.
But it is our duty to read the domestic Regulations so far as possible to give effect to the Aviation Directive, as interpreted by the Court of Justice.
Regulation 18(1) contemplates complaints where an employer has refused to permit the exercise of any right that an employee has under regulation 4.
Regulation 18(4) enables an employment tribunal to award such compensation as it considers just and equitable in all the circumstances having regard to the employers default in refusing to permit the crew member to exercise his right.
The concept of refusal to permit the exercise of a right can extend to cover refusal to permit the crew member an appropriate payment as part of the right to paid annual leave.
The employment tribunal can on the like basis make such award as it considers just and equitable to compensate for such refusal.
The implication of British Airways present submissions is that any complaint that a pilot might have can and would lie not against British Airways, but at most against the United Kingdom, for failure to implement the Aviation Directive effectively at the domestic level.
I note that this would itself involve the pilot invoking a forum, presumably a court, which would then have to determine as against the State the appropriate parameters of a period judged to be representative of the pilots normal pay the very exercise that British Airways submits is so uncertain that it cannot be undertaken by the employment tribunal.
For the reasons I have given, I do not accept British Airways submissions, and conclude accordingly that the claims should be remitted to the Employment Tribunal for further consideration of the appropriate payments to be made to the pilots in respect of the periods of paid annual leave in issue.
The appellants submit that the Supreme Court can and should without more conclude that the pilots remuneration includes 18% of the sums paid by way of TAFB.
But the 18% is no more than the percentage which Her Majestys Revenue and Customs regards as taxable.
The Revenues attitude for tax purposes is presently irrelevant.
It amounts at best to a third partys view on an issue to be determined independently by the employment tribunal.
Even if the Revenues attitude for tax purposes were relevant, it is not in any event clear on what basis the Revenue arrived at its attitude, or by reference to what considerations.
In contrast, British Airways relies upon the test stated by the Court of Justice in its para 25, which excludes from remuneration relevant to the calculation of holiday pay, components of pay which are intended exclusively to cover costs.
British Airways stresses the word intended.
Within such components, the Court of Justice expressly included costs connected with the time that pilots have to spend away from base.
The question arising is therefore whether the payments by way of TAFB were intended exclusively to cover costs.
Although British Airways submits that the Supreme Court can or should itself determine the answer to this question, we do not have the material to do so in the agreed statement of facts or elsewhere.
Even the history of TAFB given by British Airways as summarised in para 5 above is no more than its statement of the position.
It must be for the employment tribunal to consider and determine upon what basis TAFB was agreed and paid during any relevant period.
As to the precise test, the concept intended exclusively to cover costs requires attention to be focused on the real basis on which the TAFB payments were made.
If they were payments that were made genuinely and exclusively to cover costs, that would, at least prima facie, be the end of the matter.
The appellants case appears to be that, although they were designated as being for the exclusive purpose of covering costs, they were in fact more than some or all pilots might actually need for or spend on costs, and that the Revenue has, in effect, seen through the description to a reality which the Supreme Court, or an employment tribunal, should also recognise.
As Mr Jeans QC for British Airways accepted, there could no doubt come a point at which it was obvious that payments nominally made to cover costs were not required, or were not going to be required, in their entirety, to match actual costs.
An employer who in such circumstances continued to make such payments in their full amount could then no longer maintain that they were genuinely and exclusively intended to cover costs.
But, in using the phrase intended exclusively to cover costs, it does not appear that the Court of Justice contemplated any detailed evaluation of the precise need for or reasonableness of payments which were so intended.
What matters is whether there was a genuine intention in agreeing and making such payments that they should go exclusively to cover costs.
It is on that the employment tribunal should in my opinion focus.
Hilary Term [2010] UKSC 16 On appeal from: [2009] EWCA Civ 281 JUDGMENT British Airways plc (Respondents) v Williams (Appellant) and others before Lord Walker Lady Hale Lord Brown Lord Mance Lord Clarke JUDGMENT GIVEN ON 24 March 2010 Heard on 24 and 25 February 2010 Appellant Jane McNeill QC Michael Ford (Instructed by Thompsons Solicitors) Respondent Christopher Jeans QC Andrew Short (Instructed by Baker and Mackenzie LLP) LORD MANCE (delivering the judgment of the court) The relevant law 1.
This appeal concerns the concept of paid annual leave for crew members employed in civil aviation appearing in regulation 4 of The Civil Aviation (Working Time) Regulations 2004 (SI 2004 no. 756) (the Aviation Regulations).
These Regulations were introduced under s.2(2) of the European Communities Act 1972 to comply with the United Kingdoms obligations under Council Directive 2000/79/EC of 27 November 2000 (the Aviation Directive), the purpose of which was in turn to implement the European Agreement on the organisation of working time of mobile staff in civil aviation dated 22 March 2000 (the European Agreement) annexed to the Directive. 2.
Clause 3 of the European Agreement reads: 1.
Mobile staff in civil aviation are entitled to paid annual leave of at least four weeks, in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice. 2.
The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated. 3.
The Aviation Regulations provide: 4. (1) A crew member is entitled to paid annual leave of at least four weeks, or a proportion of four weeks in respect of a period of employment of less than one year. (2) Leave to which a crew member is entitled under this regulation (a) may be taken in instalments; (b) may not be replaced by a payment in lieu, except where the crew members employment is terminated. 4.
The Aviation Regulations and Directive are part of a wider complex of legislation requiring paid annual leave.
Council Directive 93/104/EC of 23 November 1993 (the Working Time Directive) introduced a general requirement that Member States take measures to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice (article 7(1)).
But it excepted various mobile sectors of activity, viz air, rail, road, sea, inland waterway and lake transport, sea fishing, other work at sea and the activities of doctors in training (article 1(3)), and further stated that its provisions should not apply where other Community instruments contain more specific requirements concerning certain occupations or occupational activities (article 14). 5.
The Working Time Directive was implemented domestically, with exceptions matching those of the Directive, by the Working Time Regulations 1998 (SI 1998 no. 1833) (the Working Time Regulations).
These Regulations (as amended by the Working Time (Amendment) Regulations 2001 (SI 2001 no. 3256)) provide that a worker is entitled to four weeks annual leave in each leave year (regulation 13) and entitled to be paid in respect of any period of annual leave to which he is entitled under regulation 13 at the rate of a weeks pay in respect of each week of leave (regulation 16(1)).
Regulations 16(2) and (3) make ss.221 to 224 (and by implication also, it has been held, ss.234 235) of the Employment Rights Act 1996 applicable to the determination of the amount of a weeks pay for the purposes of regulation 16.
Ss.221 to 224 contain a detailed scheme (originally introduced in the context of redundancy pay) for ascertaining a weeks pay in the cases of employments with and without normal working hours.
The scheme includes provisions governing the differing situations of remuneration varying (s.221(3)) and not varying (s.221(2)) with the amount of work done and of remuneration varying according to the times of day or days of the week in which work is required to be done (s.222); as well as provisions governing employments with no normal working hours (s.224).
Where the remuneration varies according to the amount, time or hours of work, the computation of weekly pay falls to be derived from an examination of an average position over a defined period of twelve weeks preceding the relevant calculation date, itself defined (ss.221(3), 222 and 224).
Under s.234, in the case of an employee who is entitled to overtime pay when employed for more than a fixed number of hours in a week, the employees normal working hours are the number of hours so fixed unless the contract also fixes a number of hours of overtime which the employer is bound to provide and the worker bound to work, in which case, the employees normal working hours consist in the total number of fixed hours (so excluding any voluntary overtime): Tarmac Roadstone Holdings Ltd. v Peacock [1973] ICR 273 (CA); the same interpretation of s.234 has been applied to a claim under Regulation 16 of the Working Time Regulations: Bamsey v Albon Engineering and Manufacturing plc [2004] EWCA Civ 359; [2004] ICR 1083 (CA). 6.
The exceptions from the Working Time Directive were in due course addressed.
Council Directive 1999/63/EC of 21 June 1999 gave effect to a European Agreement dated 30 September 1998 entitling non fishing seafarers to paid annual leave on the same basis as was in 2000 provided for mobile staff in civil aviation (paragraph 2 above).
This was in turn given domestic effect by The Merchant Shipping (Hours of Work) Regulations 2002 (SI 2002 no. 2125) (the non fishing Seafarers Regulations), in language identical as regards paid annual leave to that of the Aviation Regulations (paragraph 3 above), with the substitution of the word seafarer for crew member (regulation 12 ). 7.
Directive 2000/34/EC of 22 June 2000 extended the application of the Working Time Directive to all sectors of activity, excluding seafarers as defined in Council Directive 1999/63/EC, and gave Member States until 1 August 2003 to achieve this.
However, it also replaced article 14 of the Working Time Directive with a provision that that Directive should not apply where other Community instruments contain more specific requirements relating to the organisation of working time for certain occupations or occupational activities.
With effect from 2 August 2004, the Working Time Directive as extended and amended has been replaced by a consolidated Working Time Directive 2003/88/EC of 4 November 2003, but article 7 remains in identical terms to article 7 of the original Working Time Directive of 1993. 8.
The Aviation Directive of 27 November 2000 was a specific Community instrument within article 14 of the Working Time Directive and was, as stated, implemented domestically in 2004 by the Aviation Regulations.
The extension of the Working Time Directive in its original and consolidated form to other mobile workers was further implemented domestically by inter alia The Merchant Shipping (Working Time: Inland Waterways) Regulations 2003 (SI 2003 no. 3049) made 23 December 2003 and The Fishing Vessels (Working Time: Sea fishermen) Regulations 2004 (SI 2004 no. 1713) made 16 August 2004.
In these two sets of Regulations, governing inland waterway workers and sea fishermen, regulation 11(1) entitles such workers to (or, in the case of the latter, to at least) four weeks annual leave and to be paid in respect of any such leave at the rate of a weeks pay in respect of each week of leave.
They go on to apply ss.221 to 224 for the purpose of determining the amount of a weeks pay for the purposes of the right to four weeks paid annual leave, and to define the relevant calculation date for the purposes of the twelve week period as the first day of the period of leave in question.
They also provide specifically for a worker to be able to complain of failure to pay any amount due under regulation 11(1). 9.
In contrast, neither the non fishing Seafarers Regulations of 2002 nor the Aviation Regulations made 13 April 2004 contain any detailed provisions which either define the nature or amount of the payment to be made during annual leave or apply ss.221 to 224 of the 1996 Act for that purpose.
Nor do they provide specifically for the consequences of failure to pay for annual leave (though the Aviation Regulations entitle a worker to complain of a refusal to permit him to exercise any right to paid annual leave, while the non fishing Seafarers Regulations make contravention by an employer of regulation 12, entitling seafarers to paid annual leave of at least four weeks, a criminal offence).
These domestic distinctions can only have been deliberate.
It is common ground now that ss.221 to 224 cannot apply to aviation crew members.
This appeal therefore turns on the meaning of the phrase paid annual leave, which is all that the United Kingdom legislator has relevantly enacted.
The phrase cannot of course be construed in a vacuum.
The Aviation Directive is not directly applicable, certainly not against British Airways which is not an emanation of the state.
But it is our duty, as far as possible, to construe the phrase in the domestic Regulations consistently with any requirement inherent in the identical phrase used in clause 3(1) of the European Agreement to which Member States are required to give effect by the Aviation Directive: see e.g. Marleasing SA v La Comercial Internacional de Alimentacion SA (Case C 106/89) [1990] ECR I 4135, paragraph 8; Pfeiffer v Deutsches Rotes Kreuz, Kreisverband Waldshut eV (Cases C 397 404/01) [2004] ECR I 8835, paragraphs 111 113 and, most recently, Seda Kckdeveci v Swedex GmbH & Co. KG, (Case C 555/07) (judgment of 19 January 2010) paragraphs 44 48. 10.
Strictly, the European Agreement is an agreement between private associations representing airlines on the one hand and aviation workers on the other.
As such, its meaning might be capable of being influenced by the circumstances in which it was negotiated, any travaux prparatoires and even statements made during its negotiation.
But no evidence of that nature was put before the Employment Tribunal which considered the present case, and all that the Tribunal records (paragraph 37) is that the issue of holiday pay was not high on the agenda of those representing the interests of aviation workers when the Agreement was reached.
The reality is that clause 3 of the European Agreement adopted identical wording to article 7 of the Working Time Directive.
The natural inference is that it was intended to have the same effect in law and there is nothing to suggest the contrary.
The facts 11.
The factual context in which the phrase paid annual leave has presently to be understood and applied is as follows.
The appellants are pilots employed by British Airways plc.
In practice the terms of their employment were and are negotiated with British Airways by the pilots union, British Air Line Pilots Association (BALPA).
These terms are currently found in a Memorandum of Agreement (MOA) dated 1 April 2005.
The Court understands that, for present purposes, the terms of this MOA mirror those applicable under previous similar agreements going back to before 2000.
Under the MOA (and consistently with the Aviation Directive and Regulations) British Airways pilots are required to take 30 days annual leave and are entitled to take a further two weeks leave, save for pilots with a Gatwick base who are obliged to take 35 days holiday and are entitled to a further seven days of leave. 12.
Under the MOA, read with collectively agreed bidline rules, pilots remuneration includes three components relevant to this case.
The first consists of a fixed annual sum.
The second and third consist of supplementary payments varying according to time spent flying (the Flying Pay Supplement or FPS, paid at 10.00 per planned flying hour) and time spent away from base (the Time Away from Base Allowance or TAFB, paid at 2.73 per hour).
The whole of the FPS is remuneration and taxable. 82% at the relevant time of the TAFB is treated as having been paid on account of expenses, so that only 18% is treated as remuneration and taxable. 13.
There are limits to the FPS and TAFB which a pilot or other crew member can earn.
Regulation 9 of the Aviation Regulations requires every employer to ensure that: in any month (a) no person employed by him shall act as a crew member during the course of his working time, if during the period of 12 months expiring at the end of month before the month in question the aggregate block flying time of that person exceeds 900 hours; and (b) no crew member employed by him shall have a total annual working time of more than 2,000 hours during the period of 12 months expiring at the end of the month before the month in question. 14.
The amount of time a pilot spends flying will depend upon his or her route and roster.
It could typically be about 15 days a month.
The Court has been given a schedule of payments made to the first appellant, Ms Williams.
This indicates that, in the calendar year 2006, she took 25 working days leave in periods of between one and eight days in five different months, and received total fixed pay of 96,452.36, total FPS of 8,510 and total taxable TAFB of 1,038.49.
Total FPS of 8,510 is indicative (at 10 an hour) of 851 flying hours.
If that is so, then, had Ms Williams continued to fly at this rate during leave periods, it appears that she would or might have exceeded the maximum permitted annual number of 900 flying hours.
Total taxable TAFB of 1,038.49 gives total TAFB of 5,769.39 (1,038.49 x 100 18: see paragraph 12 above), indicative of 2,113 hours away from base.
Again, had Ms Williams continued to fly during leave periods, it appears that she would or might have exceeded the maximum total annual working time of 2,000 hours.
However, whether this be so or not in her case in relation to FPS or TAFB, a crew member could clearly be in this position in practice, i.e. in a position where during the 12 month period prior to taking any particular leave, he or she had already completed all or almost all of his or her permitted annual flying or working time.
The issue and submissions 15.
It is common ground that, upon a true construction of the MOA and so as a matter of contract, the payment to be made in respect of annual leave is based on the first component of remuneration only, that is the fixed annual sum.
The question is whether this was and is permissible under the Aviation Regulations, interpreted in the light of the Aviation Directive.
This question was first raised in 2005 following the introduction of the Aviation Regulations on 13 April 2004.
The Court understands that it has been raised not merely by British Airways pilots, but also by other airlines pilots and other aviation crew under contractual arrangements not before the Court.
Before the Employment Tribunal and Employment Appeal Tribunal, the appellants argued, successfully, that they were entitled under European and domestic law to payment at a weekly rate based on all three components of remuneration (which both Tribunals said should be calculated by analogy with ss.221 4, despite the inapplicability of these sections).
The Court of Appeal accepted British Airways contrary case under both European and domestic law. 16.
British Airways case operates at various levels: (i) British Airways first submission is that (a) the United Kingdom legislator must be taken (when deciding not to enact any detailed provisions to define the nature or amount of the payment to be made during annual leave or to apply ss.221 to 224 of the 1996 Act: see paragraph 9 above) to have intended that the amount of any payment to be made to aviation workers (and non fishing seafarers) in respect of their annual leave should be determined by collective or individual contractual agreement between the relevant parties; and (b) the domestic legislative intention being in this respect clear, it must prevail, whatever the effect may be of the Aviation Directive. (ii) Second, however, if and to the extent that, contrary to the first submission, the meaning of the Aviation Regulations can be derived from the Aviation Directive, British Airways submits that the Aviation Directive is to the same effect. (iii) (a) Third, British Airways qualifies its first two submissions only to the extent that it accepts that the payment for annual leave could not, under domestic or European law, be so low as to prevent or inhibit the taking of leave.
Pay during weeks of annual leave at the rate of 96,452 per annum or 1,854.85 per week could hardly be said to fall within this qualification.
Accordingly, British Airways contends that the contractual arrangements between them and their pilots are legitimate. (b) The appellants contrary submission of law is that the Aviation Directive requires the payment in respect of annual leave of normal remuneration in order to ensure that the worker is on leave in a position which is comparable to that when he or she is at work. (c) There is however disagreement about what this would mean in circumstances such as the present.
In particular, on that basis of what periods is normality or any comparison to be established? And on the basis of what hypotheses? The latter question is relevant where, as may well be the case here, the worker was subject to annual limits which would have precluded him or her from undertaking particular work and receiving particular payments additional to his or her basic salary. (iv) Fourth, British Airways submits (in response to this submission by the appellants) that, if the phrase paid annual leave involves payment of normal or comparable remuneration, then, in the present case, payment in respect of annual leave based on the fixed annual remuneration to which pilots are entitled satisfies this requirement. 17.
The Court is not presently persuaded by British Airways first submission.
Of course, whether domestic legislation is capable of being interpreted consistently with the meaning of the Directive will or may depend upon what that meaning is.
But, bearing in mind the possible meanings which appear, the Courts present view is that it is likely to be possible to construe the Regulations so as to comply with whatever meaning the Directive may have, even if the domestic position would otherwise be that for which British Airways contends by its submission at (i)(a) above.
This is so, even though the determination of the relevant weekly rate will pose difficulties for the employment tribunals who will have to engage with this exercise, in circumstances where there is no detailed scheme and ss.221 to 224 of the 1996 Act do not apply. 18.
British Airways second and third submissions raise questions regarding (a) the meaning of the phrase paid annual leave in the Aviation Directive and (b) the extent of the freedom for national legislation and/or practice to lay down conditions for entitlement to, and granting of, such leave [i.e. paid annual leave].
The determination of these questions is in the Supreme Courts view necessary for the resolution of this appeal.
There are statements in the Court of Justices recent case law (discussed below) which, on their face, are adverse to British Airways second and third submissions (paragraph 16(ii) and (iii)(a) above) and favour the appellants case that the Aviation Directive requires payment of normal or comparable remuneration (paragraph 16(iii)(b) above).
But these statements were made in very different contexts to the present, and, further, do not specifically address the point identified in paragraph 16(iii)(c) above.
The position in a case such as the present is not in the Supreme Courts view acte clair and the Supreme Court therefore makes this reference.
Analysis 19.
In case it may assist the Court of Justice, the Supreme Court adds these observations.
British Airways submits that the concept of paid annual leave is to be understood in the context in which the Working Time and Aviation Directives were enacted, namely the promotion of the health and safety of workers.
That context appears from United Kingdom v Council of the European Union (Case C 84/94) [1996] ECR I 5755; [1997] ICR 443.
The Court of Justice there upheld (save in one presently immaterial respect relating to Sunday working) the validity of the adoption of the Working Time Directive under article 118a of the European Community Treaty.
Article 118a entitled the Council, by qualified majority voting, to adopt by means of Directives, minimum requirements for gradual implementation to encourage improvements, especially in the working environment, as regards the health and safety of workers. (Subsequent to the Treaty of Nice, the relevant article became article 137, entitling the Community to support and complement the activities of Member States in the fields of, inter alia, improvement in particular of the working environment to protect workers health and safety.
It is, since the Treaty of Lisbon, article 153 in similar terms.) In R(BECTU) v Secretary of State for Trade and Industry (Case C 173/99) [2001] ECR I 4881; [2001] ICR 1152, the Court of Justice again stressed the importance of the general principles of protection of the health and safety of workers and the aim of ensuring effective protection of health and safety (paragraphs 40 and 44), when holding impermissible a provision of the then Working Time Regulations, according to which no entitlement to paid annual leave arose until an employee had been continuously employed for 13 weeks.
The entitlement to paid annual leave was a particularly important principle of Community social law from which there can be no derogations (paragraph 43) and the Directive did not allow Member States either to make subject to any preconditions or to exclude the very existence of a right granted to all workers (paragraphs 53 and 55).
Recital (11) to the Aviation Directive of 27 November 2000 confirms (unsurprisingly) that its objectives are precisely the same as those of the Working Time Directive, viz. to protect workers health and safety. 20.
British Airways submits that paid annual leave therefore requires payment at a level which ensures that annual leave can be taken and enjoyed, that is payment which does not frustrate or undermine the purpose of the relevant Working Time or Aviation Directive.
The Supreme Court would agree that the present arrangements with pilots employed by British Airways could not be regarded as posing any such risk to their health or safety.
There is no suggestion that they do or could prevent or deter pilots or crew members from taking annual leave (even to the limited extent that they are free not to do so).
On the contrary, the Employment Tribunal referred (paragraph 38) to a consensus that British Airways pilots not based at Gatwick do in practice take the extra two weeks voluntary leave to which they are entitled. 21.
British Airways also points out that, in United Kingdom v Council, the Court of Justice referred to Member States freedom to lay down detailed implementing provisions in general terms, when it said in paragraph 47 that: Once the Council has found that it is necessary to improve the existing level of protection as regards the health and safety of workers and to harmonize the conditions in this area while maintaining the improvements made, achievement of that objective through the imposition of minimum requirements necessarily presupposes Community wide action, which otherwise, as in this case, leaves the enactment of the detailed implementing provisions required largely to the Member States. 22.
Recital (12) to the Aviation Directive also indicates that Member States are to be free to define any terms used in the annexed European Agreement in accordance with national law and practice, providing that the definitions are consistent with the Agreement.
In British Airways submission, the freedom to enact detailed implementing provisions and the freedom to leave matters to national practice allow Member States either to introduce detailed provisions along the lines of ss.221 to 224 of the 1996 Act or to leave it to contracting parties to agree on terms as regards pay, so long as these do not frustrate or undermine the taking and enjoyment of annual leave. 23.
The appellants, in relation to this latter point, rely upon further statements in BECTU as indicating a narrow view of Member States discretion under clause 3 of the Aviation Directive.
In his opinion in that case, Advocate General Tizzano said at paragraph 34: It is not of course my intention to deny that the expression in question means that reference must be made to national legislation and therefore that the Member States enjoy some latitude in defining the arrangements for enjoyment of the right to leave.
In particular, as the Commission also points out, the reference is intended to allow the Member States to provide a legislative framework governing the organisational and procedural aspects of the taking of leave, such as planning holiday periods, the possibility that a worker may have to give advance notice to the employer of the period in which he intends to take leave, the requirement of a minimum period of employment before leave can be taken, the criteria for proportional calculation of annual leave entitlement where the employment relationship is of less than one year, and so forth.
But these are precisely measures intended to determine the 'conditions for entitlement to, and granting of, leave and as such are allowed by the Directive.
What, on the other hand, does not seem to be allowed by the Directive is for national legislation and/or practice to operate with absolutely (or almost) no restrictions and to go so far as to prevent that right from even arising in certain cases.
The Court of Justice referred to this passage in its judgment (paragraph 24. 53): The expression 'in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice must therefore be construed as referring only to the arrangements for paid annual leave adopted in the various Member States.
As the Advocate General observed in paragraph 34 of his Opinion, although they are free to lay down, in their domestic legislation, conditions for the exercise and implementation of the right to paid annual leave, by prescribing the specific circumstances in which workers may exercise that right, which is theirs in respect of all the periods of work completed, Member States are not entitled to make the existence of that right, which derives directly from Directive 93/104, subject to any preconditions whatsoever. 25.
British Airways point out that both these passages were specifically directed to explaining why the Directive did not permit Member States to remove entirely any right to paid annual leave in particular circumstances.
They were not concerned with the permissibility of defining paid annual leave or of leaving it to parties to define, in a way which does not undermine its taking or its enjoyment. 26.
The appellants submit, however, that the Court of Justices later case law contains statements establishing that paid annual leave must now be regarded as having achieved a closely defined autonomous European meaning: any payment in respect of annual leave must correspond with the employees normal remuneration in order to ensure that the worker is, when on leave, in a position which is comparable to that when he or she is at work.
They rely on statements to this effect in the Court of Justices judgments in Robinson Steele v RD Retail Services Ltd. (Cases C 131 and 257/04) [2006] ECR I 2531; [2006] ICR 932, paragraphs 50 and 57 to 59 and in Stringer v Revenue and Customs Commissioner (Case C 520/06) [R (D) v Secretary of State for the Home Department [2005] EWHC 728 (Admin) 2009] ECR I 179; [2009] ICR 932, paragraphs 57 to 62.
In Robinson Steele, the Court of Justice repeated that Member States must ensure that the detailed national implementing rules take account of the limits flowing from the Directive itself (paragraph 57) and went on: 58 The Directive treats entitlement to annual leave and to a payment on that account as being two aspects of a single right.
The purpose of the requirement of payment for that leave is to put the worker, during such leave, in a position which is, as regards remuneration, comparable to periods of work. 59 Accordingly, without prejudice to more favourable provisions under article 15 of the Directive, the point at which the payment for annual leave is made must be fixed in such a way that, during that leave, the worker is, as regards remuneration, put in a position comparable to periods of work. 27.
This was, however, again said in a very different context from the present.
Part payments, ostensibly for holiday pay, were staggered over the corresponding annual period of work and paid together with remuneration for work done, leaving nothing specifically payable in respect of the weeks of leave.
Further, the Court allowed such staggered payments, where transparently and comprehensibly attributable to annual leave, to be set off against the claim for holiday pay.
An earlier statement (in paragraph 50) that workers must receive their normal remuneration for that period of rest was also said in a very different context.
There had been agreement to attribute to holiday pay part of a sum which had previously been being paid as remuneration for work; the remuneration paid for work done was in other words being effectively reduced, by an amount attributed to the (staggered) holiday pay. 28.
In Stringer, paragraphs 57 to 62, the Court of Justice cited Robinson Steele as authority that the expression paid annual leave means that, for the duration of annual leave , remuneration must be maintained and that, in other words, workers must receive their normal remuneration for that period of rest (paragraphs 58 and 61), and explained this on the basis that the purpose was to put the worker, during such leave, in a position which is, as regards remuneration, comparable to periods of work (paragraph 60).
Two points however arise.
First, once again, the context was quite different from the present.
The issue in Stringer was whether employees absent on sick leave throughout an entire leave year were entitled to take their leave after the end of that year or, (since their employment had in fact terminated) to receive payment in lieu.
In that context, the Court repeated the statements in BECTU (paragraphs 53 and 55: see paragraph 19 above) that Member States are not entitled to exclude, or make subject to any preconditions, the very existence of a right deriving from the Directive. 29.
Second, the Court of Justices use of the word comparable in Stringer is itself to be compared with the Advocate Generals suggestion (in paragraphs 90 91 of her opinion) that a worker should receive an allowance in lieu equivalent to that of his normal pay.
The choice of the wording comparable to periods of work to explain the concept of normal remuneration was no doubt deliberate.
On one view, it indicates that the Court of Justice had in mind a relationship between pay while working and pay in respect of annual leave which was or could be more general and looser than the equivalence which the Advocate General would have favoured.
In a sense, of course, even very different things are usually capable of a comparison, which will highlight the differences.
The Court of Justice cannot have meant comparison in this sense.
Nonetheless, it may have meant comparable in the sense of roughly similar (although this still leaves for consideration whether the right comparison was with pay which the worker could have earned if he or she had been working instead of on leave, or was earning during some other and. if so what, period) or it may, perhaps, have meant sufficiently similar to achieve the aim of the Directive, that is ensuring that employees could and would take and enjoy a restful or at all events restorative annual leave.
The questions referred 30. these questions: In these circumstances, the Supreme Court refers to the Court of Justice (ii) (i) Under (a) articles 7 of Council Directives 93/104/EC and 2003/88/EC and (b) clause 3 of the European Agreement annexed to the Council Directive 2000/79/EC: (1) to what, if any, extent does European law define or lay down any requirements as to the nature and/or level of the payments required to be made in respect of periods of paid annual leave; and (2) to what, if any, extent may Member States determine how such payments are to be calculated? In particular, is it sufficient that, under national law and/or practice and/or under the collective agreements and/or contractual arrangements negotiated between employers and workers, the payment made enables and encourages the worker to take and to enjoy, in the fullest sense of these words, his or her annual leave; and does not involve any sensible risk that the worker will not do so? (iii) Or is it required that the pay should either (a) correspond precisely with or (b) be broadly comparable to the workers normal pay? Further, in the event of an affirmative answer to question (iii)(a) or (b): (iv) Is the relevant measure or comparison (a) pay that the worker would have earned during the particular leave period if he or she had been working, instead of on leave, or (b) pay which he or she was earning during some other, and if so what, period when he or she was working? (v) How should normal or comparable pay be assessed in circumstances where (a) a workers remuneration while working is supplemented if and to the extent that he or she engages in a particular activity; (b) where there is an annual or other limit on the extent to which, or time during which, the worker may engage in that activity, and that limit has been already exceeded or almost exceeded at the time(s) when annual leave is taken, so that the worker would not in fact have been permitted to engage in that activity had he been working, instead of on leave? On this basis, I would also remit the issues relating to TAFB to the employment tribunal, together with those relating to paid annual leave to which para 27 above refers.
| UK-Abs | The appeal concerns the nature and assessment of paid annual leave required by the Civil Aviation (Working Time) Regulations 2004 (the Regulations).
The appellants are pilots employed by the respondent (British Airways).
Their terms of employment are found in a Memorandum of Agreement (MOA).
The MOA provides for pilots to receive a fixed annual sum plus two supplementary payments varying according to the time spent flying, namely the Flying Pay Supplement (FPS) of 10 per flying hour and the Time Away From Base allowance (TAFB) paid at 2.73 per hour.
TAFB was introduced in place of meal allowances and to cover other costs.
Pilots are taxed on 18% of TAFB as the tax authorities regard it as providing more than needed purely for costs.
The two supplementary payments are subject to limits because pilots are limited to a number of permissible hours flying or on duty each year.
The MOA requires pilots to take a certain period of annual leave and entitles them to take periods of additional leave.
When on leave, pilots are paid the basic fixed pay.
Pilots are required to receive paid annual leave under the Regulations, which implemented the provisions of Council Directive 2000/79/EC (the Aviation Directive).
The appellants brought claims against British Airways arguing that pursuant to the Regulations, they were entitled to both the supplementary payments as well as the fixed annual sum as part of their paid annual leave.
They succeeded in the Employment Tribunal and the Employment Appeal Tribunal, but the Court of Appeal allowed British Airways appeal.
In 2010 the Supreme Court heard the appellants appeal against that judgment, and decided it was under a duty to refer five questions concerning the interpretation of the relevant European law on the meaning of paid annual leave to the Court of Justice of the European Union (CJEU) (British Airways plc v Williams [2010] UKSC 16).
The CJEU gave its response in a judgment dated 15 September 2011 (British Airways v Williams (Case C 155/10) [2012] ICR 847).
The matter thereafter returned to the Supreme Court to rule on its consequences for the dispute between the parties.
The Supreme Court, in the light of the judgment of the CJEU, unanimously remits the appellants claims to the Employment Tribunal for further consideration of the appropriate payments to be made to them in respect of periods of paid annual leave.
The judgment is given by Lord Mance.
The CJEU had ruled that the purpose of the requirement for paid annual leave in the Aviation Directive was to put the worker in a position which was, as regards remuneration, comparable to periods of work.
A specific analysis of the various components of a workers pay was required.
Any aspect which is linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment .such as, in the case of airline pilots, the time spent flying was to be taken into account.
By contrast, components intended exclusively to cover occasional or ancillary costs arising at the time of performance need not be.
It was for the national court to assess whether the various components comprising the workers total remuneration met those criteria, such assessment to be carried out on the basis of an average over a reference period which was judged to be representative [9 14].
The appellants argued that their claims should now be remitted to the Employment Tribunal for assessment, and that their remuneration on leave should include basic pay, FPS and 18% of TAFB.
British Airways, however, submitted that the Regulations were too unspecific to give effect to the Aviation Directive and the requirement for an average over a reference period which is judged to be representative required a detailed legislative scheme which could not by supplied by an employment tribunal [15 19].
The wording of regulation 4 of the Regulations was taken from article 7 of the Aviation Directive.
The same principles must govern the wording of both.
If British Airways choice of a representative reference period was not acceptable to an individual pilot, a court or tribunal could take its own view.
Even though the Regulations did not expressly address complaints relating to the payment of annual leave, complaint to a court was in fact permitted by Regulation 18(1) in respect of a refusal by an employer to permit the exercise of any right enjoyed by the employee under Regulation 4 and compensation could be awarded under Regulation 18(4) [20 27].
As for the proportion (if any) of TAFB to be included in paid annual leave, the test stated by the CJEU excluded sums intended exclusively to cover costs.
The Supreme Court did not have the material before it to determine the real basis for the payment of TAFB and British Airways genuine intention would need to be considered by the employment tribunal.
The attitude of the tax authorities was irrelevant [28 32].
|
In November 1999 Mr Alexander Gibson was appointed as managing director of Grays Timber Products Ltd (Timber Products), a wholly owned subsidiary of Grays Group Ltd (Group).
He also became a director of Group.
He entered into a written service agreement with Timber Products and was also party to a subscription and shareholders agreement (the subscription agreement) under which he paid 50,000 to take up ordinary shares (amounting to about 6% of the issued ordinary capital) in Group.
In November 2003 all the issued ordinary shares in Group were acquired by an outside purchaser, Jewson Ltd (Jewson) for 6m, about 5.4m of which was paid in cash.
Under the terms of the subscription agreement (to which Group and shareholders owning over four fifths of its ordinary shares were parties) Mr Gibson became entitled to a disproportionately large part of the consideration paid by Jewson just over 1.4m, whereas a rateable part would have been just under 0.4m.
The issue for the Court is whether the difference between these two sums is (as HM Revenue & Customs HMRC contend) taxable as employment income of Mr Gibson, subject to income tax and national insurance contribution (NIC), or is (as Mr Gibson contends) taxable as a chargeable gain subject to capital gains tax.
The claim for income tax and NIC is primarily against Timber Products as Mr Gibsons employer at the time, but if it succeeds the burden will fall on Mr Gibson and others who have covenanted with Jewson to bear those liabilities.
That issue depends primarily on the correct construction and application of Chapter 3D of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) as inserted by the Finance Act 2003, Schedule 22.
Chapter 3D consists of only three sections which are, by comparison with other chapters in Part 7 of ITEPA 2003 (as amended), relatively simple and straightforward.
They are as follows: CHAPTER 3D Securities Disposed of for More Than Market Value 446X Application of this Chapter This Chapter applies if (a) (b) employment related securities are disposed of by an associated person so that no associated person is any longer beneficially entitled to them, and the disposal is for a consideration which exceeds the market value of the employment related securities at the time of the disposal. 446Y Amount treated as income (1) Where this Chapter applies the amount determined under subsection (3) counts as employment income of the employee for the relevant tax year. (2) The relevant tax year is the tax year in which the disposal occurs. (3) The amount is CD MV DA. where CD is the amount of the consideration given on the disposal, MV is the market value of the employment related securities at the time of the disposal, and DA is the amount of any expenses incurred in connection with the disposal. 446Z Definitions (1) In this Chapter market value has the meaning indicated in section 421(1). (2) For the purposes of this Chapter sections 421(2) and 421A apply for determining the amount of the consideration given for anything.
In this Chapter the employee, and employment related securities, have the meaning indicated in section 421B(8).
In this Chapter associated person has the meaning indicated in section 421C. (3) (4) It is common ground that Mr Gibsons shares were employment related securities.
He was an associated person and no issue arises as to any other associated person.
The main area of controversy is market value, which is defined by reference to the Taxation of Chargeable Gains Act 1992.
However Chapter 3D forms part of a complex code with fairly deep and tangled legislative roots.
Many of the submissions made on behalf of Timber Products (which has been the appellant at every stage in these proceedings) relied on the need for the expression market value to be given a uniform meaning throughout the different chapters comprised in Part 7 of ITEPA 2003.
It is therefore appropriate to attempt at least an outline sketch of Chapter 3Ds larger context, without going far into complexities which are not directly relevant.
Part 7 of ITEPA 2003 is headed Employment income: income and exemptions relating to securities.
Its provisions reflect three different, and to some extent conflicting, legislative purposes.
First there is Parliaments recognition that it is good for the economy, and for social cohesion, for employees to own shares in the company for which they work.
Various forms of incentive schemes are therefore encouraged by favourable tax treatment (those in force in 2003 are covered in Chapters 6 to 9 inclusive of Part 7).
Second, if arrangements of this sort are to act as effective long term incentives, the benefits which they confer have to be made contingent, in one way or another, on satisfactory performance.
This creates a problem because it runs counter to the general principle that employee benefits are taxable as emoluments only if they can be converted into money, but that if convertible they should be taxed when first acquired.
That principle was stated by Lord Radcliffe in Abbott v Philbin [1961] AC 352, 379: I think that the conferring of a right of this kind as an incident of service is a profit or perquisite which is taxable as such in the year of receipt, so long as the right itself can fairly be given a monetary value, and it is no more relevant for this purpose whether the option is exercised or not in that year, than it would be if the advantage received were in the form of some tangible form of commercial property.
That was a case about share options, which are now dealt with separately in Chapter 5, but it illustrates the general approach that applied in the days when the taxation of employee benefits was very much simpler than it is now.
The principle of taxing an employee as soon as he received a right or opportunity which might or might not prove valuable to him, depending on future events, was an uncertain exercise which might turn out to be unfair either to the individual employee or to the public purse.
At first the uncertainty was eased by extra statutory concessions.
But Parliament soon recognised that in many cases the only satisfactory solution was to wait and see, and to charge tax on some chargeable event (an expression which recurs throughout Part 7) either instead of, or in addition to, a charge on the employees original acquisition of rights.
That inevitably led to opportunities for tax avoidance.
The ingenuity of lawyers and accountants made full use of the wait and see principle embodied in these changes in order to find ways of avoiding or reducing the tax charge on a chargeable event, which might be the occasion on which an employees shares became freely disposable (Chapter 2) or the occasion of the exercise of conversion rights (Chapter 3).
The third legislative purpose is to eliminate opportunities for unacceptable tax avoidance.
Much of the complication of the provisions in Part 7 (and especially Chapters 3A, 3B, 3C and 3D) is directed to counteracting artificial tax avoidance.
There is a further layer of complication in provisions which regulate the inevitable overlaps between different chapters.
It is regrettable that ITEPA 2003, which came into force on 6 April 2003 and was intended to rewrite income tax law (as affecting employment and pensions) in plain English, was almost at once overtaken by massive amendments which are in anything but plain English.
This case is, it seems, the first case concerned with any of the provisions of Part 7.
Timber Products appeal from a revised determination dated 3 November 2005 was dismissed by a single Special Commissioner (Mr Demack) by a written decision released on 21 March 2007.
Timber Products appeal to an Extra Division of the Inner House of the Court of Session (Lord Kingarth and Lord Mackay of Drumadoon, Lord Osborne dissenting) was dismissed on 13 February 2009.
The reasoning of the majority of the Inner House was rather different from that of the Special Commissioner, and counsel for Timber Products has sought to deploy further arguments in this Court.
The subscription agreement and the sale agreement
The facts relevant to this appeal are set out in some detail in the decisions of the Special Commissioner and the Inner House (especially the judgment of Lord Osborne).
Those decisions are readily accessible, being reported together at [2009] STC 889.
I need not therefore add a lot of detail to the brief summary at the beginning of this judgment.
But I must give a fuller account of the subscription agreement entered into in 1999 and the sale agreement dated 29 November 2003, especially as they affected Mr Gibsons shares in Group.
The subscription agreement was not dated but was signed at different dates between 2 December and 18 December 1999.
The parties to it were (1) Group (2) Mr Gibson and (3) Mr J R Nicholson (who owned about 60% of the ordinary shares) and other shareholders who (together with Mr Nicholson) owned about 84% of the ordinary shares.
Recital (B) provided: Mr Gibson wishes to subscribe up to 14,465 ordinary shares of 1 each in the share capital of [Group] and [Group] has agreed to issue such shares to him on the terms and conditions set out below.
Clause 3 provided for what was to happen to the shares if Mr Gibsons employment ended while he still owned them.
If he was dismissed for a serious breach of contract, he was to sell them back to Group for 50,000.
If he resigned voluntarily (with no element of constructive dismissal) he was to sell back to Group all his shares for a consideration representing 74% of their net asset value (the net asset value of the whole company being taken to be not less than 1.3m) together with 25% of the amount by which the net asset value (of the whole company) exceeded the target net asset value (defined as 1.3m with an indexed escalation of 0.08m for each complete year, but subject to a possible adjustment for newly paid up preference shares).
If Mr Gibsons service terminated in other circumstances (including death or incapacity) clause 3.2.3 provided for all but one of his shares to be sold back under a similar formula, but with Mr Gibson receiving 50% of the growth in net assets.
None of these provisions was put into effect, since Mr Gibson was still in service when Jewson took over Group.
But the evident intention that Mr Gibson should participate disproportionately in growth in net assets occurring during his period of service was also reflected in clause 4.2.1, which did take effect on Jewsons takeover of Group more than two years into Mr Gibsons service.
Clause 4.2.1 was as follows: In the event of a Shares Disposal taking place on or after the second anniversary of the Completion Date, Mr Gibson shall sell and the Shareholders shall procure that [Group] or that the purchaser in terms of the Shares Disposal shall purchase Mr Gibsons Shares at a price equal to the aggregate of the sums calculated in accordance with (i) and (ii) below.
Item (i) was, in the event, 50,000.
Item (ii) was one third of D (E+F), that is (D) the consideration (6m) less the total of (E) the target net asset value of the company at the date of the disposal (approximately 1.46m) and (F) item (i) (0.05m).
The total consideration was therefore about 1.5m.
HMRCs revised notice of determination proceeded on the basis that this sum exceeded the statutory market value of the shares by 1,059,737, and that the latter sum attracted income tax and NIC.
Initially HMRC relied on Chapter 4 of Part 7 of ITEPA 2003, and only later on Chapter 3D, which led to an adjustment as mentioned in paras 1 and 50 of the Special Commissioners decision.
Clause 4.2.2 contained similar provisions applying on a sale of Groups business.
Clause 5 provided for Mr Gibson to obtain an additional payment in consideration of his shares if a buy back took place under clause 3.2.3 and there was a takeover of Group or its business within eighteen months of the buy back.
These provisions were extremely complicated and did not take effect.
It is sufficient to say that they reflected the same approach as in clause 4.2.1 and 4.2.2.
The underlying purpose of clauses 3.2.2, 3.2.3, 4.2.1, 4.2.2 and 5.2 is set out in clause 6.1: The Shareholders acknowledge and accept that Mr Gibson is to become an executive director of [Timber Products] and shareholder of [Group] on the agreement that, if by reason of his efforts as such an executive director, Net Asset Value plus the Notional Goodwill exceeds the Target Net Asset Value on a return of his investment by share buy back or the Consideration exceeds the Target Net Asset Value on a return of his investment on a sale, he will in certain circumstances and in accordance with clauses 3 and 4 be entitled to an agreed extra payment in addition to the return of his initial investment and, on such a sale, disproportionately greater than the amounts received by other shareholders or (sic) his percentage of the equity share capital of [Group].
Further provisions in clause 6 ensured that these rights were not to be prejudiced by any distribution or reduction of Groups assets.
By Clause 7.1 Mr Gibson warranted not to dispose of or encumber any of his shares otherwise than in accordance with the subscription agreement or the articles of Group.
Clause 7.3 provided that in the event of a breach of that warranty his service contract and directorships could be terminated.
It also provided that this should be the sole rights or remedies of the Shareholders and [Group] arising from such breach.
Clause 9 provided that the agreement, and rights and obligations under it, should not be assignable.
By clause 11.1 the agreement was to be governed by the law of Scotland.
Clause 11.2 provided: The provisions of this Agreement shall prevail over the Articles (and any other Articles of Association of [Group] subsequently amending or replacing the same) such that if there is any conflict between the two the provisions of this Agreement shall prevail and rule to the exclusion of any such conflicting provisions of the Articles or such other Articles of Association.
The subscription agreement provided for Group to adopt new articles of association in a form scheduled to the agreement, and they were duly adopted on 9 December 1999.
These provided for the redemption of all the companys A preference shares not later than 31 March 2000.
They also referred expressly to the 14,465 ordinary shares to be issued to Mr Gibson (freeing them from pre emption rights on their issue).
They did not however confer any other special rights on these shares.
Under para 5(a) and (b) of the articles ordinary shares participated pari passu in income and return of capital.
During 2000 Mr Gibson acquired a further 258 ordinary shares under the pre emption provisions in the articles.
These seem to have been accepted as constituting part of Mr Gibsons shares for the purposes of the subscription agreement, despite their apparent exclusion under the definition in clause 1.
The sale agreement was made on 29 November 2003 between (1) Mr Nicholson, Mr Gibson and five other holders of Group ordinary shares and (2) Jewson.
Clause 3.2.1 provided for the cash consideration of 5,403,219 to be paid to the vendors solicitors as their agents who are hereby authorised to receive the same whose receipt shall be a complete discharge to the Purchaser who shall not be obliged to enquire as to the distribution thereof.
By clause 3.2.2 Elbora Ltd, one of the holders of ordinary shares, was to receive 500,000 loan notes issued by Jewson.
Clause 3.2.3 provided for a retention of 96,781.
The agreement contained numerous warranties, covenants and indemnities.
In particular clause 4A provided for the retention in respect of potential NIC liability, and clause 9 and schedule 9 made further provision for potential PAYE income tax and NIC in respect of Mr Gibson.
By clause 3.4 and schedule 1 Mr Gibson was to receive 1,451,172 for his shares.
The other shareholders received sums proportionate (as between themselves) to their respective holdings (except that Elbora Ltd received less because of the loan notes).
In a disclosure letter dated 29 November 2003 the vendors gave information about the subscription agreement (among other matters).
The letter stated, However, this agreement is to be terminated at completion.
Market Value
As already noted, Part 7 of ITEPA 2003 incorporates the statutory definition of market value for capital gains tax purposes.
That definition is in sections 272 and 273 of the Taxation of Chargeable Gains Act 1992 which are (so far as relevant) as follows: 272 Valuation: general (1) In this Act market value in relation to any assets means the price which those assets might reasonably be expected to fetch on a sale in the open market. (2) In estimating the market value of any assets no reduction shall be made in the estimate on account of the estimate being made on the assumption that the whole of the assets is to be placed on the market at one and the same time. 273 Unquoted shares and securities (1) The provisions of subsection (3) below shall have effect in any case where, in relation to an asset to which this section applies, there falls to be determined by virtue of section 272(1) the price which the asset might reasonably be expected to fetch on a sale in the open market. (2) The assets to which this section applies are shares and securities which are not quoted on a recognised stock exchange at the time as at which their market value for the purposes of tax on chargeable gains falls to be determined. (3) For the purposes of a determination falling within subsection (1) above, it shall be assumed that, in the open market which is postulated for the purposes of that determination, there is available to any prospective purchaser of the asset in question all the information which a prudent prospective purchaser of the asset might reasonably require if he were proposing to purchase it from a willing vendor by private treaty and at arms length.
The definition in section 272 can be traced back to section 44 of the Finance Act 1965 and from there to the estate duty valuation provisions in section 7(5) of the Finance Act 1894.
Both sides referred to many of the leading cases on the estate duty definition, including Attorney General v Jameson [1905] 2 IR 218, Salvesens Trustees v Inland Revenue Comrs 1930 SLT 387, Inland Revenue Comrs v Crossman [1937] AC 26 (in which the House of Lords was divided by three to two) and Lynall v Inland Revenue Comrs [1972] AC 680 (in which Crossman was challenged but unanimously upheld on the wider issue, but the taxpayer succeeded on the narrower issue as to access to information, so leading to the rule now embodied in section 273 of the 1992 Act).
Reference was also made to Inland Revenue Comrs v Gray [1994] STC 360, which was concerned with the same definition as used for the purposes of capital transfer tax (now inheritance tax).
All these cases, apart from Gray, were concerned with the valuation of shares in private companies where the articles contained restrictions on transfer and rights of pre emption.
There is not, as it seems to me, much difference in the general conclusions which the parties seek to draw from these authorities.
It is not therefore necessary to multiply citations.
It is sufficient to repeat two passages which were quoted with approval in Lynall (by Lord Reid at p 693 and Lord Pearson at p 704 respectively).
The first is from the judgment of Holmes LJ in Jameson at p 239: The Attorney General and the defendants agree in saying that in this case there cannot be an actual sale in open market.
Therefore, argues the former, we must assume that there is no restriction of any kind on the disposition of the shares and estimate that [sic] would be given therefor by a purchaser, who upon registration would have complete control over them.
My objection to this mode of ascertaining the value is that the property bought in the imaginary sale would be a different property from that which Henry Jameson held at the time of his death.
The defendants, on the other hand, contend that the only sale possible is a sale at which the highest price would be 100 per share, and that this ought to be the estimated value.
My objection is that this estimate is not based on a sale in open market as required by the Act.
Being unable to accept either solution, I go back to my own, which is in strict accordance with the language of the section.
I assume that there is such a sale of the shares as is contemplated by article 11, the effect of which would be to place the purchaser in the same position as that occupied by Henry Jameson.
An expert would have no difficulty in estimating their value on this basis.
It would be less than the Crown claims, and more than the defendants offer; but I believe that it would be arrived at in accordance not only with the language of the Act, but with the methods usually employed in valuing property.
The second is from the judgment of Lord Fleming in Salvesen at p 391: The Act of Parliament requires, however, that the assumed sale, which is to guide the Commissioners in estimating the value, is to take place in the open market.
Under these circumstances I think that there is no escape from the conclusion that any restrictions which prevent the shares being sold in an open market must be disregarded so far as the assumed sale under section 7(5) of the Act of 1894 is concerned.
But, on the other hand, the terms of that subsection do not require or authorise the Commissioners to disregard such restrictions in considering the nature and value of the subject which the hypothetical buyer acquires at the assumed sale.
Though he is deemed to buy in an open and unrestricted market, he buys a share which, after it is transferred to him, is subject to all the conditions in the articles of association, including the restrictions on the right of transfer, and this circumstance may affect the price which he would be willing to offer.
The importance of identifying precisely the property to be valued was emphasised in Crossman (especially by Viscount Hailsham LC at pp 39 40 and Lord Blanesburgh at pp 49 50) and this emphasis is reflected in many of the later cases.
It is the first major point of controversy in this appeal: are Mr Gibsons ordinary shares to be valued simply as ordinary shares whose rights are set out in the articles, or are his special rights under clause 4 of the subscription agreement to be taken into account as if they were set out in the articles? (This difference has been described in argument as the difference between intrinsic and extrinsic rights, and that terminology will serve, at least as shorthand.) The second major point of controversy is: if Mr Gibsons special rights are treated as intrinsic in the shares to be valued, what effect (if any) do they have on the valuation exercise? Are they to be treated as enuring for the benefit of the hypothetical purchaser, or are they to be disregarded as being, even though intrinsic, exclusively personal to Mr Gibson, and worthless to anyone else?
Intrinsic and extrinsic rights
The first of these controversies has two strands.
One is concerned with shareholder rights as a matter of company law.
The other is concerned with the language used in different chapters of Part 7 which, it is argued (especially because of the statutes emphasis on market value having the same meaning throughout Part 7) demonstrates that Parliament must have intended to extend the field of relevant material beyond what would conventionally be regarded as intrinsic shareholder rights.
This is a difficult and intricate argument and it is probably best to start off with company law (though even that area is not, in this case, without its difficulties)
In Crossman (at pp 40, 51 and 66) the Lord Chancellor and Lord Blanesburgh (in the majority) and Lord Russell of Killowen (dissenting) all referred to Farwell Js classic definition (in Borlands Trustee v Steel Bros & Co Ltd [1901] 1 Ch 279, 288) of a share as consisting partly of mutual obligations entered into by all the shareholders (at the same time Lord Blanesburgh emphasised at p 51 that it is still one indivisible piece of property).
The shareholders mutual obligations are normally set out transparently in the articles of association, and Groups new articles (even though adopted in accordance with the subscription agreement) said nothing about special rights attaching to Mr Gibsons shares on their disposal.
Mr Sherry (for Timber Products) argued that the rights attaching to shares might be found in arrangements made outside a companys articles.
They could be found, he submitted, in a shareholders agreement or in the terms on which shares were issued.
He relied on the observations of Lord Hoffmann in ONeill v Phillips [1999] 1 WLR 1092, 1098: First, a company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality.
The terms of the association are contained in the articles of association and sometimes in collateral agreements between the shareholders.
Lord Hoffmann also stated at p 1101: But there may be later promises, by words or conduct, which it would be unfair to allow a member to ignore.
Nor is it necessary that such promises should be independently enforceable as a matter of contract.
A promise may be binding as a matter of justice and equity although for one reason or another (for example, because in favour of a third party) it would not be enforceable in law.
Mr Sherry also relied on the decision of the Court of Appeal in Harman v BML Group Ltd [1994] 2 BCLC 674.
In that case Dillon LJ, in a single extempore judgment with which Leggatt and Henry LJJ agreed, made the general observation (at p 678) that a shareholders agreement signed by all the shareholders attaching rights to shares must have the same effect as if the rights had been set out as class rights in the articles.
But it seems reasonably clear from the report (at p 675) that in that case the division of the share capital into A and B shares, and some of the rights attached to those respective shares, were set out in the articles.
In my opinion these passages give Mr Sherry only limited assistance.
In ONeill v Phillips Lord Hoffmann was addressing the equitable nature of the courts jurisdiction under section 459 of the Companies Act 1985 to counteract unfair treatment of minority shareholders.
He was not addressing the subject of contractual share rights capable of enuring for the benefit of third parties.
The context of Harman v BML Group Ltd was the courts discretionary jurisdiction under section 371 of the Companies Act 1985 to order the holding of a general meeting.
Moreover in the present case not all the shareholders were parties to the subscription agreement.
Mr Sherry also placed reliance on clause 11.2 of the subscription agreement, which states that its provisions shall prevail over the articles (and any further articles amending or replacing the current articles).
However there is House of Lords authority that a provision in a shareholders agreement excluding or restricting the companys statutory power to amend its articles is a nullity: Russell v Northern Bank Development Corpn Ltd [1992] 1 WLR 588, mentioned by Nigel Doran in (2007) 888 Tax Journal 10.
That case concerned an agreement to which the company in question had also been made a party.
The House of Lords held that it could take effect only as a personal contract.
Lord Jauncey of Tullichettle (with whom the rest of the Appellate Committee agreed), at p 593, quoted Lord Davey in Welton v Saffery [1897] AC 299, 331: Of course, individual shareholders may deal with their own interests by contract in such way as they may think fit.
But such contracts, whether made by all or some only of the shareholders, would create personal obligations, or an exceptio personalis against themselves only, and would not become a regulation of the company, or be binding on the transferees of the parties to it, or upon new or non assenting shareholders.
Unfortunately Russell v Northern Bank Development Corpn Ltd was not cited or referred to in the course of argument.
It is a decision which has attracted a good deal of discussion as to its extent: see for instance [1992] CLJ 437 (Sealey), [1994] CLJ 343 (Ferran), (1993) 109 LQR 210 (Shapira), 553 (Davenport).
If it were likely to be decisive of this appeal, it would not be satisfactory for the Court to decide the case without inviting further written submissions as to its significance.
Leaving that strand of Mr Sherrys argument on one side for the present, I come to the other strand, which relies on the use of the expression market value in chapters of Part 7 other than Chapter 3D, that is Chapter 2 (restricted securities), Chapter 3 (convertible securities), Chapter 3A (securities with artificially depressed market value) and Chapter 3B (securities with artificially enhanced market value).
All these chapters describe the relevant restriction, conversion right or value shifting mechanism in the most general terms, which would include extrinsic arrangements: see sections 423(1)(a), 436, 446A(2) and 446K(2).
But they also proceed on the footing that that restriction, conversion right or value shifting mechanism affects the market value of the securities in question: see sections 428(2), 431(1), 441(6) and (7), 442(5), 446C(2), 446D(1), 446E(3) 446F(4), 446G(1) and (2), 446H(3), 446I(3) and 446L(6).
In all these contexts the restriction, conversion right or value shifting mechanism cannot, it seems to me, be dismissed as something collateral or personal to the particular employee and irrelevant to the valuation.
This point was not referred to in the judgments in the Court of Session.
Mr Sherry told the Court that it was raised below but as he did not appear in the Court of Session he could not give a detailed account of what happened.
Nevertheless it is a point of law which needs to be considered.
It is a very puzzling feature of the legislation, and the confusion is increased by the official answers to frequently asked questions published by HMRCs predecessor in 2003 (and made available to taxpayers and their advisers until 2005).
Question 1(k) and its answer were: Q: Market value is now based on the CGT definition.
Does this mean that personal restrictions on the share no longer have to be taken into account in arriving at its value? A: no. Even where there is, for example, a restriction on sale the shares must be valued as if that restriction would still apply to their hypothetical purchaser.
It is the asset (as it is) that is being valued, not some other unrestricted asset.
Question 1(m) and its answer were: Q: The Inland Revenue has confirmed that market value will take into account personal rights and restrictions and not just those rights and restrictions attaching to the shares.
Can you confirm that this interpretation of market value will be applied consistently throughout Schedule 22 [to the Finance Act 2003] and that you will not adopt a different interpretation for each Chapter of Part 7? A: Market value will be determined on a consistent basis throughout Chapters 1 to 5 of Part 7.
Mr Johnston QC (appearing for HMRC in this Court, as he did in the Court of Session) was unable to explain or defend these answers.
He said that they were not clear, but to my mind they are perfectly clear and, on HMRCs case, clearly wrong.
In the respondents printed case Mr Johnston sought to meet the difficulty by submitting that throughout Part 7 market value has the same meaning, but that the particular asset being valued is not the same under each chapter.
He did not accept that there is any inconsistency in treating extrinsic rights as relevant to valuation under Chapters 2, 3, 3A and 3B but as irrelevant to valuation under Chapter 3D. (Chapter 3C is an exceptional case because the fact that shares are not fully paid up must be an intrinsic matter: see sections 446Q(3), 446R(2) and 446T(2).)
One possible reason for the difficulties in applying Part 7 consistently is the very wide definition of securities in section 420(1).
It includes not only shares and debentures but also (in paras (c), (d), (f) and (g)) a wide variety of contractual choses in action under financial instruments.
Some chapters of Part 7 also refer to interests in securities (defined in section 420(8)).
The distinction between intrinsic and extrinsic rights is much less obvious when some of these extended meanings of securities are in play.
That may help to explain why Part 7 is so difficult, but it does not solve the difficulties.
The principle that tax is to be charged only by clear words may be less potent than it was, but it is still relevant to the construction of taxing statutes.
I am left in real doubt as to whether Parliament has, in Part 7 of ITEPA 2003, enacted a scheme which draws a coherent and consistent distinction between intrinsic and extrinsic rights attaching to shares and other financial instruments.
For that reason I think it unnecessary to invite further submissions on Russell v Northern Bank Development Corpn Ltd. But that is not the end of the matter, since some rights, even if properly described as intrinsic to the property to be valued, are nevertheless worthless to the hypothetical purchaser posited by the statutory definition of market value.
So I go on to the second point of controversy, that is whether Mr Gibsons rights under the subscription agreement, even if assumed to be, or treated as, intrinsic, produce the result that Timber Products contends for.
It is implicit in that contention that on their acquisition by Jewson each of Mr Gibsons shares had a market value about three times greater than each of the shares owned by the other shareholders.
Standing in the shareholders shoes
That would be a very surprising result.
Jewson agreed to buy Group for 6m less a retention, and all the ordinary shares which it acquired were of equal value to it.
It was not concerned with the division of the sale price between the vendors (clause 3.2.1 of the sale agreement) except so far as it might involve adverse tax consequences to Groups subsidiary, Timber Products (clause 4A, clause 9 and schedule 9 of the sale agreement).
The same would have been true of any other open market purchaser.
Mr Gibsons special rights were peculiar to his position as a director of Group and managing director of Timber Products, as was clearly acknowledged in clause 6.1 of the subscription agreement.
His rights were not assignable (clause 9 of the subscription agreement).
These rights would have been personal to Mr Gibson even if they had been set out expressly in the new articles adopted by Group when the subscription agreement was entered into.
A right can be personal even though it is intrinsic in the sense previously discussed, since class rights can be enjoyed by a class with only one member.
Such rights were quite common in the articles of family estate companies formed during the 1930s with a view to saving estate duty.
There is an illustration in Dymonds Death Duties, 10th edition (1946) p.61 of a man who owned all the A shares of an estate company, the B shares being held by other members of his family.
The A shares were entitled, during his lifetime, to dividends of up to 150% in priority to the B shares; on the deceaseds death they became 6% non participating preference shares.
This device was blocked by section 46 of the Finance Act 1940, but until then it avoided estate duty because the A shares had little value on the deceaseds death.
The Estate Duty Office accepted that the special rights that he had during his lifetime could not be attributed to the hypothetical open market vendor, and could not benefit the hypothetical open market purchaser, on the notional sale on the deceaseds death posited by section 7(5) of the Finance Act 1894.
Mr Sherry argued that Mr Gibsons special rights must be taken into account and treated as enuring for the benefit of the hypothetical vendor.
In the Court of Session Lord Osborne accepted that submission (para 46) but I respectfully consider that he went on to undermine his own conclusion when he referred (para 47) to clause 6.1 of the subscription agreement.
That clause made it plain that Mr Gibson was to get a special price for his shares, not because the shares themselves had a special value, but in recognition of his personal services as managing director.
Lord Kingarth (paras 67 and 68) recognised the significance of clause 6.1 and considered that Mr Gibsons rights were personal rights that did not attach to the shares.
Lord Mackay of Drumadoon (paras 87 89) took the same, or a very similar, view.
I am in substantial agreement with the majority of the Court of Session, except that I would reach the same conclusion even if the rights did in some sense attach to Mr Gibsons shares: whether attached or unattached, they were of no value to the hypothetical purchaser, and he would pay the hypothetical vendor nothing extra on account of them.
Mr Sherrys argument on this point relied on the homely metaphor which judges have often used, of asking what the hypothetical purchaser would pay to stand in the shoes of the hypothetical vendor.
The first use of this expression seems to have been by Lord Ashbourne C and Fitzgibbon LJ in Jameson at pp 227 and 230.
The point of the metaphor, I think, is to emphasise that the valuer is concerned with the position of the hypothetical purchaser immediately after the notional sale, rather than worrying about how that sale could take place (perhaps in contravention of the companys articles, which was the real point of dispute in Jameson).
There is nothing in the speeches to suggest that the hypothetical purchaser was to be presumed to be a male member of the Jameson family in order to facilitate a transfer under article 18 of the articles of John Jameson & Son Ltd.
Mr Sherry also relied on the decision of the Court of Appeal in Alexander v Inland Revenue Comrs (1991) 64 TC 59.
That was a case about valuation of a flat for the purposes of capital transfer tax on the death of Mrs Alexander.
She had bought a flat in the Barbican under the right to buy provisions of the Housing Act 1980 at the discounted price of 35,400, representing a discount of 24,600.
She died within a year.
The flat was (both before and after her death) subject to a charge to repay all or part of the discount if the flat was assigned within five years of its acquisition.
This liability would not be triggered by an assent in favour of a beneficiary under the deceaseds will or intestacy.
Her executor contended for a valuation of 35,400, deducting the full discount.
The Inland Revenues valuer contended for a reduced deduction of about 13,000, reflecting his assessment of the likelihood of an actual sale during the remainder of the five year period.
There was a procedural issue as to whether the matter should be determined by the Lands Tribunal or the Special Commissioners.
The Court of Appeal remitted the case to the Lands Tribunal but gave a clear direction as to the valuation principle to be applied.
Its decision would have given some support to the appellant if it had directed that the notional sale of Mrs Alexanders flat must for valuation purposes be treated as having triggered an immediate liability for the full 24,600 under the Housing Act charge.
But that was not the direction.
It was that the notional sale should not be treated as triggering the repayment liability, but that the hypothetical purchaser would be in the position of having to pay off the charge if he made an assignment during the remainder of the five year period (see Ralph Gibson LJ at pp 70 72 and Nicholls LJ at pp 75 76).
The implications of the hypothesis of a sale are not to be taken too far.
Ralph Gibson LJ, at p 73, referred to what Lord Guest had said in In re Sutherland, decd [1963] AC 235, 262: The purpose of section 7(5) . is to value the property.
It does not as Lord Evershed said require you to assume that the sale . has occurred.
It simply prescribes, as the criterion for value, price in the open market as between a willing seller and a willing buyer, which is a familiar basis for valuation.
Similarly, in this case, the valuation does not have to take account of the actual sale of Mr Gibsons shares at a special price enhanced for reasons related to Mr Gibsons special position as managing director.
Mr Sherry asked permission to raise an entirely new argument, set out in para 12 of his printed case, to the effect that the subscription agreement constituted an employment related security in its own right.
This argument would have represented a wholly novel approach to the case and would have occupied some time in oral argument.
The Court would not have had the benefit of the views of the Court of Session on it.
The Court decided that it would not be right to entertain this argument, which seems to fall far short of the test (for admission of an entirely new point on a final appeal) laid down in Brady v Brady [1989] AC 755.
For these reasons I would dismiss the appeal.
I express the hope that Parliament may find time to review the complex and obscure provisions of Part 7 of ITEPA 2003.
LORD HOPE
I accept with gratitude Lord Walkers summary of the facts of this case and of the statutory provisions which have given rise to this appeal.
As he has said, it is common ground that Mr Gibsons shares were employment related securities within the meaning indicated by section 421B(8) of ITEPA 2003 as inserted by section 140 of and Schedule 22 to the Finance Act 2003, that he was an associated person within the meaning indicated in section 421C and that no other associated person was beneficially entitled to those shares after they had been acquired by Jewson.
The question is whether his disposal of those shares was for a consideration that exceeded their market value at the time of the disposal, with the result that Chapter 3D of Part 7 of ITEPA 2003 applies to the transaction.
The argument in the Inner House of the Court of Session concentrated on the question whether the market value of the shares falls to be assessed by reference to the price that Mr Gibson was entitled to receive for his shares or by reference to the price that Jewson had to pay to acquire them.
This, as Lord Walker has explained in paras 25 and 26, is the first point of controversy in this appeal.
The second point of controversy, which was not discussed by the judges of the Extra Division in their opinions, was whether the way the concept of market value is dealt with elsewhere in Part 7 of ITEPA 2003 indicates that Mr Gibsons right on a disposal of the shares to a disproportionately large part of the price paid by Jewson must be taken into account in assessing their market value.
Mr Sherry for Mr Gibson sought permission to raise a third argument.
This was that, if the subscription agreement created rights which were not part and parcel of the shares issued to Mr Gibson, it should be treated as an employment related security in its own right and that giving effect to its provisions did not give rise to a payment in excess of its market value for the purposes of Chapter 3D.
Mr Sherry said that in the Extra Division Lord Mackay of Drumadoon had in substance adopted this approach: 2009 SLT 307, para 90.
It is true that Lord Mackay said there that payment of the enhanced amount to Mr Gibson was the equivalent of the settlement of a debt due under the subscription agreement.
But the consequences of that approach were not explored below, and they are not at all easy to determine.
The argument that Mr Sherry sought to develop on this point is not one that can properly be raised for the first time in this court.
There was a division of opinion in the Inner House on the first question.
Lord Osborne said that the formula which was described in clause 4.2.1 of the subscription agreement should be seen as conferring rights on Mr Gibsons shares as regards the payment to be received on their disposal, and that the effect of the sale agreement was that the purchaser specifically agreed with each and every vendor that the payments specified in column (3) of schedule 1 would be made to the appropriate vendor: paras 46 49.
I agree with these propositions as far as they go.
But I think, with respect, that this approach fails to address the crucial question under section 272 of the Taxation of Chargeable Gains Act 1992 which defines the expression market value.
In estimating the market value attention must be focussed on the asset that requires to be valued.
In this case it is the rights attached to the shares acquired by the purchaser, no more and no less.
I agree with the majority that what has to be considered, to determine their market value for the purposes of the statute, is what the hypothetical purchaser would pay to acquire those rights at the relevant date: Lord Kingarth at para 59 and Lord Mackay of Drumadoon at para 87.
Mr Gibsons right to an enhanced payment had a value to him, but that right was not the subject of the transaction as it did not transmit to the purchaser.
What the purchaser acquired and paid for was the rights attached to the shares themselves and nothing else.
Mr Gibsons rights under the subscription agreement between him and the other shareholders who were parties to it were given effect when the transaction was entered into, but for the purposes of section 446X of ITEPA 2003 they must be disregarded.
Mr Sherry submitted that the rights which Mr Gibson had under the subscription agreement were close enough to being class rights and that, even if that was not so, they attached to the shares for the time being as the terms on which they were issued to him.
The fact that the subscription agreement had been approved by a special resolution that was passed at an extraordinary meeting was also significant.
The holders of 83.8 per cent of the issued share capital, who were the parties to the subscription agreement, were in a position to secure the passing of that resolution, and it was inevitable that the purchaser would pay Mr Gibson a share of the price which satisfied his entitlement under that agreement.
The practical result of these arrangements was that no purchaser would be able to acquire the share capital of the company without seeing that the subscription agreement was satisfied or brought to an end.
Attractively put though his argument was, it seemed to me to miss the point.
No doubt Mr Gibson was assured that he would be entitled upon a sale of the companys share capital to the enhanced price that the subscription agreement provided for.
But that was, in essence, because of the agreement entered into between him and the other 83.8 per cent shareholders.
It was for this reason that the terms agreed with the purchaser extended to how the price was to be divided up between the shareholders.
They were designed to give effect to the rights enjoyed by Mr Gibson.
But those rights, which were extinguished by the payment which Mr Gibson received, were not part of the assets acquired by the purchaser.
The authorities on which Mr Sherry relied did not seem to me to meet this fundamental objection to this part of his argument.
In Attorney General v Jameson [1905] 2 IR 218, 226 227 the question was what market value should be attached to shares in a private company on the death of the shareholder.
The directors had power under the articles of association to refuse to register a transfer and there was a right of pre emption in favour of the other members of the company.
The argument was that the shares should be deemed to be sold subject to these conditions and restrictions, but it was rejected.
The court held that the shares should be valued at the price that they would fetch in the open market on the terms that the purchaser would stand in the shoes of the deceased in other words, that he would take the shares subject to the restrictions and conditions on transfer in terms of the articles.
Mr Sherry said that this reasoning should be extended to the terms on which the shares were issued to Mr Gibson, to reflect their value to the holder of the shares.
But the terms on which the shares were issued to Mr Gibson were personal to him.
They were not provided for in the articles of association of the company and they were of no interest to a hypothetical purchaser.
In Salvesen's Trustees v Inland Revenue Comrs 1930 SLT 387, in which the same point was contended for by the taxpayer, Lord Fleming followed the decision in Attorney General v Jameson.
As he said at p 391, if the taxpayer was right, it would mean that there could not be a real sale in the open market at all.
The shares should be valued at the price which they would fetch if sold in the open market on the terms that the purchaser would be entitled to be registered as the holder of the shares and should take and hold them subject to the provisions in the articles.
Those decisions were approved and applied in Inland Revenue Comrs v Crossman [1937] AC 26 and the same reasoning was adopted in In re Lynall, decd [1972] AC 680.
Mr Sherry said that in the light of these decisions and the others mentioned by Lord Walker the hypothetical purchaser must be assumed to have had the benefit of the rights vested in Mr Gibson under the subscription agreement at the time of the transaction, whether or not they were real or personal.
But I do not find anything in these cases that supports that approach.
It is the terms subject to which the purchaser will take and hold the shares that must be considered.
In this case they did not include Mr Gibsons rights under the subscription agreement, as they were extinguished on settlement of the transaction.
Their purpose was to enable Mr Gibson to enhance the benefits available to him in recognition of his services as managing director of Timber Products.
That purpose was served when he received the enhanced share of the consideration that he was entitled to.
All the shares in Group that Jewson acquired were of equal value to them from and after the date of settlement.
Mr Sherrys alternative argument was that the provisions which were substituted by the Finance Act 2003 for those that were originally enacted in ITEPA 2003 were to be read as a code and that the expression market value should be applied consistently throughout Part 7.
He said that the definitions of restricted securities and restricted interest in securities for the purposes of Chapter 2 in the substituted section 423 indicated that Parliament must have had in mind that restrictions and conditions outside the articles could affect their market value.
This was because section 423(1) provides: For the purposes of this Chapter employment related securities are restricted securities or a restricted interest in securities if (a) there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) applies, and (b) the market value of the employment related securities is less than it would be but for that provision.
He drew attention to the width of this definition.
Furthermore, the calculation of the amount of the charge under that Chapter that section 428 takes account of what the market value of the employment related securities would be immediately after the chargeable event but for any restrictions: section 428(2).
This provision, said Mr Sherry, indicated that it was to be assumed for the purposes of this calculation that restrictions outside the articles as well as those contained within them could affect market value.
He submitted that this approach should be carried forward consistently into Chapters 3, 3A, 3B, 3C and 3D.
For example, section 436, which defines convertible securities for the purposes of Chapter 3, refers to a contract, agreement, arrangement or condition which makes provision for the conversion of the securities, which must be taken to be something found in the governing instrument and outside the articles.
As in Chapter 2, this approach was carried through into the charging provisions under this Chapter: sections 437, 440.
He sought to draw support for this reading of the substituted provisions from the answers to the frequently asked questions that Lord Walker has quoted in para 34.
The Finance Act 2003 received the Royal Assent on 10 July 2003 and they were published on or about that date.
The key points were that personal restrictions were to be taken into account and that market value would be determined on a consistent basis throughout Chapters 1 to 5 of Part 7.
He submitted that post enactment official statements of that kind could be taken into account as persuasive authority as to the meaning of these provisions: Bennion, Statutory Interpretation, 4th ed (2002), section 232; R v Montila [2004] UKHL 50, [2004] 1 WLR 3141, para 40; Chief Constable of Cumbria v Wright [2006] EWHC 3574 (Admin), [2007] 1 WLR 1407, para 17.
But, as Lloyd Jones J said in Chief Constable of Cumbria v Wright, para 17, it is for the courts to interpret legislation, not the executive.
Mr Johnston QC for the respondents said that the answers on which Mr Sherry sought to rely, which he accepted could not be reconciled with his argument, were not accurate.
The point which mattered in this case was that, while the definition of market value was to be applied consistently, the property to be valued under each Chapter varied.
The answers had been withdrawn towards the end of 2005 and replaced by a manual dealing with the taxation of employment related securities from which the points made in the answers were absent.
He invited the court not to attach a great deal of weight to them.
I agree.
I do not think that the points that they make are sufficiently precisely framed to amount to an official statement on the particular issue that arises in this case to carry the persuasive authority that the statement in Bennion contemplates.
The provisions that are set out in the various Chapters that appear in Part 7 of ITEPA 2003 are complex, and it is not easy to draw conclusions as to how the charging provisions in each Chapter are to be applied if the overall aim is to achieve consistency.
I am in any event not persuaded that it would be right to approach these provisions on the basis that the overriding consideration is that each Chapter should be applied consistently with all the others.
As the commentator on the Finance Act 2003 in Current Law Statutes observed, if there is any theme in the Act it is one of anti avoidance and the closing down of perceived tax loopholes.
This suggests that the correct approach is to take each Chapter according to its own terms without trying to draw conclusions from the way the common definition of market value is applied elsewhere in Part 7.
I would adopt that approach.
It is worth noting too that the interval between the enactment of ITEPA 2003, which received the Royal Assent on 6 March 2003, and the enactment of the Finance Act 2003 was very short.
ITEPA 2003 was a product of the Tax Law Rewrite Project, which was set up specifically to rewrite most direct legislation in user friendly language.
It is regrettable that the substituted provisions in the Finance Act 2003 depart from that approach.
That, however, was probably inevitable if the Revenue was to achieve the aim of combating tax mitigation planning which is plain from these provisions.
As for Chapter 3D, which is the only Chapter with which we need to concern ourselves in this case, it is as Lord Walker said in para 2 relatively simple and straightforward.
I see no escape from the conclusion that the enhanced payment that Mr Gibson received was caught by it and that it is taxable accordingly.
For these reasons, and those given by Lord Walker with which I am in full agreement, I would dismiss this appeal and affirm the Extra Divisions interlocutor.
LORD RODGER, LORD BROWN AND LORD KERR
We are in complete agreement with the judgments of Lord Hope and Lord Walker and, for the reasons that they give, we too would dismiss the appeal.
| UK-Abs | The main controversy in the appeal was whether, under the test laid out in section 446X of ITEPA, the disposal of the shares had been for a price which exceeded the market value of the shares at the time of the disposal [2].
If so, then the excess (less the costs associated with completing the transaction) would be treated as employment income [2].
ITEPA 2003 had adopted the definition of market value set out in capital gains tax legislation [22].
This required consideration of what a hypothetical purchaser would pay to acquire the rights attached to the shares [49].
Two questions emerged: (1) whether Gs shares were to be valued simply as shares whose rights were set out in Grays Groups articles of association, or whether his special rights under the subscription agreement were to be taken into account as if they were set out in the articles and (2) if the latter, what effect those special rights had on the valuation exercise [25].
The first question could be divided into two parts: (a) whether the special rights should be taken as attaching to the shares as a matter of company law and (b) whether Part 7 of ITEPA, which also dealt with other financial instruments, should be taken as consistently requiring such special rights to be taken into account in the assessment of market value [26].
On (a), shareholders mutual obligations were normally set out in the companys articles of association, and Grays Groups articles said nothing about special rights attaching to Gs shares on their disposal [27].
A clause in the subscription agreement did state that the agreements provisions should prevail over the articles, but there was a previous House of Lords case which suggested that such a provision would have no effect [31].
That case had not been cited in argument before the court, and might require further legal submissions, but was not decisive owing to the conclusions reached on other points [32].
On (b), elsewhere in Part 7 of ITEPA, in relation to other financial instruments, similar special rights did affect the market value of the asset in question [33].
The principle that tax is to be charged only by clear words was less potent than it had been, but was still relevant to interpreting tax laws.
There was real doubt as to whether Parliament, in Part 7 of ITEPA, had enacted a scheme which drew a coherent distinction between the treatment of rights attaching to shares and those attaching to other financial instruments [37].
The appeal was dismissed on the second question.
When P purchased Grays Group Ltd, it was not concerned with the division of the sale price between the vendors, except in so far as that might have adverse tax consequences for Timber Products [38].
Whether it was right to say that Gs special rights did in some sense attach to the shares or not, those rights had no value to the hypothetical purchaser [40, 49].
They were rights personal to G [51] and were extinguished by the payment which G received [50].
The valuation did not have to take account of the actual sale of Gs shares at a special price enhanced for reasons relating to Gs special position as managing director [43].
|
I have had the advantage of reading in draft the opinion which has been prepared by Lord Mance, and I agree with it.
For the reasons he gives, I would dismiss the appeal.
LORD RODGER
I too have had the advantage of considering in draft the opinion prepared by Lord Mance.
I agree with it and, for the reasons which he gives, I would dismiss the appeal.
LORD MANCE
The appellant, Mr Louca, is a Cypriot national whose arrest in England and surrender to the Federal Republic of Germany for trial of six alleged offences of tax evasion is sought by the Office of the Public Prosecutor of Bielefeld pursuant to a European Arrest Warrant dated 14 July 2008.
The warrant was on that date certified by the Serious Organised Crime Agency (SOCA) pursuant to s.2(7) of the Extradition Act 2003.
Mr Louca challenges its validity on the ground that it contains no reference to two previous European arrest warrants (likewise certified by SOCA), but refers only to a domestic German arrest warrant.
A reference to any previous European arrest warrants, was, he submits, essential under s.2(2)(a) and (4)(b) of the 2003 Act, which, read together, require a warrant to contain particulars of any other warrant issued in the category 1 territory for the persons arrest in respect of the offence.
Senior District Judge Workman rejected Mr Loucas challenge on 11 September 2008, and the Divisional Court, in a judgment given by Dyson LJ, dismissed his appeal on 27 November 2008.
The two previous European arrest warrants were issued and in turn superseded in a manner that appears not uncommon in relation to requests by overseas authorities for the arrest of suspects in England.
The first warrant was dated 14 September 2006 and led to Mr Loucas arrest on 9 April 2008.
Shortly thereafter it was withdrawn, Mr Louca was discharged from further proceedings on it, and a second warrant dated 23 April 2008 was issued on which Mr Louca was again arrested on 25 April 2008.
That warrant amplified the description of Mr Loucas alleged involvement in the offences and contained other minor changes.
It was in turn withdrawn, Mr Louca was again discharged from any proceedings on it, and it was replaced by the subsisting warrant dated 14 July 2008, upon which Mr Louca was again arrested and which is now before the Supreme Court.
The wording of the subsisting warrant differs from that of the second warrant only in the insertion of the words which I have italicised in the time frame and places of commission given for the alleged offences: From a few days before the 23rd April 2003, till the 8th of April 2004 and Minden, Seckenhausen and other places in the Federal Republic of Germany, including the borders of Germany.
Part I of the 2003 Act, in which s.2 appears, falls to be read in the context of the Council Framework Decision of 13 June 2002 on the European arrest warrant and the surrender procedures between member states of the European Union (2002/584/JHA; OJ 2002 L190, pl).
This is a ground breaking measure intended to simplify and expedite procedures for the surrender, between member states, of those accused of crime committed in other member states or required to be sentenced or serve sentences for such crimes following conviction in other member states: Dabas v High Court of Justice of Madrid, Spain [2007] UKHL 6; [2007] 2 AC 31, para. 4, per Lord Bingham of Cornhill.
Although article 34(2)(b) of the Treaty on European Union makes framework decisions binding upon member states as to the result to be achieved but [leaves] to national authorities the choice of form and methods, a national court must interpret a national law as far as possible in the light of the wording and purpose of the framework decision in order to attain the result which it pursues and thus comply with article 34(2)(b): para. 5, per Lord Bingham citing Criminal Proceedings against Pupino (Case C 105/03); [2006] QB 83, paras. 43 and 47.
The Framework Decision provides inter alia: Article 1(1): The European arrest warrant is a judicial decision issued by a Member State with a view to the arrest and surrender by another Member State of a requested person, for the purposes of conducting a criminal prosecution or executing a custodial sentence or detention order.
Article 2(1): A European arrest warrant may be issued for acts punishable by the law of the issuing Member State by a custodial sentence or a detention order for a maximum period of at least 12 months or, where a sentence has been passed or a detention order has been made, for sentences of at least four months.
Article 8(1): The European arrest warrant shall contain the following information set out in accordance with the form contained in the Annex: (a) the identity and nationality of the requested person; the name, address, telephone and fax numbers and e mail address (b) of the issuing judicial authority; evidence of an enforceable judgment, an arrest warrant or any other (c) enforceable judicial decision having the same effect, coming within the scope of Articles 1 and 2; the nature and legal classification of the offence, particularly in (d) respect of Article 2; a description of the circumstances in which the offence was (e) committed, including the time, place and degree of participation in the offence by the requested person; the penalty imposed, if there is a final judgment, or the prescribed (f) scale of penalties for the offence under the law of the issuing Member State; (g) if possible, other consequences of the offence.
The annexed form contains boxes for completion, including: (b) Decision on which warrant is based: 1.
Arrest warrant or judicial decision having the same effect: .
Type: . 2.
Enforceable judgement: .
Reference: . and (f) Other circumstances relevant to the case (optional information): (NB This could cover remarks on extraterritoriality, interruption of periods of time limitation and other consequences of the offence)
In the present case, box (b) of the form was completed in the European arrest warrant (as in the two withdrawn warrants) with a reference to a domestic warrant issued by the Bielefeld County Court reference 9Gs 2740/06 dated 27 July 2006 for Mr Loucas imprisonment on remand.
In Ruiz v Central Criminal Court of Criminal Proceedings No 5 of the National Court, Madrid [2007] EWHC 2983 (Admin); [2008] 1 WLR 2798, Dyson LJ in an obiter dictum rejected a prosecution submission that the enforceable judgment, etc. [referred to in article 8(1)(c) of the Framework Decision] is the domestic warrant on which the index EAW is based (para. 26).
The words in article 8(1)(c) coming within the scope of Articles 1 and 2 in his view precluded that submission, on the basis that Articles 1 and 2 were only concerned with European arrest warrants.
The actual decision was that article 8(1)(c) and s.2(4)(b) were only concerned with currently enforceable warrants.
However, Dyson LJs view that they were also only concerned with European arrest warrants was adopted in Zakowski v Regional Court in Szczecin Poland [2008] EWHC 1389 (Admin).
That was a case on s.2(6)(c) of the 2003 Act, which mirrors the language of s.2(4) in relation to the situation of a person unlawfully at large after conviction.
Maurice Kay LJ, with whom Penry Davey J agreed, held that s.6(2)(c) should be construed as referring only to other EAWs issued in respect of the offence (paras. 25 26).
In his judgment in the present case, Dyson LJ reconsidered the position and concluded that the interpretation of ss.2(4)(b) and 2(6)(c) proposed in Ruiz and adopted in Zakowski was wrong.
His reasoning covered five points: (i) the Framework Decision does not in article 8(1)(c) use the phrase European arrest warrant, as it does consistently elsewhere when referring to such a warrant; (ii) the concepts of an enforceable judgment, an arrest warrant or any other enforceable judicial decision cannot easily be understood as limited to an European arrest warrant; (iii) the phrase coming within the scope of Articles 1 and 2 can and should simply be understood as meaning that the enforceable judgment, arrest warrant or other enforceable judicial decision must be for the purposes of conducting a criminal prosecution or executing a custodial sentence or detention order and be issued for acts punishable by the law of the issuing Member State by a custodial sentence or a detention order for a maximum period of at least 12 months or, where a sentence has been passed or a detention order has been made, for sentences of at least four months; (iv) one European arrest warrant is most unlikely to be based on another, and (v) there is no point in requiring such a warrant to contain information about an earlier European arrest warrant on which it is not based, and on which reliance is no longer placed.
On this basis, the present Divisional Court held that article 8(1)(c) and ss.2(4)(b) and 2(6)(c) are concerned with domestic judgments, arrest warrants or other decisions, and not with any other European arrest warrant issued in respect of the alleged offending, still less one which has been withdrawn.
Before the House in July 2009, Mr Conor Quigley QC had to accept the first part of this conclusion inevitably so, in my view, in the light of the first four reasons given by Dyson LJ and also having regard to article 8(1)(c) of and box (b) in the form annexed to the Framework Decision.
It is entirely understandable that the Framework Decision should require a European arrest warrant to set out its jurisdictional basis in the domestic law of the issuing state.
Mr Quigley submitted, nonetheless, that the latter part of the Divisional Courts decision does not follow, and challenged Dyson LJs fifth reason.
There is a purpose, he argued, in also requiring evidence of any other European arrest warrant, even if withdrawn, because this could constitute the basis of, or be relevant to, a decision by the executing court to set aside or consider whether to set aside the subsisting European arrest warrant as an abuse of process.
He relied upon the statement by Bingham LJ, as he was, in R vs Liverpool Stipendiary Magistrates ex p. Ellison [1990] RTR 220, 227 that: If any criminal court at any time has cause to suspect that a prosecutor may be manipulating or using the procedures of the court in order to oppress or unfairly to prejudice a defendant before the court, I have no doubt that it is the duty of the court to inquire into the situation and ensure that its procedure is not being so abused.
Usually no doubt such inquiry will be prompted by a complaint on the part of the defendant.
But the duty of the court in my view exists even in the absence of a complaint.
In support of these submissions, Mr Quigley pointed to various recitals in the Framework Decision.
Under recital (8), the execution of the European arrest warrant must be subject to sufficient controls; under recital (10), its mechanism is based on a high level of confidence between Member States. and under recital (12), the Framework Decision respects fundamental rights and observes the principles recognised by Article 6 of the Treaty on European Union and reflected in the Charter of Fundamental Rights of the European Union and does not prevent a Member State from applying its constitutional rules relating to due process.
Mr Quigley noted that, under Article 8(1), The European arrest warrant shall contain the following information set out in accordance with the form contained in the Annex: . (g) if possible, other consequences of the offence.
He suggested that, in order to give effect to all these provisions, ss.2(4)(b) and 2(6)(c) must be understood as embracing not only domestic judgments, warrants or decisions, but also prior European arrest warrants, even if withdrawn.
Otherwise, mutual confidence would not be promoted and the executing court would not be able to inquire into whether there had been any abuse of process.
In my opinion, this is to seek to make bricks without straw.
The words if possible, other consequences of the offence and box (f) in the annexed form Other circumstances relevant to the case (optional information) do not carry the obligatory connotation for which Mr Quigley argues; the note to box (f) lends no support to Mr Quigleys case; and there is no reason to read ss.2(4)(b) and 2(6)(c) in the 2003 Act as intended to require the executing court to be informed by the European arrest warrant of one (and only one) point the existence of another European arrest warrant which might, in some conceivable case, be of some conceivable relevance to an argument of abuse of process.
The duty which a criminal court may have, if prosecution authorities appear to be committing an abuse of process, is no basis for reading either the Framework Decision or the 2003 Act as requiring the inclusion in a European arrest warrant of that or any other information on which a defendant wishing to raise an argument of abuse of process might conceivably wish to rely.
Ss.2(4)(b) and 2(6)(c) are designed on their face simply to give effect to article 8(1)(c) and box (b) in the annexed form.
Other due process factors are comprehensively covered by ss.11 to 20, dealing with double jeopardy, extraneous considerations, passage of time, age, hostage taking considerations, speciality, earlier extradition to the United Kingdom and trial in absentia, as well as by the general safeguard in s.21 that the judge must decide whether surrender would be compatible with the European Human Rights Convention rights.
The unreal consequences of the appellants argument in this particular case also need no stressing.
Mr Louca was arrested under the previous European arrest warrants, and he and his advisers were fully aware at every stage of their issue and withdrawal.
Their withdrawal and the changes made in successive warrants lend no support to any suggestion of abuse of process. (Arguments based on oppression due to passage of time and interference with the right to family life were mounted, unavailingly, in the courts below.) Mr Quigley was nevertheless compelled by his argument to submit that, however obvious it might be that the reason for the withdrawal of a previous European arrest warrant was technical or irrelevant to any question of abuse of process, a new European arrest warrant would be invalid unless it gave particulars of the previous warrant.
The question certified by the Divisional Court is: Whether the reference to any other warrant in ss.2(4)(b) and 2(6)(c) of the Extradition Act 2003 properly construed is a reference to any other domestic warrant on which the European arrest warrant is based.
For the reasons given above and those given by the Divisional Court, the answer is that the reference is to any domestic warrant on which the European arrest warrant is based, and not to any other European arrest warrant which may have been issued on the basis of any such domestic warrant.
Mr Loucas appeal falls to be dismissed accordingly.
LORD COLLINS
appeal.
LORD KERR
I too agree with the opinion prepared by Lord Mance, and I would dismiss the I also agree with the opinion prepared by Lord Mance, and I would dismiss the appeal.
| UK-Abs | Mr Louca is a Cypriot national resident in the UK.
His extradition is sought by the Office of the Public Prosecutor of Bielefeld, Germany, for six offences of tax evasion under a European Arrest Warrant (EAW) dated 14 July 2008.
Two previous EAWs had been issued by the German Prosecutor, each resulting in the arrest of Mr Louca in April 2008, but were successively withdrawn because of minor technicalities.
The current EAW refers to the domestic German arrest warrant but not to the previous, withdrawn, EAWs.
Mr Louca argued that it was unlawful to extradite him under an EAW which did not refer to all the previous EAWs.
The Supreme Court holds that, when a European Arrest Warrant is issued by the authorities of one Member State for execution in another, it must include a reference to the domestic warrant upon which the European Arrest Warrant is based, but need not include references to any other European Arrest Warrant which may have been issued on the basis of the domestic warrant.
The appeal is therefore dismissed. (Paragraph [15])
Lord Mance gave the judgment of the Court, upholding the reasoning of the Divisional Court.
The words any other warrant in section 2(4)(c) of the Extradition Act 2003 must be construed in the light of the European Council Framework Decision of 13 June 2002 on the European Arrest Warrant and the surrender procedures between Member States of the European Union. (Paragraph [3]).
The Framework Decision does not require any other warrant to include previous EAWs.
The relevant part of the Decision article 8(1)(c) does not use the phrase European arrest warrant as it does elsewhere.
The reference to an enforceable judgment, an arrest warrant or any other enforceable judicial decision (article 8(1)(c)) cannot sensibly be limited to an EAW.
One EAW is most unlikely to be based upon another. (Paragraphs [9] [10]) There was no other reason to require the EAW to include information about prior EAWs upon which no reliance was being placed.
Not doing so would not prevent Mr Louca arguing that extradition was an abuse of process, and other due process factors were comprehensively covered by the Extradition Act. (Paragraphs [13] [15])
Judgments
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This is the judgment of the court.
The appeal arises out of a dispute between RTS Flexible Systems Limited (RTS) and Molkerei Alois Mller GmbH & Co KG (Mller) in relation to work carried out and equipment supplied by RTS to Mller.
The different decisions in the courts below and the arguments in this court demonstrate the perils of beginning work without agreeing the precise basis upon which it is to be done.
The moral of the story to is to agree first and to start work later.
The claim was brought by RTS for money due under a contract, alternatively damages.
A number of issues arose between the parties and by an order dated 11 January 2008 Akenhead J ordered the trial of specific preliminary issues.
That trial came before Christopher Clarke J (the judge) and on 16 May 2008 he handed down a judgment in which he determined each of them.
The parties had initially intended to enter into a detailed written contract which would set out all the complex terms on which the work was to be carried out and the equipment supplied.
However, as often happens, the terms were not finalised before it was agreed that work should begin.
It was common ground before the judge that the parties entered into a contract formed by a Letter of Intent dated 21 February 2005 and a letter from RTS dated 1 March 2005 (the LOI Contract), the purpose of which was to enable work to begin on agreed terms.
The judge held that the LOI Contract was treated by the parties as expiring on 27 May 2005.
The judge further held that after the lapse of the LOI Contract the parties reached full agreement on the work that was to be done for the price that they had already agreed, which was 1,682,000 and had been agreed in the LOI Contract.
He held that the natural inference from the evidence was that their contract was that RTS would carry out the agreed work for the agreed price.
It was not however essential for them to have agreed the terms and conditions and they did not do so.
They continued after the expiry of the LOI Contract just as they had before, by calling for and carrying out the work without agreement as to the applicable terms.
The judge declined to hold that the parties' contract included the final draft version of certain terms known as the MF/1 terms (the MF/1 terms).
RTS appealed to the Court of Appeal.
At the outset of his judgment Waller LJ, with whom Moses LJ and Hallett LJ agreed, made it clear that RTS had said that it was not appealing any of the judges findings of fact.
The issue before the Court of Appeal was whether the judge was right in holding that there was a contract between the parties at all after the expiry of the LOI Contract and whether, if there was a contract, he was right in holding that it was not on the MF/1 terms.
Waller LJ also made it clear that there was an issue as to whether RTS was entitled to contend that there was no contract.
The Court of Appeal allowed the appeal and made a declaration that the parties did not enter into any contract after the LOI Contract came to an end.
The essential issues in this appeal, which is brought by permission given by the House of Lords, are whether the parties made a contract after the expiry of the LOI Contract and, if so, on what terms.
As to terms, the argument centres on whether the contract was subject to some or all of the MF/1 terms as amended by agreement.
Mller submits that the judge was correct to hold, both that there was a contract after the expiry of the LOI Contract, and that it was not on any of the MF/1 terms, whereas RTS submits that the Court of Appeal was right to hold that there was no contract but that, if there was, it was on all the MF/1 terms as amended in the course of negotiations.
The importance of the MF/1 terms is that they contain detailed provisions as to many matters, including liquidated damages.
In this judgment we will focus on those two issues, although part of Mllers challenge to the decision of the Court of Appeal that there was no contract is a submission that it should not have permitted RTS to take the point because it had not been taken before the judge.
We will refer briefly to that issue en passant.
The relevant facts
Both the judge and Waller LJ have set out the background facts in considerable detail.
It is only necessary to refer to some of the facts in order to resolve the issues in this appeal.
We begin with the Letter of Intent, which was dated 21 February 2005 and sent by Mller to RTS, and which included the following: Project: Build, delivery, complete installation and commissioning by RTS of the Automated Pot Mixing Lines 1 & 2 and the De Palletising Cell (the Equipment) for the Repack line (Repack Line) within the Repack facility in Market Drayton of Mller Thank you for your mail dated 16 February 2005 setting out your offer (number FS04014 Issue J) to supply the Equipment to Mller (the Offer").
Please accept this letter of intent as confirmation of our wish to proceed with the Project as set out in the Offer subject to the following terms: (i) The agreed price for the engineering, build, delivery, installation and commissioning as set out in the Offer is GBP 1,682,000 (ii) RTS is now to commence all work required in order to meet Mller's deadlines set out in the Offer to allow commencement of full production by Mller on the Repack Lines by 30 September 2005.
Delivery of line also to be in accordance with the timetable set out in the Offer. (iii) That the full contractual terms will be based on Mller's amended form of MF/1 contract and the full terms and the relevant technical specifications will be finalised, agreed and then signed within 4 weeks of the date of this letter.
Prior to agreement on the full contractual terms, only Mller shall have the right to terminate this supply project and contract.
However, should Mller terminate, Mller undertakes to reimburse RTS for the reasonable demonstrable out of pocket expenses incurred by RTS up to the date of termination.
Mller will not be liable for any loss of profits (whether direct or indirect), loss of contracts, loss of anticipated savings, data, goodwill and revenue or any other indirect or consequential loss arising from such termination.
No further legal rights or remedies shall be available to RTS upon such termination.
Please confirm your acceptance of the above by signing below where indicated.
This letter of intent shall be governed by English law and subject to the exclusive jurisdiction of English courts.
It is important to note that the Letter of Intent provided for the whole agreed contract price and was not limited to the price of the works to be carried out during the currency of the LOI Contract.
It is also of interest and, we think, of some importance that it was contemplated from the outset that the full contract terms were to be based on Mllers MF/1 terms.
On 1 March RTS wrote to Mller confirming that it had started work subject to Mller accepting two points.
The first was that the equipment would be commissioned by 30 September and would be ready for Site Acceptance Testing (SAT) activities as shown in the programme.
But the equipment would not then be expected to be at full production quantities.
Section (ii) of the Letter of Intent would be revised by omitting full.
The second point referred to section (iii) and made the point that during the four week period covered by the Letter of Intent RTS would incur costs in both engineering time and in order to meet the project programme.
It would for example place orders for long lead items such as robots, conveyors and tray erectors.
RTS said that, in the event of termination, it would require reimbursement for these costs, including the cancellation costs of subcontract commitments as well as any out of pocket expenses, albeit without profit.
Those points were subsequently accepted by Mller.
The judge held at his para 39 that it was implicit in the LOI Contract that upon expiry of the four weeks it would come to an end.
Neither party challenged his conclusion that after the expiry of the LOI Contract it was not revived, either in the Court of Appeal or in this court.
In answering the question posed under Issue 1.1, namely what were terms of the LOI Contract and the obligations of the parties under it, the judge said this at para 42: a) The agreed price for the engineering, build, delivery, installation and commissioning of the work set out in the Quotation was to be 1,682,000; b) RTS was bound to embark on such work as was necessary to ensure the provision of the equipment to be supplied by it in accordance with the provisions of sections 4 8 of Quotation J and the timetable set out in Appendix 7 thereof.
Commissioning was to be completed by 30 September 2005 and the equipment was to be ready for production (but not full production) and Site Acceptance Testing as shown in that Appendix at that date; c) Mller and RTS were to have a period of four weeks from 21 February 2005 to finalise, agree and sign a contract based on Mller's amended MF/1 form of contract.
Following the expiry of that period the contract would terminate; d) Prior to agreement of the full contractual terms and conditions based on Mller's amended MF/1 contract, only Mller had the right to terminate the supply project; e) If Mller did so terminate or the term of the contract expired, it would reimburse RTS for the reasonable, demonstrable out of pocket expenses incurred by RTS up to the date of termination, including the cost of engineering time, cancellation costs of subcontract commitments, and any out of pocket expenses, but without profit; f) RTS would have no further legal right or remedy on termination and Mller would not be liable for any loss of profit (whether direct or indirect), loss of anticipated savings, data, goodwill and revenue or any other indirect or consequential loss arising from termination; g) There were no exclusions or limitations of liability in the contract.
It is important to note the references to the MF/1 terms both in the Letter of Intent and in the judges conclusions.
It seems to us to be almost inconceivable that the parties would have entered into an agreement for the performance of the whole project which was not based on detailed terms.
The judge made this point at para 39 in these terms: The absence of agreed full contractual terms would be of limited significance over a four week period; but more significant, if it could continue until the end of the project.
The parties did not, in my judgment, contemplate that, in the absence of finalisation and signature within the specified timescale (or any agreed extension), RTS would be bound to continue with a project for which the applicable terms had not been agreed.
Consistent with that the Letter of Intent says nothing about when any part of the price would be payable and gives Mller a right to cancel upon payment only of expenses and cancellation costs a right that is entirely reasonable during a four week period but inappropriate for a contract for the entire project.
The payment schedule in the Quotation does specify a series of percentage payments, but the first of those is the 30% of TCV payable on receipt of order and the Letter of Intent is not an order.
It is also important to set the LOI Contract and what happened subsequently in their context.
The negotiations had been proceeding for some time.
As appears in the Letter of Intent, apart from the price, the parties had been discussing Quotation J and the schedules to it, including Schedule 7.
After the LOI Contract and while work was proceeding in accordance with it, detailed negotiations proceeded.
The negotiations up to 16 May are described by the judge at his paras 43 to 47.
Mr David Salisbury, the senior Buyer in Mllers purchasing department, sent the first draft of a contract to RTS on 15 March.
The scheme of the draft (and each subsequent draft), in which words beginning with a capital letter had defined meanings, was as follows.
Clause 1 provided that on receipt of an Order for Delivery RTS would supply the Equipment and perform the Works on the terms and conditions set out in the Contract and that without prejudice to the other provisions of the Contract the Equipment would comply with the Specification.
Clause 2 provided for some terms to survive Termination.
Clause 3 provided that Mller would procure payment of the Contract Price as set out in Schedule 2 and, importantly, clause 4 provided that the general terms and conditions set out in Schedule 1 would apply to the Contract.
We have not been shown Schedule 2, which may indeed not exist.
However, clause 49, which is a definitions clause which was expressly given contractual force by clause 7, included the definition of the Contract Price as 1,682,000 being the price as set out in more detail in Schedule 1.
Clause 5 was entitled Limitation of Liability and provided for limitations of liability referable to particular clauses of the Contract.
Clause 6 provided for the following order of preference to be applicable to the contractual documents: first the general terms and conditions set out in Schedule 1, secondly the User Requirement Specification (URS) set out in Schedule 4, thirdly the Functional Design Specification (FDS) set out in Schedule 3 and finally all the other Schedules comprised in the Contract.
Clauses 8 to 48 were entitled Schedule 1 General Conditions and, in their original form, in essence set out the MF/1 terms.
It is plain that they were always intended to form an important part of the contract.
They were given pride of place by clause 6.
In the course of the negotiations they were amended in significant respects.
We were provided with a version of the draft contract which shows the original draft in black with subsequent variations in six other colours.
In the form of clauses 8 to 48, Schedule 1 included detailed provisions on all the topics one might expect, including Equipment and Services to be Provided, Purchasers Obligations, the Contract Price, Payment, Warranties, Guarantees, representation and management, Inspection and Testing, Completion, Delay, Defects Liability, Limitations of Liability, Force Majeure and the like.
In the course of argument we were referred to many of the amendments that were made in the course of the negotiations.
To take one example, when read with clause 5, clause 36 contained detailed provisions (as amended) limiting liability.
For example, subject to some exceptions, the limit of each partys liability for an Event of Default is the amount of the Price.
Schedule 1 also contained clause 48, which was the subject of considerable debate and provided: 48.
COUNTERPARTS 48.1 This Contract may be executed in any number of counterparts provided that it shall not become effective until each party has executed a counterpart and exchanged it with the other.
The draft contract further contained a number of Schedules on various topics to which we refer below.
Some but not all of them were referred to in the clauses which formed part of Schedule 1.
There were exchanges between the parties as to the terms of the first draft and of the second draft, which was sent to RTS by Mr William Morris, in house counsel to Mller, on 14 April.
One of the proposed changes in that draft was that RTS parent company, RTS PLC, be added as a guarantor.
Meanwhile on 13 April the parties agreed or confirmed their agreement to RTS letter of 1 March and agreed that the period for execution of a formal contract would expire on 16 May. Negotiations continued and, as the judge noted at para 46, on 13 May Mr Morris e mailed Mr Gavin Brown, who was RTS Operations Director, as follows: Given that the contract is now almost agreed we hereby confirm that the expiry date for the current letter of intent can be extended until 27 May 2005, or, if sooner, the date the contract is actually signed As stated above, the judge held, in the light of the exchanges between the parties, that they agreed that the LOI Contract would expire on 27 May.
Further drafts were sent by Mr Morris to RTS on 11 and 16 May, when, as the judge put it at para 48, Mr Morris e mailed to Mr Brown the draft contract with final tweaks, adding perhaps you can drop me a quick e mail confirming you are happy we can then all concentrate on completing the schedules.
The draft sent on 16 May was the fourth draft contract.
The judge described the schedules sent as part of it at that time in para 48 as follows: Schedule 1: General Conditions extending to 48 paragraphs.
Schedule 3: A page headed Functional Design Specification.
This is a document which states the intended functionality of the RTS equipment.
It is usually derived from the User Requirement Specification: see below.
Schedule 4: A page headed User Requirement Specification.
This is usually compiled by the client but, on this occasion, was lifted from RTS' Quotation K at Mllers request.
Schedule 5: A three page schedule, drafted by Mller, divided into Part 1 Tests on Completion and Part 2 RTS Tests.
Schedule 6: A two page schedule, drafted by Mller, headed Performance Tests".
The last paragraph of this read as follows: THIS SCHEDULE NEEDS TO PROVIDE THAT IF THE TEST WITHIN A CERTAIN PERCENTAGE OF THE REQUIRED LEVEL LDs WILL APPLY AND THE EQUIPMENT WILL STILL HAVE "PASSED".
IF THE PERCENTAGE ACHIEVED IS LOWER THAN THAT SPECIFIED BY LDs (I.E.
LOWER THAN THE MAXIMUM PAYOUT UNDER LDS) THE EQUIPMENT WILL HAVE FAILED THE TEST AND THE OTHER REMEDIES WILL BE AVAILABLE TO THE PURCHASER Schedule 7: An Advance Payment Guarantee to be given by RTS parent.
Schedule 8: A defects liability demand guarantee also to be given by RTS parent.
Schedule 9: This made provision for the supply of a list of stock items and wear and non wear parts.
Schedule 10: A description of what the programme needed to include.
Schedule 11: An empty table of Key Performance Indicators, Performance required and Liquidated Damages.
Schedule 12: A page headed "Certificates of Payment" together with a form of Delivery Certificate, Completion Certificate and Final Certificate of Payment.
Schedule 13: A list of the operating manuals and other drawings and maintenance schedules required.
Schedule 14: A Schedule dealing with Training Requirements.
Schedule 15: A Schedule headed Health and Safety Requirements but otherwise blank.
Schedule 16: A Schedule headed Free Issue Equipment but otherwise Schedule 17: A Schedule headed "Site Preparations" but otherwise blank. blank.
On 19 May Mr Brown e mailed Mr Morris to say that the fourth draft seemed fine to him except for a small proposed amendment to clause 24.3, which related to delay of Tests on Completion.
On 25 May Mr Brown again e mailed Mr Morris, saying that he expected to have the schedules completed today.
Mr Morris replied saying that the small proposed amendment to clause 24.3 looked fine, but that he needed to get back to him on Force Majeure and any final tidy ups.
On 26 May Mr Morris made some proposals relating to Force Majeure, to which Mr Brown countered.
The judge held at para 50 that on 5 July, after further negotiations, Mr Morris proposed a compromise form of the Force Majeure clause which Mr Brown told him seemed fine and which Mr Morris said he would incorporate into a contract when he put all the schedules together with Mllers Project Manager, Mr St John.
He also said that the agreement should be in a position to be signed and forwarded to Mr Brown for signature that week.
In the meantime on 26 May Mr Brown had set out RTS understanding of the current status of the contract schedules in a yet further e mail to Mr Morris.
At para 51, under the heading Finalisation of the Schedules, the judge set out in the form of a kind of Scott schedule both Mr Browns position from the e mail under the heading Understood status and his own conclusions with regard to each item under the heading My Comment as follows: 3 The FDS was later agreed: see the RTS e mail of 29 June and para 52. SCH.
Understood status My Comment 1 Not referred to in No need.
Schedule 1 consisted of the General Conditions. the e mail.
Assumed not This schedule is described in the Contract as 2 setting out the price; but that is in the General required as the Conditions in Schedule 1 anyway. payment schedule is included in the body of the contract.
FDS currently being reissued.
Brown suggested it should be referred to rather than incorporated. 4 URS.
Agreed that section 4 of the Quotation would form the URS, which was attached. 5 Agreed that RTS Test Plan would form this Schedule.
With Mller for approval. 6 RTS Test Plan The RTS Test Plan was later agreed: see the RTS e mail of 29 June: para 52 The URS had the appendices referred to at para 26. 7 Advance Payment guarantee already agreed. 8 Defect Liability guarantee RTS' parent company to approve.
To be completed during the project. 9 RTS REGARDED ITS TEST PLAN AS COVERING THE GROUND OF SCHEDULES 5 AND 6 AND MLLER WAS HAPPY WITH THAT PROVIDED THAT IT DID SO.
BUT THE ONLY VERSION OF SCHEDULE 6 CONTAINED MLLER'S WORDING.
The guarantee had been attached to the e mail of 16 May. A draft had been attached to the 16 May e mail.
The parent company never approved it.
Part 1 related to stock items.
It was never completed.
Part 2 contains provisions for the durability of Wear Parts, which is capable of standing on its own. 10 Approved programme attached 11 KPIs agreed: attached. 12 Mller to complete. 13 To be completed during the project. 14 To be completed during the project. 15 Mller to provide details. 16 As per attached document. 17 Mller to provide site preparation details.
The attachment was either as in Quotation I or Quotation J.
This programme was overtaken by the overall project plan and Installation at Mller plan referred to in para 52 below.
These included details of the Performance Required and Liquidated Damages This related to Certificates of Payment.
Never completed.
This related to operating manuals.
Never completed, It would not have been possible to provide them at the time.
This related to Training Requirements.
Never completed This related to Health and Safety Requirements.
Never completed The attached document contained the Assumptions for Free Issue Equipment for the Project This does not seem to have been provided, but the site was prepared.
The references to para numbers in the Comment boxes are references to para numbers in the judges judgment.
For simplicity we have omitted two footnotes.
It can be seen from the Comment boxes that there were no problems about Schedules 1 to 5.
As already stated, Schedule 1 was in effect the MF/1 conditions (as amended) and contained clauses 1 to 48.
Schedule 2 was unnecessary and, as to Schedules 3, 4 and 5, the FDS, the URS and the RTS Test Plan were variously agreed in the e mails referred to by the judge.
As to Schedule 5, in addition to words to the effect recorded in the judges Comment box, Mr Browns email of 26 May went on to suggest that upon approval of the RTS Test plan by Muller it is included in this schedule and existing text is deleted.
On or by 29 June the use of the RTS Test plan in Schedule 5 had been approved by both parties, as recorded in an exchange of emails on that date and by the judge in paragraph 52 of his judgment.
Schedule 6 gives rise to more difficulty.
Mr Browns email of 26 May contained simply the words RTS Test plan which appear in the judges Comment box.
The words in capitals set out in paragraph 15 above were inserted in the version of Schedule 6 attached to Mr Morris e mail of 11 May and also appeared in the version attached to his email of 16 May.
The evidence is that those words were originally inserted by Mr Morris as an internal note to his colleagues.
However that may be, Schedule 6 was recorded in Mr Browns e mail of 26 May as being simply the RTS Test Plan.
In the course of his evidence Mr St John confirmed that Mller was content to use the RTS Test Plan as Schedule 6.
It is clear from the judges entry in his Comment box that he accepted that there was agreement to that effect.
That seems to us to be so even though, as he added the only version of Schedule 6 contained Mllers wording.
It appears to us to follow from those conclusions that Schedule 6 comprised, and comprised only, the RTS Test Plan (in a form which was, as we have stated, subsequently agreed as recorded in emails on 29 June), and that the draft or drafts in blue containing the text in capital letters which formed part of the third and/or fourth draft were not agreed as part of Schedule 6.
In these circumstances we conclude that by the end of the negotiations there was no issue between the parties as to the content of Schedule 6.
We deal further below (para 71 et seq) with Mllers contrary submissions and with the judges conclusions at para 74 of his judgment on the question whether agreement was reached on Schedule 6 as well as on the related clauses 5 and 27.7 and the relationship between them.
We note in passing that it seems to us that the logic that has led us to the conclusion that the RTS Test Plan replaced the draft or drafts of Schedule 6 also leads to the conclusion that it was agreed that the RTS Test Plan entirely replaced the drafts of Parts I and II of Schedule 5 as they appear in our bundle in black and blue respectively.
However, this is not a final conclusion because it was not directly addressed in the course of the argument.
As to Schedule 7, the form of the Advance Payment Guarantee was agreed but the judge held at para 75 that RTS did not procure the provision of it by its parent company, which was to be the guarantor.
As to Schedule 8, RTS parent company did not approve the Defect Liability Guarantee.
As we see it, the judges comments on Schedules 9 to 17 present no problem.
In so far as some items remained to be completed during performance of the project, they seem to us to be items which did not have to be agreed before the contract was made.
In para 52 the judge noted that on 29 June, after further discussion, Mr David Guest, who was an RTS Project Manager, e mailed to Mr Morris copies of the FDS, the Test Plan, the Project Plan and the Installation at Mller plan, which Mller had approved.
Mr Guest also e mailed Mr St John a copy of a detailed Test and Build Schedule.
The final version of the draft contract in the coloured version with which we were provided includes the points agreed in the e mail exchanges of 19 and 25 May, 29 June and 5 July.
At para 67 the judge recorded Mllers recognition that the parties reached a final draft of the contractual terms and conditions, namely Schedule 1, which contained the general conditions as modified in the e mails of 19 and 25 May and 5 July.
The judge nowhere rejected Mllers recognition as being wrong on the facts.
In our judgment, it was essentially correct.
The modifications from the original draft were significant and detailed and were tailored to the particular project.
For example, clause 8.2 included a provision that RTS was not to be held liable for breach of the contract arising from any act or omission of a supplier of the Free Issue Equipment, which was equipment which RTS was not going to design, build or supply but was going to integrate.
There are many other examples, including clause 36, which provided, as one would expect, for Limitations of Liability.
However, as we see it, with the possible exception of clauses 5 and 27.7, none of the detailed clauses is material to the resolution of the issues in this appeal.
In summary, with that possible exception, everything was agreed as at 5 July except for the provisions relating to the parent company guarantee and items which it was not necessary to complete or which were to be completed in the course of the project.
We return to this point (and the possible exception) below in the context of the reasoning of the judge.
At paras 53 to 61 of his judgment the judge described the performance by RTS, which we can summarise more shortly.
RTS began work on the project on 23 February.
The expiry of the LOI Contract did not bring that work to an end.
Problems arose between June and August with delay to some of the Free Issue Equipment.
The project involved the installation of two production lines, Lines 1 and 2.
Quotation J and the URS had provided for a Customer Factory Acceptance Test (CFAT) to be carried out at RTS premises, after which the equipment was to be installed and commissioned at Mller's factory, followed by a SAT.
That programme involved installing Line 2 first.
However, as a result of the problems of delay, which are set out in detail at paras 53 to 57 of the judges judgment, consideration was given to Line 1 being installed before Line 2.
As the judge explained at para 58, on 15 August Mr Guest of RTS e mailed Mr Foster of Mller with a revised schedule for Line 1, which involved the equipment for Line 1 being sent immediately to Market Drayton, without CFAT testing.
Under the schedule, low volume production capability was planned as starting on Wednesday 28 September, with SAT beginning on Monday 24 October.
This was on the assumption that Line 2 could be installed after Line 1.
Discussion of these problems led to a variation of the delivery plans.
The judge described the variation as follows: 59.
On 25 August 2005 there was a meeting to discuss the problem, at which, as is common ground, there was an agreed variation of the delivery plan.
It was agreed that there would be no CFAT at RTS premises and that Line 1 would be installed first so that production could begin on this Line as soon as it could be made operational once delivered.
At the meeting Mr Brown gave Mller certain warnings to which I shall refer hereafter. 60. 61.
Most of the RTS components for Line 1 were delivered to Mller on or about 5 September 2005.
The RTS components for Line 2 were delivered on or about 2 December.
Line 1 was run on automatic, for the first time, on 1 October.
The 150,000 packs were produced, although much of the production was the result of manual operation without the robots.
SAT testing has never taken place.
One of the matters in dispute is as to whether it should have done.
The judge made further findings as to the variation on 25 August and as to what happened thereafter at paras 106 to 135.
It is not necessary to refer to those conclusions in any detail in order to determine the issues in this appeal.
However, at para 106 the judge said that it was common ground between the parties that the contract between them was varied on 25 August 2005 at a meeting at RTS' premises in Irlam between Messrs Brown and Guest from RTS and Messrs St John, Benyon, Foster, Highfield and possibly others for Mller, at which the parties agreed to alter the delivery schedules of the lines and to dispense with the need for RTS to conduct CFAT tests on Line 1.
After the agreement on 25 August the parties concentrated on Line 1 and Line 2 fell behind.
Resources which would otherwise have been dedicated to both Lines had to be dedicated to Line 1 only.
Moreover, as the judge held at para 121, the need to deal with Line 1 so as to meet Mllers production requirements seemed to have caused everyone to divert their efforts away from finalising contractual documentation, which was a matter which had gone quiet in mid July.
Most of RTS equipment for Line 1 was delivered on 5 September and detailed work continued on Line 1, which Mller put into production on 10 October.
As Waller LJ said at para 43 of his judgment in the Court of Appeal, ultimately a dispute arose between the parties leading to the litigation.
The details are unimportant save to comment first that no contract was ever signed as contemplated; second that until argument in the Court of Appeal each party had submitted as its primary position that at some stage a contract came into existence which governed their relationship; but third that both had at different times taken up positions inconsistent with that which they finally adopted at the trial as to whether MF/1 terms formed part of the contract.
As to payment, we take the position essentially from Waller LJs judgment at paras 44 to 46, where he summarised the conclusions of the judge.
Mller paid RTS 30 per cent of the agreed price of 1,682,000 plus VAT on about 28 April 2005 and made further payments of 30 per cent on 8 September 2005 and of 10 per cent in January 2006.
It did so following the issue by RTS of invoices which claimed those specified percentages of a total contract value of 1,682,000.
Although 30 per cent was specified in Quotation J as the amount of the first two payments under the contract, the payments made were not all stage payments as specified in Quotation J. That Quotation called for (a) 30 per cent on receipt of order, (b) 30 per cent on delivery to RTS of the major items of bought out equipment, (c) 20 per cent on delivery to Mller, (d) 10 per cent on completion of commissioning and (e) 10 per cent within 30 to 90 days of takeover, although (a) was to be within 7 days of receipt of order and (b), (c) and (d) were to be within 30 days of the date of invoice.
There was however no order and, even if the Letter of Intent was to be regarded as the equivalent, payment was not made within 7 days of it.
The second 30 per cent was paid after delivery to RTS of major items and submission of an invoice.
The 10 per cent paid in January 2006 was not however the 20 per cent due on delivery.
Waller LJ further noted that the payments made were not the stage payments specified in clause 11 of the fourth draft of the Contract sent with the e mail of 16 May.
While that is so, the fact remains that the payments were expressly made pursuant to requests by RTS for payment of specific percentages of the Contract Price, which seems to us to support the conclusion that the parties had agreed the Contract Price.
The parties cases before the judge
As stated above, at para 67 the judge recorded Mllers recognition that the parties reached a final draft of the contractual terms and conditions, namely Schedule 1, which contained the general conditions as modified in the e mails of 19 and 25 May and 5 July.
Mller had expressly pleaded in its Contractual Statement of Case (and submitted to the judge) that on 5 July RTS and Mller agreed the terms of the proposed written contract between them and the draft contract was ready for execution.
Before the judge Mllers case was that, despite that agreement, there was no binding contract between the parties on those terms for the reasons which the judge summarised at para 67.
This was because it was the parties' intention that detailed terms negotiated by them would not have contractual effect until the relevant documentation, namely the Contract and the Schedules, was formally executed and signed.
That that was so appeared from: a) the Letter of Intent which referred to the full terms and the relevant technical specifications being finalised, agreed and then signed within 4 weeks of the date of that letter; b) Mr Morris' e mail of 13 May, which referred to the Letter of Intent lasting until 27 May or, if sooner, the date the contract is "actually signed"; and was consistent with c) the evidence of Mr Brown of RTS, in para 46 of his witness statement, referring to his e mail of 26 May 2005 that: My view was that whilst we had agreed the wording in principal (sic), until the whole contract including the schedules had been compiled as a complete document and signed as accepted by RTS then it wasn't enforceable.
Whether this is right or not I don't now know, but it was what I thought then.
Therefore, to my mind, the milestone event at which the terms and conditions of the anticipated contract were agreed and in force was when RTS signed the document.
Mllers case was that no contractual document had been signed and thus no such document had been exchanged.
Its case was not, however, that there was no contract between the parties.
Its case that there was a contract depended upon the fact of payment and the work carried out, including delivery of the components comprising Line 1 on 5 September.
There was a contract on the basis that Mller would pay the price, namely 1,682,000, in return for the goods and services that RTS had agreed to provide as set out in a number of specific documents identified by the judge at para 68.
The specific documents relied upon by Mller and set out by the judge at para 68 were the following: (i) the documents attached to the e mail of 26 May, namely (a) the URS and its Appendices, save that the Parent Company guarantee was never given and the Provisional Project Plan was overtaken by the documents set out at para 22 above (and para 52 of the judgment) in June, (b) the KPIs and (c) the Assumptions for Free Issued Equipment (the Assumptions); and (ii) the documents attached to Mr Guest's two e mails of 29 June, namely (a) the FDS, (b) the Test Plan, (c) the overall project plan (which superseded the delivery programme attached to the e mail of 26 May) which was to form Schedule 10 to the contract, (d) the installation plan and (e) the Test and Build Schedule.
In short Mller submitted that the parties had an intention to create contractual relations when RTS provided the goods and services and Mller made its payments.
Mllers case was that no further contractual terms as to payment had been agreed, with the result that RTS was not entitled to payment of the balance of the price over and above the amount in fact paid by Mller as set out below until it had completed substantial performance.
Moreover, a critical part of Mllers case was that the amended MF/1 terms as agreed and set out in clauses 8 to 48 as amended never became part of a binding agreement.
The primary case for RTS before the judge by contrast (as summarised at para 71) was (i) that the LOI Contract incorporated Quotation J, including RTS standard terms, (ii) that it did not expire in May and (iii) that it was never replaced by any new contract.
The judge rejected (i) and (ii), which left RTS alternative case, which was that, if there was a new contract, it incorporated the agreed amended MF/1 conditions.
This was on the basis that if, as Mller submitted, most of the Schedules were incorporated, so also were the terms and conditions in Schedule 1, which was the basis of the contract.
We accept Mr Catchpoles submission that before the judge RTS primary case was that there was a continuing contract on the terms of the LOI Contract, but that it had two alterative cases, namely that there was either no contract (but RTS was entitled to a quantum meruit) or, if there was a contract, that it was on MF/1 terms.
We note in passing that preliminary issue 1.2.4 was formulated in such a way that one of the possible results was a right to payment, not under contract but by way of quantum meruit.
In these circumstances we agree with the Court of Appeal that, in the light of the submissions before him, it would have been open to the judge to hold that there was no contract but that RTS was entitled to a quantum meruit.
As Waller LJ put it at para 55, before the judge could decide what contract had come into existence after the expiry of the LOI Contract, he would have to consider whether a contract came into existence at all.
The Court of Appeal was correct to hold that it was open to RTS to submit that there was no contract and we reject Mllers submissions to the contrary.
In any event, we detect no injustice in permitting RTS to contend that there was no contract, either in the Court of Appeal or in this court.
The conclusion and reasoning of the judge
The judge accepted Mllers submissions.
He held at para 72 that after the lapse of the LOI Contract the parties reached full agreement on the work that was to be done for the price that they had already agreed.
Having referred at para 66 to the decision and reasoning of Steyn LJ in G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyds Rep 25 at 27 he said that it was, as Steyn LJ had contemplated, unrealistic to suppose that the parties did not intend to create legal relations.
So far so good.
However, he held that it was not essential for them to have agreed the terms and conditions, by which we think he meant the MF/1 conditions, and they did not do so.
He held that the parties continued after the expiry of the LOI Contract just as they had done before, that is by calling for and carrying out the work without agreement as to the applicable terms.
In paras 73 to 76 he gave four reasons for declining to infer that the contract included the final draft version of the MF/1 conditions.
The four reasons were these: i) Mller's Letter of Intent and its e mail of 13 May 2005 indicated that the final terms were not to be contractually agreed until signature. ii) The contract sent with the e mail of 16 May was designed to operate as a composite whole, consisting of (a) the basic two page, seven clause contract, and (b) the 17 schedules that are annexed to it and referred to in the general conditions which constitute Schedule 1.
Although many of these Schedules were agreed several were not.
In particular it was not agreed what Schedule 6 would contain.
The words in capitals represented a proposed, but never agreed, refinement to give Mller some ampler remedy than liquidated damages if the performance of the equipment was lower than that degree of non performance which would give rise to the maximum liquidated damages. iii) The parties did not proceed on the basis of the conditions.
RTS did not procure the provision of the Advance Payment Guarantee (Schedule 7), which, under the conditions, was required to be procured prior to the advance payment being made.
Schedules 15 and 17, which address matters relevant from the start of the contract, were not completed.
Mller did not appoint an Engineer.
Payment was not made in accordance with the application and certification procedure laid down in clause 11 and the procedure for Changes to the Contract laid down by clause 39 was not followed.
The dispute procedure required by clause 41 was not followed. iv) Clause 48 of the general conditions was not satisfied because the contract was not executed, nor were any counterparts exchanged.
As we read them, those reasons contain two different strands.
The first is set out in reasons i) and iv) and is that any agreement made between the parties was made subject to contract and was not binding until a formal contract was signed by and perhaps exchanged between both parties.
The second is set out in ii) and iii) and is that all essential terms were not agreed.
For those reasons the judge held that by no later than 29 June 2005 the contract between the parties, which was to apply retrospectively, was that RTS was to provide the goods and services specified, and comply with the obligations set out, in the documents set out in his para 68, subject to the conditions specified therein.
The parties cases in the Court of Appeal
In the Court of Appeal, RTS abandoned its case that the LOI Contract did not expire but continued.
It submitted to the Court of Appeal that the judge was wrong to hold that there was a contract on terms which excluded the MF/1 terms.
Its submissions were first that there was no contract and, secondly, that, if there was a contract, it was on the terms agreed as at 5 July, which included the MF/1 terms set out in clauses 8 to 48 and the Schedules, as amended by agreement.
Mller submitted that the point that there was no contract was not open to RTS.
At para 53 Waller LJ said this: 53.
The force of this argument was clearly not lost on Mller.
The major part of their skeleton in the Court of Appeal was aimed at arguing that RTS should not be entitled to argue the point in the Court of Appeal having regard to the stance they had taken before the judge.
The answer to the point on its merit was put shortly as follows and in much the same way as the argument had been put before the judge: 79.
On its proper construction, clause 48 of the amended form MF1 prevented a contract on those terms taking effect without signature by the parties and RTS plc.
It does not follow that in the absence of a signed agreement there could not be a binding contract between the parties on some other terms as a result of their conduct.
As we read para 53, Waller LJ is there setting out Mllers skeleton argument.
The argument was that, although clause 48 prevented a contract on MF/1 terms, it did not prevent a contract on other terms based on conduct.
On that footing Mller sought to uphold the approach taken by the judge.
Conclusion and reasoning of the Court of Appeal
The Court of Appeal decided the appeal on a narrow basis.
It rejected the submission that it was not open to RTS to contend that there was no contract.
It accepted the proposition in the first sentence of para 79 of the skeleton.
Waller LJ held at para 56 that the judge had misconstrued clause 48.
He added: He relied on condition 48 as preventing a contract coming into being on the MF/1 conditions [see para 76].
This, I understand, to be the point taken by [Mller] at paragraph 79 of their skeleton quoted above.
But once it is appreciated that the definition of contract in condition 48 covers not just those conditions but the contract including the schedules, condition 48 seems to me to become a complete answer.
We put Mller in square brackets because the copy of the judgment we have refers to RTS.
However that is a typographical error because the reference is in fact to Mllers skeleton, as Waller LJs para 61 states.
His reference to the definition of contract is a reference to clause 49, which defined Contract as meaning this Contract signed by the parties and the Schedules.
It is of interest to note that at para 58 Waller LJ appreciated that the conclusion that there was no contract could be said to be very unsatisfactory but he added that the judges answer was also very unsatisfactory in that, although the MF/1 conditions had to all intents and purposes been agreed and the limit of RTS liability had been agreed, by selecting simply the schedules [the judge] achieved a bargain neither side intended to enter into.
Waller LJ then said this by way of conclusion at para 61: It would, as it seems to me, from the way negotiations had gone as between the parties, and once the true construction of condition 48 has been appreciated, have needed a clear express variation of condition 48 for a court to be able to reach the conclusion which the judge reached, i.e. that all of MF/1 had been put on one side by the parties and the Schedules (and only in so far as they have been agreed) applied.
With condition 48 properly understood and in the context of the importance the parties actually considered the negotiations of MF/1 to have, in my view, the above conclusion is simply not open to the court, and I reject Mr Maclean's submissions as encapsulated in paragraph 79 of his written submissions.
There was no detailed analysis in the Court of Appeal of the possibility that the preferable conclusion was not either of the solutions which Waller LJ (in our view correctly) rejected but that the parties had by their conduct unequivocally waived clause 48 and that there was a contract on the terms agreed as at 5 July as subsequently varied by the agreement of 25 August.
Discussion
The principles
The general principles are not in doubt.
Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed.
It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations.
Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a pre condition to a concluded and legally binding agreement.
The problems that have arisen in this case are not uncommon, and fall under two heads.
Both heads arise out of the parties agreeing that the work should proceed before the formal written contract was executed in accordance with the parties common understanding.
The first concerns the effect of the parties understanding (here reflected in clause 48 of the draft written contract) that the contract would not become effective until each party has executed a counterpart and exchanged it with the other which never occurred.
Is that fatal to a conclusion that the work done was covered by a contract? The second frequently arises in such circumstances and is this.
Leaving aside the implications of the parties failure to execute and exchange any agreement in written form, were the parties agreed upon all the terms which they objectively regarded or the law required as essential for the formation of legally binding relations? Here, in particular, this relates to the terms on which the work was being carried out.
What, if any, price or remuneration was agreed and what were the rights and obligations of the contractor or supplier?
We agree with Mr Catchpoles submission that, in a case where a contract is being negotiated subject to contract and work begins before the formal contract is executed, it cannot be said that there will always or even usually be a contract on the terms that were agreed subject to contract.
That would be too simplistic and dogmatic an approach.
The court should not impose binding contracts on the parties which they have not reached.
All will depend upon the circumstances.
This can be seen from a contrast between the approach of Steyn LJ in the Percy Trentham case, which was relied upon by the judge, and that of Robert Goff J in British Steel Corporation v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504, to which the judge was not referred but which was relied upon in and by the Court of Appeal.
These principles apply to all contracts, including both sales contracts and construction contracts, and are clearly stated in Pagnan SPA v Feed Products Ltd [1987] 2 Lloyds Rep 601, both by Bingham J at first instance and by the Court of Appeal.
In Pagnan it was held that, although certain terms of economic significance to the parties were not agreed, neither party intended agreement of those terms to be a precondition to a concluded agreement.
The parties regarded them as relatively minor details which could be sorted out without difficulty once a bargain was struck.
The parties agreed to bind themselves to agreed terms, leaving certain subsidiary and legally inessential terms to be decided later.
In his judgment in the Court of Appeal in Pagnan Lloyd LJ (with whom OConnor and Stocker LJJ agreed) summarised the relevant principles in this way at page 619: (1) In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole. (2) Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled.
That is the ordinary subject to contract case. (3) Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed. (4) Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled. (5) If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty (6) It is sometimes said that the parties must agree on the essential terms and it is only matters of detail which can be left over.
This may be misleading, since the word essential in that context is ambiguous.
If by essential one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract.
If by essential one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous.
If by essential one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue.
It is for the parties to decide whether they wish to be bound and if so, by what terms, whether important or unimportant.
It is the parties who are, in the memorable phrase coined by the Judge [at page 611] the masters of their contractual fate.
Of course the more important the term is the less likely it is that the parties will have left it for future decision.
But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later.
It happens every day when parties enter into so called heads of agreement.
The same principles apply where, as here, one is considering whether a contract was concluded in correspondence as well as by oral communications and conduct.
Before the judge much attention was paid to the Percy Trentham case, where, as Steyn LJ put it at page 26, the case for Trentham (the main contractor) was that the sub contracts came into existence, not simply from an exchange of contracts, but partly by reason of written exchanges, partly by oral discussions and partly by performance of the transactions.
In the passage from the judgment of Steyn LJ at page 27 quoted by the judge at para 66 he identified these four particular matters which he regarded as of importance. (1) English law generally adopts an objective theory of contract formation, ignoring the subjective expectations and the unexpressed mental reservations of the parties.
Instead the governing criterion is the reasonable expectations of honest sensible businessmen. (2) Contracts may come into existence, not as a result of offer and acceptance, but during and as a result of performance. (3) The fact that the transaction is executed rather than executory can be very relevant.
The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations and difficult to submit that the contract is void for vagueness or uncertainty.
Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as inessential.
This may be so in both fully executed and partly executed transactions. (4) If a contract only comes into existence during and as a result of performance it will frequently be possible to hold that the contract impliedly and retrospectively covers pre contractual performance.
By contrast, in the Court of Appeal much attention was paid to the decision of Robert Goff J in the British Steel case, which had not been cited to the judge.
At para 51 Waller LJ said that the factors which influenced Robert Goff J to conclude in that case that there was no binding contract apply with equal force to the factual matrix here.
He thought (para 59) that, if the judge had had Robert Goff Js judgment cited to him (and/or if the no contract point had been fully developed before him) the judge would not have reached the conclusion he did.
The particular passage in Robert Goff Js judgment (starting at page 510G) on which Waller LJ relied reads as follows: The real difficulty is to be found in the factual matrix of the transaction, and in particular the fact that the work was being done pending a formal sub contract the terms of which were still in a state of negotiation.
It is, of course, a notorious fact that, when a contract is made for the supply of goods on a scale and in circumstances such as the present, it will in all probability be subject to standard terms, usually the standard terms of the supplier.
Such standard terms will frequently legislate, not only for the liability of the seller for defects, but also for the damages (if any) for which the seller will be liable in the event not only of defects in the goods but also of late delivery.
It is a commonplace that a seller of goods may exclude liability for consequential loss, and may agree liquidated damages for delay.
In the present case, an unresolved dispute broke out between the parties on the question whether CBE's or BSC's standard terms were to apply, the former providing no limit to the seller's liability for delay and the latter excluding such liability altogether.
Accordingly, when, in a case such as the present, the parties are still in a state of negotiation, it is impossible to predicate what liability (if any) will be assumed by the seller for, eg defective goods or late delivery, if a formal contract should be entered into.
In these circumstances, if the buyer asks the seller to commence work 'pending' the parties entering into a formal contract, it is difficult to infer from the [seller] acting on that request that he is assuming any responsibility for his performance, except such responsibility as will rest on him under the terms of the contract which both parties confidently anticipate they will shortly enter into.
It would be an extraordinary result if, by acting on such a request in such circumstances, the [seller] were to assume an unlimited liability for his contractual performance, when he would never assume such liability under any contract which he entered into." (Waller LJ rightly put 'seller' in parenthesis since, although the report reads 'buyer', Robert Goff J must have meant 'seller'.)
In that passage Robert Goff J recognised that contracts for the supply of goods on a significant scale will in all probability be subject to standard terms, which will frequently legislate, not only for the liability of the seller for defects, but also for the damages (if any) for which the seller will be liable in the event not only of defects in the goods but also of late delivery.
Thus a seller may exclude liability for consequential loss, and may agree liquidated damages for delay.
In the British Steel case itself there was an unresolved dispute as to whose standard terms were to apply.
One set of terms provided no limit to the seller's liability for delay and the other excluded such liability altogether.
We can understand why, in such a case, if the buyer asks the seller to commence work 'pending' the parties entering into a formal contract, it is difficult to infer from the seller acting on that request that he is assuming any responsibility for his performance, except such responsibility as will rest on him under the terms of the contract which both parties confidently anticipate they will shortly enter into.
By the last words, Robert Goff J was not suggesting that there was, in the case before him, any contract governing the performance rendered, merely that the parties had anticipated (wrongly in the event) that there would be.
There is said to be a conflict between the approach of Steyn LJ in the Percy Trentham case and that of Robert Goff J in the British Steel case.
We do not agree.
Each case depends upon its own facts.
We do not understand Steyn LJ to be saying that it follows from the fact that the work was performed that the parties must have entered into a contract.
On the other hand, it is plainly a very relevant factor pointing in that direction.
Whether the court will hold that a binding contract was made depends upon all the circumstances of the case, of which that is but one.
The decision in the British Steel case was simply one on the other side of the line.
Robert Goff J was struck by the likelihood that parties would agree detailed provisions for matters such as liability for defects and concluded on the facts that no binding agreement had been reached.
By contrast, in Pagnan Bingham J and the Court of Appeal reached a different conclusion, albeit in a case of sale not construction.
We note in passing that the Percy Trentham case was not a subject to contract or subject to written contract type of case.
Nor was Pagnan, whereas part of the reasoning in the British Steel case in the passage quoted above was that the negotiations were throughout conducted on the basis that, when reached, the agreement would be incorporated in a formal contract.
So too was the reasoning of the Court of Appeal in Galliard Homes Ltd v J Jarvis & Sons Ltd (1999) 71 Con LR 219.
In our judgment, in such a case, the question is whether the parties have nevertheless agreed to enter into contractual relations on particular terms notwithstanding their earlier understanding or agreement.
Thus, in the Galliard Homes case Lindsay J, giving the only substantive judgment in the Court of Appeal, which also comprised Evans and Schiemann LJJ, at page 236 quoted with approval the statement in Megarry & Wade, The Law of Real Property, 5th ed (1984) at pages 568 9 that it is possible for an agreement subject to contract or subject to written contract to become legally binding if the parties later agree to waive that condition, for they are in effect making a firm contract by reference to the terms of the earlier agreement.
Put another way, they are waiving the subject to [written] contract term or understanding.
Whether in such a case the parties agreed to enter into a binding contract, waiving reliance on the subject to [written] contract term or understanding will again depend upon all the circumstances of the case, although the cases show that the court will not lightly so hold.
We turn to consider the facts.
Application of the principles to the facts
There are three possible conclusions which could be reached.
They are (1) that, as the Court of Appeal held, there was no contract between the parties; (2) that, as the judge held, there was a contract between the parties on the limited terms found by the judge; and (3) that there was an agreement between the parties on wider terms.
In the third case there is some scope for argument as to the precise terms.
As appears below, it is our view that, if the third solution is adopted, the most compelling conclusion is that the terms were those agreed on and before 5 July as subsequently varied on 25 August.
We consider each possible conclusion in turn.
(1) No contract
We agree with the judge that it is unrealistic to suppose that the parties did not intend to create legal relations.
This can be tested by asking whether the price of 1,682,000 was agreed.
Both parties accept that it was.
If it was, as we see it, it must have formed a part of a contract between the parties.
Moreover, once it is accepted (as both parties now accept) that the LOI Contract expired and was not revived, the contract containing the price must be contained in some agreement other than the LOI Contract.
If the price is to be a term binding on the parties, it cannot, at any rate on conventional principles, be a case of no contract.
Although it did not address this question, the Court of Appeals solution involves holding that there was no binding agreement as to price or anything else and that evidence of the agreed price is no more than some evidence of what a reasonable price would have been for quantum meruit purposes.
The difficulty with that analysis seems to us to be threefold.
First, neither party suggested in the course of the project that the price was not agreed and RTS invoiced for percentages of the price and Mller paid sums so calculated as described above.
Second, the price of 1,682,000 was agreed and included in the LOI Contract on the footing that there would be a detailed contract containing many different provisions including, as expressly recognised in the LOI Contract, the MF/1 terms.
Third, there was an agreed variation on 25 August which nobody suggested was not a contractual variation.
In these circumstances the no contract solution is unconvincing.
Moreover, it involves RTS agreeing to proceed with detailed work and to complete the whole contract on a non contractual basis subject to no terms at all.
(2) Contract on the terms found by the judge
We entirely agree with the judge that the parties initially intended that there should be a written contract between them which was executed by each and exchanged between them.
We further accept that, if the matter were tested on, say, 5 July, the correct conclusion may well have been that that remained the position and that there was no binding agreement between them.
However, that is not on the basis that the parties had not reached agreement (or sufficient agreement) but because the agreement they had reached remained (in the traditional language) subject to contract.
Thus, as correctly submitted in Mllers skeleton argument before the judge, the agreement was ready for execution at that stage but was subject to contract.
In the same skeleton argument Mller correctly submitted that the question was, objectively speaking, whether the parties intentions took a new turn at some stage such that they intended to be bound by the final draft contract without the need for its formal execution.
As we read it, the skeleton defined the final draft contract as the draft sent by Mr Morris on 16 May, subject to subsequent e mail agreement as stated above.
The striking feature of this case which makes it very different from many of the cases which the courts have considered is that essentially all the terms were agreed between the parties and that substantial works were then carried out and the agreement was subsequently varied in important respects.
The parties treated the agreement of 25 August as a variation of the agreement that they had reached by 5 July.
Nobody suggested in August that there was no contract and thus nothing to vary.
It was not until November, by which time the parties were in dispute, that points were taken as to whether there was a contract.
We have reached the firm conclusion that by 25 August at the latest the parties communications and actions lead to the conclusion that they had agreed that RTS would perform the work and supply the materials on the terms agreed between them up to and including 5 July as varied by the agreement of 25 August.
Thereafter the work continued on a somewhat different basis because of the provision of Line 1 before Line 2.
As stated above, it does not seem to us to make commercial sense to hold that the parties were agreeing to the works being carried out without any relevant contract terms.
In this regard we agree with the judge.
On the other hand it does not seem to us to make commercial sense to hold that the work was carried out on some but not all the terms agreed by 5 July.
The terms were negotiated on the basis that the Schedules would form part of the Contract, which also contained the detailed Conditions in Schedule 1, which had themselves been subject to much discussion and comprised clauses 8 to 48.
We accept Mr Catchpoles submission that the Conditions, based as they were on the MF/1 terms which were put forward by Mller and expressly referred to in the LOI Contract and which (among many other things) defined RTS performance obligations, set out the warranties provided by RTS and identified the limit of its potential liability.
It is, in our judgment, inconceivable that the parties would have agreed only some of the terms, namely those in the specific documents identified by Mller, and not those in clauses 8 to 48.
It seems to us that this was one of the considerations which the Court of Appeal had in mind in reaching the extreme conclusion which it did, namely that there was no contract at all.
We agree with the Court of Appeal that the judges analysis cannot be correct.
As appears from paras 36 and 37 above, there were four reasons for his decision, expressed in para 72, not to infer that the contract included the final draft version of the MF/1 conditions.
They were expressed in his paras 73 to 76.
His first and fourth reasons appear to us to be essentially the same.
As to his first reason, it is true that the LOI Contract and the e mail of 13 May indicated that the final terms were not to be contractually agreed until signature.
That was indeed the original plan and remained the position until after 5 July.
Equally, his fourth reason was that the effect of clause 48 was that the contract was not to be binding until signed.
The problem with these conclusions is that, as Mr Catchpole submitted, they prove too much.
Given that no formal contract was signed or exchanged, we accept that, unless and until the parties agreed to vary or waive clause 48, the Contract would not become binding or effective.
The problem for Mller is that identified by the Court of Appeal.
Given the definition of Contract in clause 49 as including the Schedules, the effect of clause 48 would be that the Schedules would be as ineffective as the MF/1 conditions because they all form part of the Contract as defined.
Yet Mllers case is that the documents identified by the judge as forming the terms of a binding agreement are all or almost all Schedules within the meaning of clause 49.
It follows that, if clause 48 prevented the MF/1 terms from being binding terms of a contract, by parity of reasoning it prevented the documents relied upon by Mller (and accepted by the judge) from being binding terms either.
It follows that, subject to one point, we agree with the reasoning of the Court of Appeal in paras 56 and 61 of Waller LJs judgment and referred to above.
That one point is this.
Waller LJ said that it would have required a clear express variation of condition 48 for a court to be able to reach the conclusion which the judge reached, i.e. that all of MF/1 had been put on one side by the parties and the Schedules (and only in so far as they have been agreed) applied. (para 61) We can well understand that, given the Court of Appeals conclusion that, for the reasons discussed above, there could have been no contract on the terms found by the judge if clause 48 (or the subject to contract understanding embodied in it) remained, the court would have no alternative but to hold that there was no contract.
That is not, however, so if the parties have by their exchanges and conduct waived the subject to contract condition or understanding.
We agree with the Court of Appeal that, before it could be held that there was a binding contract on the MF/1 terms as amended by agreement, unequivocal agreement that clause 48 had been waived would be required.
We do not however think that it is necessary for that agreement to be express if by that is meant an express statement by the parties to that effect.
Such unequivocal agreement can in principle be inferred from communications between the parties and conduct of one party known to the other.
If such an inference can be drawn on the facts, then the correct solution would not be the second but the third of the possibilities identified above, subject to the judges second and third reasons identified in para 37 above.
It would not, in our opinion, be the second possibility because that would involve holding that the parties agreed some but not all of the terms agreed on or before 5 July.
Yet, as the judge held at his para 74 (our para 37ii)), the contract sent with the e mail of 16 May was designed to operate as a composite whole, consisting of (a) the basic two page, seven clause contract and (b) the 17 schedules that are annexed to it and referred to in the general conditions which constitute Schedule 1, that is the MF/1 terms.
In our judgment, the parties at no time reached agreement on the terms set out in the documents referred to in the judges para 68 without the MF/1 terms as amended, which form an important part of the Contract, namely clauses 8 to 48.
(3) Contract on terms wider than found by the judge
The first question under this head is whether the parties departed from the understanding or agreement that it was to be subject to contract, as had been the original understanding of the parties and as expressly provided in clause 48.
The second is whether the parties intended to be bound by what was agreed or whether there were further terms which they regarded as essential or which the law regards as essential in order for the contract to be legally enforceable.
It is convenient to consider the second point first.
All essential terms agreed?
The second point is embodied in the judges paras 74 and 75 and is set out in para 37ii) and iii) above.
We entirely agree with the judges conclusion in the first sentence of our para 37ii) that the fourth draft of the contract sent with the e mail of 16 May was designed to operate as a composite whole consisting of the two page seven clause contract and clauses 8 to 48 which comprised the MF/1 terms as amended and the 17 Schedules annexed.
We have set out the facts in this regard in some detail at paras 11 to 30 above.
In summary, the parties negotiated clauses 8 to 48 in some detail and, subject to some of the Schedules, the clauses were essentially agreed.
As noted at para 23 above, at his para 67 the judge recorded Mllers recognition that the parties reached a final draft of the contractual terms and conditions, namely Schedule 1, which contained the general conditions as modified in the e mails of 19 and 25 May and 5 July.
The judge nowhere rejected Mllers recognition as being wrong on the facts.
That draft is the version with coloured amendments up to purple in the version provided to us.
As to the Schedules, the judge recognised at his para 74 (our para 37ii) and iii)), that although many of the Schedules were agreed, several were not.
In particular, he said that it was not agreed what Schedule 6 would contain and that the words in capitals represented a proposed, but never agreed, refinement to give Mller some ampler remedy than liquidated damages if the performance of the equipment was lower than that degree of non performance which would give rise to the maximum liquidated damages.
We have already expressed the view in para 19 above that, on the judges findings of fact, the parties had agreed that Schedule 6 would comprise, and comprise only, the RTS Test Plan.
We return to Mr Macleans submissions that (a) the parties had not reached agreement on the suggestion contained in the capital letters in the text of the fourth draft quoted above and that, absent such agreement, there could be no binding agreement between the parties and/or (b) clauses 5 and 27.7 were not or cannot be taken as having been agreed.
Clause 5 provided for limits of liability in relation to specific clauses.
In relation to clause 27.7, as amended by Mller in blue, as shown in italics below, and sent to RTS with the third draft it provided: Percentage of Contract Price to be paid to the Purchaser or deducted from the Contract Price [words deleted] [to be calculated in accordance with Schedule 6].
Maximum percentage of Contract Price for which liquidated damages payments paid under clause 27.7.2 is 2.5%.
Clause 27.7.1 and 2 provided: 27.7.2 27.7.1 27.7 If the Works fail to pass the Performance Tests [words deleted] as determined by the provisions of Schedule 6 above then the following remedies will be available to the Purchaser: the Contractor shall (without prejudice to the Purchaser's other rights and remedies) pay to the Purchaser [words deleted] the sum set out in clause 5 [words deleted] within 14 days of receipt of an invoice from the Purchaser such sum being agreed between the parties as being a genuine pre estimate of losses suffered by the Purchaser as a result of the Equipment not meeting the requisite standards; where the Purchaser has not become entitled to liquidated damages due to the Performance Tests not being successfully passed and the Equipment not meeting the requisite standards to entitle the Purchaser to claim the maximum liquidated damages pursuant to clause 27.7.1 as set out in clause 5 above the Purchaser may give written notice to terminate the Contract immediately such failure shall be deemed a material breach incapable of remedy and pursuant to clause 34.1.2 and without prejudice to its other rights and remedies in the Contract the Purchaser may by written notice terminate the Contract immediately and take at the expense of the Contractor such steps as may in all circumstances be reasonable to ensure that the Works pass the Performance Tests.
The words deleted show that in the original draft clause 27.7.1 was concerned with delay.
The words in italics are in blue and were first added by Mller in Mr Morriss email of 11 May.
these terms: It will be recalled that the suggestion in capital letters made by Mller was in THIS SCHEDULE NEEDS TO PROVIDE THAT IF THE TEST WITHIN A CERTAIN PERCENTAGE OF THE REQUIRED LEVEL LDs WILL APPLY AND THE EQUIPMENT WILL STILL HAVE "PASSED".
IF THE PERCENTAGE ACHIEVED IS LOWER THAN THAT SPECIFIED BY LDs (I.E.
LOWER THAN THE MAXIMUM PAYOUT UNDER LDS) THE EQUIPMENT WILL HAVE FAILED THE TEST AND THE OTHER REMEDIES WILL BE AVAILABLE
TO THE PURCHASER
It is important to note that the suggestion was not that there should be any amendment to any of the terms of clauses 7 to 48, or indeed to clause 5 or any of the other clauses.
It was suggested that in some circumstances other remedies should be available to Mller and, moreover, that such remedies should be provided for in Schedule 6.
The problem for Mller in this regard is that it was agreed between the parties that the RTS Test Plan would form Schedules 5 and 6 and, as at 5 July, there was no further suggestion that Schedule 6 should contain something further and, if so, what that something might be.
It is far from clear what Mller had in mind, but whatever it was it was not pursued.
As to the clauses of the contract itself, as stated above the parties agreed them as at 5 July, when the one remaining issue, which related to Force Majeure, was agreed.
There was no suggestion at that time that Schedule 6 had not been finally agreed or that, because of any incompleteness in it, Mller could not or would not agree clauses 5 or 27.7.
As amended in blue, clause 27.7 set out the remedies available to Mller if the Works failed to pass the Performance Tests as determined by Schedule 6.
The amount payable by RTS as damages for failure to pass Performance Tests was to be that stated in clause 5, namely 2.5 per cent of the Contract Price.
There is plenty of scope for argument as to the true construction of clauses 27.7 and clause 5 in the context of the RTS Test Plan which it was subsequently agreed should comprise Schedule 6.
On one view the 2.5 per cent was to be both a maximum and a minimum.
However, we note that clause 27.7.1 is expressed to be without prejudice to the Purchasers other rights and remedies.
The position is further confused by the insertion, as a result of Mr Morriss emails of 11 and 16 May, of a blue not in the first line of clause 27.7.2.
It would not be appropriate for us to express a view as to the true construction of those terms, which (absent agreement) will be a matter for the trial judge.
It is Mllers concern that the effect of clauses 5 and 27.7 may be held to be that its damages for any failure by RTS to pass the Performance Tests are limited to 2.5 per cent of the Contract Price.
However, Mr Maclean for Mller correctly recognised that no attempt was made to amend those clauses further.
He simply relied upon the point left open by the capital letters.
He submitted that in the light of that fact the court cannot conclude that clauses 27.7 and 5 were agreed terms.
However, there is, in our judgment, no basis upon which the court could hold that clauses 27.7 and 5 were not agreed to be part of the agreed clauses as at 5 July.
They had been agreed, in fact by 26 May (see paras 18 19 above) and, although there was initially an outstanding point in the Schedule, the terms of the Schedule itself were subsequently agreed and, as at 5 July Mller was not saying that it could not agree either those terms or Schedule 6.
As is clear from his judgment, the judge focused on the position as at 5 July.
He did not make any finding relating to exchanges between the parties after that and in particular on 11 or 12 July.
This is not perhaps surprising because, although in his initial e mail when sending the third draft to RTS on 11 May Mr Morris of Mller flagged the point made in the capital letters and said that he intended completing a suggested draft on this in a couple of days, he never did so or reverted to the point.
Mller at no time reverted to RTS on the point before the agreed variation on 25 August or, indeed, until a much later date.
Although there is some evidence that Mr Morris still had it in mind on 11 July (see the next paragraph) as long before that as 16 May he had e mailed the fourth draft, which included the capital letters but which he referred to as the contract with final tweaks.
Moreover, the RTS Test Plan was agreed as Schedules 5 and 6 on 29 June.
This point was not therefore presented to RTS as of any real importance.
If it had been regarded as of any real importance to Mller it would surely have been referred to again before 5 July, either in the context of clauses 27.7 and 5 or in the context of Schedule 6.
In these circumstances, in our judgment, whether viewed as at 5 July, 25 August or 5 September, this point could not fairly be regarded from exchanges between the parties as an essential part of the agreement.
We reach this conclusion having fully taken into account such evidence as there is relating to the events of 11 and 12 July.
It appears that on 11 July Mr Morris gave a copy of the draft contract with its Schedules to Mr St John with a view to its being given to Mr Gavin Brown of RTS.
There is evidence that a draft was given to Mr Brown and there is some evidence that Schedule 6 was in the same form as we have it in the blue version; that is with the capital letters, in other words, without any reference at all to the RTS Test Plan which had on any view by then been agreed as at least a part of Schedules 5 and 6.
Mr St Johns evidence was that he handed the document to Mr Brown without looking at it.
There is no evidence or suggestion that it was discussed.
We have been shown a copy of a document in that form which has Mr Browns notations on it but those were put on in November, not July.
The position is not clear because, when Mr Brown was asked whether that was the draft which Mr St John handed him in July he said that he could not recall his handing it to him in July.
He thought he had received it at the end of October or early November, although he accepted that July was a possibility.
When asked whether there had been any discussion about signing the contract in July, he said no. He then said that it had all gone quiet in mid July and that he was expecting the schedules to be completed formally.
He said that in mid July he was content to let sleeping dogs lie and that RTS saw no problems with not signing the contract.
In these circumstances we conclude that there is no evidence of a discussion on the capital letters or any other point on 11 or 12 July or, indeed at any time after 5 July until much later, probably in November.
Essential agreement was in our judgment reached by 5 July.
None of the issues remaining after that date, including the capital letters point, was regarded by the parties as an essential matter which required agreement before a contract could be binding.
On the contrary, they had agreed on the RTS Test Plan as the basis of Schedules 5 and 6.
In so far as the judge reached a different conclusion in his reason ii), we respectfully disagree.
It is true, as the judge stated in his reason iii), that the parties did not proceed on the basis of all the agreed conditions and that not all the Schedules were agreed.
The judge noted as part of his reason iii) that RTS did not procure the provision of the Advance Payment Guarantee as required by Schedule 7, provision of which was according to clause 16.1 a condition of the contract to be procured before any monies were paid towards the Price.
That is so but that failure does not prevent the Contract having binding effect.
In any event, as appears below, part of the Price was paid by Mller notwithstanding the failure to provide the guarantee.
Even if (contrary to our view) procurement of the guarantee would otherwise have been a condition precedent to any contract, it was waived.
The judge further noted in reason iii) that Schedules 15 and 17 were not completed, even though they address matters relevant from the start of the contract.
However Schedule 15 was plainly not regarded as an essential matter: it simply related to health and safety requirements.
Schedule 17 related to Site Preparations.
According to an email dated 26 May sent by Mr Brown, Mller was to provide site prep details.
While it appears that Mller may not have prepared those details, the site was in fact prepared and, so far as we are aware this caused no problem.
It could not be regarded as a critical provision of the contract.
The judge added in his reason iii) that Mller did not appoint an Engineer.
However, by clause 49, the Engineer was defined as the person appointed by the Purchaser and in default of any appointment, as the Purchaser.
It follows, as Mr Catchpole observed, that in default of appointment of an Engineer, Mller was the Engineer.
Finally, in his reason iii) the judge said that payment was not made in accordance with the application and certification procedure laid down in clause 11, that the procedure for Changes to the Contract laid down by clause 39 was not followed and that the dispute procedure required by clause 41 was not followed.
We do not see how those facts lead to the conclusion that the various clauses were not agreed as indicated above.
Another point touched on in submissions was the failure of RTS to procure any parent company guarantee in accordance with clause 48A of the terms in Schedule 1.
But that was a provision which was for Mllers exclusive benefit and open to Mller to waive, which in our view it clearly did by going ahead with the contract by and after the 25 August 2005 variation.
Although the judge did not make specific mention of the other Schedules in his reason iii), he did refer to them in his Comment box and we have dealt with them in para 21 above.
In so far as some of them remained to be completed, in our judgment, they are in the same category as the terms which were not agreed in Pagnan.
On a fair view of the negotiations and all the circumstances of the case, neither party intended agreement of those terms to be a precondition to a concluded agreement.
As we say at para 23, in summary everything was agreed except for the provisions relating to the parent company guarantee and items which it was not necessary to complete or which were to be completed in the course of the project.
In all these circumstances we agree with Waller LJs conclusion at para 58 of his judgment that the MF/1 conditions had to all intents and purposes been agreed and the limit of RTS liability had been agreed.
In short, by 25 August there was in our judgment unequivocal conduct on the part of both parties which leads to the conclusion that it was agreed that the project would be carried out by RTS for the agreed price on the terms agreed by 5 July as varied on 25 August.
Clause 48 and subject to contract
The first point remains.
Had the parties agreed to be bound by the agreed terms without the necessity of a formal written contract or, put another way, had they agreed to waive that requirement and thus clause 48? We have reached the conclusion that they had.
The circumstances point to the fact that there was a binding agreement and that it was not on the limited terms held by the judge.
The Price had been agreed, a significant amount of work had been carried out, agreement had been reached on 5 July and the subsequent agreement to vary the Contract so that RTS agreed to provide Line 1 before Line 2 was reached without any suggestion that the variation was agreed subject to contract.
The clear inference is that the parties had agreed to waive the subject to contract clause, viz clause 48.
Any other conclusion makes no commercial sense.
RTS could surely not have refused to perform the contract as varied pending a formal contract being signed and exchanged.
Nobody suggested that it could and, of course, it did not.
If one applies the standard of the reasonable, honest businessman suggested by Steyn LJ, we conclude that, whether he was an RTS man or a Mller man, he would have concluded that the parties intended that the work should be carried out for the agreed price on the agreed terms, including the terms as varied by the agreement of 25 August, without the necessity for a formal written agreement, which had been overtaken by events.
By contrast we do not think that the reasonable honest businessman in the position of either RTS or Mller would have concluded as at 25 August that there was no contract between them or that there was a contract on some but not all of the terms that had been agreed on or before 5 July as varied by the agreement of 25 August.
Although this is not a case quite like the Percy Trentham case because that was not a subject to contract case, it was equally not a case like the British Steel case because here all the terms which the parties treated as essential were agreed and the parties were performing the contract without a formal contract being signed or exchanged, whereas there parties were still negotiating terms which they regarded as essential.
As Mr Brown said, instead of signing the contract the parties here simply let sleeping dogs lie or, as Mr Manzoni put it in his skeleton argument at first instance, neither party wanted the negotiations to get in the way of the project.
The project was the only important thing.
The only reasonable inference to draw is that by or on 25 August, the parties had in effect agreed to waive the subject to contract provision encapsulated by clause 48.
We have considered whether it would be appropriate to take a later date than 25 August, perhaps 5 September when most of RTS equipment for Line 1 was delivered, or even 8 September when a second 30 per cent instalment of the Price was paid.
However, on balance we prefer 25 August because by then the die was cast and all the parties efforts were directed to preparations for Line 1.
By the time the contract was concluded, there had been some delay for reasons which were already contentious (see para 24 above and paras 53 57 of the judges judgment).
The contract, once concluded on 25 August, must, as we presently see it (though the point was not fully explored before us), be treated as applicable to the whole period of contractual performance.
Any issues arising in respect of such delay would, on that basis, fall to be determined under the terms of the contract (subject to any waiver which there may have been of particular terms), as if these had already been in force during the period of such delay.
CONCLUSION
Trinity Term [2010] UKSC 38 On appeal from: [2009] EWCA Civ 26 JUDGMENT RTS Flexible Systems Limited (Respondents) v Molkerei Alois Mller Gmbh & Company KG (UK Production) (Appellants) (no. 2) before Lord Phillips, President Lord Mance Lord Collins Lord Kerr Lord Clarke 21 July 2010 JUDGMENT ON FORM OF ORDER AND COSTS Appellant Kenneth MacLean QC Michael Fealy (Instructed by Pinsent Masons LLP) Respondent Stuart Catchpole QC Charles Manzoni QC (Instructed by Addleshaw Goddard LLP) JUDGMENT ON FORM OF ORDER AND COSTS Form of order 1.
At the end of its judgment the Court said at para 89 that, subject to submissions on the precise form of order, including the precise formulation of the declarations to be made, its conclusion was that the appeal should be allowed, the order of the Court of Appeal set aside and declarations made (1) that the parties reached a binding agreement on or about 25 August 2005 on the terms agreed on or before 5 July and subsequently varied on 25 August and (2) that that binding agreement was not subject to contract or to the terms of clause 48. 2.
The parties have now made detailed submissions on the form of order, each naturally seeking to prepare for the future in the most advantageous way possible from its point of view.
The approach which the Court has taken to the resolution of the issues is this.
It recognises that there remain a number of issues which, absent settlement (much the most desirable course), will have to be determined by the trial judge.
In particular, as the Courts judgment makes clear in a number of places, there remain issues of construction of the agreement.
It was no part of the role of the Court to resolve issues of construction.
The Court has sought to resolve the issues as to formation of the contract that were fully argued before it.
It has not sought to resolve issues that were not fully argued.
The Court takes the view that it is clear from the judgment which documents formed part of the contractual terms.
It does not deem it appropriate to seek to spell those conclusions out again in summary form in specific declarations. 3.
As to issues 1.1 and 1.1.1 to 1.1.6, so far as the Court is aware, there is no suggestion that the conclusions of the judge should not stand. 4.
As to issue 1.2, the Court gives the same answer as the judge, namely that Mller and RTS did enter into a new contract after the Letter of Intent Contract.
However, the Court has held that the terms of the contract are different from those found by the judge.
The judge answered the questions raised by issues 1.2.1 to 1.2.6 because, having identified particular documents as being part of the contract, he decided that it was necessary to do so.
The Court has now held that the terms were much more extensive than those found by the judge.
It has discussed the terms in some detail in its judgment and has now concluded that nothing is to be gained by summarising in an order the documents which it has held form part of the contract.
The position is fully explained in the judgment.
If there are any loose ends they must be resolved by the trial judge. 5.
In particular, some of the issues determined by the judge, as for example issues 1.2.2 and 1.2.5, essentially raise issues of construction of the contract.
As explained in the judgment, issues of construction of the contract which the Court has held to exist, and upon which the Court has not heard detailed argument, cannot sensibly be resolved by the Court and must be left to the trial judge. 6.
As to issue 1.3, it was common ground that the contract, whatever may have been its original terms, was varied by agreement on 25 August 2005.
The Court has referred to the variation at paras 25 to 27 of the judgment.
In particular, at para 26 it has referred to the judges findings of fact as to the variation and as to what happened thereafter and observed that it was not necessary for the Court to refer to them in any detail in order to resolve the issues in the appeal.
That remains the position.
Moreover, so far as the Court can see, neither party had at any stage challenged the judges answer to issue 1.3.
In these circumstances the Court accepts the submission made on behalf of Mller that it should not now reopen those findings as suggested by RTS.
The detailed position will be a matter for the trial judge.
Costs 7.
Each party seeks an order for costs in its favour.
Each says that it has won or that it has won on balance.
It is undoubtedly true that each party has had some measure of success, from which it follows that each party has had some measure of failure.
On the basis of the conclusions reached by this Court as set out in its judgment, neither party has succeeded on the primary case that it advanced at any stage. 8.
Before the judge the primary case advanced by RTS was that the Letter of Intent did not expire in May 2005 and was not replaced by a new contract.
Its alternative case was that, if there was a new contract, it was on MF/1 terms.
Mllers case was that there was a new contract, not on MF/1 terms but on the particular terms identified by the judge.
The MF/1 terms were essentially those which this Court held to be the terms of the contract.
The judge accepted Mllers case. 9.
RTS appealed to the Court of Appeal, where its primary case was that there was no contract between the parties and that it was entitled to be paid on a quantum meruit basis.
Its alternative case was that there was a contract on MF/1 terms.
Mller submitted that the no contract point was not open to RTS and sought to uphold the contract found by the judge.
The Court of Appeal accepted RTS primary case and held that there was no contract. 10.
In this Court Mller argued that the Court of Appeal was wrong to find that there was no contract and that the judge was right to hold that there was a contract, not on MF/1 terms, but on the terms found by him.
RTS argued that the Court of Appeal was correct to hold that there was no contract but that, if there was a contract, it was on MF/1 terms.
This Court held that there was a contract, essentially on MF/1 terms, as explained in detail in the judgment. 11.
The Court has concluded that at the end of this whole process RTS has had a significantly greater success than Mller.
It is true that, in the light of the Courts judgment, RTS primary case has failed at each stage but its alternative case at each stage has succeeded.
The result is that, although there was a contract, it was essentially on MF/1 terms and, importantly, was not on the limited terms identified by the judge and relied upon by Mller at each stage.
In arriving at a fair overall result on costs, the Court must take account of those considerations but must also have regard both to the time spent in the Court of Appeal on the no contract point (which was raised by RTS and upon which it has now lost) and to the fact Mller had to come to this Court to displace the decision of the Court of Appeal and has succeeded in doing so.
Moreover RTS persisted in advancing the no contract point in this Court. 12.
Both parties made Part 36 Offers at first instance.
In the light of that fact, subject to three points, the judge decided that the costs should be reserved to the trial judge.
Subject to the same three points, this Court agrees that the costs should be reserved to the trial judge because the appropriate order might be affected by the offers.
However, it seems appropriate to indicate what order the Court would have made as to the costs at first instance on the basis of its conclusion there was a contract, essentially on MF/1 terms.
Subject to the three points, on this basis Mllers submissions have been rejected and RTS alternative case has been accepted.
The Court concludes that, in principle, Mller should pay part of RTS costs.
A fair proportion would be 60 per cent.
Accordingly, other things being equal, the Court would have ordered Mller to pay 60 per cent of RTS costs at first instance. 13.
The three points are these.
The first point relates to issue 1.3.
The judge ordered RTS to pay the costs of issue 1.3, which essentially asked what were the consequences of the variation agreed on 25 August 2005.
The judge answered the question in his judgment and in the schedule to his order.
He held that RTS should pay the costs of this issue whatever the result of the main issue.
This Court sees no reason to interfere with that conclusion. 14.
The second point relates to issue 1.1.6, which raised the impact of the Unfair Contract Terms Act.
For the reasons given in his judgment on the costs of this issue (at page 34 of the transcript for 10 June 2008) the judge held that RTS should pay these costs in any event.
Again this Court sees no reason to interfere with that conclusion. 15.
The third point relates to the costs referable to the inadmissible evidence in RTS witness statements.
Again, this conclusion is not affected by the conclusions reached by this Court in its judgment and this part of the judges order should be restored. 16.
There have been no Part 36 Offers which are relevant to the appeals to the Court of Appeal or to this Court.
The Court has concluded that the fairest approach is to treat the costs in this way.
RTS has ultimately succeeded in what was its alternative argument at each stage, namely that there was a contract on MF/1 terms.
For that reason Mller should pay part of its costs.
Those costs should however be reduced both in the Court of Appeal and in this Court for the reasons stated above.
In the Court of Appeal the no contract point, which RTS raised and has now lost, plainly took up a significant amount of time.
Moreover, the fact that RTS took and succeeded on that point in the Court of Appeal meant that Mller had to appeal to this Court, where RTS persisted in advancing it.
In order to reflect what this Court regards as the overall success of RTS on the one hand and these considerations on the other, it has concluded that that Mller should pay 40 per cent of RTS costs in the Court of Appeal and in this Court. 17.
RTS paid Mller 65,000 on account of the costs of the three points referred to above in accordance with para 4 of the order of the judge.
RTS seeks an order for repayment of that sum, but the Court has concluded that, in the light of its conclusion that that part of the order should stand, it would not be appropriate to order repayment. 18.
The remaining question is whether the Court should make an order for an interim payment of the costs that it has ordered Mller to pay RTS 40 per cent of its costs in the Court of Appeal and in this Court.
It has concluded that it should do so and that an interim payment of a total of 80,000 would be appropriate.
For the reasons we have given, we have a reached a different conclusion from both the judge and the Court of Appeal.
It was agreed in the course of the argument that the court would reach its conclusions on the issues of principle before it and that the parties would subsequently have an opportunity to make submissions on the form of the order.
However, subject to submissions on the precise form of order, including the precise formulation of the declarations to be made, our conclusion is that the appeal should be allowed, the order of the Court of Appeal set aside and declarations made (1) that the parties reached a binding agreement on or about 25 August on the terms agreed on or before 5 July as subsequently varied on 25 August and (2) that that binding agreement was not subject to contract or to the terms of clause 48.
| UK-Abs | RTS specialises in the supply of automated machines for packaging and product handling in the food and consumer goods industry.
Mller, a well known leading European dairy product supplier, entered into discussions with RTS regarding automating its product re packaging process.
While negotiations were continuing, and before the terms of the contract between them had been agreed, the parties decided to start work on the basis of a letter of intent and the understanding that ultimately terms would be finalised.
However, no final contract was ever signed.
A dispute later arose between the parties in relation to the delivery by RTS of certain equipment to Mller.
The main issue to be decided by the Supreme Court was whether the parties entered into a contract following the expiry of the letter of intent and, if so, the terms of that contract.
At the trial of preliminary issues in the High Court, the judge held that after the expiry of the letter of intent and by no later than 29 June 2005, there was a contract: the parties had reached full agreement on the work that was to be done for the price they had already agreed.
The judge held that the contract was based on limited terms and did not include the final draft version of certain terms known as the MF/1 conditions (Mllers standard contract conditions).
RTS appealed the judges conclusions.
The Court of Appeal unanimously allowed the appeal and made a declaration that no contract came into existence after termination of the letter of intent.
The Supreme Court unanimously allows the appeal.
In doing so, it reaches a different conclusion from both the High Court and the Court of Appeal finding that although there was no formal contract, Muller and RTS did reach a legally binding agreement and that that agreement contained wider terms than the limited terms found by the judge.
The order of the Court of Appeal is set aside and the court declares that (1) the parties reached a binding agreement on or about 25 August 2005 on the terms agreed on or before 5 July (as subsequently varied on 25 August), and (2) that that binding agreement was not subject to contract.
The judgment delivered by Lord Clarke is the judgment of the court to which all of its members contributed.
The Supreme Court identified the relevant principles to be applied (paragraphs [44] [55]).
It identified three possible conclusions that were open to it: (1) there was no contract between the parties (as held by the Court of Appeal); (2) there was a contract between the parties on the limited
terms found by the judge; or (3) there was an agreement between the parties on some other wider terms (paragraph [56]).
In relation to the first possibility, it is unrealistic to suppose that the parties did not intend to create legal relations.
It was common ground that the parties had agreed the price, which must have formed part of a contract between them.
As the parties accepted that the letter of intent expired and was not revived, the contract containing the price must be some other agreement (paragraphs [57] [58]).
In relation to the second possible conclusion, it is relevant that the parties treated the agreement of 25 August as a variation of the agreement that they had reached by 5 July.
It does not make commercial sense to hold, as the judge did, that the agreement between the parties contained some but not all of the terms agreed by 5 July (paragraphs [59] [67]).
In considering the third possibility, two questions arise: (i) whether the parties intended to be bound by what was agreed or whether there were further terms which they regarded as essential or which the law regards essential in order for the contract to be legally enforceable, and (ii) whether the parties departed from the original understanding or agreement that it was to be subject to contract (paragraph [68]).
In answer to (i), the parties had reached essential agreement by 5 July.
None of the issues remaining after that date were regarded by the parties as an essential matter which required agreement before a contract could be binding (paragraphs [69] [84]).
As for (ii), it is possible for an agreement subject to contract or subject to written contract to become legally binding if the parties later agree to waive that condition.
The court holds that in this case on or by 25 August the parties had agreed to waive the subject to contract provision.
Any other conclusion makes no commercial sense (paragraphs [85] [87]).
The court notes that the case demonstrates the perils of parties agreeing that work should proceed before a formal written contract is executed.
The moral of the story is to agree terms first and start work later (paragraph [1]).
|
The respondents, Birmingham City Council, are a local housing authority within the meaning of Part VII of the Housing Act 1996.
This is the Part of the Act which sets out the duties that local housing authorities owe to a person who is homeless or threatened with homelessness.
Among its provisions is section 193, which identifies the duty that the authority owes where it is satisfied that an applicant is homeless, eligible for assistance and has a priority need and is not satisfied that he became homeless intentionally.
In that situation the duty that the authority owes is to secure that accommodation is available for the applicant: section 193(2).
The section also defines circumstances in which the authority will cease to be subject to that duty.
Various circumstances will bring this about.
The one that is relevant to these appeals is where the applicant, having been informed of the possible consequences of refusal, refuses an offer of accommodation which the authority are satisfied is suitable for him and the authority notify him that they regard themselves as having discharged their duty under the section: section 193(5).
The applicant has the right to request a review of any decision of a local housing authority as to what duty, if any, is owed to him under section 193: section 202(1)(b).
The procedure for review requires that the reviewing officer must be someone who was not involved in the decision and who is senior to the officer who made it.
If the applicant is dissatisfied with the decision on the review he may appeal to the county court.
But he may only do so on a point of law arising from the decision: section 204(1).
The jurisdiction which the county court exercises under that provision is one of judicial review.
There is no general right of appeal against the decision of the reviewing officer.
The county court judge may not make fresh findings of fact.
He must accept the conclusions on credibility that have been reached by the reviewing officer.
The question which these appeals raise is whether a decision that the local housing authority take under section 193(5) of the 1996 Act that they have discharged their duty to the applicant is a determination of his civil rights within the meaning of article 6(1) of the European Convention on Human Rights and, if so, whether the quality of review that the statute provides for is sufficient to meet the requirements of that article.
Underlying these questions, however, there is a wider and more fundamental issue which has prompted the Secretary of State for Communities and Local Government to intervene.
His interest arises because he has policy responsibility for the 1996 Act.
But he is concerned at the effect, if these appeals are successful, that this result will have on the conduct of local government homelessness decision making across England and Wales and upon the way proceedings have to be conducted in the county court if these decisions are taken to appeal.
He suggests that the outcome could affect indirectly the way decisions are made in other areas of local and central government activity such as community care and education.
Lord Hoffmann drew attention to this problem in Runa Begum v Tower Hamlets London Borough Council [2003] UKHL 5, [2003] 2 AC 430, paras 42 44.
As he pointed out, it is one thing for the rule of law to require that certain decisions, such as findings of breaches of the criminal law or adjudications of private rights, be entrusted to the judicial branch of government.
But there are other areas where utilitarian considerations have their place.
It is not in the public interest that an excessive proportion of the funds available for schemes for the regulation of social welfare should be consumed in administration and legal disputes.
He referred to a passage in the joint dissenting opinion in Feldbrugge v The Netherlands (1986) 8 EHRR 425, 443, para 15 which, as he said, seems highly material in this context.
It contains the following sentence: The judicialisation of dispute procedures, as guaranteed by article 6(1), is eminently appropriate in the realm of relations between individuals but not necessarily so in the administrative sphere, where organisational, social and economic considerations may legitimately warrant dispute procedures of a less judicial and formal kind.
I would venture to suggest that those words are as true today as when they were written over twenty years ago.
In that case the minority were unable to persuade the majority to restrict the application of article 6, in the civil sphere, to rights and obligations in private law.
It has now been extended to public law rights, such as social security or other cash under publicly funded schemes.
No clearly defined stopping point to this process of expansion has yet been identified by the Strasbourg court.
But concerns about over judicialisation of dispute procedures in the administration of social and welfare benefits have not gone away.
I believe that this case provides us with an opportunity to introduce a greater degree of certainty into this area of public law.
The facts
The Court of Appeal heard argument in two cases, those of Ms Fazia Ali and Ms Khadra Ibrahim.
There was a third case, that of Ms Emma Tomlinson.
The respondents refused her application that she was homeless on the basis that she was intentionally homeless.
This was because she had been evicted from her home on account of rent arrears.
Their decision was confirmed by the reviewing officer, who held that she had not acted in good faith in relation to her finances and the way she had given up her tenancy.
Her appeal to the county court was dismissed on the grounds that an appeal lay on a point of law only and that the finding of the reviewing officer was not irrational or perverse.
But her case had become academic by the time it reached the Court of Appeal as the respondents, having accepted that the homelessness duty was owed to her, had provided her with accommodation.
So the Court of Appeal declined to hear her appeal: [2008] EWCA Civ 1228, para 17.
It did however hear the appeals in the cases of Ms Ali and Ms Ibrahim.
The way the Court of Appeal dealt with their appeals was strongly influenced by the approach which the House of Lords took to issues arising under Part VII of the 1996 Act in Runa Begum v Tower Hamlets London Borough Council [2003] 2 AC 430.
In that case the question decided by the reviewing officer, and on appeal to the county court on conventional judicial review grounds, was whether the accommodation offered to Runa Begum, which she had refused, was suitable.
The House heard argument as to whether the decision of the reviewing officer under section 202 was a determination of Runa Begums civil rights within the meaning of article 6(1) of the Convention.
But it declined to express a concluded view one way or the other on this issue.
As Lord Bingham of Cornhill explained in para 6, it preferred to assume, without deciding, that her domestic law right was also a civil right and to consider, on that assumption, whether the statutory provision of an appeal to the county court on a point of law satisfied the requirements of that article.
Having done so, it concluded that the context did not require a full fact finding jurisdiction and that the county courts appellate jurisdiction was sufficient to satisfy its requirements.
The Court of Appeal too proceeded on the assumption that article 6(1) was engaged in these cases: para 21.
The issue that they raised was not, as in Runa Begum, whether the accommodation was suitable.
For reasons that I shall explain, they raised simple questions of primary fact which were decided against the appellants by the reviewing officer.
It was submitted that, as these questions did not depend on specialist knowledge or expertise, the appellants cases were not within the scope of the decision in Runa Begum.
The Court of Appeal rejected this argument.
Thomas LJ said that no proper distinction could be drawn between these appeals and the appeal in that case.
The appellants seek to persuade this court that, where simple questions of fact are in issue, the court must exercise a full fact finding jurisdiction if the requirements of article 6(1) are to be satisfied.
They submit that the decisions of the review officers should be remitted to the county court for consideration on their merits or that it be declared that section 204(1) of the 1996 Act is incompatible with the appellants rights under that article.
The question that arose in the cases of Ms Ali and Ms Ibrahim was indeed, a very simple one, and it was a question of fact.
It was whether they received a letter from the respondents of the kind that section 193(5) requires, informing them of the possible consequences if they were to refuse their offer of accommodation under that section.
The respondents case is that the letters were sent as required by the statute.
The appellants maintain that they never received them.
The circumstances in which this issue arose in each case are as follows.
(a) Ms Ali
Ms Ali is single and has two children.
She applied for assistance under Part VII of the 1996 Act in October 2006.
By letter dated 7 November 2006 the respondents notified her that they were satisfied that she was eligible for assistance and that they would be securing accommodation for her occupation.
They also told her that their housing policy was that homeless applicants received only one offer of suitable accommodation.
On 8 November 2006 she received an offer of accommodation which she refused because she was unhappy with the location.
The respondents told her that in their opinion the accommodation was suitable but, following a review of their decision which was determined in Ms Alis favour, they agreed to make her another offer.
On 14 March 2007 a housing officer informed her by telephone that a further offer was being made, that a viewing had been arranged and that a letter would follow.
She was not, during this conversation, given the full address of the property.
The respondents case is that on 14 March 2007 they sent a letter to Ms Ali headed Final offer of accommodation offering her accommodation at 16 Bromford Lane, Erdington, Birmingham which, as discussed, was to be available for viewing by her on 16 March.
The letter satisfied the requirements of the statute, as it contained a statement that if she refused the offer without good cause the respondents would consider that they had discharged their duty to her under Part VII.
In the county court it was agreed that the letter had been sent and that the offer which it contained had been communicated orally beforehand.
But Ms Ali denied receiving it.
She said that she had to telephone the housing office to obtain the address and that the viewing appointment was re arranged.
Having viewed the property on 19 March 2007 she refused the offer as she was not happy with the condition of the communal area.
By letter dated 21 March 2007 the respondents notified her that they were satisfied that the accommodation at 16 Bromford Lane was suitable for her needs and that of her family.
They told her that they considered that their duty to her under Part VII had been discharged by her refusal.
By letter dated 29 March 2007 Ms Alis solicitors requested a review under section 202.
In another letter of the same date they said that she had never received an offer of accommodation at 16 Bromford Lane in writing.
On 3 April 2007, while her case was still pending before the review panel, the respondents made another offer of accommodation to Ms Ali.
This offer, which was made under Part VI of the 1996 Act, was of accommodation in a flat at Teviot Tower, Mosborough Crescent, Birmingham.
Although it was stated in this letter that Ms Ali had provisionally accepted the property she did not in the event accept this offer.
About a month later on 1 May 2007 Arlene Daniel, a homelessness review officer employed by the respondents, conducted a telephone interview with Ms Ali in order to establish her reasons for refusing the offer of accommodation at 16 Bromford Lane.
By letter dated 2 May 2007 she informed Ms Ali that she had decided to uphold the respondents decision that they had discharged their duty to her under section 193.
Arlene Daniels reasons for this decision were set out in her letter of 2 May 2007.
She said that she was aware that the offer of accommodation letter was sent and that she had no reason to believe that Ms Ali did not receive it, as it was sent to her current address to which a number of other letters had been sent and received by her.
There then followed this passage: In the light of the above I contacted you on the 1 May 2007 to establish the reasons why you had decided not to accept this offer of accommodation as it was apparent from the reasons given in the letter from your representatives, dated 29 March 2007, that you (sic) alleging that you had not received the offer letter was not the reason you had refused the offer of accommodation.
I put this to you and you advised that you had in fact received the offer letter and refused the offer of accommodation for a number of reasons, firstly that there was no lift.
Also the entrance was dirty and smelly.
Your son was born premature and suffers with lots of infections.
Therefore, had you accepted this offer your sons (sic) health would have been at risk.
Ms Ali does not deny saying that she had received the offer.
Her explanation is that she initially thought that she was being asked about the offer of a flat at Teviot Tower.
She then realised that she was being asked about the offer of accommodation at 16 Bromford Lane.
She gave her reasons for refusing that offer, but failed to mention her earlier confusion as to which offer was being referred to.
Ms Ali then appealed to Birmingham County Court, but on 29 August 2007 HHJ MacDuff dismissed her appeal.
He held that the decision as to whether the letter had been received was properly and fairly to be made by the reviewing officer, and he declined to hear evidence on the point.
He added that he understood Ms Alis counsel to concede that if he were to hold, as he did, that it was a decision for the reviewing officer rather than for the court hearing live evidence, it could not be regarded as perverse or otherwise capable of being set aside.
(b) Ms Ibrahim
Ms Ibrahims household consists of herself and six children.
She applied to the respondents for assistance under Part VII of the 1996 Act in May 2005.
By letter dated 29 May 2005 the respondents notified her that they were satisfied that she was eligible for assistance and that they would be securing accommodation for her occupation under Part VII of the 1996 Act.
They also told her that their housing policy was that all homelessness applicants accepted under that Part received one offer of suitable accommodation.
On 16 August 2005 they made an offer of accommodation which she refused.
She sought a review of this decision which was determined in her favour.
On 12 October 2005 they agreed to make her a further offer.
On 26 October 2005 they offered her accommodation at 11 Dawberry Road, Birmingham which she also refused.
The dispute between the parties relates to the way in which this further offer was made.
The respondents say that their housing officer, Lisa Hopkins, sent two letters both dated 26 October 2005 and both offering accommodation at 11 Dawberry Road to Ms Ibrahim in a single envelope.
As HHJ McKenna was later to observe when the case came before him in Birmingham County Court on 4 October 2006, somewhat unusually and confusingly these letters were in different terms.
One was a Part VI offer letter.
It was the type of letter which is sent to people awaiting accommodation who are on the respondents housing register.
It made no reference to the respondents homelessness duty under Part VII of the 1996 Act.
The other was a Part VII letter.
It referred to the respondents duty under that Part of the Act to secure accommodation for her, stating that to discharge their duty the respondents only had to provide one suitable offer of accommodation.
It also warned her that if she decided to refuse the offer without good reason to do so the respondents would consider that they had discharged their duty under Part VII and that no further offers of accommodation would be made.
Ms Ibrahims case is that she received the first letter but not the second.
She refused the offer of accommodation at 11 Dawberry Road without viewing it because she did not want accommodation in that area and because it was too small for her family.
By letter dated 3 November 2005 the respondents notified Ms Ibrahim that they considered that they had discharged their duty to secure accommodation for her and her family under Part VII and that no further offers of accommodation would be made.
By letter dated 14 November 2005 Ms Ibrahims representative requested a review of that decision.
By letter dated 7 December 2005 the respondents reviewing officer, David Colston, informed Ms Ibrahim that he had decided to uphold the decision of discharge of duty.
He was persuaded by Ms Ibrahims representative to take a second look at the case, but by letter dated 16 December 2005 he informed her that he had decided not to change his mind.
Ms Ibrahim then appealed to Birmingham County Court, where her appeal was disposed of by means of a consent order to the effect that the decision of 7 December 2005 be quashed and the case referred back to the review panel for a further decision to be made.
A further review was then carried out by Martin Dewell, another of the respondents review officers.
By letter dated 19 May 2006 he notified Ms Ibrahim that he was minded to uphold the respondents decision letter of 3 November 2005.
Martin Dewells reasons for this decision were set out in his letter of 19 May 2006.
He said that among the matters that he had been asked to consider were various respects in which it was submitted that the accommodation was unsuitable.
There was also a point that had not been raised before, that the offer letter did not comply with section 193(5) of the 1996 Act.
After dealing with the question whether the accommodation was suitable, the letter went on to say this: I consider that we have adequately dealt with the point you raise about the validity of the offer letter.
In her statement dated 21 February 2006 the housing officer Lisa Hopkins clearly states that the two offer letters were sent to you in the same envelope.
One was originally addressed to you at your previous temporary address of 110 Fernley Road, Sparkhill, Birmingham.
This letter was sent to this address by mistake as it was the last address showing on the computer system following your move to 61 Adria Road, Sparkhill, Birmingham.
This mistake was realised and both copies of the offer letter were then sent to you in the same envelope.
Your argument that the offer letter does not comply with section 193(5) is therefore not substantiated.
The information contained in the offer letter sent to 110 Fernley Road and then sent to 61 Adria Road is fully compliant with section 193(5).
It is therefore entirely reasonable to conclude that you were fully acquainted with your options following either acceptance or refusal of the offer.
Ms Ibrahim then appealed again to Birmingham County Court under section 204 of the 1996 Act.
She raised, as a factual issue, her contention that she did not receive the Part VII offer letter.
But by the time her case came before HHJ McKenna it had been conceded that this was a matter for the reviewing officer to decide.
No point was taken that to approach that issue in this way was incompatible with article 6(1) of the Convention.
The judge said that the issue for his determination was whether or not it was reasonable for Ms Ibrahim to have accepted the offered accommodation, and that in his judgment it was reasonable for her to have accepted it.
He rejected arguments about the content of the offer letter, holding that it was made crystal clear to her that she had the one offer only and what the consequences of refusal would be.
The issues
The issues that arise in this case can be summarised in this way.
First, does on appeal under section 204 of the 1996 Act involve the determination of a civil right for the purposes of article 6(1) either generally or in cases such as the present ones where the issue is simply one of fact? Second, if so, does article 6(1) require that the court hearing such an appeal must have a full fact finding jurisdiction so that it can determine for itself a dispute of fact either generally or in a case such as these? Third, if so, can section 204 of the 1996 Act be read compatibly with article 6(1) so as to entitle the county court to exercise that jurisdiction? If not, it is agreed that a declaration of incompatibility will have to be made.
In order to set the scene for an examination of these issues I must say a bit more about the statutory background.
This is important, as the questions that arose for decision in this case must be seen in that context.
They were, as I have said, pure questions of fact.
But they were, in each case, only one of a number of questions that had to be addressed in order to decide whether the respondents duty under section 193 had come to an end.
Their resolution was a stepping stone to a consideration of the much broader question as to whether the accommodation that had been declined was suitable.
This called for the exercise of expertise and judgment on a variety of factual issues.
The scheme of the statute is that a decision on all these questions is entrusted, in the event of a review, to the reviewing officer and is subject to appeal on a point of law only.
The statutory provisions
Section 193 of the 1996, as amended by the Homelessness Act 2002 and so far as relevant, provides as follows: (1) This section applies where the local housing authority are satisfied that an applicant is homeless, eligible for assistance and has a priority need, and are not satisfied that he became homeless intentionally. (2) Unless the authority refer the application to another local housing authority (see section 198), they shall secure that accommodation is available for occupation by the applicant. (3) The authority are subject to the duty under this section until it ceases by virtue of any of the following provisions of this section. (5) The local housing authority shall cease to be subject to the duty under this section if the applicant, having been informed by the authority of the possible consequence of refusal and of his right to request a review of the suitability of the accommodation, refuses an offer of accommodation which the authority are satisfied is suitable for him and the authority notify him that they regard themselves as having discharged their duty under this section. (6) The local housing authority shall cease to be subject to the duty under this section if the applicant (a) ceases to be eligible for assistance, (b) becomes homeless intentionally from the accommodation made available for his occupation, (c) accepts an offer of accommodation under Part V1 (allocation of housing), or (cc) accepts an offer of an assured tenancy (other than an assured shorthold tenancy) from a private landlord, (d) otherwise voluntarily ceases to occupy as his only or principal home the accommodation made available for his occupation.
Section 202(1) as amended by the 2002 Act and the Housing and Regeneration Act 2008 deals with the right to request a review of a decision of the local housing authority.
It provides a useful guide to the nature and range of decisions that a local housing authority may have to take in the performance of their duties under Part VII of the Act.
It provides: An applicant has the right to request a review of (a) any decision of local housing authority as to his eligibility for assistance, (b) any decision of a local housing authority as to what duty (if any) is owed to him under sections 190 to 193 and 195 and 196 (duties to person found to be homeless or threatened with homelessness), (c) any decision of a local housing authority to notify another authority under section 198(1) (referral of cases), (d) any decision under section 198(5) whether the conditions are met for the referral of his case, (e) any decision under section 200(3) or (4) (decision as to duty owed to applicant whose case is considered for referral or referred), (f) any decision of a local housing authority as to the suitability of accommodation offered to him in discharge of their duty under any of the provisions mentioned in paragraph (b) or (e) or as to the suitability of accommodation offered to him as mentioned in section 193(7), or (g) any decision of a local housing authority as to the suitability of accommodation offered to him by way of a private accommodation offer (within the meaning of section 193).
Section 203(1) provides that the Secretary of State may make provision by regulations as to the procedure to be followed in connection with a review under section 202.
Section 203(2)(a) provides that provision may be made by regulations requiring the decision on review to be made by a person of appropriate seniority who was not involved in the original decision.
The Allocation of Housing and Homelessness (Review Procedures) Regulations 1999 (SI 1999/71) provide that the officer shall be someone who was not involved in the original decision and who is senior to the officer who made the original decision.
The reviewer is required to consider any representations that may be made to him.
If he considers that there is a deficiency or irregularity in the original decision, or in the manner in which it was made, but is minded nevertheless to make a decision which is against the interests of the applicant on one or more issue, he must notify the applicant that he is so minded and the reasons why he is of that view so that the applicant or someone on his behalf may make representations about them.
Section 204(1) provides that, if an applicant is dissatisfied with the decision on review, he may appeal to the county court on any point of law arising from the decision or, as the case may be, the original decision.
No provision is made for an appeal against the facts found by the reviewing officer.
The scheme which Part VII lays down can be seen, therefore, to have these characteristics.
It provides a right to assistance if the relevant conditions are satisfied.
But this is not a pecuniary right, nor is the benefit that is to be provided defined by the application of specific rules laid down by the statute.
Even where the full homelessness duty arises under section 193, the content of the statutory duty lacks precise definition.
There is no private law analogy.
The duty is expressed in broad terms to secure that accommodation is available which leave much to the discretionary administrative judgment of the authority.
As Professor Ian Loveland, Does Homelessness Decision making Engage Article 6(1) of the European Convention on Human Rights? [2003] EHRLR 176, 184 observes, no tightly defined rules are laid down.
The legislative requirement is couched only in terms of broad principle.
Is this a civil right?
The appellants submit that the right to accommodation under section 193 of the 1996 Act is a civil right within the meaning of article 6(1) of the Convention.
Mr Goudie QC summarised his argument in this way.
The effect of the statutory scheme was to confer on the appellants an entitlement to accommodation.
This was a right, the correlative of which was a duty on the local housing authority which subsisted until it ceased to be subject to the duty in one or other of the ways provided for by the statute.
The right to accommodation was an individual economic right which flowed from specific rules laid down in a statute, according to the Strasbourg courts reasoning in Salesi v Italy (1993) 26 EHRR 187 and Mennitto v Italy (2000) 34 EHRR 1122.
From this it followed that the reviewing officers decision, which brought that right to an end, was a determination of the appellants civil rights within the meaning of the article.
Mr Goudie acknowledged that a right to accommodation was a right to a benefit in kind rather than a right to a financial payment or a subsidy.
But he said this did not in itself disqualify it from being a civil right.
A series of Russian cases beginning with Teteriny v Russia, application no 11931/03, 1 July 2005, and ending with Nagovitsyn v Russia, application no 6859/02, 24 January 2008, indicated the contrary.
It was held in those cases, which arose out of failures to comply with judgments by which the applicants were to be provided with accommodation of a certain size in a specified location, that there had been a violation of article 6(1).
It was also held that the effect of the judgments, under which the applicants were entitled to a social tenancy agreement, was that their claim was sufficiently established to constitute a possession falling within the ambit of article 1 of Protocol No 1: see, eg, Teteriny, paras 48 50.
In Stec v United Kingdom (2005) 41 EHRR SE 295, para 48 the Grand Chamber said that it was in the interests of the coherence of the Convention as a whole that the autonomous concept of possessions in article 1 of Protocol No 1 should be interpreted in a way which is consistent with the concept of pecuniary rights under article 6(1) and that it was important to adopt an interpretation which avoids inequalities of treatment based on distinctions which, at the present day, appear illogical or unsustainable.
Mr Arden QC for the respondents was content to follow the approach of the House of Lords in Runa Begum v Tower Hamlets London Borough Council [2003] 2 AC 430 and to assume that the appellants entitlement to accommodation under section 193 was a civil right within the meaning of article 6(1).
As he put it, the respondents approached this issue with equanimity.
Their concern was to deal fairly with the cases that were before them.
But he said that, if this was a civil right, it was very much at the edge of cases that were engaged by that concept.
Miss Lieven QC for the Secretary of State, on the other hand, addressed this point head on.
She submitted that the proper conclusion in this case was that there was no civil right within the meaning of that article.
Strasbourg case law had limited civil rights to those which were related to individual economic rights which were enforceable through the courts.
Any right under section 193 was subject to a large number of decisions that were left to the judgment of the local housing authority.
There was also a judgmental decision as to how any such right was to be delivered, as the duty under section 193 was merely to secure that accommodation was available.
The inclusion of benefits in kind such as these in the determination of rights protected by article 6(1) was a step further than the Strasbourg court had gone, and this Court should decline to take it.
As already noted, the House preferred not to decide this question in Runa Begum.
It chose instead to concentrate on the question whether the statutory provision of an appeal to the county court on a point of law only satisfied the requirements of article 6(1).
No doubt it was content to do this because it was satisfied that the absence of a full fact finding jurisdiction in the county court did not mean that, in the context of the statutory scheme that Part VII lays down, it did not have the jurisdiction that it needed to satisfy the requirements of that article.
But the reason that Lord Hoffmann gave for preferring not to decide whether rights under section 193 should be classified as civil rights is instructive.
In para 70 he said that this was for one reason only.
This, as he explained in the previous paragraph, was his concern should it be decided in Strasbourg that the administration of social welfare benefits falling within the Salesi principle required a more intrusive form of judicial review, that no obstacle should be placed in the way of the UK Government arguing that, in a case such as that, the principle did not apply at all.
Almost seven years have now passed since the judgment in Runa Begum was delivered.
The contingency which Lord Hoffmann had in mind has not yet arisen.
The jurisprudence of the Strasbourg court has not developed in the way he thought it perhaps might.
The balance of advantage now points in a different direction.
The time has come for the Court to address this question and take a decision upon it.
The present state of uncertainty as to whether the administration of social welfare benefits, such as those which are available to those who are homeless or threatened with homelessness, is unhealthy.
It encourages litigation on issues that would not require to be addressed at all if their right to accommodation under section 193 did not give rise to a civil right within the meaning of article 6.
The delay and expense that uncertainty on this issue gives rise to involves a waste of resources which would be much better deployed elsewhere in the public interest.
It may be helpful, as Miss Lieven suggested, to approach the question in stages: to look at the position in Strasbourg before Runa Begum; to look at Runa Begum itself; and then to look at how the law has developed since the decision in that case.
(a) before Runa Begum
As Lord Walker of Gestingthorpe said in Runa Begum, para 112, the cases on this topic start with Feldbrugge v The Netherlands (1986) 8 EHRR 425 and lead on to Salesi v Italy (1993) 26 EHRR 187 and Mennitto v Italy (2000) 34 EHRR 1122.
In these cases the Strasbourg court extended the concept of civil rights to social security benefits for employees and their dependants that were analogous to benefits under insurance schemes in private law, and then to entitlements to welfare payments which lacked the analogy to private insurance as they were non contributory and not related to employment.
In Feldbrugge the issue was whether the applicants entitlement to a statutory sickness allowance, which was a contributory scheme but for which she had not registered due to illness, was a civil right within the meaning of article 6: see also Deumeland v Germany (1986) 8 EHRR 448, a case about a widows supplementary pension arising from her husbands death in an industrial accident in which judgment was delivered on the same day.
In para 37 of Feldbrugge the court said that the applicant was claiming a right flowing from specific rules laid down by the legislation in force and that the right in question was a personal, economic and individual right, a factor which brought it close to the civil sphere.
Taking account of the affinity of the statutory scheme with insurance under the ordinary law, it held that the features of private law predominated and that they conferred on her entitlement the character of a civil right within the meaning of the article: para 40.
This was a significant development because, as a powerful dissenting opinion in that case pointed out, the phrase civil rights and obligations was originally intended to mean those rights and obligations that were adjudicated upon by the civil courts: see also Runa Begum, paras 28 and 64, per Lord Hoffmann.
The scope of article 6 was then extended to statutory schemes financed entirely out of public funds.
In Salesi v Italy (1993) 26 EHRR 187 the principle was applied to welfare payments which, as they were not contributory, could not be said to be analogous to a scheme of insurance.
In para 19 the court said that the development in the law that was initiated by the judgments in Feldbrugge and Deumeland and the principle of equality of treatment warranted taking the view that the general rule now was that article 6(1) applied in the field of social insurance.
The considerations that pointed in favour of the applicability of the article were said in that paragraph to be that: Mrs Salesi was not affected in her relations with the administrative authorities as such, acting in the exercise of discretionary powers; she suffered an interference with her means of subsistence and was claiming an individual, economic right flowing from specific rules laid down in a statute giving effect to the Constitution.
That decision was followed in Mennitto v Italy (2000) 34 EHRR 1122.
But there was an important qualification.
In para 23 of its decision in that case the court said that the outcome of the proceedings must be directly decisive for the right in question.
As in Salesi, the entitlement was to an amount of benefit that was not in the discretion of the public authority.
I do not find support in these cases for Mr Goudies submission that the right to accommodation under Part VII of the 1996 Act is a civil right because, as he put it, it is an individual economic right which flows from specific rules laid down in a statute.
The entitlement in section 193(2) is simply to accommodation.
There is a considerable area of administrative discretion as to how that accommodation is to be provided by the authority in any given case.
(b) Runa Begum
Although the House preferred not to take a decision on this issue in Runa Begum, there are some pointers to the decision that it would have taken had it felt obliged to do so.
In para 6 Lord Bingham said that to hold that the right enjoyed by Runa Begum was a civil right for the purposes of article 6 would be to go further than the Strasbourg court had yet gone.
I respectfully agree with this assessment.
It would seem to follow, applying the principle which he was later to enunciate in R (Ullah) v Special Adjudicator [2004] UKHL 26, [2004] 2 AC 323, para 20 that, as the duty of national courts is to keep pace with the Strasbourg jurisprudence as it evolves over time, Runa Begums right to accommodation under Part VII was not a civil right within the autonomous meaning of that expression.
To reach that conclusion would not have been to dilute or weaken the effect of existing Strasbourg case law.
It would, on the contrary, be to transgress Lord Binghams warning that it was not for the national courts to interpret the Convention in a way that provides for rights more generous than those that have hitherto been found by Strasbourg.
In para 67 Lord Hoffmann said that the whole scheme of Part VII was shot through with discretions in which either the councils duty was dependent upon it being satisfied of some state of affairs or could be discharged in various ways of its own choosing.
He contrasted that situation with Mennitto where, once the applicant had satisfied the conditions for entitlement to the allowance, all that remained was an arithmetical calculation of its amount.
In para 69 he too said that to apply the Salesi doctrine to the provision of benefits in kind, involving the amount of discretion that is inevitably needed in such cases, would be to go further than the Strasbourg court has so far gone.
In para 91 Lord Millett listed among features which took the case beyond the existing case law the authoritys discretion as to how it will discharge its duties and the fact that ultimately this called for an exercise of judgment.
Runa Begum could not be said to be claiming an individual, economic right flowing from specific rules laid down in a statute: para 92.
This is directly contrary to the view Mr Goudie invited the Court to take of the appellants position in this case.
Miss Lieven said that these observations were a powerful steer towards the conclusion that to extend the concept of a civil right to a claim under Part VII of the 1996 Act would be to go beyond the tests that had been so far laid down by the Strasbourg court.
I agree, but this leaves open the question whether anything that has come from Strasbourg since the date of that decision points to the contrary conclusion.
(c) since Runa Begum
One of the issues raised in R (A) v Croydon London Borough Council [2009] UKSC 8: [2009] 1 WLR 2557 was whether a decision that a local authority makes as to whether or not to provide accommodation for a child in need under section 20(1) of the Children Act 1989 was a determination of a civil right within the meaning of article 6(1).
The question was fully and carefully argued, and with that advantage I ventured to suggest that it could be asserted with reasonable confidence that the local authoritys duty, which is to provide accommodation for any child in need within their area who appears to them to require accommodation as a result of the factors mentioned in that subsection, did not give rise to a civil right: para 65.
I reached that conclusion after an examination of various decisions by the Strasbourg court since Runa Begum and Lady Hale said in para 44 that she would be most reluctant to accept that article 6 requires the judicialisation of such claims.
We have now been shown a decision which did not appear on the list that was provided to the court in Croydon: the courts admissibility decision in Associazione Nazionale Reduci dalla Prigionia dallInternamento e dalla Guerra di Liberazione v Germany (2007) 46 EHRR SE143.
The first case that needs to be mentioned is Tsfayo v United Kingdom (2006) 48 EHRR 457.
The applicant had failed to renew her application for housing and council tax benefit.
After taking advice she submitted a prospective claim and a backdated claim for both types of benefit.
The council accepted the prospective claim but rejected the backdated one on the ground that the applicant had failed to show good cause why she had not claimed this benefit earlier.
The councils housing benefit and council tax benefit review board rejected her appeal against this decision.
Her complaint was that the board was not an independent and impartial tribunal, contrary to article 6(1).
The court held that disputes about entitlement to social security and welfare benefits generally fell within the scope of article 6(1) and that the article applied to the applicants claim for housing benefit: para 40.
The question whether the claim concerned the determination of the applicants civil rights was not disputed.
This was not surprising, as the case fell within the mainstream of cases such as Salesi v Italy (1993) 26 EHRR 187 and Mennitto v Italy (2000) 34 EHRR 1122 where the issue was one as to the entitlement to an amount of benefit that was not in the discretion of the public authority.
The case offers important guidance as to what is needed to satisfy the requirements of article 6(1).
But it takes us no further on the question whether a statutory duty to provide benefits in kind as part of a scheme of social welfare falls within the scope of that article.
There are however, as I said in the Croydon case, para 62, a number of straws in the wind since Runa Begum that suggest that a distinction can indeed be made between the class of social security and welfare benefits that are of the kind exemplified by Salesi v Italy whose substance the domestic law defines precisely and those benefits which are, in their essence, dependent upon the exercise of judgment by the relevant authority.
The phrase civil rights is, of course, an autonomous concept: eg Woonbron Volkshuisvestingsgroep v The Netherlands (2002) 35 EHRR CD161.
In that case it was held that decisions about state subsidies to housing associations do not raise issues about civil rights.
But the phrase does convey the idea of what, in Stec v United Kingdom (2005) 41 EHRR SE295, para 50, the Grand Chamber referred to as an assertable right.
The courts references in Loiseau v France application no 46809/99, 18 November 2003 (unreported), para 7, to a private right which can be said, at least on arguable grounds, to be recognised under domestic law and to an individual right of which the applicant may consider himself the holder are consistent with this approach.
So too are the references in Mennitto v Italy (2000) 34 EHRR 1122, para 23, to a right which can be said, at least on arguable grounds, to be recognised under domestic law, where the court added: The dispute must be genuine and serious; it may relate not only to the actual existence of a right but also to its scope and the manner of its exercise.
The outcome of the proceedings must be directly decisive for the right in question.
In para 64 in the Croydon case I said that the series of cases about the enforceability of judgments made by the courts about social housing in Russia to which Mr Goudie referred in this case, of which the latest is Nagovitsyn v Russia application no 6859/02, 24 January 2008 (not reported), offer no assistance as the question whether a duty to provide social housing gives rise to a civil right before it results in a court order was not argued.
I remain of that opinion.
No consideration was given in any of these cases to that question, as the only point in issue was whether a final, binding judicial decision for the provision of accommodation of a specified kind should be allowed to remain inoperative: Teteriny v Russia, application no 11931/03, 1 July 2005, para 40.
As Lady Hale said in Croydon, para 40, it is easy to slip into the assumption that once a right has been crystallised in a court judgment against a public authority it must amount to a civil right.
References to the line of authority exemplified by cases such as Salesi v Italy (1993) 26 EHRR 187 and Mennitto v Italy (2000) 34 EHRR 1122 are conspicuous by their absence.
The case of Associazione Nazionale Reduci dalla Prigionia dallInternamento e dalla Guerra di Liberazione v Germany (2007) 46 EHRR SE143 is of interest because it appears to be the only decision after Stec v United Kingdom (2005) 41 EHRR SE 295 in which the court has considered the application of article 1 of Protocol No 1.
The applicants complaint was that they had claims for compensation for forced labour under German civil law prior to the coming into force in August 2000 of a law, referred to as the Foundation Law, which excluded claims going beyond the benefits provided by the Foundation Law, as a result of which their claims were lost.
The question was whether the facts of the case attracted the protection of article 14 in conjunction with article 1 of Protocol No 1.
The court found that the applicants could not claim to have a legitimate expectation of compensation for their detention and forced labour and that the facts at issue did not fall within the ambit of Protocol No 1: para 75.
The court went on to say that this finding was not contradicted by its judgment in Stec, in which it was held that non contributory social benefits funded by general taxation fell within the scope of article 1 of Protocol No 1 and that, although that provision does not grant the right to receive a social security payment of any kind, if a state does decide to establish a benefits scheme, it must do so in a manner compatible with article 14.
This was because the payments of compensation were made outside the framework of social security legislation and could not be likened to the payments in Stec: para 77.
It also held that the case was distinguishable from Wo v Poland (2006) 45 EHRR 667 where the applicant was held to enjoy, at least on arguable grounds, a right to compensation which fell within the ambit of article 6.
But I do not detect in the courts reasoning any indication that it would hold that the right to accommodation that is in issue in this case was a civil right for the purposes of article 6(1).
If anything, the comment that article 1 of Protocol No 1 does not grant the right to receive a social security payment of any kind is an indication to the contrary.
In Crompton v United Kingdom, application no 42509/05, 27 October 2009, the applicant who had joined the Territorial Army as a pay and accounts clerk was made redundant.
He claimed redress in respect of his redundancy from his Commanding Officer.
There then followed a prolonged series of proceedings which took eleven years to reach their conclusion before he achieved a settlement of his claim.
He contended that this was a breach of his right to a hearing within a reasonable time under article 6(1).
The Government accepted that his civil rights were determined in the civil proceedings and that article 6 was applicable: para 53.
Like Tsfayo v United Kingdom (2006) 48 EHRR 457, the case is of interest as to what is needed to satisfy the requirements of article 6(1).
But it takes us no further on the question whether a statutory duty to provide benefits in kind as part of a scheme of social welfare falls within the scope of that article.
The other members of the court in the Croydon case preferred to leave open the question whether a local authoritys duty under section 20(1) of the Children Act 1989 gave rise to a civil right for the purposes of article 6(1).
In para 45 Lady Hale said that, if it was a civil right at all, she would be inclined to hold that it rested at the periphery of such rights.
The issue having been left open in that case, the way is clear for us, if we wish, to reach a concluded view on the matter.
That being the present state of the authorities, I would be prepared now to hold that cases where the award of services or benefits in kind is not an individual right of which the applicant can consider himself the holder, but is dependent upon a series of evaluative judgments by the provider as to whether the statutory criteria are satisfied and how the need for it ought to be met, do not engage article 6(1).
In my opinion they do not give rise to civil rights within the autonomous meaning that is given to that expression for the purposes of that article.
The appellants right to accommodation under section 193 of the 1996 Act falls into that category.
I would hold that article 6 was not engaged by the decisions that were taken in the appellants cases by the reviewing officer.
The article 6 review
The question whether the scheme of decision making that is set out in Part VII is compliant with article 6(1) was fully argued and, although I would hold that this is not necessary for the disposal of the appeals, I would like to make some brief observations about it.
Mr Goudie invited the court to hold that the decisions that were made in these cases were directly analogous to those that were considered in Tsfayo v United Kingdom (2006) 48 EHRR 457.
In that case the Housing Benefit Review Board was deciding a simple question of fact, namely whether there was a good cause for the applicants delay in making a claim for housing and council tax benefit.
He said that this was a gateway question of fact, a positive answer to which would determine her entitlement to the benefit.
So too in this case, he said, there were two gateway questions of fact: was the applicant informed of the consequences of a refusal, and did she refuse the accommodation.
Only when those questions were answered against her would the question arise as to the accommodations suitability.
As the court said in Tsfayo, para 46, the issues in cases such as Runa Begum required a measure of professional knowledge or experience and the exercise of administrative discretion pursuant to wider policy aims.
That was not so here, as no specialist knowledge was required to determine the issue whether or not the letters were received by the appellants.
He sought to draw support for these submissions from Crompton v United Kingdom, application no 42509/05, 27 October 2009, para 71 where the court said: The Court has previously held that in order to determine whether the article 6 compliant second tier tribunal had full jurisdiction, or provided sufficiency of review to remedy a lack of independence at first instance, it was necessary to have regard to such factors as the subject matter of the decision appealed against, the manner in which that decision was arrived at and the content of the dispute, including the desired and actual grounds of appeal.
Reference was made to Bryan v United Kingdom (1995) 21 EHRR 342, paras 44 47 and Tsfayo v United Kingdom, para 43 in which those factors were said to be among those to which it was necessary to have regard: see also the concurring opinion of Mr Bratza as he then was, in Bryan at p 354 where he set out a similar list of considerations.
Commenting on Tsfayo in para 73, the court said that the determination of the issue in that case did not require any specialist expertise.
Nor could the factual findings there be said to be merely incidental to the reaching of broader judgments of policy or expediency which it was for the democratically accountable authority to take.
That, said Mr Goudie, was the situation in the case of these appeals.
The questions that they raised were not incidental to a judgment as to whether or not accommodation was suitable, such as whether there was a lift.
The subject matter of the decision was simply whether or not the letters had been received.
I agree that the questions that had to be decided in these cases can be distinguished from the question that had to be decided in Runa Begum.
As the Strasbourg court acknowledged in Crompton, the question in that case could not be said to be purely and simply one of fact as the question whether the accommodation was suitable was one for the expert assessment of the housing officer.
But the subject matter of the decision appealed against here is exactly the same.
The question whether or not the letters were received was just one among a number of questions that had to be addressed to determine whether the respondents duty under section 193 had been discharged.
They are dealt with together in section 193(5) in a way that shows that they are all interlinked.
The scheme of the Act is that they are to be dealt with together both at the initial stage and, in the event of a review, by the reviewing officer.
To separate out questions as to whether the formalities laid down by the subsection were complied with from those as to whether the accommodation was suitable would complicate a scheme which, in the interests of speed and economy, was designed to be simple to administer.
Several of the further cases referred to in section 193(6) in which the authority ceases to be subject to the duty also raise issues that require the exercise of judgment.
That is inherent in the entire structure of Part VII of the 1996 Act.
The way the reviewing officers approached their task in these cases shows very clearly how the scheme works in practice.
For ease of administration the review is entrusted to a single officer who is equipped to deal with issues as to the suitability of the accommodation that has been declined.
An answer to the question whether or not the letters were received was incidental to a more searching and judgmental inquiry into the accommodations suitability.
It was, as Lord Bingham put it in Runa Begum, para 9(2), a staging post on the way to the much broader judgment that had to be made.
These cases are quite different from Tsfayo, where no broad questions requiring professional knowledge or experience had to be addressed once the question whether there was good cause had been answered.
In these circumstances I would hold that the ratio of the decision in Runa Begum should be applied and that the absence of a full fact finding jurisdiction in the court to which an appeal lies under section 204 does not deprive it of what it needs to satisfy the requirements of article 6(1).
I am fortified in this view by the absence of any indication by the Strasbourg court that it disagrees with the decision in Runa Begum.
On the contrary, I interpret its reference to this decision in Tsfayo, paras 45 46 as endorsing its approach.
An important factor is the way in which the House addressed the relationship between the article 6(1) concept of civil rights on the one hand and the article 6(1) requirement of an independent and impartial tribunal on the others.
As Lord Bingham put it in para 5, the narrower the interpretation given to civil rights, the greater the need to insist on a review by a tribunal exercising full powers.
Conversely, the more elastic the interpretation given to that concept, the more elastic must be the approach to the independent and impartial review if the emasculation by over judicialisation of administrative welfare schemes is to be avoided.
Mr Bratzas concurring opinion in Bryan v United Kingdom (1995) 21 EHRR 342, 354, where he said that the requirement that a court or tribunal should have full jurisdiction cannot be applied mechanically, provides valuable support for this approach.
Support for it is to be found also in Crompton, paras 71 72 and in the concept of sufficiency of review which is now well established in the jurisprudence of the Strasbourg court.
A consequence of this approach has been to drive the courts to applying a test which is imprecise and uncertain.
Is the case near or close to the borderline? Is it at the periphery, as Lady Hale said in Croydon, para 45? In Runa Begum, para 59, Lord Hoffmann expressed his agreement with Laws LJs observation in R (Beeson's Personal Representatives) v Dorset County Council [2002] EWCA Civ 1812 that there is some danger of undermining legal certainty by excessive debates over how many angels can stand on the head of the article 6 pin.
That is why I prefer to dispose of these appeals by holding that the appellants cases are outside the scope of article 6 altogether.
The third issue, whether section 204 of the 1996 Act can be read compatibly with article 6(1) so as to entitle the county court to exercise a full fact finding jurisdiction, is superseded.
I would dismiss these appeals.
LORD COLLINS
I agree with Lord Hope that the appeals should be dismissed on the basis that a decision of the local housing authority under section 193(5) of the 1996 Act that it has discharged its duty to the applicant is not a determination of the applicants civil rights for the purposes of Article 6(1) of the Convention.
Although I agree with much of Lord Hopes reasoning, I would place less emphasis on the evaluative nature of the exercise under section 193, and greater emphasis on the nature of the applicants rights under Part VII of the 1996 Act, and in particular on the absence of what the Strasbourg Court has characterised as an important, and perhaps necessary, feature, namely an individual economic right in the applicant.
The crucial developments in Strasbourg relevant to the present case are the decisions in Ringeisen v Austria (No 1) (1971) 1 EHRR 455; Knig v Federal Republic of Germany (1978) 2 EHRR 170; Feldbrugge v Netherlands (1986) 8 EHRR 425; Deumeland v Germany (1986) 8 EHRR 448; and Salesi v Italy (1993) 26 EHRR 187.
It is not necessary to elaborate on them here, because they have been the subject of characteristically helpful discussion by Lord Hoffmann in R (Alconbury Developments Ltd) v Secretary of State for the Environment [2001] UKHL 23, [2003] 2 AC 295, at [78] [84] and in Runa Begum v Tower Hamlets London Borough Council [2003] UKHL 5, [2003] 2 AC 430, at [28] [33]; and see also Lord Millett in the latter decision at [82] [90].
For present purposes it is only necessary to say that in Ringeisen and Knig the Court applied Article 6(1) to disputes with public authorities concerning licences to, respectively, sell land and to practise as a doctor.
Article 6(1) was extended to social insurance claims against the State in Feldbrugge and Deumeland, and then to welfare assistance in Salesi.
The Strasbourg Court has said that it is not necessary to give what it has called an abstract definition of the concept of civil rights and obligations: Benthem v Netherlands (1985) 8 EHRR 1 at [35]; Feldbrugge v Netherlands (1986) 8 EHRR 425 at [27]; and Deumeland v Germany (1986) 8 EHRR 448 at [61].
It is understandable that the Court has been reluctant to provide abstract definitions.
What is not so comprehensible is its apparent reluctance to enunciate principles which will enable a line to be drawn between those rights in public law which are to be regarded as civil rights and those which are not to be so regarded.
The mere fact that evaluative judgments are required will not take the case out of Article 6(1).
For example, in Schuler Zgraggen v Switzerland (1993) 16 EHRR 405 the applicants invalidity pension depended on a finding that she was at least 66.66% incapacitated.
It was held that, despite the public law features of the case, the applicant suffered an interference with her means of subsistence, and that she was claiming an individual, economic right flowing from specific rules in legislation: at [46].
The reference in that decision to an individual, economic right flowing from specific rules in legislation reflects a thread running through the case law in this area.
It is plain from the jurisprudence of the Court that an important factor in the application of Article 6(1) in disputes with public authorities in areas which in national law would normally be regarded as public law is the assertion by the applicant of what has been variously described as an economic right or an individual, economic right or a purely economic right.
The citation of passages from three decisions, among many others, will illustrate the point.
In Feldbrugge v Netherlands (1986) 8 EHRR 425 the Court said (at [37]) 37.
To begin with, Mrs. Feldbrugge was not affected in her relations with the public authorities as such, acting in the exercise of discretionary powers, but in her personal capacity as a private individual.
She suffered an interference with her means of subsistence and was claiming a right flowing from specific rules laid down by the legislation in force.
For the individual asserting it, such a right is often of crucial importance; this is especially so in the case of health insurance benefits when the employee who is unable to work by reason of illness enjoys no other source of income.
In short, the right in question was a personal, economic and individual right, a factor that brought it close to the civil sphere.
So also in Deumeland v Germany (1986) 8 EHRR 448 the Court said (at [71]) [T]he widow of Mr. Deumeland Senior was not affected in her relations with the public authorities as such, acting in the exercise of discretionary powers, but in her personal capacity as a private individual.
She was claiming a right flowing from specific rules laid down by the legislation in force.
The right in question was a personal, economic and individual right, a factor that brought it close to the civil sphere.
and which involved a contributory invalidity scheme, the Court said (at [46]) In Schuler Zgraggen v Switzerland (1993) 16 EHRR 405, referred to above, today the general rule is that Article 6(1) does apply in the field of social insurance, including even welfare assistance .
State intervention is not sufficient to establish that Article 6(1) is inapplicable; other considerations argue in favour of the applicability of Article 6(1) in the instant case.
The most important of these lies in the fact that despite the public law features pointed out by the Government, the applicant was not only affected in her relations with the administrative authorities as such but also suffered an interference with her means of subsistence; she was claiming an individual, economic right flowing from specific rules laid down in a
federal statute
In a long series of cases the Court has held that Article 6(1) applied to claims by civil servants against the State which were pecuniary and which asserted a purely or essentially economic right: e.g. Abenavoli v Italy Application No 25587/94 (unreported) 2 September 1997; Couez v France Application No 24271/94 (unreported) 24 August 1998; Kirsten v Germany Application No 19124/02 (unreported) 15 February 2007.
So also in Mennitto v Italy (2000) 34 EHRR 1122 the Court emphasised that the applicants right to an allowance as the father of a disabled child was an economic right.
In Wo v Poland (2006) 45 EHRR 667 the Court held, applying Salesi v Italy and Mennitto v Italy, that Article 6(1) applied to claims by Polish victims of Nazi persecution against a fund set up by a Polish German agreement.
The applicant had suffered an interference with his means of subsistence and was claiming an individual, economic right flowing from specific rules laid down in the Foundations Statute and its by laws: at [76].
There is an emphasis in many of the Strasbourg cases on the pecuniary nature of the applicants rights.
But there is no reason to suppose that that is anything more than a factor in the evaluation.
Consequently there is nothing in principle to prevent rights in relation to housing, whether pecuniary or not, from being civil rights for the purposes of Article 6(1).
Thus in Tsfayo v United Kingdom (2006) 48 EHRR 457 it was conceded (see at [36]) that Article 6(1) applied to a dispute concerning entitlement to housing benefit, a means tested benefit payable towards housing costs in rented accommodation.
The cases relied on by the appellants for the proposition that benefits in kind, as opposed to pecuniary benefits, are protected as civil rights under Article 6, are both cases not only where the applicants were entitled to the housing, but where the entitlement had been reflected in a court judgment.
In Teteriny v Russia Application No 11931/03 (unreported) 30 June 2005 the applicants (husband and wife) were retired judges.
Under Russian law judges were entitled to priority treatment in the allocation of flats.
A court ordered the town council to provide the husband with a flat, but the order was not complied with.
The complaint was that the failure to comply with the judgment violated the applicants rights under Article 6(1), and also their right under Article 1 of the First Protocol not to be deprived of their possessions.
The Russian Government made no submissions on the merits of the claim, and the Court found, without any discussion of whether the application concerned civil rights, that there had been a violation of Article 6(1) on the ground that it applied to the enforcement of judicial decisions.
Although Article 1 of the First Protocol did not apply to a right to live in a property not owned by the applicant because it was not a possession, the claim to a flat was sufficiently established by the Russian courts judgment to constitute a possession.
Sypchenko v Russia Application No 38368/04 (unreported) 1 March 2007 and Nagovitsyn v Russia Application No 6859/02 (unreported) 24 January 2008 are similar cases involving, respectively, judgments awarding housing to a person suffering from infectious tuberculosis, and to a person exposed to radiation as a result of the Chernobyl explosion.
None of these cases decides whether a civil right is engaged before a duty to provide housing provision crystallises in a court order.
But it does not follow from that the fact that Article 6(1) may apply in some circumstances to disputes relating to housing benefits that it applies to all such disputes.
The following aspects of the homelessness legislation in Part VII of the 1996 Act (on which see the valuable article by Loveland, Does Homelessness Decision Making Engage Article 6(1) of the European Convention on Human Rights? [2003] EHRLR 176) are important.
The duties of the local authority arise only if a person is homeless.
A person is homeless if he has no accommodation available for his occupation.
He may be in accommodation but nevertheless homeless if the accommodation is not such that it would be reasonable for the person to occupy (section 175(1), (3)).
Accommodation is regarded as available for a persons occupation only if it is available for occupation by them together with (a) any other person who normally resides with him as a member of his family; or (b) any other person who might reasonably be expected to reside with him: section 176, as amended.
It is not reasonable for a person to continue to occupy accommodation if it is probable that this will lead to domestic violence, or other violence, against him: section 177.
Certain homeless persons are treated as having a priority need for accommodation, including, persons who are vulnerable as a result (inter alia) of old age or mental illness: section 189(1)(c).
Certain homeless persons are treated as becoming homeless intentionally, where they deliberately do or fail to do anything in consequence of which they cease to occupy accommodation which is available for their occupation and which it would have been reasonable for them to continue to occupy: section 191(1).
Where a person is intentionally homeless but has a priority need, the local authority has a duty to secure that accommodation is available for his occupation for such period as they consider will give him a reasonable opportunity of securing accommodation for his occupation, and provide him with advice and assistance in securing accommodation: section 190(2).
But if he is not in priority need, the duty is limited to advice and assistance: section 190(3).
Where a person is homeless, but not in priority need and not intentionally homeless, the local authority is under a duty to provide advice and assistance (section 192(1)) and may secure that accommodation is available for occupation by the applicant (section 192 (3)).
Section 193 sets out the duties to persons in priority need, in particular the duty to secure that accommodation is available for occupation by the applicant (section 193(2)).
The consequence is that the local authority has to investigate whether applicants are homeless, whether they are in priority need, and whether they are intentionally homeless.
It is only in relation to applicants with priority need that the local authority comes under the full duty to secure accommodation.
By section 193(5) the local authority ceases to be subject to the duty if the applicant refuses an offer of accommodation which the authority is satisfied is suitable.
As Lord Hope points out (at [27]) the content of the statutory duty lacks precision.
There is no right to any particular accommodation.
The duty is to secure that accommodation is available.
In my judgment, these factors together with the essentially public nature of the duty mean that the duty does not give rise to an individual economic right, and a dispute concerning the question whether the applicant has been properly notified of the consequences of refusal of accommodation is not within Article 6(1).
LORD KERR
I agree with Lord Hope and Lord Collins that this appeal should be dismissed.
One can recognise, however, the initial attraction of the argument that the right involved here was a civil right within the autonomous meaning of article 6.
To be provided with accommodation in the circumstances in which the appellants find themselves may be argued to constitute a statutory entitlement; the right to accommodation is conferred by section 193 (2) of the 1996 Act and therefore has a statutory base; it endures until determined by the occurrence of one of the events provided for in the succeeding provisions of section 193; and it can be argued to fulfil what have been recognised as the necessary criteria for an article 6 right.
In particular, the right can be said to be an economic right; it is individual or personal to the applicant; it is the product of or flows from the application of rules; those rules are specific and they are laid down in statute.
But I have been persuaded by the respondents argument that the case law points unmistakably in the opposite direction and I think that now is the time to recognise its effect.
I have not found it easy to reach a principled basis for the distinction between social security payments and social welfare provision for both require the expenditure of public resources; both provide a valuable resource to the recipient; and both are activated by a need on the part of the beneficiary.
But, the lack of similarity to (or, rather, the distinction that can be made with) a private insurance scheme; and the dependence on discretionary judgments not only to establish entitlement but also to discharge the states obligation and the way in which the obligation can be met all combine to make this a different type of case from the Salesi (Salesi v Italy (1993) 26 EHRR 187) or Mennitto (Mennitto v Italy (2000) 34 EHRR 1122) models.
This is not an assertable right as that term was used in Stec v UK (2005) 41 EHRR SE 295.
On the question of whether judicial review provides a sufficient review by an independent and impartial tribunal, I confess to some feelings of unease about the way in which this issue has been tackled in the past.
At a fundamental level, the purpose of the article 6 review might be said to be to nullify or offset the effect of the established lack of the appearance of partiality.
In Crompton v UK 27 October 2009, application 42509/05, at para 71, the purpose was described in this way: The Court has previously held that in order to determine whether the Article 6 compliant second tier tribunal had full jurisdiction, or provided sufficiency of review to remedy a lack of independence at first instance, it was necessary to have regard to such factors as the subject matter of the decision appealed against, the manner in which that decision was arrived at and the content of the dispute, including the desired and actual grounds of appeal (see [Bryan v the United Kingdom (1995) 21 EHRR 342, paras 44 to 47 and Tsfayo v Untied Kingdom (2006) 48 EHRR 457, para 43] [My emphasis.]
The underlying purpose is identified in this passage as to remedy a lack of independence at first instance.
In Tsfayo v United Kingdom (2006) 48 EHRR 457 this was also given as the purpose of the article 6 review see para 43, sufficiency of review to remedy a lack of independence at first instance.
The means by which the examination takes place i.e. having regard to such factors as the subject matter of the decision appealed against; the manner in which that decision was arrived at; and the content of the dispute must be distinguished from the purpose of the exercise.
Where the decision involves an evaluative judgment one can quite see that a judicial review challenge would be appropriate but where a conclusion on a simple factual issue is at stake, judicial review does not commend itself as an obviously suitable means by which to rid the original decision of its appearance of bias.
In particular, judicial review might be said to be a singularly inapt means of examining issues of credibility which lie at the heart of the present appeals.
Judicial review is suitable to deal with issues such as the rationality of the judgment reached; whether relevant factors have been taken into account; whether sufficient opportunity has been given to the affected party to make representations etc.
All of these take place on if not an agreed factual matrix at least one in which the areas of factual controversy are confined.
It is quite different when one comes to decide a sharply conflicting factual issue.
But, the decision in Runa Begum v Tower Hamlets LBC [2003] 2 AC 430 continues to occupy this particular field.
The observations of Lord Bingham (in paragraph 10) and of Lord Hoffmann in paragraphs 59 et seq effectively conclude the arguments on the second issue arising on the appeal.
There is also much force in Ms Lieven QCs argument that Part VII decisions invariably partake of factual inquiry and discretionary judgment.
The nature of the scheme as a whole, therefore, dictates the answer.
I agree with Lord Collins that the Russian cases do not assist in reaching a conclusion on the second issue.
There is much to be said for Lord Browns suggestion (made during argument) that even where one litigates a claim that does not itself involve an article 6 civil right, one may nevertheless assert that such a right arises where the judgment obtained on the claim which does not fall within article 6 remains unsatisfied.
But, it is quite clear that the European Court of Human Rights did not in the Russian cases address the question whether cases such as Salesi and Mennitto should be extended.
It is impossible to conclude that the Strasbourg court intended to radically expand the category of article 6 rights by these judgments.
| UK-Abs | The Housing Act 1996 places a duty on local housing authorities to ensure that suitable accommodation is available for homeless persons who fulfil certain criteria.
An authority may cease to be subject to that duty where an applicant refuses an offer of accommodation, but only if the authority notifies him, in writing, that it regards itself as having discharged its duty.
If dissatisfied with an authoritys decision that its duty has been discharged, an applicant may appeal to the county court.
But he may only do so on a point of law arising from the decision; the county court judge is not entitled to decide factual disputes as to whether or not events have happened.
In this case, Birmingham City Council maintained that it had successfully discharged its duty to a number of applicants who were homeless and fulfilled the relevant criteria.
The applicants disputed this, claiming that, although written notification of the kind the law requires may have been sent to them by the authority, they never actually received it.
The dispute between the parties as to whether the duty had been discharged therefore turned entirely on a pure question of fact.
It was therefore of a nature which a county court judge on appeal has no power to determine.
Before this Court, the applicants argued that the lack of a fact finding jurisdiction for a county court on appeal put that aspect of the system in breach of Article 6(1) of the European Convention on Human Rights, which guarantees the right to a fair trial in the determination of civil rights and obligations.
Two main issues arose for the courts determination: (1) whether an appeal to the county court involved the determination of a civil right for the purposes of Article 6(1); (2) if so, whether Article 6(1) required that a court hearing such an appeal must itself be able to determine issues of fact such as those raised in the present case.
The Supreme Court unanimously dismissed the appeal.
It held that a decision that a local housing authority takes under the Housing Act 1996 that it has discharged its duty to an applicant is not a determination of the applicants civil rights for the purposes of Article 6(1).
It therefore lies outside
the protection of that Article.
The Court also holds that, although it is unnecessary to decide the point, the appeal procedure as a whole complies with Article 6(1) in any event.
As to the first issue: Lord Hope (with whom Lady Hale and Lord Brown agreed) reasoned that in cases such as this, where the award of services or benefits in kind is not an individual right of which the applicant can consider himself the holder, but is dependent upon a series of evaluative judgments by the provider as to whether the statutory criteria are satisfied and how the need for it ought to be met, Article 6(1) is not engaged (see para [49]).
Lord Collins, whilst agreeing with Lord Hopes reasoning, placed less emphasis on the evaluative nature of the decision making process (para [58]).
The mere fact that evaluative judgments are required did not take the case out of Article 6(1) (para [61]).
The main reason why the decision fell outside the scope of the Article was that the statutory duty lacked precision.
There was no right to any particular accommodation; the duty was simply to ensure that accommodation was available.
Together with the essentially public nature of the duty, those factors meant that the duty did not give rise to an individual economic right (para [73]).
As to the second issue: Although the question whether or not the letters were received was factual, it was just one among a number of interlinked questions that had to be addressed to determine whether the housing authoritys duty had been discharged.
No case of the European Court of Human Rights was to the effect that an appeal from such a determination on a point of law only would constitute a breach of Article 6(1) (paras [53] [55], [79]).
|
A judge who is holding an extradition hearing pursuant to the Extradition Act 2003 (the 2003 Act) is required to consider whether the extradition of the person against whom the order is sought would be compatible with that persons human rights under the Human Rights Act 1998.
If not, that person must be discharged.
The issues of principle raised by this appeal relate to the approach that should be adopted in carrying out this exercise where extradition will interfere with that persons right to respect for his private and family life under article 8 of the European Convention on Human Rights (the Convention).
Once I have identified these principles, I shall apply those that are relevant to the case of the appellant, Mr Norris.
His extradition is sought by the respondent, the United States Government (the Government), in order that he may be tried on an indictment charging him with obstruction of justice.
His case is that when the consequences of extradition to the article 8 rights that he and his wife enjoy in this country are weighed against the public interest in his extradition for what is no more than an ancillary offence, the interference that this would cause with those rights cannot be justified.
This case was rejected by District Judge Evans and by the Divisional Court, consisting of Laws LJ and Openshaw J.
I shall say no more about the facts until I have dealt with the issues of principle.
The 2003 Act
The 2003 Act created a new extradition regime that was intended to simplify the process.
Under the new regime considerations that were for the Secretary of State are transferred to the court, and these include the compatibility of extradition with Convention rights.
Part 1 of the 2003 Act deals with extradition to Category 1 territories.
These are, in effect, members of the European Union which operate the European Arrest Warrant.
Part 2 deals with extradition to Category 2 territories that have been designated by order of the Secretary of State.
The United States is a category 2 territory.
Under both Part 1 and Part 2 procedures the appropriate judge has to carry out an extradition hearing at which he considers whether there exists any of the prescribed statutory bars to extradition.
These include incompatibility with Convention rights.
Section 21 in Part 1 and section 87 in Part 2 provide in identical terms that the judge must decide whether the persons extradition would be compatible with the Convention rights within the meaning of the Human Rights Act 1998.
If yes, an order for extradition must follow.
If no, the person must be discharged.
General provision is made in both Part 1 and Part 2 for circumstances that may well involve interferences with Convention rights.
Section 13 in Part 1 and section 81 in Part 2 bar extradition by reason of extraneous considerations which might result in discrimination or an unfair trial, in violation of the Convention.
Section 14 in Part 1 and section 82 in Part 2 provide that extradition is barred by the passage of time if, but only if, this would make extradition appear unjust or oppressive.
Section 91 in Part 2 precludes extradition where it appears to the judge that the physical or mental condition of the person whose extradition is sought is such that it would be unjust or oppressive to extradite him.
It is not alleged that any of these provisions applies in the case of Mr Norris.
Extradition treaties
Public international law does not impose a general duty upon countries to accede to requests for extradition.
Obligations to extradite arise out of bilateral treaties.
Nonetheless a number of Conventions have been concluded that impose on states an obligation to extradite or prosecute in respect of certain offences or which limit the grounds upon which a state can refuse to extradite.
These reflect increasing international cooperation in the fight against crime.
The relevant treaty in the present case is the Extradition Treaty of 1972 between the United Kingdom and the United States, for this applies in the case of any extradition proceedings in which the extradition documents were submitted before 26 April 2007.
On that date a new treaty, the Extradition Treaty of 2003 (Cm 5821) came into force.
The extradition documents in this case were submitted in January 2005.
The 1972 Treaty imposes, subject to specified exceptions, mutual obligations to extradite in respect of offences which carry a sentence of at least 12 months imprisonment in each jurisdiction.
Article V (2) of the 1972 Treaty provides that extradition may be refused on any ground which is specified by the law of the requested party.
Thus the United Kingdom will not be in breach of its treaty obligations if, by reason of section 87 of the 2003 Act, extradition is refused on human rights grounds.
Common ground
Article 8 of the Convention provides: 1.
Everyone has the right to respect for his private and family life, his home and his correspondence. 2.
There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the
rights and freedoms of others
The following matters are common ground: i) In this case, as in most extradition cases, extradition of Mr Norris from this country will interfere with his exercise in this country of his right to respect for his private and family life. ii) This interference will be in accordance with the law. iii) The critical issue in this case is whether this interference is necessary in a democratic societyfor the prevention of disorder or crime. iv) Resolving this issue involves a test of proportionality.
The interference must fulfil a pressing social need.
It must also be proportionate to the legitimate aim relied upon to justify the interference.
The Government contends that the legitimate aim, or pressing social need, is the honouring of extradition arrangements (an important aspect of the prevention of crime), that this aim weighs heavily in the scales and that the circumstances in which interference with article 8 rights will not be proportionate to it will be exceptional.
Mr Sumption QC for Mr Norris does not challenge this assertion.
He accepts that it will only be in exceptional circumstances that extradition will be refused on the ground that it involves a disproportionate interference with article 8 rights.
He submits, however, that this fact cannot be translated into a legal principle.
The court cannot impose on a person challenging extradition a threshold requirement of demonstrating that his case is exceptional.
He submits that this is what the Divisional Court did.
The primary issue of principle
The primary issue of principle is whether the court can properly require a person resisting extradition on article 8 grounds to demonstrate exceptional circumstances.
Mr Sumption contends that the Divisional Court erred in doing just this.
His argument is precisely expressed in the following two paragraphs of his written case: 19. [The Divisional Courts] essential error was that they sought to balance the principle of international cooperation in enforcing the criminal law, against the respect due to the private and family life of accused persons.
Concluding that the former was the more potent interest, they held as a matter of law that the latter could prevail only on facts which were striking or unusual or which reached a high threshold.
Hence the question which they certified as being of general public importance: Is the public interest in honouring extradition treaties such as to require, in any extradition case, that an appellant must show striking and unusual facts or reach a high threshold if his article 8 claim is to succeed? The effect is to create a strong presumption against the application of article 8 in extradition cases, and to require exceptional circumstances before any objection to extradition on article 8 grounds can succeed, a proposition which has been rejected by the House of Lords, following a substantial body of case law in the European Court of Human Rights. 20.
The correct approach is to balance the public interest in the extradition of this particular accused against the damage which would be done to the private or family life of this particular accused and his family.
The court must ask how much damage will really be done to the orderly functioning of the system of extradition, or the prevention of disorder or crime, by declining to extradite Mr. Norris in this case.
And whether that damage is so great as to outweigh the devastating impact that extradition would have upon the rest of his and his wifes life together.
These questions must, moreover be answered with an eye to the fact that the test imposed by article 8(2) is not whether his extradition is on balance desirable, but whether it is necessary in a democratic society.
For the Government Mr Perry QC has not sought to challenge the assertion that the court must not replace the test of proportionality with a test of exceptionality.
His submission has been that the Divisional Court has not done so.
All that it has done is to acknowledge the fact that, in an extradition context, an article 8 challenge will rarely succeed.
This is unobjectionable.
Subsidiary issues of principle
A number of subsidiary issues of principle in relation to the application of the test of proportionality in an extradition case became apparent in the course of argument.
These are as follows: i) Is the gravity of the crime in respect of which extradition is sought a relevant factor? Mr Sumption submits that it is and that this weighs in favour of Mr Norris for, so he submits, the extradition crime in this case is not a grave one.
Mr Perry joins issue with this last contention, but submits that the gravity of the extradition crime is of no relevance.
The obligation to extradite only arises in respect of offences which attract at least 12 months imprisonment.
Subject to that it matters not whether the person whose extradition is sought is a thief or a mass murderer. ii) Do you consider the interference in respect for family rights solely from the viewpoint of the person whose extradition is sought (the extraditee), or also from the viewpoint of other members of his family who are affected? Mr Perry submits the former, so that we should consider only the effect of extradition on Mr Norris.
Mr iii) Sumption submits the latter, and places particular emphasis on the effect that Mr Norris extradition will have upon his wife.
Is it relevant to consider whether it would be possible to prosecute the extraditee in the requested state? It has become common to urge this possibility as a factor that weighs against extradition.
It is not suggested that Mr Norris could be prosecuted in this jurisdiction for obstructing justice in the United States, so this issue is of no interest to Mr Sumption.
Mr Perry none the less urges us to make it clear that the possibility of prosecution in the requested state is an irrelevance.
Preliminary observations
Before embarking on an analysis of the jurisprudence I would make these preliminary observations.
The jurisprudence often deals with deportation and extradition without distinguishing between the two.
In one context this is understandable.
Usually human rights issues relate to the treatment of an individual within the jurisdiction of the State whose conduct is under attack (domestic cases).
Issues have, however, arisen as to whether, and in what circumstances, the Convention can be infringed by despatching a person to a territory where there is a risk that his human rights will not be respected (foreign cases).
In considering such issues it may be of no or little relevance whether the individual in question is facing deportation or extradition.
It would, however, be a mistake to assume that this question is of no relevance in a case such as the present.
This is a domestic case.
The family rights that are in issue are rights enjoyed in this country.
The issue of proportionality involves weighing the interference with those rights against the relevant public interest.
The public interest in extraditing a person to be tried for an alleged crime is of a different order from the public interest in deporting or removing from this country an alien who has been convicted of a crime and who has served his sentence for it, or whose presence here is for some other reason not acceptable.
This is a matter to which I shall return after considering the relevant jurisprudence.
The Strasbourg jurisprudence
I propose to follow the development of the Strasbourg jurisprudence in relation to deportation and extradition with particular reference to the issues raised on this appeal.
The starting point is Soering v United Kingdom (1989) 11 EHRR 439.
This was the first case in which the Strasbourg Court recognised that the Convention could be infringed by sending a person to a country where Convention rights would be violated.
It was an extradition case.
The issue was whether the United Kingdom would be in breach of the Convention if it extradited the applicant to Virginia to stand trial for capital murder.
The evidence was that, if he was convicted, the applicant would face up to eight years on death row.
This, he contended, would be inhuman and degrading treatment.
The Court accepted this argument.
It first made this observation in relation to the fact that article 1 of the Convention requires each contracting state to secure the Convention rights for those within their jurisdiction. 86.
Article 1 cannot be read as justifying a general principle to the effect that, notwithstanding its extradition obligations, a Contracting State may not surrender an individual unless satisfied that the conditions awaiting him in the country of destination are in full accord with each of the safeguards of the Convention.
Indeed, as the United Kingdom Government stressed, the beneficial purpose of extradition in preventing fugitive offenders from evading justice cannot be ignored in determining the scope of application of the Convention and of article 3 in particular.
The Court went on to conclude, however: 88 .
It would hardly be compatible with the underlying values of the Convention, that common heritage of political traditions, ideals, freedom and the rule of law to which the Preamble refers, were a Contracting State knowingly to surrender a fugitive to another State where there were substantial grounds for believing that he would be in danger of being subjected to torture, however heinous the crime allegedly committed.
Extradition in such circumstances, while not explicitly referred to in the brief and general wording of article 3, would plainly be contrary to the spirit and intendment of the article, and in the Courts view this inherent obligation not to extradite also extends to cases in which the fugitive would be faced in the receiving State by a real risk of exposure to inhuman or degrading treatment or punishment proscribed by that article. 91 In sum, the decision by a Contracting State to extradite a fugitive may give rise to an issue under article 3, and hence engage the responsibility of that State under the Convention, where substantial grounds have been shown for believing that the person concerned, if extradited, faces a real risk of being subjected to torture or to inhuman or degrading treatment or punishment in the requesting country.
In paras 110 and 111 the Court considered an argument advanced on behalf of Soering that it was relevant that, instead of extraditing him to Virginia, he could be deported to his own country, Germany, where he could be tried without the risk of the death penalty or death row conditions.
The United Kingdom Government urged that no such distinction should be drawn.
The Court held, nonetheless: However, sending Mr Soering to be tried in his own country would remove the danger of a fugitive criminal going unpunished as well as the risk of intense and protracted suffering on death row.
It is therefore a circumstance of relevance for the overall assessment under article 3 in that it goes to the search for the requisite fair balance of interests and to the proportionality of the contested extradition decision in the particular case.
A further consideration of relevance is that in the particular instance the legitimate purpose of extradition could be achieved by another means which would not involve suffering of such exceptional intensity or duration. (paras 110, 111)
At para 113 the Court dealt with a submission that extradition would also infringe the applicants article 6 rights because he would not be able to obtain legal assistance in Virginia.
The Court held: The right to a fair trial in criminal proceedings, as embodied in Article 6, holds a prominent place in a democratic society.
The Court does not exclude that an issue might exceptionally be raised under Article 6 by an extradition decision in circumstances where the fugitive has suffered or risks suffering a flagrant denial of a fair trial in the requesting country.
However, the facts of the present case do not disclose such a risk. (emphasis added)
In HG v Switzerland (Application No 24698/94) (unreported) given 6 September 1994 the Commission considered the admissibility of a complaint by a Turkish national that extradition from Switzerland to Turkey to serve a sentence imposed for kidnapping and raping a 14 year old girl would infringe article 3 because of Turkish prison conditions, article 6 because his trial in Turkey had not been fair and article 8 because extradition would interfere with respect for his family life in Switzerland.
The Commission held in para 2 that expulsion or extradition might in exceptional circumstances involve a violation of fundamental rights because of the serious fear of treatment contrary to article 2 or 3 in the requesting country.
It further held that an issue might exceptionally be raised under article 6 where a fugitive had suffered or risked suffering a flagrant denial of a fair trial in the requesting state (emphases added).
The Commission held that, on the facts, this was not such a case.
It went on to reject the admissibility of the article 8 claim on the facts.
In Raidl v Austria (1995) 20 EHRR CD 114 the Commission once again considered the admissibility of a claim that extradition to Russia on suspicion of murder had infringed the applicants Convention rights.
After finding ill founded a complaint based on article 3 the Commission went on to consider the applicants complaint that extradition had interfered with her married life in Austria, thereby violating her article 8 rights.
The Commission held at p 123: the interference with the applicants family life was proportionate to the legitimate aim pursued, given the seriousness of the crime, of which the applicant was suspected even before she contracted marriage in Austria. (emphasis added)
In Launder v United Kingdom (1997) 25 EHRR CD 67 the Commission considered the admissibility of a complaint that the United Kingdom would violate articles 2, 3, 5, 6 and 8 if it extradited him to the Hong Kong Special Administrative Region.
In finding the application manifestly ill founded the Commission said this in relation to article 8, at para 3: The Commission considers that it is only in exceptional circumstances that the extradition of a person to face trial on charges of serious offences committed in the requesting state would be held to be an unjustified or disproportionate interference with the right to respect for family life. (emphasis added)
In Chahal v United Kingdom (1996) 23 EHRR 413 the United Kingdom had detained Mr Chahal for some six years on the ground that they were taking action against him with a view to his deportation, this being a justification for interference with the article 5 Convention right to liberty by virtue of article 5(1)(f).
The Government wished to deport him to India because he was suspected of involvement in terrorism.
The Court held that, because of the danger of torture or inhuman or degrading treatment that he would face if deported, his deportation would violate article 3.
It rejected the contention of the UK Government that the fact that he posed a risk to the security of the United Kingdom had any relevance to the assessment of this question.
Mr Chahal and his wife and two children, who joined in his application, also contended that his deportation would violate their article 8 rights to respect for their family life in the United Kingdom.
The Court held that it had no need to decide this hypothetical question.
The principles to be applied when considering the proportionality of deportation that would interfere with article 8 family rights were first enunciated by the Court in Boultif v Switzerland (2001) 33 EHRR 1179.
The applicant, an Algerian, had married a Swiss citizen and established a home in Switzerland.
He then committed a robbery for which he received a two year prison sentence.
After he had come out of prison the Swiss authorities refused to renew his residence permit.
This meant that he would have to return to Algeria whither, the Court found, his wife could not reasonably be expected to follow him.
The Court laid down the following principles: 46.
The Court recalls that it is for the Contracting States to maintain public order, in particular by exercising their right, as a matter of well established international law and subject to their treaty obligations, to control the entry and residence of aliens.
To that end they have the power to deport aliens convicted of criminal offences.
However, their decisions in this field must, in so far as they may interfere with a right protected under paragraph 1 of Article 8, be necessary in a democratic society, that is to say justified by a pressing social need and, in particular, proportionate to the legitimate aim pursued (see Dalia, cited above, p. 91, 52, and Mehemi vs France, judgment of 26 September 1997, Reports 1997 VI, p. 1971, 34). 47.
Accordingly, the Court's task consists in ascertaining whether the refusal to renew the applicant's residence permit in the circumstances struck a fair balance between the relevant interests, namely the applicant's right to respect for his family life, on the one hand, and the prevention of disorder and crime, on the other. 48.
The Court has only to a limited extent decided cases where the main obstacle to expulsion is the difficulties for the spouses to stay together and in particular for a spouse and/or children to live in the other's country of origin.
It is therefore called upon to establish guiding principles in order to examine whether the measure was necessary in a democratic society.
In assessing the relevant criteria in such a case, the Court will consider the nature and seriousness of the offence committed by the applicant; the length of the applicant's stay in the country from which he is going to be expelled; the time elapsed since the offence was committed as well as the applicant's conduct in that period; the nationalities of the various persons concerned; the applicant's family situation, such as the length of the marriage; and other factors expressing the effectiveness of a couples family life; whether the spouse knew about the offence at the time when he or she entered into a family relationship; and whether there are children in the marriage, and if so, their age.
Not least, the Court will also consider the seriousness of the difficulties which the spouse is likely to encounter in the country of origin, though the mere fact that a person might face certain difficulties in accompanying her or his spouse cannot in itself exclude an expulsion.
Applying these principles, the Court found violation of article 8.
confirmed the principles laid down in Boultif, adding to these at para 58: In ner v The Netherlands (2006) 45 EHRR 421 the Grand Chamber the best interests and well being of the children, in particular the seriousness of the difficulties which any children of the applicant are likely to encounter in the country to which the applicant is to be expelled; and the solidity of social, cultural and family ties with the host country and with the country of destination.
The Court then went on to say this: 59.
The Court considered itself called upon to establish guiding principles in the Boultif case because it had only a limited number of decided cases where the main obstacle to expulsion was that it would entail difficulties for the spouses to stay together and, in particular, for one of them and/or the children to live in the others country of origin .
It is to be noted, however, that the first three guiding principles do not, as such, relate to family life.
This leads the Court to consider whether the Boultif criteria are sufficiently comprehensive to render them suitable for application in all cases concerning the expulsion and/or exclusion of settled migrants following a criminal conviction.
It observes in this context that not all such migrants, no matter how long they have been residing in the country from which they are to be expelled, necessarily enjoy family life there within the meaning of article 8.
However, as article 8 also protects the right to establish and develop relationships with other human beings and the outside world (see Pretty v the United Kingdom, no.2346/02, [61], ECHR 2002 III) and can sometimes embrace aspects of an individuals society identity (see Mikulic v Croatia, No.53176/99, [53], ECHR 2002 1), it must be accepted that the totality of social ties between settled migrants and the community in which they are living constitute part of the concept of private life within the meaning of article 8.
Regardless of the existence or otherwise of a family life, therefore, the court considers that the expulsion of a settled migrant constitutes interference with his or her right to respect for private life.
It will depend on the circumstances of the particular case whether it is appropriate for the Court to focus on the family life rather than the private life aspect. 60.
In the light of the foregoing, the Court concludes that all the above factors (see [57] [59]) should be taken into account in all cases concerning settled migrants who are to be expelled and/or excluded following a criminal conviction.
Finally I must refer to the decision of the Grand Chamber in Saadi v Italy (2008) 24 BHRC 123.
The United Kingdom intervened in this case in an attempt to persuade the Grand Chamber to reconsider the principles laid down in Chahal.
The attempt did not succeed.
The Grand Chamber held: 139.
The Court considers that the argument based on the balancing of the risk of harm if the person is sent back against the dangerousness he or she represents to the community if not sent back is misconceived.
The concepts of risk and dangerousness in this context do not lend themselves to a balancing test because they are notions that can only be assessed independently of each other.
Either the evidence adduced before the Court reveals that there is a substantial risk if the person is sent back or it does not.
The prospect that he may pose a serious threat to the community if not returned does not reduce in any way the degree of risk of ill treatment that the person may be subject to on return.
For that reason it would be incorrect to require a higher standard of proof, as submitted by the intervener, where the person is considered to represent a serious danger to the community, since assessment of the level of risk is independent of such a test. 140.
With regard to the second branch of the United Kingdom Government's arguments, to the effect that where an applicant presents a threat to national security, stronger evidence must be adduced to prove that there is a risk of ill treatment (see para 122, above), the Court observes that such an approach is not compatible with the absolute nature of the protection afforded by article 3 either.
It amounts to asserting that, in the absence of evidence meeting a higher standard, protection of national security justifies accepting more readily a risk of ill treatment for the individual.
The Court therefore sees no reason to modify the relevant standard of proof, as suggested by the third party intervener, by requiring in cases like the present that it be proved that subjection to ill treatment is more likely than not.
On the contrary, it reaffirms that for a planned forcible expulsion to be in breach of the Convention it is necessary and sufficient for substantial grounds to have been shown for believing that there is a real risk that the person concerned will be subjected in the receiving country to treatment prohibited by article 3.
Discussion
The Strasbourg cases to which I have referred illustrate three different situations.
The first is the foreign case, where the applicant seeks to establish a breach of the Convention because of the treatment that he fears that he will receive in the country to which he is to be sent.
Here Strasbourg has not differentiated between extradition and expulsion or deportation.
Language has been used suggesting that it will only be in exceptional circumstances that a foreign case will involve an infringement of the Convention and that the Convention will only prove a bar to extradition or deportation where there is a real risk of a flagrant breach of the Convention.
It is not any anticipated breach that will suffice.
The second situation is where, in a domestic case, breach of article 8 rights within the territory of the respondent State is relied upon as a bar to deportation or expulsion of an alien.
Here the Grand Chamber has made it plain that the question of proportionality is detailed and fact specific.
On the one hand the extent to which the removal of the alien is necessary in the public interest has to be considered having regard to the facts of the particular case.
On the other hand the extent of the interference with article 8 rights has to receive an equally careful evaluation, having regard to the facts of the particular case.
While it is unusual for an applicant to be able to make out a case of breach of the Convention in such circumstances, it is by no means unknown.
The third situation is where, in a domestic case, breach of article 8 rights within the territory of the respondent State is advanced as a bar to extradition.
There is, in fact, no reported case in which such a complaint has succeeded, or even been held admissible where not joined with other allegations of breach.
So far as the subsidiary issues are concerned, i) The reasoning of the Court in Soering 11 EHRR 439 and the express reference to the seriousness of the crime in Raidl 20 EHRR CD 114, 123 suggest that the gravity of the crime in respect of which extradition is sought is capable of being a material factor. ii) There is no support for the proposition that the Court is solely concerned with the family rights of the applicant, to the exclusion of those of other members of the family.
On the contrary, at least in deportation and expulsion cases, the Grand Chamber has made it clear in ner 45 EHRR 421 that the interests of children are particularly material, and there is no reason to conclude that the same is not true in an extradition case, in so far as family rights weigh in the balance at all. iii) The Court in Soering held that the possibility of trying a defendant in a forum where his fundamental rights will not be at risk can be a material factor when considering the proportionality of extradition in the face of a risk to those rights.
The domestic jurisprudence
When considering the domestic jurisprudence it is important to distinguish between the three different categories of case that I have identified in paragraphs 29 to 31 above.
It is a failure to do so that has led to the primary issue of principle in this appeal.
I shall start my survey of the domestic cases with three appeals to the House of Lords that were heard together R (Ullah) v Special Adjudicator; Do v Immigration Appeal Tribunal [2004] UKHL 26; [2004] 2 AC 323; R (Razgar) v Secretary of State for the Home Department [2004] UKHL 27; [2004] 2 AC 368.
The appellants in each appeal were unsuccessful asylum applicants who were resisting removal from the United Kingdom.
In Ullah the applicants complained that in the countries to which they were to be removed their article 9 rights to practise their religions would be infringed.
In Razgar the applicant complained that in Germany, to which country he was to be removed, he would not receive appropriate treatment for psychiatric illness from which he suffered, with the consequence that there would be interference with his article 8 right to respect for his private life.
Thus these were foreign cases; indeed it was on these appeals that Lord Bingham of Cornhill coined the phrases domestic cases and foreign cases that I have adopted in this judgment: see [2004] 2 AC 323, paras 8 9.
The principal issue was whether, in a foreign case, rights other than article 3 could be engaged.
The House of Lords, applying dicta of the Strasbourg Court, held that they could.
In paragraphs 17 to 20 of Razgar Lord Bingham set out five sequential questions that an immigration adjudicator should consider in cases where removal was resisted in reliance on article 8.
The fourth was whether interference with the article 8 right was necessary in a democratic society in the interests of national security, public safety or the economic well being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others these being the criteria of justification under article 8(2).
The fifth question, assuming an affirmative answer to the fourth question, was whether such interference was proportionate to the legitimate public end sought to be achieved.
Lord Bingham made the following comments on the answers to these questions: 19.
Where removal is proposed in pursuance of a lawful immigration policy, question (4) will almost always fall to be answered affirmatively.
This is because the right of sovereign states, subject to treaty obligations, to regulate the entry and expulsion of aliens is recognised in the Strasbourg jurisprudence (see Ullah [2004] 2 AC 323, 339, para 6) and implementation of a firm and orderly immigration policy is an important function of government in a modern democratic state.
In the absence of bad faith, ulterior motive or deliberate abuse of power it is hard to imagine an adjudicator answering this question other than affirmatively. 20.
The answering of question (5), where that question is reached, must always involve the striking of a fair balance between the rights of the individual and the interests of the community which is inherent in the whole of the Convention.
The severity and consequences of the interference will call for careful assessment at this stage.
He subsequently added: Decisions taken pursuant to the lawful operation of immigration control will be proportionate in all save a small minority of exceptional cases, identifiable only on a case by case basis.
It is not apparent that these observations were restricted to foreign cases.
They appear to have been of general application to cases of immigration control.
More generally, so far as there was discussion in these appeals of the approach to foreign cases, no distinction was drawn between expulsion and extradition.
Indeed, in Ullah at para 13 Lord Bingham held that what he described as the Soering principle was potentially applicable in either case.
He held that in either case successful invocation of Convention rights in a foreign case required the satisfaction of a stringent test.
Where qualified rights, such as those under articles 8 and 9, were concerned, it would be necessary to show that there would be a flagrant denial or gross violation of the right, so that it would be completely denied or nullified in the destination country see para 24.
distinction between foreign cases and domestic cases.
She said: In Razgar, at para 42, Baroness Hale of Richmond, emphasised the The distinction is vital to the present case.
In a domestic case, the state must always act in a way which is compatible with the Convention rights.
There is no threshold test related to the seriousness of the violation or the importance of the right involved.
Foreign cases, on the other hand, represent an exception to the general rule that a state is only responsible for what goes on within its own territory or control.
The Strasbourg court clearly regards them as exceptional.
It has retained the flexibility to consider violations of articles other than articles 2 and 3 but it has not so far encountered another case which was sufficiently serious to justify imposing upon the contracting state the obligation to retain or make alternative provision for a person who would otherwise have no right to remain within its territory.
For the same reason, the Strasbourg court has not yet explored the test for imposing this obligation in any detail.
But there clearly is some additional threshold test indicating the enormity of the violation to which the person is likely to be exposed if returned.
I doubt whether, in making these comments, Lady Hale had in mind the question of whether a threshold test was appropriate in an extradition case.
Razgar and Ullah were considered by the Divisional Court in R (Bermingham) v Director of the Serious Fraud Office [2006] EWHC 200; (Admin); [2007] QB 727.
Among the many points taken by the applicants, who were resisting extradition to the United States on charges of fraud in relation to the Enron affair, was a contention that their article 8 rights in respect of family life in this jurisdiction would be infringed by their extradition.
Further infringements of article 8 rights in the United States were also invoked.
Laws LJ, in delivering the sole judgment, referred to the opinion of Baroness Hale, but doubted whether the cases classification as foreign or domestic would cast much light on the stringency of the test for violation of Article 8 which the Court should apply para 115.
At para 118 he said this: If a person's proposed extradition for a serious offence will separate him from his family, article 8(1) is likely to be engaged on the ground that his family life will be interfered with.
The question then will be whether the extradition is nevertheless justified pursuant to article 8(2).
Assuming compliance with all the relevant requirements of domestic law the issue is likely to be one of proportionality: is the interference with family life proportionate to the legitimate aim of the proposed extradition? Now, there is a strong public interest in honouring extradition treaties made with other states (the Ullah case [2004] 2 AC 323, para 24).
It rests in the value of international co operation pursuant to formal agreed arrangements entered into between sovereign states for the promotion of the administration of criminal justice.
Where a proposed extradition is properly constituted according to the domestic law of the sending state and the relevant bilateral treaty, and its execution is resisted on article 8 grounds, a wholly exceptional case would in my judgment have to be shown to justify a finding that the extradition would on the particular facts be disproportionate to its legitimate aim.
Bermingham is also of relevance to one of the subsidiary issues.
The applicant sought an order that the Director of the Serious Fraud Office should exercise his statutory powers to investigate the possibility of instituting criminal proceedings in this jurisdiction, having particular regard to the fact that if the prosecution took place here the article 8 rights of the defendants would be protected.
The court held that it would not be appropriate to grant such relief.
Huang v Secretary of State for the Home Department [2007] UKHL 11; [2007] 2 AC 167 involved the approach that should be adopted by an appellate authority to the invocation of article 8 rights by aliens who wished to be permitted to remain in this country in order to live with members of their families who were already established here.
Thus the appeals involved domestic cases.
Mr Nicholas Blake QC, for Mrs Huang, appears from p 179 of the law report to have suggested that Razgar had laid down a truly exceptional threshold test for the successful invocation of article 8 rights in the face of deportation, and to have attacked such a test.
question of proportionality, at para 20: In delivering the opinion of the committee Lord Bingham said this about the In an article 8 case where this question is reached, the ultimate question for the appellate immigration authority is whether the refusal of leave to enter or remain, in circumstances where the life of the family cannot reasonably be expected to be enjoyed elsewhere, taking full account of all considerations weighing in favour of the refusal, prejudices the family life of the applicant in a manner sufficiently serious to amount to a breach of the fundamental right protected by article 8.
If the answer to this question is affirmative, the refusal is unlawful and the authority must so decide.
It is not necessary that the appellate immigration authority, directing itself along the lines indicated in this opinion, need ask in addition whether the case meets a test of exceptionality.
The suggestion that it should is based on an observation of Lord Bingham in Razgar, para 20.
He was there expressing an expectation, shared with the Immigration Appeal Tribunal, that the number of claimants not covered by the rules and supplementary directions but entitled to succeed under article 8 would be a very small minority.
That is still his expectation.
But he was not purporting to lay down a legal test.
The final comment has since been treated as an embargo on the application of a test of exceptionality, not only in domestic immigration cases but in extradition cases.
So far as immigration cases are concerned, the decision in Huang led to a number of cases being remitted to the Asylum and Immigration Tribunal on the ground that a test of exceptionality had mistakenly been applied by the Tribunal.
In AG (Eritrea) v Secretary of State for the Home Department [2007] EWCA Civ 801, [2008] 2 All ER 28, a domestic immigration case, Sedley LJ said this about Huang, at para 25: The effect of their Lordships' decision (and, if we may say so, the intended effect of this court's decision) in Huang has thus not been to introduce a new interpretation of article 8 but to clarify and reiterate a well understood one.
While its practical effect is likely to be that removal is only exceptionally found to be disproportionate, it sets no formal test of exceptionality and raises no hurdles beyond those contained in the article itself.
At para 31 Sedley LJ found it necessary to reiterate that there was no legal test of exceptionality as a surrogate for the article 8 decision.
He said: The fact that in the great majority of cases the demands of immigration control are likely to make removal proportionate and so compatible with article 8 is a consequence, not a precondition, of the statutory exercise.
No doubt in this sense successful article 8 claims will be the exception rather than the rule; but to treat exceptionality as the yardstick of success is to confuse effect with cause.
The first decision to which we have been referred in which Huang was applied in an extradition context is Jaso v Central Criminal Court No 2 Madrid [2007] EWHC 2983 (Admin).
The Madrid Court had issued European Arrest Warrants against the three appellants on charges of membership of a criminal organisation and terrorism.
The appellants had unsuccessfully challenged extradition before the District Judge on a large number of grounds.
These included the contention that extradition would violate articles 3, 5, 6 and 8 of the Convention.
The factual basis for this contention was an allegation that, if extradited, the appellants would be subject to incommunicado police detention for up to 5 days.
Thus this was a foreign case.
The District Judge had applied an exceptionality test and this was attacked before the Divisional Court.
Dyson LJ, when giving the leading judgment, held, applying Huang, that there was no exceptionality test.
He added, however, at para 57: It is clear that great weight should be accorded to the legitimate aim of honouring extradition treaties made with other states.
Thus, although it is wrong to apply an exceptionality test, in an extradition case there will have to be striking and unusual facts to lead to the conclusion that it is disproportionate to interfere with an extraditees article 8 rights.
Jaso was followed by Richards LJ, when giving the leading judgment in the Divisional Court in Tajik v Director of Public Prosecutions and Government of the United States of America [2008] EWHC 666 (Admin).
He said at para 156: What is said in Jaso about the need for striking and unusual facts to lead to the conclusion that extradition would be disproportionate does not constitute a separate legal test but recognises the practical reality that article 8 will rarely
provide a ground for refusing extradition
The final decision to which I should refer is R (Wellington) v Secretary of State for the Home Department [2008] UKHL 72; [2009] 1 AC 335.
The appellant was resisting extradition to Missouri on charges which included two counts of murder in the first degree.
He contended that, if convicted, he would be sentenced to imprisonment for life without eligibility of parole and that this would be inhuman treatment in violation of article 3.
The House unanimously dismissed his appeal.
A majority of the House held that the desirability of extradition was such that punishment which would be regarded as inhuman and degrading in the domestic context would not necessarily be so regarded when the choice was between either extraditing or allowing a fugitive offender to escape justice altogether.
This has proved a controversial finding, but this is not an occasion on which it would be appropriate to review it.
The case underlines the weight that the desirability of extradition carries as an essential element in combating public disorder and crime.
The judgment of the Divisional Court.
In giving the judgment of the Divisional Court in this case [2009] EWHC 995 (Admin), Laws LJ followed the approach of that court in Jaso and Tajik.
He said: 21 the learning, here and in Strasbourg, shows that the public interest in giving effect to bilateral extradition arrangements possesses especially pressing force because of its potency (a) in the fight against increasingly globalised crime, (b) in the denial of safe havens for criminals, and (c) in the general benefits of concrete co operation between States in an important common cause.
The gravity of the particular extradition crime may affect the weight to be attached to these factors, but because they are of a strategic or overarching nature, the public interest in extradition will always be very substantial.
Accordingly the claim of a prospective extraditee to resist his extradition on article 8 grounds must, if it is to succeed, possess still greater force.
That is why there must be striking and unusual facts (Jaso), and in practice a high threshold has to be reached (Tajik). 22.
That is how the balance between the public interest and the individual's right, inherent in the whole of the Convention, is to be struck where an article 8 claim is raised in an extradition case.
Their Lordships in Huang disapproved the application of a test of exceptionality as the means of striking the balance; though it is perhaps not without interest that the European Commission of Human Rights stated in Launder v United Kingdom (1997) 25 EHRR CD 67 that [I]t is only in exceptional circumstances that the extradition of a person to face trial on charges of serious offences committed in the requesting State would be held to be an unjustified or disproportionate interference with the right to respect for family life.
The formulations in Jaso and Tajik show that what was sought, incorrectly, to be gathered in a test of exceptionality is correctly reflected in a recognition of the force of the public interest in giving effect to a properly founded extradition request: a recognition, that is to say, of the relevant article 8(2) considerations (which in my judgment find concrete form in the three public benefits I have set out at paragraph 21).
Mr Sumption submitted in his written case that this reasoning embodied three fundamental errors: i) Whilst purporting to abjure any test of exceptionality, in effect it applied just such a test. ii) It subordinated a fact sensitive assessment of the interest in extradition in the individual case to a categorical assumption about the importance of that interest generally.
It relied upon a sentence from the Commissions decision in Launder when this had never been approved or followed by the Strasbourg Court and was inconsistent with the Courts approach in article 8 deportation cases. iii)
Discussion
It was a fundamental premise of Mr Sumptions submissions that, when considering the impact of article 8, the Court should adopt a similar approach in an extradition case as that to be adopted in a case of deportation or expulsion.
He drew our attention to the fact that in France the Conseil dEtat certainly does not do this.
In a deportation case, the Conseil dEtat now has regard to the human rights implications see Abraham, R. La Convention europeenne des droits de lhomme et les measures deloignement detrangers (1991) Rev fr Droit adm, 497.
So far as extradition is concerned, however, the Conseil dEtat considers that, as a matter of principle extradition justifies any interference with article 8 rights that may be involved see De Deus Pinto, CE, ass, 8 October 1999.
Mr Sumption submitted that the latter stance was incompatible with the Strasbourg jurisprudence.
I agree that there can be no absolute rule that any interference with article 8 rights as a consequence of extradition will be proportionate.
The public interest in extradition nonetheless weighs very heavily indeed.
In Wellington the majority of the House of Lords held that the public interest in extradition carries special weight where article 3 is engaged in a foreign case.
I am in no doubt that the same is true when considering the interference that extradition will cause in a domestic case to article 8 rights enjoyed within the jurisdiction of the requested State.
It is certainly not right to equate extradition with expulsion or deportation in this context.
It is of critical importance in the prevention of disorder and crime that those reasonably suspected of crime are prosecuted and, if found guilty, duly sentenced.
Extradition is part of the process for ensuring that this occurs, on a basis of international reciprocity.
It is instructive to consider the approach of the Convention to dealing with criminals or suspected criminals in the domestic context.
Article 5 includes in the exceptions to the right to liberty (i) the arrest of a suspect, (ii) his detention, where necessary, pending trial, and (iii) his detention while serving his sentence if convicted.
Such detention will necessarily interfere drastically with family and private life.
In theory a question of proportionality could arise under article 8(2).
In practice it is only in the most exceptional circumstances that a defendant would consider even asserting his article 8 rights by way of challenge to remand in custody or imprisonment see R (P) v Secretary of State of the Home Department [2001] EWCA Civ 1151, [2001] 1 WLR 2002, para 79, for discussion of such circumstances.
Normally it is treated as axiomatic that the interference with article 8 rights consequent upon detention is proportionate.
Massey v United Kingdom (Application No 14399/02) (unreported) given 8 April 2003 illustrates this proposition.
The applicant complained, inter alia, that criminal proceedings and a sentence of six years imprisonment constituted an unwarranted interference with his family life and his childrens right to a father.
In ruling the complaint inadmissible, the court held: The Court recalls that article 8.2 permits interference with an individuals right to respect for his private and family life in certain circumstances.
The Court considers that the bringing of criminal proceedings and the imposition of a punishment following conviction fall within these exceptions since they are in accordance with the law and pursue . legitimate aims, namely, public safety, the prevention of disorder and crime and protection of the rights and freedoms of others.
The Court therefore concludes that the prosecution and imprisonment of the applicant does not raise any issues under article 8 of the Convention.
There is an analogy between the coercion involved in extradition and the coercion involved in remanding in custody a prisoner reasonably suspected of wishing to abscond.
In either case the coercion is necessary to ensure that the suspect stands his trial.
Each is likely to involve a serious interference with article 8 rights.
The dislocation of family life that will frequently follow extradition will not necessarily be more significant, or even as significant, as the dislocation of family life of the defendant who is remanded in custody.
It seems to me that, until recently, it has also been treated as axiomatic that the dislocation to family life that normally follows extradition as a matter of course is proportionate.
This perhaps explains why we have been referred to no reported case, whether at Strasbourg or in this jurisdiction, where extradition has been refused because of the interference that it would cause to family life.
I reject Mr Sumptions contention that it is wrong for the court, when approaching proportionality, to apply a categorical assumption about the importance of extradition in general.
Such an assumption is an essential element in the task of weighing, on the one hand, the public interest in extradition against, on the other hand, its effects on individual human rights.
This is not to say that the latter can never prevail.
It does mean, however, that the interference with human rights will have to be extremely serious if the public interest is to be outweighed.
The reality is that only if some quite exceptionally compelling feature, or combination of features, is present that interference with family life consequent upon extradition will be other than proportionate to the objective that extradition serves.
That, no doubt, is what the Commission had in mind in Launder 25 EHRR CD 67, 73 when it stated that it was only in exceptional circumstances that extradition would be an unjustified or disproportionate interference with the right to respect for family life.
I can see no reason why the District Judge should not, when considering a challenge to extradition founded on article 8, explain his rejection of such a challenge, where appropriate, by remarking that there was nothing out of the ordinary or exceptional in the consequences that extradition would have for the family life of the person resisting extradition.
Exceptional circumstances is a phrase that says little about the nature of the circumstances.
Instead of saying that interference with article 8 rights can only outweigh the importance of extradition in exceptional circumstances it is more accurate and more helpful, to say that the consequences of interference with article 8 rights must be exceptionally serious before this can outweigh the importance of extradition.
A judge should not be criticised if, as part of his process of reasoning, he considers how, if at all, the nature and extent of the impact of extradition on family life would differ from the normal consequences of extradition.
These considerations are reflected in the judgment of Laws LJ in this case and the attack made on that judgment by Mr Sumption is not justified.
What general approach to human rights should the District Judge adopt at the extradition hearing? My comments in relation to this question should not be treated as laying down a course that the judge is bound to follow.
They are no more than advisory.
Mr Hermer QC, who appeared for Liberty as intervener, submitted that the judge should not start with consideration of the case for extradition, before turning to ask whether this was outweighed by the impact that extradition would have on article 8 rights.
This approach was the wrong way round.
The judge should first consider the effect of the proposed extradition on the article 8 rights, before going on to consider whether such interference could be justified.
The decision in each case should turn upon its individual facts.
Mr Hermers submissions did not recognise any difference between extradition and expulsion or deportation.
I did not find them either realistic or helpful.
The 2003 Act specifies those matters that the extradition judge has to consider.
Before considering any objections to extradition, he has to consider whether the statutory requirements for extradition have been satisfied.
This requires the judge to consider, among other things, the offence or offences in respect of which extradition is sought.
These must carry a minimum sentence of at least 12 months imprisonment, but this leaves scope for a very wide variation in the seriousness of the offence or offences that are alleged to have been committed.
The judge then has to consider a considerable number of possible statutory barriers to extradition.
These include the matters that might violate human rights to which I have referred at para 4 above.
It is only after he has done this that the judge has to consider whether extradition will be compatible with Convention rights pursuant to section 87 of the 2003 Act.
This is a fact specific exercise, and the judge must have regard to the relevant features of the individual case.
It is at this point that it is legitimate for the judge to consider whether there are any relevant features that are unusually or exceptionally compelling.
In the absence of such features, the consideration is likely to be relatively brief.
If, however, the nature or extent of the interference with article 8 rights is exceptionally serious, careful consideration must be given to whether such interference is justified.
In such a situation the gravity, or lack of gravity, of the offence may be material.
I do not accept Mr Perrys submission that the gravity of the offence can never be of relevance where an issue of proportionality arises in the human rights context.
The importance of giving effect to extradition arrangements will always be a significant factor, regardless of the details of the particular offence.
Usually the nature of the offence will have no bearing on the extradition decision.
If, however, the particular offence is at the bottom of the scale of gravity, this is capable of being one of a combination of features that may render extradition a disproportionate interference with human rights.
Rejecting an extradition request may mean that a criminal never stands trial for his crime.
The significance of this will depend upon the gravity of the offence.
This obvious fact has been recognised at Strasbourg (see para 32 above).
When considering the impact of extradition on family life, this question does not fall to be considered simply from the viewpoint of the extraditee.
On this subsidiary issue also I reject Mr Perrys submission to the contrary.
This issue was considered by the House of Lords in the immigration context in Beoku Betts v Secretary of State for the Home Department [2008] UKHL 39; [2009] AC 115.
After considering the Strasbourg jurisprudence the House concluded that, when considering interference with article 8, the family unit had to be considered as a whole, and each family member had to be regarded as a victim.
I consider that this is equally the position in the context of extradition.
Indeed, in trying to envisage a situation in which interference with article 8 might prevent extradition, I have concluded that the effect of extradition on innocent members of the extraditees family might well be a particularly cogent consideration.
If extradition for an offence of no great gravity were sought in relation to someone who had sole responsibility for an incapacitated family member, this combination of circumstances might well lead a judge to discharge the extraditee under section 87 of the 2003 Act.
At this point I will deal with the other subsidiary issue of principle that has been raised is it of relevance when considering proportionality that a prosecution for the extradition offence might be brought in the requested jurisdiction? As I have pointed out, the Strasbourg Court gave a positive answer to this question in Soering 11 EHRR 439.
There has recently been a spate of cases in which the extraditee has argued that he ought to be prosecuted in this jurisdiction, of which Bermingham [2007] QB 727 was but one.
The most recent was R(Bary) v Secretary of State for the Home Department [2009] EWHC 2068 (Admin).
References to the others can be found at para 72 of the judgment in that case.
In each one the argument was rejected.
Extradition proceedings should not become the occasion for a debate about the most convenient forum for criminal proceedings.
Rarely, if ever, on an issue of proportionality, could the possibility of bringing criminal proceedings in this jurisdiction be capable of tipping the scales against extradition in accordance with this countrys treaty obligations.
Unless the judge reaches the conclusion that the scales are finely balanced he should not enter into an enquiry as to the possibility of prosecution in this country.
Application of the principles to the facts of this case
Human rights are in issue and it is for this court to reach its own decision as to whether Mr Norris extradition would be compatible with his article 8 rights.
This is the second occasion on which this matter has reached the highest court in this jurisdiction.
Mr Norris is a British national, born on 15 February 1943.
He retired owing to ill health in 2002.
For some four years before he had been Chief Executive Officer of Morgan Crucible plc (Morgan) and he had worked in the carbon division of that company for 29 years before then.
Morgan and its subsidiaries became involved in the United States in price fixing that was contrary to the law of the United States.
Criminal proceedings in the United States resulted in a plea bargain under which Morgan paid a fine of $1 million and one of its subsidiaries paid a fine of $10 million.
Most of Morgans senior personnel were granted immunity from prosecution but these did not include Mr Norris.
On 28 September 2004 Mr Norris was indicted by a Grand Jury in Pennsylvania on one charge of price fixing and three charges of obstructing justice.
Extradition proceedings were commenced which he resisted on grounds, among others, that the conduct with which he was charged was not criminal under English law.
So far as the price fixing charge was concerned, this contention succeeded, but only when the matter reached the House of Lords Norris v Government of the United States of America [2008] UKHL 16; [2008] AC 920.
The House held, however, that the conduct alleged in relation to the charges of obstructing justice would have been criminal if carried out in this jurisdiction and that, accordingly, those offences were extraditable.
The House remitted the matter for reconsideration by the District Judge because: he exercised his judgment on a basis different from that which now pertains, namely that Mr Norris was to be extradited on the main price fixing count, and not merely the subsidiary counts. (Para 110).
Mr Sumption fastened on this passage and submitted in his written case that the main stuffing of the case against Mr Norris had been knocked out by the decision of the House.
As to that submission I would simply comment that there is plenty of stuffing left.
The gravamen of the case of obstructing justice appears in the following passages of the judgment of Auld LJ in the earlier proceedings Norris v Government of the United States of America (Goldshield Group plc intervening) [2007] EWHC 71 (Admin); [2007] 1 WLR 1730 based on a deposition of Lucy P.McClain, a trial attorney for the antitrust division of the US Department of Justice: 12.
Mr Norris instructed, through a 'task force' he set up for the purpose, all Morgan entities involved in the price fixing conspiracy to remove, conceal or destroy any documentary material, in particular Morgan's sales files in Europe, evidencing Morgan's involvement in the conspiracy.
He also instructed the retention and concealment of certain documents to enable Morgan to continue monitoring the working of the conspiracy. 13.
In about November 1999 Mr Norris met several of the co conspirators in England to discuss the United States authorities' investigation into their conspiratorial dealings and meetings, and to devise a false explanation, other than price fixing, to be put to the authorities for the meetings.
As Ms McClain put it in her affidavit: 'Norris and his subordinates discussed ways in which they could conceal the true purpose of the price fixing meetings when asked about them.
They decided to falsely characterise their meetings with competitors as discussions of legitimate joint ventures rather than disclose the fact that they were price fixing meetings.
Norris expressed his concern that the United States investigators would not believe Morgan's false explanation that the meetings were held to discuss joint ventures, in part because Morgan had no contemporaneous notes of the meetings to support its joint venture explanation.
Norris then directed his subordinates to create false summaries of the price fixing meetings that they would use as a guide or script in answering any future questions about what had occurred at their meetings.' 14.
To that end, a 'script' was prepared which Mr Norris approved, of false information as to the purpose of the meetings for use in the event of any of the Morgan staff or others involved in the conspiracy being questioned by the authorities or by the federal grand jury.
Those provided with the script were rehearsed and questioned about their recollection of the material contained in it.
Those who Mr Norris felt would not be able to withstand questioning, he distanced from Morgan by arranging for their retirement or for them to become consultants.
In January 2001 false handwritten summaries of potentially incriminating meetings were provided to the United States' authorities' investigators, who made plain they regarded Morgan's accounts of the meetings as false. 15.
At or about the same time, Morgan sought to persuade a German company alleged to be a party to the conspiracy, to support it in its false representations to the United States authorities so as, not only to exculpate Morgan, but also to cast blame on a French company, also alleged to be a party to the conspiracy a solicitation in which Mr Norris took a prominent and personal role.
Laws LJ rightly observed [2009] EWHC 995 (Admin), para 29 that the obstruction of justice charges, taken at their face value, were very grave indeed.
The evidence is that, if Mr Norris is convicted, the conduct in question is likely to attract a sentence of between 21 and 27 months imprisonment.
There is a possibility that the sentence will be significantly longer in order to reflect the gravity of the conduct that the obstruction of justice was designed to conceal.
If Mr Norris is extradited a year or more is likely to elapse before his trial.
It is possible that the Department of Justice would oppose the grant of bail before and during the trial.
If convicted he might be imprisoned in a low security Federal Correctional Institution with dormitory or cubicle accommodation.
There is a considerable body of medical evidence before the court, as there was before the Divisional Court, and I shall adapt and adopt the careful summary of that evidence made by Laws LJ.
Mr Norris is now 66 years of age.
He and his wife were married in 1966.
They have two sons and three grandchildren.
The US Department of Justice investigation began in 1999.
In 2000 Mr Norris was diagnosed as suffering from prostate cancer and underwent surgery in March 2001.
He contracted MRSA in the hospital.
A benign tumour was removed from his side in June 2002.
He was not, however, free of cancer and had to undergo radiotherapy in 2002.
He retired from Morgan on health grounds in October of that year.
Towards the end of the same year Morgan struck a plea agreement with the Department of Justice, but it did not include the appellant.
The extradition process effectively commenced in 2005, with the appellant's arrest on 13 January.
In her first witness statement (made on 27 April 2005) Mrs Norris describes with some eloquence the deteriorating quality of life which she and her husband faced as these events crowded around them.
In her second statement (30 May 2008) she paints a worsening picture, and also states (paragraph 8) that if the appellant had to spend any length of time in custody in the United States her psychiatric condition would prevent her from re locating there, where the only people she knows are connected with Morgan, and they are prohibited by the terms of the plea bargain from speaking to her or her husband.
In a letter of 20 April 2005 to Mr Norriss solicitors Dr Jones, his general practitioner, reviewed the prostate cancer history, as regards which he could not say there had been a complete recovery, and the onset of other problems: raised blood pressure and shortness of breath.
In October 2006 Dr Jones described difficulties relating to the appellant's hearing, left knee, right hip, incontinence and a recently developed hernia.
He stated that "[t]he legal problems Mr Norris has been having during the past 2 3 years have had a devastating effect upon him and his family".
By 7 February 2007, when the GP next wrote, the appellant's mental state had deteriorated.
His powers of concentration were poor, he had marked short term memory loss, was depressed and tended to shut himself away.
He was anxious about his wife's psychological state.
His physical problems largely persisted although his blood pressure was normal.
He and his wife were "at the end of their tether".
By 23 May 2008, when the GP next reported, the appellant was registered disabled and had had a total left knee replacement.
Dr Jones was anxious as to his mental state and arranged for him and his wife to see a psychologist.
There are in fact psychiatric reports on both Mr Norris and his wife which pre date the GP's May 2008 letter.
Professor Tom Fahy provided these on 15 February 2007.
In his report on Mr Norris he states that when he interviewed him, he "presented a normal mental state".
However, Although Mr Norris' current symptoms fall short of a formal psychiatric diagnosis, it is reasonable to assume that his symptoms would deteriorate in the face of imminent extradition, and/or actual imprisonment in the US. extradition,
conviction
Professor Fahy reported again on 27 May 2008.
He stated that Mr Norris' mental health has deteriorated since I saw him in February 2007.
He is now describing more prominent symptoms of low mood, loss of interest and pleasure in his usual activities and feelings of helplessness and pessimism about his life situation.
However, Finally, Mr Norris' mood disturbance is not persistent or severe enough to warrant a diagnosis of a depressive illness.
There is no serious prospect of this situation improving for him until the legal situation is resolved, though if he were to be extradited, it is likely that imprisonment and isolation from his family would lead to a further deterioration in his mental health and the development of more significant depressive symptoms.
Mrs Norris' state of health is described in a report dated 19 June 2008 from Michael Kopelman, who is a professor of neuropsychiatry at King's College London and St Thomas's Hospital.
He saw both Mr and Mrs Norris on 9 June 2008, and interviewed them separately and together.
Mrs Norris told him she had had suicidal ideas, panic attacks and palpitations.
Mr Norris told him there had been a "total change" in his wife's personality.
Professor Kopelman opined that Mrs Norris suffered from a "major depression of moderate severity" or a "moderate depressive episode" (depending on which set of criteria was used).
Its severity was however difficult to evaluate: she was able to maintain at least some social activities, but was a person who the doctor suspected was "good at hiding her real emotions".
He concluded (Opinion, paragraph 6): I have no doubt that the prolonged and more serious nature of Mrs Norris's current depression results from the prolonged extradition proceedings.
To this extent, the continuing nature of these extradition proceedings has caused Mrs Norris 'hardship' in the sense of severe psychological suffering and mental deterioration.
I have no doubt that this would be greatly worsened, were her husband to be extradited.
Mr Sumption submits that Mr and Mrs Norris poor health, together with the length and closeness of their marriage, has made them highly dependent on each other.
This and their advancing years, make them less resilient to the separation that Mr Norris extradition would involve.
It was originally Mrs Norris intention to accompany her husband to the United States should he be extradited, but in a witness statement that she made last year she says that she cannot now contemplate going to the US to live on her own there without friends and family support.
Because Mrs Norris will not accompany her husband to the United States, the interruption to their family life should he be remanded in custody, and during his imprisonment, should he be convicted, will be total.
This contrasts with the position that would have prevailed had Mr Norris been imprisoned in this country, where visiting rights enable the family relationship to be preserved.
Mr Sumption contends that Mr Norris extradition in these circumstances cannot be said to represent a proportionate answer to a pressing social need.
Nor, he argues, can it plausibly be said that the prevention of crime or the orderly functioning of extradition are public interests which will suffer substantial damage if someone in the particular position of Mr Norris is not extradited.
The Government has argued that not to extradite Mr Norris would damage the principle of automatic, or virtually automatic, extradition, but no such principle exists.
In a case such as this it is the exception that proves the rule.
One has to consider the effect on the public interest in the prevention of crime if any defendant with family ties and dependencies such as those which bind Mr Norris and his wife was thereby rendered immune from being extradited to be tried for serious wrongdoing.
The answer is that the public interest would be seriously damaged.
It is for this reason that only the gravest effects of interference with family life will be capable of rendering extradition disproportionate to the public interest that it serves.
This is not such a case.
Unhappily the delay that has been caused by Mr Norris efforts to avoid extradition to the United States has increased the severity of the consequences of that extradition for his family life.
But those consequences do not undo the justification that exists for that interference.
For these reasons I would dismiss this appeal.
Postscript
On the eve of delivering judgment in this case the court received the report of the admissibility decision in King v United Kingdom Application no. 9742 /07.
In holding Mr Kings application in relation to his extradition to Australia manifestly ill founded the Court at para 29 followed Launder in expressing the view, mindful of the importance of extradition arrangements between States in the fight against crime (and in particular crime with an international or cross border dimension), that it will only be in exceptional circumstances that an applicants private or family life in a Contracting State will outweigh the legitimate aim pursued by his or her extradition Referring to the fact that the applicant had a wife, two young children and a mother in the United Kingdom whose ill health would not allow her to travel to Australia the Court remarked that this was, in its view, not an exceptional circumstance.
This decision does not alter my view that it is more helpful, when considering proportionality, to consider whether the consequences of interference with article 8 rights are exceptionally serious rather than simply whether the circumstances are exceptional.
Either test is, however, likely to produce the same result and the decision demonstrates the futility of attempting to found an appeal on the basis that there has been inappropriate use of a test of exceptionality.
The court also cited Soering in support of the proposition that the considerations of whether prosecution exists as an alternative to extradition may have a bearing on whether extradition would be in violation of a Convention right.
I remain of the view that rarely, if ever, is this possibility likely in practice to tilt the scales against extradition and it certainly does not do so in this case.
LORD HOPE
It would not be right to say that a persons extradition can never be incompatible with his right to respect for his family life under article 8 of the European Convention on Human Rights.
But resisting extradition on this ground is not easy.
The question in each case is whether it is permitted by article 8(2).
Clearly some interference with the right is inevitable in a process of this kind, which by long established practice is seen as necessary in a democratic society for the prevention of disorder or crime.
That aim extends across international boundaries, and it is one which this country is bound by its treaty obligations to give effect to.
In this case extradition will be in accordance with the law, as the preconditions for Mr Norriss lawful extradition have all been satisfied.
So, as Mr Sumption QC made clear in his opening remarks, the issue is entirely one of proportionality.
This, as he said, is a fact specific issue.
He submitted that in the circumstances of this case extradition would be a violation of the article 8 right.
Mr Sumption challenged the governments assertion that the circumstances in which the interference with article 8 rights would not be proportionate will be exceptional.
In para (2) of a closing memorandum on law which he provided to the District Judge and made available to the court on the second day of the argument he said that it was not necessary to show exceptional circumstances in order to make out a case for refusing extradition.
He referred to Huang v Secretary of State for the Home Department [2007] 2 AC 167, para 20, where Lord Bingham of Cornhill said that exceptionality was not a legal test.
Applying that observation to this case, he added that the law recognises that the balance will not necessarily come down in favour of extradition, and that it would not be right to treat the test as a rule of thumb with substantially the same effect.
In oral argument he said that there was no such threshold that had to be crossed.
As it was put in Haung, this may be the expectation but it is not a legal test.
The phrase only in exceptional circumstances was used by the Commission in Launder v United Kingdom (1997) 25 EHRR CD 67, but he said that this was an early decision and it had not been adopted by the Strasbourg Court in its later case law.
I agree that exceptionality is not a legal test, and I think that it would be a mistake to use this rather loose expression as setting a threshold which must be surmounted before it can be held in any case that the article 8 right would be violated.
As Lord Phillips has observed, the phrase exceptional circumstances says little about the nature of the circumstances: para 56, above.
It tends to favour maintaining the integrity of the system as the primary consideration rather than focusing on the rights of the individual.
It risks diverting attention from a close examination of the circumstances of each case.
Although in its admissibility decision in King v United Kingdom, Application No 9742/07, 26 January 2010, it followed the Commissions decision in Launder in using the phrase exceptional circumstances, decisions of the Strasbourg court have repeatedly shown that an intense focus on the rights of the individual is necessary when striking the balance that proportionality requires.
I do not think that there are any grounds for treating extradition cases as falling into a special category which diminishes the need to examine carefully the way the process will interfere with the individuals right to respect for his family life.
Huang v Secretary of State for the Home Department was a domestic case where article 8 was relied on as a bar to expulsion, but I think that Lord Binghams statement that exceptionality is not a legal test can be applied to extradition cases too.
In R (Ullah) v Special Adjudicator [2004] 2 AC 323, para 13, he said that, while there were substantive differences between expulsion and extradition, the Strasbourg court had held the Soering principle to be potentially applicable in either situation: Cruz Varas v Sweden (1991) 14 EHRR 1, para 70.
Lord Steyn said in para 33 that, while the purpose of the two procedures was different, in the context of the possible engagement of fundamental rights under the ECHR the Strasbourg court has not in its case law drawn a distinction between cases in the two categories.
I would apply that approach to this case.
The fact remains however that the cases in which an argument of the kind that Mr Sumption sought to present will succeed are likely to be very few.
I agree with Lord Phillips that the reality is that it is only if some exceptionally compelling feature, or combination of features, is present that the interference with the article 8 right that results from extradition will fail to meet the test of proportionality.
The public interest in giving effect to a request for extradition is a constant factor, and it will always be a powerful consideration to which great weight must be attached.
The more serious the offence the greater the weight that is to be attached to it.
As against that, those aspects of the article 8 right which must necessarily be interfered with in every case where criminal proceedings are brought will carry very little, if any, weight; Massey v United Kingdom (Application No 14399/02) (unreported) given 8 April 2003, p 12.
Separation by the person from his family life in this country and the distress and disruption that this causes, the extent of which is bound to vary widely from case to case, will be inevitable.
The area for debate is likely to be narrow.
What is the extra compelling element that marks the given case out from the generality? Does it carry enough weight to overcome the public interest in giving effect to the request?
In the present case extradition is sought on charges of obstructing justice.
These are serious charges because of the methods that are said to have been used and the nature of the alleged conduct, and there is a strong public interest in giving effect to the treaty obligation so that they can be properly dealt with.
It was submitted that extradition in this case would cause disproportionate damage to Mr and Mrs Norriss physical or psychological integrity, having regard to their state of health, their age and the likely effect of the separation that extradition will impose on them.
Added to that is the fact that Mr Norris has had this process hanging over him for three years, much of which has been due to his successful challenge to his extradition on the charges of price fixing.
The effect of the delay is that he and his wife are that much older than they otherwise would have been, and this will make it all the more difficult for them to adapt to the consequences.
Mr Sumption invited the court to avoid short cuts and to pay close attention to all the relevant facts in its assessment.
The only circumstance which strikes me as not inherent in every extradition process is the delay.
Otherwise the issues that are raised in this case are really questions of degree.
Distressing the process of separation will undoubtedly be, and I am conscious of the extra element of hardship which will arise because of the state of health of the parties.
Due to their age, and especially to Mrs Norriss psychological condition, this is greater than it would normally be, but in my opinion not excessively so.
Mr Norris is fit to travel and he is fit to stand trial.
His family life must, for the time being, take second place.
The delay is unusually long due to the time it took for Mr Norris to assert his legal rights in regard to the charges of price fixing.
Its effect has been to increase the element of hardship.
Had the remaining charges been less serious this might perhaps have been sufficient to tip the balance in Mr Norriss favour.
But allegations of an attempt to obstruct the course of justice must always be taken very seriously, and I see no grounds for making an exception in this case.
In view of the strong public interest in giving effect to the respondents request so that these charges can be brought to trial in the jurisdiction that is best equipped to deal with them, I do not think that it is possible to say that Mr Norriss extradition on these charges would be disproportionate.
For these reasons, and those which Lord Phillips has given with which I am in full agreement, I agree that the appeal should be dismissed.
LORD BROWN
I agree entirely with the judgment of Lord Phillips on this appeal.
For the reasons he gives it will be only in the rarest cases that article 8 will be capable of being successfully invoked under section 87 of the Extradition Act 2003.
As Lord Phillips observes (at para 82): [O]nly the gravest effects of interference with family life will be capable of rendering extradition disproportionate to the public interest that it serves.
Paragraph 65 of his judgment instances a rare case where the defence might succeed.
It is difficult to think of many others, particularly where, as here, the charges are plainly serious.
It is important to understand the difference between the public interests under consideration by Strasbourg in the Boultif v Switzerland (2001) 33 EHRR 1179 and ner v The Netherlands (2006) 45 EHRR 421 line of cases, upon which so much of the appellants argument rested, and those involved in extradition.
True, the ECtHR describes this interest as the prevention of disorder or crime but this is always in the specific context of the expulsion and/or exclusion of settled migrants following a criminal conviction (ner paras 59 and 61).
Those invoking article 8 rights in such cases have already been convicted and punished for their crimes.
Decisions to expel or exclude are taken essentially in the interests of a sovereign states right to regulate the entry and expulsion of aliens, besides, of course, the interests of deterring immigrants generally from crime.
The public interests in extradition, however, are altogether more compelling.
I fully share Lord Phillips views expressed at para 52 of his judgment and for my part would also wish to endorse paras 21 and 22 of Laws LJs judgment in the court below.
As to our domestic jurisprudence, Huang v Secretary of State for the Home Department [2007] 2 AC 167 was concerned with article 8 in the context, not of extradition, but of immigration control.
In this context, of course, the immigration rules and supplementary directions (to which Lord Bingham, giving the opinion of the Committee, referred at para 20) for the most part take account of the immigrants article 8 rights.
But not in all circumstances, so that there remains scope for article 8 to be successfully invoked in some cases.
We rejected an exceptionality test since exceptionality as such can never be a helpful touchstone against which to judge whether in any particular case the interests of a lawful immigration policy are outweighed by the immigrants (and his familys) rights to private and/or family life.
But even in this, non extradition, context we contemplated article 8 succeeding only in a very small minority of cases.
The legal test is proportionality, not exceptionality, but in immigration cases the court will seldom find removal disproportionate and, in extradition cases, more rarely still.
Gomes v Government of the Republic of Trinidad and Tobago [2009] 1 WLR 1038 was a domestic extradition case concerned not with section 87 but with section 82 of the Extradition Act 2003 (making identical provision to section 14 in Part 1 of the Act).
Amongst the issues arising was the correct approach to the question raised by section 82 as to whether the passage of time makes extradition unjust.
In giving the judgment of the Committee I said this: [W]e would . stress that the test of establishing the likelihood of injustice will not be easily satisfied.
The extradition process, it must be remembered, is only available for returning suspects to friendly foreign states with whom this country has entered into multilateral or bilateral treaty obligations involving mutually agreed and reciprocal commitments.
The arrangements are founded on mutual trust and respect.
There is a strong public interest in respecting such treaty obligations.
As has repeatedly been stated, international co operation in this field is ever more important to bring to justice those accused of serious cross border crimes and to ensure that fugitives cannot find safe havens abroad.
We were told that the section 82 (or section 14) defence is invoked in no fewer than 40% of extradition cases.
This seems to us an extraordinarily high proportion and we would be unsurprised were it to fall following the Committees judgment in the present case. (para 36)
Seemingly it is now the section 87 (section 21 in Part 1) defence based on the extraditees article 8 rights which is regularly being invoked.
The incidence of this too may be expected to decline in the light of the Courts judgments on the present appeal.
The reality is that, once effect is given to sections 82 and 91 of the Act, the very nature of extradition leaves precious little room for a defence under section 87 in a domestic case.
To my mind section 87 is designed essentially to cater to the occasional foreign case where (principally although not exclusively) article 2 or 3 rights may be at stake.
It follows that I too would dismiss this appeal.
In doing so I would register my agreement also with the judgments of Lord Hope, Lord Mance, Lord Collins and Lord Kerr, each of which I understand to be (as I believe and intend my own judgment to be) entirely consistent with everything said by Lord Phillips.
LORD MANCE
Central to the issues argued on this appeal is the submission by Mr Jonathan Sumption QC for the appellant, Mr Norris, that the District Judge and Divisional Court, while purporting to apply the decision of the House of Lords in Huang v Secretary of State for the Home Department [2007] UKHL 11; [2007] 2 AC 167, erred by in effect reintroducing for extradition cases an exceptionality test.
Huang was a case involving claims by two failed asylum seekers that their removal would infringe their rights under article 8 of the European Convention on Human Rights to enjoy family life with relatives in the United Kingdom.
But it is submitted that that difference in subject matter is immaterial.
It is further submitted that, whatever the test, the Divisional Court erred in concluding that the interference with Mr and Mrs Norriss private life that Mr Norris extradition would entail is necessary in a democratic society (that it is proportionate to the legitimate interest served by his extradition) within the meaning of article 8(2) of the Convention.
That extradition would interfere with Mr and Mrs Norriss private and family life within article 8(1) is not in doubt.
Further, it would do so within the United Kingdom, where such life is currently enjoyed.
The case is thus a domestic rather than a foreign one, in the sense in which Lord Bingham drew this distinction in R (Ullah) v Special Adjudicator [2004] UKHL 26; [2004] 2 AC 323, para. 9.
This is relevant when considering whether the interference is justified or excused under article 8(2), as being in accordance with the law and necessary in a democratic society in an interest or for a purpose there specified.
In foreign cases (like Ullah itself and R (Razgar) v Secretary of State for the Home Department [2004] UKHL 27; [2004] 2 AC 368) the person resisting removal to a foreign country on the ground that it would interfere there with rights protected under article 8 must present a very strong case: see Ullah per Lord Bingham at para. 24.
In the same case, Lord Steyn at para. 50 spoke of the need to satisfy a high threshold test, by establishing at least a real risk of a flagrant violation of the very essence of the right before other articles [of the Convention] become engaged.
See also per Lord Carswell at paras. 67 70, as well as the later decisions in EM (Lebanon) v Secretary of State for the Home Department (AF (A Child) intervening) [2008] UKHL 64; [2009] AC 1198 and MT (Algeria) v Secretary of State for the Home Department [2009] UKHL 10; [2009] 2 WLR 512.
The approach taken in foreign cases cannot be transposed to domestic cases, where the removal of a foreigner from the jurisdiction would interfere with his or her private or family life within the jurisdiction.
Huang was a domestic case, in which Lord Bingham, giving the opinion of the appellate committee, noted that the questions generally to be asked in deciding whether a measure is proportionate were "whether: (i) the legislative objective is sufficiently important to justify limiting a fundamental right; (ii) the measures designed to meet the legislative objective are rationally connected to it; and (iii) the means used to impair the right or freedom are no more than is necessary to accomplish the objective".
However, Lord Bingham at para 19 went on to stress the need in applying this test to balance the interests of society with those of individuals and groups, and to refer, in this connection, to the Houses previous statement in Razgar [2004] 2 AC 368, paras 17 20, 26, 27, 60, 77 that the judgment on proportionality "must always involve the striking of a fair balance between the rights of the individual and the interests of the community which is inherent in the whole of the Convention.
The severity and consequences of the interference will call for careful assessment at this stage".
Similar reference to the importance of achieving a fair balance between public and private interests is found in Strasbourg case law, including Dickson v United Kingdom (2007) 46 EHRR 927 and S v United Kingdom (2008) 48 EHRR 1169 (paras. 109 and 111 below).
Addressing a submission by the Secretary of State that it would only be in an exceptional case that the removal under the immigration rules would infringe article 8 (p. 173E), Lord Bingham in Huang [2007] 2 AC 167, para 20 said that, where the issue of proportionality was reached, . the ultimate question for the appellate immigration authority is whether the refusal of leave to enter or remain, in circumstances where the life of the family cannot reasonably be expected to be enjoyed elsewhere, taking full account of all considerations weighing in favour of the refusal, prejudices the family life of the applicant in a manner sufficiently serious to amount to a breach of the fundamental right protected by article 8.
If the answer to this question is affirmative, the refusal is unlawful and the authority must so decide.
It is not necessary that the appellate immigration authority, directing itself along the lines indicated in this opinion, need ask in addition whether the case meets a test of exceptionality.
The suggestion that it should is based on an observation of Lord Bingham in Razgar, para 20.
He was there expressing an expectation, shared with the Immigration Appeal Tribunal, that the number of claimants not covered by the rules and supplementary directions but entitled to succeed under article 8 would be a very small minority.
That is still his expectation.
But he was not purporting to lay down a legal test.
In a later domestic case, EB (Kosovo) v Secretary of State for the Home Department [2008] UKHL 41; [2009] AC 1159, Lord Bingham again described the exercise required under article 8: 12. the appellate immigration authority must make its own judgment and that judgment will be strongly influenced by the particular facts and circumstances of the particular case.
The authority will, of course, take note of factors which have, or have not, weighed with the Strasbourg court.
It will, for example, recognise that it will rarely be proportionate to uphold an order for removal of a spouse if there is a close and genuine bond with the other spouse and that spouse cannot reasonably be expected to follow the removed spouse to the country of removal, or if the effect of the order is to sever a genuine and subsisting relationship between parent and child.
But cases will not ordinarily raise such stark choices, and there is in general no alternative to making a careful and informed evaluation of the facts of the particular case.
The search for a hard edged or bright line rule to be applied to the generality of cases is incompatible with the difficult evaluative exercise which article 8 requires.
The present case concerns extradition, not immigration control, a distinction which Mr Perry QC for the Government emphasises.
The purpose for which Mr Norriss extradition is sought is, in terms of article 8(2), the prevention of disorder or crime .
Mr Sumption argues that this restricts the courts focus to the particular risks of disorder or crime which may flow, presumably from Mr Norris himself, if Mr Norris were not extradited.
That is in my view unrealistic.
The balancing exercise between the public and private interests involves a broader focus.
Ullah underlines both the great importance of operating firm and orderly immigration control in an expulsion case and the great desirability of honouring extradition treaties made with other states: [2004] 2 AC 323, para 24.
The European Court of Human Rights in Soering v United Kingdom (1989) 11 EHRR 439 acknowledged the beneficial purpose of extradition in preventing fugitive offenders from evading justice (para. 86) and said that, as movement about the world becomes easier and crime takes on a larger international dimension, it is increasingly in the interest of all nations that suspected offenders who flee abroad should be brought to justice (para. 89).
These statements refer to fugitive offenders, but similar public interests in extradition apply to suspects who have allegedly committed offences in countries other than those where they habitually reside.
In agreement with others of your Lordships, it is clear that the general public interest in extradition is a powerful one.
This is so, not only in respect of a person already convicted, but also in respect of a person wanted to face trial.
Without affecting the need for a case by case approach, I see it as being, in each of these situations, generally stronger than either the public interest in enforcing immigration control in respect of a failed asylum seeker or an over stayer who has established family roots within the jurisdiction or even than the public interest in deporting a convicted alien upon the conclusion of his sentence, although this be to avoid the commission of further offences within the jurisdiction of the deporting state.
Under article 8, the ultimate question is whether Mr and Mrs Norriss interests in the continuation of their present private and family life in the United Kingdom are outweighed by a necessity, in a democratic society and for the prevention of disorder or crime, for Mr Norris to be extradited in order to face trial in the United States.
Whether extradition is necessary depends upon whether it is proportionate to the legitimate interest served by extradition in his case or, as the European Court of Human Rights said in Dickson 46 EHRR 927 para 71, whether a fair balance [is] struck between the competing public and private interests involved.
The first step in any such enquiry must, in this context also, be to identify and examine all the relevant facts in the particular case.
The nature and seriousness of the alleged offence will be relevant to the strength of the case in favour of extradition: see e.g. Raidl v Austria (1995) 20 EHRR CD114 and King v United Kingdom (Application no. 9742/07) (both extradition cases) in which complaints were held inadmissible.
Laws LJ examined this aspect in the Divisional Court [2009] EWHC 995, paras. 28 29 and concluded that the obstruction of justice charges, taken at their face value, are very grave indeed.
Lord Phillips after re examining the position in his paras. 69 72 reaches the same conclusion, and so do I. Another relevant factor may sometimes be whether a trial would be possible in the United Kingdom, but I agree with Lord Phillips (paras. 66 67) that, while one should not prejudge the facts of particular cases, this is in practice likely to be relevant (if it can be at all) only in otherwise marginal cases.
Mr and Mrs Norriss personal circumstances, the nature of their private and family life and the likely effect of extradition upon it and each of them will all be of primary importance.
I need not repeat here the detailed account of these matters contained in the judgment of Laws LJ in the Divisional Court, paras. 30 37 and of Lord Phillips, paras. 73 80.
In weighing up such personal factors against other factors, it is of course also relevant that extradition is by its nature very likely to have adverse consequences for the private or family life within the jurisdiction of the person being extradited.
The mere existence of some adverse consequences will not be a sufficient counterweight, where there is a strong public interest in extradition.
The principal question of law raised by Mr Sumption centres upon the District Judges and Laws LJs use of phrases referring to a need for a high threshold or for striking and unusual facts before the claim of a prospective extraditee to resist extradition under article 8 would in practice succeed.
However, Laws LJ prefaced his reference to such phrases with an explanation of the force of the public interest in extradition.
This meant, he stated, that any claim to resist extradition on article 8 grounds must, if it is to succeed, possess still greater force: para. 21.
Provided that it is recognised that the force of the public interest in extradition must itself be weighed according to the particular circumstances, I see no objection to this last statement.
In a case involving obstruction of justice charges of a gravity such as the present, the public interest in extradition is self evidently very substantial.
It has to be weighed against other relevant factors, including the delay and above all the impact on Mr and Mrs Norriss private and family life.
Interference with private and family life is a sad, but justified, consequence of many extradition cases.
Exceptionally serious aspects or consequences of such interference may however outweigh the force of the public interest in extradition in a particular case.
There is a possible risk about formulations which suggest in general terms that any person seeking to avoid extradition under article 8 must cross a high threshold or establish striking and unusual facts or exceptional circumstances.
They may be read as suggesting that the public interest in extradition is the same in every case (in other words, involves a threshold of a constant height, whereas in fact it depends on the nature of the alleged offence involved) and also that the person resisting extradition carries some form of legal onus to overcome that threshold, whereas in fact what are in play are two competing interests, the public and the private, which have to be weighed against each other, as required by the case law under the Convention as well as by s.87 of the Extradition Act 2003.
It can be expected that the number of potential extraditees who can successfully invoke article 8 to resist extradition will be a very small minority of all those extradited, but that expectation must not be converted into an a priori assumption or into a part of the relevant legal test.
A further potential problem about such formulations is that they may tend to divert attention from consideration of the potential impact of extradition on the particular persons involved and their private and family life towards a search for factors (particularly external factors) which can be regarded as out of the run of the mill.
Different people have different ages, different private and family lives and different susceptibilities.
They may react and suffer in different ways to the threat of and stress engendered by potential extradition in respect of the same offence or type of offence.
And some of the circumstances which might influence a court to consider that extradition would unduly interfere with private or family life can hardly be described as exceptional or striking and unusual.
Take a case of an offence of relatively low seriousness where the effect of an extradition order would be to sever a genuine and subsisting relationship between parent and baby, or between one elderly spouse and another who was entirely dependant upon the care performed by the former.
Strasbourg case law supports the need for caution about the use of such formulations, while also indicating that statements that undue interference with article 8 rights will only occur in exceptional circumstances have not either necessarily or always been viewed as problematic.
Thus, the Commission in Launder v United Kingdom (1997) 25 EHRR CD67, 73, para 3 after reciting the basic test of necessity (which implies a pressing social need and requires that the interference at issue be proportionate to the legitimate aim pursued) added: The Commission considers that it is only in exceptional circumstances that the extradition of a person to face trial on charges of serious offences committed in the requesting state would be held to be an unjustified or disproportionate interference with the right to respect for family life.
The Commission finds that in the present case no such circumstances have been shown to exist.
In King v United Kingdom (where Mr King was accused of being a member of a gang engaged in a conspiracy to import large quantities of ecstasy into Australia) the Court returned to this passage, saying: Mindful of the importance of extradition arrangements between States in the fight against crime (and in particular crime with an international or cross border dimension), the Court considers that it will only be in exceptional circumstances that an applicants private or family life in a Contracting State will outweigh the legitimate aim pursued by his or her extradition (see Launder v United Kingdom, no. 27279/95, Commission decision of 8 December 1997).
The fact that Mr King had in the United Kingdom two young children and a mother whose health would not allow her to travel to Australia was not an exceptional circumstance, in which connection the Court could not overlook the very serious charges he faces and was accordingly satisfied that it would not be disproportionate to extradite him to Australia.
In Dickson v United Kingdom 46 EHRR 927 the issue was the consistency with article 8 of a policy whereby requests for artificial insemination by prisoners were carefully considered on individual merit but only . granted in exceptional circumstances (para. 13).
The European Court of Human Rights considered that the policy set the threshold so high against them [the applicant prisoners] . that it did not allow a balancing of the competing individual and public interests and a proportionality test ,,,, as required by the Convention (para. 82); and that it was not persuasive to argue . that the starting point of exceptionality was reasonable since only a few persons would be affected, implying as it did the possibility of justifying the restriction of the applicants Convention rights by the minimal number of persons adversely affected (para. 84).
On the other hand, in McCann v United Kingdom 47 EHRR 913, the local authority had determined Mr McCanns right to remain in his home by obtaining from his wife a notice to quit, the effect of which upon him she did not understand.
The European Court of Human Rights, while holding that Mr McCann should in these circumstances have been given the opportunity to argue the issue of proportionality under article 8, added: 54.
The court does not accept that the grant of the right to the occupier to raise an issue under article 8 would have serious consequences for the functioning of the system or for the domestic law of landlord and tenant.
As the minority of the House of Lords in Kay v Lambeth London Borough Council [2006] UKHL 10; [2006] 2 AC 465 observed . , it would be only in very exceptional cases that an applicant would succeed in raising an arguable case which would require a court to examine the issue; in the great majority of cases, an order for possession could continue to be made in summary proceedings.
The minority observation which the European Court approved appears in these terms in Lord Binghams speech [2006] 2 AC 465, para 29: I do not accept, as the appellants argued, that the public authority must from the outset plead and prove that the possession order sought is justified.
That would, in the overwhelming majority of cases, be burdensome and futile.
It is enough for the public authority to assert its claim in accordance with domestic property law.
If the occupier wishes to raise an article 8 defence to prevent or defer the making of a possession order it is for him to do so and the public authority must rebut the claim if, and to the extent that, it is called upon to do so.
In the overwhelming majority of cases this will be in no way burdensome.
In rare and exceptional cases it will not be futile.
The context in both Kay and McCann was one of an absolute common law right to possession of property, to enforcement of which the article 8 right to respect for the home might sometimes represent an obstacle.
In contrast, as Lord Bingham noted in Huang [2007] 2 AC 167, para 17, the statutory scheme governing immigration control itself contemplates that a person may fail to qualify under the immigration rules and yet have a valid claim under article 8.
A similar exercise of weighing competing interests is required under s.87 of the Extradition Act 2003.
Finally, in S v United Kingdom 48 EHRR 1169, the European Court held that the blanket and indiscriminate retention of fingerprints, cellular samples and DNA profiles of persons suspected, but not convicted, of offences, and subject only to a discretion in exceptional circumstances to authorise their deletion, failed to strike a fair balance between the competing public and private interests (paras. 35 and 125).
The preferable course is, in my view, to approach the exercise required by article 8 by (a) identifying the relevant facts and on that basis assessing the force of, and then weighing against each other, the considerations pointing in the particular case for and against extradition, and (b) when addressing the nature of the considerations which might outweigh the general public interest in extradition to face trial for a serious offence, doing so in terms which relate to the exceptional seriousness of the consequences which would have to flow from the anticipated interference with private and family life in the particular case.
But this is very far from saying that any adjudicative exercise which refers to a need in practice for exceptional circumstances or striking and unusual facts in the context of a particular application for extradition is axiomatically flawed.
Still less can it be a ground of objection if the expectation that only a small minority of potential extraditees will in practice be able successfully to rely on article 8 to resist extradition proves statistically to be the case as a result of the decisions reached over a period and over the whole range of such cases.
What matters in any event is whether, as a result of whatever formulation has been adopted, the adjudicative exercise has been slanted or distorted in a manner which undermines its outcome in any particular case.
In the present case, on the facts set out by Laws LJ and Lord Phillips and for the reasons given in relation to those facts by Lord Phillips in para 82 and by Lord Hope in para 93, I am left in no doubt that the balance between public and private interests comes down clearly in favour of Mr Norriss extradition, as serving a pressing social need and being proportionate to the legitimate aim pursued, or, in conclusion, as reflecting an appropriate weighing of the public and private interests engaged, despite the grief and interference with his and his wifes private and family life that extradition will undoubtedly cause.
I have read Lord Phillips judgment with its addendum written in the light of King v United Kingdom, and find nothing inconsistent with the way in which I see the matter and in which I have expressed my own reasons for reaching the same conclusion as he does.
LORD COLLINS
I agree with Lord Phillips that Mr Norris appeal should be dismissed for the reasons he gives.
In 1878 the Report of the Royal Commission on Extradition said: it is the common interest of mankind that offences against person and property, offences which militate against the general well being of society, should be repressed by punishment [W]e may reasonably claim from all civilised nations that they shall unite with us in a system which is for the common benefit of all (in Parry, British Digest of International Law, vol 6 (1965), at 805)
Some 75 years ago the commentary to the Harvard draft Convention on extradition pointed out: The suppression of crime is recognized today as a problem of international dimensions and one requiring international co operation The State, whose assistance is requested, should view the request with favor, if for no other reason, because it may soon be in the position of requesting similar assistance [T]he most effective deterrent to crime is the prompt apprehension and punishment of criminals, wherever they may be found.
For the accomplishment of these purposes States cannot act alone; they must adopt some effective concert of action (Harvard Research in International Law, 1935, p 32)
This appeal concerns crime of an international character, although with some unusual features.
The principal charge in the United States was that of price fixing contrary to the Sherman Act.
The 1972 UK US Extradition Treaty (by contrast with the 2003 Treaty, Article 2(4) and Extradition Act 2003, section 137(3)) applied only to offences committed within the jurisdiction of the other Party (Article I).
Much of Mr Norris alleged conduct was said to have occurred outside the United States (in particular, participation in meetings in Europe, Mexico and Canada to discuss and agree prices), but Morgan Crucible had subsidiaries in the United States which were alleged to be part of the price fixing cartel, and no point on extra territoriality was taken.
The basis of the decision of the House of Lords in March 2008 was that price fixing was not a criminal offence in England until the Enterprise Act 2002, and that since it was not a criminal offence when the offence was alleged to have been committed, it was not an extradition offence under the Extradition Act 2003 and therefore there was not the requisite double criminality: Norris v Government of the United States of America [2008] UKHL 16, [2008] AC 920.
But the obstruction of justice charges brought against Mr Norris were held to satisfy the double criminality test: if Mr Norris had done in England what he was alleged to have done in the United States he would have been guilty in England of offences of conspiring to obstruct justice or of obstructing justice.
The obstruction of justice charges involve conduct outside the United States, but also include allegations that Mr Norris directed an alleged co conspirator to instruct an employee of a United States subsidiary to conceal or destroy incriminating documents, and that he participated in a scheme to prepare false evidence to be given to the United States authorities and to the Grand Jury.
The effect of the evidence before the Divisional Court was that, if Mr Norris is convicted on the obstruction of justice charges, it is at the least possible that the judge will have regard to the anti trust violations in sentencing him for obstruction of justice.
The Divisional Court, applying Welsh v Secretary of State for the Home Department [2006] EWHC 156 (Admin), [2007] 1 WLR 1281 and R (Bermingham) v Director of the Serious Fraud Office [2006] EWHC 200 (Admin), [2007] QB 727, held that this was not contrary to the principle of specialty (also, but less commonly, referred to as speciality): [2009] EWHC 995 (Admin).
The principle is reflected in Article XII(1) of the 1972 UK US Extradition Treaty and section 95 of the Extradition Act 2003.
The traditional statement of the principle is that a surrendered person will not be tried or punished for any offence other than that in respect of which he has been extradited: Oppenheims International Law, 9th ed Jennings and Watts (1992), vol 2, para 420; Whiteman, Digest of International Law, vol 6 (1968), p 1095 (and at 1100 on non extraditable offences as aggravation).
The Divisional Court refused to certify as a question of law of general public importance the question whether it offended the specialty principles if offences which were not extradition offences could be treated as aggravating factors for sentencing purposes.
The Appeal Committee of the House of Lords did not give leave to appeal on this point, and it is therefore not before this court.
The sole question before this court is whether Mr Norris extradition to the United States is compatible with the Convention rights within the meaning of the Human Rights Act 1998 (Extradition Act 2003, section 87(1)).
The same question would have arisen prior to the Extradition Act 2003 as a result of the combined effect of the Human Rights Act 1998, section 6(1), and the discretion of the Home Secretary under the Extradition Act 1989, section 12.
The only direct reference to extradition in the Human Rights Convention is the exception to the right to liberty under Article 5(1) for the lawful arrest or detention of a person against whom action is being taken with a view to deportation or extradition (Article 5(1)(f)).
But the extradition process may engage other Convention rights, as the leading judgment in Soering v United Kingdom (1989) 11 EHRR 439 on the responsibility of the requested State under Article 3 dramatically shows.
But while the Strasbourg jurisprudence does not preclude reliance on articles other than article 3 as a ground for resisting extradition it makes it quite clear that successful reliance demands presentation of a very strong case. [T]he removing state will always have what will usually be strong grounds for justifying its own conduct: the great desirability of honouring extradition treaties made with other states: R (Ullah) v Special Adjudicator [2004] UKHL 26, [2004] 2 AC 323, at [24].
In the present case the question is whether, in extraditing Mr Norris to the United States, the United Kingdom would be in breach of its obligation under Article 8 of the Human Rights Convention to respect private and family life.
The primary object of Article 8 is to protect the individual against arbitrary action by public authorities, but it is well established that there are, in addition, positive obligations inherent in effective respect for family life.
The removal of a person from a country where close members of that persons family are living may amount to an infringement of the right to respect for family life: Boultif vs Switzerland (2001) 33 EHRR 1179, and many other decisions including Y v Russia [2008] ECHR 1585, at [103].
In determining whether interference by a public authority with the rights guaranteed by Article 8(1) is necessary for the purposes of Article 8(2), regard must be had to the fair balance which has to be struck between the competing interests of the individual and of the community as a whole: Keegan vs Ireland (1994) 18 EHRR 342, at [49], and most recently Eberhard and M v Slovenia [2009] ECHR 1976, at [126].
In this case the balance has to be struck in the context of a bilateral extradition treaty providing for the surrender of persons alleged to have committed extraditable crimes.
It hardly needs to be said that there is a strong public interest in international co operation for the prevention and punishment of crime.
Consequently, the public interest in the implementation of extradition treaties is an extremely important factor in the assessment of proportionality: e.g. R (Ullah) v Special Adjudicator [2004] UKHL 26, [2004] 2 AC 323, at [24]; Wright v Scottish Ministers (No 2) 2005 1 SC 453, at [77]; R (Wellington) v Secretary of State for the Home Department [2008] UKHL 72, [2009] 1 AC 335, at [24].
As a result, in cases of extradition, interference with family life may easily be justified under Article 8(2) on the basis that it is necessary in a democratic society for the prevention of crime: HG v Switzerland, Application 24698/94, September 6, 1994 (Commission).
In Soering v United Kingdom (1989) 11 EHRR 439 at [89] the Strasbourg Court said: inherent in the whole of the Convention is a search for a fair balance between the demands of the general interest of the community and the requirements of the protection of the individuals fundamental rights.
As movement about the world becomes easier and crime takes on a larger international dimension, it is increasingly in the interest of all nations that suspected offenders who flee abroad should be brought to justice.
Conversely, the establishment of safe havens for fugitives would not only result in danger for the State obliged to harbour the protected person but also tend to undermine
the foundations of extradition
More recently the Court, in calan v Turkey (2005) 41 EHRR 45, re affirmed what had been said in Soering and added (at [86]): The Convention does not prevent cooperation between States, within the framework of extradition treaties or in matters of deportation, for the purpose of bringing fugitive offenders to justice, provided that it does not interfere with
any specific rights recognised in the Convention
It is inherent in the extradition of a citizen of the requested state that it is almost certain to involve an interference with family life, and that it is why it has been said that it is only in exceptional circumstances that extradition to face trial for serious offences in the requesting state would be an unjustified or disproportionate interference with family life: Launder v United Kingdom (1997) 25 EHRR CD67, at [3]; and cf Raidl v Austria (1995) 20 EHRR CD114, at 123.
See also R (Warren) v Secretary of State for the Home Department [2003] EWHC 1177 (Admin), at [40] [41].
This approach has been confirmed in the recent admissibility decision in King v United Kingdom, Applicn 9742/07.
The public interest in the prevention and suppression of crime, which includes the public interest in the United Kingdoms compliance with extradition arrangements, is not outweighed by the mutual dependency and the ill health, both physical and mental, of Mr and Mrs Norris.
Lord Phillips has dealt with the question whether it is relevant whether a prosecution for the alleged offences could be brought in the requested State.
It was treated as a factor in Soering v United Kingdom at para 110.
In the admissibility decision in King v United Kingdom, Applicn 9742/07, the Court confirmed that considerations as to whether prosecution existed as an alternative to extradition might have a bearing on whether the extradition would be in violation of Convention rights.
The point has also arisen in Ahsan v United Kingdom [2009] ECHR 362, a case involving a request by the United States for extradition to answer charges for alleged terrorist offences, in which the Strasbourg court has asked the parties for submissions on the relevance, if any, which is to be attached to the applicants submission that he could and should be tried in the United Kingdom.
Although the point does not arise for decision on this appeal, it will not normally be relevant, for the reasons given by Lord Phillips, that a prosecution could be brought in the United Kingdom.
LORD KERR
I agree that this appeal should be dismissed.
The centrepiece of the appellants case is that the importance to be attached to the need for an effective system of extradition should only be assessed by reference to the particular circumstances of an individual case.
Thus, the question becomes, would the decision not to extradite this person because of interference with his Article 8 rights cause unacceptable damage to the public interest.
I do not accept this argument.
The specific details of a particular case must obviously be taken into account but recognition of a wider dimension is also required.
In other words, it is necessary to recognise that, at some level of abstraction or generality, the preservation and upholding of a comprehensive charter for extradition must be maintained.
The question cannot be confined to an inquiry as to the damage that an individual case would do to the system of extradition.
It must be approached on a broader plane.
It should also be recognised that the public interest in having an effective extradition system extends beyond deterrence of crime.
It also embraces the need for effective prosecution of offenders see Soering v United Kingdom (1989) EHRR 439, para 89.
Although the appellant argued that the Divisional Court, while disavowing an exceptionality approach, in fact applied such a test in a somewhat re cast form, that claim does not survive careful consideration of what the Divisional Court actually said.
The Divisional Court did not impose an exceptionality requirement.
It merely reflected the significant difficulty involved in displacing the substantial consideration of the need for a coherent and effective system of extradition.
Mr Perry QCs principal argument was to the effect that the public interest in preserving a workable and effective system of extradition was unalterable and constant.
I would be disposed to accept that argument provided constant is understood in this context to mean that it will always arise.
I do not accept that it will be of unvarying weight in every case.
It will always be a highly important factor but there will be some cases where its importance will be properly assessed as overwhelming.
Recognition of the fact that this will always be an important consideration does not create an exceptionality requirement, however; it merely reflects the reality that this is an unchanging feature of the extradition landscape.
Sedley LJ was therefore right in AG (Eritrea) v Secretary of state for the Home Department [2007] EWCA Civ 801; [2008] 2 All ER 28 when he said at para 31 that the circumstance that article 8 claims will rarely be successful is one of result rather than a reflection of an exceptionality requirement.
While it will be, as a matter of actual experience, exceptional for article 8 rights to prevail, it seems to me difficult, in light of Huang v Secretary of State for the Home Department [2007] 2 AC 167, to revert to an exceptionality test a test which, at times, Mr Perry appeared to invite us to rehabilitate.
But it is entirely possible to recognise that article 8 claims are only likely to overcome the imperative of extradition in the rarest of cases without articulating an exceptionality test.
This message does not depend on the adoption of a rubric such as striking or unusual to describe the circumstances in which an article 8 claim might succeed.
The essential point is that such is the importance of preserving an effective system of extradition, it will in almost every circumstance outweigh any article 8 argument.
This merely reflects the expectation of what will happen.
It does not erect an exceptionality hurdle.
I accept Mr Sumption QCs argument that the starting point must be that article 8 is engaged and that it is then for the state to justify the interference with the appellants rights.
But, because of the inevitable relevance of the need to preserve an effective extradition system, that consideration will always loom large in the debate.
It will always be a weighty factor.
Following this line, there is no difficulty in applying the approach prescribed in para 12 of EB (Kosovo) v Secretary of State for the Home Department [2008] UKHL 41; [2009] AC 1159.
On this analysis the individual facts of each case can be evaluated but that evaluation must perforce be conducted against the background that there are substantial public interest arguments in play in every extradition case.
That is not an a priori assumption.
It is the recognition of a practical reality.
There is nothing about the facts of this case that distinguishes it significantly from most cases of extradition, or indeed from most cases of white collar crime.
If Mr Norris were prosecuted in this country, no doubt many of the fears, apprehensions and effects on his and his wifes physical and mental health would accrue in any event.
The added dimension of having to face trial and possible incarceration in America is, of course, a significant feature but not substantially more so than in many other cases of extradition.
The only matter of moment is the delay that has occurred from the time that extradition was first sought but, as has been pointed out, this was to some extent created by the actions of the appellant himself and is, in any event, not of sufficient significance that it cannot be outweighed by the need to preserve effective extradition.
| UK-Abs | The United States Government is seeking the extradition of the appellant, Mr Norris, so he may be tried on an indictment charging him with obstruction of justice.
He had originally faced a further charge of price fixing.
The House of Lords ruled in 2008 ([2008] UKHL 16) that the conduct alleged in relation to the price fixing charge was not capable of amounting to an extradition offence as it was not a crime under English law when it was committed.
His case was then sent back to the district judge to decide whether he should be extradited on the remaining charges in the indictment.
Mr Norris submitted that extradition would cause disproportionate damage to his and his wifes physical and psychological wellbeing having regard to their age, their state of health and the likely effect of the separation that extradition would impose upon them.
Thus extradition would be incompatible with his right to private and family life under article 8 of the European Convention on Human Rights and he should be discharged pursuant to s 87 Extradition Act 2003.
The district judge found there to be no bars to extradition.
His decision was upheld on appeal to the High Court, which found that the public interest in honouring extradition treaties was such as to require Mr Norris to show striking and unusual facts or reach a high threshold if his article 8 rights were to prevail.
Mr Norris appealed to the Supreme Court, arguing that the courts below had wrongly required him to demonstrate exceptional circumstances in order to show that his extradition would be disproportionate.
The Supreme Court unanimously dismissed the appeal.
It held that a test of exceptional circumstances had not been applied.
However, in an extradition case, the consequences of any interference with article 8 rights would have to be exceptionally serious before this could outweigh the public importance of extradition.
This was not such a case.
Lord Phillips (with whom all the members of the court agreed) stated that it was common ground that the extradition of Mr Norris would interfere with the exercise in this country of his right to respect for his private and family life.
The critical question was whether this interference was necessary in a democratic society for the prevention of disorder or crime.
On the issue of principle of whether a court could properly require a person resisting extradition on article 8 grounds to demonstrate exceptional circumstances, there was no rule of law that this was the test of disproportionality but the public interest in extradition weighed very heavily indeed [paragraph 51].
It was of critical importance in the prevention of disorder and crime that those reasonably suspected of crime were prosecuted and, if found guilty, duly sentenced.
Extradition was part of the process for ensuring that this occurred on a basis of international reciprocity [paragraph 52].
The reality was that only if some quite exceptionally compelling feature, or combination of features, was present that interference with family life consequent upon extradition would be other than proportionate to the objective that extradition served.
Exceptional circumstances was a phrase which said little about the nature of the circumstances: it was more accurate and more helpful to say that the consequences of interference with article 8 rights must be exceptionally serious before this could outweigh the importance of extradition.
The courts below were justified in considering how if at all the impact of extradition on family life would differ from the normal consequences of extradition [paragraph 56].
Three subsidiary issues arose,, which the court answered as follows: The gravity of the offence could be of relevance, especially if it was at the bottom of scale, but it usually would not be [paragraph 63]; The effect of extradition on innocent members of the family of a person resisting extradition was relevant and could be a cogent consideration [paragraph 64]; and It would rarely be relevant to consider whether the person resisting extradition could be prosecuted in the requested state.
The extradition process should not become an occasion for debate about the most convenient forum for criminal proceedings [paragraph 67] On the facts of Mr Norris case, he was now 67 and had suffered ill health for some years.
His wifes psychiatric condition would preclude her from travelling to the United States to support her husband and she would lose his support.
The offences of obstructing justice, although subsidiary to the price fixing charge, were however very grave indeed [paragraph 72].
The public interest would be seriously damaged if any defendant with family ties and dependencies such as those which bound Mr Norris and his wife was thereby rendered immune from being extradited to be tried for serious wrongdoing [paragraph 82].
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These appeals raise the question as to the test which is to be applied when considering whether a gay person who is claiming asylum under the Convention relating to the Status of Refugees 1951, as applied by the 1967 Protocol (the Convention) has a well founded fear of persecution in the country of his or her nationality based on membership of that particular social group.
The need for reliable guidance on this issue is growing day by day.
Persecution for reasons of homosexuality was not perceived as a problem by the High Contracting Parties when the Convention was being drafted.
For many years the risk of persecution in countries where it now exists seemed remote.
It was the practice for leaders in these countries simply to insist that homosexuality did not exist.
This was manifest nonsense, but at least it avoided the evil of persecution.
More recently, fanned by misguided but vigorous religious doctrine, the situation has changed dramatically.
The ultra conservative interpretation of Islamic law that prevails in Iran is one example.
The rampant homophobic teaching that right wing evangelical Christian churches indulge in throughout much of Sub Saharan Africa is another.
The death penalty has just been proposed in Uganda for persons who engage in homosexual practices.
Two gay men who had celebrated their relationship in a public engagement ceremony were recently sentenced to 14 years imprisonment in Malawi.
They were later pardoned in response to international pressure by President Mutharika, but he made it clear that he would not otherwise have done this as they had committed a crime against the countrys culture, its religion and its laws.
Objections to these developments have been greeted locally with derision and disbelief.
The fact is that a huge gulf has opened up in attitudes to and understanding of gay persons between societies on either side of the divide.
It is one of the most demanding social issues of our time.
Our own government has pledged to do what it can to resolve the problem, but it seems likely to grow and to remain with us for many years.
In the meantime more and more gays and lesbians are likely to have to seek protection here, as protection is being denied to them by the state in their home countries.
It is crucially important that they are provided with the protection that they are entitled to under the Convention no more, if I may be permitted to coin a well known phrase, but certainly no less.
Background
The appellants are both gay men.
HJ, who is 40 years old, is an Iranian.
He claimed asylum on arrival in the United Kingdom on 17 December 2001.
He practised homosexuality in Iran and has continued to do so in the United Kingdom.
HT, who is 36 years old, is a citizen of Cameroon.
He claimed asylum following his arrest at Gatwick on 19 January 2007.
He had presented a false passport while in transit to Montreal.
He too is a practising homosexual.
Both appellants claim that they have a well founded fear that they would be persecuted if they were to be returned to their home countries.
The Secretary of State for the Home Department (the respondent) refused asylum in both cases.
HJs appeal against that decision was dismissed by the Asylum and Immigration Tribunal on 15 August 2005.
On 26 July 2006 the Court of Appeal remitted his case to the Tribunal for reconsideration: J v Secretary of State for the Home Department [2006] EWCA Civ 1238, [2007] Imm AR 73.
On 8 May 2008, following reconsideration, his appeal remained dismissed.
HTs appeal to the Tribunal was dismissed on 29 October 2007.
Reconsideration was ordered on 14 November 2007 on the ground that the Tribunal might have made an error of law in the test to be applied to a gay person seeking asylum.
But on 5 June 2008 Senior Immigration Judge Warr held that the earlier determination was not flawed, and he did not proceed to a reconsideration of the evidence.
The appellants appealed against these decisions to the Court of Appeal.
On 10 March 2009 the Court of Appeal (Pill and Keene LJJ and Sir Paul Kennedy) dismissed both appeals: [2009] EWCA Civ 172.
The Secretary of State accepted that practising homosexuals are a particular social group for the purposes of article 1A of the Convention.
The issue was how those who had a well founded fear of persecution could be identified.
It was said by counsel for the appellants to be whether it was an answer to a claim for refugee status for the applicant to be required to conceal his sexual identity in order to avoid harm of sufficient severity as to amount to persecution the proposition being that to impose such a requirement was incompatible with the Convention.
For the Secretary of State it was submitted that the issue always was whether the applicant could reasonably be expected to tolerate the need for discretion on return: para 7.
The Court of Appeal applied the test stated by Maurice Kay LJ in J v Secretary of State for the Home Department [2007] Imm AR 73, para 16, where he said that the tribunal would have to ask itself whether discretion was something that the applicant could reasonably be expected to tolerate, not only in the context of random sexual activity but in relation to matters following from, and relevant to, sexual identity in the wider sense.
In HJs case the Court of Appeal held that the Tribunal were entitled to conclude on the evidence that HJ could reasonably be expected to tolerate conditions in Iran: [2009] EWCA Civ 172, para 31.
In HTs case there was finding that he would be discreet on return to Cameroon.
The question whether he could reasonably be expected to tolerate a life involving discretion was not raised.
The Court of Appeal held that there were no facts on which a decision on that matter could be based but that the Tribunal were entitled to find that HT had not established that there was a real risk of persecution in the future: paras 44, 45.
In this court Mr Bourne for the Secretary of State submitted that the test of whether the appellants should have refugee status was correctly stated by the Court of Appeal in J v Secretary of State for the Home Department [2007] Imm AR 73, that it was correctly applied by the Tribunal in both cases and that the Court of Appeal was right to dismiss the appeals.
Mr Husain QC for HJ said that the test as stated in J v Secretary of State for the Home Department is misconceived.
He submitted that it is contrary to the ordinary meaning of the definition of refugee in the Convention, and the objects and purposes of the treaty, to deny a refugees claim on the basis that he was required to suppress or surrender his protected identity to avoid the persecution that would ensue if that identity were to be disclosed.
Miss Carss Frisk QC for HT too disputed the test in Js case.
She submitted that if the applicant could show that he had a well founded fear of persecution he was entitled to refugee status.
He should not be required to demonstrate that concealment of his identity was something that he could not reasonably be expected to tolerate.
She also said that HT ought to succeed on the facts in any event because of what happened to him in Cameroon.
Background
Article 1A(2) of the Convention provides that a refugee is a person who owing to well founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion, is outside the country of his nationality and is unable or, owing to such fear, unwilling to avail himself of the protection of that country Amongst the benefits that a person who satisfies that definition enjoys under the Convention is the prohibition of expulsion or return.
Article 33(1) provides: No Contracting State shall expel or return (refouler) a refugee in any manner whatsoever to the frontiers of territories where his life or freedom would be threatened on account of his race, religion, nationality, membership of a particular social group or political opinion.
To a large extent the meaning of the definition in article 1A(2) is common ground.
It treats membership of a particular social group as being in pari materia with the other Convention reasons for persecution: Fornah v Secretary of State for the Home Department [2006] UKHL 46, [2007] 1 AC 412, para 20, per Lord Bingham of Cornhill.
There is no doubt that gay men and women may be considered to be a particular social group for this purpose: Islam v Secretary of State for the Home Department; R v Immigration Appeal Tribunal, Ex p Shah [1999] 2 AC 629, 643 644, per Lord Steyn.
As Lord Rodger points out in para 42, regulation 6(1)(e) of the Refugee or Person in Need of International Protection (Qualification) Regulations 2006 (SI 2006/2525) recognises as clearly as can be that a group based on a common characteristic of sexual orientation may be included in a particular social group that is in need of international protection.
The group is defined by the immutable characteristic of its members sexual orientation or sexuality.
This is a characteristic that may be revealed, to a greater or lesser degree, by the way the members of this group behave.
In that sense, because it manifests itself in behaviour, it is less immediately visible than a persons race.
But, unlike a persons religion or political opinion, it is incapable of being changed.
To pretend that it does not exist, or that the behaviour by which it manifests itself can be suppressed, is to deny the members of this group their fundamental right to be what they are of the right to do simple, everyday things with others of the same orientation such as living or spending time together or expressing their affection for each other in public.
The Convention does not define persecution.
But it has been recognised that it is a strong word: Sepet and Bulbul v Secretary of State for the Home Department [2003] UKHL 15, [2002] 1 WLR 856, para 7, per Lord Bingham.
Referring to the dictionary definitions which accord with common usage, Lord Bingham said that it indicates the infliction of death, torture or penalties for adherence to a belief or opinion, with a view to the repression or extirpation of it.
Article 9(1)(a) of the EC Council Directive 2004/83/EC on minimum standards for the qualification and status of third country nationals or stateless persons as refugees (the Qualification Directive) states that acts of persecution must (a) be sufficiently serious by their nature or repetition as to constitute a severe violation of basic human rights or (b) be an accumulation of various measures, including violations of human rights which is sufficiently severe as to affect an individual in a similar manner as mentioned in (a).
In Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473, para 40, McHugh and Kirby JJ said: Persecution covers many forms of harm ranging from physical harm to the loss of intangibles, from death and torture to state sponsored or condoned discrimination in social life and employment.
Whatever form the harm takes, it will constitute persecution only if, by reason of its intensity or duration, the person persecuted cannot reasonably be expected to tolerate it.
To constitute persecution for the purposes of the Convention the harm must be state sponsored or state condoned.
Family or social disapproval in which the state has no part lies outside its protection.
As Professor J C Hathaway in The Law of Refugee Status (1991), p 112 has explained, persecution is most appropriately defined as the sustained or systemic failure of state protection in relation to one of the core entitlements which has been recognised by the international community.
The Convention provides surrogate protection, which is activated only upon the failure of state protection.
The failure of state protection is central to the whole system: Horvath v Secretary of State for the Home Department [2001] 1 AC 489, 495.
The question is whether the home state is unable or unwilling to discharge its duty to establish and operate a system for the protection against persecution of its own nationals.
The reference in the preamble to the Universal Declaration of Human Rights of 1948 shows that counteracting discrimination was a fundamental purpose of the Convention.
Article 2 states: Everyone is entitled to all the rights and freedoms set forth in this Declaration, without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status.
Lord Steyn emphasised this point in Islam v Secretary of State for the Home Department; R v Immigration Appeal Tribunal, Ex p Shah [1999] 2 AC 629, 639.
He also drew attention to the first preamble to the Declaration, which proclaimed the inherent dignity and the equal and inalienable rights of all members of the human family.
No mention is made of sexual orientation in the preamble or any of its articles, nor is sexual orientation mentioned in article 1A(2) of the Convention.
But coupled with an increasing recognition of the rights of gay people since the early 1960s has come an appreciation of the fundamental importance of their not being discriminated against in any respect that affects their core identity as homosexuals.
They are as much entitled to freedom of association with others of the same sexual orientation, and to freedom of self expression in matters that affect their sexuality, as people who are straight.
The guarantees in the Universal Declaration are fundamental to a proper understanding of the Convention.
But the Convention itself has, as the references in para 12 show, a more limited purpose.
It is not enough that members of a particular social group are being discriminated against.
The contracting states did not undertake to protect them against discrimination judged according to the standards in their own countries.
Persecution apart, the Convention was not directed to reforming the level of rights prevailing in the country of origin.
Its purpose is to provide the protection that is not available in the country of nationality where there is a well founded fear of persecution, not to guarantee to asylum seekers when they are returned all the freedoms that are available in the country where they seek refuge.
It does not guarantee universal human rights.
So the conditions that prevail in the country in which asylum is sought have no part to play, as matter of legal obligation binding on all states parties to the Convention, in deciding whether the applicant is entitled to seek asylum in that country: Januzi v Secretary of State for the Home Department [2006] UKHL 5, [2006] 2 AC 426, paras 16, 46.
As Laws LJ said in Amare v Secretary of State for the Home Department [2005] EWCA Civ 1600, [2006] Imm AR 217 para 31: The Convention is not there to safeguard or protect potentially affected persons from having to live in regimes where pluralist liberal values are less respected, even much less respected, than they are here.
It is there to secure international protection to the extent agreed by the contracting states.
Thus international protection is available only to those members of the particular social group who can show that they have a well founded fear of being persecuted for reasons of their membership of it who, owing to that fear, are unwilling to avail themselves of the protection of their home country.
Those who satisfy this test cannot be returned to the frontiers of a territory where their life or freedom would be threatened on account of their membership of that group: article 33(1).
To be accorded this protection, however, the test that article 1A(2) sets out must first be satisfied.
As Lord Bingham of Cornhill said in Januzi v Secretary of State for the Home Department [2006] 2 AC 426, para 5, the words owing to well founded fear of being persecuted for reasons of membership of a particular social group in the definition of refugee express a causative condition which governs all that follows.
Well founded fear: the causative condition
In situations such as those presented by these appeals the fact that members of the particular social group are persecuted may not be seriously in issue.
In Iran, where the death penalty exists, persons have been hanged simply because they are gay.
In Cameroon homosexuality is illegal and the sanctions for it include sentences of up to five years imprisonment.
Although prosecutions are rare, homosexuals are liable to be denounced and subjected to acts of violence and harassment against which the state offers no protection.
But the situation in the country of origin is only the beginning, not the end, of the inquiry.
The Convention directs attention to the state of mind of the individual.
It is the fear which that person has that must be examined and shown to be well founded.
In cases where the fear is of persecution for reasons of religion or political opinion, it may be necessary to examine the nature and consequences of any activity that the applicant claims he or she may wish to pursue if returned to the country of nationality.
It will not be enough for the person merely to assert that persons who are of that religion or political opinion are liable to be persecuted.
The question is, what will the applicant actually do, and does what he or she will in fact do justify the fear that is complained of?
INLR 1, 7 8 Simon Brown LJ said: In Ahmed (Iftikhar) v Secretary of State for the Home Department, [2000] In all asylum claims there is ultimately a single question to be asked: is there a serious risk that on return the applicant will be persecuted for a Convention reason? The critical question [is]: if returned, would the asylum seeker in fact act in the way he says he would and thereby suffer persecution? If he would, then, however unreasonable he might be thought for refusing to accept the necessary restraint on his liberties, in my judgment he would be entitled to asylum.
Nobody has suggested that there is anything wrong with these observations, as far as they go, and I would respectfully endorse them.
They contain two propositions which the Secretary of State in this case accepts, and which I do not think can be disputed.
The first is that attention must be focused on what the applicant will actually do if he is returned to his country of nationality.
The second is that the fact that he could take action to avoid persecution does not disentitle him from asylum if in fact he will not act in such a way as to avoid it.
That is so even if to fail or to refuse to avoid it would be unreasonable.
In Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473, para 40, per McHugh and Kirby JJ said that persecution does not cease to be persecution for the purposes of the Convention because the harm can be avoided by taking avoiding action within the country of origin.
I am inclined to think that this proposition, as stated, expresses the point too broadly.
But I would accept it as accurate if at the end there were added the words which the applicant will in fact not take.
Of course, I do not mean by this that persecution ceases to be persecution if those at risk of being persecuted can and do eliminate the harm by taking avoiding action.
That is a different point, with which their Honours go on to deal later in the same paragraph.
How to define the test for its application is the issue in this case: see paras 21 and 22.
It has been recognised, of course, that an applicant may be required to live in a place of relocation within his country of origin so long as it would not be unduly harsh for him to be required to do so: Januzi v Secretary of State for the Home Department [2006] 2 AC 426.
As Lord Bingham explained in para 7, the Convention does not expressly address the situation where, within his country of nationality a person has a well founded fear of persecution at place A, where he lived, but not at place B, where he could reasonably be expected to relocate.
But that situation may reasonably be said to be covered by the causative condition to which he referred in para 5.
A person will be excluded from refugee status if under all the circumstances it would be reasonable to expect him to seek refuge in another part of the same country.
Persons seeking refuge from the process known as ethnic cleansing, for example, may be refused asylum on the basis that there are other parts of the country of their nationality where they may live without being persecuted: see also R (Yogathas) v Secretary of State for the Home Department [2002] UKHL 36, [2003] 1 AC 920, para 40; the UNHCR Handbook, para 91.
Mr Bourne suggested that an analogy could be drawn between internal relocation, or internal flight as it is sometimes less happily called: see R (Yogathas) v Secretary of State for the Home Department [2003] 1 AC 920, para 6.
Mr Husain submitted in his written case that applicants who are gay and who avoid persecution by a modification of their behaviour may be said on return to have taken internal flight within the self to avoid persecution.
Mr Bourne submitted that any such analogy supported the respondent.
The analogy, as he expressed it in his written case, was put this way.
A person to whom geographical internal flight is available is not a refugee unless it would be unduly harsh to take such flight.
So a person who will, if necessary, take the metaphorical flight of hiding his sexuality is not a refugee unless it would be intolerable for him to do so.
Examples were referred to of situations that might demonstrate the logic of this approach.
They were said to include situations where the applicant would be discreet, there would be no real risk that he would come to the attention of the authorities and suffer persecution and the consequences of his discretion were objectively reasonable for him to be expected to tolerate.
He would have no well founded fear of persecution and not be a refugee even if the reason why he would be discreet was because, or partly because, he feared persecution.
This submission takes me to the core of the issue between the parties and to the question whether the test in para 16 of J v Secretary of State for the Home Department [2007] Imm AR 73 stands up to examination.
But I think that the suggested analogy with internal relocation can be dismissed at once as incompatible with the principles of the Convention.
The objection to it is that it assumes that the applicant will be prepared to lie about and conceal his sexual orientation when he moves to the place of relocation.
Unless he does this he will be no better off than he would be if he did not relocate at all.
The misconception lies in the idea that he will be willing and able to make a fresh start when he moves to somewhere where he is not known.
In Hysi v Secretary of State for the Home Department [2005] EWCA Civ 711, [2005] INLR 602 the Court of Appeal held that the tribunal had not assessed the consequences of expecting the applicant to lie and dissemble in the place of relocation about his ethnic origins.
He would have to be a party to the long term deliberate concealment of the truth, living in continuing fear that the truth would be discovered: para 37.
There is no place, in countries such as Iran and Cameroon, to which a gay applicant could safely relocate without making fundamental changes to his behaviour which he cannot make simply because he is gay.
The submission that it is proper to examine the question whether it would be objectively reasonable for the applicant to be expected to tolerate some element of concealment I would prefer not to use the word discretion, as this euphemistic expression does not tell the whole truth when he is returned to the country of his nationality cannot be dismissed so easily.
Behaviour which reveals ones sexual orientation, whether one is gay or straight, varies from individual to individual.
It occupies a wide spectrum, from people who are naturally reticent and have no particular desire to establish a sexual relationship with anybody to those who wish, for various reasons, to proclaim in public their sexual identity.
Social and family disapproval of overt sexual behaviour of any kind, gay or straight, may weigh more heavily with some people than others.
Concealment due to a well founded fear of persecution is one thing.
Concealment in reaction to family or social pressures is another.
So one must ask why the applicant will conduct himself in this way.
A carefully nuanced approach is called for, to separate out those who are truly in need of surrogate protection from those who are not.
The test in J's case
In J v Secretary of State for the Home Department [2007] Imm AR 73 the applicant was of Iranian nationality.
The Asylum and Immigration Tribunal found that he was a practising homosexual, but that his relationship with his partner in Iran was discreet and that his homosexual practices there had never been such that his own homosexual activity was reasonably likely to result in adverse attention from the authorities.
It was held that the tribunal had fallen into error by not asking why the applicant had acted discreetly, especially as the appellant said in his witness statement that he was forced to hide his relationship and was not able to live openly with his partner as he wanted to do.
The case was remitted to the tribunal for further reconsideration.
In para 16 Maurice Kay LJ gave the following directions to the tribunal: It will have to address questions that were not considered on the last occasion, including the reason why the appellant opted for discretion before his departure from Iran and, by implication, would do so again on return.
It will have to ask itself whether discretion is something that the appellant can reasonably be expected to tolerate, not only in the context of random sexual activity but in relation to matters following from, and relevant to, sexual identity in the wider sense recognised by the High Court of Australia (see the judgment of Gummow and Hayne JJ at para 83).
This requires consideration of the fact that homosexuals living in a stable relationship will wish, as this appellant says, to live openly with each other and the discretion which they may feel constrained to exercise as the price to pay for the avoidance of condign punishment will require suppression of many aspects of life that related to, or informed by, their sexuality (ibid, para 81).
This is not simply generalisation; it is dealt with in the appellants evidence. [Emphasis added] Buxton LJ, making the same point, said in para 20 that the applicant might have to abandon part of his sexual identity in circumstances where failure to do so exposed him to the extreme danger that the country guidance indicated: The Tribunal may wish to consider whether the combination of those two circumstances has an effect on their decision as to whether the applicant can be expected to tolerate the situation he may find himself in when he returns to Iran. [Emphasis added]
The passages which I have italicised lie at the heart of the argument.
For the Secretary of State, Mr Bourne submitted that there were two major questions that had to be addressed: (1) what will the situation be on return, and (2) in these circumstances is there a real risk of persecution? The inquiry in regard to the first question was directed to how the applicant will conduct himself and how others will react to this.
He accepted that a finding that the applicant will in fact be discreet on return to the country of his nationality is not the end of the inquiry.
The question that then had to be asked, he said, was whether opting for discretion itself amounted to persecution.
The threshold between what was and was not persecution was marked by what he could reasonably be expected to tolerate.
As in the case of internal flight, it was what he could not reasonably be expected to tolerate that amounted to persecution.
As the references to it in para 16 of J v Secretary of State for the Home Department [2007] Imm AR 73 indicate, the Court of Appeal in that case sought guidance from the decision of the High Court of Australia in Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473.
Among the passages from that judgment that are quoted is para 40, where (setting out the paragraph in full) McHugh and Kirby JJ said: The purpose of the Convention is to protect the individuals of every country from persecution on the grounds identified in the Convention whenever their governments wish to inflict, or are powerless to prevent, that persecution.
Persecution covers many forms of harm ranging from physical harm to the loss of intangibles, from death and torture to state sponsored or condoned discrimination in social life and employment.
Whatever form the harm takes, it will constitute persecution only if, by reason of its intensity or duration, the person persecuted cannot reasonably be expected to tolerate it.
But persecution does not cease to be persecution for the purpose of the Convention because those persecuted can eliminate the harm by taking avoiding action within the country of nationality.
The Convention would give no protection from persecution for reasons of religion or political opinion if it was a condition of protection that the person affected must take steps reasonable or otherwise to avoid offending the wishes of the persecutors.
Nor would it give protection to membership of many a particular social group if it were a condition of protection that its members hide their membership or modify some attribute or characteristic of the group to avoid persecution.
Similarly, it would often fail to give protection to people who are persecuted for reasons of race or nationality if it was a condition of protection that they should take steps to conceal their race or nationality. [Emphasis added] It was the appearance in this paragraph of the sentence which I have italicised that led Maurice Kay LJ to use almost the same words when he was framing his directions in para 16.
This can be seen from his quotation of it in para 11 of his judgment, where he said that it had been adopted in Z v Secretary of State for the Home Department [2005] Imm AR 75, para 12, Amare v Secretary of State for the Home Department [2006] Imm AR 217, para 27 and RG (Colombia) v Secretary of State for the Home Department [2006] EWCA Civ 57, [2006] Imm AR 297, para 16.
Para 40 of the judgment in Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473 is not entirely easy to follow.
The Convention does not permit, or indeed envisage, applicants being returned to the countries of their nationality on condition that they take steps to avoid offending their persecutors.
The use of the phrase a condition of protection seems to overlook the fact that it is the country in which asylum is sought that is being appealed to for protection, not the country of the applicants nationality.
But the flaw in the sentence in para 16 of J v Secretary of State for the Home Department [2007] Imm AR 73 to which the appellants take objection is indicated by the sentence that immediately follows it.
It makes the point that persecution does not cease to be persecution for the purpose of the Convention because those persecuted can eliminate the harm by taking avoiding action within the country of nationality.
In para 50, which the Court of Appeal did not quote in Js case, McHugh and Kirby JJ said: In so far as decisions in the Tribunal and the Federal Court contain statements that asylum seekers are required, or can be expected, to take reasonable steps to avoid persecutory harm, they are wrong in principle and should not be followed.
The same point was made with perhaps greater force by Gummow and Hayne JJ in para 82, where they said: Saying that an applicant for protection would live discreetly in the country of nationality may be an accurate description of the way in which that person would go about his or her daily life.
To say that a decision maker expects that that person will live discreetly may also be accurate if it is read as a statement of what is thought likely to happen.
But to say that an applicant for protection is expected to live discreetly is both wrong and irrelevant to the task to be undertaken by the Tribunal if it is intended as a statement of what the applicant must do.
The references in the judgments of Maurice Kay and Buxton LJJ in J v Secretary of State for the Home Department [2007] Imm AR 73, paras 16 and 20 to what the applicant could be expected to do when he returned do not fit happily with the approach indicated in some parts of the judgment in Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473 which they said they were following.
The explanation for this may perhaps lie in para 10 of the judgment in Js case, where Maurice Kay LJ said: In our jurisdiction Buxton LJ demonstrated in Z v SSHD [2005] Imm AR 75 that the approach of the High Court of Australia had in turn been influenced by English authority, particularly Ahmed v SSHD [2000] INLR 1.
Having referred to the judgment of Simon Brown LJ in Ahmed, he said at para 16: It necessarily follows from that analysis that a person cannot be refused asylum on the basis that he could avoid otherwise persecutory conduct by modifying the behaviour that he would otherwise engage in, at least if that modification was sufficiently significant to place him in a situation of persecution.
In para 11 Maurice Kay LJ added this comment: That brief extract is particularly helpful because it brings together the principle articulated by the High Court of Australia and the underlying need for an applicant to establish that his case contains something significant in itself to place him in a situation of persecution.
The principle which the Court of Appeal should have taken from the judgment of the High Court of Australia is that it would be wrong to say that an applicant for protection was expected to live discreetly if it was intended as a statement of what the applicant must do: Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473, para 82.
The test of whether the situation he may find himself in on return was one that he could reasonably be expected to tolerate was introduced to address the high threshold that has to be crossed between what does and what does not amount to persecution.
But the way the test was expressed in para 16 of Js case suggests that the applicant will be refused asylum if it would be reasonable to expect him to be discreet even if he is unwilling or unable to do this.
That is a fundamental error.
It conflicts with Simon Brown LJs observation in Ahmed (Iftikhar) v Secretary of State for the Home Department [2000] INLR 1, 8 that, however unreasonable the applicant might be thought for refusing to accept the necessary restraint on his liberties, he would be entitled to asylum.
I would hold that the test in para 16 of Js case is not accurately expressed and should no longer be followed.
For the reasons that Sir John Dyson gives, I would reject the reasonably tolerable test.
As this was the test that the Court of Appeal applied to these appeals, its decision to dismiss them was mistaken and must be set aside.
Comparative jurisprudence
The Court was referred to a number of decisions in Australia, New Zealand, South Africa, the United States and Canada.
I do not think that they reveal a consistent line of authority that indicates that there is an approach which is universally accepted internationally.
The Australian cases that are of interest are those that post date the decision in Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473.
They are NALZ v Minister for Immigration and Multicultural Affairs [2004] FCAFC 320; NABD of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 29, (2005) 79 ALJR 1142, and SZATV v Minister for Immigration and Citizenship [2007] HCA 40, (2007) 233 CLR 18.
In NALZ the Federal Court was divided on the question how the principles set out S395/2002 should be applied.
The applicant was an Indian national who was refused refugee status by the tribunal because he could avoid future arrest by not engaging in the activity that would attract persecution.
The majority, Emmett and Downes JJ, held that this was not an impermissible approach.
Madgwick J thought that the tribunal had fallen into the error identified in S395/2002 because it had not asked itself what the applicant would in fact do.
In NABD the High Court was again divided in its identification of the relevant legal principles.
It did not reach the question whether a test of what was reasonably tolerable could be applied.
It is worth noting however that McHugh J stressed the need for a rigorous and careful examination of the applicants specific characteristics and circumstances.
In SZATV the question was whether the tribunal was right to deny asylum on the ground that it would be reasonable for the applicant, a journalist whose fear was of persecution on grounds of political opinion, to relocate to another part of the country of his nationality and do construction work there.
The High Court on this occasion was unanimous in holding that the tribunal had failed to address itself to what might reasonably be expected of the applicant with respect to his relocation if he were to be returned.
I think that the single most important message to emerge from these cases is the need for a careful and fact sensitive analysis.
The New Zealand case is Refugee Appeal No 74665/03 [2005] INLR 68, in which the judgment of the New Zealand Refugee Status Appeals Authority was written by Rodger Haines QC.
It contains an impressive analysis of the relevant principles, and it is impossible to do full justice here to what it contains.
The passages that are of particular interest are to be found from paras 92 and following.
The point made by Sachs J in National Coalition for Gay and Lesbian Equality v Minister of Justice 1999 (1) SA 6, para 130 that to require an applicant to engage in self denial was to require him to live in a state of self induced oppression was approved and adopted: para 114.
The decision of the High Court of Australia in S395/2002 is analysed in paras 116 124.
Haines is critical of its approach on the ground that it concentrates on an evaluation of the risk rather than being, as it is put in para 124, located in the persecution element.
The New Zealand approach, it is said, places international human rights standards at the centre of the being persecuted analysis in the belief that this provides a principled and disciplined framework for analysis.
The significance of this distinction becomes apparent at the end of the judgment when, without any detailed analysis of the causative condition by examining what will actually happen on return, the conclusion is reached in a few sentences that the applicant was at risk of serious harm simply because he was gay: para 132.
In Karouni v Gonzales (2005) 399 F 3d 1163 the US Court of Appeals upheld an appeal by an applicant who claimed that he had a well founded fear of persecution on return to Lebanon because he was gay.
It applied the principle, which the Secretary of State in this case accepts, that he should not be required to change his sexual identity, as it was a fundamental characteristic and an integral part of human freedom.
Several Canadian cases were referred to by Mr Bourne in support of his proposition that the tribunal must look at what the applicant will, rather than could, do if he were to be returned: Case no 02751 of 9 January 2007 (unreported) 16 February 2007; Atta Fosu v Canada (Minister of Citizenship and Immigration) [2008] FC 1135 and Okoli v Minister of Citizenship and Immigration [2009] FC 332.
In Atta Fosu, for example, the Federal Court held that it was impermissible to require a person to deny or hide his sexuality when there was no evidence that he could, or was even prepared to, keep it secret.
What is missing from these cases, especially those from Australia and New Zealand, is clear and consistent guidance as to the way the fact finding tribunals should go about their task.
Useful advice is set out in A Guide to Refugee Law in Australia, prepared by the Legal Service Section of the Refugee Review Tribunal and the Migration Review Tribunal, pp 10.25 10.26.
But it is not authoritative.
The test as stated in para 16 of J v Secretary of State for the Home Department [2007] Imm AR 73 does not fit well with some of the dicta in these cases, and with the recommendation in the Guide that asylum seekers are not required, and cannot be expected, to take reasonable steps to avoid persecutory harm or to live discreetly so as to avoid it.
But I have already concluded that it should be departed from.
The test
This brings me to the test that should be adopted by the fact finding tribunals in this country.
As Lord Walker points out in para 98, this involves what is essentially an individual and fact specific inquiry.
Lord Rodger has described the approach in para 82, but I would like to set it out in my own words.
It is necessary to proceed in stages. (a) The first stage, of course, is to consider whether the applicant is indeed gay.
Unless he can establish that he is of that orientation he will not be entitled to be treated as a member of the particular social group.
But I would regard this part of the test as having been satisfied if the applicants case is that he is at risk of persecution because he is suspected of being gay, if his past history shows that this is in fact the case. (b) The next stage is to examine a group of questions which are directed to what his situation will be on return.
This part of the inquiry is directed to what will happen in the future.
The Home Offices Country of Origin report will provide the background.
There will be little difficulty in holding that in countries such as Iran and Cameroon gays or persons who are believed to be gay are persecuted and that persecution is something that may reasonably be feared.
The question is how each applicant, looked at individually, will conduct himself if returned and how others will react to what he does.
Those others will include everyone with whom he will come in contact, in private as well as in public.
The way he conducts himself may vary from one situation to another, with varying degrees of risk.
But he cannot and must not be expected to conceal aspects of his sexual orientation which he is unwilling to conceal, even from those whom he knows may disapprove of it.
If he fears persecution as a result and that fear is well founded, he will be entitled to asylum however unreasonable his refusal to resort to concealment may be.
The question what is reasonably tolerable has no part in this inquiry. (c) On the other hand, the fact that the applicant will not be able to do in the country of his nationality everything that he can do openly in the country whose protection he seeks is not the test.
As I said earlier (see para 15), the Convention was not directed to reforming the level of rights in the country of origin.
So it would be wrong to approach the issue on the basis that the purpose of the Convention is to guarantee to an applicant who is gay that he can live as freely and as openly as a gay person as he would be able to do if he were not returned.
It does not guarantee to everyone the human rights standards that are applied by the receiving country within its own territory.
The focus throughout must be on what will happen in the country of origin. (d) The next stage, if it is found that the applicant will in fact conceal aspects of his sexual orientation if returned, is to consider why he will do so.
If this will simply be in response to social pressures or for cultural or religious reasons of his own choosing and not because of a fear of persecution, his claim for asylum must be rejected.
But if the reason why he will resort to concealment is that he genuinely fears that otherwise he will be persecuted, it will be necessary to consider whether that fear is well founded. (e) This is the final and conclusive question: does he have a well founded fear that he will be persecuted? If he has, the causative condition that Lord Bingham referred to in Januzi v Secretary of State for the Home Department [2006] 2 AC 426, para 5 will have been established.
The applicant will be entitled to asylum.
It should always be remembered that the purpose of this exercise is to separate out those who are entitled to protection because their fear of persecution is well founded from those who are not.
The causative condition is central to the inquiry.
This makes it necessary to concentrate on what is actually likely to happen to the applicant.
As Lord Walker says in para 88, the inquiry is directed to what will happen in the future if the applicant is returned to his own country.
An approach which disregards what is in fact likely to occur there in the case of the particular applicant is wrong and should not be adopted.
The facts of these cases
Applying the guidance in J v Secretary of State for the Home Department [2007] Imm AR 73 to HJs case, the Asylum and Immigration Tribunal said that the issue was whether the need for him to live discreetly would itself constitute persecution.
The evidence of suppression of aspects of his life in Iran was limited.
It concluded that to live a private life discreetly would not cause significant detriment to his right to respect for private life and that it would not involve suppression of many aspects of his sexual identity.
Noting that enforcement of the law against homosexuality in Iran is arbitrary, it said that the evidence did not show a real risk of discovery or of adverse action against homosexuals who conduct their homosexual activities discreetly.
It found on the evidence that the level of seriousness for international protection had not been reached.
HJ could reasonably be expected to tolerate the position in Iran on any return: para 46.
In the Court of Appeal Pill LJ said that in his judgment the test stated in para 16 of Js case by reference to S395/2002 complied with the standard required by the Convention and that the findings of the tribunal were findings that they were entitled to make on the evidence: para 31.
In HTs case the Tribunal found that he would be discreet on return to Cameroon.
In the Court of Appeal Pill LJ said that the groundwork for a further finding that he could not reasonably be required to be discreet in Cameroon or to tolerate a life involving discretion there was not established: para 44.
He upheld the Tribunals decision on the ground that it was entitled to find that the first panel did not err in law in finding that a single attack on HT followed a one off incident of him being seen by a neighbour kissing another man with whom he had a three year relationship in his garden.
Miss Carss Frisk pointed out that there was no finding that his behaviour with the other man was a one off incident.
He was the victim of a single attack involving serious violence by way of mob justice following the garden incident.
Instead of helping him, the police joined in the assault.
But he had had two homosexual relationships.
The second had lasted for a period of five years.
The problem had started when neighbours spotted what he and his partner were doing in the garden.
The Tribunal said that he could move to another part of Cameroon where his sexual identity was unknown.
But it is plain that to be effective against the risk of persecution, which is present everywhere in that country, he would have to lie about and conceal his sexuality.
The Tribunal did not assess the effects on him of suppressing his sexual identity.
Conclusion
I am not confident that the tribunals would have come to the same conclusion if they had approached the facts in the way I have suggested in paras 35 36.
It was suggested by the appellants that this court should make a reference of a question arising under the Qualification Directive to the Court of Justice of the European Union under article 267 TFEU (formerly article 234 EC).
But the point that was said to require a reference was not clearly identified, and I would reject that suggestion.
I would allow these appeals and set aside the orders of the Court of Appeal.
I would remit both cases to the Tribunal, for further reconsideration in HJs case and for reconsideration in the case of HT, in the light of the guidance given by this Court.
LORD RODGER
A gay man applies for asylum in this country.
The Secretary of State is satisfied that, if he returns to his country of nationality and lives openly as a homosexual, the applicant will face a real and continuing prospect of being beaten up, or flogged, or worse.
But the Secretary of State is also satisfied that, if he returns, then, because of these dangers of living openly, he will actually carry on any homosexual relationships discreetly and so not come to the notice of any thugs or of the authorities.
Is the applicant a refugee for purposes of the United Nations Convention relating to the Status of Refugees 1951 (the Convention)? The answer is Yes.
Article 1A(2) of the Convention declares that a refugee is a person who, owing to well founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion, is outside the country of his nationality and is unable or, owing to such fear, is unwilling to avail himself of the protection of that country.
The appellants, HJ, from Iran, and HT, from Cameroon, are gay men who both claim to be outside their country of nationality owing to a well founded fear of being persecuted for reasons of being gay.
At one time there would have been debate as to whether homosexuals constitute a particular social group for the purposes of the Convention.
But, in more recent years, it has come to be accepted that, at least in societies which discriminate against homosexuals, they are indeed to be regarded as a particular social group.
See, for instance, R v Immigration Appeal Tribunal, Ex p Shah [1999] 2 AC 629, 644G 645A, per Lord Steyn, and at p 663, per Lord Millett (dissenting).
Indeed regulation 6(1)(e) of the Refugee or Person in Need of International Protection (Qualification) Regulations 2006 (SI 2006/2525) really puts the point beyond doubt by providing that, subject to an exception which is not relevant for present purposes, a particular social group might include a group based on a common characteristic of sexual orientation.
The Secretary of State therefore accepts that, in the case of Iran and Cameroon, homosexuals do indeed form a particular social group, of which HJ and HT are members.
The approach in HJ
In the case of HJ, the Asylum and Immigration Tribunal observed, at para 9 of its determination, that It is accepted that for a person to be openly gay in Iran would attract a real risk of persecution (see in particular RM and BB (Homosexuals) Iran [2005] UKAIT 00117).
The issue therefore is whether the need for the appellant to be discreet about his sexuality on return to Iran would itself constitute persecution within the meaning of the Refugee Convention.
The Tribunal went on to hold, at para 25, that It remains clear, as it was at the time of RM and BB, that those who confess to homosexual acts or are convicted by whatever means are at real risk as they face condign punishment.
But, in its view, the evidence fell well short of showing that surveillance had reached such levels that Iranian citizens who engaged in homosexual activities in private ran a real risk of discovery.
It remained the case, as the Tribunal had concluded in RM and BB, at para 124, that, given the legal context in which homosexuals operate in Iran, it can be expected that they would be likely to conduct themselves discreetly for fear of the obvious repercussions that would follow.
The Tribunal in the present case summarised the position at para 44: We acknowledge that the way in which he is able to live as a gay man in the UK is preferable for him and we are satisfied that this informs his view that it is impossible for him to return to Iran.
We acknowledge too that the appellant is now much more aware of the legal prohibitions on homosexuals in Iran and the potential punishments for breach of those prohibitions.
On any return, to avoid coming to the attention of the authorities because of his homosexuality he would necessarily have to act discreetly in relation to it.
We are satisfied that as a matter of fact he would behave discreetly.
On the evidence he was able to conduct his homosexual activities in Iran without serious detriment to his private life and without that causing him to suppress many aspects of his sexual identity.
Whilst he has conducted his homosexual activities in the UK less discreetly, we are not persuaded that his adaptation back to life in Iran would be something he could not reasonably be expected to tolerate.
We consider that as a matter of fact he would behave in similar fashion as he did before he left Iran and that in doing so he would, as before, be able to seek out homosexual relationships through work or friends without real risk to his safety or serious detriment to his personal identity and without this involving for him suppression of many aspects of his sexual identity.
Having analysed the evidence in more detail in para 45, the Tribunal referred to the test laid down by Buxton LJ in J v Secretary of State for the Home Department [2006] EWCA Civ 1238, [2007] Imm AR 73, at para 20. (The test is set out at para 48 below.) The Tribunal added, at para 46: The circumstances to be tolerated are the inability to live openly as a gay man as the appellant can in the UK.
The part of sexuality to be abandoned is on the evidence also the ability to live openly as a gay man in the same way the appellant can do elsewhere.
To live a private life discreetly will not cause significant detriment to his right to respect for private life, nor will it involve suppression of many aspects of his sexual identity.
Enforcement of the law against homosexuality in Iran is arbitrary but the evidence does not show a real risk of discovery of, or adverse action against, homosexuals who conduct their homosexual activities discreetly.
The position has not deteriorated since RM and BB [2005] UKAIT 00117.
On the evidence we find the appellant can reasonably be expected to tolerate the position on any return.
The approach in HT
In the case of HT it is agreed that, following an occasion when he was seen kissing his then (male) partner in the garden of his home, the appellant was attacked by a crowd of people when leaving church.
They beat him with sticks and threw stones at him.
They pulled off his clothes and tried to cut off his penis with a knife.
He attempted to defend himself and was cut just above the penis and on his hand.
He was threatened with being killed imminently on the ground that you people cannot be changed.
Police officers arrived and demanded to know what was going on and why the crowd were assaulting him.
They were told it was because he was gay.
One of the policemen said to the appellant How can you go with another man? and punched him on the mouth.
The policemen then kicked him until he passed out.
As a result of the injuries which he received he was kept in hospital for two months.
After that, he was taken home by a member of his church who told him that he feared for his life and safety if he remained in Cameroon.
This man made travel arrangements for HT who flew to the United Kingdom via another European country.
In HTs case the Tribunal was of the view that in some respects the position in Cameroon was not dissimilar from the position in Iran and it was the view of the Tribunal that there might be difficulties for someone openly professing his homosexuality.
A homosexual relationship carried on in private, however, was considered by the Tribunal not to create a reasonable degree of likelihood of persecution. (The Tribunals information about the position in Iran appears to have been taken from the admissibility decision of the European Court of Human Rights in F v United Kingdom (Application No 17341/03), 22 June 2004, unreported.) Because people in the area where he lived before leaving Cameroon knew that he was gay, the Tribunal contemplated that, in addition to conducting any relationship in private, HT would move to another part of the country where he would not be known.
On reconsideration, the Senior Immigration Judge held, at para 15 of his determination, that Should the appellant choose to relocate it would be relatively safe for him to practice [sic] his sexual orientation in private and not come to the attention of the authorities.
In both cases, therefore, the findings of the Tribunal are to the effect that, if the appellant were to return to his country of origin, he would be at risk of persecution if he were openly homosexual, but he would be unlikely to come to the attention of the authorities or to suffer harm, if he were to conduct any relationship in private.
The test adopted by the Court of Appeal
The question, whether in such circumstances an applicant has a well founded fear of persecution, seems to have been considered by the Court of Appeal for the first time in Z v Secretary of State for the Home Department [2004] EWCA Civ 1578, [2005] Imm AR 75.
The court had been referred to the decision of the High Court of Australia in Appellant S395/2002 v Minister for Immigration (2003) 216 CLR 473.
Buxton LJ accepted that the judgments in that case contained a number of statements to the effect that, if an applicants way of life would be subjected to persecution in his home country, he cannot be denied asylum on the basis of a conclusion that he could avoid that persecution by modifying that way of life.
Having referred to paras 40 and 43 of the judgment of McHugh and Kirby JJ, Buxton LJ continued, at paras 15 16: 15.
Mr Kovats for the Secretary of State pointed out that where avoiding action is forced on the subject, that case only falls under the Refugee Convention if it results in a condition that can properly be called persecutory, in that imposes on the subject a state of mind or conscience that fits with the definition of persecution given by McHugh and Kirby JJ in paragraph 40 of their judgment, and in line with English authority already quoted: Whatever form the harm takes, it will constitute persecution only if, by reason of its intensity or duration, the person persecuted cannot reasonably be expected to tolerate it.
That no doubt is the level of interference that McHugh and Kirby JJ had in mind when speaking of threats and menaces in the passage cited in para 14 above. 16.
Although S395 was presented to the court that granted permission in this appeal as a new departure in refugee law, and for that reason justifying the attention of this court, in truth it is no such thing.
McHugh and Kirby JJ, at their paragraph 41, specifically relied on English authority, Ahmed v SSHD [2000] INLR 1.
It has been English law at least since that case, and the case that preceded it, Danian v SSHD [1999] INLR 533, that, in the words of the leading judgment of Simon Brown LJ at pp 7G and 8C D: in all asylum cases there is ultimately a single question to be asked: is there a serious risk that on return the applicant would be persecuted for a Convention reason.the critical question: if returned, would the asylum seeker in fact act in the way he says he would and thereby suffer persecution? If he would, then, however, unreasonable he might be thought for refusing to accept the necessary restraint on his liberties, in my judgment he would be entitled to asylum.
It necessarily follows from that analysis that a person cannot be refused asylum on the basis that he could avoid otherwise persecutory conduct by modifying the behaviour that he would otherwise engage in, at least if that modification was sufficiently significant in itself to place him in a situation of persecution.
If the IAT in our case refused Mr Z asylum on the basis that he was required to avoid persecution they did not respect the jurisprudence of Ahmed.
Buxton LJs formulation of the position, as he derived it from Simon Brown LJs statement in Ahmed v Secretary of State for the Home Department [2000] INLR 1, 7, was quoted by Maurice Kay LJ in J v Secretary of State for the Home Department [2007] Imm AR 73, at para 11.
He added that it was particularly helpful because it brings together the principle articulated by the High Court of Australia and the underlying need for an applicant to establish that his case contains something sufficiently significant in itself to place him in a situation of persecution.
Maurice Kay LJ went on to say, at para 16, that the Tribunal will have to address questions that were not considered on the last occasion, including the reason why the appellant opted for discretion before his departure from Iran and, by implication, would do so again on return.
It will have to ask itself whether discretion is something that the appellant can reasonably be expected to tolerate, not only in the context of random sexual activity but in relation to matters following from, and relevant to, sexual identity in the wider sense recognised by the High Court of Australia (see the judgment of Gummow and Hayne JJ at para 83).
This requires consideration of the fact that homosexuals living in a stable relationship will wish, as this appellant says, to live openly with each other and the discretion which they may feel constrained to exercise as the price to pay for the avoidance of condign punishment will require suppression in respect of many aspects of life that related to or informed by their sexuality (Ibid, para 81).
Buxton LJ added, at para 20: The question that will be before the AIT on remission will be whether the applicant could reasonably be expected to tolerate whatever circumstances are likely to arise were he to return to Iran.
The applicant may have to abandon part of his sexual identity, as referred to in the judgment of Gummow and Hayne JJ in S, in circumstances where failure to do that exposes him to the extreme danger that is set out in the country guidance case of RM and BB.
The Tribunal may wish to consider whether the combination of those two circumstances has an effect on their decision as to whether the I would accept both submissions. applicant can be expected to tolerate the situation he may find himself in when he returns to Iran.
In his judgment on the present appeals Pill LJ held, at para 31, that the test stated in para 16 of Maurice Kay LJs judgment in J v Secretary of State complies with the standard required by the Refugee Convention.
He added that it is an appropriate and workable test.
Pill LJ considered that in the case of HJ the Tribunal had plainly understood the test and that their conclusion that he could reasonably be expected to tolerate conditions in Iran was firmly based on the evidence in the case, considered in the context of the in country evidence.
On that ground he dismissed the appeal.
Keene LJ and Sir Paul Kennedy agreed.
The appellants take this fairly well established case law of the Court of Appeal head on.
They contend that the Court of Appeal test is incompatible with the definition of refugee in article 1A(2) of the Convention and is based on a misunderstanding of the decision of the High Court of Australia in Appellant S395/2002 v Minister for Immigration (2003) 216 CLR 473.
The rationale of the Convention
For someone to be a refugee within the terms of article 1A(2) of the Convention, he must be outside his country of nationality owing to well founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion.
In effect, the Convention proceeds on the basis that people should be allowed to live their lives free from the fear of serious harm coming to them because of their race, religion, nationality, membership of a particular social group or political opinion.
Countries which sign up to the Convention recognise, however, that we do not live in an ideal world and that, in fact, there are many countries where persecution for these reasons does indeed take place.
In such countries either agents of the state carry out the persecution themselves or, at least, the state does not offer adequate protection against individuals and groups who carry it out.
Of course, diplomatic and other pressures may be exerted on states in the hope of improving the situation.
But, in the meantime, the signatories to the Convention do not wash their hands of those at risk: in effect, they agree that, by giving the victims asylum, they will afford them the protection from persecution which their country of origin should have afforded them but did not.
See, for example, La Forest J in Canada (Attorney General) v Ward [1993] 2 SCR 689, 709: At the outset, it is useful to explore the rationale underlying the international refugee protection regime, for this permeates the interpretation of the various terms requiring examination.
International refugee law was formulated to serve as a back up to the protection one expects from the state of which an individual is a national.
It was meant to come into play only in situations when that protection is unavailable, and then only in certain situations.
In Horvath v Secretary of State for the Home Department [2001] 1 AC 489, 495D G, Lord Hope of Craighead quoted this passage with approval and adopted Professor Hathaways description of the protection as surrogate or substitute protection.
At the risk of repetition, the importance of this analysis for present purposes is that it proceeds on the basis that, so far from permitting or encouraging its agents to persecute the applicant for one of the protected grounds, the home state should have protected him from any persecution on that ground.
The underlying rationale of the Convention is therefore that people should be able to live freely, without fearing that they may suffer harm of the requisite intensity or duration because they are, say, black, or the descendants of some former dictator, or gay.
In the absence of any indication to the contrary, the implication is that they must be free to live openly in this way without fear of persecution.
By allowing them to live openly and free from that fear, the receiving state affords them protection which is a surrogate for the protection which their home state should have afforded them.
The applicant who would not take steps to avoid persecution
The Secretary of State accepts accordingly that an applicant is entitled to the protection of the Convention if he could avoid suffering any actual harm by modifying his behaviour (say, by conducting himself discreetly) on his return to his home state but would not in fact choose to do so.
English authority for this approach in the field of religion is to be found in the judgment of Simon Brown LJ in Ahmed (Iftikhar)v Secretary of State for the Home Department [2000] INLR 1.
The applicant was an Ahmadi, who, if returned to Pakistan, would still have been vocal in his proclamation of Ahmadi beliefs, for which he would have suffered persecution.
Simon Brown LJ observed, at p 7: It is one thing to say that it may well be reasonable to require asylum seekers to refrain from certain political or even religious activities to avoid persecution on return.
It is quite another thing to say that, if in fact it appears that the asylum seeker on return would not refrain from such activities if, in other words, it is established that he would in fact act unreasonably he is not entitled to refugee status.
The same point is made, with considerably more elaboration, in the judgment of McHugh and Kirby JJ in Appellant S395/2002 v Minister for Immigration (2003) 216 CLR 473.
They begin by pointing out, at p 489, para 40, that persecution does not cease to be persecution for the purpose of the Convention because those persecuted can eliminate the harm by taking avoiding action within the country of nationality.
In the remainder of para 40 they point out that, if the position were otherwise, the Convention would not protect those who chose to exercise their right, say, to express their political opinion openly.
Similarly, the Convention would not protect those who chose to live openly as gay men rather than take the option of living discreetly.
Their Honours added, 216 CLR 473, 489 490, para 41: History has long shown that persons holding religious beliefs or political opinions, being members of particular social groups or having particular racial or national origins are especially vulnerable to persecution from their national authorities.
The object of the signatories to the Convention was to protect the holding of such beliefs, opinions, membership and origins by giving the persons concerned refuge in the signatory countries when their country of nationality would not protect them.
It would undermine the object of the Convention if the signatory countries required them to modify their beliefs or opinions or to hide their race, nationality or membership of particular social groups before those countries would give them protection under the Convention.
They concluded the paragraph by citing the passage from Simon Brown LJ in Ahmed v Secretary of State for the Home Department [2000] INLR 1, 7, which I have quoted at para 54 above.
The applicant who would conduct himself discreetly
In Ahmed Simon Brown LJ was tackling the case of an applicant who could take steps to avoid persecution on his return, but who would not do so.
The present appeals concern a completely different kind of applicant: the applicant who, on his return, would act discreetly to avoid the harm which would come to him if he were to live openly as a gay man.
In the passage from Ahmed which I cited at para 54 above, Simon Brown LJ appears to have envisaged that it might, in some sense, be reasonable to require applicants to refrain from certain political or even religious activities to avoid persecution on return.
But, in his conspicuously clear argument on behalf of the Secretary of State in the present case, Mr Bourne accepted that neither the Secretary of State nor a tribunal had any power to require a gay applicant to act discreetly on his return to his country of nationality in order to avoid persecution.
Both of them might, of course, purport to decide the case on the assumption that the applicant would do so.
But counsel accepted that neither the Secretary of State nor any tribunal could reject an application for asylum on the basis of an assumption that the gay applicant would act discreetly and so avoid, say, being beaten up or worse.
He might or might not.
It would be a question of fact, depending on the circumstances of the individual case.
Although counsel for the Secretary of State was at pains to draw this distinction between assuming that the applicant would act discreetly to avoid persecution and finding that this is what he would in fact do, the distinction is pretty unrealistic.
Unless he were minded to swell the ranks of gay martyrs, when faced with a real threat of persecution, the applicant would have no real choice: he would be compelled to act discreetly.
Therefore the question is whether an applicant is to be regarded as a refugee for purposes of the Convention in circumstances where the reality is that, if he were returned to his country of nationality, he would have to act discreetly in order to avoid persecution.
The question is not confined to cases where fear of persecution is the only reason why the applicant would act discreetly.
In practice, the picture is likely to be more complicated.
A fear of persecution is by no means the only reason why an applicant might behave discreetly if he were returned to his country of nationality.
For example, he might not wish to upset his parents or his straight friends and colleagues by revealing that he is gay; in particular, he might worry that, if the fact that he was gay were known, he would become isolated from his friends and relatives, be the butt of jokes or unkind comments from colleagues or suffer other discrimination.
Indeed, in a society where gay men are persecuted, it is quite likely that the prevailing culture will be such that some of an applicants friends, relatives and colleagues would react negatively if they discovered that he was gay.
In these circumstances it is at least possible that the only real reason for an applicant behaving discreetly would be his perfectly natural wish to avoid harming his relationships with his family, friends and colleagues.
The Convention does not afford protection against these social pressures, however, and so an applicant cannot claim asylum in order to avoid them.
So if, having considered the facts of any individual case, the Secretary of State or a tribunal concluded that the applicant would choose to behave discreetly on his return simply to avoid these social pressures, his application for asylum would fall to be rejected.
He would not be a refugee within the terms of article 1A(2) of the Convention because, by choosing to behave discreetly in order to avoid these social pressures, the applicant would simultaneously choose to live a life in which he would have no well founded fear of being persecuted for reasons of his homosexuality.
A similar point arose, in the context of religion, in NABD of 2002 v Minister of Immigration and Multicultural and Indigenous Affairs (2005) 79 ALJR 1142, discussed at para 70 below.
Having examined the relevant evidence, the Secretary of State or the tribunal may conclude, however, that the applicant would act discreetly partly to avoid upsetting his parents, partly to avoid trouble with his friends and colleagues, and partly due to a well founded fear of being persecuted by the state authorities.
In other words the need to avoid the threat of persecution would be a material reason, among a number of complementary reasons, why the applicant would act discreetly.
Would the existence of these other reasons make a crucial difference? In my view it would not.
A Jew would not lose the protection of the Convention because, in addition to suffering state persecution, he might also be subject to casual, social anti semitism.
Similarly, a gay man who was not only persecuted by the state, but also made the butt of casual jokes at work, would not lose the protection of the Convention.
It follows that the question can be further refined: is an applicant to be regarded as a refugee for purposes of the Convention in circumstances where the reality is that, if he were returned to his country of nationality, in addition to any other reasons for behaving discreetly, he would have to behave discreetly in order to avoid persecution because of being gay?
It is convenient to use a phrase such as acting or behaving discreetly to describe what the applicant would do to avoid persecution.
But in truth he could do various things.
To take a few examples.
At the most extreme, the applicant might live a life of complete celibacy.
Alternatively, he might form relationships only within a circle of acquaintances whom he could trust not to reveal to others that he had gay relationships.
Or, he might have a gay partner, but never live with him or have him to stay overnight or indulge in any display of affection in public.
Or the applicant might have only fleeting anonymous sexual contacts, as a safe opportunity presented itself.
The gradations are infinite.
Suppose the Secretary of State or the tribunal were satisfied that, if the applicant took some such precautions, he would be unlikely to suffer any actual harm.
Would the applicant then have no well founded fear of persecution by reason of being gay and so be unable to claim asylum under the Convention?
Surely not.
As already explained in para 53 above, so far as the social group of gay people is concerned, the underlying rationale of the Convention is that they should be able to live freely and openly as gay men and lesbian women, without fearing that they may suffer harm of the requisite intensity or duration because they are gay or lesbian.
Their home state should protect them and so enable them to live in that way.
If it does not and they will be threatened with serious harm if they live openly, then most people threatened with persecution will be forced to take what steps they can to avoid it.
But the applicants country of nationality does not meet the standard of protection from persecution which the Convention envisages simply because conditions in the country are such that he would be able to take, and would in fact take, steps to avoid persecution by concealing the fact that he is gay.
On the contrary, the fact that he would feel obliged to take these steps to avoid persecution is, prima facie, an indication that there is indeed a threat of persecution to gay people who live openly.
His country of nationality is therefore not affording him the necessary level of protection.
So the receiving country should.
For this reason, in Appellant S395/2002 v Minister for Immigration (2003) 216 CLR 473, 493, para 51, McHugh and Kirby JJ emphasise that a tribunal will fall into error if it fails to ask why an applicant would act discreetly if he were returned to his home state.
That question will be particularly important where the evidence shows that, before leaving his country and applying for asylum, the applicant lived discreetly.
Their Honours explained, at p 490, para 43: In cases where the applicant has modified his or her conduct, there is a natural tendency for the tribunal of fact to reason that, because the applicant has not been persecuted in the past, he or she will not be persecuted in the future.
The fallacy underlying this approach is the assumption that the conduct of the applicant is uninfluenced by the conduct of the persecutor and that the relevant persecutory conduct is the harm that will be inflicted.
In many perhaps the majority of cases, however, the applicant has acted in the way that he or she did only because of the threat of harm.
In such cases, the well founded fear of persecution held by the applicant is the fear that, unless that person acts to avoid the harmful conduct, he or she will suffer harm.
It is the threat of serious harm with its menacing implications that constitutes the persecutory conduct.
Their Honours went on to apply that approach to the decision of the tribunal in that case, at p 493, paras 51 53: 51.
Central to the Tribunals decision was the finding that the appellants had not suffered harm in the past because they had acted discreetly.
Because the Tribunal assumed that it is reasonable for a homosexual person in Bangladesh to conform to the laws of Bangladesh society, the Tribunal failed to determine whether the appellants had acted discreetly only because it was not possible to live openly as a homosexual in Bangladesh.
Because of that failure, the Tribunal, unsurprisingly, failed to give proper attention to what might happen to the appellants if they lived openly in the same way as heterosexual people in Bangladesh live. 52.
The Tribunal did find, however, that to attempt to live openly as a homosexual in Bangladesh would mean to face problems ranging from being disowned by ones family and shunned by friends and neighbours to more serious forms of harm, for example the possibility of being bashed by the police.
That finding appears to be based on an acceptance of the evidence of Mr Khan, the Executive Director of the Naz Foundation.
In its reasons, the Tribunal recorded Mr Khan as saying: [T]he consequences of being identified as homosexual vary enormously, from acceptance and tolerance, to harassment, physical abuse or expulsion from the community.
Most of the harassment of males who have sex with males takes the form of extortion by local police and hustlers who threaten to expose them to their families if they do not cooperate. 53.
The Tribunals findings on the attitude of Bangladesh society and the statements of the appellants indicate that they were discreet about their relationship only because they feared that otherwise they would be subjected to the kinds of discrimination of which Mr Khan spoke.
If the Tribunal had found that this fear had caused them to be discreet in the past, it would have been necessary for the Tribunal then to consider whether their fear of harm was well founded and amounted to persecution.
That would have required the Tribunal to consider what might happen to the appellants in Bangladesh if they lived openly as a homosexual couple.
Would they have suffered physical abuse, discrimination in employment, expulsion from their communities or violence or blackmail at the hands of police and others, as Mr Khan suggested were possibilities? These were the sorts of questions that the Tribunal was bound to consider if it found that the appellants discreet behaviour in the past was the result of fear of what would happen to them if they lived openly as homosexuals.
Because the Tribunal assumed that it is reasonable for a homosexual person in Bangladesh to conform to the laws of Bangladesh society, however, the Tribunal disqualified itself from properly considering the appellants claims that they had a real fear of persecution if they were returned to Bangladesh.
In short, the fact that the applicants would act discreetly and so not be subjected to violence if returned to Bangladesh did not mean that they did not have a well founded fear of persecution on their return.
Rather, the tribunal had to go on to ask itself why they would act discreetly.
If it was because they would suffer serious harm if they lived openly as a homosexual couple, then they would have a well founded fear of persecution since it is the right to live openly without fear of persecution which the Convention exists to protect.
The other justices in the majority, Gummow and Hayne JJ, described the tribunals error in this way, 216 CLR 473, 503, para 88: The Tribunal did not ask why the appellants would live discreetly.
It did not ask whether the appellants would live discreetly because that was the way in which they would hope to avoid persecution.
That is, the Tribunal was diverted from addressing the fundamental question of whether there was a well founded fear of persecution by considering whether the appellants were likely to live as a couple in a way that would not attract adverse attention.
That the Tribunal was diverted in that way is revealed by considering the three statements in its reasons that are referred to earlier: first, that it is not possible to live openly as a homosexual in Bangladesh; secondly, that [t]o attempt to [live openly] would mean to face problems; and, thirdly, that Bangladeshi men can have homosexual affairs or relationships, provided they are discreet.
Nowhere did the Tribunal relate the first and second of these statements to the position of the appellants.
It did not consider whether the adverse consequences to which it referred sufficed to make the appellants fears well founded.
All that was said was that they would live discreetly.
Again, the point is that the tribunal should have considered why the appellants would live discreetly if they were returned to Bangladesh.
In particular, it should have asked whether they would live discreetly because that was the way they would hope to avoid persecution.
If so, then the tribunal should have considered whether the adverse consequences sufficed to make the appellants fears of persecution well founded.
The decision of the High Court is accordingly powerful authority, which I would respectfully follow, for the proposition that, if a person has a well founded fear that he would suffer persecution on being returned to his country of nationality if he were to live openly as a gay man, then he is to be regarded as a refugee for purposes of the Convention, even though, because of the fear of persecution, he would in fact live discreetly and so avoid suffering any actual harm.
The High Court has followed the same line of reasoning in subsequent cases.
Application of the High Courts approach in Appellant S395/2002
In NABD of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 79 ALJR 1142 the appellant, who had converted to Christianity, would face persecution if he returned to Iran.
He argued that the tribunal had fallen into the same kind of error as the tribunal in S395/2002 v Minister for Immigration by attaching significance to a supposed difference between discreet and confrontational behaviour.
By a majority (McHugh and Kirby JJ dissenting), the High Court dismissed his appeal.
In doing so, they did not reject the approach in S395/2002 v Minister for Immigration.
Rather, applying that approach, they held that the appeal failed on the facts.
As Hayne J (one of the majority in S395/2002) and Heydon J explained, at para 168: At no point in its chain of reasoning did the Tribunal divert from inquiring about whether the fears which the appellant had were well founded.
It did not ask (as the Tribunal had asked in Appellant S395/2002) whether the appellant could avoid persecution; it asked what may happen to the appellant if he returned to Iran.
Based on the material the Tribunal had, including the material concerning what the appellant had done while in detention, it concluded that were he to practise his faith in the way he chose to do so, there was not a real risk of his being persecuted.
In SZATV v Minister for Immigration and Citizenship (2007) 233 CLR 18 the appellant had worked as a journalist in Chernovtsy in Ukraine.
Due to his political views he had been subjected to a systematic campaign of harassment, including physical maltreatment.
The Refugee Review Tribunal none the less rejected his claim for asylum on the ground that he could return to a different part of Ukraine where he would not be known, and work in the construction industry.
He would not then come to the notice of the authorities.
Allowing his appeal, at p 28, para 28, Gummow, Hayne and Crennan JJ referred to the analysis in para 40 of the judgment of McHugh and Kirby JJ in Appellant S395/2002 v Minister for Immigration (2003) 216 CLR 473, 489, where they had criticised the idea that an applicant would not suffer persecution for his homosexuality if he could avoid it by living discreetly.
Similarly, in SZATV, the tribunal had gone wrong by approaching the issue on the footing that it would not be unreasonable for the appellant to relocate within Ukraine and obtain work which would not involve the expression to the public of his political opinions.
In other words, he would avoid persecution by giving up the very right to express his political opinions without fear of persecution which the Convention is designed to protect.
Again, the decision is consistent with the approach in Appellant S395/2002 v Minister for Immigration.
The same approach has been followed in New Zealand.
In Refugee Appeal No 74665/03, [2005] INLR 68 at para 124, the New Zealand Refugee Status Appeals Authority considered that its own approach and the approach of the High Court of Australia in Appellant S395/2002 converged on the same point, namely that refugee status cannot be denied by requiring of the claimant that he or she avoid being persecuted by forfeiting a fundamental human right.
The difference between the High Court and the Authority which the Authority considered could be important in certain cases was that it preferred to use a human rights framework in order to determine the limits of what an individual is entitled to do and not to do.
That approach might, for instance, be relevant if an applicant were claiming asylum on the ground that he feared persecution if he took part in a gay rights march.
I respectfully see the attractions of that approach.
But no such issue arises in the present appeals and I prefer to leave the point for consideration in a case where it might be of practical effect.
For present purposes I take the decision of the Authority, based on a particularly full and impressive analysis of the relevant materials, as clear support for the High Court of Australias approach that an applicant cannot be denied asylum on the basis that he would, in fact, take effective steps, by suppressing his sexual identity, to avoid the harm which would otherwise threaten him.
The Court of Appeal: living discreetly as persecution
Under reference to the case law of the Court of Appeal set out above at paras 47 49, the Secretary of State argued, however, that if the applicant would actually live discreetly and avoid the danger, then he would have no real fear of persecution unless he could not reasonably be expected to tolerate that situation, viz, having to conceal his sexual identity, and all the restrictions which that would entail, in circumstances where failure to do so would expose him to extreme danger.
In other words the basis for claiming asylum would be a well founded fear that he would find it intolerable to live discreetly to avoid the danger.
Something of the same idea can be seen in the argument which Mosley J considered in Sadeghi Pari v Canada (Minister of Citizenship and Immigration) 2004 FC 282, para 29: The meaning of persecution is generally defined as the serious interference with a basic human right.
Concluding that persecution would not exist because a gay woman in Iran could live without punishment by hiding her relationship to another woman may be erroneous, as expecting an individual to live in such a manner could be a serious interference with a basic human right, and therefore persecution (internal citations omitted).
In my view, the approach adopted by the Court of Appeal is unsound.
I leave on one side my reasoning so far and also the obvious point that the Court of Appeals test seems to require the applicant to establish a form of secondary persecution brought on by his own actions in response to the primary persecution.
In my view the core objection to the Court of Appeals approach is that its starting point is unacceptable: it supposes that at least some applications for asylum can be rejected on the basis that the particular applicant could find it reasonably tolerable to act discreetly and conceal his sexual identity indefinitely to avoid suffering severe harm.
The New Zealand Refugee Status Appeals Authority observed in Re GJ [1998] (1995) INLR 387, 420 that sexual orientation is either an innate or unchangeable characteristic or a characteristic so fundamental to identity or human dignity that it ought not be required to be changed (emphasis in the original).
So, starting from that position, the Convention offers protection to gay and lesbian people and, I would add, bisexuals and everyone else on a broad spectrum of sexual behaviour because they are entitled to have the same freedom from fear of persecution as their straight counterparts.
No one would proceed on the basis that a straight man or woman could find it reasonably tolerable to conceal his or her sexual identity indefinitely to avoid suffering persecution.
Nor would anyone proceed on the basis that a man or woman could find it reasonably tolerable to conceal his or her race indefinitely to avoid suffering persecution.
Such an assumption about gay men and lesbian women is equally unacceptable.
Most significantly, it is unacceptable as being inconsistent with the underlying purpose of the Convention since it involves the applicant denying or hiding precisely the innate characteristic which forms the basis of his claim of persecution: Atta Fosu v Canada (Minister of Citizenship and Immigration) 2008 FC 1135, para 17, per Zinn J.
At the most basic level, if a male applicant were to live discreetly, he would in practice have to avoid any open expression of affection for another man which went beyond what would be acceptable behaviour on the part of a straight man.
He would have to be cautious about the friendships he formed, the circle of friends in which he moved, the places where he socialised.
He would have constantly to restrain himself in an area of life where powerful emotions and physical attraction are involved and a straight man could be spontaneous, impulsive even.
Not only would he not be able to indulge openly in the mild flirtations which are an enjoyable part of heterosexual life, but he would have to think twice before revealing that he was attracted to another man.
Similarly, the small tokens and gestures of affection which are taken for granted between men and women could well be dangerous.
In short, his potential for finding happiness in some sexual relationship would be profoundly affected.
It is objectionable to assume that any gay man can be supposed to find even these restrictions on his life and happiness reasonably tolerable.
It would be wrong, however, to limit the areas of behaviour that must be protected to the kinds of matters which I have just described essentially, those which will enable the applicant to attract sexual partners and establish and maintain relationships with them in the same way as happens between persons who are straight.
As Gummow and Hayne JJ pointed out in Appellant S395/2002 v Minister for Immigration (2003) 216 CLR 473, 500 501, para 81: Sexual identity is not to be understood in this context as confined to engaging in particular sexual acts or, indeed, to any particular forms of physical conduct.
It may, and often will, extend to many aspects of human relationships and activity.
That two individuals engage in sexual acts in private (and in that sense discreetly) may say nothing about how those individuals would choose to live other aspects of their lives that are related to, or informed by, their sexuality In short, what is protected is the applicants right to live freely and openly as a gay man.
That involves a wide spectrum of conduct, going well beyond conduct designed to attract sexual partners and maintain relationships with them.
To illustrate the point with trivial stereotypical examples from British society: just as male heterosexuals are free to enjoy themselves playing rugby, drinking beer and talking about girls with their mates, so male homosexuals are to be free to enjoy themselves going to Kylie concerts, drinking exotically coloured cocktails and talking about boys with their straight female mates.
Mutatis mutandis and in many cases the adaptations would obviously be great the same must apply to other societies.
In other words, gay men are to be as free as their straight equivalents in the society concerned to live their lives in the way that is natural to them as gay men, without the fear of persecution.
This is not to give any false or undue prominence to the applicants sexuality or to say that an individual is defined by his sexuality.
It is just to accept that sexual identity is inherent to ones very identity as a person: Hernandez Montiel v Immigration and Naturalisation Service, 225 F 3d 1084, 1093 (9th Cir 2000), per Tashima J. A E Housman showed many of the hallmarks of genius both as a textual critic and as a poet; Alan Turing was a mathematical genius.
Not only may these talents have been at least as significant to their identity as their homosexuality, but the individuals themselves may well have thought so too.
That does not matter in the context of persecution.
As the Nazi period showed all too clearly, a secular Jew, who rejected every tenet of the religion and did not even think of himself as Jewish, was ultimately in as much need as any Orthodox rabbi of protection from persecution as a Jew.
Similarly, an applicant for asylum does not need to show that his homosexuality plays a particularly prominent part in his life.
All that matters is that he has a well founded fear that he will be persecuted because of that particular characteristic which he either cannot change or cannot be required to change.
Another way of pointing to essentially the same basic defect in the approach of the Court of Appeal is to say that a tribunal has no legitimate way of deciding whether an applicant could reasonably be expected to tolerate living discreetly and concealing his homosexuality indefinitely for fear of persecution.
Where would the tribunal find the yardstick to measure the level of suffering which a gay man far less, the particular applicant would find reasonably tolerable? How would the tribunal measure the equivalent level for a straight man asked to suppress his sexual identity indefinitely? The answer surely is that there is no relevant standard since it is something which no one should have to endure.
In practice, of course, where the evidence showed that an applicant had avoided persecutory harm by living discreetly for a number of years before leaving his home country, the tribunal would be tempted to fall into error.
The tribunal would be liable to hold that the evidence showed that this applicant, at least, must have found his predicament reasonably tolerable in the past and so would find it reasonably tolerable if he were returned to his country of nationality.
But, in truth, that evidence would merely show that the applicant had put up with living discreetly for fear of the potentially dire consequences of living openly.
I would therefore hold that the tests formulated by Maurice Kay LJ and Buxton LJ in J v Secretary of State for the Home Department [2007] Imm AR 73, at paras 16 and 20, and applied by Pill LJ in this case, are wrong in principle, unworkable and inconsistent with the way that article 1A(2) of the Convention has been interpreted and applied in other authorities.
As can be seen from the passage from Z v Secretary of State for the Home Department [2005] Imm AR 75 quoted at para 47 above, Buxton LJ seems to have thought that he was following the approach of McHugh and Kirby JJ in Appellant S395/2002 v Minister for Immigration (2003) 216 CLR 473.
That was, quite simply, a misunderstanding.
As the cross heading above para 40 of their judgment showed, at this point in their judgment their Honours were considering the position of a gay person who would live openly.
They first explained that persecution could take a variety of forms, and then observed, in the sentence quoted by Buxton LJ, that to count as persecution the harm had to be intolerable.
But this is just a general description of what counts as persecution.
As I have explained, in paras 55 and 56 above, the remainder of para 40 of their Honours judgment contains not the slightest hint of the approach favoured by the Court of Appeal.
That approach should not be followed in future.
The approach to be followed by tribunals
When an applicant applies for asylum on the ground of a well founded fear of persecution because he is gay, the tribunal must first ask itself whether it is satisfied on the evidence that he is gay, or that he would be treated as gay by potential persecutors in his country of nationality.
If so, the tribunal must then ask itself whether it is satisfied on the available evidence that gay people who lived openly would be liable to persecution in the applicants country of nationality.
If so, the tribunal must go on to consider what the individual applicant would do if he were returned to that country.
If the applicant would in fact live openly and thereby be exposed to a real risk of persecution, then he has a well founded fear of persecution even if he could avoid the risk by living discreetly.
If, on the other hand, the tribunal concludes that the applicant would in fact live discreetly and so avoid persecution, it must go on to ask itself why he would do so.
If the tribunal concludes that the applicant would choose to live discreetly simply because that was how he himself would wish to live, or because of social pressures, e g, not wanting to distress his parents or embarrass his friends, then his application should be rejected.
Social pressures of that kind do not amount to persecution and the Convention does not offer protection against them.
Such a person has no well founded fear of persecution because, for reasons that have nothing to do with any fear of persecution, he himself chooses to adopt a way of life which means that he is not in fact liable to be persecuted because he is gay.
If, on the other hand, the tribunal concludes that a material reason for the applicant living discreetly on his return would be a fear of the persecution which would follow if he were to live openly as a gay man, then, other things being equal, his application should be accepted.
Such a person has a well founded fear of persecution.
To reject his application on the ground that he could avoid the persecution by living discreetly would be to defeat the very right which the Convention exists to protect his right to live freely and openly as a gay man without fear of persecution.
By admitting him to asylum and allowing him to live freely and openly as a gay man without fear of persecution, the receiving state gives effect to that right by affording the applicant a surrogate for the protection from persecution which his country of nationality should have afforded him.
The Secretary of State should, of course, apply the same approach when considering applications of this type.
Although I have, for the most part, concentrated on the position of gay men, the Secretary of State and tribunals should approach applications concerning lesbian women in the same way.
These appeals
I add a comment on the case of HT.
The tribunal rejected his application on the ground that, on his return to Cameroon, he could go to live in another part of the country and live discreetly there.
In that event he would have no real fear of persecution.
But there appears to have been nothing in the evidence to suggest that there was any area of Cameroon where gay men could live openly without any fear of persecution.
So in no sense would the applicant be returning to a part of the country where the state would protect him from persecution.
In effect, therefore, the tribunal was simply saying that his application should be rejected because, on return, he could take steps to avoid persecution by conducting himself discreetly.
For the reasons which I have given, that approach is inconsistent with the very aims of the Convention.
In effect, the tribunal made the same error as the tribunal in SZATV v Minister for Immigration and Citizenship (2007) 233 CLR 18, discussed at para 71 above.
For these reasons I would allow both appeals and remit matters to the respective tribunals for reconsideration in the light of the approach which I have outlined.
LORD WALKER
I agree with the reasoning and conclusions in Lord Rodgers judgment.
But in view of the importance of this appeal I will add some observations in my own words.
After all the carefully researched debate that the Court has heard and participated in (we have had 23 bundles of authorities containing 250 different items) there is, as has often been noted, ultimately a single question: does the claimant asylum seeker have a well founded fear of being persecuted, if returned to his own country, for reasons falling within article 1A(2) of the Convention? As it was put by Simon Brown LJ in Secretary of State for the Home Department v Iftikar Ahmed [2000] INLR 1, cited by McHugh and Kirby JJ in Appellant S395/2002 v Minister for Immigration and Multicultural Affairs [2003] HCA 71 (2003) 216 CLR 473 para 42 : [I]n all asylum cases there is ultimately but a single question to be asked: is there a serious risk that on return the applicant would be persecuted for a Convention reason? If there is, then he is entitled to asylum.
This single question is however complex (McHugh J in Applicant A v Minister for Immigration and Ethnic Affairs (1997) 190 CLR 225, 256) described it as a compound conception which nevertheless needs to be interpreted as a totality).
It is not directed at ascertaining past facts (though findings as to events asserted by the claimant to have happened in the past will always be relevant, and often crucial).
Instead it is directed at predicting what would or might happen in the future if (contrary to his wishes) the claimant is returned to his own country.
Here too his evidence as to his own state of mind (in particular his intentions and his apprehensions in an eventuality which he earnestly hopes to avoid) will always be relevant.
But his evidence may have to be treated with caution because of his strong personal interest in the outcome of his claim.
Moreover the inquiry is by no means wholly subjective.
The need for the claimants fear to be well founded introduces a very important objective element.
Different jurisdictions have taken different approaches to evaluating what Professor James C Hathaway has called the threshold of concern (Hathaway, The Law of Refugee Status (1991) pp 75 80).
When that work was published the test approved by the House of Lords in R v Secretary of State for the Home Department Ex p Sivakumaran (and conjoined appeals) [1988] AC 958 was that there should be a reasonable degree of likelihood (Lord Keith at p 994) or real and substantial danger (Lord Templeman at p 996) or a real and substantial risk (Lord Goff at p 1000) of persecution for a Convention reason.
This remains the test.
The editors of Macdonald, Immigration Law and Practice 7th ed (2008) prefer the expression real risk, citing the Court of Appeal in MH (Iraq) v Secretary of State for the Home Department [2007] EWCA Civ 852, a real as opposed to a fanciful risk.
Risk is in my view the best word because (as explained in the next paragraph) it factors in both the probability of harm and its severity.
In understanding the practical implications of the test it is important to note that in Sivakumaran Lord Keith quoted Lord Diplocks remarks in R v Governor of Pentonville Prison, Ex p Fernandez [1971] 1 WLR 987, 994 (an extradition case) as to the relative gravity of the consequences of the courts expectation being falsified either in one way or in the other and Lord Templeman referred to his own similar remarks in R v Secretary of State for the Home Department Ex p Bugdaycay [1987] AC 514, 537.
Where life or liberty may be threatened, the balance of probabilities is not an appropriate test.
As Sedley LJ said in Batayav v Secretary of State for the Home Department [2003] EWCA Civ 1489, [2004] INLR 126 para 38: If a type of car has a defect which causes one vehicle in ten to crash, most people would say that it presents a real risk to anyone who drives it, albeit crashes are not generally or consistently happening.
Getting away from metaphor, I suppose that it may be debatable whether a gay man would be at real risk of persecution (in the Convention sense) if, on returning to his own country, he would face a one in ten risk of being prosecuted and made to pay a fine, or sent to prison for a month.
But if he would face a one in ten risk of being prosecuted and sentenced to death by public hanging from a crane there could be only one answer.
The notion that a gay man could (and so, some might say, should) avoid trouble by adopting a discreet lifestyle (or leading an entirely celibate life) is not limited to the context of asylum law.
It is the way in which hundreds of thousands of gay men lived in England before the enactment of the Sexual Offences Act 1967.
But it has assumed particular importance in asylum law since gays and lesbians have become generally recognised as a particular social group for Convention purposes.
Jenni Millbank has described this development (which she terms discretion reasoning) in From discretion to disbelief: recent trends in refugee determinations on the basis of sexual orientation in Australia and the United Kingdom (2009) 13 IJHR 391, 393 394 (most references omitted): At its baldest, discretion reasoning entailed a reasonable expectation that persons should, to the extent that it is possible, co operate in their own protection, by exercising self restraint such as avoiding any behaviour that would identify them as gay; never telling anyone they were gay; only expressing their sexuality by having anonymous sex in public places; pretending that their partner is a flatmate; or indeed remaining celibate.
This approach subverted the aim of the Refugees Convention that the receiving state provide a surrogate for protection from the home state by placing the responsibility of protection upon the applicant: it is he or she who must avoid harm.
The discretion approach also varied the scope of protection afforded in relation to each of the five Convention grounds by, for example, protecting the right to be openly religious but not to be openly gay or in an identifiable same sex relationship.
The idea of discretion reflects broader social norms concerning the proper place of lesbian and gay sexuality, as something to be hidden and reluctantly tolerated, a purely private sexual behaviour rather than an important and integral aspect of identity, or as an apparent relationship status.
The discretion approach explicitly posited the principle that human rights protection available to sexual orientation was limited to private consensual sex and did not extend to any other manifestation of sexual identity (which has been variously characterised as flaunting displaying and advertising homosexuality as well as inviting persecution).
Thus for example in 2001 the Federal Court of Australia held that the Iranian Penal Code prohibiting homosexuality and imposing a death penalty did place limits on the applicants behaviour; the applicant had to avoid overt and public, or publicly provocative homosexual activity.
But having to accept those limits did not amount to persecution. (Nezhadian v Minister for Immigration and Multicultural Affairs [2001] FCA 1415, para 12).
On appeal, the full Federal Court endorsed the view that public manifestation of homosexuality is not an essential part of being homosexual (WABR v Minister for Immigration and Multicultural Affairs [2002] FCAFC 124, para 23).
The discretion approach thus has had wide reaching ramifications in terms of framing the human rights of lesbians and gay men to family life, freedom of association and freedom of expression as necessarily lesser in scope than those held by heterosexual people.
This approach has been brought to an end, for the purposes of Australian asylum law, by the majority decision of the High Court of Australia in Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473.
The High Court divided by four to three in favour of allowing the appeal and remitting the case (though the tribunal to which the case was remitted decided that S395/2002 and his co applicant S396/2002 were not gay after all this fact, recorded by Jenni Millbank in her article, is reflected in its title).
The minority (Gleeson CJ and Callinan and Heydon JJ) considered that the tribunal had not erred in law.
The majority consisted of McHugh and Kirby JJ who joined in one judgment, and Gummow and Hayne JJ who joined in another.
I find the joint judgment of Gummow and Hayne JJ illuminating and compelling.
Lord Hope and Lord Rodger have quoted parts of paras 81 and 82 but I think it helpful to set out the whole section (paras 78 83) which appears under the heading Discretion and being discreet: The central question in any particular case is whether there is a well founded fear of persecution.
That requires examination of how this applicant may be treated if he or she returns to the country of nationality.
Processes of classification may obscure the essentially individual and fact specific inquiry which must be made.
The dangers of arguing from classifications are particularly acute in matters in which the applicants sexuality is said to be relevant.
Those dangers lie within the notions of discretion and being discreet: terms often applied in connection with some aspects of sexual expression.
To explain why use of those terms may obscure more than they illuminate, it is useful to begin by considering Convention reasons other than membership of a social group defined in terms of sexual identity.
If an applicant holds political or religious beliefs that are not favoured in the country of nationality, the chance of adverse consequences befalling that applicant on return to that country would ordinarily increase if, on return, the applicant were to draw attention to the holding of the relevant belief.
But it is no answer to a claim for protection as a refugee to say to an applicant that those adverse consequences could be avoided if the applicant were to hide the fact that he or she holds the beliefs in question.
And to say to an applicant that he or she should be discreet about such matters is simply to use gentler terms to convey the same meaning.
The question to be considered in assessing whether the applicants fear of persecution is well founded is what may happen if the applicant returns to the country of nationality; it is not, could the applicant live in that country without attracting adverse consequences.
It is important to recognise the breadth of the assertion that is made when, as in the present case, those seeking protection allege fear of persecution for reasons of membership of a social group identified in terms of sexual identity (here, homosexual men in Bangladesh).
Sexual identity is not to be understood in this context as confined to engaging in particular sexual acts or, indeed, to any particular forms of physical conduct.
It may, and often will, extend to many aspects of human relationships and activity.
That two individuals engage in sexual acts in private (and in that sense discreetly) may say nothing about how those individuals would choose to live other aspects of their lives that are related to, or informed by, their sexuality.
Saying that an applicant for protection would live discreetly in the country of nationality may be an accurate general description of the way in which that person would go about his or her daily life.
To say that a decision maker expects that that person will live discreetly may also be accurate if it is read as a statement of what is thought likely to happen.
But to say that an applicant for protection is expected to live discreetly is both wrong and irrelevant to the task to be undertaken by the Tribunal if it is intended as a statement of what the applicant must do.
The Tribunal has no jurisdiction or power to require anyone to do anything in the country of nationality of an applicant for protection.
Moreover, the use of such language will often reveal that consideration of the consequences of sexual identity has wrongly been confined to participation in sexual acts rather than that range of behaviour and activities of life which may be informed or affected by sexual identity.
No less importantly, if the Tribunal makes such a requirement, it has failed to address what we have earlier identified as the fundamental question for its consideration, which is to decide whether there is a well founded fear of persecution.
It has asked the wrong question.
Addressing the question of what an individual is entitled to do (as distinct from what the individual will do) leads on to the consideration of what modifications of behaviour it is reasonable to require that individual to make without entrenching on the right.
This type of reasoning, exemplified by the passages from reasons of the Tribunal in other cases, cited by the Federal Court in Applicant LSLS v Minister for Immigration and Multicultural Affairs, leads to error.
It distracts attention from the fundamental question.
It leads to confining the examination undertaken (as it was in LSLS) merely to considering whether the applicant had a well founded fear of persecution if he were to pursue a homosexual lifestyle in [the country of nationality], disclosing his sexual orientation to the extent reasonably necessary to identify and attract sexual partners and maintain any relationship established as a result.
That narrow inquiry would be relevant to whether an applicant had a well founded fear of persecution for a Convention reason only if the description given to what the applicant would do on return was not only comprehensive, but exhaustively described the circumstances relevant to the fear that the applicant alleged.
On its face it appears to be an incomplete, and therefore inadequate, description of matters following from, and relevant to, sexual identity.
Whether or not that is so, considering what an individual is entitled to do is of little assistance in deciding whether that person has a well founded fear of persecution.
Lord Rodger, in paras 78 80 of his judgment, adds a vivid commentary which illustrates and brings to life the general message conveyed by this part of the judgment of Gummow and Hayne JJ.
There is a similar message in the joint judgment of McHugh and Kirby JJ (especially paras 40 43).
But I have to say, with great respect to those two very distinguished judges, that I have difficulty with some of the reasoning in para 43, and in particular the sentence, It is the threat of serious harm with its menacing implications that constitutes the persecutory conduct.
I think that this sentence (together with the unexceptionable comment in para 40 that harm is persecution only if, by reason of its intensity or duration, the person persecuted cannot reasonably be expected to tolerate it) have contributed to the Court of Appeal straying into error in J v Secretary of State for the Home Department [2006] EWCA Civ 1238, [2007] Imm AR 1 paras 16 and 20, an error which was followed in this case: [2009] EWCA Civ 172, paras 11, 12, 31 and 44.
In the present case Pill LJ referred, at para 10 of his judgment, to what counsel had described as the Anne Frank principle.
That is of course a reference to the Jewish girl who was hidden in an attic in Amsterdam for more than two years, but ultimately discovered by the Nazis and sent to a concentration camp, where she died.
The conditions which she had to endure, confined in an attic away from the normal pleasures of childhood and in constant fear of discovery, were certainly severe enough to be described as persecution.
But in the context of a claim to asylum under the Convention this approach may be an unnecessary complication, and lead to confusion.
The essential question in these cases is whether the claimant has a well founded fear of persecution as a gay man if returned to his own country, even if his fear (possibly in conjunction with other reasons such as his familys feelings) would lead him to modify his behaviour so as to reduce the risk.
There are some countries in which a gay couple who lived together quite openly, and made no attempt to conceal their affection, even in public places, would be inviting persecution (an expression used in R v Secretary of State for the Home Department, Ex p Binbasi [1989] Imm AR 595, p 4).
That is an unfortunate expression.
Some people who risk martyrdom have complex motivation and appear to others to be stubborn and wrong headed. (John Donne, who was born a Catholic and knew a lot about persecution from his own familys experiences, wrote a prose work entitled Pseudo Martyr, published in 1610, deploring the intransigence of some loyal Catholics.) But neither the most courageous nor the most timorous forfeit protection as asylum seekers if, in their different ways, they satisfy the test of a well founded fear of persecution because of their sexuality.
I respectfully concur in para 82 of Lord Rodgers judgment, setting out the approach to be followed by tribunals in cases of this sort.
It involves (as Gummow and Hayne JJ put it in S395, para 78) an essentially individual and fact specific inquiry.
It will often be a difficult task since much of the relevant evidence will come from the claimant, who has a strong personal interest in its outcome.
For these reasons, and for the fuller reasons given by Lord Rodger, I would allow both appeals and remit them to the tribunal for reconsideration in the light of Lord Rodgers judgment.
LORD COLLINS
I agree that the appeal should be allowed for the reasons given by Lord Rodger and that the approach to be followed by tribunals should be as he proposes in paragraph [82] of his judgment.
In the context of cases such as this, the use of the words discretion and discreetly tends to obscure the point that what is really involved is concealment of sexual orientation.
The relevant question is whether the applicant has a well founded fear of being persecuted for reasons of membership of a particular social group: Refugee Convention, article 1A(2).
Persecution is sustained or systemic failure of state protection in relation to one of the core entitlements which has been recognised by the international community, or an affront to internationally accepted human rights norms, and in particular the core values of privacy, equality and dignity: Horvath v Secretary of State for the Home Department [2001] 1 AC 489, 495; Amare v Home Secretary [2005] EWCA Civ 1600, [2006] Imm AR 217, [17].
The test of reasonable tolerability adopted by Buxton LJ in Z v Secretary of State for the Home Department [2004] EWCA Civ 1578, [2005] Imm AR 75 at [17], and applied by Maurice Kay LJ in J v Secretary of State for the Home Department [2006] EWCA Civ 1238, [2007] Imm AR 73 at [16], and Pill LJ in the present case at [31] was based on a misunderstanding of the passage in the judgment of McHugh and Kirby JJ in Appellant S395/2002 v Minister for Immigration [2003] HCA 71,(2003) 216 CLR 473, at [40], when they said: [40] Persecution covers many forms of harm ranging from physical harm to the loss of intangibles, from death and torture to state sponsored or condoned discrimination in social life and employment.
Whatever form the harm takes, it will constitute persecution only if, by reason of its intensity or duration, the person persecuted cannot reasonably be expected to tolerate it.
But persecution does not cease to be persecution for the purpose of the Convention because those persecuted can eliminate the harm by taking avoiding action within the country of nationality.
The Convention would give no protection from persecution for reasons of religion or political opinion if it was a condition of protection that the person affected must take steps reasonable or otherwise to avoid offending the wishes of the persecutors.
Nor would it give protection to membership of many a particular social group if it were a condition of protection that its members hide their membership or modify some attribute or characteristic of the group to avoid persecution.
Similarly, it would often fail to give protection to people who are persecuted for reasons of race or nationality if it was a condition of protection that they should take steps to conceal their race or nationality.
The idea of reasonable toleration was plainly being mentioned in the context of what amounts to persecution and not in the context of what they described as taking avoiding action or where members of the group hide their membership or modify some attribute or characteristic of the group to avoid persecution.
If a person would have to conceal his sexual identity because of a well founded fear of persecution, he does not cease to have that well founded fear even if the concealment will be successful: see also NABD of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 29, (2005) 216 ALR 1; SZATV v Minister for Immigration and Citizenship [2007] HCA 40, (2007) 233 CLR 18; Refugee Appeal No 74665/03 [2005] INLR 68 (NZ Refugee Status Appeals Authority, Mr Haines QC).
A similar, though not identical, approach has been adopted in Canada and the United States.
Thus in Atta Fosu v Canada (Citizenship and Immigration) 2008 FC 1135 (Federal Court of Canada, Zinn J) it was held that to say that an internal flight alternative existed if the homosexual refugee claimant lived a discreet existence, was to say that it was not an internal flight alternative.
The applicant was a Ghanaian citizen who claimed to fear persecution by the police and the family of his former same sex partner, on the basis of his homosexuality.
The immigration board found that the applicant could live as a homosexual, discreetly, in the city of Accra, and therefore that an internal flight alternative existed for the applicant and therefore held that no determination on his identity as a homosexual needed to be made.
The court held that the decision was unreasonable because it required the applicant to deny or hide the innate characteristic which formed the basis of his claim of persecution.
See also Sadeghi Pari v Canada (Minister of Citizenship and Immigration), 2004 FC 282.
In the United States it was said in Karouni v Gonzales, 399 F 3d 1163, 1173 (9th Cir 2005) that by arguing that the homosexual applicant could avoid persecution by living a life of celibacy in Lebanon, the Attorney General was essentially arguing that the law required him to change a fundamental aspect of his human identity.
See also, for a full discussion of the suggestion that applicants could hide their religion to avoid persecution, Kazemzadeh v US Attorney General, 577 F 3d 1341 (11th Cir 2009), following Iao v Gonzales, 400 F 3d 530, 532 (7th Cir 2005), Zhang v Ashcroft, 388 F 3d 713, (9th Cir.2004); Woldemichael v Ashcroft, 448 F 3d 1000 (8th Cir 2006).
These principles also answer the Anne Frank question which is discussed in the case law and which was the subject of argument on this appeal.
In Win v Minister for Immigration and Multicultural Affairs [2001] FCA 132, a political opinion case, the Minister argued that the Tribunal was only required, under the terms of the Convention, to consider whether the applicants would be punished for their political opinions; and that since the applicants had claimed to have operated clandestinely in the past and gave no indication that they would not do so in the future, it was appropriate for the Tribunal merely to ask what the prospects were that the authorities would discover their activities in the future.
Madgwick J said (at [18]): upon the approach suggested by counsel for the [Minister], Anne Frank, terrified as a Jew and hiding for her life in Nazi occupied Holland, would not be a refugee: if the Tribunal were satisfied that the possibility of her being discovered by the authorities was remote, she would be sent back to live in the attic.
It is inconceivable that the framers of the Convention ever did have, or should be imputed to have had, such a result in contemplation.
In this case the Secretary of State argued that had Anne Frank escaped to the United Kingdom, and had it been found (improbably, as the Secretary of State recognised) that on return to Holland she would successfully avoid detection by hiding in the attic, then she would not be at real risk of persecution by the Nazis, and the question would be whether permanent enforced confinement in the attic would itself amount to persecution.
Simply to re state the Secretary of States argument shows that it is not possible to characterise it as anything other than absurd and unreal.
It is plain that it remains the threat to Jews of the concentration camp and the gas chamber which constitutes the persecution.
SIR JOHN DYSON SCJ
On the findings of the tribunals, HJ and HT would have a well founded fear of persecution if, on return to Iran and Cameroon respectively, they were to live openly as gay men.
Their claims for asylum failed because it was found that on their return they would conceal their sexual orientation and live discreet lives.
I agree that these appeals should be allowed for the reasons given by Lord Rodger.
In view of the importance of the issues, I would like to add a few words of my own.
How can a gay man, who would have a well founded fear of persecution if he were to live openly as a gay man on return to his home country, be said to have a well founded fear of persecution if on return he would in fact live discreetly, thereby probably escaping the attention of those who might harm him if they were aware of his sexual orientation? It is well established that in asylum cases it is necessary for the decision maker to determine what the asylum seeker will do on return: see Ahmad v Secretary of State for the Home Department [1990] Imm AR 61.
Thus, the asylum seeker who could avoid persecution on his return, but who (however unreasonably) would not do so is in principle a refugee within the meaning of the Convention.
At first sight, therefore, it might be thought that this should lead to the conclusion that, if a gay man would live discreetly on return and thereby avoid being harmed or persecuted on account of his sexual orientation, he could not have a well founded fear of persecution within the meaning of article 1A(2) of the Convention.
I shall call this the prima facie interpretation.
But none of the parties to this appeal argues for this interpretation, although their reasons for not doing so differ fundamentally.
Reasons why the prima facie interpretation must be rejected
The Convention must be construed in the light of its object and purpose, which is to protect a person who owing to well founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion, is outside the country of his nationality and is unable or, owing to such fear, is unwilling to avail himself of the protection of that country.
If the price that a person must pay in order to avoid persecution is that he must conceal his race, religion, nationality, membership of a social group or political opinion, then he is being required to surrender the very protection that the Convention is intended to secure for him.
The Convention would be failing in its purpose if it were to mean that a gay man does not have a well founded fear of persecution because he would conceal the fact that he is a gay man in order to avoid persecution on return to his home country.
A purposive approach to the meaning of refugee was adopted by McHugh and Kirby JJ in the S395/2002 decision (2003) 216 CLR 473, at para 41 where they said: The object of the signatories to the Convention was to protect the holding of such beliefs, opinions, membership and origins by giving the persons concerned refuge in the signatory countries when their country of nationality would not protect them.
It would undermine the object of the Convention if the signatory countries required them to modify their beliefs or opinions or to hide their race, nationality or membership of particular social groups before those countries would give them protection under the Convention.
Like Lord Rodger, I would follow this approach which has been substantially followed in Australia.
I do not find it necessary to examine the Australian authorities to which we were referred.
It is perhaps sufficient to refer to the paper by Jenni Millbank From discretion to disbelief: recent trends in refugee determinations on the basis of sexual orientation in Australia and the United Kingdom (2009) 13 (2 3) IJHR 391 414.
This paper explores the impact of the S395/2002 decision on the refugee jurisprudence of Australia and the United Kingdom five years on.
It shows that the reasoning of the majority judgments is being generally applied in Australia, but that there has been a clear shift away from discretion towards disbelief as the major area of contest in decisions since S395 and S396, with a significant increase in decisions where the applicants claim to actually being gay, lesbian, or bisexual is outright rejected.
The somewhat different analysis of the problem adopted in New Zealand also leads to a rejection of the prima facie interpretation and to the same overall conclusion that a persons claim to refugee status is not to be denied even if on return he will act discreetly in order to avoid being persecuted.
On this analysis, which is expounded very fully in the leading case of Refugee Appeal No 74665/03 [2005] INLR 68, the emphasis is on the fact that refugee status cannot be denied to a person who on return would forfeit a fundamental human right in order to avoid persecution.
Like Lord Rodger, I see the attractions of this approach.
It gives due weight to the fact that the Convention must be interpreted in accordance with its broad humanitarian objective and having regard to the principles, expressed in the preamble, that human beings should enjoy fundamental rights and freedoms without discrimination and that refugees should enjoy the widest possible exercise of these rights and freedoms: see per Lord Bingham in Fornah v Secretary of State for the Home Department [2007] 1 AC 412 at para 10.
An interpretation of article 1A(2) of the Convention which denies refugee status to gay men who can only avoid persecution in their home country by behaving discreetly (and who say that on return this is what they will do) would frustrate the humanitarian objective of the Convention and deny them the enjoyment of their fundamental rights and freedoms without discrimination.
The right to dignity underpins the protections afforded by the Refugee Convention: see Canada (AG) v Ward [1993] 2 SCR 689, approving Professor Hathaway, Law of Refugee Status, 1991, p 108: The dominant view, however, is that refugee law ought to concern itself with actions which deny human dignity in any key way, and that the sustained or systemic denial of core human rights is the appropriate standard.
A particular attraction of the New Zealand approach is that, as was said at [2005] INLR 68, para 120 of the decision delivered by RPG Haines QC, it facilitates a determination of: whether the proposed action by the claimant is at the core of the right or at its margins and whether the prohibition or restriction imposed by the state is lawful in terms of international human rights law.
If the proposed action is at the core of the right and the restriction unlawful, we would agree that the claimant has no duty to avoid the harm by being discreet or complying with the wishes of the persecutor.
If, however, the proposed activity is at the margin of the protected interest, then persistence in the activity in the face of the threatened harm is not a situation of being persecuted for the purposes of the Refugee Convention.
The individual can choose to carry out the intended conduct or to act reasonably or discreetly in order to avoid the threatened serious harm.
None of these choices, however, engages the Refugee Convention.
It is open to question how far the distinction between harmful action at the core of the right and harmful action at its margin is of relevance in cases of persecution on grounds of immutable characteristics such as race and sexual orientation.
But it is a valuable distinction and there may be more scope for its application in relation to cases concerning persecution for reasons of religion or political opinion.
There is a yet further analysis that may be adopted which leads to the conclusion that the prima facie interpretation should be rejected.
This is that, if a person will conceal his true identity and protected status out of a well founded fear that he will otherwise be persecuted, he will nevertheless continue to have a well founded fear of persecution even if, by concealing his true identity, he may succeed in avoiding serious harm.
As McHugh and Kirby JJ said in S395/2002 at para 43: In manyperhaps the majority ofcases, however, the applicant has acted in the way that he or she did only because of the threat of harm.
In such cases, the well founded fear of persecution held by the applicant is the fear that, unless that person acts to avoid the harmful conduct, he or she will suffer harm.
It is the threat of serious harm with its menacing implications that constituted the persecutory conduct.
In other words, the threat of serious harm and the fear of it will remain despite the avoiding behaviour.
In Win v Minister for Immigration and Multicultural Attains (2001) FCA 132, at para 18 Madgwick J said: upon the approach suggested by counsel for the respondent, Anne Frank, terrified as a Jew and hiding for her life in Nazi occupied Holland would not be a refugee: if the Tribunal were satisfied that the possibility of her being discovered by the authorities was remote, she would be sent back to live in the attic.
It is inconceivable that the framers of the Convention ever did have, or should be imputed to have had, such a result in contemplation.
Even if it could be imagined that Anne Frank, as an asylum seeker, would not objectively have been at risk of being discovered in the attic, she would nevertheless have had a well founded fear of the threat of serious harm, a fear not eliminated by her decision to conceal her identity as a Jew and live in the attic.
The Secretary of States solution: the reasonable tolerability test
The Secretary of State recognises that it cannot have been intended that Convention protection should be denied to those who feel compelled to take extreme measures to avoid persecution.
She does not, therefore, espouse the prima facie interpretation.
Her case is that, if the measures that an asylum seeker would take on return to avoid persecution are not reasonably tolerable, then that of itself would amount to persecution.
I cannot accept this.
First, the phrase being persecuted in article 1A(2) refers to the harm caused by the acts of the state authorities or those for whom they are responsible.
The impact of those acts on the asylum seeker is only relevant to the question whether they are sufficiently harmful to amount to persecution.
But the phrase being persecuted does not refer to what the asylum seeker does in order to avoid such persecution.
The response by the victim to the threat of serious harm is not itself persecution (whether tolerable or not) within the meaning of the article.
Secondly, the test of what is reasonably tolerable is vague and difficult to apply.
Is it a subjective test? Or does the word reasonably import the idea of the reasonable victim? If so, how for example would a decision maker determine whether it is reasonably tolerable to a person to conceal his or her sexual orientation or race? These are difficult questions which those who framed the Refugee Convention surely cannot have intended decision makers to address.
On the Secretary of States test, it would seem that a person who feels compelled to conceal his or her protected status, but does not feel strongly about it and does not find the concealment intolerable is denied the protection of the Convention; whereas the person who does feel strongly about it and finds the concealment intolerable has the benefit of its protection.
This differential treatment of the tolerant and the intolerant is unfair.
It is an unprincipled and improper basis for deciding whether a person should or should not be accorded refugee status.
The decision by the AIT in HJs case shows just how unsatisfactory the Secretary of States test is.
The AIT comprised three very experienced immigration judges who endeavoured faithfully to apply the reasonable tolerability test prescribed for them by the Court of Appeal.
They found at para 44 of their Determination that for 16 years HJ had been able to conduct his homosexual activities in Iran without serious detriment to his private life and without that causing him to suppress many aspects of his sexual identity (my emphasis).
They concluded at para 45 that he would behave in the same way on his return to Iran and that it was difficult to see on the evidence that a return to that way of living can properly be characterised as likely to result in an abandonment of the appellants sexual identity.
They said that he had been able to express his sexuality albeit in a more limited way than he can do elsewhere.
Finally, they said at para 46: To live a private life discreetly will not cause significant detriment to his right to respect for private life, nor will it involve suppression of many aspects of his sexual identity.
I do not understand by what yardstick the AIT measured the tolerability of these limitations and concluded that they were reasonably tolerable.
True, HJ had endured them for 16 years, but that did not make them tolerable, let alone reasonably tolerable to him.
He had endured them because the alternative was the real risk that he would face severe punishment at the hands of the state authorities.
In short, there was no basis on which the tribunal could properly conclude that the fact that HJ had to conceal his identity as a gay man was reasonably tolerable to him.
I wish to make it clear that I am not seeking to criticise the tribunal, but rather to show the nature of the task that they were asked to perform.
Thirdly, the Secretary of State seeks to draw a distinction between the decision maker (i) requiring the asylum seeker to act discreetly on return and (ii) making a finding that the asylum seeker will in fact act discreetly on return.
It is said that the former is impermissible and irrelevant to whether the asylum seeker has a well founded fear of persecution, whereas the latter is not only permissible but highly relevant.
But as Lord Rodger points out, this is an unrealistic distinction.
Most asylum seekers will opt for the life of discretion in preference to persecution.
This is no real choice.
If they are returned, they will, in effect, be required to act discreetly.
Fourthly, the Secretary of States test, as formulated by the Court of Appeal in Z v Secretary of State for the Home Department [2004] EWCA Civ 1578, [2005] Imm AR 75 and applied in subsequent decisions of the Court of Appeal is based on a misunderstanding of two authorities.
The test is founded entirely on these authorities and is not supported by any independent reasoning.
The first misunderstanding is of para 40 of the judgment of McHugh and Kirby JJ in S395/2002.
The sentence relied on by Buxton LJ is: Whatever form the harm takes, it will constitute persecution only if, by reason of its intensity or duration, the person persecuted cannot reasonably be expected to tolerate it.
This sentence comes in a passage which is dealing with persecution generally.
The paragraph then goes on to say that persecution does not cease to be persecution for the purpose of the Convention because those persecuted can eliminate the harm by taking avoiding action within the country of nationality.
The sentence relied on by Buxton LJ is saying nothing about the quality or effect of action taken to avoid persecution.
The second misunderstanding is of the true effect of what Simon Brown LJ said in Ahmed v Secretary of State for the Home Department.
What he said at p 7 of his judgment (quoted by Lord Rodger at para 54 above) was that an asylum seeker would have a well founded fear of persecution if he could avoid persecution on his return, but would choose not to do so (case A).
He did not address either expressly or by implication the question whether an asylum seeker would have a well founded fear of persecution if on his return he would act discreetly to avoid the persecution that he would suffer if he lived openly (case B).
A conclusion on case A sheds no light on the correct answer to case B.
Fifthly, there is no support for the Court of Appeal approach in any other jurisprudence.
This is important in view of the implicit rejection of it in a number of other jurisdictions, including at least Australia and New Zealand, and the fact that it is desirable that, so far as possible, there should be international consensus on the meaning of the Convention.
For all these reasons, I would reject the reasonable tolerability test.
I should add that in his judgment in the present case, Pill LJ said at para 32 that in determining whether suppression was reasonably tolerable for an individual: . a degree of respect for social norms and religious beliefs in other states is in my view appropriate.
Both in Muslim Iran and Roman Catholic Cameroon, strong views are genuinely held about homosexual practices.
In considering what is reasonably tolerable in a particular society, the fact finding Tribunal is in my view entitled to have regard to the beliefs held there.
Even if I had accepted the reasonable tolerability test, I would not have felt able to agree with this passage.
It would have been necessary to conduct the assessment by reference to objective human rights standards, and not by reference to the social mores of the home country.
As Lord Hoffmann said in R v Immigration Appeal Tribunal, Ex p Shah [1999] 2 AC 629, 655E: The findings of fact as to discrimination have not been challenged.
They cannot be ignored merely on the ground that this would imply criticism of the legal or social arrangements in another country.
The whole purpose of the Convention is to give protection to certain classes of people who have fled from countries in which their human rights have not been respected.
In Refugee Appeal No 74665/03, the New Zealand Status Appeals Authority stated at para 112: We do not accept that the domestic law of the country of origin or cultural relativity can override international human rights norms in the refugee determination context.
I agree.
Conclusion
It follows that the AIT in HJs case applied the wrong test, although they are not to be criticised for having done so.
His appeal must be allowed and his case remitted to a fresh tribunal.
The tribunal in HTs case did not apply the reasonably tolerability test.
But they dismissed HTs appeal on the basis that he could relocate to a different part of Cameroon, presumably on the basis that he would act discreetly there.
Their conclusion is flawed for the simple reason that they seem to have thought that the mere fact that HT had acted discreetly in the past and would do so in the future was determinative of the issue.
That was an error of law.
His appeal must also be allowed and his case remitted to a fresh tribunal.
As regards guidance for immigration judges in the future, I agree with what Lord Rodger has said at para 82.
| UK-Abs | The Supreme Court unanimously allows the appeal, holding that the reasonable tolerability test applied by the Court of Appeal is contrary to the Convention and should not be followed in the future.
HJ and HTs cases are remitted for reconsideration in light of the detailed guidance provided by the Supreme Court.
There is no dispute that homosexuals are protected by the Convention, membership of the relevant social group being defined by the immutable characteristic of its members sexuality [paras [6] and [10] per Lord Hope and para [42] per Lord Rodger].
To compel a homosexual person to pretend that their sexuality does not exist, or that the behaviour by which it manifests itself can be suppressed, is to deny him his fundamental right to be who he is.
Homosexuals are as much entitled to freedom of association with others of the same sexual orientation, and to freedom of self expression in matters that affect their sexuality, as people who are straight [paras [11] and [14] per Lord Hope and para [78] per Lord Rodger].
The Convention confers the right to asylum in order to prevent an individual suffering persecution, which has been interpreted to mean treatment such as death, torture or imprisonment.
Persecution must be either sponsored or condoned by the home country in order to implicate the Convention [paras [12] and [13] per Lord Hope].
Simple discriminatory treatment on grounds of sexual orientation does not give rise to protection under the Convention.
Nor does the risk of family or societal disapproval, even trenchantly expressed [paras [13], [15] and [22] per Lord Hope and para [61] per Lord Rodger].
One of the fundamental purposes of the Convention was to counteract discrimination and the Convention does not permit, or indeed envisage, applicants being returned to their home country on condition that they take steps to avoid offending their persecutors.
Persecution does not cease to be persecution for the purposes of the Convention because those persecuted can eliminate the harm by taking avoiding action [paras [14] and [26] per Lord Hope and paras [52] [53] and [65] per Lord Rodger].
The reasonable tolerability test applied by the Court of Appeal must accordingly be rejected [para [29] per Lord Hope and paras [50], [75] and [81] per Lord Rodger].
There may be cases where the fear of persecution is not the only reason that an applicant would hide his sexual orientation, for instance, he may also be concerned about the adverse reaction of family, friends or colleagues.
In such cases, the applicant will be entitled to protection if the fear of persecution can be said to be a material reason for the concealment [paras [62], [67] and [82] per Lord Rodger].
Lord Rodger (with whom Lords Walker and Collins and Sir John Dyson SCJ expressly agreed), at para [82] and Lord Hope, at para [35], provided detailed guidance in respect of the test to be applied by the lower tribunals and courts in determining claims for asylum protection based on sexual orientation.
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These appeals raise the question as to the test which is to be applied when considering whether a gay person who is claiming asylum under the Convention relating to the Status of Refugees 1951, as applied by the 1967 Protocol (the Convention) has a well founded fear of persecution in the country of his or her nationality based on membership of that particular social group.
The need for reliable guidance on this issue is growing day by day.
Persecution for reasons of homosexuality was not perceived as a problem by the High Contracting Parties when the Convention was being drafted.
For many years the risk of persecution in countries where it now exists seemed remote.
It was the practice for leaders in these countries simply to insist that homosexuality did not exist.
This was manifest nonsense, but at least it avoided the evil of persecution.
More recently, fanned by misguided but vigorous religious doctrine, the situation has changed dramatically.
The ultra conservative interpretation of Islamic law that prevails in Iran is one example.
The rampant homophobic teaching that right wing evangelical Christian churches indulge in throughout much of Sub Saharan Africa is another.
The death penalty has just been proposed in Uganda for persons who engage in homosexual practices.
Two gay men who had celebrated their relationship in a public engagement ceremony were recently sentenced to 14 years imprisonment in Malawi.
They were later pardoned in response to international pressure by President Mutharika, but he made it clear that he would not otherwise have done this as they had committed a crime against the countrys culture, its religion and its laws.
Objections to these developments have been greeted locally with derision and disbelief.
The fact is that a huge gulf has opened up in attitudes to and understanding of gay persons between societies on either side of the divide.
It is one of the most demanding social issues of our time.
Our own government has pledged to do what it can to resolve the problem, but it seems likely to grow and to remain with us for many years.
In the meantime more and more gays and lesbians are likely to have to seek protection here, as protection is being denied to them by the state in their home countries.
It is crucially important that they are provided with the protection that they are entitled to under the Convention no more, if I may be permitted to coin a well known phrase, but certainly no less.
Background
The appellants are both gay men.
HJ, who is 40 years old, is an Iranian.
He claimed asylum on arrival in the United Kingdom on 17 December 2001.
He practised homosexuality in Iran and has continued to do so in the United Kingdom.
HT, who is 36 years old, is a citizen of Cameroon.
He claimed asylum following his arrest at Gatwick on 19 January 2007.
He had presented a false passport while in transit to Montreal.
He too is a practising homosexual.
Both appellants claim that they have a well founded fear that they would be persecuted if they were to be returned to their home countries.
The Secretary of State for the Home Department (the respondent) refused asylum in both cases.
HJs appeal against that decision was dismissed by the Asylum and Immigration Tribunal on 15 August 2005.
On 26 July 2006 the Court of Appeal remitted his case to the Tribunal for reconsideration: J v Secretary of State for the Home Department [2006] EWCA Civ 1238, [2007] Imm AR 73.
On 8 May 2008, following reconsideration, his appeal remained dismissed.
HTs appeal to the Tribunal was dismissed on 29 October 2007.
Reconsideration was ordered on 14 November 2007 on the ground that the Tribunal might have made an error of law in the test to be applied to a gay person seeking asylum.
But on 5 June 2008 Senior Immigration Judge Warr held that the earlier determination was not flawed, and he did not proceed to a reconsideration of the evidence.
The appellants appealed against these decisions to the Court of Appeal.
On 10 March 2009 the Court of Appeal (Pill and Keene LJJ and Sir Paul Kennedy) dismissed both appeals: [2009] EWCA Civ 172.
The Secretary of State accepted that practising homosexuals are a particular social group for the purposes of article 1A of the Convention.
The issue was how those who had a well founded fear of persecution could be identified.
It was said by counsel for the appellants to be whether it was an answer to a claim for refugee status for the applicant to be required to conceal his sexual identity in order to avoid harm of sufficient severity as to amount to persecution the proposition being that to impose such a requirement was incompatible with the Convention.
For the Secretary of State it was submitted that the issue always was whether the applicant could reasonably be expected to tolerate the need for discretion on return: para 7.
The Court of Appeal applied the test stated by Maurice Kay LJ in J v Secretary of State for the Home Department [2007] Imm AR 73, para 16, where he said that the tribunal would have to ask itself whether discretion was something that the applicant could reasonably be expected to tolerate, not only in the context of random sexual activity but in relation to matters following from, and relevant to, sexual identity in the wider sense.
In HJs case the Court of Appeal held that the Tribunal were entitled to conclude on the evidence that HJ could reasonably be expected to tolerate conditions in Iran: [2009] EWCA Civ 172, para 31.
In HTs case there was finding that he would be discreet on return to Cameroon.
The question whether he could reasonably be expected to tolerate a life involving discretion was not raised.
The Court of Appeal held that there were no facts on which a decision on that matter could be based but that the Tribunal were entitled to find that HT had not established that there was a real risk of persecution in the future: paras 44, 45.
In this court Mr Bourne for the Secretary of State submitted that the test of whether the appellants should have refugee status was correctly stated by the Court of Appeal in J v Secretary of State for the Home Department [2007] Imm AR 73, that it was correctly applied by the Tribunal in both cases and that the Court of Appeal was right to dismiss the appeals.
Mr Husain QC for HJ said that the test as stated in J v Secretary of State for the Home Department is misconceived.
He submitted that it is contrary to the ordinary meaning of the definition of refugee in the Convention, and the objects and purposes of the treaty, to deny a refugees claim on the basis that he was required to suppress or surrender his protected identity to avoid the persecution that would ensue if that identity were to be disclosed.
Miss Carss Frisk QC for HT too disputed the test in Js case.
She submitted that if the applicant could show that he had a well founded fear of persecution he was entitled to refugee status.
He should not be required to demonstrate that concealment of his identity was something that he could not reasonably be expected to tolerate.
She also said that HT ought to succeed on the facts in any event because of what happened to him in Cameroon.
Background
Article 1A(2) of the Convention provides that a refugee is a person who owing to well founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion, is outside the country of his nationality and is unable or, owing to such fear, unwilling to avail himself of the protection of that country Amongst the benefits that a person who satisfies that definition enjoys under the Convention is the prohibition of expulsion or return.
Article 33(1) provides: No Contracting State shall expel or return (refouler) a refugee in any manner whatsoever to the frontiers of territories where his life or freedom would be threatened on account of his race, religion, nationality, membership of a particular social group or political opinion.
To a large extent the meaning of the definition in article 1A(2) is common ground.
It treats membership of a particular social group as being in pari materia with the other Convention reasons for persecution: Fornah v Secretary of State for the Home Department [2006] UKHL 46, [2007] 1 AC 412, para 20, per Lord Bingham of Cornhill.
There is no doubt that gay men and women may be considered to be a particular social group for this purpose: Islam v Secretary of State for the Home Department; R v Immigration Appeal Tribunal, Ex p Shah [1999] 2 AC 629, 643 644, per Lord Steyn.
As Lord Rodger points out in para 42, regulation 6(1)(e) of the Refugee or Person in Need of International Protection (Qualification) Regulations 2006 (SI 2006/2525) recognises as clearly as can be that a group based on a common characteristic of sexual orientation may be included in a particular social group that is in need of international protection.
The group is defined by the immutable characteristic of its members sexual orientation or sexuality.
This is a characteristic that may be revealed, to a greater or lesser degree, by the way the members of this group behave.
In that sense, because it manifests itself in behaviour, it is less immediately visible than a persons race.
But, unlike a persons religion or political opinion, it is incapable of being changed.
To pretend that it does not exist, or that the behaviour by which it manifests itself can be suppressed, is to deny the members of this group their fundamental right to be what they are of the right to do simple, everyday things with others of the same orientation such as living or spending time together or expressing their affection for each other in public.
The Convention does not define persecution.
But it has been recognised that it is a strong word: Sepet and Bulbul v Secretary of State for the Home Department [2003] UKHL 15, [2002] 1 WLR 856, para 7, per Lord Bingham.
Referring to the dictionary definitions which accord with common usage, Lord Bingham said that it indicates the infliction of death, torture or penalties for adherence to a belief or opinion, with a view to the repression or extirpation of it.
Article 9(1)(a) of the EC Council Directive 2004/83/EC on minimum standards for the qualification and status of third country nationals or stateless persons as refugees (the Qualification Directive) states that acts of persecution must (a) be sufficiently serious by their nature or repetition as to constitute a severe violation of basic human rights or (b) be an accumulation of various measures, including violations of human rights which is sufficiently severe as to affect an individual in a similar manner as mentioned in (a).
In Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473, para 40, McHugh and Kirby JJ said: Persecution covers many forms of harm ranging from physical harm to the loss of intangibles, from death and torture to state sponsored or condoned discrimination in social life and employment.
Whatever form the harm takes, it will constitute persecution only if, by reason of its intensity or duration, the person persecuted cannot reasonably be expected to tolerate it.
To constitute persecution for the purposes of the Convention the harm must be state sponsored or state condoned.
Family or social disapproval in which the state has no part lies outside its protection.
As Professor J C Hathaway in The Law of Refugee Status (1991), p 112 has explained, persecution is most appropriately defined as the sustained or systemic failure of state protection in relation to one of the core entitlements which has been recognised by the international community.
The Convention provides surrogate protection, which is activated only upon the failure of state protection.
The failure of state protection is central to the whole system: Horvath v Secretary of State for the Home Department [2001] 1 AC 489, 495.
The question is whether the home state is unable or unwilling to discharge its duty to establish and operate a system for the protection against persecution of its own nationals.
The reference in the preamble to the Universal Declaration of Human Rights of 1948 shows that counteracting discrimination was a fundamental purpose of the Convention.
Article 2 states: Everyone is entitled to all the rights and freedoms set forth in this Declaration, without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status.
Lord Steyn emphasised this point in Islam v Secretary of State for the Home Department; R v Immigration Appeal Tribunal, Ex p Shah [1999] 2 AC 629, 639.
He also drew attention to the first preamble to the Declaration, which proclaimed the inherent dignity and the equal and inalienable rights of all members of the human family.
No mention is made of sexual orientation in the preamble or any of its articles, nor is sexual orientation mentioned in article 1A(2) of the Convention.
But coupled with an increasing recognition of the rights of gay people since the early 1960s has come an appreciation of the fundamental importance of their not being discriminated against in any respect that affects their core identity as homosexuals.
They are as much entitled to freedom of association with others of the same sexual orientation, and to freedom of self expression in matters that affect their sexuality, as people who are straight.
The guarantees in the Universal Declaration are fundamental to a proper understanding of the Convention.
But the Convention itself has, as the references in para 12 show, a more limited purpose.
It is not enough that members of a particular social group are being discriminated against.
The contracting states did not undertake to protect them against discrimination judged according to the standards in their own countries.
Persecution apart, the Convention was not directed to reforming the level of rights prevailing in the country of origin.
Its purpose is to provide the protection that is not available in the country of nationality where there is a well founded fear of persecution, not to guarantee to asylum seekers when they are returned all the freedoms that are available in the country where they seek refuge.
It does not guarantee universal human rights.
So the conditions that prevail in the country in which asylum is sought have no part to play, as matter of legal obligation binding on all states parties to the Convention, in deciding whether the applicant is entitled to seek asylum in that country: Januzi v Secretary of State for the Home Department [2006] UKHL 5, [2006] 2 AC 426, paras 16, 46.
As Laws LJ said in Amare v Secretary of State for the Home Department [2005] EWCA Civ 1600, [2006] Imm AR 217 para 31: The Convention is not there to safeguard or protect potentially affected persons from having to live in regimes where pluralist liberal values are less respected, even much less respected, than they are here.
It is there to secure international protection to the extent agreed by the contracting states.
Thus international protection is available only to those members of the particular social group who can show that they have a well founded fear of being persecuted for reasons of their membership of it who, owing to that fear, are unwilling to avail themselves of the protection of their home country.
Those who satisfy this test cannot be returned to the frontiers of a territory where their life or freedom would be threatened on account of their membership of that group: article 33(1).
To be accorded this protection, however, the test that article 1A(2) sets out must first be satisfied.
As Lord Bingham of Cornhill said in Januzi v Secretary of State for the Home Department [2006] 2 AC 426, para 5, the words owing to well founded fear of being persecuted for reasons of membership of a particular social group in the definition of refugee express a causative condition which governs all that follows.
Well founded fear: the causative condition
In situations such as those presented by these appeals the fact that members of the particular social group are persecuted may not be seriously in issue.
In Iran, where the death penalty exists, persons have been hanged simply because they are gay.
In Cameroon homosexuality is illegal and the sanctions for it include sentences of up to five years imprisonment.
Although prosecutions are rare, homosexuals are liable to be denounced and subjected to acts of violence and harassment against which the state offers no protection.
But the situation in the country of origin is only the beginning, not the end, of the inquiry.
The Convention directs attention to the state of mind of the individual.
It is the fear which that person has that must be examined and shown to be well founded.
In cases where the fear is of persecution for reasons of religion or political opinion, it may be necessary to examine the nature and consequences of any activity that the applicant claims he or she may wish to pursue if returned to the country of nationality.
It will not be enough for the person merely to assert that persons who are of that religion or political opinion are liable to be persecuted.
The question is, what will the applicant actually do, and does what he or she will in fact do justify the fear that is complained of?
INLR 1, 7 8 Simon Brown LJ said: In Ahmed (Iftikhar) v Secretary of State for the Home Department, [2000] In all asylum claims there is ultimately a single question to be asked: is there a serious risk that on return the applicant will be persecuted for a Convention reason? The critical question [is]: if returned, would the asylum seeker in fact act in the way he says he would and thereby suffer persecution? If he would, then, however unreasonable he might be thought for refusing to accept the necessary restraint on his liberties, in my judgment he would be entitled to asylum.
Nobody has suggested that there is anything wrong with these observations, as far as they go, and I would respectfully endorse them.
They contain two propositions which the Secretary of State in this case accepts, and which I do not think can be disputed.
The first is that attention must be focused on what the applicant will actually do if he is returned to his country of nationality.
The second is that the fact that he could take action to avoid persecution does not disentitle him from asylum if in fact he will not act in such a way as to avoid it.
That is so even if to fail or to refuse to avoid it would be unreasonable.
In Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473, para 40, per McHugh and Kirby JJ said that persecution does not cease to be persecution for the purposes of the Convention because the harm can be avoided by taking avoiding action within the country of origin.
I am inclined to think that this proposition, as stated, expresses the point too broadly.
But I would accept it as accurate if at the end there were added the words which the applicant will in fact not take.
Of course, I do not mean by this that persecution ceases to be persecution if those at risk of being persecuted can and do eliminate the harm by taking avoiding action.
That is a different point, with which their Honours go on to deal later in the same paragraph.
How to define the test for its application is the issue in this case: see paras 21 and 22.
It has been recognised, of course, that an applicant may be required to live in a place of relocation within his country of origin so long as it would not be unduly harsh for him to be required to do so: Januzi v Secretary of State for the Home Department [2006] 2 AC 426.
As Lord Bingham explained in para 7, the Convention does not expressly address the situation where, within his country of nationality a person has a well founded fear of persecution at place A, where he lived, but not at place B, where he could reasonably be expected to relocate.
But that situation may reasonably be said to be covered by the causative condition to which he referred in para 5.
A person will be excluded from refugee status if under all the circumstances it would be reasonable to expect him to seek refuge in another part of the same country.
Persons seeking refuge from the process known as ethnic cleansing, for example, may be refused asylum on the basis that there are other parts of the country of their nationality where they may live without being persecuted: see also R (Yogathas) v Secretary of State for the Home Department [2002] UKHL 36, [2003] 1 AC 920, para 40; the UNHCR Handbook, para 91.
Mr Bourne suggested that an analogy could be drawn between internal relocation, or internal flight as it is sometimes less happily called: see R (Yogathas) v Secretary of State for the Home Department [2003] 1 AC 920, para 6.
Mr Husain submitted in his written case that applicants who are gay and who avoid persecution by a modification of their behaviour may be said on return to have taken internal flight within the self to avoid persecution.
Mr Bourne submitted that any such analogy supported the respondent.
The analogy, as he expressed it in his written case, was put this way.
A person to whom geographical internal flight is available is not a refugee unless it would be unduly harsh to take such flight.
So a person who will, if necessary, take the metaphorical flight of hiding his sexuality is not a refugee unless it would be intolerable for him to do so.
Examples were referred to of situations that might demonstrate the logic of this approach.
They were said to include situations where the applicant would be discreet, there would be no real risk that he would come to the attention of the authorities and suffer persecution and the consequences of his discretion were objectively reasonable for him to be expected to tolerate.
He would have no well founded fear of persecution and not be a refugee even if the reason why he would be discreet was because, or partly because, he feared persecution.
This submission takes me to the core of the issue between the parties and to the question whether the test in para 16 of J v Secretary of State for the Home Department [2007] Imm AR 73 stands up to examination.
But I think that the suggested analogy with internal relocation can be dismissed at once as incompatible with the principles of the Convention.
The objection to it is that it assumes that the applicant will be prepared to lie about and conceal his sexual orientation when he moves to the place of relocation.
Unless he does this he will be no better off than he would be if he did not relocate at all.
The misconception lies in the idea that he will be willing and able to make a fresh start when he moves to somewhere where he is not known.
In Hysi v Secretary of State for the Home Department [2005] EWCA Civ 711, [2005] INLR 602 the Court of Appeal held that the tribunal had not assessed the consequences of expecting the applicant to lie and dissemble in the place of relocation about his ethnic origins.
He would have to be a party to the long term deliberate concealment of the truth, living in continuing fear that the truth would be discovered: para 37.
There is no place, in countries such as Iran and Cameroon, to which a gay applicant could safely relocate without making fundamental changes to his behaviour which he cannot make simply because he is gay.
The submission that it is proper to examine the question whether it would be objectively reasonable for the applicant to be expected to tolerate some element of concealment I would prefer not to use the word discretion, as this euphemistic expression does not tell the whole truth when he is returned to the country of his nationality cannot be dismissed so easily.
Behaviour which reveals ones sexual orientation, whether one is gay or straight, varies from individual to individual.
It occupies a wide spectrum, from people who are naturally reticent and have no particular desire to establish a sexual relationship with anybody to those who wish, for various reasons, to proclaim in public their sexual identity.
Social and family disapproval of overt sexual behaviour of any kind, gay or straight, may weigh more heavily with some people than others.
Concealment due to a well founded fear of persecution is one thing.
Concealment in reaction to family or social pressures is another.
So one must ask why the applicant will conduct himself in this way.
A carefully nuanced approach is called for, to separate out those who are truly in need of surrogate protection from those who are not.
The test in J's case
In J v Secretary of State for the Home Department [2007] Imm AR 73 the applicant was of Iranian nationality.
The Asylum and Immigration Tribunal found that he was a practising homosexual, but that his relationship with his partner in Iran was discreet and that his homosexual practices there had never been such that his own homosexual activity was reasonably likely to result in adverse attention from the authorities.
It was held that the tribunal had fallen into error by not asking why the applicant had acted discreetly, especially as the appellant said in his witness statement that he was forced to hide his relationship and was not able to live openly with his partner as he wanted to do.
The case was remitted to the tribunal for further reconsideration.
In para 16 Maurice Kay LJ gave the following directions to the tribunal: It will have to address questions that were not considered on the last occasion, including the reason why the appellant opted for discretion before his departure from Iran and, by implication, would do so again on return.
It will have to ask itself whether discretion is something that the appellant can reasonably be expected to tolerate, not only in the context of random sexual activity but in relation to matters following from, and relevant to, sexual identity in the wider sense recognised by the High Court of Australia (see the judgment of Gummow and Hayne JJ at para 83).
This requires consideration of the fact that homosexuals living in a stable relationship will wish, as this appellant says, to live openly with each other and the discretion which they may feel constrained to exercise as the price to pay for the avoidance of condign punishment will require suppression of many aspects of life that related to, or informed by, their sexuality (ibid, para 81).
This is not simply generalisation; it is dealt with in the appellants evidence. [Emphasis added] Buxton LJ, making the same point, said in para 20 that the applicant might have to abandon part of his sexual identity in circumstances where failure to do so exposed him to the extreme danger that the country guidance indicated: The Tribunal may wish to consider whether the combination of those two circumstances has an effect on their decision as to whether the applicant can be expected to tolerate the situation he may find himself in when he returns to Iran. [Emphasis added]
The passages which I have italicised lie at the heart of the argument.
For the Secretary of State, Mr Bourne submitted that there were two major questions that had to be addressed: (1) what will the situation be on return, and (2) in these circumstances is there a real risk of persecution? The inquiry in regard to the first question was directed to how the applicant will conduct himself and how others will react to this.
He accepted that a finding that the applicant will in fact be discreet on return to the country of his nationality is not the end of the inquiry.
The question that then had to be asked, he said, was whether opting for discretion itself amounted to persecution.
The threshold between what was and was not persecution was marked by what he could reasonably be expected to tolerate.
As in the case of internal flight, it was what he could not reasonably be expected to tolerate that amounted to persecution.
As the references to it in para 16 of J v Secretary of State for the Home Department [2007] Imm AR 73 indicate, the Court of Appeal in that case sought guidance from the decision of the High Court of Australia in Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473.
Among the passages from that judgment that are quoted is para 40, where (setting out the paragraph in full) McHugh and Kirby JJ said: The purpose of the Convention is to protect the individuals of every country from persecution on the grounds identified in the Convention whenever their governments wish to inflict, or are powerless to prevent, that persecution.
Persecution covers many forms of harm ranging from physical harm to the loss of intangibles, from death and torture to state sponsored or condoned discrimination in social life and employment.
Whatever form the harm takes, it will constitute persecution only if, by reason of its intensity or duration, the person persecuted cannot reasonably be expected to tolerate it.
But persecution does not cease to be persecution for the purpose of the Convention because those persecuted can eliminate the harm by taking avoiding action within the country of nationality.
The Convention would give no protection from persecution for reasons of religion or political opinion if it was a condition of protection that the person affected must take steps reasonable or otherwise to avoid offending the wishes of the persecutors.
Nor would it give protection to membership of many a particular social group if it were a condition of protection that its members hide their membership or modify some attribute or characteristic of the group to avoid persecution.
Similarly, it would often fail to give protection to people who are persecuted for reasons of race or nationality if it was a condition of protection that they should take steps to conceal their race or nationality. [Emphasis added] It was the appearance in this paragraph of the sentence which I have italicised that led Maurice Kay LJ to use almost the same words when he was framing his directions in para 16.
This can be seen from his quotation of it in para 11 of his judgment, where he said that it had been adopted in Z v Secretary of State for the Home Department [2005] Imm AR 75, para 12, Amare v Secretary of State for the Home Department [2006] Imm AR 217, para 27 and RG (Colombia) v Secretary of State for the Home Department [2006] EWCA Civ 57, [2006] Imm AR 297, para 16.
Para 40 of the judgment in Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473 is not entirely easy to follow.
The Convention does not permit, or indeed envisage, applicants being returned to the countries of their nationality on condition that they take steps to avoid offending their persecutors.
The use of the phrase a condition of protection seems to overlook the fact that it is the country in which asylum is sought that is being appealed to for protection, not the country of the applicants nationality.
But the flaw in the sentence in para 16 of J v Secretary of State for the Home Department [2007] Imm AR 73 to which the appellants take objection is indicated by the sentence that immediately follows it.
It makes the point that persecution does not cease to be persecution for the purpose of the Convention because those persecuted can eliminate the harm by taking avoiding action within the country of nationality.
In para 50, which the Court of Appeal did not quote in Js case, McHugh and Kirby JJ said: In so far as decisions in the Tribunal and the Federal Court contain statements that asylum seekers are required, or can be expected, to take reasonable steps to avoid persecutory harm, they are wrong in principle and should not be followed.
The same point was made with perhaps greater force by Gummow and Hayne JJ in para 82, where they said: Saying that an applicant for protection would live discreetly in the country of nationality may be an accurate description of the way in which that person would go about his or her daily life.
To say that a decision maker expects that that person will live discreetly may also be accurate if it is read as a statement of what is thought likely to happen.
But to say that an applicant for protection is expected to live discreetly is both wrong and irrelevant to the task to be undertaken by the Tribunal if it is intended as a statement of what the applicant must do.
The references in the judgments of Maurice Kay and Buxton LJJ in J v Secretary of State for the Home Department [2007] Imm AR 73, paras 16 and 20 to what the applicant could be expected to do when he returned do not fit happily with the approach indicated in some parts of the judgment in Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473 which they said they were following.
The explanation for this may perhaps lie in para 10 of the judgment in Js case, where Maurice Kay LJ said: In our jurisdiction Buxton LJ demonstrated in Z v SSHD [2005] Imm AR 75 that the approach of the High Court of Australia had in turn been influenced by English authority, particularly Ahmed v SSHD [2000] INLR 1.
Having referred to the judgment of Simon Brown LJ in Ahmed, he said at para 16: It necessarily follows from that analysis that a person cannot be refused asylum on the basis that he could avoid otherwise persecutory conduct by modifying the behaviour that he would otherwise engage in, at least if that modification was sufficiently significant to place him in a situation of persecution.
In para 11 Maurice Kay LJ added this comment: That brief extract is particularly helpful because it brings together the principle articulated by the High Court of Australia and the underlying need for an applicant to establish that his case contains something significant in itself to place him in a situation of persecution.
The principle which the Court of Appeal should have taken from the judgment of the High Court of Australia is that it would be wrong to say that an applicant for protection was expected to live discreetly if it was intended as a statement of what the applicant must do: Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473, para 82.
The test of whether the situation he may find himself in on return was one that he could reasonably be expected to tolerate was introduced to address the high threshold that has to be crossed between what does and what does not amount to persecution.
But the way the test was expressed in para 16 of Js case suggests that the applicant will be refused asylum if it would be reasonable to expect him to be discreet even if he is unwilling or unable to do this.
That is a fundamental error.
It conflicts with Simon Brown LJs observation in Ahmed (Iftikhar) v Secretary of State for the Home Department [2000] INLR 1, 8 that, however unreasonable the applicant might be thought for refusing to accept the necessary restraint on his liberties, he would be entitled to asylum.
I would hold that the test in para 16 of Js case is not accurately expressed and should no longer be followed.
For the reasons that Sir John Dyson gives, I would reject the reasonably tolerable test.
As this was the test that the Court of Appeal applied to these appeals, its decision to dismiss them was mistaken and must be set aside.
Comparative jurisprudence
The Court was referred to a number of decisions in Australia, New Zealand, South Africa, the United States and Canada.
I do not think that they reveal a consistent line of authority that indicates that there is an approach which is universally accepted internationally.
The Australian cases that are of interest are those that post date the decision in Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473.
They are NALZ v Minister for Immigration and Multicultural Affairs [2004] FCAFC 320; NABD of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 29, (2005) 79 ALJR 1142, and SZATV v Minister for Immigration and Citizenship [2007] HCA 40, (2007) 233 CLR 18.
In NALZ the Federal Court was divided on the question how the principles set out S395/2002 should be applied.
The applicant was an Indian national who was refused refugee status by the tribunal because he could avoid future arrest by not engaging in the activity that would attract persecution.
The majority, Emmett and Downes JJ, held that this was not an impermissible approach.
Madgwick J thought that the tribunal had fallen into the error identified in S395/2002 because it had not asked itself what the applicant would in fact do.
In NABD the High Court was again divided in its identification of the relevant legal principles.
It did not reach the question whether a test of what was reasonably tolerable could be applied.
It is worth noting however that McHugh J stressed the need for a rigorous and careful examination of the applicants specific characteristics and circumstances.
In SZATV the question was whether the tribunal was right to deny asylum on the ground that it would be reasonable for the applicant, a journalist whose fear was of persecution on grounds of political opinion, to relocate to another part of the country of his nationality and do construction work there.
The High Court on this occasion was unanimous in holding that the tribunal had failed to address itself to what might reasonably be expected of the applicant with respect to his relocation if he were to be returned.
I think that the single most important message to emerge from these cases is the need for a careful and fact sensitive analysis.
The New Zealand case is Refugee Appeal No 74665/03 [2005] INLR 68, in which the judgment of the New Zealand Refugee Status Appeals Authority was written by Rodger Haines QC.
It contains an impressive analysis of the relevant principles, and it is impossible to do full justice here to what it contains.
The passages that are of particular interest are to be found from paras 92 and following.
The point made by Sachs J in National Coalition for Gay and Lesbian Equality v Minister of Justice 1999 (1) SA 6, para 130 that to require an applicant to engage in self denial was to require him to live in a state of self induced oppression was approved and adopted: para 114.
The decision of the High Court of Australia in S395/2002 is analysed in paras 116 124.
Haines is critical of its approach on the ground that it concentrates on an evaluation of the risk rather than being, as it is put in para 124, located in the persecution element.
The New Zealand approach, it is said, places international human rights standards at the centre of the being persecuted analysis in the belief that this provides a principled and disciplined framework for analysis.
The significance of this distinction becomes apparent at the end of the judgment when, without any detailed analysis of the causative condition by examining what will actually happen on return, the conclusion is reached in a few sentences that the applicant was at risk of serious harm simply because he was gay: para 132.
In Karouni v Gonzales (2005) 399 F 3d 1163 the US Court of Appeals upheld an appeal by an applicant who claimed that he had a well founded fear of persecution on return to Lebanon because he was gay.
It applied the principle, which the Secretary of State in this case accepts, that he should not be required to change his sexual identity, as it was a fundamental characteristic and an integral part of human freedom.
Several Canadian cases were referred to by Mr Bourne in support of his proposition that the tribunal must look at what the applicant will, rather than could, do if he were to be returned: Case no 02751 of 9 January 2007 (unreported) 16 February 2007; Atta Fosu v Canada (Minister of Citizenship and Immigration) [2008] FC 1135 and Okoli v Minister of Citizenship and Immigration [2009] FC 332.
In Atta Fosu, for example, the Federal Court held that it was impermissible to require a person to deny or hide his sexuality when there was no evidence that he could, or was even prepared to, keep it secret.
What is missing from these cases, especially those from Australia and New Zealand, is clear and consistent guidance as to the way the fact finding tribunals should go about their task.
Useful advice is set out in A Guide to Refugee Law in Australia, prepared by the Legal Service Section of the Refugee Review Tribunal and the Migration Review Tribunal, pp 10.25 10.26.
But it is not authoritative.
The test as stated in para 16 of J v Secretary of State for the Home Department [2007] Imm AR 73 does not fit well with some of the dicta in these cases, and with the recommendation in the Guide that asylum seekers are not required, and cannot be expected, to take reasonable steps to avoid persecutory harm or to live discreetly so as to avoid it.
But I have already concluded that it should be departed from.
The test
This brings me to the test that should be adopted by the fact finding tribunals in this country.
As Lord Walker points out in para 98, this involves what is essentially an individual and fact specific inquiry.
Lord Rodger has described the approach in para 82, but I would like to set it out in my own words.
It is necessary to proceed in stages. (a) The first stage, of course, is to consider whether the applicant is indeed gay.
Unless he can establish that he is of that orientation he will not be entitled to be treated as a member of the particular social group.
But I would regard this part of the test as having been satisfied if the applicants case is that he is at risk of persecution because he is suspected of being gay, if his past history shows that this is in fact the case. (b) The next stage is to examine a group of questions which are directed to what his situation will be on return.
This part of the inquiry is directed to what will happen in the future.
The Home Offices Country of Origin report will provide the background.
There will be little difficulty in holding that in countries such as Iran and Cameroon gays or persons who are believed to be gay are persecuted and that persecution is something that may reasonably be feared.
The question is how each applicant, looked at individually, will conduct himself if returned and how others will react to what he does.
Those others will include everyone with whom he will come in contact, in private as well as in public.
The way he conducts himself may vary from one situation to another, with varying degrees of risk.
But he cannot and must not be expected to conceal aspects of his sexual orientation which he is unwilling to conceal, even from those whom he knows may disapprove of it.
If he fears persecution as a result and that fear is well founded, he will be entitled to asylum however unreasonable his refusal to resort to concealment may be.
The question what is reasonably tolerable has no part in this inquiry. (c) On the other hand, the fact that the applicant will not be able to do in the country of his nationality everything that he can do openly in the country whose protection he seeks is not the test.
As I said earlier (see para 15), the Convention was not directed to reforming the level of rights in the country of origin.
So it would be wrong to approach the issue on the basis that the purpose of the Convention is to guarantee to an applicant who is gay that he can live as freely and as openly as a gay person as he would be able to do if he were not returned.
It does not guarantee to everyone the human rights standards that are applied by the receiving country within its own territory.
The focus throughout must be on what will happen in the country of origin. (d) The next stage, if it is found that the applicant will in fact conceal aspects of his sexual orientation if returned, is to consider why he will do so.
If this will simply be in response to social pressures or for cultural or religious reasons of his own choosing and not because of a fear of persecution, his claim for asylum must be rejected.
But if the reason why he will resort to concealment is that he genuinely fears that otherwise he will be persecuted, it will be necessary to consider whether that fear is well founded. (e) This is the final and conclusive question: does he have a well founded fear that he will be persecuted? If he has, the causative condition that Lord Bingham referred to in Januzi v Secretary of State for the Home Department [2006] 2 AC 426, para 5 will have been established.
The applicant will be entitled to asylum.
It should always be remembered that the purpose of this exercise is to separate out those who are entitled to protection because their fear of persecution is well founded from those who are not.
The causative condition is central to the inquiry.
This makes it necessary to concentrate on what is actually likely to happen to the applicant.
As Lord Walker says in para 88, the inquiry is directed to what will happen in the future if the applicant is returned to his own country.
An approach which disregards what is in fact likely to occur there in the case of the particular applicant is wrong and should not be adopted.
The facts of these cases
Applying the guidance in J v Secretary of State for the Home Department [2007] Imm AR 73 to HJs case, the Asylum and Immigration Tribunal said that the issue was whether the need for him to live discreetly would itself constitute persecution.
The evidence of suppression of aspects of his life in Iran was limited.
It concluded that to live a private life discreetly would not cause significant detriment to his right to respect for private life and that it would not involve suppression of many aspects of his sexual identity.
Noting that enforcement of the law against homosexuality in Iran is arbitrary, it said that the evidence did not show a real risk of discovery or of adverse action against homosexuals who conduct their homosexual activities discreetly.
It found on the evidence that the level of seriousness for international protection had not been reached.
HJ could reasonably be expected to tolerate the position in Iran on any return: para 46.
In the Court of Appeal Pill LJ said that in his judgment the test stated in para 16 of Js case by reference to S395/2002 complied with the standard required by the Convention and that the findings of the tribunal were findings that they were entitled to make on the evidence: para 31.
In HTs case the Tribunal found that he would be discreet on return to Cameroon.
In the Court of Appeal Pill LJ said that the groundwork for a further finding that he could not reasonably be required to be discreet in Cameroon or to tolerate a life involving discretion there was not established: para 44.
He upheld the Tribunals decision on the ground that it was entitled to find that the first panel did not err in law in finding that a single attack on HT followed a one off incident of him being seen by a neighbour kissing another man with whom he had a three year relationship in his garden.
Miss Carss Frisk pointed out that there was no finding that his behaviour with the other man was a one off incident.
He was the victim of a single attack involving serious violence by way of mob justice following the garden incident.
Instead of helping him, the police joined in the assault.
But he had had two homosexual relationships.
The second had lasted for a period of five years.
The problem had started when neighbours spotted what he and his partner were doing in the garden.
The Tribunal said that he could move to another part of Cameroon where his sexual identity was unknown.
But it is plain that to be effective against the risk of persecution, which is present everywhere in that country, he would have to lie about and conceal his sexuality.
The Tribunal did not assess the effects on him of suppressing his sexual identity.
Conclusion
I am not confident that the tribunals would have come to the same conclusion if they had approached the facts in the way I have suggested in paras 35 36.
It was suggested by the appellants that this court should make a reference of a question arising under the Qualification Directive to the Court of Justice of the European Union under article 267 TFEU (formerly article 234 EC).
But the point that was said to require a reference was not clearly identified, and I would reject that suggestion.
I would allow these appeals and set aside the orders of the Court of Appeal.
I would remit both cases to the Tribunal, for further reconsideration in HJs case and for reconsideration in the case of HT, in the light of the guidance given by this Court.
LORD RODGER
A gay man applies for asylum in this country.
The Secretary of State is satisfied that, if he returns to his country of nationality and lives openly as a homosexual, the applicant will face a real and continuing prospect of being beaten up, or flogged, or worse.
But the Secretary of State is also satisfied that, if he returns, then, because of these dangers of living openly, he will actually carry on any homosexual relationships discreetly and so not come to the notice of any thugs or of the authorities.
Is the applicant a refugee for purposes of the United Nations Convention relating to the Status of Refugees 1951 (the Convention)? The answer is Yes.
Article 1A(2) of the Convention declares that a refugee is a person who, owing to well founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion, is outside the country of his nationality and is unable or, owing to such fear, is unwilling to avail himself of the protection of that country.
The appellants, HJ, from Iran, and HT, from Cameroon, are gay men who both claim to be outside their country of nationality owing to a well founded fear of being persecuted for reasons of being gay.
At one time there would have been debate as to whether homosexuals constitute a particular social group for the purposes of the Convention.
But, in more recent years, it has come to be accepted that, at least in societies which discriminate against homosexuals, they are indeed to be regarded as a particular social group.
See, for instance, R v Immigration Appeal Tribunal, Ex p Shah [1999] 2 AC 629, 644G 645A, per Lord Steyn, and at p 663, per Lord Millett (dissenting).
Indeed regulation 6(1)(e) of the Refugee or Person in Need of International Protection (Qualification) Regulations 2006 (SI 2006/2525) really puts the point beyond doubt by providing that, subject to an exception which is not relevant for present purposes, a particular social group might include a group based on a common characteristic of sexual orientation.
The Secretary of State therefore accepts that, in the case of Iran and Cameroon, homosexuals do indeed form a particular social group, of which HJ and HT are members.
The approach in HJ
In the case of HJ, the Asylum and Immigration Tribunal observed, at para 9 of its determination, that It is accepted that for a person to be openly gay in Iran would attract a real risk of persecution (see in particular RM and BB (Homosexuals) Iran [2005] UKAIT 00117).
The issue therefore is whether the need for the appellant to be discreet about his sexuality on return to Iran would itself constitute persecution within the meaning of the Refugee Convention.
The Tribunal went on to hold, at para 25, that It remains clear, as it was at the time of RM and BB, that those who confess to homosexual acts or are convicted by whatever means are at real risk as they face condign punishment.
But, in its view, the evidence fell well short of showing that surveillance had reached such levels that Iranian citizens who engaged in homosexual activities in private ran a real risk of discovery.
It remained the case, as the Tribunal had concluded in RM and BB, at para 124, that, given the legal context in which homosexuals operate in Iran, it can be expected that they would be likely to conduct themselves discreetly for fear of the obvious repercussions that would follow.
The Tribunal in the present case summarised the position at para 44: We acknowledge that the way in which he is able to live as a gay man in the UK is preferable for him and we are satisfied that this informs his view that it is impossible for him to return to Iran.
We acknowledge too that the appellant is now much more aware of the legal prohibitions on homosexuals in Iran and the potential punishments for breach of those prohibitions.
On any return, to avoid coming to the attention of the authorities because of his homosexuality he would necessarily have to act discreetly in relation to it.
We are satisfied that as a matter of fact he would behave discreetly.
On the evidence he was able to conduct his homosexual activities in Iran without serious detriment to his private life and without that causing him to suppress many aspects of his sexual identity.
Whilst he has conducted his homosexual activities in the UK less discreetly, we are not persuaded that his adaptation back to life in Iran would be something he could not reasonably be expected to tolerate.
We consider that as a matter of fact he would behave in similar fashion as he did before he left Iran and that in doing so he would, as before, be able to seek out homosexual relationships through work or friends without real risk to his safety or serious detriment to his personal identity and without this involving for him suppression of many aspects of his sexual identity.
Having analysed the evidence in more detail in para 45, the Tribunal referred to the test laid down by Buxton LJ in J v Secretary of State for the Home Department [2006] EWCA Civ 1238, [2007] Imm AR 73, at para 20. (The test is set out at para 48 below.) The Tribunal added, at para 46: The circumstances to be tolerated are the inability to live openly as a gay man as the appellant can in the UK.
The part of sexuality to be abandoned is on the evidence also the ability to live openly as a gay man in the same way the appellant can do elsewhere.
To live a private life discreetly will not cause significant detriment to his right to respect for private life, nor will it involve suppression of many aspects of his sexual identity.
Enforcement of the law against homosexuality in Iran is arbitrary but the evidence does not show a real risk of discovery of, or adverse action against, homosexuals who conduct their homosexual activities discreetly.
The position has not deteriorated since RM and BB [2005] UKAIT 00117.
On the evidence we find the appellant can reasonably be expected to tolerate the position on any return.
The approach in HT
In the case of HT it is agreed that, following an occasion when he was seen kissing his then (male) partner in the garden of his home, the appellant was attacked by a crowd of people when leaving church.
They beat him with sticks and threw stones at him.
They pulled off his clothes and tried to cut off his penis with a knife.
He attempted to defend himself and was cut just above the penis and on his hand.
He was threatened with being killed imminently on the ground that you people cannot be changed.
Police officers arrived and demanded to know what was going on and why the crowd were assaulting him.
They were told it was because he was gay.
One of the policemen said to the appellant How can you go with another man? and punched him on the mouth.
The policemen then kicked him until he passed out.
As a result of the injuries which he received he was kept in hospital for two months.
After that, he was taken home by a member of his church who told him that he feared for his life and safety if he remained in Cameroon.
This man made travel arrangements for HT who flew to the United Kingdom via another European country.
In HTs case the Tribunal was of the view that in some respects the position in Cameroon was not dissimilar from the position in Iran and it was the view of the Tribunal that there might be difficulties for someone openly professing his homosexuality.
A homosexual relationship carried on in private, however, was considered by the Tribunal not to create a reasonable degree of likelihood of persecution. (The Tribunals information about the position in Iran appears to have been taken from the admissibility decision of the European Court of Human Rights in F v United Kingdom (Application No 17341/03), 22 June 2004, unreported.) Because people in the area where he lived before leaving Cameroon knew that he was gay, the Tribunal contemplated that, in addition to conducting any relationship in private, HT would move to another part of the country where he would not be known.
On reconsideration, the Senior Immigration Judge held, at para 15 of his determination, that Should the appellant choose to relocate it would be relatively safe for him to practice [sic] his sexual orientation in private and not come to the attention of the authorities.
In both cases, therefore, the findings of the Tribunal are to the effect that, if the appellant were to return to his country of origin, he would be at risk of persecution if he were openly homosexual, but he would be unlikely to come to the attention of the authorities or to suffer harm, if he were to conduct any relationship in private.
The test adopted by the Court of Appeal
The question, whether in such circumstances an applicant has a well founded fear of persecution, seems to have been considered by the Court of Appeal for the first time in Z v Secretary of State for the Home Department [2004] EWCA Civ 1578, [2005] Imm AR 75.
The court had been referred to the decision of the High Court of Australia in Appellant S395/2002 v Minister for Immigration (2003) 216 CLR 473.
Buxton LJ accepted that the judgments in that case contained a number of statements to the effect that, if an applicants way of life would be subjected to persecution in his home country, he cannot be denied asylum on the basis of a conclusion that he could avoid that persecution by modifying that way of life.
Having referred to paras 40 and 43 of the judgment of McHugh and Kirby JJ, Buxton LJ continued, at paras 15 16: 15.
Mr Kovats for the Secretary of State pointed out that where avoiding action is forced on the subject, that case only falls under the Refugee Convention if it results in a condition that can properly be called persecutory, in that imposes on the subject a state of mind or conscience that fits with the definition of persecution given by McHugh and Kirby JJ in paragraph 40 of their judgment, and in line with English authority already quoted: Whatever form the harm takes, it will constitute persecution only if, by reason of its intensity or duration, the person persecuted cannot reasonably be expected to tolerate it.
That no doubt is the level of interference that McHugh and Kirby JJ had in mind when speaking of threats and menaces in the passage cited in para 14 above. 16.
Although S395 was presented to the court that granted permission in this appeal as a new departure in refugee law, and for that reason justifying the attention of this court, in truth it is no such thing.
McHugh and Kirby JJ, at their paragraph 41, specifically relied on English authority, Ahmed v SSHD [2000] INLR 1.
It has been English law at least since that case, and the case that preceded it, Danian v SSHD [1999] INLR 533, that, in the words of the leading judgment of Simon Brown LJ at pp 7G and 8C D: in all asylum cases there is ultimately a single question to be asked: is there a serious risk that on return the applicant would be persecuted for a Convention reason.the critical question: if returned, would the asylum seeker in fact act in the way he says he would and thereby suffer persecution? If he would, then, however, unreasonable he might be thought for refusing to accept the necessary restraint on his liberties, in my judgment he would be entitled to asylum.
It necessarily follows from that analysis that a person cannot be refused asylum on the basis that he could avoid otherwise persecutory conduct by modifying the behaviour that he would otherwise engage in, at least if that modification was sufficiently significant in itself to place him in a situation of persecution.
If the IAT in our case refused Mr Z asylum on the basis that he was required to avoid persecution they did not respect the jurisprudence of Ahmed.
Buxton LJs formulation of the position, as he derived it from Simon Brown LJs statement in Ahmed v Secretary of State for the Home Department [2000] INLR 1, 7, was quoted by Maurice Kay LJ in J v Secretary of State for the Home Department [2007] Imm AR 73, at para 11.
He added that it was particularly helpful because it brings together the principle articulated by the High Court of Australia and the underlying need for an applicant to establish that his case contains something sufficiently significant in itself to place him in a situation of persecution.
Maurice Kay LJ went on to say, at para 16, that the Tribunal will have to address questions that were not considered on the last occasion, including the reason why the appellant opted for discretion before his departure from Iran and, by implication, would do so again on return.
It will have to ask itself whether discretion is something that the appellant can reasonably be expected to tolerate, not only in the context of random sexual activity but in relation to matters following from, and relevant to, sexual identity in the wider sense recognised by the High Court of Australia (see the judgment of Gummow and Hayne JJ at para 83).
This requires consideration of the fact that homosexuals living in a stable relationship will wish, as this appellant says, to live openly with each other and the discretion which they may feel constrained to exercise as the price to pay for the avoidance of condign punishment will require suppression in respect of many aspects of life that related to or informed by their sexuality (Ibid, para 81).
Buxton LJ added, at para 20: The question that will be before the AIT on remission will be whether the applicant could reasonably be expected to tolerate whatever circumstances are likely to arise were he to return to Iran.
The applicant may have to abandon part of his sexual identity, as referred to in the judgment of Gummow and Hayne JJ in S, in circumstances where failure to do that exposes him to the extreme danger that is set out in the country guidance case of RM and BB.
The Tribunal may wish to consider whether the combination of those two circumstances has an effect on their decision as to whether the I would accept both submissions. applicant can be expected to tolerate the situation he may find himself in when he returns to Iran.
In his judgment on the present appeals Pill LJ held, at para 31, that the test stated in para 16 of Maurice Kay LJs judgment in J v Secretary of State complies with the standard required by the Refugee Convention.
He added that it is an appropriate and workable test.
Pill LJ considered that in the case of HJ the Tribunal had plainly understood the test and that their conclusion that he could reasonably be expected to tolerate conditions in Iran was firmly based on the evidence in the case, considered in the context of the in country evidence.
On that ground he dismissed the appeal.
Keene LJ and Sir Paul Kennedy agreed.
The appellants take this fairly well established case law of the Court of Appeal head on.
They contend that the Court of Appeal test is incompatible with the definition of refugee in article 1A(2) of the Convention and is based on a misunderstanding of the decision of the High Court of Australia in Appellant S395/2002 v Minister for Immigration (2003) 216 CLR 473.
The rationale of the Convention
For someone to be a refugee within the terms of article 1A(2) of the Convention, he must be outside his country of nationality owing to well founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion.
In effect, the Convention proceeds on the basis that people should be allowed to live their lives free from the fear of serious harm coming to them because of their race, religion, nationality, membership of a particular social group or political opinion.
Countries which sign up to the Convention recognise, however, that we do not live in an ideal world and that, in fact, there are many countries where persecution for these reasons does indeed take place.
In such countries either agents of the state carry out the persecution themselves or, at least, the state does not offer adequate protection against individuals and groups who carry it out.
Of course, diplomatic and other pressures may be exerted on states in the hope of improving the situation.
But, in the meantime, the signatories to the Convention do not wash their hands of those at risk: in effect, they agree that, by giving the victims asylum, they will afford them the protection from persecution which their country of origin should have afforded them but did not.
See, for example, La Forest J in Canada (Attorney General) v Ward [1993] 2 SCR 689, 709: At the outset, it is useful to explore the rationale underlying the international refugee protection regime, for this permeates the interpretation of the various terms requiring examination.
International refugee law was formulated to serve as a back up to the protection one expects from the state of which an individual is a national.
It was meant to come into play only in situations when that protection is unavailable, and then only in certain situations.
In Horvath v Secretary of State for the Home Department [2001] 1 AC 489, 495D G, Lord Hope of Craighead quoted this passage with approval and adopted Professor Hathaways description of the protection as surrogate or substitute protection.
At the risk of repetition, the importance of this analysis for present purposes is that it proceeds on the basis that, so far from permitting or encouraging its agents to persecute the applicant for one of the protected grounds, the home state should have protected him from any persecution on that ground.
The underlying rationale of the Convention is therefore that people should be able to live freely, without fearing that they may suffer harm of the requisite intensity or duration because they are, say, black, or the descendants of some former dictator, or gay.
In the absence of any indication to the contrary, the implication is that they must be free to live openly in this way without fear of persecution.
By allowing them to live openly and free from that fear, the receiving state affords them protection which is a surrogate for the protection which their home state should have afforded them.
The applicant who would not take steps to avoid persecution
The Secretary of State accepts accordingly that an applicant is entitled to the protection of the Convention if he could avoid suffering any actual harm by modifying his behaviour (say, by conducting himself discreetly) on his return to his home state but would not in fact choose to do so.
English authority for this approach in the field of religion is to be found in the judgment of Simon Brown LJ in Ahmed (Iftikhar)v Secretary of State for the Home Department [2000] INLR 1.
The applicant was an Ahmadi, who, if returned to Pakistan, would still have been vocal in his proclamation of Ahmadi beliefs, for which he would have suffered persecution.
Simon Brown LJ observed, at p 7: It is one thing to say that it may well be reasonable to require asylum seekers to refrain from certain political or even religious activities to avoid persecution on return.
It is quite another thing to say that, if in fact it appears that the asylum seeker on return would not refrain from such activities if, in other words, it is established that he would in fact act unreasonably he is not entitled to refugee status.
The same point is made, with considerably more elaboration, in the judgment of McHugh and Kirby JJ in Appellant S395/2002 v Minister for Immigration (2003) 216 CLR 473.
They begin by pointing out, at p 489, para 40, that persecution does not cease to be persecution for the purpose of the Convention because those persecuted can eliminate the harm by taking avoiding action within the country of nationality.
In the remainder of para 40 they point out that, if the position were otherwise, the Convention would not protect those who chose to exercise their right, say, to express their political opinion openly.
Similarly, the Convention would not protect those who chose to live openly as gay men rather than take the option of living discreetly.
Their Honours added, 216 CLR 473, 489 490, para 41: History has long shown that persons holding religious beliefs or political opinions, being members of particular social groups or having particular racial or national origins are especially vulnerable to persecution from their national authorities.
The object of the signatories to the Convention was to protect the holding of such beliefs, opinions, membership and origins by giving the persons concerned refuge in the signatory countries when their country of nationality would not protect them.
It would undermine the object of the Convention if the signatory countries required them to modify their beliefs or opinions or to hide their race, nationality or membership of particular social groups before those countries would give them protection under the Convention.
They concluded the paragraph by citing the passage from Simon Brown LJ in Ahmed v Secretary of State for the Home Department [2000] INLR 1, 7, which I have quoted at para 54 above.
The applicant who would conduct himself discreetly
In Ahmed Simon Brown LJ was tackling the case of an applicant who could take steps to avoid persecution on his return, but who would not do so.
The present appeals concern a completely different kind of applicant: the applicant who, on his return, would act discreetly to avoid the harm which would come to him if he were to live openly as a gay man.
In the passage from Ahmed which I cited at para 54 above, Simon Brown LJ appears to have envisaged that it might, in some sense, be reasonable to require applicants to refrain from certain political or even religious activities to avoid persecution on return.
But, in his conspicuously clear argument on behalf of the Secretary of State in the present case, Mr Bourne accepted that neither the Secretary of State nor a tribunal had any power to require a gay applicant to act discreetly on his return to his country of nationality in order to avoid persecution.
Both of them might, of course, purport to decide the case on the assumption that the applicant would do so.
But counsel accepted that neither the Secretary of State nor any tribunal could reject an application for asylum on the basis of an assumption that the gay applicant would act discreetly and so avoid, say, being beaten up or worse.
He might or might not.
It would be a question of fact, depending on the circumstances of the individual case.
Although counsel for the Secretary of State was at pains to draw this distinction between assuming that the applicant would act discreetly to avoid persecution and finding that this is what he would in fact do, the distinction is pretty unrealistic.
Unless he were minded to swell the ranks of gay martyrs, when faced with a real threat of persecution, the applicant would have no real choice: he would be compelled to act discreetly.
Therefore the question is whether an applicant is to be regarded as a refugee for purposes of the Convention in circumstances where the reality is that, if he were returned to his country of nationality, he would have to act discreetly in order to avoid persecution.
The question is not confined to cases where fear of persecution is the only reason why the applicant would act discreetly.
In practice, the picture is likely to be more complicated.
A fear of persecution is by no means the only reason why an applicant might behave discreetly if he were returned to his country of nationality.
For example, he might not wish to upset his parents or his straight friends and colleagues by revealing that he is gay; in particular, he might worry that, if the fact that he was gay were known, he would become isolated from his friends and relatives, be the butt of jokes or unkind comments from colleagues or suffer other discrimination.
Indeed, in a society where gay men are persecuted, it is quite likely that the prevailing culture will be such that some of an applicants friends, relatives and colleagues would react negatively if they discovered that he was gay.
In these circumstances it is at least possible that the only real reason for an applicant behaving discreetly would be his perfectly natural wish to avoid harming his relationships with his family, friends and colleagues.
The Convention does not afford protection against these social pressures, however, and so an applicant cannot claim asylum in order to avoid them.
So if, having considered the facts of any individual case, the Secretary of State or a tribunal concluded that the applicant would choose to behave discreetly on his return simply to avoid these social pressures, his application for asylum would fall to be rejected.
He would not be a refugee within the terms of article 1A(2) of the Convention because, by choosing to behave discreetly in order to avoid these social pressures, the applicant would simultaneously choose to live a life in which he would have no well founded fear of being persecuted for reasons of his homosexuality.
A similar point arose, in the context of religion, in NABD of 2002 v Minister of Immigration and Multicultural and Indigenous Affairs (2005) 79 ALJR 1142, discussed at para 70 below.
Having examined the relevant evidence, the Secretary of State or the tribunal may conclude, however, that the applicant would act discreetly partly to avoid upsetting his parents, partly to avoid trouble with his friends and colleagues, and partly due to a well founded fear of being persecuted by the state authorities.
In other words the need to avoid the threat of persecution would be a material reason, among a number of complementary reasons, why the applicant would act discreetly.
Would the existence of these other reasons make a crucial difference? In my view it would not.
A Jew would not lose the protection of the Convention because, in addition to suffering state persecution, he might also be subject to casual, social anti semitism.
Similarly, a gay man who was not only persecuted by the state, but also made the butt of casual jokes at work, would not lose the protection of the Convention.
It follows that the question can be further refined: is an applicant to be regarded as a refugee for purposes of the Convention in circumstances where the reality is that, if he were returned to his country of nationality, in addition to any other reasons for behaving discreetly, he would have to behave discreetly in order to avoid persecution because of being gay?
It is convenient to use a phrase such as acting or behaving discreetly to describe what the applicant would do to avoid persecution.
But in truth he could do various things.
To take a few examples.
At the most extreme, the applicant might live a life of complete celibacy.
Alternatively, he might form relationships only within a circle of acquaintances whom he could trust not to reveal to others that he had gay relationships.
Or, he might have a gay partner, but never live with him or have him to stay overnight or indulge in any display of affection in public.
Or the applicant might have only fleeting anonymous sexual contacts, as a safe opportunity presented itself.
The gradations are infinite.
Suppose the Secretary of State or the tribunal were satisfied that, if the applicant took some such precautions, he would be unlikely to suffer any actual harm.
Would the applicant then have no well founded fear of persecution by reason of being gay and so be unable to claim asylum under the Convention?
Surely not.
As already explained in para 53 above, so far as the social group of gay people is concerned, the underlying rationale of the Convention is that they should be able to live freely and openly as gay men and lesbian women, without fearing that they may suffer harm of the requisite intensity or duration because they are gay or lesbian.
Their home state should protect them and so enable them to live in that way.
If it does not and they will be threatened with serious harm if they live openly, then most people threatened with persecution will be forced to take what steps they can to avoid it.
But the applicants country of nationality does not meet the standard of protection from persecution which the Convention envisages simply because conditions in the country are such that he would be able to take, and would in fact take, steps to avoid persecution by concealing the fact that he is gay.
On the contrary, the fact that he would feel obliged to take these steps to avoid persecution is, prima facie, an indication that there is indeed a threat of persecution to gay people who live openly.
His country of nationality is therefore not affording him the necessary level of protection.
So the receiving country should.
For this reason, in Appellant S395/2002 v Minister for Immigration (2003) 216 CLR 473, 493, para 51, McHugh and Kirby JJ emphasise that a tribunal will fall into error if it fails to ask why an applicant would act discreetly if he were returned to his home state.
That question will be particularly important where the evidence shows that, before leaving his country and applying for asylum, the applicant lived discreetly.
Their Honours explained, at p 490, para 43: In cases where the applicant has modified his or her conduct, there is a natural tendency for the tribunal of fact to reason that, because the applicant has not been persecuted in the past, he or she will not be persecuted in the future.
The fallacy underlying this approach is the assumption that the conduct of the applicant is uninfluenced by the conduct of the persecutor and that the relevant persecutory conduct is the harm that will be inflicted.
In many perhaps the majority of cases, however, the applicant has acted in the way that he or she did only because of the threat of harm.
In such cases, the well founded fear of persecution held by the applicant is the fear that, unless that person acts to avoid the harmful conduct, he or she will suffer harm.
It is the threat of serious harm with its menacing implications that constitutes the persecutory conduct.
Their Honours went on to apply that approach to the decision of the tribunal in that case, at p 493, paras 51 53: 51.
Central to the Tribunals decision was the finding that the appellants had not suffered harm in the past because they had acted discreetly.
Because the Tribunal assumed that it is reasonable for a homosexual person in Bangladesh to conform to the laws of Bangladesh society, the Tribunal failed to determine whether the appellants had acted discreetly only because it was not possible to live openly as a homosexual in Bangladesh.
Because of that failure, the Tribunal, unsurprisingly, failed to give proper attention to what might happen to the appellants if they lived openly in the same way as heterosexual people in Bangladesh live. 52.
The Tribunal did find, however, that to attempt to live openly as a homosexual in Bangladesh would mean to face problems ranging from being disowned by ones family and shunned by friends and neighbours to more serious forms of harm, for example the possibility of being bashed by the police.
That finding appears to be based on an acceptance of the evidence of Mr Khan, the Executive Director of the Naz Foundation.
In its reasons, the Tribunal recorded Mr Khan as saying: [T]he consequences of being identified as homosexual vary enormously, from acceptance and tolerance, to harassment, physical abuse or expulsion from the community.
Most of the harassment of males who have sex with males takes the form of extortion by local police and hustlers who threaten to expose them to their families if they do not cooperate. 53.
The Tribunals findings on the attitude of Bangladesh society and the statements of the appellants indicate that they were discreet about their relationship only because they feared that otherwise they would be subjected to the kinds of discrimination of which Mr Khan spoke.
If the Tribunal had found that this fear had caused them to be discreet in the past, it would have been necessary for the Tribunal then to consider whether their fear of harm was well founded and amounted to persecution.
That would have required the Tribunal to consider what might happen to the appellants in Bangladesh if they lived openly as a homosexual couple.
Would they have suffered physical abuse, discrimination in employment, expulsion from their communities or violence or blackmail at the hands of police and others, as Mr Khan suggested were possibilities? These were the sorts of questions that the Tribunal was bound to consider if it found that the appellants discreet behaviour in the past was the result of fear of what would happen to them if they lived openly as homosexuals.
Because the Tribunal assumed that it is reasonable for a homosexual person in Bangladesh to conform to the laws of Bangladesh society, however, the Tribunal disqualified itself from properly considering the appellants claims that they had a real fear of persecution if they were returned to Bangladesh.
In short, the fact that the applicants would act discreetly and so not be subjected to violence if returned to Bangladesh did not mean that they did not have a well founded fear of persecution on their return.
Rather, the tribunal had to go on to ask itself why they would act discreetly.
If it was because they would suffer serious harm if they lived openly as a homosexual couple, then they would have a well founded fear of persecution since it is the right to live openly without fear of persecution which the Convention exists to protect.
The other justices in the majority, Gummow and Hayne JJ, described the tribunals error in this way, 216 CLR 473, 503, para 88: The Tribunal did not ask why the appellants would live discreetly.
It did not ask whether the appellants would live discreetly because that was the way in which they would hope to avoid persecution.
That is, the Tribunal was diverted from addressing the fundamental question of whether there was a well founded fear of persecution by considering whether the appellants were likely to live as a couple in a way that would not attract adverse attention.
That the Tribunal was diverted in that way is revealed by considering the three statements in its reasons that are referred to earlier: first, that it is not possible to live openly as a homosexual in Bangladesh; secondly, that [t]o attempt to [live openly] would mean to face problems; and, thirdly, that Bangladeshi men can have homosexual affairs or relationships, provided they are discreet.
Nowhere did the Tribunal relate the first and second of these statements to the position of the appellants.
It did not consider whether the adverse consequences to which it referred sufficed to make the appellants fears well founded.
All that was said was that they would live discreetly.
Again, the point is that the tribunal should have considered why the appellants would live discreetly if they were returned to Bangladesh.
In particular, it should have asked whether they would live discreetly because that was the way they would hope to avoid persecution.
If so, then the tribunal should have considered whether the adverse consequences sufficed to make the appellants fears of persecution well founded.
The decision of the High Court is accordingly powerful authority, which I would respectfully follow, for the proposition that, if a person has a well founded fear that he would suffer persecution on being returned to his country of nationality if he were to live openly as a gay man, then he is to be regarded as a refugee for purposes of the Convention, even though, because of the fear of persecution, he would in fact live discreetly and so avoid suffering any actual harm.
The High Court has followed the same line of reasoning in subsequent cases.
Application of the High Courts approach in Appellant S395/2002
In NABD of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 79 ALJR 1142 the appellant, who had converted to Christianity, would face persecution if he returned to Iran.
He argued that the tribunal had fallen into the same kind of error as the tribunal in S395/2002 v Minister for Immigration by attaching significance to a supposed difference between discreet and confrontational behaviour.
By a majority (McHugh and Kirby JJ dissenting), the High Court dismissed his appeal.
In doing so, they did not reject the approach in S395/2002 v Minister for Immigration.
Rather, applying that approach, they held that the appeal failed on the facts.
As Hayne J (one of the majority in S395/2002) and Heydon J explained, at para 168: At no point in its chain of reasoning did the Tribunal divert from inquiring about whether the fears which the appellant had were well founded.
It did not ask (as the Tribunal had asked in Appellant S395/2002) whether the appellant could avoid persecution; it asked what may happen to the appellant if he returned to Iran.
Based on the material the Tribunal had, including the material concerning what the appellant had done while in detention, it concluded that were he to practise his faith in the way he chose to do so, there was not a real risk of his being persecuted.
In SZATV v Minister for Immigration and Citizenship (2007) 233 CLR 18 the appellant had worked as a journalist in Chernovtsy in Ukraine.
Due to his political views he had been subjected to a systematic campaign of harassment, including physical maltreatment.
The Refugee Review Tribunal none the less rejected his claim for asylum on the ground that he could return to a different part of Ukraine where he would not be known, and work in the construction industry.
He would not then come to the notice of the authorities.
Allowing his appeal, at p 28, para 28, Gummow, Hayne and Crennan JJ referred to the analysis in para 40 of the judgment of McHugh and Kirby JJ in Appellant S395/2002 v Minister for Immigration (2003) 216 CLR 473, 489, where they had criticised the idea that an applicant would not suffer persecution for his homosexuality if he could avoid it by living discreetly.
Similarly, in SZATV, the tribunal had gone wrong by approaching the issue on the footing that it would not be unreasonable for the appellant to relocate within Ukraine and obtain work which would not involve the expression to the public of his political opinions.
In other words, he would avoid persecution by giving up the very right to express his political opinions without fear of persecution which the Convention is designed to protect.
Again, the decision is consistent with the approach in Appellant S395/2002 v Minister for Immigration.
The same approach has been followed in New Zealand.
In Refugee Appeal No 74665/03, [2005] INLR 68 at para 124, the New Zealand Refugee Status Appeals Authority considered that its own approach and the approach of the High Court of Australia in Appellant S395/2002 converged on the same point, namely that refugee status cannot be denied by requiring of the claimant that he or she avoid being persecuted by forfeiting a fundamental human right.
The difference between the High Court and the Authority which the Authority considered could be important in certain cases was that it preferred to use a human rights framework in order to determine the limits of what an individual is entitled to do and not to do.
That approach might, for instance, be relevant if an applicant were claiming asylum on the ground that he feared persecution if he took part in a gay rights march.
I respectfully see the attractions of that approach.
But no such issue arises in the present appeals and I prefer to leave the point for consideration in a case where it might be of practical effect.
For present purposes I take the decision of the Authority, based on a particularly full and impressive analysis of the relevant materials, as clear support for the High Court of Australias approach that an applicant cannot be denied asylum on the basis that he would, in fact, take effective steps, by suppressing his sexual identity, to avoid the harm which would otherwise threaten him.
The Court of Appeal: living discreetly as persecution
Under reference to the case law of the Court of Appeal set out above at paras 47 49, the Secretary of State argued, however, that if the applicant would actually live discreetly and avoid the danger, then he would have no real fear of persecution unless he could not reasonably be expected to tolerate that situation, viz, having to conceal his sexual identity, and all the restrictions which that would entail, in circumstances where failure to do so would expose him to extreme danger.
In other words the basis for claiming asylum would be a well founded fear that he would find it intolerable to live discreetly to avoid the danger.
Something of the same idea can be seen in the argument which Mosley J considered in Sadeghi Pari v Canada (Minister of Citizenship and Immigration) 2004 FC 282, para 29: The meaning of persecution is generally defined as the serious interference with a basic human right.
Concluding that persecution would not exist because a gay woman in Iran could live without punishment by hiding her relationship to another woman may be erroneous, as expecting an individual to live in such a manner could be a serious interference with a basic human right, and therefore persecution (internal citations omitted).
In my view, the approach adopted by the Court of Appeal is unsound.
I leave on one side my reasoning so far and also the obvious point that the Court of Appeals test seems to require the applicant to establish a form of secondary persecution brought on by his own actions in response to the primary persecution.
In my view the core objection to the Court of Appeals approach is that its starting point is unacceptable: it supposes that at least some applications for asylum can be rejected on the basis that the particular applicant could find it reasonably tolerable to act discreetly and conceal his sexual identity indefinitely to avoid suffering severe harm.
The New Zealand Refugee Status Appeals Authority observed in Re GJ [1998] (1995) INLR 387, 420 that sexual orientation is either an innate or unchangeable characteristic or a characteristic so fundamental to identity or human dignity that it ought not be required to be changed (emphasis in the original).
So, starting from that position, the Convention offers protection to gay and lesbian people and, I would add, bisexuals and everyone else on a broad spectrum of sexual behaviour because they are entitled to have the same freedom from fear of persecution as their straight counterparts.
No one would proceed on the basis that a straight man or woman could find it reasonably tolerable to conceal his or her sexual identity indefinitely to avoid suffering persecution.
Nor would anyone proceed on the basis that a man or woman could find it reasonably tolerable to conceal his or her race indefinitely to avoid suffering persecution.
Such an assumption about gay men and lesbian women is equally unacceptable.
Most significantly, it is unacceptable as being inconsistent with the underlying purpose of the Convention since it involves the applicant denying or hiding precisely the innate characteristic which forms the basis of his claim of persecution: Atta Fosu v Canada (Minister of Citizenship and Immigration) 2008 FC 1135, para 17, per Zinn J.
At the most basic level, if a male applicant were to live discreetly, he would in practice have to avoid any open expression of affection for another man which went beyond what would be acceptable behaviour on the part of a straight man.
He would have to be cautious about the friendships he formed, the circle of friends in which he moved, the places where he socialised.
He would have constantly to restrain himself in an area of life where powerful emotions and physical attraction are involved and a straight man could be spontaneous, impulsive even.
Not only would he not be able to indulge openly in the mild flirtations which are an enjoyable part of heterosexual life, but he would have to think twice before revealing that he was attracted to another man.
Similarly, the small tokens and gestures of affection which are taken for granted between men and women could well be dangerous.
In short, his potential for finding happiness in some sexual relationship would be profoundly affected.
It is objectionable to assume that any gay man can be supposed to find even these restrictions on his life and happiness reasonably tolerable.
It would be wrong, however, to limit the areas of behaviour that must be protected to the kinds of matters which I have just described essentially, those which will enable the applicant to attract sexual partners and establish and maintain relationships with them in the same way as happens between persons who are straight.
As Gummow and Hayne JJ pointed out in Appellant S395/2002 v Minister for Immigration (2003) 216 CLR 473, 500 501, para 81: Sexual identity is not to be understood in this context as confined to engaging in particular sexual acts or, indeed, to any particular forms of physical conduct.
It may, and often will, extend to many aspects of human relationships and activity.
That two individuals engage in sexual acts in private (and in that sense discreetly) may say nothing about how those individuals would choose to live other aspects of their lives that are related to, or informed by, their sexuality In short, what is protected is the applicants right to live freely and openly as a gay man.
That involves a wide spectrum of conduct, going well beyond conduct designed to attract sexual partners and maintain relationships with them.
To illustrate the point with trivial stereotypical examples from British society: just as male heterosexuals are free to enjoy themselves playing rugby, drinking beer and talking about girls with their mates, so male homosexuals are to be free to enjoy themselves going to Kylie concerts, drinking exotically coloured cocktails and talking about boys with their straight female mates.
Mutatis mutandis and in many cases the adaptations would obviously be great the same must apply to other societies.
In other words, gay men are to be as free as their straight equivalents in the society concerned to live their lives in the way that is natural to them as gay men, without the fear of persecution.
This is not to give any false or undue prominence to the applicants sexuality or to say that an individual is defined by his sexuality.
It is just to accept that sexual identity is inherent to ones very identity as a person: Hernandez Montiel v Immigration and Naturalisation Service, 225 F 3d 1084, 1093 (9th Cir 2000), per Tashima J. A E Housman showed many of the hallmarks of genius both as a textual critic and as a poet; Alan Turing was a mathematical genius.
Not only may these talents have been at least as significant to their identity as their homosexuality, but the individuals themselves may well have thought so too.
That does not matter in the context of persecution.
As the Nazi period showed all too clearly, a secular Jew, who rejected every tenet of the religion and did not even think of himself as Jewish, was ultimately in as much need as any Orthodox rabbi of protection from persecution as a Jew.
Similarly, an applicant for asylum does not need to show that his homosexuality plays a particularly prominent part in his life.
All that matters is that he has a well founded fear that he will be persecuted because of that particular characteristic which he either cannot change or cannot be required to change.
Another way of pointing to essentially the same basic defect in the approach of the Court of Appeal is to say that a tribunal has no legitimate way of deciding whether an applicant could reasonably be expected to tolerate living discreetly and concealing his homosexuality indefinitely for fear of persecution.
Where would the tribunal find the yardstick to measure the level of suffering which a gay man far less, the particular applicant would find reasonably tolerable? How would the tribunal measure the equivalent level for a straight man asked to suppress his sexual identity indefinitely? The answer surely is that there is no relevant standard since it is something which no one should have to endure.
In practice, of course, where the evidence showed that an applicant had avoided persecutory harm by living discreetly for a number of years before leaving his home country, the tribunal would be tempted to fall into error.
The tribunal would be liable to hold that the evidence showed that this applicant, at least, must have found his predicament reasonably tolerable in the past and so would find it reasonably tolerable if he were returned to his country of nationality.
But, in truth, that evidence would merely show that the applicant had put up with living discreetly for fear of the potentially dire consequences of living openly.
I would therefore hold that the tests formulated by Maurice Kay LJ and Buxton LJ in J v Secretary of State for the Home Department [2007] Imm AR 73, at paras 16 and 20, and applied by Pill LJ in this case, are wrong in principle, unworkable and inconsistent with the way that article 1A(2) of the Convention has been interpreted and applied in other authorities.
As can be seen from the passage from Z v Secretary of State for the Home Department [2005] Imm AR 75 quoted at para 47 above, Buxton LJ seems to have thought that he was following the approach of McHugh and Kirby JJ in Appellant S395/2002 v Minister for Immigration (2003) 216 CLR 473.
That was, quite simply, a misunderstanding.
As the cross heading above para 40 of their judgment showed, at this point in their judgment their Honours were considering the position of a gay person who would live openly.
They first explained that persecution could take a variety of forms, and then observed, in the sentence quoted by Buxton LJ, that to count as persecution the harm had to be intolerable.
But this is just a general description of what counts as persecution.
As I have explained, in paras 55 and 56 above, the remainder of para 40 of their Honours judgment contains not the slightest hint of the approach favoured by the Court of Appeal.
That approach should not be followed in future.
The approach to be followed by tribunals
When an applicant applies for asylum on the ground of a well founded fear of persecution because he is gay, the tribunal must first ask itself whether it is satisfied on the evidence that he is gay, or that he would be treated as gay by potential persecutors in his country of nationality.
If so, the tribunal must then ask itself whether it is satisfied on the available evidence that gay people who lived openly would be liable to persecution in the applicants country of nationality.
If so, the tribunal must go on to consider what the individual applicant would do if he were returned to that country.
If the applicant would in fact live openly and thereby be exposed to a real risk of persecution, then he has a well founded fear of persecution even if he could avoid the risk by living discreetly.
If, on the other hand, the tribunal concludes that the applicant would in fact live discreetly and so avoid persecution, it must go on to ask itself why he would do so.
If the tribunal concludes that the applicant would choose to live discreetly simply because that was how he himself would wish to live, or because of social pressures, e g, not wanting to distress his parents or embarrass his friends, then his application should be rejected.
Social pressures of that kind do not amount to persecution and the Convention does not offer protection against them.
Such a person has no well founded fear of persecution because, for reasons that have nothing to do with any fear of persecution, he himself chooses to adopt a way of life which means that he is not in fact liable to be persecuted because he is gay.
If, on the other hand, the tribunal concludes that a material reason for the applicant living discreetly on his return would be a fear of the persecution which would follow if he were to live openly as a gay man, then, other things being equal, his application should be accepted.
Such a person has a well founded fear of persecution.
To reject his application on the ground that he could avoid the persecution by living discreetly would be to defeat the very right which the Convention exists to protect his right to live freely and openly as a gay man without fear of persecution.
By admitting him to asylum and allowing him to live freely and openly as a gay man without fear of persecution, the receiving state gives effect to that right by affording the applicant a surrogate for the protection from persecution which his country of nationality should have afforded him.
The Secretary of State should, of course, apply the same approach when considering applications of this type.
Although I have, for the most part, concentrated on the position of gay men, the Secretary of State and tribunals should approach applications concerning lesbian women in the same way.
These appeals
I add a comment on the case of HT.
The tribunal rejected his application on the ground that, on his return to Cameroon, he could go to live in another part of the country and live discreetly there.
In that event he would have no real fear of persecution.
But there appears to have been nothing in the evidence to suggest that there was any area of Cameroon where gay men could live openly without any fear of persecution.
So in no sense would the applicant be returning to a part of the country where the state would protect him from persecution.
In effect, therefore, the tribunal was simply saying that his application should be rejected because, on return, he could take steps to avoid persecution by conducting himself discreetly.
For the reasons which I have given, that approach is inconsistent with the very aims of the Convention.
In effect, the tribunal made the same error as the tribunal in SZATV v Minister for Immigration and Citizenship (2007) 233 CLR 18, discussed at para 71 above.
For these reasons I would allow both appeals and remit matters to the respective tribunals for reconsideration in the light of the approach which I have outlined.
LORD WALKER
I agree with the reasoning and conclusions in Lord Rodgers judgment.
But in view of the importance of this appeal I will add some observations in my own words.
After all the carefully researched debate that the Court has heard and participated in (we have had 23 bundles of authorities containing 250 different items) there is, as has often been noted, ultimately a single question: does the claimant asylum seeker have a well founded fear of being persecuted, if returned to his own country, for reasons falling within article 1A(2) of the Convention? As it was put by Simon Brown LJ in Secretary of State for the Home Department v Iftikar Ahmed [2000] INLR 1, cited by McHugh and Kirby JJ in Appellant S395/2002 v Minister for Immigration and Multicultural Affairs [2003] HCA 71 (2003) 216 CLR 473 para 42 : [I]n all asylum cases there is ultimately but a single question to be asked: is there a serious risk that on return the applicant would be persecuted for a Convention reason? If there is, then he is entitled to asylum.
This single question is however complex (McHugh J in Applicant A v Minister for Immigration and Ethnic Affairs (1997) 190 CLR 225, 256) described it as a compound conception which nevertheless needs to be interpreted as a totality).
It is not directed at ascertaining past facts (though findings as to events asserted by the claimant to have happened in the past will always be relevant, and often crucial).
Instead it is directed at predicting what would or might happen in the future if (contrary to his wishes) the claimant is returned to his own country.
Here too his evidence as to his own state of mind (in particular his intentions and his apprehensions in an eventuality which he earnestly hopes to avoid) will always be relevant.
But his evidence may have to be treated with caution because of his strong personal interest in the outcome of his claim.
Moreover the inquiry is by no means wholly subjective.
The need for the claimants fear to be well founded introduces a very important objective element.
Different jurisdictions have taken different approaches to evaluating what Professor James C Hathaway has called the threshold of concern (Hathaway, The Law of Refugee Status (1991) pp 75 80).
When that work was published the test approved by the House of Lords in R v Secretary of State for the Home Department Ex p Sivakumaran (and conjoined appeals) [1988] AC 958 was that there should be a reasonable degree of likelihood (Lord Keith at p 994) or real and substantial danger (Lord Templeman at p 996) or a real and substantial risk (Lord Goff at p 1000) of persecution for a Convention reason.
This remains the test.
The editors of Macdonald, Immigration Law and Practice 7th ed (2008) prefer the expression real risk, citing the Court of Appeal in MH (Iraq) v Secretary of State for the Home Department [2007] EWCA Civ 852, a real as opposed to a fanciful risk.
Risk is in my view the best word because (as explained in the next paragraph) it factors in both the probability of harm and its severity.
In understanding the practical implications of the test it is important to note that in Sivakumaran Lord Keith quoted Lord Diplocks remarks in R v Governor of Pentonville Prison, Ex p Fernandez [1971] 1 WLR 987, 994 (an extradition case) as to the relative gravity of the consequences of the courts expectation being falsified either in one way or in the other and Lord Templeman referred to his own similar remarks in R v Secretary of State for the Home Department Ex p Bugdaycay [1987] AC 514, 537.
Where life or liberty may be threatened, the balance of probabilities is not an appropriate test.
As Sedley LJ said in Batayav v Secretary of State for the Home Department [2003] EWCA Civ 1489, [2004] INLR 126 para 38: If a type of car has a defect which causes one vehicle in ten to crash, most people would say that it presents a real risk to anyone who drives it, albeit crashes are not generally or consistently happening.
Getting away from metaphor, I suppose that it may be debatable whether a gay man would be at real risk of persecution (in the Convention sense) if, on returning to his own country, he would face a one in ten risk of being prosecuted and made to pay a fine, or sent to prison for a month.
But if he would face a one in ten risk of being prosecuted and sentenced to death by public hanging from a crane there could be only one answer.
The notion that a gay man could (and so, some might say, should) avoid trouble by adopting a discreet lifestyle (or leading an entirely celibate life) is not limited to the context of asylum law.
It is the way in which hundreds of thousands of gay men lived in England before the enactment of the Sexual Offences Act 1967.
But it has assumed particular importance in asylum law since gays and lesbians have become generally recognised as a particular social group for Convention purposes.
Jenni Millbank has described this development (which she terms discretion reasoning) in From discretion to disbelief: recent trends in refugee determinations on the basis of sexual orientation in Australia and the United Kingdom (2009) 13 IJHR 391, 393 394 (most references omitted): At its baldest, discretion reasoning entailed a reasonable expectation that persons should, to the extent that it is possible, co operate in their own protection, by exercising self restraint such as avoiding any behaviour that would identify them as gay; never telling anyone they were gay; only expressing their sexuality by having anonymous sex in public places; pretending that their partner is a flatmate; or indeed remaining celibate.
This approach subverted the aim of the Refugees Convention that the receiving state provide a surrogate for protection from the home state by placing the responsibility of protection upon the applicant: it is he or she who must avoid harm.
The discretion approach also varied the scope of protection afforded in relation to each of the five Convention grounds by, for example, protecting the right to be openly religious but not to be openly gay or in an identifiable same sex relationship.
The idea of discretion reflects broader social norms concerning the proper place of lesbian and gay sexuality, as something to be hidden and reluctantly tolerated, a purely private sexual behaviour rather than an important and integral aspect of identity, or as an apparent relationship status.
The discretion approach explicitly posited the principle that human rights protection available to sexual orientation was limited to private consensual sex and did not extend to any other manifestation of sexual identity (which has been variously characterised as flaunting displaying and advertising homosexuality as well as inviting persecution).
Thus for example in 2001 the Federal Court of Australia held that the Iranian Penal Code prohibiting homosexuality and imposing a death penalty did place limits on the applicants behaviour; the applicant had to avoid overt and public, or publicly provocative homosexual activity.
But having to accept those limits did not amount to persecution. (Nezhadian v Minister for Immigration and Multicultural Affairs [2001] FCA 1415, para 12).
On appeal, the full Federal Court endorsed the view that public manifestation of homosexuality is not an essential part of being homosexual (WABR v Minister for Immigration and Multicultural Affairs [2002] FCAFC 124, para 23).
The discretion approach thus has had wide reaching ramifications in terms of framing the human rights of lesbians and gay men to family life, freedom of association and freedom of expression as necessarily lesser in scope than those held by heterosexual people.
This approach has been brought to an end, for the purposes of Australian asylum law, by the majority decision of the High Court of Australia in Appellant S395/2002 v Minister for Immigration and Multicultural Affairs (2003) 216 CLR 473.
The High Court divided by four to three in favour of allowing the appeal and remitting the case (though the tribunal to which the case was remitted decided that S395/2002 and his co applicant S396/2002 were not gay after all this fact, recorded by Jenni Millbank in her article, is reflected in its title).
The minority (Gleeson CJ and Callinan and Heydon JJ) considered that the tribunal had not erred in law.
The majority consisted of McHugh and Kirby JJ who joined in one judgment, and Gummow and Hayne JJ who joined in another.
I find the joint judgment of Gummow and Hayne JJ illuminating and compelling.
Lord Hope and Lord Rodger have quoted parts of paras 81 and 82 but I think it helpful to set out the whole section (paras 78 83) which appears under the heading Discretion and being discreet: The central question in any particular case is whether there is a well founded fear of persecution.
That requires examination of how this applicant may be treated if he or she returns to the country of nationality.
Processes of classification may obscure the essentially individual and fact specific inquiry which must be made.
The dangers of arguing from classifications are particularly acute in matters in which the applicants sexuality is said to be relevant.
Those dangers lie within the notions of discretion and being discreet: terms often applied in connection with some aspects of sexual expression.
To explain why use of those terms may obscure more than they illuminate, it is useful to begin by considering Convention reasons other than membership of a social group defined in terms of sexual identity.
If an applicant holds political or religious beliefs that are not favoured in the country of nationality, the chance of adverse consequences befalling that applicant on return to that country would ordinarily increase if, on return, the applicant were to draw attention to the holding of the relevant belief.
But it is no answer to a claim for protection as a refugee to say to an applicant that those adverse consequences could be avoided if the applicant were to hide the fact that he or she holds the beliefs in question.
And to say to an applicant that he or she should be discreet about such matters is simply to use gentler terms to convey the same meaning.
The question to be considered in assessing whether the applicants fear of persecution is well founded is what may happen if the applicant returns to the country of nationality; it is not, could the applicant live in that country without attracting adverse consequences.
It is important to recognise the breadth of the assertion that is made when, as in the present case, those seeking protection allege fear of persecution for reasons of membership of a social group identified in terms of sexual identity (here, homosexual men in Bangladesh).
Sexual identity is not to be understood in this context as confined to engaging in particular sexual acts or, indeed, to any particular forms of physical conduct.
It may, and often will, extend to many aspects of human relationships and activity.
That two individuals engage in sexual acts in private (and in that sense discreetly) may say nothing about how those individuals would choose to live other aspects of their lives that are related to, or informed by, their sexuality.
Saying that an applicant for protection would live discreetly in the country of nationality may be an accurate general description of the way in which that person would go about his or her daily life.
To say that a decision maker expects that that person will live discreetly may also be accurate if it is read as a statement of what is thought likely to happen.
But to say that an applicant for protection is expected to live discreetly is both wrong and irrelevant to the task to be undertaken by the Tribunal if it is intended as a statement of what the applicant must do.
The Tribunal has no jurisdiction or power to require anyone to do anything in the country of nationality of an applicant for protection.
Moreover, the use of such language will often reveal that consideration of the consequences of sexual identity has wrongly been confined to participation in sexual acts rather than that range of behaviour and activities of life which may be informed or affected by sexual identity.
No less importantly, if the Tribunal makes such a requirement, it has failed to address what we have earlier identified as the fundamental question for its consideration, which is to decide whether there is a well founded fear of persecution.
It has asked the wrong question.
Addressing the question of what an individual is entitled to do (as distinct from what the individual will do) leads on to the consideration of what modifications of behaviour it is reasonable to require that individual to make without entrenching on the right.
This type of reasoning, exemplified by the passages from reasons of the Tribunal in other cases, cited by the Federal Court in Applicant LSLS v Minister for Immigration and Multicultural Affairs, leads to error.
It distracts attention from the fundamental question.
It leads to confining the examination undertaken (as it was in LSLS) merely to considering whether the applicant had a well founded fear of persecution if he were to pursue a homosexual lifestyle in [the country of nationality], disclosing his sexual orientation to the extent reasonably necessary to identify and attract sexual partners and maintain any relationship established as a result.
That narrow inquiry would be relevant to whether an applicant had a well founded fear of persecution for a Convention reason only if the description given to what the applicant would do on return was not only comprehensive, but exhaustively described the circumstances relevant to the fear that the applicant alleged.
On its face it appears to be an incomplete, and therefore inadequate, description of matters following from, and relevant to, sexual identity.
Whether or not that is so, considering what an individual is entitled to do is of little assistance in deciding whether that person has a well founded fear of persecution.
Lord Rodger, in paras 78 80 of his judgment, adds a vivid commentary which illustrates and brings to life the general message conveyed by this part of the judgment of Gummow and Hayne JJ.
There is a similar message in the joint judgment of McHugh and Kirby JJ (especially paras 40 43).
But I have to say, with great respect to those two very distinguished judges, that I have difficulty with some of the reasoning in para 43, and in particular the sentence, It is the threat of serious harm with its menacing implications that constitutes the persecutory conduct.
I think that this sentence (together with the unexceptionable comment in para 40 that harm is persecution only if, by reason of its intensity or duration, the person persecuted cannot reasonably be expected to tolerate it) have contributed to the Court of Appeal straying into error in J v Secretary of State for the Home Department [2006] EWCA Civ 1238, [2007] Imm AR 1 paras 16 and 20, an error which was followed in this case: [2009] EWCA Civ 172, paras 11, 12, 31 and 44.
In the present case Pill LJ referred, at para 10 of his judgment, to what counsel had described as the Anne Frank principle.
That is of course a reference to the Jewish girl who was hidden in an attic in Amsterdam for more than two years, but ultimately discovered by the Nazis and sent to a concentration camp, where she died.
The conditions which she had to endure, confined in an attic away from the normal pleasures of childhood and in constant fear of discovery, were certainly severe enough to be described as persecution.
But in the context of a claim to asylum under the Convention this approach may be an unnecessary complication, and lead to confusion.
The essential question in these cases is whether the claimant has a well founded fear of persecution as a gay man if returned to his own country, even if his fear (possibly in conjunction with other reasons such as his familys feelings) would lead him to modify his behaviour so as to reduce the risk.
There are some countries in which a gay couple who lived together quite openly, and made no attempt to conceal their affection, even in public places, would be inviting persecution (an expression used in R v Secretary of State for the Home Department, Ex p Binbasi [1989] Imm AR 595, p 4).
That is an unfortunate expression.
Some people who risk martyrdom have complex motivation and appear to others to be stubborn and wrong headed. (John Donne, who was born a Catholic and knew a lot about persecution from his own familys experiences, wrote a prose work entitled Pseudo Martyr, published in 1610, deploring the intransigence of some loyal Catholics.) But neither the most courageous nor the most timorous forfeit protection as asylum seekers if, in their different ways, they satisfy the test of a well founded fear of persecution because of their sexuality.
I respectfully concur in para 82 of Lord Rodgers judgment, setting out the approach to be followed by tribunals in cases of this sort.
It involves (as Gummow and Hayne JJ put it in S395, para 78) an essentially individual and fact specific inquiry.
It will often be a difficult task since much of the relevant evidence will come from the claimant, who has a strong personal interest in its outcome.
For these reasons, and for the fuller reasons given by Lord Rodger, I would allow both appeals and remit them to the tribunal for reconsideration in the light of Lord Rodgers judgment.
LORD COLLINS
I agree that the appeal should be allowed for the reasons given by Lord Rodger and that the approach to be followed by tribunals should be as he proposes in paragraph [82] of his judgment.
In the context of cases such as this, the use of the words discretion and discreetly tends to obscure the point that what is really involved is concealment of sexual orientation.
The relevant question is whether the applicant has a well founded fear of being persecuted for reasons of membership of a particular social group: Refugee Convention, article 1A(2).
Persecution is sustained or systemic failure of state protection in relation to one of the core entitlements which has been recognised by the international community, or an affront to internationally accepted human rights norms, and in particular the core values of privacy, equality and dignity: Horvath v Secretary of State for the Home Department [2001] 1 AC 489, 495; Amare v Home Secretary [2005] EWCA Civ 1600, [2006] Imm AR 217, [17].
The test of reasonable tolerability adopted by Buxton LJ in Z v Secretary of State for the Home Department [2004] EWCA Civ 1578, [2005] Imm AR 75 at [17], and applied by Maurice Kay LJ in J v Secretary of State for the Home Department [2006] EWCA Civ 1238, [2007] Imm AR 73 at [16], and Pill LJ in the present case at [31] was based on a misunderstanding of the passage in the judgment of McHugh and Kirby JJ in Appellant S395/2002 v Minister for Immigration [2003] HCA 71,(2003) 216 CLR 473, at [40], when they said: [40] Persecution covers many forms of harm ranging from physical harm to the loss of intangibles, from death and torture to state sponsored or condoned discrimination in social life and employment.
Whatever form the harm takes, it will constitute persecution only if, by reason of its intensity or duration, the person persecuted cannot reasonably be expected to tolerate it.
But persecution does not cease to be persecution for the purpose of the Convention because those persecuted can eliminate the harm by taking avoiding action within the country of nationality.
The Convention would give no protection from persecution for reasons of religion or political opinion if it was a condition of protection that the person affected must take steps reasonable or otherwise to avoid offending the wishes of the persecutors.
Nor would it give protection to membership of many a particular social group if it were a condition of protection that its members hide their membership or modify some attribute or characteristic of the group to avoid persecution.
Similarly, it would often fail to give protection to people who are persecuted for reasons of race or nationality if it was a condition of protection that they should take steps to conceal their race or nationality.
The idea of reasonable toleration was plainly being mentioned in the context of what amounts to persecution and not in the context of what they described as taking avoiding action or where members of the group hide their membership or modify some attribute or characteristic of the group to avoid persecution.
If a person would have to conceal his sexual identity because of a well founded fear of persecution, he does not cease to have that well founded fear even if the concealment will be successful: see also NABD of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 29, (2005) 216 ALR 1; SZATV v Minister for Immigration and Citizenship [2007] HCA 40, (2007) 233 CLR 18; Refugee Appeal No 74665/03 [2005] INLR 68 (NZ Refugee Status Appeals Authority, Mr Haines QC).
A similar, though not identical, approach has been adopted in Canada and the United States.
Thus in Atta Fosu v Canada (Citizenship and Immigration) 2008 FC 1135 (Federal Court of Canada, Zinn J) it was held that to say that an internal flight alternative existed if the homosexual refugee claimant lived a discreet existence, was to say that it was not an internal flight alternative.
The applicant was a Ghanaian citizen who claimed to fear persecution by the police and the family of his former same sex partner, on the basis of his homosexuality.
The immigration board found that the applicant could live as a homosexual, discreetly, in the city of Accra, and therefore that an internal flight alternative existed for the applicant and therefore held that no determination on his identity as a homosexual needed to be made.
The court held that the decision was unreasonable because it required the applicant to deny or hide the innate characteristic which formed the basis of his claim of persecution.
See also Sadeghi Pari v Canada (Minister of Citizenship and Immigration), 2004 FC 282.
In the United States it was said in Karouni v Gonzales, 399 F 3d 1163, 1173 (9th Cir 2005) that by arguing that the homosexual applicant could avoid persecution by living a life of celibacy in Lebanon, the Attorney General was essentially arguing that the law required him to change a fundamental aspect of his human identity.
See also, for a full discussion of the suggestion that applicants could hide their religion to avoid persecution, Kazemzadeh v US Attorney General, 577 F 3d 1341 (11th Cir 2009), following Iao v Gonzales, 400 F 3d 530, 532 (7th Cir 2005), Zhang v Ashcroft, 388 F 3d 713, (9th Cir.2004); Woldemichael v Ashcroft, 448 F 3d 1000 (8th Cir 2006).
These principles also answer the Anne Frank question which is discussed in the case law and which was the subject of argument on this appeal.
In Win v Minister for Immigration and Multicultural Affairs [2001] FCA 132, a political opinion case, the Minister argued that the Tribunal was only required, under the terms of the Convention, to consider whether the applicants would be punished for their political opinions; and that since the applicants had claimed to have operated clandestinely in the past and gave no indication that they would not do so in the future, it was appropriate for the Tribunal merely to ask what the prospects were that the authorities would discover their activities in the future.
Madgwick J said (at [18]): upon the approach suggested by counsel for the [Minister], Anne Frank, terrified as a Jew and hiding for her life in Nazi occupied Holland, would not be a refugee: if the Tribunal were satisfied that the possibility of her being discovered by the authorities was remote, she would be sent back to live in the attic.
It is inconceivable that the framers of the Convention ever did have, or should be imputed to have had, such a result in contemplation.
In this case the Secretary of State argued that had Anne Frank escaped to the United Kingdom, and had it been found (improbably, as the Secretary of State recognised) that on return to Holland she would successfully avoid detection by hiding in the attic, then she would not be at real risk of persecution by the Nazis, and the question would be whether permanent enforced confinement in the attic would itself amount to persecution.
Simply to re state the Secretary of States argument shows that it is not possible to characterise it as anything other than absurd and unreal.
It is plain that it remains the threat to Jews of the concentration camp and the gas chamber which constitutes the persecution.
SIR JOHN DYSON SCJ
On the findings of the tribunals, HJ and HT would have a well founded fear of persecution if, on return to Iran and Cameroon respectively, they were to live openly as gay men.
Their claims for asylum failed because it was found that on their return they would conceal their sexual orientation and live discreet lives.
I agree that these appeals should be allowed for the reasons given by Lord Rodger.
In view of the importance of the issues, I would like to add a few words of my own.
How can a gay man, who would have a well founded fear of persecution if he were to live openly as a gay man on return to his home country, be said to have a well founded fear of persecution if on return he would in fact live discreetly, thereby probably escaping the attention of those who might harm him if they were aware of his sexual orientation? It is well established that in asylum cases it is necessary for the decision maker to determine what the asylum seeker will do on return: see Ahmad v Secretary of State for the Home Department [1990] Imm AR 61.
Thus, the asylum seeker who could avoid persecution on his return, but who (however unreasonably) would not do so is in principle a refugee within the meaning of the Convention.
At first sight, therefore, it might be thought that this should lead to the conclusion that, if a gay man would live discreetly on return and thereby avoid being harmed or persecuted on account of his sexual orientation, he could not have a well founded fear of persecution within the meaning of article 1A(2) of the Convention.
I shall call this the prima facie interpretation.
But none of the parties to this appeal argues for this interpretation, although their reasons for not doing so differ fundamentally.
Reasons why the prima facie interpretation must be rejected
The Convention must be construed in the light of its object and purpose, which is to protect a person who owing to well founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion, is outside the country of his nationality and is unable or, owing to such fear, is unwilling to avail himself of the protection of that country.
If the price that a person must pay in order to avoid persecution is that he must conceal his race, religion, nationality, membership of a social group or political opinion, then he is being required to surrender the very protection that the Convention is intended to secure for him.
The Convention would be failing in its purpose if it were to mean that a gay man does not have a well founded fear of persecution because he would conceal the fact that he is a gay man in order to avoid persecution on return to his home country.
A purposive approach to the meaning of refugee was adopted by McHugh and Kirby JJ in the S395/2002 decision (2003) 216 CLR 473, at para 41 where they said: The object of the signatories to the Convention was to protect the holding of such beliefs, opinions, membership and origins by giving the persons concerned refuge in the signatory countries when their country of nationality would not protect them.
It would undermine the object of the Convention if the signatory countries required them to modify their beliefs or opinions or to hide their race, nationality or membership of particular social groups before those countries would give them protection under the Convention.
Like Lord Rodger, I would follow this approach which has been substantially followed in Australia.
I do not find it necessary to examine the Australian authorities to which we were referred.
It is perhaps sufficient to refer to the paper by Jenni Millbank From discretion to disbelief: recent trends in refugee determinations on the basis of sexual orientation in Australia and the United Kingdom (2009) 13 (2 3) IJHR 391 414.
This paper explores the impact of the S395/2002 decision on the refugee jurisprudence of Australia and the United Kingdom five years on.
It shows that the reasoning of the majority judgments is being generally applied in Australia, but that there has been a clear shift away from discretion towards disbelief as the major area of contest in decisions since S395 and S396, with a significant increase in decisions where the applicants claim to actually being gay, lesbian, or bisexual is outright rejected.
The somewhat different analysis of the problem adopted in New Zealand also leads to a rejection of the prima facie interpretation and to the same overall conclusion that a persons claim to refugee status is not to be denied even if on return he will act discreetly in order to avoid being persecuted.
On this analysis, which is expounded very fully in the leading case of Refugee Appeal No 74665/03 [2005] INLR 68, the emphasis is on the fact that refugee status cannot be denied to a person who on return would forfeit a fundamental human right in order to avoid persecution.
Like Lord Rodger, I see the attractions of this approach.
It gives due weight to the fact that the Convention must be interpreted in accordance with its broad humanitarian objective and having regard to the principles, expressed in the preamble, that human beings should enjoy fundamental rights and freedoms without discrimination and that refugees should enjoy the widest possible exercise of these rights and freedoms: see per Lord Bingham in Fornah v Secretary of State for the Home Department [2007] 1 AC 412 at para 10.
An interpretation of article 1A(2) of the Convention which denies refugee status to gay men who can only avoid persecution in their home country by behaving discreetly (and who say that on return this is what they will do) would frustrate the humanitarian objective of the Convention and deny them the enjoyment of their fundamental rights and freedoms without discrimination.
The right to dignity underpins the protections afforded by the Refugee Convention: see Canada (AG) v Ward [1993] 2 SCR 689, approving Professor Hathaway, Law of Refugee Status, 1991, p 108: The dominant view, however, is that refugee law ought to concern itself with actions which deny human dignity in any key way, and that the sustained or systemic denial of core human rights is the appropriate standard.
A particular attraction of the New Zealand approach is that, as was said at [2005] INLR 68, para 120 of the decision delivered by RPG Haines QC, it facilitates a determination of: whether the proposed action by the claimant is at the core of the right or at its margins and whether the prohibition or restriction imposed by the state is lawful in terms of international human rights law.
If the proposed action is at the core of the right and the restriction unlawful, we would agree that the claimant has no duty to avoid the harm by being discreet or complying with the wishes of the persecutor.
If, however, the proposed activity is at the margin of the protected interest, then persistence in the activity in the face of the threatened harm is not a situation of being persecuted for the purposes of the Refugee Convention.
The individual can choose to carry out the intended conduct or to act reasonably or discreetly in order to avoid the threatened serious harm.
None of these choices, however, engages the Refugee Convention.
It is open to question how far the distinction between harmful action at the core of the right and harmful action at its margin is of relevance in cases of persecution on grounds of immutable characteristics such as race and sexual orientation.
But it is a valuable distinction and there may be more scope for its application in relation to cases concerning persecution for reasons of religion or political opinion.
There is a yet further analysis that may be adopted which leads to the conclusion that the prima facie interpretation should be rejected.
This is that, if a person will conceal his true identity and protected status out of a well founded fear that he will otherwise be persecuted, he will nevertheless continue to have a well founded fear of persecution even if, by concealing his true identity, he may succeed in avoiding serious harm.
As McHugh and Kirby JJ said in S395/2002 at para 43: In manyperhaps the majority ofcases, however, the applicant has acted in the way that he or she did only because of the threat of harm.
In such cases, the well founded fear of persecution held by the applicant is the fear that, unless that person acts to avoid the harmful conduct, he or she will suffer harm.
It is the threat of serious harm with its menacing implications that constituted the persecutory conduct.
In other words, the threat of serious harm and the fear of it will remain despite the avoiding behaviour.
In Win v Minister for Immigration and Multicultural Attains (2001) FCA 132, at para 18 Madgwick J said: upon the approach suggested by counsel for the respondent, Anne Frank, terrified as a Jew and hiding for her life in Nazi occupied Holland would not be a refugee: if the Tribunal were satisfied that the possibility of her being discovered by the authorities was remote, she would be sent back to live in the attic.
It is inconceivable that the framers of the Convention ever did have, or should be imputed to have had, such a result in contemplation.
Even if it could be imagined that Anne Frank, as an asylum seeker, would not objectively have been at risk of being discovered in the attic, she would nevertheless have had a well founded fear of the threat of serious harm, a fear not eliminated by her decision to conceal her identity as a Jew and live in the attic.
The Secretary of States solution: the reasonable tolerability test
The Secretary of State recognises that it cannot have been intended that Convention protection should be denied to those who feel compelled to take extreme measures to avoid persecution.
She does not, therefore, espouse the prima facie interpretation.
Her case is that, if the measures that an asylum seeker would take on return to avoid persecution are not reasonably tolerable, then that of itself would amount to persecution.
I cannot accept this.
First, the phrase being persecuted in article 1A(2) refers to the harm caused by the acts of the state authorities or those for whom they are responsible.
The impact of those acts on the asylum seeker is only relevant to the question whether they are sufficiently harmful to amount to persecution.
But the phrase being persecuted does not refer to what the asylum seeker does in order to avoid such persecution.
The response by the victim to the threat of serious harm is not itself persecution (whether tolerable or not) within the meaning of the article.
Secondly, the test of what is reasonably tolerable is vague and difficult to apply.
Is it a subjective test? Or does the word reasonably import the idea of the reasonable victim? If so, how for example would a decision maker determine whether it is reasonably tolerable to a person to conceal his or her sexual orientation or race? These are difficult questions which those who framed the Refugee Convention surely cannot have intended decision makers to address.
On the Secretary of States test, it would seem that a person who feels compelled to conceal his or her protected status, but does not feel strongly about it and does not find the concealment intolerable is denied the protection of the Convention; whereas the person who does feel strongly about it and finds the concealment intolerable has the benefit of its protection.
This differential treatment of the tolerant and the intolerant is unfair.
It is an unprincipled and improper basis for deciding whether a person should or should not be accorded refugee status.
The decision by the AIT in HJs case shows just how unsatisfactory the Secretary of States test is.
The AIT comprised three very experienced immigration judges who endeavoured faithfully to apply the reasonable tolerability test prescribed for them by the Court of Appeal.
They found at para 44 of their Determination that for 16 years HJ had been able to conduct his homosexual activities in Iran without serious detriment to his private life and without that causing him to suppress many aspects of his sexual identity (my emphasis).
They concluded at para 45 that he would behave in the same way on his return to Iran and that it was difficult to see on the evidence that a return to that way of living can properly be characterised as likely to result in an abandonment of the appellants sexual identity.
They said that he had been able to express his sexuality albeit in a more limited way than he can do elsewhere.
Finally, they said at para 46: To live a private life discreetly will not cause significant detriment to his right to respect for private life, nor will it involve suppression of many aspects of his sexual identity.
I do not understand by what yardstick the AIT measured the tolerability of these limitations and concluded that they were reasonably tolerable.
True, HJ had endured them for 16 years, but that did not make them tolerable, let alone reasonably tolerable to him.
He had endured them because the alternative was the real risk that he would face severe punishment at the hands of the state authorities.
In short, there was no basis on which the tribunal could properly conclude that the fact that HJ had to conceal his identity as a gay man was reasonably tolerable to him.
I wish to make it clear that I am not seeking to criticise the tribunal, but rather to show the nature of the task that they were asked to perform.
Thirdly, the Secretary of State seeks to draw a distinction between the decision maker (i) requiring the asylum seeker to act discreetly on return and (ii) making a finding that the asylum seeker will in fact act discreetly on return.
It is said that the former is impermissible and irrelevant to whether the asylum seeker has a well founded fear of persecution, whereas the latter is not only permissible but highly relevant.
But as Lord Rodger points out, this is an unrealistic distinction.
Most asylum seekers will opt for the life of discretion in preference to persecution.
This is no real choice.
If they are returned, they will, in effect, be required to act discreetly.
Fourthly, the Secretary of States test, as formulated by the Court of Appeal in Z v Secretary of State for the Home Department [2004] EWCA Civ 1578, [2005] Imm AR 75 and applied in subsequent decisions of the Court of Appeal is based on a misunderstanding of two authorities.
The test is founded entirely on these authorities and is not supported by any independent reasoning.
The first misunderstanding is of para 40 of the judgment of McHugh and Kirby JJ in S395/2002.
The sentence relied on by Buxton LJ is: Whatever form the harm takes, it will constitute persecution only if, by reason of its intensity or duration, the person persecuted cannot reasonably be expected to tolerate it.
This sentence comes in a passage which is dealing with persecution generally.
The paragraph then goes on to say that persecution does not cease to be persecution for the purpose of the Convention because those persecuted can eliminate the harm by taking avoiding action within the country of nationality.
The sentence relied on by Buxton LJ is saying nothing about the quality or effect of action taken to avoid persecution.
The second misunderstanding is of the true effect of what Simon Brown LJ said in Ahmed v Secretary of State for the Home Department.
What he said at p 7 of his judgment (quoted by Lord Rodger at para 54 above) was that an asylum seeker would have a well founded fear of persecution if he could avoid persecution on his return, but would choose not to do so (case A).
He did not address either expressly or by implication the question whether an asylum seeker would have a well founded fear of persecution if on his return he would act discreetly to avoid the persecution that he would suffer if he lived openly (case B).
A conclusion on case A sheds no light on the correct answer to case B.
Fifthly, there is no support for the Court of Appeal approach in any other jurisprudence.
This is important in view of the implicit rejection of it in a number of other jurisdictions, including at least Australia and New Zealand, and the fact that it is desirable that, so far as possible, there should be international consensus on the meaning of the Convention.
For all these reasons, I would reject the reasonable tolerability test.
I should add that in his judgment in the present case, Pill LJ said at para 32 that in determining whether suppression was reasonably tolerable for an individual: . a degree of respect for social norms and religious beliefs in other states is in my view appropriate.
Both in Muslim Iran and Roman Catholic Cameroon, strong views are genuinely held about homosexual practices.
In considering what is reasonably tolerable in a particular society, the fact finding Tribunal is in my view entitled to have regard to the beliefs held there.
Even if I had accepted the reasonable tolerability test, I would not have felt able to agree with this passage.
It would have been necessary to conduct the assessment by reference to objective human rights standards, and not by reference to the social mores of the home country.
As Lord Hoffmann said in R v Immigration Appeal Tribunal, Ex p Shah [1999] 2 AC 629, 655E: The findings of fact as to discrimination have not been challenged.
They cannot be ignored merely on the ground that this would imply criticism of the legal or social arrangements in another country.
The whole purpose of the Convention is to give protection to certain classes of people who have fled from countries in which their human rights have not been respected.
In Refugee Appeal No 74665/03, the New Zealand Status Appeals Authority stated at para 112: We do not accept that the domestic law of the country of origin or cultural relativity can override international human rights norms in the refugee determination context.
I agree.
Conclusion
It follows that the AIT in HJs case applied the wrong test, although they are not to be criticised for having done so.
His appeal must be allowed and his case remitted to a fresh tribunal.
The tribunal in HTs case did not apply the reasonably tolerability test.
But they dismissed HTs appeal on the basis that he could relocate to a different part of Cameroon, presumably on the basis that he would act discreetly there.
Their conclusion is flawed for the simple reason that they seem to have thought that the mere fact that HT had acted discreetly in the past and would do so in the future was determinative of the issue.
That was an error of law.
His appeal must also be allowed and his case remitted to a fresh tribunal.
As regards guidance for immigration judges in the future, I agree with what Lord Rodger has said at para 82.
| UK-Abs | The Supreme Court unanimously allows the appeal, holding that the reasonable tolerability test applied by the Court of Appeal is contrary to the Convention and should not be followed in the future.
HJ and HTs cases are remitted for reconsideration in light of the detailed guidance provided by the Supreme Court.
There is no dispute that homosexuals are protected by the Convention, membership of the relevant social group being defined by the immutable characteristic of its members sexuality [paras [6] and [10] per Lord Hope and para [42] per Lord Rodger].
To compel a homosexual person to pretend that their sexuality does not exist, or that the behaviour by which it manifests itself can be suppressed, is to deny him his fundamental right to be who he is.
Homosexuals are as much entitled to freedom of association with others of the same sexual orientation, and to freedom of self expression in matters that affect their sexuality, as people who are straight [paras [11] and [14] per Lord Hope and para [78] per Lord Rodger].
The Convention confers the right to asylum in order to prevent an individual suffering persecution, which has been interpreted to mean treatment such as death, torture or imprisonment.
Persecution must be either sponsored or condoned by the home country in order to implicate the Convention [paras [12] and [13] per Lord Hope].
Simple discriminatory treatment on grounds of sexual orientation does not give rise to protection under the Convention.
Nor does the risk of family or societal disapproval, even trenchantly expressed [paras [13], [15] and [22] per Lord Hope and para [61] per Lord Rodger].
One of the fundamental purposes of the Convention was to counteract discrimination and the Convention does not permit, or indeed envisage, applicants being returned to their home country on condition that they take steps to avoid offending their persecutors.
Persecution does not cease to be persecution for the purposes of the Convention because those persecuted can eliminate the harm by taking avoiding action [paras [14] and [26] per Lord Hope and paras [52] [53] and [65] per Lord Rodger].
The reasonable tolerability test applied by the Court of Appeal must accordingly be rejected [para [29] per Lord Hope and paras [50], [75] and [81] per Lord Rodger].
There may be cases where the fear of persecution is not the only reason that an applicant would hide his sexual orientation, for instance, he may also be concerned about the adverse reaction of family, friends or colleagues.
In such cases, the applicant will be entitled to protection if the fear of persecution can be said to be a material reason for the concealment [paras [62], [67] and [82] per Lord Rodger].
Lord Rodger (with whom Lords Walker and Collins and Sir John Dyson SCJ expressly agreed), at para [82] and Lord Hope, at para [35], provided detailed guidance in respect of the test to be applied by the lower tribunals and courts in determining claims for asylum protection based on sexual orientation.
|
This appeal concerns the scope and content of the right to education under Article 2 of Protocol 1 (A2P1) of the European Convention on Human Rights (the Convention).
A was born on 3 July 1989 and is now 21 years of age.
At the time the relevant events occurred, between January 2002 and July 2003, he was 12 and 13 years of age.
His problems during that period can be summarised in this way.
He was autistic and had serious learning difficulties and a severe communication disorder.
His behaviour was challenging.
He suffered from epilepsy, frequently having 10 to 15 short epileptic fits a day despite medication.
He was doubly incontinent, had no concept of danger and required constant supervision.
He was dependant upon adults for every need.
A claims damages against the respondent (Essex) as the local authority with statutory responsibility to assess and provide for his educational and social welfare needs.
He does not claim damages for breach of a duty of care owed to him at common law or for breach of statutory duty.
Nor is his claim otherwise based upon any public law duty imposed on Essex by the Education Act 1996.
His claim is put solely under the Human Rights Act 1998 (the HRA).
In short, his case is that in the period between January 2002 and July 2003, when he lived at home with his parents and three siblings, he was not at school and he was not provided with any significant education of any other kind such that he was deprived of even the minimum education to which he was entitled under A2P1.
It is submitted that Essex acted in a way that was incompatible with his rights under A2P1 and thus unlawful under section 6(1) of the HRA; that he is a victim and entitled to bring proceedings against Essex under section 7(1); and that it would be just and appropriate for the court to award damages against Essex under section 8(1) because such an award is necessary to afford him just satisfaction within the meaning of section 8(3).
A issued these proceedings on 5 May 2005.
Essex sought an order that the claim be dismissed under CPR 24 on the basis that it had no real prospect of success.
On 13 July 2007 Field J (the judge) granted the application and dismissed the claim: see [2007] EWHC 1652 (QB).
He also refused an application on behalf of A to extend the period of one year provided for in section 7(5) of the HRA.
He refused permission to appeal.
Three similar applications were heard by the judge in other actions at the same time.
He reached the same conclusion in each.
None of those is the subject of this appeal.
A appealed to the Court of Appeal with the permission of that court.
The appeal was dismissed on 16 April 2008: see [2008] EWCA Civ 364.
The court upheld the decision of the judge that the claim had no real prospect of success and did not consider the limitation point.
The only substantive judgment was given by Sedley LJ, with whom Ward and Hughes LJJ agreed.
The Court of Appeal refused permission to appeal to this court.
This court subsequently granted permission to appeal.
The statutory framework
A2P1 is entitled Right to education and provides: No person shall be denied the right to education.
In the exercise of any functions which it assumes in relation to education and to teaching, the State shall respect the right of parents to ensure such education and teaching in conformity with their own religious and philosophical convictions.
The critical part of A2P1 is the first sentence.
As case is in essence, as Sedley LJ put it at para 3, that, for want of even minimally suitable provision for his education, he was shut out of the state system for 18 or 19 months.
The principal domestic statute is the Education Act 1996 (the 1996 Act), which replaced and re enacted the Education Act 1993, which in turn replaced and re enacted the Education Act 1981.
The relevant legislation governing special educational needs at the relevant time is summarised in paras 3 to 12 of the judgment of the judge, which (with very slight variations) are set out in the Appendix to this judgment.
As appears in the Appendix, in As case Essex were subject to two particular statutory duties: first, a duty under section 324 to make and maintain a Statement of Special Educational Needs and to arrange that the special educational provisions specified in it were made for him; and secondly, a duty under section 19 to make arrangements for the provision of suitable education either at school or otherwise than at school on the basis that, by reason of his illness, exclusion from school or otherwise, he would not receive suitable education unless such arrangements were made for him.
However, as I have already said, A does not rely upon a breach of these duties as giving him a cause of action against Essex.
He relies only upon A2P1.
The legal principles
The critical provision is the first sentence of A2P1, which provides that No person shall be denied the right to education.
It is not in dispute that that provision confers a right upon everyone.
The right has been considered in a number of cases.
The most important of them is A v Head Teacher and Governors of Lord Grey School [2006] UKHL 14, [2006] 2 AC 363.
The issue in the Lord Grey School case was not the same as the issue here because the facts were very different.
The dispute was between the claimant and the school which had excluded him.
While excluded, the pupil was regularly provided with school work and was offered a place at a pupil referral unit which was rejected.
He remained out of education for 10 months.
By a majority, Baroness Hale dissenting, the House of Lords rejected the submission that there was a breach of A2P1 on the ground that an alternative package of education was on offer and not taken up.
Those differences do not in my view affect the legal principles set out by Lord Bingham at para 24 as follows: The Strasbourg jurisprudence, summarised above in paras 11 13, makes clear how article 2 should be interpreted.
The underlying premise of the article was that all existing member states of the Council of Europe had, and all future member states would have, an established system of state education.
It was intended to guarantee fair and non discriminatory access to that system by those within the jurisdiction of the respective states.
The fundamental importance of education in a modern democratic state was recognised to require no less.
But the guarantee is, in comparison with most other Convention guarantees, a weak one, and deliberately so.
There is no right to education of a particular kind or quality, other than that prevailing in the state.
There is no Convention guarantee of compliance with domestic law.
There is no Convention guarantee of education at or by a particular institution.
There is no Convention objection to the expulsion of a pupil from an educational institution on disciplinary grounds, unless (in the ordinary way) there is no alternative source of state education open to the pupil (as in Eren v Turkey (Application No 60856/00) (unreported) 7 February 2006).
The test, as always under the Convention, is a highly pragmatic one, to be applied to the specific facts of the case: have the authorities of the state acted so as to deny to a pupil effective access to such educational facilities as the state provides for such pupils? In this case, attention must be focused on the school, as the only public authority the respondent sued, and (for reasons already given) on the period from 7 June 2001 to 20 January 2002.
Lord Bingham then said that the question, therefore, was whether, between those dates, the school denied the pupil effective access to such educational facilities as the country provides.
There was some discussion in the course of the argument as to the significance, if any, of the fact that, unique among the Articles in the Convention, the right contained in the first sentence of A2P1 is expressed in negative terms.
It was submitted on behalf of A that there is no significance in the negative formulation and that the right to education is an important positive right.
By contrast, it was submitted on behalf of Essex that the negative formulation was deliberate and underlines the fact that the Convention does not contain an absolute right to education and, in particular, unlike some other human rights instruments, does not confer social and economic rights.
In my opinion, the point is clearly and sufficiently addressed by Lord Bingham in para 24 of the Lord Grey School case quoted above and there is no need to embellish his analysis.
It is an approach which is entirely consistent with that of the European Court of Human Rights (ECtHR), namely that any limitations on the right must not curtail it to such an extent as to impair its very essence and deprive it of its effectiveness: Leyla ahin v Turkey (2005) 44 EHRR 99, at para 154.
Some reliance was placed upon the recent decision of the Grand Chamber of the ECtHR in Oru v Croatia (Application no 15766/03) delivered on 16 March 2010.
As I read it, the case does not advance the above analysis.
It was concerned with the schooling arrangements of Roma children in Croatia.
It recognised that Croatia had a margin of appreciation but held (at para 182) that the State must have sufficient regard to the special needs of Roma children as members of a disadvantaged group.
It held (at paras 185 and 186) that Croatia had violated their rights under Article 14 taken together with A2P1 and that it was not necessary to examine the complaint under A2P1 standing alone.
In short, in my opinion Lord Binghams para 24 sets out the relevant legal principles for present purposes.
Save to a very limited extent, I do not think that it is necessary for me to refer further to the Strasbourg cases because Lord Bingham has summarised them and his summary is set out by Lord Kerr.
It was suggested in the course of the argument that there was a difference or, as Sedley LJ put it at his para 13, a possible tension between the analysis of Lord Bingham and that of Lord Hoffmann in the Lord Grey School case.
I do not accept that that is so.
Lord Nicholls and Lord Scott both agreed that the appeal should be allowed for the reasons given by Lord Bingham.
Baroness Hale took a different view of the facts of the case but, as I read her speech, she did not disagree with the principles stated by Lord Bingham.
What then of Lord Hoffmann? He concluded his judgment by saying that for the reasons he had given and those given by Lord Bingham he would allow the appeal.
So the ground for a suggestion that they were applying different principles does not seem to be fertile.
With the possible exception of two points, it appears to me that Lord Hoffmann was saying precisely the same as Lord Bingham.
Thus he stressed at para 57 that the question to ask is whether the pupil has been denied the basic minimum of education under the domestic system.
He had said both in para 56 and earlier in para 57 that there is no right to be educated in a particular institution.
He was principally concerned to reject the submission that, if a failure to provide education was a breach of domestic law, it was necessarily a breach of A2P1: see paras 60 and 61.
The two points are these.
In para 56 he said that everyone is no doubt entitled to be educated to a minimum standard and referred to R (Holub) v Secretary of State for the Home Department [2001] 1 WLR 1359 at 1367.
And in para 61 he rejected the suggestion that it was legitimate to promote the public law duty of the school, not giving rise to a private law action, to a duty under section 6 of the HRA remediable by a claim in damages.
He added that the question to ask was whether there was a denial of a Convention right, which would have required a systemic failure of the educational system which resulted in the respondent not having access to a minimum level of education.
As I see it, the critical point in all the speeches is that under A2P1 of the Convention a person is not entitled to some minimum level of education judged by some objective standard and without regard to the system in the particular State.
The question is that posed by Lord Bingham, namely whether the pupil was denied effective access to such educational facilities as the country provides.
As Lord Hoffmann stressed, that is not the same question as the question whether the relevant authority was in breach of a duty imposed by domestic law, as for example by failing, in breach of section 324 of the 1996 Act, to comply with educational provisions set out in an SSEN.
The question is then whether the pupil has been denied effective access to the system in place.
That question will only be answered in the affirmative where his right to education has been so reduced as to impair its very essence and deprive it of its effectiveness.
Lord Hoffmanns reference to systemic failure must be viewed in the context of the education system provided.
So too must the decision and reasoning in Holub, in which Tuckey LJ gave the judgment of the court, which also comprised Schiemann LJ and Sir Swinton Thomas.
The question in the part of the appeal in Holub which is relevant for present purposes was whether the A2P1 rights of the applicants daughter would be infringed if she were returned to Poland and thus not educated in the United Kingdom.
The court held that they would not.
In the course of the judgment Tuckey LJ referred (at para 23) to X v UK (1980) 23 DR 228, where the Commission accepted the interpretation of the ECtHR in the Belgian Linguistic Case (No 2) (1968) 1 EHRR 252 at 281 283, which it summarised as follows: The negative formulation of the right indicates that the contracting parties do not recognise such a right to education as would require them to establish at their own expense, or to subsidise, education of any particular type or at any particular level.
There never was, nor is now, therefore any question of requiring each state to establish a system (of general and official education) but merely of guaranteeing to persons subject to the jurisdiction of the contracting parties the right, in principle, to avail themselves of the means of instruction existing at a given time.
The Convention lays down no specific obligations concerning the extent of those means and the manner of their organisation or subsidisation.
The first sentence of article 2 of the Protocol consequently guarantees in the first place, the right of access to educational institutions existing at a given time.
This right requires, however, regulation by the state regulation which may vary in time and place according to the needs and resources of the community and of individuals.
It goes without saying that such regulation must never injure the substance of the right to education nor conflict with other rights enshrined in the Convention.
Those principles are the same as those summarised in para 24 of Lord Binghams speech in the Lord Grey School case.
However in Holub at paras 24 and 25 the Court of Appeal accepted a submission made by counsel that if the right was to have any content it should at least encompass the provision of an effective education.
In doing so, it accepted the following passages from what is now the third edition (2009) of Human Rights Law and Practice by Lester, Pannick and Herberg: 4.20.4 The general right to education comprises four separate rights (none of which is absolute): (i) a right of access to such educational establishments as exist; (ii) a right to an effective (but not the most effective possible) education; (iii) a right to official recognition of academic qualifications. 4.20.6 As regards the right to an effective education, for the right to education to be meaningful the quality of the education must reach a minimum standard.
It is important to note that the authors are careful to say in that summary that none of the rights identified is absolute.
Much of As case is designed to support a submission that his right to a minimum standard of education is absolute.
I would not accept that submission.
I do not think that the court in Holub can have meant that there must be a minimum standard of education regardless of the system in place in a State Party to the Convention.
Such a conclusion would be inconsistent with the reasoning in the Belgian Linguistic Case (No 2).
The minimum standard must have regard to the system in place.
The examples given by Lester, Pannick and Herberg seem to me to make that clear.
Thus the note to para 4.20.4(ii) simply says that in Eren v Turkey (2006) 44 EHRR 619 the annulment of a students examination results, which resulted in his being denied access to university, was held to violate A2P1.
And in the note to para 4.20.6 the authors refer to para 5 of the Belgian Linguistic Case (No 2): the right to education would be meaningless if it did not imply in favour of its beneficiaries the right to be educated in the national language or in one of the national languages, as the case may be.
Reference was also made to Cyprus v Turkey (2001) 11 BHRC 45, where it was held that the abolition by the Turkish authorities of the Greek language secondary schools in Northern Cyprus constituted a breach of A2P1.
In my opinion none of those cases is of assistance in the present case.
The correct approach is that identified by Lord Bingham at para 24 of the Lord Grey School Case quoted above and the question for decision which he formulated, as applied to this case, is whether A was denied effective access to such educational facilities as the State provides for such pupils.
A was only denied effective access if he was deprived of the very essence of the right.
As I see it, the answer to that question must be given by reference to all the relevant circumstances of the case.
In the instant case, as appears below, A could no longer continue at the school he was at.
Given his very considerable problems, it was necessary for a proper analysis to be carried out as to what was best for him.
It is inevitable that in a case of this kind there may be delays and interim measures may be difficult to put in place.
As Lord Bingham put it, the test, as always under the Convention, is a pragmatic one to be applied to the specific facts of the case.
Was A deprived of effective access to such educational facilities as the State provided for pupils like him? One of the real problems is that there are very few, if any, pupils like A and it seems to me that that is a factor which can fairly be taken into account before it is held that Essex infringed As rights under the Convention.
It is important to appreciate, however, that the question in this appeal is not whether Essex infringed As rights but whether he has a real prospect of establishing such an infringement at a trial.
It is also important to appreciate that that is not the same question as the question whether it is arguable that Essex could have done better or that Essex was in some way at fault in not doing more than it did in the interim period between January 2002 and July 2003, when a residential school was ultimately found to suit As needs.
I recognise that there has been no trial of As allegations but, if the position is that, taking the facts at their highest from As point of view, his case that Essex infringed his rights under A2P1 cannot succeed, it follows that his claim has no real prospect of success and the appeal must be dismissed.
The facts
The relevant facts were set out by the judge and, as so set out, were incorporated into Sedley LJs judgment.
The parties agreed a Statement of Facts and Issues.
However, shortly before the hearing of this appeal those advising A produced further factual material upon which reliance was placed.
Some of that material was disclosed to them recently and it was submitted that the court should have regard to it because it will or would be available at a trial and the question for the court at this stage is simply whether A has a real prospect of success at a trial.
This position is far from satisfactory because the whole purpose of an agreed statement of facts and issues is that the parties should prepare and reach agreement on such a document well in advance of the appeal.
However, I propose to have regard to the agreed statement as supplemented by the further material.
Essex maintains a community special day school for children with severe learning difficulties called LS School (LS).
Pursuant to section 324 of the 1996 Act, Essex made and maintained an SSEN for A and named LS in Part IV.
It was originally issued on 1 July 1993.
A accordingly began his statutory schooling at LS in 1995.
In about May 2001, when he was approaching his 12th birthday his behaviour started to deteriorate.
As part of the Annual Review process the school reported concerns about the unpredictability of his behaviour and asked Essex for more resources to cope with him.
Concerns were expressed by the school, not only about his behaviour, but also about its ability to manage it.
In a letter dated 17 September 2001, after observing A at school at lunch time, a consultant paediatrician said that he required two adults to hold him but that, in spite of that, he would lash out and bite or scratch those assisting him.
The teacher had told him that he was running out of ideas as to how to control A.
In November 2001 the SSEN was amended but LS remained the school named in Part IV.
As behaviour deteriorated further and on 17 January 2002 As parents were invited to and attended a meeting with representatives both from the school and from Essex and with his community consultant paediatrician to discuss his placement.
His parents were advised that the school could not cope with him and that his continued presence in class posed a risk to the health and safety of other pupils.
The school felt that his underlying medical and psychiatric problems needed to be addressed satisfactorily before he would be able to benefit from the education it provided.
His parents were asked not to bring him into school for health and safety reasons until an urgent medical assessment in a hospital setting was carried out.
They agreed, no doubt because they felt that they had no alternative.
The position was confirmed in a letter from the head teacher dated 18 January in which he assured As parents that the medical, educational and social services would continue to work together to find a solution for A.
The letter expressly said that he would be in contact with them to arrange some home support while A was off school.
The intention of the professionals, including the school, was for A to receive an urgent medical assessment at the National Centre for Young People with Epilepsy (NCYPE) at St Piers.
However, it became clear that it might be quite some time before a residential assessment could be arranged and carried out.
As mother expressed concern as to how she would be able to cope.
On 13 February a meeting took place to discuss the position at which a large number of professionals was present and As situation was discussed in detail.
It was reported to the meeting by Dr Yousif, who was a psychiatrist with the Learning Disability Outreach Team, that A had been accepted for an initial assessment at Chalfont or St Piers but that they were awaiting a date for it.
The half day assessment would be the basis for a residential medical assessment which would last 5 days and which it was hoped would take place in April or May. In the event it did not take place until mid September 2002.
Under the heading Ongoing Support, the note of the meeting says that the school was sending work for his parents to do with A.
It also says that LS would if possible arrange for A to continue to access speech and language therapy sessions at school, with transport to be provided, and that both his class teacher and his social worker would keep in regular contact with his mother.
Family care workers were said to be unable to provide respite support due to the risks involved.
An occupational therapy assessment of As room had begun with the aim of providing equipment and padding in order to protect him from self harming.
The initial medical assessment took place on 28 February.
A consultant paediatric neurologist and an epilepsy nurse from the NCYPE made an outreach visit.
Their report shows just how disturbed and difficult to cope with A was.
They recommended a 5 day interdisciplinary assessment at St Piers, the aims of which would be to monitor seizure types and frequency, to advise on medication, to assess behaviour and its possible relationship with epilepsy, to assess communication, to assess mobility and self help skills and to advise on future educational placement.
It can thus be seen that A required assistance from a number of different disciplines and it was sought to arrive at a cross disciplinary solution to his problems.
On 4 March the head teacher of LS wrote to As parents inviting them to bring him in to the school for speech therapy sessions beginning that week.
Speech therapy sessions started on or about 20 March on a weekly basis.
At first they were 30 minute sessions, which for a time were reduced to 15 to 20 minutes in about May.
On 20 March there was a further meeting at which very many professionals were present.
The minutes show that many aspects of As problems were discussed.
Concerns were expressed about As deteriorating behaviour and how his family could cope, especially since at least two residential homes had indicated that they could not provide him with respite care.
Attempts continued to arrange a medical assessment.
On 14 April As solicitors, the Childrens Legal Centre, were instructed by his parents on his behalf.
On 1 May a further meeting of professionals, described as a Partnership Meeting, was held at LS.
It was attended by representatives of Essexs social services and education departments, staff from LS, As parents and others.
As parents had been given two boxes of activities touch books and bubbles for them to do with A at home.
However, As mother said that A had become bored after a few sessions.
It was noted at the meeting that the boxes of activities were not acceptable education.
Although LS reiterated their reasons for A not being in school, namely health and safety, it was acknowledged that As educational needs were not being met.
However, Essexs education department stated that there was no home tutor who was qualified to meet As needs.
LS was asked to consider whether there was any possibility of providing A with a teacher for home tuition or offering some tuition at school.
The head teacher said that he would discuss with the class teacher and teaching assistants how best to do that.
However, although that might meet As short term needs, his long term educational needs also required to be addressed.
Alison Stanford of the Special Educational Needs and Psychology Service (SENAPS) stressed the need to await the recommendations of the residential medical assessment.
By the time of that meeting, joint funding for a 5 day residential assessment, which would cost over 10,000 had been agreed between Essex Learning Services (Education), Essex Social Services and Essex Health Authority.
Unfortunately the assessment could not take place until September 2002.
By this stage A was exhibiting increasingly challenging behaviour.
Although his parents tried hard to support him at home, they were struggling to cope with his behaviour.
In a report dated 18 June 2002 a community nurse specialist with the Children with Disability Team stated that As behaviour was due to (i) lack of sensory stimulation, boredom and lack of meaningful occupation; (ii) inability to clearly communicate his needs and be clearly understood by those around him.
She said that she had therefore referred A to an occupational therapist and social services had agreed to pay for some of the equipment which the occupational therapist had recommended.
She had also referred A to his doctor who had prescribed him with the anti psychotic drug Chlorpromazine with a view to calming his behaviour in the hope of reintegrating into activities, including attendance at school.
A review of As SSEN on 19 June noted that A had been out of school since January but did not seek to amend the SSEN to name a different school.
In a letter to As parents written somewhat later, on 31 July, referring to the SSEN, a member of the Special Educational Needs and Psychology Service, Clare Taylor, said that the school had developed a structured programme for A pending the outcome of his assessment at St Piers.
She added that the Social Services Outreach Team would also continue to support the school in meeting As needs.
Her letter was to some extent at least based on the information in a letter to her dated 21 June that there were a significant number of planned session times for A during the remainder of the summer term.
They were for 45 minutes every Tuesday except for 9 July, which was Sports Day, an hour every Wednesday and 15 minutes on two Thursdays.
These were all activity sessions while his parents attended Makaton sessions.
A also attended planned sessions in September and October 2002.
The residential medical assessment took place at St Piers from 8 to 13 September.
A was observed by an inter disciplinary team of professionals.
An oral report was made on 13 September which, as noted at the time, included the following: It was felt by St Piers that As epilepsy is not the overriding issue of concern at present.
The overriding concern noted was that due to As exclusion from school since February, he has spent many months at home, and his educational, emotional, social, psychological and developmental needs are clearly not being met.
It was noted that although Mr and Mrs W clearly try hard to support A at home, that it is very difficult for them to meet As comprehensive needs.
This has resulted in A being hugely under stimulated, and him being effectively sensorily deprived.
This may be a causative factor for his self injurious behaviour.
St Piers stated how it is common for self injury to be seen in children with little sensory stimulation.
It was recorded that there was a notable improvement in As behaviour during the 5 days and that his main disability was his learning disability as opposed to his autism.
The note then included the following: In light of the above, it was clearly indicated that As needs are not currently being met.
The conclusion from St Piers [is] that it is strongly in As best interests to be placed in a 24 hour residential school placement.
This would be at a school specifically for children with high levels of challenging behaviour such as A.
It is noted that by attending such a placement for an initial period of 1 year, this may have the eventual benefit of A becoming more easy for his parents to support at home in the long term.
A would also be able to return home at weekends and during school holidays.
St Piers recognised that Mr and Mrs W are very unhappy with this recommendation, however they stressed that they feel this placement would be strongly in As best interest.
The very detailed report from St Piers followed.
It included reports from each discipline including (but not limited to) an Education Report.
A was diagnosed with generalised seizure disorder; severe learning disability and challenging behaviour (aggressive and self injurious behaviour).
The report recommended a residential programme offering the benefit of a 24 hour curriculum with consistent behavioural strategies at a specialist school with expertise in managing very challenging behaviours in order to meet As complex needs.
He needed 1:1 (sometimes 2:1) supervision and support at all times.
He was described as a very sad and anxious young man who had been under stimulated.
His behavioural problems were said to be long standing and to have deteriorated over the previous 15 months during which he had become more impulsive and aggressive to other people, kicking, biting and throwing objects at people, leading to his exclusion from school.
His self harming behaviour had also intensified by the time of the St Piers assessment, characterised by slapping himself constantly or head banging.
His parents reported that his self harming behaviour had deteriorated, the timing of this being shortly after he began his treatment with Chlorpromazine.
At the time of the assessment his parents had to hold his hands constantly while he was awake to stop him from self harming.
The report described As difficulties as a combination of his severe learning difficulties, severely challenging behaviour and his epilepsy, as well as a result of poor management of his needs.
It recommended that Chlorpromazine be discontinued and that the dose of another drug be increased.
It also made a number of other recommendations and concluded in this way: A would benefit from a residential placement where an individual programme can be provided to enhance his play, social interaction, and self help skills and to improve sensory integration.
A residential programme would offer the benefit of a 24 hour curriculum, with consistent behavioural strategies.
In view of the severity of As current behaviour difficulties, placement should initially be at a specialist school with expertise in managing very challenging behaviours.
Whilst the team understand Mr and Mrs Ws reservations with regard to a residential placement and their commitment to him within the family, it is felt that this would offer the most positive way forward in developing As skills at this critical time as a teenager and in transition to adulthood.
As A grows, there is a real concern that behaviours could lead to a serious management problem if not addressed urgently.
As can be seen, As parents were initially opposed to a residential solution.
However, they accepted the recommendations and in October 2002 discussions took place as to inter departmental funding for a placement for A and on 10 October joint funding between education and social services was approved.
Between 16 October and 17 December Essex wrote to no fewer than 26 schools seeking a placement for A, but without success.
At a meeting in 2003 professionals acknowledged that his home environment was having a negative impact on As behaviour because he remained under stimulated and bored and needed to be supported appropriately.
In January 2003 A started to receive respite sessions three mornings a week at the Limbourne Centre, where he was also offered tuition.
He continued to attend sessions at LS as before.
On 10 January As solicitors wrote to Essex threatening a possible application for judicial review on the grounds that A was not receiving an education in accordance with his SSEN.
On 9 February Kisimul School offered a place for A at a cost of 223,589 per annum which Essex agreed to pay.
As parents accepted the offer on 9 April.
However the placement did not become available until 28 July 2003 because of construction work at the school.
In the meantime at a meeting of professionals on 23 May it was reported that the sessions at LS were not very positive, in that As behaviour had deteriorated in relation to self injury.
The school felt that it was minding him rather than teaching him.
The specialist teacher at Limbourne Centre also reported that he was finding it difficult to engage A at any meaningful level.
As behaviour at home continued to deteriorate.
On 30 May As solicitors sent Essex a letter before action in contemplation of an application for judicial review alleging that the educational provision for A was inadequate along with a demand that an appropriate residential placement be provided immediately and that there be an urgent re assessment of As special educational needs.
They also applied for funding from the Legal Services Commission (LSC), which was refused on the basis that an appropriate school place was going to be available from the end of July 2003.
A took up his place at Kisimul School, where he progressed well.
His overall health and behaviour improved.
He received an appropriate education and his self harming very much reduced.
He left the school in the summer of 2008 and now lives in residential therapeutic accommodation in Halstead in Essex.
He will need to spend the rest of his life in this kind of accommodation.
He is able to visit his family regularly.
It can thus be seen that, although there were on any view unfortunate delays between January 2002 and July 2003, his education thereafter has been a considerable success, albeit at a cost of over 1.2 million to the public purse.
As case in this appeal
In para 4 of the amended particulars of claim A accepts that his education at LS satisfied his rights under A2P1.
Although para 46(i) seems to say something different, As case and the oral argument in this appeal focused on the period after 17 January 2002.
A further accepts that his education at Kisimul School satisfied his rights under A2P1 as from 28 July 2003.
His essential case is that his rights were infringed between 18 January 2002 and 28 July 2003.
In short his case is that he received no effective or meaningful education during that time.
In this appeal it was submitted on his behalf that he has a real prospect of establishing that case at a trial and that his case should be permitted to go to trial, especially since it has been accepted by the LSC as a test case.
As case may be summarised in this way.
As was recognised by many professionals at the time, A did not receive even a minimum education for 18 or 19 months.
He was provided only with some educational toys, once weekly speech and language therapy sessions from March 2002, some activity sessions at LS during May and June 2002 and from 25 June 2002 some planned classroom time at LS.
Then, in and after October 2002 some further activities were made available as set out above.
Whether taken individually or together this did not amount to even a minimum education and denied him, or deprived him of, the very essence of his right to education under A2P1.
Discussion
I would not accept that the case should go to trial because it is said to be a test case.
Where the relevant principles of law are developing, it is sometimes appropriate to determine those principles (especially where the issue is whether a duty of care is owed) only after ascertaining the facts at a trial; but this is not such a case.
The relevant principles seem to me to be reasonably clear and the question is simply whether A has a real prospect of success.
That question can be answered by taking the facts most favourable to A and deciding whether, on that footing, A could succeed at a trial.
Was A deprived of an effective education during the relevant period? I recognise that if that question is asked by reference only to what he was provided with between January 2002 and July 2003, it could be answered in the affirmative.
However, as Lord Bingham observed, the correct approach is the pragmatic one adopted by the ECtHR.
It was recognised on all sides that what A required was a satisfactory long term solution for his various problems.
It was also recognised at an early stage that, in the absence of a considerable improvement in his condition and behaviour, A could not go back to LS.
I agree with the judge and the Court of Appeal that any other view is unarguable.
All the professionals agreed that A required a multi disciplinary assessment and that the only place where that could be done was St Piers.
Unfortunately it was not possible for that assessment to be carried out until September 2002.
When it was carried out, it took account of the many and varied problems that beset A and indeed his family.
Thereafter Essex agreed to the recommendations reasonably quickly, notwithstanding the very considerable costs involved.
There were then further delays because, although Essex wrote to some 26 schools, none of them was able to assist until Kisimul School made its offer on 9 February 2003.
There was then a yet further delay because of construction work at the school and it was not until July that A was able to take up his place.
Thereafter all was well.
It seems to me that, however As case is put on the facts, in terms of long term education for A the only realistic solution was a residential placement of the kind recommended in September 2002 and achieved in 2003.
That was surely the critical step so far as A was concerned and in that regard it cannot be said that he was deprived of it.
A long term solution was required and it is surely not surprising that it took some time to achieve.
The solution was moreover strikingly successful.
Since it was a long term solution that was required, the logic of the case for A is that he needed a residential solution of the kind recommended by St Piers immediately and that, since he did not receive it for some 18 months, the failure to provide it was an infringement of his rights under A2P1.
If that was what was required and if he had an absolute right to it under the Convention, it follows that he was deprived of it between January 2002 and July 2003, that whether Essex was in any way at fault or open to criticism is irrelevant and that his rights under A2P1 were infringed because his right to education was in fact denied.
The case was not, however, put in that way on behalf of A, no doubt because such a case would be far from the pragmatic approach adopted by the ECtHR.
As Lord Clyde put it in Brown v Stott [2003] 1 AC 681 at 727 F, it must be remembered that the Convention is dealing with the realities of life and it is not to be applied in ways which run counter to reason and common sense.
As case focuses therefore, not on what was really required, namely the residential placement eventually recommended by St Piers and arranged and paid for by Essex, but on the interim measures.
The fact that it was not said that there was an infringement of As A2P1 right to a long term solution immediately shows that the correct approach is to consider the problem in the context of the system available and to recognise that solutions take time and money to put in place, sometimes a considerable amount of both time and money, as here.
In my opinion the same approach should be adopted to the interim measures.
All the professionals were working towards the long term solution, hoping that it would be achieved sooner rather than later.
Some interim measures were put in place in the period from January 2002 to July 2003.
It is said with apparent force that A was deprived of any meaningful education in that period and, indeed, that As condition and behaviour deteriorated during that period.
Moreover, the account of the facts set out above shows that, at any rate on As case, there were grounds for criticism of Essex in not providing more than they did.
The question is not, however, whether Essex were at fault but whether the limitations on As education impaired the very essence of his right to education and deprived his right of effectiveness or, as Lord Bingham put it, whether he was deprived of effective access to education.
The answer to that question (or those questions) must have regard to the fact that the problems were correctly seen to be short term problems pending a multi disciplinary 5 day examination of A in order to achieve a long term solution.
Even taking As case at its highest, considerable efforts were made by LS and others to assist A in various ways.
They were not limited to the somewhat ineffectual provision of two boxes of educational toys, which were described as not acceptable education.
Essex were faced with considerable difficulties.
There was no home tutor who was available to meet As needs.
Residential respite care was not available but A was referred to an occupational therapist.
However the school did provide a significant number of speech therapy and activity sessions described above.
I nevertheless recognise that As condition and behaviour deteriorated in the period before the assessment in September 2002 and that the St Piers report referred to poor management of his needs.
Lord Kerr (whose judgment I have seen in draft) says that the level of As need, as disclosed in the report, finds a stark and sorry contrast with what had actually been provided for him in the preceding 9 months.
I agree that that is so but the report does not identify any solution other than that A should be provided with long term residential care, which was not available before that.
After delivery of the report and its acceptance by both As parents and Essex there was a further period of waiting, while Essex tried to find a school and, when they did, while construction work was carried out at the new school.
During that period the activity sessions at LS continued and in January 2003 A started to receive respite sessions three mornings a week at the Limbourne Centre because his behaviour at home continued to deteriorate.
He was also offered tuition there.
The interim efforts made by Essex were far from perfect and it is arguable that Essex were both in breach of duty under domestic law in various ways and more generally open to criticism for not doing more than they did but, once one takes account of the fact that what was needed were interim measures pending the long term solution, I do not think that A can succeed at a trial.
I agree with the Court of Appeal (and with the judge) that, as Sedley LJ put it at para 12, it is not possible to spell out of this unhappy interlude, with its undoubtedly adverse consequences for both A and his parents, either a failure of the education system or a denial of access to it.
It is I think relevant to note that, although As solicitors were instructed on 14 April 2002, no legal action was taken.
It was not suggested during the period between January and September 2002 that Essex were in breach of statutory duty or that they were infringing As A2P1 rights.
On 10 January 2003 the solicitors threatened a possible application for judicial review on the ground that A was not receiving an education in accordance with the SSEN.
Unsurprisingly no such application was made because there was no realistic prospect of A returning to LS at that time.
Subsequently, on 30 May 2003 the solicitors sent the letter before action described above, which came to nothing because the LSC refused funding because a residential place was pending.
So far as I am aware, no allegation was made that Essex were infringing As A2P1 rights in the interim.
As I see it, viewed in the round, A was not arguably denied the very essence of his right to education.
On the contrary, he was ultimately provided with high quality education at very considerable cost.
I do not accept the submission made on behalf of A that he was abandoned by the educational authorities after his parents were persuaded to withdraw him from school.
On the contrary, Essex were doing their utmost to have A properly appraised and thereafter did their utmost to arrange residential care, for which they paid.
While the interim measures are at least arguably open to some criticism, that is not the question and their shortcomings do not arguably amount to a denial of As right to education.
In this regard I agree with the judgment of Lord Brown which I have seen in draft.
I also agree with Lord Phillips on this part of the case.
It follows that I would dismiss the appeal.
This analysis makes it unnecessary to consider the limitation point.
However, I agree that the appeal should be dismissed on that ground too, for the reasons given by Lord Kerr.
APPENDIX Summary of the 1996 Act as set out by the judge: 3.
By section 312 a child has special educational needs if he has a learning difficulty which calls for special educational provision to be made for him.
A child has a learning difficulty if, amongst other things, he has a significantly greater difficulty in learning than the majority of children of his age or he has a disability which either prevents or hinders him from making use of educational facilities of a kind generally provided for children of his age in schools within the area of the local education authority. 4.
By section 321 of the Act a local authority is to exercise its powers with a view to securing that of children for whom they are responsible, they identify those who have special educational needs and for whom it is necessary for the authority to determine special educational provision.
The local authority is responsible for, amongst others, children within the authority's area who either attend a school maintained by the authority or attend an independent school with fees paid for by the authority. 5.
Pursuant to section 323, where the Local Education Authority (LEA) considers a child may fall within section 321, they are required to make an assessment of his needs, after having taken into account any parental representations.
Under section 329, a parent may also initiate the process, by requesting an assessment under section 323.
If such a request is made, the authority must comply with it if no such assessment has been made within the previous six months and it is necessary for the authority to make an assessment under section 323.
Under section 329A (as inserted by section 8 of the Special Educational Needs and Disability Act 2001), the head teacher of a school may also request an assessment. 6.
If as a result of an assessment under section 323 the local authority decides it is necessary for the local authority to make special educational provision for the child, then by section 324 the authority must make and maintain a Statement of Special Educational Needs (SSEN).
Section 324 provides for the contents of such a statement.
In particular, it must: give details of the educational needs and the provision required to meet them; specify the type of school or institution which the authority considers appropriate to meet those needs; and name any school or institution which is considered to be appropriate.
The Education (Special Educational Needs) (England) (Consolidation) Regulations 2001 (SI 2001/3455) (the Regulations) prescribe in more detail the form and content of the statement. 7.
The Regulations also make detailed provision for the assessment process.
They specify (at regulations 7 to 11) that the authority must seek: (a) advice from the child's parent; (b) educational advice (usually from the head teacher of the child's school); (c) medical advice from the health authority; (d) advice from an educational psychologist employed by the authority; (e) advice from social services; and (f) any other advice which the authority considers appropriate for the purposes of arriving at a satisfactory assessment.
The authority must also take into account any evidence submitted by or at the request of the child's parent.
Once the assessment is complete, the authority must either provide the parents with a copy of a proposed statement of special educational needs (or amended statement if the child already has one) within 2 weeks, or inform them that they have decided not to make a statement or amend an existing statement within the same time period and inform the parents of their right to appeal (regulation 17). 8.
If a proposed statement has been issued, there then follows an 8 week period during which the parent has the right to make representations as to the content of the Statement (Schedule 27 of the Act and regulation 17).
At the end of the 8 week period, the authority must issue a complete statement unless certain defined exceptions apply. 9.
Once a statement is made, the local authority has a statutory obligation to arrange that the special educational provision specified is made for the child section 324(5).
The Statement must also be reviewed annually (regulation 18 of the Regulations). 10.
Parents are given rights of appeal to the Special Educational Needs and Disability Tribunal (SENDIST) against decisions made by the authority see eg sections 329(2), 325(3) and 326. 11.
Appeals from the SENDIST lie to the High Court on a point of law (Tribunals and Inquiries Act 1992 section 11, as amended by section 181 of the Education Act 1993): Subsequently replaced by the procedure under the Tribunals, Courts and Enforcement Act 2007. 12.
By section 19, a local authority is under a duty to make arrangements for the provision of suitable education at school or otherwise than at school for those children of compulsory school age who, by reason of illness, exclusion from school or otherwise, may not for any period receive suitable education unless such arrangements are made for them.
This duty arises only where it is not reasonably possible for a child to take advantage of any existing suitable schooling (R(G) v Westminster City Council [2004] EWCA Civ 45; [2004] 1 WLR 1113).
LORD PHILLIPS
Introduction
The appellant, A, is a young man who was born on 3 July 1989.
He claims that during a period of 18 months, starting in January 2002, when he was 12 years old, he was denied the right to education guaranteed by Article 2 of the First Protocol (A2P1) to the European Convention on Human Rights (the Convention).
He seeks a declaration and damages under section 7(1)(a) of the Human Right Act 1998 (HRA).
His claim was dismissed by Field J on 13 July 2007 under CPR Part 24 on the ground that it had no reasonable prospect of success.
At the same time an application on his behalf under section 7(5)(b) of the HRA for an extension of the one year time limit for bringing such a claim on the grounds that this would be equitable was dismissed by Field J [2007] EWHC 1652 (QB).
On 16 April 2008 the Court of Appeal dismissed his appeal against summary judgment and did not deal with the time bar point [2008] EWCA Civ 364.
A appeals to this Court against each of the decisions against him.
A is autistic and has a severe learning disability.
He also has a severe communication disorder and challenging behaviour.
He suffers from epilepsy, frequently having 10 15 short epileptic fits a day, despite medication.
He is doubly incontinent, has no concept of danger and requires constant supervision.
He is reliant on adults for his every need.
Under the Education Act 1996 (the Education Act) he had, at the material time special educational needs.
As claim was brought together with similar claims by three other young people with special educational needs.
Their claims were also out of time.
They suffered the same fate as As claim.
Only A has appealed, with support from the Legal Services Commission on the basis that his claim should be treated as a test case.
The National Autistic Society (NAS) has been given permission to intervene and its submissions of principle have been to the same effect as those advanced on behalf of A.
The principal issues
As case has been advanced by Mr Nicholas Bowen QC.
His submissions were clearly set out in his written case and supported in oral argument, albeit that this ranged rather wider than his case at times.
His primary contention has been that A2P1 imposes on the State an absolute obligation to provide effective education to a minimum standard for a child with special educational needs.
He submits that this obligation is recognised by the Education Act and makes submissions as to how the duties under A2P1 and the Education Act have to be complied with by a local authority.
The principal issues have been agreed as follows in the Statement of Facts and Issues: (i) Does Article 2 Protocol 1 guarantee a child an absolute minimum standard of education? If so, how is to be measured? (ii) If A2P1 does guarantee an absolute minimum standard of education how, in a case where a child has a statement of special educational need under EA96, and against what criteria, is an acceptable minimum to be judged? Should (as the Appellant argues) the breach contended for be judged on the same basis as the requirements of domestic law whereby an education authority is obliged to make and maintain the provision in part 3 of the statement as contained in the duty in section 324 EA96?
The subsidiary issues
The subsidiary issues have been agreed as follows in the Statement of Facts and Issues: (iii) Can Essex be said to have denied the Appellants right to an education under A2P1 on the facts of this case? (iv) Did Field J err in refusing to extend time for the bringing of this claim?
The facts
Most of the material facts in this case are not in dispute.
They have been set out in detail in the judgments of Lord Clarke and Lord Kerr, and I need not repeat them.
Their essence can be summarised as follows.
As special needs were very demanding.
By January 2002 LS, the State maintained special primary school which A attended, could no longer cope with the demands made by As behaviour.
He was removed from LS to spend his days at home and ceased to receive the education that was needed to cater for his special needs.
Indeed he was provided with very little support that could be described as educational at all.
It took 18 months to arrange for and carry out a medical assessment of As current needs and to find a residential place for him in a special school where those needs could be met.
The problem
Special educational needs have been defined as a learning difficulty.
A primary role of education is imparting knowledge.
Ability to receive knowledge, or to learn, varies according to cognitive ability and some children are unable to keep up with their classmates.
Their special educational needs may require special educational provision.
But there are some barriers to learning that have nothing to do with cognitive ability.
The sensory deprivation of blind or deaf children inhibit their learning in a conventional school.
They also have special educational needs.
A had profound learning disability, but this was exacerbated by the physical and psychiatric problems that I have described above.
He was and is profoundly disabled.
From the age of six it was possible to cater for his needs at LS School, a community special day school for children with severe learning difficulties.
As he approached the age of 12, however, his behaviour deteriorated to the extent that the school was no longer able adequately to protect him from himself and the other pupils from him.
This was the reason why he had to leave the school, rather than any cognitive inability to cope with the teaching.
At this stage an assessment of As medical and psychiatric problems was necessary before any long term plans could be made for his continuing education.
This involved an initial assessment, followed by a five day residential medical assessment by an interdisciplinary team of professionals.
It did not prove possible to arrange for this assessment to be carried out until 8 months after his exclusion from LS.
A further ten months elapsed before A could be placed in Kisimul School, a special residential school where he was able to receive the 24 hour a day supervision that he needed.
He has now finished his schooling, but his needs are such that he will have to live in residential therapeutic accommodation all his life.
As predicament is an extreme example of a widely experienced problem, as evidence placed before the Court by NAS has demonstrated.
One child in a hundred suffers from an autism spectre disorder (ASD) of some kind.
ASD is an umbrella term which covers autism, Asperger syndrome and a range of other disorders.
Many of these children are successfully educated in the mainstream educational system, but many are not.
Make school make sense: Autism and education: the reality for families today published by NAS in 2006 recorded at p25 that one in five children with autism have been excluded from school, 67% more than once and 16% more than ten times. 24% of excluded children are excluded permanently.
NAS has placed in evidence a statement of Gillian Roberts, the Principal of the Robert Ogden School in support of the proposition that with sufficiently trained and experienced staff it is possible for schools to meet the needs of children across the autism spectrum.
The Robert Ogden School is owned by NAS.
It is the largest independent special school for children and young people who have been diagnosed with ASD.
It currently has 105 pupils and a staff of 282.
The school is residential and an Ofsted report of September 2008 commends it highly, commenting that the quality of the curriculum is outstanding because it is designed effectively to meet individual pupils needs.
The evidence adduced by NAS, and the facts of this case, suggest that there are insufficient trained staff in the education system and insufficient special schools of the requisite quality and expertise to cater satisfactorily for the demands made by children with ASD.
As case
A2P1 provides: Right to education No person shall be denied the right to education.
In the exercise of any functions which it assumes in relation to education and to teaching, the state shall respect the right of parents to ensure such education and teaching in conformity with their own religious and philosophical convictions.
Mr Bowens first submission was that implicit in the provision that no person shall be denied the right to education was the positive obligation on the State to provide a minimum of effective education for each individual child.
Where the child had special educational needs the State had to cater for those needs to the extent necessary to achieve the minimum standard of education, otherwise the education would not be effective.
Mr Bowen described this repeatedly in his printed case as an economic and social right.
He submitted that this was an absolute right.
Failure to provide the minimum standard of education, or delay in providing it, could not be excused on the ground of lack of resources.
Mr Bowen described the case law in this area as undeveloped.
He nonetheless sought to derive support for his submissions from the decision of the Strasbourg Court in the Belgian Linguistic Case (No 2) (1968) 1 EHRR 252.
The applicants in that case were French speaking Belgian parents who contended that article 2 entitled their children to be educated in French.
The Court observed, at p 280: 3.
By the terms of the first sentence of this article, no person shall be denied the right to education.
In spite of its negative formulation, this provision uses the term right and speaks of a right to education.
Likewise the preamble to the Protocol specifies that the object of the Protocol lies in the collective enforcement of rights and freedoms.
There is therefore no doubt that article 2 does enshrine a right.
Mr Bowen relied on this passage.
He also relied on the following statement, at p 281, in support of his contention that education must cater for the special educational needs of the individual child in order to be effective: 4.
For the right to education to be effective, it is further necessary that, inter alia, the individual who is the beneficiary should have the possibility of drawing profit from the education received.
Mr Bowen drew attention to the fact that Lord Bingham had referred to the right to effective access to educational facilities in A v Head Teacher and Governors of Lord Grey School [2006] UKHL 14; [2006] 2 AC 363 at para 24 and to the following statement in the judgment of the Court of Appeal in R (Holub) v Secretary of State for the Home Department [2001] 1 WLR 1359, 1367, at para 25, quoting from Lester & Pannick, Human Rights Law and Practice (1999), para 4.20.6: As regards the right to an effective education, for the right to education to be meaningful the quality of the education must reach a minimum standard.
When these passages are read in their context they do not support the proposition that A2P1 imposes on contracting States a positive obligation to provide education that caters for the special needs of the small, if significant, portion of the population which is unable to profit from mainstream education.
On the contrary the authorities assume, correctly, that all contracting States have a system of education and limit the positive obligation imposed by A2P1 to regulating education in such a way as to give access without discrimination to that system.
Thus para 3 of the judgment in the Belgian Linguistic case continues, at pp 280 281: The negative formulation indicates, as is confirmed by the preparatory work, that the contracting parties do not recognise such a right to education as would require them to establish at their own expense, or to subsidise, education of any particular type or at any particular level.
However, it cannot be concluded from this that the state has no positive obligation to ensure respect for such a right as is protected by article 2 of the Protocol.
As a right does exist, it is secured, by virtue of article 1 of the Convention, to everyone within the jurisdiction of a contracting state.
To determine the scope of the right to education, within the meaning of the first sentence of article 2 of the Protocol, the court must bear in mind the aim of this provision.
It notes in this context that all member states of the Council of Europe possessed, at the time of the opening of the Protocol to their signature, and still do possess, a general and official educational system.
There neither was, nor is now, therefore, any question of requiring each state to establish such a system, but merely of guaranteeing to persons subject to the jurisdiction of the contracting parties the right, in principle, to avail themselves of the means of instruction existing at a given time.
The Convention lays down no specific obligations concerning the extent of these means and the manner of their organisation or subsidisation.
In particular, the first sentence of article 2 does not specify the language in which education must be conducted in order that the right to education should be respected.
It does not contain precise provisions similar to those which appear in articles 5(2) and 6(3)(a) and (e).
However, the right to education would be meaningless if it did not imply, in favour of its beneficiaries, the right to be educated in the national language or in one of the national languages, as the case may be.
While the last sentence might suggest that A2P1 imposes positive requirements as to the education that a State must provide, it can also be read as dealing with access to an existing system of education, for this is bound at least to include education in a language of the State.
The statement in para 4 of the Belgian Linguistic case, at p281, that the individual who is the beneficiary of education should have the possibility of drawing profit from the education received did not impose an obligation to make special provision for those with special needs.
It dealt with the obligation to ensure official recognition of studies that had been completed.
The passage of his judgment in which Lord Bingham referred to effective access in the Lord Grey School case reads: 24 The Strasbourg jurisprudence, summarised above in paras 11 13, makes clear how article 2 should be interpreted.
The underlying premise of the article was that all existing member states of the Council of Europe had, and all future member states would have, an established system of state education.
It was intended to guarantee fair and non discriminatory access to that system by those within the jurisdiction of the respective states.
The fundamental importance of education in a modern democratic state was recognised to require no less.
But the guarantee is, in comparison with most other Convention guarantees, a weak one, and deliberately so.
There is no right to education of a particular kind or quality, other than that prevailing in the state.
There is no Convention guarantee of compliance with domestic law.
There is no Convention guarantee of education at or by a particular institution.
There is no Convention objection to the expulsion of a pupil from an educational institution on disciplinary grounds, unless (in the ordinary way) there is no alternative source of state education open to the pupil (as in Eren v Turkey (Application No 60856/00) (unreported) 7 February 2006).
The test, as always under the Convention, is a highly pragmatic one, to be applied to the specific facts of the case: have the authorities of the state acted so as to deny to a pupil effective access to such educational facilities as the state provides for such pupils?
These passages make it plain that the value of the right conferred by A2P1 depends upon the system of education that is in place in the particular State concerned.
Volume VIII of the Collected Edition of the Travaux Prparatoires of the European Convention on Human Rights (1985) explains why, uniquely, a negative formulation was used to describe the right in A2P1: While education is provided by the State for children, as a matter of course, in all member States, it is not possible for them to give an unlimited guarantee to provide education, as that might be construed to apply to illiterate adults for whom no facilities exist, or to types or standards of education which the State cannot furnish for one reason or another.
Contracting States that provide facilities for the education of adult illiterates are obliged by A2P1 to ensure that adult illiterates have access to those facilities.
Those States that do not have such facilities are not required by A2P1 to establish them.
The cost of providing for the needs of a child such as A are enormous.
The fees charged for providing him with a place at Kisimul were 223,589 a year.
It may well be that some contracting States are not able to contemplate expenditure on this scale to cater for the needs of an individual child.
It is plainly highly desirable that a State should make provision for the educational needs of those who are disabled, but the signatories to A2P1 did not commit themselves to establishing educational facilities that did not exist in their countries.
For these reasons I reject Mr Bowens first submission.
A2P1 does not impose a positive obligation on contracting States to provide effective education for children who have special educational needs.
Mr Bowens second submission was linked to the first.
The starting point was the statement of Lord Bingham at para 24 of the Lord Grey School case.
A2P1 guarantees fair and non discriminatory access to the system of education maintained in the particular state.
The system of education maintained in England and Wales requires that provision is made for children with special educational needs.
This was the system to which A2P1 guaranteed access.
The system was one which provided the measure of the minimum standard of effective education that had to be provided for children with special educational needs.
Mr Bowen placed at the heart of his argument the requirement of section 19 of the Education Act: (1) Each local education authority shall make arrangements for the provision of suitable education at school or otherwise than at school for those children of compulsory school age who, by reason of illness, exclusion from school or otherwise, may not for any period receive suitable education unless such arrangements are made for them.
In this section suitable education, in relation to a child or young person, means efficient education suitable to his age, (6) ability and aptitude and to any special educational needs he may have.
This was an unqualified obligation.
He also relied on the obligation of a local authority to arrange that the special educational provision specified in a statement of special educational needs is made for the child section 324(5)(a)(i) of the Education Act.
He submitted that financial constraints were no answer to these obligations.
There had been a failure to satisfy the statutory obligations under the Education Act and this constituted a denial of As right to education under A2P1.
The obligations were absolute; there was no defence of all reasonable endeavours.
The Lord Grey School case shows that a failure to satisfy the educational requirements of domestic law will not automatically constitute an infringement of A2P1.
But in that case the House of Lords held that the claimant had been provided with education that satisfied the requirements of A2P1.
He was not deprived of access to the minimum standard of education provided by the State.
In this case, during the 18 month period, there was a failure to comply with the requirements of the Education Act and a failure to provide any significant education to A.
Does it follow that there was an infringement of A2P1?
It does not.
It is not right to equate a failure to provide the educational facilities required by domestic law with a denial of access to education under A2P1.
The reason why A was, for 18 months, denied the very special schooling that his needs required was that there was not immediately available the resources required to carry out the medical assessment that he needed nor, thereafter, a place in a school that would satisfy his needs.
Field J analysed the position in this way at para 101 of his judgment.
The reality is that, in a case such as this, a local education authority may be unable, through lack of resources, immediately to satisfy the obligations imposed by section 19 of the Education Act.
Article 2 guarantees the right to to avail themselves of the means of instruction existing at a given time; the right of access to educational establishments existing at a given time. paras 3 and 7,at pp 281 and 292, of the Belgian Linguistic case.
Insofar as a States system of education makes provision for children with special needs, Article 2 guarantees fair and non discriminatory access for those children to the special facilities that are available.
But if the facilities are limited, so that immediate access cannot be provided, the right of access must have regard to that limitation.
Thus the right of access to education conferred on A by A2P1 had to have regard to the limited resources actually available to deal with his special needs.
These caused the delay in catering for his special needs.
In these circumstances that delay did not constitute a denial of his right to education.
There was some debate as to whether Field J was correct to attribute all of the 18 month delay in placing A at Kisimul to the limited resources available.
As case was not advanced, however, on the basis that there had been a failure to take all reasonable steps to cater for his needs.
It was advanced on the basis that A2P1 imposed an absolute obligation to cater for them, and to do so timeously.
Where there has been maladministration, resulting in a failure to provide access to education for a period, there can be difficulty in deciding whether this is so significant as to amount to a denial of education in breach of A2P1.
Had part of the delay in this case been caused by maladministration I would not, on the facts of this case, have held that this amounted to a denial of As right to education under A2P1.
In this respect I agree with the reasoning of Lord Brown at paragraph 128 132 and Lord Clarke at paragraph 57.
For these reasons I reject Mr Bowens second submission.
In the course of submissions, encouraged perhaps by interventions from the court, there was some discussion about the paucity of educational provision that was afforded to A during the 18 months that he was out of school, living with his parents.
His special educational needs could not be met at home, as his assessment ultimately showed, but it is possible, indeed likely, that the failure over 18 months to meet those needs might have been mitigated by the provision of significantly more educational assistance than was in fact provided.
I agree with Lord Kerr that there might, dependent upon facts that have not been explored, be a case for saying that, during this 18 month period, A was deprived of such educational provision as could have been made available and that this deprivation violated A2P1.
In this I also agree with Lady Hale.
Such a case would be fact specific and would not raise the issues of principle that have been pursued on As behalf.
As primary case has not been that he was denied access to what was available but that A2P1, coupled with domestic law, imposed an absolute obligation under the HRA to provide what A needed.
I do not think that it would be desirable to permit A an extension of time to pursue this alternative case, which, even if successful, would resolve no issue of principle and be unlikely to sound in significant damages.
There has been considerable debate, here and below, as to the implications of the following observation of Lord Hoffmann in the Lord Grey School case at para 61: The correct approach is first to ask whether there was a denial of a Convention right.
In the case of article 2 of the First Protocol, that would have required a systemic failure of the educational system which resulted in the respondent not having access to a minimum level of education.
As there was no such failure, that is the end of the matter.
That observation is not of general application.
It was made in the context of a case where a child was excluded from his school, but not from the educational system as a whole, which was held by the majority to have provided him with the basic minimum of education available under the domestic system para 57.
Lord Hoffmanns observation does not cover the position where a pupil is denied access to the system, nor to a case such as this where a pupil has special needs that can only be satisfied by special educational provision.
This case has highlighted a problem for parents of children with severe disabilities.
If there is not currently available in the system the special educational facilities that their child needs and that domestic law requires, a court may be reluctant to make a mandatory order that such facilities be provided.
The Lamb Inquiry into Special Educational Needs and Parental Confidence, which was commissioned by the Government, has called for major reform of the current system.
This may well be highly desirable.
So far as A2P1 is concerned, it takes the system as it finds it.
Disposal
I would answer the first two agreed issues by holding that A2P1 does not guarantee that a child with special educational needs will receive the special educational provision required by the Education Act.
I would answer the third issue by saying that the failure during the period of 18 months to cater for As special needs did not constitute a denial of As right to education under A2P1.
I would answer the fourth issue, no, thereby precluding A from pursuing a claim that he was denied such educational provision as was available in the 18 month period, albeit that this would not have been adequate to meet his special needs.
For these reasons I would dismiss this appeal.
LADY HALE
The main focus in this case has always been on the period from 18 January 2002 to 28 July 2003.
During those 18 months, a child (aged 12 when it started and 14 when it ended) with very special educational needs was (a) denied access to the schooling to which he was legally entitled in domestic law, and (b) supplied with hardly anything to make up for it.
The issues are (i) whether there is a triable case that this was also a breach of his right to education under article 2 of the First Protocol of the European Convention on Human Rights, and (ii) whether the judge erred in refusing to extend time for bringing the claim.
On issue (i), I agree with Lord Kerr and Lord Phillips that there is indeed such a triable issue.
On issue (ii), I am in a minority of one.
The Right to Education
We are asked to decide whether Article 2 of Protocol 1 guarantees a child an absolute minimum standard of education and, if so, how this is to be measured.
My answer is that we have been referred to no authority in Strasbourg which has met this question head on.
We cannot therefore be clear that the answer is yes; but equally we cannot be clear that the answer is no.
Fortunately, however, we do not need to answer this question in order to decide this case.
In its most recent decision on Article 2 of Protocol 1, Oru v Croatia, App no 15766/03, 16 March 2010, at para 146, the Grand Chamber repeated the basic proposition derived from all the cases dating back to the Belgian Linguistic case: The right to education, as set out in the first sentence of Article 2 of Protocol No 1, guarantees everyone within the jurisdiction of the Contracting States a right of access to educational institutions existing at a given time, but such access constitutes only a part of the right to education.
For that right to be effective, it is further necessary that, inter alia, the individual who is the beneficiary should have the possibility of drawing profit from the education received, that is to say, the right to obtain, in conformity with the rules in force in each State, and in one form or another, official recognition of the studies which he has completed (see Belgian Linguistic Case (No 2) (1968) 1 EHRR 252, paras 3 5; Kjeldsen, Busk Madsen and Pedersen v Denmark (1976) 1 EHRR 711, para 52; and Leyla ahin v Turkey (2005) 44 EHRR 99, para 152).
Undoubtedly, it is an important part of making the right effective that pupils and students are entitled to the certificates or other qualifications which they have earned as a result of the studies which they have been able to complete.
But the Grand Chamber said that this was inter alia, thus acknowledging that there may be other rights entailed in making the basic right of access effective.
The Chamber in Oru, in their Judgment of 26 June 2008, at para 58, stated that: The right to education is principally concerned with primary and secondary schooling and for this right to be effective the education provided must be adequate and appropriate.
Oru was concerned with the segregation of Roma children into separate classes, ostensibly because their Croatian was not good enough for them to take part in classes with the other children.
The Chamber held that their education was nevertheless adequate and appropriate.
The Grand Chamber did not consider Article 2 of the first Protocol on its own, because it concluded that the segregation was unjustified racial discrimination.
I accept, therefore, that the European case law does not at present lay down any minimum standards for what must be provided.
But the possibility that it will do so in future certainly cannot be ruled out.
Despite the wide margin of appreciation given to Member States to design and regulate their own systems of education, some failures may be so serious as to amount to a denial of the right.
Lester, Pannick and Herberg, Human Rights Law and Practice, 3rd edition, at para 4.20.1, for example, comment that article 2 would not be violated by the inclusion or exclusion of a particular subject within the National Curriculum, unless the subjects addition or omission were to be so serious as to preclude the provision of proper education.
We cannot be sure that they are wrong.
Be that as it may, I have never dissented from the basic proposition laid down by Lord Bingham in A v Head Teacher and Governors of Lord Grey School [2006] UKHL 14, [2006] 2 AC 363, at para 24, that the primary purpose of article 2 was to guarantee fair and non discriminatory access to the established system of state education within the member state in question.
Thus, The test, as always under the Convention, is a highly pragmatic one, to be applied to the specific facts of the case: have the authorities of the state acted so as to deny to a pupil effective access to such educational facilities as the state provides for such pupils? In that case, I disagreed only in the application of that test to the particular facts.
This case is very different.
I agree with Lord Justice Sedley, in this case at [2008] EWCA Civ 364, para 10, that there is a possible tension between Lord Binghams reference to such educational facilities as the state provides for such pupils and Lord Hoffmanns reference to the basic minimum of education available under the domestic system (para 57) and later to a systemic failure of the educational system which resulted in the respondent not having access to a minimum level of education (para 61).
I do not think that there is any requirement that the failure be systemic in the usual sense of applying throughout the whole system.
An individual child who is denied access can complain even though the system as a whole is working reasonably well.
In Timishev v Russia (2005) 44 EHRR 776, Article 2 was breached because the applicants children were denied access to their school for an invalid reason.
Lord Hoffmanns words have to be seen in the context of the facts of the Lord Grey case.
The school had excluded the pupil but the system had then offered him alternative tuition in my view this was a denial of the education provided for pupils such as him, in the particular circumstances of that case, but in the view of the majority, the system as a whole had not let the pupil down.
If it had, the fact that the system had not failed other pupils would not have prevented their finding a breach in As case.
More relevant for our purposes is the possible tension between what is provided for such pupils and the basic minimum.
I disagree with Lord Justice Sedleys view that this tension does not affect the present case, because it is one of total exclusion.
The question has to be, exclusion from what?.
This is where the fact that, unlike the pupil in Lord Grey, the appellant has such very special educational needs comes into play.
The effect of exclusion for such pupils can be so much more serious than for other children.
A denial of access which would have no long term impact upon an ordinary pupil may be catastrophic for a pupil with special needs.
I respectfully endorse everything which Lord Kerr so movingly says, in para 139 of his judgment, about the particular meaning and importance of education in this case.
This country has for a long time now recognised that disabled children have a right to education.
There was a time, before the Education (Handicapped Children) Act 1970, when children who were suffering from a severe disability of mind could be declared unsuitable for education at school (see Schedule 2 to the Mental Health Act 1959).
There was then no duty upon local education authorities to provide for them.
But under the 1970 Act it was accepted that no child should be labelled ineducable.
As the Warnock Report, The Report of the Committee of Enquiry into the Education of Handicapped Children and Young People (1978, Cmnd 7212, para 1.7) explained: Though the general concept of education may remain constant, its interpretation will thus be widely different in the case of different children.
There is in our society a vast range of differently disabled children, many of whom would not have survived infancy in other periods of history.
In the case of the most profoundly disabled one is bound to face the questions: Why educate such children at all? Are they not ineducable? How can one justify such effort and such expense for so small a result? Such questions have to be faced, and must be answered.
Our answer is that education, as we conceive it, is a good, and a specifically human good, to which all human beings are entitled.
There exists, therefore, a clear obligation to educate the most severely disabled for no other reason that that they are human.
No civilised society can be content just to look after these children: it must all the time seek ways of helping them, however slowly, towards the educational goals we have identified.
To understand the ways in which help can be given is to begin to meet their educational needs.
If we fail to do this, we are actually increasing and compounding their disadvantages.
Our present system of identifying and providing for the special educational needs of disabled children, contained in the Education Act 1996, is the outcome of the recommendations of the Warnock Report, first legislated in 1981, and based on that philosophy.
This is not to suggest that everything is rosy in the education of children with special educational needs.
The interveners case shows very clearly that it is not.
The routes to achieving that basic human rights philosophy are controversial (as is shown in Haines and Ruebain (eds), Education, Disability and Social Policy, forthcoming).
But that the education system in this country recognises the right of any child, however disabled in mind or body or both, to an education suitable to his age, ability and aptitude and to any special educational needs he may have (see Education Act 1996, s7) is not controversial.
The European Court of Human Rights, concerned as it is with fair and non discriminatory access to education, recognises that this may mean that different children have to be educated in different ways.
To return to the Grand Chamber in Oru, at para 149: According to the Courts well established case law, discrimination means treating differently, without an objective and reasonable justification, persons in relevantly similar situations.
However, Article 14 does not prohibit a member State from treating groups differently in order to correct factual inequalities between them; indeed in certain circumstances a failure to attempt to correct inequality through different treatment may in itself give rise to a breach of Article 14 .
The appellant has not pursued a case under Article 14 before this Court.
I was rather surprised to learn that it was not suggested to the Court of Appeal that it took longer to find new places for children with special educational needs who were excluded from school than it did for other children (see [2008] EWCA Civ 364, para 18).
The appellant was out of school, and deprived of any real educational input, for more than 18 months.
If that is at all typical of the length of time for which ordinary children are kept out of school, it is a sorry state of affairs.
For very out of the ordinary children, such as this child, it can be catastrophic.
This could well be a case in which a failure to treat such a child better than other children amounted to discrimination.
The question then would be whether this could be justified, precisely because of the very real difficulties in finding a suitable placement for him.
I say all this, not to adjudicate upon an Article 14 claim which is not before us, but to point out that the content of the right to education may indeed differ from child to child, as Lord Bingham indicated in the Lord Grey case.
A Roma child may require special help to learn the Croatian language (but that does not mean that he should be arbitrarily segregated in a different class simply because he is Roma).
A disabled child may require two to one attention even though most children do not.
Just as the Croatian system attempted, but clumsily, to cater for the special needs of the Roma children, so does our system make elaborate and some may think generous attempts to cater for the special needs of disabled children.
The question then is whether there is a triable case that the appellant was unjustifiably denied access to the education which our system provides for children like him.
I have to accept, from the Lord Grey case, that the mere fact of illegality in domestic law is not enough.
But his case goes far deeper than that.
The appellant cannot, and does not, complain about the excellent schooling which was eventually provided for him.
But he does complain, first, that not enough was done to prevent things getting to such a pitch that his first school was unable to cope with him.
Prevention is always better than cure, no more so than in catering for special educational needs.
Secondly, he complains that he should not have been denied any real education for the 18 months that he was out of school.
Should it have taken the authorities so long to assess his needs and find the right place? More importantly, in my view, should they have left him without any alternative while that was taking place?
These are factual issues which have not been fully investigated.
If a new place could have been found sooner, or if there is more that could reasonably have been done for the appellant in the meantime, I find it hard to see how the effective denial of any education could be justified.
What legitimate aim could it serve and how could it be proportionate to such an aim?
I am perfectly prepared to assume that the local authority meant no harm.
But that is not the test.
A local authority which interferes unjustifiably in family life may mean no harm, indeed may mean nothing but good, but it has still acted incompatibly with human rights.
A prison governor who relies upon a mistaken interpretation of the law to keep a prisoner longer than the law in fact allows may mean no harm, but he has still acted incompatibly with the prisoners human rights.
A hospital or care home which detains a patient or a resident for her own good without complying with the elaborate safeguards laid down in the Mental Capacity Act 2005 may mean nothing but good, but it has still acted incompatibly with the patient or residents human rights.
We have to protect people from well meaning interferences with their human rights by public authorities as much as from those who mean them ill.
Indeed, I would assume that most public authorities in this country do mean well and certainly that Essex County Council does so.
But that is not the point.
The second question put to us, about the nature of the minimum obligation, assumed an affirmative answer to the first, which we need not answer.
The third question put to us was whether Essex can be said to have denied the Appellants right to an education on the facts of this case.
The answer is that we do not know until the facts are tried.
In agreement with Lord Phillips and Lord Kerr, and for the fuller reasons given by Lord Kerr, I would allow the appeal on that ground.
The limitation issue
There is little to say about this as the other members of the Court can find no error of principle in the judges exercise of his discretion.
There is still very little case law on the principles applicable to limitation in human rights cases and so I think it right to express my reservations about the approach adopted by the judge and by others in this Court.
Proceedings under the Human Rights Act must be brought within a year, beginning with the date on which the act complained of took place or such longer period as the court considers equitable having regard to all the circumstances (s 7(5)).
Where there is a continuing violation, as is alleged here, time runs from when the breach was ended rather than when it began (Somerville v Scottish Ministers [2007] UKHL 44).
The alleged breach ended on 28 July 2003.
The year therefore expired on 27 July 2004.
The proceedings were begun on 5 May 2005, just over nine months later.
This is not a long delay in making a claim which relates to the past rather than seeks a remedy for the future.
Equitable must mean fair to each side.
There is nothing to suggest that the delay caused any prejudice to the local authority.
The letter before action was sent on 6 February 2004, well within the limitation period.
The evidence is mostly documentary but it is also unlikely that the professionals memories of this very unusual child will have dimmed over the ensuing years.
A fair trial of the factual issues will still be possible.
On the other side of the coin, the action would almost certainly have been started within the limitation period had funding not been refused in March 2004.
It was not until a year later that funding was approved.
This was because of the high public interest in the legal issues despite the fact that the appellant was now back at school.
Difficulties with funding are often regarded as a good reason to extend time unless there is real prejudice to the other side.
The judge placed at the forefront of his account of the relevant legal principles that there is a significant public interest in public law claims against public bodies being brought expeditiously (para 119).
That is of course true in judicial review, when remedies are sought to quash administrative decisions which may affect large numbers of people or upon which other decisions have depended and action been taken.
It is normally a prospective remedy, aiming not only to quash the past but also to put right the future.
Expedition is less obviously necessary in a claim for a declaration in vindication of the claimants human rights, upon which nothing else depends, or of a claim for damages.
These are retrospective remedies, aimed at marking or compensating what has happened in the past.
Public authorities are no longer in any different position from other defendants in the general law of limitation (see limitation Act 1980, s 37(1)).
This claim is more akin to a tort claim than to judicial review.
Had judicial review proceedings been launched before the appellant went back to school, with a claim for damages included, there would have been no problem.
I do not think it fair to blame the appellant for not having tried to launch judicial review proceedings earlier.
It is not obvious to me that the right approach to difficult problems such as this is to rush off to the administrative court.
Most people try to resolve their difficulties over access to public services by negotiation and agreement with the authorities.
Very few have the knowledge or the resources to approach the administrative court.
If all the people who were trying to persuade public authorities to comply with their legal obligations did so, the court would soon be swamped.
Better by far to try and achieve a negotiated solution.
Indeed, while negotiations are going on, the court may well refuse leave on the ground that the application is premature.
But if, once the problem is solved, it appears that there has indeed been a violation of human rights, then it may be important that these are vindicated, whether by a declaration or by an award of damages or both, so that lessons can be learned.
This is especially so in a novel situation such as this where the court may be able to lay down principles which will guide the authorities approach to such cases in future and thus benefit others as well as the particular people involved.
That is, after all, why the House of Lords granted leave to appeal in this case.
In my view, therefore, the judge erred in principle by approaching this as if it was a judicial review case and by minimising the importance of vindicating the human rights of the individual claimant and setting standards for others in a position similar to this.
I venture to speculate that, if he had thought that the case raised a triable issue, he would have had little difficulty in extending time so that it could be tried.
For these reasons, which fall some way short of what the appellant was hoping to achieve in this litigation, I would allow this appeal.
LORD BROWN
The appellant, now aged 21, claims that the respondent Council, during an 18 month period from January 2002 to July 2003, violated his right to education under article 2 of the First Protocol to the Convention (article 2).
Other members of this Court have amply set out the facts of this case, all the relevant jurisprudence both domestic and from Strasbourg, and indeed the full terms of article 2.
None of this need I repeat.
I do, however, wish to put in my own words why I for my part regard this claim as having been rightly struck out summarily at first instance for having no realistic prospect of success this being the principal ground upon which I would dismiss the present appeal.
It is difficult to exaggerate the degree of learning difficulty suffered by this appellant during the period in question and the extent of the problem faced by the respondent Council on this account.
Perhaps some small measure of this can be gleaned from the huge expense involved in finally meeting the appellants educational needs: five years placement in a special residential school, Kisimul, at the cost of 223,589 per annum.
I readily acknowledge that the appellants (and indeed his parents) situation was very far from satisfactory during the eighteen month period leading up to that five year placement.
One obvious feature of this (much relied upon by Mr Bowen QC for the appellant) was the respondents continued naming of LS, a community special day school, as the suitable school for the appellants special educational needs pursuant to section 324 of the Education Act 1996 long after it became apparent to all that that school could no longer hope to cope with the appellants increasingly aberrant behaviour.
Let it be assumed that this was in breach of the respondents public law duty under that section (and that the respondents were also in breach of their more general duty under section 19 of the Act).
As, however, Sedley LJ observed in the court below (at para 13), this was a child with needs so profound that it took the system a considerable time to adjust and cope.
I am quite prepared to assume too that, considerable though the efforts made by the respondents to cope with the appellants worsening difficulties evidently were, they are open to criticism for not having done yet more to resolve, or at least temporarily ameliorate, the deepening crisis in the appellants (and his parents) life.
As Sedley LJ also observed (at para 13): No doubt [the Council] could and arguably should have moved faster, once it had become clear that LS School should not have been, or at least should not have remained, the school stipulated in the SSEN.
Finally let it be assumed that, but for the respondents failures to move faster and/or do more, the appellants difficulties would not have intensified to the extent they did by the time his residential placement finally began.
Would such assumed failings on the part of the respondents put them in breach of article 2? That critically is the question now before the Court.
I understand Lord Kerr to answer that question in the affirmative.
At paragraph 162 of his judgment, for example, he appears to suggest that unless the respondents can show that the entire eighteen month period was reasonably required to find a new school to meet the appellants needs and that in the meantime they did all they could to mitigate the position by considering other less ideal options, they would be in breach of article 2.
Indeed, paragraph 163 infers that liability would be established here unless a trial revealed that there was nothing more that the County Council could have done.
To my mind, however, such an approach puts the threshold for establishing a breach of article 2 far too low.
I simply cannot accept that article 2 is breached whenever an education authority fails to do all that it possibly could do to ensure that a child is receiving the education he needs here, as Lord Kerr correctly explained at paragraph 139, training in the particular skills that will allow and encourage him to function to the best of what will inevitably be his restricted ability.
In my opinion altogether more is required to be shown before article 2 is breached.
Indeed Lord Kerr seems to me to come closer to identifying what could be regarded as a breach of article 2 in the broad illustrations he gives at paragraph 161: if the authority takes no action to supply any alternative to schooling which has been discontinued or if it knows that a pupil is not receiving [education] and engages in a completely ineffectual attempt to provide it.
This essentially is the approach to article 2 which, albeit in a very different educational context, the House of Lords took in A v Head Teacher and Governors of Lord Grey School [2006] 2 AC 363.
Article 2 was, Lord Bingham suggested at paragraph 24, intended to guarantee fair and non discriminatory access to any given member states established system of state education by those within that states jurisdiction.
The test to be applied in any given case is: have the authorities of the state acted so as to deny to a pupil effective access to such educational facilities as the state provides for such pupils? Lord Hoffmann asks essentially the same question at paragraph 57: was the applicant denied the basic minimum of education available under the domestic system? Returning to the point at paragraph 61, Lord Hoffmann said: The correct approach is first to ask whether there was a denial of a Convention right.
In the case of article 2 of the First Protocol, that would have required a systemic failure of the educational system which resulted in the respondent not having access to a minimum level of education.
Like Lord Kerr I see no significant difference between the approach of Lord Bingham and that of Lord Hoffmann.
Each, moreover, agreed with the others reasoning and Lord Nicholls and Lord Scott each agreed with the reasons of both.
Only Lady Hale disagreed with the reasoning in the case although not with the result.
Some uncertainty has been expressed in later cases as to precisely what Lord Hoffmann meant by a systemic failure of the educational system.
Again, like Lord Kerr, I do not understand Lord Hoffmann to be saying that, for a breach of article 2 to be established, the authoritys system generally must have failed.
Article 2 can be breached by a systemic (i.e. wholesale) failure even in an individual case.
It seems to me that Sedley LJ captured the concept admirably when he observed (also at paragraph 13), a propos of his above cited acknowledgment that the respondent council here no doubt could and arguably should have moved faster: But that is a long way from the system either breaking down or abandoning the child.
The facts of this case are now before us in very considerable detail much additional material having been adduced even since the Court of Appeal hearing.
On no possible view of this material could a court reasonably conclude that the council took no action to supply the appellant with the education he required (after he ceased to attend LS school) or that their attempts to provide it were completely ineffective (Lord Kerrs paragraph 161 illustrations of Convention breach), given the magnitude of the problem confronting them and the difficulties of its solution.
Nor can it reasonably be said that the appellant was denied effective access to such educational facilities as the [UK] provides for such pupils (Lord Binghams test in the Lord Grey case): such pupils are inevitably difficult to accommodate within the system and it is not sufficient for establishing a violation of article 2 to show merely a breach of the education authoritys domestic public law duties or even maladministration.
Denial implies a substantially higher degree of blameworthiness than this: as I would hold, something akin to an abandonment of the particular childs plight (a refusal to engage with its needs) or a complete breakdown (not merely shortcomings) in the authoritys handling of the individual childs case.
Nothing in the Strasbourg jurisprudence to my mind encourages a less exacting approach than this to the application of article 2 and I can think of few things more unfortunate in this field of law than that our own courts should adopt a looser approach.
With the possibility of a damages award at the end of the road, many fresh claims would be generated, all at considerable public expense.
Better by far that any serious shortcomings in the handling of an individual childs education should be the subject of a prompt public law challenge so that they may be corrected in good time.
Inevitably, if one felt the least doubt as to whether the respondent Councils handling of this case could properly be characterised as a violation of the Convention, there would need to be a full trial.
If, however, I am right as to the proper approach to article 2, this is unnecessary.
There is a close parallel here with the cases concerning the existence or scope of a common law duty of care.
As to these, it is worth recalling what Lord Hope said in Mitchell v Glasgow City Council [2009] 1 AC 874, 883 (at para 12): There will, of course, be cases where the existence or scope of a duty of care cannot safely be determined without hearing the evidence.
But no advantage is to be gained by sending a case to proof when it is clear from the averments that, even if everything that the pursuer avers is proved, the case must fail.
That is likely to be the case where the issue on which the case depends is one of principle or, as Lord Reed put it in para 135 of his opinion, of legal analysis.
In such cases, it is not just that there would be no advantage in sending the case to proof.
It would be unfair for the defenders to be required to spend time and money on what will obviously be a fruitless inquiry.
Lord Reids comments in Jamieson v Jamieson [1952] AC 525, 550 on the value of the procedure for disposing of cases on relevancy without inquiry into the facts remain just as true today as they were when they were made nearly 60 years ago.
As I observed at the outset, it is principally upon this ground that I would dismiss the appeal.
Had it been necessary, however, I would, for the reasons given by other members of the Court, have dismissed it on the limitation ground also.
LORD KERR
A, a severely disabled child, launched an action for damages against Essex County Council for breach of his human rights, particularly in relation to Article 2 of the First Protocol to the European Convention on Human Rights and Fundamental Freedoms.
This provides, among other things, that no person shall be denied the right to education.
As action was dismissed by Field J by way of summary judgment [2007] EWHC 1652 (QB) on the ground that it had no realistic prospect of success.
The judge further held that, since the claim had been brought out of time, it should be rejected on that account also.
As appeal was dismissed by the Court of Appeal [2008] EWCA Civ 364, Sedley LJ holding that the facts asserted on As behalf were not capable of amounting to a breach of Article 2 of the First Protocol.
In particular, he found that it was not possible to spell out of those facts either a failure of the education system or a denial of access to it.
The claim had also been made both before Field J and the Court of Appeal that the respondent had acted in breach of As Convention rights under Article 3 (protection from inhuman and degrading treatment) and Article 8 (the right to respect for family and private life) and Article 14 (protection from discrimination) but these claims were not pursued before this court.
The facts
A is severely autistic.
He suffers from epilepsy and has grave learning difficulties.
He attended L S School, a Community Special Day School for children with serious problems with learning, from 1995 until 17 January 2002.
In May 2001 teachers at the school expressed concern about his behaviour and the school's ability to deal with him.
He had inflicted harm on himself and had no concept of danger.
His condition was deteriorating and he was considered to represent a significant danger not only to himself but also to others who attended the school.
In January 2002 As parents were contacted by the school.
They were asked to keep him at home while a medical assessment of his condition was made.
This was considered to be necessary because of his propensity for violence against other pupils and staff.
As parents agreed to this request and he remained at home for many months before the medical assessment could be arranged.
In fact, it did not take place until September 2002.
In the meantime his condition deteriorated markedly.
He was sent work in the form of two boxes of educational activities touch books and bubbles.
Speech and language therapy was provided on Wednesday and Thursday mornings from March 2002 and an occupational therapy assessment of A's home was carried out.
In May and June 2002 he attended activity sessions at L S School and from about the end of June 2002 until 24 July 2002 he went to the school for individual teaching sessions each of which lasted 45 minutes.
But he was significantly under stimulated during this period and this led to intensification of his self harming and other aberrant behaviour.
Indeed, by late 2002 or early 2003 A's condition had deteriorated to the extent that he was required to wear arm splints to prevent from gouging his face.
He also had to wear a helmet such was the force with which he struck his head on solid objects.
This was such an acute problem that experts feared that he might fracture his skull.
It is now clear not least because of what occurred after A was finally given a suitable placement that the absence of virtually all forms of education during this period was directly linked to the striking deterioration in As condition.
In this context it is important to remember that education for A cannot be regarded in the same way as conventional learning undertaken by a child of normal capability.
Rather than the usual education given to a child who does not suffer from the type of difficulties that A has, in his case education involves training him in the particular skills that will allow and encourage him to function to the best of what will inevitably be his restricted ability.
But because of the severe disabilities from which he suffers, the need for such education is, if anything, far more important than for a normal child.
A normal child whose education is neglected is condemned to ignorance and a lack of the means to realise his full potential.
For someone such as A the absence of proper education can have far more serious consequences as, indeed, his case has so graphically illustrated.
The medical assessment of A finally took place between 9 and 13 September 2002 at the St Piers National Centre for Young People with Epilepsy.
He was diagnosed as suffering from generalised seizure disorder; severe learning disability; and challenging behaviour (aggressive and self injurious behaviour).
A report following the assessment recommended a residential programme.
This would provide a 24 hour curriculum with consistent behavioural strategies at a specialist school.
It was concluded that A needed supervision and support at all times on a one to one basis.
Indeed, the view was taken that on occasions this would need to be on a two to one basis.
This reports findings are highly significant in the debate as to whether As proposed action for violation of Article 2 of the First Protocol was entirely bereft of any prospect of success.
The level of his need, as disclosed by the report, finds a stark and sorry contrast with what had actually been provided for him during the nine months that preceded the assessment.
He had been left virtually continuously in the care of his parents who had no expertise whatever in dealing with his condition.
They were also required to care for As siblings some of whom also had special educational needs.
It is not difficult to understand why As condition worsened so dramatically during this period.
The County Council became aware of the outcome of the assessment on 13 September.
Commendably, by 10 October 2002 they had put funding in place for a residential placement.
There then began a protracted search for a school that would meet As needs.
The Council wrote to no fewer than twenty six schools between 16 October 2002 and 17 December 2002, seeking a placement for A. Eventually, on 9 February 2003 Kisimul School offered a place for him.
This would cost the Council what Sedley LJ correctly described as the colossal sum of 223,589 per annum.
Once again to its credit the County Council was immediately willing to pay this amount.
But, for understandable reasons, A's parents asked if they could continue investigating other possibilities.
Finally, it was decided to accept the place at Kisimul School.
As it happened, however, the further investigation that his parents has asked for made no difference to the start of As placement there because it was not possible for him to begin his course until 28 July 2003 since there were ongoing building works at the school.
A has now completed his course at Kisimul school.
He progressed well there.
His overall health and behaviour improved.
He received appropriate education, and his self harming reduced considerably.
In a report of 23 November 2006, a Consultant Community Paediatrician stated that there was no doubt that A's development achievements regressed during the period that he was away from school.
His behaviour had deteriorated because of the lack of demands made upon him and the fact that, in consequence, he had been markedly under stimulated.
Despite this, it was considered that the effects on his learning and general development were temporary.
The paediatrician expressed the fear, however, that there may have been a more permanent effect on his behaviour.
In light of this report and the other evidence, Field J found that the nineteen months during which A was away from school had an adverse impact not only on him but also on his parents.
That finding has not been challenged.
The evolution of As claim
Field J described the claim made by A in the proceedings before him in the following paragraph of his judgment: [25] A claims that in breach of his A2P1 rights he was denied an effective and meaningful education whilst at L S School between May 2001 and 18 January 2002, and thereafter until 27 July 2003.
He also claims that his exclusion from L S School was in breach of his A2P1 rights.
The focus of the claim was, therefore, on the exclusion of A from the LS school and the adequacy of the education that he had been receiving there.
Before the Court of Appeal that focus seems to have shifted somewhat.
Sedley LJ stated that the essential case made on As behalf was that, for want of even minimally suitable provision for his education, he was shut out of the state system, although he also said that the foundation of the claim was that A ought to have remained in L S School until July 2003 when his successful placement at Kisimul School began.
Before this court, a simpler and more direct case has been made.
It is to the effect that this young man had been abandoned by the educational authorities after his parents were persuaded to withdraw him from school.
Emphasis was no longer placed on the exclusion of A from a particular school or indeed from the state system.
Rather, while acknowledging that the County Council had made conspicuous efforts to obtain a suitable place for A after the medical assessment was made, counsel for the appellant contended that the plain fact was that, from January 2002 until then, no effective education was provided for him.
That, it was submitted, amounted to a denial of education in breach of Article 2 of the First Protocol.
The denial of education
Article 2 of the First Protocol to the European Convention on Human Rights and Fundamental Freedoms provides: Right to education No person shall be denied the right to education.
In the exercise of any functions which it assumes in relation to education and to teaching, the State shall respect the right of parents to ensure such education and teaching in conformity with their own religious and philosophical convictions.
Although expressed in negative terms, it is clear that this provision enshrines a right to have access to education see Belgian Linguistic Case (No 2) (1968) 1 EHRR 252 where the European Court of Human Rights (ECtHR) said at, p 280, para 3: By the terms of the first sentence of this Article, 'no person shall be denied the right to education'.
In spite of its negative formulation, this provision uses the term 'right' and speaks of a 'right to education'.
Likewise the preamble to the Protocol specifies that the object of the Protocol lies in the collective enforcement of 'rights and freedoms'.
There is therefore no doubt that article 2 does enshrine a right.
The content of the right and the extent of the corresponding duty cast on the member state are discussed in the Belgian Linguistic Case.
The court concluded that the scope of the obligation must be geared to the aim of the provision.
That aim did not include the imposition of a duty to create an educational system; nor did it guarantee access to any particular type of education or at any specific level.
What the provision was intended to achieve was the enshrining of a right to access to the education system that prevailed in the state at the material time.
It was recognised, however, that the Article 2 First Protocol right had a further dimension beyond the mere right to access to available educational institutions.
The court dealt with this in the following passage from, p 281, para 4 of its judgment: 4 The first sentence of article 2 of the Protocol consequently guarantees, in the first place, a right of access to educational institutions existing at a given time, but such access constitutes only a part of the right to education.
For the 'right to education' to be effective, it is further necessary that, inter alia, the individual who is the beneficiary should have the possibility of drawing profit from the education received, that is to say, the right to obtain, in conformity with the rules in force in each State, and in one form or another, official recognition of the studies which he has completed.
Mr Bowen QC for the appellant argued that, in effect, the prevailing education system for children in respect of whom a statement of special educational needs had been made under section 324 of the Education Act 1996 was the educational provision specified in the statement since this was the only form of education from which A could draw profit.
Moreover for special educational needs children a system of education was in place in this country.
This consisted of a means of determining what such a childs needs were and then meeting them.
This, therefore, was the system to which A was entitled to have access by virtue of Article 2 of the First Protocol.
The riposte of Mr Faulks QC (for the County Council) was that the appellants argument was tantamount to a claim to entitlement to a specific type of education which the Belgian Linguistic Case and later authority had expressly disavowed.
Before commenting on these competing arguments, it is necessary to say something about the cases that came after the Belgian Linguistic Case.
A number of the later Strasbourg authorities dwell on the need for a system of regulation in the provision of education and the constraint that this places on the scope of the right under Article 2 of the First Protocol.
In SP v UK (Application No 28915/95) [1997] EHRLR 287, the applicant suffered from dyslexia.
He claimed that his rights under Article 2 of the first Protocol had been violated because the teaching staff of the schools that he had attended had failed to address his special educational needs and the local education authority had initially refused to make a statement of special educational needs in his case.
The applicants claim was declared inadmissible by the European Human Rights Commission.
Citing the Belgian Linguistic Case 1 EHRR 252, 281, para 5 the Commission said that the right under Article 2 of the First Protocol by its very nature call[ed] for regulation by the State and that such regulation may vary in time and place according to the needs and resources of the community and of individuals.
It was recognised that there must be a wide measure of discretion left to the authorities as to how to make the best use possible of the resources available to them in the interest of disabled children generally.
And in ahin v Turkey (2005) 44 EHRR 99 ECtHR said: 154 In spite of its importance, this right is not, however, absolute, but may be subject to limitations; these are permitted by implication since the right of access 'by its very nature calls for regulation by the State' (see the Belgian Linguistic Case, para 5; see also, mutatis mutandis, Golder v United Kingdom (1975) 1 EHRR 524, para 38; and Fayed v United Kingdom (1994) 18 EHRR 393, para 65).
Admittedly, the regulation of educational institutions may vary in time and in place, inter alia, according to the needs and resources of the community and the distinctive features of different levels of education .
The constraint on the right under Article 2 of the First Protocol which arises from the recognition of the need for regulation leads inexorably, in my opinion, to the conclusion that the system of education to which the article guarantees access must include the process for investigating what is required to meet an individual childs needs.
Such inquiry is unquestionably a feature of the educational system in this country.
It follows that the failure to supply education during the reasonable period that such investigation requires will not give rise to a violation of Article 2 of the First Protocol.
I shall discuss the implications of this conclusion on As case below.
The most important domestic decision in this area is A v Head Teacher and Governors of Lord Grey School [2006] UKHL 14, [2006] 2 AC 363.
Paras 12 and 13 of Lord Binghams speech contain a valuable summary of the Strasbourg jurisprudence following the Belgian Linguistic case and it is convenient to reproduce them here: 12 The court's judgment in the Belgian Linguistic Case (No 2) has been cited and relied on in a number of later decisions such as Kjeldsen, Busk Madsen and Pedersen v Denmark (1976) 1 EHRR 711, Campbell and Cosans v United Kingdom (1982) 4 EHRR 293, ahin v Turkey (Application No 44774/98) (unreported) 10 November 2005, Grand Chamber, and Timishev v Russia (Application Nos 55762/00 and 55974/00) (unreported) 13 December 2005.
In later decisions the reasoning in that case has been followed but elaborated.
It has been held that article 2 is dominated by its first sentence (Kjeldsen, para 52; Campbell and Cosans, para 40) but the article must be read as a whole (Kjeldsen, para 52), and given the indispensable and fundamental role of education in a democratic society a restrictive interpretation of the first sentence would not be consistent with the aim or purpose of that provision: ahin, para 137; Timishev, para 64.
But the right to education is not absolute (ahin, para 154): it is subject to regulation by the state, but that regulation must not impair the essence of the right or deprive it of effectiveness: Campbell and Cosans, para 41; ahin, para 154.
It is not contrary to article 2 for pupils to be suspended or expelled, provided that national regulations do not prevent them enrolling in another establishment to pursue their studies (Yanasik v Turkey (1993) 74 DR 14), but even this qualification is not absolute: Sulak v Turkey (1996) 84 A DR 98.
The imposition of disciplinary penalties is an integral part of the process whereby a school seeks to achieve the object for which it was established, including the development and moulding of the character and mental powers of its pupils: ahin, para 156. 13 In Coster v United Kingdom (2001) 33 EHRR 479, para 136, Her Majesty's Government submitted that article 2 did not confer a right to be educated at a particular school.
The court did not expressly accept or reject this submission.
Such an interpretation was, however, adopted by the Court of Appeal in S, T and P v Brent London Borough Council [2002] ELR 556, para 9.
In para 24 of his speech Lord Bingham identified the purpose of Article 2 of the First Protocol as the guarantee of fair and non discriminatory access to the system of education prevailing within the jurisdiction of member states.
He went on to characterise the right as weak compared to other rights guaranteed by the Convention.
That it is weak in respect of its scope in not guaranteeing access to a particular form of education, for instance is undeniable.
But I do not understand Lord Bingham to have been suggesting that it was weak in relation to the force and effectiveness of the guarantee that it embodies.
That much is, I believe, clear from Lord Binghams statement in the immediately preceding sentence of the same para: The fundamental importance of education in a modern democratic state was recognised to require no less [than fair and non discriminatory access to the prevailing educational system].
Later in the same paragraph Lord Bingham observed that the test as to whether there had been a denial of education was a highly pragmatic one, to be applied to the specific facts of the case: have the authorities of the state acted so as to deny to a pupil effective access to such educational facilities as the state provides for such pupils?.
It was on this passage that Mr Bowen particularly fastened in order to advance his claim that the special educational needs system (and indeed the special needs provision stipulated in the statement) was that to which A was entitled to have access in fulfilment of Article 2 First Protocol rights.
But I do not consider that Lord Bingham here had in contemplation a particular group of pupils with particular educational requirements.
Just a few sentences earlier he had said that there was no right to education of a particular kind or quality, other than that prevailing in the state and there was no Convention guarantee of education at or by a particular institution.
Sedley LJ in the Court of Appeal suggested that there was a possible tension between Lord Binghams formulation of the scope of the right (i.e. effective access to such educational facilities as the state provides for such pupils) and Lord Hoffmanns statement in the same case (at para 57) that a breach must involve denial of the basic minimum of education available under the domestic system.
Taken as a whole, it seems to me that Lord Binghams concept of the content of the right does not differ significantly from that of Lord Hoffmann.
His emphasis on the fact that it did not guarantee any particular form of education and that it did not require to be provided at any particular institution chimes well with the notion that all that need be provided is the basic minimum.
I would not therefore be disposed to accept Mr Bowens contention that A was entitled under Article 2 of the First Protocol to have access to the particular form of education specified in the statement of special needs.
He was entitled, however, to the basic minimum education and what that basic minimum involves must be assessed, in my opinion, by reference (at least in part) to As special needs.
It would be utterly pointless to give A access to conventional education.
To suggest that his right to an education extended only so far as the right to have access to the normal state system at its most basic level would be to rob the right of any meaning or effectiveness in his case.
My view that A was entitled to a basic minimum education geared to his particular condition is not influenced, therefore, by the observation in the Belgian Linguistic case that, for the right to education to be effective, it is necessary that the individual who is the beneficiary should have the possibility of drawing profit from the education received.
That statement reflected the particular circumstances of the case and was directed to the need to ensure the availability of some form of certification as to the proficiency of the student who had undertaken the education.
The underpinning of my conclusion that the basic minimum in As case required that his condition be taken into account is the need for the right to be effective in his case.
It would not be effective if that critical and central feature was ignored.
While supporting Lord Binghams reasons for dismissing the pupils claim in the Lord Grey case, Lord Hoffmann gave reasons of his own for agreeing with that result.
At para 61 he said: In the present case, where the respondent was not excluded from school education, he would in my opinion have had no claim at Strasbourg.
And if no claim can be made in Strasbourg, it follows that there cannot have been an infringement of a Convention right giving rise to a claim under section 6 of the Human Rights Act 1998: see R (Quark Fishing Ltd) v Secretary of State for Foreign and Commonwealth Affairs [2006] 1 AC 529.
It is in my view illegitimate to promote the public law duty of the school, not giving rise to a private right of action, to a duty under section 6 of the Human Rights Act 1998 remediable by a claim for damages, by saying that in domestic law the school bore the 'primary duty to educate the child'.
The correct approach is first to ask whether there was a denial of a Convention right.
In the case of article 2 of the First Protocol, that would have required a systemic failure of the educational system which resulted in the respondent not having access to a minimum level of education.
As there was no such failure, that is the end of the matter.
The use of the words systemic failure in this passage appears to have led the Court of Appeal in the present case to conclude that for a breach of Article 2 of the First Protocol to occur there must be either a failure of the education system or a denial of access to it see para 12 of Sedley LJs judgment.
So expressed, these alternatives seem to contemplate either a deliberate withholding of education from the pupil concerned or some fundamental failure of the educational system in general which leads to his being denied access to it.
As Mr Faulks was quick to accept, there can be a denial of education even if there has not been systemic default.
I would therefore be slow to attach to Lord Hoffmanns use of the words, systemic failure quite the significance that the Court of Appeal appears to have associated with it.
I consider that denial of education under the article can arise in a variety of ways.
Obviously, a calculated refusal to allow a pupil access to any form of even basic education will be in violation of the right.
But a failure to take steps to provide education when the state authority responsible for providing it is aware of the absence of the pupil from any form of education could in certain circumstances give rise to a breach of the right.
If, for instance, a local education authority knows that a child has been asked by a school not to attend that school; and if the authority is responsible for the provision of education to the child; and if it takes no action to supply any alternative to what had been previously provided by the school, it is at least arguable that it is in breach of its duty under Article 2 of the First Protocol.
I would go further.
I believe it also to be at least arguable that an authority with the responsibility for providing education, if it knows that a pupil is not receiving it and engages in a completely ineffectual attempt to provide it, is in breach of the provision.
As I have said above, however, an education authority must have the opportunity to make reasonable inquires as to what a childs educational needs are and how they can be met, without falling foul of the requirements of Article 2 of the First Protocol.
What, therefore, is principally at stake in the present case is whether the entire period of As absence from any effective form of education can be accounted for on the basis that this period was reasonably required in order to investigate As particular needs and to identify a school at which they could be met.
A subsidiary but nonetheless important issue is whether any less ideal option should have been considered in the meantime in order to mitigate the harm that A undoubtedly suffered during his absence from education.
In my opinion, these were triable issues.
If it could be shown that the County Council had either failed to make inquiries during any period that it knew A was not receiving effective education or that such investigations as it conducted were wholly inadequate, there would be at least a reasonable prospect of success for As claim under Article 2 of the First Protocol.
A trial might well have revealed that there was nothing more that the County Council could have done.
In that case, no breach of the article could arise.
But I feel quite unable to say, in the absence of a trial, that this is bound to have been the outcome.
I am likewise unable to conclude, in the absence of evidence that would allow a confident judgment on the issue, that it could never be shown that the County Council ought to have put in place some short term basic educational provision which would have gone some way towards diminishing the adverse impact on A of the lack of education while the medical assessment was being arranged and subsequently while awaiting its implementation.
I am in complete agreement with what Lady Hale has said on this issue.
It is, of course, easy to speculate that there may have been nothing that the Council could reasonably do in this regard.
But unless the matter was investigated, I cannot see how it can be said that A had no prospect of establishing that the County Council should have done something beyond such efforts as it made.
Extension of time
Because it upheld the judges ruling that As claim should be dismissed by way of summary judgment, the Court of Appeal did not deem it necessary to consider the issue of whether time should have been extended to permit the appellants claim to proceed.
Since I have reached a contrary view on the question of summary judgment, it is necessary for me to consider the extension of time point.
Section 7 (5) of the Human Rights Act 1998 provides: Proceedings under sub section (1) (a) must be brought before the end of: (a) the period of one year beginning with the date on which the act complained of took place; or (b) such longer period as the court or tribunal considers equitable having regard to all the circumstances, but that is subject to any rule imposing a stricter time limit in relation to the procedure in question.
It has been held in Cameron v Network Rail Infrastructure Ltd [2006] EWHC 1133 (QB), [2007] 1 WLR 163, para 47 that the burden of establishing that it is equitable to extend time under s 7(5) is on the party seeking the extension.
As Field J observed, at para 120, however, few cases of this type lend themselves to a ready resolution by the application of a burden of proof and I prefer to approach the question (as did the judge) by an open ended examination of the factors that weigh on either side of the argument that this is a case in which the discretion of the court should be exercised to extend the time under section 7 (5) (b).
Field J dealt with this issue in paragraph 129 of his judgment as follows: In my judgment, it is not equitable to extend the limitation period in this case.
My reasons are these.
CLC [the Children's Legal Centre], who are very familiar with the law relating to education, were instructed on 14 April 2002 but no application for judicial review was made until 30 May 2003, an application that foundered on the LSC's refusal to grant funding because a school place was going to be made available from the end of July 2003.
No such reason would have existed for refusing funding for a judicial review application made towards the end of 2002 but such an application was not made.
Instead, proceedings have been issued a long time after the alleged infringements came to an end and at a stage when there is little point from A's personal point of view in seeking a declaration that his rights were infringed.
As for his damages claim, it is far from certain that a court would conclude that an award of damages is necessary to afford him just satisfaction and any sum awarded is likely to be modest and therefore at a level that is disproportionate to the costs of the proceedings.
It was this lack of proportionality that understandably led the LSC to refuse funding until March 2005.
I do not think that the public interest identified by the Public Interest Advisory Panel tips the balance in favour of extending time.
The question whether A2P1 confers a right to an education in accordance with the relevant SSEN, and if so, the appropriateness of an award of damages and the impact on the alleged shortcomings of judicial review in special educational needs cases, can be as easily (and more appropriately) determined in an upcoming application for judicial review made by another party as in these very late proceedings.
I can find nothing in this analysis with which to disagree.
In particular, I consider that it is highly unlikely that any significant sum by way of damages would have been awarded if the action had been brought within time and had been successful.
On the contrary, a court may well have concluded that no award of damages was necessary in order to provide just satisfaction to A.
Accordingly, I would dismiss the appeal on the ground that the judge was right not to have extended the time to allow the claim to be brought.
| UK-Abs | This appeal case centred around whether a local education authority has a minimum legal obligation to provide all children with an effective education, taking account of their special needs and regardless of the demands that this has on resources.
A, a man now aged 21, is severely autistic, suffers from epilepsy, and has grave learning difficulties.
As a boy, he attended a special school.
In 2001, when he was aged 12, teachers at the school expressed concern about his behaviour and the schools ability to deal with him.
He would self harm, would suffer from regular epileptic fits in spite of medication, was doubly incontinent, had no concept of danger, and required constant supervision.
In January 2002, As parents were asked not to bring him into school for health and safety reasons.
It was at that time intended that he should receive an urgent residential medical assessment but this was delayed.
Meanwhile the school sent work and activities for A to do with his parents at home and provided him with some weekly speech and language therapy sessions.
Neither the Council nor As former school was able to provide a home tutor who was qualified or able to meet As needs.
The assessment eventually took place in September 2002.
It recommended that A should be placed in a 24 hour residential school specifically for children with high levels of challenging behaviour.
Between October and December the Council wrote to a number of schools seeking a placement for A, but without success.
Meanwhile As condition continued to deteriorate.
A residential school placement did not finally become available under the end of July 2003.
When, in July, he took up his place at his new school, his overall health and behaviour started to improve.
He since received an appropriate education.
He left the school in the summer of 2008 and now lives in residential therapeutic accommodation.
Article 2 of the First Protocol to the European Convention on Human Rights (A2P1), made part of UK law by the Human Rights Act 1998, guarantees that no person shall be denied the right to education.
In this case, relying on A2P1, A sought damages from Essex County Council arguing that, between the period January 2002 to July 2003, his right to education was infringed.
The lower courts (High Court and Court of Appeal) had both decided that, since As case had no realistic prospect of succeeding, it should be struck out.
That meant that A could not seek to prove his claim at a full trial of the evidence.
A appealed to the Supreme Court against this decision.
A also appealed against a ruling that he should not be allowed to pursue his claim because he had brought it outside of the legal time limit for the bringing of such claims.
As case raised the following important issue of principle.
Does A2P1 impose a minimum obligation to provide a child with an education that is effective having regard to his special needs, regardless of the demands that this makes on resources? A argued that it does, and that this mirrors the public law obligation imposed by statute in England and Wales.
A argued that for the 18 months he was denied this right, because his special needs were not met.
A also made an alternative argument.
He said that A2P1 entitled him to such facilities as were available in the 18 month period, even if these were not adequate to meet his special needs, and that there had been a failure to provide these.
The appeal was dismissed.
A majority of three to two Justices (Lords Clarke, Phillips and Brown) held that on the principal issue it was not arguable that A2P1 gave A an absolute right to education that met his special needs during the 18 months.
A full trial could not be allowed to proceed on that basis.
The time taken to find a school that met these needs was attributable to limitation of resources.
Even if the delay had been attributable in part to administrative shortcomings, this would not have amounted to a breach of A2P1.
On the alternative argument, a different majority, (Lord Phillips, Lady Hale and Lord Kerr) held that A might have been able to establish a breach of A2P1 at a full trial in the form of a failure to provide educational facilities that were available that would have mitigated the consequences of the failure to meet As special needs during the 18 months.
However a majority (Lord Phillips, Brown, Kerr and Clarke) held that it would not be right to extend the one year time limit to enable A to bring his claim.
He is unable to pursue his claim at a full trial.
|
The members of the Court are well aware of the limited nature of the issue which we have to decide in this appeal.
But many of the general public (who are understandably taking a close interest in the matter) are not so well aware of its limited scope.
It is therefore appropriate to spell out at the outset that the Court does not have the task of deciding whether the system of charging personal current account customers adopted by United Kingdom banks is fair.
The appellants are seven of the largest banks in the United Kingdom and one building society (but I shall for convenience refer to them all as the banks).
The appellants accept that the system of free if in credit banking prevalent in this country involves a significant cross subsidy (amounting to about 30 per cent of the banks total revenue stream from current account customers) provided by those customers who regularly incur charges for unauthorised overdrafts (a cohort, we were told, of the order of twelve million people) to those customers (a cohort of about 42 million people) who are in the fortunate position of never (or very rarely) incurring such charges.
Banks in other European countries adopt different forms of cross subsidy; French banks for instance, concentrate their charges on processing standing orders and debit card transactions.
Some would regard the United Kingdom system as being, in some sense at least, obviously unfair, though Mr Sumption QC (for the banks) vigorously disputed Lord Mances suggestion that his clients were engaged in a sort of reverse Robin Hood exercise.
That is an imponderable question which depends partly on whether ones perception of the average customer who incurs unauthorised overdraft charges is that he is spendthrift and improvident, or that she is disadvantaged and finding it hard to make ends meet.
But it is not the question for the Court.
The question for the Court is much more limited, and more technical.
It is whether as a matter of law the fairness of bank charges levied on personal current account customers in respect of unauthorised overdrafts (including unpaid item charges and other related charges as described below) can be challenged by the respondent the Office of Fair Trading (the OFT) as excessive in relation to the services supplied to the customers.
That issue depends on the correct interpretation (in its European context) and application of Regulation 6(2) of the Unfair Terms in Consumer Contracts Regulations 1999 SI 1999/2083 (the 1999 Regulations).
Regulation 6(2) is as follows: In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate (a) to the definition of the main subject matter of the contract, or (b) to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.
The context requires adequacy to be read in the sense of appropriateness, as Lord Rodger of Earlsferry pointed out in Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 AC 481, para 64.
The Directive and the Regulations
The 1999 Regulations were made under section 2(2) of the European Communities Act 1972 in order to transpose into national law Council Directive 93/13/EEC on unfair terms in consumer contracts (the Directive).
The 1999 Regulations revoked and replaced similar regulations made in 1994 (SI 1994/3159) in order (as the explanatory note to the 1999 Regulations puts it) to reflect more closely the wording of the Directive.
Regulation 6(2) of the 1999 Regulations does indeed follow closely the English text of Article 4(2) of the Directive, which is as follows: Assessment of the unfair nature of the terms shall relate neither to the definition of the main subject matter of the contract nor to the adequacy of the price and remuneration, on the one hand, as against the services or goods supplied in exchange, on the other, in so far as these terms are in plain intelligible language.
The Court has had available the texts of Article 4(2) in French, German and some other languages, but they cast little light on the interpretation of the English text.
Both Mr Sumption (for the banks) and Mr Crow QC (for the OFT) made submissions about the background to the Directive, its travaux prparatoires, and academic commentaries on it.
The Directive in its final form applies only to contractual terms which have not been individually negotiated.
That is the effect of Article 3, which sets a fairly high threshold for meeting that test.
The Councils original proposals had been more far reaching but they attracted a lot of criticism, especially from commentators in France and Germany, who were concerned at such extensive inroads into freedom of contract.
An article by Professor Brandner and Professor Ulmer of the University of Heidelberg ((1991) 28 CML Rev 647) was particularly influential.
In September 1992 the Council brought forward new proposals which can be described as a compromise solution balancing the need for consumer protection against residual freedom of contract.
Recital (19) reflects part of this compromise, though it does not contribute very much to the understanding of Article 4(2): Whereas, for the purposes of this Directive, assessment of unfair character shall not be made of terms which describe the main subject matter of the contract nor the quality/price ratio of the goods or services supplied; whereas the main subject matter of the contract and the price/quality ratio may nevertheless be taken into account in assessing the fairness of other terms; whereas it follows, inter alia, that in insurance contracts, the terms which clearly define or circumscribe the insured risk and the insurers liability shall not be subject to such assessment since these restrictions are taken into account in calculating the premium paid by the consumer.
Another element of compromise is the so called greylist set out in Schedule 2 to the 1999 Regulations, exactly reproducing the annex referred to in Article 3(3) of the Directive.
This is an indicative and non exhaustive list of terms which may be regarded as unfair.
Originally it was proposed as a blacklist of terms which would be conclusively presumed to be unfair.
The list contains 17 items, four of which refer in one way or another to the monetary consideration paid by the consumer: (d) permitting the seller or supplier to retain sums paid by the consumer where the latter decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the seller or supplier where the latter is the party cancelling the contract; (e) requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation; (f) authorising the seller or supplier to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the seller or supplier to retain the sums paid for services not yet supplied by him where it is the seller or supplier himself who dissolves the contract; . (l) providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded; The basic test of fairness is in Regulation 5(1) of the 1999 Regulations,
transposing Article 3(1) of the Directive.
Regulation 5(1) provides: A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties rights and obligations arising under the contract, to the detriment of the consumer.
The consequences of unfairness are set out in Regulation 8, transposing Article 6(1).
Regulation 8 provides: (1) An unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer. (2) The contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term.
The Court of Justice has not yet had occasion to rule on the scope of Article 4(2).
Not all the member states have precisely transposed the Directive into their national laws, since Article 8 provides that they may adopt or retain more stringent provisions for consumer protection, so long as they are compatible with the Treaty.
France and Italy, like the United Kingdom, have precisely transposed the Directive.
The Netherlands and Spain have enacted more far reaching legislation affording greater protection to consumers.
Germany considered it unnecessary to transpose the Directive in any form, as its national law already offered a greater degree of consumer protection.
The First National Bank case
The Law Lords have already considered Article 4(2) in Director General of Fair Trading v First National Bank Plc [2001] UKHL 52, [2002] 1 AC 481.
They considered it in the slightly different form in which it was transposed by Regulation 3(2) of the 1994 Regulations: In so far as it is in plain, intelligible language, no assessment shall be made of the fairness of any term which (a) defines the main subject matter of the contract, or (b) concerns the adequacy of the price or remuneration, as against the goods or services sold or supplied.
So in the old provision the words in exchange did not appear, and the nature of the assessment was expressed a little differently.
Before your Lordships neither side attached much importance to these points of difference, since the dominant text (as Lord Steyn put it in First National Bank at para 31) is that of the Directive itself.
In First National Bank the Director General of Fair Trading (the predecessor of the OFT, which was established by Part 1 of the Enterprise Act 2002) sought an injunction to restrain the bank, which was active in the consumer credit market, from using a standard term under which (on enforcement of an overdue debt) interest was to continue to accrue at the contractual rate until payment after as well as before any judgment (such obligation to be independent of and not to merge with the judgment).
At first instance Evans Lombe J held ([2000] 1 WLR 98) that the term was a default term and not (as the banks counsel had submitted) a core term within Regulation 3(2) of the 1994 Regulations, but that it was not unfair in the statutory sense.
The Court of Appeal ([2000] QB 672) allowed the Director Generals appeal, agreeing with the judge as to Regulation 3(2) but differing as to the fairness of the term.
Peter Gibson LJ (giving the judgment of the Court) deprecated the expression core term (at p686): The test in respect of the relevant term is not whether it can be called a core term but whether it falls within one or both of paragraphs (a) and (b) of Regulation 3(2).
On a further appeal by the bank the House of Lords allowed the appeal, unanimously agreeing with the Court of Appeal as to the Courts power to review the term, but unanimously reversing the Court of Appeal as to the terms fairness.
The key passages on the scope of Regulation 3(2) of the 1994 Regulations (now Regulation 6(2) of the 1999 Regulations) are para 12 of the opinion of Lord Bingham of Cornhill and para 34 of the opinion of Lord Steyn.
Lord Bingham observed in para 12, after references to the then current editions of two leading textbooks (Treitel, The Law of Contract, 10th ed. (1999) p248 and Chitty on Contracts, 28th ed. (1999) para 15 025), The object of the Regulations and the Directive is to protect consumers against the inclusion of unfair and prejudicial terms in standard form contracts into which they enter, and that object would plainly be frustrated if Regulation 3(2)(b) were so broadly interpreted as to cover any terms other than those falling squarely within it.
In my opinion the term, as part of a provision prescribing the consequences of default, plainly does not fall within it.
Later in that paragraph Lord Bingham referred to the term as an ancillary provision.
Lord Steyn observed in para 34: Clause 8 of the contract, the only provision in dispute, is a default provision.
It prescribes remedies which only become available to the lender upon the default of the consumer.
For this reason the escape route of Regulation 3(2) is not available to the bank.
So far as the description of terms covered by Regulation 3(2) as core terms is helpful at all, I would say that clause 8 of the contract is a subsidiary term.
In any event, Regulation 3(2) must be given a restrictive interpretation.
Unless that is done Regulation 3(2)(a) will enable the main purpose of the scheme to be frustrated by endless formalistic arguments as to whether a provision is a definitional or an exclusionary provision.
Similarly, Regulation 3(2)(b) dealing with the adequacy of the price or remuneration must be given a restrictive interpretation.
After all, in a broad sense all terms of the contract are in some way related to the price or remuneration.
That is not what is intended.
The background and course of this litigation
A complaint of infringement of the 1999 Regulations may be pursued in proceedings in the county court commenced by an individual consumer by reference to the terms of a particular contract that he or she has entered into.
It may also be pursued by the OFT which was established, as already mentioned, by Part 1 of the Enterprise Act 2002 and is a general enforcer of Community infringements under section 213(1)(a) of that Act (read with section 212 and Schedule 13, para 5).
This dual system (of what Lord Steyn, in para 33 of his opinion in First National Bank, referred to as ex casu challenges and pre emptive or collective challenges) is provided for by Article 7 of the Directive.
Both types of challenge form part of the background to this appeal.
As Andrew Smith J put it at first instance (para 2): The Relevant Terms and Relevant Charges are being challenged on two fronts: the [OFT] is investigating under the [1999 Regulations] the fairness of the terms under which banks make such charges, and cases have been brought by individual customers in county courts disputing charges levied by banks, many of them relying not only on the 1999 Regulations but also on common law rules about the unenforceability of penalties.
There have, we were told, been many thousands of individual claims in the county courts, many brought by litigants in person with the assistance of on line forms and advice.
All or virtually all of these proceedings have been stayed to await the outcome of these proceedings.
The volume of litigation speaks for itself as to the dissatisfaction (to use no stronger an expression) felt by many thousands of customers affected by the challenged charges.
In March 2007, following complaints made to it, the OFT started a formal investigation of the fairness of terms relating to overdraft charges (these were referred to in the pleadings and in the lower courts as the Relevant Terms and the Relevant Charges and it is convenient to adopt the same terminology).
At the same time the OFT began a market study in order to consider (in the words of the first witness statement of Mr Cavendish Elithorn, a senior director of the OFT) wider questions about competition and value for money in the provision of personal current accounts in the UK, such as: (a) the low levels of cost transparency and; (b) the ease with which consumers can switch accounts.
At an early stage of the investigation the banks raised a preliminary objection based on Regulation 6(2) of the 1999 Regulations.
The same issue had been raised in many individual claims in the county courts.
In order to resolve the issue, and in accordance with written agreements reached between the OFT and the banks, the OFT on 27 July 2007 issued proceedings in the Commercial Court seeking a declaration that Regulation 6(2) did not apply to the banks Relevant Terms then current.
The banks, in order to obtain a more comprehensive answer covering related issues raised in individual claims, counterclaimed not only for declarations to the opposite effect to those sought by the OFT (including an express declaration as to plain and intelligible language) but also for further declarations that their Relevant Terms were not capable of amounting to a penalty at common law, and declarations relating to good faith under regulation 5(1).
These issues were raised both in relation to the banks then current sets of terms and in relation to terms which were no longer current.
The judge heard argument only on the then current terms, for case management reasons.
But our decision is likely to cover almost all the historic terms as well.
We were told that the OFT and the banks have so far been able to agree that the lower courts decisions on the current terms should be treated as applicable to the historic terms as well.
In these circumstances Andrew Smith J had three groups of issues to decide: issues as to Regulation 6(2) (including particular issues as to plain intelligible language); issues as to Regulation 5(1); and issues as to common law penalties.
He gave judgment on 24 April 2008 after 14 days of hearings during January and February 2008.
His judgment ([2008] EWHC 875 (Comm), [2008] 2 All ER (Comm) 625) runs to 450 paragraphs and the Court of Appeal rightly paid tribute to its quality and clarity.
In brief, the judge decided the issues as follows (the paragraph numbers specified below being the conclusions at the end of the relevant discussion): (1) on the first group of issues, that the Relevant Terms were in plain intelligible language except (in the case of four banks) in certain specific and relatively minor respects (para 293); that they were not exempt under Regulation 6(2) from assessment in point of fairness (para 421); and that the excluded assessment construction was correct (para 436); that none of the terms amounted to the imposition of a common law (2) penalty (para 323); and (3) that it was inappropriate to give any declaratory relief as regards Regulation 5(1) (para 447).
The banks appealed, with the permission of the judge, against the decision that Regulation 6(2) did not apply to the Relevant Charges.
The judge refused permission to the four relevant banks on the plain intelligible language issue.
The OFT did not seek to appeal but put in a respondents notice with further grounds for supporting the judges decision on Regulation 6(2).
The argument in the Court of Appeal was therefore mainly focused on the scope of Regulation 6(2).
The Court of Appeal (Sir Anthony Clarke MR, Lord Justice Waller V P and Lloyd LJ), in a judgment of the Court delivered on 26 February 2009 by the Master of the Rolls ([2009] EWCA Civ 116), dismissed the banks appeal for reasons which the Court described (para 112) as somewhat broader than those of the judge.
The Court refused to extend the permission to appeal to the plain intelligible language issue.
The banks further appeal to the House of Lords (with leave granted on 31 March 2009) was heard in June 2009 but our judgment is (under transitional provisions in the Constitutional Reform Act 2005 and the Supreme Court Rules) a judgment of the Supreme Court of the United Kingdom.
The Relevant Terms and Charges
It will be necessary to come back to a detailed consideration of the Court of Appeals reasoning, which Mr Sumption has subjected to robust criticism.
But I must first say more about the Relevant Terms and the Relevant Charges of the banks.
They are the material to which Regulation 6(2), properly construed, has to be applied.
The Relevant Terms and the Relevant Charges were covered in detail in the pleadings, and annexes to the pleadings.
There is a clear summary in annexes B E to the OFTs joint reply and defence to the counterclaims.
The judge gave a general description of the operation of current accounts and authorised and unauthorised overdrafts (paras 42 82).
He then (in order to deal with a range of questions as to plain intelligible language) covered a mass of detail in a masterly fashion.
His summaries of the eight banks terms and charges starts with Abbey National (paras 130 154) and ends with Royal Bank of Scotland (paras 274 292).
This part of his judgment has not been challenged in any way, and the Court of Appeal adopted it.
For present purposes it is sufficient to set out the summary in paras 7 and 8 of the Statement of Facts and Issue agreed by the parties: There are four basic categories of Relevant Charges, as defined in the Judgments below, not all of which are charged by all Banks: Unpaid Item Charges; Paid Item Charges; Overdraft Excess Charges; and Guaranteed Paid Item Charges. a.
An Unpaid Item Charge is levied when the customer gives an instruction for payment or, in some cases at least withdrawal, that the bank declines to honour because the customer does not have sufficient funds in his account or an arranged facility which covers it. b. A Paid Item Charge is levied when the customer gives an instruction for payment or, in some cases at least withdrawal, for which he does not have sufficient funds in his account, or an arranged facility which covers it, and which the bank honours. c.
A Guaranteed Paid Item Charge refers to a charge distinct from a Paid Item Charge which some of the banks levy when they honour, in accordance with the guarantee, a cheque issued in conjunction with a cheque guarantee card (or, in the case of some banks, a debit card payment made under a guaranteed debit payment system) for which the customer does not have sufficient funds or a sufficient arranged facility. d.
An Overdraft Excess Charge is levied if, during a specified period (typically a day or a month) an account is and/or goes overdrawn (and there is no overdraft facility), or the debit balance is and/or goes above the limit on an existing overdraft facility.
Annexed hereto are summaries (one for each bank) that identify the relevant contractual documents, the Relevant Terms and the Relevant Charges.
In all cases, there is a terms and conditions document, and an accompanying leaflet or tariff, which it is the Banks practice to make available to the customer as part of the process of opening the account.
This litigation assumes the incorporation of the Relevant Terms into the contract between the Banks and their respective customers.
The Banks standard rates of interest and charges are usually set out in the tariff/leaflet.
Prior notice of any material changes in the tariff (or terms generally) has to be given to the customer under the terms of the Banking Code to which the Banks voluntarily subscribe.
The opposing arguments in summary
The appeal has been argued with conspicuous clarity and skill by Mr Sumption and Mr Vos QC (the latter instructed on behalf of Nationwide) for the banks and Mr Crow for the OFT.
This brief summary is no more than a sketch drawing attention to some salient points.
The general thrust of Mr Sumptions submissions for the banks was that both the judge and the Court of Appeal had adopted an over complicated approach to an issue which, however important both for the consumers and for the banks, is ultimately quite a short point of construction.
Article 4(2) of the Directive, now transposed by Regulation 6(2) of the 1999 Regulations, is expressed in fairly simple and non technical language, as is appropriate for a Community measure which has to be applied across a variety of national systems of contract law.
It represents a compromise between consumer protection and freedom of contract.
The courts below, in seeking to identify and give effect to the underlying purpose of the Directive, misread Regulation 6(2) as concerned (in paragraph (b) as well as in paragraph (a)) only with what was a core or essential part of the bargain, to which the consumer may be supposed to have consented in a meaningful sense.
The courts below had overlooked that core term, if that expression is to be used at all, must be understood as no more than shorthand for the contents of paragraphs (a) and (b).
Mr Vos supplemented Mr Sumptions submissions by what he referred to as the debit/credit argument, which focuses on the fact that customers who incur Relevant Charges will view the essence of their contract with the bank differently from those customers who never (or rarely) incur those charges.
Against that Mr Crows primary submission was that the Court of Appeal had reached the right conclusion for the right reasons.
The fairness of payment obligations falling within Regulation 6(2)(b) is exempt from assessment in point of adequacy (appropriateness) only if they form part of the essential bargain between the parties.
The essential bargain constitutes only so much of the contract as the consumer can be said to have consented to freely.
The banks had misunderstood the travaux prparatoires and drawn the wrong conclusion from them.
The Court of Appeals decision was supported by the decision of the House of Lords in First National Bank.
The Relevant Charges were ancillary payment obligations and were not incurred in the normal performance of the contract.
The typical consumer would not clearly recognise them as the price of services supplied by the banks in exchange.
The Court of Appeal's reasoning
It is therefore necessary for the Court to look closely at the Court of Appeals reasoning.
The general structure of the reasoning on the construction issue is a summary, with some discussion, of the judges main conclusions (paras 12 to 22); discussion of First National Bank (paras 40 to 58), the travaux prparatoires (paras 59 to 69), academic writings (paras 70 to 80) and the relevant principles and the Courts conclusions on the issue of construction (paras 81 to 92).
This is followed by a relatively short section (paras 93 to 112) applying the Courts conclusions to the facts.
The first point to note (in order to get it out of the way) is the Courts treatment of the excluded terms/excluded assessment controversy which the judge had dealt with at some length.
This point arose on the wording of Regulation 3(2) of the 1994 Regulations (and may have been one of the reasons for their replacement).
It may appear an abstract point but it is potentially of great practical importance, as Lord Phillips explains in his judgment (paras 60 and 61).
The judge put the issue in these terms (para 422): If Regulation 6(2)(b) applies to a term, is any assessment of its fairness excluded (the excluded term construction), or does the Regulation exclude only an assessment relating to the adequacy of the price (the excluded assessment construction)? He decided in favour of the excluded assessment construction and that was not challenged in the Court of Appeal or before this Court.
Mr Sumption described it as a distraction.
For present purposes, I am inclined to agree.
The precise nature of the exercise in assessing the fairness of a reviewable term is no more than marginally relevant to deciding whether or not a term is reviewable in the first place.
But in the long run it may become an issue of great practical importance.
The Court of Appeal then addressed the issue whether paras (a) and (b) of Regulation 6(2) should be construed conjunctively (as the OFT had argued before the judge) or disjunctively (as the banks had argued).
The judge decided that they should be construed disjunctively.
The Court of Appeal commented (para 15): The OFT does not challenge his decision.
We do not therefore express a different view, although in our opinion it is important to construe paragraph (b) of Regulation 6(2)(b) in the context of the whole of the Regulation including paragraph (a).
Here the Court of Appeal was, I think, putting down a marker for what was to become one of the most important themes in its decision.
I have to say that I do not find it particularly helpful to consider whether paragraphs (a) and (b) should be read conjunctively or disjunctively.
The Court is not faced with a text (such as charitable or benevolent in the will of Caleb Diplock: Chichester Diocesan Fund & Board of Finance v Simpson [1944] AC 341, 349, 369) where the two approaches are stark alternatives.
In my view the two paragraphs must be given their natural meaning, and read in that way they set out tests which are separate but not unconnected.
They reflect (but in slightly different ways) the two sides (or quid pro quo) of any consumer contract, that is (a) what it is that the trader is to sell or supply and (b) what it is that the consumer is to pay for what he gets.
The definition of the former is not to be reviewed in point of fairness, nor is the adequacy (appropriateness) of the latter.
The Court of Appeal then discussed First National Bank at some length, focusing (entirely correctly, in my opinion) on Lord Binghams and Lord Steyns description of the relevant clause as a default provision.
The Court also focused on Lord Binghams description of it as ancillary and Lord Steyns description of it as subsidiary.
That led to what I regard as a more questionable conclusion (para 49): As we see it, it follows from the reasoning of the House of Lords that what article 4(2) of the Directive was seeking to exclude from the assessment required by the national authorities (here the OFT) was the core bargain or the core price but not ancillary or incidental provisions.
In our judgment, Regulation 6(2) of the 1999 Regulations should be construed with that underlying purpose in mind.
The Court went on similarly (para 52): In our view these considerations support the conclusion that the purpose of Regulation 6(2)(b) was to limit the exclusion to the essence of the price, just as the purpose of Regulation 6(2)(a) was to limit it to the main subject matter of the contract.
As appears below, the reason for the limitation was to reflect the fact that the parties would be likely to (or might well) negotiate the main subject matter of the contract and the essential price but not the detail.
The considerations referred to were that Regulation 6(2)(b) referred to the price or remuneration and not to part of the price or remuneration.
This impressed both the judge and the Court of Appeal.
I do not see much force in it, as the Directive is expressed in terse, simple language, and the 1999 Regulations follow the same style.
This part of the Court of Appeals reasoning ends with a firm conclusion.
After approving the judges reliance on passages in successive editions of Treitel (11th ed. (2003) p273 and 12th ed. (2007) para 7 101) the Court went on (para 55): This last point is of some importance because the Banks submit that, once the conjunctive construction has been rejected, there is no room to apply the principle of essential bargain to price clauses, if only because of the difficulty in deciding to which it applies and to which it does not.
We are not able to accept that submission.
We accept the OFTs submission that it all depends upon the circumstances of the particular case and that it is a question of fact whether a clause which might otherwise fall to be assessed is outside the essential bargain between the parties.
The Court found support for this not only in First National Bank but also in the travaux and in some academic writings.
It identified the purpose of the Article 4(2) exception as being (para 69) that standard form contracts should be subjected to a test of fairness except so far as their terms have been negotiated (the implication being that it was essential terms, both as to specification and as to price, that a consumer would actually negotiate).
Therefore (para 69 (iii)): Ancillary or incidental price, remuneration or payment terms will not fall within the exception in article 4(2) because they do not fulfil the purpose or essential rationale of the exception.
The Court noted that a similar view had been taken in a Joint Consultation Paper issued in 2001 by the Law Commission and the Scottish Law Commission (though paragraph 3.32 of the Paper, set out in para 79 of the judgment, is expressed in terms of understanding rather than consent).
The next section of the judgment contains a discussion of the relevant principles of construction followed by a restatement of the conclusion that the Court had already reached (para 86): The question is whether to import the notion of essential bargain into the construction of article 4(2) and into both paragraphs (a) and (b) of Regulation 6(2).
Our answer to that question is yes, essentially for the reasons we have already given when discussing the First National Bank case and the travaux prparatoires.
We would summarise them in much the same way as Mr Crow did in the course of the oral argument: (i) The concept of the essential bargain flows naturally from the structure of the Directive, from the purpose of the Directive, from the purpose of the exemption and from the decision in the First National Bank case.
These points are then elaborated in (ii), (iii) and (iv).
The Court of Appeal then went on to consider whether the Relevant Terms and the Relevant Charges were or formed part of the essential or core bargain between the parties.
The Court recorded (para 99) fifteen points made by Mr Crow, the general thrust of which was that an unauthorised overdraft was something to which a customer was not entitled; it was exceptional and unnecessary; in consequence Relevant Charges were contingent, uneconomic, unadvertised and imperfectly understood.
Against this Mr Vos (leading the banks submissions in response to the fifteen points made by Mr Crow) pointed (para 101) to the banks having earned 2.56bn from Relevant Charges in 2006 (against 4.1bn in net interest earned on accounts in credit) and to over 12 million customers who had incurred Relevant Charges in that year.
The majority of these incurred more than one Relevant Charge.
In the circumstances it was wrong, Mr Vos submitted, to say that they were isolated incidents.
It was a misuse of language to describe unarranged borrowing as an exception to an exception.
The Court concluded (para 104): We say at once that there is undoubted force in these submissions but we have nevertheless reached the conclusion that, when all the circumstances are taken into account, the Relevant Charges are not part of the core or essential bargain in the sense that that concept has been used in the sources to which we have referred.
The appeal was therefore dismissed.
The decision of the Court of Appeal was followed by Mann J. in Office of Fair Trading v Foxtons Ltd [2009] EWHC 1681 (Ch), 10 July 2009.
We received written submissions on this decision.
The submissions vary markedly in their perceptions of how easily and satisfactorily the judge applied the Court of Appeals test (which was of course binding on him).
I do not think it necessary to go further into the decision, especially as the relevant term was in any event not in plain intelligible language.
The meaning of Regulation 6(2)
After considering the judgments of Andrew Smith J and the Court of Appeal at length I am impressed, as no doubt all of us are, by the great care with which both courts have considered all the arguments and materials put before them.
But I must respectfully say that I see force in Mr Sumptions criticisms of their approach as over elaborate.
The issue is a very important one, but it is essentially quite a short point, even when all the elements relevant to a purposive approach to construction are taken into account.
I also respectfully think that the courts below, although cautioning themselves that core terms is a shorthand expression for the contents of paragraphs (a) and (b) of regulation 6(2), tended to slip into treating it as an autonomous expression which itself expressed the contents of both those paragraphs.
I start with the language of Article 4(2) and Regulation 6(2) (I can see no significant difference between them, although for no obvious reason Article 4(2) refers to assessing the unfair nature of a term whereas Regulation 6(2) refers to assessment of fairness of a term).
Paragraphs (a) and (b) are, as I have said, concerned with the two sides of the quid pro quo inherent in any consumer contract.
The main subject matter may be goods or services.
If it is goods, it may be a single item (a car or a dishwasher) or a multiplicity of items.
If for instance a consumer orders a variety of goods from a mail order catalogue say clothing, blinds, kitchen utensils and toys there is no possible basis on which the court can decide that some items are more essential to the contract than others.
The main subject matter is simply consumer goods ordered from a catalogue.
I think that the Court of Appeal was wrong (para 55) to dismiss the difficulties raised by the banks on this point as something that the court could decide as a question of fact in the circumstances of the particular case.
Similarly, a supply of services may be simple (an entertainer booked to perform for an hour at a childrens party) or composite (a weeks stay at a five star hotel offering a wide variety of services).
Again, there is no principled basis on which the court could decide that some services are more essential to the contract than others and again the main subject matter must be described in general termshotel services.
The services that banks offer to their current account customers are a comparable package of services.
These include the collection and payment of cheques, other money transmission services, facilities for cash distribution (mainly by ATM machines either at manned branches or elsewhere) and the provision of statements in printed or electronic form.
When one turns to the other part of the quid pro quo of a consumer contract, the price or remuneration, the difficulty of deciding which prices are essential is just the same, and Regulation 6(2)(b) contains no indication that only an essential price or remuneration is relevant.
Any monetary price or remuneration payable under the contract would naturally fall within the language of paragraph (b) (I discount the absence of a reference to part of the price or remuneration for reasons already mentioned).
In the case of banking services supplied to a current account customer under the free if in credit regime, the principal monetary consideration received by the bank consists of interest and charges on authorised and unauthorised overdrafts, and specific charges for particular non routine services (such as expedited or foreign money transmission services).
The most important element of the consideration, however, consists of the interest forgone by customers whose current accounts are in credit, since whether their credit balance is large or small, they will be receiving a relatively low rate of interest on it (sometimes a very low rate or no interest at all).
The scale of this benefit is indicated by the figure for 2006 already mentioned.
Mr Sumption was wary about committing himself as to whether interest foregone constituted part of the banks price or remuneration for the purposes of Regulation 6(2)(b).
Whatever view is taken as to that, it is clear that just as banking services to current account customers can aptly be described as a package, so can the consideration that moves from the customer to the bank.
Interest forgone is an important part of that package for customers whose accounts are in credit, and overdraft interest and charges are the most important element for those customers who are not in credit.
Lawyers are very used to speaking of a package (or bundle) of rights and obligations, and in that sense every obligation which a consumer undertakes by a consumer contract could be seen as part of the price or remuneration received by the supplier.
But non monetary obligations undertaken by a consumer contract (for instance, to take proper care of goods on hire purchase, or to treat material supplied for a distance learning course as available only to the customer personally) are not part of the price or remuneration within the Regulation.
That is the point of Lord Steyns observation in First National Bank, in para 34, that in a broad sense all terms of the contract are in some way related to the price or remuneration.
This Houses decision in First National Bank shows that not every term that is in some way linked to monetary consideration falls within Regulation 6(2)(b).
Paras (d), (e), (f) and (l) of the greylist in Schedule 2 to the 1999 Regulations are an illustration of that.
But the relevant term in First National Bank was a default provision.
Traders ought not to be able to outflank consumers by drafting themselves into a position where they can take advantage of a default provision.
But Bairstow Eves London Central Ltd v Smith [2004] 2 EGLR 25 shows that the Court can and will be astute to prevent that.
In First National Bank Lord Steyn indicated that what is now Regulation 6(2) should be construed restrictively, and Lord Bingham said that it should be limited to terms falling squarely within it.
I respectfully agree.
But in my opinion the Relevant Terms and the Relevant Charges do fall squarely within Regulation 6(2)(b).
That conclusion is not to my mind at variance with the message to be derived from the travaux.
It is a fairly complex message, reflecting not only a compromise between the opposing aims of consumer protection and freedom of contract, but also the contrast between consumer protection and consumer choice (the latter being more central, perhaps, to basic Community principles).
This point was explored and explained in an article (not mentioned by the Court of Appeal) to which Mr Sumption referred, that is Good Faith in European Contract Law by Professor Hugh Collins, (1994) 14 OJLS 229.
Mr Sumption placed particular emphasis on the following passage: The history of the EC Directive on Unfair Terms in Consumer Contracts reveals the struggle between these two interpretations of the economic interests of consumers.
Even at a late stage in the negotiations, the draft Directive proposed by the Commission envisaged the introduction of a general principle against substantive unfairness in consumer contracts.
It invalidated terms in standard form consumer contracts which caused the performance of the contract to be significantly different from what the consumer could legitimately expect, or which caused the performance of the contract to be unduly detrimental to the consumer.
But in the battle between the advocates of consumer rights and the supporters of free competition, eventually the latter emerged victorious in the Council of Ministers.
The fairness of the transaction in the sense of the price paid for the goods or services should not be subjected to review or control.
This is the meaning of the obscure Article 4(2) [which is then set out].
The final reservation in this provision [plain intelligible language] is significant.
The Directive does not require consumer contracts to be substantively fair, but it does require them to be clear.
Clarity is essential for effective market competition between terms.
What matters primarily for EC contract law is consumer choice, not consumer rights.
The Court of Appeal took account of the travaux and of some academic writing.
It recognised as an underlying value the notion that freedom of contract should prevail where there has been meaningful negotiation between supplier and consumer, so that the latter does consent to the terms of the contract.
But I respectfully think the Court went too far in interpreting the language of the Directive and the 1999 Regulations in order to meet that perceived aim.
The Directive and the 1999 Regulations apply only to terms which have not been individually negotiated, and the Court departed from the natural meaning of the text in order to achieve an unnecessary duplication of the exception for individually negotiated terms.
I would add a postscript to this part of the discussion.
A variety of expressions has been used, in the courts below and in argument (and to some extent by this House in First National Bank), to describe those contractual terms which are subject to review in point of fairness: ancillary, subordinate, incidental, non core, collateral.
These may all be of some assistance but it is important, in considering provisions which apply across an extraordinarily wide range of consumer contracts, to treat them with caution.
I venture to repeat a paragraph from an opinion of mine (in which the other members of the Appellate Committee concurred) in College of Estate Management v Customs & Excise Commissioners [2005] STC 1957, para 30, an appeal raising questions of Community law about whether there is a single or multiple supply, and whether it is of goods or services, for the purposes of value added tax: Ancillary means (as Ward LJ rightly observed ([2004] STC 1471 at [39]) subservient, subordinate and ministering to something else.
It was an entirely apposite term in the discussion in British Telecommunications (where the delivery of the car was subordinate to its sale) and in Card Protection Plan itself (where some peripheral parts of a package of services, and some goods of trivial value such as labels, key tabs and a medical card, were subordinate to the main package of insurance services).
But there are other cases (including Faaborg, Beynon and the present case) in which it is inappropriate to analyse the transaction in terms of what is principal and ancillary, and it is unhelpful to strain the natural meaning of ancillary in an attempt to do so.
Food is not ancillary to restaurant services; it is of central and indispensable importance to them; nevertheless there is a single supply of services (Faaborg).
Pharmaceuticals are not ancillary to medical care which requires the use of medication; again, they are of central and indispensable importance; nevertheless there is a single supply of services (Beynon).
Conversely, delivery of goods or peripheral extras may be disregarded as ancillary for the purposes of para (a) of Regulation 6(2), but the charges for them, if payable under the same contract, are part of the price for the purposes of para (b).
The application of Regulation 6(2)
I can state my opinion much more briefly on the second main issue in the appeal, that is the application of Regulation 6(2), properly construed, to the facts.
Charges for unauthorised overdrafts are monetary consideration for the package of banking services supplied to personal current account customers.
They are an important part of the banks charging structure, amounting to over 30 per cent of their revenue stream from all personal current account customers.
The facts that the charges are contingent, and that the majority of customers do not incur them, are irrelevant.
On the view that I take of the construction of Regulation 6(2), the fairness of the charges would be exempt from review in point of appropriateness under Regulation 6(2)(b) even if fewer customers paid them, and they formed a smaller part of the banks revenue stream.
Even if the Court of Appeals interpretation had been correct, I do not see how it could have come to the conclusion that charges amounting to over 30 per cent of the revenue stream were (para 111) not part of the core or essential bargain.
Should there be a reference under Article 234?
This Court, as the national court of last resort, is under an obligation to make a reference to the Court of Justice under Article 234 of the Treaty if a decision on the correct interpretation of the Directive is necessary to enable the Court to give judgment, and the point is not acte clair.
Neither side showed any enthusiasm for a reference, because of the further delay that would be occasioned in a very large number of claims at present stayed.
The Court is entitled to take the likely delay into account, although not as an overriding consideration, in deciding whether to make a reference.
If (as I understand to be the case) the Court is unanimous that the appeal should be allowed, then in my opinion we should treat the point as acte clair, and decide against making a reference.
It may seem paradoxical for a court of last resort to conclude that a point is clear when it is differing from the carefully considered judgments of the very experienced judges who have ruled on it in lower courts.
But sometimes a court of last resort does conclude, without any disrespect, that the lower courts were clearly wrong, and in my respectful opinion this is such a case.
Even if some or all of the Court feel that the point is not acte clair, I would still propose that we ought not to incur the delay involved in a reference under Article 234, since a decision on the correct construction of Article 4(2) of the Directive is not essential for the determination of this appeal.
The correct construction of Article 4(2) is a question of Community law, but the application of the Article, properly construed, to the facts is a question for national law.
Even if the Court of Appeal was not clearly wrong on the issue of construction, it was in my respectful opinion clearly wrong in applying its construction to the facts.
In other circumstances it might be regarded as rather unprincipled to take that means of avoiding an important issue of Community law, but in the special circumstances of this case I would regard it as the lesser of two evils.
There is a strong public interest in resolving the matter without further delay.
Conclusion
For these reasons I would allow the appeal.
The declaration sought by the banks in their counterclaims is inappropriate for the reasons explained by Lord Phillips at the beginning of his judgment.
I would declare that the bank charges levied on personal current account customers in respect of unauthorised overdrafts (including unpaid item charges and other related charges) constitute part of the price or remuneration for the banking services provided and, in so far as the terms giving rise to the charges are in plain intelligible language, no assessment under the Unfair Terms in Consumer Contracts Regulations 1999 of the fairness of those terms may relate to their adequacy as against the services supplied.
If the Court allows this appeal the outcome may cause great disappointment and indeed dismay to a very large number of bank customers who feel that they have been subjected to unfairly high charges in respect of unauthorised overdrafts.
But this decision is not the end of the matter, as Lord Phillips explains in his judgment.
Moreover Ministers and Parliament may wish to consider the matter further.
They decided, in an era of so called light touch regulation, to transpose the Directive as it stood rather than to confer the higher degree of consumer protection afforded by the national laws of some other member states.
Parliament may wish to consider whether to revisit that decision.
LORD PHILLIPS
Introduction
In common with most members of the public all members of the Court have a current account with one or other of the appellants (the Banks).
The Banks and the Respondent (the OFT) have agreed that we should none the less hear this appeal.
The operation of a current account by a Bank for its customer involves the provision of a number of different services.
These include the collection of cheques drawn in favour of the customer, the honouring of cheques drawn by the customer, payments on behalf of the customer pursuant to the use by the customer of credit or debit cards and cash distribution facilities.
The customer rewards his Bank for the provision of these services in different ways, in accordance with standard terms agreed between the customer and the Bank.
The majority of customers, who always keep their accounts in credit, reward the Bank by allowing it to use the funds standing to their credit without paying interest at the market rate.
Somewhat misleadingly, the services provided by Banks to such customers are said to be free of charge.
The position is very different in the case of a customer who permits his current account to go into debit without having obtained, in advance, authority from his Bank to overdraw.
When this occurs, the customer becomes liable to pay charges.
In some instances the charge will be triggered by the performance of an individual identifiable service, such as honouring a cheque.
In other instances a sum becomes payable if, during a specified period, an account is overdrawn.
These charges have collectively been described in this litigation as the Relevant Charges and the terms under which they are imposed as the Relevant Terms.
I shall adopt that terminology.
Mr Sumption QC, who appeared for the Banks, preferred to call the charges Insufficient Fund Charges.
Lord Walker has, in his judgment, explained the background to this litigation and set out the relevant provisions of the Unfair Terms in Consumer Contracts Regulations 1999 SI 1999/2083 (the 1999 Regulations) and Council Directive 93/13/EEC (the Directive), which the 1999 Regulations implemented.
Subject to one exception I shall not repeat that exercise.
The OFT is minded to attack the Relevant Terms under the 1999 Regulations on the ground that they are unfair.
The Banks contend that any such attack will be circumscribed by the provisions of Regulation 6(2) of the 1999 Regulations, which provides: In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate to the definition of the main subject matter of the (a) contract, or (b) to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.
It is common ground that the Relevant Terms that are the subject of this appeal are largely in plain intelligible language except (in the case of four banks) in certain specific and relatively minor respects.
The issue
The agreed Statement of Facts and Issue describes the issue raised by this appeal as follows: Whether an assessment of the fairness of the Relevant Terms (pursuant to which the Relevant Charges are levied) would relate to the adequacy of the price and remuneration, as against the services supplied in exchange, within the meaning of regulation 6(2)(b) of the Unfair Terms in Consumer Contracts Regulations 1999.
This does not accurately describe the issue raised by this appeal, which is very much more narrow.
That issue is whether the Relevant Charges constitute the price or remuneration, as against the services supplied in exchange within the meaning of the Regulation.
If they do not, the attack on the fairness of the terms that is open to the OFT will not be circumscribed by Regulation 6(2)(b).
If they do, they will still be open to attack by the OFT on the ground that they are unfair as defined by Regulation 5(1), but that attack cannot be founded on an allegation that the Relevant Charges are excessive by comparison with the services which they purchase, for that is forbidden by Regulation 6(2)(b).
That this was indeed the issue was made clear by counsel on either side in their oral submissions.
Towards the close of his reply, Mr Sumption QC said this: All that I can ask the courts to declare, and all that my clients have ever asked the courts to declare, is that the insufficient fund charges are included in the price within the meaning of the word price in [Regulation] 6 and that no assessment of the fairness of the terms imposing the IFCs may relate to their adequacy as against the service supplied.
Mr Crow QC for his part submitted on behalf of the OFT that even if Article 4(2) of the Directive did apply, the Relevant Terms were still subject to assessment for fairness.
In that event, while it would not be open to the OFT to assess the fairness of the price by reference to the adequacy of the goods or services supplied in exchange, it would be open to the OFT to assess the fairness of the price according to other criteria.
This agreement between the parties reflects acceptance by the Banks in the Court of Appeal of a finding by Andrew Smith J that was contrary to one of their submissions.
The Banks had submitted that a term of a contract that provided the price or remuneration for goods or services supplied was absolutely exempt from assessment for fairness by reason of Regulation 6(2).
This was described as the excluded term construction of the Regulation.
Andrew Smith J held that this was not correct.
Regulation 6(2) precluded assessing a price term for fairness by reference to its adequacy as payment for the goods or services provided in exchange.
It did not, however, preclude assessing a price term for fairness according to other criteria.
This has been described as the excluded assessment construction of the Regulation.
Mr Sumption submitted that the difference between the excluded term and the excluded assessment constructions was a distraction from the real issues.
It is certainly a distraction from the narrow issue that the parties are now agreed is before the court.
But it is only because the excluded assessment construction has prevailed that the issue has been narrowed from that in the Agreed Statement of Facts and Issue.
Had the excluded term construction prevailed, a finding in favour of the Banks that the Relevant Terms were included within the meaning of the word price in Regulation 6(2) would have precluded any challenge to those terms on the ground of fairness.
As it is, if the Banks succeed on the narrow issue, this will not close the door on the OFTs investigations and may well not resolve the myriad cases that are currently stayed in which customers have challenged Relevant Charges.
There is a further general point to be made.
It seems likely that many of the customers who have challenged Relevant Charges have done so on the basis that they are excessive for the individual services to which they relate.
They have treated the Relevant Charges as being levied in exchange for those services.
Equally, one of the provisional grounds of attack advanced by the OFT has been that the Relevant Charges are out of all proportion to the cost of providing the services to which they relate.
The Banks primary case is that these attacks are founded on a misconception that the Relevant Charges are payment for the services that trigger them.
According to the Banks the reality is that the Relevant Charges are simply part of the payment in exchange for a global package of services.
If that is correct, it would seem to follow that the attack based on the disparity between the cost of providing the services that trigger the Relevant Charges and the amount of the Relevant Charges is based on a false premise and does not in fact involve an assessment of fairness that relates to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.
This was a point that was appreciated by Andrew Smith J.
At paragraph 400 of his judgment he says: Moreover, the basis of the whole package argument is that the Relevant Charges are not the price or remuneration for services but part of the price or remuneration for services.
An assessment of the fairness of the Relevant Charges does not involve an assessment of the level or adequacy or appropriateness of the overall price or remuneration for the package of services supplied by the Bank, and an assessment of the fairness of the Relevant Charges as against those services, apart from being entirely beside the point, would not intrude upon the essential bargain between the parties that the Directive and the 1999 Regulations intend should be protected from assessment.
The whole package argument does not engage the policy of the Directive and the 1999 Regulations for exempting the fairness of the Relevant Terms from assessment.
Indeed, I am far from convinced that an assessment of part of the price or remuneration (or at least for less than what is manifestly the predominant part of the price or remuneration) for goods or services would ever be covered by Regulation 6(2)(b), but since this is not an argument advanced by the OFT, I say no more about that.
Mr Crow did not submit before us that if the Relevant Charges formed part of the price paid in exchange for the package of services, they could not be included within the meaning of the word price in Regulation 6(2).
I consider that Regulation 6(2) could apply to a complaint that the Banks charges overall, of which the Relevant Charges are an important element, are unfair because those who pay them pay an excessive amount in exchange for the package of services in respect of which they constitute part of the payment.
Thus the issue of whether or not the Relevant Charges form part of the price or remuneration, as against the goods or services supplied in exchange within Regulation 6(2) is not necessarily academic.
No attack has yet been made, however, on the level of the Banks charges overall.
The reasoning of the Courts below
Both Andrew Smith J and the Court of Appeal concluded that the Relevant Terms did not qualify as price or remuneration within the meaning of those words in Regulation 6(2).
At the heart of the reasoning of Andrew Smith J was the conclusion that the Relevant Charges were not covered by Regulation 6(2) because they were not the price or remuneration for services supplied in exchange.
They were not charged in exchange for anything.
While most of the charges were triggered by the provision of an individual service they were not imposed by way of payment for those services.
They were charges levied because the services in question were supplied by the Banks in particular circumstances.
One of the four types of Relevant Charges was not triggered by the provision of a service.
Unpaid Item Charges were levied when a request to honour a cheque on an overdrawn account was refused.
Refusing a request could not properly be described as a service at all.
Andrew Smith J rejected the Banks case that the Relevant Charges were part payment for the entire package of services provided by the Banks to current account customers for the following reasons: I am unable to accept this argument, for two (linked) reasons.
First, I do not consider that the payments are made in exchange for the whole package of services supplied by the Bank when it is operating a current account.
It is not a natural use of language to say that the Relevant Charges are levied or paid in exchange for those services supplied when an account is in credit.
Secondly, I do not consider that the payments are the price or remuneration for those services in any natural meaning of the phrase or within the meaning of Regulation 6(2).
The payments would not be so recognised by the typical customer when he opens a current account with a Bank, and they are not generally so presented by the Banks in their terms or other documentation.
The Court of Appeal reached the same conclusion as Andrew Smith J, but by a different process of reasoning.
Lord Walker has set out that reasoning at length.
Once again I shall restrict myself to the essence of the Courts conclusion.
In relation to Unpaid Item Charges the Court held that giving consideration to a request to honour a cheque on an overdrawn account was a service, even if the request was turned down.
Thus each of the events that triggered a liability to pay Relevant Charges involved the provision of a service.
It was not, however, realistic to consider that each Relevant Charge was payment for the individual service that occasioned its imposition.
Rather, the substance of the contract had to be analysed as a package.
The Court then went on to divide the package into the core or essential bargain and provisions that were incidental or ancillary, holding that Regulation 6(2) only applied to the former.
The core or essential bargain was comprised of those matters to which the typical consumer would have regard when deciding whether to enter into the agreement with the Bank.
The latter would be those to which he would not attach importance when concluding the contract.
The Court decided that charges which were contingent upon the customer overdrawing on his current account would not have been considered of significance by the typical customer at the time of establishing the account.
The charges would only be imposed in contingent circumstances and were akin to default charges triggered by a breach of contract, although they were not in fact triggered by a breach of contract because of the manner in which the contractual relationship had been expressly framed.
The customer would not consider the contingent liability to pay the Relevant Charges in the event of overdrawing on his account an essential part of the Banks agreement to provide these services without charge provided that he remained in credit.
It followed that the liability to pay the Relevant Charges was not part of the core or essential bargain and did not fall within the ambit of Regulation 6(2).
The approach to the issue
Early in his argument Mr Sumption said: [T]here isroom for argument about whether the insufficient fund charges are part of the price for the package of services or just the particular service which occasions their being charged, but we will submit that it is unrealistic to say, as the judge did, that insufficient fund charges are not payable in exchange for any service at all and are, therefore, not a price at all.
This raises the questions by what criteria do you decide whether the charges are payment for services, if so, whether individual charges are payments for individual services or part payment for a package of services, and from whose viewpoint do you decide those questions? So far as the latter question is concerned, the choice would appear to be between the viewpoint of the customer, having regard to the facts that he would reasonably be expected to know, the viewpoint of the Banks, having regard to the more extensive knowledge held by the Banks, or no viewpoint at all, on the basis that these questions have to be answered by application of an objective test to all the material facts.
There is an allied question of whether the language used to describe the obligations imposed by the terms is relevant or whether one looks simply at the nature and effect of those obligations.
The narrow issue raised by this appeal is only relevant as part of the wider issue that will arise if and when the Relevant Terms are challenged as being unfair.
At that point the question may arise are the terms being challenged on the ground that the Relevant Charges are excessive having regard to the services that are provided in exchange for them? The court before which the challenge is made may then have to decide whether any, and if so what, services are provided in exchange for the Relevant Charges as a stepping stone to deciding whether the challenge is one precluded by Regulation 6(2).
To answer that question the court will, in my view, properly have to consider the role played by the Relevant Charges having regard to all the facts that are relevant to the operation of the contractual adventure and not just to those that are, or reasonably should be, within the knowledge of the customer.
Conclusions
I wish to express my admiration for the detailed and perceptive analysis of Andrew Smith J, although I do not share all the conclusions that he reached.
He examined each of the Relevant Charges and the circumstances in which they fell to be paid.
He concluded that it was impossible to say that each charge was given in exchange for the event that triggered it.
I agree with that conclusion.
It accords, of course, with the primary way in which the Banks put their case.
The same conclusion would, I think, have been reached by a reasonably informed customer who applied his mind to the question.
In each instance the Judge identified aspects of the provisions for payment of the Relevant Charges that would be anomalous if they were intended to be paid in exchange for the service to which they related.
I will take one of the charges made by Barclays to illustrate such anomalies.
A Paid Referral Fee is charged when the Bank honours a cheque, standing order or direct debit in circumstances where the account is overdrawn without prior arrangement.
The fee is not charged per transaction but at 30 per day.
But the fee is only charged on a maximum of three days per month.
A customer would not conclude that the fee was charged in exchange for the transaction or transactions concluded on the days when the charges were made but that any other similar transactions in the course of the month were provided free.
I agree with Andrew Smith J that a careful analysis of the transactions giving rise to the obligation to pay the Relevant Charges leads to the conclusion that they are not the prices paid in exchange for the transactions in question.
I shall revert to the Judges rejection of the Banks case that the Relevant Charges were part of the remuneration paid for the package of services provided to holders of current accounts.
First I wish to address the reason why the Court of Appeal rejected that case.
The Court of Appeal accepted that the contract between the Bank and its customer had to be treated as a package.
They did not exclude from the package services that were supplied at a time when the current account was overdrawn.
They accepted that the Relevant Terms were terms that provided for payment of price or remuneration.
They held, however, that they were not core payment terms but ancillary or incidental price, remuneration or payment terms (paragraph 69(iii)) which did not constitute price or remuneration that fell within Regulation 6(2).
I can see no justification for excluding from the application of Regulation 6(2) price or remuneration on the ground that it is ancillary or incidental price or remuneration.
If it is possible to identify such price or remuneration as being paid in exchange for services, even if the services are fringe or optional extras, Regulation 6(2) will preclude an attack on the price or remuneration in question if it is based on the contention that it was excessive by comparison with the services for which it was exchanged.
If, on analysis, the charges are not given in exchange for individual services but are part of a package of different ways of charging for a package of varied services, this does not mean that they are not price or remuneration for the purpose of Regulation 6(2).
As I observed earlier, an assessment of the fairness of the charges will be precluded if the basis of the attack is that, by reason of their inclusion in the pricing package, those who pay them are being charged an excessive amount in exchange for the overall package.
The Court of Appeal accepted the following argument advanced by the OFT.
The object of Regulation 6(2) is to exclude from assessment for fairness that part of the bargain that will be the focus of a customers attention when entering into a contract, that is to say the goods or services that he wishes to acquire and the price he will have to pay for doing so.
Market forces could and should be relied upon to control the fairness of this part of the bargain.
Contingencies that the customer does not expect to involve him will not be of concern to him.
He will not focus on these when entering into the bargain.
The Relevant Charges fall into this category.
Free if in credit current accounts are opened by customers who expect to be in credit.
Customers who go into debit without making a prior agreement for an overdraft normally do so because of an unforeseen contingency.
Customers do not have regard to the consequences of such a contingency when opening a current account.
Accordingly, the Relevant Charges that are then levied do not fall within Regulation 6(2).
It seems to me that this reasoning is relevant not to the question of whether the Relevant Charges form part of the price or remuneration for the package of services provided but to whether the method of pricing is fair.
It may be open to question whether it is fair to subsidise some customers by levies on others who experience contingencies that they did not foresee when entering into their contracts.
If it is not it may then be open to question whether the Relevant Terms fall within Regulation 5(1).
These questions do not, however, bear on the question of whether the Relevant Charges form part of the price or remuneration that is paid in exchange for the services provided to the holder of a current account.
In agreement with Lord Walker, and for the additional reasons that he gives, I am not persuaded by the Court of Appeals reasons for excluding the Relevant Charges from the price or remuneration in Regulation 6(2).
I now turn to the reasons given by Andrew Smith J for rejecting the Banks case
that the Relevant Charges are part of a package of prices or remuneration paid for a package of services see paragraph 67 above.
First he says that it is not a natural use of language to say that the Relevant Charges are levied or paid in exchange for those services supplied when an account is in credit.
It does not seem to me that this does full credit to the package approach.
I do not imagine that there are many customers who run a current account that is permanently overdrawn in circumstances where they have not specifically agreed an overdraft facility.
Most customers who incur Relevant Charges run current accounts that are in credit most of the time.
I do not think that it is an unnatural use of language to say that the Relevant Charges that they pay are paid as part of the price or remuneration provided in exchange for the package of services that they receive.
If the Relevant Charges are not part of the price or remuneration for the services
provided, the question arises of how the charges should be classified.
The answer suggested on behalf of the OFT is that they are in the nature of default payments, imposed not as a hefty element in the price that the Banks hope that customers will pay for their services but by way of sanctions to discourage them from overdrawing on their current accounts.
At paragraph 107 the Court of Appeal held: [The Relevant Charges] areakin to default charges which are triggered by a breach of contract.
Although they are not in fact triggered by a breach of contract because of the manner in which the contractual relationship has been expressly framed, this does not mean that they are not
contingent charges
Andrew Smith J considered at paragraphs 295 to 324 whether the Relevant Charges were penalties at common law so as to be unenforceable for that reason.
He held that they were not because a penalty at common law is a payment that becomes payable upon a breach of contract.
Liability to pay Relevant Charges is not contingent upon breaches by the customers of their contracts.
It is not a breach of any of the standard form contracts under consideration to overdraw, or attempt to overdraw, on a current account.
Mr Sumption rightly conceded, however, that the Banks could not convert what were in effect penalties into price simply by wording their contracts so as to ensure that the contingencies that triggered liability to pay the charges did not constitute breaches of contract.
Mr Crow argued that the Court of Appeal was correct to describe the Relevant Charges as akin to default charges.
They were only payable in what he described as aberrant circumstances.
He pointed out that many of the terms that give the impression that the charges are the cost of exercising contractual options are of recent origin.
Contracts that preceded them had terms which indicated that customers were not to go into overdraft without prior arrangement, even if doing so was not technically a breach of contract.
He pointed out that this is still true of the following current term of the Nationwide Building Societys terms: Your FlexAccount is a share of Nationwide Building Society.
It will give membership rights to the account holder(s).Your membership may be withdrawn if you overdraw without agreement or exceed an agreed overdraft.
Mr Sumption challenged that submission.
He submitted that, at a time when virtually the whole population had a personal current account, the ability to overdraw informally and at short notice and without elaborate negotiation was an important tool of personal finance management.
It was an extremely valuable facility, not properly to be described as an aberration.
Andrew Smith J rejected the OFTs submission that the Banks terms that treat an instruction that involves overdrawing as a request for an overdraft were misleading.
He held: 75.
Thus, apart from Nationwide, the Banks terms and conditions are couched in terms of the customer making a request of the Bank and the Bank responding to it, and in some cases they refer to the Bank considering the request.
The OFT criticises this terminology as an artificial device recently introduced which disguises the true nature of the parties dealings when a customer gives his bank an instruction which would, if paid, take the account into debit.
Similarly, the OFT suggests that the use of the term overdraft to describe the debit balance created in these circumstances has misleading connotations, and emphasises the differences between the debit balance resulting from such a payment and an overdraft facility that a bank and a customer might agree should be available on an account. 76.
Certainly, this terminology has been introduced by the Banks into their documentation relatively recently.
However, I am unable to accept that the references to the customer making a request for an overdraft when he gives a Relevant Instruction are inappropriate or create a fiction.
On the contrary, they spell out what is, as a matter of legal analysis, implicitly done when a customer gives a Relevant Instruction.
Of course, there are differences between any resulting overdraft and a facility arranged by a specific agreement between a customer and his bank.
A facility for an overdraft typically, and as provided by the Banks under their current terms (to which I refer below), commits the bank to allow the customer to overdraw on his account for as long as the facility is in place and within its limits, and, while of course it is possible for a facility to be confined to use for a stipulated purpose, it does not typically cover only a specific payment by the customer.
If a fee is charged, it is generally for the facility itself, regardless of whether it is in fact used by the customer to borrow or how much it is so used. (None of the Banks charges a customer for requesting a facility in advance if the request is refused.) However, none of this means that it is misleading to use the expression overdraft to refer either to a facility or to borrowing under a facility or to unarranged borrowing.
To my mind the expression is flexible enough naturally to encompass all these usages.
As Mr Sumption observed there has been no appeal against this finding.
In support of his submissions Mr Sumption relied upon the fact that a very significant number of customers incur Relevant Charges and upon the overall contribution that these charges make to the revenue earned by the Banks from operating current accounts.
In the region of 20% of customers incur Relevant Charges but these account for over 30% of the revenue received by the Banks from current account customers.
This compares with about 50% that represents the benefit of the use by the Banks of the funds in the accounts of customers who are in credit.
When the relevant facts are viewed as a whole, it seems clear that the Relevant Charges are not concealed default charges designed to discourage customers from overdrawing on their accounts without prior arrangement.
Whatever may have been the position in the past, the Banks now rely on the Relevant Charges as an important part of the revenue that they generate from the current account services.
If they did not receive the Relevant Charges they would not be able profitably to provide current account services to their customers in credit without making a charge to augment the value of the use of their funds.
For these reasons I have formed the conclusion that the Relevant Charges are, as the Banks submit, charges that they require their customers to agree to pay as part of the price or remuneration for the package of services that they agree to supply in exchange.
My conclusions accord with those of Lord Walker and, for the reasons that he gives as well as my own, I would allow this appeal.
I have not found this an easy case and I do not find the resolution of the narrow issue before the court to be acte clair.
I agree, however, that it would not be appropriate to refer the issue to the European Court under Article 234.
I do not believe any challenge to the fairness of the Relevant Terms has been made on the basis that they cause the overall package of remuneration paid by those in debit to be excessive having regard to the package of services received in exchange.
In these circumstances the basis on which I have answered the narrow issue would seem to render that issue academic.
It may be that, if and when the OFT challenges the fairness of the Relevant Terms, issues will be raised that ought to be referred to Luxembourg.
That stage has not yet been reached.
LADY HALE
For the reasons given by Lord Walker and Lord Mance, I too would allow this appeal and make the declaration proposed by Lord Walker.
I would only add that, should this or any other Parliament be minded to take up the invitation given in the last paragraph of Lord Walkers judgment, it may not be easy to find a satisfactory solution.
The banks may not be the most popular institutions in the country at present, but that does not mean that their methods of charging for retail banking services are necessarily unfair when viewed as a whole.
As a very general proposition, consumer law in this country aims to give the consumer an informed choice rather than to protect the consumer from making an unwise choice.
We buy all sorts of products which a sensible person might not buy and some of which are not good value for the money.
We do so with our eyes open because we want the product in question more than we want the money.
Should financial services be treated differently from other goods and services? Or is the real problem that we do not have a real choice because the suppliers all offer much the same product and do not compete on some of their terms? This is the situation here.
But it is not clear to me whether the proper solution is to find some way of forcing the suppliers to compete with one another in the terms they offer or whether the solution is to condemn one particular model of charging for those services.
Fortunately, however, that is for Parliament and not for this Court.
LORD MANCE
Council Directive 93/13/EEC of 5 April 1993 and The Unfair Terms in Consumer Contracts Regulations 1999 (S.I. no. 2083), which implement the Directive domestically, both relate to unfair terms in contracts concluded between a seller or [a] supplier and a consumer.
They make the validity of a contractual term which has not been individually negotiated subject generally to the criterion of fairness (defined by reference to whether contrary to the requirement of good faith, it causes a significant imbalance in the parties rights and obligations arising under the contract, to the detriment of the consumer).
This appeal concerns the exception to this rule, provided in Article 4(2) of the Directive and Regulation 6(2).
It is not suggested that there is any material difference between these two provisions.
As Regulation 6(2) puts it: In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate: to the definition of the main subject matter of the (a) contract, or (b) to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.
Adequacy (the word also used in the Directive) means appropriateness or reasonableness (in amount).
This appeal is concerned with Relevant Charges in the form of unpaid item charges, paid item charges, overdraft excess charges and guaranteed paid item charges levied when a customer gives instructions or undertakes a transaction without having sufficient funds to back it.
The Office of Fair Trading (OFT) has written to various banks expressing concerns about the fairness of the terms agreed by the banks with their customers so far as they provide for payment of Relevant Charges.
The question for decision is whether the OFT would be entitled to challenge the fairness of such terms under regulation 12.
It is now accepted that such terms are not individually negotiated within regulation 5(1).
But it is also common ground (except in the case of four banks in certain specific and minor respects) that they are in plain intelligible language within regulation 6(2).
The issue is whether the Relevant Charges or the agreement to pay them constitute price or remuneration in exchange for the supply of services within regulation 6(2).
If they do, then any challenge to their fairness based on their appropriateness in relation to such services is excluded under regulation 6(2).
Any assessment based on matters not relating to the appropriateness in amount of the price or remuneration is not excluded by regulation 6(2)(b).
This regulation is clearer than its predecessor (regulation 3(2) of the 1994 Regulations) which suggested grammatically that it was only a term which . concerns the appropriateness of the price or remuneration that was immune from challenge (language reflected in some of the reasoning in Director General of Fair Trading v First National Bank plc [2002] 1 AC 481, below).
The parties have in their written cases and oral submissions identified two broad issues for determination.
The first concerns the proper interpretation of regulation 6(2)(b), the second whether the Relevant Charges fall within the scope of that regulation, properly interpreted.
The first issue is one of European law.
As to the second, however, no question of European law is involved in the determination of the relevant circumstances.
The parties also agree that no such question is in this case involved in applying the regulation, properly interpreted, to the circumstances including identifying the price or remuneration in exchange for which goods or services are to be supplied.
European Court of Justice authority for this differentiation appears to be limited to the assessment of unfairness under articles 3 and 4(1) of the Directive (regulations 5 and 6(1) of the Regulations): Freiburger Kommunalbauten GmbH Baugesellschaft & Co. KG v Ludger Hofstetter and Ulrike Hofstetter (Case C 237/02); but I accept its correctness in principle.
Since the Directive and Regulations are concerned with terms in contracts, it is first of all necessary to identify the relevant contracts.
This is a matter about which the judge, Andrew Smith J, and the Court of Appeal took different views, although again it is not suggested that it raises on the facts of this case any particular issue of European law.
The banks primary case is that the relevant contracts are the contracts for an overall package of banking facilities made by the banks with their customers.
Andrew Smith J rejected this analysis as unnatural: payments by way of Relevant Charges could not be said to be paid in exchange for services supplied when an account is in credit; and the description free if in credit connoted that there was no price to be paid when an account was in credit (paras. 398 9).
Furthermore, if the relevant contract was taken to be the overall package, the Relevant Charges would represent no more than part of the price or remuneration, and an assessment of the fairness of such charges as against the package of services would be beside the point and would not intrude upon the essential bargain intended to be protected from assessment (para. 400).
There is in my opinion a flaw in this reasoning.
It is not comparing like with like.
Viewing the matter at the level of the banking contracts, the comparison is between, on the one hand, the package of services offered by the banks (some or all of which may or may not be used by any particular customer) and, on the other, the customers commitment to pay such charges as may arise from whatever facilities he does use.
At this level, the banks case is that price or remuneration is or includes the customers potential liability for charges, rather than the payments which he or she has actually to make if and when such charges are incurred.
In my opinion the Court of Appeal was right in para. 97 of its judgment to identify the relevant contract as being in the first instance the banking contract for an overall package of facilities.
That is the contract in which the Relevant Charges appear and were agreed.
Further, any challenge to the fairness of a term must be to its fairness in the context of the relevant contract in which it appears.
It is beside the point if it is not.
If, on a proper analysis, the customers potential liability for the Relevant Charges is the or part of the price or remuneration in exchange for which the overall package of banking services is supplied, and it is challenged on the ground that it makes such price or remuneration disproportionate overall, then regulation 6(2)(b) excludes the challenge.
If there is no challenge to the overall proportionality of the overall price or remuneration of the package, then I fail to see how a challenge to the proportionality of the Relevant Charges in relation to the cost of providing particular services in isolation can be admissible or relevant.
A term which is proportionate in context cannot become disproportionate viewed out of context.
It is true that Relevant Charges are only incurred when a customer, either deliberately or inadvertently, gives an instruction or enters into a transaction, by which as a matter of law and contract he or she requests the bank to provide overdraft facilities.
So, each time such a request is made and acted upon (even if only with the result that the request is declined), it is possible to identify a more developed contractual relationship as arising.
Under that relationship, the Relevant Charges become payable in respect of the request (although not, the judge thought, in exchange for any services provided in consequence of the request).
I do not however consider that this relationship can be the contract to which the Directive and Regulations refer.
If the agreement to incur the Relevant Charges is part of an overall package contract, its vulnerability to challenge and, if permissible, any assessment of its fairness under the Directive and Regulations must, as I have said, depend upon an analysis of such agreement as part of the package contract.
Otherwise, as Mr Sumption pointed out, a customer could challenge each separate part of a package in isolation, although as a whole the price or remuneration charged was unchallengeable.
Issues arise under two heads: the first, the proper interpretation of Article 4(2) and Regulation 6(2) (I shall for convenience generally refer only to the latter); and the second, the application on the facts of whatever is that proper interpretation.
As to the first, it is common ground that not every provision for payment contained in a contract for the supply of goods or services is rendered immune from scrutiny under Regulation 6(2).
There can be payments which do not constitute either price or remuneration of goods or services supplied in exchange.
Further, payments which do constitute price or remuneration in this sense can be challenged as unfair on grounds which do not relate to their appropriateness in amount as against the goods or services supplied in exchange.
Heads (d), (e), (f) and (l) in the grey list of terms set out in Schedule 2 to the Regulations fall within one or both categories.
Director General of Fair Trading v First National Bank plc [2002] 1 AC 481 provides another example.
In the First National Bank case, the House was concerned with a provision in a regulated credit agreement for interest to continue at the credit agreement rate as against a borrower who had defaulted and against whom judgment had been entered for the principal and interest outstanding to judgment.
The County Courts (Interest on Judgment Debts) Order 1991 (SI No 1991/1184) meant that there was no statutory claim for or right to post judgment interest.
Hence, the rationale for including a continuing interest provision in the credit agreement.
The case arose under Regulation 3(2) of the Unfair Terms in Consumer Contracts Regulations 1994, which provided that no assessment shall be made of the fairness of any term which . (b) concerns the adequacy of the price or remuneration, as against the goods or services sold or supplied. (This is slightly, though possibly materially, different wording to that of Regulation 6(2) of the 1999 Regulations which replaced it.) The House held that Regulation 3(2) did not apply, but went on to hold the term to have been fair.
Passages from the speeches of Lord Bingham of Cornhill (para. 12) and Lord Steyn (para. 34) have been set out by Lord Walker.
Both considered that clause 8 fell outside Regulation 3(2)(b), as a provision prescribing the consequences of default.
Lord Bingham added in a sentence drawing on the particular wording of Regulation 3(2)(b) that It does not concern the adequacy of the interest earned by the bank as its remuneration but is designed to ensure that the bank's entitlement to interest does not come to an end on the entry of judgment.
Lord Hope of Craigheads explanation is also relevant.
He said (para. 43) that: Condition 8 is a default provision.
The last sentence of it is designed to enable interest to be recovered on the whole of the amount due on default.
That amount includes legal and other costs, charges and expenses, so it is not confined to the outstanding balance due by the borrower.
I do not think that it can be said to be directly related to the price charged for the loan or to its adequacy.
It is concerned instead with the consequences of the borrower's breach of contract.
It sets out what is to happen if he fails to make the repayments to the bank as they fall due.
I agree that regulation 3(2)(b) does not apply to it, and that its fairness as defined in regulation 4(1) of the 1994 Regulations must be assessed.
This underlines the distinction between payments due in exchange for the original loan and the financial payments (including those relating to costs, charges and expenses) due on default under the clause.
The decision of Gross J in Bairstow Eves London Central Ltd. vs Smith [2004] EWHC 263 (QB); [2004] 2 EGLR 25 provides another example of the same distinction.
The contracts made by customers for an overall package of banking facilities have been described as on a free if in credit basis.
The OFT submits that this indicates or suggests that the agreement to pay Relevant Charges cannot be regarded as the or a part of the price or remuneration in exchange for which banking facilities are supplied.
The banks submit, on the contrary, that the clear corollary of free if in credit is that the services provided will not be free if the customer is not in credit.
They ask rhetorically what other price or remuneration there is, if not the Relevant Charges.
The OFTs response is that it is conceptually possible to have a contract for services without anything in exchange that counts in terms of regulation 6(2)(b) as either price or remuneration.
That I would accept.
The bank might (especially under a basic banking contract which did not allow any overdraft in any circumstances) be content to operate on the basis that its profit would come solely from its power to use money which customers deposited with or arranged to have transferred to it.
That power follows from the banks ownership of money deposited with or transferred to it. (Further, since the deposit with or transfer to a bank of money is the main or part of the main subject matter of a banking contract, any assessment of the fairness of it or its legal consequences would appear to be excluded under regulation 6(2)(a), rather than (b).) Alternatively, the OFT suggests, without committing itself, that, if there is any price or remuneration under a free if in credit banking contract, it is more easily found in the customers agreement to pay overdraft interest.
In accordance with general European legal principle, article 4(2) and regulation 6(2) are as exceptions to be construed narrowly.
Nevertheless, the concepts of price or remuneration must, I think, be capable in principle of covering, under a banking contract, an agreement to make a payment in a particular event.
The language of regulation 6(2)(b) is on its face therefore capable of covering a customers commitment, under the package contracts put before the House, to pay the Relevant Charges in the specified events.
There is no reason why a customer should not be given free services in some circumstances, but, as a quid pro quo, be expected to pay for them in others.
At various points the submissions before the House addressed the policy underlying the free if in credit system of charging.
It is clear from the description free if in credit itself that the system is likely to involve significant elements of cross subsidy.
Some customers (those remaining always or largely in credit) pay no or few charges, while others pay charges more regularly.
Overall, around 30% of the banks income from their customers is derived from the Relevant Charges.
According to the OFTs own Market Study of July 2008, 77% of customers surveyed who had incurred a Relevant Charge in the past 12 months had heard of such charges before they incurred one.
The Relevant Charges levied on any particular customer greatly exceed the actual net cost to the bank of complying with the request(s) impliedly made by the customer leading to the incurring of such charges.
But it is obvious on reading the charging structure that charges cannot be directly related to the actual costs of providing any particular service triggering them.
There are of course other obvious elements of cross subsidy, even between customers who remain in credit.
Customers who maintain large current accounts and receive no or limited interest on them subsidise in a sense customers who manage consistently to keep just in credit.
Mr Jonathan Crow QC for the OFT made clear that the OFT does not contend that the element of cross subsidy provided by the Relevant Charges affects the question whether regulation 6(2)(b) applies.
Regulation 6(2)(b) would apply if the banks simply decided to charge more for particular services in order to pay their directors more or to earn more for their shareholders.
It cannot make any difference to its application if the banks decide to adopt a business model which charges more for one type of transaction in order to subsidise another.
The OFTs case, essentially accepted by the Court of Appeal, is that the agreement to pay the Relevant Charges is not price or remuneration, because regulation 6(2)(b) is confined in scope to payments in exchange for sales or supplies on which payments the consumer can be taken to have focused and to which he can be taken truly to have consented.
The Court of Appeal encapsulated this conclusion as import[ing] the notion of essential bargain into the construction of article 4(2) and into both paragraphs (a) and (b) of regulation 6(2) (para. 86).
It added that the concept of the essential bargain flows naturally from the structure and purpose of the Directive because not every payment that a consumer makes falls within regulation 6(2)(b), and such a construction prevents regulation 6(2)(b) being construed too widely.
It considered that its conclusion reflected the reasoning both in the travaux prparatoires and in the First National Bank case, which it interpreted as indicating that ancillary or incidental payment terms were not intended to be exempt from assessment for their adequacy under regulation 6(2) (paras. 64, 69 and 86).
The considerations which the Court of Appeal saw as relevant to the broad test which it thus identified were as follows (para. 90): terms the standard 90.
The above analysis suggests that the following considerations are relevant to this broad question, together no doubt with many others, depending upon the facts of the particular case: i) The nature of the services provided as a whole and the manner and term in which documentation is provided to consumers. ii) The quantum of the particular payment, the goods or services to which it is said to relate and the other payments required under the contract. iii) In order to be 'price or remuneration' within the meaning of article 4(2) the payment provision must not be ancillary to the central bargain between the consumer and supplier.
Along this sliding scale: a) if the payment obligations are directly negotiated between the consumer and supplier they will not be subject to assessment for fairness under the Directive; b) the more closely related the payment term is to the essential bargain between the parties, the more likely it is to fall within the exception in article 4(2); but c) the more ancillary the payment term is and the less likely it is to come to the direct attention of the consumer at the time the contract is entered into, the less likely it is to be within the concept of 'price or remuneration' within the meaning of the Directive.
One difficulty about the Court of Appeals reasoning lies in its reliance on the concept of negotiation or indeed bargain, as in para. 90(iii)(a) and (b) above and elsewhere, repeatedly, in its judgment: see paras. 64, 87, 107 and 109 (negotiation) and 86, 90, 94 95 and 106 (bargain).
The Court of Appeal suggested that the absence of any negotiation or bargain or of any ability to negotiate or bargain militated strongly against a conclusion that a particular charge constituted (part of) the price or remuneration.
However, the Directive and Regulations are only concerned with contractual terms which have not been individually negotiated.
Another difficulty is that the Court of Appeals broad test, and the sliding scale of relevant considerations introduced by para. 90, convert the apparently simple language of regulation 6(2)(b) (or article 4(2)) into a complex and uncertain value judgment.
This is rendered even more complex by the Court of Appeals further conclusion that the judgment should be made by the court through the eyes of the typical consumer (para. 91).
This led to considerable argument before the House as to who might be regarded as the typical consumer.
Was it relevant to look at the whole body of customers, or at those who would or might be likely to incur Relevant Charges? Before the House Mr Crow for the OFT summarised three main considerations on which the OFT relied to determine whether a payment was part of the essential bargain, namely whether the payment was (a) ancillary, (b) readily recognisable or visible by a typical customer and (c) one arising in the normal performance of the contract.
The Directive was the result of an iterative process between the Commission, European Parliament and Council of Ministers.
The outcome was, as not uncommonly happens, significantly different from that originally proposed.
The Commissions original proposal of 24 July 1990 (COM(90) 322 fin) and its Explanatory Memorandum of 3 September 1990 were drafted with a view to regulating by reference to the test of fairness every contract between a consumer and a party acting in the course of his trade, business or profession, whether the contract is a take or leave it contract, or is in standard form or is negotiated individually.
The proposal was the subject of a critique by Hans Erich Brandner and Peter Ulmer (The Community Directive on Unfair Terms in Consumer Contracts: some critical remarks on the proposal submitted by the EC Commission, (1991) 28 CMLR 647); these authors argued that any control by the courts or administrative authorities of the reasonableness or equivalence of the relationship between the price and the goods or services provided was anathema to the fundamental tenets of a free market economy, and that the focus should be on improving transparency in this area, the requirement of transparency being directed against terms which may conceal the principal obligations or the price and thus make it difficult for the consumer to obtain an overview of the market and to make what would (relatively speaking) be the best choice in a given situation (p.656).
The Committee on Legal Affairs and Citizens Rights of the European Parliament issued a report on 9 April 1991 (A3 0091/91), which suggested the amendment of the proposal to exclude individually negotiated contract terms.
The Economic and Social Committee (consulted by the Council of Ministers) issued its opinion on 24 April 1991, suggesting both that individually negotiated contractual terms required different treatment and that an additional criterion of unfairness should be introduced, namely the non transparency of a contract term (OJ No C 159, 17.6.1991).
The European Parliament repeated its stance that individually negotiated terms should fall outside the proposal, and proposed that terms containing clauses which are unreadable or likely to be misunderstood by consumers because they are not in plain language should be regarded as unfair (OJ No C 326, 16.12.1991).
The Commission on 5 March 1992 responded with an amended proposal (COM(92) 66 fin).
This distinguished between the treatment of non negotiated and negotiated terms, but would have continued to regulate the latter where imposed upon the consumer as a result of the seller/suppliers economic power or the consumers economic and/or intellectual weakness.
The amended proposal also contained a requirement (in terms which become part of the final article 5) that all written terms offered to the consumer in writing must always be drafted in plain, intelligible language.
On 22 September 1992 the Council of Ministers adopted its Common Position on the basis of article 100a of the Treaty (8406/92).
This restricted the proposal to contractual terms which had not been individually negotiated.
It introduced article 4(2) in its final form and accepted the requirement under article 5 that all written terms offered to the consumer in writing must always be drafted in plain, intelligible language.
The accompanying reasons explained in relation to article 4 that the new wording . is intended to clarify the procedures for assessing the unfairness of terms and to specify their scope while excluding anything resulting directly from the contractual freedom of the parties (e.g. quality/price relationship).
The Parliament accepted the Councils Common Position on 16 December 1992, and the Directive was finalised on this basis.
The legislative history shows therefore an extensive process of development, during which the original proposal was replaced by an amended proposal which was itself very largely amended.
The measure ultimately agreed was confined to non negotiated terms.
It stressed the need for transparency (plain, intelligible language) in relation to all such terms.
But, provided such transparency existed, any assessment of the fairness of such terms was excluded in relation to the definition of the main subject matter of the contract and the adequacy of the price and remuneration . as against the services or goods supplied in exchange .
The general approach and the rationale as explained in the Councils Reasons match those of Brandner and Ulmer in their article cited above.
It would re write the legislation to read article 4(2) of the Directive or regulation 6(2) as if they introduced as the test a complex enquiry as to whether or how far consumers had actually exercised contractual freedom when agreeing upon a price or remuneration stated in plain and intelligible language in a contract into which they entered.
Article 4(2) and regulation 6(2) can loosely be described as being concerned with the assessment of core terms (see e.g. First National Bank).
But that is on the basis that price and remuneration always fall within them.
The Court of Appeal erred in introducing a yet further restriction, whereby it would be only essential core terms which could attract immunity.
In my opinion, the identification of the price or remuneration for the purposes of article 4(2) and regulation 6(2) is a matter of objective interpretation for the court.
The court should no doubt read and interpret the contract in the usual manner, that is having regard to the view which the hypothetical reasonable person would take of its nature and terms.
But there is no basis for requiring it to do so by attempting to identify a typical consumer or by confining the focus to matters on which it might conjecture that he or she would be likely to focus.
The consumers protection under the Directive and Regulations is the requirement of transparency on which both insist.
That being present, the consumer is to be assumed to be capable of reading the relevant terms and identifying whatever is objectively the price and remuneration under the contract into which he or she enters.
A contract may of course require ancillary payments to be made which are not part of the price or remuneration for goods or services to be supplied under its terms.
The First National Bank and Bairstow Eves cases illustrate the distinction by reference to default terms.
Andrew Smith J considered and rejected a submission that the Relevant Charges constituted in reality no more than penalties, disguised (at least in the case of all the terms save those of Nationwide Building Society) by drafting which expressed the charges as arising in respect of services to be provided by the banks.
He held that, far from being inappropriate or artificial, the language of request reflected the true legal analysis of a situation where the customer gives an instruction or enters into a transaction for which insufficient funds exist in his or her account (paras. 75 76).
There has been no appeal against that conclusion, and the fact that the relevant contractual arrangement is an overall package contract made between a bank and each customer tends in my view to confirm the conclusion.
A customer making such a contract accepts that the free if in credit system involves substantial charges if instructions are given or transactions entered into which involve putting the account into debit.
While the incurring of Relevant Charges is no doubt something that customers would like to avoid, it is a clearly explained and, objectively viewed, very important feature of the overall package.
The OFTs case that such charges are not readily visible or recognisable as the price is in my view untenable.
In so far as it relies on the consideration that the charges are out of proportion to the actual cost of rendering any services in respect of an instruction or transaction which would involve an (or an increase in an) unauthorised overdraft, it also presents the paradox, that the higher the Relevant Charges, the less visible or recognisable they are said to be as the price of the overall package.
Taking the view that I do of the meaning of both the Directive and the Regulations, the question arises whether it is nevertheless incumbent on us to refer the interpretation of the Directive to the Court of Justice.
Under CILFIT v Ministry of Health (Case 283/81; [1982] ECR 3415) and in the absence of any prior Court of Justice authority, this depends upon (a) whether the question is relevant to the outcome of the case and (b) whether the correct application of Community law is so obvious as to leave no scope for reasonable doubt.
In the latter connection we have to ask ourselves whether the answer we consider correct would be equally obvious to the courts of other Member States and to the Court of Justice itself; and in this regard we have to bear in mind the fact that Community legislation is drafted in different languages which may convey different meanings to different readers, that the Community concepts it uses (here price and remuneration) are autonomous concepts and that every provision of Community law must be placed in the context of Community law as a whole.
In the present case, we are concerned with a relatively simple sentence, using simple and basic concepts, and the scope for different readings of different language texts seems very limited.
The complex and unpredictable value judgment involved in the Court of Appeals approach was based in large measure upon a clear error, in treating the existence or absence of negotiation as significant in a context dealing by definition only with non negotiated terms.
The suggested test of what is not . ancillary to the main bargain involves a restatement of the language of the Directive and Regulations; that language treats the price or remuneration as axiomatically part of the core bargain and so immune from scrutiny for reasonableness.
Bearing in mind the general Community aim of legal certainty, the likelihood of the Court of Justice (or any other Member States courts) accepting the Court of Appeals approach to the interpretation of article 4(2) seems to me remote indeed.
I would regard the position as acte clair and not as requiring a reference.
However, if one takes a different view on whether the position is acte clair, there remains the question of relevance.
Eliminating the Court of Appeals clear error in introducing as part of the test whether the relevant term had been directly negotiated, and assuming that the Court of Appeal was generally right in adopting as a test whether the term was not . ancillary to the main bargain, the question would be whether the Court was right to treat the terms of the package contracts relating to the Relevant Charges as ancillary terms, rather than as part of the agreed price or remuneration in exchange for which the banks undertook to provide their whole package of services.
That question would involve the application of the Directive and Regulations, which is, as I have said, a matter for domestic, not European, law.
The starting point would be that the banks customers committed themselves, under plain, intelligible language, to pay the Relevant Charges in respect of instructions given or transactions entered into without sufficient funds and in return for the package of services offered by the banks.
The Court of Appeal identified a series of considerations, relating to the nature of personal current accounts, the contingent circumstances in which such instructions or transactions could come about, the uneconomic nature (from the customers viewpoint) of the Relevant Charges and the absence of any marketing of the banks services by reference to such Charges (para. 99).
It summarised the incurring of Relevant Charges as being simply outside (or outwith) the ordinary conduct of the contractual relationship (para. 99(xv)).
Mr Crow repeated and expanded on these points in his case (para. 81) and in his oral submissions before the House; he suggested that, if any price or remuneration could be identified at all, then the bank interest charged on any unauthorised overdraft was more readily recognisable as the payment made in exchange for the overdraft (case, para. 81(r)).
But there is no reason why the price or remuneration payable for a package of services should not consist of a contingent liability.
The uneconomic nature of the Relevant Charges from the customers viewpoint constitutes the importance of the charges from the banks viewpoint, and the plain intelligible language of the banking contracts made evident that there must be a considerable element of cross subsidy in respect of customers while they remained in credit.
Like Lord Walker, I would therefore disagree with the Court of Appeals application of its test, even had I considered that test to be correct so far as it focused on what was or was not ancillary to the main bargain.
In these circumstances, it would be unnecessary to make a reference, even if the view were to be taken that the meaning of price and remuneration in article 4(2) of the Directive is not acte clair.
I would therefore allow the appeal and grant the relief proposed by Lord Walker in paragraph 51.
I would also endorse Lord Walkers final paragraph.
LORD NEUBERGER
I also would allow this appeal for the reasons given by Lord Walker and Lord Mance, and would grant the relief proposed by Lord Walker in paragraph 51.
I also agree with Lord Phillips, whose reasons are, I think essentially the same as those of Lord Walker and Lord Mance.
On the one issue on which there may be some disagreement, namely whether the resolution of the dispute as to the interpretation of article 4(2) is acte clair, I share Lord Mances scepticism as to whether the Court of Justice would adopt the meaning accepted by the Court of Appeal.
However, like Lord Phillips, I consider that it is possible that the Court of Justice would adopt such an interpretation, and therefore, if the resolution of that issue were essential to the determination of this appeal, I would, very reluctantly, have concluded that a reference was required.
However, as he says, it is unnecessary for the issue to be resolved for the purpose of this appeal as explained by Lord Walker in para 50, and by Lord Mance in paras 116 and 117.
| UK-Abs | Lord Walker made clear that the scope of the appeal was limited the court did not have the task of deciding whether or not the system of charging current account customers was fair, but whether the OFT could challenge the charges as being excessive in relation to the services supplied in exchange (Paragraph 3).
As Lord Phillips stated, even if such a challenge was not possible, it might still be open for the OFT to assess the fairness of the charges according to other criteria (Para 61).
The key issue was whether the charges constituted the price and remuneration as against the goods or services supplied in exchange within the meaning of the Regulations.
The Supreme Court considered and decided a number of arguments as to whether the charges could be said to be price or remuneration under Regulation 6 (2) (b): (1) The charges were not paid in exchange for the transactions to which they related eg. honouring a cheque when the customer had insufficient funds to do so (Para 75). (2) The Court of Appeal was wrong to find that Regulation 6 (2) (b) did not apply to charges that were ancillary to the core contract between the bank and customer (Paras 38 41, 47, 78, 112).
Lord Walker commented that Regulation 6 (2) (b) contained no indication that only the essential price or remuneration was relevant.
In fact, any monetary price or remuneration payable under the contract would naturally fall within the language of Regulation 6 (2) (b) (Para 41). (3) The charges were not concealed default charges designed to discourage customers from becoming overdrawn on their accounts without prior arrangement (Paras 88, 114).
The High Court had rejected this argument and was right to do so. (4) The charges were properly to be regarded as falling within the scope of the Regulations (Paras 43, 80, 104).
They were in fact part of the price or remuneration paid by the customer in exchange for the package of services which made up a current account (Paras 47, 89).
The fact that liability to pay the charges depended on specific events occurring was irrelevant to that conclusion (Paras 47, 104).
Accordingly, since any assessment of the fairness of the charges, which related to their appropriateness as against the services supplied in exchange, fell within Regulation 6 (2) (b), no such assessment could take place and so the appeal would be allowed (Paras 51, 90, 92, 118, 119).
Further Comments Lord Phillips also noted that in the absence of the charges the banks would not be able profitably to provide current account services without a fee (Para 88).
He stated that it might be open to question whether it is fair to subsidise some customers whose accounts always remain in credit by levies on others who experienced events they did not foresee when they opened their accounts (Para 80).
Lord Walker commented that ministers and Parliament had decided to transpose the directive as it stood rather than to confer the higher degree of consumer protection afforded by the national laws of some other member states.
Parliament might wish to consider whether to revisit that decision (Para 52).
Lord Mance endorsed this comment (Para 118).
Lady Hale commented that if Lord Walkers invitation to ministers and Parliament was to be taken up, it might not be easy to find a satisfactory solution.
She questioned whether the real problem was not the charging model, but the lack of competition between the banks as to the product they offered (Para 93).
No The court decided that although the interpretation of the European directive which the Regulations implemented was a question of European law it was not necessary to refer the matter to the European Court of Justice (Paras 49, 91, 115, 120).
|
This appeal concerns a claim by a beneficiary under a will for negligence against solicitors who, he claims, allowed his brother, also a beneficiary and then the administrator of the estate, to acquire and dispose of land which should have been part of the residuary estate.
The claim was begun in a personal capacity, but it is now accepted that a claim that the solicitors owed a duty of care to beneficiaries would be difficult to sustain, and the claimant seeks to amend the proceedings to claim in a representative capacity on behalf of the estate.
The events of which the claimant complains happened 13 or 14 years ago.
The principal questions on this appeal relate to whether this is an appropriate case for a representative (or derivative) claim, which was the focus of the judges decision, and to the interpretation and application of section 35 of the Limitation Act 1980 and the rules of court which were enacted pursuant to it, first in the Rules of the Supreme Court, and now in the Civil Procedure Rules.
The limitation issues were the main focus of the decision of the Court of Appeal.
Section 35 was enacted following recommendations of the Law Reform Committee in 1977.
It had two main objectives.
The first was to enable a plaintiff to amend pleadings out of time so as to sue in another capacity, in particular to reverse the effect of such decisions as Ingall v Moran [1944] KB 160, which created a grave injustice where proceedings were instituted under the Law Reform (Miscellaneous Provisions) Act 1934 prior to letters of administration being taken out and the limitation period expired before proceedings were instituted in a representative capacity: the grant did not date back to the date of death, by then it was too late to issue fresh proceedings or to amend.
The second objective was to enable parties to be added out of time, in cases where joinder of the new party was necessary if the plaintiffs claim was to succeed, for example where the plaintiff was an equitable assignee and had omitted to join the assignor prior to the expiry of the limitation period.
But section 35 has been described as being without doubt one of the most convoluted provisions in the entire law of limitations (McGee, Limitation Periods, 5th ed 2006, para 23.003).
That is no doubt why there have been more than 25 decisions of the Court of Appeal on section 35 and the rules of court.
The background
Mrs. Alice Margot Roberts (Mrs Roberts), of Lower Hellingtown in Devon, made a will on March 6, 1992.
In September 1994 a receiver was appointed by the Court of Protection to administer her affairs.
She died on July 27, 1995.
Her grandson, Mark Roberts, the appellant, is one of the three equal residuary beneficiaries of the estate of Mrs Roberts.
The other residuary beneficiaries are his brother, John Roberts, and his aunt, Ms Jill Roberts.
The executors named in the will (Mrs Roberts solicitor and an accountant) renounced their right to probate and John Roberts was granted letters of administration with will annexed on February 16, 1996.
Mrs Roberts will provided in clause 7 that if John Roberts within a specified time (the earlier of one month from demand by the trustees or twelve months from death) either paid, or provided security or an indemnity to the will trustees for, all of the estate and other duty arising on her death in respect of her estate then (i) a piece of land known as the Coppice would pass to Mark Roberts and (ii) the remainder of the property known as Lower Hellingtown Farm would pass to John Roberts.
By clause 8, if the payment was not made or security/indemnity given then the properties would fall into residue.
Consequently (because of the value of the farm) if John Roberts complied with the condition in clause 7 the position would be much more favourable to him than if he did not, and the converse was true in relation to Mark Roberts.
John Roberts paid some inheritance tax in order to obtain the grant of letters of administration.
He does not appear to have paid the remaining inheritance tax due, which may amount to some 60,000 and with interest would substantially exceed 100,000.
During the time John Roberts acted as administrator, he instructed two firms of solicitors, Gill & Co and Whitehead Vizard, the first and second defendants.
In July 1996 John Roberts, as personal representative, executed an assent to Lower Hellingtown Farm vesting in himself as beneficiary.
The first defendants, Gill & Co, acted for him on the grant of letters of administration, and (it seems) on the preparation of the assent.
In or about 1997, Lower Hellingtown Farm was sold by John Roberts in two lots for a total of 305,166.19.
Some 285,000 of the proceeds of sale were paid to John Roberts and the balance was used to discharge certain estate liabilities.
Whitehead Vizard, the second defendants, acted for John Roberts on the sale of Lower Hellingtown Farm.
By order dated October 30, 2000, on the application of Mark Roberts, John Roberts was replaced as administrator of the estate by Mr Charles Sainter, a partner in the firm of solicitors then and now acting for Mark Roberts.
By a claim form dated November 27, 2002, issued in the Plymouth County Court, Mark Roberts started proceedings against the solicitors for breach of duty of care owed to him as beneficiary of Mrs Robertss estate.
The particulars of claim alleged that: (1) the first firm, Gill & Co, were retained by John Roberts to advise him on matters arising from the appointment by the Court of Protection of a receiver for Mrs Roberts and, after her death, to obtain letters of administration and subsequently to assist and advise on the administration of her estate; (2) John Roberts instructed the second firm, Whitehead Vizard, from April 1997 to act on his behalf on the sale of Lower Hellingtown Farm; (3) inheritance tax payable by reason of the death of Mrs Roberts had never been paid and no security or indemnity for the same had been furnished by John Roberts; (4) inheritance tax on Mrs Roberts personal estate was paid at the beginning of February 1996, together with the first of ten annual instalments payable in respect of her real estate, but no further inheritance tax was paid thereafter, and the duty payable in respect of Mrs Roberts life interest under two will trusts had not been satisfied; (5) notwithstanding this, on July 23, 1996 a legal executive employed by Gill & Co prepared and witnessed the transfer of Lower Hellingtown Farm by John Roberts as trustee of the property to himself as beneficiary under the will; (6) in so doing, Gill & Co acted in breach of duty owed to Mark Roberts personally as beneficiary in the estate; (7) Whitehead Vizard were instructed by John Roberts to act on his behalf on the sale of the farm to a third party, which took place in 1997, and negligently and in breach of duty to Mark Roberts, Whitehead Vizard effected the sale of the farm when they knew, or ought to have known, that the inheritance tax had not been paid or secured and hence that John Roberts did not have good title to the farm; (8) by reason of the negligence and want of care of the two firms Mark Roberts suffered loss and damage in that but for their negligence the farm would have fallen into the residuary estate of which he is entitled to a one third share, and the remaining estate is insufficient to meet either the pecuniary legacies or to discharge the inheritance tax outstanding.
The foundation of the claim is that the estate had been administered on the false basis that the requirements of clause 7 of the will had been complied with so that clause 7 of the will operated and clause 8 of the will did not have the effect of putting the land referred to in clause 7 of the will into the residuary estate.
There is no doubt that this was a claim by Mark Roberts personally for loss suffered by him as a beneficiary.
On January 30, 2003 an order was made staying the action to allow the pre action protocol to be followed.
On March 12, 2003 the solicitors for the defendants wrote to Mark Roberts solicitors rejecting the claim, because (they said) the law does not recognise a duty of care between a solicitor instructed by a personal representative and a beneficiary.
In April 2003, the parties agreed a general extension of time for the filing of a defence to enable Mark Roberts to respond to the letter from the defendants solicitors.
A defence has not been filed.
Any claim by the personal representative of Mrs Roberts became statute barred at the latest during 2003, six years after the sale of the farm by John Roberts.
By an application notice dated August 25, 2006 Mark Roberts applied to amend the proceedings, three years after the expiry of the limitation period, in order to continue them both in his personal capacity and as a derivative action on behalf of the estate.
The proposed amendments (1) describe Mark Roberts as suing on his own behalf and as representing the estate of Mrs Roberts; and (2) plead that (a) Gill & Co acted in breach of the duty of care owed not only to Mark Roberts but also to the estate of Mrs Roberts; (b) Whitehead Vizard were instructed, not only to act for John Roberts on the sale of the farm, but also to assist in the administration of Mrs Roberts estate; and (c) as a result of both firms negligence, the estate has suffered loss and damage in that the farm would have fallen into the residuary estate.
The proceedings were transferred to the Chancery Division.
Mark Roberts has the benefit of a funding certificate issued by the Legal Services Commission in relation to these proceedings.
On April 4, 2007 Mr Paul Morgan QC (now Morgan J), sitting as a deputy judge of the Chancery Division, dismissed the application to amend on the ground that there were no special circumstances which would entitle Mark Roberts to bring a derivative action.
Had he found special circumstances, he would have concluded that, notwithstanding that the limitation period for the personal claim had expired, the court would have been able to authorise Mark Roberts to bring a new derivative claim in a representative capacity different from his personal capacity.
On appeal the Court of Appeal (Pill and Arden LJJ and Patten J, with Arden LJ giving the only judgment on this aspect) held unanimously that, if Mark Roberts application to amend so as to plead a derivative claim were allowed, the administrator had to be joined as a party: [2009] 1 WLR 531.
Since the limitation period had expired, joinder of the administrator could only be permitted if the addition were necessary (CPR 19.5(2)(b)) to enable the existing action to be pursued.
The addition of the administrator was not necessary for the existing, personal, claim to be properly carried on, and permission to amend to plead the derivative claim only (without joining the administrator) was refused since that amendment would not enable the claimant to proceed to judgment on the derivative claim because the relevant parties had not been and could not be joined.
This was a point not taken before the judge.
But the Court of Appeal by a majority (Arden LJ, with whom Patten J agreed, Pill LJ dissenting) disagreed with the judge on what had been the main holding at first instance, and held that if the combined effect of the Limitation Act 1980 and the CPR had not been to prevent the amendment, there would have been such special circumstances as to justify a derivative claim.
The nature of Mark Roberts new claim
It is clear that the two firms of solicitors did not owe duties in the circumstances to Mark Roberts as a beneficiary under the will.
It is equally clear that any claim by Mr Sainter as administrator is statute barred.
But Mark Roberts wishes now to proceed on behalf of the estate and to take advantage of the fact that (as Lord Nicholls of Birkenhead put it in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, 391) for the most part [professionals] will owe to the trustees a duty to exercise reasonable skill and care.
When that is so, the rights flowing from that duty form part of the trust property.
As such they can be enforced by the beneficiaries in a suitable case if the trustees are unable or unwilling to do so.
Mark Roberts seeks to bring a derivative action in his own name on behalf of the estate against a third party.
The action is a derivative action in which the beneficiary stands in the place of the administrator and sues in right of the estate, and does not enforce duties owed to him rather than to the administrator.
It has often been said that a beneficiary can bring a derivative action only in special circumstances: Hayim v Citibank NA [1987] AC 730, to which it will be necessary to revert.
The question on this appeal is whether Mark Roberts should be permitted to amend so as to put his claim as a derivative claim.
That involves two further questions.
The first question is whether the amendment can be made notwithstanding expiry of the limitation period in respect of his personal claim.
The second question is whether, even if the expiry of the limitation period is not a bar to the necessary amendments, the claim is bound to fail because there are no special circumstances justifying a derivative action.
The Limitation Act 1980 and the rules of court
The old rule of practice was that an amendment would not be allowed if it would prejudice the rights of the opposite party as existing at the date of the amendment; and in particular, an amendment should not be allowed so as to allow a plaintiff to set up a cause of action which would otherwise be barred by the Statutes of Limitation: Weldon vs Neal (1887) 19 Q.B.D. 394, at 395, per Lord Esher MR.
This principle applied to amendments consisting of joinder (or substitution) of parties: Mabro v Eagle, Star and British Dominions Insurance Co Ltd [1932] 1 KB 485; Davies v Elsby Brothers Ltd [1961] 1 WLR 170; Lucy v W T Henleys Telegraph Works Co Ltd [1970] 1 QB 393; Liff v Peasley [1980] 1 WLR 781.
RSC Ord. 20, r 5 was added in 1964, and prior to the changes in the rules following the Limitation Act 1980, provided that the court could give leave to amend a writ or pleading in a number of cases, including an amendment to alter the capacity in which a party sued.
Ord 20, r 5(4) provided: An amendment to alter the capacity in which a party sues (whether as plaintiff or as defendant by counterclaim) may be allowed under paragraph (2) if the capacity in which, if the amendment is made, the party will sue is one in which at the date of issue of the writ or the making of the counterclaim, as the case may be, he might have sued.
Ord 20, r 5(2) provided that where an application to the court for leave to make such an amendment was made after any relevant period of limitation current at the date of the writ had expired the court might nevertheless grant leave if it thought it just to do so.
Ord 20, r 5(5) also allowed the addition or substitution of a new cause of action if it arose out of the same or substantially the same facts as a cause of action in respect of which relief had already been claimed in the action.
But the Court of Appeal decided that the fact that in certain cases under Ord 20, r 5 amendments were to be permitted although the statutory period had run did not mean that, in cases falling outside the rule changes, there was any relaxation of the principle in Weldon vs Neal: Braniff v Holland & Hannen and Cubitts (Southern) Ltd. [1969] 1 WLR 1533 and Brickfield Properties Ltd v Newton [1971] 1 WLR 862, not following Chatsworth Investments Ltd. vs Cussins (Contractors) Ltd [1969] 1 WLR 1, at 5, per Lord Denning MR.
In 1977 the Law Reform Committee (chaired by Orr LJ and including, among others, Griffiths and Walton JJ, Mr T H Bingham QC and Mr E G Nugee QC, and Professor A G Guest) issued a Final Report on Limitation of Actions: Cmnd 6923.
The Committee had been invited in 1971 to consider what changes to the law relating to limitation of actions was desirable.
Part V of the Committees report was headed Procedure and dealt with questions arising when it was sought to alter the character or scope of an action after the limitation period had expired.
After referring to the power of the court to correct misnomer of parties in the then RSC Order 20, r 5(3), the Committee referred (para 5.17) to what it described as not wholly dissimilar cases where the existing rule might cause injustice, where the plaintiff had made an error of law or procedure, the correction of which would not occasion anyone to be taken by surprise.
For example where an equitable assignee of a debt sued the debtor without joining the assignor and the limitation period then expired, he could not amend his pleading so as to join the assignor: Hudson v Fernyhough (1890) 34 SJ 288.
The Committee identified (para 5.20) these cases, among others, in which a new party should be capable of being added by way of amendment after the limitation period: (1) where the plaintiff was beneficially entitled in equity, and the person with the legal title was a necessary party to the action, for example, the equitable assignee of a chose in action, who could not sue without joining the legal assignor: Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1; (2) the cestui que trust, who could not enforce a right of action against a stranger to the trust without joining the trustee: Harmer v Armstrong [1934] Ch 65; (3) where the plaintiff was a shareholder suing to enforce a right vested in the company and the company was a necessary party to the action: Spokes v Grosvenor and West End Railway Terminus Hotel Co Ltd [1897] 2 QB 124, 128; cf Wallersteiner v Moir (No 2) [1975] QB 373.
The Committee pointed out (para 5.27) that the common factors in these examples were that (1) the plaintiffs action was not properly constituted unless the new party were joined; and (2) the plaintiff was not seeking any substantive relief against the new party.
The Committee recommended (para 5.25) that the Rules Committee should be given power to cover by rule specific cases falling within a formula embodied in primary legislation.
It rejected the solution of legislating for the specific cases.
It accepted that the necessary formulation would not be easy, and it accepted that it had not been able to devise any entirely satisfactory formula.
It summarised its conclusions (paras 46 48), so far as material, in this way: (1) No change was required in the rules which enabled a new cause of action to be added out of time; (2) a plaintiff should be able to amend pleadings out of time so as to sue in another capacity (including that of administrator) and the rule making powers should be extended for that purpose; (3) the rule making powers should be enlarged so as to confer power to enable parties to be added out of time, in specific cases if (a) the plaintiffs action was not properly constituted unless the new party were joined; and (b) the plaintiff was not seeking substantive relief against the new party, or if substantive relief was sought against the new party, joinder of the new party was necessary if the plaintiffs claim against the defendant was to succeed.
The result of these recommendations (on which see Millett LJ in Yorkshire Regional Health Authority v Fairclough Building Ltd [1996] 1 WLR 210, 219) was section 35 of the Limitation Act 1980 and the consequent changes to the Rules of the Supreme Court.
Limitation Act 1980, section 35
So far as material to this appeal, section 35 provides: 35.
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; (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. (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 action. (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.
The structure of section 35 is such that only sections 35(1) and 35(3) lay down binding rules, and the remainder of the section provides for rules of court to be made permitting amendments, subject to conditions, by way of new causes of action and new parties.
Rules of court
Rules of Supreme Court
Following the Limitation Act 1980, RSC Ord 15, r 6 was amended in 1981 and immediately prior to the CPR provided, so far as material, as follows: (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 In this paragraph any relevant period of limitation means a time limit under the Limitation Act 1980 (6) 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 plaintiffs claim in respect of an equitable interest in that property is liable to be defeated unless the new party is joined, 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
RSC Ord 20, r 5 was also amended in 1981, but the only relevant change was to permit amendment to a partys capacity not only to a capacity which the party had at the date of the commencement of the proceedings, but also to a change to a capacity which the party had since acquired.
This gave effect to a recommendation of the Law Reform Committee, enacted as section 35(7), to deal with the anomaly that, where probate was granted to a person as executor, leave to amend to make a claim on behalf of the estate could be given because the title related back to the death, but where the plaintiff was subsequently granted letters of administration in such cases, the title related back to the date of the grant, which would have been after the issue of the writ.
This had the effect of removing the grave injustice caused by such decisions as Ingall v Moran [1944] KB 160 (CA); Hilton v Sutton Steam Laundry [1946] KB 65 (CA); Burns v Campbell [1952] 1 KB 15; Finnegan v Cementation Co Ltd [1953] 1 QB 688 (CA).
Civil Procedure Rules
The Civil Procedure Rules were introduced in 2000 to replace the Rules of the Supreme Court.
By CPR 17.4, as amended by rule 7 of the Civil Procedure (Amendment) Rules 2001 (SI 2001/256): (2) The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings. (4) The court may allow an amendment to alter the capacity in which a party claims if the new capacity is one which that party had when the proceedings started or has since acquired (Rule 19.5 specifies the circumstances in which the court may allow a new party to be added or substituted after the end of a relevant limitation period.)
CPR 19.5, as amended by rule 8 of the Civil Procedure (Amendment) Rules 2001, provides so far as far as material as follows: (1) This rule applies to a change of parties after the end of a period of limitation under (a) the Limitation Act 1980; (b) the Foreign Limitation Periods Act 1984; or (c) any other enactment which allows such a change, or under which such a change is allowed. (2) The court may add or substitute a party only if (a) the relevant limitation period was current when the proceedings were started; and (b) the addition or substitution is necessary. (3) The addition or substitution of a party is necessary only if the court is satisfied that (a) the new party is to be substituted for a party who was named in the claim form in mistake for the new party; (b) the claim cannot properly be carried on by or against the original party unless the new party is added or substituted as claimant or defendant; or (c) the original party has died or had a bankruptcy order made against him and his interest or liability has passed to the new party. (Rule 17.4 deals with other changes after the end of a relevant limitation period).
In 2001 the Law Commission, Limitation of Actions (Law Com 270) recommended that the addition of new claims made between parties to existing proceedings after the expiry of the limitation period relevant to the new claim should be permitted where (1) the new claim arises out of the conduct, transaction or events on which a claim in the existing proceedings is based; and (2) the existing proceedings are commenced within the relevant limitation period: para 5.11 and draft Bill, clause 25(2).
The Law Commission recommended that there should be no reform in relation to the addition of new claims to existing proceedings where the new claim involved the addition or substitution of new parties: para 5.19 and draft Bill, clause 25(3).
The draft Bill contained among the conditions for amendment to add or substitute new parties, that (c) the addition or substitution is necessary for the determination of a civil claim previously made in the proceedings (the existing claim), and (d) the existing claim was not made after the end of any applicable limitation period In November 2009 the Government announced that it would not be introducing legislation to implement the Law Commissions proposals.
Effect of the Limitation Act 1980 and the CPR
The effect of the provisions, so far as relevant on this appeal, in the Limitation Act 1980 and the CPR can be summarised in this way: (1) A new claim means a claim involving either (a) the addition or substitution of a new cause of action; or (b) the addition or substitution of a new party: section 35(2). (2) Any new claim made in the course of an action is deemed to have been commenced on the same date as the original action: section 35(1). (3) No such new claim may be made after the expiry of any applicable limitation period, except as provided by rules of court: section 35(3). (4) Rules of court may provide for allowing a new claim, but only (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 action (i.e. any claim made in the original action cannot be maintained by an existing party unless the new party is joined as claimant or defendant): section 35(4), (5), (6).
The relevant rules of court are in CPR 17.4 and 19.5. (5) CPR 17.4(2) has the effect that a new claim may be added by amendment but only if the new claim arises out of the same facts or substantially the same facts as the original claim. (6) CPR 19.5(2), (3) have the effect (among others) that a new party may be added only if the limitation period was current when the proceedings were started, and the addition of that party is necessary in the sense that the claim cannot properly be carried on by the original party unless the new party is added. (7) Rules of court may allow a party to claim relief in a new capacity: section 35(7).
The relevant rule is CPR 17.4(4), by which the court may allow an amendment to alter the capacity in which a party claims if the new capacity is one which that party had when the proceedings started, or has since acquired.
The original claim for the purposes of these proceedings was the personal claim by Mark Roberts.
The relevant limitation period for his claim was current when he started his proceedings in 2002.
Mr Sainters claim as administrator is statute barred.
Mr Sainter could not apply to be joined as a claimant because his joinder is not necessary for the purposes of section 35(6)(b) as put into effect by CPR 19.5(3)(b).
That is because his joinder is not necessary for the purposes of the original action, namely Mark Roberts personal claim.
But an amendment to treat Mark Roberts claim as a representative claim rather than a personal claim would be an amendment to alter the capacity in which he claims: Haq v Singh [2001] EWCA Civ 957, [2001] 1 WLR 1594, at [19], per Arden LJ.
CPR 17.4(4) permits such a change to be made if the new capacity is one which he had when the proceedings started or has since acquired.
Mark Roberts has throughout had the capacity of beneficiary.
It is not necessary to decide whether the representative capacity is one which he has had in theory at all times, since there is no doubt that the court has power to allow the amendment to alter the capacity in which he sues.
The representative claim is a claim involving a new cause of action, since the capacity in which Mark Roberts makes the claim is an essential part of the claim: Oates v Consolidated Capital Services Pty Ltd [2009] NSWCA 183, at [105].
The court has power to allow the amendment because the new representative claim arises out of the same facts or substantially the same facts as the existing claim: CPR 17.4(2).
Consequently it is not necessary to burden this discussion with a sterile analysis of the learning on what constitutes a cause of action.
It is sufficient to quote what Robert Walker LJ said in Smith v Henniker Major & Co (A firm) [2003] Ch 182 (CA) at [96].
He referred to the classic definitions by Brett J in Cooke v Gill (1873) LR 8 CP 107, 116 as every fact which is material to be proved to entitle the plaintiff to succeed, and by Diplock LJ in Letang v Cooper [1965] 1 QB 232, 242 243 as simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person, and went on: in identifying a new cause of action the bare minimum of essential facts abstracted from the original pleading is to be compared with the minimum as it would be constituted under the amended pleading.
But in applying section 35(5)(a) the court is concerned on a much less abstract level with all the evidence likely to be adduced at trial: see Goode v Martin [2002] 1 WLR 1828, 1838, approving Hobhouse LJs observation in Lloyds Bank plc v Rogers The Times, 24 March 1997;Court of Appeal (Civil Division) Transcript No 1904 of 1996: The policy of the section is that, if factual issues are in any event going to be litigated between the parties, the parties should be able to rely upon any cause of action which substantially arises from those facts.
Joinder of the administrator
The next question is whether Mark Roberts needs to join the administrator as a defendant.
If he does need to join the administrator, there would be a new claim for the purposes of the Limitation Act 1980 because a new claim means any claim involving the addition of a new party (section 35(2)(b)).
Rules of court may allow such an addition after the limitation period for the original claim has expired, and the condition in CPR 19.5(2)(a) is fulfilled, namely that the relevant limitation period was current when the proceedings were started (i.e. by Mark Roberts in his personal capacity).
But if the administrator has to be added at the same time as Mark Roberts changes the capacity in which he sues, Mark Roberts must satisfy the requirements of CPR 19.5(2)(b) and CPR 19.5(3)(b) (giving effect to section 35(5)(b) and 6(b)), namely that the addition of the administrator is necessary in the sense that the claim cannot properly be carried on by the original party unless the new party is added .
But if it were necessary to join the administrator in order for the representative action to be carried on, Mark Roberts would not be able to satisfy those requirements because he would not be able to show that the original claim could not properly be carried on by Mark Roberts in his personal capacity against the solicitors unless the administrator were added as a party.
That is because there is no possible basis for any suggestion that the administrator would be a necessary or proper party to the personal claim.
Consequently, the only way in which the action could proceed would be (a) if the joinder of the administrator were not necessary at all; or (b) if it were not necessary at the time Mark Roberts changes the capacity in which he sues, but could be done at a later stage.
The latter point arises because it is suggested on behalf of Mark Roberts that the combined effect of section 35(1)(b), section 35(6)(b) and CPR 19.5(3)(b) is that (a) the change in Mark Roberts capacity is deemed to take effect as at the date of the original proceedings; (b) the joinder can be effected after the change in Mark Roberts capacity, and would then be necessary for the continuance of what would then be regarded as the original claim, namely the claim in a representative capacity.
The trustee as a necessary party and the special circumstances rule
To avoid repetition, it is convenient to treat together two aspects of the leading authorities.
One is the requirement for special circumstances as a condition of beneficiaries being entitled to sue on behalf of the estate.
The second is the light they throw on whether the administrator is a necessary party to a claim by a beneficiary to recover property from a third party.
The cases go back to the eighteenth century, and many of them were reviewed in Hayim v Citibank NA [1987] AC 730 (PC).
The special circumstances which were identified in the earliest authorities as justifying a beneficiarys action were fraud on the part of the trustee, or collusion between the trustee and the third party, or the insolvency of the trustee, but it has always been clear that these are merely examples of special circumstances, and that the underlying question is whether the circumstances are sufficiently special to make it just for the beneficiary to have the remedy: In re Field, decd [1971] 1 WLR 555, 560 561, per Goff J; cf.
Barker v Birch (1847) 1 De G & Sm 376, 63 ER 1112; Daniells Chancery Practice, 7th ed 1901, p176.
In all of the early cases the trustees were co defendants with the third party debtor.
In Bickley v Dorrington (1737) West T Hard 169, 25 ER 877 the bill was brought by creditors, and by one of the residuary legatees of the testator, against his executors, the other residuary legatee, and the former partner of the testator to recover from the former partner money owing to the estate.
Lord Hardwicke LC said that the bill was totally improper as against the debtor, and inconsistent with the principles of law and the rules of the court: No action or suit can be brought against a debtor to the estate but by the executor or personal representative of the testator.
The whole management of the estate belongs to him.
The right of it is vested in him, and cannot be taken from him by creditors or legatees.
If he release a demand and is solvent, it is a devastavit in him, and he is personally answerable for the sum released.
In cases of collusion or insolvency it may be proper to come here for satisfaction against the debtor; but there must always be some special case (pp 171, 879)
Sixty five years later in Alsager v Rowley (1802) 6 Ves Jun 748, 31 ER 1289, Lord Eldon LC said (at 749 750): The established rule of the Court is certainly that in ordinary cases a debtor to the estate cannot be made a party to a bill against the executor: but there must be, as the cases express it, collusion or insolvency.
That very principle admits, that, if there is solvency, the executor must pay: if there is collusion, both are liable.
Lord Hardwicke there in the judgment [Beckley v Dorrington] does not state any thing as to negligence.
That is in the argument by the Counsel; and in Newland vs Champion (1 Ves. sen. 105) delay in the representative is also stated as one of the special cases, as well as collusion: but no notice is taken of the former in the judgment.
If the general principle will not allow you to bring a bill against both the executor and a debtor in the given case, the same principle will apply to the case, where you bring a bill against the executor and a creditor improperly paid by the executor: that is, that, if there is no collusion, or special case, if the executor is not insolvent, he stands the middle man, responsible to the residuary legatee for the property, misapplied by paying a man as a creditor, who was not a creditor, as in the other case for the property outstanding in a debtor.
The following three cases involve claims by legatees who were concerned that executors were not properly pursuing the testators partners for an account of partnership dealings.
In each case the executors were defendants.
In Bowsher v Watkins (1830) 1 Russ & Myl 277, 39 ER 107, residuary legatees brought suit against executors and a surviving partner of the testator for an account.
In answer to the argument that there were no special circumstances justifying the action by legatees, Sir John Leach MR held that collusion between the executor and the partner was not an essential condition.
In Davies v Davies (1837) 2 Keen 534, 48 ER 733, a bill was filed by residuary legatees against the executor and the surviving partner of the testator for an account of partnership transactions.
Lord Langdale MR held that, in the absence of a charge of fraud or collusion, there were no special circumstances justifying the legatees claim.
In Travis v Milne (1851) 9 Hare 141, 68 ER 449, a similar case, Turner V C held that a suit by parties beneficially interested in the estate of a deceased partner could not be maintained against both his executors and surviving partners, in the absence of special circumstances; but collusion was not the only ground for such a suit; and the suit might be maintained where the relation between the executors and surviving partners was such as to present a substantial impediment to the prosecution by the executors of the rights of the parties interested in the estate as against such partners.
Yeatman v Yeatman (1877) 7 ChD 210 was another case involving a partnership.
The executors were named defendants.
It was an action by a residuary legatee against her mother in laws executors and another member of the family, who it was alleged, had failed to account for partnership monies to the mother in law.
A mere refusal by a personal representative to sue for recovery of a debt owed to the estate would not by itself suffice but there must be additional circumstances, such as a case where the trustee refused to sue and the court was satisfied that it would have given liberty to the trustee to bring proceedings even though there was no certainty that the proceedings would be successful, then it would be a proper case to allow a party to sue in his own name (at 216, per Hall V C).
In In re Field, decd [1971] 1 WLR 555 Mr Fields widow obtained letters of administration.
His former wife (who was not a beneficiary) obtained an order for maintenance to be paid out of the estate, and independent administrators were appointed.
The former wife sued her former husbands employers and the administrators in her own name for the recovery of capital sums on insurance policies which she claimed the employers had wrongly paid to the widow.
As Goff J said (at 558): She does not and, indeed, cannot ask for payment to herself, but she asks for payment to the administrators who are added as defendants for the purpose of regularising the proceedings and, by her writ and statement of claim, she expressly disclaims any relief as against them.
It was held that there were special circumstances entitling the former wife to make the claim, particularly because there were no other beneficiaries and the alleged asset had been paid to the widow on the footing that it was not part of the estate.
Consequently justice requires that the plaintiff, who is the only other person interested, should be allowed to have this question properly tried by the court (at 561).
See also Bradstock Trustee Services Ltd v Nabarro Nathanson [1995] 1 WLR 1405, 1412 1413, on the relevance of legal aid for beneficiaries.
In Hayim v Citibank NA [1987] AC 730 the plaintiffs were the testators sons, who were beneficiaries under his American will.
He also executed a Hong Kong will under which the residue of his property outside the United States was to be held on trust for sale on the trusts of the American will.
The terms of the trust enabled the trustee of the American will to give directions to the trustee of the Hong Kong will in respect of the retention of a house in Hong Kong in the interests of the elderly residents of the house.
The plaintiffs began proceedings in Hong Kong against the first defendant, the trustee of the American will, and the second defendant, the trustee of the Hong Kong will, for an order that the house be sold and for damages to be awarded against the second defendant for breach of the trusts of the Hong Kong will by the delay of the second defendant in selling the house.
No relief was sought against the first defendant.
It was held that there were no special circumstances entitling the plaintiffs to bring proceedings directly against the second defendant, but that in any event no breach of the trusts of the Hong Kong will had been committed by the second defendant in implementing the lawful instructions of the first defendant.
Lord Templeman, giving the advice of the Privy Council, said (at 747): when a trustee commits a breach of trust or is involved in a conflict of interest and duty or in other exceptional circumstances a beneficiary may be allowed to sue a third party in the place of the trustee.
But a beneficiary allowed to take proceedings cannot be in a better position than a trustee carrying out his duties in a proper manner. and (at 748) (after citing, among other cases, Travis v Milne; Yeatman v Yeatman; and In re Field, decd) These authorities demonstrate that a beneficiary has no cause of action against a third party save in special circumstances which embrace a failure, excusable or inexcusable, by the trustees in the performance of the duty owed by the trustees to the beneficiary to protect the trust estate or to protect the interests of the beneficiary in the trust estate.
The law in Scotland is similar: Wilson and Duncan, Trusts, Trustees and Executors, 2nd ed 1995, para 10 13, who give an example of the possibility of an action by a beneficiary for recovery of a sum paid by trustees to a third party in error, provided that the action is brought against the trustees as well as the third party.
The authority cited for this proposition is Armour v Glasgow Royal Infirmary 1909 SC 916, where the Lord Ordinary, Lord Skerrington said (at 920) that in the ordinary case the action could be brought only at the instance of the trustees.
But the testamentary trustees had been called as defenders, and concurred with the Infirmary in maintaining that the money was properly paid.
Consequently in those circumstances the pursuers have a good and sufficient title to maintain this action to the effect of demanding that the money shall be repaid to the trustees.
It is only with the greatest hesitation that I would differ from Lord Hope on the content of Scots law, but in my judgment neither of the cases which he cites lends support to the view that there is a qualification to the rule that the trustee must be joined.
In Morrison v Morrisons Executors, 1912 SC 892, 893, Lord Skerrington went on to say after the passage quoted by Lord Hope: A decree in such an action would be res judicata, provided always that the whole trustees and beneficiaries had been called as defenders.
In the second case mentioned by Lord Hope, Rae v Meek (1889) 14 App Cas 558, the beneficiaries under a settlement made pursuant to a marriage contract sued a trustee for having lost trust money which had been lent on the security of unfinished houses in a building speculation.
The trustee was held liable to restore the trust fund.
The beneficiaries also sued the trustees solicitor, who had advised the trustee that there was no objection to the investment.
The passage quoted by Lord Hope in Lord Herschells speech (at 569), which deals with the liability of the solicitor, is simply re stating the rule that in the exceptional case of a failure by trustees to act, the beneficiaries might compel them to do so, or even enforce the right themselves.
He went on to say that no such question (that is, of a failure by trustees to act) was raised by the averments in relation to the claim in that case by the beneficiaries against the solicitor, who (in any event) was not liable because he had not been retained by the trustees to advise on the sufficiency of the security.
But the trustees were parties to the action, and the decision is not authority for any suggestion that the beneficiary can assert the claim without joining the trustee.
So also the law in the United States has the same result, although it is put somewhat differently.
See Restatement (Second), Trusts, 1959, section 282(2); and Scott and Ascher, Trusts, 5th ed 1995, chapter 28, section 28.1, where it is put in this way: It is the trustee rather than the beneficiary who is entitled to maintain actions against third parties who commit torts with respect to the trust property or fail to pay debts held in trust.
If the trustee improperly fails to bring such an action, the beneficiaries can compel the trustee by a suit in equity to do so, and, in order to settle the whole matter in a single suit, they can join the third party as a co defendant.
That joinder of the trustees in a beneficiaries derivative action is required is supported by the analogy of shareholders derivative actions, where the wrongdoers are themselves in control of the company, and the aggrieved minority may bring a minority shareholders action.
In Nurcombe v Nurcombe [1985] 1 WLR 370 (CA) Browne Wilkinson LJ said (at 378) that a minority shareholders action, where the courts of equity permitted a person interested to bring an action to enforce the companys claim, was analogous to that in which equity permitted a beneficiary under a trust to sue as plaintiff to enforce a legal right vested in trustees, which right the trustees will not themselves enforce, the trustees being joined as defendants.
A derivative action is brought in representative form, and the company is joined as a defendant in order for it to be bound by any judgment and to receive the fruits (if any) of the judgment, and because the action has not been authorised by its board or general meeting: Spokes v Grosvenor and West End Railway Terminus Hotel Co Ltd [1897] 2 QB 124, which is the leading authority on the joinder of the company in derivative actions.
A L Smith LJ said (at 126): That in the circumstances of this case the company are necessary parties to the suit I do not doubt, for without the company being made a party to the action it could not proceed.
Chitty LJ said (at 128 129): To such an action as this the company are necessary defendants.
The reason is obvious: the wrong alleged is done to the company, and the company must be party to the suit in order to be bound by the result of the action and to receive the money recovered in the action.
If the company were not bound they could bring a fresh action for the same cause if the action failed, and there were subsequently a change in the board of directors and in the voting power.
Obviously in such action as this is, no specific relief is asked against the company; and obviously, too, what is recovered cannot be paid to the plaintiff representing the minority, but must go into the coffers of the company.
It was argued for the appellants that the company were made a party for the purpose of discovery only, and authorities were cited to shew that when no relief is asked against a party he cannot or ought not to be compelled to make discovery.
But this argument and these authorities have no bearing on the present case, where, as already shewn, the action cannot proceed in the absence of the defendant company, and the defendant company are interested in and will be bound by the results.
Since Part 11 of the Companies Act 2006 came into force in 2007 shareholders derivative claims have been put on a statutory basis.
CPR 19.9 is headed Derivative Claims how started.
It does not apply to derivative claims of the type in issue on this appeal, but it illustrates the general principle that in derivative actions the entity on whose behalf the claim is brought is a necessary party to the derivative claim.
CPR 19.9 applies in terms only to derivative claims by members of companies, other bodies corporate, and trade unions, and provides in CPR 19.9(3) that: The company, body corporate or trade union for the benefit of which a remedy is sought must be made a defendant to the claim.
The expression derivative action in the context of shareholders actions has been used in the United States since the nineteenth century and was first used in that context in England by Lord Denning MR in Wallersteiner v Moir (No 2) [1975] QB 373, 390 et seq.
In the United States it is equally established that the corporation is a necessary party in any shareholder derivative action, although (as in a derivative claims by beneficiary) it is sometimes analysed as two claims, one against the company for failure to take action and the other being the claim by the company against the wrongdoer: Nurcombe v Nurcombe [1985] 1 WLR 370, 378; Konamaneni v Rolls Royce Industrial Power (India) Ltd [2002] 1 WLR 1269, at [50].
In 1873, in Davenport v Dows, 85 U.S 626 (1873) Justice Davis, delivering the opinion of the Supreme Court, said, at p 627: These rights the individual shareholder is allowed to assert in behalf of himself and associates, because the directors of the corporation decline to take the proper steps to assert them.
Manifestly the proceedings for this purpose should be so conducted that any decree which shall be made on the merits shall conclude the corporation.
This can only be done by making the corporation a party defendant.
The relief asked is on behalf of the corporation, not the individual shareholder, and if it be granted, the complainant derives only an incidental benefit from it.
It would be wrong, in case the shareholder were unsuccessful, to allow the corporation to renew the litigation in another suit involving precisely the same subject matter.
To avoid such a result, a court of equity will not take cognizance of a bill brought to settle a question in which the corporation is the essential party in interest unless it is made a party to the litigation.
Almost a hundred years later, in Ross v Bernhard, 396 US 531 (1970) at 538, the Supreme Court said: The corporation is a necessary party to the action; without it the case cannot proceed.
Although named a defendant, it is the real party in interest, the stockholder being at best the nominal plaintiff.
The proceeds of the action belong to the corporation and it is bound by the result of the suit.
Another reason for joinder has been said to be that the decree must protect the directors against any further suit by the corporation, and this will not be true unless it be a party to the suit: Philipbar v Derby, 85 F 2d 27 (2d Cir 1936) at 30.
Consequently it has been the consistent practice (noted in Annual Practice 1887 8, p 223; Harmer v Armstrong [1934] Ch 65, 93, per Romer LJ) for almost 300 years that, where a beneficiary brings an action in his own name to recover trust property, the trustees should be joined as defendants.
Daniells Chancery Practice, 7thed 1901, p176 states: .such an action cannot, however, be maintained without the personal representative being a party.
To put it differently, it would be procedurally improper to continue without the addition which is proposed: McGee, Limitation Periods, 5th ed 2006, para 23.025.
The purpose of joinder has been said to ensure that they are bound by any judgment and to avoid the risk of multiplicity of actions: Lewin, Trusts, 18th ed 2008, para 43 05.
But joinder also has a substantive basis, since the beneficiary has no personal right to sue, and is suing on behalf of the estate, or more accurately, the trustee.
The conclusion that in a beneficiarys derivative action the trustee must be a party is not undermined by those cases in which it has been held, or assumed, that an action by an equitable assignee of property (such as a debt, or intellectual property) can proceed, or is properly constituted, without the joinder of the assignor at the outset of proceedings.
The starting point is that if an equitable assignee sues a third party, the assignor must be joined as a defendant: E M Bowdens Patents Syndicate Ltd v Herbert Smith & Co. [1904] 2 Ch 86, 91 (Warrington J); William Brandt's Sons & Co. vs Dunlop Rubber Co. Ltd. [1905] AC 454, 462 (Lord Macnaghten); Performing Right Society, Ltd. vs London Theatre of Varieties Ltd [1924] AC 1, 13 14 (Viscount Cave LC), 19 20 (Viscount Finlay), 29 (Lord Sumner); Vandepitte vs Preferred Accident Insurance Corporation of New York [1933] AC 70, 79 (Lord Wright); Harmer v Armstrong [1934] Ch. 65, 82 (Lord Hanworth MR).
But it is not an invariable rule: Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1, 14 (there may be special cases where it will not be enforced per Viscount Cave LC).
In that decision it was held that an equitable assignee may obtain interlocutory relief but was not entitled to obtain a final injunction without joining the legal owners.
Viscount Cave LC said (at 14): That an equitable owner may commence proceedings alone, and may obtain interim protection in the form of an interlocutory injunction, is not in doubt; but it was always the rule of the Court of Chancery, and is, I think, the rule of the Supreme Court, that, in general, when a plaintiff has only an equitable right in the thing demanded, the person having the legal right to demand it must in due course be made a party to the action Further, under Order XVI., r. 11, no action can now be defeated by reason of the misjoinder or non joinder of any party; but this does not mean that judgment can be obtained in the absence of a necessary party to the action, and the rule is satisfied by allowing parties to be added at any stage of a case.
Subject to these observations, I think that the general rule is
still operative
William Brandt's Sons & Co. v Dunlop Rubber Co. Ltd. [1905] AC 454 was a case in which an assignee was allowed to proceed to judgment without joining the assignor.
That was because the whole focus of the litigation was on the question whether instructions given by the banks customer to purchasers of rubber to pay its bank direct amounted to an equitable assignment of debts, so that the bank could sue for their recovery.
The bank sued the purchasers directly without joining its customer, the assignor.
The fact that the assignor was not a party seems to have been overlooked until the House of Lords held that there had been an equitable assignment.
Lord Macnaghten said (at 462): Strictly speaking, [the sellers], or their trustee in bankruptcy, should have been brought before the Court.
But no action is now dismissed for want of parties, and the trustee in bankruptcy had really no interest in the matter.
At your Lordships bar the Dunlops disclaimed any wish to have him present, and in both Courts below they claimed to retain for their own use any balance that might remain after satisfying Brandts.
Lord James said (at 464): The defect in the parties to the suit can be remedied.
In more modern times it has been held that, although the practice was to join the assignor, the requirement is a procedural one, the absence of which can be cured.
The assignor must be joined before a final judgment can be obtained by the assignee, but the action is validly constituted without joinder, so that if the assignee sues without joining the assignor, the action is in time for the purposes of limitation: Central Insurance Co Ltd v Seacalf Shipping Corpn (The Aiolos) [1983] 2 Lloyds Rep 25, 34, per Oliver LJ; Weddell v JA Pearce & Major [1988] Ch 26, 40, per Scott J; and cf Robinson v Unicos Property Corpn Ltd [1962] 1 WLR 520, 525 526, per Holroyd Pearce and Harman LJJ; Three Rivers District Council v Governor and Company of the Bank of England [1996] QB 292, 309, 313, per Peter Gibson LJ.
For criticism see Tolhurst, Equitable Assignment of Legal Rights: A Resolution to a Conundrum (2002) 118 LQR 98, at 111 116.
What distinguishes these cases from the present one is that in the case of an equitable assignment the assignee is the true owner and the assignor is a bare trustee.
I agree with Lord Walker that there is no real analogy between an equitable assignee and a beneficiary interested in an unadministered estate.
I would not rule out the possibility that there may be circumstances in which justice would require that joinder of the administrator be dispensed with.
But the mere fact that there were special circumstances justifying an action by the beneficiary, or the fact that non joinder would defeat a limitation defence, would not be sufficient.
It follows that the limitation problem cannot be overcome by amendments in separate stages so as to procure the result that the addition of the administrator would be necessary for the determination of the original action for the purposes of section 35(5)(b).
The argument for amendments in separate stages is this.
First, there would be an amendment to change the capacity in which Mark Roberts sues from his personal capacity to a representative capacity under CPR 17.4(4).
Second, this would have the effect that the new claim in the representative capacity is deemed to commence on the same date as the original action: section 35(1)(b); section 35(2)(a).
Third, the addition of the administrator would be necessary because the claim in the original action (i.e. the back dated representative claim) cannot be maintained against the solicitors unless the administrator is joined: section 36(5)(b); section 36(6)(b).
This procedural device cannot overcome the limitation problem, since it is plain that, other than in the most exceptional circumstances such as existed in William Brandt's Sons & Co. v Dunlop Rubber Co. Ltd., even in the case of an equitable assignment the assignee cannot proceed to judgment without joining the assignor.
It would be an abuse of process for the amendments to be made in separate stages.
As Arden LJ said (at [36]), it would be contrary to principle for the court to grant permission to amend the claim merely to reflect a change of capacity which would not enable Mark Roberts to proceed to judgment.
But, in any event, in a representative action, the administrator must be joined at the outset.
The result is that the Court of Appeal was right to conclude that this was not a case where permission to amend to plead the derivative claim should be given.
Special circumstances
Consequently, the question whether the judge was right to decide that in any event there were no special circumstances justifying the derivative claim (on which the Court of Appeal was divided) does not arise.
It can therefore be dealt with shortly.
The judge set out the relevant circumstances as follows: (1) When Mr Sainter was appointed as administrator in 2000, he was still in time to bring any claim which the estate was able in law to bring against the solicitors; (2) at the present time, a claim by the estate against the solicitors is statute barred; (3) Mr Sainter was appointed by the court as administrator on the application of Mark Roberts; (4) Mark Roberts did not apply for himself to be appointed as an administrator; (5) Mark Roberts did not procure by way of an assignment or by way of an assent, the vesting of the estates cause of action against the solicitors into himself before the limitation period ran out; (6) if Mark Roberts procured the vesting of the estates cause of action in himself at the present time then he would not be able to assert that cause of action, by reason of limitation; (7) there was no reason to think that Mr Sainter would not have been prepared to vest the estate's cause of action in Mark Roberts; (8) there was no basis for any allegation of any breach of trust against Mr Sainter; (9) there was no conflict of duty or interest involving Mr Sainter; (10) Mr Sainters decision not to sue the solicitors had not been said to be open to any criticism; (11) if John Roberts had remained the administrator then there might at that time have been special circumstances arising out of the allegations being made as to the involvement of John Roberts in the matters complained of; (12) any special circumstances which existed during the time that John Roberts was administrator ceased to exist when Mr Sainter became administrator in October 2000; (13) Mark Roberts was not the sole beneficiary; (14) the Court had no specific evidence as to the attitude of Mrs Roberts sister or the Inland Revenue; (15) the proceedings against the solicitors were far from straightforward, although the judge did not base his decision on any assessment of the precise prospects of success in those proceedings; (16) in the absence of argument on the point, he left out of account the question whether Mr Sainter as administrator might be liable to pay the costs if a derivative action were permitted and proceeded and failed; (17) Mark Roberts had legal services funding to bring the present proceedings and it might very well be the case that he had or would obtain legal services funding to bring a derivative claim; (18) the court had power under CPR 17.4 to give Mark Roberts permission to amend the present proceedings to add a derivative claim (if special circumstances existed) and thereby defeat a limitation defence.
The judge took the view that, although the list of special circumstances was not closed and special circumstances had never been exhaustively defined, the circumstances as to legal services funding and limitation were of a different character from anything contemplated in the cases as to special circumstances.
The circumstances in (17) and (18) were not special circumstances which would justify the court in permitting Mark Roberts to bring a derivative claim against the defendants.
Arden LJ (with whom Patten J agreed) seems to have taken the view that the judge was wrong (among other reasons) because he had not given sufficient weight to the fact that the derivative claim would enable an asset to be realised, which otherwise could not be realised, and because Mark Roberts had legal aid the estate would not have to fund his costs.
If the point had arisen for decision, I (in agreement with Pill LJ) would have taken the view that this was a case where the judge had a wide latitude in evaluating what were special circumstances, that he took all the relevant circumstances into account, and that he conducted the enquiry in a way with which an appellate court should not have interfered.
I would therefore dismiss the appeal on the ground that the Court of Appeal was right to hold that the amendment to pursue a derivative claim was not permitted by the CPR after the expiry of the limitation period.
LORD HOPE
I agree with all my colleagues that, for the reasons that Pill LJ in the Court of Appeal and Lord Collins in this court have given, the judge at first instance was fully entitled to hold that the appellant has failed to show that there were special circumstances justifying the derivative claim which he seeks to bring at this late stage.
Contrary to the views of the majority in the Court of Appeal, I would hold that it would not have been permissible for that court to interfere with his decision.
I would dismiss the appeal on this ground because, like Lord Clarke, I would prefer not to reach a final conclusion on the question whether, if special circumstances had been made out, the court would have had power to give the appellant permission to amend to introduce the derivative claim.
I am not convinced that the rule that the administrator must be joined is quite as absolute as Lord Collins indicates in his judgment.
He has referred in para 54 to the law of Scotland as explained in Wilson and Duncan, Trusts, Trustees and Executors, 2nd ed (1995), para 10 13.
It is stated in that paragraph that if the trustees refuse to sue to recover a debt due to the trust estate, they can be forced to lend their names to the beneficiaries to enable them to raise the action: Blair v Stirling (1894) 1 SLT 599; Browns Trustees v Brown (1888) 15 R 581.
There is no doubt that this is the ordinary rule.
As Mackenzie Stuart, The Law of Trusts (1932), p 210, explains, if the beneficiaries insist on action being taken, the trustees must lend their name and authority to the beneficiaries in order that they may have a formal title to sue.
This explanation supports the view that Lord Collins has expressed in para 62 of his judgment that joinder has a substantive basis, as the beneficiary has no personal right to sue for the recovery of trust property.
This is not, as Scots law would see it too, simply a matter of procedure.
How Scots law would see the procedural issue is, as Lord Rodger says, not free from difficulty.
But there are some indications as to how it deals with the question which is of real interest in this case, which is whether proceedings can be raised without joining the trustees at the outset.
In Morrison v Morrisons Executrix 1912 SC 892, 893 the Lord Ordinary, Lord Skerrington, said that it was certainly logical that no one should be allowed to sue an action unless that right sought to be enforced had been duly transferred to him, and that any injustice that this rule of law might operate was obviated by the further rule that the person who has the beneficial interest may compel the person who has the formal title to lend his name on receiving security against expenses.
But he went on to indicate that this was not an absolute rule: I am of opinion that where justice absolutely requires it, the action may, in spite of the legal technicalities, be allowed to proceed at the instance of the party who has the beneficial interest.
He referred, in support of that proposition, to a passage in Lord Herschells speech in Rae v Meek (1889) 14 App Cas 558, 569, where he said: The alleged duty, if it existed at all, was to the trustees, and not to the beneficiaries.
If there has been a breach of it, the trustees and not the beneficiaries are the parties to sue.
There may be cases where, if trustees failed to call to account those who were under liability in respect of acts injurious to the trust estate, the beneficiaries might compel them to do so, or even enforce the right themselves.
The last six words in this quotation from Lord Herschells speech may seem a rather slender foundation on which to qualify a rule based on a substantial point of principle.
But I take them to indicate that it would be unwise to regard this rule as one which will always be enforced.
Viscount Cave LCs observation in Performing Right Society Ltd v London Theatre of Varieties [1924] AC 1, 14 that there may be special cases where the rule that the person with the legal right must be joined will not be enforced provides further support for this approach.
It is true, as Lord Collins points out, that in Morrison v Morrisons Executrix Lord Skerrington went on to point out that a decree in such an action would not be res judicata unless all the trustees and beneficiaries were called as defenders.
Teulon v Seaton (1884) 12 R 971 is an example of such a case where the title of the beneficiary to sue a debtor to a trust was sustained, but the precaution had been taken of calling the trustees as defenders to the action at the outset.
But two points should be noted about this qualification.
First, it is for the party against whom the action has been brought to take this point, by a plea of all parties not called.
It has never been suggested that the court can compel the pursuer to do this as a condition of raising his action.
Second, this step can be taken at any time before extract of the final decree: Maclaren, Court of Session Practice (1916) p 478 479; Maxwell, The Practice of the Court of Session (1980), p 281.
The procedure which Scots law uses to cure the absence of a personal right in the beneficiary is different from that which is under discussion in this case.
But there is much common ground.
The beneficiary has no personal right to sue.
The requirement that the personal representative must be joined is more than just a matter of procedure.
Yet the rule is not an absolute one.
It may be departed from if this is necessary to avoid an injustice.
An action which is raised on this basis is not to be regarded as bad from the outset, although the personal representative may have to be joined at a later stage.
Like Lord Clarke, however, I think that the appellant would find it very hard to justify a departure from the rule in the circumstances of this case.
LORD RODGER
At the end of the hearing I was inclined to think that it might have been possible for the claimant to make the amendments in separate stages, as outlined by Lord Collins in para 70 of his judgment.
But, having studied what he says, I am satisfied that this would really be an artificial device: it would be to permit the claimant to do in two steps something which the statute and CPR do not permit him to do directly in one step.
For the rest, I agree with Lord Walker and Lord Collins and would dismiss the appeal for the reasons which they give.
I am reluctant to get drawn into a discussion of a tangential point of Scots law which was not argued and is not free from difficulty.
Unquestionably, the general rule is that the beneficiary of a trust cannot sue a debtor of the trust: the relevant right of action is vested in the trustees and it is for them to enforce that right by raising an action, if appropriate.
Where the trustees decline to take proceedings but the beneficiary insists, he can require them to assign the right of action or to permit him to use their name, provided that he gives them an indemnity for any liability for expenses.
Lord Shand stated the position in absolute terms in Raes v Meek (1888) 15 R 1033, 1050 1051: If the trustees do not think fit to raise an action against the debtors for certain debts, having doubts it may be how far they may be certain of success, is it for a beneficiary or beneficiaries to do so in their own name? I think they have no such right.
And I do not think this is a matter of mere form; it is, in my view, a matter of substance, because if the law were otherwise, then the debtors of trust estates, including amongst them law agents who may have been employed by the trustees, would be liable to actions at the instance of many different persons of anyone having a beneficial interest in the trust estate requiring them to pay the amount of their debts to the trustees.
I think such actions are not competent, and that the only persons who can maintain actions to recover debts due to an executry or trust estate are the administrators of the estate, the trustees or the executors.
A beneficiary could not discharge the liability for a claim due to the trustees and I do not see that a judgment in an action at the instance of a beneficiary could be res judicata in a question with the trustees.
It appears to me that the law would get into extreme confusion if we were to sanction actions of this kind raised by a beneficiary against one with whom he had no contract.
The beneficiary has his rights against the trustees, for the trustees are in direct relation with him because of their having undertaken a trust for his behoof.
But if beneficiaries seek to enforce by action a claim of any kind against a debtor to the trust, it appears to me that they must either compel the trustees to raise the question directly in their own names, or get authority to use their names, or get an assignation to the claim, and thereupon sue as assignees.
By contrast, Lord Young, in a characteristic, freewheeling judgment, argued, at pp 1058 1059, that, since everyone was in the action already, the beneficiaries should be able to proceed against the law agents.
Against the background of Lord Shands careful statement of the position, the passage in Lord Herschells speech on the appeal quoted by Lord Hope at para 5 is, as Lord Hope says, a rather slender foundation on which to qualify a rule based on a substantial point of principle Indeed, one might wonder whether Lord Herschell had in mind anything more than the use of the trustees name or the taking of an assignation, which are the well recognised ways in which beneficiaries can take proceedings, if they wish to do so.
Assuming, however, that a beneficiary can take proceedings against a debtor of the trust, the question is: can he do so without joining the trustees as defenders?
In Morrison v Morrisons Executrix 1912 SC 892, 893, the Lord Ordinary (Skerrington) did indeed take Lord Herschells comment in Raes as support for the view that, where justice absolutely required it, an action against a debtor to a trust might be allowed to proceed at the instance of a beneficiary.
Lord Skerrington also cited Teulon v Seaton (1885) 12 R 971 in which he had acted as counsel for the pursuer, who was the administratrix of the estate of her mother, a residuary legatee under a settlement.
The First Division was prepared to allow her action against the trusters widower, who was alleged to have intromitted with the trust estate, to go ahead but only if she found caution for the expenses.
She failed to do so and the defenders were assoilzied: (1885) 22 SLR 786.
According to the report, 12 R 971, 973, in the Inner House the first defender directed his principal argument to the issue of forum non conveniens.
On the other hand, Lord President Inglis appears to have focused on the fact that the pursuer was a married woman with no estate independent of her husband.
Which is presumably why counsel ended up by successfully moving that the pursuer should be ordained to find caution for expenses.
In Morrison Lord Skerrington recalled, 1912 SC 892, 894, that the pursuers title to sue had not been much considered in the Inner House in Teulon, but he treated the case, as it stands, as authority for the proposition that in exceptional cases, a beneficiary may sue a debtor to the trust.
His comments were obiter, however, since he sustained the defenders plea of no title to sue, on the view that there was no reason why the pursuer should not bring his action in the ordinary way in the name of the executor.
The First Division, including Lord President Dunedin, counsel for the first defender in Teulon, considered that Lord Skerringtons judgment was quite right and so found the pursuer liable in expenses because the progress of the action so far was quite useless: 1912 SC 892, 895.
On condition that the pursuer first paid the expenses, the Division allowed him to amend to put the deceaseds executor in as pursuer on consignation of a sum to cover his liability in expenses.
To summarise.
In Raes, Teulon and Morrison the relevant trustees or executrix had actually been called as defenders and there were conclusions for payment to be made in their favour.
In Raes and Morrison the pursuers were found to have no title to sue.
So neither case can be regarded as any real authority on whether such an action could have been brought without joining the trustees or executrix as defenders.
There is no sign of the point having been considered in Teulon.
Since in these cases the trustees and executors were parties, there was no room for the defenders to rely on a plea of all parties not called.
That plea would indeed have been appropriate if they were necessary parties.
But the defenders were in any event relying on the more fundamental argument that the pursuers had no title to sue.
Assume, however, that, in some situation, a beneficiary under a trust could raise an action in his own name against a debtor to the trust.
If the position were that the trustees would have to be joined as defenders before there could be any effective decree, the position would appear to be much the same as in England.
LORD WALKER
This appeal is concerned with the amendment of pleadings after the expiry of the limitation period.
The amendment of pleadings is part of the law of procedure and practice which has traditionally been regarded as the province of the Court of Appeal rather than the House of Lords (or, now, the Supreme Court).
Interventions into this area by the highest appellate tribunal have not always received universal approbation (see for instance the trenchant remarks of Sir Henry Brooke in the last chapter of The Civil Procedure Rules Ten Years On ed.
Dwyer (2009) pp 453 459).
I am in full agreement with the judgment of Lord Collins.
His judgment is so comprehensive that I am doubtful whether I can usefully add anything to it, particularly in the circumstances mentioned in the preceding paragraph.
I shall add a few observations, but they are not intended to be in conflict with Lord Collins reasoning and conclusions.
As the English legal system has developed statutes of limitation and procedural rules of court have both become more elaborate, but for a long time there was very little direct interaction between them.
In relation to causes of action founded on tort or simple contract, statutes of limitation referred, as the Limitation Act 1980 still does, to the date on which a cause of action accrued.
That was the date from which, in the normal case, the statutory period started to run.
When a question arose of amending pleadings or adding a new party after the period had run, that was regarded as one factor (but usually a decisive factor) influencing the exercise of the Courts discretion whether or not to permit the amendment.
The Court acted on the principle that it would not be just to deprive the defendant of a vested right of defence, and it often expressed its reasons in a very summary way: see for instance Doyle v Kaufman (1877) 3 QBD 7; Weldon v Neal (1887) 19 QBD 394; Hudson v Fernyhough (1889) 61 LT 722 (in the last case the amendment was allowed, but only on terms that it was not to prejudice the defendants defence).
For much of the 20th century the same approach was taken.
In the much cited case of Mabro v Eagle, Star and British Dominions Insurance Co Ltd [1932] 1 KB 485, 487 Scrutton LJ said: In my experience the Court has always refused to allow a party or a cause of action to be added where, if it were allowed, the defence of the Statute of Limitations would be defeated.
The Court has never treated it as just to deprive a defendant of a legal defence.
The same uncompromising rule of practice was applied even in cases (such as Ingall v Moran [1944] KB 160 and Finnegan v Cementation Co Ltd [1953] 1 QB 688) where the result was to shut out a meritorious claim, arising from a fatal accident, on what many would regard as a technicality.
Indeed in the latter case Singleton LJ (at p699) described the point as a blot upon the administration of the law.
These hard cases turned on the technical but long established distinction between the position of an executor (whose standing relates back to the deceaseds death, and is merely confirmed by probate) and an administrator (whose title depends on, and dates from, the grant of letters of administration).
That distinction has ceased to be relevant, for present purposes, because of section 35(7) of the Limitation Act 1980 and CPR r17.4(4) (made pursuant to section 35(7)).
Rule 17.4(4) (replacing the former RSC Order 20 r5(4)) provides: The Court may allow an amendment to alter the capacity in which a party claims if the new capacity is one which that party had when the proceedings started or has since acquired.
Here it is the last four words (added to Order 20 r5(4) in 1981) that made the important change.
Section 35 of the Limitation Act 1980 was enacted to give partial effect to the recommendations of the 21st Report (Final Report on Limitation of Actions) of the Law Reform Committee (Cmnd 6923), published in September 1977.
It was the first statutory provision which (by the prohibitory terms of subsection (3), and subject to the important exceptions in subsections (4) to (8)) made it the Courts duty, and not merely a long standing rule of practice, to refuse amendments which subvert an established defence based on the Limitation Act.
In cases where the amendment was not prohibited, the Court retained its traditional discretion whether or not to permit an amendment, that discretion being exercisable by reference to what was just (embodied, since 1999, in the overriding objective in CPR 1.1).
Although section 35 of the Limitation Act 1980 was the first provision in a limitation statute which referred to rules of court, rules of court (made under section 99 of the Judicature Act 1925) had already started to acknowledge the existence of limitation statutes.
As Millett LJ pointed out in Yorkshire Regional Health Authority v Fairclough Building Ltd [1996] 1 WLR 210, 216, RSC Order 20 r.5 (which apart from r.5(4) was in force long before section 35 came into force on 1 May 1981) gave a limited power to amend pleadings even after the expiration of the limitation period.
As early as the mid 1960s questions had been raised as to whether Order 20 r5 was intra vires: Rodriguez v RJ Parker (Male) [1967] 1 QB 116 (Nield J); Mitchell v Harris Engineering Co Ltd [1967] 2 QB 703 (Court of Appeal).
In the latter case Russell LJ said at p721, after referring to Mabro and some of the other earlier cases: But I take these cases to have been decided on grounds of settled practice, albeit attributable to the parties position vis a vis the Statute of Limitation.
So far as I am aware, no judge said that it would be outside the jurisdiction of the Court to allow the amendment in question: and if it were thought to be a question of substantive law, this would surely have been the immediate and short answer to the application to amend.
The attacks on the vires of Ord 20, r 5 were therefore rejected.
Further insights into the history of these developments can be obtained from the judgments of Hobhouse J in Payabi v Armstel Shipping Corporation (The Jay Bola) [1992] QB 907, 922 928; Staughton LJ in Hancock Shipping Co Ltd v Kawasaki Heavy Industries Ltd [1992] 1 WLR 1025, 1028 1030; and Mance J in Industrie Chimiche Italia Centrale v Alexander G Tsavliris & Sons Maritime Co (The Choko Star) [1996] 1 WLR 774.
I shall come back to some wider issues arising on section 35 and the Yorkshire Regional Health Authority case, but first I want to look more closely at the concept of capacity which is the focus of section 35(7) and CPR r17.4(4).
In this context capacity is . being used in the sense of legal competence or status to bring or defend a claim.
It is a competence that one may have in ones own right or on behalf of another person.
In my judgment the same meaning of capacity must apply in CPR r17.4(4).
This means that the alteration in capacity which is referred to is an alteration from a representative capacity, or personal capacity, to another representative capacity, or (in the case of a representative claim) to a personal capacity.
That is how it was put by Arden LJ in Haq v Singh [2001] 1 WLR 1594, paras 18 19, and I agree that that is the right meaning in the context.
The best example of a representative capacity is that of an executor or administrator of a deceased person, both offices being included in the compendious expression personal representative.
When a personal representative takes proceedings as such, he is making a claim in a representative capacity, and his claim form must state what that capacity is (CPR r16.2 (3)).
In the usual case where the deceaseds estate has not been fully administered, the personal representative conducts the proceedings for the benefit of all those interested, whether as creditors or as beneficiaries, in the assets of the estate.
No residuary beneficiary has an equitable interest in the assets, only the right to have them properly administered.
It is worth emphasising this elementary point because much of the argument addressed to the Court on behalf of the appellant was based on a supposed analogy between the relationship between a properly constituted personal representative and a residuary beneficiary, on the one hand, and an assignor and an equitable assignee, on the other hand.
In my opinion that supposed analogy is misleading.
As Holroyd Pearce LJ said in Robinson v Unicos Property Corporation Ltd [1962] 1 WLR 520, 526, where the plaintiffs wished to amend to plead an assignment: In no sense is the nature of the action altered.
The plaintiffs still wish to claim that which they claimed in the beginning.
Nor are they suing in a different capacity.
Although they now wish to claim by virtue of their right as equitable assignees of the benefits of the principal to the original contract, they still sue in their personal capacity as principals through the same agency on the contract albeit through an assignment of the benefit to them.
Where one person acquires property as a bare trustee or nominee for the benefit of one or more other persons who are absolutely entitled beneficially, the analogy with an equitable assignment is obviously closer (see for instance Harmer v Armstrong [1934] Ch 65).
Just as there is no real analogy between an equitable assignee and a beneficiary interested in an unadministered residuary estate, so there is in my opinion no real analogy between the assignee of a pending cause of action and a residuary beneficiary or a minority shareholder who seeks (under the general law, and not under special statutory provisions) to bring a derivative action on behalf of a deceased persons estate, or a company.
Where, after an action has been commenced, the cause of action is assigned or transmitted by operation of law, the assignment or transmission is not part of the cause of action.
It makes it necessary to join the new claimant as a party and it needs to be recorded in the pleadings, but it does not amount to a new cause of action.
Not so with a claimant who is not invested with the office of personal representative, but nevertheless seeks to bring a derivative action.
As Campbell JA observed, writing for the Court of Appeal of New South Wales in Oates v Consolidated Capital Services Pty Ltd [2009] NSWCA 183, para 105: To summarise, a plaintiff who seeks to bring a derivative action under the general law must allege, in the initiating process, facts that show that he or she falls within a recognised exception to the prima facie rule that the proper plaintiff in an action in respect of a wrong alleged to be done to a corporation is the corporation itself.
If the initiating process fails to make those allegations, it is liable to be struck out if the defendant chooses to apply to have it struck out .
But there is no requirement under the general law relating to derivative actions for leave to be obtained before a plaintiff commences such an action.
So while he need not obtain prior leave from the court, he must plead the special circumstances entitling him to the courts indulgence.
Those special circumstances are part of his cause of action.
In the ordinary case of a simple assignment or transmission of a cause of action after proceedings have been commenced, no question of limitation arises.
That was the point that Millett LJ made forcefully in the Yorkshire Regional Health Authority case at p218 (see also Evans LJ at p221).
The contrary argument, rejected by the Court of Appeal, was that RSC Order 15 r6 and Order 20 r5 formed a comprehensive code governing amendments after the expiration of the limitation period.
I have no doubt that the Court of Appeal was right in that conclusion, although I am not sure that I agree with (or indeed understand) the refinements of Millett LJs reasoning at p218.
Possibly the draftsman of the CPR felt some residual doubt about the position, because CPR 19.5 (3)(c) has added to the post expiry code a new provision which covers some (but not all) cases of transmission of a cause of action (or liability).
That particular oddity is not remarked on in the Law Commissions 2001 paper Limitation of Actions (Law Com 270) which briefly discusses the topics of amending pleadings at paras 5.5 to 5.19.
In the Yorkshire Regional Health Authority case Millett LJ and Evans LJ referred (at pp219 and 222 respectively) to the impressive and penetrating and scholarly judgment of Mance J in The Choko Star 1996 1 WLR 774, to which I have already referred briefly.
The Choko Star seems to be the first case in which it was necessary (because of the wrong turning taken in Toprak Enerji Sanayi AS v Sale Tilney Technology plc [1994] 1 WLR 840) to consider whether the transmission of a pending cause of action had implications under the Limitation Act.
Previously it seems to have been assumed that there were no such implications.
Mance J analysed the position and spelled out why that assumption was correct.
The case was concerned with universal succession after the merger of two companies under Article 2504 of the Italian Civil Code.
After setting out RSC Order 15 r 7(2) and observing that it went back to rules in force before 1962, and indeed back to the rules in the First Schedule to the Judicature Act 1875 (38 & 39 Vict c77), Mance J said (at p. 782), The problem addressed by Ord 15, r 7 is different: during the course of the proceedings there has been some change affecting the identity of the correct claimant, which could not have been dealt with (or normally even predicted) when proceedings were originally issued.
He then explained why there was no problem under the Limitation Act.
In all such situations, of which death is only the most striking, it seems self evident that any existing proceedings, properly constituted within the limitation period, should be allowed to continue for or against the party to whom the relevant right or obligation has been transferred in law; and that this should be permitted whether the transfer occurs before or after the expiry of the limitation period.
In the Yorkshire Regional Health Authority case the Court of Appeal approved and followed The Choko Star.
Reference was made in argument to the well known definition of cause of action put forward by Diplock LJ in Letang v Cooper [1965] 1 QB 232, 242 243.
I am conscious that this is (as Lord Collins says) a sterile topic but I venture to repeat something that I said in a dissenting judgment in Smith v Henniker Major & Co [2003] Ch 182, para 95 (just before the passage quoted by Lord Collins): I have to say that in the context of section 35 of the Limitation Act 1980 I am uneasy about the process of lifting either of these classic definitions out of the legal lexicon, as it were, and reading them into the language of section 35(5)(a).
The notion of a factual situation which arises out of the same facts or substantially the same facts as another set of facts is not an easy one to grasp.
The other classic definition referred to was that of Brett J in Cooke v Gill (1873) LR 8 CP 107, 116.
As I have already noted, the most familiar provisions of the Limitation Act 1980, like their predecessors, set time limits by reference to the date on which the cause of action accrued.
Its accrual is an event which occurs at a particular point of time.
Moreover the Limitation Act in its amended form makes several references to particular varieties of tort which are commonly referred to as causes of action: conversion in sections 3 and 4, libel and malicious falsehood in section 4A, negligence and nuisance causing personal injury in sections 11 and 4 and negligence causing latent damage in sections 14A and 14B.
It might therefore be more helpful, for practical purposes, to say that in the context of the Limitation Act cause of action means the factual basis of a claim for relief.
Typically that factual basis falls into one or more familiar categories (such as negligence) and will consist of a sequence of essential facts (such as the facts establishing duty of care, breach of duty and damage) which must be pleaded and proved (if not admitted) in order to establish the cause of action.
The cause of action accrues when the last building block of the essential facts is put into place.
For reasons already mentioned the building blocks of the cause of action will not include its transmission (for instance on death or bankruptcy) after the proceedings have commenced, but they will (in the unusual case of a derivative action) include special circumstances relevant to the courts willingness to entertain the case.
The unusual facts of this case are set out in the judgment of Lord Collins.
They raise the issue whether, in a case where there is a properly constituted personal representative of Mrs Alice Margot Roberts, appointed on the application of Mr Mark Roberts himself, there are special circumstances justifying the commencement and conduct of derivative proceedings by Mr Mark Roberts.
There is ample authority, comprehensively reviewed in the judgment of Lord Collins, as to the need for special circumstances before the Court will countenance a derivative action.
Such actions are now relatively common in cases concerned with mismanaged companies, and in many jurisdictions actions by or on behalf of minority shareholders are now regulated by a statutory code (for overseas examples see Oates v Consolidated Capital Services Pty Ltd [2009] NSWCA 183 and Waddington Ltd v Chan [2009] 2 BCLC 82).
Derivative actions by beneficiaries under inter vivos trusts or wills are less common, Hayim v Citibank NA [1987] AC 730 (an appeal to the Privy Council from Hong Kong) and Bradstock Trustee Services Ltd v Nabarro Nathanson [1995] 1 WLR 1405 being modern examples.
But in all these cases the unifying factor what has to be special about the circumstances is that the derivative action is needed to avoid injustice: see Goff J in In re Field, decd [1971] 1 WLR 555, 561; Browne Wilkinson LJ in Nurcombe v Nurcombe [1985] 1 WLR 370, 378; Pill LJ in the Court of Appeal in this case, [2009] 1 WLR 531, para 59.
For the reasons given by Pill LJ at paras 58 to 60, reinforced by the further reasons given by Lord Collins, special circumstances are not made out in this case.
In these circumstances the Court does not have to decide the issues as to amendment of pleadings which I have discussed, in general terms, in the first part of this judgment.
But those issues have been fully argued, and I have therefore thought it right to comment on them.
On the case as a whole my views are closer to those of Pill LJ than they are to the reasons given by Arden LJ in her longer judgment.
I differ from Arden LJ (with whom Patten J agreed) as to special circumstances.
I also think that she was too ready to accept the analogy between a true derivative claim and a claim by an equitable assignee, or a sole beneficiary under a bare trust.
A derivative claim by a residuary beneficiary interested in an unadministered estate is not, with respect, indistinguishable (as suggested in para 32 of Arden LJs judgment) but faces a more formidable obstacle than a claim by an equitable assignee or a beneficiary under a bare trust.
As to para 34, Mr Roberts original claim was a personal claim as a beneficiary.
If he were permitted to bring a derivative action, he would be acting in a representative capacity.
He would be a beneficiary putting himself forward for the first time as a sort of self appointed personal representative.
It may be that CPR r17.4 (4) could be satisfied, but I do not regard the point as free from difficulty.
For these reasons, and for the much fuller reasons given by Lord Collins, I would dismiss this appeal.
LORD CLARKE
I agree with Lord Walker that this appeal should be dismissed on the ground that the appellant has not made out special circumstances such as to make it just for him to be permitted to proceed against the respondents by way of derivative action.
I agree with Lord Collins, and with Pill LJ in the Court of Appeal, that, in reaching that conclusion, the judge at first instance, then Mr Paul Morgan QC (now Morgan J), did not err either in principle or otherwise such that it would be permissible for an appellate court to interfere.
In this regard, like Lord Walker, I prefer the reasoning of Pill LJ to that of Arden LJ in the Court of Appeal.
That conclusion makes it unnecessary to reach a final conclusion on the question whether the court would have power to grant the application for permission to amend to introduce the derivative claim.
However, I wish briefly to address that question because it is of potential importance in the future and because I would not go as far as Lord Collins.
Lord Collins has set out the relevant provisions of the Limitation Act 1980 (the Act) and the CPR and has discussed the authorities in a masterful way which I could not seek to match.
My concern is this.
If this were a case in which there were special circumstances such as to make it just that, subject to the issue of limitation, the appellant should in principle be permitted to proceed by way of derivative action against the respondents, I would be concerned if the court had no power to give him permission to amend in circumstances in which it is common ground that the derivative claim, which I will call the new claim, arises out of the same or substantially the same facts as the appellants original claim, which was issued in time.
It is thus not in dispute that the appellant satisfies CPR 17.4(2) because he is seeking to add a new claim which arises out of the same facts or substantially the same facts as his existing claim.
He is seeking to advance the new claim in a new capacity, namely a representative capacity, which he may or may not have had when the proceedings were started but, if he did not, which he has since acquired within the meaning of CPR 17.4(4).
It follows that, on the face of CPR 17.4(2) and (4), the court has power to grant an application for permission to amend to alter the capacity in which he sues.
The problem arises under CPR 19.5.
The respondents case may be summarised in this way: i) The new claim is a claim involving the addition of a new party within the meaning of section 35(2)(b) and (5)(b) of the Act and CPR 19.5(2)(b). ii) It follows from section 35(5)(b) that the addition of the new party must be necessary for the determination of the original action and from section 35(6)(b) that it is not to be regarded as necessary unless any claim already made in the original action cannot be maintained . against the respondent unless the new party is joined.
CPR 19.5(3)(b) reflects section 35(6)(b) except that it provides that the court must be satisfied that the claim cannot properly be carried on against the respondent unless the new party is added as claimant or defendant. iii) The appellant cannot satisfy that test of necessity because he cannot satisfy the court that his own personal claim could not be maintained or carried on against the respondent unless the administrator was added as a defendant.
The first question which arises is thus whether the new claim is a claim involving the addition of a new party within the meaning of section 35(2)(b) and (5)(b) of the Act and CPR 19.5(2)(b) because, if it is not, no problem arises.
If the administrator (or trustee or company in a shareholders derivative action) must be joined in every case, this question must of course be answered in the affirmative.
On the other hand, if there are circumstances in which it is not necessary to join the administrator in every case, the answer to the question will depend upon the facts of the particular case.
The critical questions are those addressed by Lord Collins at para 44 above.
He says that the only way in which the action could proceed would be (a) if joinder of the administrator was not necessary at all or (b) if it was not necessary at the time the appellant changed the capacity in which he sued but could be effected later.
He notes that the appellants case is that the combined effect of section 35(1)(b) and section 35(6)(b) of the Act and CPR 19.5(3)(b) is that (a) the change of capacity is deemed to take effect at the date of the original proceedings and (b) the joinder of the administrator would then be necessary for the continuance of what would then be regarded as the claim made in the original action for the purposes of section 35(5)(b) and 35(6)(b).
The critical questions are thus whether joinder of the administrator is always necessary and whether such joinder must take place at the outset or can take place later.
I entirely accept that the jurisprudence so fully discussed by Lord Collins at paras 42 to 70 above shows that the approach of the courts has been to require the joinder of a trustee where a beneficiary is making a derivative claim in his own name but for the benefit of the trust as a whole.
The same principle applies to a derivative action by a shareholder.
However, as I see it, in each case it is a procedural rule.
Its purpose was explained by Chitty LJ in Spokes v Grosvenor and West End Railway Terminus Hotel Co Ltd [1897] 2 QB 124 at 128 (quoted in full by Lord Collins at para 57 above) as follows: To such an action as this the company are necessary defendants.
The reason is obvious: the wrong alleged is done to the company, and the company must be party to the suit in order to be bound by the result of the action and to receive the money recovered in the action.
The principle is now reflected in CPR 19.9(3) in these terms: The company, body corporate or trade union for the benefit of which a remedy is sought must be made a defendant to the claim.
In the note to the rule in para 19.9 of Volume 1 of Civil Procedure 2009 the editors say, by reference to para 32 of the judgment of Arden LJ in this case: Although the CPR contains no provision that requires it, where a derivative claim is brought by the beneficiary of an estate, at some stage in the proceedings the personal representative should be joined as a defendant.
In para 32 Arden LJ said: It is sufficient that it has to be done at some stage.
In putting the principle in that way, she made it clear that it might be appropriate to permit joinder, not at the outset, but at a later stage of the proceedings.
Arden LJ so stated after referring to Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1, 14 per Viscount Cave LC, where he said that the person with the legal right must in due course be made a party to the action and where he referred to the decision in William Brandts Sons & Co v Dunlop Rubber Co [1905] AC 454, 462 that there may be special cases in which the rule will not be enforced.
It is of course true that those were cases in which the plaintiff was an equitable assignee suing in his own name.
They are among those discussed by Lord Collins at paras 62 to 67 above.
However, it is to my mind of note that, at any rate for this purpose, Arden LJ regarded the requirement of joinder in the derivative class of case as the same as that in the equitable assignee class of case.
It did not occur to her (or Pill LJ and Patten J, who agreed with her on this part of the case) that, so far as the time for joinder is concerned, there is a different principle in the two classes of case.
Although I recognise, as Lord Walker and Lord Collins make clear, that there are differences between the two classes, I do not for my part see why there should be a difference in this particular respect.
Moreover, I do not think that there has been any discussion of this point in the authorities as they stand.
The essential reason for the joinder of the trustee, administrator, or company as a defendant in the case of a derivative claim is in order that he or it is bound by the result of the action and entitled to receive the money recovered in the action.
The purpose of the joinder of the legal owner in the case of a claim by an equitable assignee is also in order that he or it is bound: see eg EM Bowdens Patents Syndicate Ltd v Herbert Smith & Co [1904] 2 Ch 86, 91 per Warrington J.
Thus there seems no good reason why a different rule should exist in each case as to when he must be joined.
In these circumstances, assuming that joinder is necessary at some stage, I prefer the view of Arden LJ that it does not necessarily have to be at the outset.
It is true that, as just stated, CPR 19.9(3) provides that in a derivative claim to which the rule applies, which is essentially that of a shareholder, the company must be made a defendant but there is no similar rule in a claim by a beneficiary under a trust.
I entirely accept that one would expect the same principles to apply to all classes of derivative claim and, moreover, that CPR 19.9(3) reflects the general rule, but I would also accept the submission made on behalf of the appellant that CPR 19.9(3) is subject to the overriding objective and that the court must have a discretion to postpone the joinder in a particular case.
I would go further.
As is clear from the William Brandt case [1905] AC 454, the rule in the equitable assignment case is not absolute.
I recognise that not to insist upon joinder is said to be exceptional but I am inclined to think that there are in practice very many cases in the modern era in which equitable assignees proceed to recover a debt assigned to them in equity without joining the assignor.
However that may be, I wonder why the rule should be absolute in the derivative action case if it is not absolute in the equitable assignment case.
There may be circumstances in a particular case which make it just to dispense with the necessity of joinder.
For example, there may be no real point in joining the trustee, administrator or company if appropriate undertakings are given by the claimant to hold any monies recovered for his or its benefit, especially if he or it consents.
It has been suggested that one reason for joinder is that, if the derivative action fails, the trustee, administrator or company might bring another action in the future.
Where such an action would be time barred, again there would be no such risk.
Moreover, there is now a general principle that no action should fail for non joinder of a party: see William Brandt per Lord Macnaghten at p 462.
None of these possibilities has been worked out in the cases.
In these circumstances I am reluctant to decide this appeal on the basis that there is an absolute rule that the law requires the appellant to join the administrator at all or, alternatively, at the outset.
The basis upon which Arden LJ was against the appellant was not that there was an absolute rule that the administrator would have to be joined at the outset because of the nature of the claim.
As appears from para 36 of her judgment and para 69 of that of Lord Collins, it was that the administrator would have to be joined before judgment and that it would be contrary to principle for the court to grant permission to amend a change of capacity which would not enable the appellant to proceed to judgment.
However, as I see it, that is to conclude that the rule is absolute.
For my part, as at present advised, I would hold that the rule is not absolute, that there may be circumstances in which joinder would not be ordered and in any event that joinder does not have to be effected at the outset.
Moreover, I do not think that to give the court power to give permission for a claimant to amend his capacity in these circumstances is contrary to principle.
CPR 17.4 expressly confers such a power and, although there is a signpost to CPR 19.5, the power in CPR 17.4 is not made subject to it.
If the rule is not absolute, or if joinder does not have to be effected at the outset, it seems to me to be at least arguable that the court would have power under CPR 17.4(4) to allow the appellant to change the capacity in which he is suing and that, if he did so, the effect of section 35(1)(b), section 35(6)(b) and CPR 19.5(3)(b) would be that that change of capacity would be deemed to take effect as at the date of the original proceedings and that joinder effected thereafter would be unaffected.
The court would thus have power first to permit an amendment to change capacity and to permit joinder thereafter on the basis that joinder would be necessary to allow the proceedings to continue.
It is important to note that the above analysis would only give the court power to allow an amendment without joinder at the same time.
Whether it would exercise the power would depend upon all the circumstances of the case.
It may well be inappropriate, or even (depending upon the circumstances) wrong in principle, to grant an application for permission to amend to change the capacity in which a claimant has been proceeding, but the court would have the power to do so if it appeared just in all the circumstances.
I see no reason why the court should not have that power where the new claim arises out of the same or substantially the same circumstances as the existing claim.
In this regard it is I think significant that the power is included in a limitation statute.
The purpose of such a statute is to protect the defendant against whom a stale claim is made.
On the other hand, the staleness of the claim is likely to be of less significance where the new claim arises out of the same or substantially the same facts as the original claim.
One of the curiosities of this type of case is that in the ordinary way one would expect it to be the new party who would complain about the addition of a new party.
Thus, where a defendant is sought to be added, it is the new defendant whom one might expect to protest.
In the instant case, it is most unlikely that, if the administrator were to be joined as a defendant, he would complain.
In fact no application has been made by anyone to join the administrator as a defendant.
The appellant has not sought to join him and there is no suggestion that he intends to do so.
Nor have the respondents sought to join him.
If they did, he might well say that he did not object to being joined and might, in any event, not take the point that the claim was time barred.
However that may be, I would expect an applicant to explain to the court why the administrator should not be joined at the outset (or perhaps at all) and what was the attitude of other interested parties, including the administrator, other beneficiaries and creditors.
They might all consent to the proposal, in which case it might be just to allow the claimant to proceed with a derivative claim without joining the administrator at the outset.
Indeed, it might be just even where the administrator did not consent.
Such cases would no doubt be exceptional but all would depend on the circumstances.
In the instant case the appellant made no attempt to explain the attitude of the administrator or of his aunt Ms Jill Roberts or of the creditors, notably HMRC.
So his prospects of persuading a court to exercise its discretion in his favour would be remote.
In any event, as I see it, none of the interesting questions I have touched upon needs to be decided in this case because, as I said at the beginning, I agree with Lord Walker that there is no proper basis for interfering with the judges conclusion that special circumstances for bringing a derivative action were not established.
| UK-Abs | The Appellant Mark Roberts and his brother John Roberts were beneficiaries of a will made by their grandmother, Mrs. Alice Roberts.
A clause in the will provided that if John Roberts paid all the inheritance tax due on Mrs. Roberts death then a property known as the Lower Hellingtown Farm would pass to him, and another property known as the Coppice would pass to the Appellant.
The considerable value of the farm meant that it would be to the advantage of John Roberts if he complied with the clause.
Upon the death of Mrs Roberts on 27 July 1995, John Roberts was granted the right to administer the estate in the place of Mrs Roberts executors, who had decided not to take up office.
In order to obtain his position as administrator, John Roberts paid some of the inheritance tax due on the estate, but not all of it.
In July 1996, John Roberts, as administrator, transferred ownership of Lower Hellingtown Farm to himself as beneficiary and in 1997 the property was sold.
The majority of the proceeds of sale were paid to John Roberts, the remainder being used to discharge some of the estates liabilities.
Two firms of solicitors advised John Roberts.
The First Respondent, Gill & Co, advised John Roberts on the transfer of the property and the Second Respondent, Whitehead Vizard, advised him on the sale of the farm.
On 30 October 2000, John Roberts was replaced as administrator by the Appellants solicitor.
In a claim brought on 27 November 2002, the Appellant brought proceedings against the First and Second Respondents for negligence, alleging broadly that they had assisted, in breach of the provisions in the will, in the transfer and sale of the property without John Roberts having paid all the inheritance tax due.
The claim was, however, framed in such a way as to allege that the duty of care owed by the firms of solicitors was owed to the Appellant personally.
The correct legal position (which was not disputed by any of the parties on appeal), was that a firm of solicitors advising a person administering an estate does not owe a duty of care to the beneficiaries of that estate personally; rather the duty of care is owed to the estate of the dead person.
Normally the proper person to bring any claim for negligence, therefore, would be the person administering the estate.
A beneficiary of a will may bring a claim on behalf of the estate, but only where special circumstances exist.
On 25 August 2006, the Appellant applied to amend his claim so as to continue it both in his own personal capacity and on behalf of the estate.
The First and Second Respondents resisted the
application on the grounds (a) that the amendment was barred as being out of time under section 35 of the Limitation Act 1980 (the Act) and rule 19.5 of the Civil Procedure Rules (the CPR), and (b) that there were no special circumstances which entitled the Appellant, as a beneficiary, to continue the claim on behalf of the estate.
The High Court refused the application, holding that there were no special circumstances.
The Court of Appeal held by a majority that there were special circumstances but that the amendment was time barred.
The Appellant appealed.
The Supreme Court unanimously dismissed the appeal.
Lord Collins gave the leading judgment, dismissing the appeal on the basis that the amendment was time barred.
Lords Rodger and Walker agreed with the entirety of Lord Collins judgment.
Lords Hope and Clarke declined to decide the case on the grounds that the amendment was time barred but nonetheless ruled in favour of the First and Second Respondents on the ground that there were no special circumstances which entitled the Appellant to carry on the claim on behalf of the estate.
The main question in relation to ground (a) was whether, in order to be able to carry on his claim, the Appellant would need not only to alter the claim so that he was suing on behalf of the estate, but also to add the administrator as a defendant.
If he did have to add the administrator, a further question arose: did he have to add him at the time at which he altered his claim, or could he do so later? [para 44].
Rule 19.5 of the CPR stated that a new party could be added after the limitation period only where to do so was necessary for the determination of the original litigation.
The addition of the administrator was clearly not necessary for determining the Appellants personal claim: there was no possible basis for any suggestion that the administrator would be a proper or necessary party [para 43].
If the Appellant was able to make the application to change the capacity in which he sued first, that would then enable him to subsequently add the administrator as a party, as it would then be necessary for the determination of the proceedings brought on behalf of the estate for the administrator to be joined [para 44].
The Appellant therefore needed to be able to demonstrate either that the administrator did not need to be added at all, or that he could be added after the Appellant had successfully altered the claim.
Neither was possible.
The administrator needed to be added at the outset of the proceedings [paras 63, 71] and it would be contrary to principle for the court to grant permission to alter the claim first before considering the addition of the administrator [para 71].
The appeal would accordingly be dismissed on ground (a) [paras 77, 86, 95].
Although ground (b) did not directly arise for decision given the conclusion on ground (a), there were no special circumstances that would entitle the Appellant to carry on a claim on behalf of the estate.
The judge had a wide latitude in evaluating whether there were special circumstances, had taken all the relevant circumstances into account, and had conducted the enquiry in a way with which an appellate court should not have interfered [para 76].
Lords Hope and Clarke, in the minority on ground (a), disagreed that the rule that the administrator must be joined was quite as absolute as Lord Collins suggested [paras 79, 115].
The rule could be departed from if it was necessary to avoid injustice [paras 84, 116].
While on the facts of the case it was difficult to justify a departure from the rule [para 84], Lords Hope and Clarke both preferred to decide the case on the basis that there were no special circumstances [paras 78, 114].
|
This appeal concerns the effectiveness of a scheme, known as Project C, which was designed to minimise the overall liability to VAT of a group of companies involved in motor breakdown insurance (MBI).
Summarising matters which I shall at a later point explain in greater detail, the supply of insurance is exempt from VAT.
It follows that insurers do not charge VAT on premiums, and do not account to the Commissioners for Her Majestys Revenue and Customs (the Commissioners) for VAT in respect of their insurance business.
It also follows that, if an insurer incurs costs in respect of supplies of goods or services which it uses in the course of its insurance business, on which VAT is chargeable, it is unable to deduct the amount of the VAT which it has paid from any VAT which it has received in respect of that business.
Instead, it has to bear the VAT element of its costs.
MBI insurers normally undertake to indemnify the insured against the cost of repairs.
Whether the garage invoices the insured, who is then reimbursed by the insurer, or invoices the insurer directly, in either case the garages invoice will include VAT (provided the garage is registered for VAT, as is normally the case).
In such circumstances, the cost of the repair is the cover which the insurer has contracted to provide to the insured under the insurance policy.
It is not the cost of a service supplied to the insurer for the purposes of its business, and no possibility arises of the insurer being able to deduct the VAT element of the cost.
In principle, however, an MBI insurer might undertake not to indemnify the insured in respect of the cost of repair, but to repair the insureds vehicle; and it could then arrange with a garage for the repair to be carried out, and pay the garages bill.
Even in such a case, however, the insurer would not be able to deduct the VAT element of the bill, since, even if the garage were regarded as supplying a service to the insurer for the purposes of its insurance business, the insurer would not be liable to account for any VAT in respect of that business, and would therefore not have received any VAT from which the tax paid to the garage could be deducted.
The VAT paid to garages represents a substantial element of the costs of an MBI insurers business, which has to be covered by premiums.
The inability to deduct VAT as input tax is perceived by MBI insurers as placing them at a competitive disadvantage relative to businesses, such as car dealers, offering uninsured warranties under which they contract to repair vehicles in the event of a breakdown.
Since businesses of the latter kind are not treated as being exempt from VAT, they can set the VAT element of their costs against the VAT which they receive, with the result that the effect of the tax upon their business should in principle be neutral.
The competitive disadvantage of the insurers was exacerbated in 1997, when insurance premium tax was imposed on MBI premiums at a rate of 17.5%.
The purpose of the scheme with which the appeal is concerned was to redress that competitive disadvantage by enabling the VAT element of the cost of repairs to be recovered by one or other of the members of a group of companies to which an MBI insurer belonged, thereby reducing costs and enabling the insurer to offer lower premiums.
The National Insurance and Guarantee Corporation plc (NIG) is a UK insurer.
It has underwritten MBI policies for many years.
The policies cover the cost of repairs and replacement parts following breakdowns of second hand cars.
The policies are marketed and sold by another UK company, Warranty Holdings Ltd (Warranty), which is a member of the Oriel group of companies, the holding company of which is Oriel Group plc.
Prior to the implementation of Project C, NIG reinsured the risks under the policies with Practical Insurance Company Ltd (Practical), a Gibraltar based reinsurer which is another member of the Oriel group.
Until the implementation of Project C, Warranty was appointed by NIG to handle all claims made under the policies.
In the event of a breakdown the insured contacted Warranty, which directed the insured to take the vehicle to an approved repairer, or a repairer of the insureds choice, or the dealer (all of which I shall refer to as the garage) for repair.
The garage provided repair services and billed Warranty for the cost or, if the cost of the repair exceeded the insurance cover, for the amount of the cover.
As claims handler, Warranty made arrangements with approved repairers which were designed to keep down the cost of repairs.
These arrangements resulted in the VAT paid by Warranty on the repair services and parts supplied by the garage being irrecoverable.
This was the problem which Project C was designed to solve.
Project C had two strands, each of which was based on the operation of
statutory provisions.
The aim was that the first strand should be enough to secure the recovery of the VAT paid on the repairs.
The second strand was designed to provide a fall back position should the first not hold.
Putting the matter very broadly, the first strand was based on legislation designed to ensure that there was no VAT burden on the supply of certain insurance and financial services by UK businesses to consumers outside the EU.
The legislation gave credit for input tax which was incurred for the purpose of businesses making certain specified types of supply to a person outside the EU.
The specified supplies included the provision of assistance in the administration and performance of insurance contracts, including the handling of claims.
The legislation was interpreted by those responsible for Project C as enabling a UK insurance claims handler to recover input tax incurred for the purpose of its supplying claims handling services to a non EU recipient.
Project C sought to avail itself of this legislation by having the first appellant, WHA Ltd (WHA), a UK member of the Oriel group, supply claims handling services to the second appellant, Viscount Reinsurance Company Ltd (Viscount), a Gibraltar based member of the group, with which 85% of the risk under NIGs MBI policies issued through Warranty was ultimately reinsured.
Provided (1) the garages made supplies of labour and parts to WHA (and not, as previously, to the insured car owner) and invoiced WHA for those supplies, (2) WHA then invoiced Viscount for claims handling services and (3) the latter invoice covered the amounts invoiced by the garages, WHA would be able to recover the VAT charged by the garage, and would not have to charge VAT on its onward supply of claims handling services to Viscount.
That, in short, was the thinking behind the first strand of Project C.
The first strand envisaged, as I have explained, that no VAT would be chargeable on the supplies to Viscount.
The second strand of Project C was designed to provide a fall back line of defence if that was disputed by the Commissioners: if, for example, they maintained that WHA did not use the garages supplies for the purpose of making its own supplies of claims handling services to Viscount, or contended (as actually happened) that WHAs supplies to Viscount were wholly or partly chargeable to VAT as being supplies of repairs or parts rather than supplies of claims handling services.
Again putting the matter very broadly, the second strand relied upon UK VAT legislation which was interpreted as enabling Viscount to recover the VAT which it paid to WHA so long as Viscount itself made supplies to a non EU recipient.
For the purpose of the second strand, it was therefore necessary to instal another non EU entity between NIG and Viscount.
That entity was Crystal Reinsurance Company Ltd (Crystal), another Gibraltar based member of the Oriel group.
It reinsured 100% of the risk under NIGs MBI policies issued through Warranty, and in turn retroceded 85% of the risk to Viscount.
The NIG policies were the only reinsurance business carried on by Crystal and Viscount.
The end result of the first strand of Project C was thus intended to be that WHA (1) would be the recipient of the repair services on which the garages charged VAT, (2) would not have to charge output tax on its onward supplies to Viscount, and (3) would therefore be entitled under the relevant legislation to recover the input tax from the Commissioners.
The end result of the second strand was intended to be that, if proposition (2) did not hold and WHA had to charge output tax on its supplies to Viscount, Viscount would nevertheless be entitled to recover that tax from the Commissioners.
Following the implementation of Project C in 1998, the Commissioners refused the claims made by WHA and Viscount for the repayment of tax.
WHA and Viscount then appealed to the Value Added Tax and Duties Tribunal (the tribunal).
Before the tribunal, the Commissioners challenged the effectiveness of Project C on the basis that none of its three central planks was sound.
First, they maintained that there was no supply of services by the garages to WHA: if that contention were accepted, it was fatal to the success of the scheme, since both strands of Project C depended upon its being accepted that the repair services were supplied by the garages to WHA.
Secondly, they maintained that if there was indeed a supply of repair services to WHA, its onward supply to Viscount was in any event subject to VAT: if that contention were accepted, it was fatal to the success of the first strand.
Thirdly, they maintained that Viscount was not in any event entitled to recover input tax under the UK legislation in question: if that contention were accepted, it was fatal to the success of the second strand.
The Commissioners also advanced further arguments based on the alleged artificiality of the scheme, including a contention based on the EU doctrine of abuse of rights.
In its decision ([2002] VATTR 202), the tribunal agreed with the Commissioners on all three of their principal contentions, and dealt only briefly with the Commissioners further arguments.
On an appeal to the High Court ([2003] STC 648), Lloyd J disagreed with the tribunal on the first two issues.
He held that (1) WHA could treat the VAT payable on the garage bills as input tax, (2) WHA made exempt supplies to Viscount and (3) WHA was therefore entitled to recover its input tax.
Having thus accepted that the first strand of Project C was effective, he did not go on to consider the third issue, which was relevant only to the second, fall back, strand of the scheme.
A further appeal to the Court of Appeal was dealt with in two stages.
In an interim judgment ([2004] STC 1081), the Court of Appeal agreed with Lloyd J on the first issue: that is to say, it held that there was a supply of services by the garages to WHA.
It agreed with the tribunal on the second issue: that is to say, it held that WHA made a taxable supply of services to Viscount, and therefore had to charge output tax.
The court therefore had to deal with the third issue.
In disagreement with the tribunal, it held that Viscount was entitled to recover the VAT which it had to pay WHA.
Those conclusions were however all subject to the Commissioners further arguments about abuse of rights, consideration of which was deferred until the preliminary rulings of the European Court of Justice on a number of cases concerned with that subject were available.
Following the issue of those rulings, the Court of Appeal subsequently gave its final judgment ([2007] STC 1695), in which it held that the scheme was abusive and that the tribunals decision should therefore be reinstated, albeit for somewhat different reasons.
The present appeal is taken against the decision of the Court of Appeal.
The parties positions have altered in some respects since that decision was made.
The issues now in contention are as follows: (1) Is there a supply of repair services for the purposes of WHAs business by the garages to WHA, as well as or instead of a supply of services to the insured, on which WHA may claim deduction of input tax? (2) If the answer to question (1) is yes, what is the application to WHA's claim of the EU law doctrine of abuse of right? (3) In any event, was the then extant UK legislation pursuant to which Viscount claimed to recover the input tax charged on the supplies to it by WHA ultra vires? If so, was that legislation void ab initio and does this cause the claim by Viscount for recovery of such input tax to fail? (4) Are the Commissioners entitled to raise or rely on the latter issue for the first time before this court or as the sole reason for withholding repayment from Viscount, insofar as (i) Viscount may have had a legitimate expectation that its claim would be met, (ii) the issue was not identified in any of the Commissioners' original decisions, (iii) it was not argued by them before any of the courts below and (iv) the Commissioners have consistently maintained that the tribunal has no jurisdiction to hear or determine public law questions?
For reasons which I shall explain, I have come to the conclusion that question 1 should be answered in the negative: there is no supply of repair services by the garages to WHA.
It follows from that conclusion that the appeal must be dismissed and the decision of the Court of Appeal affirmed, albeit for different reasons.
That being so, it is unnecessary to address the remaining issues.
In the following discussion, I shall accordingly focus solely upon the factual and legal issues which are relevant to the question whether the garages make a supply of repair services to WHA for the purposes of its business.
The relevant legislation
The relevant EU legislation is contained in Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes (the First Directive), and Council Directive 77/388/EEC of 17 May 1977 (the Sixth Directive), as amended by Council Directive 95/7/EC of 10 April 1995.
These are translated into domestic law by the Value Added Tax Act 1994 as amended (the 1994 Act).
It is sufficient to refer principally to the EU provisions.
Article 2 of the First Directive describes the basic system of value added tax: The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.
On each transaction, value added tax, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.
The common system of value added tax shall be applied up to and including the retail trade stage.
Article 2 of the Sixth Directive provides: The following shall be subject to value added tax: 1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such .
Articles 5 and 6 define supply of goods and supply of services respectively.
The former means the transfer of the right to dispose of tangible property as owner.
The latter means, generally, any transaction which does not constitute a supply of goods within the meaning of article 5.
Article 11 defines the taxable amount.
It provides, so far as relevant: A.
Within the territory of the country 1. the taxable amount shall be: (a) in respect of supplies of goods and services, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies.
Article 13 provides various exemptions, including at B.(a) insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents.
That is implemented in the UK, so far as related services are concerned, by Group 2, item 4 of Schedule 9 to the 1994 Act, which exempts the provision by an insurance broker or insurance agent of any of the services of an insurance intermediary The latter services are defined by Note (1) as including (c) the provision of assistance in the administration and performance of such contracts, including the handling of claims.
Article 17(2) allows a taxable person the right, in so far as the goods and services are used for the purpose of his taxable transactions, to deduct VAT due or paid in respect of goods or services supplied or to be supplied to him by another taxable person.
The factual background
As this court has recently observed (Her Majestys Revenue and Customs v Aimia Coalition Loyalty UK Limited [2013] UKSC 15, para 68), decisions about the application of the VAT system are highly dependent upon the factual situations involved.
A small modification of the facts can render the legal solution in one case inapplicable to another.
It is therefore necessary to begin by considering carefully the facts of the present case.
As was also noted in the Aimia case at para 38, the case law of the Court of Justice indicates that, when determining the relevant supply in which a taxable person engages, regard must be had to all the circumstances in which the transaction in question takes place.
Furthermore, as Lord Walker explained in Aimia at paras 114 115, in cases where a scheme operates through a construct of contractual relationships, as in the present case, it is necessary to look at the matter as a whole in order to determine its economic reality.
Accordingly, although the transaction of particular importance is that between the garage and WHA, it has to be understood in the wider context of the arrangements between the insured, NIG, Crystal, Viscount, WHA and the garage.
The contractual position is not conclusive of the taxable supplies being made as between the various participants in these arrangements, but it is the most useful starting point.
I shall begin with the contract of insurance between the insured and NIG.
Two sample policies have been produced in these proceedings.
Their terms, so far as material, are to similar effect, and it is sufficient to refer to one of them, described as Motor Cover.
The policy makes it clear that the insurer is undertaking to meet the cost of repairs to the vehicle falling within the scope of the policy: it is not undertaking responsibility for the repairs themselves.
The policy states, for example, that following a mechanical breakdown of your vehicle, this policy will assist with the cost of repair of the parts listed; and the terms and conditions provide that NIG will not pay more than the limits shown on the proposal form or, if lower, in this policy document.
Although the terms and conditions also provide that NIG reserves the right to provide replacement parts and to carry out repairs under this policy or to arrange for their provision by other persons, the implication of that clause is that NIG is under no obligation to do so.
The policy also explains to the insured the role of WHA, in terms which are consistent with the financial nature of the insurers obligations.
The terms and conditions state that WHA has been appointed to deal with all matters relating to claims handling and settlement, including payment, of claims arising under this policy.
Under the heading, How to make a claim, the policy states that the insured should first telephone or write to WHA, which will explain the claims procedure.
The insured should next book the vehicle in with the garage and give your permission to carry out any fault finding/diagnosis or dismantling necessary.
Next, you agree that you will pay the cost of dismantling and repairing the vehicle if the cause of the breakdown is not covered by the policy and, if it is covered, all costs which exceed the limits on your proposal form.
Next, the garage must ask WHA for authority to carry out the repair.
If your claim is accepted, your repairer will be informed how much will be paid under this policy You are responsible for paying any amount the repairer charges over and above the amount authorised.
When the repairs have been completed, the garage must submit an invoice to WHA.
The policy makes it clear that the insured can either take the vehicle to the dealer or to a garage approved by WHA, or he can use a garage of his choice, provided in the latter case that the garage follows WHAs claim procedures and sends its invoice to WHA.
It is necessary next to consider the relationships between NIG, Crystal, Viscount and WHA so far as relevant to the issue.
First, the agreement between NIG and Crystal provided for Crystal to receive the premium income from the relevant policies, and for NIG to receive a monthly fee.
Crystal was also to meet all claims under the policies.
In effect, therefore, NIG was what may be described, without any pejorative meaning, as a UK front for an offshore insurance business carried on by the Oriel group.
In relation to claims, the agreement between NIG and Crystal provided that in the event of any claim or loss hereunder or under a NIG policy the reinsurer [Crystal] shall have the sole right to appoint adjusters and/or assessors and to control, or to appoint such person as it thinks fit to control, all claims handling, negotiations, investigations, adjustments and settlements in connection with such claims and losses and to make payment in respect thereof under and in accordance with the terms of the relevant NIG policy document .
The claims handlers role was accordingly envisaged as encompassing the negotiation, investigation, adjustment, settlement and payment of claims.
The agreement between Crystal and Viscount similarly provided for Viscount to control all claims handling in the event of a claim under an NIG policy and to appoint any person it saw fit to control the claims handling and to make payment in respect thereof.
Crystal passed on to Viscount the appropriate percentage of the premium income.
In terms of the agreement between Viscount and WHA, Viscount appointed WHA to appoint adjusters and/or assessors and to control all claims handling, negotiations, investigations, adjustments and settlements in connection with claims and losses under NIG Policies and to make payment in respect thereof under and in accordance with the terms of the relevant NIG Policy Documents.
WHA agreed to handle, investigate, control, negotiate, validate, process, administer and settle all claims arising under NIG Policies in accordance with the terms of the relevant NIG Policy Documents .
Under the heading Accounting and Consideration, the agreement provided that all valid claims and losses (to include amounts paid to repairers and suppliers) under the NIG policies were to be settled at WHA's expense.
Viscount was to pay WHA the cost of all claims plus 17.60 for each claim settled and paid by WHA.
In practice, as was explained in evidence to the tribunal, Viscount provided WHA with a cash float of about 2.5m, taken from the premium income and topped up about once a week, out of which WHA met the claims.
WHA was accountable to Viscount for what it spent.
The invoices submitted by WHA to Viscount identified separately the claims handling fees (ie the aggregate of the fees of 17.60 per claim) and the cost of meeting the claims.
These agreements are accordingly consistent in envisaging the role of WHA as encompassing the negotiation, investigation, adjustment, settlement and payment of claims.
There is no indication that WHAs role included undertaking responsibility for the carrying out of repairs.
The agreements between NIG and Crystal, Crystal and Viscount, and Viscount and WHA also contained provisions designed to secure that the title to vehicle parts appropriated for use in a repair under a valid claim under an NIG policy would be transferred in turn to Viscount, then Crystal, then NIG, prior to the parts being fitted in the insureds vehicle.
It is common ground that these provisions were ineffective: there is no indication that they were notified to either the insured or the garages; they conflicted with retention of title clauses used by some of the garages; they did not address the situation where the policy covered only part of the cost of the repair; and they could not in any event prevent title from passing to the owner of the vehicle once a part was fitted.
Turning next to the relationship between WHA and the garages, WHA issued a claims procedure leaflet to authorised repairers which required them to take the following steps: 1.
Obtain policy type and number from the proposal form .
Check proof of servicing. 2.
With policyholder's authority, including agreement to pay all costs incurred by the repairer which do not form part of an authorized repair, establish precise cause of failure and the cost [of] parts and labour required for the repair. 3.
To obtain authorization to carry out a repair phone WHA's claims department.
No rectification to be carried out without prior authority from WHA. 4.
After obtaining authority and having carried out the repair in accordance with the authority given, send a detailed VAT repair invoice for all parts used in the authorized repair and the authorized labour costs together with any relevant service invoices to WHA. 5.
Obtain payment from policyholder for all costs in excess of those authorized by WHA.
The tribunal found that in an appreciable number of cases the procedure set out in the leaflet was not followed, but that instead the insured paid the garage and was subsequently reimbursed by WHA.
The evidence also established that WHA had agreed labour rates and parts discounts with the authorised repairers.
Although it was not the subject of an explicit finding by the tribunal, it appears from the leaflet, and from the practical arrangements described by the tribunal, that there was an agreement between WHA and the garage, implied if not express, under which WHA agreed to pay for the work in so far as it was covered by the policy and authorised by WHA.
There is no finding that the garage undertook to WHA to carry out repairs properly or at all, or that any steps were taken by WHA to check whether repairs had been carried out properly or at all.
The tribunal also found that there was an agreement between the insured and the garage, implied if not express, under which the insured authorised the garage to carry out the necessary investigatory work and agreed to pay for all work carried out by the garage in so far as it was not covered by the policy.
The insured must also have authorised the garage to carry out the repairs to his or her car.
The tribunals decision
Against that background, which reflects the tribunals findings as to the facts, the tribunal, chaired by Stephen Oliver QC, concluded that the garages made supplies of repairs and parts to the insured, and not to WHA.
WHA merely paid for those supplies, to the extent that the bill of the garage in question was within the cover provided by the policy.
The tribunal stated, at para 71: We are satisfied that the documentation and the arrangements, designed to divert the supplies of labour and parts from their normal direct route from garage to insured by routing them instead via the Gibraltar loop, do no more than create a paper trail.
Their purpose is to facilitate Project C.
The reality is quite different.
The garage supplies the labour and parts to the insured.
In support of that conclusion, the tribunal noted that the insured chose the garage and authorised it to carry out the investigatory work.
He was liable for the cost of any investigatory or repair work which was not covered by the policy.
In a proportion of cases, the insured paid the garage.
He became the owner of any parts installed, and the beneficiary of any warranties given.
Under the policy, the insurer undertook to cover the cost of the repair.
WHA was identified as the claims handler, but that did not oblige it to provide labour and parts.
The repair was the responsibility of the garage.
The claims procedure leaflet required the garage to obtain authorisation from WHA to carry out repairs, and directed that invoices for authorised repairs should be sent to WHA.
This committed WHA to pay for authorised repairs.
It did not, however, make WHA the customer of the garage.
The tribunal considered that its conclusion was consistent with the reasoning of Lord Millett in Customs and Excise Commissioners v Redrow Group plc [1999] 1 WLR 408, a case to which it will be necessary to return.
Asking itself the question posed by Lord Millett at p 418, whether the taxable person making the payment in question obtained anything anything at all used or to be used for the purposes of his business in return for that payment, the tribunal responded that WHA had a business of claims handling, in the course of which it held funds advanced as a float by Viscount and disbursed them in meeting approved garage bills.
In return for its services Viscount paid it 17.60 per claim.
There was no evidence that the garage's supply of labour and parts was used for the purposes of WHA's business.
It is also relevant to note that the tribunal analysed WHAs business as involving two supplies to Viscount.
First, it made exempt supplies of claims handling services, for which it was paid 17.60 per claim, and which were capable of generating a profit.
Secondly, it made a taxable supply of satisfying the claims.
That supply earned nothing: WHA merely disbursed the money advanced by Viscount as a float.
The decision of the High Court
On appeal, Lloyd J observed that it seemed likely that, when WHA gave authority to a garage to carry out a repair, it came under an obligation to the garage to pay for the work if and when it had been done, provided the garage sought payment in accordance with the correct procedure.
It was, he observed, more difficult to say, from the material before the court, that the garage came under any positive obligation to WHA to do anything.
Those observations appear to me to be correct.
Lloyd J agreed with the tribunal that the garages made supplies of repairs and parts to the insured, but correctly observed that it did not follow that WHA did not receive anything itself which was relevant for VAT purposes.
Lloyd J considered that the contrary was the case: WHA's duty to Viscount includes having the appropriate repairs done.
Only if that is done are the obligations of the successive insurers to the insured discharged.
WHA sees to that by having the work done, that is to say by setting up arrangements whereby garages will do the work with the necessary authority from WHA, and will look to WHA for payment.
The service which a garage supplies to WHA is the service of repairing the insured's car, thereby satisfying the obligation of NIG to the insured, and in turn the corresponding obligations of every other party in the insurance chain. (para 40) Addressing the question posed by Lord Millett in Redrow at p 418, Lloyd J stated that WHA received a benefit from its contract with the garage, namely the discharge of its obligations to Viscount.
That was a benefit supplied by the garage to WHA and used by WHA for the purposes of its business (para 41).
On that basis, Lloyd J disagreed with the tribunals conclusion on this issue.
It is to be noted that Lloyd Js approach was based upon two factual premises: first, that NIG (and each of the successive insurers) was under an obligation to the insured to repair the insureds car; and secondly, that WHA was under an obligation to Viscount to have the appropriate repairs done.
Neither of those premises was in my view sound, for the reasons I have explained in particular at paragraphs 27 and 30 to 33.
Furthermore, the fact that As payment of B discharges an obligation owed by A to C does not eo ipso mean that A has received a supply from B. An insurer may, for example, meet the cost of dental treatment provided to its insured in accordance with the relevant policy, but that does not mean that the dentist supplied her services to the insurer.
Lloyd J disagreed with the tribunals analysis of WHAs business as involving separate supplies to Viscount of (1) claims handling services and (2) the satisfaction of claims.
He considered that that analysis drew an artificial distinction.
In his view the whole process, including the payment of the garages bill, could fairly be described as claims handling, and certainly, in the language of Note (1)(c) to Group 2, item 4 of Schedule 9 to the 1994 Act, as the provision of assistance in the administration and performance of insurance contracts.
The decision of the Court of Appeal
On a further appeal, the Court of Appeal, in a judgment given by Neuberger LJ with which Waller and Latham LJJ agreed, similarly proceeded upon the mistaken premise that Viscount contracts with WHA to carry out any works required to be effected under the policies (para 2).
The Court of Appeal identified the essential features which were said to justify the conclusion that the garage made a supply of services to WHA.
First, the invoice was in respect of work carried out by the garage pursuant to an instruction by WHA.
Secondly, the only contractual relationship, pursuant to which the work was carried out, existed under an agreement between WHA and the garage.
Thirdly, the only person who was liable to pay the garage in respect of that work was WHA.
Fourthly, WHA entered into the contractual relationship with the garage in the course of its business.
Fifthly, by ensuring that the garage carried out the work, WHA fulfilled its obligation to Viscount under the claims handling agreement, and also became entitled to earn its 17.60 in respect of the claim.
The Court of Appeal appears to have accepted that these features existed: Neuberger LJ stated that, in these circumstances, it appeared to him that there was indeed a supply of services by the garage to WHA, unless there was some reason for reaching a contrary conclusion (para 37).
Four of the five features relied upon require however some qualification or correction.
In relation to the first feature, Neuberger LJ had earlier noted at para 22 that in a fair number of cases the insured agreed with the garage what work would be carried out, paid for it, and was subsequently reimbursed by WHA.
Such cases were not typical, but they were relevant to an assessment of the commercial reality of the arrangements.
In relation to the second feature, the agreement between WHA and the garage was not the only contractual relationship pursuant to which the work was carried out, as I have explained at paragraph 38: the insured authorised the garage to carry out the necessary investigatory work, authorised the garage to carry out the repairs to his or her car, and agreed to pay for the work in so far as it was not covered by the policy.
In relation to the third feature, it is correct to say that the only person liable to pay the invoice submitted to WHA was WHA, assuming that the invoice was in conformity with the agreement between the garage and WHA and the latters authorisation of the work.
The insured was however also liable to pay the garage in respect of the work in so far as the cost was not covered by the policy, as I have explained at paragraph 38.
In relation to the fifth feature, there was no finding by the tribunal that WHA was under an obligation to Viscount to ensure that the garage carried out the work, and the terms of the agreement between WHA and Viscount indicate only that WHA was under an obligation to handle the claim and make the payment, as I have explained at paragraphs 32 to 33.
Consistently with its premises, the Court of Appeal considered that WHA receives a benefit from the carrying out of the repairs (namely satisfaction of an obligation to Viscount and the ability to earn the 17.60) (para 37).
That view again rests on the mistaken premise that WHA was under an obligation to Viscount to ensure that repairs were carried out.
As I have explained at paragraph 32, the fee of 17.60 was paid in consideration of WHAs settling and paying the claim, not for ensuring that repairs were carried out to the vehicle.
It also reflects the mistaken view that, merely because payment for services has the effect of discharging an obligation owed to a third party, it necessarily follows that the person making the payment is the recipient of a supply.
The Court of Appeal also put forward at para 40 another reason for rejecting the conclusion that the vehicle owner, rather than WHA, was the person to whom the services should be treated as being supplied: However, such a conclusion suffers from the unattractive feature that the owner does not pay for the work, and receives no invoice in respect of it, and that, accordingly, even if the circumstances would otherwise justify someone recovering the input tax, there could be nobody entitled to recover the input tax, at least on the face of it.
The owner could not recover input tax because he had not paid it, and neither could WHA, because although it had paid the VAT, it could not be treated as input tax because there would have been no supply of services to WHA.
The court should certainly not lean in favour of analysis which results in such a dichotomy.
The difficulty with this reasoning is that the question in dispute cannot be resolved on the basis of a presumption that the VAT on the repairs ought to be deductible as input tax, since whether the VAT is deductible as input tax depends on how one answers the question in dispute.
In other words, this approach to the issue begs the question.
The whole point of the scheme was to secure that the VAT was deductible as input tax, contrary to the pre existing position, under which it was not.
The tribunal considered that the payment made by WHA to the garage should be categorised as third party consideration for services supplied to the owner, as contemplated in article 11A1(a) of the Sixth Directive.
WHA maintains that the payment should be categorised as consideration for services supplied to itself.
The deductibility of the VAT depends on the answer (subject to the Commissioners further arguments).
Which view is correct depends on the proper analysis of the transaction between WHA and the garage.
In relation to the nature of WHAs business, the Court of Appeal agreed with the tribunal that it made two separate supplies to Viscount, namely (a) the footing of the bill for the works and (b) the other services, which have been conveniently referred to as claims handling services (para 84).
In relation to the footing of the bill, the Court of Appeal described that as the performance of the fundamental obligation of the principal, namely the insurer (para 85).
The parties contentions
In summary, it was submitted on behalf of WHA that the VAT system works on the basis that the person who pays for a supply in the context of a reciprocal relationship is usually the recipient of the supply.
WHA had a reciprocal relationship with the garages.
It paid the VAT element of the garages bills in connection with its taxable business activities as defined by the Court of Appeal.
The relevant aspect of its business was to discharge the liabilities of the insurer using the money provided for that purpose by Viscount.
That aspect of its business had been considered by the Court of Appeal to be taxable.
It followed from the principle of fiscal neutrality that WHA should therefore be able to deduct the VAT which it had paid.
Applying the guidance given in Customs and Excise Commissioners v Redrow Group plc [1999] 1 WLR 408, WHA received a genuine benefit in the course of its business from the carrying out of the repairs.
On behalf of the Commissioners, it was explained that they did not contend that WHA had a liability to account for output VAT even though it had no entitlement to deduct input VAT.
The Commissioners contended simply that there was no supply to WHA which could give rise to an entitlement to deduct input VAT.
The question of output tax only arose if, contrary to the Commissioners contention, WHA were held to be entitled to deduct input tax.
The economic reality was that it was the insured vehicle owner who consumed the repair services.
He or she was therefore the person to whom the supply of services was made.
The insurer (or the claims handler with whom the insurer had contracted to fulfil its obligation) was obliged to pay for those services.
This was a classic example of third party consideration.
Discussion
As I have explained, under the contract of insurance NIG undertakes to the insured that it will meet the cost of the repair.
It does not undertake to repair the vehicle.
If NIG were to perform the contract by itself paying the garage, that would be an example of third party consideration within the meaning of article 11A(1)(a) of the Sixth Directive: that is to say, consideration for a supply which the person providing the consideration does not himself receive, but which he pays for, in this example, in order to discharge an obligation owed to the recipient of the supply.
On this hypothesis, the garage supplies a service to the insured by repairing his or her vehicle, and NIG meets the cost of that supply because it has undertaken to the insured that it will do so, and has received premiums from the insured as the consideration for its giving that undertaking.
In that situation, the breakdown is a risk: an event insured against.
The cost of the repair is the cover: it is not the consideration for a service provided to the insurer.
The interposition of reinsurers does not alter that position.
Neither, on the facts found by the tribunal, does the interposition of WHA.
In economic reality, when WHA pays for the repairs it is merely discharging on behalf of the insurer (via the chain of contracts connecting it to NIG, through Viscount and Crystal) the latters obligation to the insured to pay for the repair.
WHAs role, in relation to the aspect of its business concerned with the payment of the garages, is to act as the paymaster of costs falling within the cover provided by the policies.
The interposition of WHA does not, by some alchemy, transmute the discharge of the insurers obligation to the insured into the consideration for a service provided to the reinsurers agent.
That conclusion is supported by a number of considerations.
First, as was noted in Her Majestys Revenue and Customs v Aimia Coalition Loyalty UK Limited [2013] UKSC 15 at para 73, the Court of Justice has consistently stressed that the deduction of input tax is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities.
In the present appeal, however, WHA does not bear the burden of the VAT paid to the garage: it pays the garage out of the float provided by Viscount, and its profit or loss is unaffected by the VAT.
Secondly, it was also noted in Aimia at para 75 that the consequence of the deduction of input VAT is that the tax is charged, at each stage in the production and distribution process, only on the added value, and is ultimately borne only by the final consumer (or by a person who stands in the shoes of the final consumer).
In the present appeal, however, WHA adds no value in respect of its supply of footing the bill, as the Court of Appeal put it: its inputs and its outputs in relation to that aspect of its business are identical.
The final consumer of the services supplied by the garage is the insured; and the effect of dismissing this appeal is that VAT is borne on that supply.
That conclusion is also consistent with the guidance given in Customs and Excise Commissioners v Redrow Group plc [1999] 1 WLR 408.
When Lord Hope of Craighead posed the question at p 412, Was something being done for him for which, in the course or furtherance of a business carried on by him, he has had to pay a consideration ?, and Lord Millett asked at p 418, Did he obtain anything anything at all used or to be used for the purposes of his business in return for that payment?, those questions are to be understood as being concerned with a realistic appreciation of the transactions in question (Aimia, para 66).
So understood, it is plain that WHA did not obtain anything in return for the payment to the garage which was used for the purposes of its business.
On the contrary, as the tribunal found and the Court of Appeal confirmed, and as I have explained at paragraphs 42 and 53, WHAs business was the making of the payment.
Finally, the contention that the principle of fiscal neutrality requires that WHA should be able to deduct the VAT paid to the garages must be rejected.
The Commissioners have made it clear that they do not maintain that WHA is under any liability to account for output tax in the present circumstances.
Conclusion
For these reasons, I would dismiss the appeal.
| UK-Abs | This appeal concerns the effectiveness of a scheme (Project C) which was designed to minimise the liability to VAT of a group of companies (Oriel) involved in providing motor breakdown insurance (MBI).
The supply of insurance is exempt from VAT.
Insurers therefore neither charge VAT on premiums nor account to Her Majestys Revenue and Customs (the Commissioners) for VAT in respect of their insurance business.
They also bear the VAT element of the costs incurred in the course of their business which are chargeable to VAT, as they may not deduct that VAT element from any VAT that they have received.
Accordingly when an MBI insurer indemnifies an insured against the cost of repairs, the insurer may not deduct the VAT element of the repairing garages invoice.
The VAT paid to garages by MBI insurers represents a substantial business cost.
They perceive themselves to be at a disadvantage relative to competitors whose business is not exempt from VAT, and who can therefore offer car repair services and deduct the VAT element of the costs incurred as input tax.
Project C sought to remedy that disadvantage by enabling one or other member of Oriel to recover the VAT element of the repair costs.
NIG is a UK insurer which provides a UK front for an offshore MBI business carried on by Oriel.
NIGs policies cover the cost of repairs and replacement parts following breakdowns of second hand cars.
The policies are marketed and sold by another UK company (Warranty), which is a member of the Oriel group.
Prior to the implementation of Project C, NIG reinsured the risk under the policies with a Gibraltar based member of Oriel (Practical).
Warranty was appointed by NIG to handle claims made under the policies.
In the event of a breakdown, the insured contacted Warranty and was directed to a garage approved by Warranty, a garage of the insureds choice or the dealer garage.
Warranty paid for the repairs carried out by the garages.
The VAT on such payments was irrecoverable.
Project C attempted to solve that problem.
It consisted of two strands.
The first was based on legislation interpreted by those responsible for Project C as enabling UK insurance claims handlers to recover input tax incurred for the purpose of supplying their services to a non EU recipient.
WHA Ltd (WHA), a UK member of the Oriel group, therefore began to supply claims handling services to Viscount Reinsurance Company Ltd (Viscount), a member of the group based in Gibraltar, and therefore outside the EU, with which 85% of the risk under NIGs MBI policies was reinsured.
The intention was that WHA would be regarded as the recipient of a supply of repair services from the garages on which VAT would be charged; would not have to charge output tax on its onwards supply of claims handling services to Viscount as the latter was outside the EU; and as a result would be entitled to recover input tax from the Commissioners under the legislation.
The second strand of Project C was a fall back line of defence designed to deal with any assertion by the Commissioners that the second stage of the first strand, namely that VAT was not chargeable on WHAs supply of claims handling services to Viscount, was incorrect.
That conclusion would render the first strand ineffective.
On the basis of legislation which was interpreted as enabling Viscount to recover the VAT which it paid to WHA so long as Viscount itself made supplies to a non EU recipient, another Gibraltar based member of the Oriel group (Crystal) was installed to reinsure 100% of the risk under NIGs MBI policies, and in turn
to retrocede 85% of that risk to Viscount.
Notably, the second strand also proceeded on the basis that WHA would be regarded as the recipient of a supply of repair services from the garages.
The Commissioners refused to repay tax to WHA and Viscount for several reasons that pertained to either the first, second or both strands of Project C.
In particular, they argued that the garages did not in fact make a taxable supply of services to WHA, a conclusion that would vitiate both strands.
They also argued that even if they were wrong in that and other arguments, Project C was so artificial that it fell foul of the EU law doctrine of the abuse of rights.
The Court of Appeal held that the garages did make a taxable supply to WHA, that the first strand of Project C was ineffective for other reasons, but that under the second strand Viscount was entitled to recover the VAT it had paid to WHA, subject to the question of abuse of rights.
It subsequently held that the scheme was a breach of the abuse of rights doctrine.
WHA and Viscount appeal to the Supreme Court, arguing that WHA does receive a taxable supply from the garages and that Project C is not a breach of the abuse of rights doctrine.
The Supreme Court unanimously dismisses the appeal.
Lord Reed gives the judgment of the Court.
For the reasons summarised below, the Supreme Court holds that there is no supply of repair services by the garages to WHA.
It is therefore unnecessary for the Court to address the other issues raised, as both strands of Project C were predicated on the conclusion that there was such a supply [18].
Decisions about the application of the VAT system are highly fact sensitive.
When determining the relevant supply in which a taxable person engages, regard must be had to all the circumstances in which a transaction takes place.
In cases involving a construct of contractual relationships, the matter must be assessed as a whole to determine the economic reality.
The transaction between the garages and WHA must be understood in the context of the wider arrangements between the insured, NIG, Crystal, Viscount, WHA and the garage [26].
Having regard, therefore, to the agreements between NIG and the insured, NIG and Crystal, Crystal and Viscount, and Viscount and WHA, the terms of each contract envisage the role of WHA as encompassing the negotiation, investigation, adjustment, settlement and payment of claims.
There is no indication that WHAs role included undertaking responsibility for the carrying out of repairs [33].
Further, the nature of the relationship between the garages and WHA does not suggest that the former provides a service to the latter [35 38].
NIG undertakes to the insured to meet the cost of repairs to a vehicle falling within the scope of the policy.
It does not undertake responsibility for the repairs themselves [27, 56].
The economic reality is that the payments made by WHA to the garages merely discharge the obligation which NIG undertook to the insured to pay for the repair of a vehicle up to the value permitted by the policy in the event of a breakdown.
The interposition of Viscount and Crystal in the chain of contracts linking WHA to NIG does not alter the position that WHA simply acts as the paymaster of the costs falling within the cover provided by the policies [56 57].
That conclusion is supported by further considerations.
First, the deduction of input tax is meant to relieve the trader in question of the VAT payable or paid in the course of his economic activities.
However, WHAs own profit and loss is unaffected by VAT as it pays the garages out of a float provided by Viscount.
Secondly, the consequence of input tax deduction should be that VAT is only borne on the supply to the final consumer.
The effect of dismissing this appeal is that VAT is borne on the supply of services by the garage to the final consumer, namely the insured [58].
|
The first and principal question before us is whether the parties right of prorogation, to opt in to the jurisdiction of an EU country which would not otherwise have jurisdiction to determine a childs future, contained in article 12 of Council Regulation (EC) No 2201/2003 (Brussels II Revised), can apply to a child who is habitually resident outside the European Union.
If the answer to that question is yes, then the second question is whether that is what has happened in this case.
That depends both upon the interpretation of the criteria for opting in and upon an evaluation of what these parties did.
The first question is a good deal easier to answer than the second.
The facts
The child in question was born on 27 July 2000 and is now aged nine.
He was born in this country and is a British citizen.
His mother originates from India but has lived in this country for many years.
His father originates from Pakistan.
Both are British citizens.
They married in Pakistan on 28 October 1999 and later lived together in this country.
They separated in September 2002 and divorced in 2003.
As is common, no orders were made about the child in the course of the divorce proceedings.
In this case there were already care proceedings on foot about the child.
He was taken to hospital on 1 November 2001 and found to have several fractures to his arms.
The local authority began proceedings on 6 November 2001 and a split hearing was directed.
At the fact finding hearing in May 2002, District Judge Brasse found that the injuries were non accidental and that the father had caused them.
However, at the welfare hearing in December 2002, he reviewed that finding in the light of the new evidence which had emerged during the welfare inquiries and decided that the mother had been responsible.
At the final hearing on 22 May 2003, he made an order that the child should live with his father and have supervised contact with his mother in accordance with an agreement made between the local authority and the mother.
He also made a supervision order for 12 months.
That concluded the care proceedings.
It is an automatic condition of all residence orders that the child is not to be taken out of the jurisdiction without either the written consent of every person who has parental responsibility for the child or the leave of the court: Children Act 1989, s 13(1).
In mid 2004 the father applied for leave to take the child to live in Pakistan with the fathers mother and sister.
On 16 September 2004, Hedley J granted that leave.
At the same time, the father (who was represented by counsel at the hearing) gave the conventional undertaking to return the child to this jurisdiction when ordered to do so by the court.
The order also provided for interim contact with the mother until the child left the jurisdiction.
The father took him to Pakistan on 22 December 2004 and he has lived there ever since.
It is common ground that, whatever the precise legal test to be applied, he is now habitually resident in Pakistan.
His father returned to this country some months later.
His mother has visited him in Pakistan and he has visited his parents here.
The relevant parts of the Brussels II Revised Regulation applied from 1 March 2005.
On 31 October 2007 the mother, acting in person, issued an application in the Principal Registry of the Family Division for a contact and prohibition order, seeking to enforce telephone contact and as much contact as possible and to stop the paternal grandparents encouraging the child to call them mum and dad.
It is common ground between the parties that this is when the relevant proceedings began for the purposes of the jurisdictional questions before us.
At the first directions hearing on 5 November 2007, both parties attended, acting in person, and the matter was adjourned to a conciliation hearing on 12 December 2007.
Again, both attended that hearing acting in person and an agreed order for contact was made.
Among other things, the father agreed to facilitate the child visiting the UK if possible on an annual basis during his school holidays and seeing his mother then.
On 15 April 2008, the mother issued a further application, seeking to enforce and vary the contact order so as to ensure that the child was in the UK to facilitate contact and a local authority assessment of the possibility of unsupervised contact.
The matter eventually came before Hedley J on 17 June 2008.
The parties were still acting in person.
At that stage it appeared uncontentious that the child should come back here in 2009, possibly for more than a visit; but the parties were hopelessly divided about 2008.
Hedley J remarked that it was unusual for the Court to be retaining jurisdiction as the child was living in Pakistan, but that the Court undoubtedly does have jurisdiction because both parties have not only submitted to the jurisdiction but have actually invoked it on a number of occasions (para 29).
He directed that CAFCASS appoint a guardian for the child.
He also ordered the father to bring the child into the jurisdiction in June and July 2009, the child to have reasonable contact with the mother, and the mother to be at liberty to visit the child in Pakistan.
She spent about three weeks there in the summer of 2008 and saw the child then but she has not seen him since.
The CAFCASS guardian reported in January 2009 that his provisional view was that the child should visit this country every other year and the mother visit Pakistan in the intervening years.
The matter came back before the High Court on 2 March 2009.
By this time both parties were legally represented.
A position statement filed by counsel on the fathers behalf stated that The court has retained jurisdiction in this case and the father accepts the Courts jurisdiction and that The father accepts the court has retained jurisdiction to make orders directed towards himself in relation to contact.
He had, however, changed his mind about bringing the child to this country in 2009 and undertook to issue an application to set aside Hedley Js order that he should do so.
This he duly did on 4 March 2009.
At a directions hearing on 12 March 2009, Black J for the first time questioned whether the court did indeed have jurisdiction to make orders relating to the child.
That issue was tried before HHJ Barnett, sitting as a deputy High Court judge, on 5 and 6 May 2009.
It was then common ground between counsel that Brussels II Revised did not apply.
On 28 May 2009 HHJ Barnett held that the court did not have jurisdiction under the Family Law Act 1986.
However he also held that if the court did have jurisdiction he would not have granted a stay on the ground of forum non conveniens.
The childs guardian considered that the English court was the most appropriate forum to decide the issues between the parents, both of whom were resident here.
The mother appealed and for the first time it was argued on her behalf that article 12 of Brussels II Revised applied.
One can only feel sympathy for the Court of Appeal, confronted as they were with a novel and at first blush surprising argument.
Thorpe LJ found it obvious that HHJ Barnett had reached the right result and would have been dismayed had it been necessary to set aside his very sensible conclusion: [2009] EWCA Civ 965, para 35.
The House of Lords gave permission to appeal to this Court over the long vacation.
The law
As amended following the implementation of Brussels II Revised, section 2 of the Family Law Act 1986 reads as follows: (1) A court in England and Wales shall not make a section 1(1)(a) order with respect to a child unless (a) it has jurisdiction under the Council Regulation, or (b) the Council Regulation does not apply but (i) the question of making the order arises in or in connection with matrimonial proceedings or civil partnership proceedings and the condition in section 2A is satisfied, or (ii) the condition in section 3 of this Act is satisfied.
The council regulation is Brussels II Revised.
A section 1(1)(a) order includes a section 8 order made by a court in England and Wales under the Children Act 1989, other than an order varying or discharging such an order.
Section 2A need not concern us as there are no continuing matrimonial proceedings between the parties, nor were any orders made in connection with them.
Section 3 gives jurisdiction on the basis that the child is either habitually resident in England and Wales on the date of the application or (if there was no application) of the order, or was present here on that date and not habitually resident in another part of the United Kingdom.
It will be noted that, if Brussels II Revised applies, it governs the situation.
If some other EU country (excluding Denmark for this purpose) has jurisdiction under the Regulation, then this country does not.
But if Brussels II Revised applies and gives this country jurisdiction, it will give jurisdiction even though the residual jurisdictional rules contained in the 1986 Act would not.
Only if Brussels II Revised does not apply at all will the residual rules in the 1986 Act come into play.
The basic rule in Brussels II Revised governing jurisdiction in childrens cases is in article 8.1: The courts of a Member State shall have jurisdiction in matters of parental responsibility over a child who is habitually resident in that Member State at the time the court is seised.
But that is subject to articles 9, 10 and 12.
We are concerned with article 12, which deals with Prorogation of jurisdiction.
It is worth quoting article 12 in full, although articles 12.1 and 12.2 are not directly relevant in this case, because the answer to the first question must apply equally to the prorogation covered by article 12.1 as it does to the prorogation covered by article 12.3: at least one of the spouses has parental responsibility in the judgment allowing or refusing the application for divorce, 1.
The courts of a Member State exercising jurisdiction by virtue of Article 3 on an application for divorce, legal separation or marriage annulment shall have jurisdiction in any matter relating to parental responsibility connected with that application where: (a) relation to the child; and (b) the jurisdiction of the courts has been accepted expressly or otherwise in an unequivocal manner by the spouses and by the holders of parental responsibility, at the time the court is seised, and is in the superior interests of the child. 2.
The jurisdiction conferred in paragraph 1 shall cease as soon as: (a) legal separation or marriage annulment has become final; (b) in those cases where proceedings relating to parental responsibility are still pending on the date referred to in (a), a judgment in these proceedings has become final; (c) for another reason. 3.
The courts of a Member State shall also have jurisdiction in relation to parental responsibility in proceedings other than those referred to in paragraph 1 where: (a) the child has a substantial connection with that Member State, in particular by virtue of the fact that one of the holders of parental responsibility is habitually resident in that Member State or that the child is a national of that Member State; and (b) the jurisdiction of the courts has been accepted expressly or otherwise in an unequivocal manner by all the parties to the proceedings at the time the court is seised and is in the best interests of the child. 4.
Where the child has his or her habitual residence in the territory of a third State which is not a contracting party to the Hague the proceedings referred to in (a) and (b) have come to an end Convention of 19 October 1996 on jurisdiction, applicable law, recognition, enforcement and co operation in respect of parental responsibility and measures for the protection of children, jurisdiction under this Article shall be deemed to be in the childs interest, in particular if it is found impossible to hold proceedings in the third State in question.
The first question
Can article 12 apply at all where the child is lawfully resident outside the European Union? In my view it clearly can.
There is nothing in either article 12.1 or article 12.3 to limit jurisdiction to children who are resident within the EU.
Jurisdiction in divorce, nullity and legal separation is governed by article 3 of the Regulation, which lists no less than seven different bases of jurisdiction.
It is easy to think of cases in which a court in the EU will have jurisdiction under article 3 but one of the spouses and their children will be resident outside the EU.
A court in England and Wales would have jurisdiction if the petitioning mother were living with the children in the USA and the respondent father were living in this country.
A court in England and Wales would have jurisdiction if the petitioning father had lived here for at least a year and the respondent mother were living with the children in the USA.
A court in England and Wales would have jurisdiction if the spouses were living here but their children were living in the USA.
In some of these cases the spouses might well wish to accept the jurisdiction of the English court to decide matters relating to parental responsibility so that their childrens future could be decided in the same jurisdiction as their status, property and finances.
Professor Rauscher is quite clear that the new rule not only applies to children residing in a Member State which is not the forum State (as Article 3 Brussels II did) but also to children residing in Non Member States (T Rauscher, Parental Responsibility Cases under the new Council Regulation Brussels IIA, The European Legal Forum, 1 2005, 37 46 at p 40).
There is nothing to differentiate article 12.3 from article 12.1 in this respect.
This view of the matter is confirmed, if the third State which is referred to in article 12.4 means a non Member State.
The term third State occurs only twice in Brussels II Revised.
Article 61 provides that: As concerns the relation with the Hague Convention of 19 October 1996 on Jurisdiction, Applicable law, Recognition, Enforcement and Co operation in Respect of Parental Responsibility and Measures for the Protection of Children, this Regulation shall apply: (a) where the child concerned has his or her habitual residence on the territory of a Member State; (b) as concerns the recognition and enforcement of a judgment given in a court of a Member State on the territory of another Member State, even if the child concerned has his or her habitual residence on the territory of a third State which is a contracting Party to the Convention.
If third State in article 61 referred to some other Member State, there would be no need for paragraph (b) because paragraph (a) would cover all cases.
But in any event, both article 61 and article 12.4 are looking at the relationship between the Regulation and the 1996 Hague Convention. 16 countries have so far ratified that Convention, half within and half outside the EU (the UK has signed but not ratified; Pakistan has done neither).
If the child is habitually resident in a third State which is a party to the 1996 Convention, the Regulation applies to the recognition and enforcement in one Member State of a judgment given in another Member State.
If the child is habitually resident in a third State which is not a party to the Convention, article 12.4 lays down a presumption that it will be in the interests of the child for the EU State to assume jurisdiction if the parties have agreed to accept it.
All of this makes sense if the third State lies outside the EU but would add nothing if it lies within it.
Indeed, why limit the presumption in article 12.4 to the rare case where there are three EU States involved but not apply it to the more common situation where there are two? Nor does the reference in article 12.4 to the impossibility of holding proceedings in the third State make much sense within the EU.
Professor Rauscher predicts that Most cases under Article 12(3) will probably feature strange situations of habitual residence particularly with children being nationals of a Member State but residing farther abroad in countries with unreliable judicial structures (loc cit, p 41).
There is no case law on the meaning of third State in Brussels II Revised.
For what it is worth, the Practice Guide to the Regulation states that the option of voluntarily accepting the jurisdiction of a Member State is not limited to situations where the child is habitually resident within the territory of a Member State (p 45).
Reunite have helpfully also drawn our attention to other sources emanating from the EU which define the term to mean a State outside the EU: see, for example, the Community Research and Development Information Service (CORDIS), which uses the term Third State to mean a state that is neither a Member State nor an Associated State.
This merely reinforces the conclusion arrived at on ordinary principles of construction that article 12 can apply to children who are habitually resident outside the EU.
The second question
The second question is whether the criteria in article 12.3 are made out.
Paragraph (a) of article 12.3 requires that the child have a substantial connection with the Member State in question, in particular by virtue of the fact that one of the holders of parental responsibility is habitually resident in that State or that the child is a national of that State.
This is clearly satisfied in this case.
At the time these proceedings began, both parents were habitually resident in the United Kingdom and the child was and is a British national.
More complicated questions arise under paragraph (b) of article 12.3.
This can be broken down into two components: first, that the jurisdiction of the courts has been accepted expressly or otherwise in an unequivocal manner by all the parties to the proceedings at the time the court is seised; and second, that the jurisdiction of the court is in the best interests of the child.
Each of these raises interesting subsidiary questions.
At the time the court is seised
The most difficult questions are posed by the words at the time the court is seised.
The first is whether they refer to a moment in time or, as held by the Court of Appeal, to any time while the proceedings are continuing.
As a general proposition, it should be clear at any particular point during the proceedings, and preferably from the outset, whether or not the court has jurisdiction.
Certainly a party who has once accepted jurisdiction should not be able to withdraw it at any time before the conclusion of the case.
Acceptance of jurisdiction must include acceptance of the courts decision whatever it may be.
Otherwise there would be no point in submitting to the courts jurisdiction.
This provides that: It is clear from article 16 that a court is seised at a particular moment in A court shall be deemed to be seised: (a) at the time when the document instituting the proceedings or an equivalent document is lodged with the court, provided that the applicant has not subsequently failed to take the steps he was required to take to have service effected on the respondent; or (b) if the document has to be served before being lodged with the court, at the time when it is received by the authority responsible for service, provided that the applicant has not subsequently failed to take the steps he was required to take to have the document lodged with the court.
From this it is clear that the time of seisin is fixed when the document initiating the proceedings is lodged with the court or, if it has to be served before lodging, is received by the authority responsible for service, although in each case the court may not actually be seised if the applicant does not take the steps required to inform either the respondent or the court.
There has to be a fixed time of seisin for the purpose of the rule in article 19, that the court second seised of divorce, separation or nullity proceedings shall decline jurisdiction in favour of the court first seised.
There was some debate about what constituted the proceedings in this case.
In one sense, no order about the upbringing of a child is ever final.
The parties can always agree to make different arrangements or bring the matter back to court for the court to do so.
But the reality in this case was that there were care proceedings brought by the local authority in 2002 which were concluded by the residence, contact and supervision orders made in 2003.
There were then private law proceedings brought by the father to enable him to take the child abroad to live which were concluded by the orders made by Hedley J on 16 September 2004.
There were then new proceedings brought by the mother in 2007, the object of which was to make provision for her contact with the child which had not been done in the 2004 order.
It is common ground between the parties that these are the proceedings for this purpose and in my view that is correct.
It follows, therefore, that the court became seised of this matter on 31 October 2007.
But the next question is what do those words describe? Do they, as had been assumed by all before the hearing in this Court, describe the time at which the parties have accepted jurisdiction? Or do they, as proposed by Mr Setright QC on behalf of the interveners Reunite, describe the parties whose acceptance is required? In other words, does article 12.3(b) mean the jurisdiction of the courts was accepted when the proceedings began by all those who were then parties? Or does it mean the jurisdiction of the courts has been accepted at any time after the proceedings have begun by all those who were parties when they began?
There is much to be said for Mr Setrights interpretation, both linguistically and in practice.
He draws our attention to the German text of article 12.3(b), which begins alle Parteien des Verfahrens zum Zeitpunkt der Anrufung des Gerichts .
However, given what to us is the reverse word order of most German sentences, it would be unwise to place too much reliance upon this.
The French, Italian and Spanish texts follow the same word order as the English and are therefore equally ambiguous.
Another linguistic clue could be the particular tense used in the English text.
Has been accepted is more consistent with the possibility of later acceptance of jurisdiction.
If it had been intended to limit acceptance to the exact time of seisin, it would have been more natural to use the words was accepted.
Once again, however, it might be unwise to place too much reliance upon the precise tense chosen in the English text, given that other European languages do not have the same variety of ways of referring to something which has happened in the past.
The practical attraction of Mr Setrights argument is that this interpretation would enable the court considering whether there has been unequivocal acceptance of jurisdiction to take into account the parties conduct after as well as before the proceedings have begun.
Given that the court may be seised before the respondent knows anything about the proceedings (as may well have happened here), it should be possible for the respondent to accept jurisdiction expressly or in an unequivocal manner by the way in which he reacts to the proceedings when he learns about them.
If the respondent is indeed content to accept the jurisdiction of the court it should be possible for him to indicate that, either expressly or by his conduct, even though he had not addressed his mind to the matter before the court became seised.
Otherwise the scope of both article 12.1 and article 12.3 would be limited (in the vast majority of cases) to cases where there was a written agreement in place when the proceedings were instituted.
Admittedly, this was said by the Court of Appeal in Bush v Bush [2008] EWCA Civ 865, [2008] 2 FLR 1437, at para 53, to be the paradigm case but there is no reason why it should be virtually the only case.
Prorogation of jurisdiction under article 17 of the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 was limited to agreements in writing or in a form which accords with the practice of the international trade or commerce in question.
Prorogation under article 12 is not so limited.
It is clearly contemplated that conduct other than express agreement can constitute unequivocal acceptance of the jurisdiction.
Furthermore, as Lord Collins demonstrates at paragraph 53, there is no reason in principle why there should not be acceptance of jurisdiction after the proceedings have began.
Professor Rauscher accepts that jurisdiction must be accepted at the time the court is seised but argues that too literal an interpretation would render article 12.1 almost useless.
The parties to a divorce proceeding wont even think about jurisdiction as to parental responsibility before the court is seised.
Therefore a more liberal interpretation is advisable.
The wording should probably be understood in the sense of at the time the court has been seised, thereby excluding any binding prorogation before the case has been brought to court. (p 40) So now we have a suggestion that prior agreement is not the paradigm case and the parties conduct once the proceedings have begun is what matters.
After all, the parallel with agreements under the Brussels Convention is not close in matrimonial and family cases, where it is less common (and in some cases not possible) to have a binding agreement between spouses or parents before proceedings have begun.
There is, however, another way of achieving much the same result.
Article 16 fixes which is first in time for priority purposes under article 19.
But it contains within itself the possibility that apparent seisin may not mature into actual seisin unless the applicant later effects service or lodges the document with the court.
Whether this is regarded as a condition defeasant makes no difference: the result in the actual decision depends upon what happens later.
It might be possible to take a similar approach to prorogation, so that the apparent seisin when the application is lodged does not mature into actual seisin until the respondent is served and has an opportunity to indicate whether or not he accepts jurisdiction.
This too would be consistent with the English use of has been rather than was.
As will become apparent shortly, we do not need to resolve this question in this particular case, because we have unequivocal acceptance of the jurisdiction both before and after the proceedings were begun.
Moreover, it may not matter much in practice.
Even if the words at the time the court is seised qualify the parties acceptance, and refer only to the precise date when the proceedings are initiated rather than to once they have begun, the court is entitled to look at the parties conduct after the proceedings have begun in order to decide whether they had accepted jurisdiction at the time the proceedings did begin.
There is nothing unusual about this.
Courts often take into account later behaviour as evidence of an earlier state of affairs.
Whichever is the correct interpretation, the acceptance in question must be that of the parties to the proceedings at the time when the court is seised.
Later parties cannot come along and upset the agreement which the original parties have made.
In this case, as it happens, the child was later made a party to the proceedings.
Brussels II Revised rightly places great stress on the importance of the voice of the child in proceedings about his future: see paragraph 19 of the Preamble and article 11.2 dealing with the return of children under the Hague Convention on the Civil Aspects of International Child Abduction 1980.
But the way in which the child is heard will depend upon national procedures.
As was made plain by the House of Lords in In re D (A Child) (Abduction: Rights of Custody) [2006] UKHL 51, [2007] 1 AC 619, para 60, there are different ways of doing this, ranging from full scale legal representation of the child, through independent expert reporting, to a face to face interview with the judge.
It is not usually necessary for the child to become a full party to proceedings between his parents, although of course it can and should be done in an appropriate case.
The participation of the child is aimed at helping the court decide what outcome to the proceedings will be in the best interests of the child.
It is usually less relevant to questions of jurisdiction.
Acceptance
The father expressly accepted the courts jurisdiction in the position statement put before the court by his counsel for the hearing on 2 March 2009.
This is scarcely surprising, as all his conduct up until that time had been consistent with this stance.
He appeared before the court in response to the mothers application.
He participated in a conciliation appointment on 12 December 2007 and consented to the order then made.
He participated in the hearing before Hedley J on 17 June 2008.
At that stage he was acting in person.
But the solicitors who had appeared for him in the care proceedings and their aftermath then came on the record for the purpose of his application to set aside Hedley Js order that he bring the child back into the jurisdiction in 2009.
No objection was then taken to the courts jurisdiction.
Far from it.
Counsel was instructed for the hearing before the Deputy High Court Judge on 2 March 2009 and expressly accepted jurisdiction on his behalf.
All of this conduct indicates his acceptance of jurisdiction both expressly and in an unequivocal manner from the outset of the proceedings.
He recanted only when the court itself indicated that there might not be any basis upon which there could be jurisdiction.
But there was also a binding prior acceptance.
On 16 September 2004, with the benefit of legal advice, he gave an undertaking to the court to return the child to this jurisdiction when called upon to do so.
The object of the proceedings was to enable him to take the child to live in Pakistan and thus lawfully to establish a habitual residence outside the jurisdiction.
Yet at the same time he was undertaking to bring the child back when required by the court to do so.
This inevitably involved accepting the courts jurisdiction to make an order in relation, not only to him, but to the child.
In my view, the jurisdiction of the English courts has been accepted by the father, both expressly and otherwise in an unequivocal manner.
This is so whatever interpretation is placed upon article 12.3, but the diversity of views expressed by this court indicates that the interpretation is not acte clair and may have to be the subject of a reference to the European Court of Justice in another case.
But I would favour an interpretation which catered both for a binding acceptance before the proceedings began and for an unequivocal acceptance once they had begun.
In the best interests of the child
The final requirement in article 12.3 is that the jurisdiction of the English courts should be in the best interests of the child.
Nothing turns, in my view, on the difference between the best interests of the child in article 12.3, the superior interests of the child in article 12.1 and the childs interest in article 12.4.
They must mean the same thing, which is that it is in the childs interests for the case to be determined in the courts of this country rather than elsewhere.
This question is quite different from the substantive question in the proceedings, which is what outcome to these proceedings will be in the best interests of the child? It will not depend upon a profound investigation of the childs situation and upbringing but upon the sort of considerations which come into play when deciding upon the most appropriate forum.
The fact that the parties have submitted to the jurisdiction and are both habitually resident within it is clearly relevant though by no means the only factor.
In this case there are two reasons to conclude that the exercise of jurisdiction in this country would be in the childs interests.
The first is the presumption in article 12.4.
Although expressed as a deeming provision, no one suggests that this is irrebuttable.
But it makes sense.
If the child is habitually resident in a country outside the EU which, like Pakistan, is not a party to the 1996 Hague Convention on jurisdiction, applicable law, recognition, enforcement and co operation in respect of parental responsibility and measures for the protection of children, then even if the EU country in question is a party to that Convention, there would be no provision for recognition and enforcement of one anothers orders.
If, therefore, the parties have accepted the jurisdiction of an EU State, it makes sense for that State to determine the issue.
The difficulty or otherwise of holding the proceedings in the third State in question are obviously relevant.
It is not suggested that it would be impossible to hold these proceedings in Pakistan, but while neither party has had difficulty with the proceedings here, the mother would certainly face difficulties litigating in Pakistan.
The other factor in this case is the very proper stance taken by the childs guardian ad litem.
When the issue of forum non conveniens was ventilated before HHJ Barnett in the High Court, the guardian took the view that on balance it would be better for the case to be heard here.
The nub of the issue is the contact which the child should have with his mother in this country.
Any continuing risks associated with that contact will be better assessed here and any safeguards will need to be put in place here.
Inquiries in Pakistan can be made through international social services or other agencies.
Of course, the difficulties of enforcement must also be taken into account.
But it must be borne in mind that contact orders have always been enforced in personam, against the person to whom they are addressed.
Unlike residence orders, they are not enforced by the physical transport of the child from one place to another.
The court is bound to view with some scepticism the protestations of a father, who has the benefit of an order that the child is to live with him, that he will be unable in practice to secure the childs compliance with an order for contact with the mother.
It may be so but it is not very likely.
But this is to anticipate the outcome of the courts investigation into what will be in the best interests of this child as he grows up.
Is he to make a clean break from the past and be cut off from his mother and his mothers family indefinitely? Or should he be enabled to have a relationship with both sides of his heritage and in due course to form his own opinions of his mother? If the latter, how practically can that be facilitated? All of that lies in the future.
There are many conclusions which the court hearing this case might reach.
Among them is an order that it would be better for the child to make no order at all: Children Act 1989, s 1(5).
But this is not a refusal of jurisdiction (cf Owusu v Jackson (Case C 281/02) [2005] QB 801).
It is a positive conclusion, reached after the court has exercised its jurisdiction to hear and determine the case, that in all the circumstances it will be better for the child to make no further order about his future.
It is impossible at this stage to speculate upon how likely that will be.
The Pakistan Protocol
Thorpe LJ was understandably troubled about the implications for the Pakistan Protocol if the English courts were to accept jurisdiction in respect of a child who was habitually resident in Pakistan.
We have had the benefit of an intervention from Reunite, an organisation with great knowledge and experience in the field of international child abduction, and represented by lawyers who also have knowledge and experience of how these things work on the ground.
The UK Pakistan Judicial Protocol on Children Matters is not an international agreement between States.
It is an understanding first reached in January 2003 between the then President of the Family Division of the High Court in England and Wales and the then Chief Justice of the Supreme Court of Pakistan, supplemented in September 2003 by guidelines for judicial co operation to which Judges from the Court of Session in Scotland and the High Court in Northern Ireland were also party.
It was agreed that in normal circumstances the welfare of a child is best determined by the courts of the country of the childs habitual/ordinary residence (para 1).
Hence, if a child is wrongfully removed from his country of ordinary residence, the courts of the country to which he is taken should not ordinarily exercise jurisdiction save for the purpose of sending the child back (para 2).
The same should apply if a child is brought from one country to the other for the purposes of contact, and is then wrongfully retained (para 3).
This very largely reflects the principal provisions of the Hague Convention on Child Abduction.
Neither of the two substantive paragraphs is directly applicable to this case.
There has been no abduction or wrongful retention.
We are concerned only with a very limited exception, in far from normal circumstances, to the general statement in paragraph 1.
The two can, as Mr Setright pointed out, complement one another.
The courts in Pakistan might welcome the fact that the courts in England had investigated the situation here and put in place safeguards which would enable the child to visit his mother and other members of his family in this country in safety.
The Protocol would operate to secure his prompt return to Pakistan after any such visit.
Alternatively, the court in this country might, after beginning its investigation, conclude that, had this been a case within the EU, it would have been appropriate to invoke the procedure in article 15 of Brussels II Revised, for requesting the courts of another Member State which is better placed to hear the case to assume jurisdiction.
The Protocol, with the associated Guidelines for judicial co operation, provides the ideal vehicle for achieving this outside the EU.
In the view of Reunite, therefore, far from undermining the Protocol, article 12 can work harmoniously with it.
In any event, it has to be acknowledged that the proper interpretation of the Brussels II Revised Regulation cannot be affected by the terms of a private agreement between the judiciaries of one Member State and a non Member State.
Conclusion
For these reasons, therefore, I would allow this appeal and declare that the courts of England and Wales have jurisdiction in this case.
I agree with Lady Hale that the appeal should be allowed and that the I agree with Lady Hale that the appeal should be allowed, for the reasons
LORD HOPE
given by her and by Lord Collins.
LORD COLLINS
declaration proposed by her should be made.
There is something to be said for the view that the proceedings began with the fathers application in mid 2004 for leave to take the child to live in Pakistan.
If that view were right, then the proceedings would have commenced before the Brussels II Revised Regulation (Council Regulation (EC) 2201/2203) became applicable in March 2005.
The then existing Brussels II Regulation (Council Regulation (EC) 1347/2000) did not deal with matters of parental responsibility outside the context of matrimonial proceedings, and the court would have had jurisdiction on the basis of the then habitual residence or presence of the child in England: Family Law Act 1986, sections 2 and 3.
But as a matter of English law, the mothers application in 2007, was treated, and is to be treated, as a new proceeding.
Since it was issued after the Brussels II Revised Regulation became applicable, there must be a basis of jurisdiction in that Regulation.
The general rule under the Brussels II Revised Regulation is that the Member State in which the child has his or her habitual residence has jurisdiction in matters of parental responsibility: Article 8(1).
In the present case it is common ground that the child is habitually resident in Pakistan, where his residence reflects integration in a social and family environment: In re A (Case C 523/07) [2009] 2 FLR 1, at para 38.
Consequently, the English court will have jurisdiction only if one of the exceptions to the general rule applies.
The only potentially relevant exception is in Article 12 (which is set out in full by Lady Hale at para 16).
Article 12 deals with prorogation of jurisdiction in matters of parental responsibility both in matrimonial proceedings and in separate proceedings.
These are not matrimonial proceedings, and the only available basis of jurisdiction, if any, is in Article 12(3).
Where there has been a submission to the jurisdiction within the terms of Article 12(3), the court will have jurisdiction if it is in the best interests of the child.
Where the child has his or her habitual residence in the territory of a third State which is not a party to the Hague Convention of 1996, jurisdiction under Article 12 shall be deemed to be in the childs interest, in particular if it is impossible to hold proceedings in the third State in question: Article 12(4).
There is no significance in the difference between best interests in Article 12(3) and superior interests in Article 12(1).
Other language versions use the identical term for both: suprieur in French, superiore in Italian, and superior in Spanish.
It is also plain from the context and from other language versions that shall be deemed means no more than shall be presumed and that the presumption is rebuttable: est prsume/si presume/se presumir.
Lady Hale has shown that third State means a State which is not a Member State for the purposes of the Brussels II Revised Regulation.
On Article 12(4) see Professor Alegria Borrs, in Brussels II bis: its Impact and Application in the Member States (ed.
Boele Woelki and Gonzales Beilfuss, 2007), 3 at 14 15.
The question is whether the jurisdiction of the [English court] has been accepted expressly or otherwise in an unequivocal manner by all the parties to the proceedings at the time the court is seised.
The difficulty arises from the use of the words at the time the court is seised.
Does the use of those words in the place in which they occur mean that it is necessary that the acceptance of jurisdiction by all parties must take place, or must have taken place, at the time the court is seised, which by Article 16 is, in a case of this kind, the time when the document instituting the proceedings is lodged with the court . ? Or are those words intended simply to identify the parties at the time the court is seised whose acceptance of jurisdiction is required, as the German version of the Regulation (but not the English, French, Italian, or Spanish versions) suggests?
The answer to this question must be found in the light of Article 12 as a whole in the context of the Regulation as a whole, and in the light of the instruments which preceded it.
The Brussels Convention and the Brussels I Regulation (Council Regulation (EC) 44/2001) each contain sections on prorogation of jurisdiction by prior agreement (Article 17 and 23 respectively) and by appearance after the proceedings have commenced (Articles 18 and 24).
They both show that, as is obvious, there is no reason in principle why there should not be acceptance of jurisdiction after the commencement, or service, of proceedings.
The basic rule of jurisdiction in the 1996 Hague Convention is the habitual residence of the child; but where the courts of a Contracting State are exercising jurisdiction in matrimonial proceedings, they may take measures directed to the protection of a child habitually resident in another Contracting State if at the a time of commencement of the proceedings, one of his or her parents habitually resides in that State and one of them has parental responsibility in relation to the child, and b the jurisdiction of these authorities to take such measures has been accepted by the parents, as well as by any other person who has parental responsibility in relation to the child, and is in the best interests of the child. (Article 10)
A draft Convention on jurisdiction and the recognition and enforcement of judgments in matrimonial matters was approved by the EU Council on 28 May 1998 ([1998] OJ C221), but was superseded by the Brussels II Regulation in 2000.
Neither the draft Convention nor the Brussels II Regulation contained provision for matters of parental responsibility outside the context of matrimonial proceedings.
Article 3(2) of the draft Convention (in the same terms as what became Article 3 of the Brussels II Regulation) provides that the courts of a Member State have jurisdiction in relation to matters of parental responsibility where the child is habitually resident in another Member State and (a) at least one of the spouses has parental responsibility in relation to the child and, (b) the jurisdiction of the courts has been accepted by the spouses and is in the best interests of the child.
This provision was modelled on Article 10(1) of the Hague Convention: see the Report by Professor Alegria Borrs on the draft Convention, para 38.
It is therefore apparent that there was no suggestion that the acceptance of jurisdiction under Article 3 of the draft Convention or of the Brussels II Regulation had to be prior to, or at the time of, commencement of the proceedings.
The Commission proposal for what became the Brussels II Revised Regulation was presented on 17 May 2002: COM(2002) 222 final/2.
The proposal in relation to what became Article 12(1) in the Regulation provided for jurisdiction in matters of parental responsibility where the child was habitually resident in one of the Member States, at least one of the spouses had parental responsibility in relation to the child and if the jurisdiction of the courts has been accepted by the spouses and is in the best interests of the child (Article 12(1)(c)).
The proposal in relation to what became Article 12(3) provided that the courts of a Member State would have jurisdiction where all holders of parental responsibility have accepted jurisdiction at the time the court is seised (Article 12(2)(a)), where the child had a substantial connection with that State (in particular where one of the holders of parental responsibility was habitually resident there, or the child was a national) and jurisdiction was in the best interests of the child.
Article 12(4) of the draft provided: For the purposes of this Article the appearance of a holder of parental responsibility before a court shall not be deemed in itself to constitute acceptance of the courts jurisdiction.
The draft contained in Article 16 the same provision as to date of seisin as the Regulation.
This suggests that the Commissions intention was to require acceptance of jurisdiction at or before the date of seisin, and the Commissions Practice Guide on the Brussels II Revised Regulation (pp 16 17), which is of course not authoritative, expresses the view (in relation to both Article 12(1) and Article 12(3)) that it is at the time the court is seised when the judge has to determine whether the relevant parties have accepted the jurisdiction either explicitly or otherwise unequivocally.
If this is the correct interpretation of Article 12(1) and Article 12(3) it leads to a result which does not commend itself to common sense.
There is no reason in principle why there should not be provision for acceptance of jurisdiction after the commencement of proceedings, as Article 18 of the Brussels Convention and Article 24 of the Brussels I Regulation show.
In Bush v Bush [2008] EWCA Civ 865, [2008] 2 FLR 1437, para 53 I expressed the view that the paradigm case for acceptance of jurisdiction would be actual agreement by the parents at the time the matrimonial proceedings were instituted.
The question in that case was not the time when acceptance of jurisdiction was to be tested but whether the steps taken by the father amounted to an acceptance of the jurisdiction of the English court.
Lady Hale has referred (at 29) to Rauscher, Parental Responsibility Cases under the new Council Regulation Brussels IIA, in European Legal Forum (E) I 2005, 35 at 40.
He points out, in relation to Article 12(1) that if at the time the court is seised is to be understood literally, only an acceptance before the relevant steps under Article 16 are taken would be sufficient.
In practice such an interpretation would render Article 12(1) almost useless.
The parties to a divorce proceeding will not think about jurisdiction as regards parental responsibility before the court is seised.
He suggests a more liberal interpretation, so that it would be understood in the sense of at the time the court has been seised, thereby not requiring prorogation before the case has been brought to court.
As soon as the case is pending, consensus can be achieved (and other holders of parental responsibility must also agree).
He suggests the same solution for Article 12(3).
Another way of approaching Article 12 is to treat the words at the time the court is seised as qualifying the words by the holders of parental responsibility in Article 12(1) and the words all the parties to the proceedings in Article 12(3).
In each case this would be a sensible construction, and would be consistent with the approach in the Brussels Convention, the Brussels I Regulation, the Hague Convention, and the Brussels II Regulation.
It would also be consistent with the German version of the Brussels II Revised Regulation.
It is well established that provisions of EU law must be interpreted and applied uniformly in the light of the versions in all the official languages: see, among many others, Dirk Endendijk (Case C 187/07) [2008] ECR I 2115, at paras 22 24.
In the context of Article 18 of the Brussels Convention the European Court adopted the French version as being more in keeping with the objectives and spirit of the Convention: Elefanten Schuh GmbH v Jacqmain (Case 150/80) [1981] ECR 1671, at para 14.
This solution is an attractive one, but it is by no means an inevitable or a clear one, and, if the appeal depended on whether it was right, it would be necessary to make a reference to the European Court under Articles 68 and 234 of the EC Treaty.
But it is not necessary for this important question to be decided because on the facts it is clear that as at the date the court was seised with the mothers proceedings in 2007, the father had unequivocally accepted the courts jurisdiction in his own prior application and that everything he did after the mothers application confirmed his acceptance of the jurisdiction.
The mother has plainly accepted the jurisdiction of the court by making her application in October 2007.
Nor can there be any doubt that the father has in an unequivocal manner accepted the jurisdiction of the English court to deal with matters of parental responsibility.
On his own application in 2004 he gave an undertaking to the court to return the child from Pakistan to England if ordered by the court so to do.
When the mother issued her own application in 2007, the father attended a hearing when an agreed order for contact was made.
He appeared at a hearing in 2008 before Hedley J when it was ordered that the mother could visit the child in Pakistan, and that he should bring the child to England in June/July 2009.
Finally, counsel stated in March 2009 on the fathers behalf that he accepted the courts jurisdiction, and that the court retained jurisdiction to make contact orders directed to him.
All of those steps confirmed what was apparent and inevitable when the mother issued her application, namely that the father was already subject to the jurisdiction of the court and had accepted it in relation to matter of parental responsibility.
There was, therefore, in the circumstances of the case an unequivocal acceptance of the courts jurisdiction at the date of seisin.
I also agree with Lady Hale that the appeal should be allowed and that the
LORD KERR
declaration proposed by her should be made.
I wish to say but a few words on the approach to the interpretation of article 12.1 and 12.3 of Council Regulation (EC) No 2201/2003.
I consider that the interpretation discussed by Lord Collins in paragraph 62 of his judgment (which was that advanced by Mr Setright QC on behalf of the intervener) is the correct one.
The structure of both article 12.1 and article 12.3, if closely examined, support that conclusion, in my opinion.
Article 12.1 (b) provides that the courts of a Member State exercising jurisdiction by virtue of article 3 on an application for divorce etc shall have jurisdiction in relation to any matter relating to parental responsibility connected with the application where at least one of the spouses has parental responsibility in relation to the child and: the jurisdiction of the courts has been accepted expressly or otherwise in an unequivocal manner by the spouses and by the holders of parental responsibility, at the time the court is seised, and is in the best interests of the child.
If it had been intended that the words, at the time the court is seised should qualify the words, accepted expressly or otherwise in an unequivocal manner, the composition of the sentence would surely have been different.
To achieve that result the provision should have read thus: the jurisdiction of the courts has been accepted expressly or otherwise in an unequivocal manner at the time that the court is seised by the spouses and by the holders of parental responsibility and is in the best interests of the child.
The juxtaposition of the phrase, at the time the court is seised with the preceding, the holders of parental responsibility and the enclosing of the phrase referring to the timing by commas indicate that the time that the court is seised was intended to refer to the holders of parental responsibility, in my opinion.
That this should be so is entirely to be expected.
The holders of parental responsibility may change from time to time.
It is important that those who purport to consent to the jurisdiction of the court should be those who hold that responsibility at a time when the court is seised of the proceedings.
Self evidently, spouses do not need to be identified in any temporal dimension and the words, at the time the court is seised have no reference to them.
The position is at least equally clear in relation to article 12.3 (b).
Under this provision the courts of a Member State shall have jurisdiction in relation to parental responsibility where the child has a substantial connection with that Member State and: the jurisdiction of the courts has been accepted expressly or otherwise in an unequivocal manner by all the parties to the proceedings at the time the court is seised and is in the best interests of the child.
If it had been intended that the words, at the time the court is seised should refer to the timing of the acceptance of jurisdiction, it appears to me that the structure of the sentence best suited to achieve that result would be as follows: the jurisdiction of the courts has been accepted expressly or otherwise in an unequivocal manner at the time the court is seised by all the parties to the proceedings and is in the best interests of the child.
This interpretation would be, as Lord Collins suggests, sensible and would accord with the spirit of the Brussels Convention, the Brussels I Regulation, the Hague Convention, and the Brussels II Regulation.
It also avoids the spectre, identified by Professor Rauscher, of rendering article 12. 1 virtually ineffectual.
I am afraid that I could not be sanguine about the workability of article 12.1 or 12.3 if the interpretation advanced by the respondent is accepted.
Although I am reasonably firm in my opinion that the proper construction of these provisions is as Mr Setright submitted it should be, I agree with Lady Hale and Lord Collins that it is not necessary for a final view on the question to be reached in the present case.
This is so because it is clear that the father had unequivocally accepted the jurisdiction of the court when, in 2007, it was indisputably seised of the proceedings.
As has been pointed out, moreover, his subsequent attitude to the proceedings evinced unambiguous acceptance of the courts jurisdiction.
LORD CLARKE
I agree with Lady Hale that this appeal should be allowed and that we should
make a declaration that the courts of England and Wales have jurisdiction in this case.
I entirely agree with the reasoning and conclusions of Lady Hale and Lord Collins as to the meaning of third State, as to the use that can properly be made of post seisin evidence to demonstrate unequivocal acceptance at the time of seisin, as to the fathers unequivocal acceptance at that time on the facts and as to the best interests of the child.
Those conclusions are sufficient for this appeal to be decided by declaring that the English court has jurisdiction.
The only point which has caused me some concern, and which I wish briefly to address in this judgment, is the true construction of article 12.3(b) of the Brussels II Revised Regulation.
Lord Collins has considered article 12.3(b) in some detail.
I entirely agree with paragraphs 47 to 58 of his analysis.
I also agree with him that the questions whether the relevant acceptance of jurisdiction must be before the court is seised or whether it can be later and, if so when, are important questions and, if the appeal depended upon the answers, (subject to what I say below) may have to be referred to the European Court of Justice.
It is perhaps for this reason that Lord Collins does not express a concluded view on the point.
As stated above, I agree with him and Lady Hale that the outcome of the appeal does not depend upon the answers to these questions.
I add a few words of my own because I am less concerned than Lady Hale and
Lord Collins about what I regard as the natural construction of article 12.3(b).
Indeed it seems to me that there is much to be said for the conclusion that that construction is acte clair.
As I see it, the natural construction of article 12.3(b) construed in its context and having regard to its provenance as set out by Lord Collins at paragraphs 57 and 58 is that the relevant acceptance of jurisdiction must be before the court is seised.
The question is what is meant by the expression at the time the court is seised in articles 12.1 and 12.3 of Brussels II Revised.
For present purposes the relevant provision is article 12.3, which provides: 3.
The courts of a Member State shall also have jurisdiction in relation to parental responsibility in proceedings other than those referred to in paragraph 1 where: (a) the child has a substantial connection with that member State, in particular by virtue of the fact that one of the holders of parental responsibility is habitually resident in that Member State or that the child is a national of that Member State and (b) the jurisdiction of the courts has been accepted expressly or otherwise in an unequivocal manner by all the parties to the proceedings at the time the court is seised and is in the best interests of the child.
Article 12.1(b) is in very similar terms.
Until after Mr Setright QC had made his submissions, it had been contended by Mr Baker QC on behalf of the mother that the expression the time the court is seised in both article 12.1 and article 12.3 meant the specific point when the court is seised as defined by article 16 of the Regulation.
Mr Baker submitted that that construction was to be preferred to that of the Court of Appeal, which held, as Thorpe LJ put it at para 28, that the court was seised throughout the continuance of the proceedings.
Article 16 has been set out by Lady Hale.
It identifies the time when a court shall be deemed to be seised.
It is plain that it is describing a particular moment and not a period of time.
Thus in both (a) and (b) it provides for a particular moment when the court is seised, namely either when the document instituting the proceedings is lodged with the court or, if the document has to be served before being lodged with the court, when it is received by the authority responsible for service.
In each case there is a proviso (or condition defeasant), namely that the applicant has not subsequently failed to take steps he was required to take, in the first case to have service effected on the respondent and in the second case to have the document lodged with the court.
As Lady Hale says, the importance of having a fixed time when the court is seised is explained by article 19 because, if the court first seised has jurisdiction, the court second seised must decline jurisdiction.
It is thus important to know in each case when the court is seised and which is the court first seised.
Mr Bakers submission was based on the natural construction of the article construed in its context, which includes articles 16 and 19.
While I entirely agree with Lady Hale that evidence of subsequent events may (and often will) assist the court to decide what the position was at the moment identified as the time the court is deemed to be seised under article 16, I see nothing in the language of article 12.3 (or the equivalent language of article 12.1) to suggest that, if the court was not seised in accordance with article 16 at the time the document instituting the proceedings is lodged, it can somehow become seised at a later date.
The only provision affecting the position as at the date of seisin is the proviso in article 16, which might defeat the seisin.
However, subject to that, as I see it, there is no scope for later seisin.
Once jurisdiction is acquired, the court has jurisdiction throughout the proceedings.
It appears to me that in principle no one should commence proceedings of any kind unless the court has jurisdiction or will have it at the moment it is seised of the proceedings.
Otherwise the court is being asked to exercise jurisdiction which it does not have.
This is of particular importance in this context because, where the court first seised has jurisdiction, under article 19 a court second seised must decline jurisdiction, once it is established that the court first seised has jurisdiction.
Article 16 makes it clear that whether it has jurisdiction is to be tested as at the time of seisin as defined by article 16.
Any other conclusion seems to me to be likely to lead to confusion.
Although Mr Setright submitted that in both article 12.1(b) and article 12.3(b) the words at the time the court is seised identify the parties, I do not think that that is a convincing reading of the language.
It is much more natural to read the expression as requiring the acceptance of jurisdiction at the time the court is seised.
All the articles of the Regulation relate to the moment of seisin.
This seems to me to be implicit in articles 3, 6 and 7 and explicit in articles 8, 12, 13 and 14.
Moreover, as Lord Collins demonstrates at paragraphs 57 and 58, the provenance of article 12 strongly supports this approach.
Thus the Commission proposal in relation to what became article 12(3) provided that the courts of a Member State would have jurisdiction where all holders of parental responsibility have accepted jurisdiction at the time the court is seised.
The Commissions Practice Guide is to the same effect.
Although I quite understand that the point was not argued, it is I think of some note that this conclusion is consistent with a dictum of Lawrence Collins LJ in Bush v Bush [2008] EWCA Civ 865, [2008] 2 FLR 1437 at para 53.
As he puts it paragraph 60 above, the paradigm case for acceptance of jurisdiction would be actual agreement by the parents at the time proceedings were instituted.
In addition it seems to me that the words has been accepted support the same approach.
Thus, as I read them, both article 12.1(b) and 12.3(b) require that the jurisdiction of the courts has been accepted at the time the court is seised as defined in article 16.
I respectfully disagree with Lady Hale at paragraph 27 that the expression has been accepted is more consistent with the possibility of later acceptance of jurisdiction.
On the contrary, it seems to me to support the proposition that the acceptance must be before the seisin.
Various other solutions have been suggested.
The Court of Appeal suggested that the parties can reach agreement at any time after seisin.
This might be months or years after the moment identified in article 16.
I do not see how such an approach fits with articles 16 and 19.
Mr Setrights construction does not seem to me to be a convincing reading of the language.
Nor to my mind is that of Professor Rauscher quoted by Lady Hale at paragraph 29.
The expression at the time the court is seised appears not only in article 12 but also in article 8, where it surely relates to the time the court is seised as defined in article 16, and does not mean has been seised.
Further, if is seised means has been seised, it is not easy to see why the Court of Appeals approach, namely that it means during the whole period of seisin, is wrong.
The problem with it is that stated above, namely that it does not readily fit in with the approach of the Regulation to the court first seised.
Lady Hale suggests at paragraph 30 that article 16 fixes which proceedings are first in time for priority purposes but contains the possibility that apparent seisin may not mature into actual seisin unless the applicant effects service or lodges with the court.
The suggestion is that a similar approach might be taken to prorogation so that the apparent seisin when the application is lodged does not mature into actual seisin until the respondent is served and has an opportunity to indicate whether or not he accepts jurisdiction.
It is also suggested that that would be consistent with the English use of has been rather than was.
For my part, I find those suggestions difficult to accept.
The Regulation could no doubt have so provided but it did not.
As I see it, as stated above, the way article 16 works is that there is seisin on the date identified subject to a condition defeasant.
That is not a case of apparent seisin maturing into actual seisin but there being actual seisin, which would take priority over any subsequent seisin, unless there was no service or lodgement.
This would be known to the respondent immediately and the position would thus be clear immediately and, absent a failure of the kind expressly specified in article 16, the seisin would have priority over seisin in another jurisdiction before service or lodgement.
I do not see how this can readily be applied to article 12.1(b) or article 12.3(b).
On the face of it the court would have no jurisdiction at the moment of seisin; yet the suggestion must I think involve the proposition that the court would have jurisdiction retrospectively if at some future moment the jurisdiction was unequivocally accepted.
By then another court might be seised and have jurisdiction as the court first seised.
Is it really to be supposed that that other court would be required to decline jurisdiction under article 19 even though at the time it was seised no other court was seised? My answer to that question would be no.
I appreciate that it is contemplated that the respondent would take a stance immediately and that the position would be much as occurs (or occurred) under, for example, article 23 of the Brussels Convention and article 24 of the Brussels I Regulation which are referred to by Lord Collins at paragraph 53.
I also appreciate the force of the point that it is very odd for an unconditional appearance, which of course takes place after seisin, to be a ground of jurisdiction in, say, the Brussels I Regulation and not in the Brussels II Revised Regulation.
However, in article 24 of Brussels I appearance is a free standing ground of jurisdiction, whereas there is no equivalent provision in the Brussels II Revised Regulation.
I fully understand the concerns expressed by Lady Hale and Lord Collins (and indeed Professor Rauscher) that article 12 will or may be of limited value if it does not extend to post seisin acceptance or agreement.
However, it seems to me that the concerns are somewhat overstated.
As I see it, the time for parties to decide in what jurisdiction to proceed in matters relating to parental responsibility is before issuing the relevant proceedings.
It is at that time that questions of jurisdiction should surely be considered, if only in order to decide where to issue the relevant process.
It seems to me to be desirable that parents considering proceedings should be advised that that is the time to make an appropriate agreement.
I agree with Lord Collins that that is the paradigm case and it seems to me that the problem should be tackled at the outset rather than that proceedings should be started without jurisdiction in the hope that the other party (or parties) will agree later or do something which could be construed as unequivocal acceptance of jurisdiction.
The concerns expressed can I think be resolved in this way.
If an express agreement to jurisdiction is made or there is an unequivocal acceptance of jurisdiction after the court is seised and, by that time, proceedings have been commenced in a court in another Member State and that court has become seised, article 19 will operate to give exclusive jurisdiction to that second court.
This is on the basis that at the time the first court was seised it did not have jurisdiction and there is nothing in the Regulation to provide for retrospective seisin; so that for the purposes of the Regulation the court first seised is the second court.
The parties legitimate interests are however protected by article 15, which gives the court having jurisdiction as to the substance of the matter a power to transfer all or part of the case to a court of another Member State if it concludes that such a court is in a Member State with which the child has a particular connection and that it would be better placed to hear the case or part of it.
If, on the other hand, there is no court of another Member State that has jurisdiction under the Regulation, I can at present see no reason why the applicant should not issue fresh proceedings and rely upon the agreement or unequivocal acceptance in those proceedings to satisfy article 12.3(b).
In this way the court will have jurisdiction at the time of seisin, which to my mind is what the Regulation intended.
As I see it, in this way the concerns expressed by the Court of Appeal, Lady Hale, Lord Collins and others can be allayed.
In particular in a case of this kind, where there is no other Member State which could have jurisdiction, the court in which the respondent has unequivocally accepted jurisdiction will have jurisdiction, albeit in proceedings commenced thereafter.
I appreciate that these are all questions for decision in another case.
I express provisional views upon them in the hope that they may help to resolve potential issues in the future without the delay inevitably involved in a reference to the European Court of Justice.
In the meantime, I agree that the appeal in this case should be allowed.
| UK-Abs | This appeal concerns whether an English court has jurisdiction to determine the future level of contact between a child and his mother where the child does not habitually reside in an EU Member State.
Under article 12.3 of Council Regulation (EC) No 2201/2003 (Brussels II Revised) parties are able to opt in to the jurisdiction of an EU court which would not otherwise have jurisdiction to determine a childs future.
This applies where: (a) the child has a substantial connection with that Member State; and (b) the jurisdiction of the courts has been expressly accepted or otherwise in an unequivocal manner by all the parties to the proceedings at the time the court is seised, and the exercise of jurisdiction is in the best interests of the child.
In this case the child had been resident in Pakistan since 2004, although both he and his divorced parents are British citizens and his parents live here.
Both the High Court and the Court of Appeal held that an English court had no jurisdiction.
The mother appealed.
The Supreme Court had two issues to decide: firstly, whether article 12 extended to cases where a child lived in a non EU member state; and secondly, if it did, whether the parties in this case had accepted jurisdiction in accordance with the criteria set out in article 12.3(b).
The Supreme Court unanimously allows the appeal and declares that the courts of England and Wales have jurisdiction in this case.
The Supreme Court holds that article 12 of Brussels II Revised applies to a child who is lawfully resident outside the European Union.
In this case it was clear that the criteria of article 12.3 were satisfied and therefore that the parties had opted in to this jurisdiction.
Lady Hale gave the leading judgment.
There was a difference of opinion between the Justices on the precise meaning of article 12.3(b) but it was not necessary to decide this issue in order to decide the case.(Paragraphs [17], [35], [45])
On the first issue, if parents opt in to the jurisdiction of an EU court under article 12.3, that court can exercise jurisdiction even if the child does not lawfully reside within the territory of a an EU Member State.
Lady Hale reached this conclusion using ordinary principles of construction, concluding that nothing in article 12 limits jurisdiction to children who reside in an EU Member State.
This was confirmed by the conclusion that the term third State in other parts of the Regulation (notably articles 12.4 and 61) means a state outside the EU.
This is supported by the Practice Guide to the Regulation, as well as other sources emanating from the EU. [17] [20] The Pakistan Protocol (referred to by the Court of Appeal), in which the judiciaries of Pakistan and
England agreed it will generally be best for jurisdiction to be exercised in the country of the childs habitual residence, was not directly applicable.
In any event such an agreement between judges could not affect the proper interpretation of Brussels II Revised. [41] [44] On the second issue, the criteria under article 12.3 were clearly satisfied in this case.
Firstly, under 12.3(a), the substantial connection was satisfied by the fact the childs parents are habitually resident in the UK and they and the child are British citizens. [21] Secondly, jurisdiction had been expressly and unequivocally accepted by the parties under 12.3(b), both before and after proceedings commenced.
In particular, the father had accepted jurisdiction by undertaking to bring the child back here if required to do so by the Court. [33] [34] Finally, the exercise of jurisdiction was in the best interests of the child given the presumption in article 12.4 that where a child is resident in certain non EU States it will be in his best interests for jurisdiction to be exercised under this article.
It was also relevant that the childs guardian in the High Court considered that the childs future was best decided in this country. [37] [38] The Justices expressed different views on the meaning of the words in article 12.3(b) requiring express or unequivocal acceptance by all of the parties to the proceedings at the time the court is seised.
Did this mean before, when or after the relevant proceedings were begun? It was also unclear whether these words describe the time at which parties have accepted jurisdiction or, as argued on behalf of the interveners Reunite, describe the parties whose acceptance is required.
The Justices do not express a concluded view as it was not necessary to do so in order to decide this appeal.
In this case all the parties had given unequivocal acceptance both before and after the proceedings had begun.
The diversity of views indicates that the interpretation is not acte clair and if a case arises where the issue has to be decided it may have to be the subject of a reference to the European Court of Justice under articles 68 and 234 of the EC Treaty. (Lady Hale at paragraphs [23] [32]; Lord Collins at [51] [64]; Lord Kerr at [66] [74]; Lord Clarke at [75] [92])
|
This appeal is about compulsory acquisition of private property by local authorities under the Town and Country Planning Act 1990 (the 1990 Act) in connection with the development or re development of land.
It raises for the first time, in the context of compulsory acquisition, a number of controversial issues which have arisen in the context of planning permission, including these: how far a local authority may go in finding a solution to problems caused by the deterioration of listed buildings; to what extent a local authority may take into account off site benefits offered by a developer; and what offers (if any) made by a developer infringe the principle or policy that planning permissions may not be bought or sold.
The Raglan Street site is a semi derelict site situated immediately to the west of, and just outside, the Wolverhampton Ring Road, which encircles the Wolverhampton City Centre retail, business and leisure core.
Sainsburys Supermarkets Ltd (Sainsburys) owns or controls 86% of the site and Tesco Stores Ltd (Tesco) controls most of the remainder.
Sainsburys and Tesco each wish to develop the Raglan Street site.
Outline planning permission has been granted to Tesco, and the local authority has resolved to grant outline planning permission to Sainsburys.
Tesco controls a site in the Wolverhampton City Centre known as the Royal Hospital site, which is about 850 metres away from the Raglan Street site on the other side of the City Centre.
The Royal Hospital site is a large site with a number of listed buildings which are in poor condition.
It has been an objective of Wolverhampton City Council (the Council) over several years to secure the regeneration of the Royal Hospital site.
Tescos position has been that it was not financially viable to develop the Royal Hospital site in accordance with the Councils planning requirements and its space requirements on the site for the Primary Care Trust.
It offered to link its scheme for the Raglan Street site with the re development of the Royal Hospital site and said that this would amount to a subsidy at least equal to the loss it would sustain in carrying out the Royal Hospital site development.
The Council accepted that the Royal Hospital site would not be attractive to developers if it were restricted to the Councils scheme.
Even on optimistic assumptions, there did not appear to be a level of profit available which would make the site an attractive proposition when weighed against the risks.
Development was unlikely to take place for the foreseeable future unless Tescos proposals were brought forward through a cross subsidy from the Raglan Street site.
In January 2008 the Council approved in principle the making of a compulsory purchase order (CPO) under section 226(1)(a) of the 1990 Act in respect of the land owned by Sainsburys at the Raglan Street site to facilitate a development of the site by Tesco.
In resolving to make the CPO, the Council took into account Tescos commitment to develop the Royal Hospital site (and indeed passed a resolution which indicated that one of the purposes of the CPO was to facilitate the carrying out of the Royal Hospital site development).
Sainsburys wishes to develop the Raglan Street site and claims that it is illegitimate for the Council, in resolving to make a CPO of the Sainsburys land on the Raglan Street site, to have regard to the regeneration of the Royal Hospital site to which Tesco will be committed if it is able to develop the Raglan Street site.
Elias J dismissed the claim by Sainsburys for judicial review of the Councils decision, and the Court of Appeal dismissed an appeal in a judgment of Sullivan LJ, with whom Ward and Mummery LJJ agreed: [2009] EWCA Civ 835.
Compulsory purchase
Section 226 of the 1990 Act (as amended) provides: (1) A local authority to whom this section applies shall, on being authorised to do so by the Secretary of State, have power to acquire compulsorily any land in their area (a) if the authority think that the acquisition will facilitate the carrying out of development, re development or improvement on or in relation to the land, or (b) which is required for a purpose which it is necessary to achieve in the interests of the proper planning of an area in which the land is situated. (1A) But a local authority must not exercise the power under paragraph (a) of subsection (1) unless they think that the development, re development or improvement is likely to contribute to the achievement of any one or more of the following objects (a) the promotion or improvement of the economic well being of their area; (b) the promotion or improvement of the social well being of their area; (c) the promotion or improvement of the environmental well being of their area.
CPOs made by a local authority under section 226 must be confirmed by the Secretary of State.
If the owner of the land which is the subject of a CPO objects to the order, the Secretary of State will appoint an independent inspector to conduct a public inquiry.
The inspectors report and recommendation will be considered by the Secretary of State when a decision whether or not to confirm the CPO is taken.
Where land has been acquired by a local authority for planning purposes, the authority may dispose of the land to secure the best use of that or other land, or to secure the construction of buildings needed for the proper planning of the area: section 233 (1).
Compulsory acquisition by public authorities for public purposes has always been in this country entirely a creature of statute: Rugby Joint Water Board v Shaw Fox [1973] AC 202, 214.
The courts have been astute to impose a strict construction on statutes expropriating private property, and to ensure that rights of compulsory acquisition granted for a specified purpose may not be used for a different or collateral purpose: see Taggart, Expropriation, Public Purpose and the Constitution, in The Golden Metwand and the Crooked Cord: Essays on Public Law in Honour of Sir William Wade QC, (1998) ed Forsyth and Hare, 91.
Denning MR said: In Prest v Secretary of State for Wales (1982) 81 LGR 193, 198 Lord I regard it as a principle of our constitutional law that no citizen is to be deprived of his land by any public authority against his will, unless it is expressly authorised by Parliament and the public interest decisively so demands and Watkins LJ said (at 211 212): The taking of a person's land against his will is a serious invasion of his proprietary rights.
The use of statutory authority for the destruction of those rights requires to be most carefully scrutinised.
The courts must be vigilant to see to it that that authority is not abused.
It must not be used unless it is clear that the Secretary of State has allowed those rights to be violated by a decision based upon the right legal principles, adequate evidence and proper consideration of the factor which sways his mind into confirmation of the order sought.
Recently, in the High Court of Australia, French CJ said (in R & R Fazzolari Pty Ltd v Parramatta City Council [2009] HCA 12, at [40], [42], [43]): Private property rights, although subject to compulsory acquisition by statute, have long been hedged about by the common law with protections.
These protections are not absolute but take the form of interpretative approaches where statutes are said to affect such rights.
The attribution by Blackstone, of caution to the legislature in exercising its power over private property, is reflected in what has been called a presumption, in the interpretation of statutes, against an intention to interfere with vested property rights The terminology of presumption is linked to that of legislative intention.
As a practical matter it means that, where a statute is capable of more than one construction, that construction will be chosen which interferes least with private property rights
The facts
It was originally envisaged by Tesco that the Royal Hospital site would be a suitable location for a scheme which made provision for a superstore whilst retaining and restoring much of the fabric of the former Royal Hospital buildings.
In January 2001, Sainsburys applied for outline planning permission to redevelop the Raglan Street site for a mixed use development comprising retail uses, residential, leisure, parking and associated highway and access works.
The application was called in by the Secretary of State and, following a public inquiry, planning permission was granted on November 12, 2002.
In early 2005 Sainsburys informed the Council that it no longer intended to develop the Raglan Street site, because it had agreed to sell its interests in the Raglan Street site to Tesco, which was developing a revised scheme.
Sale documentation was agreed and engrossments circulated for execution.
In addition, Tesco acquired interests in the Raglan Street site owned by third parties.
On June 28, 2005 the Councils Cabinet (Resources) Panel reported on the proposed Tesco scheme, and said that the grant of permission would be linked to obligations relating to the Royal Hospital site.
The Panel approved in principle the use of compulsory purchase powers to assemble the Raglan Street site should the need arise.
This was on the then understanding that the interests of Sainsburys would be transferred to Tesco by agreement and that any CPO would be required only to acquire minor interests within the site.
On November 3, 2005 Tesco entered into a conditional sale agreement with the Council, which provided for the sale of the Councils interest in the Raglan Street site to Tesco and for the Council to use its compulsory purchase powers, if necessary, to facilitate the acquisition of outstanding interests in the site.
The agreement also imposed an obligation on Tesco to carry out and complete works of demolition and repairs at the Royal Hospital site before the commencement of works at the Raglan Street site.
This agreement was replaced in July 2009 by a conditional agreement for lease.
Following exchange of the agreement with the Council and its acquisition of third party interests in the Raglan Street site, Tesco sought an exchange of its agreement with Sainsburys.
This did not happen because Sainsburys decided that it did in fact wish to redevelop the Raglan Street site, and to submit a fresh planning application for re development of the site.
In accordance with its obligations in the agreement with the Council, Tesco submitted planning applications to the Council for the development of both the Royal Hospital site (in April 2006) and the Raglan Street site (in July 2006).
In October 2006, Sainsburys submitted a planning application for a new scheme for re development of the Raglan Street site.
Both applications for the re development of the Raglan Street site proposed a supermarket with parking and a petrol filling station, private flats, sheltered housing and small commercial units.
The main differences between the schemes were that the Tesco supermarket was more than 50% larger than Sainsburys, and the Sainsburys scheme proposed retail warehouses and a leisure centre.
Outline planning permission was recommended for both schemes.
On December 6, 2006 the Councils Cabinet noted that Tesco and Sainsburys were unable to agree on how the site should be developed and resolved to approve in principle the use of CPO powers in relation to the Raglan Street site if necessary, subject to a further report to Cabinet setting out all relevant factors including the criteria for selecting the preferred re development scheme.
Each of the applications by Sainsburys and Tesco for development of the Raglan Street site came before the Councils Planning Committee on March 13, 2007 when it was resolved to grant both applications subject to various requirements.
In the report to Committee concerning the application by Tesco, the Case Officer said: Initially Tesco indicated that they wished the development of the Royal Hospital site to be linked to the grant of permission for the development of Raglan Street.
However, when their agents were asked how such a linkage could legitimately be made, they were unable to make a suggestion.
There is therefore no such linkage for Committee to consider.
Tescos application for planning permission for development of the Raglan Street site was therefore considered without reference to the benefits of re development of the Royal Hospital site.
Planning permission for the Tesco proposal at the Raglan Street site was granted on July 22, 2009, which was also the date of a new conditional agreement for lease between the Council and Tesco replacing the conditional agreement for sale of November 3, 2005.
The agreement gives the Council an option to purchase Tescos interest in the Royal Hospital building.
One of the terms is that, once certain works have been carried out by Tesco, then Tesco will make a balancing payment to the Council which is to be used solely in connection with the completion of the Royal Hospital building works: Sch. 1.
On June 27, 2007, in order to decide whose land to acquire compulsorily to facilitate the development of the Raglan Street site, the Councils Cabinet resolved to invite both Sainsburys and Tesco to demonstrate the extent to which their respective development proposals met the Councils objectives for the Raglan Street area.
It also resolved that Sainsburys and Tesco be advised that the Councils preferred outcome remained that the parties would negotiate with each other to resolve the impasse.
On January 30, 2008 a report was presented to the Councils Cabinet which, having set out the statutory background and relevant advice in ODPM Circular 06/2004, Compulsory Purchase and the Crichel Down Rules, stated: The remaining sections of this report consider the two Schemes against the legal and policy tests set out in the Act and the Circular and compare them with each other.
There is no doubt that both the Tesco and Sainsburys schemes would fulfil the statutory purpose of facilitating the carrying out of development, re development or improvement on or in relation to the land.
The report noted that both schemes for the Raglan Street site were acceptable in planning terms.
The report went on to describe the circumstances relating to the development of the Royal Hospital site by Tesco.
Tesco was no longer seeking planning permission for a retail store on the site.
The Council had promoted a proposal by Tesco for a mixed use development comprising housing, offices, primary care centre and administrative offices, retail, financial services and professional offices and food and drink uses, together with associated parking.
It would provide accommodation for a Primary Care Centre and offices for the Primary Care Trust.
The report said that Tescos position was that a Royal Hospital site development in accordance with the Councils aspirations was not viable and that the return to a developer in a scheme according with the Councils aspirations (including 20% affordable housing content) would involve a substantial loss, which would mainly be caused by the refurbishment of the listed building element for the Primary Care Trust.
The scheme would be viable only through a cross subsidy from the development of the Raglan Street site.
The report went on to say that whilst there was disagreement between Tesco and Sainsburys about the viability of the Royal Hospital site development, it was clear that Tesco was unlikely to carry out its scheme unless it was selected as the operator of the store at Raglan Street and were thus able to cross subsidise the Royal Hospital site development.
The report concluded: both Schemes would bring appreciable planning benefits and would promote and improve the economic, social and environmental well being of the City.
However, the Tesco Scheme enjoys a decisive advantage in that it will enable the development of the RHS to be brought forward in a manner that is consistent with the Councils planning objectives for that site.
Making a CPO for the Tesco Scheme will therefore result in a significantly greater contribution to the economic, social and environmental well being of the Councils area than would making a CPO for the Sainsburys Scheme.
On this basis, and subject to the satisfactory resolution of the matters identified in the Recommendations set out at the beginning of this report, there is a compelling case in the public interest to make a CPO to enable the Tesco Scheme to proceed.
In accordance with the recommendation made in the report, the Councils Cabinet resolved to approve the principle of the making of a CPO of land owned by Sainsburys to facilitate the carrying out of (i) Tescos development proposals for the Raglan Street site and (ii) a mixed use retail, office and residential development of the Royal Hospital site, subject to, amongst other matters, Tesco producing satisfactory evidence of a commitment to the carrying out of the development of the Royal Hospital site before consideration be given to a resolution to authorise the making of the CPO.
The Cabinet decision of January 30, 2008 was referred to the Councils Scrutiny Board and on February 19, 2008 the Board resolved that the report be received and noted.
The issues
In the absence of agreement between Sainsburys and Tesco, the only way in which the Raglan Street site can come forward for re development is through the exercise of compulsory purchase powers.
Section 226(1)(a) provides that the local authority has power to acquire compulsorily any land in its area if it thinks that the acquisition will facilitate the carrying out of development, re development or improvement on or in relation to the land.
A local authority may use its powers of compulsory purchase to assemble a site for development by a preferred developer: Standard Commercial Property Securities Ltd v Glasgow City Council (No 2) [2006] UKHL 50, 2007 SC (HL) 33, at [6].
It is common ground that the compulsory acquisition of the outstanding interests in the Raglan Street site would facilitate the carrying out of development, re development or improvement on the land under either the Tesco scheme or the Sainsburys scheme such that the test in section 226(1)(a) is met.
So also it is common ground that both schemes of re development on the Raglan Street site would promote and improve the economic, social and environmental well being of the city and therefore satisfy the requirement in section 226(1A) that a local authority must not exercise the power unless it thinks that the development, re development or improvement is likely to contribute to the achievement of the well being objects set out in the subsection.
It is also agreed that the re development of the Royal Hospital site as proposed would bring well being benefits to the Councils area, but Sainsburys says that, contrary to the approach of the Court of Appeal, those well being objects are not within section 226(1A), because they do not flow from the proposed re development of the Raglan Street site.
The issues on this appeal are these: (1) Whether, on a proper construction of section 226(1A), the Council was entitled to take into account, in discharging its duty under that subsection, a commitment by the developer of a site part of which was to be the subject of a CPO to secure (by way of cross subsidy) the development, re development or improvement of another (unconnected) site and so achieve further well being benefits for the area. (2) Whether the Council was entitled, in deciding whether and how to exercise its powers under section 226(1)(a), to take into account such a commitment by a developer.
On the first issue, relating to the interpretation and application of section 226(1A), the Court of Appeal, differing from Elias J, found in favour of the Council and Tesco.
On the second issue, relating to section 226(1)(a), Elias J found in favour of the Council and Tesco, but the Court of Appeal did not find it necessary to decide the point because of its conclusion on section 226(1A).
The judgments of Elias J and the Court of Appeal Section 226(1A)
Elias J decided that, contrary to the argument of the Council and Tesco, on a proper construction of section 226(1A), the Royal Hospital site benefits did not fall within its ambit.
They would have been well being benefits in relation to a CPO of that site, but in order to fall within section 226(1A) in relation to the development of the Raglan Street site, the benefits must flow from the development of the Raglan Street site alone, since that was the site covered by the CPO.
The fact that a link between the two developments could be achieved by an agreement under section 106 of the 1990 Act did not entitle the Council to treat what were in reality well being benefits resulting from development of the Royal Hospital site as if they were generated by development of the Raglan Street site.
The Court of Appeal held that the Council was entitled to take the Royal Hospital site benefits into account because they fell within section 226(1A).
Whilst section 226(1)(a) focused the local authoritys attention on what was proposed to take place on the CPO site itself and required the authority to be satisfied that the CPO would facilitate the re development of the CPO site, section 226(1A) required it to look beyond the benefits that would accrue on the CPO site and to consider whether and to what extent the re development of the CPO site would bring well being benefits to a wider area.
If the carrying out of the re development of a CPO site was likely to act as a catalyst for the development or re development of some other site or sites, then such catalytic effects were capable of falling within the scope of section 226(1A).
The financial viability of a proposed re development scheme would be a highly material factor, and the proposed re development of a CPO site might have to be cross subsidised.
It would be surprising if the potential financial implications of redeveloping the CPO site, including the possibility of cross subsidy as a result of facilitating its re development, were immaterial for the purposes of any consideration of the extent to which the carrying out of the re development would be likely to contribute to wider well being benefits.
The possibility of one development cross subsidising another highly desirable development was capable of being a material consideration in the determination of a planning application under section 70(2) of the 1990 Act: R v Westminster City Council, ex parte Monahan [1990] 1 QB 87.
The proposed cross subsidy was a material consideration in the light of the Councils obligation under section 226(1A) to take wider, off site well being benefits into account and in the light of the significance of financial viability and economic well being in the CPO context.
Section 226(1)(a)
Elias J held that for the purposes of section 226(1)(a), when choosing between two developments either of which would in principle be facilitated by a CPO, the Council was entitled to have regard to all the benefits which would flow from the development when determining in whose favour the CPO should be exercised, including any off site benefits achieved by means of an agreement linking the development of the Raglan Street site to development of the Royal Hospital site.
The Court of Appeal decided that it was not necessary to rule on the alternative submission by the Council and Tesco that the Royal Hospital site benefits were material considerations under section 226(1)(a) in any event.
The CPO context
There is no doubt that where a body has a power of compulsory acquisition which is expressed or limited by reference to a particular purpose, then it is not legitimate for the body to seek to use the power for a different or collateral purpose: Simpsons Motor Sales (London) Ltd v Hendon Corporation [1964] AC 1088, at 1118, per Lord Evershed.
In Galloway v Mayor and Commonalty of London (1866) LR 1 HL 34, 43, Lord Cranworth LC said that persons authorised to take the land of others cannot be allowed to exercise the powers conferred on them for any collateral object; that is, for any purposes except those for which the Legislature has invested them with extraordinary powers.
In Clunies Ross v Commonwealth of Australia (1984) 155 CLR 193, 199 the High Court of Australia said that the statutory power to acquire land for a public purpose could not be used to advance or achieve some more remote public purpose, however laudable.
See also Campbell v Municipal Council of Sydney [1925] AC 338, 443 (PC).
So also the familiar rules on the judicial control of the exercise of legislative powers apply in the CPO context as elsewhere: see e.g., among many others, Hanks v Minister of Housing and Local Government [1963] 1 QB 999 (Megaw J); Prest v Secretary of State for Wales (1982) 81 LGR 193 (CA) (as explained in de Rothschild v Secretary of State for Transport (1988) 57 P & CR 330); Chesterfield Properties plc v Secretary of State for the Environment (1997) 76 P & CR 117 (Laws J).
Nor can it be doubted that off site benefits may be taken into account in making a CPO.
Standard Commercial Property Securities Ltd v Glasgow City Council (No 2) [2006] UKHL 50, 2007 SC (HL) 33 was a decision on the Scottish compulsory purchase provisions in the Town and Country Planning (Scotland) Act 1997, which are similar to, but not identical with, the equivalent provisions in the 1990 Act.
Section 191 provided in substance that where land is acquired or appropriated by a planning authority for planning purposes, the authority might dispose of such land to any person to secure the best use of the land, and that the land could not be disposed of otherwise than at the best price or on the best terms that could reasonably be obtained.
The property in question was in a run down part of Bath Street and Buchanan Street, Glasgow.
Proposals for re development of the site by the developer contained a strong element of planning gain.
The issue was whether the planning authority, exercising its compulsory purchase powers to redevelop a site, had acted ultra vires by entering into a back to back agreement with the developer in which the Council had agreed to transfer the land to the developer in return for the developer indemnifying the Council for the money expended in assembling the site and making it available.
In effect the developer was to be put in the same position as if it had itself exercised the power of compulsory acquisition: [14].
It was held that the words best terms permitted disposal for a consideration which was not the best price, and so terms that would produce planning benefits and gains of value to the authority could be taken into account as well as terms resulting in cash benefits.
It was accepted that the local authority could use its powers to assemble the site for development by a preferred developer: [6].
Lord Hope (at [39]) and Lord Brown (at [70]) also accepted that account could be taken by a planning authority of the wider, off site planning gains which would result from the exercise of its compulsory purchase powers.
But these were benefits directly related to the site, and directly flowing from the development, and the decision does not help in the solution of the present appeal.
Other contexts
All parties, especially Sainsburys, relied on authorities relating to planning applications, and in particular on those relating to the extent to which conditions attached to a planning permission must relate to the development; and the extent to which off site benefits (whether under a section 106 agreement or not) are other material considerations to which the authority must have regard under section 70(2) of the 1990 Act in deciding whether to grant or refuse planning permission (or to impose conditions).
In the Court of Appeal Sullivan LJ did not think that a read across from the limitations on the exercise of the section 70(2) power was appropriate in the context of section 226.
In summary, Sainsburys position was (a) the cases on the legitimate scope of planning conditions were relevant, from which it followed that the only off site benefits which could be taken into account were those which fairly and reasonably related to the development in relation to which the CPO power was being exercised, that is the Raglan Street development; (b) the cases on section 70(2) also proceeded on the basis that there had to be a connection between the benefits and the permitted development; (c) a potential cross subsidy was relevant only where there was a composite development.
The position of the Council and Tesco was that the Court of Appeal was right to say that there should not be a read across from the planning permission cases to CPO cases, but in any event the authorities showed that financial considerations, including off site benefits through cross subsidies, were relevant, and were essentially a matter for evaluation by the planning authority.
It is necessary to note, at the outset, the relevant legal differences between this case and the cases in which similar questions have previously arisen.
The first is that there is a difference between the exercise of powers of compulsory acquisition and the exercise of powers to control development and grant planning permission, which is rooted in the deep seated respect for private property reflected in the decisions cited above.
The second is that both compulsory acquisition and planning control are solely creatures of statute, and that while the provisions which are relevant on this appeal are contained in one statute, the 1990 Act, the statutory provisions are different.
The relevant provisions of section 226 have been set out above, and it is only necessary to repeat that section 226(1)(a) gives the local authority power to acquire compulsorily if the authority think that the acquisition will facilitate the carrying out of development, re development or improvement on or in relation to the land and does not contain, by contrast with section 70(2) on planning applications, any express reference to the authority having regard to any other material considerations.
Nevertheless the policies underlying planning permission and acquisition for development purposes are similar, and considerable assistance can be obtained from the learning in the case law on planning permissions.
Fairly and reasonably relate and material considerations
In Pyx Granite Co Ltd v Ministry of Housing and Local Government [1958] 1 QB 554 (reversed on other grounds [1960] AC 260) Lord Denning said (at 572) in relation to what is now section 70(1)(a) of the 1990 Act: Although the planning authorities are given very wide powers to impose such conditions as they think fit, nevertheless the law says that those conditions, to be valid, must fairly and reasonably relate to the permitted development.
Pyx Granite had the right to quarry in two areas of the Malvern Hills.
The company required permission to break fresh surface on one of the sites.
Conditions attached to the planning permission relating to such matters as the times when machinery for crushing the stone could be used and the control of dust emissions were held valid.
The facts do not appear fully in the judgments, but it seems that the equipment was on the part of the land under the control of the company which was not the land in respect of which the application for permission related, but they could properly be regarded (for the purposes of the Town and Country Planning Act 1947, section 14) as expedient in connection with the permitted development.
Lord Denning said (at 574): It would be very different if the Minister sought to impose like conditions about plant or machinery a mile or so away.
Lord Dennings formula that the conditions must be fairly and reasonably related to the development was approved in Newbury District Council v Secretary of State for the Environment [1981] AC 578, 599 (Viscount Dilhorne), 607 (Lord Fraser), 618 (Lord Scarman), 627 (Lord Lane).
Viscount Dilhorne said (at 599): It follows that the conditions imposed must be for a planning purpose and not for any ulterior one, and that they must fairly and reasonably relate to the development permitted.
Also they must not be so unreasonable that no reasonable planning authority could have imposed them As Lord Hoffmann said in Tesco Stores Ltd v Secretary of State for the Environment [1995] 1 WLR 759, 772, as a general statement this formulation has never been challenged.
See e.g. Grampian Regional Council v Secretary of State for Scotland, 1984 SC (HL) 58, at 66.
In the Newbury case itself it was held that the Secretary of State was entitled to come to the conclusion that a condition imposed by a local authority requiring the removal of existing substantial buildings was not sufficiently related to a temporary change of use for which permission was granted.
The effect of the adoption of the Pyx Granite/Newbury formula was to put severe limits on the powers of planning authorities: Tesco Stores Ltd v Secretary of State for the Environment [1995] 1 WLR 759, 772 3.
Conditions requiring off site roadway benefits were held to be unreasonable in, for example, Hall & Co Ltd v Shoreham by Sea UDC [1964] 1 WLR 240 (ancillary road condition held to be Wednesbury unreasonable); Bradford Metropolitan City Council v Secretary of State for the Environment (1986) 53 P & CR 55 (where it was suggested that it would make no difference if they were included in a section 106 agreement); cf.
Westminster Renslade Ltd v Secretary of State for the Environment (1983) 48 P & CR 255 (not legitimate to refuse a planning application because it did not contain provisions for the increase of the proportion of car parking space subject to public control: the absence of a benefit not a reason for refusing planning permission where the benefit could not have been lawfully secured by means of a condition).
Section 70(2) of the 1990 Act provides that in dealing with an application for planning permission, the local planning authority shall have regard to the provisions of the development plan, so far as material to the application, and to any other material considerations.
There are two decisions of the Court of Appeal, and a decision of the House of Lords, which have a bearing on the questions on this appeal: R v Westminster City Council, ex parte Monahan [1990] 1 QB 87 (CA); R v Plymouth City Council, ex parte Plymouth and South Devon Co operative Society (1993) 67 P & CR 78 (CA); Tesco Stores Ltd v Secretary of State for the Environment [1995] 1 WLR 759 (HL).
They deal with one or more of the following questions: the extent to which financial considerations are material considerations in planning decisions; what connection (if any) is required between the development site and off site benefits for the purpose of material considerations; and the respective roles of the planning authorities and the courts in determining what considerations are relevant and what connection with off site benefits is necessary.
R v Westminster City Council, ex parte Monahan and R v Plymouth City Council, ex parte Plymouth and South Devon Co operative Society are both cases in which Lord Dennings fairly and reasonably relate formula in relation to conditions was extended to, or discussed in connection with, the issue of material considerations under section 70(2).
In that context the decisions have been superseded by the decision in the Tesco case, but they contain valuable discussion by some distinguished members of the Court of Appeal on questions of some relevance to the determination of this appeal.
In Monahan Lord Dennings formula was discussed in a case involving enabling development, i.e. development which is contrary to established planning policy, but which is occasionally permitted because it brings public benefits which have been demonstrated clearly to outweigh the harm that would be caused.
The decision also discusses the question of the extent to which the provision of off site benefits by the developer may be material.
In Plymouth one of the issues was the extent to which off site planning benefits promised by a section 106 agreement were material considerations.
R v Westminster City Council, ex parte Monahan
In R v Westminster City Council, ex parte Monahan [1990] 1 QB 87 the Royal Opera House, Covent Garden Ltd, applied for planning permission and listed building consents to carry out a re development, the central objective of which was to extend and improve the Opera House by reconstruction and modernisation to bring it up to international standards, and to develop the surrounding area consistently with that project.
Parts of the site were proposed to be used for the erection of office accommodation, which would be a departure from the development plan.
The planning authority granted permission for the whole proposed development on the basis that the desirable improvements to the Opera House could not be financed unless the offices were permitted.
The applicants sought judicial review of that decision on the ground, inter alia, that the fact that a desirable part of a proposed development would not be financially viable unless permission were given for the other part was not capable of being a material consideration for the purposes of what is now section 70(2) of the 1990 Act in granting planning permission for the development as a whole.
It was held that financial considerations which fairly and reasonably related to the development were capable of being material considerations which could be taken into account in reaching that determination; and that the local planning authority had been entitled, in deciding to grant planning permission for the erection of the offices, to balance the fact that the improvements to the Opera House would not be financially viable if the permission for the offices were not granted against the fact that the office development was contrary to the development plan.
On this appeal Sainsburys accepts that in the context of section 70(2) the possibility of one development cross subsidising another desirable development is capable, in limited circumstances, of being a material consideration, and that Monahan is such a case, where both developments formed part of one composite development.
The Council and Tesco say that Monahan supports their position because the Court of Appeal held the consequence of the financial viability of the proposed opera house development to be a relevant factor in the planning authoritys determination.
Kerr LJs reasoning was essentially this: (1) in composite or related developments (related in the sense that they can and should properly be considered in combination) the realisation of the main objective may depend on the financial implications or consequences of others; (2) provided that the ultimate determination is based on planning grounds and not on some ulterior motive, and that it is not irrational, there would be no basis for holding it to be invalid in law solely on the ground that it has taken account of, and adjusted itself to, the financial realities of the overall situation; (3) financial considerations may be treated as material in appropriate cases: Brighton Borough Council v Secretary of State for Environment (1978) 39 P & CR 46; Sosmo Trust Ltd v Secretary of State for the Environment [1983] JPL 806.
He concluded (at 117) by agreeing with Webster Js conclusion at first instance.
Webster J had said: It seems to me to be quite beyond doubt [but] that the fact that the finances made available from the commercial development would enable the improvements to be carried out was capable of being a material consideration, that is to say, that it was a consideration which related to the use or development of the land, that it related to a planning purpose and to the character of the use of the land, namely the improvements to the Royal Opera House which I have already described, particularly as the proposed commercial development was on the same site as the Royal Opera House and as the commercial development and the proposed improvements to the Royal Opera House all formed part of one proposal.
The fairly and reasonably related to the development formula was applied by Kerr LJ (at 111), and Staughton LJ (at 122) (who also agreed that there was a composite or related development).
There was some discussion in the Monahan decision of the limits of what could be taken into consideration, by reference to two hypothetical examples.
The first example (which Kerr LJ said was an extreme example) was the case of the development of an undesirable office block in Victoria which was said to be necessary to generate the finance for a desirable development in Covent Garden.
Kerr LJ said that a combination of this nature would be unlikely to be properly entertained as a single planning application or as an application for one composite development, and that such a case would involve considerations of fact and degree rather than of principle: at 117.
Nicholls LJ dealt with this point by saying (at 121):
The second hypothetical example, the swimming pool at the other end of the city, was dealt with by Staughton LJ (at 122): I am not persuaded by this reductio ad absurdum argument.
Circumstances vary so widely that it may be unsatisfactory and unwise to attempt to state a formula which is intended to provide a definitive answer in all types of case.
All that need be said to decide this appeal is that the sites of the commercial development approved in principle are sufficiently close to the opera house for it to have been proper for the local planning authority to treat the proposed development of the office sites, in Russell Street and elsewhere, and the proposed improvements to the opera house as forming part of one composite development project.
As such it was open to the planning authority to balance the pros and cons of the various features of the scheme.
It was open to the authority to treat the consequence, for the opera house works, of granting or withholding permission for offices as a material consideration in considering the part of the application which related to offices.
The other extreme arises from the axiom of Lloyd LJ in Bradford City Metropolitan Council v Secretary of State for the Environment [1986] 1 EGLR 199, 202G that planning permission cannot be bought and sold.
Suppose that a developer wished to erect an office building at one end of the town A, and offered to build a swimming pool at the other end B.
It would in my view be wrong for the planning authority to regard the swimming pool as a material consideration, or to impose a condition that it should be built.
That case seems to me little different from the developer who offers the planning authority a cheque so that it can build the swimming pool for itself provided he has permission for his office development.
Where then is the line to be drawn between those extremes? In my judgment the answer lies in the speech of Viscount Dilhorne in Newbury District Council vs Secretary of State for the Environment [1981] AC 578, 599, which Kerr LJ has quoted.
Conditions imposed must fairly and reasonably relate to the development permitted, if they are to be valid.
So must considerations, if they are to be material.
The ratio of the decision in Monahan is that where there are composite or related developments (related in the sense that they can and should properly be considered in combination), the local authority may balance the desirable financial consequences for one part of the scheme against the undesirable aspects of another part.
In R v Plymouth City Council, ex parte Plymouth and South Devon Co operative Society (1993) 67 P & CR 78, at 88, Hoffmann LJ observed that the Monahan decision concerned what was treated as a single composite development, and held that there was a sufficient nexus between the office development and the Opera House improvements to entitle the planning authority to say that the desirability of the latter fairly and reasonably related to the former, because of (1) the financial dependency of the one part of the development on the other and (2) their physical proximity.
The Monahan decision demonstrates, if demonstration were necessary, that financial considerations may be relevant in planning decisions.
In Sosmo Trust Ltd v Secretary of State for the Environment [1983] JPL 806 (cited on this point with approval by Kerr LJ in Monahan at 116) Woolf J accepted that the consequences of the financial viability or lack of financial viability of a development were a potentially relevant factor: the true question was not whether a development would be viable but what the planning consequences would be if it were not viable: see at 807.
See also Sovmots Investments Ltd v Secretary of State for the Environment [1977] QB 411, 425, per Forbes J (for further proceedings see [1977] QB 411; [1979] AC 144).
R v Plymouth City Council, ex parte Plymouth and South Devon Co operative
Society Ltd
The restrictive approach of the courts to conditions was one of the factors which led planning authorities to rely on planning obligations in attempting to secure planning gain.
This led directly to the question whether planning authorities were entitled to treat benefits secured by way of a planning obligation as a material consideration in deciding whether to grant planning permission.
In R v Plymouth City Council, ex parte Plymouth and South Devon Co operative Society Ltd (1993) 67 P & CR 78 it was held that the planning authority could (against the opposition of the Co op) take into account offers by Tesco and Sainsburys to enter into section 106 agreements providing for substantial off site benefits.
The off site benefits included an offer by Sainsburys of a payment of 1 million for infrastructure which would enable a separate site to be made available for industrial use, and an offer by Tesco of a park and ride facility on another site.
The Co ops position was that a consideration was only material to the question of whether to grant planning permission, if it was necessary to the grant of permission, i.e. overcame some objection to the proposed development which would otherwise mean that permission could not be granted.
It was held that although the benefits had to be planning benefits and fairly and reasonably relate to the development, they did not have to be necessary.
This is a decision in which there was a connection between the development and the off site benefits.
All members of the court (Russell, Evans and Hoffmann LJJ) accepted (at 82, 84, 87 88) that the off site benefits related to the superstore development applications.
The offer of 1 million by Sainsburys for infrastructure would help to compensate for the reduction in the pool of resources for employment land.
The park and ride facility offered by Tesco would counteract the increase in traffic caused by the superstore development: at 82 83; 90 91.
Tesco Stores Ltd v Secretary of State for the Environment
But, although it has not been expressly over ruled and the result would be the same today, the reasoning of the Plymouth decision can no longer stand, based as it was on the fairly and reasonably related to the development test: see at pp. 81 82, 87, 89 90.
In Tesco Stores Ltd v Secretary of State for the Environment [1995] 1 WLR 759 there were rival plans for the development of superstores on different sites in Witney, Oxfordshire, by Tesco and Sainsburys (in conjunction with Tarmac).
At an inquiry into proposals to alter the Witney local plan by building a new link road to relieve traffic congestion and a food superstore in the town centre, the inspector approved the proposal for a link road and rejected that for a town centre superstore.
Tesco offered to provide full funding for the link road.
The Secretary of State allowed the Sainsburys/Tarmac appeal, and dismissed Tescos application: the funding offer was not fairly and reasonably related in scale to the development; although there was a tenuous relationship between the funding of the link road and the proposed foodstore because of a slight worsening of traffic conditions (a 10% increase) the link was not needed.
But if it were to be taken into account, then because of the tenuous nature of the connection, the partial contribution was too limited to affect the ultimate decision.
The House of Lords confirmed that the Secretary of State had fulfilled his duty by taking the offer into account but according it very little weight.
It was held that a planning obligation offered under section 106 of the 1990 Act by a developer was a material consideration for the purposes of section 70(2) of the Act if it was relevant to the development; and that the weight to be given to such an obligation was a matter entirely within the discretion of the decision maker.
Tescos offer to fund the link road was sufficiently related to the proposed development to constitute a material consideration under section 70(2).
For the purposes of this appeal, the importance of this decision is the light it throws on the nature of the necessary link between the development and the off site benefit.
The House of Lords held that the Pyx Granite/Newbury test for planning conditions was not applicable in the context of the question whether section 106 obligations were material considerations under section 70(2).
Lord Keith of Kinkel said (at 764, 770): Sir Thomas Bingham MR in the course of his judgment in this case said that material in [section 70(2)] meant relevant, and in my opinion he was correct in this.
It is for the courts, if the matter is brought before them, to decide what is a relevant consideration.
If the decision maker wrongly takes the view that some consideration is not relevant, and therefore has no regard to it, his decision cannot stand and he must be required to think again.
But it is entirely for the decision maker to attribute to the relevant considerations such weight as he thinks fit, and the courts will not interfere unless he has acted unreasonably in the Wednesbury sense An offered planning obligation which has nothing to do with the proposed development, apart from the fact that it is offered by the developer, will plainly not be a material consideration and could be regarded only as an attempt to buy planning permission.
If it has some connection with the proposed development which is not de minimis, then regard must be had to it.
But the extent, if any, to which it should affect the decision is a matter entirely within the discretion of the decision maker and in exercising that discretion he is entitled to have regard to his established policy.
All members of the appellate committee agreed with Lord Keiths opinion, and the ratio of the decision is that for the purposes of section 70(2) any benefit whose connection with the development is more than de minimis will be a material consideration, but that the weight to be given to any particular material consideration is entirely a matter for the decision maker.
It has often been said that planning permissions should not be bought or sold: see Bradford Metropolitan City Council v Secretary of State for the Environment (1986) 53 P & CR 55, 64, per Lloyd LJ (on which see Plymouth at 84, per Evans LJ; Monahan at 122, per Staughton LJ; Tesco, at 765, per Lord Keith of Kinkel, and 782, per Lord Hoffmann); and accepted as a matter of policy in ODPM Circular 05/2005, Planning Obligations, para B6 (reflecting its predecessors): The use of planning obligations must be governed by the fundamental principle that planning permission may not be bought or sold.
It is therefore not legitimate for unacceptable development to be permitted because of benefits or inducements offered by a developer which are not necessary to make
the development acceptable in planning terms
Responding to the point that the approach in the Plymouth decision leads to the prospect of the sale and purchase of planning permissions, Lord Hoffmann contrasted cases in which there was a sufficient connection between the development and a planning obligations and those in which they were quite unconnected.
He said (at 782): This reluctance of the English courts to enter into questions of planning judgment means that they cannot intervene in cases in which there is sufficient connection between the development and a planning obligation to make it a material consideration but the obligation appears disproportionate to the external costs of the development.
R vs Plymouth City Council, Ex parte Plymouth and South Devon Co operative Society Ltd, 67 P & CR 78, was such a case, leading to concern among academic writers and Steyn LJ in the present case that the court was condoning the sale of planning permissions to the highest bidder.
My Lords, to describe a planning decision as a bargain and sale is a vivid metaphor.
But I venture to suggest that such a metaphor (and I could myself have used the more emotive term auction rather than competition to describe the process of decision making process in the Plymouth case) is an uncertain guide to the legality of a grant or refusal of planning permission.
It is easy enough to apply in a clear case in which the planning authority has demanded or taken account of benefits which are quite unconnected with the proposed development.
But in such a case the phrase merely adds colour to the statutory duty to have regard only to material considerations.
In cases in which there is a sufficient connection, the application of the metaphor or its relevance to the legality of the planning decision may be highly debatable.
I have already explained how in a case of competition such as the Plymouth case, in which it is contemplated that the grant of permission to one developer will be a reason for refusing it to another, it may be perfectly rational to choose the proposal which offers the greatest public benefit in terms of both the development itself and related external benefits.
Conclusions
There is no doubt that in the light of the report of January 30, 2008, the Council had purportedly resolved in principle to make the CPO for the purpose of facilitating both the development of the Raglan Street site and that of the Royal Hospital site.
That would be sufficient to vitiate the resolution.
But Elias J and the Court Appeal accepted that there would be no point in quashing the resolution on that ground alone, since a more felicitously worded resolution could be passed if the benefits to be derived from the development of the Royal Hospital site were relevant under section 226(1)(a) or section 226(1A).
What can be derived from the decisions in the planning context, and in particular the Tesco case, can be stated shortly.
First, the question of what is a material (or relevant) consideration is a question of law, but the weight to be given to it is a matter for the decision maker.
Second, financial viability may be material if it relates to the development.
Third, financial dependency of part of a composite development on another part may be a relevant consideration, in the sense that the fact that the proposed development will finance other relevant planning benefits may be material.
Fourth, off site benefits which are related to or are connected with the development will be material.
These principles provide the answer to the questions raised in Monahan about the development in Victoria or the swimming pool on the other side of the city.
They do not, as Kerr LJ thought, raise questions of fact and degree.
There must be a real connection between the benefits and the development.
Given the similar context, there is no reason why similar principles should not apply to compulsory acquisition for development purposes provided that it is recognised that, because of the serious invasion of proprietary rights involved in compulsory acquisition, a strict approach to the application of these principles is required.
There must be a real, rather than a fanciful or remote, connection between the off site benefits and the development for which the compulsory acquisition is made.
What is the connection in the present case? The expression cross subsidy has been much used by Tesco and the Council.
The expression bears a special meaning in this case.
Its most common use is in the competition field, where it usually connotes improper allocation of costs in different product or geographic markets, which may result in predatory pricing or other anti competitive activity.
Here all it means is that Tesco says that (a) the Councils requirements for the Royal Hospital site have the result that Tesco cannot develop it profitably; and (b) Tesco will undertake its development if it can develop the Raglan Street site.
Tesco says that the consequence of (a) and (b) is that the Raglan Street site development will cross subsidise the Royal Hospital site development.
But the only connections between the proposed Raglan Street site and Royal Hospital site developments are that (a) Tesco says that it will develop the latter if it can develop the former; (b) it has contractually agreed to perform building works on the Royal Hospital site if it acquires the Raglan Street site.
The commercial effect will be that the deficiency on the Royal Hospital site will be made up, or cross subsidised, by the Raglan Street site development.
Nothing in the papers before the Court suggests that this will be done by any direct subvention from the income or capital proceeds of the Raglan Street site, but this would not in any event make a difference.
It is entirely a matter for Tesco how it funds any loss from, or presents any lower return from, the Royal Hospital site.
This is only a connection in the sense that either (a) the Council is being tempted to facilitate one development because it wants another development; or (b) Tesco is being tempted to undertake one uncommercial development in order to obtain the development it wants.
The crucial question is whether that is a connection which the Council is entitled to take into consideration under section 226(1)(a) or section 226(1A).
To take the latter first, Elias J was right to hold that section 226(1A) was not the crucial provision for the purposes of this case.
It does not answer the prior question of what matters can be taken into consideration.
The power of compulsory acquisition must be capable of being exercised under section 226(1)(a) before the limitation in section 226(1A) applies.
Once it applies the local authority must think that the development will contribute to the achievement of the well being benefits.
Section 226(1A) does not permit the Council to take into account a commitment by the developer of a site part of which was to be the subject of a CPO to secure the development, re development or improvement of another (unconnected) site and so achieve further well being benefits for the area.
The Council was entitled to come to the view for the purposes of section 226(1A) that the Raglan Street site development would contribute to well being in its area, but not on the basis of the benefits which would derive from the Royal Hospital site development.
The Raglan Street site development will not, in any legally relevant sense, contribute to the achievement of the well being benefits flowing from the Royal Hospital site development.
But that matters little since the crucial question is whether the Council was entitled to take it into account under section 226(1)(a).
There can be no doubt that, even if there is no express reference in section 226(1)(a) to the local authority taking into account material considerations (by contrast with section 70(2)), only relevant matters may be taken into account.
For the reasons given above, the claimed financial connection between the two sites was not such as to amount to a relevant matter.
It is true, as Sullivan LJ said (at [34]), that the financial viability of a proposed re development scheme would be a highly material factor, and that a proposed re development of a CPO site might have to be cross subsidised.
But Sullivan LJ was wrong to conclude that it followed that a cross subsidy from a CPO site to another site was a material consideration.
The fact that a conditional agreement for sale linked the obligation to carry out works on the Royal Hospital site was not a relevant connection.
Nor do I consider, despite the views of Lord Phillips and Lord Hope to the contrary, that a different result on this appeal is required by the fact that Sainsburys and Tesco were in competition for the site, and that the Council is proposing to dispose of the land to Tesco under section 233.
They accept that the Council was not entitled to take the benefits from the Royal Hospital site development into account in making the CPO, but consider that the opportunity for re development of the Royal Hospital site would be a relevant matter to be taken into account by the Council in exercising the power of disposal to Tesco under section 233.
First, as a matter of principle it is impossible to put into separate compartments the exercise by the Council of its power of compulsory purchase of Sainsburys property, and the exercise of the Councils power to dispose of Sainsburys property to Tesco, and then to conclude that the Royal Hospital site development may not be taken into account for the former, but can be taken into account for the latter.
It is wrong for the Council to deprive Sainsburys of its property because the Council will derive from disposal of that property benefits wholly unconnected with the acquisition of the property.
Second, although it is plain that the power of compulsory purchase may be used to assemble a site for a preferred developer, there is nothing in Standard Commercial Property Securities Ltd v Glasgow City Council (No 2) [2006] UKHL 50, 2007 SC (HL) 33 which supports the proposition that unconnected benefits may be taken into account by a local authority in deciding whether property should be compulsorily acquired for the purpose of disposing of it to a preferred developer.
The background to the appeal was a competition between developers for the right to develop a run down part of Buchanan Street, Glasgow.
Two developers in particular were keen to develop the site, Atlas Investments and Standard Commercial, each of which owned part of the site.
The Council, when inviting all the owners and occupiers of the land on the site to submit proposals for re development, said that successful submissions should seek a mix of activities and functions which would bring added activity to the area outside normal retailing hours, and encouraged applicants to allocate a budget to the cost of integrating public art into the development and include improvements to the relevant areas of adjoining streets, and so contribute to the transformation of Glasgow City Centre.
Those were the wider planning gain benefits to which Lord Hope referred in his opinion: [39].
Similarly Lord Brown (at [70]) referred to the Councils desire to obtain economic and social benefits for Glasgow.
But it is clear from Lord Hopes opinion in that decision, as he accepts in his judgment on this appeal, that the benefits which the developers were invited to confer were related to the site, and the immediately adjoining area.
There is nothing in the decision to support the conclusion that in this case the promise to develop the Royal Hospital site would have been a material consideration in a disposal under section 233.
I would therefore allow the appeal, and make an order declaring that the opportunity for re development of the Royal Hospital site is not a lawful consideration in deciding whether to make a CPO in relation to the Raglan Street site.
LORD WALKER
In agreement with Lady Hale, Lord Mance and Lord Collins, I would allow this appeal.
I agree with the reasons set out in the full judgment of Lord Collins, supported by the shorter judgments of Lady Hale and Lord Mance.
But in view of the difference of opinion within the Court I will try to summarise my reasons in my own words.
This appeal is concerned with compulsory acquisition of land for planning purposes (that being the general ambit of both paragraphs (a) and (b) in section 226(1) of the Town and Country Planning Act 1990 the 1990 Act).
The land is to end up, not in public ownership and used for public purposes, but in private ownership and used for a variety of purposes, mainly retail and residential.
Economic regeneration brought about by urban redevelopment is no doubt a public good, but private to private acquisitions by compulsory purchase may also produce large profits for powerful business interests, and courts rightly regard them as particularly sensitive.
To the authorities mentioned by Lord Collins in paras 9 to 11 of his judgment might be added the famous split of the United States Supreme Court in Kelo v City of New London, Connecticut 545 US 469 (2005), discussed in Gray & Gray, Elements of Land Law, 5th Edition (2009) paras 11.2.6 and 11.2.7.
The case of Fazzolari Pty Ltd v Parramatta City Council (2009) 237 CLR 603 mentioned by Lord Collins was also in substance largely a private to private acquisition, although the local authority used a declaration of trust to give the acquisition a better appearance.
Where a local authority is considering exercising powers of compulsory purchase for planning purposes, planning considerations must be central to the decision making process.
The public purse is to be protected against improvidence, but the local authority should not be exercising its powers in order to make a commercial profit.
In Standard Commercial Property Securities Ltd v Glasgow City Council 2007 SC (HL) 33, Lord Brown, at para 75, described that proposition as deeply unattractive.
Section 233 of the 1990 Act differs from its Scottish counterpart in that subsection (3) expressly contemplates a disposal for a consideration less than the best that can reasonably be obtained, though only with the consent of the Secretary of State.
But both in Scotland and in England a back to back arrangement (under which the local authority makes neither a commercial loss nor a commercial gain from its participation, using section 226 powers, in a scheme of comprehensive urban redevelopment) is standard practice.
The dominant aim is betterment in planning terms.
That to my mind is why the issue of what would be material considerations for the purposes of deciding an application for planning permission is also relevant to a decision to exercise powers of compulsory acquisition under section 226.
The quality of the proposed redevelopment of the site is of crucial importance.
Its larger impact on the authoritys area is also an essential element in the decision making process, because of section 226 (1A).
In common with all the members of the Court I consider that section 226(1A) has the effect of imposing an extra requirement which is a necessary but not a sufficient condition for the exercise of powers under 226(1).
Section 226(1A) does not qualify, still less act as a substitute for, the requirements of the preceding subsection.
But the exercise of powers of compulsory acquisition, especially in a private to private acquisition, amounts to a serious invasion of the current owners proprietary rights.
The local authority has a direct financial interest in the matter, and not merely a general interest (as local planning authority) in the betterment and well being of its area.
A stricter approach is therefore called for.
As Lord Collins says in his conclusions at para 71 of his judgment, a real (rather than a fanciful or remote) connection must be shown between any off site benefits and the proposed redevelopment for which a compulsory purchase order is proposed.
Lord Brown has posed a rhetorical question in para 182 of his judgment.
After referring to the Standard Commercial case he has commented, it is surely implicit in that decision and indeed in the respective legislative requirements in both England and Scotland in effect to get what I called the best overall deal available that, by the same token as a cash bidding match would have been possible, so too would have been an offer of other benefits, however extraneous.
Why ever not? With great respect to Lord Brown I think that he has answered his own question in the passage of his speech in Standard Commercial at para 75: I find deeply unattractive the proposition that, almost inevitably at the expense of some beneficial aspect of the development scheme, the authority should be seeking to make a profit out of the exercise of its statutory powers of acquisition.
A cash bidding match, or the exaction of extraneous benefits, has superficial attractions as a tie breaker, especially if there are two contenders, both with very deep pockets, like Tesco and Sainsbury.
The merits of their respective schemes are closely matched, as appears from the summary in para 11 of the officers recommendation document dated 30 January 2008.
It is true that the Tesco scheme is said in the summary to offer more jobs, but the Sainsbury scheme might create an unspecified number of extra jobs through re use or development of its St Georges Parade site (para 6.6).
The Tesco scheme would be delivered by a well resourced operator but the detailed consideration of delivery (para 7) ranked the two contenders as equally capable.
Tescos only apparently decisive advantage was (para 11.3) the offer of cross funding for the RHS development.
Since their proposals are such that there is little, if anything, to choose between them in planning terms, why should not the local authority look to some substantial extraneous benefit which one contender offers, rather than having to make the difficult choice of a winner between contenders whose proposals are equally satisfactory on planning grounds? The answer is simply that it is not the right way for a local authority to make a decision as to the exercise of its powers of compulsory purchase, any more than it could choose a new chief executive, from a short list of apparently equally well qualified candidates, by holding a closed auction for the office.
As Lord Keith said in Tesco Stores Ltd v Secretary of State for the Environment [1995] 1 WLR 759, 770, An offered planning obligation which has nothing to do with the proposed development, apart from the fact that it is offered by the developer, will plainly not be a material consideration and could be regarded only as an attempt to buy planning permission.
The fact that an exercise of powers of compulsory acquisition and a back to back disposal to a developer are prearranged is unobjectionable (see Lord Rodger in Standard Commercial at para 53).
But that does not mean that the proper consideration of the exercise of powers of compulsory acquisition under section 226 of the 1990 Act can be telescoped into the exercise of powers of disposal under section 233.
On this point I am in full agreement with the judgment of Lady Hale.
For these reasons I would allow this appeal and make the declaration proposed by Lord Collins.
LADY HALE
I agree that this appeal should be allowed, for the reasons given by Lord Collins, together with the further reasons given by Lord Walker and Lord Mance.
Lord Phillips and Lord Hope also agree with the reasoning of Lord Collins, on the points upon which he differs from Lord Brown, but they disagree in the result.
As I understand it, they consider that the extraneous benefit offered by Tesco, although it would not normally be a relevant consideration in the compulsory purchase decision, would be a relevant consideration when the Council came to dispose of the land under section 233(1) of the Town and Country Planning Act 1990.
Accordingly, as in practice the decisions may be taken simultaneously, that consideration can be read back into the decision compulsorily to purchase the Sainsbury land under section 226(1).
For the reasons given by Lord Mance, I find it difficult to accept that proposition.
It puts the cart before the horse.
The council have nothing to dispose of unless they have acquired the land, whether voluntarily or compulsorily.
They can only acquire the land compulsorily under section 226(1)(a) if the authority think that the acquisition will facilitate the carrying out of development, redevelopment or improvement on or in relation to the land.
The matters to be taken into account in making that decision have to be relevant to that purpose.
I agree, as Lord Mance puts it at para 98 of his judgment, that the considerations admissible in relation to compulsory purchase are no wider than those admissible in relation to the grant of planning permission.
Although the grant of planning permission is a useful analogy, it is a different exercise.
The considerations material to that exercise are also material, but in a rather different way, to the compulsory purchase decision.
Thus, under the former version of section 226(1) (quoted by Lord Phillips at para 121 of his judgment), the considerations which would be material to the grant of planning permission for development on the land were also material to whether the land was suitable for development.
That was a sine qua non for compulsory purchase to secure development.
This seems obvious.
It cannot be proper to deprive a person compulsorily of his land in order to secure something which will not be allowed to take place.
Under the new version of section 226(1), the permissibility of some development (together with a reasonable prospect of its actually taking place) should be a sine qua non for compulsory acquisition in order to facilitate it.
The question does not arise in this case, because we are agreed that the extraneous benefit to the Royal Hospital site would not be relevant to the grant of planning permission for this site, any more than it is relevant to the compulsory purchase decision.
Acquiring the whole of the Raglan Street site would facilitate the development of that site (although it is worth noting that Sainsbury have so much of the site that they could carry out a development, albeit a less satisfactory one, without further compulsory acquisition).
Persuading Tesco to carry out a wholly unrelated development upon another site elsewhere in the city, desirable though that may be for the City and people of Wolverhampton, does nothing to facilitate the development of the Raglan Street site.
Rather, it is the other way round.
It is difficult to understand why the fact that Sainsbury also wish to develop the Raglan Street site should make any difference.
If it would not be permissible to take into account the extraneous benefit when deciding compulsorily to purchase land from an unwilling owner who did not himself wish to develop it, it seems even less permissible to take it into account as against an unwilling owner who does.
In the former situation, a development which would not otherwise take place would be facilitated; in the latter, it would not be facilitated because the development would take place in any event. (I might comment that Sainsbury would probably never have found themselves in this mess if they had not twice changed their mind about whether to develop this site.)
The case of Standard Commercial Property Securities Ltd v Glasgow City Council [2006] UKHL 50, 2007 SC (HL) 33 is entirely consistent with this view.
A council can agree to assemble a site for development, using their compulsory purchase powers if necessary, and to sell it to their chosen developer.
It makes sense, but it is not essential, to conduct the two exercises in tandem.
But the considerations relevant to the selection of the developer in that case were all relevant to the development of that site.
The selection criteria adopted (and carefully graded) by the council were all directly related to the quality of the development of the site and the feasibility of the would be developers carrying it out (see Lord Hope, at para 22).
There were no subsidiary planning obligations involved, still less any wholly extraneous benefits offered.
In any event, the battle was not about the selection criteria, but about whether the proposed terms of disposal were the best obtainable and there was no evidence that they were not.
Even if it were permissible to take a wholly extraneous benefit into account when deciding to whom to sell the land, it does not follow that it is permissible to take that benefit into account when deciding compulsorily to deprive a person of their land.
Finally, I agree that section 226(1A) operates as a limitation on the power defined by section 226(1)(a).
It is therefore necessary first to consider whether the acquisition will facilitate the development of the land; and only if it will do that, to consider whether the development itself will contribute to the promotion or improvement of the economic, social or environmental well being of the area.
LORD MANCE
I consider that this appeal should be allowed.
I agree with the reasons given by Lord Collins, supplemented by those given by Lord Walker and Lady Hale, and wish to add only a few comments on one aspect, relating to the basis upon which Lord Phillips and Lord Hope (and Lord Brown in an alternative) come in their judgments to an opposite result.
Like Lord Phillips (paras 134 135), I agree with Lord Collinss conclusion that a planning authority, when considering a planning application, is only entitled to take into account a planning obligation which the applicant offers if that obligation has some connection with the relevant development, apart from the fact of its offer.
I also consider that there is a useful analogy between the grant of planning permission and the exercise of a power of compulsory purchase under section 226(1)(a) of the Town and Country Planning Act 1990, and that the considerations admissible in relation to the latter power are, in the respect mentioned in the previous sentence, no wider than those admissible in relation to the former.
In this case, the (decisive) attraction of Tescos proposal in respect of the Raglan Street site consisted of Tescos offer to use the profits to subsidise the wholly unconnected development by it of the Royal Hospital site, elsewhere in Wolverhampton, which the City Council wished to see take place.
Lord Phillips accepts in para 138, for reasons which I have summarised in the previous paragraph, that, had Sainsbury been here simply an owner who was unwilling to sell his land, it would not have been legitimate for Wolverhampton City Council to take this attraction into account in deciding to exercise its powers of compulsory purchase to facilitate Tescos scheme in respect of the Raglan Street site.
Likewise, he accepts (para 140) that, if Sainsbury and Tesco had been seeking in competition with each other to develop a site in the ownership of a third party, then, too, it would not been admissible for the City Council to decide compulsorily to purchase the third party site because of the attraction of Tescos offer to develop a wholly unconnected site.
However, Lord Phillips and Lord Hope consider that it makes all the difference that, in this case, Sainsbury and Tesco were in competition for the same site (in fact owned or controlled as to 86% by the former and 14% by the latter).
I cannot accept that distinction.
On its logic, it should make no difference if Sainsbury owned and wanted itself to develop the whole Raglan Street site: Tesco, if it wanted to develop that site, could, by offering to devote part of the profits to the Royal Hospital project, still legitimately induce the City Council compulsorily to purchase Sainsburys property in order to sell it to Tesco for the Raglan Street development.
Lord Phillipss reference (para 147) to the fact that the compulsory purchase of land owned by one or the other is involved as really peripheral in a case where there are rival developers goes far towards accepting this conclusion.
Alternatively, if some way of avoiding this conclusion exists, the logic must still be that Tesco, by acquiring only one house on the proposed Raglan Street site, could alter fundamentally the considerations admissible in relation to a decision whether compulsorily to purchase Sainsburys property, rather than Tescos, in order to facilitate the development of the Raglan Street site.
In either case, I do not think it right to describe as motivated by commercial rivalry (para 147) the wish of a landowner in Sainsburys position to develop its own land or its wish to have any decision to compulsorily purchase its land for the benefit of some other developer made by reference to factors having at least some connection with its land.
The error in my view lies in divorcing the exercise of the power of compulsory purchase from the property to which it relates.
Two different exercises of that power are here in issue relating to two different pieces of land.
When a planning authority exercises compulsory purchase powers to promote a particular development, it does this in relation to specific property and only so far as necessary.
In the present case, if Sainsburys scheme is preferred on its admissible planning merits, then only Tescos property will be compulsorily purchased, and vice versa.
The Councils first decision is therefore which development it prefers, and that will determine whose property is compulsorily purchased.
The Councils decision which development it prefers must be taken having regard to considerations which are admissible in the context of the development for which property is to be compulsorily purchased.
Thus, when deciding whether compulsorily to purchase Sainsburys property, it was not admissible to have regard to Tescos offer relating to the unconnected development of the Royal Hospital site.
If the Raglan Street site had already been in Council ownership, and there were two interested developers, the Council could of course take into account under section 233 any inducement offered by either whether in terms of price or some unconnected benefit (such as an undertaking to develop the Royal Hospital site) as Lord Hope says in para 155.
But that is for the very reason that the only relevant decision would then relate to the disposal of the Councils own property.
Where the Council is deciding whether compulsorily to purchase third party property under section 226(1)(a), the interests of the third party mean that the Council must have regard only to considerations which are admissible in the context of the development for which such property is required.
Standard Commercial Property Securities Ltd v Glasgow City Council [2006] UKHL 50; 2007 SC (HL) 33, to which Lord Phillips and Lord Hope refer, does not in my view support the conclusion which they reach.
It was a case where the Glasgow City Council took its decision which development to prefer on grounds which related scrupulously to the merits of the proposed development, without reference to unconnected factors: see e.g. paras 21 to 23, per Lord Hope, para 50, per Lord Rodger and para 73, per Lord Brown.
There was, as Lord Hope notes in para 155 in his present judgment, a strong element of planning gain involved in the potential development.
But it was planning gain related to the development, not to some entirely unconnected development, so that the case has no analogy with the present.
The issue before the House arose because all potential developers were required to provide an indemnity for Glasgow City Councils costs in effecting the compulsory purchase: paras. 22, 50 and 73; and it was this feature which the losing developer criticised.
There was some discussion of the possibility that the rival developers might have been invited to enter a bidding match in terms of the price to be paid: para. 41, per Lord Hope, para. 62, per Lord Rodger and paras. 72 73, per Lord Brown.
In paras. 41 and 72, Lord Hope and Lord Brown both expressed their difficulty in understanding how such a bidding match would work.
At most, one might read into the discussion in Standard Commercial Property a tacit assumption that such a bidding match might have been permissible if possible, but that does not make the case authority on a point which was evidently not argued in that case, any more than it was in fact argued on the present appeal.
The focus in Standard Commercial Property was on whether the terms on which the Glasgow City Council was proposing to dispose of the property, once compulsorily acquired, met the requirements of s.191(3) of the Town and Country Planning (Scotland) Act 1997.
S.191(1) provided that that any land acquired and held for planning purposes could be disposed of to such person, in such manner and subject to such conditions as might appear expedient to secure purposes mentioned in s.191(2), viz the best use of that or other land, etc. S.191(3) provided that any land so disposed of should only be disposed of at the best price or on the best terms that can reasonably be obtained.
The requirements of s.191(1) and (2) on the one hand and of s.191(3) on the other were, as Lord Hope said at para. 34 separate and distinct.
The issue before the House was, as Lord Hope made clear throughout paras. 31 42, simply whether the proposed terms of disposal fell within s.191(3).
It is material to think about the consequences if Standard Commercial Property were to be treated as any sort of authority that a planning authority may, when deciding whether compulsorily to acquire property belonging to one landowner (A), have regard to the price offered for the land by potential developer (B).
There would seem to be no logical reason to limit these consequences to situations where (A) and (B) are in competition, or to situations where the potential development extends beyond (A)s property and includes some property already owned by (B).
If, in any situation, (B) were to offer to re purchase (A)s property from the planning authority on terms giving the planning authority a profit, once the planning authority acquired it by compulsory purchase from (A), why would that be illegitimate? Yet (A) would have little or no means of countering such an inducement. (A) could not offer any corresponding profit in respect of land which it already owned.
And it could not be legitimate for (A) to offer the local authority a share in the profit it hoped to make from developing its own land, in order to induce the local authority to refrain from compulsorily purchasing its land for the benefit of (B).
That would amount to buying a local authoritys exercise of its discretion.
It might be suggested that if, as here, (B) owned some land which it was desired to include in an overall development, then (A) might counter (B)s offer in respect of (A)s land, by offering the planning authority a profit on the re sale of (B)s land, if it were compulsorily to acquire that land rather than (A)s.
Apart from the evident inappropriateness of any such bidding war, (B)s relevant land holding might (as here) be much smaller in area, and, unless it is supposed that (A) could legitimately offer a ludicrously high price for (B)s land, the financial attraction for the planning authority of (A)s offer could not match that of (B)s.
So far, I have spoken only in terms of a bidding match relating to the price to be paid by the developer for the property to be compulsorily purchased.
That was the only situation to which any discussion at all was addressed in Standard Commercial Property.
The present case concerns the further question whether a proposed developer could influence the exercise by a planning authority of a discretion (viz. whose property compulsorily to purchase and for the benefit of which of two potential developers) by offering some benefit wholly unconnected with any property the subject of the proposed development.
In this context, it seems to me even clearer that Standard Commercial Property cannot lend support to Tescos case on this appeal.
For these reasons, I do not regard Standard Commercial Property as justifying a conclusion that, as soon as rival developers are competing to develop a single site, part owned by each, considerations become material which would be immaterial if the whole site had been owned by one of them or by a third party.
If the discussion in the judgments in that case lends any support to Tescos case, the point did not arise for decision and was not argued there, any more than it was on the appeal in the present case.
As a matter of principle, in my opinion, there is no basis on which the fact that Sainsbury and Tesco were, in a broad sense, rival developers in respect of the same overall site, can or should alter fundamentally the considerations admissible when the City Council came to consider which development it should prefer, and which property it should, therefore, compulsorily acquire to facilitate such development.
Any such decision fell to be made by reference, and only by reference, to considerations having some connection with the proposed development, and not by reference to any entirely unconnected inducement which might be held out by one of the rival developers.
Like Lord Collins, Lord Walker and Lady Hale, I would therefore allow Sainsburys appeal.
LORD PHILLIPS
Introduction
The facts of this appeal are set out in detail in the judgment of Lord Collins.
In essence they are simple.
The issue that they raise is not.
As every shopper knows Sainsbury and Tesco are rivals.
Each owns a chain of supermarkets.
Each is anxious to open a supermarket on a site at Wolverhampton (the Site).
To this end Sainsbury has acquired 86% of the site and Tesco has acquired 14%.
These figures ignore, as shall I for it has no materiality, the fact that Wolverhampton City Council (the Council) owns a very small part of the Site.
Sainsbury and Tesco have each prepared a development plan for the Site.
The plans are very similar.
Tesco has obtained planning permission for its plan and Sainsbury is in a position to do the same.
The Council is anxious that one or other development plan should be implemented, for it will be likely to contribute to the well being of the area.
The problem is that neither of the rivals is prepared to give way, and in so doing to sell its portion of the Site to the other.
To resolve this impasse the Council is prepared to use its powers of compulsory purchase to buy the land of one of the rivals and sell it to the other.
Those powers are conferred by the following sections of the Town and Country Planning Act 1990 (the Act). 226.
Compulsory acquisition of land for development and other planning purposes. (1) A local authority to whom this section applies shall, on being authorised to do so by the Secretary of State, have power to acquire compulsorily any land in their area (a) if the authority think that the acquisition will facilitate the carrying out of development, re development or improvement on or in relation to the land or; (b) which is required for a purpose which it is necessary to achieve in the interests of the proper planning of an area in which the land is situated. (1A) But a local authority must not exercise the power under paragraph (a) of subsection (1) unless they think that the development, re development or improvement is likely to contribute to the achievement of any one or more of the following objects (a) the promotion or improvement of the economic well being of their area; (b) the promotion or improvement of the social well being of their area; (c) the promotion or improvement of the environmental well being of their area. 233.
Disposal by local authorities of land held for planning purposes. (1) Where any land has been acquired or appropriated by a local authority for planning purposes and is for the time being held by them for the purposes for which it was so acquired or appropriated, the authority may dispose of the land to such person, in such manner and subject to such conditions as appear to them to be expedient in order (a) to secure the best use of that or other land and any buildings or works which have been, or are to be, erected, constructed or carried out on it (whether by themselves or by any other person), or (b) to secure the erection, construction or carrying out on it of any buildings or works appearing to them to be needed for the proper planning of the area of the authority. (3) The consent of the Secretary of State is required where the disposal is to be for a consideration less than the best that
can reasonably be obtained
It is common ground, and rightly so, that the statutory requirements of section 226 are satisfied, so that the Council has statutory power compulsorily to purchase the land owned by either of the rivals.
There is little, if anything, to choose between the rival development plans.
The Council has, however, decided to prefer Tesco.
Its intention is compulsorily to purchase Sainsburys land and to sell this to Tesco.
Its reason for this decision is as follows.
Tesco own another site in Wolverhampton, the Royal Hospital site (RHS).
This is run down and crying out for regeneration.
The Council wishes Tesco to redevelop this in a way which Tesco contends is uneconomic.
Tesco has, however, agreed to enter into an obligation to redevelop the RHS in accordance with the Councils wishes provided only that the Council prefers Tesco in the competition for the development of the Site.
This obligation has been described as involving a cross subsidy of the RHS redevelopment from the Site development.
The Council has regarded this obligation as decisive in preferring Tesco to Sainsbury in the competition for the development of the Site.
The issue raised by this appeal is whether Tescos undertaking to develop the RHS in accordance with the Councils wishes is a matter to which the Council can properly have regard when deciding upon a scheme for developing the Site that involves the compulsory purchase of Sainsburys land.
RHS redevelopment
The RHS is about half a mile away from the Site, on the other side of the city centre.
When Tesco applied for planning permission for the development of the Site, it sought initially to link this with the redevelopment of the RHS.
It was, however, unable to demonstrate any connection between the two, and ultimately accepted that there was no linkage for the Planning Committee to consider.
The reality is that there is no connection between the development of the Site and the RHS development other than Tescos agreement to proceed with the latter if granted the former.
The cross subsidy
I am puzzled by the nature of the so called cross subsidy.
Under what is commonly described as a back to back agreement Tesco has agreed to indemnify the Council in relation to the cost to the Council of compulsorily purchasing Sainsburys 86% of the Site.
Tesco has further agreed to re develop the RHS at what Tesco contends will be a commercial loss.
Tesco states that it will be able to afford this because of the cross subsidy that will be available if it is permitted to develop the Site.
It is thus implicit that Tesco anticipates that development of the Site will result in an economic benefit that will enable it to entertain a loss making venture.
That economic benefit should, however, be reflected in the price that Tesco, as a willing buyer, would be prepared to pay to Sainsbury, as a willing seller, if Sainsburys land were to be sold directly to Tesco in an open market transaction.
That, as I understand the position, is precisely the amount to which Sainsbury will be entitled from the Council as compensation for the compulsory acquisition of their land see Waters v Welsh Development Agency [2004] UKHL 19, [2004] 1 WLR 1304, at paras 17 and 18.
If Tesco has to pay the Council this amount under the back to back agreement it is not easy to see how there will remain to Tesco any surplus economic benefit to fund a loss making venture at the RHS.
Be this as it may, that is precisely what Tesco has agreed to do.
Accordingly I approach this appeal on the basis that the compulsory purchase of Sainsburys land will procure for the Council the benefit, not merely of the development of the Site, but of the re development of the RHS under the obligation that Tesco has agreed to assume.
I shall describe this, by way of shorthand, as the RHS benefit.
An analysis of the issues
The basic issue raised by this appeal is whether the RHS benefit is a legitimate, or material, consideration to which the Council can have regard when deciding whether to acquire Sainsburys land by compulsory purchase in the particular context of the competition that exists between Sainsbury and Tesco for this development.
This basic issue subdivides into two separate questions: ii) i) Would the RHS benefit be a material consideration in deciding whether compulsorily to purchase Sainsburys land if Sainsbury was not competing for the development? Is the RHS benefit a material consideration in deciding whether to award the development to Sainsbury or Tesco? If the first question is answered in the affirmative, the second question must necessarily also be answered in the affirmative.
A negative answer to the first question will not, however, necessarily require a negative answer to the second.
Would the RHS benefit be a material consideration in deciding whether compulsorily to purchase Sainsburys land if Sainsbury was not competing for the Development.
The statutory power of compulsory purchase can only lawfully be used for the purpose for which the power has been conferred.
In Galloway v London Corpn (1866) LR 1 HL 34 at p. 43 Lord Cranworth LC said: The principle is this, that when persons embarking in great undertakings, for the accomplishment of which those engaged in them have received authority from the Legislature to take compulsorily the lands of others, making to the latter proper compensation, the persons so authorized cannot be allowed to exercise the powers conferred on them for any collateral object; that is, for any purposes except those for which the Legislature has invested them with extraordinary powers.
Section 226(1)(a) and 226(1A) confers the power compulsorily to purchase land, but to justify the exercise of that power the council must be able to show that this is clearly in the public interest: I regard it as a principle of our constitutional law that no citizen is to be deprived of his land by any public authority against his will, unless it is expressly authorised by Parliament and the public interest decisively so demands (my emphasis), per Lord Denning MR in Prest v Secretary of State for Wales (1982) 81 LGR 193 at p. 198.
In this case it is common ground that the requirements of section 226 are satisfied and that if (i) there was no competing scheme and (ii) Tesco was not prepared to provide the RHS benefit, the public interest would none the less justify the compulsory purchase of Sainsburys land in order to enable Tesco to carry out the development.
If, however, this were not the case, would the offer by Tesco of the RHS benefit be a material consideration to which the council could have regard when deciding whether the exercise of their power of compulsory purchase was justified? The ambit of section 226(1A).
Section 226(1A) of the Act sets out preconditions to the exercise of the power of compulsory purchase.
The development facilitated by the compulsory purchase must be likely to contribute to the improvement of the economic, social or environmental well being of the area.
The Court of Appeal held that because the compulsory purchase of Sainsburys land would result in the RHS benefit which, in its turn, would contribute to the economic, social or well being of the area, this, of itself, satisfied section 226(1A).
It necessarily followed that the RHS benefit was a material consideration to which the council could have regard when considering the compulsory purchase of Sainsburys land.
This finding differed from that of Elias J at first instance.
I consider that Elias J was correct and the Court of Appeal wrong.
The reasoning of the Court of Appeal appears from the following passages of the only reasoned judgment, which was delivered by Sullivan LJ: 26.
Though convoluted, subsection 226(1A) is expressed in deliberately broad terms: likely to contribute to the achievement of[the well being]objects.
It is not prescriptive as to the manner in which the carrying out of redevelopment upon a CPO site might make a contribution to such wider benefits.
Mr Lockhart Mummery accepted that one of the more obvious ways in which the carrying out of redevelopment on a CPO site might, at least in principle, be capable of bringing economic/social/environmental benefits to a wider area would be if the redevelopment was likely to act as the catalyst for the development or redevelopment of some other site or sites within the authoritys area. 27.
Such a catalytic effect might be direct, e.g. because redeveloping the CPO site would be likely to enable the occupier of another, run down site in the authoritys area to relocate onto the CPO site, thus enabling the run down site to be redeveloped.
Or it might be indirect, e.g. because the increased attractiveness after redevelopment of a hitherto run down CPO site was likely to make other sites in the area more attractive for development or redevelopment.
It was common ground that such catalytic effects were capable of falling within the scope of section 226(1A). 28.
In the present case the Report makes it plain that the Defendant was satisfied that facilitating the carrying out of the Interested Partys scheme for the redevelopment of the RSS would, by reason of the proposed cross subsidy, act as the catalyst for the redevelopment of the RHS site in a manner which would contribute to the economic social and environmental well being of its area. 29.
In my judgment subsection 226(1A) is concerned with all of the consequences that are likely to flow from the process of the carrying out of redevelopment on the CPO site, and these are not confined to what might be described as the impact of there being new bricks and mortar on the redeveloped site.
Thus, disturbance during the redevelopment process and the need to relocate existing occupiers on the one hand, and the job opportunities that would be created during the carrying out of the redevelopment on the other, would both be capable of being relevant (the one negative, the other positive) for the purposes of section 226(1A).
In these passages Sullivan LJ equates the development in section 226 (1A) with the process of the carrying out of redevelopment.
I think that this is questionable.
He describes the Site development as acting as a catalyst for the RHS redevelopment, by reason of the cross subsidy.
This is a misuse of language.
Section 226(1A) focuses primarily, if not exclusively, on whether the development will be likely to enhance the economic, social or environmental well being of the area once it is completed.
The subsection cannot be satisfied by an agreement by a developer to fund a second development that has no physical, geographical or other connection with the development that the compulsory purchase is designed to facilitate.
This conclusion gives effect to the natural meaning of the language of section 226(1A).
In the Court of Appeal Mr Lockhart Mummery QC for Sainsbury submitted that the same conclusion should be reached by applying, by analogy, decisions on what constitute material considerations in the context of planning applications.
Sullivan LJ held that these decisions could not be so applied, at least directly, and Mr King QC for the Council and Mr Katkowski QC for Tesco have supported his approach.
Both Lord Brown and Lord Collins have relied on decisions in relation to planning applications in reaching their conclusions, albeit that they have differed as to their effect.
Is the analogy between compulsory purchase and planning permission in the present context a fair one? The analogy between compulsory purchase and planning permission.
I agree with Lord Brown and Lord Collins that it is appropriate in this case to draw an analogy, when considering whether the RHS benefit is a material consideration, with certain decisions relating to the grant of planning permission.
The issue in this case is whether it is legitimate, when considering the benefits that will flow from a development that is the object of compulsory purchase, to have regard to a particular benefit offered by the developer.
The relevant planning cases deal with the question of when it is legitimate, when considering a planning application, to have regard to benefits offered by the developer.
Each case raises the question of what can legitimately be considered when assessing how the public interest is affected by the development of land.
The analogy is obvious.
There is a further point.
Section 226 of the Act was amended by the Planning and Compulsory Purchase Act 2004, which inserted subsection (1A).
In its previous form it included, by section 226(2)(c), a requirement that a local authority, when considering whether land was suitable for development, redevelopment or improvement, should have regard to any other considerations which would be material for the purpose of determining an application for planning permission for development on the land.
While this provision was deleted by the 2004 Act it none the less illustrates the fact that the test of materiality in relation to planning permission can also be relevant in the context of compulsory purchase.
The planning obligation offered by Tesco in the present case is the RHS benefit.
Could that have constituted a material consideration on Tescos application for planning permission, notwithstanding that it had no other connection with the proposed development of the Site?
Considerations that are material to the grant of planning permission
The history of planning permission shows an ambivalence on the part of the legislature, the executive and the judiciary in respect of the extent to which it is legitimate for a local authority to exact planning gain from a developer as a condition of the grant of planning permission.
Lord Hoffmann traced this history in some detail at pp. 771 to 777 of his speech in Tesco Stores Ltd v Secretary of State for the Environment [1995] 1 WLR 759.
I shall attempt a rather shorter summary, at least in relation to the earlier part of the history.
At the beginning of the 20th Century, apart from some public health legislation, there were no planning controls over the use that an individual could make of his own land.
A comprehensive system of planning control over the use of land was first introduced by the Town and Country Planning Act 1947.
Since then there have been a series of legislative changes seeking, inter alia, to balance the private rights of owners of land against the public interest in the control of the environment, culminating with the Planning Act 2008, which allows for a new Community Infrastructure Levy.
A particular problem has been the extent to which it is legitimate to require developers to take responsibility for the off site consequences of their developments.
For present purposes, the most significant provision in force is section 70 of the Town and Country Planning Act 1990.
This provides: 70.
Determination of applications: general considerations. (1) Where an application is made to a local planning authority for planning permission (a) subject to sections 91 and 92, they may grant planning permission, either unconditionally or subject to such conditions as they think fit; or (b) they may refuse planning permission. (2) In dealing with such an application the authority shall have regard to the provisions of the development plan, so far as material to the application, and to any other material considerations.
Some of the relevant authorities deal with the criteria of the material considerations to which subsection (2) requires the local authority to have regard.
Others relate to the scope of the power to impose conditions.
In relation to each of these, the following observations of Lord Denning in Pyx Granite Co Ltd v Ministry of Housing and Local Government [1958] 1 QB 554 at p. 572 are relevant: The principles to be applied are not, I think, in doubt.
Although the planning authorities are given very wide powers to impose such conditions as they think fit, nevertheless the law says that those conditions, to be valid, must fairly and reasonably relate to the permitted development.
The planning authority are not at liberty to use their powers for an ulterior object, however desirable that object may seem to them to be in the public interest.
As Lord Hoffmann observed in Tesco at p. 772 As a general statement, this formulation has never been challenged.
A decision that is particularly relevant in relation to material considerations is R v Westminster City Council, Ex p Monahan [1990] 1 QB 87.
The facts of that case have been set out and analysed by Lord Collins at paras 51 to 59 of his judgment.
In short the Court of Appeal held that it was a material consideration, when considering a composite development, that one part of it, which was undesirable having regard to relevant planning considerations, would provide a necessary cross subsidy for the development of the other part, which was highly desirable.
Lord Collins in his analysis at para 58, identifies the fact that the case concerned composite or related developments as a relevant part of the Court of Appeals reasoning.
At para 70 he identifies the need for such a connection or relationship as being a requirement of law.
Lord Brown, in para 176 of his judgment, disagrees.
He comments that it was expressly recognised that no discernable legal principle would have supported the need for such a connection.
I align myself with Lord Collins analysis.
The passage from the judgment of Nicholls LJ, quoted by Lord Brown and Lord Collins at paras 169 and 56 of their respective judgments, and the passage from the judgment of Staughton LJ quoted by Lord Collins at para 57, demonstrate that each of those judges saw the need for a relationship between the undesirable and the desirable developments other than the simple fact that the one would subsidise the other.
The suggestion by Kerr LJ that the significance of the distance between developments involved considerations of fact and degree rather than of principle does not withstand analysis.
If the distance matters, then the reason why it matters must be a matter of principle.
The relevant principle appears to me to be that a cross subsidy between two developments cannot be considered unless there is some independent reason for considering the two developments together.
Whether that is a rational principle is another matter.
If it is acceptable that an undesirable development should be permitted in order to subsidise a desirable development it is not easy to see why there should be an inflexible requirement that one should be in proximity to, or have some other nexus with, the other.
A close nexus between the subject matter of a planning condition and the development in relation to which it is imposed has been required by the courts.
Lord Hoffmann in Tesco at p. 772 referred to the triple requirement for a valid planning condition laid down by the House of Lords in Newbury District Council v Secretary of State for the Environment [1981] AC 578: i) ii) iii) It must be for a planning purpose and not for any ulterior one; It must fairly and reasonably relate to the permitted development; It must not be Wednesbury unreasonable: [1948] 1 KB 233.
Lord Hoffmann went on to refer to the Shoreham case [1964] 1 WLR 240 as illustrating the very strict way that the courts gave effect to these requirements, so that conditions requiring contribution to the external costs generated by a development were not permitted.
As Lord Hoffmann explained, this gave rise to the introduction of planning agreements, which were replaced in their turn by planning obligations.
Section 106 of the Act provides: Planning Obligations. (1) Any person interested in land in the area of a local planning authority may, by agreement or otherwise, enter into an obligation (referred to in this section and sections 106A and 106B as a planning obligation), enforceable to the extent mentioned in subsection (3) (a) restricting the development or use of the land in any specified way; (b) requiring specified operations or activities to be carried out in, on, under or over the land; (c) requiring the land to be used in any specified way; or (d) requiring a sum or sums to be paid to the authority.
This section is in very general terms and, in particular, no express restriction or qualification is placed on the undertaking to pay money to the authority.
In these circumstances two separate questions arise.
The first is whether, and if so what, implicit restrictions exist as to the nature of planning obligations that can lawfully be incurred.
The second is the extent to which planning obligations that have been undertaken are material considerations to which the authority must have regard under section 70 of the Act.
There are two relevant decisions that relate to the latter question.
The first is R v Plymouth City Council, Ex p Plymouth and South Devon Co operative Society Ltd (1993) 67 P & CR 78.
Lord Brown has set out the facts of this case at para 170 of his judgment.
The issue was whether generous planning obligations (benefits) offered by Tesco and Sainsbury, there as here rival applicants for a development, were material considerations to which the planning authority could have regard, notwithstanding that they went well beyond anything that the authority would have been able properly to require by way of planning conditions as being necessary.
The Court of Appeal applied the Newbury triple requirement, but held that there was no requirement that the benefits should be necessary, albeit that they had, fairly and reasonably, to relate to the development.
As to that requirement, this was satisfied in the case of financial contributions to works off site designed to accommodate demands generated by the development.
In that case Lord Hoffmann remarked at p. 90: Materiality is an entirely different matter, because there is a public interest in not allowing planning permissions to be sold in exchange for benefits which are not planning considerations or do not relate to the proposed development.
He was subsequently in Tesco at p. 778 to say that the parallel between the Newbury triple requirement and the materiality of planning obligations was by no means exact.
This brings me to the Tesco case, which is the most important decision in the context of this appeal.
Once again the material facts have been summarised by Lord Brown and Lord Collins at paras 173 and 63 66 of their respective judgments.
What Tesco established was that the second test in Newbury does not apply to planning obligations.
These, to constitute material considerations, do not have fairly and reasonably to relate to the relevant development.
It is enough if they have a connection to it that is not de minimis.
The requirement for such a connection none the less remains.
Lord Brown has concluded at para 174 of his judgment that this connection is satisfied by an offer to cross subsidise another development that is otherwise unconnected with the development for which planning permission is sought.
He comments that such an offer could not sensibly be regarded as an attempt to buy planning permission, a phrase he takes from the judgment of Lord Keith at p. 770.
Lord Brown differs from Lord Collins, who concludes at para 70 that the authorities, and Tesco in particular, establish that there must be a real connection between benefits undertaken by a planning obligation and the development to which the planning application relates.
Here I align myself once again with Lord Collins.
Lord Browns conclusions are at odds with the passage in Lord Keiths judgment from which he has borrowed a phrase.
The full passage reads: An offered planning obligation which has nothing to do with the proposed development, apart from the fact that it is offered by the developer, will plainly not be a material consideration and could be regarded only as an attempt to buy planning permission (Emphasis mine).
All members of the Committee agreed with the judgment of Lord Keith.
Lord Brown has quoted a passage from the judgment of Lord Hoffmann at p. 779C D in which he says that section 106 does not require that the planning obligation should relate to any particular development, and Lord Keith made a similar observation at p. 769B.
These observations related, however, to the legality, not the materiality, of planning obligations.
My conclusion in relation to the effect of the authorities is as follows.
When considering the merits of an application for planning permission for a development it is material for the planning authority to consider the impact on the community and the environment of every aspect of the development and of any benefits that have some relevance to that impact that is not de minimis that the developer is prepared to provide.
An offer of benefits that have no relation to or connection with the development is not material, for it is no more than an attempt to buy planning permission, which is objectionable in principle.
Tesco was right, on its application for planning permission, to drop any attempt to link the development of the Site with the RHS development.
These principles can properly be applied, by analogy, to a simple case where a local authority is considering whether the public interest justifies the compulsory purchase of land for the purpose of facilitating a development.
The development itself must be justified in the public interest and it would be wrong in principle for the local authority to be influenced by the offer by the chosen developer to provide some collateral benefit that has no connection of any kind with the development in question.
Thus if, in this case, Sainsbury was not a rival seeking to develop the Site but simply an owner who was unwilling to sell his land, it would not be right to treat Tescos offer of the RHS benefit as a consideration that was material to the decision of whether or not to purchase Sainsburys land.
Is the RHS benefit a material consideration in deciding whether to award the development to Sainsbury or Tesco?
The principle that permits a planning authority to have regard to planning gain that has some connection with a proposed development, but not to planning gain that has no such connection, is not entirely rational.
It becomes less rational in a situation where two developers are competing for the grant of planning permission in circumstances where the grant to one or the other is justifiable, but not to both.
That was believed to be the position in Plymouth, although ultimately planning permission was granted to both the rivals, being once again Sainsbury and Tesco.
In Plymouth each of the rivals was anxious to be permitted to build a supermarket.
In competing for planning permission each offered to embellish its development with an array of expensive add ons, described by Lord Brown at para 170 of his judgment.
These no doubt enhanced the attraction of each of the rival schemes from the viewpoint of the public and the local authority.
But the possibility must exist that the cost of these embellishments might have been spent to better advantage in providing alternative planning gain in the local authoritys area that had no connection with the proposed development.
The reality is that the rivals were, to use a description adopted by Lord Hoffmann in Tesco, competing for the development as in an auction.
If an auction is to be permissible there might be something to be said for permitting the local authority to identify, for consideration by the rival bidders, its most urgent planning needs, whether or not connected with the development.
I make this observation only by way of a stepping stone to considering the more complicated issue raised by the facts of this case.
The Councils decision involves the exercise of two statutory powers.
The first is the power of compulsory purchase conferred by section 226 of the Act.
The second is the power to sell the land compulsorily purchased, which is conferred by section 233.
The purposes of the sale of the land described in section 233 differ from the purposes of the purchase described in section 226.
Had the Site been in the ownership of a third party who was unwilling to sell it, and had Tesco and Sainsbury been competing to develop it, the Council would have had two separate decisions to make.
First whether compulsorily to purchase the land.
Secondly to which of the two rivals to sell it for the purpose of the development.
The law that I have analysed suggests that, when making the first decision under section 226, the Council would have been bound to disregard benefits that might be obtainable from either of the developers that were unconnected to the development.
But in choosing to which of the two rivals to sell the land for development under section 233 the Council would have been entitled, and perhaps bound, to negotiate the best deal available.
The terms of section 233 would seem wide enough to have permitted the Council to treat as material Tescos offer to throw into the bargain the RHS benefit.
These conclusions receive some support from Standard Commercial Property Securities Ltd v Glasgow City Council [2006] UKHL 50; 2007 SC (HL) 33.
Lord Collins has set out some of the complicated facts of this case at para 40 of his judgment.
That case had these features in common with the present.
Glasgow City Council wished to develop a run down area of the city, parts of which were owned by rival developers.
The Council had decided compulsorily to purchase the entire Site and to sell it on back to back terms to one of the rival developers.
The other developer challenged the deal on the basis that back to back terms did not represent the best deal.
This the Council were bound to achieve under section 191 of the Scottish Act, which closely resembles section 233 of the Act.
Lord Collins rightly remarks that there was in that case no offer of benefits unconnected to the development, but I do not think that this robs it of all relevance.
Of significance is that in that case, as in this, the council first decided in principle that the facts justified the use of its powers of compulsory purchase, before turning to choose between the rival developers.
It is also significant that the House of Lords held that, at the stage of choosing the developer, the Council was not simply concerned with achieving the object of the compulsory purchase, but was also entitled to have regard to purely commercial considerations.
Lord Hope described the position as follows at para 34: section 191 seeks to do two things.
On the one hand it seeks to regulate those aspects of the transaction which are intended to secure the purposes set out in subsection (2).
These purposes are to secure the best use of the land and the proper planning of the area.
On the other it seeks in addition to protect the public purse in the manner indicated by subsection (3).
These are separate and distinct requirements, although they must both be read in the light of what section 191 seeks to achieve.
The prohibition in subsection (3) directs attention to one issue, and to one issue only.
This is the commercial implications of the transaction for the planning authority.
It is to the best commercial terms for the disposal of the land, not to what is best designed to achieve the overall planning purpose, that the authority must direct its attention at this stage.
But the words best terms permit disposal for a consideration which is not the best price.
So terms that will produce planning benefits and gains of value to the authority can be taken into account as well as terms resulting in cash benefits.
I can summarise the position as follows. (1) In deciding whether to exercise its powers of compulsory purchase for the purpose of development the Council is not permitted to have regard to unconnected benefit that it may derive from the carrying out of the development, but: (2) in deciding who shall carry out the development and, thus, to whom the land will be sold for that purpose, the Council is entitled, and perhaps bound, to have regard to unconnected benefit offered by the developer.
The problem is how to have regard to these principles in a case such as the present where the rival developers each owns part of the Site needed for the development.
I have concluded that the proper approach should be as follows.
The Council should first decide, in the case of each of the rivals, whether compulsory purchase of his land would be approved to enable the development to proceed, disregarding any unconnected benefit that might accrue and on the premise that he was simply an unwilling seller rather than a rival developer.
In the result of an affirmative answer being given in each case, the Council should then decide which developer to prefer having regard to all considerations material to that choice, including the amount of the Site already owned by each developer and any benefits offered by either developer, whether or not connected to the development.
The fact that this may, in effect, involve an auction between the two developers for the benefit of the community does not seem to me to be inherently objectionable.
In the present case this is what the Council did.
The Council was not influenced by the RHS benefit when deciding in principle to use its power of compulsory purchase.
In deciding to purchase whatever land was necessary for the development of the Site the Council had regard only to the proper objects of compulsory purchase.
The choice of developers necessarily also determined which land would be compulsorily purchased, but the decision had already been taken to purchase whatever land would be necessary having regard to the choice of developer.
To summarise, the RHS benefit was not a consideration that was material to the decision to use the power of compulsory purchase, but it was very material to the decision which developer to select, and this in its turn determined whose land was to be compulsorily purchased.
In these circumstances I have reached the conclusion that the RHS benefit was a consideration that was material to the decision that determined simultaneously the developer and the land to be purchased.
It cannot be said that the decision compulsorily to purchase Sainsburys land was influenced by a consideration that was not material.
The decision that I have reached at laborious length was felicitously stated by Elias J in a single paragraph and I propose to conclude my judgment by quoting this: In my judgment when deciding which development should receive their support, the Council could have regard to all the benefits accruing from the proposed development, including any off site benefits achieved by way of a section 106 agreement.
It seems to me that there are really two stages in the process.
First, can a CPO lawfully be made in favour of a particular development? That must be determined by focusing solely on the benefits flowing from the development itself and the RHS benefits could not be taken into account at that stage.
Second, if the power can lawfully be exercised, but there is more than one potential party in whose favour it could be exercised, to which development should the Council lend its support? At that stage I can see no reason why the Council should not have regard to its wider interests.
It has established that there is in principle a proper basis in law for interfering with the rights of either of two (or more) owners of land on the site by compulsorily purchasing their interests; I see no reason why it should not select which landowner should be so affected by considering the overall benefits to the Council which the respective developments would provide.
The reality in this case is that the real issue is which developer should be preferred by the Council, which is in the position of being able to choose between the two.
The fact that the compulsory purchase of land owned by one or the other is involved is really peripheral.
Each purchased its land in the hope of being able to use it for the purpose of the development.
Each shares the intention that its land should be used for the development.
In resisting the compulsory purchase of its land each is motivated by commercial rivalry, not by any objection to the land being used for the proposed development.
It would be unfortunate if the rigid application by analogy or principles of planning law were to rob the local community of the additional benefit of the redevelopment of the RHS.
I have not found it necessary to reach such a result.
For these reasons I would dismiss this appeal.
LORD HOPE
Reduced to its essentials, this case is about two decisions that the Council took to facilitate the development at Raglan Street.
The first was whether they should exercise their powers of compulsory acquisition to enable the development.
The second was as to the choice of developer.
The first decision was taken in the exercise of the powers conferred on the Council by section 226 of the Town and Country Planning Act 1990, as amended.
The second, as Lord Phillips has said (see para 140, above), was about the exercise of two statutory powers.
I put it in this way, as I think Lord Phillips does too, simply to indicate the context in which each of these powers was being exercised.
The cart and the horse if I may adopt Lady Hales analogy (see para 91) go together, like a horse and carriage, at this stage of the exercise.
The site was not in the sole ownership, or under the sole control, of either developer.
They were in competition with each other for its development, so the exercise of compulsory powers to acquire the interest in the land vested in one or other of them was inevitable.
Just as inevitable is the fact that the purpose of the exercise of those powers was to enable the Council to dispose of the interest that was to be acquired to the preferred developer.
Section 226 is concerned with the acquisition of the interest in the land, not its disposal.
The power to dispose of land that has been acquired or appropriated is set out in section 233 of the 1990 Act.
The compulsory acquisition of land can only be permitted if it is within the powers of the statute.
Great care must be taken to see that those powers are not resorted to unless the statute permits this and that the acquisition is necessary for the purpose that the statute contemplates.
The issue on this part of the case is whether the Council were entitled to take into account, in discharging their duty under section 226(1A) to consider the well being benefits for the area, Tescos commitment to secure by way of cross subsidy the development of the Royal Hospital site.
For the reasons that Lord Phillips and Lord Collins give, I would hold that they were not entitled to do so.
Section 226(1)(a) provides that the authority have power to acquire land compulsorily if they think that it will facilitate the carrying out of development, re development or improvement on or in relation to the land.
The reference to the land in this paragraph is to the land which is to be the subject of the compulsory purchase order.
Section 226(1A) places a limitation on the exercise of the power under section 226(1)(a).
These two provisions must be read together.
The contribution by the development, re development or improvement that section 226(1A) refers to must be on the land that the authority is proposing to acquire compulsorily.
The situation in this case is that there was no physical connection of any kind between the two sites.
Development of the Royal Hospital site could not contribute anything to the carrying out of development on the Raglan Street site in any real sense at all.
They were not part of the same land.
There is no doubt that the development of the Royal Hospital site would bring well being benefits to the Councils area of the kind that section 226(1A) refers to.
But to fall within that subsection they had to be benefits that flowed from the Raglan Street development, not anywhere else.
It follows that the Council were not entitled to conclude that the work which Tesco were willing to undertake on the Royal Hospital site would contribute to the well being of the area resulting from its development of the site at Raglan Street for the purposes of section 226(1A).
At first sight that might seem to be the end of the case.
The report which was presented to the Councils Cabinet on 30 January 2008 stated that the Tesco and Sainsburys schemes for the Raglan Street site would both fulfil the purpose referred to in section 226(1)(a).
Addressing itself to the choice that had to be made between the two schemes, it went on to describe the circumstances relating to the development of the Royal Hospital site by Tesco and to refer to the decisive advantage which Tesco enjoyed over Sainsburys if the development of that site was taken into account.
It concluded by recommending that there was a compelling case in the public interest to make a compulsory purchase order to enable the Tesco scheme to go ahead.
As regards the exercise of the power to acquire the land compulsorily, if looked at in isolation, this was to stray into forbidden territory.
In my opinion however it would be unrealistic to stop there.
The legality of the use of compulsory powers to enable the Raglan Street development to proceed has not been called into question.
As the report said, both schemes satisfied the requirements of section 226(1)(a), and it has never been doubted that the carrying out of either of them on that site would contribute to the achievement of the well being of the area.
If the land had been in the ownership of a third party, there would have been no need to say more.
The reason why the report went further was the Council had to make a choice between the two developers.
Although the report did not say so in terms, it is plain that the assumption on which it was proceeding was that, having acquired the land, the Council would dispose of it to the preferred developer.
The surrounding circumstances show that it was never the Councils intention to develop the land themselves or to retain it in their ownership.
This part of the report was as much concerned with the exercise of the power to dispose of the land as with the exercise of the power to acquire it.
The power of disposal under section 233 confers a wide discretion on the local authority.
They may dispose of the land to such person, in such manner and subject to such conditions as appear to them to be expedient to secure the best use of that or other land or the proper planning of their area.
Like section 191 of the Town and Country Planning (Scotland) Act 1997 which is in very similar terms, that is its primary objective: see Standard Commercial Property Securities Ltd v Glasgow City Council 2007 SC (HL) 33, para 32.
It was held in that case that the council, when considering whether to use compulsory powers in conjunction with a sale of the land under a back to back agreement to the preferred developer, were entitled to have regard to the wider benefits that were expected to flow from the contribution that the preferred developer would make to the redevelopment, the proposals for which were to contain a strong element of planning gain.
There was to be a requirement to include improvements to other areas of the urban block within which the site to be acquired compulsorily was situated: see paras 38, 39.
The value of the planning gain was something that the council was entitled to take into account in its assessment of whether the disposal was achieved on the best commercial terms.
The focus in that case was on the terms on which the council proposed to make the assembled site available to the preferred developer.
Its facts differ from those in the present case, so I am not to be taken as suggesting that it provides direct authority for the view which I take here.
But it does illustrate the extent of the power of disposal that is conferred by this section on the local authority, and it shows how the authority may legitimately have regard to the way the land will be disposed of before it decides to acquire it compulsorily: taking them both together, like the horse and carriage to which I referred earlier.
The council decided to use its compulsory powers to purchase the site with a view to its disposal by means of a back to back agreement to achieve the development.
The site was part of an urban block within which properties owned by the first petitioners and the second respondents were situated.
Each had their own interests and their own agendas which were in competition with each other and, as in this case, their proposals had to be evaluated.
The preferred developer was expected to achieve a scheme that would enhance the wider area within which the site itself was situated.
Regard was to be had to benefits which it would provide that were extraneous to the site itself, and extraneous too to each of the properties that were to be acquired compulsorily.
Among other things, it was to commit itself to supporting an order for regulating traffic on adjacent streets and to provide details of a financial commitment to the areas environmental enhancement.
The whole thing was seen as a single package.
The acquisition of the properties and their disposal to a developer who would achieve these benefits were each part of the same exercise: for a more complete account of the facts, see 2005 SLT 144, paras 1 16.
I would take from that case the proposition that it is legitimate for the acquiring and disposing authority which has to choose between competing proposals for development to have regard to planning benefits that lie outside the perimeter of the site itself.
It has not been suggested that it would have been an improper use of the section 233 power for the Council to take account of Tescos commitment to develop the Royal Hospital site in the assessment as to whether a disposal of the land to Tesco was preferable to disposing of it to Sainsburys.
I can see no reason why that should be so if the land was already in the Councils ownership and they were faced with a competition between two or more developers who had no interest in the land at all.
It was not possible in this case for the Council to take these two decisions separately, each without reference to the other.
The choice as to whose land to acquire was inevitably linked to the choice of the developer to whom the land was to be disposed of when it was acquired.
Section 226 does not concern itself with choices of that kind.
To say that it prohibits them would be to read a limitation into the section which is not there.
It would unduly inhibit the exercise of the power of compulsory acquisition in a case such as this, where a site that is in need of development is in divided ownership, the owners are in competition with each other for its development and there are sound planning reasons beyond those that section 226(1A) refers to for regarding the proposal of one developer as preferable to that of the other.
I would not regard the opportunity that this particular situation gives for achieving planning gain in the wider public interest as transgressing the rule that the power of compulsory purchase can only be used for the purpose for which the power has been conferred.
The contrary view risks making it impossible for projects for urban renewal which can only be achieved by using compulsory powers to assemble the site for redevelopment to include measures for improvements in the public interest which lie outside the sites perimeter.
As Lord Phillips says (see para 147), it would be unfortunate if a rigid application of the compulsory purchase principles to proposals of that kind were to rob the community of such benefits.
For these reasons, and those of Lord Phillips with which I agree and in respectful agreement too with what Elias J said at first instance [2009] EWHC 134 (Admin), para 38, I would dismiss the appeal.
LORD BROWN
Are a local planning authority, when deciding how to exercise their compulsory purchase powers, precluded in all circumstances, as a matter of law, from taking into account public planning benefits (however substantial and obvious) which would result, not directly from the development to be facilitated by the proposed land acquisition, but rather from a contractual obligation attaching to that development? That, crucially, is the issue arising on this appeal.
Take the facts of this very case, already fully recounted in the judgment of Lord Collins, but which may conveniently and sufficiently be summarised as follows.
Two rival supermarket chains, Sainsburys and Tesco, each own part of a site which is ripe for development (the Site).
Each wishes to develop the Site as a supermarket and each has (or is about to obtain) planning permission for such development.
There is really nothing to choose between their respective proposals.
Neither is willing to sell its share of the Site to the other.
In these circumstances it is agreed by all that the local planning authority (Wolverhampton) must inevitably exercise their compulsory purchase powers under section 226 of the Town and Country Planning Act 1990 (as amended) (the 1990 Act).
The question then becomes: who should be chosen to carry out the development of the Site and whose land, therefore, should be compulsorily acquired for the purpose? Should Sainsburys land be acquired so that Tesco may develop the Site or vice versa? The issue more particularly arising is whether, in deciding to choose Tesco as the developer, Wolverhampton acted unlawfully in taking into account Tescos commitment, if chosen, to redevelop the Royal Hospital site, another site in Wolverhamptons area some half a mile away (the RHS), redevelopment which Wolverhampton are anxious to promote but which Tesco would not be prepared to undertake save by way of cross subsidy?
It so happens that one of the two rival chains (Sainsburys) owns 86% of the site, the other (Tesco) 14%.
But it is not suggested that this disparity between their respective interests affects the question of law at issue.
The same question would arise even if each owned exactly half the site.
Plainly the disparity is itself a material consideration and one, indeed, which ultimately could prove decisive in Sainsburys favour.
For present purposes, however, as Mr Lockhart Mummery QC for Sainsburys expressly acknowledged, it can be ignored.
Section 226 of the 1990 Act provides so far as material: 226(1) A local authority to whom this section applies shall, on being authorised to do so by the Secretary of State, have power to acquire compulsorily any land in their area (a) if the authority think that the acquisition will facilitate the carrying out of development, redevelopment or improvement on or in relation to the land; . (1A) But a local authority must not exercise the power under paragraph (a) of subsection (1) unless they think that the development, re development or improvement is likely to contribute to the achievement of any one or more of the following objects (a) being of their area; (b) of their area; (c) well being of their area. the promotion or improvement of the social well being the promotion or improvement of the environmental the promotion or improvement of the economic well
For present purposes the effect of those provisions in combination can be summarised quite simply as follows: A local authority can (subject to confirmation by the Secretary of State) compulsorily acquire land if they think, first, that this will facilitate its development (section 226 (1)(a)) and, secondly, that this development is likely to contribute to the economic and/or social and/or environmental well being of their area (section 226(1A)).
In the present case it seems to me self evident that both of these pre conditions are fully satisfied in respect of each proposed development scheme so that Wolverhampton have a discretion to make whichever CPO they regard to be appropriate, whether of Sainsburys land or of Tescos land.
The question, I repeat, is whether, in choosing whose land to acquire, Wolverhampton can take into account the additional benefit to their area which would result from Tescos commitment, if they are enabled to develop the Site, also to develop the RHS.
It was the Court of Appeals conclusion below that Wolverhampton were indeed legally entitled to take account of the proposed cross subsidy which would enable (and commit) Tesco to redevelop the RHS and that this entitlement arose directly under section 226(1A).
This subsection, the Court of Appeal held (para 33), imposes on local planning authorities an express obligation to have regard to such off site, or external benefits.
Elias J at first instance had held to the contrary (para 35) that, to fall within section 226(1A), well being benefits had to be generated by the development of the Site itself, not by some contractually linked external development.
In the only reasoned judgment in the Court of Appeal, Sullivan LJ (at paras 42 and 44) agreed with Elias J that, to fall within section 226(1A) the benefit in question must flow from the re development of [the Site]. However . [t]he likelihood of the re development of a CPO site leading, whether because of cross subsidy or for any other reason, to the development or re development of other sites in the authoritys area is precisely the kind of wider benefit that subsection (1A) requires the authority to consider. [Section 226 (1A)] ensures that wider well being benefits are not ignored, but are always treated as material considerations .
I have to say that on this particular issue, in common with the majority of this Court, I prefer Elias Js view to that of the Court of Appeal.
That, however, does not seem to me the real issue in the case.
Section 226(1A), I repeat, does no more than specify a precondition (additional to that in section 226(1)(a)) which has to be satisfied before any power of compulsory acquisition can be exercised.
No one doubts that it was satisfied here.
Wolverhampton accordingly had a discretion under the section.
The critical question then arising is whether the further public benefit which Tesco was offering was or was not a material consideration which Wolverhampton could take into account when deciding how to exercise that discretion.
Elias J held that it was.
The Court of Appeal, having concluded (wrongly as I believe) that this further benefit had to be regarded as material by virtue of section 226(1A), chose not to deal with the question whether the benefit would in any event have been a material consideration, section 226(1A) apart.
As to this Sullivan LJ merely observed that section 226(1A) does not purport to cut down the considerations that are capable of being material under subsection 226(1)(a).
And that at least must be right: to stipulate, as section 226(1A) does, that the authority must not exercise their compulsory purchase powers unless they think that the development itself is likely to contribute to the well being of their area (whether because it will act as a catalyst for other development or provide employment or stimulate other beneficial activity in the area or whatever else) is by no means to stipulate that, the condition being satisfied, this exhausts all the considerations to which the authority can have regard and they must shut their mind to all other possible external benefits which the exercise of their compulsory purchase powers would bring.
In addressing the question whether such external benefits are capable of being material considerations in the exercise of compulsory purchase powers under section 226(1)(a), it seems to me helpful to begin by examining what the position would be in the broadly analogous situation of a planning authority considering rival applications for planning permission.
Suppose that the competition between the rival supermarket chains was not, as here, as to which should be preferred as developers of a single site by reference to the exercise of the authoritys powers of compulsory purchase, but rather as to which should be granted planning permission assuming that each owned a suitable site but there was room in the area only for one supermarket the very situation which arose in Tesco Stores Ltd v Secretary of State for the Environment [1995] 1 WLR 759 (between, as it happens, the same competing developers as here).
Would an offer such as that made here by Tesco to develop the RHS (probably by way of a planning obligation under section 106 of the 1990 Act) be a material consideration within the meaning of section 70(2) of the 1990 Act? If it would, then it is difficult to see why it should not be material also for section 226 (1)(a) purposes.
If, on the other hand, it would not, then the Court would need to be persuaded that wider financial benefits are to be regarded as material considerations when exercising compulsory purchase powers than when determining planning applications.
Before going to the House of Lords decision in Tesco itself it is instructive to take note of two earlier Court of Appeal authorities R v Westminster City Council ex parte Monahan [1990] 1 QB 87 (Monahan) and R v Plymouth City Council ex parte Plymouth and South Devon Cooperative Society Ltd (1993) 67 P & CR 78 (Plymouth) the essential backdrop to the speeches in Tesco.
Lord Collins having dealt with these at some length, I content myself with the briefest summary of each.
Monahan was the Royal Opera House case in which the planning authority were held entitled to have granted permission for an office development notwithstanding that it involved a major departure from the development plan because that would cross subsidise the refurbishment of the listed opera house.
Nicholls LJ recorded (p.121) that counsel for the planning authority (Mr Sullivan QC) frankly accepted that he could discern no legal principle which distinguished between (a) what happens within one building, (b) what happens on two adjoining sites and (c) what happens on two sites which are miles away from each other but continued: All that need be said to decide this appeal is that the sites of the commercial development approved in principle are sufficiently close to the opera house for it to have been proper for the local planning authority to treat the proposed development of the office sites . and the proposed improvements to the Opera House as forming part of one composite development project.
As such it was open to the planning authority to balance the pros and cons of the various features of the scheme.
As to what the position would have been had the proposed office block been in Victoria, Kerr LJ similarly suggested that all such cases would . involve considerations of fact and degree rather than of principle.
Plymouth (like Tesco which followed it) involved competitive planning applications by Sainsburys and Tesco, the Councils original intention having been to allow one store only to be built.
Each company was therefore invited to say why it should be preferred and both were told that the Council would take into account any community benefits offered (provided they were justifiable in land use planning terms the Councils published policy).
Sainsburys offer included the construction of a tourist information centre on the site, an art gallery display facility, a work of art in the car park, a bird watching hide overlooking the river, an 800,000 contribution to the establishment of a park and ride facility in the neighbourhood, and up to 1 million for infrastructure works to make a different site suitable for industrial use.
Tesco offered financial contribution to a crche, a wildlife habitat, a water sculpture, and in addition it offered to sell the Council a site for a park and ride facility.
Both offers were by way of section 106 agreements.
In the event, both applications were granted, doubtless to the satisfaction of Sainsburys and Tesco but not that of the Co operative Society who promptly challenged both planning permissions on the ground that the Council had taken into account immaterial considerations.
The Co operative Society argued that not merely must a community benefit offered under a section 106 agreement satisfy the three tests laid down by the House of Lords in Newbury District Council v Secretary of State for the Environment [1981] AC 578 (following Pyx Granite Co Ltd v Ministry of Housing and Local Government [1958] 1 QB 554) by which the legality of a section 70 condition is to be judged namely (i) that it has a planning purpose, (ii) that it fairly and reasonably relates to the permitted development and (iii) that it is not Wednesbury unreasonable but it must also be necessary in the sense of overcoming what would otherwise have been a planning objection to the development.
In the leading judgment rejecting this argument and stating that the only question is whether [the section 106 agreement] fairly and reasonably related to the development, Hoffmann LJ said (90) that the only benefits which gave pause for thought were the two substantial sums offered by Sainsburys as a contribution to work to be done away from the site.
The park and ride facility, however, would tend to reduce both traffic heading for the store and use of Sainsburys own car park by people not actually shopping there.
As for the 1 million offer, this was not simply to pay the council 1 million.
It was to contribute up to 1 million to the actual cost of infrastructure works undertaken by the council within a period of two years at a specific site. (91).
As we shall shortly see, the supposed requirement that section 106 offers, like imposed section 70 conditions, have to fairly and reasonably relate to the permitted development (a requirement held satisfied in Plymouth) did not survive the decision of the House of Lords in Tesco to which I now come.
Tesco (like Plymouth at the initial stage) concerned rival applications by Sainsburys and Tesco to develop their respective sites (Sainsburys in conjunction with Tarmac), there being room in Witney for one store only.
Notwithstanding that Tescos application included an offer of 6.6 million to fund in its entirety a new link road, the Secretary of State (who had to decide which of the two proposals to allow) chose to grant Sainsburys application.
Tesco appealed on the ground that the Secretary of State had failed to take account of a material consideration, namely their 6.6 million offer.
Albeit the appeal failed, it did so not on the basis that the offer was an immaterial consideration but rather because, although material, the Secretary of State had been entitled to give it little or no weight and to prefer Sainsburys proposal because the Secretary of State thought its site marginally more suitable (Lord Hoffmann, 783).
The following features of Tesco seem to me of particular importance: (1) The 6.6 million offer was held to be a material consideration notwithstanding that the Secretary of State shared his inspectors view that the relationship between the proposed new development and the funding of the link road was tenuous (the development being likely to result only in slight worsening of traffic conditions). (2) The only reasoned speeches were given by Lord Keith of Kinkel (with whom the other members of Committee agreed) and Lord Hoffmann.
Both of them recognised that, contrary to the Court of Appeals assumption in Plymouth, the second Newbury test has no application to section 106 agreements.
As Lord Hoffmann observed (779C D): [S]ection 70(2) does not apply to planning obligations.
The vires of planning obligations depends entirely upon the terms of section 106.
This does not require that the planning obligation should relate to any particular development.
As the Court of Appeal held in Good v Epping Forest District Council [1994] 1 WLR 376, the only tests for the validity of a planning obligation outside the express terms of section 106 are that it must be for a planning purpose and not Wednesbury unreasonable.
Nevertheless, for a planning obligation to be a material consideration which can legitimately be taken into account in granting planning permission, it has to have some connection with the proposed development which is not de minimis (Lord Keith, 770B); it cannot be quite unconnected with the proposed development (Lord Hoffmann, 782D). (3) Were it otherwise, said Lord Keith (770A), it could be regarded only as an attempt to buy planning permission.
Lord Hoffmann put it rather differently (782D E).
The metaphor of bargain and sale, he suggested, although vivid: is an uncertain guide to the legality of a grant or refusal of planning permission.
It is easy enough to apply in a clear case in which the planning authority has demanded or taken account of benefits which are quite unconnected with the proposed development.
But in such a case the phrase merely adds colour to the statutory duty to have regard only to material considerations.
In cases in which there is a sufficient connection, the application of the metaphor or its relevance to the legality of the planning decision may be highly debatable.
I have already explained how in a case of competition such as the Plymouth case, in which it is contemplated that the grant of permission to one developer will be a reason for refusing it to another, it may be perfectly rational to choose the proposal which offers the greatest public benefit in terms of both the development itself and related external benefits.
In Tesco itself, Lord Hoffmann then observed (782G H), the Secretary of State had in substance accepted the argument that Tescos offer to pay for the whole road was wholly disproportionate and it would be quite unfair if [Sainsburys] was disadvantaged because it was unwilling to match this offer.
That, said Lord Hoffmann, is obviously defensible on the ground that although it may not maximise the benefit for Witney, it does produce fairness between developers.
However, Lord Hoffmann continued (783A C), so too was Tescos argument (that only if they offered the whole cost of the link road would it be constructed) a perfectly respectable one.
Importantly, he then said this: [T]he choice between a policy which emphasises the presumption in favour of development and fairness between developers, such as guided the Secretary of State in this case, and a policy of attempting to obtain the maximum legitimate public benefit, which was pursued by the local planning authority in the Plymouth case, lies within the area of discretion which Parliament has entrusted to planning authorities.
It is not a choice which should be imposed upon them by the courts. (4) (5) Lord Hoffmann had earlier (780F G) emphasised the distinction to be made between materiality and weight: The law has always made a clear distinction between the question of whether something is a material consideration and the weight which it should be given.
The former is a question of law and the latter is a question of planning judgment, which is entirely a matter for the planning authority.
Provided that the planning authority has regard to all material considerations, it is at liberty (provided that it does not lapse into Wednesbury irrationality) to give them whatever weight the planning authority thinks fit or no weight at all.
The fact that the law regards something as a material consideration therefore involves no view about the part, if any, which it should play in the decision making process.
Let me in the light of those authorities return to the question I posed at para 168: would an offer such as Tesco made to Wolverhampton, had it been made in a planning context have been, as a matter of law, a material consideration? To my mind the correct answer to that question should be yes, although plainly the weight (if any) to be given to it would be entirely for the planning authority.
And the reason the answer should be yes is quite simply because such an offer could not sensibly have been regarded as an attempt to buy planning permission (Lord Keith); on the contrary, it would in my view have had a sufficient connection with the proposed development (Lord Hoffmann), not de minimis (Lord Keith).
The proposition that planning consent cannot be bought or sold, although stated nearly a quarter of a century ago to be axiomatic (by Lloyd LJ in City of Bradford Metropolitan Council v Secretary of State for the Environment (1987) 53 P & CR 55, 64), needs to be understood for what it is, essentially a prohibition against the grant of a planning permission for what would otherwise be unacceptable development induced by the offer of some entirely unrelated benefit.
What it is not is a prohibition against, for example, the grant of permission for a development which is contrary to local planning policy on the basis that it needs to be economically viable to ensure that the site does not remain derelict see Sosmo Trust Ltd v Secretary of State for the Environment [1983] JPL 806, where, indeed, Woolf J held that no Secretary of State could reasonably have regarded the economic factor in that case as irrelevant.
Nor, of course, did the principle prevent office development being permitted in Monahan essentially because the proposed refurbishment of the Opera House was financially dependant upon it.
Monahan, it must be noted, is not authority for the proposition that, but for the development there forming part of one composite development project, the office building would not have been permitted.
As was expressly recognised, no discernible legal principle would have supported such a view.
In any event Monahan is not binding on this Court.
That aside, Tesco later established that offers such as that in Monahan to refurbish the Opera House do not have to fairly and reasonably relate to the permitted development (as at the time of Monahan would have been supposed).
Had Tesco in the present case offered (uneconomically) to redevelop the RHS to the benefit of the public in consideration of some planning advantage elsewhere in Wolverhamptons area, it is difficult to see why Wolverhampton would have been legally obliged to refuse.
Still less does the principle prevent rival developers, in competitive situations such as arose in Plymouth and Tesco, seeking to outbid each other as to the external benefits their proposals would bring with them as both those cases amply demonstrate.
It is surely one thing to say that you cannot buy a planning permission (itself, as I have sought to show, only in a narrow sense an absolute principle); quite another to say that in deciding as between two competing developers, each of whose proposals is entirely acceptable on planning grounds, you must completely ignore other planning benefits on offer in your area.
Let it be assumed, however, contrary to my view but as I understand every other member of this Court to have concluded, that, had the present issue arisen in the context of rival applications for planning permission, Tescos offered redevelopment of the RHS would have had to be characterised as a wholly unconnected planning benefit and so not a material consideration under section 70.
That majority view, as Lord Phillips himself points out at paragraph 139, is not entirely rational even in a non competitive planning context; less rational still where two developers are competing for the grant of planning permission in circumstances where the grant to one or the other is justifiable, but not to both.
Is that approach nonetheless to apply equally in the present context or, as I contemplated at paragraph 168, is the position that wider financial benefits are to be regarded as material considerations when exercising compulsory purchase powers than when determining planning applications?
The Court of Appeal thought that the case for regarding Tescos RHS offer as a material consideration was stronger in the CPO context than had it been made in a planning context.
They thought this, first, because of the wide (to my mind over wide) construction they put upon section 226(1A) itself (para 33); secondly, because they regarded financial viability as yet more important in the CPO context than in the planning context (paras 34 40); and, thirdly, because, whereas planning authorities (subject only to the Secretary of States call in powers) are free to grant any planning permissions they wish, CPOs must be confirmed by the Secretary of State (who can therefore prevent any misuse of the local authoritys compulsory acquisition powers) (para 41).
Whilst I have difficulty with that reasoning, I nevertheless agree with Lord Phillips and Lord Hope that, even assuming that Tescos RHS offer would not have been a material consideration had Wolverhampton been determining a planning application, it was nonetheless material in the context of the decisions the Council were in fact required to take here.
These were, first, whether Wolverhampton should compulsorily acquire land to facilitate the development of the Site (for which both rival developers had the requisite planning permission) and, if so, second, whose land should be acquired should it be Tescos land to enable Sainsburys to develop the Site or vice versa (ie who should be the preferred developer)?
I understand all of us to agree that Wolverhampton were amply entitled to exercise their section 226 power of compulsory acquisition here: as I noted at paras 164 and 165 above, self evidently both the section 226(1)(a) and the section 226(1A) conditions were satisfied and the development of the Site was only going to take place if Wolverhampton did indeed exercise this power.
As Lord Hope observes, however, this power could not be exercised until Wolverhampton had also decided the second question before them: which of the two developers to choose.
There seems to me no basis in authority or reason for holding that in reaching this second decision Wolverhampton were required to ignore the off site benefit (unconnected though I am now assuming it to be) on offer from Tesco.
I would on the contrary hold it to be a material consideration for the purposes of deciding which of the rival developers to prefer and whose land, therefore, should be the subject of compulsory purchase under section 226.
That is precisely what was held at first instance here and I can but echo Lord Phillips plaudits for the passage in Elias Js judgment which he quotes in full at paragraph 146.
It is essentially on this basis, rather than by reference to Wolverhamptons power of disposal of acquired land under section 233, that for my part I would hold Tescos offer to have been a material consideration (even assuming that it would not have been so in the planning context).
I think it difficult for Tesco to invoke section 233 here.
True, section 233 would to my mind plainly entitle a planning authority to have regard to an off site benefit such as Tesco offered here in deciding how to exercise their section 233 power. (Although, as Lady Hale and Lord Mance point out, no wholly extraneous benefits were offered or considered in Standard Commercial Property Securities Ltd v Glasgow City Council [2007] SC (HL) 33, it is surely implicit in that decision and, indeed, in the respective legislative requirements in both England and Scotland in effect to get what I called there (para 68) the best overall deal available that, by the same token as a cash bidding match would have been possible, so too would have been an offer of other benefits, however extraneous.
Why ever not? I do not regard this as inconsistent with what I said at paragraph 75 of my judgment in Standard Commercial quoted by Lord Walker at para 85: my quarrel there was with the disappointed developers submission that the planning authority should itself have initiated a bidding war.
It is quite another thing to say that they are precluded by law from accepting offers of money or other extraneous benefits when they come to dispose of a compulsorily acquired development site.)
My difficulty with section 233, however, is, as Lady Hale points out, that it puts the cart before the horse.
Unless and until the Secretary of State confirms a section 226 compulsory purchase order, the local authority has no land to dispose of.
I do not see the Council here, therefore, as entitled to have regard to their section 233 powers when exercising their section 226 powers.
I would be concerned also that on this approach the Council might be statutorily obliged to accept Tescos offer in order to obtain the best overall deal available instead of merely being required to regard it as a material consideration, it being a matter for the Council (and, in subsequent confirmation proceedings, the Secretary of State) to give it such weight, if any, as they thought right. (Indeed, as I observed earlier (at para 162), it might be that the Secretary of State, unlike Wolverhampton, will regard Sainsburys substantial larger interest in the site as the determining factor here rather as the Secretary of State in the Tesco case, thought it only fair to Sainsburys to give no weight to Tescos wholly disproportionate 6.6m offer to fund the link road (see para 173(4) above).
That, however, in this case as in that, would be entirely a matter for the planning authorities, not for this Court.)
All that said, I do not regard section 233 as central to either Lord Phillips or Lord Hopes reasoning in this case.
Still less did it colour Elias Js approach; indeed, section 233 finds no mention whatever in his judgment.
Really what it all comes to is this.
It is irrational and unsatisfactory that (in the view of the majority) Tescos offer here would have had to be ignored in a competitive planning context.
It is quite unnecessary and (as Lord Phillips and Lord Hope observe) would be unfortunate if this irrationality were carried over into the compulsory purchase context within which the present issue arises.
In the result I would answer the question I posed in paragraph 160: no, not even if the benefits are wholly unconnected with the proposed development, and dismiss this appeal.
As indicated, I would do so essentially for the reasons given by Elias J at first instance rather than those given by the Court of Appeal.
| UK-Abs | The Town and Country Planning Act 1990 gives a power to local authorities to acquire compulsorily any land in their area if the authority thinks that the acquisition will facilitate the carrying out of development on the land and if it thinks that the development is likely to contribute to the well being of the overall area for which it is responsible.
This appeal concerned the proper approach to the exercise of that power in relation to land known as the Raglan Street site which lies immediately to the west of, and just outside, the Wolverhampton Ring Road.
Sainsburys Supermarkets Ltd (Sainsburys) owns or controls 86% of this site.
Tesco Stores Ltd (Tesco) controls most of the remainder.
Sainsburys and Tesco each wished to develop on the land and it was decided to grant outline planning permission to each of them for that purpose.
It was clear that, unless the local authority used its compulsory purchase powers in respect of the site, neither of the proposed developments could take place.
So Sainsburys and Tesco each sought to persuade the local authority that the power should be exercised in its favour.
Tesco controls a site in Wolverhampton City Centre called the Royal Hospital site (RHS).
The RHS is in poor condition, and for many years it has been an objective of the local authority to secure the regeneration of the site.
Tesco considered that it was not financially viable for it to develop the RHS without subsidy from elsewhere.
But in seeking to persuade the local authority that it should exercise the compulsory purchase power in its favour in respect of the Raglan Street site, Tesco promised the local authority (by means of a contractual planning obligation) that it would regenerate the RHS.
Tesco explained that promise on the basis that its development at Raglan Street would represent a subsidy at least equal to the loss it would sustain in carrying out the RHS development.
The local authority decided that it would make a compulsory purchase order in respect of the part of the Raglan Street site owned by Sainsburys in order to facilitate Tescos proposal.
In so doing, it took into account and indeed regarded as decisive in Tescos favour that Tesco had promised to regenerate the RHS.
The issue in this appeal was whether it was lawful for the local authority to have done so.
The Supreme Court held, by a majority of 4 to 3, that, on the facts of this case, it was unlawful for the local authority to take into account Tescos commitment to regenerate the RHS in resolving to make the compulsory purchase order in respect of the Raglan Street site.
The majority judgments: (Lord Walker, Lady Hale, Lord Mance and Lord Collins) Lord Collins (giving the leading judgment on behalf of the majority): Principles derived from cases concerning the matters which may lawfully be taken into account in determining planning applications apply equally to compulsory acquisition for development purposes provided it is recognised that, because of the serious invasion of property rights involved in compulsory acquisition, a strict approach to the application of those principles is required.
One of these principles is that it is legitimate for a local authority to take into account off site benefits of a proposed development provided that such benefits are related to or connected with the development itself.
In compulsory acquisition, as in planning cases, there must be a real rather than fanciful or remote connection between the off site benefits and the development for which the compulsory acquisition is made (see paragraphs [70] [71]).
In the present case, there was only a connection between the proposed development on the Raglan Street site and the benefits from the development of the RHS in the sense that the Council was being tempted to facilitate one development because it wanted another development, or that Tesco was being tempted to undertake one un commercial development in order to obtain the development it wanted (para [72]).
The claimed financial connection between the two sites was not such as to amount to a relevant matter, notwithstanding the fact that Tesco was prepared to commit to undertake the regeneration of the RHS by agreement with the local authority (para [75]).
Lord Walker (agreeing with Lord Collins, Lady Hale and Lord Mance): A local authority should not be exercising its powers of compulsory purchase in order to make a commercial profit; the dominant aim must be betterment in planning terms (para [82]).
In a case such as this where a private interest in land is purchased in favour of another private (i.e. Tescos) interest, the local authority has a direct financial interest in the matter, and a strict approach is called for (para [84]).
The reason why, in a case where there is little to choose in planning terms between two rival developers of a site, the local authority must not look to some extraneous benefit which one contender offers, is simply that it is not the right way for a local authority to make a decision as to the exercise of its powers of compulsory purchase, any more than it could choose a new chief executive from a short list of apparently equally well qualified candidates by holding a closed auction for the office (para [87]).
Lady Hale (agreeing with Lord Collins, Lord Walker and Lord Mance): Acquiring the whole of the Raglan Street site would facilitate the development of that site.
But persuading Tesco to carry out a wholly unrelated development upon another site elsewhere in the city, desirable though that may be for the City and people of Wolverhampton, does nothing to facilitate the development of the Raglan Street site.
Rather, it is the other way round (para [93]).
Lord Mance (agreeing with Lord Collins, Lord Walker and Lady Hale): A planning authority, when considering a planning application, is only entitled to take into account a planning obligation which the applicant offers if that obligation has some connection with the relevant development, apart from the fact of its offer.
There is a useful analogy between the grant of planning permission and the exercise of a power of compulsory purchase under the Town and Country Planning Act 1990, and the considerations admissible in relation to the latter power are no wider than those admissible in relation to the former (para [98]).
The minority judgments: (Lord Phillips, Lord Hope, Lord Brown) Lord Phillips: Agreed with Lord Collins and Lord Brown that it was appropriate in this case to draw an analogy with certain decisions relating to the grant of planning permission (para [120]).
The effects of those decisions was this: when considering the merits of an application for planning permission for a development it is material for the planning authority to consider the impact on the community and the environment of every aspect of the development and of any benefits that have some relevance.
An offer of benefits that have no relation to or connection with the development is not material (para [137]).
These principles could properly be applied, by analogy, to a simple case where a local authority is considering whether the public interest justifies the compulsory purchase of land for the purpose of facilitating a development.
The development itself must be justified in the public interest and it would be wrong in principle for the local authority to be influenced by the offer by the chosen developer to provide some collateral benefit that has no connection of any kind with the development in question (para [138]).
But that analysis did not apply to the present case, in which Sainsburys and Tesco were in competition for the development of the Raglan Street site.
The local authority had two decisions to make.
The first was whether it should exercise its compulsory purchase powers at all.
In taking that first decision the local authority was not entitled to take into account any benefit unconnected to the development proposed.
The second was to decide to which of the rivals to sell the land (under a different power in the same Act).
In that second decision the local authority was entitled and perhaps bound to have regard to any unconnected benefit offered by the developer (paras [140] and [142]).
In this case, the local authority was not, in fact, influenced by the RHS benefit when deciding in principle to use its power of compulsory purchase.
The RHS benefit was, however, very material to the decision as to which developer to select, and this in turn determined whose land was to be compulsorily acquired.
In these circumstances the RHS benefit was a consideration that was material to the decision that determined simultaneously the developer and the land to be purchased.
It therefore could not be said that the decision compulsorily to purchase Sainsburys land was influenced by a consideration that was not material (paras [143] [145]).
Lord Hope (agreeing with Lord Phillips): It is plain that the local authority was proceeding on the assumption that, having acquired the land, it would then dispose of it to the preferred developer.
The authority was concerned as much with the exercise of the power to dispose of the land as with the exercise of the power to acquire it (para [154]).
In this case, the choice as to whose land to acquire was inevitably linked to the choice of the developer to whom the land was to be disposed of when it was acquired.
The local authority took those decisions together and was entitled to do so.
To hold otherwise would unduly inhibit the exercise of the power of compulsory acquisition in a case such as this, where a site that is in need of development is in divided ownership, the owners are in competition with each other for its development, and there are sound planning reasons for regarding the proposal of one developer as preferable to that of the other (para [158]).
Lord Brown: Had an offer such as that made by Tesco to the local authority been made in the planning context it would have been a material consideration in the determination of a planning application because it would have had a sufficient connection with the proposed development which was not de minimis or so minimal as to be immaterial.
This was the effect of the planning cases (para [174]).
But even if, contrary to that view, the RHS benefit would not have been material in the determination of a planning application, it was nonetheless material in the context of the decisions which the local authority had to take here (para [178] and [180]).
The authoritys power of compulsory purchase could not be exercised until the authority had also decided the second question before them: which of the two developers to choose.
In reaching that second decision the authority was entitled to take into account the off site benefit, even if it was not connected with the development proposed.
It was a material consideration for the purposes of deciding which of the rival developers to prefer and whose land, therefore, should be the subject of compulsory purchase (para [182]).
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If a group of people come on to my land without my permission, I shall want the law to provide a speedy way of dealing with the situation.
If they leave but come back repeatedly, depending on the evidence, I shall be able to obtain an interlocutory and final injunction against them returning.
But they may come on to my land and set up camp there.
Again, depending on the evidence, I shall be able to obtain an injunction (interlocutory and final) against them remaining and also against them coming back again once they leave as required by the injunction.
Similarly, if the evidence shows that, once they leave, they are likely to move and set up camp on other land which I own, the court can grant an injunction (interlocutory and final) against them doing that.
If authority is needed for all this, it can be found in the judgment of Lord Diplock in the Court of Appeal in Manchester Corporation v Connolly [1970] Ch 420.
Of course, it is quite likely that I wont know the identities of at least some of the trespassers.
If so, Wilson J regarded an injunction as useless since it would be wholly impracticable for the claimant to seek the committal to prison of a probably changing group of not easily identifiable travellers, including establishing service of the injunction and of the application: Secretary of State for the Environment v Drury [2004] 1 WLR 1906, 1912, para 19.
That may well have been an unduly pessimistic assessment.
Certainly, claimants have used injunctions against unnamed defendants.
And Sir Andrew Morritt V C was satisfied that the procedural problems could be overcome.
Admittedly, the circumstances in the first of his cases, Bloomsbury Publishing Group Ltd and J K Rowling v News Group Newspapers Ltd and a Person or Persons Unknown [2003] EWHC 1205 (Ch), were very different from a situation involving trespassers.
But trespassing protesters were the target of the interlocutory injunction which he granted in Hampshire Waste Services Ltd v Persons Intending to Trespass and/or Trespassing upon Incinerator Sites [2003] EWHC 1738 (Ch).
Similarly, in South Cambridgeshire DC v Persons Unknown [2004] EWCA Civ 1280 the Court of Appeal (Brooke and Clarke LJJ) granted an injunction against persons unknown causing or permitting hardcore to be deposited, caravans, mobile homes or other forms of residential accommodation to be stationed, or existing caravans or other mobile homes to be occupied on land adjacent to a gypsy encampment in rural Cambridgeshire.
Brooke LJ commented, at para 8: There was some difficulty in times gone by against obtaining relief against persons unknown, but over the years that problem has been remedied either by statute or by rule.
See the discussion of such injunctions in Jillaine Seymour, Injunctions Enjoining Non Parties: Distinction without Difference (2007) 66 CLJ 605 624.
The present case concerns travellers who set up camp on the Forestry Commissions land at Hethfelton.
Lord Neuberger has explained the circumstances.
The identities of some, but not all, of those involved were known to the Commission.
So the defendants included persons unknown.
Despite this, the Commission sought an injunction against all the defendants, including those described as All persons currently living on or occupying the claimants land at Hethfelton.
The recorder declined to grant an injunction on the view that it would be disproportionate.
But the Court of Appeal, by a majority, reversed the recorder on this point and granted an order that The respondents, and each of them, be restrained from entering upon, trespassing upon, living on, or occupying the parcels of land set out in the Schedule hereto, and, for the avoidance of doubt, the 4th respondent shall mean those people trespassing on, living on, or occupying the land known as Hethfelton Wood on any date between 13th February 2007 and 3rd August 2007 save for those specifically identified as 1st, 2nd, 3rd, 5th and 6th respondents.
In my view, for the reasons given by Lord Neuberger, the majority were right to grant the injunction.
In any event, Mr Drabble QC, who appeared for the travellers, did not suggest that this injunction had been incompetent or defective for lack of service or in some other respect.
Even Wilson LJ, who dissented on the injunction point in the Court of Appeal, did not go so far as to suggest that it was inherently useless: he simply took the view that it added nothing of value to the order for possession and, therefore, the recorder would have been entitled to exercise his discretion to refuse it on that basis: [2008] EWCA Civ 903, para 76.
This brings me to the order for possession which lies at the heart of the appeal.
people not only come on to my land but oust me from it, I can bring an action for recovery of the land.
That is what the Commission did in the present case: they raised an action in Poole county court for recovery of land at Hethfelton nr Wool and all that land described on the attached schedule all in the County of Dorset.
In effect, the Commission were asking for two things: to be put back into possession of the land on which the defendants were camped at Hethfelton, and to be put into possession of the other specified areas of land which they owned, but on which, they anticipated, the defendants might well set up camp once they left Hethfelton.
The Court of Appeal granted an order for possession in respect both of the land at Hethfelton and of the other parcels of land situated some distance away.
As regards the competency of granting an extended order of this kind, the court was bound by the decision in Secretary of State for the Environment v Drury [2004] 1 WLR 1906.
The central issue in the present appeal is whether that case was rightly decided.
In my view it was not.
Most basically, an action for recovery of land presupposes that the claimant is not in possession of the relevant land: the defendant is in possession without the claimants permission.
This remains the position even if, as the Court of Appeal held in Manchester Airport v Dutton [2000] QB 133, the claimant no longer needs to have an estate in the land.
See Megarry & Wade, The Law of Real Property (7th edition, 2008), para 4 026.
To use the old terminology, the defendant has ejected the claimant from the land; the claimant says that he has a better right to possess it, and he wants to recover possession.
That is reflected in the form of the order which the court grants: that the claimant do forthwith recover the land or, more fully, that the said AB do recover against the said CD possession of the land.
See Cole, The Law and Practice in Ejectment (1857), p 786, Form 262.
The fuller version has the advantage of showing that the courts order is not in rem; it is in personam, directed against, and binding only, the defendant.
Of course, if the defendant refuses to leave and the court grants a writ of possession requiring the bailiff to put the claimant into possession, in principle, the bailiff will remove all those who are on the relevant land, irrespective of whether or not they were parties to the action: R v Wandsworth County Court ex parte Wandsworth LBC [1975] 1 WLR 1314.
So, in that way, non parties are affected.
But, if anyone on the land has a better right than the claimant to possession, he can apply to the court for leave to defend.
If he proves his case, then he will be put into possession in preference to the claimant.
But the original order for possession will continue to bind the original defendant.
See Stamp Js lucid account of the law in In re Wykeham Terrace [1971] Ch 204, 209D 210B.
In re Wykeham Terrace and Manchester Corporation v Connolly [1970] Ch 420 showed the need for some reform of the procedures used in actions for recovery of land.
The twin problems of unidentifiable defendants and the lack of any facility for granting an interim order for possession were tackled by a new Order 113 the provisions of which, with some alteration of the details, have been incorporated into the current Rule 55 of the CPR.
In the present case no issue arises about the wording of Rule 55.
But I would certainly not interpret occupied in Rule 55.1(b) as preventing the use of the special procedure in a case like University of Essex v Djemal [1980] 1 WLR 1301 where some protesters were excluding the university from one part of its campus, but many students and members of staff were legitimately occupying other parts.
The intention behind the relevant provisions of Rule 55 remains the same as with
Order 113: to provide a special fast procedure in cases which only involve trespassers and to allow the use of that procedure even when some or all of the trespassers cannot be identified.
These important, but limited, changes in the rules cannot have been intended, however, to go further and alter the essential nature of the action itself: it remains an action for recovery of possession of land from people who are in wrongful possession of it.
I should add that in the present case the defendants do not dispute that they are or, at least, were at the relevant time in possession, rather than mere occupation, of the Commissions land at Hethfelton.
Wonnacott, Possession of Land (2006), p 27, points out that defendants rarely dispute this.
But here, in any event, the defendants possession is borne out by their offer to co operate to allow the Commissions ordinary activities on the land not to be disrupted.
This is inconsistent with the Commission being in possession.
So the preconditions for an action for recovery of land are satisfied.
By contrast, the Forestry Commission were at all relevant times in undisturbed possession of the parcels of land listed in the schedule to the Court of Appeals order.
That being so, an action for the recovery of possession of those parcels of land is quite inappropriate.
The only authority cited by the Court of Appeal in Secretary of State for the Environment v Drury [2004] 1 WLR 1906 for granting such an order was the decision of Saville J in Ministry of Agriculture, Fisheries and Food v Heyman (1990) 59 P & CR 48.
But in that case the defendant trespassers were not represented and so the point was not fully argued.
Saville J referred to the decision of the Court of Appeal in University of Essex v Djemal [1980] 1 WLR 1301, which I have just mentioned.
That decision is clearly distinguishable, however.
The defendant students, who had previously taken over, and been removed from, certain administrative offices of the University of Essex, had been occupying another part of the university buildings known as Level 6.
The Court of Appeal made an order for possession extending to the whole property of the university in effect, the whole campus.
This was justified because the universitys right to possession of its campus was indivisible: If it is violated by adverse occupation of any part of the premises, that violation affects the right of possession of the whole of the premises: [1980] 1 WLR 1301, 1305C D, per Shaw LJ.
In the Heyman case, by contrast, the Ministrys right to possession of its land at Grovely Woods was not violated in any way by the trespassers adverse possession of its other land two or three miles away at Hare Wood.
In my view, Heyman was wrongly decided and did not form a legitimate basis for the Court of Appeals decision in Drury.
Mummery LJ described Wilson Js approach in Drury as pragmatic: [2004] 1 WLR 1906, 1916, para 35.
And, of course, the common law does evolve by making pragmatic incremental developments.
But, if they are to work, they must be consistent with basic principle and they must make sense.
I would not put undue emphasis on the supposed practical difficulties in providing
for adequate service by attaching notices to stakes etc on these remoter areas of land.
Doubtless, adequate arrangements could be worked out, if extended orders were otherwise desirable.
The real objection is that the Court of Appeals extended order that the [Commission] do recover the parcels of land set out in the Schedule hereto is inconsistent with the fundamental nature of an action for recovering land because there is nothing to recover: the Commission were in undisturbed possession of those parcels of land.
And the law is harmed rather than improved if a court grants orders which lay defendants, knowing the facts, would rightly find incomprehensible.
How, the defendants could well ask, can the Commission recover parcels of land which they already possess? How, too, are the defendants supposed to comply with the order? Only a lawyer could understand and explain that the order really means that they are not to enter and take over possession of the other parcels of Commission land.
This is, of course, what the injunction already says in somewhat old fashioned, but tolerably clear, language.
Doubtless, the wording could in theory be altered, but this would really be to change the nature of the action and turn the order into an injunction, so creating parallel injunctions, one leading to the possible intervention of the bailiff and the other not.
The claimed justification for granting an extended order for possession of this kind is indeed that it is the only effective remedy against travellers, such as the present defendants, since it can ultimately lead to them being removed by a bailiff under a warrant for possession.
Moreover, unless the Commission can obtain an extended order, they will be forced to come back to court for a new order each time the defendants move to another of their properties.
An injunction is said to be a much weaker remedy in a case like the present since, if the defendants fail to comply with it, all that can be done is to seek an order for their sequestration or committal to prison.
Sequestration is an empty threat, the argument continues, against people who have few assets, while committal to prison might well be inappropriate in the case of defendants who are women with young children.
Plainly, the idea of the Commission having to return to court time and again to obtain a fresh order for possession in respect of a series of new sites is unattractive.
But the scenario presupposes that the defendants would, with impunity, disobey the injunction restraining them from entering the other parcels of land.
So this point is linked to the contention that the injunction would not work.
I note in passing that there is actually no evidence that these defendants would fail
to comply with the injunction in respect of the other parcels of land.
So there is no particular reason to suppose that the Court of Appeals injunction will prove an ineffective remedy in this case.
On the more general point about the alleged ineffectiveness of injunctions in cases of this kind, South Buckinghamshire DC v Porter [2003] 2 AC 558 is of some interest.
There the council wanted to obtain an injunction against gypsies living in caravans in breach of planning controls because an injunction was thought to be a potentially more effective weapon than the various enforcement procedures under the planning legislation.
This is in line with the thinking behind the application for an injunction in South Cambridgeshire DC v Persons Unknown [2004] EWCA Civ 1280 which I mentioned in para 2.
Admittedly, if the present defendants did fail to comply with the injunction, sequestration would not be a real option since they are unlikely to have any substantial assets.
And, of course, there are potential difficulties in a court trying to ensure compliance with an injunction by committing to prison defendants who are women with young children.
Nevertheless, as Lord Bingham of Cornhill observed in South Buckinghamshire DC v Porter [2003] 2 AC 558, 580, para 32, in connexion with a possible injunction against gypsies living in caravans in breach of planning controls: When granting an injunction the court does not contemplate that it will be disobeyed.
Apprehension that a party may disobey an order should not deter the court from making an order otherwise appropriate: there is not one law for the law abiding and another for the lawless and truculent.
Taking that approach, we should, in my view, be slow to assume that an injunction is a worthless remedy in a case like the present and that only the intervention of a bailiff is likely to be effective.
If that is indeed the considered consensus of those with experience in the field, then consideration may have to be given to changing the procedures for enforcing injunctions of this kind.
But any such reform would raise far reaching issues which are not for this court.
In particular, travellers are by no means the only people without means whose unlawful activities the courts seek to restrain by injunction and where the assistance of a bailiff might be attractive to claimants.
Especially when Parliament has intervened from time to time to regulate the way that the courts should treat travellers, the need for caution in creating new remedies is obvious.
At the very least, the matter is one for the Master of the Rolls and the Rules Council who have the leisure and facilities to consider the issues.
For these reasons I would allow the defendants appeal to the extent proposed by Lord Neuberger.
LORD WALKER
I agree with all the other members of the Court that this appeal should be allowed to the extent of setting aside the wider possession order.
In Secretary of State for the Environment, Food and Rural Affairs v Drury [2004] 1 WLR 1906 the Court of Appeal went too far in trying to achieve a practical solution.
The decision cannot be seen as simply an extension of University of Essex v Djemal [1980] 1 WLR 1301, in which the facts were very different.
I respectfully agree with the observations on injunctive relief made by Lord Rodger at the end of his judgment.
LADY HALE
Two questions are before us.
First, can the court grant a possession order in respect of land, no part of which is yet occupied by the defendant, because of the fear that she will do so if ejected from land which she currently does occupy? Second, should the court grant an injunction against that feared trespass? The Court of Appeal unanimously answered the first question in the affirmative, following the reasoning of that Court in Secretary of State for the Environment, Food and Rural Affairs v Drury [2004] EWCA Civ 200, [2004] 1 WLR 1906, CA, and the decision of Saville J in Ministry of Agriculture, Fisheries and Food v Heyman (1989) 59 P & CR 48.
The majority also answered the second question in the affirmative; Wilson LJ dissented but only because he thought the wider possession order a sufficient remedy in the circumstances.
The approach in Drury and Heyman was rightly described by Mummery LJ in Drury as pragmatic (para 35), depending as it did upon the comparative efficacy of possession orders and injunctions.
A possession order gives the claimant the right to call upon the bailiffs or the sheriff physically to remove the trespassers from his land, which is what he wants.
An injunction can only be enforced by imposing penalties upon those who disobey.
Mummery LJ considered it a legitimate, incremental development of the ruling of the Court of Appeal in University of Essex v Djemal [1980] 1 WLR 1301, that a possession order can cover a greater area of the claimants land than that actually occupied by the trespassers.
The situation in Djemal was very like the situation in this and no doubt many other cases.
The University of Essex consists (mainly) of some less than beautiful buildings erected in the 1960s upon a beautiful campus at Wivenhoe Park near Colchester.
The students had occupied a small part of the University buildings.
The University wanted an order covering the whole of the University premises.
The judge had given them an order covering only the part actually occupied by the students.
The Court of Appeal made the wider order sought by the University, holding that there was jurisdiction to cover the whole of the owners property in respect of which his right of occupation has been interfered with (per Buckley LJ at p 1304E, emphasis supplied).
Shaw LJ reasoned that the right of the University to possession of the site and buildings was indivisible.
If it is violated by adverse occupation of any part of the premises, that violation affects the right of possession of the whole of the premises (p 1305D, emphasis supplied).
These were extempore judgments in a case where the students had already decided to call off their direct action, but it will noted that Buckley LJ spoke of interference with a right of occupation, while Shaw LJ spoke of violation of a right of possession.
The defendants in this case are occupying only part of Hethfelton Wood.
We can, I think, assume that the Forestry Commission are occupying the rest.
They are carrying on their forestry work as best they can indeed, one of their problems is that they are impeded from doing it because of the risk of harm to the vehicles and their occupants.
Yet Mr Drabble, for the defendant appellants, has never resisted an order covering the whole of Hethfelton Wood, nor does he invite us to disagree with Djemal.
Being a sensible man, he recognises that we would be disinclined to hold that if trespassers set up camp in a large garden the householder can obtain an order enabling them to be physically removed only from that part of the garden which they have occupied, even if it is clear that they will then simply move their tents to another part of the garden.
The questions raised by this case and Djemal should be seen as questions of principle rather than pragmatism or procedure.
Still less should they be answered by reference to the forms of action which were supposedly abolished in 1876.
The underlying principle is ubi ius, ibi remedium: where there is a right, there should be a remedy to fit the right.
The fact that this has never been done before is no deterrent to the principled development of the remedy to fit the right, provided that there is proper procedural protection for those against whom the remedy may be granted.
So the questions are: what is the right to be protected? And what is the appropriate remedy to fit it?
If we were approaching this case afresh, without the benefit and burden of history, we might think that the right to be protected is the right to the physical occupation of tangible land.
A remedy should be available against anyone who does not have that right and is interfering with it by occupying the land.
That remedy should provide for the physical removal of the interlopers if need be.
The scope of the remedy actually granted in any individual case should depend upon the scope of the right, the extent of the actual and threatened interference with it, and the adequacy of the procedural safeguards available to those at risk of physical removal.
In considering the nature and scope of any judicial remedy, the parallel existence of a right of self help against trespassers must not be forgotten, because the rights protected by self help should mirror the rights that can be protected by judicial order, even if the scope of self help has been curtailed by statute.
No civil wrong is done by turning out a trespasser using no more force than is reasonably necessary: see Hemmings v Stoke Poges Golf Club [1920] 1 KB 720.
In Cole on Ejectment (London, Sweet, 1857), a comprehensive textbook written after the Common Law Procedure Act 1852, there is considerable discussion (in ch VII) of the comparative merits of self help and ejectment.
Any person with a right to enter and take possession of the land might choose simply to do that rather than to sue in ejectment.
But this was not advised where the right of entry was not clear and beyond doubt, or where resistance was to be expected.
The effect of the criminal statutes against forcible entry was by no means clear: whether no force at all, or only reasonable force, might be used against the trespasser.
Cole was not as sanguine as was Lord Denning MR in McPhail v Persons, Names Unknown [1973] Ch 447, 456.
Lord Denning took the view that the statutes against forcible entry did not apply to the use of reasonable force against trespassers.
Those statutes have now been replaced by section 6 of the Criminal Law Act 1977.
This prohibits the use or threat of violence against person or property for the purpose of securing entry to any premises without lawful excuse.
But it also provides that a right to possession or occupation of the premises is no excuse, although there is now an exception for a displaced residential occupier or protected intending occupier.
This does not include the Forestry Commission, although it is not impossible that they would be able to evict the travellers without offending against the criminal law.
But in any event, the use of self help, even if it can be lawfully achieved, is not encouraged because of the risk of disorder that it may entail.
Lord Denning considered that the statutes of forcible entry did not apply because the trespassing squatters in McPhail were not in possession of the land at all.
He quoted Pollock on Torts (15th ed 1951, p 292): A trespasser may in any case be turned off land before he has gained possession, and he does not gain possession until there has been something like acquiescence in the physical fact of his occupation on the part of the rightful owner.
A trespasser who merely interferes with the right to possession or occupation of the property may also be ejected with the use of reasonable force: one does not need to go to court, or even call the police, to eject a burglar or a poacher from ones property.
Although Cole contemplated that self help might be used against a tenant who had wrongfully continued in occupation after the end of his tenancy, tenants are clearly now in a different position from squatters.
Lord Denning thought that the statutes of forcible entry did apply to protect them (although Cole says that the authorities on which he relied had later been overruled).
Most, but not all, residential tenants are now protected by statute against eviction otherwise than by court order.
This is a complicated area which need not concern us now as we are dealing with people who have never been granted any right to be where they are.
However, Lord Dennings basic point is important here.
In a civilised society, the courts should themselves provide a remedy which is speedy and effective: and thus make self help unnecessary (McPhail, p 457C).
It seems clear that the right of self help has never been limited to those who have actually been dispossessed of their land: in fact on one view it is limited to those who have not been so dispossessed.
There is no reason in principle why the remedy of physical removal from the land should only be available to those who have been completely dispossessed.
It should not depend upon the niceties of whether the person wrongfully present on the land was or was not in possession in whatever legal sense the word is being used.
Were the students in Djemal in possession of the Universitys premises at all? Lord Denning, supported by Sir Frederick Pollock, would not think so: see McPhail at 456F. Were these new travellers in possession of Hethfelton Wood at all? Again, Lord Denning would not think so.
They had parked their vehicles there, but the work of the Forestry Commission was going on around them as best it could.
If we accept that the remedy should be available to a person whose possession or occupation has been interfered with by the trespassers, as well as to a person who has been totally dispossessed, a case like Djemal becomes completely understandable, as does the order for possession of the whole of Hethfelton Wood in this case.
Nor need we be troubled by the form of the order, that the claimant recover the land.
His occupation of the whole has been interfered with and he may recover his full control of the whole from those who are interfering with it.
As is obvious from the above, a great deal of confusion is caused by the different meanings of the word possession and its overlap with occupation.
As Mark Wonnacott points out in his interesting monograph, Possession of Land (Cambridge University Press, 2006), the term possession is used in three quite distinct senses in English land law: first, in its proper, technical sense, as a description of the relationship between a person and an estate in land; secondly, in its vulgar sense of physical occupation of tangible land (the third sense need not concern us here).
Possession, in its first sense, he divides into a relationship of right, the right to the legal estate in question, and a relationship of fact, the actual enjoyment of the legal estate in question; a person might have the one without the other.
Possession of a legal estate in fact may often overlap with actual occupation of tangible land, but they are conceptually distinct: a person may be in possession of the head lease if he collects rents from the sub tenants, but he will not be in physical occupation of tangible land.
The modern action for the possession of land is the successor to the common law action of ejectment (and some statutory remedies developed for use in the county and magistrates courts in the 19th century).
The ejectment in question was not the ejectment sought by the action but the wrongful ejectment of the right holder.
Its origins lay in the writ of trespass, an action for compensatory damages rather than recovery of the estate.
But the common law action to recover the estate was only available to freeholders and not to term holders (tenants).
So the judges decided that this form of trespass could be used by tenants to recover their terms.
Trespass was a more efficient form of action than the medieval real actions, such as novel disseisin, so this put tenants in a better position than freeholders.
As is well known, the device of involving real people as notional lessees and ejectors was used to enable freeholders to sue the real ejectors.
These were then replaced by the fictional characters John Doe and Richard Roe.
Eventually the medieval remedies were (mostly) abolished by the Real Property Limitation Act of 1833; the fictional characters of John Doe and Richard Roe by the Common Law Procedure Act 1852; and the forms of action themselves by the Judicature Acts 1873 75 (see AWB Simpson, A History of the Land Law, Oxford, Clarendon Press, 2nd edition 1986, ch VII).
The question for us is whether the remedy of a possession action should be limited to deciding disputes about possession in the technical sense described by Wonnacott.
The discussion in Cole on Ejectment concentrates on disputes between two persons, both claiming the right to possession of the land, one in occupation and the other not.
Often these are between landlords and tenants who have remained in possession when the landlord thinks that their time is up.
But it is clear that in reality what was being protected by the action was the right to physical occupation of the land, not the right to possession of a legal estate in land.
The head lessee who was merely collecting the rents would not be able to bring an action which would result in his gaining physical occupation of the land unless he was entitled to it.
It seems clear that the modern possession action is there to protect the right to physical occupation of the land against those who are wrongfully interfering with it.
The right protected, to the physical occupation of the land, and the remedy available, the removal of those who are wrongfully there, should match one another.
The action for possession of land has evolved out of ejectment which itself evolved out of the action for trespass.
There is nothing in CPR Part 55 which is inconsistent with this view, far from it.
The distinction is drawn between a possession claim which is a claim for the recovery of possession of land (r 55.1.(a)) and a possession claim against trespassers which is a claim for the recovery of land which the claimant alleges is occupied only by a person or persons who entered or remained on the land without the consent of a person entitled to possession of that land .
The object is to distinguish between the procedures to be used where a tenant remains in occupation after the end of his tenancy and the procedures to be used where there are squatters or others who have never been given permission to enter or remain on the land.
That, to my mind, is the reason for inserting only: not to exclude the possibility that the person taking action to enforce his right to occupy is also in occupation of it.
There is then provision for taking action against persons unknown.
But the remedy in each case is the same: an order for physical removal from the land.
It was held in R v Wandsworth County Court, ex parte Wandsworth London Borough Council [1975] 1 WLR 1314, that a bailiff executing a possession warrant is entitled to evict anyone found on the premises whether they were party to the judgment or not.
However, there is nothing to prevent the order distinguishing between those who are and those who are not lawfully there, provided that some means is specified of identifying them.
No one would suggest that an order for possession of Hethfelton Wood would allow the removal of Forestry Commission workers or picnickers who happened to be there when the bailiffs went in.
In principle, court orders should be tailored to fit the facts and the rights they are enforcing rather than the other way around.
This does not, however, solve the principal question before us.
What is the extent of the premises to which the order may relate? As Mummery LJ suggested in Drury, at para 31, the origin was in an action to recover a term of years.
The land covered by the term would be defined in the grant.
It would not extend to all the land anywhere in the lawful possession of the claimant.
Equally, however, as discussed earlier, the remedy can be granted in respect of land to which the claimant is entitled even though the trespasser is not technically in possession of it.
This suggests that the scope may be wider than the actual physical space occupied by the trespasser, who may well move about from time to time.
In any event, the usual rule is that possession of part is possession of the whole, thus begging the question of how far the whole may extend.
It was suggested during argument that it might extend to all the land in the same title at the Land Registry.
This could be seen as the modern equivalent of the estate from which the claimant had been unlawfully ousted.
But this is artificial when a single parcel of land may well be a combination of several different registered titles.
The main objection to extending the order to land some distance away from the parcel which has actually been intruded upon is one of natural justice.
Before any coercive order is made, the person against whom it is made must have an opportunity of contesting it, unless there is an emergency.
In the case of named defendants, such as the appellants here, this need not be an obstacle.
They have the opportunity of coming to court to contest the order both in principle and in scope.
The difficulty lies with persons unknown.
They are brought into the action by the process of serving notice not on individuals but on the land.
If it were to be possible to enforce the physical removal of persons unknown from land on which they had not yet trespassed when the order was made, notice would also have to be given on that land too.
That might be thought an evolution too far.
Whatever else a possession order may be or have been, it has always been a remedy for a present wrongful interference with the right to occupy.
There is an intrusion and the person intruded upon has the right to throw the intruder out.
Thus, while I would translate the modern remedy into modern terms designed to match the remedy to the rights protected, and would certainly not put too much weight on the word recover, I would hesitate to apply it to quite separate land which has not yet been intruded upon.
The more natural remedy would be an injunction against that intrusion, and I would not be unduly hesitant in granting that.
We should assume that people will obey the law, and in particular the targeted orders of the court, rather than that they will not.
We should not be too ready to speculate about the enforcement measures which might or might not be appropriate if it is broken.
But the main purpose of an injunction would be to support a very speedy possession order, with severely abridged time limits, if it is broken.
However, I would not see these procedural obstacles as necessarily precluding the incremental development which was sanctioned in Drury.
Provided that an order can be specifically tailored against known individuals who have already intruded upon the claimants land, are threatening to do so again, and have been given a proper opportunity to contest the order, I see no reason in principle why it should not be so developed.
It would be helpful if the Rules provided for it, so that the procedures could be properly thought through and the forms of order properly tailored to the facts of the case.
The main problem at the moment is the scatter gun form of the usual order (though it is not one prescribed by the Rules).
It is for that reason, and that reason alone, that I would allow this appeal to the extent of setting aside the wider possession order made in the Court of Appeal.
LORD NEUBERGER
There is an acute shortage of sites in this country to satisfy the needs of travellers, people who prefer a nomadic way of life.
Thus, in the county in which the travellers in this case pitched their camp, Dorset, it has been estimated that over 400 additional pitches are required.
The inevitable consequence is that travellers establish their camps on land which they are not entitled to occupy, normally as trespassers, and almost always in breach of planning control.
Proceedings seeking to prevent their occupation have led to human rights issues being raised before domestic courts (for instance, in the House of Lords, Doherty v Birmingham City Council [2008] UKHL 57), and before the European Court of Human Rights (for instance, Connors v United Kingdom (2005) 40 EHRR 9).
The present appeal, however, raises issues of purely domestic law, namely the permissible physical ambit of any possession order made against trespassing travellers, and the appropriateness of granting an injunction against them.
The facts and procedural history
Travellers often set up their camps in wooded areas.
Many woods and forests in this country are managed by the Forestry Commission (the Commission) and owned by the Secretary of State for the Environment, Food and Rural Affairs.
The functions of the Commission are promoting the interests of forestry, the development of afforestation and the production and supply of timber and other forest products section 1 of the Forestry Act 1967.
The Commission runs its woods and forests commercially, although it affords members of the public relatively free and unrestricted access to such areas.
All undeveloped land in the United Kingdom is susceptible to unauthorised occupation by travellers, and much of such land is vested in public bodies.
But land managed by the Commission is particularly vulnerable to incursion by travellers.
As the Recorder who heard this case at first instance said, [g]iven the public access that it affords to its land and its needs for access for forestry vehicles, it is not protected and barricaded in the same way as much of the other land in private and local authority ownership in Dorset is now protected.
In 2004, the Office of the Deputy Prime Minister issued Guidance on Managing Unauthorised Camping (the 2004 Guidance).
This suggests that local authorities and other public bodies distinguish between unauthorised encampment locations which are unacceptable (for instance, because they involve traffic hazard or public health risks) and those which are acceptable.
It further recommends that the management of unauthorised camping must be integrated, and states that each encampment location must be considered on its merits.
The 2004 Guidance also indicates that specified welfare enquiries should be undertaken in relation to the travellers and their families in any unauthorised encampment before any decision is made as to whether to bring proceedings to evict them.
The Secretary of State has accepted throughout these proceedings that the Commission should comply with the terms of the 2004 Guidelines before possession proceedings are brought against any travellers on land it manages, and that failure to do so may invalidate such proceedings.
One of the woods managed by the Commission is Hethfelton Wood (Hethfelton), near Wool, where, at the end of January 2007, a number of new travellers established an unauthorised camp.
After the Commission had carried out the enquiries recommended by the 2004 Guidance, the Secretary of State issued the current proceedings, a possession claim against trespassers within CPR 55.1(b), and an application for an injunction, in the Poole County Court, on 13 February 2007.
The original defendants were Natalie Meier, Robert and Georgie Laidlaw, Sharon Horie and Persons Names Unknown.
Ms Meier travels and lives in a vehicle with her two children, having done so since 2002.
Mr Laidlaw sadly died before the hearing, and, unsurprisingly in the circumstances, Mrs Laidlaw appears to have played no part in the proceedings.
Ms Horie has pursued a nomadic way of life since about 1982, and lives in vehicles together with her three children.
Lesley Rand (who has been a traveller since about 1996, and lives together with her severely disabled nine year old daughter in a specially adapted vehicle) and Kirsty Salter (who was pregnant at the time, and has been a traveller for ten years) were subsequently added as defendants.
Two of the defendants had previously been encamped on another area of woodland, some five miles from Hethfelton, called Moreton Plantation (Moreton), which was also managed by the Commission.
Following the issue of possession proceedings in relation to Moreton, a compromise was agreed on 9 January 2007, which provided that the Secretary of State should recover possession on 29 January 2007.
It was on that day that a number of the defendants moved from Moreton to Hethfelton.
Some of the other defendants had previously occupied another wood managed by the Commission, Morden Heath (Morden), which had also been subject to proceedings brought by the Secretary of State, which had resulted in a possession order which was due to be executed on 5 February 2007.
In anticipation of the execution of that order, those other defendants moved from Morden to Hethfelton.
In the claim form in the instant proceedings, the Secretary of State sought possession not only of Hethfelton, but also of all that land described on the attached schedule all in the county of Dorset.
That schedule set out more than fifty separate woods, which were owned by the Secretary of State and managed by the Commission, and which were marked on an attached plan.
The number of woods of which possession was sought in addition to Hethfelton was subsequently reduced to thirteen, and the plan showed that those thirteen woods (the other woods) were spread over an area of Dorset around twenty five miles east to west and ten miles north to south.
In the injunction application, the Secretary of State sought an order against the same defendants (including Persons Names Unknown) restraining them from re entering [Hethfelton] or from entering [the other woods].
Copies of the claim form seeking possession were served on the named defendants and at Hethfelton in accordance with the provisions of CPR 55.6, together with copies of the injunction application.
The evidence established that all the occupiers of the camp at Hethfelton were new travellers, living and travelling in motor vehicles, mostly with children and often with animals.
The evidence also indicated that the camp was relatively tidy, and did not involve any antisocial conduct on the part of any of the occupants.
However, the presence of children and animals caused the Commission to avoid the use of heavy plant or the carrying out of substantial work, which might otherwise have occurred, in the surrounding area.
The Commissions evidence showed that other areas in Dorset managed by the Commission, in addition to Hethfelton, including Moreton, and Morden, had been occupied by travellers as unauthorised camps, sometimes by one or more of the named defendants.
The claim came before Mr Recorder Norman, who gave a full and careful judgment on 3 August 2007.
He had to resolve three issues.
The first was whether to grant an order for possession against the defendants in respect of Hethfelton.
The second issue was whether to grant an order for possession in respect of any or all of the other woods.
The third issue was whether to grant an injunction restraining the defendants from entering on to all or any of the other woods.
The Recorder decided to grant an order for possession against the defendants in respect of Hethfelton.
However, he refused to make any wider order for possession, or to grant the injunction sought by the Secretary of State.
Although he accepted that he had jurisdiction to make such orders, he considered it inappropriate to do so primarily because the Commission had failed to consider the matters suggested by the 2004 Guidance before the current proceedings were begun, and because the Commission was not prepared to assure the Recorder that consideration would be given to that guidance before any wider order for possession or any injunction was enforced.
Paragraph 1 of the order drawn up to reflect this decision provided that [t]he claimant do forthwith recover the land known as Hethfelton Wood.
The defendants did not appeal against this order for possession.
However, the Secretary of State appealed against the Recorders refusal to grant an order for possession in relation to the other woods (which I will refer to as a wider order for possession) and the injunction, and the Court of Appeal allowed the appeal [2008] EWCA Civ 903, [2009] 1 WLR 828.
The order made by the Court of Appeal ordered that the Secretary of State do recover the other woods, and that each of the defendants be restrained from entering upon, trespassing upon, living on, or occupying any of the other woods.
In her judgment, Arden LJ followed and applied the reasoning of the Court of Appeal in the earlier decision of Secretary of State v Drury [2004] EWCA Civ 200, [2004] 1 WLR 1906, under which it had been held that an order for possession, at least when made pursuant to a possession claim against trespassers, could, in appropriate cases, extend to land not forming part of, or contiguous with, or even near, the land actually occupied by the trespassers.
She concluded that the evidence demonstrated that at least some of the defendants had set up unauthorised encampments on woods managed by the Commission in Dorset, and that there was a substantial risk that at least some of the defendants would move onto other such woods once an order for possession was made in relation to Hethfelton.
Arden LJ also said, in disagreement with the Recorder, that any failure on the part of the Commission to consider the matters recommended by the 2004 Guidance before issuing the proceedings for possession of the other woods did not justify refusing to make such a wider order.
This was essentially on the basis that, if there was any such failure, it could be considered at the time the wider order for possession was sought to be enforced.
Pill and Wilson LJJ agreed.
Arden LJ also considered that, for the same reasons, the Recorder had been wrong to refuse the injunction sought by the Secretary of State, and again Pill LJ agreed.
However, Wilson LJ dissented on this point, on the ground that the Recorder had been entitled to refuse an injunction on the additional ground which he had mentioned, namely that, if he had made a wider order for possession, it would have been disproportionate to grant an injunction as well.
The instant appeal is brought by Ms Horie and Ms Rand, and it raises two principal issues.
The first is the extent to which an order for possession can be made in favour of a claimant in respect of land not actually occupied by a defendant.
The second issue concerns the circumstances in which an injunction restraining future trespass can and should be granted; this raises two points: (a) whether an injunction against travellers is generally appropriate, and (b) the point on which the Court of Appeal differed from the Recorder, namely the effect of the 2004 Guidance.
I shall consider these two issues in turn and then briefly review the implications of my conclusions.
An order for possession of land not occupied by the defendants
In Drury [2004] 1 WLR 1906, the facts were similar to those here, except the Court of Appeal held that there was no evidence establishing that the travellers in that case had occupied, or threatened to occupy, other property managed by the Commission.
Accordingly, the order for possession was in the normal form, limited, like the order made by the Recorder in this case, to the wood occupied by the travellers.
However, the Court of Appeal decided that an order for possession could be granted, not merely in respect of land which the defendant occupied, but also in respect of other land which was owned by the claimant, and which the defendant threatened to occupy.
The essence of the Court of Appeals reasoning was that (a) the law recognises that an anticipated trespass can give rise to a right of action, (b) an injunction would be of limited, if any, real use, (c) in those circumstances, the law should provide another remedy, (d) a wider order for possession would be of much more practical value than an injunction, (e) such an order for possession was justified by previous authority and in the light of the courts jurisdiction to grant quia timet injunctions; and (f) accordingly, such an order could be made; but (g) it should only be made in relatively exceptional circumstances see at [2004] 1 WLR 1906, paras 20 24, 34 36, and 42 46, per Wilson J, Mummery LJ and Ward LJ respectively.
Particularly with the advent of the Civil Procedure Rules, it is clear that judges should strive to ensure that court procedures are efficacious, and that, where there is a threatened or actual wrong, there should be an effective remedy to prevent it or to remedy it.
Further, as Lady Hale points out, so long as landowners are entitled to evict trespassers physically, judges should ensure that the more attractive and civilised option of court proceedings is as quick and efficacious as legally possible.
Accordingly, the Court of Appeal was plainly right to seek to identify an effective remedy for the problem faced by the Commission as a result of unauthorised encampments, namely that, when a possession order is made in respect of one wood, the travellers simply move on to another wood, requiring the Commission to incur the cost, effort and delay of bringing a series or potentially endless series of possession proceedings against the same people.
Nonetheless, however desirable it is to fashion or develop a remedy to meet a particular problem, courts have to act within the law, and their ability to control procedure and achieve justice is not unlimited.
Judges are not legislators, and there comes a point where, in order to deal with a particular problem, court rules and practice cannot be developed by the courts, but have to be changed by primary or secondary legislation or, in so far as they can be invoked for that purpose, by Practice Directions.
In my view, it is simply not possible to make the sort of enlarged or wider order for possession which the Court of Appeal made in this case, following (as it was, I think, bound to do) the reasoning in Drury [2004] 1 WLR 1906.
The power of the County Court for present purposes derives from section 21(1) of the County Courts Act 1984, which gives it jurisdiction to hear and determine any action for the recovery of land.
The concept of recovery of land was the essence of a possession order both before and after the procedure was recast by sections 168ff of the Common Law Procedure Act 1852, although, until the Supreme Court of Judicature Act 1875, the action lay in ejectment rather than in recovery of land see per Lord Denning MR in McPhail v Persons, Names Unknown [1973] Ch 447, 457 8.
Nonetheless, the change of name did not involve a change of substance, and the essence of an order for possession, whether framed in ejectment or recovery, is that the claimant is getting back the property from the defendant, whether by recovering the property from the defendant or because the claimant had been wrongly ejected by the defendant.
As stated by Wonnacott, in Possession of Land (2006), page 22, an action for recovery of land (ejectment) is an action to be put into possession of an estate of land.
The complaint is that the claimant is not currently in possession of it, and wants to be put in possession of it.
See also Simpson, A History of the Land Law (2nd edition), pages 144 5 and Gledhill v Hunter (1880) 14 Ch D 492, 496 per Sir George Jessel MR.
As Sir George Jessel explained, an action for ejectment and its successor, recovery of land, was normally issued to recover possession from a tenant or former tenant.
An action against a trespasser, who did not actually dispossess the person entitled to possession, was based on trespass quare clausum fregit, physical intrusion onto the land.
Nonetheless, where a trespasser exclusively occupies land, so as to oust the person entitled to possession, the cause of action must be for recovery of possession. (Hence, if such an action is not brought within twelve years the ousting trespasser will often have acquired title by adverse possession.) Accordingly, in cases where a trespasser is actually in possession of land, an action for recovery of land, i.e. for possession, is appropriate, as Lord Denning implicitly accepted in McPhail [1973] Ch 447, 457 8.
This analysis is substantially reflected in the provisions of the CPR and in the currently prescribed form of order for possession.
CPR 55 is concerned with possession claims, and CPR 55.1 provides: (a) a possession claim means a claim for the recovery of possession of land (including buildings or parts of buildings); (b) a possession claim against trespassers means a claim for the recovery of land which the claimant alleges is occupied only by a person or persons who entered or remained on the land without the consent of a person entitled to possession of that land but does not include a claim against a tenant or sub tenant whether his tenancy has been terminated or not; The special features of a possession claim against trespassers are that the defendants to the claim may include persons unknown, such proceedings should be served on the land as well as on the named defendants, and the minimum period between service and hearing is 2 days (or 5 days for residential property) rather than the 28 days for other possession claims see CPR 55.3(4), 55.6, and 55.5(2) and (3).
The drafting of CPR 55(1) is rather peculiar in that, unlike that in CPR 55(1)(a), the definition in CPR 55(1)(b) does not include the word possession.
Given that, since 1875, the cause of action has been for recovery of land, the oddity, as Lord Rodger has pointed out, is the inclusion of the word possession in the former paragraph, rather than its exclusion in the latter.
However, in so far as the point has any significance, the definition of a possession claim, like the definition of land, in CPR 55(1)(a) may well be carried into CPR 55(1)(b).
In any event, the important point, to my mind, is that a possession claim against trespassers involves the person entitled to possession seeking recovery of the land.
Form N26 is the prescribed form of order in both a simple possession claim and a possession claim against trespassers (see CPR Part 4 PD Table 1).
That form orders the defendant to give the claimant possession of the land in question.
Although the orders at first instance (as drafted by counsel), and in the Court of Appeal, direct that the claimant do recover the land in question from the defendants, that is the mirror image of ordering that the defendants give the claimant possession.
The notion that an order for possession may be sought by a claimant and made against defendants in respect of land which is wholly detached and separated, possibly by many miles, from that occupied by the defendants, accordingly seems to me to be difficult, indeed impossible, to justify.
The defendants do not occupy or possess such land in any conceivable way, and the claimant enjoys uninterrupted possession of it.
Equally, the defendants have not ejected the claimant from such land.
For the same reasons, it does not make sense to talk about the claimant recovering possession of such land, or to order the defendant to deliver up possession of such land.
This does not mean that, where trespassers are encamped in part of a wood, an order for possession cannot be made against them in respect of the whole of the wood (at least if there are no other occupants of the wood), just as much as an order for possession may extend to a whole house where the defendant is only trespassing in one room (at least if the rest of the house is empty).
However, the fact that an order for possession may be made in respect of the whole of a piece of property, when the defendant is only in occupation of part and the remainder is empty, does not appear to me to assist the argument in favour of a wider possession order as made by the Court of Appeal in this case.
Self help is a remedy still available, in principle, to a landowner against trespassers (other than former residential tenants).
Where only part of his property is occupied by trespassers, a landowner, exercising that remedy through privately instructed bailiffs, would, no doubt, be entitled to evict the trespassers from the whole of his property.
Similarly, it seems to me, bailiffs (or sheriffs), who are required by a warrant (or writ) of possession to evict defendants from part of a property owned by the claimant, would be entitled to remove the defendants from the whole of that property.
But that does not mean that the bailiffs, whether privately instructed or acting pursuant to a warrant, could restrain the trespassers from moving onto another property, perhaps miles away, owned by the claimant.
Further, the concept of occupying part of property (the remainder of which is vacant) effectively in the name of the whole is well established see for example, albeit in a landlord and tenant context, Henderson v Squire (1868 69) LR 4 QB 170, 172.
However, that concept cannot be extended to apply to land wholly distinct, even miles away, from the occupied land.
So, too, the fact that one can treat land as a single entity if it is divided by a road or river (in different ownership from the land) seems to me to be an irrelevance: as a matter of law and fact, the two divisions can sensibly be regarded as a single piece of land.
Accordingly, I have no difficulty with the fact that the possession order made at first instance in this case extended to the whole of Hethfelton, even though the defendants occupied only a part of it.
The position is more problematical where a defendant trespasses on part of land, the rest of which is physically occupied by a third party, or even by the landowner.
Particular difficulties in this connection are, to my mind, raised in relation to a wide order for possession in a claim within CPR 55.1(b).
Such a claim may be brought for the recovery of land which the claimant alleges is occupied only by a person or persons who entered or remained on the land without consent .
Given that such a claim is limited to land occupied only by trespassers, it is not immediately easy to see how it could be brought, even in part, in relation to land occupied by persons who are not trespassers.
And it is fundamental that the court cannot accord a claimant more relief than he seeks (although it is, of course, possible, in appropriate circumstances, for a claimant to amend to increase the extent of his claim, but that is not relevant here).
The Court of Appeal in University of Essex v Djemal [1980] 1 WLR 1301 nonetheless decided that a University could be granted a possession order under RSC Order 113 rule 1, which was (in relation to the issue in this case) in similar terms to CPR 55(1)(b), in respect of its whole campus, against trespassers who were squatting in a relatively small part, even though the remainder of the campus was lawfully occupied by academics, other employees, and indeed students.
This was a thoroughly practical decision arrived at to deal with a fairly widespread problem at the time, namely student sit ins.
There was an obvious fear that, if an order for possession was limited to the rooms occupied by the student trepassers, they would simply move to another part of the campus.
As already mentioned, given that there is the alternative remedy of self help, the court should ensure that its procedures are as effective as lawfully possible.
Nonetheless, there is obviously great force in the argument that the fact that areas of the campus in that case was lawfully and exclusively occupied by academic staff, employees and students should have precluded a claim and an order for possession in respect of those areas, both in principle and in the light of the wording of RSC Order 113 rule 1.
However, this is not the occasion formally to consider the correctness of the decision in Djemal [1980] 1 WLR 1301, which was not put in issue by either of the parties, as the Secretary of State (like the Court of Appeal in Drury [2004] 1 WLR 1906) relied on it, and the appellants were content to distinguish it.
Accordingly, the implications of overruling or explaining the decision, which may be far reaching in terms of principle and practice, have not been debated or canvassed.
The Court of Appeals conclusion in Drury [2004] 1 WLR 1906, that the court could make a wider order for possession such as that in the instant case, rested very much on the reasoning in Djemal [1980] 1 WLR 1306, and in the subsequent first instance decision of Ministry of Agriculture, Fisheries and Food v Heyman 59 P&CR 48, which represented an incremental development of the ruling in [Djemal [1980] 1 WLR 1306], as Mummery LJ put it at [2004] 1 WLR 1906, para 35.
However, it seems to me that the decision in Drury [2004] 1 WLR 1906 was an illegitimate extension of the reasoning and decision in Djemal [1980] 1 WLR 1306.
The fact that an order for possession can be made in respect of a single piece of land, only part of which is occupied by trespassers, does not justify the conclusion that an order for possession can be made in respect of two entirely separate pieces of land, only one of which is occupied by trespassers, just because both pieces of land happen to be in common ownership.
As already mentioned, bailiffs, whether acting on instructions from a landowner exercising the right of self help to evict a trespasser or acting pursuant to a warrant of possession, can remove the trespasser on part of a piece of property from the whole of that property, but they cannot prevent him from entering a different property, possibly many miles away.
Similarly, while it is acceptable, at least in some circumstances, to treat occupation of part of property as amounting to occupation of the whole of that property, one cannot treat occupation of one property as amounting to occupation of another, entirely separate, property, possibly miles away, simply because the two properties are in the same ownership.
Having said all that, I accept that the notion of a wider, effectively precautionary, order for possession as made in Drury [2004] 1 WLR 1906 has obvious attraction in practice.
As the Court of Appeal explained in that case, the alternative to a wider possession order, namely an injunction restraining the defendant from camping in other woods in the area, would be of limited efficacy.
An order for possession is normally enforced in the County Court by applying for a warrant of possession under CCR Order 26, which involves the occupiers being removed from the land by the bailiffs. (The equivalent in the High Court is a writ of possession executed by the Sheriff under RSC Order 45 rule 3).
This is a procedurally direct and simple method of enforcement.
An injunction, however, may be enforced, and that was treated by the court in Drury [2004] 1 WLR 1906 as meaning may only be enforced, by sequestration or committal see RSC Order 45 rule 5(1), and, in relation to the County Court, CCR 29 and section 38 of the County Courts Act 1984.
Given that the claimants aim is to evict the travellers, those are unsatisfactory remedies compared with applying for a warrant of possession.
They are not only indirect, but they are normally procedurally unwieldy and time consuming, and, in any event, they are of questionable value in cases against travellers, as explained in the next section of this opinion.
There is also some apparent force as a matter of principle in the notion that the Courts should be able to grant a precautionary wider order for possession.
If judges have developed the concept of an injunction which restrains a defendant from doing something he has not yet done, but is threatening to do, why, it might be asked, should they now not develop an order for possession which requires a defendant to deliver up possession of land that he has not yet occupied, but is threatening to occupy? The short answer is that a wider or precautionary order for possession, whether in the form granted in this case or in the prescribed Form N26, requires a defendant to do something he cannot do, namely to deliver up possession of land he does not occupy, and purports to return to the claimant something he has not lost, namely possession of land of which already he has possession.
What the claimant is really seeking in the present case is an order that, if the defendant goes onto the other woods, the claimant should be entitled to possession.
That is really in the nature of declaratory or injunctive relief: it is not an order for possession.
A declaration identifies the parties rights and obligations.
A quia timet injunction involves the court forbidding the defendant from doing something which he may do and which he would not entitled to do.
Both those types of relief are different from what the Court of Appeal intended to grant here, namely a contingent order requiring the defendant to do something (to deliver up possession) if he does something else (trespassing) which he may do and which he would not be entitled to do.
I describe the Court of Appeal as intending to grant such an order, because, as just explained, the actual order is in the form of an immediate order for possession of the other woods, which, as I have mentioned, is also hard to justify, given that the defendants were not in occupation of any part of them.
Further, while it would be beneficial to be able to make a wider possession order because of the relative ease with which it could be enforced in the event of the defendants trespassing on other woods, such an order would not be without its disadvantages and limitations.
An order for possession only binds those persons who are parties to the proceedings (and their privies), although the bailiffs (and sheriffs) are obliged to execute a warrant (or writ) of possession against all those in occupation see In re Wykeham Terrace, Brighton, Sussex [1971] Ch 204, 209 10, R v Wandsworth County Court ex p Wandsworth London Borough Council [1975] 1 WLR 1314, 1317 9, Thompson v Elmbridge Borough Council [1987] 1 WLR 1425, 1431 2, and the full discussion in Wonnacott op cit at pages 146 52.
It would therefore be wrong in principle for the court to make a wider order for possession against trespassers (whether named or not) in one wood with a view to its being executed against other trespassers in other woods.
Nonetheless, because the warrant must be executed against anyone on the land, there is either a risk of one or more of the occupiers of another wood being evicted without having the benefit of due process, or room for delay while such an occupier applies to the court and is heard before a warrant is executed against him.
Quite apart from this, a warrant of possession to execute an order for possession made in the County Court in a claim for possession against trespassers can only be issued without leave within three months of the order CCR Order 24 rule 6(2).
So, after the expiry of three months, a wider possession order does not obviate the need for the claimant applying to the court before he can obtain possession of any land the subject of the order.
Further, as pointed out by Wilson J in Drury [2004] 1 WLR 1906, para 22, it seems rather arbitrary that only a person who owns land which is being unlawfully occupied can obtain a wider order for possession protecting all his land in a particular area.
In conclusion on this issue, while there is considerable practical attraction in the notion that the court should be able to make the wide type of possession order which the Court of Appeal made in this case, following Drury [2004] 1 WLR 1906, I do not consider that the court has such power.
It is inconsistent with the nature of a possession order, and with the relevant provisions governing the powers of the court.
The reasoning in the case on which it is primarily based, Djemal [1980] 1 WLR 1301, cannot sensibly be extended to justify the making of a wider possession order, and there are aspects of such an order which would be unsatisfactory.
I should add that I have read what Lord Rodger has to say on this, the main, issue, and I agree with him.
Should an injunction be refused as it will probably not be enforced?
That brings me to the question whether an injunction restraining travellers from trespassing on other land should be granted in circumstances such as the present.
Obviously, the decision whether or not to grant an order restraining a person from trespassing will turn very much on the precise facts of the case.
Nonetheless, where a trespass to the claimants property is threatened, and particularly where a trespass is being committed, and has been committed in the past, by the defendant, an injunction to restrain the threatened trespass would, in the absence of good reasons to the contrary, appear to be appropriate.
However, as Lord Walker said during argument, the court should not normally make orders which it does not intend, or will be unable, to enforce.
In a case such as the present, if the defendants had disobeyed an injunction not to trespass on any of the other woods, it seems highly unlikely that the two methods of enforcement prescribed by CCR 29 and section 38 of the County Courts Act 1984 (RSC Order 45 rule 5(1) in the High Court) would be invoked.
The defendants presumably have no significant assets apart from their means of transport, which are also their homes, so sequestration would be pointless or oppressive.
And many of the defendants are vulnerable, and most of them have young children, so imprisonment may very well be disproportionate.
In South Bucks District Council v Porter [2003] UKHL 26, [2003] 2 AC 558, local planning authorities were seeking injunctions to restrain gypsies from remaining on land in breach of planning law, and at para 32, Lord Bingham of Cornhill said that [t]he court should ordinarily be slow to make an order which it would not be willing, if need be, to enforce by imprisonment.
On the other hand, in the same paragraph of his opinion, Lord Bingham also said that [a]pprehension that a party may disobey an order should not deter the court from making an order otherwise appropriate.
A court may consider it unlikely that it would make an order for sequestration or imprisonment, if an injunction it was being invited to grant were to be breached, but it may nonetheless properly decide to grant the injunction.
Thus, the court may take the view that the defendants are more likely not to trespass on the claimants land if an injunction is granted, because of their respect for a court order, or because of their fear of the repercussions of breaching such an order.
Or the court may think that an order of imprisonment for breach, while unlikely, would nonetheless be a real possibility, or it may think that a suspended order of imprisonment, in the event of breach, may well be a deterrent (although a suspended order should not be made if the court does not anticipate activating the order if the terms of suspension are breached).
It was suggested in argument that, if a defendant established an unauthorised camp in a wood which, in earlier proceedings, he had been enjoined from occupying, the court would be likely to be sympathetic to an application by the Commission to abridge even the short time limits in CPR 55.5.2.
However, as Lord Rodger observed, if the court were satisfied that a defendant was moving from unauthorised site to unauthorised site on woods managed by the Commission, an abridgement of time limits might be thought to be appropriate anyway.
Quite apart from this, if the only reason for granting an injunction restraining a defendant from trespassing in other woods was to assist the Commission in obtaining possession of any of those other woods should the defendant camp in them, it seems to me that this could be catered for by declaratory relief.
For instance, the court could grant a declaration that the Commission is in possession of those other woods and the defendant has no right to dispossess it.
In some cases, it may be inappropriate to grant an injunction to restrain a trespassing on land unless the court considers not only that there is a real risk of the defendants so trespassing, but also that there is at least a real prospect of enforcing the injunction if it is breached.
However, even where there appears to be little prospect of enforcing the injunction by imprisonment or sequestration, it may be appropriate to grant it because the judge considers that the grant of an injunction could have a real deterrent effect on the particular defendants.
If the judge considers that some relief would be appropriate only because it could well assist the claimant in obtaining possession of such land if the defendants commit the threatened trespass, then a declaration would appear to me to be more appropriate than an injunction.
In the present case, neither the Recorder nor the Court of Appeal appears to have concluded that an injunction should be refused on the ground that it would not be enforced by imprisonment or because it would have no real value.
Although it may well be that a case could have been (and may well have been) developed along those lines, it was not adopted by the Recorder, and clearly did not impress the Court of Appeal.
In those circumstances, it seems to me that it is not appropriate for this Court to set aside the injunction unless satisfied that it was plainly wrong to grant it, or that there was an error of principle in the reasoning which led to its grant.
It does not appear to me that either of those points has been established in this case.
The effect of the 2004 Guidance on the grant of an injunction
The Recorder considered that it was inappropriate to grant an injunction in favour of the Secretary of State because the Commission had not complied with the 2004 Guidance in relation to the other woods before issuing the proceedings, and would not give an assurance that it would comply with the 2004 Guidance before it enforced the injunction.
The Court of Appeal considered that the injunction could nonetheless be granted, as the issue of the Commissions compliance with the 2004 Guidance could be considered before the injunction was enforced.
As I have already mentioned, it has been conceded by the Secretary of State throughout these proceedings that the Commission is obliged to comply with the 2004 Guidance, and that failure to do so may vitiate its right to possession against travellers trespassing on land it manages.
On that basis, there is some initial attraction in the appellants argument that, if the 2004 Guidance ought to be complied with before the injunction is enforced, it would be inappropriate to grant the injunction before the Guidance was complied with.
After all, now the injunction has been granted, the defendants would be in contempt of court and prone to imprisonment (once the appropriate procedures had been complied with) if they encamped on any of the other woods.
However, I am of the opinion that the Court of Appeal was right to conclude that, even in the light of the Secretary of States concession, the 2004 Guidance did not present an obstacle to the granting of an injunction in this case.
The Guidance is concerned with steps to be taken in relation to existing unauthorised encampments: it is not concerned with preventing such encampments from being established in the first place.
The recommended procedures in the 2004 Guidance were relevant to the question of whether an order for possession should be made against the defendants in respect of their existing encampment on Hethfelton.
However, quite apart from the fact that they are merely aspects of a non statutory code of guidance, those recommendations are not directly relevant to the issue of whether the defendants should be barred from setting up a camp on other land managed by the Commission.
Accordingly, I do not see how it could have justified an attack on the lawfulness of the Secretary of State seeking an injunction to restrain the defendants from setting up such unauthorised camps.
At least on the basis of the concession to which I have referred, I incline to the view that the existence and provisions of the 2004 Guidance could be taken into account by the Court when considering whether to grant an injunction and when fashioning the terms of any injunction.
However, I prefer to leave the point open, as it was, understandably, not much discussed in argument before us.
Even if the 2004 Guidance was of relevance to the issue of whether the injunction should be granted, it seems to me that it could not be decisive.
Otherwise, it would mean that such an injunction could never be granted, because it would not be possible to carry out up to date welfare enquiries in relation to defendants who might not move onto a wood which they were enjoined from occupying for several months, or, conceivably, even several years, after the order was made.
As Arden LJ held, particularly bearing in mind that it purports to be no more than guidance, the effect and purpose of the 2004 Guidance is simply not strong enough to displace the Secretary of States right to seek the assistance of the court to prevent a legal right being infringed.
Further, the fact that welfare enquiries were made in relation to the defendants occupation of Hethfelton by social services means that the more significant investigations required by the 2004 Guidance had been carried out anyway.
Following questions from Lady Hale, it transpired for the first time in these proceedings that, at the time of the issue of the claim, the Commission had (and has) a detailed procedural code which is intended to apply when there are travellers unlawfully on its land, and that this code substantially followed the 2004 Guidance.
It therefore appears that the Commission has considered the 2004 Guidance and promulgated a code which takes its contents into account.
On that basis, unless it could be shown in a particular case that the code had been ignored, it appears to me that the Commissions decision to evict travellers could not be unlawful on the ground relied on by the appellants in this case.
However, it appears to me that failure to comply with non statutory guidance would be unlikely to render a decision unlawful, although failure to have regard to the guidance could do so.
If the defendants were to trespass onto land covered by the injunction, the Commission would presumably comply with its code before seeking to enforce the injunction.
If it did not do so, then, if justified on the facts of a particular case, there may (at least if the Commissions concession is correct) be room for argument that, in seeking to enforce the injunction against travellers who have set up a camp in breach of an injunction, the Secretary of State was acting unlawfully.
It is true that this means that, in a case such as this, a defendant who trespasses in breach of an injunction may be at risk of imprisonment before the Commission has complied with the 2004 Guidance.
However, where imprisonment is sought and where it would otherwise be a realistic prospect, the defendant could argue at the committal hearing that the injunction should not be enforced, even that it should be discharged, on the ground that the recommendations in the 2004 Guidance have not been followed.
Accordingly, on this point, I conclude that, even assuming (in accordance with the Secretary of States concession) that the Commissions failure to comply with the 2004 Guidance may deter the court from making an order for possession against travellers, it should not preclude the granting of an injunction to restrain travellers from trespassing on other land.
However, at least in a case where it could be shown that the claimant should have considered the 2004 Guidance, but did not do so, the Guidance could conceivably be relevant to the question whether an injunction should be granted (and if so on what terms), and, if the injunction is breached, to the question of whether or not it should be enforced (and, if so, how).
In the event, therefore, the grant of an injunction was appropriate as Arden and Pill LJ concluded (and the only reason Wilson LJ thought otherwise, namely the existence of the wider possession order, no longer applies).
The implications of this analysis
As I have explained, the thinking of the Court of Appeal in Drury [2004] 1 WLR 1906 proceeded on the basis that an injunction restraining trespass to land could only be enforced by sequestration or imprisonment.
In the light of the terms of RSC Order 45 rule 5(1), this may very well be right.
Certainly, in the light of the contrast between the terms of that rule and the terms of RSC Order 45 rule 3(1) and CCR 26 rule 16(1) (which respectively provide for writs and warrants of possession only to enforce orders for possession), it is hard to see how a warrant of possession in the County Court or a writ of possession in the High Court could be sought by a claimant, where such an injunction was breached.
However, where, after the grant of such an injunction (or, indeed, a declaration), a defendant entered onto the land in question, it is, I think, conceivable that, at least in the High Court, the claimant could apply for a writ of restitution, ordering the sheriff or bailiffs to recover possession of the land for the benefit of the claimant.
Such a writ is often described as one of the writs in aid of other writs, such as a writ of possession or a writ of delivery see for instance RSC Order 46 rule 1.
Restitution is normally the means of obtaining possession against a defendant (or his privy) who has gone back into possession after having been evicted pursuant to a court order.
It appears that it can also be invoked against a claimant who has obtained possession pursuant to a court order which is subsequently set aside (normally on appeal) see sc46.3.3 in Civil Procedure, Vol 1, 2009.
Historically at any rate, a writ of restitution could also be sought against a person who had gone into possession by force: see Cole on Ejectment (1857) pp 692 4.
So there may be an argument that such a writ may be sought by a claimant against a defendant who has entered onto the land after an injunction has been granted restraining him from doing so, or even after a declaration has been made that the claimant is, and the defendant is not, entitled to possession.
It may also be the case that it is open to the County Court to issue a warrant of restitution in such circumstances.
Whether a writ or warrant of restitution would be available to support such an injunction or declaration, and whether the present procedural rules governing the enforcement of injunctions against trespass on facts such as those in the present case are satisfactory, seem to me to be questions which are ripe for consideration by the Civil Procedure Rules Committee.
The precise ambit of the circumstances in which a writ or warrant of restitution may be sought is somewhat obscure, and could usefully be clarified.
Further, if, as I have concluded, it is not open to the court to grant a wider order for possession, as was granted by the Court of Appeal in Drury [2004] 1 WLR 1906 and in this case, then it appears likely that there may very well be defects in the procedural powers of the courts of England and Wales.
Where a person threatens to trespass on land, an injunction may well be of rather little, if any, real practical value if the person is someone against whom an order for sequestration or imprisonment is unlikely to be made, and an order for possession is not one which is open to the court.
In addition, it seems to me that it may be worth considering whether the current court rules satisfactorily deal with circumstances such as those which were considered in Djemal [1980] 1WLR 1306.
Disposal of this appeal
Accordingly, it follows that, for my part, I would allow the defendants appeal to the extent of setting aside the wider possession order made by the Court of Appeal, but dismiss their appeal to the extent of upholding the injunction granted by the Court of Appeal.
LORD COLLINS
At the end of the argument my inclination was to the conclusion that in Secretary of State for the Environment, Food and Rural Affairs v Drury [2004] EWCA Civ 200, [2004] 1 WLR 1906 the Court of Appeal had legitimately extended University of Essex v Djemal [1980] 1 WLR 1301 to fashion an exceptional remedy to deal with cases of the present kind.
I was particularly impressed by the point that an injunction might be a remedy which was not capable of being employed effectively in cases such as this.
But I am now convinced that there is no legitimate basis for making an order for possession in an action for the recovery of wholly distinct land of which the defendant is not in possession.
But in my opinion University of Essex v Djemal [1980] 1 WLR 1301 represented a sensible and practical solution to the problem faced by the University, and was correctly decided.
I agree, in particular, that it can be justified on the basis that the Universitys right to possession of its campus was indivisible, as Lord Rodger says, or that the remedy is available to a person whose possession or occupation has been interfered with, as Lady Hale puts it.
Where the defendant is occupying part of the claimants premises, the order for possession may extend to the whole of the premises.
First, it has been pointed out, rightly, that the courts have used the concept of possession in differing contexts as a functional and relative concept in order to do justice and to effectuate the social purpose of the legal rules in which possession (or, I would add, deprivation of possession) is a necessary element: Harris, The Concept of Possession in English Law, in Oxford Essays in Jurisprudence (ed Guest, 1961) 69 at 72.
Secondly, the procedural powers of the court are subject to incremental change in order to adapt to the new circumstances: see, e.g. in relation to the power to grant injunctions, Fourie v Le Roux [2007] UKHK 1 [2007] 1 WLR 320, at [30]; Masri v Consolidated Contractors International (UK) Ltd (No.2) [2008] EWCA Civ 303, [2009] 2 WLR 621, at [182].
I would therefore allow the appeal to the extent of setting aside the wider possession order.
| UK-Abs | A number of travellers established an unauthorised camp in Hethfelton, one of the woods managed by the Forestry Commission and owned by the Secretary of State for Environment, Food and Rural Affairs.
The Secretary of State sought an order for possession in respect of Hethfelton and other specified woods (also managed by the Commission and owned by the Secretary of State) which had not yet been occupied by the defendants to the claim.
The Secretary of State also sought an injunction against the same defendants restraining them from re entering Hethfelton and from entering the other woods.
The Recorder before whom the claim came decided to grant an order for possession against the defendants in respect of Hethfelton, but not in respect of the other woods.
The Recorder also refused to grant the injunction sought.
The Court of Appeal allowed the Secretary of States appeal against the Recorders refusal to grant the order for possession in relation to the other woods and against his refusal to grant the injunction.
The defendants appealed.
The Supreme Court unanimously allowed the defendants appeal to the extent of setting aside the wider possession order made by the Court of Appeal.
Two main questions were before the Supreme Court: (1) Whether a court could grant an order for possession in respect of distinct land not yet occupied or possessed by a defendant. (2) Whether a court should grant an injunction restraining a defendant from trespassing on other land not currently occupied by him.
On the first main question, the Supreme Court unanimously agreed that a court could not make such an order.
Lord Rodger considered that such an order would be inconsistent with the fundamental nature of an action for recovering land because there was nothing to recover (Para 12).
Lord Neuberger, who agreed with Lord Rodger on this question, thought that it did
not make sense to talk about a defendant being required to deliver up possession of land where the defendant did not occupy such land in any conceivable way, and the claimant enjoyed uninterrupted possession of it (Paras 64, 74 and 78).
Lords Rodger, Walker, Neuberger and Collins all thought that the Court of Appeal in Secretary of State for the Environment, Food and Rural Affairs v Drury [2004] 1 W.L.R. 1906 had illegitimately extended the circumstances in which an order for possession could be made (Paras 5, 20, 72 and 96).
Lady Hales main objection to extending an order for possession in respect of distinct land which had not actually been intruded upon was one of natural justice.
According to Lady Hale, the main problem with the current form of the usual order was that it was not specifically tailored against known individuals who had already intruded upon the claimants land, were threatening to do so again, and had been given a proper opportunity to contest the order (Paras 38 and 40).
On the second main question, Lord Rodger, Lady Hale and Lord Neuberger agreed that the majority in the Court of Appeal were right to grant an injunction in this case.
Lord Neuberger, with whom Lord Rodger agreed on this question, noted that neither the Recorder nor the Court of Appeal had concluded that an injunction should be refused on the ground that it would not be enforced by imprisonment (because the defendants were vulnerable or had young children) or because it would have no real value (since travellers usually have few assets).
The Court of Appeal had not erred in granting the injunction (Para 84).
Lord Neuberger was also of the view that the failure by the Commission to comply with the Guidance on Managing Unauthorised Camping issued by the Office of the Deputy Prime Minister should not preclude the granting of an injunction to restrain travellers from trespassing on other land (Paras 87 and 91).
Lady Hale thought that the more natural remedy to deal with separate land which had not yet been intruded upon was an injunction against that intrusion, and one should not be unduly hesitant in granting that (Para 39).
Further comments Observations were made to the effect that there may be a need for reform of the remedies available in this area (Paras 18, 40 and 94).
|
The road to hell is paved with good intentions.
In this case the good intentions were to introduce mandatory rehabilitation for very short term prisoners by coupling time spent in custody with a release period under licence.
This was known as custody plus.
Hell is a fair description of the problem of statutory interpretation caused by transitional provisions introduced when custody plus had to be put on hold because the resources needed to implement the scheme did not exist.
The problem arises when sentences of less than 12 months and more than 12 months are imposed consecutively.
The 1991 Act Early Release
In explaining this problem I shall refer only to the most relevant of statutory provisions thereby simplifying the picture.
The Criminal Justice Act 1991 (the 1991 Act) introduced for the first time a scheme in which it was mandatory for the Secretary of State to release prisoners part way through the period of their sentence.
A prisoner sentenced to less than 12 months imprisonment had to be released unconditionally after serving half his sentence (section 33(1)(a)).
A prisoner sentenced to between 12 months and 4 years imprisonment had to be released on licence after serving half his sentence (section 33(1)(b)).
A prisoner sentenced to a determinate term of 4 years or more imprisonment had to be released on licence after serving two thirds of his sentence (section 33(2)).
This early release scheme might have raised problems in relation to the practice of imposing sentences to be served consecutively.
These problems were solved by section 51(2) of the 1991 Act, as amended by section 101 of the Crime and Disorder Act 1998, which provided: For the purposes of any reference in this Part, however expressed, to the term of imprisonment to which a person has been sentenced or which, or part of which, he has served, consecutive terms and terms which are wholly or partly concurrent shall be treated as a single term if (a) the sentences were passed on the same occasion; or (b) where they were passed on different occasions, the person has not been released under this Part at any time during the period beginning with the first and ending with the last of those occasions.
Section 33(5) of the 1991 Act defined prisoners sentenced to less than 4 years imprisonment as short term prisoners and prisoners sentenced to 4 years imprisonment or more as long term prisoners.
For the purpose of this appeal the more significant distinction is between prisoners serving sentences of less than 12 months, whom I shall describe as under 12 month prisoners and prisoners serving sentences of 12 months or more, whom I shall describe as over 12 month prisoners.
Home Detention Curfew
In 1998 under the Crime and Disorder Act additional provisions were inserted by amendment into the 1991 Act, which added a degree of complication to the release provisions for short term prisoners serving a sentence of imprisonment of three months or more.
Under section 34A after such a prisoner had served the requisite period the Secretary of State was given power to release the prisoners on licence under conditions that required them to live at home, subject to a curfew.
I shall describe this as HDC release.
The requisite period was so defined as to produce a sliding scale under which the prisoner might be released before what would otherwise have been his mandatory release date.
The longer the sentence the longer the potential period of HDC release until this peaked at its maximum of 135 days in respect of a sentence of 18 months or more.
A charitable interpretation of the purpose of the introduction of HDC would be that it was intended to facilitate rehabilitation in the community.
A more cynical view would be that it was intended to provide the Home Secretary with a safety valve to deal with the pressure on prison accommodation.
At all events the Home Secretary made such generous use of this power that short term prisoners were able to look forward with some confidence to being granted HDC release.
Licence expiry
Section 37 of the 1991 Act provided that, for both short and long term prisoners released on licence, the licence would remain in force until three quarters of the sentence period had elapsed.
When an under 12 month prisoner was released under HDC his licence period ended once half the sentence period had elapsed.
The appellants sentence
I now turn to the position of the appellant Miss Rebecca Noone.
On 23 May 2007 she was sentenced at Stafford Crown Court for a number of offences as follows: (a) Theft 22 months imprisonment. (b) Three further offences of theft 4 months imprisonment on each count concurrent to one another but consecutive to the 22 month sentence. (c) Contempt of Court 1 month imprisonment consecutive to all the other sentences.
Had the provisions of the 1991 Act been applied to this sentence, its implications would have been easy to appreciate.
The sentences would have been aggregated pursuant to section 51(2) to produce a total of 27 months.
The appellant would have been entitled to be released after serving half this sentence, that is on her conditional release date.
But she could have looked forward with confidence to HDC release 135 days before that date.
On 24 May 2007 the appellant was given a release date notification which advised her that this was precisely what she could expect that is: Eligibility for HDC: 15.1.2008 Conditional release date: 28.5.2008 This notification also informed the appellant that her licence would expire on the same day that her sentence would expire that is 13 July 2009.
This conflicted with the provision of section 37 of the 1991 Act under which the licence would have been due to expire after three quarters of the sentence period.
On 18 July 2007 the appellant was given a fresh notification which put back the date of her eligibility to HDC to 20.4.2008 but advanced both her licence and her sentence expiry date to 10.2.2009.
The appellant brought these proceedings in order to challenge this notification.
The reason for the confusion as to the date when the appellant would become eligible to HDC and the date on which her licence and her sentence would expire was that those in Drake Hall Prison responsible for the appellants release were grappling with the implications of the Criminal Justice Act 2003, to which I now turn.
The Criminal Justice Act 2003
One particular objective of the Criminal Justice Act 2003 (the 2003 Act) was the rehabilitation of offenders.
With this objective in mind, those who drafted the Act set out to achieve, among other things, the following: 1) 2) the introduction of custody plus for under 12 month prisoners, and the increase of the licence period to make this co extensive with the period of the sentence.
Rather than attempt to summarise the relevant provisions of the 2003 Act, I shall set them out verbatim.
Section 181 was the section which made provision for custody plus.
It began as follows: Prison sentences of less than 12 months (1) Any power of a court to impose a sentence of imprisonment for a term of less than 12 months on an offender may be exercised only in accordance with the following provisions of this section unless the court makes an intermittent custody order (as defined by section 183). (2) The term of the sentence (a) must be expressed in weeks, (b) must be at least 28 weeks, (c) must not be more than 51 weeks in respect of any one offence, and (d) must not exceed the maximum term permitted for the offence. (3) The court, when passing sentence, must (a) specify the period (in this Chapter referred to as the custodial period) at the end of which the offender is to be released on a licence, and (b) by order require the licence to be granted subject to conditions requiring the offenders compliance during the remainder of the term (in this Chapter referred to as the licence period) or any part of it with one or more requirements falling within section 182(1) and specified in the order. (4) In this Part custody plus order means an order under subsection (3)(b). (5) The custodial period (a) Must be at least 2 weeks, and (b) In respect of any one offence, must not be more than 13 weeks. (6) In determining the term of the sentence and the length of the custodial period, the court must ensure that the licence period is at least 26 weeks in length. (7) Where a court imposes two or more terms of imprisonment in accordance with this section to be served consecutively (a) the aggregate length of the terms of imprisonment must not be more than 65 weeks, and (b) the aggregate length of the custodial periods must not be more than 26 weeks.
Section 182 set out the various requirements that could be imposed by way of licence conditions.
Custody plus has never been introduced and it is very unlikely that it ever will be.
For this reason sections 181 and 182 have not been brought into force.
The provisions of section 181 impacted on subsequent provisions of the Act, including the following provisions for release on licence. 244 Duty to release prisoners (1) As soon as a fixed term prisoner, other than a prisoner to whom section 247 applies, has served the requisite custodial period, it is the duty of the Secretary of State to release him on licence under this section. (2) Subsection (1) is subject to section 245. (3) In this section the requisite custodial period means (a) in relation to a person serving a sentence of imprisonment for a term of twelve months or more or any determinate sentence of detention under section 91 of the Sentencing Act, one half of his sentence, (b) in relation to a person serving a sentence of imprisonment for a term of less than twelve months (other than one to which an intermittent custody order relates), the custodial period within the meaning of section 181, . (d) in relation to a person serving two or more concurrent or consecutive sentences none of which falls within paragraph (c), the period determined under sections 263(2) and 264(2).
Section 244(3)(b) has not been brought into force.
Section 246 of the 2003 Act makes provision for eligibility for HDC in terms of even greater complexity than those of section 34A of the 1991 Act: 246 Power to release prisoners on licence before required to do so (1) Subject to subsections (2) to (4), the Secretary of State may (a) release on licence under this section a fixed term prisoner, other than an intermittent custody prisoner, at any time during the period of 135 days ending with the day on which the prisoner will have served the requisite custodial period, and (b) release on licence under this section an intermittent custody prisoner when 135 or less of the required custodial days remain to be served. (2) Subsection (1)(a) does not apply in relation to a prisoner unless (a) the length of the requisite custodial period is at least 6 weeks, (b) he has served (i) at least 4 weeks of his sentence, and (ii) at least one half of the requisite custodial period. (3) Subsection (1)(b) does not apply in relation to a prisoner unless (a) the number of required custodial days is at least 42, and (b) the prisoner has served (i) at least 28 of those days, and (ii) at least one half of the total number of those days. (6) . the requisite custodial period in relation to a person serving any sentence other than a sentence of intermittent custody, has the meaning given by paragraph (a), (b) or (d) of section 244(3);
Section 249 deals with the duration of a licence.
It provides: (1) Subject to subsections (2) and (3), where a fixed term prisoner is released on licence, the licence shall, subject to any revocation under section 254 or 255, remain in force for the remainder of his sentence.
Section 250 makes provision for licence conditions in relation to both under 12 month and over 12 month sentences.
Section 263 deals with concurrent sentences.
It provides: 263 Concurrent terms (1) This section applies where (2) Where this section applies (a) a person (the offender) has been sentenced by any court to two or more terms of imprisonment which are wholly or partly concurrent, and (b) the sentences were passed on the same occasion or, where they were passed on different occasions, the person has not been released under this Chapter at any time during the period beginning with the first and ending with the last of those occasions. (a) nothing in this Chapter requires the Secretary of State to release the offender in respect of any of the terms unless and until he is required to release him in respect of each of the others, (b) section 244 does not authorise the Secretary of State to release him on licence under that section in respect of any of the terms unless and until that section authorises the Secretary of State to do so in respect of each of the others, (c) on and after his release under this Chapter the offender is to be on licence for so long, and subject to such conditions, as is required by this Chapter in respect of any of the sentences. (3) Where the sentences include one or more sentences of twelve months or more and one or more sentences of less than twelve months, the terms of the licence may be determined by the Secretary of State in accordance with section 250(4)(b), without regard to the requirements of any custody plus order or intermittent custody order.
Section 264 is a critical provision in the context of this appeal.
It deals with consecutive sentences.
It provides: 264 Consecutive terms (1) This section applies where (a) a person (the offender) has been sentenced to two or more terms of imprisonment which are to be served consecutively on each other, and (b) the sentences were passed on the same occasion or, where they were passed on different occasions, the person has not been released under this Chapter at any time during the period beginning with the first and ending with the last of those occasions, and (c) none of those terms is a term to which an intermittent custody order relates. (2) Nothing in this Chapter requires the Secretary of State to release the offender on licence until he has served a period equal in length to the aggregate of the length of the custodial periods in relation to each of the terms of imprisonment. (3) Where any of the terms of imprisonment is a term of twelve months or more, the offender is, on and after his release under this Chapter, to be on licence (a) until he would, but for his release, have served a term equal in length to the aggregate length of the terms of imprisonment, and (b) subject to such conditions as are required by this Chapter in respect of each of those terms of imprisonment. (4) Where each of the terms of imprisonment is a term of less than twelve months, the offender is, on and after his release under this Chapter, to be on licence until the relevant time, and subject to such conditions as are required by this Chapter in respect of any of the terms of imprisonment, and none of the terms is to be regarded for any purpose as continuing after the relevant time. (5) In subsection (4) the relevant time means the time when the offender would, but for his release, have served a term equal in length to the aggregate of (a) all the custodial periods in relation to the terms of imprisonment, and (b) the longest of the licence periods in relation to those terms. (6) In this section (a) custodial period (i) in relation to an extended sentence imposed under section 227 or 228, means the appropriate custodial term determined under that section, (ii) in relation to a term of twelve months or more, means one half of the term, and (iii) in relation to a term of less than twelve months complying with section 181, means the custodial period as defined by subsection (3)(a) of that section; (b) licence period, in relation to a term of less than twelve months complying with section 181, has the meaning given by subsection (3)(b) of that section.
Subsections (4) and (5) have not been brought into force.
Section 265 provides: 265 Restriction on consecutive sentences for released prisoners (1) A court sentencing a person to a term of imprisonment may not order or direct that the term is to commence on the expiry of any other sentence of imprisonment from which he has been released early under this Chapter.
This reflects sentencing policy that a prisoner should not be released under licence under one sentence before the commencement of the custodial period of a consecutive sentence.
The Transitional Provisions
The Criminal Justice Act 2003 (Commencement No.8 and Transitional and Saving Provisions) Order 2005 brought into force as from 4 April 2005 provisions of the Act that related to over 12 month sentences, as set out in Schedule 1.
At the same time sections 32 to 51 of the 1991 Act were repealed.
Schedule 2 set out Transitional and Saving Provisions.
Paragraph 14 provided: Saving for prisoners serving sentences of imprisonment of less than 12 months 14.
The coming into force of sections 244 to 268 of, and paragraph 30 of Schedule 32 to the 2003 Act, and the repeal of sections 33 to 51 of the 1991 Act, is of no effect in relation to any sentence of imprisonment of less than twelve months (whether or not such a sentence is imposed to run concurrently or consecutively with another such sentence).
The interpretation of this paragraph (Paragraph 14) lies at the heart of this appeal.
Paragraph 14 serves one obvious purpose.
Because section 181 and section 244(3)(b) had not been brought into force and sections 32 to 51 of the 1991 Act were repealed there was no provision for early release, or eligibility for HDC release, for prisoners serving under 12 month sentences.
Paragraph 14 was clearly intended to make provision for such sentences, at least when not imposed concurrently or consecutively with over 12 month sentences, to continue to be dealt with exclusively under the 1991 Act.
If imposed consecutively to other under 12 month sentences, these would be aggregated pursuant to the provisions of section 51(2) of the 1991 Act and the provisions of section 33 and section 34A applied to the aggregate.
This would produce a similar result to that produced by sections 244 and 246 of the 2003 Act in relation to over 12 month sentences.
The Enigma
The terms of paragraph 14 raise two questions: 1) What is the object and effect of the words in brackets (whether or not such a sentence is imposed to run concurrently or consecutively with another such sentence)? 2) Where sentences of under and over 12 months are ordered to be served consecutively, how are they to be linked together and how are provisions as to early release, release on HDC and licence to operate in relation to each sentence?
The words in brackets focus on the effects of concurrent and consecutive sentences.
One object that they may have been intended to serve is to make it clear that the provisions of sections 263 and 264 of the 2003 Act are to have no application to sentences which are all of less than 12 months.
It is plain, as Mr Giffin QC for the respondents conceded that the word such in the sentence in brackets relates to sentences of less than 12 months.
The fact that the words in brackets do not relate to under 12 month sentences which are imposed to run consecutively with over 12 month sentences helps, I believe, to answer the second question that forms part of the enigma.
Before turning to this I shall set out the way in which the Secretary of State suggests that this question should be answered and then summarise the answers to it given by the courts below.
The Policy of the Secretary of State
The National Offender Management Service, setting out the policy of the Secretary of State, gave the following instructions to prison establishments as to how to calculate sentences and administer the HDC scheme: the 1991 Act applies (and the 2003 Act does not apply) to all sentences of under 12 months whenever the offences are committed, and so the provisions of the 1991 Act are applied to single term all [sic] sentences of under 12 months, the release date to be calculated in accordance with that Act.
The 2003 Act plainly applies for this purpose to all sentences of 12 months or more where the offence was committed on or after 4 April 2005, and so the custodial periods of such consecutive sentences of 12 months or more must be aggregated, the release dates calculated in accordance with that Act.
There will of course be transitional cases where a number of consecutive sentences are given, some being 12 months or more and some being under 12 months.
We take the position that the 1991 Act therefore applies to those sentences under 12 months and the 2003 Act applies to those of 12 months or more where the offence was committed on or after 4 April 2005.
The consecutive sentences that are single termed under the 1991 Act, and the aggregated sentences under the 2003 Act are treated as two separate sentences ie one 1991 Act sentence and one 2003 Act sentence.
Eligibility for HDC is calculated by reference to the custodial term being served.
So for example under the 1991 Act, a prisoner is not eligible for release on HDC until he has served the requisite period ie the requisite custodial term, as specified in section 34A(3) of the 1991 Act.
Similarly, a prisoner sentenced under the 2003 Act is not eligible for HDC until he has served the requisite custodial period in section 246 of the 2003 Act .
A prisoner only becomes eligible for HDC after the requisite custodial part of the last sentence has been served.
Under these instructions the licence period and the HDC eligibility depended entirely on the order in which the consecutive sentences fell to be served.
As to this prison governors were instructed to proceed on the basis that sentences were to be served in the order imposed by the court.
Mitting Js decision
Mitting J [2008] EWHC 207 (Admin) held that the Secretary of State could not lawfully lay down such a policy.
He held at para 32: The only policy capable of giving effect to the policy of the 2003 Act and to the rational expectations of prisoners dealt with under both Acts is to ensure that they are not disadvantaged in relation to Home Detention Curfew, but are subject to the maximum period of licence on release which can lawfully be imposed.
Mitting J directed the first respondent forthwith to consider whether the appellant should be released on HDC, and she was so released on 8 February 2008.
The decision of the Court of Appeal
The leading judgment of the Court of Appeal [2008] EWCA Civ 1097; [2009] 1 WLR 1321 was delivered by Scott Baker LJ.
He agreed with Mitting J that the Secretary of State had had no jurisdiction to issue the policy direction.
He held, however, that fortuitously the Secretary of States policy direction reflected the position in law.
It was for the judge in his discretion, recognised by section 154 of the Powers of Criminal Courts (Sentencing) Act 2000, to direct how and in what order consecutive sentences should be served, but in the absence of any express direction there was a inference that sentences should be served in the order in which they were imposed.
His conclusions appear in the following passage of his judgment: 53.
Assuming the judge has said no more than that one sentence is to be consecutive to another, it is necessary to construe in a common sense way what section 154 direction the judge is to be taken to have given as to when the second sentence should commence.
It seems to me obvious that the second sentence starts at the point at which release from the first sentence would otherwise occur as of right ie the conditional release date of the first sentence.
The other theoretical options are unrealistic.
The judge could not intend the second sentence to start when there is merely the possibility of release on a discretionary basis from the first sentence and the direction might or might not be exercised in the prisoner's favour.
Nor could the judge intend the second sentence to start only at the sentence expiry date of the first sentence because the consequences would be that the prisoner would be released on licence from the first sentence and later recalled to start serving the second sentence.
Accordingly, the second sentence begins, by virtue of the section 154 direction, at the conditional release date of the first sentence and the prisoner is to be treated as eligible for release on HDC and/or release on licence in accordance with the statutory provisions applicable to the second sentence.
Those provisions will be those of the 1991 Act where the second sentence is less than 12 months and those of the 2003 Act where the second sentence is 12 months or more.
Submissions
Mr Weatherby for the appellant made the following powerful attack on the result reached by the Court of Appeal. i) It is at odds with the legislative intention.
It produces a result which differs from the uniform approach to consecutive sentences of both the 1991 Act and the 2003 Act.
The transitional provisions could not possibly have been intended to produce this result. ii) It leaves a legislative lacuna as to the way in which consecutive sentences should function where some are for less than 12 months and some are for more. iii) To infer that an order that two sentences are to be consecutive directs that the second should start when the custodial part of the first ends has no basis in law and converts a sentence that is directed to be consecutive into a sentence which is in part concurrent.
There is force in these submissions.
To them could be added that the decision of the Court of Appeal opens the door to the possibility of capricious results, places a near intolerable burden on the sentencer and does not readily cater for the position where a series of sentences is imposed of which some are over and some are under 12 months.
Mr Weatherby submitted to us, as he did to the courts below, that it was possible so to interpret paragraph 14 as to provide that the 1991 Act determines the release date, and thus the custodial period and eligibility to HDC, of all under 12 month sentences, but that when such a sentence is imposed consecutively to a sentence of over 12 months, the effect of the two together is determined by section 264 of the 2003 Act.
Mr Giffin did not seek to challenge the submission that the decision of the Court of Appeal, and the prior policy of the Secretary of State, produced capricious and anomalous results.
Nor did he suggest that there was any principle or policy that justified such results.
He simply submitted that it was not possible on the wording of the relevant provisions of the 2003 Act and of paragraph 14 to reach the solution for which Mr Weatherby contended.
Conclusions
The decisions of the courts below and the submissions of Mr Giffin offer no explanation whatsoever for the words in brackets in paragraph 14.
I have already said that I think it significant that those words draw an implicit but clear distinction between under 12 month sentences imposed concurrently or consecutively with other similar (such) sentences and under 12 month sentences imposed concurrently or consecutively with sentences of over 12 months.
The clear indication is that they are to receive different treatment.
The draftsman has been too economical with his language to make his intention readily apparent.
I have reached the conclusion that to give true effect to the wording of paragraph 14, and in particular the words in brackets, it should be read as follows: The coming into force of sections 244 to 268 [of, and paragraph 30 of Schedule 32 to, the 2003 Act], and the repeal of sections 33 to 51 of the 1991 Act, is of no effect in relation to any sentence of imprisonment of less than twelve months (other than a sentence which is imposed to run concurrently or consecutively with a sentence of twelve months or more).
The effect of this is that the provisions of the 1991 Act apply to sentences of under 12 months provided that these are not imposed concurrently or consecutively with sentences of 12 months or over, and the 2003 Act will apply to sentences of under twelve months that are imposed concurrently or consecutively with sentences of 12 months or over.
I believe that this reading clarifies the intention of the draftsman of paragraph 14, but some problems remain in relation to the application of the 2003 Act to concurrent and consecutive sentences which combine sentences of less than and more than 12 months.
I turn to the 2003 Act to examine how these can be resolved.
Concurrent sentences: sections 244 and 263(2)
Section 244 deals with the duty of the Secretary of State to release on licence.
This duty applies when the prisoner has served the requisite custodial period.
What is the requisite custodial period in the case of concurrent sentences? Section 244(3)(d) applies so it is necessary to refer to section 263(2).
Section 263(2) requires reference back to section 244 to see when the Secretary of State is required to release the prisoner on licence in respect of each individual sentence.
Section 244(3)(a) provides that, in the case of a sentence of 12 months or more, this is after serving one half of the sentence.
There is, however, no provision that supplies the answer in respect of sentences of less than twelve months, because section 244(3)(b) has not been brought into force.
We are, however, dealing with the hypothetical question of when the Secretary of State would have been required to release the prisoner had his sentence not been imposed concurrently with the longer, over 12 month, sentence.
Section 33(1) of the 1991 Act applies in that hypothetical situation and provides the answer that the prisoner would have to be released after serving half his sentence.
Thus section 244, when read with section 263(2) must be read as requiring the prisoner to be released on licence when he has served one half the shorter and one half the longer of the concurrent sentences.
In practice, of course, it will always be the longer, over 12 month, sentence that constitutes the relevant custodial period which governs release, so the problem of ascertaining the release date for the shorter sentence is somewhat academic.
Consecutive sentences: sections 244 and 264(2)
Once again section 244(3)(d) applies.
This time it is necessary to refer to section 264(2) in order to identify the requisite custodial period in the case of consecutive sentences.
This subsection requires one to identify the custodial period in relation to each sentence.
Section 264(6)(a)(ii) provides the answer in respect of the over 12 month sentence.
It is half the sentence.
But there is no definition of custodial period for the under 12 month sentence or sentences, because section 181, which would have determined this, has not been brought into force.
The custodial period in relation to an under 12 month sentence is, however, obvious.
It is the half of the sentence that the prisoner would have had to serve before release, had his sentence not been imposed consecutively with an over 12 month sentence.
The relevant custodial period is the amalgam of all the individual custodial periods.
HDC release: section 246
This section gives the Secretary of State power to release a prisoner on licence up to 135 days before the day on which he will have served the requisite custodial period, subject to the restrictions in subsections (2), (3) and (4).
Section 246(6) provides that requisite custodial period has the meaning given by paragraph (d) of section 244(3) in the case of a prisoner serving consecutive sentences.
Thus this period is determined in the manner that I have described in the previous paragraph.
The effect of this interpretation of paragraph 14, coupled with the relevant provisions of the 2003 Act, provides uniformity of approach, regardless of the order in which the individual sentences were imposed, qualifies the prisoner for the maximum grant of HDC release, but at the same time subjects the prisoner to the latest sentence and licence expiry date.
on 24 May 2007, was correct.
process of reasoning.
For these reasons I would allow this appeal.
I am encouraged that Lord Mance has reached the same result by a similar In the present case, the first release date notification, given to the appellant
LORD SAVILLE
I would allow this appeal.
For the reasons given by Lord Phillips and Lord Mance, I have no doubt that by one route or another the legislation must be construed so as to avoid what would otherwise produce irrational and indefensible results that Parliament could not have intended.
judgment.
I would also associate myself with the observations of Lord Brown in his
LORD BROWN
In common with Lord Phillips and Lord Mance I too would allow this appeal.
The construction of this legislation, in particular the transitional and saving provisions of the 2005 Order, adopted hitherto has led to the most astonishing consequences which no rational draftsman can ever have contemplated, let alone intended.
Suppose the judge passes an 18 month sentence with 6 months consecutive: the prisoner becomes eligible for HDC release 45 days before his mandatory release date.
But suppose the sentence had been imposed as 6 months imprisonment with 18 months consecutive (i.e. pronounced in a different order): HDC eligibility is then 135 days before the same mandatory release date.
Or suppose the sentence is passed as 2 years imprisonment for the more substantial offence with 6 months concurrent for the lesser offence: again, HDC eligibility is 135 days.
Or suppose that a prisoner whilst still serving the custodial part of an 18 month sentence (with the prospect of HDC release 135 days before his mandatory release after 9 months) is sentenced to a consecutive term of 1 month imprisonment.
He would thereupon lose all prospect of HDC release, there being no such eligibility on a term under 3 months.
These examples can easily be multiplied but the point is surely obvious: it can never have been Parliaments intention that HDC eligibility (and, as a corollary, the licence period following release) should depend on such vagaries of sentencing practice.
One can but pay tribute to the succession of judgments which have sought to grapple with the intractable problems of construction thrown up by these ill conceived transitional provisions notably those of Dobbs J in R (Highton) v Governor of Lancaster Farms Young Offender Institution [2007] EWHC 1085 (Admin), Scott Baker LJ (concurred in by Wall LJ and Sir Anthony Clarke MR) in the present case, and Hughes LJ, President of the Criminal Division of the Court of Appeal, giving the judgment of that Court in R v Round [2009] EWCA Crim 2667 and, of course, one understands why they felt driven to the conclusion they arrived at.
But the judgments serve also to underline the absurdities of that conclusion.
As, indeed, Hughes LJ observed in Round (para 51): We are very conscious that the varying, not to say erratic, effect of the existence of two differing statutory regimes applying to the same defendant is to create real and disturbing anomalies between prisoners who ought in fairness to be treated similarly.
To my mind the problems created by the Court of Appeals construction of this legislation are, quite simply, intolerable.
Nor, generally, has it been open to sentencing judges to mitigate them.
To quote again from the Courts judgment in Round (para 49): Our clear conclusion is that it is not wrong in principle for a judge to refuse to consider early release possibilities when calculating his sentence or framing the manner or order in which they are expressed to be imposed.
We are quite satisfied that it is neither necessary nor right, nor indeed practicable, for a sentencing court to undertake such examinations.
Ordinarily, indeed, it will be wrong to do so, although there may be particular cases in which an unusual course is justified.
The judge must be left to express his sentences in the most natural and comprehensible manner possible.
Very often that will no doubt mean that the principal, and longest, sentence comes first.
In other cases it may not, for example because, as in Dunne, the judge follows the chronological or indictment order of offences.
In these circumstances the Senior Presiding Judges letter circulated to all Crown Courts, referring to the Court of Appeals decision in the present case and enclosing a note from the Prison Service explaining how these sentences are in fact dealt with, could do little if anything to improve the situation.
Either sentencing judges should pay heed to such information and adjust their sentencing practices accordingly to produce what they conceive to be the fairest result, or they should ignore it and carry on as usual.
They cannot do both.
That, however, is essentially by the way.
Henceforth, on this courts construction of the legislation, the order in which sentences are imposed will make no difference whatever.
As to the precise route by which this plainly preferable construction is to be reached, I am entirely content to follow that taken by Lord Phillips and Lord Mance or, indeed, supposing there to be any substantial difference between them, either of these routes.
Both judgments to my mind offer perfectly cogent approaches to the various legislative provisions in play and, so absurd is the alternative conclusion hitherto arrived at, almost any coherent alternative construction will suffice.
Had paragraph 14 of Schedule 2 to the 2005 Order really been drafted unambiguously to refer to all under 12 months sentences, even those imposed consecutively or concurrently with over 12 months sentences, there just might have been no alternative but to accept the Court of Appeals construction and dismiss this appeal.
As both Lord Phillips and Lord Mance amply demonstrate, however, that is very far from the case.
Indeed, for this to be the case, to my mind it would have been necessary for the words in parenthesis in paragraph 14 expressly to include, rather than (as they appear to do) implicitly exclude, consecutive or concurrent terms of both under 12 months and over 12 months.
It is, after all, precisely this situation which produces the bizarre consequences which Mr Giffin QC recognises, indeed asserts, flow from his contended for construction of paragraph 14.
The appeal must accordingly be allowed.
LORD MANCE
The appellant was on 23 May 2007 sentenced for five offences, all committed on or after 4 April 2005, the date when much of the Criminal Justice Act 2003 came into force.
For one offence of theft, she received 22 months imprisonment, for three further offences, 4 months imprisonment on each, concurrent to one another but consecutive to the 22 months sentence, and for contempt, 1 month consecutive to all the other sentences: a total of 27 months.
Prior to sentence, the appellant had been on remand in custody for 40 days, i.e. since 13 April 2007.
The appeal concerns the inter relationship of provisions in the Criminal Justice Acts 1991 and 2003.
The 2003 Act was conceived as a coherent whole, containing sentencing provisions replacing and making irrelevant reference to those of the former Act.
In the event, certain provisions particularly those governing early release under sentences of less than 12 months have never (for resource reasons) been brought into force.
The 1991 Act, and in particular sections 33 to 51 relating to early release, thus had to be given a continued application in relation to sentences of less than 12 months.
The appeal arises from the fact that the appellant was sentenced both to sentences of less than 12 months and to a longer (22 month) sentence.
The issue is, in short: how far, and how, does either or both of the schemes in the 1991 and 2003 Acts apply? The issue does not affect the appellants conditional release date (CRD) the date when she was entitled to be released.
But it does affect the earlier date upon which she became eligible for home detention curfew (HDC) as well as her sentence and licence expiry date (SLED) after release.
The effect can be illustrated by the prison authorities own change of mind.
On 24 May 2007, the appellant was given a notification slip informing her of a HDC date of 15 January 2008, a CRD of 28 May 2008 and a SLED of 13 July 2009.
On 18 July 2007 this was replaced by a slip notifying her of a HDC date of 20 April 2008, a CRD as before of 28 May 2008 and a SLED of 10 February 2009.
The dates on the first slip were arrived at by combining all the sentences (giving a total term of 27 months), taking the half way point of that term (28 May 2008) as the CRD under section 244(3)(a) of the 2003 Act and deducting 135 days from that point under section 246(1)(a) in order to arrive at the HDC date of 15 January 2008.
The licence period was treated as running to the end of the full 27 month term under sections 249(1) and 264(3).
The appellant maintains that this approach was correct.
The dates on the second slip were arrived at by treating the 22 month sentence as subject to the 2003 Act, and the four shorter sentences as subject in all respects to the 1991 Act and by treating the longer term as commencing first because the sentencing judge pronounced it first.
Thus, the 22 month sentence, running first as a separate sentence subject to the 2003 Act, reached its CRD under section 244(3)(a) after 11 months, i.e. on 13 March 2008.
The four short sentences subject to the 1991 Act fell by section 51(2) of that Act to be treated as a single term of 5 months.
This term was treated as running from the CRD under the 22 month sentence, i.e. from 13 March 2008, and as having under section 34A(4)(b) of the 1991 Act a HDC date after a period equal to one quarter of the term, that is after 1 months, and so on 20 April 2008.
The SLED date was stated as 10 February 2009, when the 22 month sentence expired (the 5 month term of the shorter sentences having by then long since expired, on 13 August 2008).
Mr Giffin QC for the Secretary of State accepted in oral submissions that even the second slip might not strictly be correct, since, if the 22 month sentence is treated as a separate sentence running independently until 13 March 2008 and the remaining 5 months sentences only began running from that date, then strictly the 22 month sentence should under section 246(1)(a) of the 2003 Act have attracted its own HRD 135 days before 13 March 2008 (i.e. on or about 1 November 2007).
However, he submitted that the Secretary of State would never in fact have exercised a discretion to release a prisoner on home detention curfew between 1 November 2007 and 13 March 2008 when the 5 month sentence remained to be served after 13 March 2008, with the result that the second slip could, for practical purposes, be taken as correct.
The existence in law, but the loss for practical purposes, of the period of eligibility for HRD under the 22 month sentence is only one of a number of striking anomalies arising from the general approach taken by the second slip.
An offender would be deprived of a substantial period during which he might otherwise ask for release on home detention curfew, simply because he was made subject to a second, consecutively running sentence, however short.
This second sentence might indeed be imposed at a later date while the offender was already serving the first sentence, and its effect would then be sharply to reduce the period of eligibility to HDC, or even (since there was under s34A(4)(a) of the 1991 Act no eligibility to HDC in the case of any term of less then 3 months) to eliminate it altogether.
A second anomaly is that the approach in the second slip treats the 5 month term, as from the CRD of the 22 month sentence, as running concurrently with the 22 month sentence.
Such a result could be achieved, by express direction under section 154(1) of the Powers of Criminal Courts (Sentencing) Act 2000.
But here it would, on its face, be contrary to the sentencing judges direction that the sentences should run consecutively.
It also has the effect that any licence period under the 5 month term (in particular, the licence period which would run until the two and a half month point, if the offender were to be released under section 34A(4)(b) on his HDC date after serving one quarter of that term) runs concurrently with the longer licence period under the 22 month sentence, and is effectively submerged in it and lost.
The matter is even more complex, because there may well be cases where, for example, the first and third sentences passed during a judges sentencing exercise are for periods of 12 months or more, whereas the second and fourth sentences are for periods less than 12 months.
The solution to this advanced by the Secretary of State and Court of Appeal is to combine all sentences of 12 months or more and treat them as commencing with the first such sentence passed, and likewise to combine all sentences of less than 12 months and treat them as commencing with the first sentence of less than 12 months passed.
But this solution is only achieved by departing from the rule otherwise adopted under the approach of the second slip, that sentences should be taken in the order pronounced.
A third anomaly is that the approach in the second slip has radically different effects according to which sentence is treated as being served first.
If the 5 month term of the four shorter sentences were taken first and the 22 month sentence were treated as running from the CRD (after 2 months, on or about 28 June 2007) of that 5 month term, then the offender would under section 264(1)(a) be eligible for home detention curfew 135 days before the half way point (28 May 2008) of the 22 month sentence, i.e. on 13 January 2008.
Which way around sentences are treated as being served depends, on the construction advanced by the Secretary of State and accepted by the Court of Appeal, upon which way around the sentencing judge expresses them, or at least (see the previous paragraph) in which order he expresses the first sentence with which he deals in each category (less than 12 months and 12 months or more).
Judges in their sentencing remarks commonly take the longest sentence first, which leads to the least favourable result regarding HDC for offenders in the situation presently under consideration.
Mitting J thought that the third anomaly should have been resolved by the Secretary of State adopting a policy ensuring that offenders were subject to the maximum period of licence on release which can lawfully be imposed (para 32).
He declared invalid the Secretary of States existing policy (according to which the first imposed sentence was treated as running first), and the Secretary of State thereupon decided to release the offender on HDC on 8 February 2008 (later determining that the time spent on release would count towards the custodial part of her sentence, whatever the outcome of any appeal).
The Court of Appeal considered, rightly, that the Secretary of State had no power by way of policy statements to dictate matters such as eligibility for release on licence or the amount of time spent on licence with liability to recall.
However, it also considered that the Secretary of States policy of taking the sentences in the order passed reflected the correct legal position.
In R v Round and Dunn [2009] EWCA Crim 2667 the Court of Appeal loyally followed the authority of the Court of Appeal in the present case, and, after comprehensive examination of the complexities and possibilities to which it gave rise, rejected an argument that sentencing judges should structure their remarks to make the shortest sentence first.
It was not incumbent on such a judge, indeed it was ordinarily wrong, to consider early release possibilities when calculating his sentence or framing the manner or order in which they are [sic] expressed to be imposed (para 49).
There was a statutory anomaly, perpetrated (however accidentally) by the Executive and contrary to the discernible policy of Parliament (para 33), and the varying, not to say erratic, effect of the existence of two differing statutory regimes applying to the same defendant is to create real and disturbing anomalies between prisoners who ought in fairness to be treated similarly (para 51).
But the judge must be left to express his sentences in the most natural and comprehensible manner possible (para 49).
A fourth and fundamental anomaly is that the approach taken in the second slip is quite different in nature and leads to quite different results both to any applying under the 1991 Act, when that was the only relevant piece of legislation, and to any which would have applied under the 2003 Act had that come fully into effect (as must have been envisaged when it was enacted).
In short, the transitional provisions bringing the 2003 Act into force in many respects, but keeping the 1991 Act in force in some other respects, are said to have achieved a result which Parliament did not intend by either Act.
Under the 1991 Act, all the sentences, of whatever length, would have fallen under section 51(2) to be treated as a single term.
The early release provisions, in particular sections 33 and 34A, would then have applied to that single term.
The CRD would have been after one half of the term in the case of a short term prisoner sentenced to less than twelve months or two thirds in the case of a long term prisoner sentenced to four years or more (section 33(1) and (2)).
The HDC date for short term prisoners would have been on a scale ranging up to 135 days before the CRD.
After the CRD, prisoners subject to a term of less than 12 months were to be released unconditionally (sections 33(1)(a) and 33A(1)), while prisoners whose term was for a term of 12 months or more remained on licence until the three quarters date of their nominal term (section 37(1)).
Under the 2003 Act, a different approach was adopted, with largely similar, but in certain respects different, consequences.
Instead of treating all sentences passed as a single term, the 2003 Act treats them as separate, and then under sections 244 and 264 aggregates the custodial periods of all sentences to arrive at the CRD, with the HDC date arising 135 days before the CRD (section 246(1)(a)).
In relation to any sentence of 12 months or over, the custodial period is under section 244(3)(a) one half (in contrast to the position under the 1991 Act, where it was two thirds for long term offenders serving four years or more).
Further, under sections 244(1) and 249(1), the licence remains in force for the whole nominal period of any sentences (in contrast to the position under the 1991 Act, which entitles a prisoner serving a sentence or sentences constituting a single term of less than 12 months to be released unconditionally after serving one half of that term and under which the licence in respect of any longer term only lasts until the three quarters date).
Against this background, I turn to the statutory instrument which has been the main focus of this appeal.
This is the Criminal Justice Act 2003 (Commencement no. 8 and Transitional and Saving Provisions) Order 2005 (S.I. 2005 no. 950) (the 2005 Order).
In consequence of the decision not to introduce provisions of the 2003 Act and to continue the application of the 1991 Act relating to sentences of less than 12 months, the 2005 Order: i) did not include (in Schedule 1, listing provisions to come into force on 4 April 2005) section 181 of the 2003 Act, which would have regulated the permissible term of any sentence less than 12 months and required the court when passing such a term to specify a period, referred to as the custodial period, of a length also regulated by the section, at the end of which the offender was to be released on licence for the remainder of the nominal term; ii) did bring into force section 244(1), (2) and (3)(a) and (d), which requires the Secretary of State to release fixed term prisoners on licence after they had served the requisite custodial period, and defines this period in relation to any person serving a term of 12 months or more as one half of his sentence, and in relation to a person serving two or more concurrent or consecutive sentences as the period determined under (so far as material) section 264(2); but did not bring into force section 244(3)(b) and (c), which would have defined the requisite custody period for sentences of less than 12 months (and for intermittent custody orders); iii) also brought into force section 264(1) to (3), (6) and (7), regulating the situation of a person sentenced to two or more consecutive sentences on the same occasion or in circumstances where the prisoner remained in custody at any time during the period beginning with the first and ending with the last occasion on which they were passed.
Section 264(2) provides Nothing in this Chapter requires the Secretary of State to release the offender on licence until he has served a period equal in length to the aggregate of the length of the custodial periods in relation to each of the terms of imprisonment. and section 264(6)(a)(ii) defines the custodial period as meaning, in relation to a term of 12 months or more, one half of that term; section 264(3) reads: Where any of the terms of imprisonment is a term of twelve months or more, the offender is, on and after his release under this Chapter, to be on licence (a) until he would, but for his release, have served a term equal in length to the aggregate length of the terms of imprisonment, and (b) subject to such conditions as are required by this Chapter in respect of each of those terms of imprisonment. iv) did not bring into force section 264(4) and (5), providing that [w]here each of the terms of imprisonment is a term of less than twelve months, the offender was on and after release to be on licence until the relevant time, defined as the aggregate of all the custodial periods and the longest of the licence periods in relation to such terms; though it did, as section 264(6)(a)(iii), bring into force a definition of custodial period as meaning, in relation to a term of less than 12 months complying with section 181, . the custodial period as defined by subsection (3)(a) of that section.
This definition was, however, otiose or inoperable since section 181 was not brought into force (see point (i) above); v) included among the Transitional and Saving Provisions contained in Schedule 2 was the following provision (para 14), which is critical for present purposes: Saving for prisoners serving sentences of imprisonment of less than 12 months 14.
The coming into force of sections 244 to 268 ., and the repeal of sections 33 to 51 of the 1991 Act, is of no effect in relation to any sentence of imprisonment of less than twelve months (whether or not such a sentence is imposed to run concurrently or consecutively with another such sentence).
Under Schedule 2, para 14 it is at least clear that, in a case where an offender is subject to one sentence of less than 12 months and no other sentence at all, the full regime of sections 31 to 51 of the 1991 Act continues to apply.
Likewise, in a case where an offender is subject to several sentences each of less than 12 months.
Their total term may amount to 12 months or more, but they will still be treated as a single term under section 51(2) of the 1991 Act.
The problem comes when there is (as in the present case) a series of consecutive sentences, some of less than 12 months and at least one of 12 months or more.
Mr Giffin submits that the language is clear: the coming into force of sections 244 to 268 of the 2003 Act (so far, that must mean, as Schedule 1 otherwise brings them into force) and the repeal of sections 33 to 51 of the 1991 Act is [sic] of no effect in relation to any sentence of imprisonment of less than twelve months.
So in this situation, he submits and the Court of Appeal accepted, any and every sentence of less than twelve months must be segregated from any other sentence(s) to which it is concurrent or consecutive (whether such other sentences are for less than 12 months or for 12 months or more) and must remain subject to the 1991 Act.
On the other hand, in relation to any sentences of 12 months or more, there is nothing in para 14 to prevent the coming into force of sections 244 to 268 or the repeal of sections 33 to 51 having effect, and any such sentences are therefore subject to, in particular, section 244(1) and (3), section 246(1)(a) and section 264(1) to (3), (6) and (7) of the 2003 Act.
Two separate regimes have to be applied entirely separately, and there is, contrary to the scheme of both Acts, no mechanism for combining or aggregating sentences, or any aspect of sentences, which are subject to different regimes.
Mr Giffin does not deny that this construction leads to the anomalies identified in paras 55 to 60 above.
But he says that the wording compels it.
Summum jus, summa injuria.
Any suggestion that para 14 could be read as maintaining the 1991 Act in force for sentences of 12 months or more as well as sentences of less than 12 months, whenever these happened to be passed concurrently or consecutively with each other, conflicts with the fact that para 14 only applies in relation to any sentence of imprisonment of less than 12 months.
It is also inconceivable that the legislator could have intended that the mere passing of, say, a three month sentence to follow a 4 year sentence could take both outside the scheme of the 2003 Act, with all that this would entail (for example, the requirement to serve two thirds of the sentence under section 33(2) of the 1991 Act, rather than half under section 244(3)(a) of the 2003 Act, before the CRD, and the shorter licence period under the 1991 Act).
At first sight, the bracketed words in para 14 provide a simple answer to the construction advanced by Mr Giffin and accepted by the Court of Appeal as set out in para 64 above.
The bracketed words whether or not such a sentence is imposed to run concurrently or consecutively with another such sentence contemplate only two situations: one where the only sentence passed is a sentence of less than 12 months, the other where such a sentence is passed concurrently or consecutively with one or more other sentences each also of less than 12 months.
They therefore suggest that, despite the initial generality of the phrase in relation to any sentence of imprisonment of less than 12 months, the author was not dealing with the situation of a sentence of less than 12 months passed concurrently or consecutively with one or more sentences of 12 months or more.
This would be understandable, since it would mean that the provisions of sections 244 to 268 brought into force under Schedule 1 would apply in this situation.
They include provisions which expressly contemplate and provide for the situation, in particular section 263(3), providing that where concurrent sentences include one or more sentences of twelve months or more and one or more sentences of less than twelve months, the terms of the licence may be determined by the Secretary of State in accordance with section 250(4)(b) . , and section 264(3), commencing Where any of the terms of imprisonment is a term of 12 months or more .
Unfortunately, this simple answer faces the difficulty that, in order to apply section 264(2) and (3) to situations where there are sentences of a length falling either side of 12 months, it must be possible to identify a custodial period in relation to the sentence or sentences of less than 12 months.
The provisions of section 181 and 244(3)(b) were intended to identify this under the 2003 Act, but they have never been brought into force, and, without them, the definition in section 264(6)(a)(iii), which was intended under the scheme of the 2003 Act to apply the definition of custodial period contained in section 181 to the earlier subsections of section 264, is inoperable (para 62(iv) above).
Further, if situations where there are sentences both of less than 12 months and of 12 months or more are in every respect outside the reach of para 14, that also means that sections 33 to 51 of the 1991 Act were repealed in their entirety in relation to any sentence of less than 12 months passed concurrently and consecutively with sentences of 12 months or more, so that it becomes on the face of it impossible to derive any custodial period from section 33(1)(a) of the 1991 Act.
Nevertheless, it is clear that the author of para 14 had in mind two things.
First, sections 181, 244(3)(b) and (c) and 264(4) and (5) had not been brought into force and it was therefore important to preserve the regime of the 1991 Act in respect of any individual sentence of less than 12 months.
Second, he needed to address cases where there were two or more sentences each of less than 12 months.
Section 264(4) and (5) of the 2003 Act were originally intended to address such situations.
But they could not be brought into effect or applied to such situations, so long as section 181 was not in effect.
Had section 264(4) and (5) come into force without section 181, the approach which they embody would have led to there being no licence period after the CRD at all.
This is because section 264(5) requires regard to be had to the aggregate of all the custodial periods and the longest individual licence period under any of the relevant sentences, viewed individually.
In the absence of section 181, there would be no such licence period. (Equally, if it had been provided that the sentences of less than 12 months should be viewed individually as if they were subject to the 1991 Act, none of them would give rise to any licence period, because each would attract a right to release unconditionally at its half way point under sections 33(1)(a) of the 1991 Act: see para 60 above.)
In these circumstances, the author of para 14 made clear by the bracketed words that, where there were two or more sentences and each was of less than 12 months, sections 33 to 51 of the 1991 Act were to continue to govern the situation.
Such sentences might amount in total to more than 12 months, but they would still remain subject to the 1991 Act.
In particular, two such sentences totalling more than 12 months could and would (under section 51(2) of the 1991 Act) continue to be treated as a single term of more than 12 months, so that there would under section 37(1) continue to be a licence period (after release at the half way point under section 33(1)(b)) up to the three quarters point of that term.
The words in brackets in para 14 of Schedule 2 to the 2005 Order were, on the other hand, clearly drafted so as not to deal with the situation of one or more sentences of 12 months or more being passed concurrently or consecutively with one or more sentences of less than 12 months. (It is common ground that the phrase another such sentence means and can only mean another sentence of less than twelve months.) Sections 263 and 264(2) and (3) had been brought into force by Schedule 1 to the same Order.
Their language expressly contemplates and covers the situation of sentences passed of a length either side of 12 months: see para 66 above.
Yet, on the Secretary of States and Court of Appeals approach, they cannot apply to such a situation.
That cannot have been meant; and this, in my opinion, also provides a key to understanding why the bracketed words in para 14 are limited to cases where the only sentence(s) in the arena had a term of less than 12 months.
Leaving aside the difficulty of identifying an applicable definition of custodial period in this situation for the sentences under 12 months, it made sense to bring the provisions of sections 244 to 268 including sections 263(3) and 264(2) and (3) into force, which Schedule 1 did as from 4 April 2005, and it makes sense for these provisions to cover the situation of sentences of a length either side of 12 months.
The licence period applicable in that situation would under section 264(3)(a) last until the end of the aggregate length of all the terms of imprisonment imposed.
Eligibility for HDC would fall to be determined under section 246, which ties it back to the CRD specified in section 264(2) (see sections 246(1) and (6) and 244(3)(d)).
In the compressed wording of para 14, the author was attempting to achieve and reflect this result.
However, he must have overlooked the fact that, without section 181, the definition in section 264(6)(a)(iii) of custodial period in relation to any sentence of less than 12 months is inoperable, and that, if he limited the application of para 14 to cases where no sentence of 12 months or more was in question, then section 33(1)(a) would not, on its face, be available to supply the definition and fill the gap in the situation where there were sentences of a length either side of 12 months.
However, the continued application of section 33(1)(a) to all cases where the only sentence or sentences in existence are of less than 12 months (giving a custodial period of one half in respect of such sentences) leaves no doubt about the custodial period which the author would and must have intended would apply under sections 263(3) and 264(2) and (3), if, as I consider, he must have intended these to apply to mixed sentences of a length either side of 12 months. (The appropriateness of a custodial period of one half is merely reinforced by the fact that this is also the custodial period in relation to terms of 12 months or more under the 2003 Act: section 264(6)(a)(ii).) Apart from the objection that, under the literal language of para 14, section 33(1)(a) does not apply in relation to the situation of mixed sentences either side of 12 months, I would see no difficulty about deriving a custodial period of one half for the purposes of section 264(2) and (3) from sections 33(1)(a).
The definition in section 264(6) is not expressed in exhaustive terms, and, even if it were, the inoperability of section 264(6)(iii), in circumstances in which section 181 has never been brought into force, would justify recourse to the 1991 Act to fill the consequent gap.
The author of para 14 may have failed literally to give effect to these intentions; he may well, as the Court of Appeal (in view of other presently irrelevant drafting errors in Schedule 2) suggested in R (Buddington) v Secretary of State for the Home Department [2006] EWCA Civ 280; [2006] 2 Cr App R (S) 109, para. 18, have been suffering from Homeric exhaustion; but each literal construction that has been suggested has wholly implausible and unacceptable consequences.
On the other hand, a purposive construction makes it possible, for the purposes of section 264(2), (3) and (6)(a)(iii), to apply the definition of custodial sentence in section 33(1)(a) (which under para 14 applies on any view to all cases of one or more sentences all of less than 12 months) to the situation where there are sentences of a length either side of 12 months.
This avoids the anomalies identified earlier in this judgment and makes sense of the transitional provisions.
In summary, either the definition of custodial period, when required under section 264(2) and (3) in relation to a term of less than 12 months, can, in circumstances where section 181 has not come into force, be supplied under section 264(6)(a)(iii) simply by reading into that subsection in this limited context a reference to a custodial period of one half of the term (as would have applied under section 33(1) of the 1991 Act).
Or para 14 can be understood as if the bracketed passage went on to provide but, where such a sentence is imposed to run concurrently or consecutively with a sentence of 12 months or more, sections 244 to 268 take effect as if section 33(1) continued to apply so as to define the custodial period of the sentence of less than 12 months as one half of such sentence.
In my opinion, this is a permissible as well as the correct approach to the understanding of para 14, read in the overall context of the scheme and provisions of the 2003 Act and 2005 Order.
In Inco Europe Ltd. v First Choice Distribution [2000] 1 WLR 586, 592C D, Lord Nicholls, giving the only full speech in the House of Lords, noted that it had long been established that the role of the courts in construing legislation is not confined to resolving ambiguities in statutory language but that The court must be able to correct obvious drafting errors.
In suitable cases, in discharging its interpretative function the court will add words, or omit words or substitute words.
He added (p.592E G) that the latter power was confined to plain cases of drafting mistakes, where the court could be abundantly sure of three matters: (1) the intended purpose of the statute or provision in question; (2) that by inadvertence the draftsman and Parliament failed to give effect to that purpose in the provision in question; and (3) the substance of the provision Parliament would have made, although not necessarily the precise words Parliament would have used, had the error in the Bill been noticed.
Any alteration in the literal wording must not be too big, or too much at variance with the language used (p.592H).
In Attorney Generals Reference (no. 5 of 2002) [2004] UKHL 40, [2005] 1 AC 167, the House, in view of the absurdity that would otherwise result, refused to give its literal interpretation to a statutory provision which, literally read, precluded the defence from asking questions to establish that there had been interception (consequently illegal) on part of a public telecommunications system, but allowed the prosecution to call evidence to the effect that the interceptions had taken place wholly within a police private telecommunications system (and were therefore legal).
The linguistic difficulty was decisively outweighed by a purposive interpretation of the statute (para 31, per Lord Steyn).
In my opinion, the reasoning and approach taken in both these cases is applicable to the present.
It is the more readily applicable in my view, when this case concerns delegated legislation made by executive action as the Court of Appeal noted in Round and Dunn, and subject only to the limited opportunity for any Parliamentary scrutiny involved in the negative resolution procedure described by Lord Hope in R (Stellato) v Secretary of State for the Home Department [2007] UKHL 5; [2007] 2 AC 70, paras 12 13.
Some attention was directed in argument and in the courts below to further provisions of Schedule 2, especially paras 19 and 25 dealing with the application of provisions of the 2003 Act in relation to offences committed before 4 April 2005.
To my mind these cannot be decisive in either direction.
I would only comment that, as at present advised, I would find it difficult to agree with the Secretary of States and Court of Appeals interpretation of their effect as regards sections 263 and 264.
The omission from para 19 of any reference to sections 263 and 264 and the reference in para 25 to those sections seem to me more easily understood as indicating an intention to apply the aggregation provisions of those sections from 4 April 2005 in all circumstances (save only where all sentences in question are for less than 12 months and are therefore within para 14).
It was understandable to mention section 244 in para 19 (and so to make clear that, where all sentences in question were for offences committed before 4 April 2005, the relevant provisions of the 1991 Act were to apply).
But, where offences committed either side of 4 April 2005 are in question, the language of section 264(2) seems to me quite capable of operating, and to have been intended by para 19 to operate, to require the Secretary of State to release the offender on licence after the period specified.
Nothing in para 25 suggests that it was to be confined in scope to cases where one of the sentences was an extended sentence.
There seems no reason why para 25 should not be relevant generally (for example, to preclude a long term prisoner serving a sentence of 4 years or more for an offence committed before 4 April 2005 in conjunction with another prison sentence for an offence committed after that date from claiming under section 264(6)(a)(ii) the benefit of a custodial period of one half in respect of the former sentence, instead of the period of two thirds which would follow from section 33(2) of the 1991 Act, the application of which is preserved in relation to the former offence by para 19).
For the reasons given in paras 49 to 75, I would in any event allow this appeal, allow the application for judicial review and declare that the appellants release dates were correctly calculated by the Secretary of States first notification slip of 24 May 2007.
LORD JUDGE
In his Judicial Studies Board Lecture, The Drafting of Criminal Legislation: Need it be so Impenetrable?, given on 13th March 2008, Professor John Spencer QC explained that the collection of statistics in preparation for his lecture was not easy, because there has been so much criminal justice legislation over the last 10 years that accurate figures are now hard to give.
However, by my reckoning we have had since 1997 no less than 55 Acts of Parliament altering the rules of criminal justice for England and Wales.
The problem he said is not the mere number of statutes, but their increasing bulk.
Many of them are enormous.
Indeed they are.
And that is not the end of the difficulties.
Ill considered commencement and transitional provisions, which have to negotiate their way around and through legislation which has been enacted but which for one reason or another has not or will not be brought into force, add to the burdens.
And there are hidden traps, the most obvious of which is legislation which repeals the earlier repeal of yet earlier legislation.
In the course of his judgment in the Administrative Court in this present case, Mitting J underlined the statutory obligation imposed on the sentencing court to explain the effect of the sentence to the offender in ordinary language.
He recorded that These proceedings show that, in relation to perfectly ordinary consecutive sentences imposed since the coming into force of much of the Criminal Justice Act 2003, that task is impossibleIt is simply unacceptable in a society governed by the rule of law for it to be well nigh impossible to discern from statutory provisions what a sentence means in practice.
That is the effect here.
I entirely agree with these observations.
The explanation for the problem is simple.
For too many years now the administration of criminal justice has been engulfed by a relentless tidal wave of legislation.
The tide is always in flow: it has never ebbed.
On 23rd May 2007 a perfectly simple case was listed at Stafford Crown Court before His Honour Judge Eades.
After making due allowance for the mitigation the judge concluded that Rebecca Noones criminality merited a sentence of 27 months imprisonment.
Whether he imposed a sentence of 27 months for one offence of theft, with lesser concurrent sentences for the remaining offences, or a sentence of 22 months for theft, with consecutive sentences of four months and one month totalling a further 5 months imprisonment (as he did), and whatever the order in which he would eventually pass the sentence, his final assessment required the sentence to reflect the totality principle, recently given the accolade of express reference in statute in section 120(3)(b) of the Coroners and Justice Act 2009.
Generations of sentencing judges have been brought up to understand that the relevant legislation always reflected the obvious sense that when sentences are imposed on the same occasion, consecutively to other sentences, and in whatever order they are imposed, for the purposes of ascertaining the prisoners release date, the sentence should be treated as a whole.
Thus, section 38(4) of the Criminal Justice Act 1961, section 104(2) of the Criminal Justice Act 1967, and section 51(2) of the Criminal Justice Act 1991 describe the overall effect of such sentences as a single term.
In the Criminal Justice Act 2003, in relation to consecutive sentences, the phrase single term has been replaced with a reference to the aggregate length of the custodial period, which can only mean what it appears to say, that is, that all the terms of the sentence will be added up together to form a single whole.
This, surely, is the opposite side of the same coin as the totality principle to which the sentencing decision itself is subject.
Judge Eades, like every sentencing judge, would have proceeded on the basis that both common sense and justice compelled the conclusion that, altogether ignoring for present purposes the further complications which can arise in relation to licence periods, whether he used concurrent or consecutive sentences for the purpose of constructing his 27 months total sentence, and in which ever order the sentences were pronounced, the time actually to be served in custody by the appellant should be the same.
Yet the decision to which the prison authorities felt driven after they examined the policy laid down by the Secretary of State about the administration of the Home Detention Curfew Scheme was that their first conclusion about her date of release, as notified to her, was over generous, and that, notwithstanding any lack of merit in or misconduct by her, her eligibility for release on Home Detention Curfew should be deferred by just over 3 months.
In other words the appellant would serve 3 months or so longer in custody because the judge had imposed consecutive rather than concurrent sentences.
All this was said to be required by the interaction of the Criminal Justice Act 1991, as amended by the Crime and Disorder Act 1998, with the further provisions of the Criminal Justice Act 2003 and the Criminal Justice Act 2003 (Commencement no. 8 and Transitional and Saving Provisions) Order 2005, a provision which has already achieved a disturbing notoriety for inaccuracy (R v Buddington v Secretary of State for the Home Department [2006] 2 Cr App R(S) 109).
The statutory framework has been dissected by Mitting J, and the Court of Appeal, and by counsel before this court in long detailed written and oral arguments.
Reflecting on the submissions, I have been unable to find even the slightest indication that it was the legislative intention that the totality principle should be disapplied, or that the fact that this appellants sentence was subject to more than one statutory regime, or even that the introduction of the Home Detention Curfew Scheme by the 1998 Act, was or could ever have been intended to produce the adventitious result for which the Secretary of State contended.
I have studied the judgments of Lord Phillips and Lord Mance.
Their judgments tell the lamentable story of how elementary principles of justice have come, in this case, to be buried in the legislative morass.
They have achieved a construction of the relevant legislation which produces both justice and common sense.
I should have been inclined to reject the Secretary of States contention on the grounds of absurdity absurd because it contravened elementary principles of justice in the sentencing process but Lord Phillips and Lord Mance have provided more respectable solutions, either or both of which I gratefully adopt.
Nevertheless the element of absurdity remains.
It is outrageous that so much intellectual effort, as well as public time and resources, have had to be expended in order to discover a route through the legislative morass to what should be, both for the prisoner herself, and for those responsible for her custody, the prison authorities, the simplest and most certain of questions the prisoners release date.
| UK-Abs | This appeal concerns the inter relationship between the sentencing provisions of the Criminal Justice Act 1991 (the 1991 Act) and the Criminal Justice Act 2003 (the 2003 Act).
Under the 1991 Act it became mandatory for the Secretary of State to release prisoners part way through the period of their sentence.
Home Detention Curfew (HDC) was introduced by the Crime and Disorder Act 1998, by which prisoners could be released on licence after they had served a requisite period.
The 2003 Act replaced the sentencing regime for sentences over 12 months on 4 April 2005.
However, its provisions governing early release for sentences of less than 12 months have never been brought into force.
Thus when a prisoner was sentenced to consecutive sentences, including terms both over and under 12 months, it was necessary to have regard to the Criminal Justice Act 2003 (Commencement No 8 and Transitional and Savings Provisions) Order 2005 (the 2005 Order) to determine which scheme should apply.
The appellant, Rebecca Noone, was sentenced on 23 May 2007 for five offences to (i) a term of 22 months imprisonment, (ii) three concurrent terms of four months imprisonment to be served consecutively, and (iii) a one month, also to be served consecutively.
The policy of the Secretary of State was that her release on HDC should be calculated by treating the longest sentence as subject to the 2003 Act and as commencing first (because it was pronounced first by the sentencing judge), and the shorter sentences as subject to the 1991 Act.
This produced an HDC date over three months later than the approach urged by the appellant, which combined all the sentences and took the half way point of the combined term as the conditional release date from which HDC was calculated.
The High Court held that the policy of the Secretary of State was unlawful, but on appeal the Court of Appeal held that, although the matter could not be determined by policy, the policy had in fact correctly reflected the position in law.
The Supreme Court unanimously allowed the appeal.
The substantive judgments were given by Lord Phillips (President) and Lord Mance, with whose approaches the other Justices agreed.
Lord Phillips stated that the interpretation of Paragraph 14 of the 2005 Order lay at the heart of the appeal.
It raised the question, where sentences of under and over 12 months were ordered to be served consecutively, of how they were to be linked together and how the provisions as to early release on HDC and licence were to operate in relation to each sentence [para 22].
The approach of the Court of Appeal opened the door to the possibility of capricious results, placed a near intolerable burden on the sentencer and did not readily cater for the position where a series of sentences was imposed of which some were over and some were under 12 months (a mixed sentences case) [29].
The words in brackets in Paragraph 14 were drafted too economically to reflect the clear intention that a mixed sentences case was to receive different treatment from sentences of less than 12 months, namely that the 2003 Act should apply to it [para 33].
Consecutive sentences were subject to s 244(3)(d) of the 2003 Act, and it was necessary to refer to s 262(2) to identify the requisite custodial period.
Although this did not define custodial period for sentences under 12 months, it was obvious that this was half the sentence that the prisoner would have had to serve before release, had his sentence not been imposed consecutively with an over 12 month sentence.
The relevant custodial period was the amalgam of all the individual custodial periods [para 35] and from that eligibility for HDC could be determined [para 36].
Lord Mance observed that the Secretary of States approach meant that the transitional provisions, bringing the 2003 Act into force in many respects, but keeping the 1991 Act in force in some others, achieved a result which Parliament did not intend by either Act [para 60].
He did not agree that the wording of Paragraph 14 compelled it.
In his view Paragraph 14 was clearly drafted to be limited to cases where the only sentences in the arena had a term of less than 12 months [para 70].
The draftsman must have overlooked the fact that it left a gap in the definition of the custodial period in a mixed sentences case, but it was clear what was intended to happen (by reference to the continued application of s 33(1)(a) of the 1991 Act to all cases with sentences under 12 months) namely that the provisions of s 263(3) and s 264(2) and (3) should apply [para 71].
Lord Judge deplored the fact that so much intellectual effort, as well as public time and resources, have had to be expended in order to discover a route through the legislative morass to what should be, both for the prisoner herself, and for those responsible for her custody, the prison authorities, the simplest and most certain of questions the prisoners release date [para 87].
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The ability of asylum seekers who make unsuccessful claims to be allowed to remain to discover further reasons why they should not be removed from the country where they seek refuge is an inescapable feature of any system that is put in place to meet a States obligations under the Geneva Convention on the Status of Refugees and article 3 of the European Convention on Human Rights.
The opportunity for further reasons to be put forward is enhanced by the fact that a series of decisions may need to be taken before a persons immigration status is resolved.
Various measures have been put in place by the United Kingdom to deal with this phenomenon.
Some of these measures are to be found in the Immigration Rules, and on occasion the meaning that is to be given to them is the subject of controversy: see ZT (Kosovo) v Secretary of State for the Home Department [2009] UKHL 6, [2009] 1 WLR 348.
In this case however we are concerned with meaning and effect of the statute.
The relevant provisions are to be found in Part 5 of the Nationality, Immigration and Asylum Act 2002, which deals with immigration and asylum appeals.
The question is whether the expression an asylum claim, or a human rights claim in section 92(4)(a) of the 2002 Act includes any second or subsequent claim that the asylum seeker may make, or only a second or subsequent claim which has been accepted as a fresh claim by the Secretary of State under rule 353 of the Immigration Rules.
The facts
The first respondent BA is a citizen of Nigeria.
He is married to a British citizen, by whom he has four children.
He entered the United Kingdom in 1988 as a visitor.
Initially he was given six months leave to enter.
Later he was granted leave to remain as a student until the end of August 1991.
He was granted indefinite leave to remain on 25 May 1994 on the basis of his marriage.
On 20 May 2005, however, he was served with a decision by the Secretary of State that he was to be deported following his release on licence from a 10 year sentence of imprisonment for conspiracy to import class A drugs.
His appeal against this decision to the asylum and immigration tribunal on human rights grounds failed.
On 25 May 2007 he was served with a deportation order.
On 25 June 2007 and 8 August 2007 further submissions were made on his behalf as to why he should not be deported.
The Secretary of State agreed to consider his reasons for seeking revocation of the deportation order, but she declined to revoke it.
Directions were then given for him to be removed from this country on 29 December 2007.
The respondent PE is a citizen of Cameroon.
He entered the United Kingdom clandestinely in August 2004.
On 19 May 2005 he applied for asylum.
The Secretary of State refused his application on 5 July 2005.
On 9 July 2005 it was decided that directions were to be given for his removal to Cameroon.
He did not appeal against this decision.
Before it was put into effect however he was sentenced to twelve months imprisonment for having a forged passport and using it to obtain work, to which he had pleaded guilty.
As a result of this conviction the Secretary of State decided to make a deportation order against him.
He appealed against this decision on asylum and human rights grounds, but his appeal was dismissed.
The deportation order was signed, and it was served on him on 10 January 2007.
On various dates thereafter his representatives made written representations on his behalf for the decision to be reconsidered.
They claimed that he had been and would be persecuted in Cameroon on account of his homosexuality.
The Secretary of State declined to reconsider her decision, as in her view his further representations did not amount to a fresh claim within the meaning of rule 353 of the Immigration Rules.
He appealed to the tribunal against the Secretary of States refusal to revoke her decision to make the order.
The tribunal held that this decision was not an appealable decision.
On 27 December 2007 BA applied for judicial review of the directions for his removal.
He contended that he had a further in-country right of appeal.
It was no part of his case that his further representations amounted to a fresh claim under rule 353 of the Immigration Rules.
PE had already applied for judicial review of the decisions that had been made against him.
He claimed that he had a right of appeal against a refusal to revoke the deportation order, that this right was exercisable in-country and that in any event the representations amounted to a fresh claim under rule 353.
Permission was given in each case, and the applications were heard together by Blake J: [2008] EWHC 1140 (Admin); [2008] 4 All ER 798.
The judge held that what determined whether there was an in- country right of appeal was whether or not the Secretary of State was satisfied under rule 353 there was a fresh claim: para 62.
In his opinion neither claimant had an in-country right of appeal simply by virtue of having made a protection claim or having made fresh representations supported by different material: para 74.
In PEs case he quashed the decision that his was not a fresh claim and remitted it for redetermination by the Secretary of State.
He said that if the Secretary of State were to conclude that the claim is a fresh one but it was still refused, PE would have access to a right of appeal in-country before removal.
But if it was not a fresh claim, his right to appeal would have to be exercised from abroad.
As Sedley LJ observed in the Court of Appeal, this conclusion raises the same issue as that raised by BAs appeal: [2009] EWCA Civ 119; [2009] 2 WLR 1370, para 4.
Rule 353 of the Immigration Rules, on which the Secretary of State relies, is headed Fresh claims.
It provides: 353.
When a human rights or asylum claim has been refused and any appeal relating to that claim is no longer pending, the decision maker will consider any further submissions and, if rejected, will then determine whether they amount to a fresh claim.
The submissions will amount to a fresh claim if they are significantly different from the material that has previously been considered.
The submissions will only be significantly different if the content: (i) had not already been considered; and (ii) taken together with the previously considered material, created a realistic prospect of success, notwithstanding its rejection.
Rule 353A, which needs to be read together with rule 353 to complete the picture, provides: 353A. Consideration of further submissions shall be subject to the procedures set out in these Rules.
An applicant who has made further submissions shall not be removed before the Secretary of State has considered the submissions under paragraph 353 or otherwise.
This paragraph does not apply to submissions made overseas.
The 2002 Act
This Act was passed in the light of strong pressure to streamline appeals against immigration decisions in the light of objections that were taken to the large number of repeat claims.
Part 5 of the Act provides a general right of appeal against an immigration decision to an adjudicator: section 82(1).
The expression immigration decision is defined in section 82(2).
It includes, among other things, a decision that a person is to be removed from the United Kingdom who is here unlawfully, a decision to make a deportation order under section 5(1) of the Act and a refusal to revoke a deportation order under section 5(2): sections 82(2)(g), (j) and (k).
Having defined this expression, the statute proceeds to lay down an elaborate system for the handling of appeals.
Section 84(1) provides that an appeal under section 82(1) against an immigration decision must be brought under one or more of the grounds specified in that subsection.
They include the following ground, with a view to ensuring that the United Kingdom complies with its international obligations: (g) that removal of the appellant from the United Kingdom in consequence of the immigration decision would breach the United Kingdoms obligations under the Refugee Convention or would be unlawful under section 6 of the Human Rights Act 1998 as being incompatible with the appellants Convention rights.
This is the ground on which both BA and PE rely.
Section 92, as amended, provides: (1) A person may not appeal under section 82(1) while he is in the United Kingdom unless his appeal is of a kind to which this section applies.
(2) This section applies to an appeal against an immigration decision of a kind specified in section 82(2)(c), (d),(e), (f) . . .
and (j).
(3) This section also applies to an appeal against refusal of leave to enter the United Kingdom if (a) at the time of the refusal the appellant is in the United Kingdom, and (b) on his arrival in the United Kingdom the appellant had entry clearance.
(4) This section also applies to an appeal against an immigration decision if the appellant (a) has made an asylum claim, or a human rights claim, while in the United Kingdom, or (b) is an EEA national or a member of the family of an EEA national and makes a claim to the Secretary of State that the decision breaches the appellants rights under the Community Treaties in respect of entry to or residence in the United Kingdom.
The respondents case is that section 92(4)(a) confers a suspensive in-country right of appeal unless the appeal has been certified under either section 94 or section 96 of the 2002 Act.
It is suspensive because it suspends the operation of the immigration decision appealed against until the appeal has been disposed of.
Section 94 excludes appeals in asylum and human rights cases if the Secretary of State certifies that they are clearly unfounded.
The relevant subsections, as amended, provide as follows: (1) This section applies to an appeal under section 82(1) where the appellant has made an asylum claim or a human rights claim (or both).
(2) A person may not bring an appeal to which this section applies in reliance on section 92(4)(a) if the Secretary of State certifies that the claim or claims mentioned in subsection (1) is or are clearly unfounded.
(9) Where a person in relation to whom a certificate is issued under this section subsequently brings an appeal under section 82(1) while outside the United Kingdom, the appeal shall be considered as if he had not been removed from the United Kingdom.
Section 96 removes the right of appeal altogether if the Secretary of State or an immigration officer certifies that the person has dealt with, or ought to have dealt with, the issue in an earlier appeal.
The relevant subsections of section 96, as amended, are in these terms: (1) An appeal under section 82(1) against an immigration decision (the new decision) in respect of a person may not be brought if the Secretary of State or an immigration officer certifies (a) that the person was notified of a right of appeal under that section against another immigration decision (the old decision) (whether or not an appeal was brought and whether or not any appeal brought has been determined), (b) that the claim or application to which the new decision relates relies on a matter that could have been raised in an appeal against the old decision, and (c) that, in the opinion of the Secretary of State or the immigration officer, there is no satisfactory reason for that matter not having been raised in an appeal against the old decision.
(2) An appeal under section 82(1) against an immigration decision (the new decision) in respect of a person may not be brought if the Secretary of State or an immigration officer certifies (a) that the person received a notice under section 120 by virtue of an application other than that to which the new decision relates or by virtue of a decision other than the new decision, (b) that the new decision relates to an application or claim which relies on a matter that should have been, but has not been, raised in a statement made in response to that notice, and (c) that, in the opinion of the Secretary of State or the immigration officer, there is no satisfactory reason for that matter not having been raised in a statement made in response to that notice.
The expressions asylum claim and human rights claim are each defined in section 113(1).
It provides: In this Part, unless a contrary intention appears asylum claim means a claim made by a person to the Secretary of State at a place designated by the Secretary of State that to remove the person from or to require him to leave the United Kingdom would breach the United Kingdoms obligations under the Refugee Convention, human rights claim means a claim made by a person to the Secretary of State at a place designated by the Secretary of State that to remove the person from or to require him to leave the United Kingdom would be unlawful under section 6 of the Human Rights Act 1998 (c. 42) (public authority not to act contrary to Convention) as being incompatible with his Convention rights Section 12 of the Immigration, Asylum and Nationality Act 2006 amends those definitions prospectively by adding in each case a provision that the expression: does not include a claim which, having regard to a former claim, falls to be disregarded for the purposes of this Part in accordance with the immigration rules.
As Sedley LJ observed in the Court of Appeal, under this amended formula a claim in any case where an earlier challenge to removal has been made and failed will only rank as an asylum claim or a human rights claim if it is a fresh claim under rule 353: [2009] 2 WLR 1370, para 27.
The amendment has not yet been brought into force, as the entire system of immigration law is now under review.
A Green Paper containing proposals to simplify the law was published in February 2008, and it is expected that a Bill to simplify the law will be published towards the end of this year.
No certificates under either section 94 or section 96 have been issued to the respondent in either case.
They maintain that in these circumstances they are entitled to have their appeals heard in-country under section 92(4)(a), and that they cannot be removed from the United Kingdom until their appeals have been dealt with.
The Secretary of States contention is that an appeal against an immigration decision is available only out of country where, as in BAs case, the further representations have not been advanced as a fresh claim or, as in PEs case, have not been accepted as such by the Secretary of State.
He maintains that their appeals must now be pursued out of country.
If so, there is now no obstacle to the respondents being deported in accordance with the deportation orders that have been served on them.
The competing arguments in more detail
For the Secretary of State Miss Laing QC did not dispute that a right of appeal arises under section 82(1) when a decision that is an immigration decision is taken.
Nor does she dispute that the Secretary of States refusal in these cases not to revoke the deportation orders were immigration decisions within the meaning of section 82(2)(k) of the 2002 Act.
What was in issue was whether the right of appeal against those decisions was to be exercised from within the United Kingdom.
Her submission was that the words an asylum claim, or a human rights claim in section 92(4)(a) mean a first asylum or human rights claim or a second or subsequent asylum or human rights claim which has been accepted as a fresh claim under rule 353 of the Immigration Rules.
She acknowledged that this was not the literal meaning of this provision, as the definitions of these expressions made no reference to the fact that the claims to which they referred had to be a first or a fresh claim.
But she said that they had to be construed in the context of the scheme of the statute as a whole, and that they had to be read in the way she suggested to avoid an absurdity.
She submitted that the authorities also showed that they had to be read subject to this qualification.
She based this submission on two decisions of the Court of Appeal: Cakabay v Secretary of State for the Home Department (Nos 2 and 3) [1999] Imm AR 176 and R v Secretary of State for the Home Department, ex p Onibiyo [1996] QB 768.
In each of these cases observations were made about the treatment of repeat claims for asylum in the context of the provisions of the Asylum and Immigration Appeals Act 1993.
In Cakabay v Secretary of State for the Home Department (Nos 2 and 3) [1999] Imm AR 176, 180-181, Schiemann LJ said: The statute makes no express provision as to what is to be done in the case of repeated claims for asylum by the same person.
The second claim may be identical to the first (a repetitious claim) or may be different (a fresh claim).
It is common ground that a fresh claim attracts all the substantive and procedural consequences of an initial claim whereas a repetitious claim does not.
In the case of a repetitious claim no more is required to be done: the first decision has ensured that the United Kingdom has complied with its obligations under the Convention.
Section 6 of the 1993 Act creates no inhibition on the claimants removal: the Secretary of State has on the occasion of his decision on the first claim decided the repetitious claim.
So far as the decision on the claimants repetitious application for leave to enter is concerned, the claimant will be told that leave has already been refused and that there is no need for any new decision.
In R v Secretary of State for the Home Department, ex p Onibiyo [1996] QB 768 the court had to consider whether, as a matter of law, a person might make more than one claim for asylum within the meaning of section 6 of the 1993 Act during a single uninterrupted stay in the United Kingdom.
The Secretary of State argued that, once a person had made a claim for asylum, had had that claim refused and had unsuccessfully exercised his rights of appeal under section 9 of that Act, his legal rights were exhausted.
There could be no further claim for asylum unless the claimant left the United Kingdom and returned before making a fresh application.
At p 781 Sir Thomas Bingham MR rejected that argument.
He said that it would undermine the beneficial object of the Convention if the making of an unsuccessful application for asylum were to be treated as modifying the obligation of the United Kingdom or depriving a person of the right to make a fresh claim for asylum.
He then discussed what constituted a fresh claim.
At pp 783-784 he said that the acid test must always be whether, comparing the new claim with that which had been rejected, and excluding material on which the claimant could reasonably be expected to rely in the earlier claim, the new claim was sufficiently different from the earlier claim to admit of a realistic prospect that a favourable view could be taken of the new claim despite the unfavourable conclusion reached on the earlier claim.
Miss Laing said that the same approach should be taken to the words used in section 92(4)(a) of the 2002 Act.
She submitted that the intention of Parliament when enacting this provision had to be derived from the context, the legislative history and the requirements of the international instruments.
The essential features of the 2002 Act remained the same as those in the 1993 Act.
It was to be assumed that where the same words were used they were intended to have the same meaning.
It was implicit in the approach that was taken in Ex p Onibiyo that the Convention did not require protection against removal if all that the further representations were doing was to repeat an earlier claim which had been considered and rejected on appeal.
What the international instruments required was compliance, not redundancy.
It was only a fresh claim that would be an obstacle to the claimants removal, by converting what would otherwise be an out of country appeal into an appeal that must be dealt with in-country.
As for the prospective amendment of section 113, she said that it did two things.
It removed the requirement that a claim be made at a place designated by the Secretary of State.
And it clarified what section 113 should be taken to have meant on enactment.
In the words of the Explanatory Notes, its purpose is to clarify that further submissions which follow the refusal of an asylum or human rights claim but which do not amount to a fresh claim will not carry a further right of appeal.
But it was of no assistance in resolving the argument either way as to the meaning of the definitions in their current form.
Lloyd LJ was right when he said in the Court of Appeal that the amendment should be ignored: [2009] 2 WLR 1370, para 35.
Mr Husain too submitted that the meaning of the words used in section 94(2)(a) must be understood from their context.
But he said that the context was markedly different from that in the 1993 Act.
There was now a series of statutory provisions against abuse which were not to be found in the earlier legislation.
It was those provisions, and not those instituted under the Immigration Rules by the executive, that should be used if it was thought that the appeals should not be dealt with in-country.
The Secretary of States approach rendered the new provisions otiose and unworkable in the case of second claims.
For example, Parliament had provided by section 84(1)(g) that an appeal against an immigration decision might be taken on the ground that the persons removal from the United Kingdom would breach the States obligations under the Refugee Convention.
Section 84(1)(c) dealt with the situation where it was contended that the decision was unlawful under section 6 of the Human Rights Act 1998.
But the rights conferred by the European Convention on Human Rights were, in various respects, not the same: JM v Secretary of State for the Home Department [2006] EWCA Civ 1402; [2007] Imm AR 293, para 27, per Laws LJ.
If the Secretary of State was right that the appeal could only be taken in-country if it was certified under rule 353, the person would be forced to take his appeal out of country even although it was on grounds referred to in section 84(1)(g), which could be different from those advanced at an earlier stage under section 84(1)(c).
As he would be without a certificate under section 94, he would be deprived of the benefit of section 94(9).
As for what was said in R v Secretary of State for the Home Department, ex p Onibiyo, Mr Husain said that it was not the only relevant authority.
Prior to the enactment of the 2002 Act there were two other important decisions to which reference should be made.
In R (Kariharan) v Secretary of State for the Home Department [2002] EWCA Civ 1102, [2003] QB 933, reference was made to the one-stop procedure that was introduced by sections 74-77 of the Immigration and Asylum Act 1999 and to section 73 of that Act, which enabled the Secretary of State to certify that a claim that a decision of a decision-maker was in breach of the appellants human rights could reasonably have been made earlier, the effect of which was that the appeal was to be treated as finally determined: see Auld LJ, para 30.
In para 36 Sedley LJ said that those provisions gave ample powers to the Secretary of State to dispose summarily of repetitive and abusive appeals.
In R v Secretary of State for the Home Department, ex p Saleem [2001] 1 WLR 443, 449, Roche LJ accepted that the right of appeal to an independent appellate body was a fundamental or basic right akin to the right of unimpeded access to a court, an infringement of which must be either expressly authorised by or arise by necessary implication from an Act of Parliament.
Furthermore the approach that was taken in R v Secretary of State for the Home Department, ex p Onibiyo to the problem of repeat claims was imprecise and had been rendered unnecessary by the current legislation.
In that case, as Sir Thomas Bingham MR recorded at p 783, counsel for the applicant, Mr Blake QC, as he then was, had conceded that that a fresh claim for asylum could not be made by advancing, even with some elaboration or addition, a claim already made or by relying on evidence available to the applicant but not advanced at the time of an earlier claim.
A similar concession was made in Manvinder Singh v Secretary of State for the Home Department [1995] EWCA Civ 53, where Stuart-Smith LJ noted that in his skeleton argument Mr Blake QC had accepted that Parliament could not have intended removal to be indefinitely deferred pending successive identical appeals.
The observations in Ex p Onibiyo had been inspired by the possibility of abuse.
The contours of the legislation had now changed.
The opportunity to resolve the issue by bringing the amendment of the definitions in section 113 into force had not been taken.
It was difficult to understand why, if its purpose was simply to clarify, it had not been brought into force.
As it was, the legislation had to be taken as it stood without regard to what may have been contemplated by the amendment.
Discussion
I have set out the competing arguments at some length, partly out of respect for the excellent submissions that were advanced by counsel on either side in the Chamber of the House of Lords on the occasion of the last sitting of the House in its judicial capacity, and partly because they demonstrate very clearly the essence of the issue that we must decide.
Miss Laing invites us to follow Sir Thomas Bingham MRs analysis of the problem in R v Secretary of State for the Home Department, ex p Onibiyo, to hold that the words an asylum claim, or a human rights claim in section 92(4)(a) of the 2002 Act mean a first asylum or human rights claim or a second or subsequent claim which has been accepted by the Secretary of State as a fresh claim, and that the procedure for determining whether or not a second or subsequent claim is a fresh claim is to be found in rule 353 of the Immigration Rules.
Mr Husain on the other hand invites us to examine those words in the context of the current legislation read as a whole, taking full account of the progress of thinking since Ex p Onibiyo as to how the problem of repeat claims should be addressed.
He submits that there is no justification, in the light of the provisions for dealing with repeat claims that the 2002 Act contains, for enlarging upon the plain words of the statute.
The strength of Miss Laings argument lies in the fact that the definition of the phrase claim for asylum has remained, in substance, the same since its first appearance in section 1 of the 1993 Act where it was said to mean a claim made by a person (whether before or after the coming into force of this section) that it would be contrary to the United Kingdoms obligations under the Convention for him to be removed from, or required to leave, the United Kingdom.
The Convention there referred to was, of course, the Refugee Convention.
The definition in section 167 of the 1999 Act was in substantially the same terms.
Section 113 of the 2002 Act varies the language a little bit, because it calls this kind of claim an asylum claim, introduces a requirement for it to be made at a place designated by the Secretary of State (no such place has been designated) and adds a definition in almost identical terms of a human rights claim.
The relevant phrase throughout is a claim.
In R v Secretary of State for the Home Department, ex p Onibiyo the Secretary of States argument that once there had been a claim for asylum and one appeal there could be no further claim for asylum unless the claimant had left the United Kingdom and returned before making the fresh application was rejected.
It was held that there could be a fresh claim for asylum with the same consequences as to the right of appeal as follow on the refusal of an initial claim, provided that the Secretary of State recognised the fresh claim as a claim for asylum.
If one looks no further and applies what Bennion on Statutory Interpretation (5th ed, 2008), section 201 and Part XIV described as the informed interpretation rule, there is plainly much to be said for the view that the definitions that are set out in section 113 of the 2002 Act should be read in the same way.
The procedure for determining whether a repeat claim is or is not a fresh claim is set out in rule 353 of the Immigration Rules, the effect of which I attempted to explain in Z T (Kosovo) v Secretary of State for the Home Department [2009] 1 WLR 348, para 33.
It is a short step to conclude that a repeat claim which is not held under rule 353 to be a fresh claim falls to be disregarded as an asylum claim, or a human rights claim for the purposes of section 92(4)(a).
Like Lloyd LJ, I would not draw an inference either way from the amendment of section 113 by section 12 of the 2006 Act as it is not yet in force.
It is an elementary principle, however, that the words of a statute should be construed in the context of the scheme of the statute as a whole.
And it is plain that the scheme of the 2002 Act is not the same as that of the 1993 Act to which Sir Thomas Bingham MR addressed himself in Ex p Onibiyo.
The problem to which he addressed himself was created by the absence of any provision in the statute to prevent abuse.
The question was how that gap might best be filled, having regard to the fact that the blunt solution that was proposed by the Secretary of State would, as the Master of the Rolls pointed out at p 781, undermine the beneficial object of the Convention and the measures giving effect to it in this country.
Parliament might, of course, have stood still and left the matter to be dealt with under the Immigration Rules.
But it has not stood still.
The experience of the intervening years has been taken into account.
First, there were the provisions against abuse in sections 73 to 77 of the 1999 Act.
Now there is a set of entirely new provisions in the 2002 Act.
As Lord Hoffmann said in A v Hoare [2008] UKHL 6, [2008] 1 AC 844, para 15, while there is a good deal of authority for having regard in the construction of a statute to the way a word or phrase has been construed by the court in earlier statutes, the value of such previous interpretation as a guide to construction will vary with the circumstances.
In this case the phrase in question has remained, in essence, unchanged.
But the system in which it must be made to work is very different.
This is a factor to which full weight must be given.
The new system contains a range of powers that enable the Secretary of State or, as the case may be, an immigration officer to deal with the problem of repeat claims.
The Secretary of States power in section 94(2) of the 2002 Act to certify that a claim is clearly unfounded, if exercised, has the effect that the person may not bring his appeal in-country in reliance on section 92(4).
The power in section 96 enables the Secretary of State or an immigration officer to certify that a person who is subject to a new immigration decision has raised an issue which has been dealt with, or ought to have been dealt with, in an earlier appeal against a previous immigration decision, which has the effect that the person will have no right of appeal against the new decision.
It is common ground that the present cases are not certifiable under either of these two sections.
Why then should they be subjected to a further requirement which is not mentioned anywhere in the 2002 Act? It can only be read into the Act by, as Sedley LJ in the Court of Appeal put it, glossing the meaning of the words aclaim so as to exclude a further claim which has not been held under rule 353 to be a fresh claim: [2009] 2 WLR 1370, paras 20, 30.
The court had to do this in Ex p Onibiyo.
But there is no need to do this now.
It is not just that there is no need now to read those words into the statute.
As Mr Husain pointed out, the two systems for excluding repeat claims are not compatible.
Take the system that section 94 lays down for dealing with claims that the Secretary of State considers to be clearly unfounded.
If he issues a certificate to that effect, the appeal must be pursued out of country.
But the claimant will have the benefit of section 94(9), which provides that where a person in relation to whom a certificate under that section subsequently brings an appeal under section 82(1) while outside the United Kingdom the appeal will be considered as if he had not been removed from the United Kingdom.
He will have the benefit too of the passage in parenthesis in section 95, which provides: A person who is outside the United Kingdom may not appeal under section 82(1) on the ground specified in section 84(1)(g) (except in a case to which section 94(9) applies).
If Miss Laing is right, the effect of a decision by the Secretary of State that the representations that a person makes against an immigration decision of the kind mentioned in section 82(1)(k) a refusal to revoke a deportation order is not a fresh claim will be that an appeal against that decision must be brought out of country.
But the interpretative route by which she reaches that position does not save that person from the exclusionary rule in section 95, unless which has not been done in these cases the claims are also certified under section 94(2) as clearly unfounded.
The ground of appeal referred to in section 84(1)(g) has been designed to honour the international obligations of the United Kingdom.
To exclude claims which the Secretary of State considers not to be fresh claims from this ground of appeal, when claims which he certifies as clearly unfounded are given the benefit of it, can serve no good purpose.
On the contrary, it risks undermining the beneficial objects of the Refugee Convention which the court in Onibiyo, under a legislative system which had no equivalent to section 95, was careful to avoid.
In my opinion Lloyd LJ in the Court of Appeal was right to attach importance to this point: [2009] 2 WLR 1370, paras 39-40.
As he said, the development of the legislative provisions and the powers given to the Secretary of State to limit the scope for in country appeals deprive Miss Laings submissions of the foundation which they need.
There is obviously a balance to be struck.
The immigration appeals system must not be burdened with worthless repeat claims.
On the other hand, procedures that are put in place to address this problem must respect the United Kingdoms international obligations.
That is what the legislative scheme does, when section 95 is read together with section 94(9).
It preserves the right to maintain in an out of country appeal that the decision in question has breached international obligations.
I would hold that claims which are not certified under section 94 or excluded under section 96, if rejected, should be allowed to proceed to appeal in-country under sections 82 and 92, whether or not they are accepted by the Secretary of State as fresh claims.
There is no doubt, as I indicated in Z T (Kosovo) v Secretary of State for the Home Department [2009] 1 WLR 348, para 33, that rule 353 was drafted on the assumption that a claimant who made further submissions would be at risk of being removed or required to leave immediately if he does not have a fresh claim.
That was indeed the case when this rule was originally drafted, as there was no equivalent of section 92(4) of the 2002 Act.
But Mr Husains analysis has persuaded me that the legislative scheme that Parliament has now put in place does not have that effect.
Its carefully interlocking provisions, when read as a whole, set out the complete code for dealing with repeat claims.
Rule 353, as presently drafted, has no part to play in the legislative scheme.
As an expression of the will of Parliament, it must take priority over the rules formulated by the executive.
Rule 353A on the other hand remains in place as necessary protection against premature removal until the further submissions have been considered by the Secretary of State.
Conclusion
I would dismiss these appeals and affirm the orders made by the Court of Appeal.
I have had the advantage of reading in draft the judgment of Lord Hope and am persuaded that for the reasons he has given these appeals should be dismissed.
I am in full agreement also with the comments made by Lord Brown whose judgment I have also had the advantage of reading in draft.
I agree with the judgment of Lord Hope and with the additional observations of Lord Brown.
The submission for the Home Secretary that the expression an asylum claim in section 92(4)(a) of the Nationality, Immigration and Asylum Act 2002 should be given the same meaning as Sir Thomas Bingham gave to the expression a claim for asylum in section 6 of the Asylum and Immigration Appeals Act 1993 is at first sight compelling.
Certainly, the change in the form of the expression is irrelevant.
The contexts within which the two expressions have to be interpreted are, however, relevant.
And, as Lord Hope explains, they are significantly different, since the 2002 Act contains a new scheme for dealing with abusive claims.
Given that new scheme, there is no longer the same need to adopt the former interpretation and, indeed, the one now adopted fits the new context better.
I am afraid that I have reached a different conclusion from the other members of the Court.
There is no need to explain my views in detail as it will make no difference to the result.
We are concerned with the meaning of the word claim in section 92(4)(a) of the Nationality, Immigration and Asylum Act 2002.
When that Act was passed, it had been understood since 1996 that in this context the word claim referred to a first claim, or to a second or subsequent claim which was different from any earlier claim, but not to a second or subsequent claim which was merely repetitious of an earlier claim.
This eminently sensible conclusion had been reached by a Court of Appeal led by Sir Thomas Bingham MR in R v Secretary of State for the Home Department, ex parte Onibiyo [1996] QB 768.
It is a well-known principle of statutory interpretation that when Parliament re-enacts words which have already been the subject of judicial interpretation it intends them to have the same meaning.
There was no need, therefore, for Parliament to spell out what it meant by a claim in section 92(4)(a).
It was already well-known.
In Onibiyo the Court also considered whether the decision that a claim was a claim was a question of precedent fact for the court to decide or a question for the Secretary of State to decide subject to challenge on the usual judicial review grounds.
It was not necessary to decide this question in that case, but the Master of the Rolls inclined to the latter view.
This was adopted by the Court of Appeal in later cases: see eg WM (DRC) v Secretary of State for the Home Department [2006] EWCA Civ 1495, [2007] Imm A R 337; R (AK) (Sri Lanka) v Secretary of State for the Home Department [2009] EWCA Civ 447.
Rule 353 of the Immigration Rules sets out the test which the Secretary of State applies in making his decision.
It should not be thought, however, that Miss Laings argument depends upon the existence and wording of rule 353.
That merely provides for how the Secretary of State reaches his decision as to whether or not a claim is a claim.
It is not the end of the matter.
The Secretary of States test might come under attack for not reflecting the acid test laid down by the Master of the Rolls in Onibiyo.
His conclusion reached in an individual case might come under attack on Wednesbury or other conventional grounds.
The conclusion of the Court of Appeal, that this is not a question of precedent fact, to be determined by the appellate authorities and ultimately by the courts, might be challenged in the Supreme Court.
Miss Laings argument is simply that when Parliament enacted section 92(4)(a) of the 2002 Act it thought that the meaning of an asylum claim, or a human rights claim, was already well established and did not include a claim which was merely repetitious of an earlier one.
She is not relying on rule 353 to construe the 2002 Act.
I am not persuaded by Mr Husains argument, attractively though it was put, that the new powers under sections 94 and 96 to restrict or deny appeals put such an entirely new complexion on matters that Parliament is to be taken to have abandoned the old meaning of claim without saying so.
This would be astonishing given that it is apparently common ground that neither of these claims would have been certifiable under either section.
Section 94 removes the right of in-country (but not out-country) appeal if an asylum or human rights claim is clearly unfounded.
Yet apparently it is not suggested that the fact that a claim has been made previously and rejected necessarily means that it is clearly unfounded.
Section 96 removes the right of appeal altogether if a claim or application raises matters which could have been raised on an appeal against an earlier decision.
This does not deal with a claim which raises exactly the same matters as were rejected on an earlier occasion.
So it is common ground that these new powers are not apt to cater for repetitious claims.
If so, I cannot understand how Parliament, by introducing them, can be taken to have departed from an established interpretation which was designed to deal with a different problem.
Nor am I persuaded by the argument that, if an asylum or human rights claim is certified under section 94, the claimant can still raise his asylum or human rights arguments in an out-of-country appeal, but that otherwise section 95 prevents a person from raising asylum or human rights grounds from outside the country.
A person whose claim is certified under section 94 is denied any right of appeal in this country, but may appeal from outside.
It is only right in those circumstances that he should be able to appeal on the same grounds that he could have raised in this country.
A person whose claim is not a claim at all, because essentially the same claim has already been determined, has already enjoyed rights of appeal on asylum or human rights grounds in this country.
There is no reason to give him a second bite at the cherry whether here or abroad.
This country is bound not to expel people in breach of their human rights or when they have a well-founded fear of persecution in their home country.
We must of course have a fair system for deciding whether expulsion will be in breach of those obligations.
An initial decision followed by an appeal system in this country is sufficient to do this.
This country is not bound to allow people to make essentially the same claim time and time again as a way of staving off their departure.
The interpretation put forward by Miss Laing accords with our international obligations, as well as with principle and practicality.
I would have allowed this appeal.
I have had the advantage of reading in draft the judgment of Lord Hope and am in full agreement with him that these appeals should be dismissed.
I would make it clear, however, that this is not a conclusion at which I readily arrived and I reached it only on the basis that, as Mr Husain in his enticing submissions readily accepted, the statutory solution to the problem of abuse created by the making of repeat asylum claims lies not in construing an asylum claim in section 92(4)(a) of the Nationality, Immigration and Asylum Act 2002 as the Court of Appeal in R v Secretary of State for the Home Department ex parte Onibiyo [1996] QB 768 construed a claim for asylum in section 6 of the Asylum and Immigration Appeals Act 1993 but rather in the Secretary of State issuing certificates where appropriate under sections 94 or 96 of the 2002 Act (no equivalent provisions having been available under the 1993 Act).
True it is, as observed by Lord Hope in paragraph 29 of his judgment (and noted also at paragraph 13 of Sedley LJs judgment in the Court of Appeal [2009] 2 WLR 1370), that it is common ground between the parties that the present cases are not certifiable under either of these sections.
That, however, as I understand it, is solely because, so far as section 94 is concerned, it applies only where the appellant has made an asylum claim or a human rights claim (or both) (subsection 1).
By the same token that, on the Secretary of States argument, a repeat claim does not fall within those words in section 92 (4)(a), so he contends that it does not do so for section 94 purposes.
Given, however, as Mr Husain submits and I would accept, that a repeat claim does involve making a claim for the purposes of section 92(4)(a), so too it enables the Secretary of State to certify it as clearly unfounded if he so regards it under section 94.
Moreover, consistently with what the House said in ZT (Kosovo) v Secretary of State for the Home Department [2009] 1 WLR 348 (Lord Neubergers views expressed at paragraphs 80-81 of his opinion being determinative on this point), there will be precious few cases in which that test differs from the rule 353 test as to whether a claim has a realistic prospect of success.
The major reason why finally I am persuaded that the respondents approach is the correct one is that, so far from leaving the critical words an asylum claim in section 92(4)(a) to be construed as the Court of Appeal in Onibiyo construed a claim for asylum in the 1993 Act, Parliament in the 2002 Act not only made express provisions to deal with abusive claims but split up different aspects of the possible abuse between sections 94 and 96.
Sir Thomas Bingham MR in Onibiyo had said (at pp783-784): The acid test must always be whether, comparing the new claim with that earlier rejected, and excluding material on which the claimant could reasonably have been expected to rely in the earlier claim, the new claim is sufficiently different from the earlier claim to admit of a realistic prospect that a favourable view could be taken of the new claim despite the unfavourable conclusion reached on the earlier claim.
[Ex]cluding material on which the claimant could reasonably have been expected to rely in the earlier claim is now expressly dealt with by section 96.
As already explained, ordinary repeat claims fall to be excluded under section 94.
As Lord Hope points out, moreover, there is one very clear advantage in providing for any abuse by making repeat claims to be dealt with by section 94 rather than rule 353: by virtue of sections 94(9), 95 and 84(1)(g) it allows an out of country appeal to be brought on human rights grounds when otherwise that would not be possible.
For these reasons, therefore, which in large part echo those given in Lord Hopes altogether fuller judgment, I too would dismiss these appeals.
For these reasons, therefore, which in large part echo those given in Lord Hopes altogether fuller judgment, I too would dismiss these appeals.
For this reason I do not agree with the approach of Lord Wilson to this issue.
Lord Neuberger of Abbotsbury MR at para 53 remarked that todays journalism is tomorrows archive and at para 58 In the case of journalism, above all news journalism, information held for purposes of journalism may soon stop being held for that purpose and be held, instead, for historical or archival purposes.
I imagine that the Bank of England also archives information initially used for the purposes of carrying out its functions.
No doubt the BBC has recourse to its archives for journalistic purposes from time to time and, if held for purposes of journalism is given a broad meaning it could be said in relation to the BBC that one of the purposes of holding archived material is journalism, albeit a relatively remote purpose.
However, Lord Neuberger accepted that archived material would not, as such, fall within the protection afforded by the definition.
I consider that he was right to do so.
Disclosure of material that is held only in the archives will not be likely to interfere with or inhibit the BBCs broadcasting functions.
It ought to be susceptible to disclosure under the Act.
If possible information held for purposes other than those of journalism, art or literature should be given an interpretation that brings archived material within that phrase.
Can this be achieved?
I believe that Lord Walker has the answer.
He has concluded, as have I, that the protection is aimed at work in progress and BBCs broadcasting output.
He suggests that the Tribunal should have regard to the directness of the purpose of holding the information and the BBCs journalistic activities.
I agree.
Information should only be found to be held for purposes of journalism, art or literature if an immediate object of holding the information is to use it for one of those purposes.
If that test is satisfied the information will fall outside the definition, even if there is also some other purpose for holding the information and even if that is the predominant purpose.
If it is not, the information will fall within the definition and be subject to disclosure in accordance with the provisions of Parts I to V of the Act.
This appeal requires the Supreme Court to focus closely on the language and legislative purpose of the provisions of the Freedom of Information Act 2000 (FOIA) dealing with public authorities to which that statute has limited application.
Without that focus, a long trawl through the Strasbourg jurisprudence on article 10 of the European Convention on Human Rights is of little assistance.
The relevant provisions are in section 7 of and Schedule 1 to FOIA.
Section 7(1) provides that where a public authority is listed in Schedule 1 only in relation to information of a specified description, nothing in Parts I to V of the Act is to apply to any other information held by the authority.
Schedule 1, Part VI lists the British Broadcasting Corporation (BBC) in respect of information held for purposes other than those of journalism, art or literature.
A similar form of words appears (in adjectival form) in section 3 of the Data Protection Act 1998, which defines the special purposes as meaning any one or more of the following (a) the purposes of journalism, (b) artistic purposes, and (c) literary purposes.
Section 32 of the Data Protection Act gives a limited exemption where personal data is processed with a view to the publication by any person of any journalistic, literary or artistic material, and the data controller reasonably believes that, having regard in particular to the special importance of the public interest in freedom of expression, publication would be in the public interest, and that compliance with some specified provisions of the Data Protection Act would be incompatible with the special purposes.
Both sets of statutory provisions are evidently aimed at promoting freedom of expression, the value embodied in article 10 of the European Convention on Human Rights.
There is no relevant definition of journalism, art or literature in either statute.
The three words are abstract nouns which can be used to describe either an activity or the product of that activity.
Journalism is a word introduced into the English language from French in the 19th century.
The Oxford English Dictionary gives its primary meaning (by reference to journalist) as the occupation of editing or writing for a public journal.
In a loose sense it can cover the production of just about anything published in a newspaper (or, today, broadcast on sound radio or television).
But in the context of FOIA, its collocation with art and literature suggests that journalism is used to refer primarily to output on news and current affairs (no doubt including sport, an important part of the BBCs output); and the composite expression journalism, art or literature seems to be intended to cover the whole of the BBCs output in its mission (under article 5 of its Royal Charter) to inform, educate and entertain the public.
On that comprehensive approach the purposes of journalism, art or literature would be, quite simply, the purposes of the BBCs entire output to the public.
Mr Jeremy Clarkson must, it seems, have moved from the pigeonhole of journalism to that of literature when, as Irwin J recorded in British Broadcasting Corporation v Information Commissioner [2009] EWHC 2348 (Admin), [2010] EMLR 121, para 36, it was decided for editorial reasons to change the format of Top Gear so that it became primarily an entertainment programme rather than a consumer programme, [which] increased the production costs to an important degree.
British Broadcasting Corporation v Information Commissioner [2009] EWHC 2348 (Admin) (the financial information case) was heard by Irwin J immediately after he heard the case [2009] EWHC 2349 (Admin) in which this appeal is brought, and he handed down his judgment in the two cases on the same day, 2 October 2009.
Important parts of the two judgments are, as Irwin J noted in the first paragraph of each judgment, expressed in identical or very similar terms.
There is also one other first-instance judgment calling for mention, that is the judgment of Davis J in the first round of Mr Sugars litigation, British Broadcasting Corporation v Sugar [2007] EWHC 905 (Admin), [2007] 1 WLR 2583.
The judgment of Davis J contains a valuable discussion of the relevant provisions of FOIA but proceeds on the footing that the Information Tribunal (the Tribunal) had no jurisdiction, in the circumstances, to hear an appeal from the Information Commissioner (the Commissioner).
That premise was later shown by the decision of a bare majority of the House of Lords to be erroneous: [2009] UKHL 9, [2009] 1 WLR 430.
One of the most important issues of law considered by Irwin J in his twin judgments is whether, as a matter of construction, the word predominantly should in effect be inserted in Schedule 1, Part VI before the phrase for purposes other than those of journalism, art or literature).
Irwin J described this (in para 3 of each judgment) as a concession made by the BBC before the Tribunal, but that description depends on the spectators viewpoint.
The Court of Appeal (Lord Neuberger MR, para 36) described it as a successful argument.
So it is worth looking at how this point developed.
Apart from any de minimis principle, which the Court of Appeal (Lord Neuberger MR, para 59) rightly regarded as unhelpful in this context, there are four possible categories of information held by the BBC that need to be considered: (1) information held exclusively for non-journalistic purposes; (2) information held predominantly, but not exclusively, for non-journalistic purposes (the other purposes being those of journalism); (3) information held predominantly, but not exclusively, for journalistic purposes (the other purposes being non-journalistic); and (4) information held exclusively for journalistic purposes.
Before the Tribunal Mr Sugar argued that the BBCs immunity under Schedule 1 Part VI (as opposed to its possible exemption under other particular provisions of FOIA) was limited to information in category (4).
In other words he was insisting on disclosure (apart from particular exemptions) of categories (1), (2) and (3).
The BBC did not oppose categories (1) and (2) (so that category (2) could be termed a concession) but opposed disclosure of category (3), and was successful in that argument.
Irwin J felt unable to accept the concession, either in the Sugar appeal or in the appeal in the financial information case.
He held that category (1) was the only category of information that the BBC had to disclose (again, subject to particular exemptions).
His reasons are at paras 44 to 66 of his judgment in the Sugar case and at paras 53 to 73 of his judgment in the financial information case, which are in almost identical terms.
The Court of Appeal agreed with his reasoning and conclusions (Lord Neuberger MR, paras 39 to 52).
I respectfully agree.
In my judgment the correct view is that (as Lord Neuberger MR put it at para 44): once it is established that the information sought is held by the BBC for the purposes of journalism, it is effectively exempt from production under the Act, even if the information is also held by the BBC for other purposes.
So in effect there are only two categories: one is information held for purposes that are in no way those of journalism, and the other is information held for the purposes of journalism, even if it is also held for other (possibly more important) purposes.
That conclusion follows both from FOIAs legislative purpose and from its language.
First, legislative purpose.
It is common ground that FOIA was enacted in order to promote an important public interest in access to information about public bodies.
There are (as Schedule 1 to FOIA reveals) thousands of public authorities, large and small, which are paid for out of public funds, and whose actions or omissions may have a profound effect on citizens and residents of the United Kingdom.
There is a strong public interest in the press and the general public having the right, subject to appropriate safeguards, to require public authorities to provide information about their activities.
It adds to parliamentary scrutiny a further and more direct route to a measure of public accountability.
There is therefore force, in relation to FOIA as well as in relation to the Freedom of Information (Scotland) Act 2002, in the proposition that, as the whole purpose of the 2002 Act is the release of information, it should be construed in as liberal a manner as possible.
That is how it was put by Lord Marnoch in Common Services Agency v Scottish Information Commissioner [2006] CSIH 58, 2007 SC 231, para 32, approved by Lord Hope in the House of Lords [2008] UKHL 47, [2008] 1 WLR 1550, para 4.
But Lord Hope continued: But that proposition must not be applied too widely, without regard to the way the Act was designed to operate in conjunction with the [Data Protection Act 1998].
It is obvious that not all government can be completely open, and special consideration also had to be given to the release of personal information relating to individuals.
So while the entitlement to information is expressed initially in the broadest terms that are imaginable, it is qualified in respects that are equally significant and to which appropriate weight must also be given.
The scope and nature of the various exemptions plays a key role within the Acts complex analytical framework.
(The Commons Services Agency case serves to explain the position on freedom of information in Scotland, which is not immediately apparent from FOIA itself.
FOIA extends to Scotland and so applies to operations in Scotland of public authorities which operate throughout the United Kingdom; but Scotland also has its own statute applying to Scottish public authorities.)
In this case, there is a powerful public interest pulling in the opposite direction.
It is that public service broadcasters, no less than the commercial media, should be free to gather, edit and publish news and comment on current affairs without the inhibition of an obligation to make public disclosure of or about their work in progress.
They should also be free of inhibition in monitoring and reviewing their output in order to maintain standards and rectify lapses.
A measure of protection might have been available under some of the qualified exemptions in Part II of FOIA, in particular those in sections 36 (Prejudice to effective conduct of public affairs), 41 (Information provided in confidence) and 43 (Commercial interests).
But Parliament evidently decided that the BBCs important right to freedom of expression warranted a more general and unqualified protection for information held for the purposes of the BBCs journalistic, artistic and literary output.
That being the purpose of the immunity, section 7 and Schedule 1 Part VI, as they apply to the BBC, would have failed to achieve their purpose if the coexistence of other non-journalistic purposes resulted in the loss of immunity.
That is confirmed by the language of these statutory provisions.
The disclosable material is defined in terms (held for purposes other than those of journalism, art or literature) which are positive in form but negative in substance.
The real emphasis is on what is not disclosable that is material held for the purposes of the BBCs broadcasting output.
It is the most natural construction, which does not depend on reading in any words.
That was the view formed both by Irwin J (see especially paras 55 to 58 and 63 to 65 of his Sugar judgment) and by Lord Neuberger MR (see especially paras 40 to 42, 44 to 46, and 49 of his judgment).
Mr Eicke QC was critical of para 49, submitting that it assumed the very answer that the Court of Appeal was seeking to justify.
I consider that criticism to be unjustified, though the reasoning was perhaps rather compressed.
The unspoken premise is that Parliament must have intended to lay down a workable test, and both an exclusively and a predominantly test would raise almost insoluble problems in their practical application.
That is not to say that the test approved by Irwin J and the Court of Appeal is without its difficulties.
Parliament has, in trying to provide machinery for determining where the stronger public interest lies, placed a heavy burden on the Tribunal as an expert decision-maker.
Davis J cited the well-known speech of Lord Mustill in R v Monopolies and Mergers Commission, Ex p South Yorkshire Transport Ltd [1993] 1 WLR 23, 32-33 (where the relevant statute referred to a substantial part of the United Kingdom): But this clear-cut approach cannot be applied to every case, for the criterion so established may itself be so imprecise that different decision-makers, each acting rationally, might reach differing conclusions when applying it to the facts of a given case.
In such a case the court is entitled to substitute its own opinion for that of the person to whom the decision has been entrusted only if the decision is so aberrant that it cannot be classed as rational: Edwards v Bairstow [1956] AC 14.
The present is such a case.
Even after eliminating inappropriate senses of substantial one is still left with a meaning broad enough to call for the exercise of judgment rather than an exact quantitative measurement.
I consider that Davis J was right to regard the present case as falling within that category.
He was however mistaken in supposing that the Tribunal had no jurisdiction to hear an appeal, and so he should have treated the Tribunal, and not the Commissioner, as the crucial decision-maker.
Irwin J concluded (para 66 of his Sugar judgment) that the Tribunal had erred in law in applying the predominant purpose test.
So did Lord Neuberger MR (para 62).
So did Moses LJ (para 73), though I have some difficulty with the way his reasoning is expressed on this point, as it seems to come close to conflicting with the reasoning of the majority of the House of Lords in the first round of litigation, [2009] 1 WLR 430.
Munby LJ agreed with both judgments.
I would therefore dismiss this appeal, but for reasons different from those set out in the judgment of Lord Wilson.
I would add that I am conscious that this interpretation of the limitation may be seen as conferring on the BBC an immunity so wide as to make the particular statutory redemptions redundant, and leave the BBC almost free of obligations under FOIA.
As the Tribunal observed (paras 96 and 102): On a broad definition, it could be argued that all of the activities of the BBC are for the purposes of journalism, art and literature, as these are broad descriptions of a substantial part of its broadcast output . . .
However, if a very broad definition was intended, there would be little point in including the BBC in Schedule 1, Part VI of FOIA.
The BBC could have been omitted altogether from the scope of the Act.
The same point was made by Davis J [2007] 1 WLR 2583, para 55.
In my view the correct approach is for the Tribunal, while eschewing the predominance of purpose as a test, to have some regard to the directness of the purpose.
That is not a distinction without a difference.
It is not weighing one purpose against another, but considering the proximity between the subject-matter of the request and the BBCs journalistic activities and end-product.
As Irwin J observed in the financial information case, para 87, in the context of a critique of what was operational: The cost of cleaning the BBC Boardroom is only remotely linked to the product of the BBC.
I respectfully agree with the measured comments of Lord Neuberger MR (para 55): In my view, whatever meaning is given to journalism I would not be sympathetic to the notion that information about, for instance, advertising revenue, property ownership or outgoings, financial debt, and the like would normally be held for purposes . . . of journalism.
No doubt there can be said to be a link between such information and journalism: the more that is spent on wages, rent or interest payments, the less there is for programmes.
However, on that basis, literally every piece of information held by the BBC could be said to be held for the purposes of journalism.
In my view, save on particular facts, such information, although it may well affect journalism-related issues and decisions, would not normally be held for purposes . . .
of journalism.
The question whether information is held for the purposes of journalism should thus be considered in a relatively narrow rather than a relatively wide way.
That is the best way forward in order to strike the difficult balance of competing interests for which Parliament must be taken to have been aiming.
But it will still leave some difficult decisions for the Commissioner and, on appeal, the Tribunal.
There cannot be (in the words of Davis J, para 57) any unequivocal, bright-line test.
All of us agree that on any conventional approach to the construction of the Freedom of Information Act 2000 (the Act) and in particular the expression information held for purposes . . .
of journalism within the meaning of Schedule 1 to the Act, it clearly encompasses the Balen Report (the Report) throughout the whole period that the BBC has held it.
It is the appellants contention, however, that this approach to the construction of the Act and the consequent non-disclosure of the Report would violate article 10 of the European Convention on Human Rights and that the Court is accordingly bound, consistently with section 3 of the Human Rights Act 1998, to read and give effect to the Act so as to require the Reports disclosure.
It is this contention that I am here principally concerned to address.
Given, however, that a disagreement exists within the Court as to whether information held for the purposes of journalism but held also for other purposes must be subjected to a test as to which purpose is predominant and disclosed if the predominant purpose is non-journalistic, I shall in conclusion briefly address this issue too, irrelevant though it is to the outcome of this particular appeal.
The appellants article 10 contention is not one that appears to have been advanced before Irwin J at first instance (certainly there is no mention of article 10 in his judgment).
Article 10 was, however, invoked in the Court of Appeal, indeed by both sides.
The BBC submitted that disclosure of the Report (and any other information held for the purposes of journalism) would have a chilling effect upon their right to freedom of expression; the appellant submitted that, subject only to narrow exceptions (none being applicable here), article 10 gives him a right of access to all such information.
The Court of Appeal, however, derived no assistance from article 10 either way, Moses LJ (at para 77) finding it impossible to identify within the jurisprudence any pointer for or against the rival contentions.
Before this Court Mr Eicke QC has vigorously returned to article 10 and advances what is essentially a two stage argument.
First, he contends, in reliance principally upon a trilogy of Strasbourg decisions Matky v Czech Republic (Application No 19101/03) (unreported) 10 July 2006, (Matky), Tarsasag A Szabadsagjogokert v Hungary (2009) 53 EHRR 130 (14 April 2009) (Tarsasag), and Kenedi v Hungary (Application No 31475/05) (unreported) 26 August 2009 (Kenedi) that the ECtHR has recently moved towards the recognition of a right of access to information and that in the particular circumstances of the present case an interpretation of the Act which withholds from disclosure a document such as the Report interferes with the right of access to information protected by article 10(1).
Secondly he submits that such interference is not necessary in a democratic society so as to be justified under article 10(2).
He not only disputes that the release of the Report would have a chilling effect on freedom of expression but submits that only the need to protect journalistic sources or perhaps, indeed, more narrowly still, the need to protect sources who might otherwise be deterred from assisting journalists would constitute an overriding requirement of the public interest sufficient to justify this interference with the citizens article 10(1) right of access to information.
Before turning to the trilogy of decisions upon which the appellant mainly relies it is helpful first to note the well-established body of Strasbourg jurisprudence which is recognised to define, generally speaking, the nature and extent of the right under article 10(1) to receive . . .
information and ideas without interference by public authority.
It is sufficient for present purposes to cite a short passage from the unanimous Grand Chamber decision in Roche v United Kingdom (2005) 42 EHRR 599 at para 172: The Court reiterates its conclusion in Leander v Sweden (1987) 9 EHRR 433 and in Gaskin v United Kingdom (1989) 12 EHRR 36 and, more recently, confirmed in Guerra v Italy (1998) 26 EHRR 357, that the freedom to receive information prohibits a Government from restricting a person from receiving information that others wish or may be willing to impart to him and that that freedom cannot be construed as imposing on a State, in circumstances such as those of the present case, positive obligations to . . .
disseminate information of its own motion.
It is right to observe, before moving on, that the circumstances of those particular cases were that the applicants were attempting to obtain information respectively about their being regarded as a security risk (Leander), about their childhood (Gaskin), about a chemical factory (Guerra) and about long-past Porton Down tests in which they had participated (Roche).
I come then to the first of the trilogy of cases on which the appellant so strongly relies: Matky.
The complainant there was seeking, against the background of a general right to information under the Czech legal system, access to documentation concerning the construction of a new nuclear power station and in particular was challenging a requirement of the domestic legislation (article 133 of the Building Act) that a request for information had to be justified.
The Court accepted that the rejection of his request constituted an interference with the complainants right to receive information.
But it held that the decision could not be considered arbitrary, recognised that Contracting States enjoy a certain margin of appreciation in this area and unanimously rejected the complaint as manifestly ill-founded.
Matky seems accordingly an unpromising foundation upon which to build any significant departure from what may be called the Roche approach to the freedom to receive information protected by article 10.
Nevertheless, in Tarsasag (the second in the appellants trilogy of cases) it was to Matky that the Second Section of the Court referred as (the sole) authority for the proposition that, the Leander line of authority notwithstanding, the Court has recently advanced towards a broader interpretation of the notion of freedom to receive information and thereby towards the recognition of a right of access to information.
In Tarsasag the court upheld a complaint by the Hungarian Civil Liberties Union that a refusal by the Constitutional Court to grant them access to an MPs pending complaint as to the constitutionality of certain proposed amendments to the Criminal Code breached its article 10 right to receive information.
The Government having accepted that there had been an interference with the applicants article 10 rights, Mr Eicke relies in particular upon the following passage in the Courts judgment: [The Court] considers that the present case essentially concerns an interference by virtue of the censorial power of an information monopoly with the exercise of the functions of a social watchdog, like the press, rather than a denial of a general right of access to official documents. . . .
Moreover, the states obligations in matters of freedom of the press include the elimination of barriers to the exercise of press functions where, in issues of public interest, such barriers exist solely because of an information monopoly held by the authorities.
(para 36)
Kenedi, the third in the trilogy of cases, was decided just four months after Tarsasag, also by the Second Section of the Court (including six of the same seven judges who had decided Tarsasag).
The applicant there was a historian specialising in the functioning of the secret services of dictatorships.
Although a succession of domestic court judgments had held him to be entitled to access to various documents for research purposes, the Ministry had refused to disclose them.
Once again, hardly surprisingly in this case, the government conceded that there had been an interference with the applicants article 10 rights.
The Court had no difficulty in finding in the result a violation of article 10: the Court cannot but conclude that the obstinate reluctance of the respondent States authorities to comply with the execution orders was in defiance of domestic law and tantamount to arbitrariness.
In my judgment these three cases fall far short of establishing that an individuals article 10(1) freedom to receive information is interfered with whenever, as in the present case, a public authority, acting consistently with the domestic legislation governing the nature and extent of its obligations to disclose information, refuses access to documents.
Of course, every public authority has in one sense the censorial power of an information monopoly in respect of its own internal documents.
But that consideration alone cannot give rise to a prima facie interference with article 10 rights whenever the disclosure of such documents is refused.
Such a view would conflict squarely with the Roche approach.
The appellants difficulty here is not that Mr Sugar was not exercising the functions of a social watchdog, like the press.
(Perhaps he was.) The Jewish Chronicle would be in no different or better position.
The appellants difficulty to my mind is rather that article 10 creates no general right to freedom of information and where, as here, the legislation expressly limits such right to information held otherwise than for the purposes of journalism, it is not interfered with when access is refused to documents which are held for journalistic purposes.
True it is, as Lord Judge CJ noted when giving the judgment of the Court in Independent News and Media Ltd v A [2010] 1 WLR 2262 (para 42), that the Venice Commission has described Tarsasag as a landmark decision on the relation between freedom of information and the . . .
Convention.
Whatever else might be said about Mr Eickes trilogy of cases, however, they cannot to my mind be said to support his first proposition having regard to the particular relationship between the parties in this case.
I should perhaps add for the sake of completeness that there is absolutely nothing in Independent News and Media Ltd v A, still less in R (Mohamed) v Secretary of State for Foreign Affairs (No 2) [2011] QB 218, to support Mr Eickes reliance on article 10 in the present context.
It follows that for my part I would hold that the appellants article 10 case fails at the first stage.
There was no interference here with Mr Sugars freedom to receive information.
The Act not having conferred upon him any relevant right of access to information, he had no such freedom.
Even were that not so, however, I would reject the second stage of Mr Eickes argument too.
Even were one to start with the supposition that any refusal by a public authority to disclose information involves a prima facie interference with a persons freedom to receive that information, it seems to me open to the State to legislate, as here, a blanket exclusion of any requirement to disclose information held (whether predominantly or not) for the purposes of journalism.
The appellants contrary argument fixes in particular upon a line of Strasbourg cases concerned essentially with journalistic sources: Goodwin v United Kingdom (1996) 22 EHRR 123, Nordisk Film and TV A/S v Denmark (Application No 40485/02) (8 December 2005) and Sanoma Uitgevers BV v The Netherlands (Application No 38224/03) (14 September 2010).
What must be recognised, however, is that in each of these cases it was the journalists who were the complainants, that what they were complaining about were domestic court orders requiring disclosure of their sources or research material, and that the starting point for the Strasbourg Courts consideration of these complaints was, as the Grand Chamber noted at paragraph 59 of its judgment in Sanoma: In its earlier case-law the Court has found various acts of the authorities compelling journalists to give up their privilege and provide information on their sources or to obtain access to journalistic information to constitute interferences with journalistic freedom of expression.
The applicant in Goodwin succeeded on the basis that he had been ordered to reveal the identity of a person who had provided him with information on an unattributable basis.
The applicant in Nordisk failed because on the particular facts of that case (which it is not here necessary to rehearse) the applicant was not being ordered to disclose its journalistic source of information but rather part of its research material and that, even though the latter may have a chilling effect on the exercise of journalistic freedom of expression, there it was justified by an overriding requirement in the public interest: assisting in the prosecution of paedophiles.
The applicant company in Sanoma succeeded because there was an order for the compulsory surrender of journalistic material containing information capable of identifying journalistic sources, an interference with its article 10 rights which the Court there held was not prescribed by law: the quality of the law was deficient in that there was no procedure attended by adequate legal safeguards for the applicant company in order to enable an independent assessment as to whether the interest of the criminal investigation overrode the public interest in the protection of journalistic sources.
(para 100)
Helpful though these cases may be, however, in explaining the limitations placed upon a journalists prima facie right to protect both his sources and his research material from compulsory court orders for their disclosure, they say little if anything about what other interests and concerns may properly be invoked by journalists in resisting the disclosure to others (whether or not themselves journalists) of other information held for journalistic purposes (ie information apart from that necessary to protect confidential sources and research material, including for example the Balen Report).
To my mind it stands to reason that the disclosure of a document such as the Report would be likely to affect the candour of any similar future report.
As the Information Tribunal itself found in the present case (at para 116): Self-critical review and analysis of output is a necessary part of safeguarding and enhancing quality.
The necessary frankness of such internal analysis would be damaged if it were to be written in an anodyne fashion, as would be likely to be the case if it were potentially disclosable to a rival broadcaster.
(Or, one may add, to anyone else.) In short I would reject also the second stage of the appellants argument: the contention that section 3 of the Human Rights Act should be invoked here to limit the information stipulated by the Act to be undisclosable through being held for the purposes of journalism merely to that held for the purpose of safeguarding the BBCs confidential sources.
I turn then briefly to the question whether, in a case where information is held partly for journalistic and partly for non-journalistic purposes, it is necessary to ask which purpose is predominant and to disclose any information held predominantly for non-journalistic purposes.
I conclude, in common with Lord Phillips and Lord Walker (and, indeed, with the Court of Appeal), but in respectful disagreement with Lord Wilson, that the answer is No. My reasons being essentially the same as those given by both Lord Phillips and Lord Walker (although perhaps more particularly those of Lord Walker), I can explain my concurrence very shortly indeed.
Really it comes to this.
With regard both to the BBC (together with the three other listed broadcasters) and the Bank of England, Parliament, for differing but in each case compelling reasons of national interest, was concerned not to subject these institutions to the operation of the Act including, for example, the need to resort to Part II of the Act to justify any reluctance to withhold some particular information from disclosure save only in strictly limited circumstances.
In the case of the BBC and other broadcasters it is only in respect of information held for purposes other than those of journalism, art or literature.
In the event that information is held to any significant degree (and we are all agreed that the de minimis principle would otherwise apply) for the purposes of journalism, then to my mind it would seem artificial and impermissible to construe the Act as applying to that information.
Quite simply, it remains information held for the purposes of journalism and therefore constitutes (within the meaning of section 7) other information than information held for purposes other than those of journalism.
The mere fact that it may be held (even perhaps to a predominant extent) also for purposes other than those of journalism cannot sensibly serve to enlarge the basic category of information in respect of which the BBC is listed and with regard to which, therefore, the Act is not disapplied by section 7.
In short, like Lord Walker, I find that the natural construction of the Act, and Parliaments evident concern to ensure that the interests of free expression trump without more those of freedom of information, supports the BBCs case on this issue.
As for the point at which information will cease to be held to any significant degree for the purposes of journalism and become held instead, say, solely for archival purposes, that necessarily will depend on the facts of any particular case and involve a question of judgment.
I too agree with Lord Walker that the central question to be asked in such a context will be, not which purpose is predominant, but rather whether there remains any sufficiently direct link between the BBCs continuing holding of the information and the achievement of its journalistic purposes.
I too would dismiss this appeal.
The question on this appeal is whether the Balen Report commissioned by the BBC in relation to its Middle Eastern coverage and completed in July 2004 constituted information held for purposes other than those of journalism, art or literature (within Part VI of Schedule 1 to the Freedom of Information Act 2000).
The appeal falls to be approached on the basis that the Report was at the material time held predominantly for journalistic but partly also for other purposes.
The material time was in 2005, when Mr Sugar first requested disclosure of the Report.
I agree with the other members of the Court that this appeal should be dismissed.
However, there is a difference in the basis upon which different members of the Court would dismiss it.
Lord Wilson would only dismiss it on the basis that the critical test is whether the BBC held the Report predominantly for the purposes of journalism.
Were this not the test, he would have regarded the existence of other not insignificant purposes as sufficient to mean that the Report was held for purposes other than those of journalism, art or literature, and so disclosable.
The other members of the Court take an opposite view: once it is established that the BBC held the Report for purposes of journalism, art or literature, the Report was exempt from disclosure, and would have been even had these not been the predominant purposes for which it was held.
The rival arguments on this point are finely balanced, and its resolution in the present appeal on the basis of sparse facts causes me a certain concern.
However, after some hesitation, I have come to the conclusion that the test applied by Lords Phillips, Walker and Brown is to be preferred.
The Freedom of Information Act 2000 reflects the value to be attached to transparency and openness in the workings of public authorities in modern society, and its provisions should be construed in as liberal a manner as possible: Common Services Agency v Scottish Information Commissioner [2008] UKHL 47, [2008] 1 WLR 1550, para 4 per Lord Hope.
But, as Lord Walker notes (para 77), Lord Hope went on to add that that proposition must not be applied too widely, and special considerations may lead to restrictions.
In the present case, the special consideration to which the legislator gave effect was the freedom of the BBC as a public service broadcaster in relation to its journalistic, artistic and literary output.
Information held for any such purposes of journalism, art or literature was absolutely exempt from disclosure.
The legislator was not content with the more qualified protection from disclosure, often depending on a balancing exercise or evaluation, which would anyway have been available under section 2, read with sections 28, 29, 36, 41 and 43.
To read into the words information held for purposes other than those of journalism, art or literature a need to evaluate whether such purposes were dominant seems to me unjustified.
I share Lord Walkers view (para 79) that the real emphasis of the words is on what is not disclosable, so that the exemption applies, without more, if the information is held for any journalistic, artistic or literary purpose.
That conclusion is to my mind also fortified by consideration of the exemption relating to certain functions of the Bank of England.
Lord Phillips discusses the position regarding archived material.
We were not given any clear picture when or on what basis archiving might occur.
I assume that the reference is to material not envisaged as having any current purpose, but stored for historical purposes or against the possibility of some unforeseen need to revisit, or produce evidence of, past events.
A library maintained for current reference would in contrast contain material held for the purposes of journalism, art or literature.
I agree with Lord Browns analysis of the current state of Strasbourg authority, and also with Lord Wilsons comment in para 59 on the decisions (or dicta) in Ullah and Al-Skeini.
Nothing in the Strasbourg jurisprudence calls us to do anything but give effect in this case to what we consider to be the proper construction of the 2000 Act under ordinary domestic principles.
It is unnecessary to say more, or to add to recent debate about the nature of the Convention rights in the United Kingdom or the domestic courts role in interpreting and applying them taking into account any relevant Strasbourg case-law.
I agree with Lord Browns analysis of the current state of Strasbourg authority, and also with Lord Wilsons comment in para 59 on the decisions (or dicta) in Ullah and Al-Skeini.
Nothing in the Strasbourg jurisprudence calls us to do anything but give effect in this case to what we consider to be the proper construction of the 2000 Act under ordinary domestic principles.
It is unnecessary to say more, or to add to recent debate about the nature of the Convention rights in the United Kingdom or the domestic courts role in interpreting and applying them taking into account any relevant Strasbourg case-law.
| UK-Abs | BA and PE were each served a deportation order after unsuccessful appeals on human rights and asylum grounds against the decision to deport them.
Both unsuccessfully made further submissions to the Secretary of State in an attempt to have the order revoked.
They then applied to judicially review the decision not to revoke the deportation order, maintaining that their removal from the United Kingdom would be in breach of their human rights. (Paras [3] [5]) This appeal concerns whether, once a claimant has had his appeal against a decision of the Secretary of State determined, he can make another appeal in country on the same grounds which were rejected on the earlier occasion.
The Secretary of State argued that a repetitive claim did not fall within section 92(4)(a) of the Nationality, Immigration and Asylum Act 2002, which provides for an in country appeal where the claimant has made an asylum claim, or a human rights claim whilst in the UK.
The Secretary of State argued that where, as in BAs case, further representations have not been advanced as a fresh claim as defined under rule 353 of the Immigration Rules, or, as in PEs case, have not been accepted as such by the Secretary of State, they can only be considered out of country and that there is no obstacle to the deportations. (Paras [8]; [13] [15])
The appeal by the Secretary of State is dismissed by a majority of four to one.
A claim for asylum which has been rejected should be allowed to proceed to appeal in country under sections 82 and 92 of the Nationality, Immigration and Asylum Act 2002, unless it has been certified as clearly unfounded under section 94 or excluded under section 96.
This should be so whether or not the Secretary of State has accepted it as a fresh claim. (Paragraph [32]) Lord Hope gave the majority judgment of the Court.
Lady Hale dissented.
Lord Hope considered the phrase an asylum claim, or a human rights claim in s 92(4)(a) in the context of the 2002 Act as a whole and rejected the Appellants argument that the Supreme Court should follow the interpretation in R v Secretary of State for the Home Department, ex parte Onibiyo [1996] QB 768.
In Onibiyo, claim in the context of the 1993 Act was held to mean a first claim, or a second or subsequent claim which has been accepted as a fresh claim by the Secretary of State, but not a claim which is repetitious.
Lord Hope determined that whilst the 2002 Act uses substantially the same words as the 1993 Act, the statutory system is markedly different given the
addition of a range of powers enabling the Secretary of State or immigration officer to deal with repetitious claims.
No inference was drawn from the amendment of s 113 by s 12 of the Immigration, Asylum and Nationality Act 2006 as it is not yet in force. (Paras [25] [29]; [44] [46]) In a case such as this where no certification has been given under s 94 (providing for the exclusion of appeals that are clearly unfounded) or s 96 (removing the right of appeal if the claim raises an issue which has been or ought to have been dealt with in an earlier appeal), there is no need to impose a further requirement which is not mentioned elsewhere in the 2002 Act, namely that the words aclaim exclude a further claim which has not been held under rule 353 to be a fresh claim. (Para [29]) The Appellants construction risks undermining the beneficial objects of the Refugee Convention, as it would exclude, by s 95, claims which the Secretary of State considers not to be fresh claims from the ground of appeal in s 84(1)(g), when claims which are certified as clearly unfounded under s 94 would still be given the benefit of that section. (Section 84(1)(g) provides for an appeal where removal would place the UK in breach of its international or human rights obligations.) (Paras [30][32]; [47]) Rule 353 does not affect the operation of the legislative scheme, which provides the complete code for dealing with repeat claims. (Para [33]) Lady Hale, dissenting, would have allowed the appeal.
Lady Hale concluded aclaim in s 92(4)(a) of the 2002 Act ought to be given the same meaning ascribed to the phrase in the 1993 Act in Onibiyo.
There was no need for it to be defined in the 2002 Act given it had already been judicially interpreted. (Paras [39][40]) The addition of sections 94 and 96 should not be taken to mean that Parliament had abandoned the old meaning of claim without expressly saying so, particularly as the additional sections are not apt to cater for repetitious claims. (Paras [41][42]) Lady Hale disagreed that the Appellants construction would undermine the UKs international obligations.
A person who presents a repeat claim on asylum or human rights grounds has already enjoyed the right of appeal on these grounds within this country.
The current system allowing for an initial decision followed by an appeal system in the UK is sufficient compliance with those obligations. (Paras [42] [43])
|
Private Jason Smith joined the Territorial Army in 1992, when he was 21 years old.
In June 2003 he was mobilised for service in Iraq.
On 26 June 2003, after a brief spell in Kuwait for purposes of acclimatisation, he arrived at Camp Abu Naji, which was to be his base in Iraq.
From there he was moved to an old athletics stadium some 12 kilometres away, where about 120 men were billeted.
By August temperatures in the shade were exceeding 50 degrees centigrade.
On 9 August he reported sick, saying that he could not stand the heat.
Over the next few days he was employed on various duties off the base.
On the evening of 13 August he was found collapsed outside the door of a room at the stadium.
He was rushed by ambulance to the medical centre at Camp Abu Naji but died almost immediately of hyperthermia, or heat stroke.
Private Smiths body was brought back to this country and an inquest was held.
The inquest suffered from procedural shortcomings.
His mother commenced judicial proceedings in which she sought an order quashing the coroners inquisition.
In bringing her claim Mrs Smith relied upon the Human Rights Act 1998.
She contended that throughout the time that her son was in Iraq the United Kingdom owed him a duty to respect his right to life under article 2 of the European Convention on Human Rights and that the inquest also had to satisfy the procedural requirements of article 2.
On more narrow grounds than these the Secretary of State conceded that Mrs Smith was entitled to the relief that she sought, and a new inquest is to be held.
Two issues of public importance have been raised by her claim.
Is a soldier on military service abroad in Iraq subject to the protection of the Human Rights Act 1998 (the HRA) when outside his base? I shall call this the jurisdiction issue.
If so, must the death of such a soldier be the subject of an inquest that satisfies the procedures that article 2 of the European Convention on Human Rights (the Convention) implicitly requires where there is reason to believe that a death may be attributable to default on the part of a public authority? I shall call this the inquest issue.
These issues are largely academic inasmuch as the Secretary of State has conceded that a fresh inquest must be held in relation to Private Smiths death that satisfies those Convention requirements a concession which does not, of course, bind the Coroner.
The courts below have nonetheless been prepared to entertain them because of their importance and this court has done the same.
The jurisdiction issue
Mrs Smith succeeded on this issue, both at first instance and before the Court of Appeal.
Section 6(1) of the HRA provides: It is unlawful for a public authority to act in a way which is incompatible with a Convention right.
Section 1 defines the Convention rights as including articles 2 to 12 and 14 of the Convention.
It is common ground that the HRA is capable of applying outside the territorial jurisdiction of the United Kingdom, but that section 6(1) will only be infringed by conduct that the Strasbourg Court would hold to have violated a Convention right.
This was determined by the House of Lords in R (Al Skeini) v Secretary of State for Defence [2008] AC 153.
It follows that, in order to decide whether conduct has infringed section 6(1) of the HRA it is necessary to consider the ambit of application of the Convention.
More particularly, no claim can succeed under the HRA unless there has been a breach of a Convention right of a person within the jurisdiction of the United Kingdom that should have been secured pursuant to article 1.
Article 1 of the Convention provides: The High Contracting Parties shall secure to everyone within their jurisdiction the rights and freedoms defined in Section 1 of this Convention.
The jurisdiction issue is whether, on the true interpretation of article 1, British troops operating on foreign soil fall within the jurisdiction of the United Kingdom.
There has recently grown a small body of authority, both in this country and at Strasbourg, dealing with the application of the Convention to the activities of armed forces on foreign soil.
The Grand Chamber sat to consider this question in Bankovic v United Kingdom (2001) 11 BHRC 435, which has been recognised both in this country and at Strasbourg as a leading case on the scope of jurisdiction under article 1.
I propose to start by considering that case.
Bankovic
Five of the applicants in Bankovic were close relatives of civilians killed by air strikes carried out on a radio and television centre in Belgrade by members of NATO, when intervening in the Kosovo conflict in 1999.
The sixth applicant had himself been injured in the raids.
The critical issue in relation to admissibility was whether the applicants and their deceased relatives came within the jurisdiction of the respondent States within the meaning of article 1 of the Convention.
The applicants founded their case on the reasoning of the Court in Loizidou v Turkey (1995) 20 EHRR 99.
The Court held in that case that a Greek Cypriot, who claimed in relation to the dispossession of her property in Northern Cyprus, was potentially within the jurisdiction of Turkey for the purposes of article 1 by reason of the fact that Turkey exercised effective control of Northern Cyprus.
The applicants in Bankovic accepted that they could not contend that the action of the member States in bombing Belgrade put them under an obligation in relation to the observance of all of the Convention rights in the area bombed, but argued that they should be held accountable for those rights that did fall within their control, and in particular the right to life of those whom they bombed.
The Court applied the principles agreed in the Vienna Convention on the Law of Treaties 1969 (the Vienna Convention) to the task of interpreting article 1.
Thus it paid primary regard to the natural meaning of the words used, but also took into consideration the travaux prparatoires (the travaux) and State practice.
This approach contrasted with the approach that the Strasbourg Court has adopted of treating the Convention as a living instrument when considering the manner in which it operates.
The Court recognised this at paras 64 and 65 but commented that the scope of article 1 was determinative of the scope and reach of the entire Convention system of human rights protection.
The Court was indicating that the meaning of article 1, and thus the scope of application of the Convention, could not change over time, and this seems plainly correct as a matter of principle.
I shall describe this as the original meaning principle.
The Court approached the natural meaning of jurisdiction on the premise that this had to be consonant with the meaning of that word under principles of public international law.
Under these principles the jurisdictional competence of a State was primarily territorial.
Thus: article 1 of the Convention must be considered to reflect this ordinary and essentially territorial notion of jurisdiction, other bases of jurisdiction being exceptional and requiring special justification in the particular circumstances of each caseIn keeping with the essentially territorial notion of jurisdiction, the court has accepted only in exceptional cases that acts of the contracting states performed, or producing effects, outside their territories can constitute an exercise of jurisdiction by them within the meaning of article 1 of the Convention. (paras 61 and 67)
Thus the Court held that jurisdiction in article 1 was not limited to the territory over which a State exercises lawful authority.
It extended in exceptional circumstances requiring special justification to other bases of jurisdiction.
The difficulty in delineating article 1 jurisdiction arises in identifying and defining the exceptions to territorial jurisdiction.
The Court recognised that one such exception arose where a member State had taken effective control of part of the territory of another member State.
I shall call this the principle of effective territorial control.
Loizidou v Turkey exemplified this jurisdiction.
The Court justified this exception by remarking at para 80 that the inhabitants of Northern Cyprus would have found themselves excluded from the benefits of the Convention safeguards and system which they had previously enjoyed by Turkeys effective control of the territory and by the accompanying inability of the Cypriot Government, as a contracting State, to fulfil the obligations that it had undertaken under the Convention.
Thus the Court appeared to restrict the principle of effective territorial control to the territories of the contracting States.
The Court made the following comments about this head of jurisdiction: 71.
In sum, the case law of the Court demonstrates that its recognition of the exercise of extra territorial jurisdiction by a contracting state is exceptional: it has done so when the respondent state, through the effective control of the relevant territory and its inhabitants abroad as a consequence of military occupation or through the consent, invitation or acquiescence of the government of that territory, exercises all or some of the public powers normally to be exercised by that government. 80.
In short, the Convention is a multi lateral treaty operating, subject to article 56 of the Convention, in an essentially regional context and notably in the legal space (espace juridique) of the contracting states.
The FRY clearly does not fall within this legal space.
The Convention was not designed to be applied throughout the world, even in respect of the conduct of contracting states.
Accordingly, the desirability of avoiding a gap or vacuum in human rights protection has so far been relied on by the Court in favour of establishing jurisdiction only when the territory in question was one that, but for the specific circumstances, would normally be covered by the Convention.
Article 56 enables a Contracting State to declare that the Convention shall extend to all or any of the territories for whose international relations the State is responsible.
Thus, implicitly and paradoxically, the principle of effective territorial control does not appear to apply automatically to such territories see also Bui van Thanh v United Kingdom (1990) 33 Yearbook of the European Convention on Human Rights 59 at p 61; Loizidou v Turkey at paras 86 87; Yonghong v Portugal Reports of Judgments and Decisions 1999 IX, pp 385, 391 392.
The Court rejected the suggestion that extra territorial acts could bring individuals within the jurisdiction for the purposes of some Convention rights but not others.
It said at para 75: the court is of the view that the wording of article 1 does not provide any support for the applicants suggestion that the positive obligation in article 1 to secure the rights and freedoms defined in Section I of this Convention can be divided and tailored in accordance with the particular circumstances of the extra territorial act in question and, it considers its view in this respect supported by the text of article 19 of the Convention.
Indeed the applicants approach does not explain the application of the words within their jurisdiction in article 1 and it even goes so far as to render those words superfluous and devoid of any purpose.
Had the drafters of the Convention wished to ensure jurisdiction as extensive as that advocated by the applicants, they could have adopted a text the same as or similar to the contemporaneous articles 1 of the four Geneva Conventions of 1949.
I shall describe this as the whole package principle.
The Court singled out for special mention as an example of an exceptional case of extra territorial jurisdiction that fell within article 1, the case of Drozd and Janousek v France and Spain (1992) 14 EHRR 745.
I shall consider this decision in due course.
The Court noted a number of other examples of States exercising extra territorial jurisdiction, implying, I believe, that those affected would be within the jurisdiction of the State in question within the meaning of article 1: Additionally, the Court notes that other recognised instances of the extra territorial exercise of jurisdiction by a state include cases involving the activities of its diplomatic or consular agents abroad and on board craft and vessels registered in, or flying the flag of, that state.
In these specific situations, customary international law and treaty provisions have recognised the extra territorial exercise of jurisdiction by the relevant state.
The applicants in Bankovic also relied on two admissibility decisions that proceeded on a different basis of article 1 jurisdiction that has been described as state agent authority, namely de facto control by state agents of persons as opposed to territory, Issa v Turkey (Application No 31821/96) (unreported) 30 May 2000 and calan v Turkey (Application No 46221/99) (unreported) 14 December 2000.
The Grand Chamber swept these aside with the comment that in neither case was the issue of jurisdiction raised by the respondent Government, adding that the merits of those cases had yet to be decided.
The respondent Governments in Bankovic, including the United Kingdom, had in fact accepted the existence of jurisdiction in those cases on the basis that it was the assertion or exercise of legal authority, actual or purported, over persons owing some form of allegiance to that state or who have been brought within that states control.
Mr Eadie QC, for the Secretary of State, has not in this Court accepted any general principle whereby article 1 jurisdiction can be based on the exercise of control by State agents over individuals as opposed to territory.
It is convenient at this point to consider the treatment by the Strasbourg Court of the question of jurisdiction on the substantive hearings in those two cases.
calan and Issa
In calan (2005) 41 EHRR 985 the applicant, a Turk, was handed over to Turkish officials aboard a Turkish aircraft at Nairobi.
At the substantive hearing, following that before the Court (2003) 37 EHRR 238, the Grand Chamber recorded at para 91 that it was common ground that, directly after being handed over to the Turkish officials by the Kenyan officials, the applicant was under effective Turkish authority and therefore within the jurisdiction of that state for the purposes of Article 1 of the Convention, even though in this instance Turkey exercised its authority outside its territory.
It is true that the applicant was physically forced to return to Turkey by Turkish officials and was under their authority and control following his arrest and return to Turkey.
The substantive hearing in Issa (2004) 41 EHRR 567 took place before the Second Section, three members of which had been party to the decision in Bankovic.
The applicants, Iraqi nationals, alleged that their relatives had been unlawfully arrested, detained, ill treated and killed by Turkish troops in the course of a military operation in Northern Iraq.
The claim failed because they were unable to prove this.
The Court had, however, permitted Turkey to challenge the existence of article 1 jurisdiction, albeit that no challenge on this ground had been made at the admissibility hearing.
The Court at paras 68 69 referred to the substantive decision in Loizidou v Turkey (1996) 23 EHRR 513, para 52 for the proposition that: According to the relevant principles of international law, a States responsibility may be engaged where, as a consequence of military action whether lawful or unlawful that State in practice exercises effective control of an area situated outside its national territory.
The obligation to secure, in such an area, the rights and freedoms set out in the Convention derives from the fact of such control, whether it be exercised directly, through its armed forces, or through a subordinate local administration.
The Court went on to say, at para 71: Moreover, a State may also be held accountable for violation of the Convention rights and freedoms of persons who are in the territory of another State but who are found to be under the former States authority and control through its agents operating whether lawfully or unlawfully in the latter State.(Citations omitted).
This clearly advances state agent authority as an alternative to effective territorial control as a basis of article 1 jurisdiction.
Al Skeini
The implications of the Strasbourg Courts decision in Bankovic received detailed analysis in Al Skeini in the Divisional Court, the Court of Appeal and the House of Lords.
This Court ought to consider the conclusions of the House of Lords to be definitive unless these have plainly been invalidated by subsequent decisions of the Strasbourg Court.
The claimants were relatives of six Iraqi civilians who had been killed by or in the course of operations by British soldiers in the period following completion of major combat operations in Iraq and before the assumption of authority by the Iraqi Interim Government.
Five of these were shot in separate incidents in Basra.
The sixth, Mr Baha Mousa, was beaten to death by British troops while detained in a British military detention unit.
The claimants sought independent enquiries into these deaths, relying upon the HRA.
Two preliminary issues were before the Court.
Did the HRA apply outside the territorial jurisdiction and were the six Iraqi citizens within the jurisdiction of the United Kingdom for the purposes of article 1 of the Convention? The House, Lord Bingham dissenting, answered the first question in the affirmative.
So far as concerns the second question, the ambit of article 1 had been exhaustively considered by the Divisional Court [2004] EWHC 2911 (Admin); [2007] QB 140 which had analysed chronologically all the relevant Strasbourg authorities, including Bankovic.
The court concluded that these established that the primary meaning of within their jurisdiction in article 1 was within the territorial jurisdiction of the contracting States, subject to a number of exceptions.
There was no general exception whereby those subject to the exercise of state agent authority fell within the article 1 jurisdiction of the State.
Insofar as Issa had held to the contrary, it should be disregarded as inconsistent with the decision in Bankovic.
The Court of Appeal [2005] EWCA Civ 1609; [2007] QB 140 differed on the last point, holding that Issa was authoritative and demonstrated that article 1 jurisdiction was established by the exercise of control over individuals by State agents, both within and outside the jurisdiction of contracting States.
The House of Lords preferred the reasoning of the Divisional Court.
The majority approached the issue of article 1 jurisdiction on the footing that this was essentially a matter for the Strasbourg court and the House should not construe article 1 as having any further reach than that established by that Court.
As to that pre eminence should be given to the decision of the Grand Chamber in Bankovic.
The House was, however, faced with the fact that, so far as Mr Baha Mousa was concerned, the Secretary of State had accepted that, because he died as a result of misconduct that took place at a detention centre within a British military base, he met his death within the jurisdiction of the United Kingdom for the purposes of article 1.
The claimants sought to rely on a principle of state agent authority, arguing that if such authority was exercised over individuals, this brought them within the jurisdiction for purposes of article 1.
The majority was troubled by the fact that some statements of the Court in Issa were hard to reconcile with Bankovic, and particularly with the whole package principle.
Insofar as Issa could not be reconciled with Bankovic, the majority held that it should be disregarded.
Thus Lord Rodger held, at para 79: the whole package of rights applies and must be secured where a contracting state has jurisdiction.
This merely reflects the normal understanding that a contracting state cannot pick and choose among the rights in the Convention: it must secure them all to everyone within its jurisdiction.
If that is so, then it suggests that the obligation under article 1 can arise only where the contracting state has such effective control of the territory of another state that it could secure to everyone in the territory all the rights and freedoms in section 1 of the Convention.
Lord Brown carried out a detailed analysis of the Strasbourg jurisprudence.
He recognised some narrow categories where the Strasbourg Court had found article 1 jurisdiction in circumstances where the State had not got territorial control irregular extradition such as calan and activities of embassies and consulates.
These exceptions apart, Lord Brown considered the whole package principle to be of importance: 128.
There is one other central objection to the creation of the wide basis of jurisdiction here contended for by the appellants under the rubric control and authority, going beyond that arising in any of the narrowly recognised categories already discussed and yet short of that arising from the effective control of territory within the Council of Europe area.
Bankovic (and later Assanidze) stands, as stated, for the indivisible nature of article 1 jurisdiction: it cannot be divided and tailored.
As Bankovic had earlier pointed out, at para 40: the applicants interpretation of jurisdiction would invert and divide the positive obligation on contracting states to secure the substantive rights in a manner never contemplated by article 1 of the Convention.
When, moreover, the Convention applies, it operates as a living instrument. calan provides an example of this, a recognition that the interpretation of article 2 has been modified consequent on the territories encompassed by the member states of the Council of Europe [having] become a zone free of capital punishment: para 195. (Paras 64 and 65 of Bankovic, I may note, contrast on the one hand the Conventions substantive provisions and the competence of the Convention organs, to both of which the living instrument approach applies and, on the other hand, the scope of article 1 the scope and reach of the entire Convention to which it does not.) Bear in mind too the rigour with which the court applies the Convention, well exemplified by the series of cases from the conflict zone of south eastern Turkey in which, the states difficulties notwithstanding, no dilution has been permitted of the investigative obligations arising under articles 2 and 3. 129.
The point is this: except where a state really does have effective control of territory, it cannot hope to secure Convention rights within that territory and, unless it is within the area of the Council of Europe, it is unlikely in any event to find certain of the Convention rights it is bound to secure reconcilable with the customs of the resident population.
Applying Bankovic, the majority held that the five Iraqi citizens who had been killed in Basra were not within the jurisdiction of the United Kingdom for the purposes of article 1.
Lord Brown indicated that he would recognise the United Kingdoms jurisdiction over Mr Baha Mousa only on the basis of an analogy with the extra territorial exception made for embassies.
However, in a subsequent admissibility decision in Al Saadoon and Mufdhi v United Kingdom (2009) 49 EHRR SE 95 the Strasbourg Court has held that detainees in British detention centres in Iraq fell within United Kingdom jurisdiction by reason of the total and exclusive de facto, and subsequently de jure, control exercised by the United Kingdom authorities over the premises in question. (para 88)
A more recent example of where the Strasbourg Court has equated control over individuals with article 1 jurisdiction is the decision of the Grand Chamber in Medvedyev and others v France (Application No 3394/03) judgment delivered on 29 March 2010.
On the high seas a French warship boarded a merchant vessel, crewed by the applicants who were suspected of being engaged in drug smuggling and compulsorily escorted it on a 13 day voyage into Brest.
The court held at para 67 that as the vessel and its crew were, at least de facto, under the control of France, they were effectively under Frances jurisdiction for the purposes of article 1.
This decision, when added to that in Issa suggests that the Strasbourg Court may be prepared to found article 1 jurisdiction on state agent authority, even though this principle does not seem consistent with the approach in Bankovic.
Gentle
The possibility that British soldiers serving abroad were within the article 1 jurisdiction of the United Kingdom because they were under the authority of the United Kingdom was shortly dismissed by Lord Bingham in R (Gentle) v Prime Minister [2008] AC 1356.
He said, at para 8: (3) The obligation of member states under article 1 of the Convention is to secure to everyone within their jurisdiction the rights and freedoms in the Convention.
Subject to limited exceptions and specific extensions, the application of the Convention is territorial: the rights and freedoms are ordinarily to be secured to those within the borders of the state and not outside.
Here, the deaths of Fusilier Gentle and Trooper Clarke occurred in Iraq and although they were subject to the authority of the defendants they were clearly not within the jurisdiction of the UK as that expression in the Convention has been interpreted: R (Al Skeini) v Secretary of State for Defence [2008] AC 153, paras 79, 129.
The other members of the House expressed general agreement with Lord Bingham.
Article 1 jurisdiction was not, however, at the heart of the case, to the extent that the Court of Appeal, whose decision was upheld, had not found it necessary to decide the point.
Gentle nonetheless lends support to the analysis of the House of Lords in Al Skeini.
The claimants in Al Skeini have taken their case to Strasbourg and this will give the Strasbourg Court a further opportunity to clarify this difficult area of its jurisprudence.
Submissions
For the Secretary of State, Mr Eadie submitted that Private Smith was only within the jurisdiction of the United Kingdom when he was within territory that was under the effective control of the United Kingdom.
On this basis he conceded that article 2 had applied during those periods when Private Smith was within the military base, which included the time of his death.
When, however, he was not within territory controlled by the United Kingdom, he was not within article 1 jurisdiction.
His position in those circumstances did not fall within any of the recognised exceptions to the general principle that article 1 jurisdiction was territorial.
In so submitting he relied in particular on Bankovic, Al Skeini and Gentle.
For Mrs Smith Miss Dinah Rose QC made it clear that her case was not based on Private Smith having been on territory under the de facto control of the United Kingdom, nor upon Private Smith himself having been under the de facto control of the Army, as a State agent, but upon the fact that Private Smith was subject to the jurisdiction of the United Kingdom as a matter of both domestic and international law.
He was so subject by reason of his status as a member of the Armed Forces.
Miss Rose submitted that soldiers were in the same position as other State agents, such as diplomats, consular agents and judges.
When exercising State powers outside the territory of the State they themselves remained subject to the jurisdiction of the State.
Mr Beloff QC appeared for the Intervener, the Equality and Human Rights Commission.
He supported Miss Roses submissions.
He submitted that the authorities dealing with control of territory, or control of persons, did not touch on the basis of jurisdiction asserted in this case.
That was personal jurisdiction, which, to quote from para 17 of his written case, does not depend on a persons location.
It is founded on the reciprocal rights and obligations of nationals and their state, wherever they may be.
Mr Beloff accepted that the precise question of whether article 1 jurisdiction could be founded on this basis had not arisen before the Strasbourg Court.
The decision of the Court of Appeal.
The Court of Appeal held that article 1 required the existence of a jurisdictional link and that this requirement was satisfied in the case of Private Smith, for the reasons set out in para 29 of its judgment.
Members of the armed forces were: subject to United Kingdom military law without territorial limit and may be tried by court martial whether the offence is committed in England or elsewhere.
They are also subject to the general criminal and civil law.
Soldiers serve abroad as a result of and pursuant to the exercise of United Kingdom jurisdiction over them.
Thus the legality of their presence and of their actions depends on their being subject to United Kingdom jurisdiction and complying with United Kingdom law.
As a matter of international law, no infringement of the sovereignty of the host state is involved in the United Kingdom exercising jurisdiction over its soldiers serving abroad.
The Court was also influenced by what it perceived as the illogicality of holding that Private Smith was within the jurisdiction when on military premises, but not when outside them: it is accepted that a British soldier is protected by the 1998 Act and the Convention when he is at a military base.
In our judgment, it makes no sense to hold that he is not so protected when in an ambulance or in a truck or in the street or in the desert.
There is no sensible reason for not holding that there is a sufficient link between the solider as victim and the United Kingdom whether he is at a base or not.
So too, if he is court martialled for an act committed in Iraq, he should be entitled to the protection of article 6 of the Convention wherever the court martial takes place.
The meaning of jurisdiction
interpretation.
The first is that: Article 31 of the Vienna Treaty lays down a number of general rules of A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
Jurisdiction has more than one ordinary meaning.
The meanings given by the Shorter Oxford Dictionary include the following: 1.
Exercise of judicial authority, or of the functions of a judge or legal tribunal; power of administering law or justice.
Also, power or authority in general. 2.
The extent or range of judicial or administrative power; the territory over which such power extends.
Jowetts Dictionary of English Law, 2nd ed (1977), after giving the primary
meaning of legal authority goes on to state: Jurisdiction also signifies the district or geographical limits within which the judgments or orders of a court can be enforced or executed.
This is sometimes called territorial jurisdiction.
Thus the phrase within the jurisdiction can bear the natural meaning subject to the authority of but can equally bear the natural meaning within the territory over which authority is exercised.
There are different varieties of authority that can be described as jurisdiction.
Oppenheims International Law, 9th ed (1992), vol 1, describes these and their relationship to territorial jurisdiction: 136 State jurisdiction in general State jurisdiction concerns essentially the extent of each states right to regulate conduct or the consequences of events.
In practice jurisdiction is not a single concept.
A states jurisdiction may take various forms.
Thus a state may regulate conduct by legislation; or it may, through its courts, regulate those differences which come before them, whether arising out of the civil or criminal law; or it may regulate conduct by taking executive or administrative action which impinges more directly on the course of events, as by enforcing its laws or the decisions of its courts.
The extent of a states jurisdiction may differ in each of these contexts.
The jurisdiction concerns both international law and the internal law of each state.
The former determines the permissible limits of a states jurisdiction in the various forms it may take, while the latter prescribes the extent to which, and manner in which, the state in fact asserts its jurisdiction. 137 Territorial jurisdiction As all persons and things within the territory of a state fall under its territorial authority, each state normally has jurisdiction legislative, curial and executive over them.
Territoriality is the primary basis for jurisdiction; 138 Jurisdiction over citizens abroad International law does not prevent a state from exercising jurisdiction, within its own territory, over its nationals travelling or residing abroad, since they remain under its personal authority.
Accordingly, it may legislate with regard to their conduct when abroad, levy taxes in respect of their assets or earnings abroad, or legislate in respect of their foreign property.
In all such cases, however, the states power to enforce its laws depends upon its national being in, or returning to, its territory or having there property against which they can be enforced.
Most human rights can only be the subject of protection, or interference, by the State if the individual who enjoys them is within the administrative, or executive, authority of the State.
This is obviously true of the rights that protect the person, namely those protected by articles 2, 3 4 and 5 and is also true of articles 8, 9, 10, 11 and 12.
Save in exceptional circumstances those requiring State protection of these rights will be within the territorial jurisdiction of the State in question.
In respect of these rights it produces a perfectly sensible result to interpret within their jurisdiction in article 1 as meaning within the territorial jurisdiction of the Member States.
Public international law recognises that both legislative and judicial authority can be exercised over individuals whether they are inside or outside the territorial jurisdiction of the State.
The exercise of these types of jurisdiction may well have potential impact on some human rights, but not on others.
The Strasbourg Court appears to have recognised, at least implicitly, that the exercise of these types of jurisdiction can bring those who are subject to them within the jurisdiction for purposes of article 1, whether or not they are within the territorial jurisdiction of the State, in relation to those rights that are affected.
In such circumstances there can be no question of the whole package principle applying.
I shall give a number of examples.
Article 6 protects the right to a fair trial.
The English court exercises extra territorial jurisdiction in defined circumstances in relation to civil claims.
If a foreigner resident abroad is impleaded by a resident of this country in the English court, it is hard to believe that the Strasbourg Court would hold the English claimant entitled to the benefit of article 6 but the foreign defendant not so entitled.
Both would be within the judicial jurisdiction of the English court and there would seem a strong case for equating that with article 1 jurisdiction in the context of the application of article 6.
Such an approach would seem implicitly to have been accepted by the Strasbourg Court in plenary session in Drozd and Janousek v France and Spain (1992) 14 EHRR 745.
The applicants in that case had been tried in criminal proceedings in Andorra by a Tribunal, presided over by a French judge.
Andorra was not party to the Convention.
The applicants complained, none the less, of violation of their article 6 rights to a fair trial.
The Court held that the judge had not been sitting in his capacity as a French judge, but as an Andorran judge, but appears to have accepted that had this not been so the applicants would have fallen within the jurisdiction of France for the purposes of article 1 in relation to their article 6 rights.
This would not, however, have entitled them to claim against France the benefit of protection of the rest of the Convention rights.
What of the property rights protected by article 1 of the First Protocol? Many foreign residents own property in this country.
Are they within the jurisdiction for the purposes of article 1? In Carson v United Kingdom (Application No 42184/05) judgment 16 March 2010 the Grand Chamber ruled admissible claims against the United Kingdom by 13 persons entitled to British State pensions for violation of article 14 of the Convention in combination with article 1 of the First Protocol.
All the claimants had earned pensions by working in Britain, but had emigrated to South Africa, Australia or Canada on retirement.
The report states, in para 1 that they were all British nationals, but para 21 states that one of them remained an Australian national.
The basis of the claim was discrimination against the claimants in that their pensions were not linked to United Kingdom inflation, in contrast to the position of pensioners resident within the United Kingdom.
Neither before the English courts nor before the Strasbourg Court was there any discussion of the basis upon which the claimants were treated as within the jurisdiction of the United Kingdom for the purposes of article 1.
One possible answer is that because their pension rights were governed by legislation, they fell within the legislative jurisdiction of the United Kingdom in relation to those rights.
There could be no question, however, of the United Kingdom having to afford them protection in relation to the whole package of Convention rights.
In X v United Kingdom (1979) 15 DR 137, the Commission ruled inadmissible on the merits a claim by a British citizen, who was employed by the European Commission and resident in Brussels, for violation of article 1 of the Convention in combination with article 3 of the First Protocol.
She complained that she had no right to vote in United Kingdom elections whereas members of the diplomatic service and the Armed Forces stationed outside the United Kingdom retained their right to vote.
The Commission held that the discrimination was justified in that these persons were not voluntarily abroad but had been sent abroad to serve their country.
They fell to be regarded as resident citizens, in contrast to the applicant who was living abroad voluntarily.
It was not, however, suggested that the applicant did not fall within the article 1 jurisdiction of the United Kingdom.
The basis for this jurisdiction was perhaps that, in relation to voting rights, nationals fall within the jurisdiction of their own State, whether or not they are within the territorial jurisdiction.
There are other cases that suggest that where one State delegates to another State authority to control a particular area of government that engages one of the Convention rights, those subject to the exercise of the latter States authority will be deemed to be within the jurisdiction of the latter State for the purposes of article 1 in relation to that right: Drozd; X and Y v Switzerland (1977) 9 DR 57; Gentilhomme, Schaff Benhadji and Zerouki v France (Application Nos 48205/99, 48207/99, 48209/99) (unreported) 14 May 2002.
A recent decision of the Strasbourg Court provides a variation on this theme.
In Stephen v Malta (No 1) (2009) 50 EHRR 144 the applicant was a British subject who had been arrested and detained in Spain pursuant to an arrest warrant that had been issued by a Maltese Court that had not been competent to issue it.
The Strasbourg Court, of its own motion, considered article 1 jurisdiction.
It remarked at para 45: the question to be decided is whether the facts complained of by the applicant can be attributed to Malta The Court gave an affirmative answer to this question and held that the applicants complaints under article 5 engaged the responsibility of Malta under the Convention.
No principled explanation was given for this departure from the territorial approach to article 1 jurisdiction other than the passage quoted above which, if applied generally, would render that approach nugatory.
These cases might be thought to support a general principle that there will be jurisdiction under article 1 whenever a State exercises authority, be it legislative, judicial or executive, which affects a Convention right of a person, whether that person is within the territory of that State or not.
So far as the exercise of executive authority is concerned, one can postulate that this requires effective control, either of territory or of individuals, before article 1 jurisdiction is established.
The fact remains, however, that the Strasbourg Court has not propounded any such general principle.
Nor can such a principle readily be reconciled with the proposition, approved in Bankovic, that article 1 jurisdiction is essentially territorial in nature and that other bases of jurisdiction are exceptional and require special justification in the particular circumstances of each case.
There are compelling reasons for following the approach of the Grand Chamber in Bankovic, quite apart from the reasons that led the House of Lords to treat it as a landmark decision.
The travaux to which the Court referred demonstrate that the contracting States were concerned with the manner in which those within their territories were treated.
It is not credible that the change to the phrase within their jurisdiction was intended to effect a fundamental extension to the scope of the Convention without this being clearly reflected in the travaux.
The question then is whether, applying the original meaning principle, it is right to include a States armed forces abroad as falling within the jurisdiction of the State for purposes of article 1 by reason of the special status that they enjoy.
That is the proposition that Miss Rose advances and it is one that is, as the Grand Chamber pointed out in Bankovic, not reflected by State practice.
It is, furthermore, almost wholly unsupported by Strasbourg jurisprudence.
decision of the Commission in Cyprus v Turkey (1975) 2 DR 125: I say almost having regard to the following passage in the admissibility 8The Commission further observes that nationals of a State, including registered ships and aircrafts, are partly within its jurisdiction wherever they may be, and that authorised agents of a State, including diplomatic or consular agents and armed forces, not only remain under its jurisdiction when abroad but bring any other persons or property within the jurisdiction of that State, to the extent that they exercise authority over such persons or property.
Insofar as, by their acts or omissions, they affect such persons or property, the responsibility of the State is engaged.
I am not aware of any other Strasbourg jurisprudence that suggests that armed forces remain under the jurisdiction of a State when abroad and the reasoning of the Commission in this case was far wider than that of the Court when dealing with Turkeys jurisdiction in Northern Cyprus in Loizidou v Turkey (1995) 20 EHRR 99.
Miss Rose drew attention to Strasbourg jurisprudence that holds that those affected by the conduct of a States diplomatic and consular officials abroad can fall within the jurisdiction of the State, which was applied by the Court of Appeal in R (B and others) v Secretary of State for Foreign and Commonwealth Affairs [2004] EWCA Civ 1344; [2005] QB 643.
She submitted that it followed from this that such officials were themselves within the jurisdiction of their States and that the same principle should apply to the armed forces.
I have some difficulty with the logic of the proposition that State agents whose acts bring those affected by them within article 1 jurisdiction must, in consequence, themselves also be within the article 1 jurisdiction of the State whose agents they are but, more fundamentally, it does not seem to me that the analogy between diplomatic and consular officials and members of the armed forces is compelling.
More compelling were the points made by Miss Rose in relation to the unique status of members of the armed forces.
When the Convention was agreed men who were British citizens were liable to conscription under the National Service (Armed Forces) Act 1948 and, in consequence of conscription, rendered subject to the executive authority of the armed forces and to the legislative and judicial regimes that applied to the armed forces.
A similar situation no doubt existed in the case of other contracting States.
Today the same is true of those who volunteer to serve in the armed forces see the description of the relevant legislation set out by Lord Mance in his judgment at para 190.
Under domestic law and in accordance with public international law, members of the armed forces remain under the legislative, judicial and executive authority of the United Kingdom, whether serving within or outside United Kingdom territory.
From the viewpoint of domestic law they can thus be said to be within the jurisdiction of the United Kingdom wherever they are.
It is not attractive to postulate that, when they are outside the territorial jurisdiction in the service of their country they lose the protection afforded by the Convention and the HRA.
That, however, is not the question.
The question is whether, in concluding the Convention, the contracting States agreed that article 1 jurisdiction should extend to armed forces when serving abroad as an exception to the essentially territorial nature of that jurisdiction.
What were the practical implications of so doing?
It is not wholly realistic to consider the perceived implications of the application of the Convention in 1953 by reference to the requirements of the Convention, that have been identified by the Strasbourg Court since 1953.
In particular, it is perhaps not realistic to apply to conditions in 1953 the positive obligations in relation to article 2 that have quite recently been laid down by the Strasbourg Court.
It is nonetheless instructive to consider the implications of applying the Convention to armed forces serving abroad.
It is not practicable for a State to secure many of the Convention rights and freedoms for troops in active service abroad.
Article 2 is, however, plainly capable of being engaged.
The safety of the lives of those fighting abroad can depend critically on the acts or omissions of State agents, covering the equipment with which they are supplied, the missions on which they are sent, and strategic and tactical decisions taken by commanders in the field.
If the troops are within the article 1 jurisdiction of the State the question arises of how far these matters fall within the substantive obligations imposed by article 2.
Insofar as they do, the question then arises of whether the procedural obligation arises every time a serviceman is killed in circumstances which may involve a shortcoming in the performance of those substantive obligations.
These are questions that I shall explore when addressing the Inquest Issue.
The Convention was agreed in the aftermath of a global conflict in which millions of troops had been deployed.
In 1944 the United Kingdom had over 4.5 million troops serving.
British casualties in the war numbered about 330,000.
By 1950 the number of British troops in service had reduced to about 700,000, many of whom were conscripts.
While the Convention was being negotiated the Korean War was in progress.
British casualties in that war numbered about 700.
Derogation is permitted under article 15 in time of war or other public emergency threatening the life of the nation, although there can be no derogation from article 2 except in respect of deaths resulting from lawful acts of war.
No derogation was made, and troops were deployed abroad in circumstances falling short of those permitting derogation under article 15.
The contracting States might well not have contemplated that the application of article 2 to troop operations abroad would have involved obligations such as those I have discussed above, but whatever the implications might have seemed, it is unlikely that they would have appeared a desirable consequence of the Convention.
So far as this country is concerned, it is significant that when the Crown Proceedings Act 1947 rendered the Crown susceptible to civil suit an exception was made in relation to the armed forces.
Only in 1987 did the Crown Proceedings (Armed Forces) Act remove that exception.
This does not lie happily with the proposition that the United Kingdom bound itself to the observance of the Convention obligations toward its armed forces abroad when it ratified the Convention in 1951.
Today the size of the forces maintained by contracting States is a fraction of those that they maintained when the Convention was agreed.
Every death of a British serviceman abroad is now reported in the British press.
The bodies of British servicemen who die on active service are flown back and buried in this country, and it is this fact which makes it mandatory to hold an inquest in each case.
The care that is taken to avoid casualties and the procedures that are followed when casualties occur are to be commended, but they would not have seemed practicable in 1953.
In Al Skeini at para 107 Lord Brown expressed the view that the House should not construe article 1 as reaching any further than the existing Strasbourg jurisprudence clearly shows it to reach.
I endorse that comment.
We are here dealing with the scope of the Convention and exploring principles that apply to all contracting States.
The contention that a States armed forces, by reason of their personal status, fall within the jurisdiction of the State for the purposes of article 1 is novel.
I do not believe that the principles to be derived from the Strasbourg jurisprudence, conflicting as some of them are, clearly demonstrate that the contention is correct.
The proper tribunal to resolve this issue is the Strasbourg Court itself, and it will have the opportunity to do so when it considers Al Skeini.
For these reasons I would hold that the Court of Appeal should not have held that Private Smith was within the jurisdiction of the United Kingdom within the meaning of article 1 at times when he was not within premises under the effective control of the army.
This conclusion, and the reasoning that has led to it, accords with the comprehensive analysis of the relevant jurisprudence in the judgment of Lord Collins.
For these reasons I would allow the appeal against the Court of Appeals order on the jurisdiction issue.
The Inquest Issue
The nature of the issue
The Inquest Issue arises on the premise that Private Smith was within the jurisdiction of the United Kingdom within the meaning of article 1 at the time of the events that led to his death, so that he was entitled to the protection of article 2 of the Convention.
Article 2 of the Convention provides: 1.
Everyones right to life shall be protected by law.
No one shall be deprived of his life intentionally save in the execution of a sentence of a court following his conviction of a crime for which this penalty is provided by law.
In R (Middleton) v West Somerset Coroner [2004] UKHL 10; [2004] 2 AC 182 the Appellate Committee of the House of Lords, in a considered opinion, summarised the Strasbourg jurisprudence as to the effect of this provision: 2.
The European Court of Human Rights has repeatedly interpreted article 2 of the European Convention as imposing on member states substantive obligations not to take life without justification and also to establish a framework of laws, precautions, procedures and means of enforcement which will, to the greatest extent reasonably practicable, protect life. 3.
The European Court has also interpreted article 2 as imposing on member states a procedural obligation to initiate an effective public investigation by an independent official body into any death occurring in circumstances in which it appears that one or other of the foregoing substantive obligations has been, or may have been, violated and it appears that agents of the state are, or may be, in some way implicated (references omitted).
The Inquest Issue is concerned with the procedural obligation.
The procedural obligation requires a State, of its own motion, to carry out an investigation into a death that has the following features: i) It must have a sufficient element of public scrutiny of the investigation or its results. ii) It must be conducted by a tribunal that is independent of the state agents who may bear some responsibility for the death. iii) The relatives of the deceased must be able to play an appropriate part in it. iv) It must be prompt and effective.
This means that it must perform its essential purposes.
These are to secure the effective implementation of the domestic laws which protect the right to life and to ensure the accountability of state agents or bodies for deaths occurring under their responsibility.
These features are derived from the Strasbourg jurisprudence, as analysed in Middleton and R (L (A Patient)) v Secretary of State for Justice [2008] UKHL 68; [2009] AC 588.
I shall describe an investigation that has these features as an article 2 investigation.
The procedural obligation implicit in article 2 was first recognised by the Strasbourg Court in McCann v United Kingdom (1995) 21 EHRR 97.
Since then the Court has repeatedly found such an obligation to have existed, but always in the context of a case in which the respondent State has been held to have been in breach of a substantive obligation imposed by article 2.
This is no doubt because complaints of violation of the procedural obligation of article 2 are only likely to be brought by relatives before the Strasbourg Court where these are ancillary to complaints of substantive breaches of article 2.
It has been stated on a number of occasions that the procedural obligation under article 2 is parasitic upon the existence of the article 2 substantive right and cannot exist independently see, for example, Lord Binghams observations at para 6 of Gentle.
The Inquest Issue has been formulated in the agreed Statement of Facts and Issues as follows: Whether the fresh inquest into Private Smiths death must conform with the procedural obligation implied into Article 2 of the Convention.
In the first inquest the Coroner gave a narrative verdict which included the finding that Private Smiths death was caused by a serious failure to recognise and take appropriate steps to address the difficulty that he had in adjusting to the climate.
Subsequently, on 5 January 2007 the Coroner gave a ruling holding that the requirements of article 2 did not apply to the inquest because any shortcomings related to a failure to follow the procedures that should have applied and not to any defects in those procedures, so that there was no question of any substantive breach of article 2.
The basis upon which Mrs Smith has successfully challenged this ruling has raised an important issue of principle.
Both Miss Rose and Mr Beloff have contended that an article 2 investigation must be held whenever a member of the armed services dies on active service and the Court of Appeal has so found.
The argument has proceeded on the following basis.
There are two different types of inquest.
The first has the features that the Court of Appeal identified in R v Coroner for North Humberside and Scunthorpe, Ex p Jamieson [1995] QB 1 (a Jamieson inquest).
The second has the features that the House of Lords identified in R (Middleton) v West Somerset Coroner [2004] UKHL 10; [2004] 2 AC 182 (a Middleton inquest).
If the requirements of article 2 apply, the coroner must conduct a Middleton inquest.
The Middleton inquest will address any alleged failures on the part of the State to comply with the substantive obligations imposed by article 2.
Before addressing the Inquest Issue directly I propose to explain a number of reservations that I have in relation to the procedural obligation: i) I do not see how the procedural obligation can work if it is limited to an obligation to hold an article 2 investigation if, and only if, there are grounds for suspecting a breach by the State of a substantive article 2 obligation. ii) I question the extent of the distinction between a Jamieson inquest and a Middleton inquest. iii) There is a major difficulty in identifying the substantive obligations that article 2 imposes on a State in relation to the safety of its armed forces. iv) I question the extent to which an inquest, even a Middleton inquest, will necessarily be an appropriate process for discharging the procedural obligation.
The duty to investigate death
The duty to hold an article 2 investigation arises where there are grounds for suspecting that a death may involve breach by the State of one of the substantive obligations imposed by article 2.
This raises the question of how the State is to identify that there are grounds for such suspicion.
Any effective scheme for protecting the right to life must surely require a staged system of investigation of deaths, under which the first stage takes place automatically in relation to every death, whether or not there are grounds for suspecting that there is anything untoward about the death.
Where the first stage shows that the death has not, or may not have, resulted from natural causes, there will be a requirement for a further stage or stages of the investigation.
The requirement for an article 2 investigation will only arise if the preceding stage of the investigation discloses that there is a possibility that the State has not complied with a substantive article 2 obligation.
In the United Kingdom such a staged system of investigating deaths exists.
All deaths are required to be registered under the Births and Deaths Registration Act 1953.
Registration requires a death certificate certifying the cause of death from a doctor or coroner.
Where there is doubt as to whether the death is due to natural causes, it will be reported to a coroner.
He then decides whether further enquiries need to be carried out.
These may take the form of a post mortem examination or an inquest.
Section 8 of the Coroners Act 1988 requires a coroner to hold an inquest where the body of a person is lying within his district and there is reasonable cause to suspect that the deceased has died a violent or an unnatural death, has died a sudden death of which the cause is unknown or has died in prison or in such place or in such circumstances as to require an inquest under any other Act.
The inquest was designed to perform a fact finding role.
It was not intended necessarily to be the final stage of the investigation.
Its mandate expressly excludes determining civil or criminal liability.
It is, however, being used as the appropriate process for determining whether there has been a violation of the States article 2 obligations.
Jamieson and Middleton Inquests
Jamieson involved an application for judicial review brought by the brother of a man who had hanged himself in his prison cell.
The report of the case suggests that the evidence adduced at the inquest of the prisoner covered in detail the circumstances that led up to his suicide.
It was the applicants case that the prison authorities were aware of the danger that his brother would commit suicide and failed to take the steps that they should have done to prevent this.
He submitted to the coroner that he should direct the jury to consider whether the death of his brother was caused or contributed to by lack of care.
The coroner refused to do so and it was this decision that was challenged by judicial review.
The issue thus related, not to the scope of the investigation that had taken place, but as to the verdict that the jury were permitted to give.
Sir Thomas Bingham MR, giving the judgment of the Court of Appeal, traced the statutory history of the coroners role and drew particular attention to the following statutory provisions, which are still in force.
Under section 8(1) of the Coroners Act 1988 a coroner has to hold a inquest when a body is lying within his district and there is reason to think that the deceased has died a violent or unnatural death, or has died a sudden death of which the cause is unknown, or has died in prison or in such circumstances as to require an inquest under any other Act.
Section 11(5)(b)(i) and (ii) requires the coroners jury to set out in an inquisition who the deceased was and how, when and where he came by his death.
The Coroners Rules 1984 provide: 36(1) The proceedings and evidence at an inquest shall be directed solely to ascertaining the following matters, namely(a) who the deceased was; (b) how, when and where the deceased came by his death; (c) the particulars for the time being required by the Registration Acts to be registered concerning the death. (2) Neither the coroner nor the jury shall express any opinion on any other matters. 40.
No person shall be allowed to address the coroner or the jury as to the facts. 41.
Where the coroner sits with a jury, he shall sum up the evidence to the jury and direct them as to the law before they consider their verdict and shall draw their attention to rules 36(2) and 42. 42.
No verdict shall be framed in such a way as to appear to determine any question of(a) criminal liability on the part of a named person, or (b) civil liability. 43.
A coroner who believes that action should be taken to prevent the recurrence of fatalities similar to that in respect of which the inquest is being held may announce at the inquest that he is reporting the matter in writing to the person or authority who may have power to take such action and he may report the matter accordingly.
In upholding the coroners ruling, the Court of Appeal set out a number of
general principles, which included the following: (1) An inquest is a fact finding inquiry conducted by a coroner, with or without a jury, to establish reliable answers to four important but limited factual questions.
The first of these relates to the identity of the deceased, the second to the place of his death, the third to the time of death.
In most cases these questions are not hard to answer but in a minority of cases the answer may be problematical.
The fourth question, and that to which evidence and inquiry are most often and most closely directed, relates to how the deceased came by his death.
Rule 36 requires that the proceedings and evidence shall be directed solely to ascertaining these matters and forbids any expression of opinion on any other matter. (2) Both in section 11(5)(b)(ii) of the Act of 1988 and in rule 36(1)(b) of the Rules of 1984, how is to be understood as meaning by what means.
It is noteworthy that the task is not to ascertain how the deceased died, which might raise general and far reaching issues, but howthe deceased came by his death, a more limited question directed to the means by which the deceased came by his death. (3) It is not the function of a coroner or his jury to determine, or appear to determine, any question of criminal or civil liability, to apportion guilt or attribute blame.
Middleton also involved an inquest on a prisoner who had hanged himself in his cell.
Similar allegations of neglect were made and once again the evidence covered the circumstances leading up to the deceaseds suicide.
The jury handed the coroner a note stating that the Prison Service had failed in its duty of care to the deceased, but the coroner concluded that this could not be appended to the inquisition.
The verdict was challenged on the ground (not open in Jamieson) that it did not comply with the procedural obligations of article 2.
Lord Bingham, delivering the considered decision of the Committee, held that where article 2 was engaged it might be necessary, in accordance with section 3 of the Human Rights Act, to give the relevant statutory provisions a different meaning to that which the Court of Appeal had laid down in Jamieson.
The change was not a big one: 35.
Only one change is in our opinion needed: to interpret how in section 11(5)(b)(ii) of the Act and rule 36 (1)(b) of the Rules in the broader sense previously rejected, namely as meaning not simply by what means but by what means and in what circumstances. 36.
This will not require a change of approach in some cases, where a traditional short form verdict will be quite satisfactory, but it will call for a change of approach in others (paras 30 31 above).
In the latter class of case it must be for the coroner, in the exercise of his discretion, to decide how best, in the particular case, to elicit the jury's conclusion on the central issue or issues.
The decision in Middleton has been given statutory effect by section 5 (2) of the Coroners and Justice Act 2009.
That section provides: 5 Matters to be ascertained (1) The purpose of an investigation under this Part into a persons death is to ascertain (a) who the deceased was; (b) how, when and where the deceased came by his or her death; (c) the particulars (if any) required by the 1953 Act to be registered concerning the death. (2) Where necessary in order to avoid a breach of any Convention rights (within the meaning of the Human Rights Act 1998 (c 42)), the purpose mentioned in subsection (1)(b) is to be read as including the purpose of ascertaining in what circumstances the deceased came by his or her death. (3) Neither the senior coroner conducting an investigation under this Part into a persons death nor the jury (if there is one) may express any opinion on any matter other than (a) the questions mentioned in subsection (1)(a) and (b) (read with subsection (2) where applicable); (b) the particulars mentioned in subsection (1)(c).
This is subject to paragraph 7 of Schedule 5.
It seems to me that the only difference that the decision of the House in Middleton would have made to either the Jamieson inquest or the Middleton inquest would have been to the form of the verdict.
In each case the Coroner appears to have permitted exploration of the relevant circumstances despite the fact that he did not permit these to be reflected in the verdict.
I question whether there is, in truth, any difference in practice between a Jamieson and a Middleton inquest, other than the verdict.
If there is, counsel were not in a position to explain it.
Coroners appear frequently to have exercised considerable latitude as to the scope of the inquiry the inquest into the shootings in Gibraltar that were the subject of McCann v United Kingdom (1995) 21 EHRR 97 exemplifies this.
The form of the verdict will, no doubt be dictated by the evidence that emerges at the inquest, but I have difficulty with the concept that the inquest itself may in midstream undergo a significant change in character from a Jamieson to a Middleton inquest.
How far it is appropriate to widen the scope of an inquest in order to consider allegations of breach of obligations imposed by article 2 is a matter to which I shall revert.
The substantive obligations of article 2 in relation to armed forces.
If armed forces on active service abroad are within a States jurisdiction for purposes of article 1, the question arises of the scope of the substantive obligations imposed by article 2.
Would the Strasbourg Court hold that they extend to the adequacy of the equipment with which the forces are provided; to the planning and execution of military manoeuvres? These questions are not easy to address, but an affirmative answer certainly cannot be excluded.
McCann involved the shooting by an SAS unit of three members of the provisional IRA who were suspected of being about to detonate a bomb in Gibraltar.
The Court held that article 2 imposed substantive duties in relation to the planning, execution and control of the operation, and a procedural obligation to investigate these matters in the light of the casualties.
The Court adopted a similar approach to deaths that resulted from the operations of the Russian military when conducting substantial military operations against insurgents: Isayeva, Yusupova and Basayeva v Russia (Application Nos 57947 49/00) and Isayeva v Russia (Application No 57950/00), decisions of 24 February 2005.
There would seem no reason why the Court might not adopt a similar approach to operations resulting in the death of a States own soldiers.
The facts of this case do not require the Court to define the extent of the positive duty that article 2 imposes on a State in relation to its armed forces.
How appropriate is an inquest for the discharge of article 2 procedural obligations?
As I have pointed out, inquests were designed to perform a fact finding function as a stage in an overall scheme of investigation that would commence before the inquest and might continue after it.
An inquest will not be the appropriate vehicle for all inquiries into State responsibility for loss of life.
An inquest would not have been the appropriate means of determining whether the death of a victim of new variant CJD, contracted from eating BSE infected beef, involved government responsibility, nor for determining the issues of State responsibility for the Bloody Sunday killings.
An inquest can properly conclude that a soldier died because a flack jacket was pierced by a snipers bullet.
It does not seem to me, however, that it would be a satisfactory tribunal for investigating whether more effective flack jackets could and should have been supplied by the Ministry of Defence.
If the article 2 obligation extends to considering the competence with which military manoeuvres have been executed, a coroners inquest cannot be the appropriate medium for the inquiry.
Must an article 2 investigation be held whenever a member of the armed services dies on active service?
Miss Rose argued that the State was under a positive obligation to take all reasonable steps to protect the lives of military recruits, who were subject to the authority and control of the State.
It followed that any death of a serviceman on active service potentially engaged the responsibility of the State.
All the evidence was likely to be under the control of the State.
Where a soldier died on active service, whether he was a conscript, a regular or a reservist this triggered the obligation to hold an independent investigation.
This was certainly the case where the circumstances of a soldiers death indicated the possibility of a systemic or operational failing by military personnel.
The Court of Appeal considered a number of cases of deaths in the custody of the State, of one kind or another, where the article 2 procedural duty had been held to arise.
It held at para 90: The question in the instant appeal is whether what may be called the custody principles apply to a case like this where the deceased lost his life while serving as a soldier in the Territorial Army.
The Court went on to give an affirmative answer to this question, at least in the circumstances of a death from causes such as those that resulted in Private Smiths death.
The obligation to hold an article 2 investigation is triggered by circumstances that give ground for suspicion that the State may have breached a substantive obligation imposed by article 2.
That in its turn raises the question of the scope of the substantive obligations that a State owes in relation to its armed forces, which I have raised above.
Whatever the scope of those obligations I do not consider that the death of a soldier on active service of itself raises a presumption that there has been a breach of those obligations.
Troops on active service are at risk of being killed despite the exercise of due diligence by those responsible for doing their best to protect them.
Death of a serviceman from illness no more raises an inference of breach of duty on the part of the State than the death of a civilian in hospital.
For these reasons I reject the submission that the death of a serviceman on active service, assuming that this occurs within the article 1 jurisdiction of a State, automatically gives rise to an obligation to hold an article 2 investigation.
Inquiries into the deaths of servicemen.
I have already referred to the fact that, whatever the requirements of the Convention may be, the United Kingdom has a staged system of investigation into deaths.
Where a death occurs in circumstances involving a public authority, an in house investigation will often precede the inquest and provide valuable information to assist the inquest.
In the present case the Special Investigations Branch of the Military Police carried out an investigation into Private Smiths death and two Boards of Inquiry made reports.
It was because the first of these was not disclosed to the coroner that a second inquest is to be held.
I would expect that in the case of every military death in service some form of internal investigation is held.
As the bodies of servicemen who die or are killed on active service abroad are brought back to this country, any internal investigation that has taken place will be followed by a public inquest that will satisfy many of the requirements of an article 2 investigation.
It will often be only in the course of the inquest that it will become apparent that there is an issue as to whether there has been a breach by the State of its positive article 2 obligations.
Only at that stage will it be appreciated that the exercise that is in progress is one called for by article 2 and one that must, if possible, satisfy the requirements of that article.
Whether the inquest will be the appropriate medium to do this will depend on the nature of the obligation that is alleged to have been broken.
The decision in Middleton, and section 5(2) of the 2009 Act that gives effect to it, requires the coroner to adapt the verdict, insofar as this is possible, in order to satisfy the requirements of article 2.
Must the second inquest satisfy the procedural requirements of article 2?
The Coroner ruled at the end of the first inquest that it was not necessary to satisfy the procedural requirements of article 2.
Collins J and the Court of Appeal have held that the Coroner was mistaken.
I agree.
This is not, however, because Private Smiths death on active service, of itself, gave rise to a suspicion of breach by the State of its substantive article 2 obligations.
It is because the evidence that was placed before the Coroner has raised the possibility that there was a failure in the system that should have been in place to protect soldiers from the risk posed by the extreme temperatures in which they had to serve.
On the facts disclosed it was arguable that there was a breach of the States substantive obligations under article 2.
This was enough to trigger the need to give a verdict that complied with the requirements of article 2.
I am not convinced that the Coroners narrative verdict failed to do this.
It summarised the facts leading to Private Smiths death and ended: Jason George Smiths death was caused by a serious failure to recognise and take appropriate steps to address the difficulty that he had in adjusting to the climate.
The new inquest is likely to receive more detailed evidence of the circumstances surrounding Private Smiths death.
In conducting that inquest the Coroner should certainly attempt to satisfy the requirements of an article 2 investigation.
For these reasons I would dismiss the appeal on the second issue.
LORD HOPE
I agree with Lord Phillips that a member of the States armed forces is not, by reason of his or her personal status according to the military law and discipline of the United Kingdom, within the jurisdiction of the state for the purposes of article 1 of the European Convention on Human Rights.
To hold otherwise would be to go beyond the categories that have hitherto been recognised by the Strasbourg Court in cases that do not arise from the effective control of territory within the Council of Europe area.
But, as to the reasons for this view, I am in full and respectful agreement too with the judgment of Lord Collins.
It is perhaps worth noting, in support of his conclusion that there are no policy grounds for extending the scope of the Convention to members of the armed services serving abroad simply because they are under the authority and control of the United Kingdom, that in an interview which he gave shortly after his retirement as President of the European Court of Human Rights, Luzius Wildhaber questioned how the Court could function effectively as a court when there was no prospect of it acquiring reliable evidence concerning the situation beyond the frontiers of Member States.
He suggested that expecting the Court to act in such circumstances risked turning it into a campaigning organisation making allegations without solid evidence.
He saw this as a compelling reason to be very careful about extending the notion of extra territoriality too far and to be wary about departing too much from the Bankovic judgment: Reflections of a Former President of the European Court of Human Rights [2010] EHRLR 169, 174.
It is one thing, therefore, to recognise a Member States jurisdiction over persons within an area beyond the frontiers of the Member States over which their armed forces have established total and exclusive de facto control such as a military base, a military hospital or a detention centre, on the analogy with the extra territorial exception made for embassies: Al Saadoon and Mufdhi v United Kingdom (Application No 61498/08) (unreported) 30 June 2009, para 88.
It is quite another to extend that jurisdiction to areas outside premises of that kind over which the armed forces may be operating but over which they do not have exclusive control, where the safeguarding of Convention rights cannot be guaranteed and where reliable evidence about the circumstances of alleged violations could be hard to come by because the state over whose territory these operations are being conducted is not a party to the Convention.
A decision that the extra territorial jurisdiction should extend that far in this case would be likely to have profound consequences for other Member States and, it would seem from what Luzius Wildhaber has said, for the Court itself.
A decision of that kind is best left to Strasbourg.
I would in any event respectfully endorse the view expressed by Lord Brown of Eaton under Heywood in R (Al Skeini) v Secretary of State for Defence [2008] AC 153, para 107, for the further reasons he gives in this case, that article 1 should not be construed as reaching any further than the existing Strasbourg jurisprudence clearly shows it to reach.
I also would hold that Private Smith was not within the jurisdiction of the United Kingdom within the meaning of article 1 when he was outside his base while serving in Iraq.
There is nothing that I would wish to add on the first issue.
The second issue in this appeal is whether the fresh inquest into Private Smiths death would have to comply with the procedural investigatory obligation guaranteed by article 2 of the Convention.
At first sight this question is academic because the Secretary of State agrees that he will not submit to the new coroner in the fresh inquest that the scope of the investigation, or the nature of the verdict, should be less broad than would be appropriate if the inquest must satisfy the obligation of the United Kingdom under that article: see the Court of Appeals judgment [2009] 3 WLR 1099, para 62.
This is on the assumption that, as Private Smith died on base, he was within the jurisdiction of the United Kingdom within the meaning of article 1 when he died and because the findings of the coroner at the first inquest indicate a possible breach of the positive obligation to establish processes to deal with the risk of heatstroke and hyperthermia.
But, as Ms Rose QC for the respondent pointed out, a concession as to the scope of the inquest would not bind the coroner.
The question whether the procedural obligation was triggered by Private Smiths death was argued before Collins J, in the Court of Appeal and before this Court on the basis that it raised an important issue of principle.
Its importance is not limited to cases where members of the armed forces are serving in places such as Iraq and Afghanistan.
It extends to cases where at the time of their death they were serving in the United Kingdom in Northern Ireland, for example or within the territory of another Council of Europe Member State.
In the ideal world this would be an empty question.
The coroner would have complete freedom to determine the scope of his own inquiry and to adapt the form and content of his verdict according to the needs of each case.
That however is not how the scheme for the conduct of inquests has been designed in English law.
As Lord Bingham of Cornhill explained in R (Middleton) v West Somerset Coroner [2004] 2 AC 182, paras 34 35, the scheme which has been enacted by and under the authority of Parliament must be respected, save to the extent that a change of interpretation is required to honour the international obligations of the United Kingdom under the Convention: see also R (Sacker) v West Yorkshire Coroner [2004] 1 WLR 796, para 27.
The crucial difference is to be found in the way the word how in section 11(5)(b)(ii) of the Coroners Act 1988 and rule 36(1)(b) of the Coroners Rules 1984 is to be interpreted.
Tempting though it may be to depart from Middleton by declaring that there is really no material difference between the functions of the coroner and the jury in the two types of inquest as Lord Phillips has indicated, I think for all the reasons that were given in that case we should not do so.
The temptation to do this, adopting what the sheriff may do when he is making his determination according to the Scottish model, was confronted and resisted in Middleton, and I think that we must follow the decision that was taken in that case.
On the other hand I would not wish to limit the scope that is available to the coroner under rule 43 of the Coroners Rules 1984.
How far he may go in pursuing lines of inquiry in order to determine whether he should make a report under that rule with a view to preventing the recurrence of similar fatalities must depend on his judgment as to what is appropriate in the circumstances.
It is only in cases where the article 2 procedural duty applies, therefore, that the Middleton approach is available to the coroner.
It will then be necessary for him to conduct an inquiry which is effective, as that expression was explained by the Grand Chamber in Ramsahai v The Netherlands (2007) 46 EHRR 983, paras 324 325; see also R (L (A Patient)) v Secretary of State for Justice (Equality and Human Rights Commission intervening) [2009] AC 588, para 78, per Lord Rodger of Earlsferry.
But that approach is not available in all cases.
It arises only in the comparatively few cases where the states responsibility for the death is or may be engaged: R (Hurst) v London Northern District Coroner [2007] 2 AC 189, para 48 Lord Brown of Eaton under Heywood.
In all other cases the proceedings must be conducted according to the regime for conducting inquests in England and Wales as summarised in R v Coroner for North Humberside and Scunthorpe, Ex p Jamieson [1995] QB 1.
Section 5 of the Coroners and Justice Act 2009 has retained the distinction between these two forms of inquest.
It is only where necessary to avoid a breach of any of the Convention rights that it permits the Middleton approach: see section 5(2).
The scheme which Parliament has enacted in section 5 of the 2009 Act is deceptively simple.
In practice however it gives rise to a variety of problems to which the Courts attention was drawn by counsel.
We cannot resolve them all in this case.
But at the root of most, if not all, of them lies the problem of determining whether the case in hand is one which attracts the procedural obligation that is imposed by article 2.
In broad terms, it is triggered by any death occurring in circumstances in which it appears that any one or more of the substantive obligations that article 2 imposes not to take life without justification, and to establish a framework of laws, precautions, procedures and means of enforcement which will to the greatest extent practicable protect life, has been, or may have been, violated in circumstances in which it appears that agents of the state are, or may be, in some way implicated: R (Middleton) v West Somerset Coroner [2004] 2 AC 182, paras 2 and 3.
The procedural obligation depends on the existence of the substantive right.
It cannot exist independently: R (Gentle) v Prime Minister [2008] AC 1356, para 6.
Some situations in which the procedural obligation is triggered are now well recognised.
The suicide of an individual while in the custody of the state is the prime example.
It has been extended to the case where a prisoner attempted to commit suicide while in custody and suffered brain damage: R (L (A Patient)) v Secretary of State for Justice (Equality and Human Rights Commission intervening) [2009] AC 588.
This is because it has been recognised that prisoners as a class present a particular risk of suicide and because those who have custody of them, as agents of the state, are or may be in some way implicated.
A Middleton inquest is required in all these cases, because it is at least possible that the prison authorities failed to take the steps to protect the prisoners life that the substantive right requires.
As Lord Rodger of Earlsferry said in Ls case, para 59, suicide is in this respect like any other violent death in custody.
The procedural obligation extends to prisoners as a class irrespective of the particular circumstances in which the death occurred.
The fact that they are under the care and control of the authorities by whom they are held gives rise to an automatic obligation to investigate the circumstances.
The same is true of suicides committed by others subject to compulsory detention by a public authority, such as patients suffering from mental illness who have been detained under the Mental Health Acts: Savage v South Essex Partnership NHS Foundation Trust (MIND intervening) [2009] AC 681.
This approach has the merit of clarity.
Everyone knows from the outset that the inquest in these cases must follow the guidance that was given in Middleton, paras 36 38.
The issue before the Court is whether it is possible to achieve equal clarity in the case of an inquest into the death of a soldier.
Soldiers who die while in military custody are, of course, in the same position as any other prisoner.
Their case has the benefit of the substantive obligation, so the procedural obligation applies.
So too does the case of members of the other armed services who die in such circumstances.
The question is how far, if at all, the detainees approach can be applied to other situations which servicemen and servicewomen encounter in the service of their country, at home or abroad.
Death may occur from natural causes as well as a result of neglect or injury.
And fatal injuries may occur due to the mishandling of equipment during training or in other situations when personnel are not engaged in combat as well as in the face of the enemy.
The conflicts in Iraq and Afghanistan have brought the issue into greater prominence.
But the situation that we face today is in principle no different from that which members of the armed forces serving both at home and abroad have faced for many years.
The single characteristic which currently unites all our service personnel is that they have volunteered for the branch of the service to which they belong.
This applies to those who have made their profession in the armed services as well as those, like Private Smith, who chose to serve part time in reserve forces such as the Territorial Army.
Mandatory military service no longer exists in this country.
For this reason I would be reluctant to follow the guidance of the Strasbourg Court that is to be found in cases such as Chember v Russia, (Application No 7188/03) (unreported) 3 July 2008.
The applicant in that case was called up for two years mandatory military service in the course of which he was subjected to ill treatment and harassment.
The court was careful to stress in para 49 that many acts that would constitute degrading or inhuman treatment in respect of prisoners may not reach the threshold of ill treatment when they occur in the armed forces, provided they contribute to the specific mission of the armed forces in which they form part, for example training for battle field conditions: Engel v The Netherlands (No 1) (1976) 1 EHRR 647.
But the description which it gave in para 50 of the duty that the State owes to persons performing military service was directed specifically to cases where it decides to call up ordinary citizens to perform military service.
That description cannot be applied to those who serve in the armed forces as volunteers.
It is true, of course, that those who join the armed services as volunteers accept the obligation to comply with military discipline.
They are trained to obey orders, and they are subject to sanctions if they do not do so.
Private Smith did not choose to go to Iraq.
He received a notice of compulsory call up.
But it was a condition of the service for which he volunteered that he would obey instructions of this kind.
I do not think that his situation can be distinguished from that of any other member of the armed services who is deployed on active service.
There is a close analogy with men and women who volunteer for service in the emergency services.
Fire fighters, in particular, may face situations of great danger where their lives are at risk.
But they follow instructions because that is a necessary part of the job they have chosen to do.
It is tempting to select examples of cases where the cause of a soldiers death may be attributed to failures on the part of the State and to conclude that this fact in itself gives rise to the need for a Middleton inquest.
But I would resist this temptation.
The examples that Lord Rodger gives illustrate the difficulty.
He says that he would apply the reasoning as to a prisoner committing suicide to a raw recruit to the armed forces who committed suicide during initial military training in barracks in this country: para 118.
We have no evidence that raw recruits to the armed services are in this respect especially vulnerable, but this reference calls to mind the tragic cases of the four young soldiers who died at Deep Cut Barracks between 1995 and 2002 which according to the Ministry of Defence were all cases of suicide.
Those soldiers were still in training, but they were not raw recruits.
The training they were undergoing at Deep Cut was a course of further training, additional to the initial training which they had received in an Army Training Regiment.
Where does one draw the line between the raw recruit and the more seasoned soldier who is still in training? And what about schoolchildren who commit suicide as a result of bullying from which, as they must attend school, there is no escape? Or students who do so because of the pressures they encounter in colleges or universities? To extend the substantive article 2 obligation to volunteers while they are undergoing basic or advanced training would go further than has so far been indicated as necessary by Strasbourg.
Then there is the example that Lord Rodger gives of deaths as a result of friendly fire from other British forces: para 126.
Trooper David Clarke, the son of the second claimant in R (Gentle) v Prime Minister [2008] AC 1356, was killed by friendly fire while on armed service with the Queens Royal Lancers in Iraq.
He was driving a Challenger 2 tank when it was fired on by another Challenger 2 tank from a different unit whose crew had mistaken it for an enemy vehicle.
That was an example of friendly fire by British forces.
But a number of other servicemen, including several soldiers serving with the Queens Own Highlanders, were killed during the same campaign when their armoured vehicle was fired on by a US Black Hawk Helicopter.
Are cases of accidental deaths due to friendly fire by allied forces to be distinguished from those which are due to accidents caused by British forces? And why should deaths due to friendly fire be distinguished from deaths due to injuries sustained as a result of the actions of opposing forces that could also have been avoided if mistakes had not been made by the soldiers themselves or by their commanders? The risk of death due to friendly fire in the confusion and heat of battle is one of the risks that a soldier must face as part of the mission for which he has volunteered.
The same is true of the risk of death while in training due, for example, to mistakes made while handling weapons or other equipment or to exposure to the elements.
The Court of Appeal applied the principle that extends the protection of article 2 to detained mental patients to the case of soldiers such as Private Smith who die of heatstroke while on active service in Iraq: [2009] 3 WLR 1099, paras 104 105.
The essence of its reasoning is to be found in these sentences taken from para 105: [The soldiers] are under the control of and subject to army discipline.
They must do what the army requires them to do.
If the army sends them out into the desert they must go.
In this respect they are in the same position as a conscript.
Once they have signed up for a particular period they can no more disobey an order than a conscript can.
On this basis it saw no reason why they should not have the same protection as is afforded by article 2 to a conscript.
I think that this reasoning goes further than the Strasbourg Court has gone in the case of conscripts, as its reference in Chember v Russia (Application No 7188/03) 3 July 2008, para 49, to risks inherent in the specific mission of the armed forces shows.
But it seems to me to be objectionable on other grounds.
Members of our armed services are not conscripts.
They have chosen to accept the demands of military discipline.
Moreover, if the fact that they must obey orders is to be treated as the criterion, there is no logical stopping place.
Every situation where death occurs in circumstances where they were obeying orders, from the training ground to battle conditions, would have to be treated in the same way.
I would reject the analogy with those who are in the custody of the state.
The volunteer soldiers duty to obey orders is not comparable with the state of the detainee who is held against his will in the States custody.
In my opinion the substantive obligation under article 2 does not extend automatically to all service personnel in a volunteer army while they are on active service at home or within the article 1 jurisdiction overseas.
Like Lord Mance, I regard the proposition that all deaths of military personnel on active service require to be investigated by a Middleton type inquiry as going too far: para 214.
As I said in R (Gentle) v Prime Minister [2008] AC 1356, para 19, the guarantee in the first sentence of article 2(1) is not violated simply by deploying servicemen and women on active service overseas as part of an organised military force which is properly equipped and capable of defending itself, even though the risk of their being killed is inherent in what they are being asked to do.
But one must not overlook the fact that there have been many cases where the death of service personnel indicates a systemic or operational failing on the part of the State.
These may range from a failure to provide them with the equipment which is needed to protect life to mistakes made in the way they were deployed due to bad planning or inadequate appreciation of the risks that had to be faced.
These are cases where the investigator should, as article 2 requires, take all reasonable steps to secure the evidence relating to the incident, to find out, if possible, what caused the death, and to identify the defects in the system which brought it about and any other factors that may be relevant: see R (Middleton) v West Somerset Coroner [2004] 2 AC 182, para 36.
Private Smiths death, which occurred on base, seems to me to fall into this category.
This was a place over which the armed forces had exclusive control, so the jurisdictional requirement was satisfied.
And all the signs are that this was a death which might have been prevented if proper precautions had been taken.
There is a sufficient indication of a systemic breach in an area that was within its jurisdiction for the purposes of article 1 to engage the responsibility of the State to carry out an effective investigation into the circumstances.
There is something that ought to be inquired into, if only to ensure that tragedies of this or a similar kind do not happen again.
I would hold that this is enough to trigger the article 2 procedural obligation so as to require the coroner to conduct a Middleton inquiry in his case.
I recognise that the case by case approach which I favour, coupled with the lack of definition in this area of the law, creates a very real problem for the parties as well as for coroners.
It risks creating satellite litigation as decisions as to whether a case falls on one side of the boundary are opened up for challenge, resulting in delays and increased costs.
The solution to this highly unsatisfactory situation lies in a reform of the law which restricts inquiries in England and Wales which are of that kind to cases where there are grounds for thinking that the substantive obligation under article 2 has been violated.
It does not lie in extending the potential reach of article 2 to a broadly defined category of cases which may well deserve sympathy but which lie outside the well defined circumstances in which the positive obligation has hitherto been held to apply.
The balance of advantage until the law is reformed lies, I would suggest, in holding the line at cases where there are grounds for thinking that there was a failure by the State in fulfilling its responsibility to protect life and not extending it to cases which, although involving the element of compulsion that is inherent in service life, are truly outside that category.
I would allow the appeal against the Court of Appeals order on the first issue.
I would dismiss the appeal on the second issue.
LORD RODGER
The present appeal arises out of the death of Private Jason Smith on 13 August 2003, while serving in Iraq.
He died of heat stroke.
On the day in question the effects were first noticed when Private Smith was seen lying on the floor in the Stadium at Al Amarah where his accommodation was.
He was taken to the medical facility at Camp Abu Naji where he died shortly afterwards.
Because he died at the Camp, which was the centre of British operations in the area, the Secretary of State concedes that he died within the jurisdiction of the United Kingdom for purposes of article 1 of the European Convention on Human Rights and Fundamental Freedoms (the Convention).
The Secretary of State further concedes that the circumstances of his death are such as to call for an independent inquiry under article 2 of the Convention.
Despite these concessions, the Secretary of State asks this Court to decide points relating to the United Kingdoms jurisdiction for purposes of article 1 and to the circumstances in which an inquest which complies with the requirements in R (Middleton) v West Somerset Coroner [2004] 2 AC 182 (a Middleton inquest) has to be held.
The precise basis and extent of the Secretary of States concession on the first point are not altogether clear to me.
So far as the second point is concerned, the parties appeared to agree that coroners and lawyers found it difficult to know whether, in a case involving the death of a soldier on active service overseas, any inquest should be a Middleton inquest, or whether it should start a Jamieson inquest (one whose more limited scope is described in R v Coroner for North Humberside and Scunthorpe, Ex p Jamieson [1995] QB 1), but evolve into a Middleton inquest if the coroners investigation seemed to require it.
For the reasons given by Lord Collins, to which I could not possibly add anything of value, I would allow the appeal on the first issue.
It follows that, leaving aside the position when they are on a United Kingdom base, soldiers on active service overseas are not within the jurisdiction of the United Kingdom for purposes of article 1 of the Convention.
It follows also that their deaths will not give rise to any requirement to carry out an article 2 investigation.
Nevertheless, the Secretary of State asks for a decision on the point.
As counsel for the respondent pointed out, an issue could certainly arise in relation to a soldier who had been killed in combat in this country Northern Ireland providing recent examples.
Unfortunately, counsels submissions left me, at least, unclear about how exactly a decision one way or the other, as to the form of the inquest, would affect such practical matters as how the coroner or parties prepared for the inquest or what would happen if the coroner decided, half way through, that it should become a Middleton inquest.
There is, therefore, a limit to the guidance that this Court can usefully give in a case where the point is moot and in which we have not been told of any particular practical problems that have arisen.
Ms Rose QC and Mr Beloff QC submitted, however, that the Court should lay down and it would have to be a matter of law that all inquests into the death of a soldier on active service should be Middleton inquests.
Then everyone would know where they stood and such matters as legal aid, representation of relatives and the form of any eventual verdict would be clear from the outset.
The submission is superficially attractive and, doubtless for that reason, a somewhat similar argument has been tried before.
In R (Hurst) v London Northern District Coroner [2007] 2 AC 189, 214, Lord Brown of Eaton under Heywood dealt with it in this way: Middleton clearly accepted that Jamieson was correctly decided.
Were it otherwise, the House could simply have overruled it without recourse to the Human Rights Act 1998 at all, let alone section 3.
It is plain that the House was not intending the Middleton approach thereafter to apply in all cases.
In the first place, an article 2 investigative obligation only arises in the comparatively few cases where the states responsibility is or may be engaged.
Secondly, even where the obligation does arise, it will often be satisfied without resort to a Middleton inquestin some cases by criminal proceedings, in particular where a defendant pleads not guilty and the trial involves a full exploration of the facts surrounding the death (para 30 of the committees opinion delivered by Lord Bingham of Cornhill); in others, like McCann, where short verdicts in the traditional form will enable the jury to express their conclusion on the central issue canvassed at the inquest at para 31 of the opinion.
All this is clear from the committee's opinion which in terms recognises at para 36 that only sometimes will a change of approach be called for.
The key point is that the decision in Middleton involved using section 3 of the Human Rights Act 1998 to place an extended construction on section 11(5)(b)(ii) of the Coroners Act 1988 and rule 36 of the Coroners Rules 1984 (SI 1984/552).
This was justified only because the extended construction was necessary in order to meet the requirements of article 2.
So counsels submission really implied that, as a class, the deaths of British soldiers on active service in, say, Iraq or Afghanistan, would trigger the article 2 investigative obligation.
I would reject that approach.
In R (L(A Patient)) v Secretary of State for Justice [2009] AC 588 a young man had tried to hang himself in Feltham Young Offender Institution.
The Secretary of State argued that, since the obligation on the prison authorities to protect a prisoner from himself is not absolute and so only arises in particular circumstances, a suicide can occur without there having been any breach of the authorities article 2 obligation to protect him.
So there did not need to be an independent investigation unless there was some positive reason to believe that the authorities had indeed been in breach of their obligation to protect the prisoner.
I rejected that argument in these words, at p 619: 59.
That argument is mistaken.
Whenever a prisoner kills himself, it is at least possible that the prison authorities, who are responsible for the prisoner, have failed, either in their obligation to take general measures to diminish the opportunities for prisoners to harm themselves, or in their operational obligation to try to prevent the particular prisoner from committing suicide.
Given the closed nature of the prison world, without an independent investigation you might never know.
So there must be an investigation of that kind to find out whether something did indeed go wrong.
In this respect a suicide is like any other violent death in custody.
In affirming the need for an effective form of investigation in a case involving the suicide of a man in police custody, the European court held that such an investigation should be held when a resort to force has resulted in a persons death: Akdogdu v Turkey, para 52. 60.
In R (Middleton) v West Somerset Coroner [2004] 2 AC 182, another case of a suicide in custody, at p 191, para 3, Lord Bingham of Cornhill summarised the jurisprudence of the European court as imposing an obligation to hold an independent investigation if it appears that one or other of the substantive obligations has been, or may have been, violated and it appears that agents of the state are, or may be, in some way, implicated.
Mr Giffin suggested that Lord Binghams formulation was inconsistent with there being a requirement for an independent investigation in all cases of suicide in custody.
I do not agree.
In summarising the case law, Lord Bingham was recognising that, where the circumstances of a prisoners death in custody indicate that the substantive obligations of the state may have been violated, any violation, whether due to a systemic or operational failure, will necessarily have involved members of the prison service in one capacity or another.
An independent investigation is therefore required to see whether there was, in fact, a violation.
The starting point for the reasoning in this passage is that the prison authorities are under both an obligation to take general measures to diminish the opportunities for prisoners to harm themselves and an operational obligation, in certain limited circumstances, to try to prevent a particular prisoner from committing suicide.
The authorities are under these obligations because persons in custody are in a vulnerable position and the authorities are under a duty to protect them: Edwards v United Kingdom (2002) 35 EHRR 487, 507, para 56.
Therefore the mere fact that a prisoner has committed suicide indicates that there may have been a failure on the part of the prison authorities to perform their article 2 obligations to prevent those in custody from doing so.
I would apply precisely the same reasoning if, say, a raw recruit to the armed forces committed suicide during initial military training.
It is obvious and past experience shows that recruits, who are usually very young and away from their families and friends for the first time, may be unable to cope with the stresses of military discipline and training.
In these circumstances I would regard such recruits as vulnerable individuals for whom the military authorities have undertaken responsibility.
So the authorities must have staff trained, and structures in place, to deal with the potential problems which may, quite predictably, arise.
Therefore, if a suicide occurred in such circumstances, this would suggest that there might have been a failure on the part of the authorities to discharge their obligation to protect the recruits.
There would need to be an independent inquiry especially since recruits are trained in a closed environment.
I would take much the same view of Private Smiths death in this case.
It may well be that, in the circumstances in Iraq at the time, a soldier could die of heatstroke without there having been any violation of the Armys obligations under article 2.
Nevertheless, the likelihood of extreme heat and its possible effects on soldiers were known to the military authorities.
There was an obvious need to take appropriate precautions.
So, where, as here, a soldier suffers so badly from heatstroke, while in his living accommodation, that he dies shortly afterwards, it is at least possible that the Army authorities failed in some aspect of their article 2 obligation to protect him.
For that reason I am satisfied that, given his concession on jurisdiction, the Secretary of State was correct to concede the need for a Middleton inquest into Private Smiths death.
I would, however, take an entirely different view of the death of a trained soldier in action e g, when a roadside bomb blows up the vehicle in which he is patrolling, or when his observation post is destroyed by a mortar bomb.
The fact that the soldier was killed in these circumstances raises no prima facie case for saying that the United Kingdom army authorities have failed in their obligation to protect him and that there has, in consequence, been a breach of his article 2 Convention rights.
In the first place, even if an active service unit is, in some ways a closed world, it would be quite wrong to construct any argument around the idea that ordinary members of the forces are vulnerable in the same way as prisoners or detained patients or, even, conscripts doing military national service in Russia or Turkey.
I have already accepted that, in the initial stages of their training, recruits to the United Kingdom forces may indeed be vulnerable in this sense.
But those who pass through training and are accepted into the forces are often the reverse of vulnerable: their training and discipline make them far more self reliant and resilient than most members of the population and, so far from being isolated, they form part of a group whose members are supportive of one another.
Even more importantly, any suggestion that the death of a soldier in combat conditions points to some breach by the United Kingdom of his article 2 right to life is not only to mistake, but much worse to devalue, what our soldiers do.
It is not just that their job involves being exposed to the risk of death or injury.
That is true of many jobs, from steeplejacks to firemen, from test pilots to divers.
Uniquely, the job of members of the armed forces involves them being deployed in situations where, as they well know, opposing forces will actually be making a determined effort, and using all their resources, to kill or injure them.
While steps can be taken, by training and by providing suitable armour, to give our troops some measure of protection against these hostile attacks, that protection can never be complete.
Deaths and injuries are inevitable.
Indeed it is precisely because, in combat, our troops are inevitably exposed to these great dangers that they deserve and enjoy the admiration of the community.
The long established exemption from inheritance tax of the estates of those who die on active service is an acknowledgment of the fact that members of the armed forces can be called upon to risk death in this way in the defence of what the government perceives to be the national interest.
I have deliberately referred to our soldiers and our troops because it may well be that not all Council of Europe countries look on their armed forces in the same way.
For historical or cultural reasons, some may be reluctant to see their armed forces engage in combat or carry out dangerous peace keeping operations.
So they may have a very different attitude to the risks to which their forces should be exposed.
Correspondingly, members of their forces may not attract the level of public esteem that members of our forces, who are regularly expected to face very real threats of death or injury, enjoy.
At present our troops are exposed to great dangers in Afghanistan.
Inevitably, many have been killed and many more have been wounded.
To suggest that these deaths and injuries can always, or even usually, be seen as the result of some failure to protect the soldiers, whether by their immediate companions or by more senior officers or generals or ministers, is to depreciate the bravery of the men and women who face these dangers.
They are brave precisely because they do the job, knowing full well that, however much is done to protect them, they are going to be up against opposing forces who are intent on killing or injuring them and who are sometimes going to succeed.
This is the background to any inquest into the death of a soldier on active service.
In most cases the starting point is that the soldier died as a result of a deliberate attack by opposing forces by, say, a mortar bomb, or a roadside bomb, or by sniper fire.
Usually, at least, that will also be the end point of the coroners investigation because it will be an adequate description not only of how the soldier was killed, but also of the circumstances in which he was killed.
Of course, it will often perhaps even usually be possible to say that the death might well not have occurred if the soldier had not been ordered to carry out the particular patrol, or if he had been in a vehicle with thicker armour plating, or if the observation post had been better protected.
But, even if that is correct, by itself, it does not point to any failure by the relevant authorities to do their best to protect the soldiers lives.
It would only do so if contrary to the very essence of active military service the authorities could normally be expected to ensure that our troops would not be killed or injured by opposing forces.
On the contrary, in order to achieve a legitimate peacekeeping objective, a commander may have to order his men to carry out an operation when he knows that they are exhausted or that their equipment is not in the best condition.
Indeed the European Convention on Human Rights owes its very existence to countless individuals who carried out operations in just such circumstances.
For these reasons, I am satisfied that, where a serviceman or woman has been killed by opposing forces in the course of military operations, the coroner will usually have no basis for considering, at the outset, that there has been a violation of any substantive obligation under article 2.
So a Middleton inquest will not be called for and indeed it would not be lawful, in such circumstances, to return the wider verdict which is required where a potential violation of article 2 is under consideration.
Of course, as his investigation proceeds, the coroner may uncover new information which does point to a possible violation of article 2.
To take an extreme example, it may emerge from the evidence that the soldier actually died as a result of friendly fire from other British forces.
At that point, the legal position will change because there will be reason to believe that the military authorities may indeed have failed in their article 2 duty to protect the soldiers life.
So the coroner will conduct the inquest in the manner required to fulfil the United Kingdoms investigatory obligation under article 2.
But the coroner is not concerned with broad political decisions which may seem to have a bearing, and may indeed actually have a bearing, on what happened.
This is clear from Nachova v Bulgaria (2005) 42 EHRR 933, 957, para 110, where the Grand Chamber described the essential purpose of an article 2 investigation as being to secure the effective implementation of the domestic laws safeguarding the right to life and, in those cases involving state agents or bodies, to ensure their accountability for deaths occurring under their responsibility.
Once it is established, say, that a soldier died because the blast from a roadside bomb penetrated the armour plating on his vehicle, it may well be inferred that he would not have died if the plating had been stronger.
And that simple fact may be worth pointing out as a possible guide for the future.
But questions, say, as to whether it would have been feasible to fit stronger protection, or as to why the particular vehicles were used in the operation or campaign, or as to why those vehicles, as opposed to vehicles with stronger protection, were originally purchased by the Ministry of Defence, or as to whether it would have been better to have more helicopters available etc, all raise issues which are essentially political rather than legal.
That being so, a curious aspect of counsels submissions before this Court was the complete absence of any reference to Parliament as the forum in which such matters should be raised and debated and in which ministers should be held responsible.
Of course, in consequence of pressure brought to bear by Parliament, the government might set up an independent inquiry with wide terms of reference to look into all aspects of a situation, including the political aspects.
But we are concerned with the scope of a coroners inquest whose function is different.
Many of the issues about the deaths of soldiers which are, understandably, of the greatest concern to their relatives are indeed of this much broader nature.
In short, they raise questions of policy, not of legality, and so would fall outside the scope of any article 2 investigation which a coroner might be obliged to carry out.
For these reasons I agree that the contentions advanced by Ms Rose and Mr Beloff should be rejected.
LORD WALKER
In common with other members of this Court I feel some disquiet about our engaging in protracted deliberation and the preparation of lengthy judgments on two issues which (as all parties agree) do not actually affect what is to happen in consequence of the tragic death of Pte Smith.
It is not the function of this Court to deliver advisory opinions, and in this case we may be going some way beyond what would be regarded as a proper exercise of judicial power in a country with a written constitution providing for the separation of powers (for instance the position in Australia is very fully discussed in a paper A Human Rights Act, the Courts and the Constitution presented to the Australian Human Rights Commission by the Hon Michael McHugh AC on 5 March 2009).
The fact that every death of a soldier in Afghanistan brings tragedy to his or her family, and sorrow to the whole nation, may not be a sufficient reason for stretching our jurisdiction to the limits.
That is underlined by the second issue, as to coroners inquests, which has led to the submission of further detailed evidence which, informative as it is, has no possible bearing on the second inquest which is to be held on the death of Pte Smith.
On the two issues argued before the Court I respectfully agree with Lord Collins on the first issue, and with Lord Phillips and Lord Rodger on the second issue.
I would particularly associate myself with paras 118 127 of Lord Rodgers judgment.
LADY HALE
Mrs Smith must wonder why she is in this court.
She did not ask to be here.
All she wants is a proper inquiry, in which she can play a proper part, into how it was that her son Jason came to die of heatstroke while serving with the British army in Iraq.
She wants to understand what happened to him, but she also wants others to understand it too, so that anything which reasonably can be done will be done to prevent other families suffering as hers has suffered.
She had to begin these proceedings because of shortcomings in the first inquest, which are now conceded both by the Coroner and by the Ministry of Defence.
The Ministry failed to produce the principal board of inquiry report into Private Smiths death, insisted upon wholesale redaction of the documents which were disclosed, and the coroner wrongly held that he had no power to order disclosure if the Ministry would not agree.
As the judge commented, it has seemed to the family that the Army was concerned to cover up any shortcomings and to protect its reputation.
That may not be a correct conclusion, but it is not surprising that it has been reached (para 5).
But all that is now behind her.
A new inquest is to be held and those points are conceded.
More than that, Mrs Smith wished to establish that her son had died within the jurisdiction of the United Kingdom, so that he and she were covered by the guarantees in article 2 of the European Convention on Human Rights.
This imposes upon the state a duty, not only to avoid taking life, but also to take positive steps to protect the right to life in a variety of ways.
One of these is to hold a proper inquiry, in which the family of the deceased may play a proper part, if it appears that the state may have failed in its responsibility to protect life.
But both of these points have also been conceded.
The Ministry of Defence accept that Private Smith was within the jurisdiction of the United Kingdom when he died.
They will also not object to an inquest which examines, not only the precise cause of his death, but also the circumstances in which it took place.
This is as far as they or anyone else can go, because it will be for the coroner to decide, on the basis of that inquiry, what sort of verdict should be delivered.
But if the evidence were to warrant it, the verdict could clearly be one which identified any breach that there may have been of the United Kingdoms obligations under article 2.
That is all that is needed to decide this case.
The Ministry of Defence have appealed to this court because both the trial judge and the Court of Appeal accepted the invitation of both parties to decide more than they needed to decide.
Of course they meant to be helpful.
But because the Ministry of Defence did not like what they said, Mrs Smith has had to wait for more than two years for the case to be over so that the fresh inquest can be arranged.
Perhaps worse, it is not at all clear what this court is doing.
The trial judge ordered that the first inquisition and verdict be quashed and a new inquest held that complies with the procedural obligations implicit in Article 2 of the European Convention on Human Rights, as set out in the Courts judgment. (He also dismissed a competing claim by the Ministry of Defence but there was no appeal against that.) The Court of Appeal dismissed the Ministrys appeal.
So the judges order stands.
As I understand it, the most we might be asked to do is to delete the words as set out in the Courts judgment.
He made no declarations as to the rights of the parties so we are not asked to change those.
So we are merely making observations on two extremely important and interesting questions but we are not deciding anything.
In those circumstances I doubt whether any of the important and interesting things which are said about those questions in this court can be part of the essential grounds for our decision and thus binding upon other courts in future.
In the words of Sir Frederick Pollock, cited by Lord Denning in Close v Steel Company of Wales Ltd [1962] AC 367, at 388 389: Judicial authority belongs not to the exact words used in this or that judgment, nor even to all the reasons given, but only to the principles accepted and applied as necessary grounds of the decision.
Lest it be thought that Lord Denning took an unusual view of the circumstances in which he was bound by previous authority, he also referred to Lord Selborne LC, in Caledonian Railway Company v Walkers Trustees (1882) 7 App Cas 259, at 275: A judgment which is right, and consistent with sound principles, upon the facts and circumstances of the case which the House had to decide, need not be construed as laying down a rule for a substantially different state of facts and circumstances, though some propositions, wider than the case itself required, may appear to have received countenance from those who then advised the House.
Pithier still was the Earl of Halsbury LC in Quinn v Leathem [1901] AC 495, at 506: . a case is only an authority for what it actually decides.
Technically, therefore, I believe that our views are not binding, but they are of course persuasive.
So it is only polite to the powerful arguments advanced by counsel, and to the patience with which Mrs Smith has listened to them, to indicate where I currently stand on each of the two broader issues.
On the jurisdiction issue, I remain of the view to which I was inclined in R (Gentle) v Prime Minister [2008] UKHL 20, [2008] AC 1356, that British soldiers serving in Iraq were within the jurisdiction of the United Kingdom when they were killed, in one case by friendly fire and in the other by a road side bomb.
I am quite clear that this was not part of the principle, or essential ground, upon which the House of Lords decided the case: this was that taking care to discover whether or not the war was legal in international law had nothing to do with the duty in article 2 to protect life.
This can easily be tested.
It would have made no difference to the decision on the issue in the case where the soldiers deaths had taken place: whether they were clearly within the jurisdiction of the United Kingdom or whether they were not.
The House did hear some argument on the point, but nothing as full as the argument which this court has heard.
Although I am sorry to disagree with colleagues whose opinions are worthy of the deepest respect, I agree with the opinions of Lord Mance and Lord Kerr, and for the very full reasons which they give, and there is nothing which I can usefully add.
On the second issue, I agree that this is a question for a coroner to determine on the evidence that emerges at the inquest, but I also agree with Lord Phillips and Lord Rodger that we already know enough to raise the serious possibility that the United Kingdom may in some way have been in breach of its obligations under article 2.
So the scope of the inquiry must be wide enough to look into this and, depending on the conclusions drawn from the evidence, the verdict must be able to reflect this.
I do not believe that we are either allowing or dismissing an appeal on either issue, but if we are I would dismiss it on both.
LORD BROWN
Are our armed services abroad, in Iraq, Afghanistan or wherever else they may be called upon to fight, within the United Kingdoms jurisdiction within the meaning of article 1 of the European Convention on Human Rights? That is the critical first issue for decision on this appeal.
If they are, then the United Kingdom is required to secure to them all the Convention rights and freedoms.
Some will say that this is no less than they deserve.
They are brave men and women, undoubtedly entitled to these rights and freedoms whilst serving (sometimes, as recently in Northern Ireland, on active service) at home.
Why should they not enjoy the same rights when, whether they like it or not, they are called upon to face dangers abroad? When abroad, they are, after all, still subject to UK military law and, indeed, remain generally under the legislative, judicial and executive authority of the UK.
Others, however, will say that to accord Convention rights and freedoms to our services whilst engaged in armed combat with hostile forces abroad makes no sense at all.
It could serve only to inhibit decision making in the field and to compromise our services fighting power.
For my part I can readily see the force of both arguments and do not pretend to have found this an easy case to decide.
In the end, however, I have concluded that, save in an exceptional case like that of Private Smith himself whose death resulted from his treatment on base, Convention rights do not generally attach to our armed forces serving abroad.
Having regard to the number and length of other judgments in the case, my own reasoning will be brief.
Sometimes less is more.
I take as my starting point the decision of the House of Lords in R (Al Skeini) v Secretary of State for Defence [2008] AC 153 where I sought to analyse the existing Strasbourg jurisprudence on the reach of article 1.
Nothing that I have since heard or read has persuaded me that that analysis is wrong.
It was known, of course, at the time this case was argued before us, that the application in Al Skeini was to be heard in Strasbourg on 9 June 2010, with the judgment of the Grand Chamber expected some 3 6 months later, and, obviously, if the application succeeds, it is likely to transform our understanding of the scope of article 1 in cases of this sort.
Meanwhile, however, Al Skeini must be assumed to be correct and, in turn, the decision of the Grand Chamber in Bankovic v Belgium (2001) 11 EHRC 435 must be regarded as Strasbourgs ruling judgment on the point.
There has been some suggestion (see, for example, paras 29 and 30 of Lord Phillips judgment) that, since Bankovic, a wider concept of article 1 jurisdiction based upon state agent authority has been gaining ground in Strasbourg.
In Al Skeini (at paras 124 131) I dealt at length with one post Bankovic Strasbourg decision said to support such an approach Issa v Turkey (Merits) (2004) 41 EHRR 567 and concluded that it should not be understood to detract in any way from the clearly restrictive approach to article 1 jurisdiction adopted in Bankovic.
Reference is now made to more recent Strasbourg decisions, in particular Al Saadoon and Mufdhi v United Kingdom (2009) 49 EHRR SE 95 and Medvedyev v France (Application No 3394/03) (unreported) 29 March 2010.
To my mind, however, neither casts any real doubt on the Bankovic/Al Skeini analysis.
In Al Saadoon the Court at para 62 cited para 132 of my own judgment in Al Skeini recognising the UKs jurisdiction over Mr Mousa essentially by analogy with the extra territorial exception made for embassies (an analogy recognised too in Hess v United Kingdom (1975) 2 DR 72, a Commission decision in the context of a foreign prison which had itself referred to the embassy case of X v Federal Republic of Germany) and, at paras 88 89, concluded that: . given the total and exclusive de facto, and subsequently also de jure, control exercised by the United Kingdom authorities over the premises in question, the individuals detained there, including the applicant, were within the United Kingdoms jurisdiction (see Hess v United Kingdom . ).
This conclusion is, moreover, consistent with the dicta of the House of Lords in Al Skeini . (see para 62 above).
In the Courts view, the applicants remained within the United Kingdoms jurisdiction until their physical transfer to the custody of the Iraqi authorities on 31 December 2008.
It seems to me clear that the Court was there adopting, rather than doubting, the Al Skeini analysis.
The decision of the Grand Chamber in Medvedyev is sufficiently described at para 30 of Lord Phillips judgment and paras 180 182 of Lord Mances judgment.
I cannot see how it supports an argument for article 1 jurisdiction generally in respect of a states armed services abroad.
All that said, I recognise that whilst there is nothing in Al Skeini (or, indeed, Bankovic) which supports the respondents argument on the present appeal, neither is there anything in the cases wholly inconsistent with it.
True, as para 61 of Bankovic stated, article 1 reflects an essentially territorial notion of jurisdiction, other bases of jurisdiction being exceptional and requiring special justification in the particular circumstances of each case.
And true it is too that the particular basis of exceptional jurisdiction being contended for here has not previously been recognised by the Court, the Commissions express reference to armed forces remaining under a states article 1 jurisdiction when abroad (for example in their 1975 admissibility decision in Cyprus v Turkey 2 DR 125 cited at para 49 of Lord Phillips judgment) being conspicuously omitted from more recent such formulations.
Nevertheless, as I recognised at the outset, our armed forces abroad are subject not only to UK military law but also to the UKs general criminal and civil law and (as the Court of Appeal [2009] 3 WLR 1099 pointed out at para 29 of its judgment): As a matter of international law, no infringement of the sovereignty of the host state is involved in the United Kingdom exercising jurisdiction over its soldiers serving abroad.
Plainly, therefore, it can respectably be argued that special justification exists for accepting an extra territorial basis of article 1 jurisdiction in their particular case.
Arguably, moreover, this would eliminate at a stroke various apparent anomalies otherwise resulting from the position contended for by the Secretary of State for example, Convention rights attaching to a soldier in, say, a tented desert base camp (or military ambulance) but not when out with a patrol group, or, indeed, to a soldier like Private Smith who dies on base but not perhaps if his hyperthermia had resulted from inadequate care and water off base.
The two principal reasons why for my part I would reject the respondents argument are these.
First, because, if our armed forces abroad are within the reach of the Convention but, as Al Skeini decides, the local population are not, those responsible for the planning, control and execution of military operations will owe article 2 (and article 3) duties to our servicemen but not to the civilians whose safety is also imperilled by such operations.
That would seem to me an odd and unsatisfactory situation (not to mention a situation unlikely to win the hearts and minds of the local population) and to sit uneasily with the growing Strasbourg case law on internal armed conflict which, it should be noted, has not hitherto been suggested to extend also to international armed conflict situations.
Cases like Ergi v Turkey) (1998) 32 EHRR 388 (extending the principles established in McCann v United Kingdom (1995) 21 EHRR 97 to situations of armed conflict), Isayeva, Yusupova and Bazayeva v Russia (Application Nos 57947 49/00) (Isayeva I) and Isayeva v Russia (Application No 57950/00) (Isayeva II) (decisions of 24 February 2005) show, in the context respectively of Turkish army operations against the PKK in Turkey and Russian army operations against Chechnyan separatist fighters in Chechnya, the ECtHR closely scrutinising the planning, control and execution of military operations and asking whether all this has been done in such a way as to minimise, to the greatest extent possible, recourse to lethal force.
The exigencies of armed conflict notwithstanding, Strasbourg requires the state to have taken all feasible precautions to avoid or at least minimise incidental loss of life.
In all three cases substantive breaches of article 2 were found established.
In Isayeva I, for instance, the Court criticised the failure of the operational command to timeously communicate the fact that civilians may have been in the vicinity of the forces on active deployment, the absence of provision of forward air controllers to direct the military aircraft participating in the attack, and the deployment of missiles with a blast radius of between 300 to 800 metres which the Court regarded as disproportionate weaponry; in Isayeva II it criticised the Russian militarys failure to adequately anticipate the arrival of Chechnyan fighters, the absence of any preemptive measures to warn or evacuate the populace, the failure to accurately quantify the operational risk of deploying aircraft armed with heavy combat weapons, and the decision to utilise what again the Court regarded as disproportionate and indiscriminate weaponry.
As can be seen, Strasbourgs concern in these cases is essentially for the safety of civilians caught up in the conflict conflict, of course, occurring within the legal space (espace juridique) of the respective contracting states.
Assuming Al Skeini is right, such civilians have no article 2 rights if they are outside the Council of Europe area.
It is, however, the respondents case that the soldiers do.
Is it really to be suggested that even outside the area of the Council of Europe Strasbourg will scrutinise a contracting states planning, control and execution of military operations to decide whether the states own forces have been subjected to excessive risk (risk, that is, which is disproportionate to the objective sought)? May Strasbourg say that a different strategy or tactic should have been adopted perhaps the use of airpower or longer range weaponry to minimise the risk to ground troops notwithstanding that this might lead to higher civilian casualties? Such problems would to my mind be inescapable were Strasbourg to find armed forces abroad within the reach of article 1 and then adopt with regard to their article 2 rights the approach hitherto taken in situations of internal armed conflict.
My second principal reason for not holding the UKs armed forces abroad to be within the states article 1 jurisdiction is that this would be to go further than the ECtHR has yet gone, to construe article 1 as reaching further than the existing Strasbourg jurisprudence clearly shows it to reach.
As the ECtHR itself pointed out in Bankovic (para 65), The scope of article 1 . is determinative of the very scope of the contracting parties positive obligations and, as such, of the scope and reach of the entire Convention system of human rights protection.
Article 1 is in this respect to be contrasted with the Conventions substantive provisions and with the competence of the Convention organs, to both of which (as the Court had noted at para 64) the living instrument approach applies.
It was for these reasons that all of us in Al Skeini decided that it was for the ECtHR to give the definitive interpretation of article 1 and that domestic courts should not construe it as having any wider reach than that established by Strasbourgs existing jurisprudence.
The first five appellants there failed because, as Lady Hale put it (at para 91), she did not think that Strasbourg would inevitably hold that the deceased . were within the jurisdiction of the UK when they met their deaths.
That is similarly my conclusion in the present case not, of course, with regard to Private Smith himself whose death, it is conceded, occurred in circumstances which did fall within the United Kingdoms jurisdiction, but rather with regard to our armed forces generally whilst serving abroad.
For these reasons, together with those given by Lord Phillips and Lord Collins, I would accept the appellants argument upon the first issue.
The second issue before us, although ostensibly raised with regard to Pte Smiths death, in reality invites our ruling as to which deaths amongst the UKs armed forces abroad require inquests that comply with the article 2 investigatory obligation.
Plainly Pte Smiths does.
Equally plainly, if the majority of us are right on the first issue, that would not be so in respect of most of our armed forces abroad (at any rate when not serving within the territory of another Council of Europe state).
If, however, the majority of us are wrong on the jurisdiction issue in respect of our forces in, for example, Iraq and Afghanistan, and in any event with regard to our armed forces on, for example, active service in Northern Ireland, together with isolated cases such as that of Pte Smith, then I am in full agreement with Lord Phillips judgment on this issue and there is little that I wish to add.
I agree that the obligation to hold an article 2 investigation arises only when there is ground for suspicion that the State may have breached a substantive obligation imposed by article 2 (Lord Phillips at para 84) which would certainly not ordinarily be the case where a soldier dies on active service abroad.
I agree also with Lord Rodgers judgment on this point.
As I earlier observed in R (Hurst) v London Northern District Coroner [2007] 2 AC 189, 214 (para 48): An article 2 investigative obligation only arises in the comparatively few cases where the states responsibility is or may be engaged.
I agree also with Lord Phillips judgment at para 81 that an inquest will not always be the appropriate vehicle for discharging an article 2 investigatory obligation although I note what was said in the considered opinion of the Committee delivered by Lord Bingham in R (Middleton) v West Somerset Coroner [2004] 2 AC 182, 206 (para 47) that: in the absence of full criminal proceedings, and unless otherwise notified, a coroner should assume that his inquest is the means by which the state will discharge its procedural investigative obligation under article 2.
I further agree with Lord Phillips that in practice the only real difference between a Jamieson inquest (R v Coroner for North Humberside and Scunthorpe, Ex p Jamieson [1995] QB 1) and a Middleton inquest is likely to be with regard to its verdict and findings, rather than its inquisitorial scope.
As I pointed out in Hurst (paras 27 and 51), the scope of the inquiry is essentially a matter for the coroner.
Such indeed had been eloquently recognised in Jamieson itself in the Courts judgment given there by Sir Thomas Bingham MR (at para 14 of the Courts general conclusions, p 26): It is the duty of the coroner as the public official responsible for the conduct of inquests, whether he is sitting with a jury or without, to ensure that the relevant facts are fully, fairly and fearlessly investigated.
He is bound to recognise the acute public concern rightly aroused where deaths occur in custody.
He must ensure that the relevant facts are exposed to public scrutiny, particularly if there is evidence of foul play, abuse or inhumanity.
He fails in his duty if his investigation is superficial, slipshod or perfunctory.
But the responsibility is his.
He must set the bounds of the inquiry.
He must rule on the procedure to be followed.
His decisions, like those of any other judicial officer, must be respected unless and until they are varied or overruled.
As, however, I also pointed out in Hurst (para 51), the verdict and findings are not a matter for the coroner.
These are severely circumscribed when an inquest is confined to ascertaining by what means the deceased came by his death (a Jamieson inquest); not so where the inquest is to fulfil the article 2 investigatory obligation when it must also ascertain in what circumstances the deceased came by his death (a Middleton inquest).
Sometimes, of course, as in McCann v United Kingdom (1995) 21 EHRR 97 (the Death on the Rock case), short verdicts in the traditional form will enable the jury to express their conclusion on the central issue canvassed at the inquest (Hurst at para 48, citing Lord Bingham in Middleton at para 31).
Other times, perhaps generally indeed, an article 2 obligation will require the coroner or jury to state conclusions upon the important underlying issues in a way that plainly goes beyond the sort of restricted verdict available in a Jamieson inquest and in such cases a Middleton inquest is required.
Even then, however, as noted at para 37 of Middleton, the conclusions must be conclusions of fact as opposed to expressions of opinion.
Nor must the verdict appear to determine any question of civil liability.
Although, as I recognised in Hurst (para 51), the coroner may sometimes choose to widen the scope of the inquiry if he recognises that article 2 conclusions of fact (and thus a Middleton verdict and findings) are required, more probably (as Lord Hope envisages at para 95 of his judgment) the coroner is likely to decide the scope of inquiry with a view rather to the exercise of his rule 43 power to make a written report to a responsible authority aimed at avoiding similar fatalities in future.
To my mind, guidance beyond these broad generalities is quite impossible.
This is really not an area of the law in which advisory opinions are likely to prove especially helpful.
LORD MANCE
Issue 1 Jurisdiction: (a) general
The first issue before the Supreme Court is whether a soldier on military service in Iraq is subject to the jurisdiction of the United Kingdom within the meaning of article 1 of the European Convention on Human Rights so as to benefit from the rights guaranteed by the Human Rights Act 1998 while operating in Iraq.
If, or at least to the extent that, such a soldier is subject to United Kingdom jurisdiction within article 1, he will be entitled to rights guaranteed by the 1998 Act.
During the period leading up to his death, Private Smith spent time both at locations (particularly the Al Amarah stadium) constituting part of the United Kingdom army bases in Iraq and elsewhere.
He became ill on 13 August 2003 at the stadium after performing various duties off base (particularly supervising fuel distribution in circumstances where only coalition troops were acceptable to locals in that role and were, it appears, correspondingly stretched in terms of man power).
He was taken then by ambulance to an United Kingdom accident and emergency medical centre at Abu Naji, where he sustained a cardiac arrest and died, the cause of death being heatstroke.
The Secretary of State for Defence accepts that, in so far as the events leading to his death occurred on base, they occurred within United Kingdom jurisdiction for the purposes of article 1 of the Convention and that the conduct leading to them is subject to examination for compliance with article 2 of the Convention accordingly.
But he submits that, in so far as they occurred elsewhere, the converse applies.
This is because, in his submission, jurisdiction under article 1 is primarily territorial and the only relevant exception, covering United Kingdom bases in Iraq, arises from the analogy of United Kingdom embassies, consulates, vessels and aircraft and places of detention abroad.
Some members of the Court describe this issue as academic.
But it has a potential relevance in relation to the fresh inquest which has now to be held.
Before the Court of Appeal, the Secretary of State noted that Mrs Smiths case regarding the circumstances leading to Private Smiths death had been extended to include circumstances that took place outside the British army base and hospital, and argued originally that, as these matters took place outside the jurisdiction of the UK, they can form no part of the consideration in this case of whether the UK is in arguable breach of its obligations under article 2 (skeleton, para 16).
By the end of the hearing, the Secretary of State had conceded that he would not submit to the new coroner in the fresh inquest that the scope of that inquest is restricted in any way by any decision by him on the applicability (or not) of the enhanced article 2 investigative obligation (appellants note and Court of Appeal judgment, para 62.) However, by letters dated respectively 22 January and 12 February 2010 the coroner has (correctly) affirmed that it is not for the parties to agree the scope of the new inquest, but for the coroner to do this in the light of the judgment of this Court, and the Secretary of State has (correctly) accepted this to be so.
For this reason, the scope and application of article 1 and article 2 are of potential relevance to the future conduct of the fresh inquest.
It was on the analogy of embassies, consulates, vessels and aircraft and places of detention that the House of Lords held in R (Al Skeini) v Secretary of State for Defence [2007] UKHL 26; [2008] AC 153 that Mr Mousa (an Iraqi citizen who had died, allegedly as a result of torture, in United Kingdom custody in a United Kingdom base in Iraq) was within this countrys jurisdiction under article 1.
The respondent, Private Smiths mother, supported by the Equality and Human Rights Commission, submits that the present case, concerning the relationship between a state and its own armed forces occupying Iraq, falls within another or a more general exception to the general principle of territoriality.
(b) Gentle
The Secretary of State submits that the House of Lords decision in R (Gentle) v Prime Minister [2008] UKHL 20; [2008] AC 1356 is binding authority in his favour, negativing the application of any such exception in the present context.
He refers, in particular, to Lord Binghams speech at para 8(3): Subject to limited exceptions and specific extensions, the application of the Convention is territorial: the rights and freedoms are ordinarily to be secured to those within the borders of the state and not outside.
Here, the deaths of Fusilier Gentle and Trooper Clarke occurred in Iraq and although they were subject to the authority of the defendants they were clearly not within the jurisdiction of the UK as that expression in the Convention has been interpreted: .
Al Skeini . paras 79, 129.
The claimants seek to overcome that problem, in reliance on authorities such as Soering v United Kingdom (1989) 11 EHRR 439, by stressing that their complaint relates to the decision making process (or lack of it) which occurred here, even though the ill effects were felt abroad.
There is, I think, an obvious distinction between the present case and the Soering case, and such later cases as Chahal v United Kingdom (1996) 23 EHRR 413 and D v United Kingdom (1997) 24 EHRR 423, in each of which action relating to an individual in the UK was likely to have an immediate and direct impact on that individual elsewhere.
But I think there is a more fundamental objection: that the claimants argument, necessary to meet the objection of extra territoriality, highlights the remoteness of their complaints from the true purview of article 2.
Paras 79 and 129 in Al Skeini, to which Lord Bingham referred, concern jurisdiction based on effective control.
Lord Bingham evidently considered that no other exceptional head of jurisdiction applied.
However, in so far as argument was addressed to this point, it appears to have been extremely brief (see pp 1361B C and 1363G H).
The passage quoted from Lord Binghams speech constituted the last of three reasons why article 2 could not embrace the process of deciding on the lawfulness of a resort to arms; and it is noticeable that, at its conclusion, in dismissing the submission based on Soering, Lord Bingham reverted to his previous two reasons.
Other members of the House focused in their express reasoning on Lord Binghams first two reasons.
But Lord Hoffmann, Lord Hope, Lord Scott, Lord Brown and I myself at paras 16, 28, 29, 71 and 74 all also agreed in general terms with Lord Binghams reasons.
Lord Rodger said only that his reasons were essentially the same as Lord Binghams and Lord Hoffmanns (para 45), and Lady Hale regarded her reasons as being in substantial agreement with Lord Binghams (para 61), although she expressly disagreed with him on the question whether a British soldier serving under the command and control of his superiors was within the United Kingdoms jurisdiction within the meaning of article 1 (para 60).
Lord Carswell left that point open (para 66), and decided the case on the basis (again part of Lord Binghams first two reasons) that article 2 did not involve a duty not to go to war contrary to the UN Charter or to investigate the lawfulness of an armed conflict.
In the above circumstances, it is open to doubt whether the first part of the passage in para 8(3) quoted above from Lord Binghams speech was part of the ratio decidendi.
But, even if it technically was, it was not the product of the detailed argument and citation which we have now had, and it would, in my view, be wrong to refuse to reconsider it de novo.
(c) Bankovic and the concept of jurisdiction
Leaving Gentle aside, the submissions of all parties have, realistically, taken as their general starting point the decisions of the European Court of Human Rights in Bankovic v United Kingdom (2001) 11 BHRC 435 and Al Saadoon and Mufdhi v United Kingdom (2009) 49 EHRR SE 95 and of the House of Lords in Al Skeini.
Dicta in the House of Lords basing jurisdiction in Al Skeini on the total and exclusive de facto, and subsequently also de jure, control exercised by the United Kingdom authorities over the premises in question were referred to with approval by the European Court of Human Rights in Al Saadoon.
The decision in Al Skeini is shortly to be reviewed in that court.
But for present purposes the Supreme Court can and should accept it.
This starting point avoids the need for any entirely open review of the concept of jurisdiction under article 1.
Just how vexed that concept and how controversial the decisions in Bankovic and Al Skeini are appears from extensive literature which they have generated: see e.g. Lawson, Life after Bankovic: on the Extraterritorial Application of the European Convention on Human Rights; OBoyle, The European Convention on Human Rights and Extraterritorial Jurisdiction: A Comment on Life after Bankovic (both in F Coopman and M Kamminga, Extraterritorial Application of Human Rights Treaties; Antwerp Oxford 2004); Loucaides, Determining the Extra territorial Effect of the European Convention: Facts, Jurisprudence and the Bankovic case (2006) 4 EHRLR 391; Milanovic, From Compromise to Principle: Clarifying the Concept of State Jurisdiction in Human Rights Treaties (2008) HRLR 8(3), 411; and King, The Extraterritorial Human Rights Obligations of States (2009) HRLR 521.
Arguments that the European Court of Human Rights was guilty of a non sequitur in assimilating the concept of jurisdiction in article 1 to the concept in general international law and in relying upon this to restrict the extra territorial application of the Convention to exceptional circumstances only (see Milanovic, p 435) do not arise for consideration.
Nor do similar arguments that the Court in Bankovic was wrong in failing to recognise, as a separate and equal head of jurisdiction having extra territorial effect, the existence of effective authority over individuals or of actual authority or control over a given territory or person, whether lawfully or unlawfully exercised, (Lawson, p 120, Loucaides, p 399 and Milanovic, p 435).
Whatever the merits of giving the Convention a wider reach might be de lege ferenda, we are (like, in fact more so than, the House of Lords in Al Skeini: see per Lord Rodger, para 69) only concerned with its reach de lege lata.
Criticisms of the House of Lords approach in Al Skeini to jurisdiction based on territorial control (see King, pp 534 536 and 545 547) and suggestions that the House ought (in the light of cases such as Issa v Turkey (2004) 41 EHRR 567) to have recognised a cause and effect notion of jurisdiction (King, p 553) are also out of place in the light of the reasoning in Bankovic and Al Skeini.
The argument on the present appeal assumes the correctness of the general principles stated in Bankovic and Al Saadoon and applied in Al Skeini.
According to these jurisdiction in article 1 refers primarily to territorial jurisdiction, other bases of jurisdiction being exceptional and requiring special justification in the particular circumstances of each case (Bankovic, para 61).
The Court in Bankovic explained this conclusion as follows: 59.
As to the ordinary meaning of the relevant term in article 1 of the Convention, the Court is satisfied that, from the standpoint of public international law, the jurisdictional competence of a state is primarily territorial.
While international law does not exclude a states exercise of jurisdiction extra territorially, the suggested bases of such jurisdiction (including nationality, flag, diplomatic and consular relations, effect, protection, passive personality and universality) are, as a general rule, defined and limited by the sovereign territorial rights of the other relevant states (Mann, The Doctrine of Jurisdiction in International Law, RdC, 1964, vol 1; Mann, The Doctrine of Jurisdiction in International Law, Twenty Years Later, RdC, 1984, vol 1; Bernhardt, Encyclopaedia of Public International Law edition 1997, vol 3, pp 55 59 Jurisdiction of States and edition 1995, vol 2, pp 337 343 Extra territorial Effects of Administrative, Judicial and Legislative Acts; Oppenheims International Law, 9th ed 1992 (Jennings and Watts), vol 1, 137; Dupuy, Droit International Public, 4th ed 1998, p 61; and Brownlie, Principles of International Law, 5th ed 1998, pp 287, 301 and 312 314). 60.
Accordingly, for example, a states competence to exercise jurisdiction over its own nationals abroad is subordinate to that states and other states territorial competence (Higgins, Problems and Process (1994), p 73; and Nguyen Quoc Dinh, Droit International Public, 6th ed 1999 (Daillier and Pellet), p 500).
In addition, a state may not actually exercise jurisdiction on the territory of another without the latters consent, invitation or acquiescence, unless the former is an occupying state in which case it can be found to exercise jurisdiction in that territory, at least in certain respects (Bernhardt, cited above, vol 3 at p 59 and vol 2, pp 338 340; Oppenheim, cited above, at 137; Dupuy, cited above, at pp 64 65; Brownlie, cited above, at p 313; Cassese, International Law, 2001, p 89; and, most recently, the Report on the Preferential Treatment of National Minorities by their Kin States adopted by the Venice Commission at its 48th Plenary Meeting, Venice, 19 20 October 2001).
The Court found support for a primarily territorial approach to article 1 not only in general international law and the works cited in paras 59 and 60, but also in the travaux prparatoires (Bankovic, paras 19 21 and 63).
During the negotiation of the Convention, the words all persons residing within the territories of the signatory States in article 1 were replaced by all persons within their jurisdiction.
The Court noted that this was expressly on the basis that there were good grounds for extending the benefits of the Convention to all persons in the territories of the signatory States.
However, it is not without significance that the replacement phrase adopted the word jurisdiction, rather than territories; and also that the Court itself has recognised, by the exceptions which it has endorsed, that the Convention is not exclusively confined in its application to persons within the territories of the signatory States.
Lawson (cited above) points out (p 88) that the original proposal was to replace residing in by living in, but that the drafting sub committee noting that the aim was to widen as far as possible the categories of persons who are to benefit by the guarantees contained in the Convention proposed the replacement of residing within by within the jurisdiction (or, in French, relevant de leur jurisdiction).
The use of the more flexible notion within the jurisdiction, with its potentially wider jurisprudential connotations, was clearly deliberate, even if it is not unlikely that the drafters did not give much thought at all to any extraterritorial impact of the Convention (Lawson, p 90; and see also Loucaides, above, p 397).
Jurisdiction in general international law exists in the form of (a) jurisdiction to prescribe or legislate (and, as a subsidiary aspect, adjudicate), which is primarily territorial but generally also regarded as extending to a states nationals wherever they are, and (b) jurisdiction to enforce what is prescribed, which is usually only territorial (and does not usually exist, for example, against the persons of a states nationals, while they remain abroad): see Dr F A Mann in the writings cited in Bankovic at para 59, particularly RdC, 1964, pp 13, 22 et seq. and 127 et seq, and RdC, 1984, Chaps I and II, the Reinstatement of the Law Third: Restatement of the Foreign Relations Law of the United States, para 401 and Alcom Ltd v Republic of Colombia [1984] AC 580, 600C, per Lord Diplock.
In drawing on the conception of jurisdiction in general international law (while also reminding itself of the Conventions special character as a human rights treaty: para 57), the Court was (as Lord Rodger noted in Al Skeini, para 64) relating the scope of the Convention to the existence of a pre existing relationship between the relevant state and the victim.
For the Convention to apply, the mutual relationship must be one under which the state possessed and was able to enforce lawful authority and power over the victim and the victim was in return under and entitled to the states protection.
Jurisdiction in international law is, as Dr Mann said (RdC, 1964, p 13), concerned with the states right of regulation or, in the incomparably pithy language of Mr Justice Holmes, with the right to apply the law to the acts of men.
This means that there must be, translated to the international legal sphere, a similar bond of reciprocal allegiance to that identified domestically as existing between sovereign and subject in Calvins Case (1608) 7 Co Rep 1a; 77 ER 377: duplex et reciprocum ligamen; quia sicut subditus regi tenetur ad obedientiam, ita rex subdito tenetur ad protectionem; merito igitur ligeantia dicitur ab ligando, quia continet in se duplex ligamen.
A states international jurisdiction, based on this reciprocal bond, respects the matching jurisdiction of other states based on their mutual relationship with those within their territories and their nationals.
In international law, each state owes duties to protect those within its jurisdiction.
If state A infringes the fundamental human rights of a person subject to state Bs jurisdiction, then, although that person may have no direct right against state A, it may become state Bs duty to pursue the matter at the international level against state A.
In the same vein, the Court in Bankovic noted that the Convention was designed to ensure the observance of the engagements undertaken by the Contracting Parties (para 80) engagements which cannot be regarded as having been undertaken to benefit everyone in the world at large.
Consistently with the above, in Dr Manns writings, jurisdiction in international law is thus associated with sovereignty: it is an aspect of sovereignty, it is coextensive with and, indeed, incidental to, but also limited by the states sovereignty (RdC, 1964, pp 24 31, esp p 30; see also RdC, 1984, p 20).
In Bankovic itself, the only connection with the United Kingdom consisted in the act of bombing Belgrade which was alleged to constitute a breach of the Convention (a pure cause and effect notion of jurisdiction).
In that context, it is unsurprising that the Court should emphasise that the Convention was not designed to be applied throughout the world, even in respect of the conduct of contracting states (para 80) and should underline the significance of a pre existing reciprocal relationship under which sovereignty of one sort or another was legitimately possessed and exercised.
In Al Skeini (see paras 6, 61, 90, 97 and 132) the House of Lords decided that the United Kingdom as an occupying power did not, except within its military bases, have sufficient effective control over any territory of Iraq to bring such territory within its jurisdiction under article 1 of the European Convention on Human Rights.
The present appeal raises a different question, whether the United Kingdom had sufficient authority under international law over its own forces in Iraq for them to be regarded as within its jurisdiction under article 1.
(d) The respondents case
For present purposes, the respondent accepts the approach taken by the Court in Bankovic and Al Saadoon and by the House in Al Skeini.
But she relies on its underlying rationale the limitation of jurisdiction by reference to the limitations of sovereignty and the need to avoid conflicts of jurisdiction.
This rationale appears with clarity in both paras 59 and 60 cited above.
The suggested bases of extra territorial jurisdiction are, as a general rule, defined and limited by the sovereign territorial rights of the other relevant States. [A] States competence to exercise jurisdiction over its own nationals abroad is subordinate to that States and other States territorial competence; and in addition a State may not actually exercise jurisdiction on the territory of another without the latters consent, invitation or acquiescence, unless the former is an occupying State in which case it can be found to exercise jurisdiction in that territory, at least in certain respects.
In the respondents submission, the relationship between the United Kingdom and its armed forces in Iraq meets all these requirements for recognising that it involved in August 2003 the legitimate and effective exercise of jurisdiction, in the prescriptive, the adjudicatory and the enforcement senses.
The United Kingdom was in August 2003 exercising its authority lawfully in Iraq, with the consent of the Coalition Provisional Authority (CPA), over United Kingdom troops including Private Smith, a United Kingdom citizen.
By CPA Order No 17 issued in June 2003, the CPA formalised the status and arrangements governing the presence of the multinational force (MNF), which included the United Kingdoms armed forces, in Iraq.
The MNF was given, inter alia, the right to enter into, remain in and depart from Iraq (section 13), freedom of movement without delay throughout Iraq (section 7), freedom of radio communications (section 6), the right to use without cost such areas for headquarters, camps or other premises as might be necessary as well as to use, free of cost or where this was not practicable at the most favourable rate, water, electricity and other public utilities and facilities (section 9).
Importantly, by section 2 the MNF, its personnel, property, funds and assets were immune from Iraqi legal process and all MNF personnel were expressed to be subject to the exclusive jurisdiction of their Sending States.
Further, the respondent submits, the CPA was in issuing CPA Order No 17 operating with the legal mandate of the Security Council, which by Resolution 1483 adopted on 22 May 2003 under Chapter VII of the UN Charter, had recognised the specific authorities, responsibilities, and obligations under applicable international law of these states as occupying powers under unified command (the Authority), and called upon the Authority (in practice the CPA) consistent with the Charter of the United Nations and other relevant international law, to promote the welfare of the Iraqi people through the effective administration of the territory.
The respondent therefore submits that there would be no interference with Iraqi sovereignty and no attempt to impose Convention standards on Iraq or anyone other than the British state, by recognising the existence of Convention obligations as between the United Kingdom and nationals like Private Smith serving in its armed forces in Iraq.
There would be no question of Private Smith being brought within the Convention merely by virtue of the fact that he was a victim of an alleged breach of article 2.
On the contrary, the relationship of command and control under which Private Smith served gave the United Kingdom a broad protective capability and responsibility, which meant that a wide range of Convention rights could be effectively secured for his benefit.
Further, this being an exceptional head of jurisdiction, it was, in the respondents further submission, no objection if or that there might be some Convention rights which could not be secured; the objection, identified by the House in Al Skeini, to any application of the Convention based on tailoring and restricting Convention rights did not apply to the exceptional heads of jurisdiction.
In this connection, the Secretary of State points to para 130 in Lord Browns speech in Al Skeini, to which I return below (para 193).
These are forceful submissions, but they require closer analysis of the status of the United Kingdoms armed forces in Iraq.
Paras 59 and 60 of the Courts judgment in Bankovic recognise that state A may exercise jurisdiction on or in the territory of state B either (a) with the consent, invitation or acquiescence of state B or (b) as an occupying state at least in certain respects.
I will consider in turn these alternative bases of jurisdiction (a) and (b).
But first I examine three specific cases of the exceptional extraterritorial jurisdiction contemplated in paras 59 and 60 of Bankovic.
These were identified and analysed by Lord Brown in Al Skeini at paras 118 to 122.
(e) Cases of exceptional extra territorial jurisdiction
The first involves the forcible removal by state A from state B and with state Bs consent of a person wanted for trial in state A (Al Skeini, paras 118 119).
Within this category, Lord Brown put calan v Turkey (2005) 41 EHRR 985, where the European Court of Human Rights said: 91.
The Court notes that the applicant was arrested by members of the Turkish security forces inside an aircraft registered in Turkey in the international zone of Nairobi Airport.
It is common ground that, directly after being handed over to the Turkish officials by the Kenyan officials, the applicant was under effective Turkish authority and therefore within the jurisdiction of that state for the purposes of article 1 of the Convention, even though in this instance Turkey exercised its authority outside its territory.
It is true that the applicant was physically forced to return to Turkey by Turkish officials and was under their authority and control following his arrest and return to Turkey (see, in this respect, the aforementioned decisions in Snchez Ramirez v France (1996) 86 A DR 155 and Freda v Italy (1980) 21 DR 250, and, by converse implication, Bankovi v Belgium [(2001) 11 BHRC 435].
Lord Brown commented that, in circumstances where the forcible removal was effected with the full cooperation of the relevant foreign authorities and with a view to the applicants criminal trial in the respondent state, it was unsurprising that the Grand Chamber in calan had felt able to distinguish Bankovic by converse implication.
The inference from para 91 in calan is that, if (a) state A exercises authority over an individual in state B by consent of state B, and (b) it does so in order to lead to exercise of state As ordinary domestic jurisdiction over that individual, then it is throughout exercising jurisdiction over that individual under article 1.
The present case is not precisely on all fours (not least, because the United Kingdoms authority over its armed forces was to be exercised in Iraq), but, if the case could be analysed in terms of consent, that could hardly be critical in principle.
A second exceptional category was considered by Lord Brown in para 121 with reference back to para 109(4)(iii), where he introduced the category in these terms: Certain other cases where a states responsibility could, in principle, be engaged because of acts which produced effects or were performed outside their own territory (para 69).
Drozd and Janousek v France and Spain (1992) 14 EHRR 745, at para 91, is the only authority specifically referred to in Bankovic as exemplifying this class of exception to the general rule.
Drozd, however, contemplated no more than that, if a French judge exercised jurisdiction extraterritorially in Andorra in his capacity as a French judge, then anyone complaining of a violation of his Convention rights by that judge would be regarded as being within Frances jurisdiction.
In para 121, Lord Brown further explained this category: Another category, similarly recognised in Bankovic, was Drozd (see para 109(4)(iii) above ) into which category can also be put cases like X and Y v Switzerland (1977) 9 DR 57 and Gentilhomme, Schaff Benhadji and Zerouki v France (Application Nos 48205/99, 48207/99 and 48209/99) (unreported) 14 May 2002.
In X and Y v Switzerland, Switzerland was held to be exercising jurisdiction where, pursuant to treaty provisions with Liechtenstein, it legislated for immigration matters in both states, prohibiting X from entering either.
In Gentilhomme, France operated French state schools in Algeria, again pursuant to a treaty arrangement.
Drozd concerned complaints brought by defendants tried in Andorra against France and Spain as being allegedly responsible for non observance of the Convention by persons from these countries nominated to sit as judges in Andorra.
Its significance is that the European Court of Human Rights found it necessary to consider whether the judges acts could be attributed to France and Spain, even though they were not performed on the territory of those states (Drozd, para 91).
As the Court explained in Bankovic (para 69) the impugned acts could not, in the circumstances, be attributed to the respondent states because the judges in question were not acting in their capacity as French or Spanish judges and as the Andorran courts functioned independently of the respondent states (para 69).
Rix LJ in the Divisional Court in Al Skeini (paras 158 166 and 256 257) subjected Drozd to close scrutiny, and was puzzled by its reasoning.
He noted that, if the judges sitting in Andorra had been acting in their capacities as French and Spanish judges, then in this most important legal sphere, in one sense the heart of what is meant by jurisdiction, there would have been a form of extension of French and Spanish jurisdiction into the territory of Andorra, and regarded Drozd as too much of a special case to provide any firm foundation for a submission that personal jurisdiction exercised extraterritorially by state agents or authorities is a broad principle of jurisdiction under article 1 (para 257).
Special case though it was, Drozd points to the possibility that certain relationships, such as those between a national judge and those under his or her authority, may attract the operation of the Convention, irrespective of whether they take place within the territory of the judges state.
Gentilhomme is of interest, not just because it recognises the operation by France in Algeria of French schools with the consent of Algeria as capable of amounting to an exercise of jurisdiction by France in Algeria within the scope of article 1, but also because, on the facts, France was held not responsible.
The complainants children had, under French law, dual French and Algerian nationality but, under Algerian law, were only recognised as having Algerian nationality.
The complaint related to the refusal to admit them to the French schools in Algeria.
However, this was the result of a decision taken by Algeria unilaterally, with which France had no option but to comply although that decision was in breach of a declaration of cultural co operation which the two countries had signed on 19 March 1962.
The Court held that the conduct complained of could not be attributed to France, and the complaint was accordingly incompatible with the Convention ratione personae.
The possibility of exercising jurisdiction abroad by consent, invitation or acquiescence of the overseas state, to which the Court had referred in Bankovic, est subordonne la competence territoriale de cet autre Etat, et, en principe, un Etat ne peut concrtement exerciser sa jurisdiction sur le territoire dun autre Etat sans le consentement, linvitation ou lacquiescement de ce dernier (Bankovic, paras 59 60).
This appears clearly to indicate that exceptional jurisdiction may be tailored, in extent and in the liability to which it is capable of giving rise, by reference to the scope of the authority for the exercise of which abroad consent is given.
The third exceptional category involves the activities of [a states] diplomatic or consular agents abroad and on board craft and vessels registered in, or flying the flag of, that state (Bankovic, para 73, Al Skeini, paras 109(4)(ii) and 122).
As regards the activities of diplomatic or consular agents abroad, the critical feature is, again, the consent of the foreign state, in accordance with general principles of international law, to the exercise within its territory of the authority of the sending state by representatives of that state.
As Lord Brown noted in para 122, jurisdiction within article 1 has been held to exist both in relation to nationals of the sending state and even in relation to foreigners.
In relation to nationals, the existence of such jurisdiction is more obvious than it is, perhaps, in relation to foreigners.
The present case is concerned with the existence of jurisdiction in Iraq in relation to British soldiers.
As to a states activities on board craft and vessels registered in, or flying the flag of, that state, the relevant consideration is, once again, that the state has under international law recognised authority and control over such craft and vessels since the view that a ship is a floating part of state territory has long fallen into disrepute (Brownlies Principles of Public International Law, 7th ed (2008), p 318).
The recent decision of a seventeen member Grand Chamber in Medvedyev v France (Application No 3394/03) (29 March 2010) is not without interest in this connection.
The Winner, a Cambodian vessel was engaged on drug trafficking in the high seas (Cape Verde).
Belying its name, it was detected and boarded by the French authorities, who detained the crew on board and took them on the vessel to France for trial.
France was, but Cambodia was not, party to the relevant international drug trafficking conventions, which did not in the circumstances authorise the arrest by France of the Cambodian vessel.
Nevertheless, Cambodia had given France specific ad hoc authorisation to intercept, inspect and take legal action against the ship.
A majority of the Court considered that the crew were within the jurisdiction of France for the purposes of article 1 on the simple basis of France having exercised full and exclusive control over the Winner and its crew, at least de facto, from the time of its interception, in a continuous and uninterrupted manner until they were tried in France (contrast Bankovic, cited above) (para 67).
Bankovic was cited in para 64, where the Court noted that it was only in exceptional cases that acts of the Contracting States performed, or producing effects, outside their territories can constitute an exercise of jurisdiction by them for the purposes of article 1, and that This excluded situations, however, where as in the Bankovic case what was at issue was an instantaneous extraterritorial act, as the provisions of article 1 did not admit of a cause and effect notion of jurisdiction (Bankovic, para 75).
Having accepted that France had jurisdiction under article 1, the majority in Medvedyev went on to hold the detention of the crew unjustified, on the basis that, although international as well as domestic law was capable of shaping a procedure prescribed by law within article 5.1 (para 79), Cambodias ad hoc authorisation did not meet the requirements under article 5.1 of clearly defined and foreseeable law (paras 99 100).
Presumably foreshadowing that conclusion, the majority appear in para 67 to have endorsed the possibility of a purely factual (albeit unlawfully exercised) concept of jurisdiction under article 1.
In contrast, seven judges, dissenting from the majoritys conclusion under article 5.1, accepted that article 1 applied on the simple basis that the Winner with the agreement of the flag state was undeniably within the jurisdiction of France for the purposes of article 1 (para 10).
That state B may authorise state A to exercise jurisdiction which would otherwise belong to state B for the purposes of article 1 is on any view consistent with the principles in Bankovic, paras 59 60, as well as with the three specific categories of extraterritorial jurisdiction which I have been considering.
(f) The present case
The present case falls directly within none of these specific categories.
But all three categories depend upon the exercise by state A abroad of state power and authority over individuals, particularly nationals of state A, by consent, invitation or acquiescence of the foreign state B. They exemplify in this respect one underlying theme of paras 59 and 60 in Bankovic.
The first question is whether the present case represents an example of the exercise by state A (here the United Kingdom) of its lawful authority and power over its nationals in state B (Iraq) with the consent of state B.
If it does not, then it will be necessary to consider the alternative possibility mentioned in Bankovic, para 60, namely that the United Kingdom had, as an occupying power, jurisdiction under international law over its armed forces wherever they were in Iraq.
(g) Exercise of jurisdiction by consent
The answer to the first question depends upon the position of the CPA.
The CPAs origin, role and status were examined in Al Skeini, particularly by Rix LJ in the Divisional Court at [2004] EWHC 2911 (Admin); [2007] QB 140, paras 9 39.
Following their invasion of Iraq, the United States and United Kingdom became occupying powers within and subject to the provisions of the Hague Convention 1907 and the Fourth Geneva Convention 1949 (Rix LJ, para 11).
The CPA was the creation of a freedom message issued in that capacity by United States General Tommy Franks on 16 April 2003 (Rix LJ, para 14).
The formation and purpose of the CPA (to exercise powers of government temporarily and to transfer responsibility for administration to representative Iraqi authorities as soon as possible) were reported by letter by the two governments permanent representatives to the Security Council, The Security Council on 22 May 2003 adopted Resolution 1483 under Chapter VII of the UN Charter, that is as a measure taken to maintain or restore international peace and security.
Resolution 1483 noted the contents of the letter and, as stated in para 171 above, recognised the specific authorities, responsibilities, and obligations under applicable international law of these states as occupying powers under unified command (the Authority) and called upon the Authority (in practice the CPA) consistent with the Charter of the United Nations and other relevant international law, to promote the welfare of the Iraqi people through the effective administration of the territory (para 4).
But it also supported a transformative process in Iraq, through the formation, by the people of Iraq with the help of the Authority, of an Iraqi interim administration as a transitional administration run by Iraqis, until an internationally recognised, representative government is established by the people of Iraq and assumes the responsibilities of the Administration (Resolution 1483, para 9).
The CPA had by regulation R1 dated 16 May 2003 already declared that there were vested in the CPA all executive, legislative and judicial authority necessary to achieve its objectives, to be exercised under relevant UN Security Council resolutions. (anticipating in this respect by some 6 days the effect of Resolution 1483, a draft of which was by then publicly available).
In June 2003 the CPA issued CPA Order No 17, which formalised the status and arrangements covering the United Kingdoms occupying forces (para 171 above).
To complete the picture, on 13 July 2003, following two national conferences and widespread consultation, the Iraqi Governing Council (IGC) announced its formation and was recognised formally by the CPA by regulation R6, in line with para 9 of Security Council Resolution 1483, as the principal body of an Iraqi interim administration, with which the CPA would consult and co ordinate on all matters involving the temporary governance of Iraq.
The Security Council by Resolution 1500 on 14 August 2003 welcomed the establishment of the IGC as an important step towards the formation by the people of Iraq of an internationally recognized, representative government that will exercise the sovereignty of Iraq.
In its later Resolution 1511 of 16 October 2003, the Security Council, again acting under Chapter VII, reaffirm[ed] the sovereignty and territorial integrity of Iraq, and underscore[ed] in that context, the temporary nature of the exercise by the Coalition Provisional Authority (Authority) of the specific responsibilities, authorities, and obligations under applicable international law recognized and set forth in resolution 1483 (2003) .
The IGC eventually dissolved itself on 1 June 2004, and on 28 June 2008 the CPA transferred authority to the Iraqi Interim Government, which became the sole sovereign authority of Iraq (Rix LJ, para 38).
The CPA was thus exercising, and was recognised by the Security Council as having under international law, responsibility for the temporary governance and administration of Iraq throughout the relevant period from the end of May to August 2003.
In the Court of Appeal in Al Skeini [2005] EWCA Civ 1609; [2007] QB 140, para 123, Brooke LJ said that the CPA, which was not an instrument of the UK government, had the overall executive, legislative and judicial authority in Iraq whenever it deemed it necessary to exercise such authority to achieve its objectives.
In the House of Lords (para 83) Lord Rodger expressed himself as being in agreement with paras 120 to 128 of Brooke LJs judgment when concluding that the United Kingdom lacked effective control of Basra and its surrounding areas.
The CPA expressly endorsed and authorised the presence of the United Kingdoms armed forces in Iraq, and it had the support of Security Council Resolution 1483 in so acting.
But that does not necessarily mean that the CPA equates with the state of Iraq for the purposes of consenting to the presence of foreign troops under international law.
The CPA, although separate from the United Kingdom government, was the creature of the occupying forces, and Security Council Resolutions 1483 and 1511 were careful to refer to the CPA in terms consistent with this.
An analysis which relies upon the Security Councils recognition of the CPAs role and upon CPA Order No 17 as a basis for saying that the state of Iraq consented to the presence and activities of United Kingdom forces in Iraq may be regarded as essentially circular: the CPA owed its existence, rights and responsibilities to the presence and activities of the occupying forces, and the Security Councils Resolution was drafted on a basis which can be said merely to recognise this truth.
On the other hand, if that is so, then it is also true there was during the period May to August 2003 no other body which could claim to represent the state of Iraq, and a correspondingly reduced risk of any objectionable clash of sovereignty.
(g) Exercise of jurisdiction over occupying forces
This brings me to the other head of extra territorial jurisdiction mentioned in Bankovic, para 60, although not the subject of detailed analysis there or in Al Skeini: that is jurisdiction as an occupying force.
The laws of war apply whatever the legitimacy or otherwise of the casus belli.
They would not otherwise have much point.
In the present case, the specific authorities, responsibilities, and obligations under applicable international law of the occupying forces, as well as the role of the CPA, were also endorsed by Security Council Resolution 1483.
The European Court of Human Rights recognised in para 60 in Bankovic that occupation can give jurisdiction at least in certain respects, and referred to inter alia Oppenheims International Law (vol I Peace) (9th ed) (1992) para 137.
This states that: International law, however, gives every state a right to claim exemption from local jurisdiction, chiefly for itself, its Head of State, its diplomatic envoys, its warships and its armed forces abroad.
In relation to the words and its armed forces, footnote 19 refers to paras 556 558, which, in relation to belligerent occupation of foreign territory, refer in turn by footnote 4 to paras 166 172b of volume II Disputes,War and Neutrality of the same work (7th ed) (1952).
Para 166 states that, in modern international law: although the occupant in no wise acquires sovereignty over such territory through the mere fact of having occupied it, he actually exercises for the time being military authority over it.
As he thereby prevents the legitimate sovereign from exercising his authority, and claims obedience for himself from the inhabitants, he must administer the country, not only in the interest of his own military Para 169 continues: advantage, but also, at any rate so far as possible, for the public benefit of the inhabitants.
As the occupant actually exercises authority, and as the legitimate Government is prevented from exercising its authority, the occupant acquires a temporary right of administration over the territory and its inhabitants; .
In carrying out [the administration] the occupant is totally independent of the constitution and law of the territory, since occupation is an aim of warfare, and the maintenance and safety of his forces and the purpose of war, stand in the foreground of his interest, and must be promoted under all circumstances and conditions.
But, although as regards the safety of his army and the purpose of war the occupant is vested with an almost absolute power, as he is not the sovereign of the territory he has no right to make changes in the laws, or in the administration, other than those which are temporarily necessitated by his interest in the maintenance and safety of his army and the realisation of the purpose of war.
On the contrary, he has the duty of administering the country according to the existing laws and the existing rules of administration; he must ensure public order and safety, must respect family honour and rights, individual lives, private property, religious convictions and liberty.
It has been observed that the transformative aspect of Resolution 1483 (para 184 above) and the transformation in Iraqi society and governance which the CPA actually implemented do not reconcile easily with the traditional principles governing occupation stated in Oppenheim: see Adam Roberts, The End of Occupation (2005) ICLQ 27 and Transformative Military Occupation: Applying the Laws of War and Human Rights (2006) 100 AJIL 580, 604 618 and Nehal Bhuta, The antimonies of transformative occupation (2005) EJIL 721.
It seems clear that neither the occupying states nor the Security Council viewed the situation as one in which there was, after the overthrow of Saddam Hussein, any legitimate sovereign.
It also seems improbable that the wide ranging and in certain respects fundamental measures introduced by the CPA for the temporary governance of Iraq (as described by Rix LJ in the Divisional Court in Al Skeini at paras 19 to 26) would fit with the traditional duty of administering the country according to the existing laws and the existing rules of administration to which Oppenheim refers in para 169.
However, I think it unnecessary to consider how far and on what basis the occupation of Iraq may have had features going beyond that of traditional belligerent occupation.
What is important for present purposes is that the status even of a traditional occupying state is recognised and regulated by international law, and that it is one in which as regards the safety of his army and the purpose of war the occupant is vested with an almost absolute power, and in which the occupant has the right to claim immunity for its armed forces from local jurisdiction.
In the context of Bankovic, the European Court may in para 60 have been thinking primarily of jurisdiction exercised by a state through occupying forces over local inhabitants.
But to the extent that such jurisdiction exists, it does so only because of the states pre existing authority and control over its own armed forces.
An occupying state cannot have any jurisdiction over local inhabitants without already having jurisdiction over its own armed forces, in each case in the sense of article 1 of the Convention.
That is not of course to equate a states jurisdiction over third parties with its pre existing and more widely based jurisdiction over its own armed forces (see further para 191 below).
In providing for the occupying forces to have immunity from Iraqi legal process, CPA Order No 17 reflected the general principle of state immunity, under international and common law, precluding civil suits in one state against a foreign state or its servants in respect of sovereign activities of that foreign state: see eg Littrell v United States of America (No 2) [1995] 1 WLR 82, Holland v Lampen Wolfe [2000] 1 WLR 1573 and Jones v Ministry of the Interior of the Kingdom of Saudi Arabia [2006] UKHL 26; [2007] 1 AC 270 (the position relating to torture not being relevant on this appeal) and, under general international law, para 137 of Oppenheim (para 187 above).
No such general immunity today exists under English law as between the United Kingdom and those within its territory or having its nationality, whether the conduct occurs within or outside the United Kingdom.
Soldiers can bring proceedings in England against the Ministry of Defence in respect of any breach of the states common law duty of care towards them: Crown Proceedings (Armed Forces) Act 1987, section 1.
That such liability is capable of arising in respect of operations or activity anywhere in the world appears implicit in section 1 of the 1987 Act (read in the light of section 10 of the Crown Proceedings Act 1947 which it repealed) as well as in section 2 of the 1987 Act.
The United Kingdom government is thus already liable to receive claims at common law by soldiers serving in Iraq based, for example, on allegations of failure to take proper care in relation to their safety, other than in the context of active operations against an enemy.
A distinction between actual operations against an enemy (during the course of which no common law duty of care exists) and other activities of combatant services in time of war was drawn in Shaw Savill and Albion Co Ltd v Commonwealth of Australia (1940) CLR 344, Burmah Oil Company Ltd v Lord Advocate [1965] AC 75, 110, per Lord Reid (using the term battle damage to describe the former category), Mulcahy v Minister of Defence [1996] QB 732 and Bici v Ministry of Defence [2004] EWHC 786 (QB), paras 90 100.
It is unnecessary to examine it or its scope here.
I can also leave undecided the question whether the doctrine of act of state might in limited circumstances make even a claim by a British subject non justiciable: see Nissan v Attorney General [1970] AC 179; Bici v Ministry of Defence (above), para 88.
In providing for the United Kingdom to have exclusive jurisdiction, CPA Order No 17 also mirrored in effect the domestic position, whereby British soldiers are subject to United Kingdom military law wherever they serve.
This was so under the Army Act 1955, the Air Force Act 1955 and the Naval Discipline Act 1957 (the Service Acts), backed up by rules and regulations, including the Queens Regulations 1975, in force in 2003; and it remains so since their replacement from 31 October 2009 by the Armed Forces Act 2006.
Although the Service Acts are largely silent on their territorial scope, it is not in dispute that their provisions governed service overseas as well as domestically: see Al Skeini, per Lord Bingham at paras 15(4) and 26.
This is, for example, reflected in provisions for courts martial to have jurisdiction over offences committed abroad (Naval Discipline Act 1957, section 48(1)) and to sit abroad (Army Act, section 91): see also Halsburys Laws of England, Armed Forces, vol 2(2), para 303, footnote 4, noting that the jurisdiction of army and air force courts martial to try offences committed outside the United Kingdom is to be inferred from the fact that each of the offence creating provisions provides that the offence in question is committed by any person subject to military or air force law without any limiting words as to where the offence must be committed.
Section 70(1) of the Army Act has made it an offence for any person subject to military law to commit a civil law offence anywhere in the world.
Section 367 of the 2006 Act now provides expressly that Every member of the regular forces is subject to service law at all times.
(h) Conclusion on issue of jurisdiction
In the light of the above, it is in my view possible to give a clear answer to the question whether the United Kingdom had jurisdiction under international law over its armed forces wherever they were in Iraq.
If the United Kingdom did not, then no state did.
The invasion clearly and finally ousted any previous government.
The United Kingdom was the only power exercising and having under international law authority over its soldiers.
In so far as there was any civil administration in Iraq, it consented to this.
If the CPAs consent is disregarded as coming from what was, in effect, an emanation of the two occupying powers, then the United Kingdom was, and was by Security Council Resolution 1483 recognised as, an occupying power in Iraq.
Bankovic indicates that one basis on which the UK could be regarded as having had jurisdiction over its forces in Iraq would have been by consent of the state of Iraq.
It would be strange if the position were different in the absence of any Iraqi government to give such consent, or therefore to object, to the exercise of such jurisdiction by the UK over its occupying forces.
As an occupying power, the UK was necessarily in complete control of the armed forces by which it achieved such occupation, and had under international law an almost absolute power as regards their safety (Oppenheim, para 169, above), as well as duties regarding the effective administration of Iraq and the restoration of security and stability, to be performed through such forces.
The United Kingdom did not have such effective control over the whole of the area of Southern Iraq or even Basra as could cause such area to be equated with territory of the United Kingdom, or therefore to require the United Kingdom to ensure the full range of Convention rights to all within it.
It is, however, a different matter to suggest that the United Kingdom ceased to have jurisdiction over its armed forces (with the consequence that it ceased to owe them any further Convention duty) whenever they were out of base; and the United Kingdoms jurisdiction over its own armed forces within article 1 does not mean that it had jurisdiction within article 1 over all or any other persons with whom those armed forces came into contact off base.
The actual feasibility of the United Kingdom assuring and providing protection for its armed forces in Iraq depends on the circumstances, including the circumstances and place in which such forces are serving.
But to distinguish fundamentally between the existence of the protective duties on the part of the United Kingdom towards its armed forces at home and abroad also appears to me as unrealistic under the Convention as it is at common law.
The relationship between the United Kingdom and its armed forces is effectively seamless.
Members of the armed forces serve under the same discipline and conditions wherever they are, and they are required to go wherever they are ordered.
The relationship is not territorial, it depends in every context and respect on a reciprocal bond, of authority and control on the one hand and allegiance and obedience on the other.
The armed forces serve on that basis.
The compact is that they will receive the support and protection of the country they serve.
I recognise that these considerations could apply even in a case where the United Kingdom did not have under international law a recognised role, like that of an occupying power which it had in Iraq.
That may, on another day, lead back to re examination of statements (such as that in Medvedyev: see para 182 above) which contemplate the possibility that article 1 may embrace purely factual, though unlawfully exercised, jurisdiction.
That possibility does not however require consideration on this appeal.
Where, as here, the United Kingdom was present in Iraq, both with the consent of the only civil administrative authority that existed and in any event as an occupying power recognised as such under international law by the Security Council, there is in my view an irresistible case for treating the United Kingdoms jurisdiction over its armed forces as extending to soldiers serving in Iraq for the purposes of article 1 of the Convention.
In Al Skeini (para 53) Lord Rodger said, in the context of interpreting the scope of the Human Rights Act 1998, that where a public authority has power to operate outside of the United Kingdom and does so legitimately for example, with the consent of the other state in the absence of any indication to the contrary it would only be sensible to treat the public authority, so far as possible, in the same way as when it operates at home.
Similar thinking applies to the scope of a states jurisdiction under article 1 of the Convention, and is not only consistent with, but positively supported by, the Courts reasoning in Bankovic.
In the present case, Lord Collins, whose judgment I have read after formulating my own, identifies a number of cases where commonsense in his view justifies a recognition of extra territorial jurisdiction within article 1 albeit necessarily of a limited nature tailored to the context (see paras 281, 301 and 306).
I agree, but in my view commonsense also suggests a similar analysis of the relationship between the United Kingdom and the British army.
Is such a conclusion precluded on the basis that Convention rights cannot properly be tailored? I do not believe so.
We are concerned with an exceptional head of jurisdiction.
In Al Skeini, Lord Brown said this at para 130: Realistically the concept of the indivisibility of the Convention presents no problem in the categories of cases discussed in paras 119 126 above: those concern highly specific situations raising only a limited range of Convention rights.
This passage might, on one view, be read as suggesting that there is something inherent in the exceptional categories of cases discussed in paras 119 to 126 which means that it could never realistically be suggested that the state was in such cases under any general Convention obligation to secure the Convention rights.
But it is not obvious why.
The true explanation must be that in circumstances falling within one of the exceptional categories the states Convention duties are limited to those falling within the scope of the relationship giving rise to the exception in question.
The consul cannot be expected to guarantee the full range of Convention rights, any more than can a state exercising authority by consent in other circumstances, such as those existing where it takes someone into custody (calan), or operates a school (Gentilhomme) or mans a court (Drozd), abroad by consent of the foreign state.
The United Kingdom could not guarantee the full range of Convention rights to foreign litigants using its courts.
Yet, once a person brings a civil action in the courts or tribunals of a state, there indisputably exists a jurisdictional link for the purposes of article 1: Markovic v Italy (2006) 44 EHRR 1045, para 54.
Thus the Convention was applied, unsurprisingly in my view without anyone suggesting that it might not, as the measure of the legitimacy of claims by such nationals against the United Kingdom for refusal to up rate their pensions to the same level as those of persons residing in the United Kingdom who had made equivalent National Insurance contributions: Carson v United Kingdom (Application No 42184/05), 16 March 2010, where the claims in fact failed on the basis that persons residing within and outside the territory of the United Kingdom were not in an analogous situation.
I add, without needing to explore this further, that, even in relation to territorially based jurisdiction, factual inability to enforce all the Convention rights, due to temporary loss of control to rebel forces, may, it appears, qualify the extent of the jurisdiction enjoyed and of the duties attaching to it: Ilacu v Moldova and Russia (2005) 40 EHRR 1040 (GC), paras 332 333.
The United Kingdoms jurisdiction over its armed forces is essentially personal.
The United Kingdom cannot and cannot be expected to provide in Iraq the full social and protective framework and facilities which it would be expected to provide domestically.
But the United Kingdom could be expected to take steps to provide proper facilities and proper protection against risks falling within its responsibility or its ability to control or influence when despatching and deploying armed forces overseas.
Will there be consequences beyond or outside any that the framers of the Convention can have contemplated, if Convention rights, and in particular those under article 2, continue to apply as between the United Kingdom and members of its armed forces serving abroad? That the obligation on states under article 1 to secure the Convention rights to everyone within their jurisdiction is, in principle, capable of applying to members of the armed forces as it does to anyone else is clear: see Engel v The Netherlands (1976) 1 EHRR 647, paras 54, 59, and en v Turkey (Application No 45824/99), 8 July 2003, para 1.
The factors which justify exposing soldiers to the risk of death differ fundamentally from those that apply where civilian lives are at risk.
But there is nothing that makes the Convention impossible or inappropriate of application to the relationship between the state and its armed forces as it exists in relation to overseas operations, in matters such as, for example, the adequacy of equipment, planning or training.
See also on these points Gentle, per Lord Hope, para 19.
Mr Eadie QC for the Secretary of State accepted in his submissions that it could be argued that to send a soldier out of the United Kingdom (or no doubt, in the light of Al Skeini, out of base) on a mission with inadequate equipment or training could involve a breach of the Convention, by analogy with the principle recognised in Soering v United Kingdom (1989) 11 EHRR 439 and referred to in Bankovic, para 68; and that coroners inquests in respect of deaths on active service in Iraq or Afghanistan have addressed such issues.
The jurisprudence of the European Court of Human Rights includes cases where that court has examined closely and criticised the conduct of armed forces in domestic contexts.
Such cases start with McCann v United Kingdom (1995) 21 EHRR 97, relating to the shooting by SAS officers of members of the Provisional IRA suspected of planning to attack the Royal Anglian Regiment in Gibraltar, and include Isayeva, Yusupova and Bazayeva v Russia (Application Nos 57947 49/00), 24 February 2005, and Isayeva v Russia (Application No 57950/00), 24 February 2005, relating to the conduct of military operations by the Russian armed forces against Chechen separatist fighters which led to the deaths of civilians.
In such cases, it appears that the exigencies of military life go to the standard and performance, rather than the existence of, any Convention duty.
Outside the sphere of combat operations or battle damage (para 34 above), this has been held also to be the position at common law, in which connection Elias J said in Bici v Ministry of Defence, para 104 that Troops frequently have to carry out difficult and sensitive peace keeping functions, such as in Northern Ireland, whilst still being subject to common law duties of care.
The difficulties of their task are reflected in the standard of the duty rather than by denying its applicability.
The European Court of Human Rights has (as Lord Hope noted in Gentle, paras 18 19) itself also acknowledged that when interpreting and applying the rules of the Convention it is necessary to bear in mind the particular characteristics of military life and its effects on the situation of individual members of the armed services (Engel, para 54, and en, p 1(b)).
Reluctance about accepting the application of article 2 to the armed forces serving abroad may be due to concerns on several scores: first, the improbability that the founding fathers of the Convention perceived that jurisdiction under article 1 would extend to such matters, second, the apparent absence from the Convention of any immunities paralleling those of combat operations or battle damage (or, perhaps, act of state) recognised at common law (para 189 above), and, third, the extent to which the Court has in practice shown itself ready to re examine and re assess minutely, after the event and in the cold light of day, the factual conduct and decision making of member states in difficult circumstances, as evidenced perhaps by some decisions already mentioned, including in particular McCann and, recently, Medvedyev.
But none of these matters seem to me to justify giving to the concept of jurisdiction a different or more limited meaning to that which, in my view, follows from the guidance which the Court has already given, particularly in Bankovic.
As to the first such matter, the scope and application of the Convention, as revealed over the years, would probably surprise its founding fathers in many respects, and it seems particularly unrealistic to measure the scope of article 1 (fixed though it is, rather than living) by reference to the now revealed positive meaning of article 2 (cf Lord Phillipss comment to like effect in para 54).
As to the second and third matters, it would have been foreseeable when the Convention was concluded that combat operations against an enemy might take place in the territory of a Contracting State a context in which the Secretary of State accepts the application of the Convention.
The armed forces have not infrequently also been involved in combat operations in bases under attack in Afghanistan or, previously, Iraq.
On the approach accepted in Al Skeini and in Al Saadoon and Mufdhi v United Kingdom (2009) 49 EHRR SE95, the United Kingdom is already required to ensure that its armed forces enjoy whatever protection the Convention, and in particular article 2, may require in such situations.
The possible existence of Soering type liability for sending troops out from the United Kingdom with inadequate equipment or training is also acknowledged by the Secretary of State (para 196 above).
If (as to which I express no view) the Convention contains no homologue of the common law immunity in respect of combat operations or battle damage, that is, therefore, a concern that already exists in contexts recognised as falling within Contracting States jurisdiction under article 1 of the Convention.
It is not a guide to the scope of article 1.
In fact, the Convention does contain at least one provision aimed at addressing this concern.
Under article 15 of the Convention states are, in time of war or other public emergency, permitted, to the extent strictly required by the exigencies of the situation, to derogate from article 2 in respect of deaths resulting from lawful acts of war.
By article 15 the Contracting States were catering for the natural concern that military operations against an enemy should not be unduly hampered.
Finally, the Secretary of State submits, even if a soldier in Private Smiths position might be thought to be entitled to the protection of the Convention (and of article 2 in particular) at all times while serving overseas, whether or not he was on a British base, a domestic court should decline so to decide, but should leave the matter to be taken (whether in relation to this or another case) to Strasbourg.
The principle here relied upon is that the role of United Kingdom courts, when interpreting the Convention, is to keep in step with Strasbourg neither lagging behind, nor leaping ahead: doing no more, but certainly no less (R (Ullah) v Special Adjudicator [2004] UKHL 26; [2004] 2 AC 323, para 20, per Lord Bingham) or no less, but certainly no more (Al Skeini: paras 90 and 106, per Lady Hale and Lord Brown).
However, it is our duty to give effect to the domestically enacted Convention rights, while taking account of Strasbourg jurisprudence, although caution is particularly apposite where Strasbourg has decided a case directly in point or, perhaps, where there are mixed messages in the existing Strasbourg case law and, as a result, a real judicial choice to be made there about the scope or application of the Convention.
But neither is the case here.
Strasbourg has not decided any case directly in point, and both the messages contained in its existing jurisprudence and considerations of general principle seem to me to point in a clear direction.
In my judgment the armed forces of a state are, and the European Court of Human Rights would hold that they are, within its jurisdiction, within the meaning of article 1 and for the purposes of article 2 wherever they may be.
On that basis, it is incumbent on us under the Human Rights Act 1998, s.6, to give effect to that conclusion.
I would dismiss the appeal on the first issue.
Issue 2 article 2
The second issue is whether the fresh inquest into Private Smiths death must conform with the procedural obligation implied into article 2 of the Convention.
In essence: what kind of inquest should the coroner hold, leading to what kind of verdict, in respect of Private Smiths death? Again, since questions of jurisdiction are involved, this issue cannot simply be answered by reference to the Secretary of States concession (para 159 above) that he will not object to the fullest type of inquest and (presumably) verdict.
The reference to the procedural obligation implied into article 2 is significant.
Article 2 has two aspects; one substantive, the other procedural.
The latter is implied in order to make sure that [the former is] effective in practice; and is parasitic upon the existence of the substantive right, and cannot exist independently: R (Gentle) v Prime Minister [2008] UKHL 20; [2008] AC 1356, paras 5 6, per Lord Bingham; and see Jordan v United Kingdom (2001) 37 EHRR 52, para 105 and Edwards v United Kingdom (2002) 35 EHRR 487, para 69.
In its substantive aspect, article 2 requires states not to take life without justification and also to establish a framework of laws, precautions, procedures and means of enforcement which will, to the greatest extent reasonably practicable, protect life: R (Middleton) v West Somerset Coroner [2004] UKHL 10; [2004] 2 AC 182, para 2 of the opinion of the Appellate Committee given by Lord Bingham.
Where there is such an established and appropriate framework, casual errors of judgment or acts of negligence (or operational as opposed to systematic failures) by state servants or agents will not by themselves amount to breach of the substantive obligation inherent in article 2 (a principle established in the context of medical negligence): Powell v United Kingdom (2000) 30 EHRR CD 362, Takoushis v Inner North London Coroner [2005] EyWCA Civ 1440; [2006] 1 WLR 461, paras 51 to 58; Byrzykowski v Poland (2006) 46 EHRR 675, paras 104 106; and Savage v South Essex Partnership NHS Foundation Trust (MIND intervening) [2008] UKHL 74; [2009] AC 681.
In its procedural aspect, article 2 requires member states to initiate an effective public investigation by an independent official body into any death occurring in circumstances in which it appears that one or other of the foregoing substantive obligations has been, or may have been, violated and it appears that agents of the state are, or may be, in some way implicated: Middleton, para 3.
Thus to make good [a] procedural right to the inquiry which the respondent seeks, she must show at least an arguable case that the substantive right arises on the facts .: Gentle, para 6, per Lord Bingham.
The framework of procedures and means of enforcement required under the substantive aspect of article 2 must include, where appropriate, means of civil redress and criminal prosecution.
The present focus is however on the procedural aspect of article 2, and on its requirement (based clearly on the potential involvement of the state in the death) for an effective public investigation by an independent official body into certain types of death, that is those occurring in circumstances potentially engaging the substantive right which article 2 contains.
English law has long required a coroners inquest in respect of certain types of death.
Pending the coming into force of the relevant sections of the Coroners and Justice Act 2009, the position is governed by the Coroners Act 1988.
Section 8(1) requires a coroner to hold an inquest in respect of any body lying within his district where there is reasonable cause to suspect that the deceased (a) has died a violent or an unnatural death, (b) has died a sudden death of which the cause is unknown or (c) has died in prison (or in a place or circumstances requiring an inquest under any other Act).
Section 8(3) requires the coroner to summon a jury, in various cases, including where it appears that (c) applies, or the death occurred while the deceased was in police custody, or resulted from an injury caused by a police officer in the purported execution of his duty or was caused by an accident, poisoning or disease requiring notice under section 19 of the Health and Safety at Work etc Act 1974, or in circumstances the continuation or possible recurrence of which is prejudicial to public health or safety.
Such an inquest is designed to lead to a verdict, certified by an inquisition setting out, so far as such particulars have been proved (i) who the deceased was; and (ii) how, when and where the deceased came by his death: section 11(3) to (5) and rule 36 of the Coroners Rules 1984.
There is a clear overlap (particularly when sections 8(1)(c) and 8(3) apply) between the circumstances in which the 1988 Act requires a coroners inquest and those in which the procedural obligation inherent in article 2 arises.
But the two do not necessarily coincide.
The domestic duty to hold an inquest can quite often arise in circumstances not engaging the procedural obligation under article 2.
The procedural obligation inherent in article 2 may be satisfied by other forms of investigation than an inquest, for example a public inquiry or even criminal proceedings.
Where the domestic duty to hold an inquest and the procedural obligation inherent in article 2 coincide, the difficulty arose under English law that the coroners duty to seek to ascertain how the deceased came by his death was interpreted as limiting him to considering by what means the deceased died, rather than looking more widely at the circumstances in which this occurred: R v Coroner for North Humberside and Scunthorpe, Ex p Jamieson [1995] QB 1.
In Middleton, which concerned the suicide in prison of a long term prisoner, the House of Lords addressed this difficulty, by acknowledging that a broader inquiry was required under article 2, if the investigation was to ensure the proper accountability of state agents for deaths occurring under their responsibility.
Accordingly, it held, pursuant to section 3(1) of the Human Rights Act 1998, that the word how must in such a context be given the expanded meaning of in what broad circumstances, so as to give effect to the requirements to be read into article 2 of the Convention.
The House thus distinguished between a traditional Jamieson inquest and an article 2 compliant Middleton inquest.
In R (Hurst) v London Northern District Coroner [2007] UKHL 13; [2007] 2 AC 189, it was argued that Middleton had established the expanded meaning of how for all contexts, including those not engaging article 2, and that the traditional Jamieson inquest had therefore been entirely superseded.
The House categorically rejected the argument.
The question arose in Hurst was whether it would serve any useful purpose to reopen an inquest.
Lady Hale and I took the view that the distinction between the scope of investigation, (rather than verdict) possible in a Jamieson as opposed to a Middleton inquest was not as stark as we understood Lord Brown (with whom Lord Bingham agreed) to be suggesting: compare paras 19 and 23, per Lady Hale and paras 74 76, per Lord Mance, with paras 51 and 56 57, per Lord Brown.
I drew attention (para 74) to the possibility of a coroners report to a responsible person or authority under rule 43 of the Coroners Rules 1984.
Lord Rodger (to whom I must have been mistaken in referring in para 74) was at pains to stress the distinction in scope at paras 6 7, noting that on the Jamieson approach the allegations of failure by the police to heed prior warnings of hostility on the part of the deceaseds killer towards the deceased would be outside the scope of the wider enquiry that would have been required on a Middleton approach.
The potential limitations of the Jamieson approach on the scope of investigation were encapsulated by Sir Thomas Bingham MR in that case, [1995] QB 1, 23G, in a reference to rule 36 of the 1984 Rules as requiring that the proceedings and evidence shall be directed solely to ascertaining the deceaseds identity, the place and time of death and how the deceased came by his death.
The Coroners and Justice Act 2009 (not yet in force) might appear to perpetuate the distinction by underlining that it is only when necessary under article 2 that the purpose of ascertaining how, when and where the deceased came by his or her death is expanded so as to be read as including the purpose of ascertaining in what circumstances the deceased came by his or her death.
It is in these circumstances of relevance that Lord Phillips questions the extent of the distinction, and in particular whether there is any difference in practice between a Jamieson and a Middleton inquest, other than the verdict (paras 69(ii) and 78), and to note that he has on this point the support of Lord Walker (though he also agrees with Lord Rodger on this point) as well as of Lord Collins and Lord Kerr.
Lord Hope expressly (para 95) and, as I read him, Lord Rodger implicitly (paras 112 115) see a continuing distinction between the scope of investigation under a Jamieson and a Middleton inquest.
For my part, I would have wished to be able to go as far as Lord Phillips, but I do feel some difficulty about questioning whether there is in practice any real distinction at all (save in the verdict expressed), having regard to Hurst and the 2009 Act and also having regard to my relative ignorance as to the extent to which such a distinction between the two types of inquest is in fact meaningful in day to day practice (as the courts in Jamieson, Middleton and Hurst must on the face of it have thought).
However, it seems unnecessary on this appeal to pursue this aspect further.
Everyone agrees that coroners have a considerable discretion as to the scope of their enquiry, although the verdict that they may deliver differs according to the type of inquest being held.
The practical solution is no doubt for coroners to be alert to the possibility that a Middleton type verdict may be, or become, necessary, and to be ready to adapt the scope of their investigation accordingly.
In the present case, the coroner (whose verdict has been set aside on different grounds) concluded that, on the facts as he saw them in the first inquest, a traditional Jamieson type of inquest was all that was required.
Collins J and the Court of Appeal disagreed.
They concluded that a Middleton type inquest was required.
The Court of Appeals reasoning was that Private Smith was in a position analogous to that of a prisoner, a person detained on mental or other grounds or a conscript, and that a Middleton type inquest was required in respect of any death of such a person in prison or custody or while serving in the army.
The Secretary of State appeals to the Supreme Court against the Court of Appeals reasoning and conclusion.
The states procedural duty under article 2 to provide for or ensure an effective public investigation by an independent official body of certain deaths or near deaths has been developed in the case law of the European Court of Human Rights and explored in domestic case law, including that of the House of Lords in R (Amin) v Secretary of State for the Home Department [2003] UKHL 51; [2004] 1 AC 653, Middleton (above) and R (L(A Patient)) v Secretary of State for Justice [2008] UKHL 68; [2009] AC 588.
Certain categories of case in which the substantive right contained in article 2 has been held to be potentially engaged, with the result that the procedural obligation has been held to exist, are clearly recognisable: (i) Killings by state agents: McCann v United Kingdom (1995) 21 EHHR 97, para 161 (article 2 requires by implication that there should be some form of effective official investigation when individuals have been killed as a result of the use of force by, inter alios, agents of the State") and Jordan v United Kingdom (2001) 37 EHRR 52; and see Amin, paras 20 and 25, per Lord Bingham. (ii) Deaths in custody: Salman v Turkey (2000) 34 EHHR 425, esp para 99 (unexplained death in custody, because persons in custody are in a vulnerable position and the authorities are under a duty to protect them); Edwards v United Kingdom (2002) 35 EHRR 487 (violent death of a prisoner at the hands of his cell mate); Akdogdu v Turkey (Application No 46747/99), 18 October 2005, (suicide in prison); R (D) v Secretary of State for the Home Department [2005] EWHC 728 (Admin); [2006] EWCA Civ 143, considered by the House of Lords in L (a case of suicide in prison). (iii) Conscripts: lvarez Ramn v Spain (Application No 51192/99), 3 July 2001; Kilin v Turkey (Application No 40145/98),7 June 2005; Savage v South East Essex NHS Foundation Trust (MIND intervening) [2008] UKHL 74; [2009] AC 681, paras 35 37, per Lord Rodger. (iv) Mental health detainees: Savage although concerned not with any duty to investigate under article 2, but with responsibility in a claim for damages for the suicide of a mental health detainee who succeeded in absconding and committed suicide highlights the analogy between the states duties (v) towards persons in custody and persons in detention for mental health reasons as well as conscripts.
Other situations where the State has a positive substantive obligation to take steps to safeguard life.
Such situations exist not only where the right to life is inherently at risk, but also where the State is on notice of a specific threat to someones life against which protective steps could be taken: Osman v United Kingdom (1998) 29 EHRR 245; neryildiz v Turkey (2004) 41 EHRR 325 (state allegedly tolerated and, for political reasons, encouraged slum settlements close to a huge uncontrolled rubbish tip, without making any effort to inform the settlers of dangers posed by the tip, which in the event exploded, killing some 39 residents).
In neryildiz the Court said that, where lives had actually been lost in circumstances potentially engaging the responsibility of the State, the procedural aspect of article 2 entailed a further duty on the State to ensure an adequate response judicial or otherwise so that the legislative and administrative framework set up to protect the right to life is properly implemented and any breaches of that right are repressed and punished (para 91), and that the applicable principles are rather to be found in those the Court has already had occasion to develop in relation notably to the use of lethal force, principles which lend themselves to application in other categories of cases (para 93, italics added for emphasis).
The Court explained that, just as in homicide cases the true circumstances of the death often in practice were, or might be, largely confined within the knowledge of state officials or authorities, so in its view such considerations are indisputably valid in the context of dangerous activities, when lives have been lost as a result of events occurring under the responsibility of the public authorities, which are often the only entities to have sufficient relevant knowledge to identify and establish the complex phenomena that might have caused such incidents (para 93).
It added that: the requirements of article 2 go beyond the state of official investigation, where this has led to the institution of proceedings in the national courts: the proceedings as a whole, including the trial stage, must satisfy the requirements of the positive obligation to protect lives through the law (para 95).
In neryildiz itself, it was not the preliminary investigation following the tragedy that was at fault, but rather the operation of the judicial system in response to the tragedy and investigation: paras 96, 115, 117 118 and 150 155.
The procedural obligation incumbent on the state to investigate deaths which, either of their inherent nature or in their particular circumstances, involve the states potential responsibility under article 2 may be distinguished from the general substantive obligation under article 2 to establish an appropriate regulatory, investigatory and judicial system.
The distinction was drawn clearly in respect of a third party killing in Menson v United Kingdom (2003) 37 EHRR CD 220.
The Court there said: The Court observes that the applicants have not laid any blame on the authorities of the respondent State for the actual death of Michael Menson; nor has it been suggested that the authorities knew or ought to have known that Michael Menson was at risk of physical violence at the hands of third parties and failed to take appropriate measures to safeguard him against that risk.
The applicants case is therefore to be distinguished from cases involving the alleged use of lethal force either by agents of the State or by private parties with their collusion (see, for example, McCann v United Kingdom (1995) [21 EHRR 97]; Jordan v United Kingdom (2001) [37 EHRR 52]; Shanaghan v United Kingdom, (Application No 37715/97), judgment of 4 May 2001, ECHR 2001 III (extracts), or in which the factual circumstances imposed an obligation on the authorities to protect an individuals life, for example where they have assumed responsibility for his welfare (see, for example, Edwards v United Kingdom (2002) [35 EHRR 487]), or where they knew or ought to have known that his life was at risk (see, for example, Osman v United Kingdom (1998) [29 EHRR 245].
The Court went on: However, the absence of any direct state responsibility for the death of Michael Menson does not exclude the applicability of article 2.
It recalls that by requiring a State to take appropriate steps to safeguard the lives of those within its jurisdiction (see LCB v United Kingdom (1998) [27 EHRR 212], para 36), article 2 para 1 imposes a duty on that state to secure the right to life by putting in place effective criminal law provisions to deter the commission of offences against the person, backed up by law enforcement machinery for the prevention, suppression and punishment of breaches of such provisions (see Osman, cited above, para 115).
With reference to the facts of the instant case, the Court considers that this obligation requires by implication that there should be some form of effective official investigation when there is reason to believe that an individual has sustained life threatening injuries in suspicious circumstances.
The investigation must be capable of establishing the cause of the injuries and the identification of those responsible with a view to their punishment.
Where death results, as in Michael Mensons case, the investigation assumes even greater importance, having regard to the fact that the essential purpose of such an investigation is to secure the effective implementation of the domestic laws which protect the right to life (see mutatis mutandis, the Edwards judgment, above cited, para 69).
Analysis: Both the substantive and the procedural limbs of article 2 are therefore capable of giving rise to obligations of investigation on the part of state authorities, including the courts.
The present appeal concerns the circumstances in which article 2 gives rise to a particular procedural obligation on the part of the state of its own motion to initiate an effective public investigation by an independent official body following a death or near death.
This in turn depends upon whether the circumstances involve a potential breach of the substantive obligation which article 2 contains.
The questions are how general is this obligation and whether it was potentially engaged by the circumstances giving rise to Private Smiths sad death.
The present case: The Court of Appeal treated Private Smiths death as analogous to the killing or suicide of a prisoner, detainee or conscript.
It said (para 105): The question is therefore whether the principles apply to soldiers on active service in Iraq.
We conclude that they do.
They are under the control of and subject to army discipline.
They must do what the army requires them to do.
If the army sends them out into the desert they must go.
In this respect they are in the same position as a conscript.
Once they have signed up for a particular period they can no more disobey an order than a conscript can.
The army owes them the same duty of care at common law.
We recognise that they may not be quite as vulnerable as conscripts but they may well be vulnerable in much the same way, both in stressful situations caused by conflict and in stressful situations caused, as in Private Smith's case, by extreme heat.
We see no reason why they should not have the same protection as is afforded by article 2 to a conscript.
The scope of this reasoning is uncertain.
It is unclear in particular whether the Court of Appeal was suggesting that all deaths of military personnel in service require to be investigated by a Middleton type inquiry.
Certainly, it was the respondents submission before the Supreme Court that all soldiers deaths on active service must be regarded as being potentially the states responsibility, because of the degree of control in a closed system, and, therefore, as requiring full investigation by a Middleton type inquiry.
In my judgment, that submission goes too far.
Death on military service was an everyday risk in the environment of Iraq, as it is today in Afghanistan.
Military service against hostile forces in a harsh environment is a situation par excellence where soldiers lives are likely to be lost without their employing state having even potential responsibility.
I do not think that courts should subscribe to a view that all military service involves lions led by donkeys (Alan Clarks words in his 1961 work, The Donkeys: a History of the British Expeditionary Force in 1915, the inspiration for Joan Littlewoods Oh, What a Lovely War!).
That may or may not have been a fair description of Earl Haigs strategy in the First World War.
But, whatever debate may arise about the adequacy of equipment or funding for the armed forces in todays world, I do not think that it should open on an assumption that modern generals or modern ministers of defence are necessarily or even potentially in breach of their article 2 duties.
There needs to be something more than that.
The European Court of Human Rights jurisprudence summarised in para 210 above, is focused on deaths where, because of the nature or context (whether general or specific) of the death, the state can, without more, be said realistically to have some form of responsibility and in particular where it may alone have sufficient relevant knowledge to identify and establish the cause of the death or near death.
Whether it can be said that such responsibility potentially exists in other cases depends upon their particular circumstances.
The significance of a state having exclusive knowledge of the relevant events appears to be that this tends to open up a possibility of state involvement and a corresponding need for public investigation to exclude or establish that possibility.
Nothing in the case law, and nothing in principle, establishes or indicates that the duty extends to every death of every soldier on active service.
There are two particular differences between the present case and any situation previously considered.
First, the present case concerns a volunteer Territorial Army soldier, who, the Supreme Court was told, would also have volunteered to go to Iraq (before, then, being served with compulsory call up papers to protect his position, presumably in respect of such matters as employment).
I accept that a person who volunteers for active service puts himself or herself in a position where he or she is under extreme discipline, bound to obey orders in a harsh physical environment, the concomitant being that the army authorities must protect him or her against risks potentially arising from obeying such orders.
But it does not follow that every death by heatstroke engages, without more, the states potential responsibility.
Second, the case concerns death, not by killing, suicide or violence, but by heat associated with the admittedly harsh physical environment in which Private Smith was placed.
It was incumbent on the army authorities to address the risks of heat in active service in Iraq, and put adequate systems in place to meet them.
But, again, not every death by heat on active service in Iraq can or should be treated without more as involving a potential failure by the state to fulfil that responsibility or a defective system of protection, or therefore, in my view, as requiring the same level of scrutiny and investigation as a death by killing or suicide of a person in custody or a conscript.
Some further examination of the particular facts is called for, before such a conclusion.
Conclusion on issue 2
In my view, therefore, the coroners general approach was correct.
Only if there were sufficient indicia of such a failure or deficiency was it incumbent on the state of its own motion to ensure an effective public investigation by an independent official body, and incumbent therefore on the coroner to expand the inquest to become a Middleton type inquest.
The coroner in the first inquest (whose inquisition has now been set aside) concluded that there were insufficient indicia.
Death resulting from negligence by members of the armed forces in the application of an established and appropriate system of protection is not axiomatically to be equated with state responsibility for the death under article 2: see para 215 above.
But the sequence of events set out in Mrs Smiths case (paras 4 to 35), including the coroners own recommendations after giving judgment, are suggestive of systematic rather than simply operational errors and persuade me that there is here a sufficient case of state responsibility for Private Smiths death for us to be able to rule now that the fresh inquest should be of the Middleton type.
The Secretary of States agreement serves merely to confirm the appropriateness of this on the particular facts.
I would therefore answer the second issue (identified in para 200 above) affirmatively.
It also follows that I would maintain the declaration contained in para 1 of Collins Js Order dated 12 May 2008 (deleting only its final words as set out in the Courts judgment, since it is the judgments in this Court that will now be determinative).
LORD COLLINS Preliminary
The academic nature of the debate on the first issue
As the Court of Appeal recognised, the question of jurisdiction under article 1 on this appeal is academic.
After Private Smith collapsed in the stadium where he was billeted, he was taken by ambulance to the medical centre at the camp, where he died of heatstroke.
The Secretary of State conceded that the relevant circumstances leading to Private Smiths death took place within the geographical area of a British army camp and a British army hospital, and that a soldier who dies on a United Kingdom base dies within the jurisdiction of the United Kingdom for the purposes of article 1 of the Convention: [2008] 3 WLR 1284, at [7] (Collins J); [2009] 3 WLR 1099, at [8], [14] (CA).
These concessions flowed from the decision of the House of Lords in R (Al Skeini) v Secretary of State for Defence [2007] UKHL 26, [2008] AC 153 (see [6], [61], [132] for the concessions) that the Secretary of State was right to concede the correctness of the Divisional Courts reasoning that Mr Mousas death in a British military detention centre in Iraq was within the scope of the Convention because the camp was to be assimilated to exceptional cases of extraterritoriality such as embassies and consulates: [2007] QB 140, at [287] (Div Ct).
Nevertheless the Court of Appeal decided to hear argument on, and rule upon, the question whether a British soldier in the Territorial Army, who is on military service in Iraq, is subject to the jurisdiction of the United Kingdom within the meaning of article 1 of the Convention, so as to benefit from the rights guaranteed by the Human Rights Act 1998, while operating in Iraq, or whether he is only subject to the jurisdiction for those purposes when he is on a British military base or in a British hospital.
The reason why the Court of Appeal took this course is that Collins J had decided the broader question, and because both the Secretary of State and the Equality and Human Rights Commission had characterised the question as being of great general significance or importance.
The question is plainly one of importance, but it is unfortunate that it has been decided in the courts below, and will be decided in this court, in a case in which the point does not arise for decision and in which it is conceded to be academic.
There is an obvious danger in giving what are in substance advisory opinions on hypothetical facts divorced from any concrete factual situation: see R (Weaver) v London and Quadrant Housing Trust (Equality and Human Rights Commission intervening) [2009] EWCA Civ 587, [2010] 1 WLR 363, at [90].
That is particularly so in the present case.
In some of the cases on article 1 the Strasbourg court has considered relevant the degree of control or authority exercised by the respondent state in the foreign territory and the existence of the consent of the territorial state to the exercise of authority by the respondent state: see eg Loizidou v Turkey (Preliminary Objections) (1995) 20 EHRR 99, at [62]; Bankovi v Belgium (2001) 11 BHRC 435, at [60], [71]; calan v Turkey (2003) 37 EHRR 238, at [93]; (2005) 41 EHRR 985, at [91]; Issa v Turkey (2004) 41 EHRR 567, at [69]; Al Saadoon and Mufdhi v United Kingdom (admissibility) (2009) 49 EHRR SE 95, at [85].
The degree of authority and control exercised by United Kingdom forces in Iraq, and the legal authority under which they operated, have varied from time to time over a lengthy period which is still continuing.
The invasion of Iraq by coalition forces led by the United States of America (with a substantial force from the United Kingdom and smaller contingents from Australia and Poland) began on 20 March 2003.
Major combat operations ceased at the beginning of May 2003.
Private Smith was in Iraq from 18 June 2003 and died on 13 August 2003.
It was accepted by the Secretary of State that between 1 May 2003 and 28 June 2004 (when the occupation formally ended) the United Kingdom was an occupying power for the purposes of the Hague Regulations on the Laws and Customs of War on Land, 1949, and the Fourth Geneva Convention on the Protection of Civilians in Time of War, 1949, in those areas of Southern Iraq where British troops exercised sufficient authority.
On the relationship between international human rights law and international humanitarian law (such as the Geneva Conventions) contrast Dennis, Application of Human Rights Treaties Extraterritorially in Times of Armed Conflict and Military Occupation (2005) 99 AJIL 119, 141 with Roberts, Transformative Military Occupation: Applying the Laws of War and Human Rights (2006) 100 AJIL 580, 594.
The Coalition Provisional Authority (CPA) was established on 16 April 2003 by the United States Government as a caretaker administration until an Iraqi government could be established.
On 13 May 2003 the United States Secretary for Defense appointed Ambassador Paul Bremer as Administrator of the CPA with responsibility for the temporary governance of Iraq.
The CPA administration was divided into regional areas.
CPA South remained under United Kingdom responsibility and control.
It covered the southernmost four of Iraq's eighteen provinces, and United Kingdom troops were deployed in the area.
The CPA was not a subordinate organ or authority of the United Kingdom.
The United Kingdom was represented at CPA headquarters through the office of the United Kingdom Special Representative, who had no formal decision making power within the CPA.
All the CPAs administrative and legislative decisions were taken by Ambassador Bremer.
By CPA Order No 17, issued in June 2003, all coalition personnel were expressed to be subject to the exclusive jurisdiction of their Sending States (section 2(3)) and immune from legal process and arrest or detention (section 2(1), (3)), and coalition facilities were to be inviolable (section 9(1)): While any areas on which such headquarters, camps or other premises are located remain Iraqi territory, they shall be inviolable and subject to the exclusive control and authority of the MNF, including with respect to entry and exit of all personnel.
The MNF shall be guaranteed unimpeded access to such MNF premises.
Where MNF Personnel are co located with military personnel of Iraq, permanent, direct and immediate access for the MNF to those premises shall be guaranteed.
On 22 May 2003 the UN Security Council adopted Resolution 1483 under Chapter VII of the UN Charter.
The Security Council re affirmed the sovereignty and territorial integrity of Iraq and recognised the specific authorities, responsibilities, and obligations under applicable international law of [the United States and the United Kingdom] as occupying powers under unified command.
The Resolution supported the formation of an Iraqi interim administration as a transitional administration run by Iraqis until an internationally recognised, responsible government was established to assume the responsibilities of the CPA (article 9).
In July 2003 the Governing Council of Iraq was established, which the CPA was to consult on all matters concerning the temporary governance of Iraq.
UN Security Council Resolution 1500 (2003) of 14 August 2003 welcomed the establishment of the Governing Council of Iraq, and Resolution 1511 (2003) of 16 October 2003 determined that the Governing Council of Iraq and its ministers were the principal bodies of the Iraqi interim administration which embodied the sovereignty of the State of Iraq during the transitional period until an internationally recognised, representative government was established and assumed the responsibilities of the CPA; called upon the CPA to return governing responsibilities and authorities to the people of Iraq as soon as practicable; and invited the Governing Council of Iraq to produce a timetable and programme for the drafting of a new constitution for Iraq and for the holding of democratic elections under that constitution.
It authorised the coalition to take all necessary measures to contribute to the maintenance of security and stability in Iraq and provided that the requirements and mission of the coalition would be reviewed within one year of the date of the Resolution and that in any case the mandate of the coalition was to expire upon the completion of the political process to which the resolution referred.
On 8 March 2004 the Governing Council of Iraq promulgated the Law of Administration for the State of Iraq for the Transitional Period, which provided a temporary legal framework for the administration of Iraq for the transitional period which was due to commence by 30 June 2004 with the establishment of an interim Iraqi government.
Security Council Resolution 1546 (2004) was adopted on 8 June 2004.
It endorsed the formation of a sovereign Interim Government of Iraq to assume full responsibility and authority by 30 June 2004 for governing Iraq, and welcomed that, also by 30 June 2004, the occupation will end and [the CPA] will cease to exist, and that Iraq will reassert its full sovereignty (article 2).
It noted that the presence of the coalition force was at the request of the incoming Interim Government (as set out in correspondence between the Iraqi Prime Minister and the United States Secretary of State annexed to the resolution) and reaffirmed the authorisation for the force to remain in Iraq, with authority to take all necessary measures to contribute to the maintenance of security and stability there.
Provision was again made for the mandate to be reviewed within 12 months and to expire upon completion of the political process previously referred to.
On 28 June 2004 the occupation came to an end when full authority was transferred from the CPA to the Interim Government and the CPA ceased to exist.
Subsequently the coalition forces, including the United Kingdom force, remained in Iraq pursuant to the request and consent of the Iraqi Government and authorisations from the Security Council.
All of the relevant Security Council resolutions from 1483 (2003) onwards reaffirmed the sovereignty of Iraq.
Consequently the legal position of the United Kingdom forces has changed over the period since the invasion.
Between March 2003 and June 2004 the United Kingdom was a belligerent occupant.
The effective government of Iraq from April 2003 until June 2004 was the CPA, together with (from July 2003) the Governing Council of Iraq.
From June 2004 the United Kingdom forces have been present at the request of, and with the consent of, the Iraqi Government.
The consequence of the way in which these proceedings have been dealt with is that the court is being asked to determine whether the article 2 obligation existed in relation to a British soldier who died in Iraq in August 2003, when the United Kingdom forces were belligerent occupants in part of Iraq with a very small force.
In 2003, in the area of Southern Iraq for which the United Kingdom had responsibility there were about 8,000 British troops for a population of 2,760,000: R (Al Skeini) v Secretary of State for Defence [2004] EWHC 2911 (Admin), [2007] QB 140, at [42] (Div Ct).
The United Kingdom was not in effective control of Basra and surrounding areas: [2007] UKHL 26, [2008] AC 153, [83], per Lord Rodger, approving Brooke LJ [2005] EWCA Civ 1609, [2007] QB 140, [124] (CA).
The Court of Appeal recognised in the present case that at the time of Private Smiths death the army was neither in effective control of Iraqi territory nor acting through the consent, invitation or acquiescence of the local sovereign or its government: [2009] 3 WLR 1099 [37] [38].
The case for Mrs Smith and for the Equality and Human Rights Commission on Private Smith was not put on the basis of Private Smith having been on territory under the control of the United Kingdom, or of the army as a State agent.
Their case was that Private Smith was subject to the jurisdiction of the United Kingdom as a member of the armed forces.
But the question whether the elements of authority and control by the United Kingdom and/or consent of the territorial sovereign are relevant cannot be avoided, and it is regrettable that the issues fall to be decided either without any relevant factual background, or on the hypothesis that the death occurred (as Private Smiths death did) in 2003, when United Kingdom forces were not in effective control, and when they were there as belligerent occupants without the consent of the territorial sovereign, and that the only issue is whether jurisdiction over armed forces is sufficient for article 1 purposes.
R (Gentle) v Prime Minister
The next preliminary matter is that the first question raised on this appeal has already been the subject of a decision of the House of Lords.
In R (Gentle) v Prime Minister [2008] UKHL 20, [2008] AC 1356, the appellants submitted that all British servicemen on active service overseas fall within the article 1 jurisdiction of the United Kingdom.
The appellants specifically relied upon the fact that the soldiers were United Kingdom nationals under the command and control of the United Kingdom and that they were under the authority of British law when in Iraq.
The argument was firmly rejected by Lord Bingham, who said at [8(3)]: Here the deaths of Fusilier Gentle and Trooper Clarke occurred in Iraq and although they were subject to the authority of the defendants they were clearly not within the jurisdiction of the UK as that expression in the Convention has been interpreted [citing Al Skeini [79] and [129]].
Lady Hale took a different view ([60]), and Lord Carswell left the point open ([66]), but Lords Hoffmann ([16]), Hope ([28]), Scott ([29]), Rodger ([45]), Brown ([71]) (but perhaps with a reservation at [70]) and Mance ([74]) agreed generally with Lord Binghams opinion.
It would be a sterile exercise to consider whether this holding was part of the ratio, since on any view this important question was not subject to extensive argument, and it would be wrong for this court to dispose of the matter simply on the basis that the issue was covered by precedent.
But it has to be said that the views of Lord Bingham in this area (as in many others) are entitled to the greatest possible respect.
The application of the Convention and the meaning of jurisdiction
The problem presented on this appeal is not a problem unique to the application of modern human rights instruments.
In the United States there are many decisions on the application of constitutional rights to United States citizens and aliens abroad.
See (among many others) Henkin, The Constitution as Compact and as Conscience: Individual Rights Abroad and at our Gates, 27 Wm & Mary L Rev 11, 17 24 (1985); Lowenfeld, US Law Enforcement Abroad: The Constitution and International Law 83 AJIL 880 (1989) and 84 AJIL 444 (1990); Brilmayer and Norchi, Federal Extraterrioriality and Fifth Amendment Due Process, 105 Harv L Rev 1217 (1992).
The trend in the United States is to extend the protection of the Constitution to United States citizens abroad (but not, generally, aliens) whose rights are violated by United States authorities.
It has been said that when the Government reaches out to punish a citizen who is abroad, the shield which the Bill of Rights and other parts of the Constitution provide to protect his life and liberty should not be stripped away just because he happens to be in another land: Reid v Covert, 354 US 1, 6 (1957), per Black J, for a plurality of four justices (military court tried and convicted the wife of a US air force sergeant for the murder of her husband at an air base in England: entitled to a jury trial as required by the Sixth Amendment).
Thus in relation to the Iraq conflict, United States citizens have been held entitled to make constitutional claims arising out of detention or alleged torture by US military officials: Kar v Rumsfeld, 580 F Supp 2d 80 (DDC 2008); Vance v Rumsfeld, 5 March 2010, WL 850173 (ND Ill 2010) (American citizens do not forfeit their core constitutional rights when they leave the United States, even when their destination is a foreign war zone[T]he right of American citizens to be free from torture is a well established part of our constitutional fabric.) But as the court said in the latter case, the cases establish the importance of citizenship in circumstances in which federal agents outside the United States carry out constitutional violations (at 13).
The position is different where non citizens are involved.
In United States v Verdugo Urquidez, 494 US 259 (1990) it was held that the Fourth Amendment did not apply to the joint search by Mexican and United States authorities of a Mexican suspects home in Mexico while he was in custody in the United States.
This is because the people means the American people.
Rehnquist CJ said that aliens should not have extra territorial Fourth Amendment rights, because grave uncertainties would be created for the US employment of armed forces abroad: at 273.
See also Rasul v Myers, 563 F 3d 527, 532 (DC Cir 2009) (British citizens detained at Guantanamo Bay); Re Iraq and Afghanistan Detainees Litigation, 479 F Supp 2d 85, 108 (DDC 2007) (alleged torture of Afghani and Iraqi citizens); Arar v Ashcroft, 585 F 3d 559 (2d Cir 2009) (no action against government officials allegedly responsible for aliens extraordinary rendition to Syria).
But the application of constitutional protection to activities abroad does not mean that the conduct of military operations is justiciable.
In the United States the conduct of military operations is so exclusively entrusted to the political branches of government as to be largely immune from judicial inquiry or interference: Harisiades v Shaughnessy, 342 US 580, 589 (1952).
See Arar v Ashcroft, 585 F 3d 559, 590 (2d Cir 2009)
On this appeal the question arises in the context of the meaning and application of the expression within their jurisdiction.
The expression jurisdiction is used in many senses in international law.
The doctrine of jurisdiction in international law has given rise to an enormous literature, of which it is useful to mention, in particular, Mann, The Doctrine of Jurisdiction in International Law, in Studies in International Law (1973), p 1; Oppenheim, International Law, 8th ed Sir Hersch Lauterpacht, 1955, pp 235 et seq; Akehurst, Jurisdiction in International Law (1972 73) 46 BYIL 145; Meessen, Extraterritorial Jurisdiction in International Law (1996); Higgins, Themes and Theories: Selected Essays, Speeches and Writings in International Law, 2009, Vol 2, pp 799 et seq.
Not every use of the expression jurisdiction in international law is co terminous with that in article 1.
For example, a state may exercise jurisdiction over its nationals abroad in the sense that it may prescribe rules of law in relation to its nationals abroad: Restatement (Third), Foreign Relations Law of the United States, 1987, section 402; Oppenheim, International Law, 9th ed Jennings and Watts, 1992, vol 1, para 138; Higgins, ante, vol 2, p 802.
But that does not mean that all United Kingdom nationals wherever they may be are within the jurisdiction of the United Kingdom for the purposes of article 1.
Armed forces of the United Kingdom serving abroad are subject to military law and discipline, they owe allegiance to the Crown, and where they are stationed abroad with the consent of the local sovereign, the arrangements with that sovereign will normally provide for immunity (at least in certain respects) from the civil and criminal jurisdiction of the host state: for the immunity of United States armed forces in the United Kingdom see Littrell v United States of America (No 2) [1995] 1 WLR 82 (CA); Holland v Lampen Wolfe [2000] 1 WLR 1573 (HL).
In that sense there can be no doubt that armed forces serving abroad are subject to the jurisdiction of the United Kingdom, or as Lord Bingham put it in R (Gentle) v Prime Minister [2008] UKHL 20, [2008] AC 1356, [8(3)], subject to the authority of the United Kingdom.
The international practice is confirmed by CPA Order No 17, under which all coalition personnel were expressed to be subject to the exclusive jurisdiction of their Sending States(section 2(3)) and immune from legal process and arrest or detention (section 2(1), (3)).
Nor is there any doubt that members of the armed forces have, apart from the Convention, rights to enforce the Crowns duties to them: Mulcahy v Ministry of Defence [1996] QB 732 (subject to a possible exception for active operations: Shaw Savill and Albion Co Ltd v Commonwealth (1940) 66 CLR 344 and cf Burmah Oil Co Ltd v Lord Advocate [1965] AC 75).
The Crown Proceedings Act 1947, section 10 excluded armed forces from the benefit of remedies against the Crown, but its operation was suspended by the Crown Proceedings (Armed Forces) Act 1987, section 2 of which gave the Secretary of State for Defence the power (which has not yet been exercised) to revive section 10 of the 1947 Act.
What is jurisdiction in international law? According to Oppenheim, International Law, 9th ed Jennings and Watts, 1992, vol 1, p 456: State jurisdiction concerns essentially the extent of each states right to regulate conduct or the consequences of events.
In practice jurisdiction is not a single concept.
A states jurisdiction may take various forms.
Thus a state may regulate conduct by legislation; or it may, through its courts, regulate those differences which come before them, whether arising out of the civil or criminal law; or it may regulate conduct by taking executive or administrative action which impinges more directly on the course of events, as by enforcing its laws or the decisions of its courts.
The extent of the states jurisdiction may differ in each of these contexts.
The Restatement (Third), Foreign Relations Law of the United States (1987) vol 1, p 230, uses jurisdiction to mean the authority of states to prescribe their law, to subject persons and things to adjudication in their courts and other tribunals, and to enforce their law, both judicially and non judicially.
These different aspects of jurisdiction are sometimes said to be curial or judicial jurisdiction, legislative jurisdiction, and enforcement jurisdiction.
Curial jurisdiction is essentially concerned with the ability of courts to exercise jurisdiction in civil matters over foreigners.
Legislative jurisdiction is about the ability of states to use their own laws to regulate or punish acts in foreign countries.
The question in international law is whether states have a legitimate interest in, or sufficient connection with, acts committed abroad so as to justify the application of their laws to them.
In the famous Lotus case (France v Turkey), (1927) PCIJ, Series A, No.10, p 4, the Permanent Court of International Justice said (at 19): Far from laying down a general prohibition to the effect that states may not extend the application of their laws . to persons, property and acts outside their territory, it leaves them in this respect a wide measure of discretion which is only limited in certain cases by
prohibitive rules
International controversies over the extra territorial application of criminal or penal laws, such as anti trust or securities laws, are about the limits of legislative jurisdiction: see Morrison v National Australia Bank Ltd, United States Supreme Court, June 24, 2010.
That is no doubt why, as will appear below, the Strasbourg court referred in Bankovi v Belgium (2001) 11 BHRC 435, [59], in the context of the words within their jurisdiction in article 1 of the Convention to the bases of jurisdiction to prescribe criminal offences for conduct abroad.
As for enforcement jurisdiction, in the Lotus case (France v Turkey), the Permanent Court said (at 18 19): Now the first and foremost restriction imposed by international law upon a state is that failing the existence of a permissive rule to the contrary it may not exercise its power in any form in the territory of another state.
In this sense jurisdiction is certainly territorial; it cannot be exercised by a state outside its territory except by virtue of a permissive rule derived from international custom or from a convention.
That is a statement about enforcement jurisdiction, namely the limits of the right of a state to act on the territory of another state or to take measures on its own territory which require compliance in another state.
Thus a state cannot, without the consent of the territorial sovereign, perform official acts in a foreign state or carry out official investigations in the foreign state.
The inability of a foreign state to claim, directly or indirectly, its taxes in England is sometimes put on the basis that it is an illegitimate extension of its territorial jurisdiction: see Government of India v Taylor [1955] AC 491.
The issue on this part of the appeal
On this part of the appeal the issue is whether the undoubted jurisdiction which states has over their armed forces abroad means that their soldiers are within their jurisdiction for the purposes of article 1 of the Convention.
The obvious starting point is that the operation of the Convention is territorial, and that its extra territorial application is exceptional.
The Strasbourg court has recognised few exceptions, and it is not easy to extract a common principled basis for them.
The main questions which arise are (1) whether armed forces can be brought within article 1 simply on the basis that in international law they are subject to the jurisdiction of the state which they serve; or (2) whether they are within article 1 because of the authority and control which the state exercises over them; (3) whether they are within article 1 because there is a jurisdictional link between them and the state.
In order that these questions may be considered it is necessary to consider Bankovi v Belgium (2001) 11 BHRC 435 and its antecedents, and some of the subsequent Strasbourg cases considered in Al Skeini, and finally cases decided in Strasbourg after Al Skeini.
Early cases
At the risk of repeating some of what has been said in other cases about the antecedents of Bankovi v Belgium (2001) 11 BHRC 435, it is important to consider what was decided by the Strasbourg court in Bankovi in December 2001 against the background of decisions of the Commission and the Court on the scope of jurisdiction under article 1 stretching over 35 years.
In Soering v United Kingdom (1989) 11 EHRR 439, at [86], the Court, in plenary session, had referred to the limit on the reach of the Convention under article 1 as being notably territorial.
One line of decisions suggested that a state would be responsible for acts of its officials (especially diplomatic and consular officials) performed abroad in performance of their duties to nationals: X v Germany (1965) 8 Yb ECHR 158 (Commission).
Similar statements in Cyprus v Turkey (1975) 2 DR 125, at [8] and Hess v United Kingdom (1975) 2 DR 72 fall within this category also, and are not based, as they could have been (and, in the case of Cyprus, later were), on control of territory in Northern Cyprus in the former decision, or on Spandau prison being an extension of the territory of the occupying powers.
It is likely that the emphasis on diplomats and consuls in the early decisions reflected the fiction of the extra territoriality of diplomatic premises.
There is, however, no actual decision (as distinct from dicta) either of the Commission or of the Court which assimilates diplomatic or consular premises to the territory of the sending state.
So also Cyprus v Turkey (1975) 2 DR 125, at [8] assumed an extended notion of territoriality in relation to ships and aircraft registered in a Convention state.
Another line of Commission decisions expressed the thought that the expression within their jurisdiction was not equivalent to or limited to the national territory of the contracting state concerned, and extended to all persons under their actual authority and responsibility, whether that authority is exercised within their own territory or abroad : Cyprus v Turkey (1975) 2 DR 125, at [8].
See also X & Y v Switzerland (1977) 2 DR 57; M v Denmark (1992) 73 DR 193.
These strands, acts by officials affecting persons, or officials exercising authority over persons, were brought together in X v United Kingdom, (Application No 7547/76) (1977) 12 DR 73.
This was a child abduction case in which a Jordanian married to a British woman took their daughter to Jordan.
The complaint was that the British consulate in Amman had not done enough to obtain the custody of her daughter following a custody order by the English court.
The Commission was satisfied that the consular authorities had done all that could be reasonably expected of them.
The Commission said, on jurisdiction, that it was clear from the constant jurisprudence of the Commission that authorised agents of a state, including diplomatic or consular agents, brought other persons or property within the jurisdiction of that state to the extent that they exercised authority over such persons or property.
Insofar as they affected such persons or property by their acts or omissions, the responsibility of the state was engaged.
Therefore even though the alleged failure of the consular authorities to do all in their power to help the applicant occurred outside the territory of the United Kingdom, it was still within [the] jurisdiction within the meaning of article 1.
It should be noted that this formulation by the Commission is inconsistent with the text of article 1, which is about persons within the jurisdiction, and not about acts or omissions within the jurisdiction.
The decision of the Court in plenary session in Drozd and Janousek v France and Spain (1992) 14 EHRR 745 must be read against the background of the previous cases.
French and Spanish judges acted as judges in Andorra which was ruled by two co princes, the President of the French Republic and the Bishop of Urgel (in Spain).
The applicants were Spanish and Czech citizens, who had been convicted of armed robbery and complained that they had not had a fair trial.
The Court agreed with the respondent states that the judges did not sit in their capacity as French or Spanish judges, and their judgments were not subject to supervision by the authorities of France or Spain.
It does not seem to have been disputed by France and Spain that, if the judges had sat in their capacity as French or Spanish judges, the jurisdictional test of article 1 would have been satisfied.
The way in which the Court put it was that France and Spain would be responsible because of acts of their authorities producing effects outside their own territory. (at [91], citing most of the cases mentioned above).
See also Loizidou v Turkey (Preliminary Objections) (1995) 20 EHRR 99, at [62].
The final strand in the authorities prior to Bankovi is represented by the notion that effective control of territory abroad is equivalent to jurisdiction over that territory.
In Loizidou v Turkey (Preliminary Objections) (1995) 20 EHRR 99, the Court (reflecting Cyprus v Turkey (1975) 2 DR 125, at [8]) held (at [62]) that the responsibility of a Contracting Party may also arise when as a consequence of military action whether lawful or unlawful it exercises effective control of an area outside its national territory.
The obligation to secure, in such an area, the rights and freedoms set out in the Convention, derives from the fact of such control whether it be exercised directly, through its armed forces, or through a subordinate local administration.
The concept of control is also taken up in other Northern Cyprus cases: e.g. Loizidou v Turkey (Merits) (1996) 23 EHRR 513, at [52]; Cyprus v Turkey (2001) 35 EHRR 731, at [77].
Prior to Bankovi, the Court had also declared admissible complaints against Turkey (a) arising out of operations of its armed forces in Northern Iraq which were alleged to have resulted in violations of the Convention, including the death and torture of some villagers (Issa v Turkey, Application No 31821/96, 30 May 2000, unreported); and (b) arising out of the arrest by Turkish security officers of the applicant, the leader of the PKK, at Nairobi airport with the consent of the Kenyan authorities, and his subsequent removal to, and trial in Turkey (calan v Turkey, (Application No 46221/99), 14 December 2000, unreported).
In neither of these admissibility decisions was there any discussion of jurisdiction under article 1.
Bankovi v Belgium
The concessions by the respondent states
The prior decisions go some way to explaining why the respondent states made a number of concessions in Bankovi, not all of which found their way into the reasoning of the Court.
They accepted that (a) the exercise of jurisdiction involved the assertion or exercise of legal authority, actual or purported, over persons owing some form of allegiance to the state or who had been brought within that states control, and that the term jurisdiction generally entailed some form of structured relationship normally existing over a period of time (judgment of the Court at [36]); (b) the Court had applied that notion of jurisdiction to confirm that individuals affected by acts of a state outside its territory could be considered to fall within its jurisdiction because there was an exercise of some form of legal authority by the state over them (at [37]); (c) the arrest and detention of the applicants in Issa v Turkey and calan v Turkey constituted a classic exercise of such legal authority or jurisdiction over those persons by military forces on foreign soil (ibid).
The issue
The issue in Bankovi, stated in para [54] of the decision of the Grand Chamber by reference to the decisions in Drozd and the cases involving Northern Cyprus, was whether the fact that the acts of the respondent states were performed or had effects outside the territory of the contracting states meant that the applicants were capable of falling within the jurisdiction of the respondent states.
The concept of jurisdiction in the Courts decision
For present purposes, the relevant points which emerge from Bankovi are these: (1) the jurisdictional competence of a state is primarily territorial; (2) international law does not exclude a states exercise of jurisdiction extra territorially, but the bases of such jurisdiction (including nationality, flag, diplomatic and consular relations, effect, protection, passive personality and universality) are as a general rule defined and limited by the sovereign territorial rights of other states; (3) the competence of a state to exercise jurisdiction over its own nationals abroad is subordinate to the territorial competence of that state and other states; (4) a state may not exercise jurisdiction on the territory of another without the consent of the latter unless it is an occupying state, in which case it may exercise jurisdiction in certain respects; (5) article 1 of the Convention reflects the ordinary and essentially territorial notion of jurisdiction; (6) other bases of jurisdiction are exceptional and require special justification in the particular circumstances of each case; (7) article 1 is not to be treated as part of the living instruments provisions, and the travaux confirmed the ordinary meaning of article 1.
It should be noted that the Court nowhere explains what it understands by the expression jurisdiction in the context of article 1.
The reference in para [59] to extraterritorial jurisdiction as including nationality, flag, diplomatic and consular relations, effect, protection, passive personality and universality is a mixture of two entirely different concepts of extra territoriality.
The first (nationality, flag, diplomatic and consular relations) reflects the fiction of the extra territoriality of ships and aircraft and diplomatic and consular premises.
The second (effect, protection, passive personality and universality) represents the generally accepted exceptions to the territorial nature of criminal jurisdiction, that is, the exceptions to the principle that a state cannot use its criminal courts to punish persons for acts committed abroad.
The first aspect can be illustrated by the way it is put in the last edition of Oppenheim edited by Sir Hersch Lauterpacht, 8th ed (1955), pp 461, 793): In contradistinction to these real parts of State territory there are some things that are either in every respect or for some purposes treated as though they were territorial parts of a State.
They are fictional and in a sense only parts of the territory.
Thus men of war and other public vessels on the high seas as well as in foreign territorial waters are essentially in every point treated as though they were floating parts of their home State.
The premises in which foreign diplomatic envoys have their official residence are in many respects treated as though they were parts of the home States of the envoys concerned.
Again merchantmen on the high seas are in certain respects treated as though they were floating parts of the territory of the State under whose flag they legitimately sail.
Extraterritoriality, in this as in every other case, is a fiction only, for diplomatic envoys are in reality not without, but within, the territories of the receiving States.
The term extraterritoriality is nevertheless valuable because it demonstrates clearly the fact that envoys must, in most respects, be treated as though they were not within the territory of the receiving States.
The so called extraterritoriality of envoys takes practical form in a body of privileges which must be severally discussed.
The second aspect of jurisdiction, reflected in the Courts reference to effect, protection, passive personality and universality is that which has much exercised international lawyers (but which has nothing to do with the issue under article 1), namely the extent to which states can exercise criminal jurisdiction in respect of acts committed outside their national territory.
In the Lotus case the Permanent Court said (at 20): Though it is true that in all systems of law the principle of the territorial character of criminal law is fundamental, it is equally true that all or nearly all these systems of law extend their action to offences committed outside the territory of the State which adopts them, and they do so in ways which vary from State to State.
The territoriality of criminal law, therefore, is not an absolute principle of international law and by no means coincides with territorial sovereignty.
Consequently it is well accepted that there are well established exceptions to the territorial principle, and they are reflected in the reference in Bankovi at [59] to effect (normally referred to as effects), protection, passive personality and universality.
The exceptions normally articulated are these: first, the nationality principle by which a state has jurisdiction over crimes committed by its nationals abroad; second, the so called protective principle under which states claim jurisdiction over acts committed by aliens abroad which threaten the state; third, the passive personality basis of jurisdiction under which a state may exercise jurisdiction over crimes committed abroad by aliens if the victim is a national of the state claiming jurisdiction; fourth, the controversial effects doctrine where jurisdiction is taken over an offence which is committed abroad, but which has economic effects in the forum state (such as violations of anti trust laws or securities laws), and which is sometimes said to be an aspect of the so called objective territorial principle, jurisdiction over an offence committed outside the state but concluded or consummated within the territory; fifth, the principle of universal jurisdiction, the oldest example being jurisdiction to try pirates, and now frequently invoked in relation to jurisdiction over war crimes.
See Jennings, Extraterritorial Jurisdiction and United States Anti Trust Laws (1957) 32 BYIL 146.
It has to be said that neither Bankovi nor a case such as the present has anything to do with extra territorial jurisdiction in these two senses.
The question here is whether armed forces serving abroad are within the jurisdiction of the contracting states in a quite different sense, namely whether the fact that they are subject to the military law and discipline of the United Kingdom, and generally not subject to the local law, results in their being within the jurisdiction of the United Kingdom for article 1 purposes.
The exceptional cases
The Court went out of its way in Bankovi to emphasise the exceptional nature of the cases in which a state could be responsible for acts or omissions outside its national territory.
First, it expressed the view that article 1 of the Convention must be considered to reflect [the] ordinary and essentially territorial notion of jurisdiction, other bases of jurisdiction being exceptional and requiring special justification in the particular circumstances of each case (at [61]).
Second, it said (at [67]): In keeping with the essentially territorial notion of jurisdiction, the Court has accepted only in exceptional cases that acts of the contracting states performed, or producing effects, outside their territories can constitute an exercise of jurisdiction by them within the meaning of article 1 of the Convention.
Third, it emphasised (at [71]): In sum, the case law of the Court demonstrates that its recognition of the exercise of extra territorial jurisdiction by a contracting state is
exceptional
The Courts treatment of the exceptional cases where acts of contracting states performed, or producing effects, outside their territories could constitute an exercise of jurisdiction within the meaning of article 1 may be summarised in this way.
The Soering v United Kingdom line of cases is not concerned with the extra territorial exercise of jurisdiction, because liability is incurred in such cases by the action of a state concerning a person while he or she was on its territory and clearly within its jurisdiction: [68].
The exceptions which the Court recognises are these.
First, the responsibility of contracting states could in principle be engaged because of acts of their authorities which produced effects or were performed outside their own territory, at [69], citing the Drozd case.
Second, the responsibility of a contracting state is capable of being engaged when as a consequence of military action (lawful or unlawful) it exercises effective control of an area outside its national territory as a consequence of military operation or through the consent, invitation or acquiescence of the Government of that territory, and exercises all or some of the public powers normally to be exercised by that Government: at [70], citing Loizidou v Turkey (Preliminary Objections) and Cyprus v Turkey (2001) 35 EHRR 731.
These cases were explained on this basis that the respondent state, through the effective control of the relevant territory and its inhabitants abroad as a consequence of military occupation or through the consent, invitation or acquiescence of the Government of that territory, exercises all or some of the public powers normally to be exercised by that Government (at [71]).
Third (reflecting the fictional extra territoriality of diplomatic and consular premises and of ships and aircraft) other recognised instances of the extra territorial exercise of jurisdiction by a state include cases involving the activities of its diplomatic or consular agents abroad and on board craft and vessels registered in, or flying the flag of, that state and in these specific situations, customary international law and treaty provisions have recognised the extra territorial exercise of jurisdiction by the relevant state (at [73]).
In applying these principles to the facts the Court rejected the suggestion that anyone adversely affected by an act imputable to a contracting state, wherever in the world that act may have been committed or its consequences felt, was thereby brought within the jurisdiction of that state for the purpose of article 1 of the Convention.
The applicants had accepted that jurisdiction, and any consequent state Convention responsibility, would be limited in the circumstances to the commission and consequences of that particular act.
But the Court was of the view that the wording of article 1 [did] not provide any support for the applicants suggestion that the positive obligation in article 1 to secure the rights and freedoms defined in Section I of this Convention can be divided and tailored in accordance with the particular circumstances of the extra territorial act in question (at [75]).
In answer to the argument that failure to recognise the claim of the applicants would leave a vacuum in the Convention system, the Court said (at [80]): The Courts obligation, in this respect, is to have regard to the special character of the Convention as a constitutional instrument of European public order for the protection of individual human beings and its role, as set out in article 19 of the Convention, is to ensure the observance of the engagements undertaken by the Contracting Parties It is therefore difficult to contend that a failure to accept the extra territorial jurisdiction of the respondent States would fall foul of the Conventions ordre public objective, which itself underlines the essentially regional vocation of the Convention system In short, the Convention is a multi lateral treaty operating, subject to article 56 of the Convention, in an essentially regional context and notably in the legal space (espace juridique) of the Contracting States.
The Convention was not designed to be applied throughout the world, even in respect of the conduct of Contracting States.
Accordingly, the desirability of avoiding a gap or vacuum in human rights protection has so far been relied on by the Court in favour of establishing jurisdiction only when the territory in question was one that, but for the specific circumstances, would normally be covered by the Convention.[Emphasis in original text].
The Court said (at [80]) that Cyprus v Turkey (2001) 35 EHRR 731 related to an entirely different situation: the inhabitants of northern Cyprus would have found themselves excluded from the benefits of the Convention safeguards and system which they had previously enjoyed, by Turkeys effective control of the territory and by the accompanying inability of the Cypriot Government, as a contracting state, to fulfil the obligations it had undertaken under the Convention.
The Court did not deal expressly with the applicability of the exception it had identified by reference to Drozd, namely that the responsibility of contracting states could in principle be engaged because of acts of their authorities which produced effects or were performed outside their own territory.
But it did deal with the applicants reliance on the admissibility decisions in Issa v Turkey and calan v Turkey.
In each of those cases the Court had held admissible complaints relating to Turkeys conduct in non contracting states, Iraq in the former case and Kenya in the latter case.
All that the Court said about those cases was this (at [81]): It is true that the Court has declared both of these cases admissible and that they include certain complaints about alleged actions by Turkish agents outside Turkish territory.
However, in neither of those cases was the issue of jurisdiction raised by the respondent Government or addressed in the admissibility decisions and in any event the merits of those cases remain to be decided.
The conclusion of the Court (at [82]) was that there was no jurisdictional link between the persons who were victims of the act complained of and the respondent states.
The subsequent decisions
The exceptional nature of any liability for extra territorial acts or omissions articulated in Bankovi has been repeatedly quoted or re stated by the Court: calan v Turkey (2003) 37 EHRR 238, at [93]; Assanidze v Georgia (2004) 39 EHRR 653, at [137]; Ilacu v Moldova and Russia (2005) 40 EHRR 1030, at [314]; Issa v Turkey (2004) 41 EHRR 567, at [68]; Al Saadoon and Mufdhi v United Kingdom (admissibility) (2009) 49 EHRR SE 95, at [85]; Stephens v Malta (No 1)(2009) 50 EHRR 144, at [49]; Medvedyev v France, Grand Chamber, 29 March 2010, at [64].
In particular the concept of jurisdiction based on effective control has been applied in Assanidze v Georgia and Ilacu v Moldova and Russia, ante.
The decisions subsequent to Bankovi in Strasbourg up to the time of Al Skeini were fully discussed by the Divisional Court, the Court of Appeal, and the House of Lords, and it is not necessary to go over the same ground.
It is useful only to consider the relevance of the decisions in calan v Turkey (2003) 37 EHRR 238; (2005) 41 EHRR 985 (Grand Chamber) and Issa v Turkey (2004) 41 EHRR 567, and of the decisions subsequent to Al Skeini in Markovic v Italy (2006) 44 EHRR 1045 (Grand Chamber); Al Saadoon and Mufdhi v United Kingdom (admissibility) (2009) 49 EHRR SE 95; and Medvedyev v France, Grand Chamber, 29 March 2010.
Authority and control and State agents
The decisions in calan v Turkey (2003) 37 EHRR 238; (2005) 41 EHRR 985 (Grand Chamber) and Issa v Turkey (2004) 41 EHRR 567, both of which were extensively discussed in Al Skeini, are relevant on this appeal because of what is said to be their support for the argument that armed forces abroad are subject to the jurisdiction of the sending state because they are under the authority and control of the sending state.
calan v
Turkey
In calan v Turkey (2003) 37 EHRR 238; (2005) 41 EHRR 985 (Grand Chamber) the applicant was arrested by members of the Turkish security forces inside a Turkish aircraft in the international zone of Nairobi airport.
His complaint related both to his treatment in Nairobi and subsequently in Turkey.
As regards his treatment in Kenya, he complained under articles 3 and 5 about handcuffing and blindfolding, alleged sedation and unlawful arrest.
There was also a complaint that the abduction overseas on account of his political opinions constituted inhuman or degrading treatment within the meaning of article 3.
It was held that the complaints about the arrest in Kenya fell within article 1.
In the first decision the Court said (at [93]): the applicant was arrested by members of the Turkish security forces inside an aircraft in the international zone of Nairobi Airport.
Directly after he had been handed over by the Kenyan officials to the Turkish officials the applicant was under effective Turkish authority and was therefore brought within the jurisdiction of that State for the purposes of Article 1 of the Convention, even though in this instance Turkey exercised its authority outside its territory.
The Court considers that the circumstances of the present case are distinguishable from those in the aforementioned Bankovi case, notably in that the applicant was physically forced to return to Turkey by Turkish officials and was subject to their authority and
control following his arrest and return to Turkey
The Grand Chamber said (at [91]): The Court notes that the applicant was arrested by members of the Turkish security forces inside an aircraft registered in Turkey in the international zone of Nairobi Airport.
It is common ground that, directly after being handed over to the Turkish officials by the Kenyan officials, the applicant was under effective Turkish authority and therefore within the jurisdiction of that State for the purposes of Article 1 of the Convention, even though in this instance Turkey exercised its authority outside its territory.
It is true that the applicant was physically forced to return to Turkey by Turkish officials and was under their authority and control following his arrest and return to Turkey (see, in this respect, the aforementioned decisions in the cases of Illich Ramirez Snchez v France and Freda v Italy; and, by converse implication, the Bankovi v Belgium .
There are four features about this decision which should be noted.
First, the Turkish Government conceded that the case fell within article 1.
Second, it involved, at least in part, acts committed on a Turkish aircraft.
Third, the Turkish activities were authorised by Kenya.
Fourth (as Lord Brown pointed out in Al Skeini at [118] [119]), it involved the forcible removal by state A from state B with state Bs consent of a person wanted for trial in state A. Cf Illich Ramirez Snchez v France (Application No 28780/95) (1996) 86 A DR 155 (Commission); see also Lpez Burgos v Uruguay (1981) 68 ILR 29 and Celiberti de Casariego v Uruguay (1981) 68 ILR 41(UN Human Rights Committee).
In Stephens v Malta (No 1) (2009) 50 EHRR 144, at [52], [54], in a section dealing with jurisdiction under article 1, it was held that the arrest of a British citizen in Spain pursuant to an unlawful request for extradition by Malta was attributable to, and engaged the responsibility of, Malta, but the Court did not explain why the applicant was within the jurisdiction of Malta.
It is entirely consistent with common sense for the Convention to apply (even to that part of the operation which occurs abroad) when agents of a state go abroad and forcibly remove one of its citizens for trial at home.
The decision is not authority for a generalised basis of jurisdiction based on authority and control by state agents.
Issa v Turkey
Issa v Turkey (2004) 41 EHRR 567 has been subject to close analysis and criticism at all levels in Al Skeini.
It arose out of an incursion by Turkish troops into Northern Iraq in 1995 to pursue and eliminate Turkish terrorists who were seeking shelter in Iraq.
The applicants were Iraqi villagers who alleged that in contravention of their Convention rights and those of their relatives, Turkish troops had (among other things) detained, tortured, and killed villagers and caused distress to others.
The Court decided that the applicants relatives did not come within the jurisdiction of Turkey within the meaning of article 1.
Citing Loizidou v Turkey (Merits) (1996) 23 EHRR 513, at [52], the Court re stated (but for the first time in relation to territory outside the Convention states) that the responsibility of a state could be engaged where as a consequence of military action, whether lawful or unlawful, the state in practice exercised effective control of an area situated outside its national territory: [68] [69].
That deals with jurisdiction based on control of territory, and not jurisdiction based on authority and control of the victim by state agents outside the territory of the state.
In a much discussed passage, the Court said (at [71]) Moreover, a State may also be held accountable for violation of the Convention rights and freedoms of persons who are in the territory of another State but who are found to be under the former States authority and control through its agents operating whether lawfully or unlawfully in the latter State Accountability in such situations stems from the fact that Article 1 of the Convention cannot be interpreted so as to allow a State party to perpetrate violations of the Convention on the territory of another State, which it could not perpetrate on its own territory (ibid).
Consequently, jurisdiction could have been based on either effective control of the area or (although the formulation is by no means clear) on the activities of state agents against local inhabitants.
But the applicants were not within the jurisdiction of Turkey because Turkey did not exercise effective control over the relevant area, and also because it had not been proved that Turkish forces had conducted operations in the area in question: [75], [81].
It is implicit in the reasoning in this decision that there would have been jurisdiction if the Turkish troops had been guilty of atrocities even without overall control of the area.
If that is so, it is inconsistent with Bankovi.
It is impossible to see how an attack on villagers in a cross border incursion into a non contracting state could make the villagers within the jurisdiction of Turkey, when a bombing raid on Belgrade did not make the victims within the jurisdiction of the NATO States involved.
The notion of authority and control through State agents operating abroad derives from the report of the Inter American Commission of Human Rights in Coard v United States (Report No 109/99, 29 September 1999) (1999) 9 BHRC 150, which was cited by the Strasbourg court in Issa v Turkey at [71] in support of that notion.
The Commission was examining complaints about the applicants detention and treatment by United States forces in the military operation in Grenada.
The American Declaration on the Rights and Duties of Man 1948 contains no express provision on its territorial limits.
The Commission said: While the extraterritorial application of the Declaration has not been placed at issue by the parties Given that individual rights inhere simply by virtue of a persons humanity, each American state is obliged to uphold the protected rights of any person subject to its jurisdiction.
While this most commonly refers to persons within a states territory, it may, under given circumstances, refer to conduct with an extraterritorial locus where the person concerned is present in the territory of one state, but subject to the control of another state usually through the acts of the latters agents abroad.
In principle, the inquiry turns not on the presumed victims nationality or presence within a particular geographic area, but on whether, under the specific circumstances, the state observed the rights of a person subject to its authority and control.
The Coard report was referred to in Bankovi at [23] and [78], but the Grand Chamber (at [78]) specifically indicated that it derived no assistance from it because the American Declaration on the Rights and Duties of Man 1948 contained no explicit limitation of jurisdiction.
Jurisdiction on the basis of authority and control (especially outside the Convention states) as a separate head was firmly rejected by the House of Lords in Al Skeini: see especially Lord Brown at [116] [127], and Lord Rodger at [73] [77]; and see also Rix LJ speaking for the Administrative Court at [216], and Brooke LJ in the Court of Appeal at [103].
Not only is there no firm basis in authority for the notion of authority and control as a basis of jurisdiction under article 1, Issa is also inconsistent with the notion of the regional nature of the Convention.
As Lord Rodger said in Al Skeini (at [78]): The essentially regional nature of the Convention is relevant to the way that the court operates.
It has judges elected from all the contracting states, not from anywhere else.
The judges purport to interpret and apply the various rights in the Convention in accordance with what they conceive to be developments in prevailing attitudes in the contracting states.
This is obvious from the court's jurisprudence on such matters as the death penalty, sex discrimination, homosexuality and transsexuals.
The result is a body of law which may reflect the values of the contracting states, but which most certainly does not reflect those in many other parts of the world.
So the idea that the United Kingdom was obliged to secure observance of all the rights and freedoms as interpreted by the European Court in the utterly different society of southern Iraq is manifestly absurd.
Hence, as noted in Bankovi, 11 BHRC 435, 453 454, para 80, the court had so far recognised jurisdiction based on effective control only in the case of territory which would normally be covered by the Convention.
If it went further, the court would run the risk not only of colliding with the jurisdiction of other human rights bodies but of being accused of human rights imperialism.
See also Mactavish J in the Federal Court of Canada: Amnesty International Canada v Canada (Chief of Defence Staff), 2008 FC 336, [2008] FCR 546, [235].
Medvedyev v France
In Medvedyev v France, Grand Chamber, 29 March 2010, the applicants alleged that they had been arbitrarily deprived of their liberty contrary to article 5(1) following the boarding of the ship on which they were crewmen by French authorities and complained that they had not been brought promptly before a judge or other officer authorised by law to exercise judicial power.
The ship was registered in Cambodia.
Cambodia had given France authorisation to intercept the ship.
The Court held unanimously (although it was divided on the merits of the claim) that because France exercised full and exclusive control over the ship and its crew, at least de facto, from the time of its interception, in a continuous and uninterrupted manner until they were tried in France, the applicants were effectively within Frances jurisdiction for the purposes of article 1: at [67].
This case bears some resemblance to calan v Turkey (2003) 37 EHRR 238, except that the aircraft in calan was registered in Turkey, the respondent state, whereas the ship in Medvedyev v France was registered in Cambodia, and the applicant in calan had the nationality of the respondent state, whereas the applicants in Medvedyev had a variety of non French nationalities, Ukrainian, Romanian, Greek and Chilean.
The differences are not crucial, since although an aircraft is for some purposes regarded as part of the territory of the country of registration, while it is in an airport it is no sense exempt from the criminal and public law of the territorial state, and non nationals within the jurisdiction are equally entitled to the protection of Convention rights.
Al Saadoon and Mufdhi v United Kingdom (admissibility)
Nor is Al Saadoon and Mufdhi v United Kingdom (admissibility) (2009) 49 EHRR SE 95 authority for any concept of extra territoriality going beyond Bankovi as recognised in Al Skeini.
The applicants complained that their transfer by British forces to the custody of the Iraqi High Tribunal exposed them to a real risk of the death penalty in breach of articles 2 and 3.
The United Kingdoms argument on jurisdiction was that the transfer of the applicants into the custody of the Iraqi authorities took place in circumstances where the United Kingdom forces had the power to detain Iraqi nationals only at the request of the Iraqi courts; the United Kingdom forces were not to retain any power to detain Iraqi nationals after 31 December 2008 and, within hours of the actual transfer, the base would have ceased to be inviolable and the Iraqi authorities would have had the right to come physically to the base where the applicants were detained and remove them.
Consequently, it was argued, the United Kingdom was not exercising any public powers through the effective control of any part of the territory or the inhabitants of Iraq,
The Court recognised that, during the first months of the detention of the applicants, the United Kingdom was an occupying power in Iraq.
The United Kingdom exercised control and authority over the individuals detained in the British run detention facilities initially solely as a result of the use of military force.
Subsequently its de facto control over the premises was reflected by the CPA order which provided that all premises used by the multi national force should be inviolable and subject to the exclusive control and authority of the multi national force: [87].
Given the total and exclusive de facto and subsequently also de jure control exercised by United Kingdom authorities over the premises, the individuals detained there, including the applicants, were within the United Kingdoms jurisdiction: Hess v United Kingdom.
That conclusion, the Court said (at [88]), was consistent with the decision of the House of Lords in Al Skeini and the position adopted by the United Kingdom in that case before the Court of Appeal and the House of Lords (where it had been conceded that the jurisdiction under article 1 extended to a military prison occupied and controlled by the United Kingdom).
The Court referred to Rasul v Bush, 542 US 466 (2004) where the United States Supreme Court decided (6 3) that United States courts had jurisdiction to consider challenges to the legality of the detention of foreign nationals incarcerated in Guantanamo Bay, since by the express terms of the agreements with Cuba, the United States exercised complete jurisdiction and control over the Guantanamo Bay.
See also Al Saadoon and Mufdhi v United Kingdom (Merits), 2 March 2010, with many references to the United Kingdoms jurisdiction over the applicants: [137], [140], [164], [165].
The decisions in Al Saadoon are consistent with, and do not take the matter any further than, Al Skeini.
The concept of a jurisdictional link and Markovic v Italy
The conclusion of the Court in Bankovi (at [82]) was that there was no jurisdictional link between the persons who were victims of the act complained of and the respondent states.
There was no elucidation of that expression, and the only other decision of the Strasbourg court in the article 1 context which makes use of the notion of jurisdictional link is Markovic v Italy (2006) 44 EHRR 1045 (Grand Chamber), in which the Court said that once a person brings a civil action in the courts or tribunals of a state, there indisputably exists, without prejudice to the outcome of the proceedings, a jurisdictional link for the purposes of article 1 ([54]).
Markovic v Italy is a decision which shows that the victim of a breach of the Convention need not necessarily be present in the contracting state.
The applicants were nationals of Serbia and Montenegro, who had brought claims in the Italian courts for compensation for damage caused by an airstrike by NATO forces.
The Italian Court of Cassation ruled that the Italian courts had no jurisdiction because the claim was a political one.
The applicants claimed that this was a refusal to grant them access to a court in breach of article 6.
The Court held that there was no breach of article 6 because the inability to sue the state was not the result of an immunity but of the principles governing the substantive right of action in domestic law.
The Court held that the applicants were within the jurisdiction of Italy for the purposes of article 1.
The Italian and British Governments argued that there was no jurisdiction for the purposes of article 1 because (for reasons which are hard to follow) the underlying claim related to NATO airstrikes outside the Convention countries.
But, apart from that, they both accepted that a claimant from outside the contracting states who brings a claim in the courts of the contracting state is within its jurisdiction for article 1 purposes.
The Italian Government accepted that the applicants had brought themselves within the ambit of the states jurisdiction by lodging a claim with the authorities: see [38].
The British Government seemed (somewhat artificially) to treat the bringing of the claim as a notional entry into the territory in order to bring proceedings: see [48].
As regards jurisdiction for the purposes of article 1, the Court three times used the expression jurisdictional link in these passages: 54.
Even though the extraterritorial nature of the events alleged to have been at the origin of an action may have an effect on the applicability of Article 6 and the final outcome of the proceedings, it cannot under any circumstances affect the jurisdiction ratione loci and ratione personae of the State concerned.
If civil proceedings are brought in the domestic courts, the State is required by Article 1 of the Convention to secure in those proceedings respect for the rights protected by Article 6.
The Court considers that once a person brings a civil action in the courts or tribunals of a State, there indisputably exists, without prejudice to the outcome of the proceedings, a jurisdictional link for the purposes of Article 1. 55.
The Court notes that the applicants in the instant case brought an action in the Italian civil courts.
Consequently, it finds that a jurisdictional link existed between them and the Italian State.
The expression jurisdictional link in the conclusion in Bankovi (at [82]) is plainly not intended to state or represent a separate and independent test of jurisdiction, and the same must be so of the passages in Markovic v Italy.
Consequently, neither of those decisions suggests that there is a separate free standing head of jurisdiction based on a jurisdictional link, and (contrary to the respondents position on this appeal) there is nothing in the opinion of Lord Rodger in Al Skeini which supports such a suggestion.
He said (at [64]) It is important therefore to recognise that, when considering the question of jurisdiction under the Convention, the focus has shifted to the victim or, more precisely, to the link between the victim and the contracting state [F]or the purposes of deciding whether the Convention applies outside the territory of the United Kingdom, the key question is whether the deceased were linked to the United Kingdom when they were killed.
However reprehensible, however contrary to any common understanding of respect for human rights, the alleged conduct of the British forces might have been, it had no legal consequences under the Convention, unless there was that link and the deceased were within the jurisdiction of the United Kingdom at the time.
For, only then would the United Kingdom have owed them any obligation in international law to secure their rights under article 2 of the Convention and only then would their relatives have had any rights under the 1998 Act.
All that Lord Rodger was saying was that there must be a relevant link, not that a link, or any link, is a sufficient basis for the existence of jurisdiction under article 1.
It should be added in relation to Markovic v Italy that it makes complete sense for the Convention to apply to parties to litigation in contracting states irrespective of where they are.
It could not be seriously suggested, for example, that a Japanese defendant in English proceedings who is served out of the jurisdiction is not entitled to article 6 rights.
In Lubbe v Cape plc [2000] 1 WLR 1545 the South African asbestosis victims suing in England submitted that to stay the proceedings in favour of the South African forum would violate their article 6 rights.
A stay was refused on the non Convention ground that, because of the lack of funding and legal representation in South Africa, they would be denied a fair trial on terms of equality with the defendant.
Lord Bingham said (at p 1561) that article 6 did not support any conclusion which was not already reached on application of the stay principles Spiliada Maritime Corpn v Cansulex Ltd [1987] AC 460.
There was no suggestion, nor could there have been, that the claimants could not rely on article 6 because they were South Africans without any connection with the United Kingdom.
In Bankovi the Court said [75] that the obligation in article 1 could not be divided and tailored in accordance with the particular circumstances of the extra territorial act in question, and the Court has said that in territory which is subject to the effective control of a contracting state the obligation of the State is to secure the entire range of substantive Convention rights Bankovi at [70], citing Cyprus v Turkey (2001) 35 EHRR 731 at [77].
But cases such as Markovic v Italy suggest that some qualification is necessary to the principle of indivisibility of Convention rights, and that there may be cases in which a person may be within the jurisdiction of a contracting state for limited purposes only.
Another possible example is suggested by Carson v United Kingdom, Grand Chamber, 16 March 2010 (in which there was no issue under article 1).
The applicants were persons who had worked in the United Kingdom and paid national insurance contributions and then emigrated to South Africa, Canada or Australia.
State pensions to persons abroad were not up rated to take account of inflation with the result that they received less (far less in some cases).
They failed in their claim under article 14 of the Convention and article 1 of the First Protocol, but rightly it was never suggested that because they were permanently abroad they were not within the jurisdiction of the United Kingdom for article 1 purposes in relation to interference with property situate in the United Kingdom (as the pension rights were).
Consequently there may be cases in which persons abroad may not be entitled to the whole package of Convention rights.
Conclusions
Bankovi made it clear that article 1 was not to be interpreted as a living instrument in accordance with changing conditions: [64] [65].
It is hardly conceivable that in 1950 the framers of the Convention would have intended the Convention to apply to the armed forces of Council of Europe states engaged in operations in the Middle East or elsewhere outside the contracting states.
Even the limited exceptions to territoriality recognised by the Strasbourg court were plainly not contemplated in the drafting process.
The original draft prepared by the Committee of the Consultative Assembly of the Council of Europe on legal and administrative questions referred to all persons residing within their territories.
Following a suggestion that residing within be replaced by living in, the Expert Intergovernmental Committee decided instead on persons within their jurisdiction.
The reason was that the term residing might be considered too restrictive, and there were good grounds for extending the benefits of the Convention to all persons in the territories of the signatory states, even those who could not be considered as residing there in the legal sense of the word: Collected Edition of the Travaux Prparatoires of the European Convention on Human Rights, vol III, p 260.
Apart from a comment by M Rolin, the eminent Belgian representative to the Consultative Assembly, that the protections would extend to all individuals of whatever nationality, who on the territory of any one of the states, might have had reason to complain that their rights were violated, article 1 did not give rise to any further discussion on this aspect and that text was adopted by the Consultative Assembly on 25 August 1950 without further amendment: Collected Edition, vol VI, pp 132, 148.
See Bankovi at [19] [21] and also Lawson, Life After Bankovic: On the Extraterritorial Application of the European Convention on Human Rights, in Extraterritorial Application of Human Rights Treaties, ed Coomans and Kamminga, 2004, 83, at 89 90.
There is nothing in the drafting history to give the slightest credence to the proposition that the Convention was to apply to the relations of the state with its armed forces abroad.
It is noteworthy that, writing in the same year, Professor Hersch Lauterpacht (as he then was) produced a draft of the International Bill of the Rights of Man which provided (article 18): The obligations of this Bill of Rights shall be binding upon States in relation both to their metropolitan territory and to any other territory under their control and jurisdiction.
See Lauterpacht, International Law and Human Rights, 1950, p 317.
Bankovi (as applied in Al Skeini) confirms that article 1 reflects the territorial notion of jurisdiction, and that other bases of jurisdiction are exceptional and require special justification.
In practice the exceptions recognised by the Court have either consisted of (1) territorial jurisdiction by a state over the territory of another contracting state; (2) extensions of territorial jurisdiction by analogy; and (3) commonsense extensions of the notion of jurisdiction to fit cases which plainly should be within the scope of the Convention.
The Northern Cyprus cases such as Loizidou v Turkey (Merits) and Cyprus v Turkey, and also Ilacu v Moldova and Russia and Assanidze v Georgia are all illustrations of the extension or application of territoriality to cases of effective control (or lack of control) by contracting states of Council of Europe territory.
The extension of the Convention to military bases and hospitals (ultimately based on concession by the Secretary of State) in Al Skeini and Al Saadoon and Mufdhi v United Kingdom (admissibility) is consistent with the treatment in dicta of the Commission and the Court of fixed premises abroad as territorial extensions of the state.
If the judges in Drozd v France and Spain had been acting as French or Spanish judges commonsense would have recognised them as extensions of the state judiciary acting abroad.
So also in cases such as calan v Turkey and Medvedyev v France, where a states officials detain a person abroad for trial in its territory, it would be odd if there could be no complaint under the Convention in respect of the acts which took place outside the territory.
Similarly, the application of article 6 rights to foreign claimants in Markovic v Italy makes complete sense: it would be a travesty of the Convention to deny them the right to access to a court because they were outside the Convention states.
This case comes within none of the exceptions recognised by the Strasbourg court, and there is no basis in its case law, or in principle, for the proposition that the jurisdiction which states undoubtedly have over their armed forces abroad both in national law and international law means that they are within their jurisdiction for the purposes of article 1.
For the reasons given in the preceding sections of this judgment, jurisdiction cannot be established simply on the basis that the United Kingdoms armed forces abroad are under the authority and control of the United Kingdom, or that there is a jurisdictional link between the United Kingdom and those armed forces.
To the extent that Issa v Turkey states a principle of jurisdiction based solely on authority and control by state agents over individuals abroad, it is inconsistent with Bankovi, and with Al Skeini, where it was comprehensively criticised by the House of Lords.
Nor is there anything in Markovic v Italy or in Lord Rodgers opinion in Al Skeini to support a jurisdictional link as a free standing basis for jurisdiction under article 1.
Nor are there policy grounds for extending the scope of the Convention to armed forces abroad.
On the contrary, to extend the Convention in this way would ultimately involve the courts in issues relating to the conduct of armed hostilities which are essentially non justiciable.
I would therefore allow the appeal on the first issue.
On the second issue, I agree with the judgment of Lord Phillips and would dismiss the appeal.
LORD KERR
Article 1 of the European Convention on Human Rights and Fundamental Freedoms provides that the High Contracting Parties shall secure to everyone within their jurisdiction the rights and freedoms defined in Section I of this Convention.
The first issue in this appeal is concerned with the question of what is meant by the phrase, within their jurisdiction.
I have read the judgment of Lord Mance and am in complete agreement with what he has said on the first issue.
For the reasons that he has given, I too would dismiss the appeal on the first ground.
The first issue
It has been accepted in a series of decisions, both domestic and European, that the primary and essential basis for jurisdiction under article 1 is territorial.
It has also been accepted that this important principle is subject to exceptions.
A central issue on the first ground of appeal is whether the admissible exceptions are confined to those specific examples that have been expressly recognised by the decisions in this field, particularly those reached in Strasbourg, or whether further exceptions may be recognised by the application of principles already established by the European Court of Human Rights.
In R (Gentle) v Prime Minister [2008] UKHL 20; [2008] AC 1356, Lord Bingham clearly contemplated that any exceptions to or extensions of the principle of territoriality should be specific and limited see para 8(3) of his opinion.
That case of course involved a claim that the lawfulness of the war in Iraq should be investigated in order to test whether the United Kingdom had fulfilled what were said to be its article 2 obligations to soldiers who were exposed to the risk of death in that war.
It was not concerned with the question that arises here whether a soldier who is within the control of the state, in the form of the army authorities, remains within the jurisdiction of the state for the purposes of article 1 of the Convention when he is outside the states national territory.
As Lord Mance has pointed out, Lord Bingham outlined three reasons that article 2 had never been held to apply to the process of deciding on the lawfulness of a resort to arms.
The first was that the lawfulness of military action has no immediate bearing on the risk of fatalities.
The second was that the draftsmen of the European Convention had not envisaged that it could provide a suitable framework or machinery for resolving questions about the resort to war.
The final reason related to the territoriality issue.
On this point, Lord Bingham said: Subject to limited exceptions and specific extensions, the application of the Convention is territorial: the rights and freedoms are ordinarily to be secured to those within the borders of the state and not outside.
Here, the deaths of Fusilier Gentle and Trooper Clarke occurred in Iraq and although they were subject to the authority of the defendants they were clearly not within the jurisdiction of the UK as that expression in the Convention has been interpreted: R (Al Skeini) v Secretary of State for Defence [2008] AC 153, paras 79, 129.
The Al Skeini case involved the deaths of six Iraqi civilians at the hands of British troops.
Five of the deceased were shot in the course of security operations; the sixth, Mr Mousa, died following gross ill treatment while in custody in a UK military detention facility.
The appellants, who were relatives of the deceased, asked the Secretary of State to hold a public inquiry into their relatives' deaths.
The Secretary of State indicated that he would not hold such an inquiry.
The appellants sought judicial review of that decision.
In order to promote that application the appellants had to establish (among other things) that their complaint fell within the scope of ECHR and that a Convention right had been violated.
The violation alleged by the appellants consisted primarily of a failure to investigate, as required by article 2, a violent death alleged to have been caused by agents of the state.
The House of Lords held that the Convention operated in an essentially regional context, most notably in the legal space of the contracting states (ie within the area of the Council of Europe countries).
The jurisdiction under article 1 was primarily territorial.
The House of Lords recognised, however, that exceptions to that principle existed.
These included circumstances where the state had effective control of a foreign territory and its inhabitants through military occupation or by the consent, invitation or acquiescence of the government of that territory and it exercised all or some of the public powers that would normally have been exercised by the local government.
This was the context in which the observations in paras 79 and 129 of Al Skeini (on which Lord Bingham relied in Gentle) were made.
The statements of Lord Rodger in para 79 of Al Skeini were based largely on his consideration of the decision of the European Court of Human Rights in Bankovic v Belgium (2001) 11 BHRC 435.
That case has been extensively discussed in the judgment of Lord Phillips and it is therefore unnecessary for me to rehearse its details.
It should be noted, however, that in para 80 the court observed that Strasbourg had so far recognised jurisdiction based on effective control only in the case of territory which would normally be covered by the Convention.
From this one can safely assume that it was not contemplated that the exceptions would be confined solely to this situation and, indeed, further extensions to the exceptional category have been recognised in later decisions of ECtHR.
The observation in para 80 of Bankovic provided the backdrop for what Lord Rodger said at para 79 of Al Skeini: The essentially regional nature of the Convention has a bearing on another aspect of the decision in Bankovic v Belgium (2001) 11 BHRC 435.
In the circumstances of that case the respondent states were plainly in no position to secure to everyone in the RTS station or even in Belgrade all the rights and freedoms defined in Section I of the Convention.
So the applicants had to argue that it was enough that the respondents were in a position to secure the victims rights under articles 2, 10 and 13 of the Convention.
In effect, the applicants were arguing that it was not an answer to say that, because a state was unable to guarantee everything, it was required to guarantee nothingto adopt the words of Sedley LJ, [2007] QB 140, 300, para 197.
The European Court quite specifically rejected that line of argument.
The court held, (2001) 11 BHRC 435, 452, para 75, that the obligation in article 1 could not be divided and tailored in accordance with the particular circumstances of the extra territorial act in question.
In other words, the whole package of rights applies and must be secured where a contracting state has jurisdiction.
This merely reflects the normal understanding that a contracting state cannot pick and choose among the rights in the Convention: it must secure them all to everyone within its jurisdiction.
If that is so, then it suggests that the obligation under art 1 can arise only where the contracting state has such effective control of the territory of another state that it could secure to everyone in the territory all the rights and freedoms in Section I of the Convention.
It is important, I believe, to note that these comments were made in the context of jurisdiction based on territorial control.
This is clear from para 75 of Bankovic, on which they are founded.
But the present case is not one of territorial control.
It is, rather, a case of control of personnel.
Soldiers serving in Iraq were under the complete control of the United Kingdom authorities.
They were subject to UK law.
They were not amenable to the law of Iraq.
The only legal system to which they were answerable or to which they might have recourse was that of the United Kingdom.
In these circumstances, one may ask, if they were not within the jurisdiction of the UK, in whose jurisdiction were they? The answer that the appellant impliedly gives to this question is that the soldiers were within the jurisdiction of the UK for all purposes except for those of article 1 of the Convention but that response merely prompts the further question, why and, for reasons that I shall touch on below, to that second query I can find no satisfactory reply.
Para 129 of Al Skeini (the other passage on which Lord Bingham relied in Gentle) is equally concerned with the question of territorial control.
There Lord Brown said: except where a state really does have effective control of territory, it cannot hope to secure Convention rights within that territory and, unless it is within the area of the Council of Europe, it is unlikely in any event to find certain of the Convention rights it is bound to secure reconcilable with the customs of the resident population.
Indeed it goes further than that.
During the period in question here it is common ground that the UK was an occupying power in southern Iraq and bound as such by Geneva IV and by the Hague Regulations.
Article 43 of the Hague Regulations provides that the occupant shall take all the measures in his power to restore and ensure, as far as possible, public order and safety, while respecting, unless absolutely prevented, the laws in force in the country.
The appellants argue that occupation within the meaning of the Hague Regulations necessarily involves the occupant having effective control of the area and so being responsible for securing there all Convention rights and freedoms.
So far as this being the case, however, the occupants' obligation is to respect the laws in force, not to introduce laws and the means to enforce them (for example, courts and a justice system) such as to satisfy the requirements of the Convention.
Often (for example where Sharia law is in force) Convention rights would clearly be incompatible with the laws of the territory occupied.
It is immediately evident that Lord Brown was discussing the nature and degree of control that was required before the territorial control exception could arise.
The principal message as it seems to me to emerge from this passage is that the extent of the occupants actual control over the territory in question was very far from complete and therefore entirely incompatible with a capacity to enforce compliance with the Convention.
On that account, the extra territorial exception could not be held to apply.
When one approaches the matter from the perspective of power over military personnel, however, the level of control of the UK occupying forces is of an altogether different order from that which they could exert over the territory.
The control that the UK had over Private Smith was as complete as it is possible in todays world to be.
Moreover, for the reasons given by Lord Mance in paras 185 188 of his judgment, no other agency or state was entitled to or could exercise any authority over him.
In plain terms, he did not come within any legal order or jurisdiction other than that of the United Kingdom.
I therefore respectfully agree with Lord Mance that Lord Binghams statement in Gentle that the soldiers, although subject to the authority of the United Kingdom government, were clearly not within the jurisdiction of the UK must be treated with some reservation.
Neither Lord Rodger nor Lord Brown (in the paragraphs of their opinions in Al Skeini that Lord Bingham relied on) had addressed the question whether serving soldiers came within the states jurisdiction for the purposes of article 1 of the Convention.
Although a number of other members of the House of Lords in Gentle agreed in general terms with Lord Bingham, like Lord Mance, I doubt that his statement that the soldiers were not within the jurisdiction of the UK forms part of the ratio decidendi of that case.
Even if it does, in light of the much fuller argument that this court has received on the topic than was presented to the House of Lords in Gentle, it is right that the matter should be considered again.
Lord Brown discussed in Al Skeini the exceptions that had been already identified to the strict territorial basis for jurisdiction and Lord Mance has analysed these in paras 172 to 179 of his judgment.
I agree with his analysis and with his conclusion that underpinning each of the exceptions is the exercise by a state in a country other than its national territory of power over individuals by the consent, invitation or acquiescence of the foreign state.
The exclusion of extra territorial jurisdiction of one state in the territory of another rests primarily on the sovereign territorial rights of the latter state.
As the court in Bankovic said, a States competence to exercise jurisdiction over its own nationals abroad is subordinate to that States and other States territorial competence para 60.
Where, however, a state yields authority to a foreign state to exercise power in its sovereign territory, this principle does not apply.
Likewise, if the sovereignty of the original state is ousted by an occupying force, the occupiers jurisdiction replaces that of the original state.
In the present case both these situations so far as they involved UK military personnel tend to blend into each other.
The UK was certainly permitted to exercise power over its soldiers, although this could not be said to be a permission granted by the state having original sovereignty over Iraq since that states sovereignty had been ousted by the invading forces.
In so far as the UKs authority to exercise power over its own forces depended on the grant of permission, however, that was certainly constituted by CPA Order No 17 and Security Council Resolution No 1483.
For the reasons given by Lord Mance in paras 184 to 186 of his judgment, I also consider that the UK exercised exclusive jurisdiction over its forces by reason of its being an occupying power.
The situation can be described simply in the following way: the United Kingdom brought its soldiers into Iraq; it not only asserted complete authority over them while they remained there, it explicitly excluded the exercise of authority over those soldiers by any other agency or state; and it has always been clear that soldiers remain subject to the laws of the UK during their service abroad.
In those circumstances it would be, to my mind, wholly anomalous to say that soldiers did not remain within the jurisdiction of the UK while serving in Iraq especially since it has been accepted in Al Skeini and not disputed by the appellant in the present case that all persons while on premises under the control of the army are within the UKs jurisdiction for the purposes of article 1 of the Convention.
In Bankovic there were no fewer than 17 respondent states: Belgium, the Czech Republic, Denmark, France, Germany, Greece, Hungary, Iceland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Turkey and the United Kingdom.
It is interesting and significant that all seventeen subscribed to an argument described in this way in para 36 of the courts judgment: As to the precise meaning of 'jurisdiction', [the respondent governments] suggest that it should be interpreted in accordance with the ordinary and well established meaning of that term in public international law.
The exercise of 'jurisdiction' therefore involves the assertion or exercise of legal authority, actual or purported, over persons owing some form of allegiance to that state or who have been brought within that state's control.
They also suggest that the term 'jurisdiction' generally entails some form of structured relationship normally existing over a period of time.
Of course, most soldiers serving on behalf of a member state in a foreign country would come clearly within the first of these formulations since they are subject to the legal authority of the government of their native country and they owe allegiance to that state.
The court in Bankovic did not comment adversely on the argument that a states exercise abroad of legal authority over persons owing allegiance to that state would satisfy the requirements of article 1.
Indeed, the courts treatment of the arguments of the parties is not at all inconsistent with that submission.
It is to be noted that the final conclusions expressed by the court in paras 67 to 71 are preceded by the cross heading Extra territorial acts recognised as constituting an exercise of jurisdiction (emphasis added).
By making its soldiers subject to its sole authority while abroad a state is not engaging in an extra territorial act so much as creating a state of affairs.
There may not be much in this point but it is, I think, worth remarking that the focus of the court in Bankovic was whether the actions of the respondent governments might be a sufficient foundation for concluding that the applicants came within their jurisdiction whereas here the essential issue is whether soldiers who are subject to the exclusive legal control of the UK authorities remain within its jurisdiction.
There is nothing in Bankovic which speaks directly to the question whether a member state that takes its soldiers abroad, asserts that it has sole authority over them and expressly excludes all other possible forms of control over them can nevertheless claim that those soldiers are not within its jurisdiction for the purposes of article 1 of the Convention.
To suggest, as the Secretary of State must, that soldiers are within the jurisdiction of the United Kingdom for every conceivable legal purpose other than article 1 seems to me to involve the acceptance of one anomaly too many.
In this appeal the Secretary of State has argued that, because it is impossible to secure the whole package of Convention rights for soldiers serving abroad, it should be concluded that they cannot be within the UKs jurisdiction for article 1 purposes.
Expressed in this unvarnished way, the argument appears circular or, at least, intensely pragmatic.
But a similar argument found favour with ECtHR in Bankovic and with the House of Lords in Al Skeini.
One must consider, therefore, whether this is a universally required prerequisite in order to bring an applicant within the jurisdiction.
As Lord Phillips has pointed out (in para 43 of his judgment), the European Court in Drozd and Janousek v France and Spain (1992) 14 EHRR 745 accepted that if the applicants had appeared before a French judge sitting in that capacity in Andorra they would have been within the jurisdiction of France for the purposes of article 1 in relation to their article 6 rights.
They would not have been entitled to claim against France the benefit of protection of the other Convention rights, however.
It is implicit in that judgment that there are certain settings in which the whole package principle does not apply.
In other words, there is not an invariable pre condition that one must be able to have access to the entire panoply of Convention rights in order to be able to claim that one is within the jurisdiction of the member state for the purposes of article 1.
Likewise in Carson v United Kingdom (Application No 42184/05) (unreported) 16 March 2010, the decision of the Grand Chamber on the admissibility of claims against the United Kingdom by persons who were resident abroad must have proceeded on the basis that they were within the jurisdiction for the purposes of pursuing a claim of violation of article 14 of the Convention in combination with article 1 of the First Protocol.
There was no question of the applicants being entitled to the benefit of other Convention rights.
It follows that the whole package of rights principle is not an indispensable requirement in every case.
It is not necessary in every instance that it be shown that an applicant, in order to be entitled to claim that he is within the jurisdiction for article 1 purposes, must also show that he is entitled to the benefit of all the Convention rights.
It appears to me that this principle is primarily relevant in the territorial control context.
One can understand that an applicant who claims that he is entitled to be regarded as within the jurisdiction of a member state on the basis that he was, at the material time, within the territory controlled by that state should be able to demonstrate that the state was in a position to deliver all the protections secured by the Convention.
In that instance the capacity of the state (or its lack of capacity) to deliver that breadth of protection can be seen as a measure of the extent of its control of the territory.
Having examined the cases of Drozd; X and Y v Switzerland (1977) 9 DR 57; Gentilhomme, Schaff Benhadji and Zerouki v France (Application Nos 48205/99, 48207/99, 48209/99) (unreported) 14 May 2002, Lord Phillips suggests that they might be thought to support a general principle that there will be jurisdiction under article 1 whenever a state exercises legislative, judicial or executive authority which affects a Convention right of a person, whether or not he is within the territory of that state.
He points out, however, that the Strasbourg court had not yet propounded such a principle.
I agree that no principle in these precise terms has been articulated by the ECtHR but where the exercise of such authority is combined with control over the individual affected, it appears to me that the extra territorial extension of jurisdiction is undeniable.
The essence of the decisions in Bankovic and Al Skeini is that an exception to the territorial basis for jurisdiction will be recognised where there is effective control of the relevant territory and its inhabitants by an occupying force.
The rationale for the decision is surely the element of control.
Where the occupying force supplants and replaces the power which had been wielded by the national authority, it provides, indeed imposes, its own jurisdiction.
No particular magic attaches to the geographical dimension of this exercise of power it is the comprehensive nature of the power rather than the area where it is exerted that matters.
Obviously, in those areas where the occupying force is unable to exert a measure of power that might be regarded as effective, its jurisdiction will not be established but that is a reflection of the restriction on the power rather than of geography.
And so, where the control of an individual is of a sufficiently comprehensive nature as to qualify for the description, effective power, there is no reason in logic or principle that he should not be regarded as being within the jurisdiction of the state which wields that power over him.
If a state can export its jurisdiction by taking control of an area abroad, why should it not equally be able to export the jurisdiction when it takes control of an individual?
I agree with Lord Phillips that, despite some indications to the contrary, the case law of Strasbourg has not yet developed to the point of recognising a general principle that there will be jurisdiction under article 1 whenever a State exercises legislative, judicial or executive authority in a way that affects an individuals Convention right, whether that person is within the territory of that State or not.
But where an individual is under the complete control of his native state while in foreign territory, I cannot see any reason that he should be regarded as being any less within its jurisdiction than individuals who happen to find themselves in a location in that territory which is under the effective control of the same state.
And it appears to me that this position has already been recognised, albeit somewhat obliquely, by the ECtHR.
In Issa v Turkey (2004) 41 EHRR 567 the court said at para 71: a State may also be held accountable for violation of the Convention rights and freedoms of persons who are in the territory of another State but who are found to be under the former States authority and control through its agents operating whether lawfully or unlawfully in the latter State.
Lord Phillips suggests that this passage clearly advances state agent authority as an alternative to effective territorial control as a basis of article 1 jurisdiction.
I agree.
But, more significantly, it emphasises the importance of control (whether of territory or individuals) as the essential ingredient in extra territorial jurisdiction.
That theme featured again in the recent decision of the Grand Chamber in Medvedyev v France (Application No 3394/03) judgment delivered on 29 March 2010.
In that case a special forces team from a French warship boarded a merchant vessel which, it was suspected, was carrying drugs.
After boarding the vessel, the French commando team kept the crew members of the merchant ship under their exclusive guard and confined them to their cabins during the rerouting of the ship to France.
At para 67 the court said: the court considers that, as this was a case of France having exercised full and exclusive control (my emphasis) over the [merchant vessel] and its crew, at least de facto, from the time of its interception, in a continuous and uninterrupted manner until they were tried in France, the applicants were effectively within Frances jurisdiction for the purposes of article 1 of the Convention.
The exercise of control was obviously pivotal to the finding that the merchant ships crew were within the jurisdiction of France.
That control had no geographical dimension, at least not before the vessel was returned to France.
But the very fact that the crew members were under the control of the French authorities, even before they arrived in France, was sufficient to bring them within French jurisdiction for the purposes of article 1 of the Convention.
If taking control of the crew members on the high seas is sufficient to bring them within the jurisdiction of France, it appears to me that where a state asserts and exercises exclusive control over the members of its own armed forces while they are in foreign territory, this must be an a fortiori instance of the extra territorial reach of the Convention.
The prospect of the state owing article 2 obligations to its soldiers serving overseas is not the daunting one that the appellant in this case has portrayed.
For the reasons explained by Lord Rodger in his judgment, the article 2 investigation conducted by means of a coroners inquest is not concerned with matters of policy or broad political decisions.
The primary function of a coroners inquest is, as Lord Phillips has put it, to find facts rather than review policy.
Lord Brown expresses concern that, if it is held that soldiers operating outside the espace juridique are within the jurisdiction for the purposes of article 1, Strasbourg will scrutinise a contracting states planning, control and execution of military operations to decide whether the states own forces have been subjected to excessive risk.
I am afraid that, with great respect, I must disagree.
The cases which prompted Lord Browns apprehension were Ergi v Turkey (1998) 32 EHRR 388, Isayeva, Yusupova and Bazayeva v Russia (Application Nos 57947 49/00) [2005] ECHR 129 and Isayeva v Russia (Application No 57950/00) [2005] ECHR 128.
In the first of these cases, the Turkish security forces had set up an ambush in the vicinity of the village where the applicants sister lived, purportedly to capture members of the PKK.
The applicant alleged that his sister had been killed by a bullet fired by members of the security forces in the course of an indiscriminate, retaliatory attack on the village, apparently carried out because the inhabitants had in the past harboured members of the PKK.
Although the court felt unable to conclude that the applicants sister had been killed by a bullet fired by a member of the security forces or that the firing on the village was carried out in retaliation, as alleged, it decided that, even on the governments account of having laid an ambush for the PKK and having been involved in a fire fight with them, a violation of article 2 had been established.
This was because insufficient precautions had been taken to protect the lives of the civilian population.
It was also held that the investigation into the death was insufficient to satisfy the procedural requirements of article 2.
Judgment in the second and third cases referred to by Lord Brown was delivered on the same day, 24 February 2005.
In the earlier of these two cases the applicants alleged that they had been the victims of indiscriminate bombing by Russian military planes of a civilian convoy near Grozny.
The attack took place while the applicants were on what had been designated a humanitarian corridor.
It was found that a large number of civilian vehicles were in the convoy when the attack took place.
It was found that, even assuming that the military were pursuing a legitimate aim, the operation had not been planned and executed with sufficient care for the civilian population.
In the final case the applicant claimed that she and her family were the victims of an air bombardment by Russian forces while trying to flee their village in Chechnya.
It was established that heavy free falling, high explosive bombs and other non guided heavy combat weapons were used in the centre and on the edges of the applicants village.
The avowed justification for this was that the civilian population was being held hostage by a large group of Chechen fighters.
No attempt had been made to evacuate the village in advance and no steps had been taken to minimise the risk of injury to the civilian population.
A breach of article 2 was found.
The facts of these three cases are very far removed from the hypothetical example given by Lord Brown of courts embarking on scrutiny of planning, control and execution of military operations to decide whether a states own forces have been exposed to excessive risk.
Lord Brown acknowledges that Strasbourgs concern in these cases was essentially for the safety of civilians caught up in conflict.
That is a very different matter from the safety of combatants in the course of a war.
As Lord Rodger has said, deaths and injuries of soldiers in a combat situation are inevitable.
There is no reason, in my view, to anticipate that a similar level of scrutiny to that suitable to the death of a civilian will be required or appropriate where a soldier has been killed in the course of military operations.
In this context, I should say that I agree entirely with Lord Rodgers observations in para 126 of his judgment.
It will often be possible to suggest, after an event, measures that could have been taken that might have reduced the risk to a particular soldier but that type of retrospective analysis is surely inapposite (and will be recognised by courts as such) to address the question whether a states obligations to its soldiers under article 2 have been discharged.
The duty to protect soldiers in a war setting is of an entirely different nature from the obligation to take proper steps to ensure that civilians are not exposed to unnecessary risks from military operations.
I do not believe that the fear of tactical decisions taken in the field by military commanders being subject to painstaking dissection by the courts is justified or that it should deter this court from declaring that when our government commits our armed forces to wars in foreign territories, it cannot deny them the protection that the Convention affords.
The second issue
I have read and agree with the judgment of Lord Phillips in relation to the second issue.
For the reasons that he has given, I would dismiss the appeal on this ground also.
| UK-Abs | Private Jason Smith, a member of the Territorial Army since 1992, was mobilised for service in Iraq in June 2003.
After acclimatising for a short period in Kuwait he was sent to a base in Iraq, from where he was billeted in an old athletics stadium.
By August the daytime temperature in the shade was exceeding 50 degrees centigrade.
On 9 August he reported sick, complaining of the heat.
Over the next few days he was employed in various duties off the base.
On the evening of 13 August he collapsed at the stadium and died of heat stroke.
An inquest found that Private Smiths death was caused by a serious failure to address the difficulty he had in adjusting to the climate.
Private Smiths mother commenced proceedings to quash that verdict and for a new inquest to be held.
She argued that the United Kingdom had owed her son a duty to respect his right to life which was protected by article 2 of the European Convention on Human Rights (ECHR) and that the inquest had to satisfy the procedural requirements of an investigation into an alleged breach of that right.
The Secretary of State denied that a further inquest was required on the facts of the case.
He also denied that a soldier on military service abroad was subject to the protection of the Human Rights Act 1998 when outside his base, while accepting that in this case Private Smith had died within the UKs jurisdiction on the base.
The High Court held that Private Smith had been protected by the Human Rights Act 1998 at all times in Iraq and ordered a fresh inquest.
Before the Court of Appeal the Secretary of State agreed he would not submit to the new coroner that the requirements of article 2 were inapplicable.
Notwithstanding that concession, both the Court of Appeal and the Supreme Court considered that the appeal of the Secretary of State raised two issues of general importance and of practical concern: whether on the true interpretation of article 1 of the ECHR British troops operating on foreign soil fell within the jurisdiction of the United Kingdom (the jurisdiction issue); and whether the fresh inquest into the death of Private Smith must conform with the procedural requirements implied into article 2 (the inquest issue).
The Court of Appeal answered both questions in the affirmative.
The Supreme Court allowed the appeal on the jurisdiction issue (Lady Hale, Lord Mance and Lord Kerr dissenting) and unanimously dismissed the appeal on the inquest issue.
It held that it was not necessary in every case of a death of a serviceman abroad to carry out an investigation which examined whether there was fault on the part of the state because (a) the Human Rights Act 1998 did not apply to armed forces on foreign soil and (b) in any event, there was no such automatic right.
The type of investigation would depend on the circumstances of the case.
The jurisdiction issue Lord Phillips stated that the European Court of Human Rights in Strasbourg had held that jurisdiction within the meaning of article 1 was essentially territorial but extended in exceptional circumstances requiring special justification to other bases of jurisdiction.
The difficulty lay in defining those exceptions [para 11].
It was unlikely that the Contracting States, when they agreed the ECHR in 1951 in the aftermath of a global conflict in which millions of troops had been deployed, regarded it as desirable or practicable to extend the protection of article 2 to troop operations abroad [para 58].
It was a novel suggestion that a states armed forces by reason of their personal status fell within the jurisdiction of the state when on foreign soil and the proper tribunal to resolve the issue was the Strasbourg Court itself [para 60].
Lord Collins observed that in practice the exceptions recognised by the Strasbourg court had consisted of (i) territorial jurisdiction by a state over the territory of another contracting state; (ii) extensions of territorial jurisdiction by analogy and (iii) commonsense extensions of the notion of jurisdiction to fit cases which plainly should be within the scope of the ECHR [para 305].
This case came within none of them.
Jurisdiction could not be established simply on the basis of the UKs authority and control over them, nor were there policy grounds for extending the scope of the ECHR to armed forces abroad, which would ultimately involve the courts in issues relating to the conduct of armed hostilities which were essentially non justiciable [para 308].
Lord Mance, dissenting, considered that as an occupying power in Iraq, the UK had under international law an almost absolute power over the safety of its forces.
The relationship was not territorial but depended on a reciprocal bond of authority and control on the one hand and allegiance and obedience on the other [para 192].
In his view the Strasbourg court would hold that the armed forces of a state were within the meaning of article 1 and for the purposes of article 2 wherever they might be [para 199].
Lord Kerr agreed.
If the state could export its jurisdiction by taking control of an area abroad it could equally do so when it took control of an individual.
In his view this had already been recognised albeit obliquely by the Strasbourg court [para 331].
The inquest issue Lord Phillips stated that where there was reason to suspect a substantive breach by the state of the article 2 right to life, it was established that the state of its own motion should carry out an investigation into the death which had certain features: a sufficient element of public scrutiny, conducted by an independent tribunal, involving the relatives of the deceased and which was prompt and effective [para 64].
There was no automatic right to such an investigation whenever a member of the armed forces died on active service [para 84].
The UK had a staged system of investigation into deaths.
Some form of internal investigation would always be held into military deaths in service [para 85] and a public inquest was required whenever a body was brought back to this country.
This would satisfy many of the procedural requirements of article 2.
If, in the course of the inquest, it became apparent that there might have been a breach by the state of its positive article 2 obligations, this should, insofar as possible, be investigated and the result reflected in the coroners verdict, so as to satisfy the procedural requirements of article 2 [para 86].
In Private Smiths case, the courts below were correct to hold that the coroner should have found a possibility that there had been a failure of the system to protect soldiers in extreme temperatures.
It followed that the new inquest should comply with the procedural requirements of article 2 [paras 87 and 88].
Lord Rodger considered that the Secretary of State had correctly conceded that an article 2 investigation was needed on the facts of this case but this was not always the position.
The protection of the armed forces could never be complete; deaths and injuries were inevitable.
It was for this very reason that the armed forces deserved and enjoyed the admiration of the community [para 122].
It was contrary to the very essence of active military service to expect the authorities to ensure that troops would not be killed or injured by opposing forces [para 125].
Furthermore, many issues of concern to the relatives of soldiers killed on active service raised questions of policy not legality, and would fall outside the scope of any investigation by a coroner [para 127].
|
This case raises important issues about the meaning and application in practice of section 115(7) of the Police Act 1997 as to the information that is to be provided by the chief officer of a police force to the Secretary of State for inclusion in an enhanced criminal record certificate (ECRC).
The section in which this subsection appears provides for enhanced criminal record checks to be carried out in various specified circumstances, such as where people are applying to work with children or vulnerable adults, for various gaming and lotteries licences, for registration for child minding and day care or to act as foster parents or carers.
The check is enhanced in the sense that it will involve a check with local police records as well as the centralised computer records held by the Criminal Records Bureau.
As well as information about minor convictions and cautions, it will reveal allegations held on local police records about the applicants criminal or other behaviour which have not been tested at trial or led to a conviction.
If the information satisfies the tests that section 115(7) lays down, it must be given to the Secretary of State and the Secretary of State for his part must include it in the ECRC.
The question is whether, as it has been interpreted, section 115(7) of the 1997 Act is compatible with the applicants right to respect for his or her private life under article 8 of the European Convention on Human Rights.
The leading authority on the meaning and effect of the subsection is R (X) v Chief Constable of the West Midlands Police [2004] EWCA Civ 1068; [2005] 1 WLR 65.
Lord Woolf CJ said in para 36 that, having regard to the language of section 115(7), the Chief Constable was under a duty to disclose if the information might be relevant, unless there was some good reason for not making such disclosure.
In para 37 he added these words: This was obviously required by Parliament because it was important (for the protection of children and vulnerable adults) that the information should be disclosed even if it only might be true.
If it might be true, the person who was proposing to employ the claimant should be entitled to take it into account before the decision was made as to whether or not to employ the claimant.
This was the policy of the legislation in order to serve a pressing social need.
In para 41 he said that, as long as the chief constable was entitled to form the opinion that the information might be relevant, it was difficult to see that there could be any reason why the information that might be relevant ought not to be included in the certificate.
The problem with this approach, it is said, is that it involves a disproportionate interference with the article 8 right, bearing in mind the damaging effects to the applicant that the disclosure of such information might give rise to.
It goes further than is reasonably necessary for the legitimate object of protecting children and vulnerable adults, and it fails to strike a reasonable balance between the interests of the applicant and the wider social interests that the system was designed to serve.
The appellant seeks the quashing of the respondents decision to disclose information about her on her ECRC, and a declaration that section 115(7) is incompatible with article 8.
Alternatively she submits that section 115(7) should be read down so as to avoid the incompatibility.
The legislation
Part V of the Police Act 1997 introduced a legislative framework for the disclosure of criminal records to meet a growing need for the release of such information for employment and other purposes.
Previously the arrangements were governed by a series of Home Office Circulars on the Disclosure of Criminal Records.
It was designed to implement proposals contained in the White Paper On the Record: The Governments Proposals for Access to Criminal Records for Employment and Related Purposes in England and Wales (1996) (Cm 3308) following an earlier Home Office Consultation Paper Disclosure of Criminal Records for Employment Vetting Purposes (1993) (Cm 2319).
Among these proposals was one for enhanced criminal record checks, the details of which were set out in Part VI of the White Paper.
It was already the practice, in certain particularly sensitive areas of work or licensing where vetting took place, for additional information to be provided from local police records.
In the light of responses to the consultation paper it was proposed that information from local police records would be available for prospective employees, trainees and volunteers having regular, unsupervised, contact with children and young people under 18, and those applying for gaming, betting and lottery licences.
It was noted in para 29 that the local records held by most police forces contain a range of information about individuals, including convictions and cautions for minor offences as well as information going beyond the formal particulars of convictions but which might nonetheless be of legitimate interest to those considering employing individuals for particularly sensitive posts.
Para 30 of the White Paper was in these terms: After very careful consideration the Government has concluded that it is right for such information to continue to be disclosed where there are particularly strong grounds for it, such as to combat the risk of paedophile infiltration of child care organisations.
It accepts that stricter guidelines on what may be disclosed would provide reassurance to those subject to checking in this way and that they should normally be able to see any information of this kind which may be made available on them.
Part V of the 1997 Act provided for the issue of three types of certificates.
Section 112 dealt with the issue of a criminal conviction certificate.
This is a certificate which gives prescribed details of every conviction of the applicant which is recorded on central records, or states that there is no such conviction.
Section 113 dealt with the issue of a criminal record certificate.
This is a certificate which gives the prescribed details of every conviction within the meaning of the Rehabilitation of Offenders Act 1974 and a caution, or states that there is no such matter.
A certificate of this kind may only be issued where the application is countersigned by a registered person and is accompanied by a statement by that person that the information is required for a question in relation to which section 4(2)(a) or (b) of the Rehabilitation of Offenders Act 1974 has been excluded by an order of the Secretary of State.
Section 115 dealt with the issue of an enhanced criminal record certificate.
Sections 113 and 115 were repealed with effect from 6 April 2006 and replaced by sections 113A and 113B, inserted in the 1997 Act by section 163(2) of the Serious Organised Crime and Police Act 2005.
This case concerns an ECRC that was issued under section 115 before it was repealed.
To avoid confusion I shall concentrate on the wording of that section.
Section 115, as amended by the Criminal Justice Act 2003 and so far as material for present purposes, provided: (1) The Secretary of State shall issue an enhanced criminal record certificate to any individual who (a) makes an application under this section in the prescribed manner and form countersigned by a registered person (2) An application under this section must be accompanied by a statement by the registered person that the certificate is required for the purposes of an exempted question asked (a) in the course of considering the applicants suitability for a position (whether paid or unpaid) within subsection (3) or (4), or (b) for a purpose relating to any of the matters listed in subsection (5) (3) A position is within this subsection if it involves regularly caring for, training, supervising or being in sole charge of persons aged under 18. (4) A position is within this subsection if (a) it is of a kind specified in regulations made by the Secretary of State, and (b) it involves regularly caring for, training, supervising or being in sole charge of persons aged 18 or over.
In subsection (5) a list was given of applications for various gaming and lotteries licences, for registration for child minding or providing day care and the placing of children with foster parents.
This list has been extended by subsequent amendments to include, among others, applications for registration as a social worker or a social service worker and registration as a teacher under section 3 of the Teaching and Higher Education Act 1998.
Section 115(10) provided that the expressions central records, exempted question and relevant matter had the same meaning as in section 113, subsection (5) of which was in these terms:
Sections 115(6) and 115(7) provided as follows: In this section central records means such records of convictions and cautions held for the use of police forces generally as may be prescribed; exempted question means a question in relation to which section 4(2)(a) or (b) of the Rehabilitation of Offenders Act 1974 (effect of rehabilitation) has been excluded by an order of the Secretary of State under section 4(4); relevant matter means (i) the the meaning of a conviction within Rehabilitation of Offenders Act 1974, including a spent conviction, and a caution. (ii) (6) An enhanced criminal record certificate is a certificate which gives (a) (i) the prescribed details of every relevant matter relating to the applicant which is recorded in central records, and (ii) any information provided in accordance with subsection (7), or states that there is no such matter or information. (b) (7) Before issuing an enhanced criminal record certificate the Secretary of State shall request the chief officer of every relevant police force to provide any information which, in the chief officers opinion (a) might be relevant for the purpose described in the statement under subsection (2), and (b) ought to be included in the certificate.
These provisions have been re enacted in virtually the same terms by sections 113B(3) and 113B(4) which were inserted into the 1997 Act by section 163(2) of the Serious Organised Crime and Police Act 2005.
Section 124 provides that it is an offence for information provided for criminal record checks and enhanced criminal record checks to be disclosed by members and staff of registered bodies and by members and staff of unregistered bodies and individuals and their employees who receive the information following an application which those bodies or individuals have countersigned, unless the disclosure is made in the course of their duties for the purposes authorised by that section.
The facts
The appellant L is the mother of X who was born on 21 April 1989.
He has a much older sister.
The family has come to the attention of both the police and social services.
Due to concerns about X the local authority arranged a child protection conference which took place on 29 January 2002.
At that time X was living with his father and not with the appellant.
At that conference a number of concerns were expressed about Xs behaviour.
The social worker reported concerns that X might be exposed to drugs and that the appellant was not prepared to work with social services.
She said that the general view of all the professionals was that X was at risk within his family because the appellant had very little control of his behaviour and knowledge of his whereabouts for the large part of the day.
The conference also received detailed reports from his school of his poor attendance and his poor behaviour at school.
It was told that he was currently excluded from school for having assaulted his learning support teacher.
The police child protection officer said that there had been a lot of police involvement with X due to his offending and because he had been reported missing on numerous occasions by the appellant.
The police felt that many of the issues stemmed from Xs older sister Y who was involved in drugs and prostitution, as X was a frequent visitor to Ys home.
As for the appellants contribution to the discussion, the minutes recorded that she refused to accept that Xs behaviour was a concern and targeted the social worker as the cause of all her problems.
The decision of the conference was that Xs name should be placed on the child protection register, under the category of neglect.
The conference made fourteen recommendations for further action by the authorities, most of which were not implemented.
A review conference took place on 26 April 2002, and on 22 November 2002 there was a second review conference.
Further recommendations were made, again mostly not implemented, and it was confirmed that X should remain on the child protection register.
It was noted at the conference on 22 November 2002 that X was assaulted by his father on 25 September 2002 and that he had returned to live with the appellant.
On 27 September 2002 he was arrested for a robbery that was carried out on 12 September 2002.
He was charged with this offence on 2 October 2002, and on 31 March 2003 he was convicted and sentenced to three years detention in a young offender institution.
In June 2003 his name was removed from the child protection register as he was in detention.
He was released on 28 February 2004.
From February to December 2004 the appellant was employed by an employment agency, Client Services Education, which provides staff to schools.
Between March and July 2004 she worked as a midday assistant at a secondary school.
Her job involved supervising children in the lunchtime break both in the canteen and in the playground.
She was required to ensure that the children did not go outside the school gates, hurt themselves and get into fights.
She shared these responsibilities with four other assistants.
At the start of her employment the agency applied for an ECRC in accordance with section 115 of the 1997 Act.
The application was countersigned by Isabelle Logerot of the Registered Body Education (Waltham Forest Ltd), which was the registered person for the purposes of that section.
The position that the appellant had applied for was described in the application as a casual midday assistant.
The police were not given any other details about the work that this post would involve.
The appellant signed the application to indicate her consent.
Having done so, she returned it to the agency so that they could apply for the police check.
On 16 December 2004 the ECRC was issued in response to the police check.
It recorded that the appellant had no criminal convictions and that no information on her was recorded either on the list held under section 142 of the Education Act 2002 or on the Protection of Children Act 1999 list.
But in the box entitled Other relevant information disclosed at the Chief Police Officers discretion the Secretary of State disclosed the following information as having been supplied by the Metropolitan Police Service: [L], born [date], came to police notice in January 2002 when her son, aged 13, was put on the child protection register under the category of neglect.
It was alleged that the applicant had failed to exercise the required degree of care and supervision in that her son was constantly engaged in activities including shoplifting, failing to attend school, going missing from home, assaulting a teacher at school and was excluded from school.
Additionally, it was alleged that during this period the applicant had refused to co operate with the social services.
Her son was removed from the child protection register in June 2003 after he had been found guilty of robbery and receiving a custodial sentence.
Shortly afterwards the appellant was informed by the agency that her services were no longer required.
The appellant then sought judicial review of the Commissioners decision to disclose the information contained in the ECRC.
Her application was dismissed by Munby J on 19 March 2006: [2006] EWHC 482.
The Court of Appeal granted leave to appeal on 14 July 2006, and on 21 August 2006 the Secretary of State made an application to intervene which was granted on 18 September 2006.
On 1 March 2007 the Court of Appeal (Longmore, Smith and Moore Bick LJJ) dismissed the appeal: [2008] 1 WLR 681.
On 5 March 2008 the appellants solicitors wrote to the Commissioner to enquire whether he would consider removing the records which were the subject of the appeal from the information held by the Criminal Records Bureau.
The Commissioner replied on 13 March 2008 in these terms: We have only one record of an application from your client and that was in 2004.
The disclosure that was made then will be made in the future if she applies for a job that requires a CRB enhanced criminal record certificate.
The disclosure could only change if new information concerning your client came to light.
We cannot accede to your request to remove the information we hold in our records.
I accept that the nature of the disclosure effectively cuts your client off from working with children and vulnerable adults, but this does not necessarily affect her employment prospects.
The vast majority of jobs available do not require enhanced disclosure.
The issue
As the appellants exchange of correspondence with the Commissioner shows, the current approach to the disclosure follows the guidance that was given in R (X) v Chief Constable of the West Midlands Police [2005] 1 WLR 65.
It gives priority to the interests of children and vulnerable adults.
The appellants complaint is that it gives insufficient weight to the interests of the applicant, for whom disclosure will not infrequently lead to loss of employment and to long term inability to work in any form of employment involving care for or contact with children or vulnerable adults.
The reality will often be, as Baroness Hale of Richmond said in R (Wright) and others v Secretary of State for Health [2009] UKHL 3; [2009] 2 WLR 267, para 22, that the particular job will be lost to the applicant for good and that she will be most unlikely to be able to obtain any other job of that kind.
The way the system is operated ensures that the same information will always be disclosed whenever she applies for one.
This has all the hallmarks of a rather rigid, mechanistic system, that pays too little attention to the effects of disclosure on the applicant.
In R (Wright) and others v Secretary of State for Health the statutory provisions that were under scrutiny related to a list, known as the POVA list, which the Secretary of State was required to keep of persons who were considered unsuitable to work with vulnerable adults under section 81 of the Care Standards Act 2000.
If a care workers case was referred to the Secretary of State together with information from which it appeared that it might be appropriate for her to be included on that list, the Secretary of State was required by section 82(4)(b) of the Act to include her name on the list provisionally pending the determination of the reference.
The effect of listing was to prevent any new employer from employing the listed person in a care position or to deprive her of such a position if she already had one.
By reason of section 92 of the Act the worker was also listed provisionally on the list, known as the POCA list, of persons considered to be unsuitable to work with children.
No provision was made for the worker to be accorded a hearing before she was provisionally listed, and once the worker was provisionally listed it could take months before a decision whether or not to confirm that person on the list was made.
The result was that the care worker might suffer irreversible damage to her right to work in her chosen profession, as a result of allegations which might turn out to be unfounded or at the very least blown out of all proportion.
The House held that the denial of an opportunity to make representations before her name was included in the list was incompatible with the care workers rights under article 6(1).
It also held that the low threshold for provisional listing was a disproportionate interference with her article 8 rights.
Baroness Hale explained the basis for this finding in para 36: There will be some people for whom the impact upon personal relationships is so great as to constitute an interference with the right to respect for private life and others for whom it may not.
The scope of the ban is very wide, bearing in mind that the worker is placed on both the POVA and POCA lists.
The ban is also likely to have an effect in practice going beyond its effect in law.
Even though the lists are not made public, the fact is likely to get about and the stigma will be considerable.
The scheme must therefore be devised in such a way as to prevent possible breaches of the article 8 rights.
A declaration was made that section 82(4)(b) was incompatible with the appellants rights under article 6 and article 8 of the Convention.
The appellant does not suggest that her rights under article 6(1) are in issue in this case.
The scheme that section 115 of the 1997 Act provides for is not directly comparable with that under the 2000 Act.
Unlike the scheme for provisional listing under the 2000 Act, the provision of information in an ECRC does not automatically lead to the loss or denial of employment.
The issue as to its effect is left to the judgment of the employer.
The statute does not prevent the applicant from making representations at any stage to the police or to a prospective employer.
Section 117 provides that an applicant who believes that the information contained in a certificate is inaccurate may make an application in writing to the Secretary of State for a new certificate.
Nevertheless she submits that, for the same reasons that provisional listing under the scheme established under the Care Standards Act 2000 was capable of causing a breach of article 8 rights, so too is disclosure of information about an applicant on an ECRC.
As Mr Cragg put it, the state has a duty to provide a scheme which complies with article 8(2).
Section 115 was enacted for a legitimate purpose.
But he submitted that, as currently interpreted, it is not a measure which can be regarded as proportionate.
The threshold for disclosure is too low, the description of the information that can be disclosed is too broad and there are insufficient protections in the scheme.
Article 8(1)
Article 8(1) provides that everyone has the right to respect for his private life, his home and his correspondence.
The right that the appellant invokes in this case is her right to respect for her private life.
Ms Barton for the Commissioner submitted that the appellants rights under article 8 were not engaged at all by the scheme that section 115 sets out.
This was because much of the information that was included in an ECRC was quite properly in the public domain anyway, and because it was the appellant herself who had applied for the certificate.
Mr Eadie QC for the Secretary of State adopted a more nuanced approach to these issues.
He said that the answer to the question whether there was an interference with the applicants article 8 rights had to take account of the fact that the system was not dealing wholly with the private sphere and of the nature and type of the information that was made available.
He did not suggest that the applicants consent on its own provided an answer to it.
But account had to be taken of the fact that the regime left it to the police to judge what was relevant, that the final decision on relevance was left to the employer, that the system was less draconian than that which was under consideration in R (Wright) and others v Secretary of State for Health and that there were strict controls on what could be done with the information in the hands of the employer as further disclosure was prohibited.
The word engaged, which Ms Barton used when she said that article 8 was not engaged in this case at all, requires to be examined with some care.
It does not form part of the vocabulary of the European Court and, as Laws LJ said in Sheffield City Council v Smart [2002] EWCA Civ 04, [2002] HLR 639, para 22, its use is liable to be misleading and unhelpful.
In Harrow London Borough Council v Qazi [2003] UKHL 43, [2004] 1 AC 983, para 47 I said that I would not for my part regard its use as objectionable, so long as there was no doubt what it means in this context.
I drew attention to the words of Sir Gerald Fitzmaurice in his dissenting opinion in Marckx v Belgium (1979) 2 EHRR 330, in which he said that the question was whether the provision was applicable a concept which is juridically distinct from that of whether the provision has been breached.
In other words, the question is whether the issue that has been raised is within the scope of the article.
If it is not within its scope, the question of a possible breach of it does not arise at all.
If it is, the question whether there is an interference with it which requires to be justified under article 8(2) is a separate question.
The question whether something falls within the ambit of any of the rights or freedoms set forth in the Convention for the purpose of the prohibition of discrimination in article 14 reflects this approach.
The issue as to what does and does not lie within the scope of the article 8 right to respect for private life has been examined in some detail in R (Wright) v Secretary of State for Health, paras 30 32 and in In re British Broadcasting Corporation [2009] UKHL 34, [2009] 3 WLR 142, paras 18 20.
In the context of this case it is sufficient to note that it has been recognised that respect for private life comprises, to a certain degree, the right to establish and develop relationships with other human beings: X v Iceland (1976) 5 DR 86; Niemietz v Germany (1992) 16 EHRR 97, para 29.
Excluding a person from employment in her chosen field is liable to affect her ability to develop relationships with others, and the problems that this creates as regards the possibility of earning a living can have serious repercussions on the enjoyment of her private life: see Sidabras v Lithuania (2004) 42 EHRR 104, para 48.
She is entitled also to have her good name and reputation protected: see Turek v Slovakia (2006) 44 EHRR 861, para 109.
As Baroness Hale said in R (Wright) v Secretary of State for Health, para 36, the fact that a person has been excluded from employment is likely to get about and, if it does, the stigma will be considerable.
There is another aspect of the right to respect for private life that needs to be brought into account, as it is directly relevant to the effect on a persons private life of the release of information about him that is stored in public records.
In R v Chief Constable of the North Wales Police, Ex p AB [1999] QB 396 Lord Bingham of Cornhill CJ said in the Divisional Court that he was prepared to accept (without deciding) that disclosure of personal information that the applicants wished to keep to themselves could in principle amount to an interference with the right protected by article 8: [1999] QB 396, 414.
At p 416 Buxton J put the point more strongly when he said: I do however consider that a wish that certain facts in ones past, however notorious at the time, should remain in that past is an aspect of the subjects private life sufficient at least to raise questions under article 8 of the Convention.
Buxton Js observations were endorsed by Lord Woolf MR, delivering the judgment of the Court of Appeal: [1999] QB 396, 429.
The Convention was not, of course, then part of domestic law and Buxton Js observations in Ex p AB were not supported by reference to any decisions in Strasbourg.
But subsequent decisions by the European Court do, I think, provide support for them.
In Rotaru v Romania, (2000) 8 BHRC 449 Application no 28341/95, 4 May 2000, the applicant who was a lawyer by profession complained of a violation of his right to respect for his private life on account of the use against him by the Romanian Intelligence Service of a file which contained information about his conviction for insulting behaviour because, when he was a student, he had written two letters of protest against the abolition of freedom of expression when the communist regime was established in 1946.
In para 43 the court, referring to its judgment in Leander v Sweden (1987) 9 EHRR 433, para 48, said that the storing of information relating to an individuals private life in a secret register and the release of such information come within the scope of article 8(1): Moreover, public information can fall within the scope of private life where it is systematically collected and stored in files held by the authorities.
This is all the truer where such information concerns a persons distant past.
In Segerstedt Wiberg and others v Sweden, Application no 62332/00, 6 June 2006, para 72 and Cemalettin Canli v Turkey, Application no 22427/04, 18 November 2008, para 33, referring to its previous decision in Rotaru, the court again said that public information can fall within the scope of private life when it is systematically collected and stored in files held by the authorities.
This line of authority from Strasbourg shows that information about an applicants convictions which is collected and stored in central records can fall within the scope of private life within the meaning of article 8(1), with the result that it will interfere with the applicants private life when it is released.
It is, in one sense, public information because the convictions took place in public.
But the systematic storing of this information in central records means that it is available for disclosure under Part V of the 1997 Act long after the event when everyone other than the person concerned is likely to have forgotten about it.
As it recedes into the past, it becomes a part of the persons private life which must be respected.
Moreover, much of the other information that may find its way into an ECRC relates to things that happen behind closed doors.
A caution takes place in private, and the police gather and record information from a variety of sources which would not otherwise be made public.
It may include allegations of criminal behaviour for which there was insufficient evidence to prosecute, as in R v Local Authority and Police Authority in the Midlands, Ex p LM [2000] 1 FLR 612 where the allegations of child sexual abuse were unsubstantiated.
It may even disclose something that could not be described as criminal behaviour at all.
The information that was disclosed on the appellants ECRC was of that kind.
The ECRC disclosed that the appellants son X was put on the child protection register and that he was removed from it after he had been found guilty of robbery and received a custodial sentence.
His conviction could be seen as public information because his trial was held in public.
But the fact that the appellant was the mother of the person who had been convicted and sentenced to detention was private information.
So too was information about the proceedings in which it was alleged that she failed to exercise the required degree of care and supervision of her son and that she had refused to co operate with the social services.
They were recorded in the minutes of the child protection conference on 29 January 2002.
But the conference did not take place in public, nor were the minutes open to public scrutiny.
These were aspects of her private life which had to be respected when the decision was taken as to whether or not details
which had been stored in the police files should be released
For these reasons I would reject Ms Bartons submission that article 8(1) is not engaged in this case.
It seems to me that the decisions which the chief officer of police is required to take by section 115(7) of the 1997 Act are likely to fall within the scope of article 8(1) in every case, as the information which he is considering has been stored in files held by the police.
It follows that its disclosure is likely to affect the private life of the applicant in virtually every case.
The question in these cases will be whether the interference with her private life can be justified.
How the system works in practice
The evidence that was before the judge included statements by Detective Chief Inspector Stuart Gibson and by Chief Superintendent Graham Morris.
The notes on the relevant case management system (known as CEC) attached to DCI Gibsons statement show that information that the police held in the appellants case was passed to him by a team leader at the end of September 2004 so that he could make a recommendation as to whether any of its contents should be included in the ECRC.
He had available to him notes of guidance as to the approach which he was expected to follow.
Among other things such as the quality and age of the information, he was expected to have regard to human rights issues.
For this purpose he had available to him the guidance that was given in a document headed MP9 Human Rights Guidelines.
MP9 sets out the steps that the police officer is expected to take to establish whether or not he believes that the impact of disclosure on the applicants private life outweighs the potential impact on the vulnerable group if the information was not disclosed.
Those steps are the subject of a risk/human rights rating table, in which four human rights categories are compared with three risk categories.
The human rights categories are graded according to the extent to which disclosure would cause disruption to the private life of the applicant or a third party: none, little, moderate or severe.
The risk categories are graded according to the degree of risk that failure to disclose would cause to the vulnerable group: severe, moderate or little.
The first task is to determine the human rights category of the statement that is being considered for disclosure.
The second is to determine its risk category.
The third and crucial stage is to check the content of the cell on the table which forms the intersection of the risk and human rights categories.
These cells contain either a tick, which indicates that in such a case the information will always be disclosed, or the words carefully consider which indicate that careful consideration is needed to ensure that the rationale for disclosure makes it very clear why the human rights infringement outweighs the risk posed to the vulnerable group.
A striking feature of the rating table is that a tick appears in every cell where it is said that a failure to disclose would cause a severe risk to the vulnerable intersects with a human rights category, however severe the disruption that disclosure in that category would cause to the private life of anyone.
Where the risk that a failure to disclose would cause is moderate, careful consideration is only required if the disruption to the private life of anyone would be one grade higher: severe.
It is only where the risk that a failure to disclose would cause little quantifiable risk to the vulnerable group that careful consideration is required if the corresponding human rights category of little disruption to private life applies.
In all other cases the corresponding human rights category is trumped by an equivalent risk category.
On 30 November 2004 DCI Gibson wrote a minute to Det.Supt.
Morris (as he then was) on the CEC notes informing him that, having considered what he described as a mountain of information a large part of which was rumour, conjecture and uncorroborated allegations, the only part of it that he considered it safe to disclose was that surrounding the appellants son being the subject of inclusion on the child protection register under the category of neglect.
He said that he considered this to be highly relevant as the appellant had consistently displayed a lack of ability to adequately care for and supervise her own child and the registered body should be made aware of her history when considering her employment application.
On 2 December 2004 Det.Supt.
Morris entered a minute on the CEC agreeing with DCI Gibson.
It included the following determination of the human rights issue: The HRA requires a balance to be struck between the right to private life and protecting the vulnerable from moral harm, mental or physical abuse.
While individuals should not be at the risk of being for ever hounded, if a person chooses to seek this kind of employment then they put themselves forward into public life and by that choice accept that information may be released.
The impact of disclosure may result in his not being employed.
While it would not be in societys interest to exclude an applicant from employment, social outlets, etc as this may be a moderating factor on behaviour, the welfare of the vulnerable in respect of whom the risk may exist is of paramount importance, as is their rights that legislation seeks to protect.
The decision is one for police and there is no presumption against disclosure, the position is more in favour of disclosure unless there is a good reason for not doing so. (X v WM)
It is plain, both from the terms of Det.Supt.
Morriss minute and the way the rating table is set out, that the treatment of the human rights issue by the police has been closely modelled on what Lord Woolf CJ said in R (X) v Chief Constable of the West Midlands Police [2005] 1 WLR 65.
This impression is reinforced by the approach to this issue of the Home Office circular 5/2005 Criminal Records Bureau: Local Checks by Police Forces.
In para 6 it states that a decision on whether information should be disclosed will turn to a large extent on considerations of relevancy, although other facts need to be weighed too, in particular whether the nature of the information and its degree of relevance to the case in hand are such that its disclosure would be reasonable and proportionate, having regard to the applicants right to respect for his or her private life.
Para 55 states, under the heading Case Law, that forces and their solicitors will be aware of the Court of Appeals judgment in that case.
So it is now necessary to look more closely at that case, and to consider whether the Court of Appeal struck the balance in the right place as proportionality requires if section 115(7) is to be applied compatibly with article 8.
R (X) v Chief Constable of the West Midlands Police
This was a case where a man who applied for a job as a social worker had no previous convictions.
He had been charged with indecent exposure, but the proceedings were discontinued when the alleged victim failed to identify him.
The social work agency which was dealing with his job application applied for an ECRC.
The Chief Constable, as he was required to do, issued an ECRC to the agency relating to the applicant.
It contained details of the allegations of indecent exposure under the heading of other relevant information.
When the Chief Constables decision to disclose this information came before him for judicial review, Wall J held that the duty to act fairly required the Chief Constable to permit the claimant to make representations as to what was proposed to be disclosed and that, on the facts, there had not been a pressing need for disclosure: [2004] EWHC 61 (Admin), [2004] 1 WLR 1518.
Wall J referred in paras 71 to 80 of his judgment to what was said R v Chief Constable of the North Wales Police, Ex p AB [1999] QB 396 by Lord Bingham of Cornhill CJ in the Divisional Court where at p 410 he stressed the importance of considering each case carefully on its own facts and by Lord Woolf MR in the Court of Appeal where at p 428 he too said that each case must be judged on its own facts.
He referred also to Dyson Js judgment in R v Local Authority and Police Authority in the Midlands, Ex p LM [2000] 1 FLR 612 in which the approach that was to be taken to section 115(7) of the 1997 Act was directly in issue, where he said at p 622: In my view, the guiding principles for the exercise of the power to disclose in the present case are those enunciated in R v Chief Constable of the North Wales Police, Ex p AB.
Each of the respondent authorities had to consider the case on its own facts.
A blanket approach was impermissible.
Having regard to the sensitivity of the issues raised by the allegations of sexual impropriety made against LM, disclosure should only be made if there is a pressing need.
Disclosure should be the exception, and not the rule.
In para 84 Wall J said that, while section 115(7) defined the parameters of the Chief Constables discretion, it did not exclude the operation of the common law principles as to its exercise.
In para 85 he said that, as all parties in those proceedings accepted, the discretion must also be exercised in compliance with article 8(2) of the Convention and that it seemed to him to be only a very short step to an acceptance that the common law principles set out in Ex p AB as accepted by Dyson J in Ex p LM also applied.
In para 89 he said: The disclosure of information which (as here) has not been the subject of judicial adjudication, which is highly contentious and which, if disclosed is likely to render the claimant permanently unemployable in his chosen profession plainly requires what the European court described as a pressing need to made disclosure appropriate.
In para 90, however, he accepted that the need to protect children and vulnerable adults from abuse by those employed to care for them is a pressing social need and in para 91, having noted that it was at least highly arguable that the effect of section 115(7) was to displace the common law presumption against disclosure, he said that he proposed to approach the question on the basis that there was no presumption against disclosure and that the circumstances identified in section 115(7) did identify a pressing need: As will become apparent, however, this does not mean that disclosure of additional, non conviction information under section 115 is automatic, or that it is not surrounded by the stringent conditions of natural justice and procedural fairness.
He held that there had been no proper assessment of the effect on the claimant of disclosure being given, and that the information ought not to have been disclosed.
Wall Js decision was reversed in the Court of Appeal: [2005] 1 WLR 65.
In para 36 Lord Woolf CJ said that the position was more in favour of disclosure than Wall J had indicated: Having regard to the language of section 115, the Chief Constable was under a duty to disclose if the information might be relevant, unless there was some good reason for not making such a disclosure.
In para 37, as I noted in para 2 above, he then added these words: This was obviously required by Parliament because it was important (for the protection of children and vulnerable adults) that the information should be disclosed even if it only might be true.
If it might be true, the person who was proposing to employ the claimant should be entitled to take it into account before the decision was made as to whether or not to employ the claimant.
This was the policy of the legislation in order to serve a pressing social need.
In my judgment it imposes too heavy an obligation on the Chief Constable to require him to give an opportunity for a person to make representations prior to the Chief Constable performing his statutory duty of disclosure.
In para 41 he considered the effect of article 8(2), on the assumption that article 8 had a role to play in the decision of the Chief Constable: on that assumption, how can the Chief Constables decision to disclose be challenged under article 8.
As already indicated, the Chief Constable starts off with the advantage that his statutory role is not in conflict with article 8, because the statute meets the requirements of article 8(2).
It follows also, that as long as the Chief Constable was entitled to form the opinion that the information disclosed might be relevant, then absent any untoward circumstance which is not present here, it is difficult to see that there can be any reason why the information that might be relevant, ought not to be included in the certificate.
I accept that it is possible that there could be cases where the information should not be included in the certificate because it is disproportionate to do so; the information might be as to some trifling matter; it may be that the evidence made it so unlikely that the information was correct, that it again would be disproportionate to disclose it.
These were not, in my judgment, the situations on the facts before the Chief Constable.
It is plain that the effect of this approach is to encourage disclosure of any information that might be relevant, and to give priority to the social need that favours disclosure over respect for the private life of the applicant and of any third party who may be affected by the disclosure.
It was also a significant departure from the way the White Paper envisaged the scheme would be operated: see para 5, above.
Discussion
Section 115(7) requires the Chief Constable to form an opinion as to whether any information (a) might be relevant for the purpose described in the statement under subsection (2), and (b) ought to be included in the certificate.
The question whether the information is relevant will depend on the facts of the case.
As Richards LJ said in R (Pinnington) v Chief Constable of Thames Valley Police [2008] EWHC 1870 (Admin), para 47, by the terms of the statute it is for the chief constable or his delegate to form an opinion on that issue.
In forming his opinion on relevance, the officer must ask himself whether the information might be true, and if it might be true he must consider the degree of connection between the information and the purpose described.
It has not been suggested that DCI Gibson and Det.Supt.
Morris, who undertook their task with commendable care, were not entitled to conclude that the information that was disclosed on the appellants ECRC might be relevant for the purpose disclosed in the statement that the employment agency provided under section 115(2).
The question whether the information might be relevant is not, however, the end of the matter.
An opinion must also be formed as to whether it ought to be included in the certificate.
It is here, as the guidance that is available to the police correctly recognises, that attention must be given to the impact that disclosure may have on the private lives of the applicant and of any third party who is referred to in the information.
For the reasons I have already given (see paras 22 29), I consider that the decisions which the chief officer of police is required to take by section 115(7) of the 1997 Act will fall within the scope of article 8(1) in every case.
So in every case he must consider whether there is likely to be an interference with the applicants private life, and if so whether that interference can be justified.
This raises the question whether in R (X) v Chief Constable of the West Midlands Police [2005] 1 WLR 65, paras 36 and 37 and especially in para 41, Lord Woolf CJ struck the balance in the right place.
Before he addressed himself to this issue, however, Lord Woolf noted in para 20 of the judgment that it had not been suggested in that case that the legislation itself contravenes article 8: No doubt this is because disclosure of the information contained in the certificate would be in accordance with the law and necessary in a democratic society, in the interests of public safety and for the prevention of crime and for the protection of the rights and freedoms of others.
This country must, through its legislature, be entitled to enable information to be available to prospective employers, where the nature of the employment means that particular care should be taken to ensure that those who are working with the appropriate categories of persons can be relied on to do so, without those in their care coming to harm if they are under the age of 18 or vulnerable adults.
I would respectfully endorse those remarks.
Here too it was not suggested by Mr Cragg that the legislation itself contravened article 8, so long as it was interpreted and applied in a way that was proportionate.
So the issue is essentially one of proportionality.
On the one hand there is a pressing social need that children and vulnerable adults should be protected against the risk of harm.
On the other there is the applicants right to respect for her private life.
It is of the greatest importance that the balance between these two considerations is struck in the right place.
As the many additions that have been made to the list of matters in section 115(5) show, the use that is being made of the requirement to obtain an ECRC has increased substantially since the scheme was first devised.
The number of disclosures of information by means of ECRCs has exceeded 200,000 for each of the last two years (215,640 for 2007/2008; 274,877 for 2008/2009).
Not far short of ten per cent of these disclosures have had section 115(7) information on them (17,560 for 2007/2008; 21,045 for 2008/2009).
Increasing use of this procedure, and the effects of the release of sensitive information of this kind on the applicants opportunities for employment or engaging in unpaid work in the community and their ability to establish and develop relations with others, is a cause of very real public concern as the written intervention submitted by Liberty indicates.
As Liberty also point out, it is no answer to these concerns that the ECRC is issued on the application of the persons concerned.
It is true that they can choose not to apply for a position of the kind that requires such a certificate.
But they have, in reality no free choice in the matter if an employer in their chosen profession insists, as he is entitled to, on an ECRC.
The answer to the question whether there is any relevant information is likely to determine the outcome of their job application.
If relevant information is disclosed they may as a result be cut off from work for which they have considerable training and experience.
In some cases they could be excluded permanently from the only work which is likely to be available to them.
They consent to the application, but only on the basis that their right to private life is respected.
In my opinion the effect of the approach that was taken to this issue in R (X) v Chief Constable of the West Midlands Police has been to tilt the balance against the applicant too far.
It has encouraged the idea that priority must be given to the social need to protect the vulnerable as against the right to respect for private life of the applicant.
This is clearly shown by the way the rating table in MP9 is constructed and by Det.Supt.
Morriss minute of 2 December 2004.
The words ought to be included in section 115(7)(b) require to be given much greater attention.
They must be read and given effect in a way that is compatible with the applicants Convention right and that of any third party who may be affected by the disclosure: Human Rights Act 1998 Act, section 3(1).
But in my opinion there is no need for those words to be read down or for words to be added in that are not there.
All that is needed is to give those words their full weight, so that proper consideration is given to the applicants right to respect for her private life.
The correct approach, as in other cases where competing Convention rights are in issue, is that neither consideration has precedence over the other: Campbell v MGN Ltd [2004 ] UKHL 22, [2004] 2 AC 457, para 12, per Lord Nicholls of Birkenhead.
The rating table in MP9 should be restructured so that the precedence that is given to the risk that failure to disclose would cause to the vulnerable group is removed.
It should indicate that careful consideration is required in all cases where the disruption to the private life of anyone is judged to be as great, or more so, as the risk of non disclosure to the vulnerable group.
The advice that, where careful consideration is required, the rationale for disclosure should make it very clear why the human rights infringement outweighs the risk posed to the vulnerable group also needs to be reworded.
It should no longer be assumed that the presumption is for disclosure unless there is a good reason for not doing so.
In cases of doubt, especially where it is unclear whether the position for which the applicant is applying really does require the disclosure of sensitive information, where there is room for doubt as to whether an allegation of a sensitive kind could be substantiated or where the information may indicate a state of affairs that is out of date or no longer true, chief constables should offer the applicant an opportunity of making representations before the information is released.
In R (X) v Chief Constable of the West Midlands Police Lord Woolf CJ rejected Wall Js suggestion that this should be done on the ground that this would impose too heavy an obligation on the Chief Constable [2005] 1 WLR 65, para 37.
Here too I think, with respect, that he got the balance wrong.
But it will not be necessary for this procedure to be undertaken in every case.
It should only be resorted to where there is room for doubt as to whether there should be disclosure of information that is considered to be relevant.
The risks in such cases of causing disproportionate harm to the applicant outweigh the inconvenience to the chief constable.
Conclusion
In my opinion it is possible for section 115(7) to be read and given effect in the way that I have indicated so that decisions are taken which are compatible with the applicants article 8 right.
It must follow that it would not be appropriate for a declaration to be made under section 4 of the Human Rights Act 1998 that the subsection is incompatible.
I would also decline the appellants request that the decision that was made in her case should be quashed.
There is no doubt that the information that was disclosed about her was relevant for the purpose for which the ECRC was being required.
As for the question whether it ought to have been disclosed, insufficient weight was given to the appellants right to respect for her private life.
But there is no doubt that the facts that were narrated were true.
It was also information that bore directly on the question whether she was a person who could safely be entrusted with the job of supervising children in a school canteen or in the playground.
It was for the employer to decide what to make of this information, but it is not at all surprising that the decision was that her employment should be terminated.
The consequences that disclosure will have for her private life are regrettable.
But I can see no escape from the conclusion that the risk to the children must, in her case, be held to outweigh the prejudicial effects that disclosure will give rise to.
I would dismiss the appeal.
LORD SAVILLE
reasons that he gives I would dismiss this appeal.
I have had the advantage of reading in draft the judgment of Lord Hope.
For the
LORD SCOTT
The appellant, L, is a lady who wanted to obtain employment in a school as a casual midday assistant.
The duties associated with this position involved supervising the schoolchildren during the lunchtime break both in the school canteen and in the school playground.
The appellant hoped to obtain this employment via an agency, Client Services Education (CSE), whose business was to provide staff to schools.
For the purposes of furthering the prospects of her success in obtaining the desired employment she made an application for an enhanced criminal record certificate pursuant to section 115 of the Police Act 1997 (as amended).
My noble and learned friend, Lord Hope, whose opinion on this appeal I have had the advantage of reading in draft, has explained in para 1 and paras 4 to 11 of his opinion the background to and the purpose of section 115 and has set out the terms of the section.
I gratefully adopt what he has said and it suffices for present purposes for me to say that whereas a criminal record certificate gives details of any recorded convictions of the individual to whom the certificate relates, an enhanced criminal record certificate (an ECRC) gives, in addition, any information which in the opinion of the chief officer of the relevant police force might be relevant for the purpose described in the application for the certificate and ought to be included in the certificate (see section 115(7)).
The chief officer is not expected to embark upon an investigatory inquiry regarding the individual in question but simply to consult the records maintained by the police.
It is clear that additional information disclosed under subsection (7) in an ECRC may be information that does not involve any criminal behaviour on the part of the individual in question.
It may, for example, as in the present case, relate to the relationship of the individual with some other person who does have a criminal record.
In the previous paragraph I said that the appellant had made an application for an ECRC.
In para 7 of the Statement of Facts and Issues, prepared for the purposes of this appeal and signed by the respective counsel for the appellant and the respondent, the Secretary of State, it is stated that the application was made by CSE.
Lord Hope, in para 14 of his opinion, has repeated that it was CSE that applied for the ECRC.
However, subsections (1) and (2) of section 115 seem to me to make it clear that an application for an ECRC must be made by the individual in question.
Subsection (1) says that The Secretary of State shall issue an enhanced criminal record certificate to any individual who (a) makes an application under this section in the prescribed form countersigned by a registered person The registered person in the present case was CSE.
Subsection (2) says that the application must be accompanied by a statement by the registered person that the certificate is required for the purposes of an exempted question asked (a) in the course of considering the applicants suitability for a position (whether paid or unpaid) within subsections (3) or (4) (emphasis added) Subsection (3) refers to a position which involves regularly supervising or being in sole charge of persons under 18.
Subsection (3) clearly covers the position for which the appellant was hoping to be employed and it is she who must have been the applicant whose suitability was under consideration.
The statutory obligation imposed on the Secretary of State by subsection (1) is an obligation to issue the ECRC to the individual who makes the application.
Subsection (8) imposes a statutory obligation on the Secretary of State to send a copy of the ECRC to the registered person, CSE in the present case.
I think, therefore, that it must be wrong to say that the application for the ECRC had been made by CSE.
It must have been made by the appellant.
It may be that not very much turns on this point for, as Lord Hope has pointed out, also in para 14, The appellant signed the application to indicate her consent.
The ECRC issued in response to the application recorded that the appellant had no criminal convictions but under the heading other relevant information disclosed at the chief police officers discretion the Secretary of State included the details regarding the appellants 13 year old son that are recited by Lord Hope in para 15 of his opinion.
It is plain that it was the chief police officers opinion that these details were relevant to the employment of the appellant as a casual midday assistant at a school and that they ought to be included in the certificate.
The appellant has challenged the chief police officers decision to include the details in question in the certificate.
The decision, it is submitted, violates her rights under article 8 of the European Convention on Human Rights.
Article 8 entitles everyone to the right to respect for his or her private life.
The ECRC, issued in response to the appellants application, undoubtedly contained details about her private life but these were details that, in my opinion, had a clear relevance to the suitability of the appellant to be employed in a capacity that involved the supervision of schoolchildren, whether in the school canteen or in the school playground.
The only remaining question, in my opinion, is whether the decision of the chief police officer that the details ought to be included in the certificate is vulnerable to an article 8 attack.
It would be easy to understand a complaint by the appellant of an article 8 breach of her right to respect for her private life if details with no arguable relevance to the employment position in question had been gratuitously included in the ECRC.
But that is not the case here.
Nor is it suggested that the compilation and retention by the police of the details in question constituted a breach of her article 8 rights.
If the compilation and retention by the police of the details was unexceptionable and if it cannot be suggested that the details were irrelevant to the suitability of the appellant for the employment position for which she had applied, I find it difficult to see on what basis her attack on the inclusion of the details in the certificate could succeed.
She does not say that they are untrue nor that they are irrelevant.
She simply says, as I understand it, that the decision to include them in the certificate showed a lack of the respect for her private life to which she is entitled under article 8.
It is at this point, as it seems to me, that it becomes necessary to remember that it was she who applied for the certificate.
I do not doubt that the need for the certificate would have been impressed on her by CSE and that she would have realised that unless she agreed to make the application her chances of obtaining the employment position she desired would be reduced.
She may or may not have had in mind the full implications of subsection (7) of section 115 and it would probably not have occurred to her that the history of her delinquent 13 year old son and her failure to have controlled his delinquency would be known to the police and might be considered relevant information.
But it cannot, in my opinion, possibly be said that the police response showed a lack of respect for her private life.
It was she who, in making the application for an ECRC, invited the exercise by the chief police officer of the statutory duty imposed by section 115(7).
In para 43 of his opinion Lord Hope has commented that those in respect of whom an ECRC are sought consent to the application but only on the basis that their right to private life is respected.
This proposition seems to me, with the greatest respect, to be an impossible one.
The any information to which subsection (7) refers is almost bound to be information about private life.
An application for subsection (7) information cannot be on the basis that no private information on the police files about the individual in question will be included in the certificate.
If an application were ever made on that express basis it would rightly be rejected by the Secretary of State.
If the private information is relevant and the decision that it ought to be included in the ECRC is a reasonable one, having regard to the reason why the certificate is being sought, there is, in my opinion, no objection to its inclusion that the applicant for the certificate can make.
A decision reasonably reached that relevant information should be included in an ECRC cannot, in my opinion, be attacked by the applicant for the ECRC on the ground that the decision showed an article 8 lack of respect for his or her private life.
It follows from what I have said that I would, for my part, endorse the approach taken by Lord Woolf CJ in R (X) v Chief Constable of the West Midlands Police [2005] 1WLR 65, referred to by Lord Hope in paragraphs 41 and 44 of his opinion.
I agree that the approach accords priority to the social need to protect the vulnerable as against any article 8 rights the applicant for a section 115(7) ECRC may otherwise be entitled to.
The applicant, by making the application, authorises the issue of the certificate in accordance with the criteria prescribed by paragraphs (a) and (b) of the subsection.
If the decision of the chief police officer to include in the certificate the additional information is a decision which cannot be challenged as being unreasonable, having regard to the purpose described in the application (see section 115(7)), an article 8 challenge to the decision is not, in my opinion, open to the applicant.
I would, therefore, dismiss this appeal.
LORD BROWN
I have had the advantage of reading in draft the opinions of Lord Hope and Lord Neuberger.
I agree with both of them and there is really very little that it might be helpful to add.
Instinctively though one rails against a nanny state, there are occasions when nannying is justified and section 115 (7) of the Police Act 1997 seems to me just such a case.
As already comprehensively explained by my Lords, it provides a mechanism whereby those considering the employment of someone applying to work with children may be the better informed as to that persons suitability for the post more particularly as to whether there is anything known to the police about the person such as should give the prospective employer, at the very least, pause for thought.
That said, there can be no doubting the impact an enhanced criminal record certificate (ECRC) containing any adverse information is likely to have on the persons prospects of obtaining the desired employment and it therefore seems to me imperative in every case to ensure that the public interest in safeguarding children really does justify the relevant disclosure.
In short, I wholeheartedly concur with my Lords in concluding that the balance struck by the Court of Appeal in R (X) v Chief Constable of the West Midlands Police [2005] 1 WLR 65 needs to be re struck less unfavourably to the prospective employee.
This is to be achieved in the first place by the chief officer of police giving no less weight to the section 115(7) (b) requirement that in his opinion the information ought to be included in the certificate than to the section 115(7)(a) requirement that he thinks it might be relevant (rather than presuming that any potentially relevant information should ordinarily be disclosed); and secondly by requiring the chief officer in any borderline case, before issuing the certificate, to give the prospective employee an opportunity to state why the information which the officer proposes disclosing ought not in fact to be disclosed.
Lord Scott takes issue with Lord Hopes statement at para 43 of his opinion that applicants for ECRCs consent to the disclosure of relevant information about them but only on the basis that their right to private life is respected.
Assuming, as I do, that all that Lord Hope means by this is that applicants are consenting to the disclosure of relevant information to the extent that this is proportionate to the damage this will cause to their interests in privacy but no more, it seems to me plainly right.
As Lord Neuberger puts it at para 73 of his opinion, were it otherwise, legislation could all too easily be devised so as to circumvent Convention rights.
The above criticisms of the existing approach to disclosure under section 115(7) notwithstanding, in common with all of my Lords I regard the position in the present case to be clear.
The Commissioners decision to make the disputed disclosure here cannot in my opinion be criticised.
The appeal must accordingly be dismissed.
LORD NEUBERGER
Lord Hope has clearly set out the legislative provisions and history, the factual and procedural background and the appellants contentions in paragraphs 4 to 21 of his judgment, and I gratefully adopt what he there says.
The appellants contentions raise two principal issues.
The first is whether the appellants complaint about the operation of section 115 of the Police Act 1997, as summarised by Lord Hope in paragraph 21, is one which properly falls within the reach of article 8 of the Convention, i.e. whether article 8 is engaged.
The second issue, which only arises if the Article is engaged, is whether the operation of the section in a case such as the present infringes article 8.
There is also a separate contention that the decision in this particular case should be quashed.
As to the first issue, I am firmly of the view that article 8 is engaged in this case.
An enhanced criminal record certificate (an ECRC) which contains particulars of any convictions (potentially including spent convictions) or cautions (under section 115(6)(a)(i) and 113(5) of the 1997 Act), or any other information which might be relevant and which ought to be included in the certificate (under section 115(6)(a)(ii) and 115(7) of the 1997 Act), will often have a highly significant effect on the applicant.
In the light of the wide ambit of section 115 (extending as it does to social workers and teachers, as well as to those regularly caring for, training, supervising or being in sole charge of children), an adverse ECRC (i.e. an ECRC within section 115(6)(a), rather than section 115(6)(b)) will often effectively shut off forever all employment opportunities for the applicant in a large number of different fields, for the reasons given, in relation to other legislation, by Baroness Hale of Richmond in R (Wright) and others v Secretary of State for Health [2009] UKHL 3, [2009] 2 WLR 267, para 22.
An ECRC must be sought for each job application, but, once an adverse ECRC has been issued in relation to one application, it is, in the absence of special factors, likely to be issued in the same terms in relation to all future applications for posts falling within the ambit of section 115.
Even where the ECRC records a conviction (or caution) for a relatively minor, or questionably relevant, offence, a prospective employer may well feel it safer, particularly in the present culture, which, at least in its historical context, can be said to be unusually risk averse and judgmental, to reject the applicant.
The same point applies to an ECRC which only contained material falling within section 115(6)(a)(ii) and (7), even where the chief officers opinion that the material should be included, while rational, was not one which many chief officers would have shared. (Having said that, there will no doubt be cases where the employer will conclude that the information in the adverse ECRC is irrelevant or has been satisfactorily explained or disposed of by the applicant, but such cases would, I suspect, be comparatively rare.)
The view that this feature of the 1997 Act means that Article 8 is engaged derives support from Sidabras v Lithuania (2004) 42 EHRR 104, para 48.
An applicants exclusion from a large sector of the job market (especially, it seems to me, a socially important and vocationally driven sector) will frequently have a significant effect on her private life, in terms of career satisfaction, development of personal relationships and ability to earn a living.
No reason has been advanced for thinking that this does not apply to the appellant in the present case, and accordingly, unless there is any other reason for holding otherwise, it appears to me that article 8 is engaged here.
Quite apart from this reason, while it may be said to be a little artificial to treat it as a separate reason, I consider that article 8 will, at least frequently, be engaged by an adverse ECRC, because it will involve the release of information about the applicant, which is stored on public records.
Even where the information released in the ECRC is already in the public domain (as will be the case with almost all convictions), it seems to me that re publication of the information can often engage article 8: see, in the domestic context, R v Chief Constable of the North Wales Police ex p AB [1999] QB 396, 416 and 429 (per Buxton J in the Divisional Court and Lord Woolf MR in the Court of Appeal, respectively), and, in Strasbourg, Segerstedt Wiberg v Sweden Application No 62332/00, 6 June 2006, para 72, and Cemalettin Canli v Turkey, Application No 22427/04, 18 November 2008, para 33.
Where the information, or a substantial part of the information, released in the ECRC is not in the public domain, as will very often be the position in relation to information falling within section 115(6)(a)(ii) and (7), the case for Article 8 engagement, as I see it, is self evidently even stronger see Leander v Sweden (1987) 9 EHRR 433, para 48, and Rotaru v Romania, Application no 28341/95, 8 BHRC 449 4 May 2000, para 43.
In the present case, as Lord Hope has explained in para 28, the information contained in the ECRC pursuant to section 115(6)(a)(ii) and (7), in so far as it related to the appellant (as opposed to her son), was not publicly available and was not even based on events which had taken place in public.
Accordingly, for this reason as well, it appears to me that, subject to any other argument raised to the contrary, article 8 is engaged in this case.
Counsel for the Commissioner of Police argued that, despite this reasoning, article 8 was not engaged, because, under section 115(1)(a), an ECRC is issued only on the application of the applicant.
The argument amounts to this, that a person cannot complain that disclosure of information about her infringes her article 8 rights where she has consented to the disclosure, and a fortiori where she has applied for the disclosure, as happened in this case, pursuant to section 115(1).
I have no hesitation in rejecting this argument.
Where the legislature imposes on a commonplace action or relationship, such as a job application or selection process, a statutory fetter, whose terms would normally engage a persons Convention right, it cannot avoid the engagement of the right by including in the fetters procedural provisions a term that the person must agree to those terms.
Apart from this proposition being right in principle, it seems to me that, if it were otherwise, there would be an easy procedural device which the legislature could invoke in many cases to by pass Convention rights.
I turn, then, to the second issue, namely, given that applicants article 8 rights are engaged in this case, do the provisions of section 115(6)(a)(ii) and (7) infringe those rights? This question raises a problem which the courts have not infrequently had to face since the Human Rights Act 1998 came into force.
In order to protect the members of a particular group of people, Parliament has enacted legislation, the effect of which is to encroach on the Convention rights of members of another group.
When, as in this case, a member of the latter group, who is adversely affected by the legislation, complains that her Convention rights have been infringed, the task of the court is to decide whether the legislation concerned has struck an appropriate balance between the interests of the two groups.
When deciding whether the balance is appropriate, it is for the court to form its own judgment, but, in doing so, it should accord proper deference to the fact that the legislation represents the view of by the democratically elected legislature as to where the balance should be struck.
In addition, the court is, of course, bound to try, if possible, to construe the legislation in such a way as to achieve compatibility with the Convention: a declaration of incompatibility is very much of a last resort.
Part V of the 1997 Act has the unexceptionable aim of protecting vulnerable people (for present purposes children, but also, in certain circumstances, vulnerable adults), from being harmed by those working with them.
It does so by requiring relevant information available to the police, about an applicant for a post involving responsibility for such vulnerable people, to be vouchsafed in an ECRC to the prospective employer.
It is then for that employer to decide whether the information is relevant, and, if so, whether it justifies refusing to employ the applicant.
As already mentioned, however, it seems to me realistic to assume that, in the majority of cases, it is likely that an adverse ECRC, i.e. one falling within section 115(6)(a), will represent something close to a killer blow to the hopes of a person who aspires to any post which falls within the scope of the section.
Further, the vouchsafing of the information in an adverse ECRC will of itself normally (and where, as here, it is pursuant to section 115(6)(a)(ii), almost inevitably) impact on the applicants private life.
Given that, in relation to children related posts, the section is limited to those seeking employment involving regular. responsibility for young people, I am prepared to proceed on the basis that there is nothing objectionable in the requirement that an ECRC must contain the information referred to in section 115(6)(a)(i), as expanded by the definition of relevant matter in section 113(5), even though it may on occasions be rather harsh on the applicant concerned.
As Lord Woolf MR said in R(X) v Chief Constable of the West Midlands Police [2005] 1 WLR 65, para 20, Parliament must be entitled to enable information to be available to prospective employers, where the nature of the employment means that particular care should be taken to ensure that those who are working with the appropriate categories of persons can be relied on to do so .
Whether as a result of a conviction or a caution (which involves the person concerned having admitted committing the offence in question), there can be little doubt that the information in question will be accurate, and will have been sufficiently grave as to amount to a crime.
However, section 115(6)(a)(ii), as expanded by section 115(7)(a), requires the inclusion of a different category of material, which raises very different considerations.
First, it may frequently extend to allegations of matters which are disputed by the applicant, or even to mere suspicions or hints of matters which are disputed by the applicant.
Secondly, the threshold for inclusion in the ECRC is subjective and very low: information must be included in an ECRC if, in the opinion of the chief officer, it might be relevant.
So, information would often properly fall within section 115(7)(a) if it was not in fact relevant, or was only very peripherally relevant, to the applicants suitability for the post in question.
It could be information which would unfairly blacken her name, unjustly prejudice her prospects of obtaining the post or any other post for which an ECRC was required (e.g. a spent conviction for dishonesty), or simply embarrass her.
In my view, if section 115(7)(a) was the sole criterion for the inclusion of information under section 115(6)(a)(ii), it would be impossible to justify.
Although its general purpose, namely protection of vulnerable people from potential harm from those with posts involving responsibility for them, is unexceptionable, there would simply be insufficient, indeed effectively no real, countervailing protection for the article 8 rights of applicants for such posts.
Although not on all fours with the facts in R (Wright) and others v Secretary of State for Health [2009] 2 WLR 267, I consider that the thrust of the reasoning in that case supports such a conclusion.
There would be too many cases where the inclusion in an ECRC of material falling within section 115(7)(a) would represent an unwarranted invasion of an applicants article 8 rights for the statutory provisions to survive an incompatibility assault.
However, the test for inclusion of material under section 115(6)(a)(ii) is not limited to paragraph (a) of section 115(7).
Information cannot be included in an ECRC under section 115(6(a)(ii) unless it also satisfies paragraph (b).
Section 115(7) sets out two requirements which are separate in principle, although they may well frequently involve overlapping factors in practice.
The way section 115(7) is worded makes it quite clear that information can only be included in an ECRC under section 115(6)(a)(ii) if the chief officer considers both that (a) it might be relevant for the purposes of section 115(2), and that (b) it ought to be included in the certificate.
Both requirements must be satisfied, and therefore both requirements must be separately considered by the chief officer.
While paragraph (a) of section 115(7) sets a low hurdle for the inclusion of material under section 115(6)(a)(ii), indeed a hurdle which, if it were the sole hurdle, would be too low to satisfy the article 8 rights of applicants, paragraph (b) provides for the requisite balancing exercise that justifies the conclusion that there is no article 8 infringement.
In other words, the legislation, through the medium of section 115(7)(b), rightly acknowledges that the relevant public authority, namely the chief officer, must balance the need to protect those vulnerable people whom an ECRC is designed to assist with the article 8 rights of those in respect of whom an ECRC is issued.
Having decided that information might be relevant under section 115(7)(a), the chief officer then has to decide under section 115(7)(b) whether it ought to be included, and, in making that decision, there will often be a number of different, sometimes competing, factors to weigh up.
Examples of factors which could often be relevant are the gravity of the material involved, the reliability of the information on which it is based, whether the applicant has had a chance to rebut the information, the relevance of the material to the particular job application, the period that has elapsed since the relevant events occurred, and the impact on the applicant of including the material in the ECRC, both in terms of her prospects of obtaining the post in question and more generally.
In many cases, other factors may also come into play, and in other cases, it may be unnecessary or inappropriate to consider one or more of the factors I have mentioned.
Thus, the material may be so obviously reliable, relevant and grave as to be disclosable however detrimental the consequential effect on the applicant.
In a nutshell, as Lord Hope has said, the issue is essentially one of proportionality.
In some, indeed possibly many, cases where the chief officer is minded to include material in an ECRC on the basis that he inclines to the view that it satisfies section 115(7)(b), he would, in my view, be obliged to contact the applicant to seek her views, and take what she says into account, before reaching a final conclusion.
Otherwise, in such cases, the applicants article 8 rights will not have been properly protected.
Again, it is impossible to be prescriptive as to when that would be required.
However, I would have thought that, where the chief officer is not satisfied that the applicant has had a fair opportunity to answer any allegation involved in the material concerned, where he is doubtful as to its potential relevance to the post for which the applicant has applied, or where the information is historical or vague, it would often, indeed perhaps normally, be wrong to include it in an ECRC without first giving the applicant an opportunity to say why it should not be included.
This conclusion is at odds with what was said by Lord Woolf MR in R(X) v Chief Constable of West Midlands Police [2005] 1 WLR 65, para 41.
He said that absent any untoward circumstance ., it is difficult to see that there can be any reason why the information that might be relevant ought not to be included in the certificate (although it is only fair to add that he did, correctly, refer to the issue as being one of proportionality).
In my view, that approach is wrong, even if one ignores the fact that article 8 is engaged.
Section 115(7) contains two tests which have to be satisfied, and there is no reason to think that the second test was intended to be of only marginal relevance and rare application.
On the contrary: given the low threshold of the first test and the importance of an ECRC to an applicant, one would expect the second test to be important, and this point receives some support from the para 30 of the White Paper which preceded the 1997 Act (see para 5 of Lord Hopes judgment).
The point is heavily reinforced, of course, once the impact of article 8 is taken into account.
In R (X) v Chief Constable of West Midlands Police [2005] 1 WLR 65, para 67, Lord Woolf MR, disagreeing with the view to the contrary of Wall J at first instance ([2002] EWHC 61 (Admin), [2004] 1 WLR 1518), said that it would be inappropriate to interpret section 115(7)(b) as imposing a duty on a chief officer to contact applicants where he was proposing to include material under section 115(6)(a)(ii) in an ECRC.
Lord Woolf thought that this would involve imposing too heavy a burden on chief officers.
I disagree.
While far from suggesting that the duty would arise in every case, it seems to me that the imposition of such a duty is a necessary ingredient of the process if it is to be fair and proportionate.
The widespread concern about the compulsory registration rules for all those having regular contact with children, as proposed by the Government in September 2009, demonstrates that there is a real risk that, unless child protection procedures are proportionate and contain adequate safeguards, they will not merely fall foul of the Convention, but they will redound to the disadvantage of the very group they are designed to shield, and will undermine public confidence in the laudable exercise of protecting the vulnerable.
The procedures currently adopted by chief officers have been described by Lord Hope in paras 30 to 34, and they are plainly, and sensibly, based on the observations of Lord Woolf MR in R (X) v Chief Constable of West Midlands Police [2005] 1 WLR 65.
It is apparent that, as one would hope, chief officers and their staff take their responsibilities under Part V of the 1997 Act very seriously.
However, it is also clear that the current procedures will need to be adapted to accord considerably greater weight to section 115(7)(b) and considerably greater recognition to the article 8 rights of applicants.
For these reasons, which are little more than an echo of those more fully expressed by Lord Hope, with whose judgment I agree, I conclude that sections 115(6)(a)(ii) and 115(7) of the 1997 Act can and should be given an effect which is compatible with the article 8 rights of those who make applications under section 115(1).
I also consider that, for the reasons given by Lord Hope in para 48, the decision in this particular case cannot be faulted.
Accordingly, I too would dismiss this appeal.
| UK-Abs | The appellant obtained a job as a playground assistant.
In connection with her employment, the police were required to provide her with an enhanced criminal records certificate (ECRC).
They disclosed to the school that she had been accused of neglecting her child and non cooperation with social services, and her employment was terminated.
She claimed that the police disclosure violated her right to respect for her private life under the Human Rights Act (the HRA).
The Supreme Court holds that, when determining whether to disclose non criminal related information retained in police records in connection with an application to work with vulnerable persons, the police must give due weight to the applicants right to respect for her private life.
However, the facts narrated were true, the allegation was directly relevant to her employment and the school was entitled to be apprised of the information.
Therefore, while the consequences for the appellants private life are regrettable, disclosure could not in this case be said to be disproportionate to the public interest in protecting vulnerable people [para [48], [49], [58] and [86]].
The appeal must be dismissed.
Article 8 was applicable, as: (i) the dismissal affected Ls ability to interact with others and damaged her reputation [para [24]]; (ii) public information can implicate Article 8 when it is collected/stored by the public authorities [para [26]]; and (iii) the relevant information related to private proceedings [para [28]].
All ECRC disclosure decisions are likely to engage Article 8, as: (i) the information has been collected/stored in police records; and (ii) disclosure of relevant information is likely to diminish the subjects employment prospects.
The proportionality of the proposed disclosure must be considered in each case [paras [29], [41] and [70].
The police must apply a two stage analysis, so as to consider whether: (i) the information is reliable and relevant; and (ii) in light of the public interest and the likely impact on the applicant, it is proportionate to provide the information [paras [40] and [79]].
Those who apply for positions that require an ECRC cannot be regarded as consenting to their privacy rights being violated.
Consent is predicated on the basis that the right to respect for private life will be respected [para [43]].
Otherwise, legislation could easily circumvent HRA rights by effectively curtailing access to benefits unless people consent to invasions of their rights [para [73]].
The polices historic approach towards balancing the public interest in protecting vulnerable persons and respecting Article 8 rights was flawed, as they applied a general presumption that in cases of conflict the public interest should generally prevail [para [44]].
Article 8 requires that neither consideration be afforded precedence over the other each interest should be given careful consideration in assessing the proportionality of the proposed disclosure [paras [45], [63] and [85]].
Factors to be considered in assessing proportionality include: (i) the gravity of the relevant information; (ii) its reliability; (iii) its relevance; (iv) the existence of an opportunity to make representations; (v) the period that has elapsed since the relevant events; and (vi) the adverse effect of the disclosure [para [81]].
If disclosure may be: (i) irrelevant; (ii) unreliable; or (iii) out of date, the applicant should be given the opportunity to make representations prior to the decision to disclose [paras [46], [63] and [82]].
Lord Scott agreed in the result but differed in reasoning, stating that: (i) a presumption prioritising the public interest did not breach Article 8; and (ii) the consent of the applicant negated any claimed violation [paras [58] and [59].
Judgments
|
So much depends upon how one frames the question.
Put simply, when disputes arise about the age of some one who is asking a local childrens services authority to provide him with accommodation under section 20(1) of the Children Act 1989, who decides whether he is a child or not? Section 20(1) reads as follows: (1) Every local authority shall provide accommodation for any child in need within their area who appears to them to require accommodation as a result of (a) there being no person who has parental responsibility for him; (b) his being lost or having been abandoned; or (c) the person who has been caring for him being prevented (whether or not permanently, and for whatever reason) from providing him with suitable accommodation or care.
By section 105(1) of the Act, a child means . a person under the age of eighteen.
The appellants, supported by the Childrens Commissioner for England, say that, in cases of dispute, the court must decide whether a person is a child on the balance of probabilities.
The respondent local authorities, supported by the Home Secretary, say that the authority must decide the matter, subject only to judicial review on the usual principles of fairness and rationality.
The importance of the issue
No doubt there have always been foundlings, abandoned or runaway children whose age was not immediately apparent to the authorities.
But with many of these it will at least have been apparent that they were children.
And sooner or later it will usually have been possible to establish their exact age by discovering their identity and obtaining a birth certificate.
The problem of determining age has come to prominence with the recent increase in migration and particularly in unaccompanied young people coming to this country, some of them to claim asylum for their own benefit but some of them also having been trafficked here for the benefit of others.
Although the focus of debate has been upon unaccompanied asylum seeking children, we must not lose sight of the other young people for whom the issue may also be important.
The importance comes from two directions.
If a young person is a child, and otherwise meets the qualifying criteria, he must be provided with accommodation and maintenance under sections 20(1) and 23(1) of the 1989 Act.
This brings with it a wider range of services than other forms of housing and benefit provision.
These include the services for young people who leave social services accommodation which were described in R (M) v Hammersmith and Fulham London Borough Council [2008] UKHL 14, [2008] 1 WLR 535, paras 20 24.
While once upon a time young people may have resisted the quasi parental services provided for children in need, many now recognise that they bring distinct advantages over the housing and welfare benefits available to home claimants (as in R (M) v Hammersmith and Fulham London Borough Council, above, and R (G) v Lambeth London Borough Council [2009] UKHL 26, [2009] 1 WLR 1299) and the National Asylum Support Service (NASS) support available to asylum seekers, as in the cases before us.
The Home Secretary also adopts different policies in relation to asylum seekers who are under eighteen.
Legally, these may not be relevant to the issue which we have to determine, and in practice they are much more susceptible to change than is primary legislation such as the 1989 Act.
But they are an important part of the factual background.
Not only are unaccompanied asylum seeking children looked after by the local childrens services authorities rather than by NASS while their claims are decided.
Currently, if a claim is rejected when the child is under the age of seventeen and a half, the Home Secretary will not remove him for three years or until he reaches seventeen and a half, whichever is the earlier, unless there are adequate arrangements to look after him in his country of origin.
Also, such children will not be detained under the Home Secretarys immigration powers, save in exceptional circumstances and then normally only overnight.
When a young person who says that he is a child arrives in this country or makes a claim for asylum, immigration officers make a preliminary determination based upon his physical appearance and demeanour.
In a borderline case, the policy is to give him the benefit of the doubt and treat him as a child.
Under the Secretary of States 2007 Policy on Age Dispute cases, if his appearance or demeanour very strongly suggests that he is aged eighteen or over, the officer will dispute the age unless there is credible documentary or other evidence to show the age claimed.
And if his appearance or demeanour very strongly suggest that he is significantly over eighteen then he will be treated as an adult.
In the middle, age disputed, category, it is the policy to refer the case for assessment by the local social services authority and to accept that assessment if it is considered to have been properly carried out (in accordance with the procedural guidance given by Stanley Burnton J in R (B) v Merton London Borough Council [2003] EWHC 1689 (Admin), [2003] 4 All ER 280).
This was the policy adopted by the Home Secretary in August 2007.
But in February 2007 the Home Office published a consultation paper, Planning Better Outcomes and Support for Unaccompanied Asylum Seeking Children; and in January 2008, it published its conclusions and recommendations in Better Outcomes: The Way Forward, Improving the Care of Unaccompanied Asylum Seeking Children.
Key Reform Number 4 was to put in place better procedures to assess age, in order to ensure that children and adults are not accommodated together.
Both the Childrens Commissioner and the Refugee Council have been critical of the present procedures, based partly upon their own experience and observations and partly upon research conducted by Professor Heaven Crawley for the Immigration Law Practitioners Association.
As Ms Nathalie Lieven QC for the Home Secretary points out, the issue before us is not whether the policy and procedures for assessing age in these cases could be improved, but whether the law requires that, in cases which cannot be resolved through those processes, the court shall make the final determination.
However, the one thing which these proposals do show is that the assessment of age can be and is carried out quite separately from the assessment of need and the other criteria for accommodation under section 20.
These two cases
A arrived in this country from Afghanistan on 13 November 2007 and claimed asylum the following day, stating that his date of birth was 8 April 1992 (making him then fifteen and a half).
The immigration officer considered that he was eighteen and referred him to Croydon for an age assessment.
He was interviewed by two social workers who assessed him as an adult.
He was therefore referred to NASS.
Soon afterwards his solicitors produced a copy of a birth certificate from Afghanistan showing his date of birth as 8 April 1992.
They also arranged for him to be examined by a paediatrician, who reported that in her opinion he was aged between 15 and 17.
A claim for judicial review of the decision that he was not entitled to accommodation under section 20 of the 1989 Act was made on 7 March 2008 and an interim order made against the authority until the determination of the claim.
M arrived in this country in November 2006 and claimed asylum three days later, saying that he was born on 15 December 1989 (making him then just under seventeen).
His age was disputed and he was referred to Lambeth for an age assessment by two social workers who concluded that he was over eighteen.
Once again, a paediatricians report was obtained which concluded that he was indeed aged seventeen.
Judicial review proceedings were brought and Lambeth reviewed its decision but provided further reasons for concluding that M was more than twenty years old.
Meanwhile an immigration judge heard his appeal against the refusal of asylum and the Home Secretarys decision as to his age.
The judge was not referred to the local authoritys assessment and accepted the paediatricians report.
The Home Secretary therefore granted M discretionary leave to remain which has been extended pending the determination of his application for an extension of his leave.
These two and five other claims for judicial review were joined for the purpose of deciding a number of preliminary issues, with these two being treated as the lead cases.
Those issues were (a) whether the local authorities determinations were contrary to the procedural protections in article 6 and/or 8 of the European Convention on Human Rights; (b) whether the question of child or not for the purpose of section 20 of the 1989 Act was one of precedent fact for the court to determine on the balance of probabilities; and (c) whether in Ms case the local authority could disagree with the immigration judges decision.
On 20 June 2008, Bennett J decided all three issues in favour of the local authorities: [2008] EWHC 1364 (Admin).
He also declined to decide a fourth issue, as to the evidential value of paediatricians reports in age disputes.
That issue has since been determined by Collins J in R (A) v Croydon London Borough Council; R (WK) v Kent County Council [2009] EWHC 939 (Admin), the Kent case taking the place of the Lambeth case as lead case in this issue.
Collins J held that the paediatricians views should be taken into account but that they were not likely to be any more reliable or helpful than those of experienced social workers and the authorities were entitled to prefer the latter.
He was, of course, bound by the decision of the Court of Appeal as to the role of the courts in these cases.
On 18 December 2008, the Court of Appeal had dismissed the appellants appeals from the decisions of Bennett J on the preliminary issues of law: [2008] EWCA Civ 1445, [2009] PTSR 1011.
The issues have been slightly reformulated for the purpose of the appeals before us, but the first two are closely inter related: (i) whether, as a matter of statutory construction, the duty imposed by section 20(1) is owed only to a person who appears to the local authority to be a child, so that the authoritys decision can only be challenged on Wednesbury principles, or whether it is owed to any person who is in fact a child, so that the court may determine the issue on the balance of probabilities; (ii) whether the issue child or not is a question of precedent or jurisdictional fact to be decided by a court on the balance of probabilities; and (iii) whether section 20(1) gives rise to a civil right for the purpose of article 6(1) of the European Convention on Human Rights and if so whether the determination of age by social workers subject to judicial review on Wednesbury principles is sufficient to comply with the requirement that the matter be determined by a fair hearing before an independent and impartial tribunal.
The construction of section 20(1)
The argument on construction, advanced by Mr John Howell QC for A, is quite straightforward.
The words of section 20(1) themselves distinguish between the statement of objective fact any child in need within their area and the descriptive judgment who appears to them to require accommodation as a result of the three listed circumstances which is clearly left to the local authority.
The definition of child in section 105(1), which applies throughout the 1989 Act, is unqualified: a person under the age of eighteen not a person who appears to the local authority to be under the age of eighteen or a person whom the local authority or any other person making the initial decision reasonably believes to be under the age of eighteen.
Reaching the conclusion that this is what it means in section 20(1) requires, as the Court of Appeal accepted, words to be read into section 20 which are not there.
This argument is bolstered by two others.
One is derived from the legislative history.
Section 20(1) of the 1989 Act is the successor to section 2 of the Child Care Act 1980 which consolidated (without amendment) what had been section 1 of the Children Act 1948 with later legislation.
The 1948 Act was an important component of the establishment of the post war welfare state, bringing together all the disparate powers and duties of the state to look after children who had no families or whose families were unable to look after them properly, and infusing those new duties with a commitment to the welfare of the individual child which had been so lacking before (see Report of the Care of Children Committee, Chairman: Miss Myra Curtis, 1946, Cmd 6922).
Section 1(1) of the 1948 Act, reproduced in section 2(1) of the 1980 Act, began Where it appears to a local authority with respect to a child in their area appearing to them to be under the age of seventeen .
Section 20(1) of the 1989 Act made various changes.
These included raising the age of eligibility to cater for all children, not just those who appeared to be under seventeen.
But they also included the change in wording, which no longer limited the duty to those who appeared to the local authority to be under the relevant age.
There is nothing in the Review of Child Care Law: Report to Ministers of an Interdepartmental Working Party (DHSS, 1985) or in the white paper, The Law on Child Care and Family Services (1987, Cm 62), which preceded the 1989 Act to cast light on the reasons for the change in wording.
But when Parliamentary draftsmen make changes such as this they are normally presumed to have done so deliberately and not by mistake.
The second point is that the same definition of child applies throughout the 1989 Act.
The 1989 Act contains a variety of powers and duties relating to children, some of them voluntary, but many of them coercive as against the child or his parents.
Most of the coercive powers, to make orders relating to the care and upbringing of children, depend upon court orders.
Clearly, in those cases it is for the court to determine any disputes about the age of the child.
But there are some coercive powers which are operated in the first instance by other authorities, subject to bringing the case to court within a relatively short time.
One of these is the power of the police, in section 46, where a constable has reasonable cause to believe that a child would otherwise be likely to suffer significant harm to remove a child to suitable accommodation and keep him there.
This power is not infrequently used to pick up young people who are camping out in railway stations with no apparent place to go.
If someone who was not a child was removed in this way, he could apply immediately for habeas corpus and the court would have to inquire into whether or not he was indeed a child.
The section does not refer to a person whom the constable has reasonable cause to believe to be a child and where liberty is at stake the court would be slow to read it in that way.
A similar case is perhaps more telling for our purposes because it is contained in section 25, which, like section 20, appears in Part III of the 1989 Act, entitled Local Authority Support for Children and Families.
Section 25, and the regulations made under it, place limits on the circumstances in which a child who is being looked after by a local authority may be placed in accommodation provided for the purpose of restricting liberty.
A child who is being looked after by a local authority means any child who is subject to a care order or a child who is provided with accommodation by a local authority under their social services functions, which include section 20(1) (see 1989 Act, section 22(1)).
The regulations allow a child to be placed in secure accommodation that is, to be locked up for up to 72 hours without the authority of a court (Children (Secure Accommodation) Regulations 1991, SI 1991/1505, reg 10(1)).
Again, if a person who was not a child was locked up in this way, he could apply for habeas corpus and the court would have to enquire into whether or not he was a child.
There is nothing to suggest that the power can be exercised in relation to someone whom the authority reasonably believes to be a child.
Against these arguments, the respondents make three main points.
The first is that section 20(1) refers to a child in need.
Section 105(7) provides that references to a child in need shall be construed in accordance with section 17.
Section 17(10) provides that: For the purposes of this Part a child shall be taken to be in need if (a) he is unlikely to achieve or maintain, or to have the opportunity of achieving or maintaining, a reasonable standard of health or development without the provision for him of services by a local authority under this Part; (b) his health or development is likely to be significantly impaired, or further impaired, without the provision for him of such services; or (c) he is disabled, .
Thus, argues Mr Charles Bar QC for Lambeth, it cannot have been the intention of Parliament that the sorts of professional value judgment involved in assessing whether a child is in need should be made by the court.
Child in need is a composite term of art so that the same should apply to the assessment of age as well as need.
This argument is closely allied to a second and more fundamental argument about the respective roles of public authorities and the courts when determining whether the conditions exist for the exercise of a statutory power or duty.
The court decides what the words mean and the authority decides whether the facts fit those words.
Thus, in the well known case of R v Barnet London Borough Council, Ex p Shah [1983] 2 AC 309, the court decided what was meant by ordinarily resident in the criteria for entitlement to a mandatory education grant and sent the case back to the local authority to decide.
Lord Scarman said this, at p 341: If a local education authority gets the law right, or, as the lawyers would put it, directs itself correctly in law, the question of fact ie has the student established the prescribed residence? is for the authority, not the court, to decide.
The merits of the application are for the local education authority subject only to judicial review to ensure that the authority has proceeded according to the law.
To similar effect were the observations of Lord Brightman in R v Hillingdon London Borough Council, Ex p Puhlhofer [1986] AC 484, where the court decided whether the Housing (Homeless Persons) Act 1977 imported any requirement that the accommodation currently occupied by a household claiming to be homeless be accommodation which it was reasonable for them to continue to occupy.
Having decided that it did not, Lord Brightman insisted, at p 517, that What is properly to be regarded as accommodation is a question of fact to be decided by the local authority.
Third in the line of cases cited on this point were my own words in R (Wahid) v Tower Hamlets London Borough Council [2002] LGR 545, 554, which are particularly pertinent because they relate to the duty of local social services authorities, under section 21(1)(a) of the National Assistance Act 1948, to provide residential accommodation for vulnerable adults who meet the criteria there laid down: it is for the local social services authority to assess whether or not those conditions are fulfilled, and if so, how the need is to be met, subject to the scrutiny of the courts on the ordinary principles of judicial review.
We are not deciding where the lines of responsibility are to be drawn under the National Assistance Act 1948.
We are deciding where Parliament intended that the lines be drawn under the Children Act 1989.
The task in all these cases is to decide what Parliament intended.
In the Shah case, it was common ground between the parties on all sides that it was for the local education authority to decide the facts.
No one mounted an argument such as has been mounted in this case.
We do not need to decide how it would have fared in 1983, any more than we need to speculate upon how it might be decided now.
In the Puhlhofer case, the statutory duty to provide accommodation for the homeless was clearly expressed in terms that the local authority was satisfied that the criteria existed, as indeed is its successor today.
Lord Brightman emphasised, at p 518, that the 1977 Act abounds with the formula when, or if, the housing authority are satisfied as to this, or that, or have reason to believe this, or that in support of his conclusion that Parliament intended the local authority to be the judge of fact.
That is not the case with the National Assistance Act 1948, which has gone through several modifications since it was first enacted, when the duty of the local authority was to prepare a scheme for accommodating the vulnerable which had then to be approved by the minister.
It is not impossible that Parliament did not contemplate that such a duty would be owed to any particular individual, whereas this House has clearly held, in R (G) v Barnet London Borough Council [2003] UKHL 57, [2004] 2 AC 208, that the duty in section 20(1) of the 1989 Act is owed to the individual child.
These days, Parliamentary draftsmen are more alive to this kind of debate.
The 1989 Act draws a clear and sensible distinction between different kinds of question.
The question whether a child is in need requires a number of different value judgments.
What would be a reasonable standard of health or development for this particular child? How likely is he to achieve it? What services might bring that standard up to a reasonable level? What amounts to a significant impairment of health or development? How likely is that? What services might avoid it? Questions like this are sometimes decided by the courts in the course of care or other proceedings under the Act.
Courts are quite used to deciding them upon the evidence for the purpose of deciding what order, if any, to make.
But where the issue is not, what order should the court make, but what service should the local authority provide, it is entirely reasonable to assume that Parliament intended such evaluative questions to be determined by the public authority, subject to the control of the courts on the ordinary principles of judicial review.
Within the limits of fair process and Wednesbury reasonableness there are no clear cut right or wrong answers.
But the question whether a person is a child is a different kind of question.
There is a right or a wrong answer.
It may be difficult to determine what that answer is.
The decision makers may have to do their best on the basis of less than perfect or conclusive evidence.
But that is true of many questions of fact which regularly come before the courts.
That does not prevent them from being questions for the courts rather than for other kinds of decision makers.
The arguments advanced by Mr Bar might have to provide an answer in cases where Parliament has not made its intentions plain.
But in this case it appears to me that Parliament has done just that.
In section 20(1) a clear distinction is drawn between the question whether there is a child in need within their area and the question whether it appears to the local authority that the child requires accommodation for one of the listed reasons.
In section 17(10) a clear distinction is drawn between whether the person is a child and whether that child is to be taken to be in need within the meaning of the Act.
Taken to be imports an element of judgment, even an element of deeming in the case of a disabled child, which Parliament may well have intended to be left to the local authority rather than the courts.
I reach those conclusions on the wording of the 1989 Act and without recourse to the additional argument, advanced by Mr Timothy Straker QC for M, that child is a question of jurisdictional or precedent fact of which the ultimate arbiters are the courts rather than the public authorities involved.
This doctrine does, as Ward LJ pointed out in the Court of Appeal [2008] EWCA Civ 1445, [2009] PTSR 1011, para 19, have an ancient and respectable pedigree.
Historically, like the remedy of certiorari itself, it was applied to inferior courts and other judicial or quasi judicial bodies with limited jurisdiction.
Thus a tithe commissioner could not give himself jurisdiction over land which had previously been discharged from tithe (Bunbury v Fuller (1853) 9 Ex 111); and a rent tribunal could not give itself jurisdiction over an unfurnished letting (R v Fulham, Hammersmith and Kensington Rent Tribunal, Ex p Zerek [1951] 2 KB 1).
Although of course such a body would have to inquire into the facts in order to decide whether or not to take the case, if it got the decision wrong, it could not give itself a jurisdiction which it did not have.
In R v Secretary of State for the Home Department, Ex p Khawaja [1984] AC 74, the same principle was applied to the power of the Home Office to remove an illegal entrant.
The existence of the power of removal depended upon that fact.
It was not enough that an immigration officer had reasonable grounds for believing the person to be an illegal entrant.
As Lord Scarman put it, . where the exercise of executive power depends upon the precedent establishment of an objective fact, the courts will decide whether the requirement has been satisfied (p 110).
This doctrine is not of recent origin or limited to powers relating to the liberty of the subject.
But of course it still requires us to decide which questions are to be regarded as setting the limits to the jurisdiction of the public authority and which questions simply relate to the exercise of that jurisdiction.
This too must be a question of statutory construction, although Wade and Forsyth on Administrative Law suggest that As a general rule, limiting conditions stated in objective terms will be treated as jurisdictional (9th ed (2004), p 257).
It was for this reason that Ward LJ rejected the argument, for he regarded the threshold question in section 20 as the composite one of whether the person was a child in need.
This was not a limiting condition stated in wholly objective terms so as to satisfy the Wade and Forsyth test (para 25).
However, as already explained, the Act does draw a distinction between a child and a child in need and even does so in terms which suggest that they are two different kinds of question.
The word child is undoubtedly defined in wholly objective terms (however hard it may be to decide upon the facts of the particular case).
With a few limited extensions, it defines the outer boundaries of the jurisdiction of both courts and local authorities under the 1989 Act.
This is an Act for and about children.
If ever there were a jurisdictional fact, it might be thought, this is it.
The final arguments raised against such a conclusion are of a practical kind.
The only remedy available is judicial review and this is not well suited to the determination of disputed questions of fact.
This is true but it can be so adapted if the need arises: see R (Wilkinson) v Broadmoor Special Hospital Authority [2001] EWCA Civ 1545, [2002] 1 WLR 419.
That the remedy is judicial review does not dictate the issue for the court to decide or the way in which it should do so, as the cases on jurisdictional fact illustrate.
Clearly, as those cases also illustrate, the public authority, whether the childrens services authority or the UK Border Agency, has to make its own determination in the first instance and it is only if this remains disputed that the court may have to intervene.
But the better the quality of the initial decision making, the less likely it is that the court will come to any different decision upon the evidence.
If the other members of the Court agree with my approach to the determination of age, it does not mean that all the other judgments involved in the decision whether or not to provide services to children or to other client groups must be subject to determination by the courts.
They remain governed by conventional principles.
Article 6
Those conclusions make it unnecessary to reach any firm conclusions on the application of article 6 of the Convention to decisions under section 20(1) of the 1989 Act.
Article 6(1) requires that in the determination of his civil rights and obligations . everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.
There are two questions.
First, is the decision whether or not to provide accommodation under section 20(1) the determination of a civil right, so that article 6 is engaged? Secondly, if it is, what does article 6 require? Neither question is easy to answer.
First, it seems to me clear that, once the qualifying criteria are established, the local authority has no discretion under section 20(1): the accommodation must be provided.
The existence of the criteria is a matter of judgment, not discretion.
Thus it makes sense to talk in terms of a correlative right to the accommodation, rather than simply a right to apply for it.
But that does not tell us whether it is a civil right for the purpose of article 6.
As Lord Hoffmann explained in R (Alconbury Developments Ltd) v Secretary of State for the Environment, Transport and the Regions [2001] UKHL 23, [2003] 2 AC 295, para 78 et seq, the concept of a civil right in article 6 was originally intended to apply only to private rights, not rights arising in public law.
But that distinction has long been abandoned and the concept of the determination of a civil right extended to many questions arising in public law.
With that extension has gone some modification of what article 6 requires.
Mr Nigel Giffin QC, appearing for Croydon, has helpfully divided the Strasbourg cases into two categories.
In the first are those cases where the determination of a public law question is also decisive of the existence of private law rights.
The obvious examples are Ringeisen v Austria (No 1) (1971) 1 EHRR 455, in which a contract for the sale of land between private citizens required the approval of the public authority; and Obermeier v Austria (1990) 13 EHRR 290, in which the dismissal of a disabled person by a private authority required the consent of a public authority; but the cases concerning the licensing of a trade or profession, such as Benthem v The Netherlands (1985) 8 EHRR 1, Albert and Le Compte v Belgium (1983) 5 EHRR 533, and Kingsley v United Kingdom (2002) 35 EHRR 177, directly affecting private contractual relationships, also fall into this category.
The second category, however, is more difficult to define.
Mr Giffin suggests that it consists of rights in public law which are closely analogous to rights in private law.
These began with rights to contributory state benefits, which are clearly analogous to rights under private contracts of insurance (Feldbrugge v The Netherlands (1986) 8 EHRR 425).
They have now been extended to rights to non contributory state benefits, which have also been recognised as rights of property for the purpose of article 1 of the First Protocol (Salesi v Italy (1993) 26 EHRR 187; Mennitto v Italy (2000) 34 EHRR 1122; Mihailov v Bulgaria, app no 52367/99, judgment of 21 July 2005) and to the distribution of compensation for forced labour during the second world war (Wos v Poland (2006) 45 EHRR 659).
They have also extended to some types of public sector employment, despite the clear reluctance of many European countries (including the United Kingdom) to regard public sector employment in the same light as private sector employment (Vilho Eskelinen v Finland (2007) 45 EHRR 985).
But there remain limits: taxation proceedings do not raise issues of civil rights, despite their obvious impact upon individual property rights (Ferrazzini v Italy (2001) 34 EHRR 1068); nor do immigration decisions (P v United Kingdom (1987) 54 DR 211); or decisions about state subsidies to housing associations (Woonbron Volkshuisvestingsgroep v The Netherlands, app no 47122/99, admissibility decision of 18 June 2002).
So does a claim to be provided with welfare services by the state amount to a civil right for this purpose? The House of Lords, in R (Runa Begum) v Tower Hamlets London Borough Council (First Secretary of State intervening) [2003] UKHL 5, [2003] 2 AC 430, was content to assume, without deciding, that a claim to be provided with suitable accommodation under the homelessness provisions of Part VII of the Housing Act 1996 was such a right.
But no Strasbourg case had yet gone so far.
Mr Howell argues that the court has now done so; a number of cases from Russia, about delays in enforcing court judgments that an applicant was entitled to be provided with a flat of a certain size, have taken it for granted that this was a civil right (see eg Teteriny v Russia, app no 11931/03, judgment of 30 June 2005; Sypchenko v Russia, app no 38368/04, judgment of 1 March 2007).
Enforcement only comes within article 6 because it is an intrinsic part of the trial.
Thus, he argues, the underlying right to which the judgment relates must be a civil right.
There is no requirement in the Strasbourg case law that the right be analogous with a right existing in private law, for the non contributory state benefits have no such equivalent.
All that is required is that the right is economic in nature and personal to the individual.
This he gets from, for example, Salesi v Italy, above, where the court said, of a claimant to non contributory disability allowance, she suffered an interference with her means of subsistence and was claiming an individual, economic right flowing from specific rules laid down in a statute (para 19).
It does not have to be tradable and, he argues, like many ordinary private rights, it may well depend upon evaluative judgments rather than specific rules.
On the other hand, it does not appear that there was any argument upon the point in the Russian cases and it is easy to slip into the assumption that once a right has been crystallised in a court judgment against a public authority it must amount to a civil right.
In Loiseau v France, app no 46809/99, admissibility decision of 18 November 2003, which concerned a freedom of information request for sight of the applicant teachers personnel file, the court considered this a right of a private nature, firstly because it concerns an individual right of which the applicant may consider himself the holder, and secondly because the documents requested related directly and exclusively to his personal situation (para 7).
Any entitlement under section 20(1) does not depend upon discretion, but it does depend upon an evaluation of some very soft criteria rather than specific rules, and it is difficult to say at what point the applicant may consider himself to be the holder of such a right.
Hence, as Lord Walker of Gestingthorpe observed in Runa Begum, at para 115, if a right such as this is a civil right at all, it must lie close to the boundary of the concept and not at the core of what it entails.
If so, this may have consequences for the second question, which is what article 6 requires.
In Runa Begum, the House decided that the process of decision making on homelessness claims was sufficient to comply with article 6 if it applied at all.
The initial decision was subject to review by another officer who had had nothing to do with the original decision and was subject to procedural rules designed to ensure a fair process.
It was then subject to an appeal to the county court on conventional judicial review grounds.
The reviewing officer was not independent of the local authority but she was impartial.
If she did not conduct her review in an impartial way, the court could correct this.
In Tsfayo v United Kingdom (2006) 48 EHRR 457, the Strasbourg court quoted extensively from both Alconbury and Runa Begum without expressing either approval or disapproval.
It drew three distinctions between those cases and the determination of a claim for housing benefit by the local authoritys housing benefit review board.
First, the decision on the housing benefit claim was a simply question of whether or not the claimant had good cause for a late claim; it was not an issue requiring professional judgment as the decision on homelessness in Runa Begum had been.
Second, it was a question of entitlement, not depending upon the application of government policy which was properly the province of the democratically accountable bodies, as the decision on the application of planning policy in Alconbury had been.
Third, the review board was not merely lacking in independence.
It could not be an impartial tribunal because it consisted of councillors who were directly connected to the authority which would have to pay the benefit if it was awarded.
Mr Howell argues that the social workers deciding upon section 20 claims cannot be impartial as required by article 6 because they are employed by an authority with a direct financial interest in the outcome.
Although their individual professionalism is not in doubt, they may unconsciously be influenced by tacit pressures from their seniors, who are only too conscious of the many demands upon the childrens services scarce resources.
These are not necessarily fully compensated by payments from the UK Border Agency.
In any event it is not actual bias which matters, for that can hardly ever be proved, but the public perception of the possibility of unconscious bias (in the words of Lord Steyn in Lawal v Northern Spirit Ltd [2003] UKHL 35, [2003] ICR 856, at para 14).
Although judicial review may be able to cure actual bias, which leads the decision maker to take irrelevant considerations into account or disregard the relevant ones, it cannot cure apparent unconscious bias of this kind.
I would be most reluctant to accept, unless driven by Strasbourg authority to do so, that article 6 requires the judicialisation of claims to welfare services of this kind.
Unlike the arguments based upon statutory construction and jurisdictional fact, Mr Howells argument cannot sensibly distinguish between the determination of age and the determination of the other criteria of entitlement.
Every decision about the provision of welfare services has resource implications for the public authority providing the service.
Public authorities exist to serve the public.
They do so by raising and spending public money.
If the officers making the decisions cannot be regarded as impartial, and the problem cannot be cured by the ordinary processes of judicial review based upon the usual criteria of legality, fairness and reasonableness or rationality, then tribunals will have to be set up to determine the merits of claims to childrens services, adult social services, education services and many more.
Resources which might be spent on the services themselves will be diverted to the decision making process.
Such a conclusion would be difficult, if not impossible, to reconcile with the decision of this House in Runa Begum.
The degree of judicialisation required of an administrative decision, in the view of Lord Hoffmann in Alconbury, depends upon the nature of the decision (para 87, repeated in Runa Begum, para 33).
If this is a civil right at all, therefore, I would be inclined to hold that it rests at the periphery of such rights and that the present decision making processes, coupled with judicial review on conventional grounds, are adequate to result in a fair determination within the meaning of article 6.
Conclusion
For the reasons given earlier, however, I would allow these appeals and set aside the order of the Court of Appeal.
The result is that if live issues remain about the age of a person seeking accommodation under section 20(1) of the 1989 Act, then the court will have to determine where the truth lies on the evidence available.
It is not, however, entirely clear what relief the appellants now seek and so I would invite submissions upon this, and upon the question of costs, within fourteen days.
LORD HOPE
This case raises two distinct issues of general public importance.
Their importance extends well beyond the facts of the two cases that are before us.
On the one hand there is the question whether the word child in section 20(1) of the Children Act 1989 means, as the Court of Appeal held, a person whom the local authority has reasonable grounds for believing to be a child: [2008] EWCA Civ 1445; [2009] PTSR 1011, paras 30 31; or whether it raises a question of precedent fact which must be determined, if necessary, by a court.
On the other there is the question whether a decision that the local authority makes as to whether or not to provide accommodation for a child in need under section 20(1) is a determination of a civil right within the meaning of article 6(1) of the European Convention on Human Rights.
As to the first issue, it has wider implications because the appellants are both asylum seekers.
The immediate question is how it is to be determined whether the appellants are under the age of eighteen and thus entitled to be considered for local authority support under Part III of the Children Act 1989.
But, as the Secretary of State points out, an asylum seekers age will have implications too for the way in which his or her application for asylum will be treated.
This is because the Secretary of States policy on returning unaccompanied minors usually leads to those whom he considers to be under the age of 18 being given discretionary leave to remain.
Age, as such, is not a determinant as to a persons immigration status.
But it is relevant to the way the Secretary of State discharges his immigration and asylum functions and the exercise of his powers and duties to provide asylum support.
In practice, in disputed age cases, the Secretary of State follows the assessment that has been arrived at by the local authority.
As a result any challenges to the lawfulness of the local authoritys assessment are likely to affect the way that the Secretary of State acts in reliance on the assessment.
His concern is that the appellant As contention that the question whether or not a person is a child is, in the event of challenge, to be determined by a court will result in an inappropriate judicialisation of the process.
The suggestion is that this will slow down the process and make it harder to administer.
As to the second, a holding that the local authoritys decision as to whether or not to provide accommodation under section 20(1) of the 1989 Act amounted to the determination of a civil right would have far reaching implications.
This because the right which is guaranteed by article 6(1) is to a decision by an independent and impartial tribunal established by law.
As the House recognised in Runa Begum v Tower Hamlets London Borough Council (First Secretary of State intervening) [2003] UKHL 5, [2003] 2 AC 430, it cannot plausibly be argued that the employees of the local authority who take decisions of this kind on its behalf are independent of the authority: see Lord Bingham of Cornhill, para 3, and Lord Hoffmann, para 27.
The question then is what must be done if the articles requirements are to be satisfied.
In Runa Begum the House held that the county courts appellate jurisdiction under section 204 of the Housing Act 1996, exercising the normal judicial review jurisdiction of the High Court, was sufficient to satisfy the requirements of the article.
But, although the housing officer in that case could not be regarded as independent, no question was raised as to her impartiality.
In this case the impartiality of the social workers is challenged.
This in turn raises questions as to the intensity of any judicial review that must be undertaken if the requirements of article 6(1) are to be satisfied.
This will have implications as to the way decisions are taken in the provision of a wide range of public services.
The facts of these appeals and the general background to the issues they raise have been summarised by Lady Hale.
I accept her valuable description of them with gratitude.
I wish to add only a few words on the first issue, as I am in full agreement with what she says.
As for the second, I agree with her that it follows from our decision on the first issue that it is unnecessary to reach any firm conclusions on it.
But I think that it is reasonably clear from the present state of the authorities how it should be answered.
In view of its general importance I should like to explain the answer that I would give to it.
The section 20(1) issue
It seems to me that the question whether or not a person is a child for the purposes of section 20 of the 1989 Act is a question of fact which must ultimately be decided by the court.
There is no denying the difficulties that the social worker is likely to face in carrying out an assessment of the question whether an unaccompanied asylum seeker is or is not under the age of 18.
Reliable documentary evidence is almost always lacking in such cases.
So the process has to be one of assessment.
This involves the application of judgment on a variety of factors, as Stanley Burnton J recognised in R (B) v Merton London Borough Council [2003] EWHC Admin 1689, [2003] 4 All ER 280, para 37.
But the question is not whether the person can properly be described as a child.
Section 105(1) of the Act provides: In this Act child means, subject to paragraph 16 of Schedule 1, a person under the age of eighteen.
The question is whether the person is, or is not, under the age of eighteen.
However difficult it may be to resolve the issue, it admits of only one answer.
As it is a question of fact, ultimately this must be a matter for the court.
In the Court of Appeal and in the argument before us, reference was made to the rule that where the exercise of executive power depends upon the precedent establishment of an objective fact, the courts will, if called upon to do so in a case of dispute, decide whether the requirement has been satisfied: R v Secretary of State for the Home Department, Ex p Khawaja [1984] AC 74, 110, per Lord Scarman.
On the other hand, as Sir Thomas Bingham MR observed in R v Secretary of State for the Home Department, ex p Onibiyo [1996] QB 768, 785, where the question is one that is to be determined by the executive itself, its determinations will be susceptible to challenge only on Wednesbury principles: R v Secretary of State for the Home Department, Ex p Bugdaycay [1987] AC 514.
In order to decide into which class of judgment the case falls one must, of course, first construe the statutory language used and the scheme of the legislation.
If, as the respondents contend, and Ward LJ in the Court of Appeal, para 25, accepted, the phrase child in need which sets the threshold for the provision of accommodation under section 20 must be taken as a whole, the judgment that must be made will fall into the latter category.
But the definition of child in section 105(1) applies to the Act as a whole, without qualification or exception.
The question whether the child is in need is for the social worker to determine.
But the question whether the person is or is not a child depends entirely upon the persons age, which is an objective fact.
The scheme of the Act shows that it was not Parliaments intention to leave this matter to the judgment of the local authority.
As for the practical consequences, the process begins with the carrying out of an assessment of the persons age by the social worker.
Resort to the court will only be necessary in the event of a challenge to that assessment.
So I do not accept that our conclusion will inevitably result in an inappropriate judicialisation of the process.
It may, of course, require a judicial decision in some cases.
But I would hope that the fact that the final decision rests with the court will assist in reducing the number of challenges.
The initial decision taker must appreciate that no margin of discretion is enjoyed by the local authority on this issue.
But the issue is not to be determined by a consideration of issues of policy or by a view as to whether resort to a decision by the court in such cases is inappropriate.
It depends entirely on the meaning of the statute.
We must construe the Act as we find it.
As I have said, when the subsection is properly construed in the light of what section 105(1) provides, the question admits of only one answer.
The article 6(1) issue
Much of the background to the questions which this issue raises was explored in Runa Begum v Tower Hamlets London Borough Council [2003] 2 AC 430.
With that advantage we can examine the issue from the point where that decision left it.
On the other hand I would be very reluctant to take anything away from the carefully balanced conclusion that the House reached in that case unless driven to do so by subsequent guidance from Strasbourg.
As Lord Bingham explained in para 5, that case exposed more clearly than any earlier case had done the interrelation between the article 6(1) concept of civil rights on the one hand and the article 6(1) requirement of an independent and impartial tribunal on the other.
The narrower the interpretation that is given to civil rights, the greater the need to insist on review by a judicial tribunal exercising full powers.
Conversely, the more elastic the interpretation that is given to the expression, the more flexible must be the approach to the requirement if over judicialisation of welfare schemes is to be avoided.
What the House did in that case was to assume, without deciding, that Runa Begums domestic right was also a civil right and, having made that assumption, to hold that the absence of a full fact finding jurisdiction in the tribunal from which an appeal lay from the administrative decision making body did not disqualify the tribunal for the purposes of article 6(1): Lord Bingham, paras 6, 11; Lord Hoffmann, paras 58, 70.
In this case, having held that it was for the social workers to decide the age of the applicant, the Court of Appeal held that judicial review of their decision was sufficient to satisfy the requirements of article 6(1): [2008] EWCA Civ 1445, [2009] PTSR 1011, para 84.
Although he recognised that, having reached that view, it was not necessary for him to do so, Ward LJ went further and held that the right of accommodation given by section 20(1) was a right but that it could not be classified as a civil right within the meaning of article 6(1) because too much discretion was given to the local authority to decide what kind of accommodation is to be provided: para 59.
Maurice Kay LJ and Sir John Chadwick expressed some hesitation as to whether this was a right at all: paras 92, 93.
The effect of our decision that the question whether the applicant is or is not under eighteen is an objective fact which must ultimately be one for the court is that the issue will, in the event of a dispute, be decided by an independent and impartial tribunal with powers which fully satisfy the requirements of article 6(1).
The question whether the applicant is a child in need must then be for the social worker to deal with.
But it is very hard to see how an unaccompanied child who is an asylum seeker could be otherwise than in need.
This is not an issue that has been raised in these appeals.
In this situation it is open to us to regard the article 6(1) issue as academic and to say no more about it.
But the questions were fully and carefully argued before us, and they are of general public importance.
We are as well informed about the present state of the jurisprudence of the Strasbourg court as we can be.
With that advantage, I would venture these observations.
The most significant development since the decision in the Runa Begum case is the decision of the Strasbourg court in Tsfayo v United Kingdom (2006) 48 EHRR 457.
The applicant in that case had failed to renew her application for housing and council tax benefit.
After taking advice she submitted a prospective claim and a backdated claim for both types of benefit.
The council accepted the prospective claim but rejected the backdated one on the ground that the applicant had failed to show good cause why she had not claimed these benefits earlier.
The councils housing benefit and council tax benefit review board rejected her appeal against this decision.
Her complaint was that the board was not an independent and impartial tribunal, contrary to article 6(1).
The court held that disputes about entitlement to social security and welfare benefits generally fell within the scope of article 6(1).
It agreed with the parties that the applicants claim concerned the determination of her civil rights, that article 6(1) applied and that she had a right to a fair hearing before an independent and impartial tribunal: para 40.
It held that the requirements of article 6(1) had been violated.
The board, which included five councillors from the local authority which would be required to pay the benefit, lacked independence and the safeguards built into its procedure were not adequate to overcome this fundamental lack of objectivity.
The review board had power to quash the councils decision.
But it did not have jurisdiction to rehear the evidence or substitute its own views as to the applicants credibility: paras 47, 48.
The question whether the claim concerned the determination of the applicants civil rights was not disputed.
This was not surprising, as the case fell within the mainstream of cases where the issue was one as to the entitlement to an amount of benefit that was not in the discretion of the public authority.
This is shown by the cases referred to in a footnote to para 40: Salesi v Italy (1993) 26 EHRR 187, para 19; Schuler Zgraggen v Switzerland (1993) 16 EHRR 405, para 46; Mennitto v Italy (2000) 34 EHRR 1122, para 28.
As Lord Walker of Gestingthorpe said in Runa Begum v Tower Hamlets London Borough Council [2003] 2 AC 430, para 112, these cases, which started with Feldbrugge v The Netherlands (1986) 8 EHRR 425, indicate that article 6(1) is likely to be engaged when the applicant has public law rights which are of a personal and economic nature and do not involve any large measure of official discretion.
As the court put in Salesi v Italy, para 19, the applicant was claiming an individual, economic right flowing from specific rules laid down in a statute.
In Mennitto v Italy, para 23, the court said that the outcome of the proceedings must be directly decisive for the right in question.
In Tsfayo v United Kingdom the court directed its attention to the decision making process.
It quoted, with approval, Lord Binghams description of the interrelation between the article 6(1) concept of civil rights and the requirement for an independent and impartial tribunal: para 31.
The case was decided against the United Kingdom because, in contrast to Runa Begum and Bryan v United Kingdom (1995) 21 EHRR 342 where the issues to be decided required a measure of professional knowledge or experience and the exercise of discretion pursuant to wider policy aims, the review board in Ms Tsfayos case was deciding a simple question of fact, namely whether there was good cause for her delay in making the claim.
So far as it goes, this decision supports the view that in cases which concern the provision of welfare services of the nature at issue in these appeals judicial review of the kind contemplated in Runa Begum will meet the requirements of article 6(1).
As the court explained in para 46: No specialist expertise was required to determine this issue, which is, under the new system, determined by a non specialist tribunal.
Nor, unlike the cases referred to [Bryan and Runa Begum], can the factual findings in the present case be said to be merely incidental to the reaching of broader judgments of policy or expediency which it was for the democratically accountable authority to take.
I read this passage as an endorsement of the point that Lord Bingham made in Runa Begum, para 5, that if an elastic interpretation is given to the article 6(1) concept of civil rights flexibility must also be given to the procedural requirements of that article if over judicialisation of the administrative welfare schemes is to be avoided.
But it is important, too, to recognise that in Tsfayo, as in Runa Begum, the question whether, and if so at what point, administrative welfare schemes fall outside the scope of article 6(1) altogether was not tested.
Tsfayo, as I have said, fell within the mainstream of cases about social security and welfare benefits.
In Runa Begum the House preferred not to take a decision on this issue.
There are, however, a number of straws in the wind that have been generated by the decisions from Strasbourg since Runa Begum that suggest that a distinction can now be made between the class of social security and welfare benefits that is of the kind exemplified by Salesi v Italy and those benefits which are, in their essence, dependent upon the exercise of judgment by the relevant authority.
The phrase civil rights is, of course, an autonomous concept: eg Woobron Volkshuisvestingsgroep v The Netherlands, application no 47122/99), 18 June 2002 (unreported).
But it does convey the idea of what, in Stec v United Kingdom (2005) 41 EHRR SE18, para 48, the Strasbourg court referred to as an assertable right.
In that paragraph, having declared that the Convention must be read as a whole and interpreted in such a way as to promote internal consistency and harmony between its various provisions, and in para 49 that it is in the interests of the Convention as a whole that the autonomous concept of possession in article 1 of Protocol No 1 should be interpreted in a way which is consistent with the concept of pecuniary rights in article 6(1), the court said, at para 51: In the modern, democratic state, many individuals are, for all or part of their lives, completely dependent for survival on social security and welfare benefits.
Many domestic legal systems recognise that such individuals require a degree of certainty and security, and provide for benefits to be paid subject to the fulfilment of the conditions of eligibility as of right.
Where an individual has an assertable right under domestic law to a welfare benefit, the importance of that interest should also be reflected by holding article 1 of Protocol No 1 to be applicable.
The courts references in Loiseau v France application no 46809/99, 18 November 2003 (unreported), para 7, to a private right which can be said, at least on arguable grounds, to be recognised under domestic law and to an individual right of which the applicant may consider himself the holder are consistent with this approach.
So too are the references in Mennitto v Italy (2002) 34 EHRR 1122, para 23, to a right which can be said, at least on arguable grounds, to be recognised under domestic law, where the court added: The dispute must be genuine and serious; it may relate not only to the actual existence of a right but also to its scope and the manner of its exercise.
The outcome of the proceedings must be directly decisive for the right in question. [emphasis added] Cases where the award of benefit is dependent upon a series of evaluative judgments as to whether the statutory criteria are satisfied and, if so, how the need for it as assessed ought to be met do not answer to that description.
The exact limits of the autonomous concept remain elusive.
One can be confident that cases where the relationship between the beneficiary and the public authority is of a public law character, as in Woodbron v The Netherlands, where the role of the applicant associations in regard to the construction and maintenance of public housing was of a typically general interest character, fall outside its scope.
Mr Howell QC submitted that there is no distinction to be drawn between the forms in which welfare benefits may be provided.
But none of the Strasbourg authorities go that far, and the carefully worded passages from Loiseau v France and Stec v United Kingdom to which I have referred seem to me to contradict his proposition.
The series of cases about the enforcement of judgments made by the courts about social housing in Russia to which he referred, of which the latest is Nagovitsyn v Russia application no 6859/02, 24 January 2008 (not reported), offer no assistance as the question whether a duty to provide social housing gives rise to a civil right was not argued.
For these reasons I think that it can now be asserted with reasonable confidence that the duty of the local authority under section 20(1) of the 1989 Act to provide accommodation for any child in need within their area who appears to them to require accommodation as a result of the factors mentioned in that subsection does not give rise to a civil right within the meaning of article 6(1) of the Convention.
LORD SCOTT
I have found Lady Hales discussion of the issues raised illuminating and her reasons for the conclusions she has expressed convincing.
I cannot usefully add anything or improve upon those reasons and gratefully associate myself with them.
I would, therefore, for the reasons she has given, allow these appeals and adopt the suggestion she has made in the last sentence of her opinion.
LORD WALKER
I am in full agreement with the judgment of Lady Hale.
In his judgment Lord Hope gives powerful reasons for concluding that a local authoritys duty under section 20(1) of the Children Act 1989 is not a civil right for the purposes of Article 6(1).
But the Court does not have to decide that point in order to dispose of this appeal.
The Strasbourg jurisprudence is still developing.
I would prefer to leave the point open, while acknowledging the force of Lord Hopes reasoning.
LORD NEUBERGER
For the reasons given by Lady Hale, I too would allow this appeal.
| UK-Abs | Local authorities owe a variety of duties towards children in need, who may include unaccompanied minors coming here to seek asylum.
Such children may be entitled to accommodation and other help which is different from, and rather better than, the services available to adults.
So disputes may arise about whether a young person is or is not a child.
Today, the Supreme Court unanimously decided that it is ultimately for the courts, and not the local authority, to resolve this question.
The Court considered two individual cases, but there are many others raising the same issue.
A and M both arrived alone in England and claimed asylum, stating that they were under eighteen.
Each was referred to local authority social workers who assessed him as an adult.
Each challenged the resulting decision of the local authority that he was not entitled to accommodation.
Two main issues were before the Supreme Court: (1) Whether the duty on local authorities to provide accommodation and related services under the Children Act 1989 is owed only to a person who appears to the local authority to be a child (so that the decision is ultimately for the authority to make), or whether it is owed to a person who is in fact a child (so that the decision is ultimately for a court to make); (2) Whether the decision to provide accommodation is the determination of their civil rights, so that the decision making process has to comply with the requirements for a fair trial before an independent and impartial tribunal under Article 6 of the European Convention on Human Rights.
The Court unanimously allowed these appeals.
The lead judgment of the Supreme Court was given by Lady Hale.
The other members of the Court (Lord Hope, Lord Scott, Lord Walker, and Lord Neuberger) agreed with her.
On the first main issue, Lady Hale explained that the many references to a child throughout the 1989 Act must mean the same thing, that is, a person who is in fact a child.
There was a
right or a wrong answer to this question, difficult though it might be to decide it in some cases.
It was a different type of question from whether the child was in need within the meaning of the Act, which involved a number of different value judgements suitable for expert assessment by social workers (paragraphs [26] [27]).
She pointed out, however, that local authorities (or the UK borders agency in asylum cases) will still have to decide whether or not a person is a child in the first instance; it will only be if this remains disputed that the court may have to take the decision itself (paragraph [33]).
On the second main issue, Lady Hale said that it was unnecessary, in light of her conclusion on the first issue, to reach any firm conclusions on the application of Article 6 of the Convention (paragraph [34]).
She declined to decide whether a childs entitlement to accommodation under the 1989 Act was a civil right, but commented that she would be most reluctant to hold that Article 6 required the judicialisation of claims to welfare services of this kind (paragraphs [44] [45]).
Lords Scott, Walker and Neuberger agreed with her approach (paragraphs [66] [68).
While agreeing that it was unnecessary to reach any firm conclusions on the point (paragraph [50]), Lord Hope doubted whether the duty of local authorities to provide accommodation under the 1989 Act gave rise to a civil right within the meaning of Article 6 of the Convention (paragraphs [55] [65]).
|
This appeal concerns the liability of employers in the knitting industry of Derbyshire and Nottingham for hearing loss shown by employees to have been suffered during the years prior to 1 January 1990, the date when the Noise at Work Regulations 1989 (SI 1989/1790) came into force.
The central issue is whether liability exists at common law and/or under section 29(1) of the Factories Act 1961, towards an employee who can establish noise induced hearing loss resulting from exposure to noise levels between 85 and 90dB(A)lepd.
Noise is generated by pressure levels in the air.
The loudness of a noise depends on the sound pressure level of the energy producing it, measured in decibels (dB).
The decibel scale is logarithmic, so that each 3dB increase involves a doubling of the sound energy, even though a hearer will not actually perceive a doubled sound pressure as involving much, if any, increase in sound.
Noise is rarely pure, it usually consists of a broadband combination of sounds at different frequencies, and the human ear is more sensitive to noise at some (particularly middle) frequencies than at others.
The sound pressure level across a range of frequencies is in a general industrial context commonly expressed by a weighted measurement described as dB(A).
Apart from very loud, immediately damaging noise, with which this case is not concerned, damage to the human ear by noise exposure depends upon both the sound pressure level from time to time and the length of exposure, as well the individual susceptibility of the particular individual.
Sound pressure level averaged over a period is described as dB(A)leq.
Exposure at a given dB(A)leq for 8 hours is described as dB(A)lepd.
Exposure at a given dB(A)lepd for a year gives a Noise Immission Level (NIL), which will build up slowly with further years exposure.
Sound is perceived by the hearer as a result of the conversion by the ear drum of the sound pressure variations in the air into mechanical vibrations.
These are conveyed by the middle ear to the cochlea, which, by a process of analysis and amplification, translates these vibrations into nerve impulses which are then transmitted to the brains auditory nerve.
Hair cells in the cochlea play a vital part in the process, and noise induced hearing loss (described as sensorineural) is the result of damage to such hair cells resulting from exposure to noise over time.
Other causes of hearing loss include decline in the conductive function of the outer and/or inner ear, due for example to disease, infection, excess wax or very loud traumatic noise, as well as loss due to simple ageing (presbyacusis).
Hearing loss is commonly measured by ascertaining the average threshold below which hearing is affected and comparing it with a normal threshold.
Both the rate at which any individual will suffer ageing loss and the susceptibility of any individual to damage as a result of noise exposure are, as between different individuals, very variable as well as unpredictable.
Statistics, produced as will appear in the 1970s, do no more than attempt to indicate what percentage of a particular population may be predicted to suffer a particular level of hearing loss by a particular time in their lives by these different causes depending upon their circumstances.
In 1971 a Code of Practice was prepared by the Industrial Health Advisory Committees Sub Committee on Noise, and in 1972 it was published by the Department of Employment as a blueprint for action.
This Code remained in issue at the material times thereafter, and it said that a level of 90dB(A) should not be exceeded [i]f exposure is continued for eight hours in any one day, and is to a reasonably steady sound (para 4.3.1).
On 14 February 2007, His Honour Judge Inglis decided test cases, involving seven claims against four different companies: Taymil Ltd (successors to the liabilities of several employing companies and now known as Quantum Clothing Group Ltd), Meridian Ltd, Pretty Polly Ltd and Guy Warwick Ltd. The cases were all brought on the basis that there had been exposure to noise levels between 80 and 90dB(A)lepd.
Mrs Bakers claim was against Taymil.
She had worked in Simpson Wright & Lowes factory in Huthwaite Road, Sutton in Ashfield from 1971 (when she was 15) to 2001.
The judge found that for 18 years, from 1971 to 1989, she is likely to have been exposed to a noise level that attained 85dB(A)lepd, but did not at any time substantially exceed that level by more than 1db (para 182).
He also found that some other condition was affecting her left ear, but that her years of exposure at or slightly above 85dB(A)lepd had led to her sustaining a degree of noise induced hearing loss and had played a small part in her suffering tinnitus.
But Mrs Bakers claim failed on the ground that her employers had not committed any breach of common law or statutory duty.
Had liability been established, the judge would have awarded her 5,000 for this slight hearing loss and slight contribution to the tinnitus (paras 192 193).
All the other employees claims failed.
In none of their cases was any noise induced hearing loss shown to have occurred due to the relevant employment.
Only for a few months in the 1960s in the case of Mrs Moss claiming against Taymil and for about two years (1985 1986) in the case of Mrs Grabowski claiming against Pretty Polly was there shown to have been any exposure to noise levels of or over 85dB(A)lepd in the relevant defendants employment.
However, in the case of Meridian (employers of Mr Parkes and Mrs Baxter and a subsidiary of Courtaulds plc) and Pretty Polly (employers of Mrs Grabowski and a subsidiary of Thomas Tilling Ltd until 1982 and of BTR plc until 1994) the judge would have held liability to exist from the beginning of 1985, had noise induced hearing loss been shown to have been incurred due to exposure to noise exceeding 85dB(A) in such defendants employment.
Mrs Baker appealed to the Court of Appeal as against Quantum, and Meridian and Pretty Polly were joined to enable issue to be taken with certain of the judges conclusions potentially affecting other claims.
Guy Warwick was a respondent to an appeal brought only on costs.
The Court of Appeal (Sedley, Smith and Jacob LJJ) allowed Mrs Bakers appeal on 22 May 2009, and reached conclusions less favourable to all four employers than those arrived at by the judge.
The present appeal is brought by Quantum, Meridian and Pretty Polly, with Guy Warwick intervening by permission of the Supreme Court given on 30 June 2010.
The test of an employers liability for common law negligence is common ground.
In Stokes v Guest, Keen and Nettlefold (Bolts and Nuts) Ltd [1968] 1 WLR 1776, 1783, Swanwick J described the position as follows: From these authorities I deduce the principles, that the overall test is still the conduct of the reasonable and prudent employer, taking positive thought for the safety of his workers in the light of what he knows or ought to know; where there is a recognised and general practice which has been followed for a substantial period in similar circumstances without mishap, he is entitled to follow it, unless in the light of common sense or newer knowledge it is clearly bad; but, where there is developing knowledge, he must keep reasonably abreast of it and not be too slow to apply it; and where he has in fact greater than average knowledge of the risks, he may be thereby obliged to take more than the average or standard precautions.
He must weigh up the risk in terms of the likelihood of injury occurring and the potential consequences if it does; and he must balance against this the probable effectiveness of the precautions that can be taken to meet it and the expense and inconvenience they involve.
If he is found to have fallen below the standard to be properly expected of a reasonable and prudent employer in these respects, he is negligent.
Mustill J adopted and developed this statement in another well known judgment in Thompson v Smiths Shiprepairers (North Shields) Ltd [1984] QB 405, when he said (at pp 415F 416C): I shall direct myself in accordance with this succinct and helpful statement of the law, and will make only one additional comment.
In the passage just cited, Swanwick J drew a distinction between a recognised practice followed without mishap, and one which in the light of common sense or increased knowledge is clearly bad.
The distinction is indeed valid and sufficient for many cases.
The two categories are not, however, exhaustive: as the present actions demonstrate.
The practice of leaving employees unprotected against excessive noise had never been followed without mishap.
Yet even the plaintiffs have not suggested that it was clearly bad, in the sense of creating a potential liability in negligence, at any time before the mid 1930s.
Between the two extremes is a type of risk which is regarded at any given time (although not necessarily later) as an inescapable feature of the industry.
The employer is not liable for the consequences of such risks, although subsequent changes in social awareness, or improvements in knowledge and technology, may transfer the risk into the category of those against which the employer can and should take care.
It is unnecessary, and perhaps impossible, to give a comprehensive formula for identifying the line between the acceptable and the unacceptable.
Nevertheless, the line does exist, and was clearly recognised in Morris v West Hartlepool Steam Navigation Co Ltd [1956] AC 552.
The speeches in that case show, not that one employer is exonerated simply by proving that other employers are just as negligent, but that the standard of what is negligent is influenced, although not decisively, by the practice in the industry as a whole.
In my judgment, this principle applies not only where the breach of duty is said to consist of a failure to take precautions known to be available as a means of combating a known danger, but also where the omission involves an absence of initiative in seeking out knowledge of facts which are not in themselves obvious.
The employer must keep up to date, but the court must be slow to blame him for not ploughing a lone furrow.
An employer following generally accepted practice will not therefore necessarily be liable for common law negligence, even if the practice involves an identifiable risk of leading to noise induced hearing loss.
There is, as Hale LJ also said succinctly in Doherty v Rugby Joinery (UK) Ltd [2004] EWCA Civ 147; [2004] ICR 1272, para 44, a distinction between holding that a reasonable employer should have been aware of the risks and holding that certain steps should have been taken to meet that risk.
Section 29 of the Factories Act 1961 provides: (1) There shall, so far as is reasonably practicable, be provided and maintained safe means of access to every place at which any person has at any time to work, and every such place shall, so far as is reasonably practicable, be made and kept safe for any person working there. (2) Where any person has to work at a place from which he will be liable to fall a distance more than six feet six inches, then, unless the place is one which affords secure foothold and, where necessary, secure hand hold, means shall be provided, so far as is reasonably practicable, by fencing or otherwise, for ensuring his safety.
The judgments below
In his clear and comprehensive judgment, His Honour Judge Inglis followed the authority of Taylor v Fazakerley Engineering Co (Rose J, 26 May 1989) in concluding that the standard of safety required under section 29(1) is governed by the general standard which ought reasonably to have been adopted by employers at the relevant time, and therefore that the section did not add materially to the common law duty in that respect (para 99).
He held (para 87), in the light of the Code of Practice 1972 and extensive oral evidence called before him, that neither Taymil nor Guy Warwick as reasonable and prudent employers could be said to have been in breach of duty at common law or under section 29(1) during the 1970s and 1980s, certainly until the time when the terms of [European Economic Community Directive 86/188/EEC of 12 May 1986] became generally known in the consultative document.
The consultative document in question was Prevention of damage to hearing from noise at work, Draft proposals for Regulations and Guidance, issued by the Health and Safety Commission in 1987.
The document invited comments by 30 June 1988 and led to the Noise at Work Regulations 1989 (SI 1989/1790) which took effect from 1 January 1990.
In the case of Meridian and Pretty Polly, the judge held that they had a greater understanding of the risks of noise by the beginning of 1983, that this required them to put in place a conservation programme accompanied by information and instruction, and that they were potentially liable from the beginning of 1985.
The judge thus allowed a two year period for action from the date when there was or should have been appreciation that action was necessary.
However, it is in issue whether, in the case of Taymil and Guy Warwick, he was treating the two year period as expiring at some undefined time during 1989 or as expiring on 1 January 1990, the same date as the 1989 Regulations came into force.
In the Court of Appeal, the main judgment was given by Smith LJ, with whom the two other members of the court agreed.
Sedley LJ gave some short additional concurring reasons.
The court differed from the judge.
It held section 29 of the Factories Act 1961 to involve a more stringent liability than liability for negligence at common law, and it held further that, were it material, it would have concluded that liability for negligence at common law arose at earlier dates than the judge had adopted.
With regard to section 29, Smith LJ concluded that the court was bound by the previous authority of Larner v British Steel [1993] ICR 551, with which she anyway agreed, to hold that whether a place was safe involved applying [an] objective test without reference to reasonable foresight and that what is objectively safe cannot change with time (paras 77 and 78).
In the alternative, if foresight was relevant, she would have held that by the early 1970s, any employer who kept abreast of developing knowledge would have known that prolonged exposure to 85dB(A)lepd was harmful to some people, making the workplace unsafe for an undefined section of his workforce, and, so, that he must do what was reasonably practicable to make and keep it safe.
She concluded that having regard to a method available in a British Standard BS 5330 published in July 1976 which could be used by anyone with a modest degree of mathematical skill the position was that by late 1976 or early 1977, the average sized employer in the knitting industry could and should have been able to make an informed assessment of the quantum of risk arising from the below 90dB(A)lepd noise in his workshops.
She then allowed, instead of the judges two year period, about six to nine months for the provision of ear protectors once the decision had been taken that they should be provided and, for the sake of simplicity fixed the date, by which action should have been taken and as from which liability arose under section 29(1), as January 1978 (paras 101 102).
On this basis, Mrs Baker was awarded, for breach of statutory duty, 66.67% of 5,000 in respect of the 12 years of noise exposure which she suffered from January 1978.
With regard to the common law claim, Smith LJ concluded that HHJ Ingliss holding in para 87 of his judgment (para 16 below) cannot be faulted, and upheld his view that there was no breach of the duty at common law during the period for which a responsible body of opinion regarded it as acceptable to expose employees to noise in the 85 89dB(A)lepd range (para 105).
While indicating her personal inclination towards an earlier date (based on the publication in 1982 by the European Commission of a first draft directive, later withdrawn), she also agreed with the judges conclusion that for the employer with the ordinary, or average degree of knowledge, that period came to an end in 1987, following publication of the second draft Directive (para 105).
In this connection, she again held that to allow longer than six to nine months was over generous, and so fixed the date of any breach of common law duty by the average employer at January 1988 (para 106).
She agreed that Meridian and Pretty Polly should have known by early 1983 which of their workers required protection and should within six to nine months thereafter have provided such protection (paras 107 108); and she regarded it as irrational to treat Quantum any differently, merely because it was part of a smaller group and operated as an individual company without the benefit of the central advice on health and safety issues enjoyed by the Courtaulds group and Pretty Polly.
So Quantum would, in the Court of Appeals view, have been liable at common law, like Meridian and Pretty Polly, from late 1983 (para 109).
The history
The judge set out in paras 29 to 45 the history of investigation and awareness regarding the risks of occupational exposure to noise from the early 1960s to date.
The Court of Appeal helpfully summarised the historical background in terms which I quote, interposing a number of observations of my own.
Historical Background 2.
For well over a hundred years, it has been known that prolonged exposure to loud noise causes deafness.
Such deafness was long regarded as an unavoidable occupational hazard.
In the early 20th century, ear protectors were developed and were supplied to some members of the armed forces during both world wars.
But it was not until the second half of the century that any real interest was taken in preventing noise induced deafness in industrial workers. 3.
In April 1960, the government of the day instructed Sir Richard Wilson to chair a committee to report on the problems of noise.
The committee's first report was published in 1963.
In the same year, in reliance on that report, a Ministry of Labour publication entitled 'Noise and the Worker' drew the attention of employers to the need to protect their workers from excessive noise.
At that time, scientific knowledge was not such that it could be said with confidence at what noise level harm was likely to occur.
A rough guide was given that workers who were regularly exposed to noise of 85 decibels (dB) at any frequency for eight hours a day should be protected.
I interpose that the author of the report was in fact Sir Alan Wilson FRS.
An interim report was published in March and the final report in July.
Noise and the Worker was published in the light of the interim report. 4.
Further research was carried out during the 1960s, in particular by a team led by Professor W Burns, Professor of Physiology at the University of London and Dr D W Robinson, then head of the acoustics section of the National Physical Laboratory.
In 1970, the result of their work was published as 'Hearing and Noise in Industry'.
By that time, a method had been developed of measuring noise levels by reference to the weighted average for all frequencies (expressed as dB(A)) and for assessing the equivalent noise exposure over an eight hour working day (expressed as dB(A)leq or more recently dB(A)lepd).
Burns and Robinson explained that they were now in a position to predict the degree of risk of hearing loss to groups of an exposed population of varying susceptibility from various levels of noise exposure.
Their work would make it possible to prepare a code of practice for employers.
They discussed the possibility of establishing a limit of maximum exposure as follows: The limit can be set at a variety of levels according to the ultimate risk judged to be acceptable and we suggest that it should not be set higher than 90dB(A) for normal continuous daily exposure which is likely to persist for many years. 5.
In 1968 and 1971 two further editions of 'Noise and the Worker' were published.
The gist of the advice given in the third edition was that, if employees were exposed to noise in excess of 90dB(A), there should be a programme of noise reduction or hearing conservation.
That level of noise exposure corresponded approximately to the 85dB which had been the level at which action was recommended in the first edition of 'Noise and the Worker'.
The third edition encouraged employers to reduce noise exposure below the maximum permitted level in order to avoid risk to the hearing of 'the minority of people who are exceptionally susceptible to hearing damage.
The guidance given in the third edition to help to protect most people against serious hearing loss was that they should not be exposed to levels of noise exceeding maximum sound levels specified in table 1 by reference to duration of exposure.
In the case of an exposure duration of eight hours a day (the longest covered), the maximum sound level specified was 90dB(A).
The encouragement given to reduce noise exposure below the maximum was to reduce noise exposure if possible and was expressed to be in order to avoid risk to the hearing of the minority of people who are exceptionally susceptible to hearing damage, and for reasons of general welfare.
In the foreword to impressions published after April 1972, two of them by 1976, the third edition also said: This booklet has been overtaken by the publication in April 1972 of the Code of Practice .
However it is a useful introduction to the subject and should be read as a supplement to the Code.
The third edition referred under the head Monitoring Audiometry to the possibility of monitoring checks, but did not repeat the suggestion in the second edition that monitoring should take place in respect of noise levels approaching those set out in table 1. 6.
A Code of Practice, based on the work of Burns and Robinson was published by the Department of Employment in 1972.
Its main messages were that employers must measure the noise in their premises and, if the noise level was 90dB(A)leq or above, must take steps to reduce the noise at source and, if that was not practicable, to provide ear protectors.
The Code of Practice also explained that protection from noise of 90dB(A)leq would not protect all workers from hearing damage; some harm was likely to be caused to some susceptible workers by noise below that level.
The Court of Appeal was not justified in using the word likely.
What the relevant paragraph (1.1.2) in fact said was: The Code sets out recommended limits to noise exposure.
It should be noted that, on account of the large inherent variations of susceptibility between individuals, these limitations are not in themselves guaranteed to remove all risk of noise induced hearing loss. 7.
A set of tables first published in 1973 by the National Physical Laboratory (the NPL tables) showed the relationship between noise dose and the expected extent of hearing loss of persons with different degrees of susceptibility.
Noise dose was based upon the daily exposure adjusted for the number of days' exposure in the year and the number of years' exposure.
These tables were based on the work of Burns and Robinson.
They were republished in 1977 in a more user friendly form but the underlying science was the same as before and indeed it remains valid today.
The tables demonstrated the harmful effect of prolonged exposure to noise below 90dB(A)leq but, because they were based on empirical data and because the data available for these lower noise levels was limited, there was some dependence on extrapolation.
The degree of predicted risk arising from exposure to these lower levels of noise is therefore less certain than that caused by noise over 90dB(A)leq.
That is of significance in the context of this appeal which raises the issue of when employers ought to have taken steps to protect their employees from exposure to such lower levels of noise.
These tables consisted of some 15 pages of introductory material and 149 pages of tables.
The latter would require expert advice to interpret, but, even with such advice, they did no more than indicate in detailed statistical terms the risk to susceptible employees identified by the Code of Practice.
The judge recorded (para 23) the expert evidence that the NPL tables were (as distinct from the ISO1999 tables mentioned in point 10 below) less accurate below 90dB(A), though reasonably accurate above that level.
They tend at lower levels to exaggerate the effect of noise.
Some of the NPL tables were used in BS 5330: 1976 mentioned in point 11, below. 8.
Until 1989, the Government of the United Kingdom made no attempt of general application to regulate noise exposure in industry.
In 1974, regulations were made to control noise in the woodworking industry and in tractor cabs.
The regulations required employers to reduce noise to the greatest extent practicable and to provide ear protectors where persons were likely to be exposed to noise at or above 90dB(A)leq, 9.
In 1975, a sub committee of the Industrial Health Advisory Committee, set up after publication of the Code of Practice in 1972, reported on the problems of framing protective legislation.
The gist of this report was that the noise limit recommended by the 1972 Code had widespread acceptance although it did not eliminate all risk of harm. 90dB(A)leq was the most practicable standard although a lower limit should be considered at regular intervals.
More particularly, para 19 of the report, Framing Noise Legislation, read: The Codes noise limit of 90dB(A)leq has widespread international acceptance, and although it does not eliminate all risk of hearing damage, we feel it continues to be the most practicable standard, in recognition of the necessity of concentrating limited resources on workers subject to the most significant risks and of eliminating these risks as a first priority.
Prediction of risks of hearing damage at these levels, based on a lifetimes exposure of 30 or 40 years, indicates that the proportion of an exposed population likely to suffer unacceptable degrees of impairment falls off rapidly below 90dB(A).
The specification of a daily dose introduces a further margin of safety since it is unlikely that a large number of workers would receive the full daily limit throughout their entire working lifetimes.
Similar conclusions have been reached in other major industrial countries, and none of those examined in our survey has introduced a generally applicable environmental limit lower than 90dB(A).
Nevertheless, the question of a lower limit should be reconsidered at regular intervals.
A level of 90dB(A) is by no means ideal, and the aim should be to ensure a progressive reduction. 10.
In 1975 an international standard was published (ISO1999).
This proposed a formula by which hearing loss could be predicted from various levels of noise exposure.
It was not easy for a lay person to use.
IS01999 did not suggest limits of tolerable exposure.
It said that that was the province of 'competent authorities' who would demand the institution of hearing conservation programmes if limits were exceeded.
It mentioned that 'in many cases', 85 to 90dB(A) equivalent continuous sound level had been chosen. 11.
In 1976, a British Standard was published (BS 5330: 1976).
This was based on the work of Burns and Robinson and explained the relationship between noise exposure and the expected incidence of hearing disability.
The foreword stated that determination of a maximum tolerable noise exposure was outside the scope of the standard and referred the reader to the 1972 Code of Practice.
More particularly, BS 5330 said: Determination of a maximum tolerable noise exposure is outside the scope of this standard; it involves consideration of risk in relation to other factors.
For occupational noise exposure such a limit is specified in the Department of Employment (HMSO, 1972) Code of Practice for Reducing Exposure of Employed Persons to Noise. 12.
In 1981, the Health and Safety Executive (HSE) issued a consultative document 'Protection of Hearing at Work' which included draft regulations and a draft approved code of practice.
The proposed level of protection was at or above 90dB(A)lepd.
These draft regulations were not promulgated. 13.
In 1982, a draft directive was published by the European Commission, proposing a general limit of 85dB(A)lepd with ear protection to be provided at or above that level with medical surveillance and routine audiometry for all employees exposed at or above that level.
This was greeted with some dismay by industry and was withdrawn in 1984.
A further draft directive was published and was promulgated in 1986.
This required member states to enact legislation which would, inter alia, require employers to provide ear protectors and information as to risks where employees were exposed to noise likely to exceed 85dB(A)lepd.
Medical surveillance was to be made available to all exposed employees by means of access to a doctor.
Thus, the only change of significance between the 1982 draft and the 1986 directive was that responsibility for medical surveillance would not fall on the employer but (at any rate in this country) would be satisfied through the provisions of the National Health Service.
The Noise at Work Regulations 1989 (SI 1989/1790) implementing the directive came into effect on 1 January 1990.
The directive promulgated in (May) 1986 was Council Directive 86/188/EEC.
It required member states to enact and to bring into force the relevant legislation by 1 January 1990.
The Court of Appeal was not accurate in stating that the only difference between the 1982 draft and the actual directive in 1986 related to responsibility for medical surveillance.
As the judge noted (para 39), the directive replaced the earlier withdrawn draft with less stringent proposals: in short, where daily personal noise exposure of a worker exceeded 90dB(A), the directive required the use by the worker of personal ear protectors (article 6(1)), but where such exposure was likely to exceed 85dB(A), it only required such protectors to be made available to workers (article 6(2)). 14.
For the sake of completeness, although not relevant to this appeal, I mention that, in 2003, the European Commission issued a further directive imposing more stringent requirements.
The Control of Noise at Work Regulations 2005 (SI 2005/1643) gave effect to that directive.
Inter alia, they introduced a maximum permitted noise level of 87dB(A) and required employers to provide ear protectors to workers exposed to 85dB(A) and to make them available on request to workers exposed to 80dB(A).
The judge in paras 46 to 48 also set out the general approach to noise in industry until the end of the 1980s, based on the oral evidence called before him.
Paras 46 to 48 of HHJ Ingliss judgment led him to reach the following conclusions on liability in para 87: 87.
There is no doubt that research into the question of what risks to the hearing of employees exposure below 90dB(A)leq posed would have yielded the answer that 90dB(A) was not a natural cut off point, and that there were risks to susceptible individuals below that level.
Indeed, the 1972 Guidelines themselves made that clear.
From the early 1970s, certainly by 1976 with the publication of BS 5330 and of IS0 1999 in the previous year, the information was available if researched to give an indication of the level of the risk.
It was a level of risk that came by the end of the 1980s to be seen as unacceptable if not accompanied by at least voluntary protection, though the 90dB(A) limit had remained, both in 1975 and in 1981, the proposed regulatory standard in England.
In the end though I am not persuaded that employers in industry who conformed to the maximum acceptable level of exposure in the 1972 Guidelines were in breach of their duty of care to their employees who were exposed over 80dB(A)lepd.
In rejecting the primary case for the claimants I acknowledge that I do not see the issue as only one of foreseeability.
It would in my judgment be futile to hide behind the 1972 Guidelines for that purpose, or behind the third edition of Noise and the Worker, when the documents themselves proclaim that the level proposed will not be safe for all workers.
But good practice as informed by official guidance has in my view to be taken into account as well.
The guidance as to the maximum acceptable level was official and clear.
It would in my view be setting too high a standard to say that it was incumbent on employers to ignore it, and to reach and act, even as early as the 1960s, on a view that the standard set was inadequate to discharge their duty to their employees.
To put it in the context of Swanwick J's judgment, complying with 90dB(A)lepd as the highest acceptable level was, I think, meeting the standards of the reasonable and prudent employer during the 1970s and 1980s, certainly until the time when the terms of the 1986 directive became generally known in the consultative document of 1987.
I accept that this means that employers were not bound in the discharge of their duty to ask the question Who are those at risk in my factory, and how big is the risk.
It is a question that none of them in this case asked.
But the effect of the maximum acceptable level in the Guidelines means in my judgment, that they were not in breach of their duty for not asking it.
The judge then distinguished the position of Meridian (Courtaulds) and Pretty Polly: 88.
There is room, however, for greater than average knowledge as Swanwick J put it, to inform the steps that individual employers should have taken at an earlier time than the late 1980s.
At first sight it is not attractive that those who have a safety department and medical officers and take the matter of noise seriously should be worse off than those who wallow in relative ignorance, but it is an inevitable consequence of a test that depends on what an individual employer understood.
On that basis, I have found that by the beginning of 1983 management both at Courtaulds and at Pretty Polly had sufficient understanding of the risks to hearing below 90dB(A)lepd to require them to take action.
Both in fact say that they did so.
Plainly putting a conservation programme into action, accompanied by information and instruction is not to be done in an instant, as Mustill J recognised in the passage in Thompson that I have set out above.
In the case of those two employers, because of the particular state of their knowledge, I would say that they were in breach of their duty to employees who suffered damage through exposure at 85dB(A)lepd and over, without having the opportunity of using hearing protection, from the beginning of 1985.
Earlier in his judgment, HHJ Inglis had made detailed factual findings about the conduct and understanding of each of the relevant employers with regard to the risks of noise induced hearing loss.
I summarise these in the appendix to this judgment.
Smith LJ addressed the judges conclusions on liability at common law as follows: 105.
I consider that the opinion, implied by the Code of Practice, that exposure to noise below 90dB(A)lepd was 'acceptable' was a factor which could properly be taken into account when an employer considered what it was reasonable for him to do in respect of the health and safety of his employees.
In short, I take the view that Judge Inglis's holding which I quoted at paragraph 46 cannot be faulted.
I would uphold his view that there was no breach of the duty at common law during the period for which a responsible body of opinion regarded it as 'acceptable' to expose employees to noise in the 85 89dB(A)lepd range.
I consider that, for the employer with the ordinary or average degree of knowledge, the judge's conclusion that that period came to an end in 1987, following publication of the second European draft directive, was a reasonable conclusion, although, left to myself, I would have said that the publication of the first draft directive in 1982 would have put all employers on notice that it could no longer be regarded as acceptable or reasonable to leave this group of employees exposed. 107.
The judge imposed different dates of common law liability on Courtaulds and Pretty Polly from that of Quantum and Guy Warwick which he regarded as having only an average degree of knowledge.
It is clear that from 1972 all employers should have been aware of the risk to some of their employees from exposure to 85 89dB(A)lepd.
The question at common law was when they should have realised that it was no longer to be regarded as acceptable to disregard that risk.
The judge's conclusion in respect of Courtaulds was plainly justified.
They actively opposed the proposal in the first draft directive, not on the ground that the risk was minimal but on the ground that the cost to them would be too great.
By early 1983, they could no longer have thought that a responsible body of opinion took the view that it was acceptable to ignore the risks of harm below 90dB(A)lepd.
They should by that time have known which of their workers required protection and only a further six to nine months should be allowed for provision. 108.
Pretty Polly was in a different position in that there was no direct evidence that it knew of the first draft directive.
However, in my view the judge was entitled to hold that it must have done.
In any event, there was other evidence that it had been advised of the need to take action in respect of the lower levels of noise.
In my view, the judge's holding was justified, subject to the reduction in the period allowed for provision. 109.
As a fall back submission, Mr Hendy argued that the judge had been wrong to reach a different conclusion in respect of Quantum.
There was evidence that it was aware of the first draft directive and Mr Hendy submitted that, given that knowledge, it was irrational to say that, because the group was smaller than Pretty Polly or Courtaulds and operated as individual companies without the benefit of central advice on health and safety issues, they should be treated differently from the other two employers.
I would accept that submission and would hold that, if it were to become material, Quantum would have been in breach of its common law duty at the same date as Courtaulds.
The judge and the Court of Appeal therefore accepted the Code of Practice as the generally appropriate standard for employers with average knowledge during the 1970s and early 1980s, differing only as to the date in the 1980s when it ceased to be so.
The judge and, ostensibly at least, the Court of Appeal also distinguished between average employers and other employers, described by the judge as having greater than average knowledge, differing however as to which employers fell into the latter category.
The parties respective cases on common law liability
The respondent challenges the conclusion reached by both courts below that the Code of Practice represented a generally appropriate standard; she submits that it ceased to be such from at least 1976, though she does not in this case ask for that date to be substituted for the dates found by the Court of Appeal.
For opposite reasons, the distinction drawn by the judge between employers with average and greater than average knowledge finds little support in any sides submissions.
Mr Hendy positively asserts that all three appellant employers and the interveners were in the same position; that they should all be treated as having the same constructive knowledge (based on the generally available published provisions and materials); and that neither court below based its decision upon specific evidence of knowledge of incidence of hearing problems in particular workforces, or technical or operational knowledge specific to the particular defendants (respondents case, para 202).
So, on his submission, it was not appropriate to regard Quantum and Guy Warwick, or any employer, as any less liable than the judge held Meridian and Pretty Polly to be.
The Court of Appeal, by putting Quantum into the same category as Meridian and Pretty Polly, went some, though not the whole, way towards accepting this submission.
The appellants, on the other hand, support the concurrent conclusion below that the Code of Practice constituted an appropriate standard for employers with average knowledge, submit that it continued to be so, as the judge held, until the late 1980s, but also submit that the judge failed to provide any satisfactory analysis of what he meant by greater than average knowledge in para 88, and that he had no basis for treating Meridian and Pretty Polly as liable by reference to any date other than that which he held applicable to the reasonable and prudent employer during the 1970s and 1980s of whom he spoke in para 87.
Analysis of common law position: (a) Greater than average knowledge?
At the level of principle, the parties submissions take one back to Swanwick and Mustill JJs classic statements regarding the test of negligence at common law (paras 9 and 10 above).
These statements identify two qualifications on the extent to which an employer can rely upon a recognised and established practice to exonerate itself from liability in negligence for failing to take further steps: one where the practice is clearly bad, the other where, in the light of developing knowledge about the risks involved in some location or operation, a particular employer has acquired greater than average knowledge of the risks.
The question is not whether the employer owes any duty of care; that he (or it) certainly does.
It is what performance discharges that duty of care.
For that reason, I find difficult to accept as appropriate in principle some of the reasoning in another, more recent Court of Appeal authority, Harris v BRB (Residuary) Ltd [2005] EWCA Civ 900; [2005] ICR 1680 (Neuberger and Rix LJJ).
In Harris, the issue was whether regular exposure of train locomotive drivers between 1974 and 2000 to noise levels between 85dB(A) and 90dB(A) gave rise to liability for any noise induced hearing loss shown to have resulted.
Neuberger LJ gave the sole reasoned judgment.
He accepted on the evidence before the court that, at least until the 1989 Regulations came into force, an employer would not normally be expected to be liable to an employee who was exposed to a level of sound lower than 90dB(A)leq, but said that this evidence cannot go so far as to negative in all circumstances liability to employees whose health is impaired as a result of exposure to sound below that level (para 39).
After quoting Swanwick J, Neuberger LJ suggested that a good working approach might be to treat 90dB(A) as giving rise to a presumption, with the effect that, below 90dB(A), it was for the employee to show why a duty should be imposed at all (paras 40 41).
The reference to a duty being imposed derives from the way in which the defendants case was presented: the submission was that the mere fact that a particular level of sound is potentially injurious does not of itself give rise to a duty of care. the existence of a duty of care depends not merely on foreseeability of injury but whether it is just and equitable to impose the duty (para 36).
On this basis, Neuberger LJ said that, while not intending to call into question the applicability in the general run of cases of the 90dB(A)leq threshold each case must turn very much on its facts, not least because of the just and equitable test accepted, indeed advanced on behalf of the defendant (para 38).
In my opinion, however, the adoption of such a test would import an extraneous concept.
The primary inquiry, when considering whether an employer has acted with due care to avoid injury from noise induced hearing loss, is whether there is a recognised and established practice to that end; if there is, the next question is whether the employer knows or ought to know that the practice is clearly bad, or, alternatively, if the area is one where there is developing knowledge about the risks involved in some location or operation, whether the employer has acquired greater than average knowledge of the risks.
Considerations of justice and equity no doubt underlie both Swanwick and Mustill JJs statements of principle.
But to ignore the statements and to restate the inquiry in simple terms of justice and equity opens a wide and uncertain prospect, despite the courts attempts in Harris to emphasise that it was not departing from a position whereby an employer would not normally be expected to be liable for a level of sound lower than 90dB(A).
That prospect has a present resonance, although HHJ Inglis did not base himself on the reasoning in Harris, but used language picking up the more conventional statements of principle.
Nonetheless, I consider that he did not apply those statements in the sense in which they were meant.
He did not consider the practice represented in the Code to be clearly bad during the 1970s or until the end of the 1980s; and it is common ground that the general state of knowledge about the risks involved in the knitting industry remained essentially static throughout this period (see also the first seven sentences of para 87 of the judges judgment).
As Mr Hendy made clear in the Court of Appeal (Core II, pp.749 750), no question of special resources arises, since no amount of research would have led to further knowledge, or indeed to different conclusions about the level of risk than those indicated in the Code of Practice.
Mr Hendy is in my opinion also correct in saying that the judge based his conclusions, including those relating to Courtaulds and Pretty Polly, on generally available published provisions and materials, rather than on any specific knowledge.
That is particularly apparent from the final sentences of paras 56 and 66 of his judgment (cited in the appendix) as well as in paras 87 and 88.
It might perhaps have been suggested, in relation to Courtaulds, that the rising incidence of claims which they experienced in the early 1980s gave rise to some degree of special knowledge, but that is not how the matter has been put.
It follows that, on the judges approach, the only real difference between employers lay in the degree of their consideration of and reaction to such risks.
In these circumstances, the judges conclusions in relation to Meridian (Courtaulds) and Pretty Polly amount in substance to saying that, because these companies focused more closely on the potential risk below 90dB(A) and displayed greater than average social awareness (to use Mustill Js words in Thompson at p 415H) by resolving that some action should probably be taken at times before ordinary, reasonable employers arrived at any such conclusion, they incurred greater liability than such employers.
The judge himself recognised here a paradox (para 88).
Those who have a safety department and medical officers and take noise more seriously than the ordinary reasonable employer are liable, while others are not.
That is appropriate if extra resources or diligence lead to relevant fresh knowledge.
But here they have led simply to the formation or inception of a different view to that generally accepted about what precautions to take.
In such a case, the effect of the judges approach is not to blame employers for not ploughing a lone furrow; rather, it positively blames them for ploughing a lone furrow but not doing so deeply enough.
When Mustill J spoke of changes in social awareness (p 415H), he was referring to changes leading to a general raising of the standard which average employers were expected to observe, not of individual employers spear heading such changes by forming the view that the standard should be raised.
In my view, therefore, no real basis was shown for treating Courtaulds and Pretty Polly differently.
On this aspect of the appeal, I would only add two points: first, had I considered there to be a sound basis for treating Courtaulds and Pretty Polly as having relevantly different and greater knowledge than average employers, I would see no basis for the Court of Appeals addition of Quantum into the same special category; Lord Dyson and Lord Saville agree, I understand, that there was no such basis; secondly, since Lord Dyson does not share the view that the judge should not have treated even Courtaulds and Pretty Polly as falling into a special category (see para 104 below), it follows that there is no majority in favour of this view and that (in reflection of the common ground between Lord Dyson, Lord Saville and myself), the appeal should be allowed only to the extent of restoring the judges decision in this regard. (b) Was the Code of Conduct an acceptable standard for average employers?
In my opinion, the respondent is correct in submitting that the real question is the sustainability of the judges conclusion that the Code of Practice constituted an acceptable standard for average employers to adhere to during the 1970s and 1980s.
The Court of Appeal expressed agreement with the judges conclusion that the Code of Practice remained a generally acceptable standard.
Smith LJ stated that this conclusion cannot be faulted and that I would uphold his view that there was no breach of the duty at common law during the period for which a responsible body of opinion regarded it as acceptable to expose employees to noise in the 85 89dB(A)lepd range (para 105).
Endorsing, in effect, the judges approach of distinguishing between employers with average and greater than average knowledge, she concluded para 105 by saying: I consider that, for the employer with the ordinary or average degree of knowledge, the judge's conclusion that that period came to an end in 1987, following publication of the second European draft directive, was a reasonable conclusion, although, left to myself, I would have said that the publication of the first draft directive in 1982 would have put all employers on notice that it could no longer be regarded as acceptable or reasonable to leave this group of employees exposed.
Turning to examine the different dates of common law liability which the judge had imposed, Smith LJ identified the issue as being when employers should have realised that it was no longer to be regarded as acceptable to disregard the risk to some of their employees from exposure to 85 89dB(A)lepd, of which they should, because of the Code of Practice, have been aware from 1972 (para 107).
As regards Courtaulds, she regarded the judges conclusion as plainly justified, saying that By 1983, they could no longer have thought that a responsible body of opinion took the view that it was acceptable to ignore the risks of harm below 90dB(A)lepd (para 107).
However, that appears to say that from 1983 there was no responsible body of opinion in favour of relying on the Code of Practice, and, if so, it should on its face have led automatically to a conclusion that no reasonable employer could do so.
Nonetheless, Smith LJ went on to consider the state of Pretty Pollys awareness about the need to take action and the 1982 draft directive and of Quantums awareness of the draft directive.
After noting Quantums awareness of the draft directive, she accepted Mr Hendys submission that it was irrational to say that, because the group was smaller than Pretty Polly or Courtaulds and operated as individual companies without the benefit of central advice on health and safety issues, they should be treated differently from the other two employers (para 109).
While Smith LJ ostensibly viewed the issue (as the judge did) as depending upon analysis of each individual employers position, in reality her approach seems to suggest a conclusion that the Code of Practice ceased to be an acceptable standard for any responsible employer in 1982.
In effect, the Court of Appeal appears to have disagreed with HHJ Ingliss conclusion that the period during which a reasonable employer could rely upon the Code of Practice continued until 1987.
The basis for this, despite the passage concluding para 105 of Smith LJs judgment, quoted above, appears to have been the publication in 1982 of the first draft directive.
The judges conclusion in para 87 was the product of a lengthy trial, and was based on extensive expert evidence.
The Code of Practice itself repeatedly refers to a limit defined in section 4.3.1 in relation to continuous noise exposure as 90dB(A)lepd: see e.g. sections 2.2.1, 3.1.2, 4.1.1, 4.2.1, 5.1.1, 6.1.3, 6.7.1 and 7.1.1.
It also says that Where it is reasonably practicable to do so it is desirable for the sound to be reduced to lower levels (section 4.1.1), but this has to be read with section 6.1.3, which states: Reduction of noise is always desirable, whether or not it is practicable to reduce the sound level to the limit set out in section 4, and whether or not it is also necessary for people to use ear protectors.
Reduction below the limit in section 4 is desirable in order to reduce noise nuisance.
When addressing section 29(1) of the Factories Act 1961, the Court of Appeal said (para 101) that, although the Code of Practice was not irrelevant, it was, in itself, plainly inadequate as an assessment tool, in that it advised only that there was some risk to susceptible individuals from exposure below 90dB(A)lepd; and it went on to conclude that the publication of BS 5330 in July 1976 could and should have enabled any average sized employer in the knitting industry, with the assistance of anyone with a modest degree of mathematical skill or any consultant acoustic engineer, to make an informed assessment of the quantum of risk arising from noise below 90dB(A)lepd.
These statements are not on their face easy to reconcile with the judges findings (in particular in paras 46 48 and 87).
However, they were made in the course of considering the issue of reasonable practicability under section 29, and on the basis that it was irrelevant in that context whether a reasonable employer could reasonably rely upon the Code of Practice as setting an acceptable standard of conduct in relation to exposure of employees to noise: see paras 89 and 100 (quoted in para 75 below).
Even if regarded as consistent with the judges findings, they do not therefore bear on the question whether the Code of Practice provided such a standard.
In any event, however, I do not consider that examination of the underlying statistical material undermines either the appropriateness or relevance of the Code of Practice as a guide to acceptable practice.
Both the Code of Practice and BS 5330 were based on the research and statistics developed through the work of Burns and Robinson.
BS 5330 itself stated that determination of a maximum tolerable noise exposure was outside its scope, that it involved consideration of risk in relation to other factors, and that for occupational exposure a limit was specified by the Code of Practice (para 15, above).
The respondent in fact accepted in the Court of Appeal that there was no basis in this case for going behind the Code of Practice, while submitting that the Code was enough for her purposes (Core II, pp 749 750).
If general standards of, or attitudes to, acceptable risk are left out of account, the statistical tables contained in the NPL tables, BS 5330 and ISO1999 could be used to suggest that no reasonable employer could from the early or mid 1970s expose his employees to noise exceeding 80dB(A)lepd.
This would not be consistent with the contemporary recognition of the Code of Practice as setting a generally appropriate standard in BS 5330 itself as well as in other documents such as Noise and the Worker and the Industrial Health Advisory Committee report of 1975 (see para 15 above).
The statistically identified risks at levels between 80dB(A)lepd (currently, at least, identified with no risk) and 90dB(A)lepd do not enable any easy distinction to be drawn within that bracket, if the elimination of all statistical risk is taken as a criterion.
This is highlighted by consideration of the tables in BS 5330: 1976 upon which the respondent and the Court of Appeal (para 101) have relied to show the risk attaching at levels of exposure between 85 and 90dB(A) lepd.
The same tables can be used to demonstrate the existence of risks (in terms of the percentage of persons exposed attaining or exceeding a mean hearing level of 30dB) arising below noise levels of 85dB(A)lepd.
Caution is necessary because of the inherent inaccuracy, and tendency to exaggerate, of the NPL tables, and to the extent that they were based on them, the BS 5330: 1976 tables at all levels below 90dB(A) (para 15 above).
But another, separate problem, which also applies to the ISO1999 tables, is that reliance on such tables as demonstrating the existence of a risk which needed counter acting makes it necessary to confront the question on what basis any distinction exists between say an increase by an additional 6% in the level of risk for 60 year old persons who have been exposed for 40 years at 86dB(A)lepd and by 5% for such a person so exposed at 85dB(A)lepd or by 4% for such a person so exposed at 84dB(A)lepd.
The equivalent increases for 60 year olds so exposed for 30 years would be 52, 42, and 32%, and for 60 year olds exposed for 20 years, 4, 3 and 2%.
Consistently with this, the respondent did argue before the judge that 80dB(A)lepd was the only acceptable limit.
But, despite this, the judge concluded that any risk below 85dB(A)lepd was minimal (para 26), and that the risk between 85dB(A)lepd and 90dB(A)lepd was at the relevant times an acceptable risk for reasonable employers without greater than average knowledge to take.
The judge, correctly, did not resolve the issues before him by considering statistical extrapolations at low levels of exposure, but by forming a judgment on the whole of the expert, documentary and factual evidence adduced before him.
On the issue whether there was an acceptable contemporary standard to which reasonable employers could adhere, in the light of the terms of the Code of Practice and on the basis of the expert evidence, HHJ Inglis held (para 48) that the 90dB(A)lepd level was regarded . as the touchstone of reasonable standards that should be attained.
Confirmation existed in notes published by the Wolfson Unit for Noise and Vibration Control in the University of Southampton.
These were intended to supplement a series of seminars held round the country in the autumn of 1976 on the theme "Industrial Noise The Conduct of the Reasonable and Prudent Employer".
The seminars were intended "primarily for company lawyers, solicitors, insurance claims and risk assessors, safety officers, medical officers and others with interests in occupational hearing loss".
The notes were, the judge said, strong evidence of the prevailing advice being given to people in industry concerned with noise at that time.
They described the 1972 Guidelines as establishing a comprehensive "damage risk criterion" based on 90dB(A)lepd, and said that they had been actively promulgated by the Factory Inspectorate.
In discussing the emerging principles of legal liability for noise induced hearing loss, the authors said: Over the last 15 years knowledge as to the relationship between noise and deafness has grown and become more precise .
Today a reasonable employer ought to know that to expose an employee to noise in excess of 90dB(A) for eight hours or its equivalent is potentially hazardous.
It also seems a fair assumption that the reasonable employer should have known of the criteria set out in "Noise in Factories" and "Noise and the Worker" by the mid 1960s." The introduction in 1974 and continuance in force at all times thereafter of woodworking and tractor regulations based on maximum exposures of 90dB(A) reinforce this comment (para 15, above, and para 56, below).
At least until the mid 1980s, there were still many people employed in industry exposed to over 90dB(A)lepd, and the approach of enforcement agencies and others was to concentrate on them (HHJ Inglis, para 48).
The expert evidence before the judge also included the following, summarised by him in paras 46 48: 46.
There was evidence given by the expert witness engineers for Courtaulds (Mr Bramer and Mr Currie) about the approach to control of noise in the period from the 1970s in industry.
The report of Mr Worthington for Pretty Polly and Guy Warwick is also in evidence.
To Mr Bramer, the guidance in Noise and the Worker and the 1972 Guidelines provided a clear and consistent recommendation to employers as to how they ought to deal with noise in the workplace.
The result was that in his practice, his invariable advice until the late 1980s, was that the relevant level was a daily personal noise exposure of 90dB(A).
This approach, he said, was standard during the period up to 1989 among noise professionals, and taught at training courses.
In the mid 1980s, when it appeared that EEC regulation would involve a first action level of 85dB(A) his advice changed to reflect that.
He was not aware of the NPL tables before the 1980s when he found that they were being used by medical experts writing reports for the purpose of deafness claims.
He has never come across them being used in any part of industry.
In evidence Mr Bramer said that he gave advice to employers in terms of complying with the 1972 Code.
He was speaking to the 90dB(A) level, as were all his colleagues.
He agreed that the advice would be to answer the question Tell us how to comply with legislation and the Code of Practice, rather than Tell me how to avoid reasonably foreseeable risk to my workforce.
He would have recommended 90dB(A) as the cut off point, but would also have said that does not actually stop some more susceptible people from having some small noise induced hearing loss.
If asked about risk, he would have had some difficulty, and regarded the question as more one for medical people. 47.
Mr Currie said that the Health and Safety Executive and factory inspectors after the Health and Safety at Work etc Act 1974 concentrated their advice and enforcement on the 90dB(A) level.
He was not aware of any instance in which the NPL tables had been used by employers to predict the level of risk for their workforce.
In evidence Mr Currie said that good practice won't necessarily remove all risk.
He agreed that there has been no very different understanding about noise induced hearing loss since the 1970s.
The first thing to look at when deciding on practices, which is what employers have to do, is to look at the guidance available.
Mr Worthington's report is to the effect that employers looked to the 90dB(A) limit in the Code of Practice as the maximum acceptable limit, and that the Factory Inspectorate and HSE did not refer employers to the risks below that limit as risks about which they should take action.
That was the practice of the day, and employers taking advice, if they did, would be referred to the standard in the Code as being what had to be observed. 48.
It is clear from some of the documents referred to above that by the beginning of the 1980s there were still many people employed in industry exposed over 90dB(A)lepd, and that the approach of enforcement agencies was to concentrate on those people.
The evidence of the engineers referred to above suggests that that was a common approach until at least into the mid 1980s.
That the 90dB(A)lepd level was regarded, as is the effect of the evidence of the engineers referred to above, in industry as the touchstone of reasonable standards that should be attained is evidenced by notes published by the Wolfson Unit for Noise and Vibration Control in the University of Southampton in 1976.
Mr Bramer and Mr Currie were independent engineers called as witnesses at trial.
There is no suggestion that they were employed by or advisers to Courtaulds or any of the other employers involved in this case at any date relevant to liability in this litigation.
The judge was clearly impressed by their evidence.
Whatever critique might, with hindsight, be directed at the advice or approach they said was being given or taken in respect of employers does not alter the fact that this was the contemporaneous advice and approach, upon which the judge found that reasonable employers could generally rely, unless they fell into his category of employers with greater than average knowledge.
The Court of Appeal attached considerable relevance to employers awareness of the first draft directive prepared by the Commission in October 1982.
As I have observed, the court did not accurately place the position of this directive in the development of legislation at the European level (para 15 above).
More importantly, a Commission draft is only a proposal for legislation by the Council of Ministers, and no reliance was or is placed on any underlying material which may, or may not, have been produced in its preparation or support.
The first draft directive was proposed by the Commission as a basis for legislation in 1982, proved controversial, and was withdrawn in 1984.
It was superseded by a differently framed legislative proposal, agreed by the Council of Ministers in May 1986, which gave member states until 1 January 1990 to bring into force provisions complying with the directive.
In the light of the above, there is, in my opinion, no basis for the court to disturb the judges conclusion in para 87 that the Code of Practice was an official and clear guidance which set an appropriate standard upon which a reasonable and prudent employer could legitimately rely in conducting his business until the late 1980s.
Before leaving this aspect, it is also worth noting one further small indication of the consistency of the judges conclusion with informed contemporary attitudes.
The relevant level of noise exposure above which a reasonable employer should take protective steps was of direct relevance in the early case of noise induced hearing loss, Kellett v British Rail Engineering Ltd (Popplewell J, 3 May 1984).
The strength of the representation attests to the importance attached to the issues.
On the facts and in the light of agreed expert evidence, Popplewell J recorded that there had been exposure for long periods initially in the period 1946 to 1955 below 90dB(A) and then in the period 1955 to 1979 above 90dB(A), and proceeded on the basis that The level of 90 is generally recognised as being a figure above which it is necessary for precautions to be taken.
That was the basis on which it was accepted that the defendants, who had taken no precautions until 1979, were negligent. (c) What period should be allowed for implementation of any different standard?
It follows, in relation to all the employers before the court, that the date when they should have been aware that it was no longer acceptable simply to comply with the Code of Practice was the date identified by the judge as applicable to Quantum and Guy Warwick, that is the time when the terms of the 1986 directive became generally known in the consultative document of 1987 (para 87).
Dealing with this point, Smith LJ said (para 105): I consider that, for the employer with the ordinary or average degree of knowledge, the judge's conclusion that that period came to an end in 1987, following publication of the second European draft directive, was a reasonable conclusion Adding a further six to nine months for implementing protective measures (instead of the judges period of two years), she went on to conclude (para 106) that: In case it should ever become material, I would fix the date for breach of common law duty for the average employer at January 1988.
Leaving aside for the moment the difference in the period allowed for protective measures, that approach does not reflect the nuances of the judges finding.
The consultative document was issued in 1987, but seeking responses no later than 30 June 1988.
Its terms would have become generally known during the period of consultation, which was to last to 30 June 1988.
The judge was prepared to add a period of two years for putting a conservation programme into action, accompanied by information and instruction (para 88).
This would bring the period before ear protection would have to be made available to those exposed to noise levels over 85dB(A)lepd to 1 January 1990, the date when the Directive and Regulations under it anyway required such protection to be made available to them.
I therefore understand the judge as having held that Quantum and Guy Warwick had no potential common law liability in negligence before 1 January 1990.
The judge, in taking two years as the appropriate period for putting a conservation programme into action, accompanied by information and instruction, referred to a further passage in Thompson.
Mustill J there said (pp 423 424): From what date would a reasonable employer, with proper but not extraordinary solicitude for the welfare of his workers, have identified the problem of excessive noise in his yard, recognised that it was capable of solution, found a possible solution, weighed up the potential advantages and disadvantages of that solution, decided to adopt it, acquired a supply of the protectors, set in train the programme of education necessary to persuade the men and their representatives that the system was useful and not potentially deleterious, experimented with the system, and finally put it into full effect? This question is not capable of an accurate answer: and indeed none is needed, as will appear when the scientific aspects of the case are considered.
Various years were selected as rough markers, for the purpose of argument.
I reject without hesitation the notion that the date lay somewhere in the years immediately preceding and following the Second World War.
It was not until 1951, with the inconspicuous entry of the V 51R into the United Kingdom market that even a really enlightened employer would have started to ask himself whether something could be done.
Even then, I consider that it pitches the standard of care too high to say that an employer would have been negligent, from that date, in failing to find, decide upon, and put into effect a system of using the protectors then available.
At the other extreme, I consider that the choice of a date as late as 1973 cannot be sustained.
The problem, and the existence of different ways in which it might have been combated, had been well known for years; there had been devices which were both reasonably effective, and reasonably easy to wear; and if the employers did not know precisely what they were they would have had no difficulty in finding out.
All this being so, I conclude that the year 1963 marked the dividing line between a reasonable (if not consciously adopted) policy of following the same line of inaction as other employers in the trade, and a failure to be sufficiently alert and active to measure up to the standards laid down in the reported cases.
After the publication of Noise and the Worker there was no excuse for ignorance.
Given the availability of Billesholm wool and reasonably effective ear muffs, there was no lack of a remedy.
From that point, the defendants, by offering their employees nothing, were in breach of duty at common law.
The Court of Appeal disagreed with HHJ Ingliss period of two years on the basis that he was allowing time not merely for the provision of ear protectors but also for the noise measurement and policy decisions which preceded the actual provision of protection and that, by the time when employers should have appreciated the need for noise protection below 90dB(A), they must be taken to have known already to which workshops that applied (para 106).
In paras 32 and 48 of her judgment, Smith LJ also noted that Courtaulds noise committee had over a period of a year (between March 1983 and March 1984: see para 52 of HHJ Ingliss judgment) identified areas of over 90dB(A)lepd and areas of 85 to 90dB(A)lepd.
There is a paucity of evidence in this area of the case.
It is common ground that some period should be allowed, and the period chosen by the judge fits with periods chosen by courts in other contexts see e.g. Armstrong v British Coal Corporation [1998] CLY 975, para 2842, Smith v Wright & Beyer Ltd [2001] EWCA Civ 1069, para 6, and Brookes v South Yorkshire Passenger Transport Executive [2005] EWCA Civ 452, paras 22 23 (and, less clearly on this point, Doherty v Rugby Joinery (UK) Ltd [2004] EWCA Civ 147; [2004] ICR 1272, paras 21 and 33 35) as well as with periods commonly allowed for the implementation of new health or safety measures, e.g. under Directive 86/188/EEC and the Noise at Work Regulations 1989 which gave effect to it domestically.
I do not see how it can be said that all employers who exposed their employees to noise levels between 85 and 90dB(A)lepd up to the end of 1987 must, Smith LJs words (para 106) by that time be taken to have known already to which workshops the provisions of the Directive and Regulations would apply.
An employers duty towards a particular employee depends upon the circumstances of that particular employees employment.
Smith LJ appears to have derived the duty to have measured noise levels from the fact or likelihood that there were other employees exposed elsewhere by the relevant employers to noise levels exceeding 90dB(A)lepd (paras 92 93).
But the relevant circumstance is that none of the employees to whom this case relates were employed in circumstances where they were exposed to noise levels exceeding 90dB(A)lepd.
Accordingly, the relevant employers were not, on the judges findings, under any duty to take further steps.
The Code of Practice only stipulated that All places where it is considered the limit in section 4 may be exceeded should be surveyed (section 5.1.1).
The limit referred to in section 4 for continuous exposure was that If exposure is continued for eight hours in any one day, and is to a reasonably steady sound, the sound level should not exceed 90dB(A) (section 4.3.1).
I do not therefore consider that the basis on which the Court of Appeal interfered with the judges conclusion on this point was justified.
Had my view prevailed that Courtaulds were in no significantly different position from Quantum and Guy Warwick as regards the date when they should have taken further steps to protect employees against the risk of hearing loss, I would still have held Courtaulds position to differ in one material respect.
At this point it would have been relevant that they were to some extent already ploughing a lone furrow.
By mid 1984 they had in fact undertaken the relevant noise surveys and they already knew to which workshops the issue of exposure between 85 and 90dB(A)lepd applied.
Accordingly, in relation to Courtaulds alone, I would have seen force in the view that a period of no more than nine months was long enough to perfect such steps as they were already contemplating.
Bearing in mind that the consultation paper, on which the judge based the date by reference to which employers generally should have begun to take action, was open for responses until mid 1988, I would have taken the end of 1988 as the latest date by when Courtaulds should have had full and effective protective measures in place for employees exposed to noise between 85 and 90dB(A)lepd.
But since (as stated in paragraph 25 above) the judges view will prevail that Courtaulds were (along with Pretty Polly) in a special position, and should have acted to take further steps from the start of 1983, they too must in my view be entitled to the two years allowed by the judge for the actual implementation of such steps, making them liable as the judge held from the start of 1985.
The Factories Act 1961
In relation to the scope and application of section 29(1) (set out in para 11 above), the Court of Appeal disagreed substantially from the judge, holding that the section involves a significantly more stringent standard of liability than any arising at common law.
Several important issues arise on which there is no prior authority at the highest level: whether section 29(1) applies at all, where the claim relates not simply to the workplace, but to activities carried on at it; whether it applies to risks of noise induced hearing loss arising from such activities in relation to long term employees working in the place; whether the safety of a place is an absolute and unchanging concept or a relative concept, the practical implications of which may change with time; and what is meant by so far as is reasonably practicable and how it relates to the concept of safety.
(i) Lack of safety arising from activities
The first issue concerns the extent to which a place can be rendered unsafe by activities carried on at it.
The appellants rely on the background to section 29(1) to argue that it cannot.
Section 29 re enacts section 26 of the Factories Act 1937, as amended by section 5 of the Factories Act 1959.
Section 26, as originally enacted, did not have wording corresponding with the second part of section 29(1).
The words and every such place shall, so far as is reasonably practicable, be made and kept safe for any person working there were added by section 5 of the 1959 Act.
The amendment adding them was proposed late in the passage of the bill.
It was felt to be a real fault and a gap in the existing legislation that it covered only the means of access to, and not the safety of, the place of work.
The Minister, Mr Macleod, accepted the idea, and, ultimately accepted in substance the whole amendment (House of Commons Standing Committee B, 12 March 1959, 17th Sitting, cols 747 752).
There had been a series of prior cases in which courts had had to distinguish, less than happily, between the place of work and means of access to it, and to reject claims on, for example, the ground that the employee was injured at his workplace on his way to the lavatory, rather than on his way to his workplace: see Davies v de Havilland Aircraft Co Ltd [1951] 1 KB 50; Rose v Colvilles Ltd 1950 SLT (Notes) 72; Dorman Long & Co Ltd v Hillier [1951] 1All ER 357 and Prince v Carrier Engineering Co Ltd [1955] 1 Lloyds Rep 401.
Looking at the matter today, one might perhaps have expected responsibility for the safety of the workplace to be a subject for legislative attention even before responsibility for the means of access to it.
But, for whatever reason, that was not the original statutory scheme.
The gap was filled by the 1959 amendment.
In considering the scope of the words added, Mr Beloff QC, on behalf of the first appellant, submits that the means of access looks to physical dangers or obstructions, that section 29(2) is likewise clearly focused on the physical risks inherent in working at height, and that the whole section is part of a scheme of criminal liability, from which any civil liability only follows by judicial interpretation (Taylor v Coalite Oils & Chemicals Ltd (1967) 3 KIR 315, 318, per Diplock LJ).
This last point has some, though only limited, force, for two reasons.
First, the criminal liability is under the Act imposed on the occupier or, in certain cases not presently relevant, on the owner of the factory.
That to my mind suggests that responsibility under section 29 is likely to attach to matters over which an occupier (typically of course the employer him or itself) would be expected to have control.
But such matters would include not merely the physical state of the premises, but also, at least, the carrying on there of regular activities.
Secondly, a person is not to be put in peril upon an ambiguity, however much the purpose of the Act appeals to the predilection of the court (London and North Eastern Railway Co v Berriman [1946] AC 278, 313 314, per Lord Simonds).
However, it is only if the section is ambiguous, unclear or open to two reasonable interpretations that its penal effect may indicate the narrower construction (Franklin v Gramophone Co Ltd [1948] 1 KB 542, 557, per Somervell LJ), and courts should remember that the Factories Act is a remedial measure passed for the protection of the workmen [which] must, therefore, be read so as to effect its object so far as the wording fairly and reasonably permits (Harrison v National Coal Board [1951] AC 639, 650, per Lord Porter; McCarthy v Coldair Ltd [1951] 2 TLR 1226, per Denning LJ).
Mr Beloff is however also right to remind the Court that it is always necessary to consider in what respects and to what extent the Act involves remedial measures.
Mr Beloff QC submits that there are three possible interpretations of section 29(1): a minimalist, a maximalist and a middle way.
The minimalist would involve treating the section as confined to intrinsic aspects of the physical place, ignoring any activities carried on there.
With the possible exception of the Delphic rejection of the claim under section 29 by Mustill J in Thompson at p 449C D, there appears to be no reported case rejecting a claim under that section on this basis.
Reference was made to the interpretation given to section 25(1) and by extension section 26(1) of the 1937 Act: in Latimer v AEC Ltd [1953] AC 643, the House held that section 25(1), which in its then form provided: All floors, steps, stairs, passages and gangways shall be of sound construction and properly maintained, was not breached when a structurally sound factory floor became wet and oily after a flood due to an unusually heavy rainstorm; and that approach was then applied under section 26(1) in Levesley v Thomas Firth & John Brown Ltd [1953] 1 WLR 1206 (CA), where in the course of some loading operations a block of iron was left temporarily protruding three inches out into a gangway, used as a means of access.
This restriction of the word maintained in relation to the means of access has been strongly criticised in successive editions of Munkmans Employers Liability at Common Law, and there is no reason to extend it to the words be made and kept safe which govern the duty, first introduced in 1959, in relation to the safety of the workplace.
Indeed, it is clear from the Parliamentary materials that the words and kept were introduced specifically with the Latimer case in mind, and to make clear that employers should so conduct their business as to see that a workplace did not become unsafe.
The examples were given of overstocking or slippery substances left on the floor (Factories Bill, Standing Committee B, 12 March 1959, cols 749 750).
A workplace may therefore be unsafe because of some feature which is neither structural nor permanent.
But this does not determine whether a workplace may be unsafe by reason of operations carried on in or at it.
Mr Beloff submits that the law took a wrong turn in Evans v Sant [1975] QB 626, when the Divisional Court initiated what he described as a middle approach which was later followed by the Court of Appeal in Wilson v Wallpaper Manufacturers [1982] CLY para 1364 and Homer v Sandwell Castings Ltd [1995] PIQR P318.
In Evans v Sant, the Divisional Court (Lord Widgery CJ, Bridge and Shaw JJ), on a case stated by magistrates after conviction, said that the guiding light in their approach was that in deciding whether the place of work was made safe, it is the place qua place that we look at, and not the place qua operation carried on upon the place (p 635G H).
But Lord Widgery CJ then went on (pp 635H 636B) That does not mean of course that in deciding whether the place is made safe one has total disregard for the activities which go on in the place itself.
The safety of the place depends not simply on the construction of the floor or the solidity of the walls, but it also depends in some degree upon the nature of the operations carried on therein.
In so far as there is permanent equipment in the place, then its safety can in my judgment reflect on the safety of the place.
In so far as there are activities carried on in the place which are constant, regular and recurring, I can well see that they may have their impact on the question of whether the place has been made safe.
In Evans v Sant, even this relaxed or middle approach did not enable the prosecution to succeed.
The facts were that, in the course of laying a water main, a test head was attached between the pipe and a pump to test the water pressure, but it was insecurely fitted and, as pressure built up, it blew off, causing the death of a workman who ran into the path of a passing car.
In allowing the defendants appeal against conviction, Widgery CJ said, at p 636, that: where, as in the present case, you start with a place safe in every degree, and the only thing which renders it unsafe is the fact that equipment brought upon it for a particular operation, and being used for a particular operation on a particular day, produces an element of danger, it seems to me that that is not enough to justify the allegation, certainly in criminal proceedings, that the place itself has not been made safe.
In Homer v Sandwell Castings Ltd, a civil claim failed because the danger did not arise from any static condition of the place of work, but arose from the operation upon which the plaintiff was engaged (p 320, per Russell LJ).
The employee had noticed a slight leak through sand paste, which he had himself introduced to seal a gap, but had carried on working, with the result that an eruption of molten metal through the seal fell onto his foot.
The appellants support their case on section 29(1) by reference to the layout as well as other specific sections of the 1961 Act.
These, they submit, are only consistent with a limited interpretation, confining it to physical dangers inherent in the structure.
They point out that section 55 addresses any process or work carried on or to be carried on in any premises used or intended to be used as a factory; it gives a magistrates court power, if satisfied that such process or work cannot be so carried on with due regard to the safety, health and welfare of the persons employed, to prohibit the use of the premises for that process or work.
They also point to various other sections designed to address problems arising from operations carried on in premises.
For example section 4 requires suitable and effective provision for circulation of fresh air, and for rendering harmless, so far as practicable, all such fumes, dust and other impurities generated in the course of any process or work carried on in the factory as may be injurious to health; section 14 requires (with immaterial exceptions) Every dangerous part of any machinery [to] be securely fenced unless it is in such a position or of such construction as to be as safe to every person employed or working on the premises as it would be if securely fenced; and section 27 requires all parts and working gear to be of good construction, sound material, adequate strength and free from patent defect, and properly maintained.
However, the sections of the Act are not exclusive codes in relation to their particular subject matters (see e.g. Liptrot v British Railways Board [1969] 1 AC 136), and it is not axiomatic that there cannot be overlap between the application of two different sections.
It seems to me good sense to describe a workplace as unsafe, if operations constantly and regularly carried on in it make it so.
It is unnecessary to comment on the decisions on particular facts, but section 29(1) cannot in my opinion have a narrower meaning than that given it in Evans v Sant and the later cases following Evans v Sant.
To take another example, a place may well, as it seems to me, be unsafe by reason of activities carried on in it, e.g. if a shop floor were to be constantly crossed by fork lift trucks passing from a store on one side to somewhere else on the other side of it.
In the present case, the noise generated by knitting and other machines was a permanent feature of the operations which were intrinsic to the workplace.
If the section is directed to noise at all, then such noise must, on the approach taken in Evans v Sant, make the place unsafe.
It is unnecessary to say more on the facts of this case.
(ii) Lack of safety arising from noise
The second issue is whether section 29 is directed to noise.
This is more open to question.
There is much to suggest that noise was not in the legislatures mind at all, when section 26(1) of the 1937 Act was expanded to cover the safety of the workplace in 1959 and later re enacted as section 29(1) of the 1961 Act.
Further, the relevant noise is not noise of a literally deafening nature, causing immediate injury.
It is noise which would only injure some people and then only if they were exposed to it for continuous periods lasting many years.
The appellants submit that a requirement that the workplace be made and kept safe for any person working there is inapt to cover a situation where many or all of the persons working there may never be at any risk, because they have not been there long enough and may never be, or because they may not be susceptible to suffering such noise induced hearing loss.
The appellants further submit that the fact that the principal protective measure suggested consists in the provision of ear protectors, rather than any corrective measures affecting the workplace itself or any regular feature of it, indicates or suggests that section 29(1) is inapplicable.
I am not impressed by this point.
If a workplace can be unsafe for employees by reason of constant and regular activities carried on at it, I do not see why it should not be rendered safe by counter acting measures of an equally constant and regular nature relating to the clothes or equipment worn by employees.
On the other hand, the scheme of the 1961 Act does indicate that, even though section 29(1) is to be read as indicated in Evans v Sant, it is essentially dealing with safety, rather than health.
Safety typically covers accidents.
Health covers longer term and more insidious disease, infirmity or injury to well being suffered by an employee.
Hearing loss, at least of the nature presently in issue, falls most naturally into this latter category.
The 1961 Act is divided into Parts, the first four being headed (I) Health (General Provisions), (II) Safety (General Provisions), (III) Welfare (General Provisions) and (IV) Health, Safety and Welfare (Special Provisions and Regulations).
Part I comprising sections 1 to 11 deals with cleanliness, overcrowding, temperature, ventilation, lighting, drainage of floors, sanitary conveniences, and enforcement powers; while Part II contains, in addition to section 29, a wide variety of sections covering inter alia machinery, dangerous substances, hoists, lifts, openings and doorways, chains, ropes, lifting apparatus, floors, passages and stairs, fumes and lack of oxygen in confined spaces, explosive or inflammable dust, vapour or substance, boilers, means of escape and fire.
The general distinction between health and safety provisions was also present in the 1937 Act, and significance was attached to it in Clifford v Charles H Challen & Son Ltd [1951] 1 KB 495, 498, per Denning LJ and Ebbs v James Whitson & Co Ltd [1952] 2 QB 877, 886, per Hodson LJ.
As to the legislative mind set in 1959 and 1961, the government promoting the 1959 Act made no mention of noise.
The only relevant reference to noise by any MP in debate concerned the possibility that the minister might take advice on and look more closely at noise, with a view to making regulations under section 60 of the 1937 Act as amended (later section 76 of the 1961 Act), enabling the minister to make regulations where satisfied that, inter alia, any process was of such a nature as to cause risk of bodily injury.
Likewise, when the Offices, Shops and Railways Premises Bill came before Parliament in November 1962 and March 1963, comments were made on the absence of any provision dealing with noise.
Initially, the minister directed attention to the general power to make regulations for securing health and safety, but ultimately section 21 was included, specifically permitting regulations to protect from risks of bodily injury or injury to health arising from noise or vibrations.
The minister in the House of Lords commented on section 21: This is a new subject, on which we still have much to learn (House of Commons, 2nd reading, 15 November 1962, Hansard cols 615, 618 619 and House of Lords 2nd reading, 18 March 1963, Hansard, col 948).
It was not until April 1960 that Sir Alan Wilsons committee was set up to report on noise, and only in March and July 1963 that it issued interim and final reports.
The main focus was on ambient noise and, in discussing the general effects of noise in chapter II, the report said, in relation to noise in a working environment, merely that it may disturb concentration, and perhaps affect the efficiency of someone working at a difficult or skilful task; it may affect personal safety.
In outlining the law relating to noise in chapter III, the report identified the common law of nuisance and the Noise Abatement Act 1960.
However, chapter XIII addressed occupational exposure to high levels of noise.
It noted that it had been established that a permanent reduction of hearing sensitivity can occur in people who are exposed for long periods to noisy environments, such as are found in some industries (para 513).
But it made clear the understanding that there was no existing legislation applicable to such noise and no sufficient basis for introducing any without further research.
It said (para 534): Although voluntary action is now possible and, indeed, essential, we do not consider that the present knowledge of this complex problem provides a sufficient basis for legislation.
Although the levels of continuous, broadband noise which represent a hazard to the hearing of people who are exposed to them for long, unbroken periods have been established within certain margins of error, many uncertainties remain.
There is no satisfactory means of predicting the susceptibility of individuals to hearing loss, nor is the distribution of susceptibility known; the comparative danger of noises in which energy is concentrated in narrow frequency bands is not determined; nor is the influence on hearing loss of impulsive noises, which are common in industry.
Neither is there much information on the physical properties of industrial noise, the distribution of noise of any given type in industry and the practicability of minimising those properties which are found to be dangerous to hearing.
If early legislation were introduced it could do no more than lay down general standards, the effect and cost of which cannot at present be estimated.
If the standards adopted proved to be too severe in some respects the industries affected might be exposed to heavy unnecessary expenditure; on the other hand if minimum standards were adopted, these would tend to suggest that compliance with these standards was all that was needed even in parts of industry where there were important hazards at lower sound pressure levels or with shorter exposure.
Legislative insistence on the wearing of ear protectors would be particularly difficult to introduce until there is a wider recognition of the need for them in noisy industries.
Early legislation would, therefore, have to be very general in its terms and it would be impossible to enforce effectively.
We think that, at present, it would not achieve as much as vigorous voluntary action.
In our view, before practical legislation could be considered, it would be necessary to establish the extent of the risk to average people of exposure to industrial noise, and the cost and possibility of measures which would effectively reduce this risk to the point which, on balance, was regarded as acceptable.
In paras 535 536, the report suggested a further research programme, to be followed by more detailed surveys of individual industries and processes, and then, when the results of such surveys were available, consideration by government whether the time has not then come to lay down by legislation minimum standards to protect workers against damaging noise exposure in industry.
The Annual Report of HM Chief Inspector of Factories on Industrial Health for 1965 (Cmnd. 3081) also stated at p 79 that At present there is no legislation requiring the control of noise in factories, nor is occupational deafness prescribed under the National Insurance (Industrial Injuries) Act 1965.
The problem was examined in detail by the Wilson Committee, whose report was published in 1963.
They concluded that the knowledge then existing was insufficient to enable legislation to be made.
They advocated research and indicated some of the lines this should take.
At present a very great deal of research is being conducted by various bodies.
The Report of a Committee chaired by Lord Robens in 1970 72 (Cmnd 5034) referred to the Wilson Committees words (para 341), but went on to record the research recorded in Prof Burnss and Dr Robinsons 1970 report, Hearing and Noise in Industry.
The research had established a system of predicting on a statistical basis the hearing deterioration to be expected for specified exposures within a wide range of industrial noise and the report had amongst other things suggested that workers should not be consistently exposed over long periods to a noise emission level higher than 90dB(A) (para 342).
Robens then mentioned that industrial noise had now become a live issue in the field of compensation claims, referring to a case where a court awarded damages for the first time (para 344).
This must have been Berry v Stone Manganese and Marine Ltd [1972] 1 Lloyds Rep 182, where a claim for common law negligence succeeded in respect of noise which amounted to about 115 to 120 decibels, whereas the tolerable noise is about 90 and no ear muffs had been provided (p 184).
A claim under section 29(1) was in fact also introduced by amendment at trial.
It was not argued on the basis of failure to provide ear muffs, but of alleged failure to reduce the actual noise level as far as reasonably practicable, and it failed on the facts.
Robens continued that, since the relationship between exposure to certain levels of noise and hearing loss [was] now recognised the time was ripe to include basic requirements on noise control in occupational safety and health legislation (para 345).
Lord Robenss recommendation stimulated the inclusion of regulation 44 in the Woodworking Machines Regulations 1974 (SI 1974/903) made under section 76 of the 1961 Act.
In relation to factories using woodworking machines, regulation 44 requires that, where on any day any person employed is likely to be exposed continuously for eight hours to a sound level of 90dB(A) or equivalent or greater, then (i) such measures as are reasonably practicable shall be taken to reduce noise to the greatest extent which is reasonably practicable; and (ii) suitable ear protectors shall be provided and made readily available for the use of every such person.
Later in 1974, there were also made, under agricultural health and safety legislation, the Agriculture (Tractor Cabs) Regulations 1974 (SI 1974/2034), regulation 3(3) of which provided that ministerial approval of safety cabs required ministers to be satisfied that the noise levels inside would not be more than 90dB(A).
The existence of specific regulations under section 76 is not necessarily inconsistent with a more general duty of safety existing in respect of noise under section 29(1), though the inter relationship could give rise to problems and one might have expected or at least hoped that it would be clarified.
HM Chief Inspector of Factories report for 1974 (Cmnd 6322) referred to the Woodworking Machines Regulations 1974 as the first British regulations to contain a legal requirement specifically intended to protect factory workers against the effects of noise (p 73).
Under the heading of Noise and Vibration, it also noted (p 71) that The Inspectorate has been mainly concerned with protection of workers against levels of noise exposure likely to cause permanent hearing damage.
To this end continuing efforts have been made to encourage voluntary compliance with the Code of Practice , which recommends that where people are likely to be exposed to sound levels over 90dB(A) for eight hours per day (or to suffer an equivalent exposure) action should be taken to reduce the noise exposure, and ensure that ear protection is provided and used.
The position is therefore that section 29(1) is part of the statutory provisions dealing with safety, and it was enacted without any appreciation that it could cover noise or noise induced hearing loss.
Noise induced hearing loss was not a newly discovered phenomenon, at least in heavy industry, where it was evidently regarded as an inescapable fact of life (see e.g. Thompson, p 409A, per Mustill J).
An immediately injuring noise (like that which punctured the Duke of Wellingtons ear drum when he stood too close to the firing of a battery in his honour) could probably only occur as a result of some one off error or break down in the workplace, which would not reflect on its safety, although it could give rise to common law liability in negligence.
None of the contemporary reports or documents suggests that the possibility of noise was in anyones mind or would have been conceived of as an element of safety of the workplace in 1959 or 1961.
It follows that there is considerable force in the appellants submission that section 29(1) does not refer to safety in a sense depending not upon the current condition of the workplace with its noisy machinery, but upon the periods for which employees have worked, or are likely to continue to work in that, or another, workplace with equivalent or greater noise levels and upon their particular susceptibility to noise.
Ultimately, however, I have come to the conclusion that it is not possible to be so categorical, and that the answer to the present issue links up with the next issue, that is how far responsibility under section 29(1) is absolute or relative.
If section 29(1) imposes absolute liability, irrespective in particular of current attitudes or standards from time to time, then noise induced loss appears so far outside the thinking behind and aim of section 29(1) that I doubt whether it would be right to construe the section as covering it.
But if liability under section 29(1) is relative, depending in particular on knowledge about and attitudes to safety from time to time, then, as thinking develops, the safety of a workplace may embrace matters which were previously disregarded, but have now become central or relevant to reasonable employers and employees view of safety.
(iii) The absolute or relative nature of safety
The third issue is whether the requirements regarding safety in section 29(1) are absolute or relative.
In the respondents submission, they are absolute: what is safe is objective, unchanging and independent of any foresight of injury; the only qualification on an employers liability, where a workplace is unsafe because of employees exposure to noise, is if the employer can show that it was not reasonably practicable to reduce or avoid the exposure, e.g. by providing ear protectors.
The House of Lords, by a majority, held in Nimmo v Alexander Cowan & Sons Ltd [1968] AC 107 that the onus lies on the employer to plead and prove under section 29(1) that it was not reasonably practicable to make and keep a place safe.
Smith LJ accepted the submission that safety is an absolute.
She said that what is objectively unsafe cannot change with time (para 78).
She also associated lack of safety with the occurrence of injury to a single person, for she continued: If 85dB(A)lepd causes deafness to a particular claimant, that claimants place of work was not safe for him or her.
It might have been safe for another person working alongside.
But for the susceptible worker who has in fact been damaged, it can be demonstrated, without more, that his or her place of work was not safe.
Looking at matters from the point of view of the work force generally, it is known that a minority of people will suffer appreciable harm as the result of prolonged exposure to 85dB(A)lepd.
Therefore, it can be said that the place of work is not safe for the workforce because there is a risk of injury to all of them.
I do not accept this approach.
Whether a place is safe involves a judgment, one which is objectively assessed of course, but by reference to the knowledge and standards of the time.
There is no such thing as an unchanging concept of safety.
The Court of Appeals approach means in reality that any court determining an issue of safety would be applying (retrospectively) whatever happened to be the view of safety current at the time the matter came before it.
Further, the fact that a single person has suffered injury due to some feature of the workplace is not, without more, proof that the workplace was unsafe.
As Lord Upjohn (one of the majority) said in Nimmo (p 126C D), the section requires the occupier to make it [the workplace] 100 per cent safe (judged of course by a reasonable standard of care) if that is reasonably practicable and, if it is not, to make it as safe so far as is reasonably practicable to a lower percentage.
Prior to the 1959 and 1961 Acts, the requirement, under regulation 5 of the Building (Safety, Health and Welfare) Regulations 1948 (SI 1948/1145), that sufficient safe means of access shall so far as is reasonably practicable be provided, had been considered in Sheppey v Matthew T Shaw & Co Ltd [1952] 1 TLR 1272 and Trott v WE Smith (Erectors) Ltd [1957] 1 WLR 1154 (CA).
There it was said, by respectively Parker J at p 1274 and Jenkins LJ at p 1159, that safe cannot mean absolutely safe, although it must take account of circumstances likely to occur, including the fact that employees do not always behave with reasonable care for their own safety.
I also note that in Trott, Jenkins LJ after suggesting that the statutory obligation was stricter than the general duty of reasonable care at common law and anticipating Nimmo by identifying the qualification so far as is reasonably practicable as involving a shift of the burden of proof (pp 1158 59), ended his judgment by saying that to regard the standard of care prescribed by regulation 5 and at common law as approximating to each other was if not absolutely right . at all events not very far wrong (p 1162).
Likewise, in relation to a similar requirement under the Shipbuilding and Ship repairing Regulations 1960 (SI 1960/1932), it was argued in Paramor v Dover Harbour Board [1967] 2 Lloyds Rep 107 that if the bare possibility of injury and accident could reasonably be foreseen, then the means of access is not safe.
In response, Salmon LJ said (p 109) that there is, of course, a risk of injury and accident inherent in every human operation but that whether a means of access was safe involved assessing the risk in all the circumstances of the case and must be a question of fact and degree in each case.
The successor legislation to the 1961 Act, the Health and Safety at Work Act etc 1974 was differently, and on its face more broadly, formulated.
It required every employer by section 2(1) to ensure, so far as is reasonably practicable, the health, safety and welfare of all his employees, and by section 3(1) to conduct his undertaking in such a way that other persons were not thereby exposed to risks to their health or safety.
The concept of safety was considered in this context in R v Chargot Ltd (trading as Contract Services) [2008] UKHL 73 [2009] 1 WLR 1.
Lord Hope, with whose speech all other members of the House agreed, said that the legislation was not contemplating risks that are trivial or fanciful, that the statutory framework was intended to be a constructive one, not excessively burdensome, that the law does not aim to create an environment that is entirely risk free and that the word risk which the statute uses is directed at situations where there is a material risk to health and safety, which any reasonable person would appreciate and take steps to guard against (para 27).
It would be strange if the earlier, narrower formulation in section 29(1) had a more stringent effect.
Similar comments to Lord Hopes had also been made in the earlier case of R (Junttan Oy) v Bristol Magistrates Court [2003] UKHL 55; [2003] ICR 1475, in relation to regulations requiring machinery to be in fact safe, safe being defined to mean giving rise to no risk (apart from one reduced to a minimum) of its endangering the health of or of its being the cause or occasion of death or injury to persons.
Lords Nicholls and Hobhouse (both dissenting on presently immaterial points) made clear in that context that safe is not an absolute standard.
Lord Nicholls said (para 22): There may be differences of view on whether the degree of safety of a particular piece of machinery is acceptable.
Lord Hobhouse said (para 103) that: to describe questions of safety as simple questions of fact, just as if one was asking whether a given bird is a sparrow or a sparrowhawk, is to make a fundamental and elementary mistake.
Safety is a question of opinion.
There is no such thing as absolute safety.
All safety is relative.
Two men can legitimately hold different opinions [as to] whether a machine is safe or unsafe.
Different assessments can be and are made of the safety of a particular machine by the authorities in different countries.
If safety is a relative concept, then foreseeability must play a part in determining whether a place is or was safe.
Mr Hendy submits that foresight has no such role; it can come in, if at all, only at the second stage, when considering whether it was reasonably practicable to make and keep the place safe.
He also notes that there was in any event, on the judges findings, foresight in the present case of some statistical risk of injury.
On the role of foresight, there are differing strands of authority.
Not long before the 1959 Act, the House had in John Summers & Sons Ltd v Frost [1955] AC 740 considered the requirement under section 14(1) of the 1937 Act that Every dangerous part of any machinery shall be securely fenced unless it is in such a position or of such construction as to be as safe to every person employed or working on the premises as it would be if securely fenced, and had applied to the concept of dangerousness an approach dating back to Hindle v Birtwhistle [1897] 1 QB 192, namely that a machine or part is dangerous if in the ordinary course of human affairs danger may reasonably be anticipated from the use of them without protection, and that it was impossible to say that because an accident had happened once therefore the machine was dangerous.
Lords Reid and Keith at pp 765 766 and 774 expressly endorsed the relevance of determining whether the degree of danger was such that there was a reasonably foreseeable cause of injury.
The same approach, again based on Hindle v Birtwhistle, was followed under section 14 in Close v Steel Co of Wales Ltd [1962] AC 367.
The claim there failed because in the ordinary course of human affairs danger could not reasonably be anticipated from the use of the drill unfenced (p 382, per Lord Denning, with whom Lord Morton agreed on this point at p 398); the risk of injury, serious and regrettable as it proved to be, was not reasonably foreseeable (p 389, per Lord Goddard); and No reasonable employer could have been expected to anticipate any risk of significant injury (p 412, per Lord Guest).
Close proved controversial on another, presently irrelevant, aspect (whether the duty to fence extended to preventing fragments flying out of a machine) on which it was criticised in paragraph 7 of Appendix 7 to the Robens Report.
But the endorsement in Close of the concept of foreseeability taken from Hindle v Birtwhistle was noted without criticism in paragraph 5 of Appendix 7 to the Robens Report and was regarded as correct by contemporaneous commentators in The Solicitors Journal (The Duty to fence dangerous machinery: (1961) 105 Sol J 997) and The Modern Law Review (New Wave of Interpretation of the Factories Acts: (1962) 25 MLR 98, commending the broad common sense view of danger taken in Hindle v Birtwhistle), though it was regretted by John Munkman, writing in The Law Journal (The Fencing of Machinery: (1962) LJ 761).
The concept of foreseeability continued to be adopted by courts, most notably, in Taylor v Coalite Oils & Chemicals Ltd (1967) 3 KIR 315.
In Allen v Avon Rubber Co Ltd [1986] ICR 695, the Court of Appeal also endorsed it under section 29(1) of the 1961 Act.
In Taylor, Diplock LJ said, obiter (pp 319 320): Safe is the converse of dangerous.
A working place is safe if there is nothing there which might be a reasonably foreseeable cause of injury to anyone working there, acting in a way in which a human being may reasonably be expected to act, in circumstances which may reasonably be expected to occur: see John Summers & Sons Ltd v Frost [1955] AC 740, per Lord Reid at p 766.
In determining, therefore, whether the occupier was under a duty to take any measures to prevent an accident which was caused by the presence at a working place of a particular object, it is necessary to ask, first, whether the possibility of an object of that kind being at that particular place was reasonably foreseeable, and, if so, secondly, whether it was reasonably foreseeable that it would be a cause of injury to a person working there.
It is only if both those questions are answered affirmatively that it becomes necessary to consider whether it was reasonably practicable to avert the danger.
More recently, in Robb v Salamis (M & I) Ltd [2006] UKHL 56; [2007] ICR 175, Lord Hope confirmed the relevance of reasonable foreseeability to article 5(1) of the Framework Directive 89/391/EEC (imposing on employers the duty to ensure the safety and health of workers in every aspect related to the work) and article 3(1) of the Work Equipment Directive 89/655/EEC (requiring employers to take the measures necessary to ensure that the work equipment made available to workers is suitable for the work to be carried out), stating that The obligation is to anticipate situations which may give rise to accidents (para 24).
The respondent relies on a different stream of authority, consisting of Robertson v RB Cowe & Co 1970 SLT 122, Larner v British Steel plc [1993] ICR 551, Neill v Greater Glasgow Health Board [1994] SLR 673, [1996] SC 185 and Mains v Uniroyal Englebert Tyres Ltd [1995] SC 518.
The Court of Appeal in the present case held that it was bound by Larner, as well as expressing agreement with it.
Robertson concerned a trestle erected on a marine slipway which moved causing a workman to fall.
Lord Guthrie concluded from the whole circumstances elicited as to the position of the staging, the way in which the pursuer worked, the outward movement of the trestle, and where the pursuer fell that on a balance of probabilities the erection was insecure and unsafe (p 129).
Lord Migdale treated the fact that the trestle fell over as proof that it was not safe, and both he and, with hesitation, Lord President Clyde concluded that the decision in Nimmo meant that breach of section 29(1) was established once it was proved that the trestle was not sufficiently stable to support a workman doing his job there normally.
There was no plea that it was not reasonably practicable to make or keep the trestle safe, and Lord Guthrie noted the obvious difficulty that such a plea would have faced.
Lords Guthrie and Migdale rejected a submission based on the line of authority including John Summers and Close, that the employee had to prove that the accident was reasonably foreseeable.
The basic issue was whether the trestle was insecure as erected, or whether it fell because the pursuer over reached (pp 128 129).
Larner concerned an undetected crack which caused a structure to fall on the plaintiff.
The Court of Appeal preferred the reasoning in Robertson to Diplock LJs dicta in Taylor and rejected foreseeability as a test of safety.
In Mains the injury arose when a piece of machinery made an involuntary and unexpected movement, the cause of which was never ascertained, and so trapped the workmans hand; and it was common ground that the circumstances of the accident and its cause were not reasonably foreseeable.
The Inner House took the same view as in, and followed, Larner.
In so far as Robertson, Larner and Mains stand for a proposition accepted by the Court of Appeal in the present case, that safety is an eternal absolute independent of any judgment based on current standards and attitudes, then I do not accept their correctness.
One factor in the decisions in both Larner and Robertson was that the introduction of foreseeability would reduce the utility of the section, by frequently limiting success under it to circumstances in which a common law claim for negligence would succeed (Larner, p 560A, per Hirst LJ, and p 562C D, per Peter Gibson J; Mains, p 531D E, per Lord Sutherland and p 535G H and 536H 537B, per Lord Johnston).
This begs the question as to the intended scope and effect of the section.
Not only does the section introduce criminal sanctions, but, as established in Nimmo, if the workplace is unsafe, then the burden shifts to the employer to show that it was not reasonably practicable to make and keep it safe.
It was in this connection that in Nimmo Lord Guest said that he could not think that the section was intended to place such a limited obligation on employers as they would have at common law (where it would be for an injured employee to plead and prove failure to take reasonably practicable steps) (p 122F G), and that Lord Upjohn (whose view that safety is judged of course by a reasonable standard I have already quoted in paragraph 64 above) added that it is not in doubt that the whole object of the Factories Act is to reinforce the common law obligation of the employer to take care for the safety of his workmen (p 125B).
Further, section 29(1) imposes a non delegable duty, so that an employer is responsible for achieving or for the taking all reasonably practicable measures to achieve the requisite safety irrespective of whether he chooses to set about doing this through himself, his servants or independent contractors.
There is nothing to show that section 29(1) was intended to go further, and there is no assumption (or, in my opinion, likelihood) that it was intended to.
The standard of reasonableness expressed in the qualification so far as is reasonably practicable (in respect of which the onus of proof is on the employer) makes it more, rather than less, likely in my view that the concept of safety is itself to be judged, as Lord Upjohn thought obvious in Nimmo, by reference to what would, according to the knowledge and standards of the relevant time, have been regarded as safe (see further paragraph 79 et seq. below).
Peter Gibson J (at p 562G H) regarded it as surprising that the approach in John Summers, based on section 14(1) of the 1937 Act containing no qualification of reasonable practicability, should have been regarded as relevant under section 29(1) of the 1961 Act which does contain such a qualification.
The same point was made in Mains (pp 527A D and 531D F, per Lord Sutherland and p 536A, per Lord Johnston).
But there was authority pre dating 1959 which took the same approach to safety where there was such a qualification: see Sheppey v Matthew T Shaw & Co Ltd and Trott v W E Smith (Erectors) Ltd (para 65 above).
The force of the point depends in any event upon the effect of the qualification.
In Mains it was contemplated that the qualification might enable a defender to say it was not reasonably practicable to make this place safe, because this particular mishap was not reasonably foreseeable (p 527C D, per Lord Sutherland) and that The unforeseeable accident occurring in an unforeseeable way may well give the defenders a defence under the qualification (p 637E, per Lord Johnston).
Likewise, in the present case the Court of Appeal considered as a matter of common sense that if, the employer does not know of the risk and cannot reasonably have been expected to know of it, it cannot be reasonably practicable for him to take any steps at all (paras 83 and 91).
On that basis, foresight can be very relevant under section 29(1).
But, if this is so, then section 29(1) is to that extent merely shifting the onus of proof, which weakens the argument that it must be seen as departing substantially from conceptions of common law negligence.
In summary, safety must, in my view, be judged according to the general knowledge and standards of the times.
The onus is on the employee to show that the workplace was unsafe in this basic sense.
(iv) Reasonably practicable
Since it took the view that safety is absolute and unchanging, the Court of Appeal had to consider whether the qualification so far as is reasonably practicable enabled the employers to exonerate themselves by showing that reasonable employers would not have considered that there was cause to reduce noise exposure in the workplace below 90dB(A).
The Court of Appeal held that the qualification gave no scope for such a defence.
It said (para 89): Under the statute, the employer must first consider whether the employee's place of work is safe.
If the place of work is not safe (even though the danger is not of grave injury or the risk very likely to occur) the employer's duty is to do what is reasonably practicable to eliminate it.
Thus, once any risk has been identified, the approach must be to ask whether it is practicable to eliminate it and then, if it is, to consider whether, in the light of the quantum of the risk and the cost and difficulty of the steps to be taken to eliminate it, the employer can show that the cost and difficulty of the steps substantially outweigh the quantum of risk involved.
I cannot see how or where the concept of an acceptable risk comes into the equation or balancing exercise.
I cannot see why the fact that a responsible or official body has suggested that a particular level of risk is 'acceptable' should be relevant to what is reasonably practicable.
In that respect, it appears to me that there is a significant difference between common law liability where a risk might reasonably be regarded as acceptable and statutory liability where the duty is to avoid any risk within the limits of reasonable practicability.
Smith LJ reiterated the point at the end of para 100, when rejecting the relevance of the Code of Practice to the question whether it was reasonably practicable to provide protection.
In the light of my conclusion that safety is a relative concept, the correctness of these passages does not strictly arise for consideration in this case.
Had it arisen, I would have regarded the qualification as wide enough to allow current general knowledge and standards to be taken into account.
Even the Court of Appeal in its formulation acknowledged the quantum of risk involved as material in the balancing exercise.
But this can only mean that some degree of risk may be acceptable, and what degree can only depend on current standards.
The criteria relevant to reasonable practicability must on any view very largely reflect the criteria relevant to satisfaction of the common law duty to take care.
Both require consideration of the nature, gravity and imminence of the risk and its consequences, as well as of the nature and proportionality of the steps by which it might be addressed, and a balancing of the one against the other.
Respectable general practice is no more than a factor, having more or less weight according to the circumstances, which may, on any view at common law, guide the court when performing this balancing exercise: see Swanwick and Mustill JJs statements of principle, set out earlier in this judgment, and also Charlesworth on Negligence (12th ed) (2010), chapter 7, The Standard of Care, both generally and especially at para 7.38.
It would be strange if the Court of Appeal was right in suggesting that, under the statutory formulation, this one factor is irrelevant, when the whole aim of the balancing exercise must, in reality, be to identify what is or is not acceptable at a particular time.
That the qualification so far as may be reasonably practicable may, if necessary, receive a broad interpretation is also indicated by the reasoning of the House in Marshall v Gotham Co Ltd [1954] AC 360.
Under the Metalliferous Mines General Regulations 1938 (SR & O No 630) the roof and sides of every travelling road in a mine were required to be made secure.
An employee was killed by a fall of roof, due to the presence of an unusual geological condition known as slickenside, which there was no known means of detecting prior to a fall.
It was argued that the mine owner could have propped all roofs, and that reasonably practicable meant no more than practicable (p 364).
The argument was rejected.
Lord Oaksey at p 370 agreed with Jenkins LJs statement, [1953] 1 WB 167, 179, that what is reasonably practicable in this context is no more nor less than what is capable of being done to make roofs and sides secure within the limits of what it is reasonable to do; and it cannot be reasonable to do for this purpose anything more than that which it appears necessary and sufficient to do according to the best assessment of what is necessary and sufficient that can be made at the relevant time, that is, in the present instance a point of time immediately prior to the accident.
Lord Reid at p 373 said that if a precaution is practicable it must be taken unless in the whole circumstances that would be unreasonable and took into account that the danger was a very rare one, that the trouble and expense involved in the use of the precautions, while not prohibitive, would have been considerable, that the precautions would not have afforded anything like complete protection against the danger, and that their adoption would have had the disadvantage of giving a false sense of security.
Lord Keith considered at p 378 that there was no general rule or test that can safely be relied on for measuring the discharge of such a duty, but that he could not, as at present advised, accept that the measure of an employers liability can satisfactorily be determined by having regard solely to the proportion which the risk to be apprehended bears to the sacrifice in money, time or trouble involved in meeting the risk.
Lord Tucker (with whom Lord Cohen agreed at p 377) said at pp 374 375 that the word secure does not involve security from the effects of earthquake or an atom bomb, but added that it must include security from all the known geological hazards inherent in mining operations.
At p 376 he echoed the list of factors which Lord Reid had identified in support of his conclusion that the precautions were not reasonably practicable.
A further aspect of para 84 in Smith LJs judgment is the suggestion that there must be at least a substantial disproportion before the desirability of taking precautions can be outweighed by other considerations.
This theme was developed in paras 82 to 84 of her judgment, on the basis of dicta in two cases prior to Marshall v Gotham.
But it represents, in my view, an unjustified gloss on statutory wording which requires the employer simply to show that he did all that was reasonably practicable.
In deciding the appeal in favour of the respondent, the Court of Appeal relied upon HHJ Ingliss estimation of the quantum of risk below 90dB(A).
HHJ Inglis said that the description given to the risk to hearing of exposure below 85dB(A) as minimal is one that I accept and adopt.
Above 85dB(A) the risk accelerates up to 90dB(A).
In the high 80s, given long enough exposure, significant hearing loss may be expected in at least a substantial minority of individuals.
On that basis, Smith LJ said that, assuming (as she did) that the employers well knew that some of their workforce stayed in their employment over many years, they would, if they had asked a suitably qualified expert, have received advice conveying to them that a substantial minority of their workforce in the relevant departments were likely to suffer significant hearing loss, and could not then have hoped to establish that the burden of providing ear protectors was substantially disproportionate to the quantum of risk to their employees (para 98).
Advice of this nature as to the quantum of the risk should have been received by late 1976 or early 1977 (para 101).
To this, Smith LJ added six to nine months, for reasons already discussed, putting Quantum in breach of its statutory duty under section 29(1) from 1 January 1978.
Neither Quantum nor any other of the employers before the court exposed their workforce to noise levels in the high 80s.
The exposure found was in the case of Mrs Baker to levels of 86dB(A).
As I have already stated, every 3dB(A) represents a doubling of the sound pressure level of the energy involved in the noise, even though it will not be appreciated as such by the hearer.
More importantly, the approach taken by the Court of Appeal requires employers to take expert advice and to identify the quantum of risk in circumstances in which current standards and thinking did not expect any such steps.
And if risks which are not currently regarded by responsible employers as calling for any action are required to be addressed, then, despite Smith LJs references to the balancing of the quantum of risk against other factors, any employer who was or should have been aware of any risk at all greater than de minimis would be obliged to address it unless the trouble and cost involved were prohibitive.
This is highlighted by consideration of the arguments which can be made if one has regard simply to the statistical tables in BS 5330: 1976 upon which the respondent and the Court of Appeal have relied to show the risk attaching at levels of exposure between 85 and 90dB(A) lepd: see para 31 above.
The respondent, as I understand, accepts that the logic of her case is that the risks below 85dB(A) cannot and should not have been regarded as immaterial.
But this highlights how independent her case on section 29(1) is of contemporary standards of behaviour or thought.
Only since 2005 have employers been obliged to require ear protectors to be worn by workers exposed to 85dB(A) and obliged to make them available on request to workers exposed to 80dB(A) (see para 14 of the Court of Appeals judgment, quoted in para 15, above).
There is nothing in the history of section 29(1) or the mischief to which it was addressed to suggest that the legislature in 1959 or 1961 intended in this way to detach the penal liability which it then introduced in respect of the workplace from the ordinary understanding of reasonable employers.
Contrary to the Court of Appeals view, I consider that HHJ Inglis was correct in the approach he took to section 29(1), which followed that taken by Rose J in Fazakerley.
Conclusion
I would allow the appellants appeals both at common law and under section 29(1).
At common law, Quantum, and other employers in a similar position such as Guy Warwick, were not in breach of their duty of care or of their duty under section 29(1) in not implementing measures to protect their employees in respect of noise exposure at levels below 90dB(A) prior to 1 January 1990.
As regards Meridian and Pretty Polly, in reflection of the common ground between Lord Dyson, Lord Saville and myself (paragraphs 25 and 43 above), the appeal will be allowed by restoring the judges decision that they were in breach of duty in not having implemented such measures as from 1 January 1985.
APPENDIX (para 18) This Appendix indicates the factual position as found by the judge in relation to each employer.
Meridian (Courtaulds) 1.
Taking the Courtaulds group of which Meridian was part, the judge found that the group had spinning and weaving divisions with high noise levels, that in the early 1980s the issue of noise began to be widely discussed, that claims for industrial deafness were emerging by 1983 and at the end of 1982 a Dr Cooper was asked to form and chair a noise committee.
This committee met on 17 March 1983, and considered a paper indicating that a number of other countries had set a maximum exposure level of 85dB(A)lepd.
It set companies in the division the task of surveying noise levels in all the factories.
Also in the first half of 1983, Courtaulds legal department and medical officer circulated a memorandum, containing this passage: It has been suggested that some impairment may be caused by noise levels in the range of 85 90dB(A) .
We strongly recommend that hearing protectors be provided for all those who may be exposed to noise within the range 85 90dB(A)leq. 2.
Factory surveys were completed by the committee meeting in March 1984.
They identified areas above 90dB(A), as well as between 85dB(A) and 90dB(A), and in relation to the latter a 75% aim of acceptance of hearing protection by mid 1985 was suggested.
At a further meeting in October 1984 the difficulties of obtaining compliance without Code of Practice backing were discussed, but the target was increased to 80% by the end of 1985, and the need for information, instruction and encouragement was recognised.
By the meeting of 12 March 1986, Directive 86/188/EEC was imminent, and the committee noted that their policies already complied with the directive.
The evidence showed that the drivers for the activity from the early 1980s were proposed legislation, and the rising incidence of claims.
Courtaulds were active in the debate stimulated by the consultation in 1981 and in opposing on economic and competition grounds the European proposal for legislation from 1982 (judgment, para 53).
The judge also said that Courtaulds had the resources to look beyond the 1972 Guidelines and reach their own conclusion about the nature and extent of the risks posed to the hearing of their employees exposed below 90dB(A), but 56 nobody actually considered or sought to answer the question What are the actual risks to members of the workforce exposed to different levels of noise? The 90dB(A) standard from 1972 was considered to be the standard that the law and good practice required.
There was a clear awareness by the early 1980s that exposure to levels of noise between 85 and 90dB(A) could be expected to damage the hearing of some workers to the extent that action was desirable at those levels.
No large company who responded to the consultation document or read the background document and was aware of the EEC proposals in 1982, and one that then took part in the debates trying to fend off compulsory protection at 85dB(A) on economic grounds, but not on grounds that such levels of exposure were not harmful, could be said to be ignorant of the facts by the beginning of 1983 at the latest.
Pretty Polly 3.
This company disclosed a substantial quantity of material consisting of or based on documents in the public domain.
In 1975 a Factory Inspector found noise levels of 89dB(A) and did not recommend any steps.
Further, as the judge found (para 63): The internal documents include a Guide to Preparing a Noise Control Policy from Midland Insurance, undated but probably from the late 1970s or early 1980s, in which it is said that [on] exposure to 90dB(A)lepd over a long period there is a possibility of damage to hearing, so that adequate steps should be taken to prevent this; also that a noise reduction programme should aim at reducing noise to 84dB(A) or less if practicable; a Commercial Union Risk Management Ltd paper from 1977 saying that research has shown that few industrial workers will suffer serious hearing loss if the intensity and duration of exposure is controlled to allow a maximum of 90db(A) and, later, that the exposure standard of [90dB(A) lepd] is based on the prediction that not more than 1 % of those exposed to this level over a 30 year working lifetime will suffer social handicap as a result.
Levels should thus be reduced whenever possible and 90dB(A) regarded as a ceiling rather than a safe level. 4.
In December 1982 Pretty Pollys work studies department produced a memorandum, probably written by a Mr John Butler, later manager of the department, stating that 90dB(A) was the maximum level, that noise at that level involved accepting a certain risk of hearing damage and that: if we as a company feel that we require a zero risk of hearing damage for our employees, then no person should be exposed to a noise level of more than 80dB(A) for an eight hour day.
There followed a table of percentage risk of hearing damage (such damage not being defined) showing 0% at 80dB(A), and at 85dB(A) 1, 3, 5, 6, 7, 8, 9 and 10% for 5, 10, 15, 20, 25, 30, 35 and 40 years of exposure respectively.
The percentages for the same periods at 90dB(A) were said to be 4, 10, 14, 16, 16, 18, 20 and 21 %.
These figures came in fact from ISO: 1999 of 1975, and some, but not all of this information about low level exposure, was in the 1981 consultative document. 5.
In 1985 Mr Butler distributed an assessment with essentially the same table, noting that with one exception all machinery areas in the company were in excess of 85dB(A) and that: Even at this level we are accepting a certain risk of damage for our employees.
If a zero risk of hearing damage is required, then no employee should be exposed to a noise level of more than 80dB(A) for more than eight hours a day.
The judge found (para 66) that: There is no evidence that anyone at Pretty Polly turned their mind towards any evaluation of the risks below 90dB(A) before 1982.
It is not really likely that they did so.
It is plain from Mr Butler's documents that by that year he had done so.
Indeed, it is unlikely that a company of that size where there had been some collection of materials, and where they cannot have been unaware of the EEC proposals and the very public debate that followed, could not have known that there was a real case to be made that exposure below 90dB(A) could cause levels of hearing damage that should be guarded against.
I would put actual awareness of the nature of the real risk below 90dB(A), as with Courtaulds, as having arisen by the beginning of 1983.
Taymil (now Quantum) and its subsidiaries 6. employers, the judge found: In relation to the subsidiaries of Taymil, which included Mrs Bakers 60.
The factories in the group seem to have run largely independently, with factory management being responsible for health and safety, reflecting the origins of each factory in a separate business.
There was no central health and safety function.
Mr Jones said that he thought that in 1977 or thereabouts a Health and Safety policy document had been produced.
He said it would probably have been destroyed when the company folded.
There is no reason to think that such a policy, if it did in fact exist, would on noise have done anything but refer to the limit of 90dB(A).
The knitting shops were recognised as being the areas with possibly dangerous levels of noise, not making up areas.
Of the documents referred to the first is a noise survey and accompanying documents done for Huthwaite Avenue by Midland Insurance in June 1983.
Mr Watson had discussed the conclusions of it with Midland Insurance, as appears on the face of the document, though he said in evidence that he could not remember it.
The survey refers to the 90dB(A) limit and suggests that all areas in the survey above 87dB(A) should be areas where ear protection is worn until the noise is reduced by engineering methods.
A number of areas were identified as having noise over that level.
Proper training and instruction of staff is advised; and appended is a guide to preparing a noise control policy, in which it is suggested that any noise reduction programme should aim at reducing noise to 84dB(A) or less if practicable.
There is a noise survey of Botany Avenue by Mr Graham Allin, an engineer working to Mr Gage in August 1984 in which Mr Allin refers to company policy taking 85dB(A) as the exposure threshold level.
I am satisfied that there was no such policy.
Mr Gage, who was a good witness was quite clear about that, and explained how Mr Allin may have got that idea from Mr Gage's view about a margin of safety below 90dB(A) so as to ensure the 90dB(A) level was achieved.
Moreover, in a draft survey of the Ollerton factory written after June 1984 when the EEC proposals were changed there is no mention of such a policy.
The quality of their evidence was not as good as that of Mr Gage, but both Mr Watson and Mr Ivan Jones said that the limit to be worked to was 90dB(A).
There is no evidence of any steps towards protection being taken in the Nottingham Manufacturing years aimed at conservation over 85dB(A).
Mr Watson said in evidence that he was aware of the EEC proposal in 1982 to reduce the exposure level to 85dB(A).
He was aware of the existence of the debate about that proposal, from discussions with insurers: It was viewed with some scepticism, I think.
Coats was a large organisation.
By the time they came on the scene attention, if any, must have been focused on the EEC proposals that led to the 1989 regulations. 61.
There is therefore no evidence that anyone in Nottingham Manufacturing or its subsidiaries with which this case is concerned turned their mind towards the level of risk about possible harm below 90dB(A)leq, except that Mr Watson was aware after 1982 of a debate going on about what levels would ultimately be imposed, and by the summer of 1984 it was known that though the compulsory level would remain at 90, some measures, possibly audiometry, would be imposed at 85dB(A).
The 1983 Midland Insurance document is an important document, with its plain implication that the 90dB(A) Code of Practice level did not provide protection to everyone, and that a noise conservation policy should do better, but it does not provide the information that means that management at Nottingham Manufacturing were in a position of knowledge and understanding that set them apart from what I take to be the understanding of the great majority of employers, that 90dB(A)lepd was the official limit that had to be worked to.
I do not think it is shown that Nottingham Manufacturing had a greater than average degree of knowledge.
Guy Warwick 7.
The judge said that, by comparison with other defendants, they were a very small company, engaged in making up operations, with at their height four factories and under 400 employees, and (para 68) that There is no evidence that anyone at Guy Warwick knew about the 1972 Code of Practice, or even about the Noise at Work Regulations 1989, which were in force for the last two years of the company's life.
Mr Kettle was involved in health and safety and set up the health and safety committee.
There were committee meetings at which he said in his statement the question of noise was never raised.
The factory inspectors who came round periodically and the insurance representatives never raised it.
No surveys were ever done.
In my opinion said Mr Kettle, the industry was not renowned for excessive noise.
Whether, on the facts of actual noise to which Mrs Hooley was exposed, Guy Warwick were in breach of any duty to her, has to be judged on the basis that they had no actual knowledge of the relevance of noise to their operation.
LORD DYSON Common law negligence
The decisions below
The history of investigation and awareness of the risks of occupational exposure to noise is fully set out by Lord Mance at para 15 of his judgment.
On the basis of this material, the judge applied the well known test enunciated by Swanwick J in Stokes v Guest, Keen and Nettleford (Bolts and Nuts) Ltd [1968] 1 WLR 1776, and held at para 87 that complying with 90dB(A) lepd as the highest acceptable limit met the standards of the reasonable and prudent employer during the 1970s and 1980s certainly until the time when the terms of the 1986 directive became generally known in the consultative document of 1987.
He concluded, therefore, that the average employer was not in breach of its common law duty of care to its employees in failing to provide ear protectors before about the beginning of 1990.
At para 88, however, he held that by the beginning of 1983 Courtaulds and Pretty Polly had sufficient understanding of the risks to hearing below 90dB(A) lepd to require them to take action.
He then considered what was a reasonable period to allow for these two companies to take action and held that they should have done so by the beginning of 1985.
Accordingly, from that date they were in breach of duty to employees who suffered damage through exposure at 85dB(A) lepd and above without having the opportunity of using hearing protection.
He must also have held that the other (average) employer defendants were entitled to a period of about two years to take action.
Although the judge gave no precise dates, it is for this reason that he dismissed the claim by Mrs Baker.
Smith LJ (with whom Sedley and Jacob LJJ agreed) said at para 105 that the judges conclusion at para 87 of his judgment cannot be faulted.
She said that she would uphold his view that there was no breach of duty at common law during the period for which a responsible body of opinion regarded it as acceptable to expose employees to noise in the 85 89dB(A) lepd range.
For the employer with the ordinary or average degree of knowledge, the judges conclusion that this period came to an end in 1987 following the publication of the consultation paper on the 1986 draft directive was a reasonable conclusion.
She differed from the judge only in that she considered that the average employer should have needed no more than six to nine months from the date of the publication of the consultation paper.
For that reason, in respect of the average employer she fixed the date for breach of the common law duty of care at January 1988.
As for Courtaulds and Pretty Polly, she upheld the judges conclusion that these companies had the requisite knowledge in early 1983.
But, differing from the judge, she allowed them only six to nine months to provide ear protection.
Finally, at para 109 she explained why Quantum should not be treated as an average employer and why its position should be assimilated to that of Courtaulds and Pretty Polly.
The judge had found that the group insurance and risk manager of Quantum admitted that he was aware of the first draft EEC directive in 1982.
Having reviewed the evidence, the judge said at para 61 that the company management were not in a position of knowledge and understanding that set them apart from what I take to be the understanding of the great majority of employers that 90dB(A) lepd was the official limit that had to be worked to.
Smith LJ accepted the submission of Mr Hendy QC that, since there was evidence that Quantum was aware of the first draft directive, it was irrational to treat Quantum differently from Courtaulds and Pretty Polly, who also had such knowledge.
Is compliance with the 1972 Code of Practice a defence for the average employer?
On this appeal, Mr Hendy challenges the decision of the judge (upheld by the Court of Appeal) that the 1972 Code of Practice constituted an acceptable standard for average employers to adhere to until the late 1980s.
I shall deal first with this challenge before coming to the question whether there was any basis for the judge to treat Courtaulds and Pretty Polly (and the Court of Appeal additionally to treat Quantum) differently.
I agree for the reasons given by Lord Mance at paras 28 to 37 of his judgment that there is no basis for interfering with the judges finding at para 87 that until the late 1980s the Code of Practice set the standard for the reasonable and prudent employer without specialist knowledge.
The avowed purpose of the Code was to set standards to protect loss of hearing due to noise at work.
The Foreword by the Rt Hon Robert Carr MP, Secretary of State for Employment, states that until the pioneering work of Professor Burns and Dr Robinson (both members of the committee that prepared the Code of Practice) we lacked the necessary scientific knowledge of the precise levels of noise, and the duration of exposure to them, which can cause damage.
Mr Carr wrote that he regarded the publication of the Code as the first important step in the prevention of loss of hearing due to noise at work.
It should be considered as a blueprint for action.
Section 1.1.2 stated: The Code sets out recommended limits to noise exposure.
It went on to say: It should be noted that, on account of the large inherent variations of susceptibility between individuals, these limitations are not in themselves guaranteed to remove all risk of noise induced hearing loss.
At section 4.3.1, the Code defines the limit in these terms: If exposure is continued for eight hours in any one day, and is to a reasonably steady sound, the sound level should not exceed 90dB(A).
It is this limit which the Code specifies [as] a limit for exposure to noise (section 2.1.1); which if not achieved triggered the obligation to provide ear protectors and ensure their use (sections 3.1.2 and 7.1.1); which should be regarded as maximum acceptable levels and not as desirable levels (section 4.1.1); and which if it was considered that it may be exceeded dictated the obligation to carry out a survey (section 5.1.1).
On a fair reading of the Code, this blueprint for action provided that, although it was desirable to reduce levels where reasonably practicable to below the 90dB(A) level, continuous exposure for eight hours in any one day to a reasonably steady sound below 90dB(A) was acceptable and did not require the provision of ear protectors.
It was made clear that, having regard to the large inherent variations of susceptibility between individuals, exposure below 90dB(A) could not guarantee to remove all risk of noise induced hearing loss.
But the clear message of the document, based on the latest scientific knowledge, was that ear protectors were not required if the noise levels were below 90dB(A) and that at levels below 90dB(A) the risk to particularly susceptible people was sufficiently small, both in terms of the numbers who might be affected and the seriousness of any damage that might result, to be acceptable.
That is how I would interpret the document.
That is also how the document was interpreted by those in the industry.
Lord Mance has referred at paras 32 and 34 of his judgment to the evidence on this point summarised by the judge at paras 46 to 48 of his judgment and his findings at para 48.
In summary, the judge found that the 90dB(A) limit was regarded by everyone in the industry, the Health and Safety Executive and factory inspectors as the touchstone of reasonable standards that should be attained.
This finding was supported by the notes published by the Wolfson Unit for Noise and Vibration Control in the University of Southampton in 1976.
As the judge said, with the publication of BS 5330 in 1976, there was information available which, if researched, would give an indication of the level of risk below 90dB(A).
But in the light of the terms of the Code itself and all the evidence summarised at paras 46 to 48, I agree with the Court of Appeal that the judge was entitled to hold that an average reasonable and prudent employer was not in breach of its duty of care to its employees in simply relying on the 90dB(A) limit as an acceptable limit.
There is no rule of law that a relevant code of practice or other official or regulatory instrument necessarily sets the standard of care for the purpose of the tort of negligence.
The classic statements by Swanwick J in Stokes and Mustill J in Thompson v Smiths Shiprepairers (North Shields) Ltd [1984] QB 405 which have been quoted by Lord Mance at paras 9 and 10 of his judgment remain good law.
What they say about the relevance of the reasonable and prudent employer following a recognised and general practice applies equally to following a code of practice which sets out practice that is officially required or recommended.
Thus to follow a relevant code of practice or regulatory instrument will often afford a defence to a claim in negligence.
But there are circumstances where it does not do so.
For example, it may be shown that the code of practice or regulatory instrument is compromised because the standards that it requires have been lowered as a result of heavy lobbying by interested parties; or because it covers a field in which apathy and fatalism has prevailed amongst workers, trade unions, employers and legislators (see per Mustill J in Thompson at pp 419 420); or because the instrument has failed to keep abreast of the latest technology and scientific understanding.
But no such circumstances exist here.
The Code was the result of careful work by an expert committee.
As the judge said, at para 87, the guidance as to the maximum acceptable level was official and clear.
He was entitled to accept the evidence which led him to conclude that it remained the touchstone of reasonable standards for the average reasonable and prudent employer at least until the publication of the consultation paper on the 1986 draft Directive (para 48).
Remaining questions
There remain three questions in relation to the issue of common law negligence.
First, was the judge right to treat Courtaulds and Pretty Polly as different from the average employer? Secondly, was the Court of Appeal right to hold that employers should have provided ear protectors within six to nine months of the publication in 1987 of the consultation paper on the draft second EEC Directive (and not two years as held by the judge)? Thirdly, was the Court of Appeal right to hold that Quantum was not an average employer, but had particular knowledge, which assimilated its position to that of Courtaulds and Pretty Polly as it was found by the judge to be?
As regards the first question, the judge held that by the beginning of 1983 Courtaulds and Pretty Polly had an understanding of the risk that some workers would suffer damage at exposure between 85 and 90dB(A)lepd which led him to distinguish their position from that of the average prudent employer.
Lord Mance (paras 21 to 25) says that neither Courtaulds nor Pretty Polly had acquired any new knowledge by this time.
All that had happened was that they had formed a different view from that generally accepted about what precautions to take.
He says that the failure to give effect to that different view does not amount to a breach of the duty of care.
I would not interfere with the judges assessment on this point.
The position of the average employer was that, until about 1987, it knew or should have known that there was a risk at below 90dB(A), but that it was officially regarded as so small as to be acceptable.
But as the judge said at para 56 in relation to Courtaulds, that company had the resources to look beyond the 1972 Guidelines and reach their own conclusion about the nature and extent of the risks posed to the hearing of their employees exposed below 90dB(A).
It is true that they did not seek to assess the actual risks to members of the workforce exposed to different levels of noise.
But the judge found that the company had a clear awareness by the early 1980s that exposure to noise between 85 and 90dB(A) could be expected to damage the hearing of some workers to the extent that action was desirable at those levels.
So too as regards Pretty Polly.
Thus, on the basis of their own research into the problem and the discussion generated in the industry by the EEC proposals, by early 1983 large employers such as Courtaulds and Pretty Polly had come to the conclusion that the 90 limit was no longer acceptable.
Unlike Lord Mance, I would not characterise the decision of the two companies that some action should probably be taken as a display of greater than average social awareness.
As responsible employers, they understood that they owed a duty of care to their employees and were keeping the content of that duty under review.
But even if the decision that action was desirable was a display of social awareness, I do not see how that would necessarily afford a defence.
On the finding by the judge, their appreciation that the Code limit was no longer acceptable was sufficient to found liability.
I note, in any event, that Mustill J in Thompson said that changes in social awareness may transfer the risk into the category against which the employer can and should take care (pp 415 416).
As regards the second question, in my view the Court of Appeal was not entitled to interfere with the judges assessment of what was a reasonable lead in time for the average employer.
A period of two years from the publication of the consultation paper takes one to the end of 1989, which was effectively the date when the 1989 Regulations came into force.
The judge was entitled to hold that it was reasonable not to require the average employer to implement protective measures before the impending regulations came into force.
As regards the third question, the judge carefully considered all the evidence about the knowledge and understanding of Quantum at paras 57 to 61 of his judgment.
He concluded that it did not show that the management were in a position of knowledge and understanding that set them apart from what I take to be the understanding of the great majority of employers, that 90dB(A) lepd was the official limit that had to be worked to.
In my view, this assessment of the facts was reasonably open to the judge.
The Court of Appeal should not have interfered with it.
Section 29(1) of the Factories Act 1961
I agree with and do not wish to add anything to what Lord Mance has said on the issue of whether section 29 applies to operations carried out within the place of work.
I also agree that the section applies to noise.
Like Lord Mance, I recognise the force of the arguments to the contrary.
Noise was clearly not in the contemplation of Parliament when section 29 or its predecessors were enacted.
But the language of section 29(1) (every such place shall, so far as is reasonably practicable, be made and kept safe for any person working there) is general and always speaking.
Thus it can accommodate working methods and technological developments that were not foreseeable (and attitudes to safety that were not held) at the time when the statute was enacted.
I would hold that section 29 applies to noise for the simple reason that excessive noise can cause injury by damaging a persons hearing thereby rendering a place of work unsafe for those who are working there.
For my part, I would reach this conclusion regardless of whether section 29(1) imposes absolute liability in the sense to which Lord Mance refers at para 61.
Meaning of safe
The judge held that what was safe within the meaning of section 29(1) was not to be judged objectively, but was really a jury question, to be answered in the light of all the circumstances prevailing at the time, including what might reasonably have been foreseen by an employer (para 97).
And again at para 99: as contemplated by Rose J in Taylor v Fazakerley, the standard of safety in the section is governed by the general standard which ought reasonably to have been adopted by employers at the relevant time.
Having reviewed the facts in detail, he concluded that the standard of safety was determined by the 1972 Code until the coming into force of the Noise at Work Regulations 1989 and that, judged by the standard of the 1972 Code, Mrs Bakers place of work was safe.
Having reached this conclusion, he did not go on to consider whether her employers had discharged the burden of proving that they had done all that was reasonably practicable to make and keep the place safe for any person working there.
Smith LJ agreed with and applied the Court of Appeal decision in Larner v British Steel plc [1993] ICR 551 (which was followed by the Inner House of the Court of Session in Scotland in Mains v Uniroyal Englebert Tyres Ltd [1995] IRLR 544) and held (para 76) that the safety of a place of work within the meaning of section 29 was to be judged objectively without reference to reasonable foresight of injury.
She said that what is objectively safe cannot change with time.
On the evidence before the judge, she held that the places of work where the ambient noise levels were 85dB(A) lepd or above were not safe (para 78).
In the alternative, if reasonable foresight was relevant, she said that by the early 1970s any employer who kept abreast of developing knowledge would have known that prolonged exposure to 85dB(A) lepd was harmful to some people (para 79).
On that basis, by the early 1970s there would have been liability for breach of section 29, subject to the reasonable practicability defence.
Like Lord Mance, I prefer the approach of the judge, with the qualification that what is safe is an objective question in the sense that safety must be judged by reference to what might reasonably be foreseen by a reasonable and prudent employer.
The concept of what is safe is not, however, absolute.
As Lord Nicholls and Lord Hobhouse said in R (Junttan Oy) v Bristol Magistrates Court [2003] UKHL 55, [2003] ICR 1475, safety is a relative concept.
People can legitimately hold different opinions as to what is safe.
Opinions as to what is safe may vary over time as, with developing knowledge, changes occur to the standards that are reasonably expected to be followed.
I do not, therefore, agree with Smith LJ (para 78) that what is objectively safe cannot change with time.
Standards of safety are influenced by the opinion of the reasonable person and foreseeability of risk plays a part in the forming of that opinion.
If reasonable foreseeability is not imported into the concept of safety, then unless the Court of Appeal are right in holding that it is relevant to reasonable practicability, section 29(1) imposes an obligation on employers to guard against dangers of which they cannot reasonably be aware (in so far as it is reasonably practicable to do so).
Breach of that obligation exposes the employer to potential criminal liability: see section 155 of the 1961 Act.
That is an unreasonable interpretation to place on the statute, which I would not adopt unless compelled to do so by clear words, whether express or necessarily to be implied.
In my view, there are no such words.
As Lord Mance points out, there are two strands of authority on the meaning of safe in section 29(1).
Before I come to these, I should refer to section 14(1) of the 1961 Act which provides: (1) Every dangerous part of any machinery.shall be securely fenced unless it is in such a position or of such construction as to be as safe to every person employed or working on the premises as it would be if securely fenced.
It will be seen that section 14(1) does not include a reasonable practicability qualification.
There is a line of authority to the effect that reasonable foreseeability is a component of the meaning of dangerous in section 14(1) and its predecessors: see, for example, cases such as Hindle v Birtwhistle [1897] 1 QB 192, John Summers & Sons Ltd v Frost [1955] AC 740 and Close v Steel Company of Wales Ltd [1962] AC 367.
In Close, Lord Denning referred with approval to Hindle, a case involving a shuttle which flew out and injured a weaver.
He said at pp 380 381: The Divisional Court held that it was capable of being a dangerous part of the machinery.
It depended on the frequency with which shuttles were likely to fly out.
If it was so frequent as to be a reasonably foreseeable cause of injury, it was dangerous.
But if it was so rare as to be a minimal risk, it was not dangerous.
Wills J gave a definition which has been repeatedly approved: It seems to me that machinery or parts of machinery is and are dangerous if in the ordinary course of human affairs danger may be reasonably anticipated from the use of them without protection .
Lord Denning added: My Lords, anyone who has practised in the Queens Bench Division knows that the case of Hindle v Birtwhistle has been cited very, very many times.
Du Parcq LJ vouched for it up to 1940 in Stimpson v Standard Telephones and Cables Ltd [1940] 1 KB 342 and I can vouch for it since.
The first strand of authority on section 29(1) imports the concept of reasonable foreseeability into the meaning of safe.
Lord Mance has mentioned two of the cases at para 71 above.
There are others including a number of Scottish cases and the unreported decision of Rose J in Taylor v Fazakerley Engineering Co (26 May 1989), which I mention only because he was a judge who had great experience of personal injury litigation.
The second strand includes the cases mentioned by Lord Mance at para 73.
In Larner v British Steel plc [1993] ICR 551, Hirst LJ approved a passage in Munkman, Employers Liability, 11th ed (1990) p 292, where the author expressed the view that safe was a simple English word and there was no reason why the safety of a place of work should not be decided as a pure question of fact.
Hirst LJ regretted the introduction of the vague and uncertain notion of foreseeability.
Peter Gibson J said that it was not unfair on employers to impose a strict duty, because the duty was qualified by the defence of reasonable practicability.
To introduce the concept of reasonable foreseeability into the question of safety was effectively to equate the duty under the section with the duty at common law.
Mr Hendy QC seeks to uphold this reasoning.
He submits that the word safe is a plain English word.
It is not qualified.
In this respect, it may be contrasted with, for example, reg 4 of the Provision and Use of Work Equipment Regulations 1998 by which the duty to ensure that work equipment is suitable for its purpose is conditioned by reg 4(4), which provides that the word suitable means suitable in any respect which it is reasonably foreseeable will affect the health or safety of any person.
Mr Hendy has referred to a number of decisions on other health and safety provisions in which the court held that the duty on the employer was absolute and did not import any element of reasonable foreseeability.
In my view, the meaning of section 14(1) is highly relevant.
As a matter of ordinary English, the word dangerous is an antonym of safe.
The text of section 14(1) suggests that it is being so used in the subsection.
The subsection provides that every dangerous part of any machinery shall be securely fenced unless it is in such a position or of such construction as to be as safe to every person employed or working on the premises as it would be if securely fenced (emphasis added).
The contrast between dangerous and safe is striking.
As I have said, the meaning of section 14(1) is long established: there can be no liability for dangerous parts of machinery unless the danger is reasonably foreseeable.
In these circumstances, it would be surprising if Parliament had intended to impose liability under section 29(1) for a danger (or lack of safety) which is not reasonably foreseeable.
The only justification for interpreting safe in section 29(1) as not importing the concept of reasonable foreseeability is that it is unnecessary to do so because reasonable foreseeability is imported into the reasonable practicability qualification.
I accept that, if it is imported into the reasonable practicability qualification, there is no need to interpret safe as importing reasonable foreseeability in order to avoid an inexplicable mismatch between sections 14(1) and 29(1).
Smith LJ accepted (and Mr Hendy QC accepts) that reasonable foreseeability is relevant to reasonable practicability: As a matter of common sense, if the employer does not know of the risk and cannot reasonably have been expected to know of it, it cannot be reasonably practicable for him to take any steps at all (para 83).
That was also the view of the courts in Larner and Mains.
But in my view, the foreseeability of a risk is distinct from the question whether it was reasonably practicable to avoid it.
Diplock LJ explained the point in Taylor v Coalite at pp 319 320 in the passage quoted by Lord Mance at para 71 above.
It is only if a risk is reasonably foreseeable and it was reasonably foreseeable that an injury would be caused that it becomes necessary to consider whether it was reasonably practicable to avert the risk.
Thus, for the purpose of deciding the issue of reasonable practicability, it is assumed that the risk was reasonably foreseeable.
The importance of the section 14(1) line of cases is that they recognise that the mere fact that a risk of injury is foreseeable as a possibility is not necessarily sufficient to make the machinery dangerous.
It is dangerous only if the risk of injury is sufficiently likely to make it more than a minimal risk: see, for example, the passage in Lord Dennings judgment in Close which I have quoted at para 113 above.
I would apply that approach in the present case.
The 1972 Code specified a limit of 90dB(A)lepd.
As the HSE report Framing Noise Legislation published in 1975 made clear, this noise limit has widespread international acceptance, and although it does not eliminate all risk of hearing damage, we feel it continues to be the most practicable standard (para 19).
The Code itself stated that exposure below 90dB(A) lepd could not guarantee to remove all risk of noise induced hearing loss.
But the implication was that the risk was very small and acceptable in the view of the Government Department responsible for issues of health and safety and the experts who were advising them.
I would agree, however, that if the concept of reasonable foreseeability is not imported into safe in section 29(1), then it is imported into reasonable practicability for the reasons given by Smith LJ.
This is the position for which Mr Hendy contends.
In agreement with the Court of Appeal in Larner, there is more than a hint in the reasoning of Smith LJ as to the meaning of safe in section 29(1) that it is influenced by the idea that it is necessary to interpret the subsection as imposing a greater obligation than would be imposed at common law.
In this respect, at paras 59 and 60, she criticises Rose J in Taylor v Fazakerley for doing no more than formulating the common law test.
At para 67, she refers with approval to Peter Gibson Js statement in Larner that to introduce the concept of reasonable foreseeability into the question of safety was effectively to equate the duty under the section with the duty at common law.
At para 70, she refers to a similar observation by Lord Sutherland in Mains.
Finally, when discussing the issue of reasonable practicability at paras 87 to 89, she draws a distinction between section 29(1) and the common law.
The critical passage is quoted by Lord Mance at para 81.
She says that at common law a risk might be regarded as acceptable, whereas under the statute the duty is to avoid any risk within the limits of reasonable practicability.
There is a similar passage at para 100 of her judgment.
I assume that the justification for saying that the statutory duty must differ from the common law duty is that the statutory provisions would otherwise be otiose.
But there is no principle of law that a statutory obligation cannot be interpreted as being co terminous with a common law duty.
As Stephenson LJ said in Bux v Slough Metals Ltd [1973] 1 WLR 1358, 1369 1370: The statutory obligation may exceed the duty at common law or it may fall short of it or it may equal it.
Sometimes Parliament may decide that, in the interests of clarity and certainty, there is advantage in providing a detailed all embracing set of rules.
The merit in setting these out in a single authoritative document, such as a statute, is not undermined even if they do no more than reflect what the courts would be likely to decide when applying the common law.
There are, in any event, two important respects in which section 29(1) clearly does not reflect the common law.
First, if a defendant wishes to say that it was not reasonably practicable to make or keep a place of work safe, the burden is on him to do so; it is not on the claimant to prove that it was reasonably practicable.
I accept that few cases of this kind are likely to be decided on an application of the burden of proof.
Nevertheless, in this respect there is a legal difference between the statutory and common law positions.
Secondly, the fact that breaches are offences is a very significant difference.
The fact that, as we were told, there have been few (if any) prosecutions is immaterial.
Parliament considered that a breach of section 29(1) was sufficiently serious to attract potential liability to criminal sanctions.
Were the places of work safe?
Safety must be judged by the understanding and standards of the times.
Where these are set out in a clear and official publication such as a Code of Practice issued by a relevant government department based on the most up to date expert advice, they are likely to set the bounds of what risks are reasonably foreseeable and acceptable and what is reasonably to be expected of an employer.
If the guidance given in such a publication becomes out of date and a reasonable and prudent employer becomes aware of this (or ought reasonably to do so), then it can no longer rely on the publication to meet an allegation that its place of work is no longer safe.
And employers with special expertise fall into a special category, as the positions of Courtaulds and Pretty Polly demonstrate.
I see no reason to disturb the judges conclusion on the issue of safety.
He was entitled to conclude that the standard of safety was determined by the 1972 Code until the coming into force of the 1989 Regulations and that, judged by the standard of the 1972 Code, Mrs Bakers place of work was safe.
Reasonably practicable
In view of the conclusion I have reached on the meaning of safe the question of reasonable practicability does not arise.
But as I have said, if reasonable foreseeability is not imported into the meaning of safe, I would agree with the Court of Appeal that it is imported into reasonable practicability.
On this hypothesis, however, I do not agree with the Court of Appeal that the acceptability of risk is irrelevant to reasonable practicability.
I would adopt what Lord Mance says at paras 82 and 83.
Smith LJ refers to the quantum of the risk as being relevant to whether it is reasonably practicable to eliminate it.
I agree.
But if the quantum of the risk is relevant to that question, how can the fact that a Code of Practice says that a risk is acceptable not be relevant? As Smith LJ said, the classic exposition of reasonable practicability is to be found in Edwards v National Coal Board [1949] 1 KB 704.
Tucker LJ said at p 710: in every case it is the risk that has to be weighed against the measures necessary to eliminate the risk.
The greater the risk, no doubt, the less will be the weight to be given to the factor of cost.
If, to use the words of Smith LJ, a responsible or official body has suggested that a particular level of risk is acceptable, that is likely to be cogent evidence that this level of risk is minimal and one that can reasonably be disregarded.
Smith LJ acknowledged that an official view as to the acceptability of a risk might well have a role to play in the determination of common law liability.
Having said at paras 89 and 100 that it had no part to play in the determination of whether it was reasonably practicable to make a place of work safe, she acknowledged at para 101 (rightly in my view) that the 1972 Code was relevant to the employers assessment of the quantum of the risk, although it was inadequate as an assessment tool.
In my view, the 1972 Code was plainly relevant to an employers assessment of the risk.
The central question is whether, and during what period, it was reasonable for an employer to rely on the 1972 Code for the assessment of the risk and whether in all the circumstances it was reasonable for an employer not to provide ear protectors.
At para 101, Smith LJ gave her reasons for holding that by late 1976 or early 1977 the average sized employer in the knitting industry could and should have been able to make an informed assessment of the quantum of risk arising from noise in the range of 85 to 90dB(A) lepd and that this assessment would have led the employer to the conclusion that ear protectors should be provided.
It is true that the judge did not deal with the issue of reasonable practicability since, on his view as to the meaning of safe, it did not arise.
But he did deal with the issue of the appreciation of risk by a reasonable employer when he addressed the issue of common law negligence: see paras 69 to 89.
This section of his judgment must be considered against the background of his earlier findings of fact at paras 46 48 to which I have earlier made reference.
The critical paragraph in the judgment of the judge is para 87 which Lord Mance has set out at para 16.
It can be seen that para 101 of the judgment of Smith LJ is at variance with para 87 of the judges judgment.
The judge said that the guidance given as to the maximum acceptable level by the 1972 Code was official and clear.
His assessment was that complying with the 90dB(A) lepd as the highest acceptable level was meeting the standards of the reasonable and prudent employer during the 1970s and 1980s, certainly until the time when the terms of the 1986 Directive became generally known in the consultative document of 1987.
They were not in breach of duty for not asking the question who is at risk in my factory and how big is the risk?
In my judgment, the Court of Appeal should not have interfered with this assessment of the standards of the reasonable and prudent employer during the 1970s and 1980s.
For the purpose of the reasonable practicability issue, Smith LJ accepted that an employer was entitled to rely on the 1972 Code until the publication of BS 5330 in July 1976.
She said that the significance of that document was that it now became possible for anyone with a modest degree of mathematical skill to assess the quantum of risk from noise in the range 85 to 90dB(A) lepd.
But in expressing this view, Smith LJ must have overlooked paras 46 to 48 of the judges judgment.
In the light of that evidence (which was accepted by the judge), he was entitled to hold that a reasonable and prudent employer would not have sought advice from an acoustic engineer on the basis of BS 5330.
All the evidence was that nobody used the tables to do the kind of calculation that Smith LJ said should have been carried out.
The evidence was that the 90dB(A) lepd limit stated in the 1972 Code was regarded as the touchstone of reasonable standards at least until the mid 1980s.
In my judgment, there was no basis for the Court of Appeal to interfere with that assessment either in relation to the issue of reasonable practicability or the standard to be expected of the reasonable prudent employer.
Conclusion
It follows that I would allow the appeals both at common law and on the section 29(1) issue.
For the reasons that I have given, I agree with the conclusions reached by Judge Inglis (to whose judgment I would pay tribute).
LORD SAVILLE
For the reasons given by Lord Mance and Lord Dyson, I would allow this appeal to the extent proposed by those Justices.
To my mind the contrary views depend to a significant degree on hindsight and consequently place an undue burden on employers.
LORD KERR
Liability at common law
The report of the Committee under the chairmanship of Sir Alan Wilson on the Problem of Noise (the Wilson Committee) of March 1963 was presented to Parliament in July 1963.
It contained the following observations: 508 Permanent reductions in sensitivity of hearing can be caused by damage to the inner ear, resulting from exposure over a considerable period to certain types of noise.
The existence of this damage, which is irreversible, has been demonstrated in people who work in noisy industrial environments. 509.
Though the existence of these temporary and permanent reductions is well established, as this chapter shows, our knowledge is very inadequate. 518.
Different individuals vary considerably in the amount of hearing loss produced in them by a given noise exposure. 521. (b) the British Medical Association stated in their evidence that they believed that there is general acceptance of the view that working conditions involving continuous exposure throughout working hours for a prolonged period to noise whose intensity exceeds 85 dB [approx 90dB(A)] in any octave band in the speech frequency range (250 4,000 cycles per second) may cause permanent damage to hearing; 533.
Much could be done voluntarily within industry, and, indeed, we know that some firms already have well established hearing conservation programmes.
There is, however, a need for a wider and more urgent interest in the problem.
We recommend, as immediate steps, that the Ministry of Labour should: (a) disseminate as widely as possible existing knowledge of the hazard of noise to hearing; (b) impress on industry the need to take action to reduce the hazard as it is at present recognised; and (c) advise industry on practical measures to this end. 534.
Although voluntary action is now possible and, indeed, essential, we do not consider that the present knowledge of this complex problem provides a sufficient basis for legislation.
Acting on the advice contained in para 533 of the Wilson Report, in June 1963 the first edition of a Ministry of Labour publication entitled Noise and the Worker made the following recommendations: The first steps in the programme [i.e. a Noise Reduction and Hearing Conservation Programme] are to carry out a noise survey and to obtain specialist advice. (page 5) Our knowledge of the relation of noise to hearing loss is as yet too limited for it to be possible to say with certainty what amount of exposure is safe partly because people vary greatly in their susceptibility to noise.
It is generally agreed, however, that if workers are exposed for eight hours a day, five days a week, to a continuous steady noise of 85 dB or more in any octave band, in the speech range of frequency (500 to 4,000 cycles per second), it is desirable to introduce a programme of noise reduction or hearing conservation. (page 7) Where it is not possible, by environmental control, to reduce noise to sufficiently safe levels, workers should be protected by ear defenders. (page 14)
The second edition of Noise and the Worker was published in June 1968.
In a section entitled Monitoring Workers Hearing it stated that workers exposed to levels of noise at or approaching those set out in a table should have their hearing tested periodically.
The table contained a range of decibel levels from 80 to 100 with corresponding frequency bands of 1200 4800 (in relation to 80 decibels) up to 37.5 150 (in the case of 100 decibels).
The third edition of Noise and the Worker was prepared by the Health and Safety Executive in 1971.
It gave the following warning: Because some people are more liable to hearing loss than others and because our knowledge of the effects of noise exposure, especially exposure to intensive noise of short duration, is still incomplete it is not possible to set out a simple table of permissible limits for all types of noise.
The publication nevertheless contained a table which set out levels of noise which indicated a serious hazard to hearing.
Eight hours exposure to noise levels of 90 dBA was stated to constitute such a serious hazard.
This can only be taken to mean that there was a distinct, albeit less serious, hazard to hearing at lower levels.
That conclusion is confirmed by the injunction that appears later in the text (page 9) to the effect that damage risk criteria should be regarded as maximum permissible levels and not as desirable levels.
If possible the noise should be reduced to levels lower than the danger levels set out in the table.
This was particularly required in order to avoid risk to the minority of people who are exceptionally susceptible to hearing damage, and for reasons of general welfare.
Two salient conclusions can be drawn from these statements.
Employers should have been aware that damage to hearing could occur at levels less than 90 dBA.
They ought also to have realised that there may well be vulnerable individuals within the workforce whose hearing was particularly at risk at those lower levels.
Other material was available about the risk of noise induced damage to hearing, most notably Hearing and Noise in Industry detailing the research carried out by Burns and Robinson in 1970.
Together with the publications that I have so far reviewed, this provided the essential setting in which the seminal Code of Practice for reducing the exposure of employed persons to noise was published in 1972.
The gradually evolving state of knowledge that emerges from the earlier documents is manifest from the Code of Practice itself.
In a foreword, the Secretary of State for Employment, Rt Hon Robert Carr MP, said: It has been common knowledge for many years that high levels of noise at work can cause impairment of hearing.
In a few firms where there is this danger, good work has been done in suppressing noise, but in many others the problem has not been recognised, or has been under estimated.
In those firms, the tragedy is that all too often the workers are accustomed to the noise and do not notice the gradual deterioration of their hearing until it is too late.
For hearing lost in this way cannot be recovered.
The general solution to this problem, which is a complex one, has been hampered more by ignorance than by neglect.
Until the pioneer work of Professor Burns and Dr. Robinson was published in March 1970, we lacked the necessary scientific knowledge of the precise levels of noise, and the duration of exposure to them, which can cause damage.
It is largely due to their work that this Code of Practice has been made possible.
The provisions in the code, and its publication, have been recommended by my Industrial Health Advisory Committee on which both sides of industry are represented.
It is the outcome of 12 months' work by a sub committee.
I regard the publication of the Code as the first important step in the prevention of loss of hearing due to noise at work.
It should be considered as a blueprint for action.
The Code was at pains to reinforce the message that had been conveyed by earlier publications to the effect that recommended limits on noise exposure could not be taken as eliminating all risk of noise induced hearing loss.
Prominently, at para 1.1.2, it stated: The Code sets out recommended limits to noise exposure.
It should be noted that, on account of the large inherent variations of susceptibility between individuals, these limitations are not in themselves guaranteed to remove all risk of noise induced hearing loss.
Section 4 of the Code, dealing with limits on sound levels, reiterated the need to regard these as maximum levels which ought not to be exceeded.
It was desirable that levels of noise be reduced below those specified.
Para 4.3.1 provided that if exposure was continued for eight hours in any single day, and was to a reasonably steady sound, the sound level should not exceed 90 dB(A).
In her judgment in the Court of Appeal Smith LJ had said at para 6 that the Code of Practice, having explained that protection from noise of 90dB(A)leq would not protect all workers from hearing damage, had indicated that some harm was likely to be caused to some susceptible workers by noise below that level.
Lord Mance has observed that the use of the word likely in this context was not justified because the Code had in fact stated that the limitations which it specified were not in themselves guaranteed to remove all risk of noise induced hearing loss.
It may well be that the particular formulation chosen by Smith LJ was not strictly justified but by 1972 it was recognised that a minority of workers would suffer hearing loss if exposed to noise levels of less than 90 dB(A) see the third edition of Noise and the Worker (referred to in para 5 above).
Lord Mance and Lord Dyson have concluded that the Code of Practice set an appropriate standard on which a reasonable and prudent employer could legitimately rely.
In Lord Mances view, it was acceptable for such an employer to continue to rely on the Code for this purpose until the late 1980s.
Lord Dyson agreed with the trial judge, His Honour Judge Inglis, that the Code remained the touchstone of reasonable standards for the average reasonable and prudent employer at least until the publication in 1986 of the draft proposal for a Council directive on the protection of workers from the risks related to exposure to noise.
The Court of Appeal, although expressing a preference for an earlier date, felt that the trial judge was entitled to reach the conclusion on this issue that he expressed in para 87 of his judgment.
I shall consider this paragraph in a little detail presently.
Before examining the question of how long an employer might reasonably rely on the Code, it is, I believe, necessary to look at what a reasonable employer would have taken from the information contained not only in the Code but also in the earlier publications that I have discussed.
True it is that 90 dBA was the stipulated danger level.
But employers were not told that lower levels were safe.
On the contrary, they were told that certain employees could well suffer a hearing loss if exposed to noise at lower levels.
That risk had been clearly signalled.
Employers had also been told that too little was known about the relationship of noise to hearing loss to say with certainty what amount of exposure was safe.
What ought to have been the reaction of a prudent and reasonable employer to that information? It seems to me that adopting a passive, sanguine attitude to the risk of hearing loss in workers exposed to noise of less than 90 dBA was not an available option.
The Code was described as a blueprint for action.
It was certainly not a blueprint for inaction.
In Doherty v Rugby Joinery (UK) Ltd [2004] ICR 1272 Hale LJ stressed that the duty on the employer was to consider those within the workforce who (although not identifiable in advance) would be particularly susceptible to vibration injury.
This seems to me to be an important argument against passivity on the part of employers following the publication of the 1972 Code.
A prudent employer should have concluded that the health of a minority was at risk when exposed to noise levels below 90dB(A).
The law should not, and in other areas does not, deny protection to a minority simply because they are a minority.
An employers duty extends to the protection of those of his employees who are, by dint of their susceptibility to injury, more likely to sustain it.
Whatever may have been the position immediately after the Code was published, treating it as an enduring touchstone was no longer possible after 1976, in my opinion.
The effect of ISO 1999, published in 1975 and BS 5330 in 1976 was described by Judge Inglis in para 87 of his judgment in the following passage: There is no doubt that research into the question of what risks to the hearing of employees exposure below 90dB(A)leq posed would have yielded the answer that 90dB(A) was not a natural cut off point, and that there were risks to susceptible individuals below that level.
Indeed, the 1972 Guidelines themselves made that clear.
From the early 1970s, certainly by 1976 with the publication of BS5330 and of lS0 1999 in the previous year, the information was available if researched to give an indication of the level of the risk.
Judge Inglis considered that research was required to unearth the information that there was a risk to the hearing loss of some employees who were exposed to noise at a lesser level than 90 dB(A).
There appears to me to be an inherent contradiction in play here.
The Code has been hailed as the basis on which a reasonable and prudent employer might determine that protection was required.
This obviously presupposes that the reasonable and prudent employer was aware of the contents of the Code.
But within the very Code that provided the basis for the defence that an employer might deploy was the cautionary admonition that some workers would suffer some damage if exposed to noise levels of less than 90 dB(A).
In this connection, Lord Dyson has said that the clear message of the Code was that the risk to particularly susceptible people was sufficiently small, both in terms of the numbers who might be affected and the seriousness of any damage that might result, to be acceptable.
With respect, I cannot agree.
Nowhere in the Code is any estimate made of the numbers who might constitute this exceptional category.
Nor is there any assessment offered of the degree of disability that might accrue to those who were affected.
What the 1972 Code should have conveyed to employers (especially those who sought subsequently to rely on it for the defence of noise induced hearing loss claims) was that an unquantified minority of their workforce would suffer hearing loss if exposed to noise levels at less than 90 dB(A).
As a minimum, this should have made them alert to further information from public authority sources that might emerge in coming years.
By contrast with the Code, ISO 1999 and BS 5330 did permit an estimate to be made of the number of workers who would be affected by exposure to various levels of noise below 90 dB(A).
Thus, in para 13 of his judgment the judge, by reference to a table produced by Professor Lutman, was able to calculate that noise exposure of 85 dB(A)lepd over 40 years would cause 8.5dB hearing loss at 4khz.
At para 14 the judge reproduced a table from a paper by Professor Robinson which showed that 10% of a typical population exposed for 30 years to 85dB(A)lepd will have a hearing loss of 35dB.
This can be compared to a non noise exposed population, 10% of whom at age 48 would have a hearing loss of 31.5.
It was thus possible to show that noise exposure added a further 3.5dBs of hearing loss in this percentile.
And at para 21 the judge reproduced a further table from Professor Lutman which showed a 9dB threshold loss at 4 kHz in 5% of men exposed to 85 dB(A)lepd for 45 years.
Now it is true, as Lord Mance has pointed out, that neither ISO 1999 nor BS 5330 purported to identify a maximum tolerable noise exposure.
Indeed, both documents disavowed any attempt to do so.
But that, as it seems to me, is neither here nor there.
What is important in this context is that employers who exposed their employees to noise had been alerted in 1972 to the fact that some employees who were exposed to noise levels of less than 90 dB(A) would suffer hearing loss and in 1976 a means of calculating what percentage of their workforce would be affected was available to them.
From 1976 onwards, therefore, employers, who should since 1972 have been alive to the dangers of noise induced hearing loss in a percentage of their employees exposed to levels of noise in excess of 85 dB(A), could estimate what the percentage was likely to be.
All that was unknown was which particular workers would fall into that category.
What was certain was that, if they were exposed over a sufficiently long period, some at least of their workforce would suffer permanent, irremediable damage to their hearing.
Although that hearing loss would not be substantial, its impact on those who were affected by it is not to be underestimated.
As the respondent submitted, it diminishes the lives of those who suffer from it in a real and significant way.
The appellants have argued that a reasonable employer could not have been expected to read, absorb and apply ISO 1999 and BS 5330.
I do not accept that argument.
The cornerstone of the appellants defence is the Code of Practice of 1972.
If this is proffered as the reason that it was acceptable for employers not to supply ear defenders to employees unless they were exposed to noise levels of 90 dB(A) and greater, it must also be acknowledged as the source of warning that noise levels less than that would damage some workers hearing.
Thus alerted, it seems to me that an employers obligation to remain abreast of information that would allow him to know what percentage of his workforce was likely to be affected was plain.
This conclusion does not conflict with the classic statement of principle by Swanwick J in Stokes v Guest, Keen and Nettlefold (Bolts and Nuts) Ltd [1968] 1 WLR 1776, 1783: the overall test is still the conduct of the reasonable and prudent employer, taking positive thought for the safety of his workers in the light of what he knows or ought to know; where there is a recognised and general practice which has been followed for a substantial period in similar circumstances without mishap, he is entitled to follow it, unless in the light of common sense or newer knowledge it is clearly bad; but, where there is developing knowledge, he must keep reasonably abreast of it and not be too slow to apply it He must weigh up the risk in terms of the likelihood of injury occurring and the potential consequences if it does; and he must balance against this the probable effectiveness of the precautions that can be taken to meet it and the expense and inconvenience they involve.
If he is found to have fallen below the standard to be properly expected of a reasonable and prudent employer in these respects, he is negligent.
While, for reasons that I shall discuss below, it could be concluded that a practice of recommending protection for those exposed to 90 dB(A) and above had grown up, so far from there being a recognised and general practice which had been followed for a substantial period in similar circumstances without mishap, as I have sought to demonstrate in the review of the various government publications on this subject, thinking on the problems of noise at work was characterised by uncertainty and qualification until 1972 and beyond.
In the 1970s knowledge was developing and conclusions, albeit qualified conclusions, were emerging.
There was a clear duty on the part of employers to keep abreast of these, a duty made all the more acute by the uncertainty of the past.
The information that became available in 1975 and 1976 would have led to the conclusion that a sufficiently significant percentage of a workforce exposed to noise at levels greater than 85dB(A) would suffer a hearing loss.
I therefore agree with Smith LJs analysis on this issue, although not with her conclusion on liability at common law.
At para 101 of her judgment, Smith LJ said this: from July 1976, there was a method available which could be used by anyone with a modest degree of mathematical skill.
Certainly any consultant acoustic engineer could have used the British Standard method.
Accordingly, I conclude that by late 1976 or early 1977, the average sized employer in the knitting industry could and should have been able to make an informed assessment of the quantum of risk arising from the below 90dB(A)lepd noise in his workshops.
As I have said above, this assessment would have led the employer to broadly the same conclusion as was reached by Judge Inglis.
Once that assessment had been made, it could not in my judgment be said that it was not reasonably practicable to provide ear protectors.
The conclusion reached by Judge Inglis referred to in this passage was that when exposed to noise above the level of 85dB(A) the risk of suffering hearing loss accelerates up to 90dB(A) and in the high 80s, given long enough exposure, significant hearing loss may be expected in at least a substantial minority of individuals.
That important finding was not challenged either in the Court of Appeal or in this court.
It appears to me to lie at the heart of the issue of the liability of the appellants at common law.
The finding was complemented by another important conclusion reached by the judge, a conclusion which again no one has sought to challenge.
At para 73 of his judgment he said: The evidence does not show that at any time the cost of implementing a policy of voluntary hearing protection at levels below 90dB(A) was such that a reasonable employer could use cost or difficulty as a valid reason for not having such a policy.
Shortly put, therefore, from 1977 onwards an employer in the knitting industry should have known that a percentage of his workforce would suffer hearing loss if they were exposed to and remained unprotected from noise levels of more than 85dB(A).
Such an employer should also have known that he could provide ear protection that would have reduced the risk of that hearing loss occurring at not inordinate cost.
Both Judge Inglis and Smith LJ appear to have absolved employers of liability at common law because, until the late 1980s, advice was not given to them that ear protection was required for noise levels below 90 dB(A).
The failure to give this advice seems to have been due to the manner in which the experts addressed the question.
Thus in paras 46 and 47 of Judge Ingliss judgment the following appears: There was evidence given by the expert witness engineers for Courtaulds (Mr Bramer and Mr Currie) about the approach to control of noise in the period from the 1970s in industry.
The report of Mr Worthington for Pretty Polly and Guy Warwick is also in evidence.
To Mr Bramer, the guidance in Noise and the Worker and the 1972 Guidelines provided a "clear and consistent recommendation to employers as to how they ought to deal with noise in the workplace".
The result was that in his practice, his invariable advice until the late 1980s, was that "the relevant level was a daily personal noise exposure of 90dB(A)".
This approach, he said, was standard during the period up to 1989 among noise professionals, and taught at training courses.
In the mid 1980s, when it appeared that EEC regulation would involve a first action level of 85dB(A) his advice changed to reflect that.
He was not aware of the NPL tables before the 1980s when he found that they were being used by medical experts writing reports for the purpose of deafness claims.
He has never come across them being used in any part of industry.
In evidence Mr Bramer said that he gave advice to employers in terms of complying with the 1972 Code.
He was speaking to the 90dB(A) level, as were all his colleagues.
He agreed that the advice would be to answer the question "Tell us how to comply with legislation and the Code of Practice", rather than "Tell me how to avoid reasonably foreseeable risk to my workforce".
He would have recommended 90dB(A) as the cut off point, but would also have said "that does not actually stop some more susceptible people from having some small noise induced hearing loss".
If asked about risk, he would have had some difficulty, and regarded the question as more one for medical people. 47.
Mr Currie said that the Health and Safety Executive and factory inspectors after the 1974 Act concentrated their advice and enforcement on the 90dB(A) level.
He was not aware of any instance in which the NPL tables had been used by employers to predict the level of risk for their workforce.
In evidence Mr Currie said that good practice won't necessarily remove all risk.
He agreed that there has been no very different understanding about noise induced hearing loss since the 1970s.
The first thing to look at when deciding on practices, which is what employers have to do, is to look at the guidance available.
Mr Worthington's report is to the effect that employers looked to the 90dB(A) limit in the Code of Practice as the maximum acceptable limit, and that the Factory Inspectorate and HSE did not refer employers to the risks below that limit as risks about which they should take action.
That was the practice of the day, and employers taking advice, if they did, would be referred to the standard in the Code as being what had to be observed.
Mr Bramers evidence, recorded uncritically by Judge Inglis, so far from bolstering the case for the appellants, seems to me to have exposed critical weaknesses in it.
To deliver invariable advice that the relevant level was a daily personal noise exposure of 90dB(A) (by which, one presumes, he means that it was acceptable to ignore dangers arising from noise exposure below that level) crucially fails to take account of the unambiguous evidence that risks to a percentage of employees from exposure to noise of over 85 dB(A) had been recognised.
What was to become of this group in Mr Bramers equation? Were they to be discounted as an insignificant minority? If so, on what basis did he assess their significance? And on what basis did he conclude (if indeed he did conclude) that the hearing loss that they would sustain could be overlooked?
Of course, Mr Bramer sidestepped most of these difficult issues by saying that he tailored his advice to address the question how would the legislation and the Code of Practice be complied with, rather than how could the employer comply with his elementary duty of avoiding foreseeable risk to his employees.
Judge Inglis appears again not to have cast a critical eye on this aspect of Mr Bramers testimony and the Court of Appeal was likewise silent as to its reaction to it.
But the fundamental duty of an employer is that he should ascertain by whatever reasonable means are at his disposal, what are the likely dangers to his employees from the work that he asks them to do and that he should then do what he reasonably can to avoid those dangers.
Mr Bramer gave evidence that if he had been asked what appears to me to be not only the right, but also the obvious, question of how to avoid reasonably foreseeable risk to employees, he would have adverted to the fact that some risk to susceptible employees of small noise induced hearing loss would arise.
But he would not have been able to assess what that risk was, how many employees would be affected nor the level of disability that it would give rise to, these matters lying more in the province of medical people.
Of course he was not asked the right and obvious question.
He ought to have been.
But if he had been asked that question, he could not have given any meaningful reply.
It seems to me remarkable that an employer who should have asked, in light of what the Code of Practice had said, what were the dangers to the minority of his workforce who would suffer damage to their hearing by exposure to levels of noise that were current in his factory and what he could do about those dangers, can be relieved of liability because he did not ask the right question and because his expert did not direct him to the right issue.
The evidence of Mr Currie and Mr Worthington is open to the same criticisms which attach to that of Mr Bramer.
The fact that after the 1974 Act the Health and Safety Executive and factory inspectors concentrated their advice and enforcement on the 90dB(A) level does not relieve employers of the duty to inform themselves of the true purport of the available evidence.
After all, Judge Inglis was able to calculate without difficulty what percentage of workers would be likely to suffer hearing loss on the basis of data that were available to any employer from 1977 onwards.
He may have been directed to those data by reports of the experts produced at trial but the data existed in the 1970s.
Employers and those who advised them ought to have considered those data shortly after they became available in 1976; they should have made the calculation that Judge Inglis was able to make many years later; they ought to have concluded, as he did, that a significant minority would suffer hearing loss if exposed to noise levels exceeding 85 dB(A) over a prolonged period; they should have discovered that this could be avoided by the provision of ear defenders at not unreasonable cost; and they should have provided their workers with those ear defenders.
Because of their failure to do so, they were, in my opinion, guilty of negligence.
In reaching this conclusion I have kept in mind the salutary warning of Mustill J in Thompson v Smith Shiprepairers [1984] QB 405, 422 where he said: One must be careful, when considering documents culled for the purpose of a trial, and studied by reference to a single isolated issue, not to forget that they once formed part of a flood of print on numerous aspects of industrial life, in which many items were bound to be overlooked.
However conscientious the employer, he cannot read every textbook and periodical, attend every exhibition and conference, on every technical issue which might arise in the course of his business; nor can he necessarily be expected to grasp the importance of every single item which he comes across.
The employers in this appeal and their advisers were not required to immerse themselves in esoterica in order to understand what I believe to be the clear and simple import of the material that confronted them.
The evidence that some of their employees were at risk was unmistakable.
Hindsight is not required in order to see that clearly.
The means of mitigating that risk were also clear.
The need to take the necessary steps cannot plausibly be challenged.
It is not only unnecessary, in light of my view about the common law liability of the appellants from the late 1970s onwards, for me to embark on any exegesis about how soon employers should have been alerted by the imminence of European legislation to the need to protect workers from noise levels of 85dB(A), it would be inappropriate for me to do so on what would be an academic basis.
In my view, their liability arose much earlier.
The employers liability under statute
As Lord Mance has said, several issues arise in addressing the questions whether section 29 of the Factories Act 1961 covers exposure to noise in the workplace, and, if so, what standards it sets.
It seems to me that these can be grouped in four categories.
First whether the section is designed to cover only the physical fabric and structure of the workplace.
Second, are the duties imposed applicable only to occupiers as opposed to employers? (This issue was raised for the first time on the hearing of the appeal to this court).
Thirdly, even if activity within the workplace is covered, does it apply to environmental conditions which may only have a deleterious effect over a long period of time? Finally, what does safe mean? Does it mean what can be reasonably foreseen or does it set an absolute standard?
On the first of these issues, for the reasons given by Lord Mance, with which I agree, the answer must surely be that activities carried on in the workplace which render it unsafe, come clearly within the embrace of the section.
The context of the provision is the protection of workers in factories.
The nature of factories is that employees will carry on working activities, some at least of which will carry potential, inherent dangers.
When an employer is enjoined to provide a safe place of work, it can only be for the purpose of ensuring that the work that is carried on in the place where it occurs does not jeopardise the employees safety.
The work activity cannot be divorced from the physical location where it takes place.
On the second question, it is, I think, significant that neither employer nor occupier is defined in the legislation and the terms, I am satisfied, are used interchangeably throughout the Act.
Employers duties are imposed and require to be discharged in the factory setting.
It would thwart the entire purpose of the legislation to confine the discharge of those duties artificially to occupiers and to exempt employers from their reach.
I have concluded that the duties arising under the Factories legislation were intended to be imposed on employers, whether they be occupiers or not.
The third question does not admit of quite such an easy answer as the first two.
It is, I believe, helpful to have regard to the general character or nature of the provision and the timing of its enactment.
It is a provision which imposes a general requirement and it can be assumed, I think, that Parliament realised that it would be impossible, at the moment of its enactment, to prescribe comprehensively all the ways in which a place of work might become dangerous.
This was therefore a catch all provision designed to ensure that workplaces be kept safe in any and all of the myriad ways that danger might arise in the future.
One rather prosaic way of considering the question might be to imagine what the response of the enactors of the legislation might be if they had been asked in 1961, whether, if in 20 years time it proved that a workroom where women were required to operate knitting machines at a level of noise that would irreversibly damage their hearing, they intended that the requirement that employers maintain a safe place of work should apply to that situation.
I believe that their answer would unquestionably be yes.
A rather more principled way of addressing the question can be found in Bennions treatment of the subject of the presumption that an updating construction is to be given to an enactment.
At section 288 of the fifth edition (2008) of his work on Statutory Interpretation, he says this: Section 288.
Presumption that updating construction to be given (1) With regard to the question of an updating construction, Acts can be divided into two categories, namely the usual case of the Act that is intended to develop in meaning with developing circumstances (in this Code called an ongoing Act) and the comparatively rare case of the Act that is intended to be of unchanging effect (a fixed time Act). (2) It is presumed that Parliament intends the court to apply to an ongoing Act a construction that continuously updates its wording to allow for changes since the Act was initially framed (an updating construction).
While it remains law, it is to be treated as always speaking.
This means that in its application on any date, the language of the Act, though necessarily embedded in its own time, is nevertheless to be construed in accordance with the need to treat it as current law. (3) A fixed time Act is intended to be applied in the same way whatever changes might occur after its passing.
Updating construction is not therefore applied to it. (4) Where, owing to developments occurring since the original passing of an enactment, a counter mischief comes into existence or increases, it is presumed that Parliament intends the court so to construe the enactment as to minimise the adverse effects of the counter mischief.
This appears to me to be a classic case of the mischief of noise induced hearing loss from exposure to 85 dB(A) becoming recognised during the lifetime of the relevant legislation.
An updating construction is clearly called for and should be applied to the updated mischief.
The always speaking principle is well established.
Its clearest exposition remains that of Lord Wilberforce in Royal College of Nursing of the United Kingdom v Department of Health and Social Security [1981] AC 800, 822: In interpreting an Act of Parliament it is proper, and indeed necessary, to have regard to the state of affairs existing, and known by Parliament to be existing, at the time.
It is a fair presumption that Parliament's policy or intention is directed to that state of affairs.
Leaving aside cases of omission by inadvertence, this being not such a case, when a new state of affairs, or a fresh set of facts bearing on policy, comes into existence, the courts have to consider whether they fall within the parliamentary intention.
They may be held to do so, if they fall within the same genus of facts as those to which the expressed policy has been formulated.
They may also be held to do so if there can be detected a clear purpose in the legislation which can only be fulfilled if the extension is made.
How liberally these principles may be applied must depend upon the nature of the enactment, and the strictness or otherwise of the words in which it has been expressed.
The discernible policy of section 29 was to ensure that the place at which employees had to work was safe and since, for the reasons given, this aspiration was directed not only at the fabric and structure of the place but also at the working activities within it, the fresh set of facts represented by the risks of hearing loss from exposure to noise must be taken to fall within the parliamentary intention.
Indeed, to exclude noise as a possible means by which a place of work might be rendered unsafe would run directly counter to the parliamentary intention that places of work were generally rendered into a safe condition.
Now that it is well known that exposure to loud noise in a working environment without protection will bring about irreversible hearing loss, it is inconceivable that noise should not be accommodated within the reach of the section.
The final question is perhaps the most difficult.
Must safety be seen as an objective standard or is it a relative concept? The straightforward answer is that a place is safe or it is not.
A place which is not safe cannot be said to be safe merely because it is believed to be, however justified the belief.
Lord Mance has said that there is no such thing as an unchanging concept of safety.
I agree, but as he has also observed, safety must be assessed objectively.
It appears to me that the truly critical question is to which point in time should the assessment relate.
Lord Mances view is that what he describes as a retrospective assessment based on knowledge current at the time that the court is considering the matter is impermissible.
I am afraid that I cannot agree with that view.
I do agree, however, that safety, in the context of section 29, does not connote absolute safety in the sense of the elimination of every conceivable risk.
As was said in Sheppey v Matthew T Shaw & Co Ltd [1952] 1 TLR 1272 and Trott v WE Smith (Erectors) Ltd [1957] 1 WLR 1154 (CA) (to which Lord Mance has referred) a safe means of access does not mean absolutely safe so that no accident could possibly occur.
But as Parker J in Sheppey pointed out, simply because safe does not mean absolutely safe, it does not follow that it means reasonably safe.
A means of access is unsafe if it is a possible cause of injury to anybody acting in a way a human being may be reasonably be expected to act.
There is nothing in Sheppey or Trott which suggests that the court in either case considered that safety had to be judged solely according to the state of knowledge at the time that the injury was sustained.
Of course, neither case involved a re evaluation of what constituted safe in the light of evolving knowledge.
As I have said, both cases are authority for the proposition that safe does not mean absolutely safe but I do not consider that this provides the answer to the question whether safety is to be judged by reference to what was believed to be safe at the time that the damage occurred.
Therefore, when Lord Hope in R v Chargot Ltd (trading as Contract Services) [2008] UKHL 73; [2009] 1 WLR 1, 12 13 said that the Health and Safety at Work etc Act 1974 was not contemplating risks which are trivial or fanciful, and that the statutory framework was intended to be a constructive one, not excessively burdensome, and that the law does not aim to create an environment that is entirely risk free, he should not, in my opinion, be taken as suggesting that a state of affairs which is undoubtedly unsafe should be held not to have been unsafe for the purposes of the legislation simply because, at the time that injury was suffered, it was believed to be safe.
Since safety is not an absolute, immutable concept, forseeability may play a part in the assessment whether a place was safe but I do not believe that this must necessarily be rooted in perceptions of what was historically considered to be safe.
There is nothing wrong in principle in recognising that a place of work was unsafe based on contemporary knowledge.
Forseeability of risk based on current information is relevant to the judgment whether a place of work was in fact safe.
Thus, since it is now indisputable that a substantial minority of employees will develop hearing loss if exposed to noise levels of more than 85 dB(A) over a prolonged period, it is possible to recognise that the place at which the respondent was required to work was unsafe within the meaning of section 29.
The role played by forseeability in this context is necessarily limited.
It is confined to the judgment as to what is necessary, in light of all currently available information, to render a workplace free from such risks as might befall anybody acting in a way a human being may be reasonably be expected to act.
By contrast, however, reasonable practicability does import consideration of what was known at the time that the injury was sustained.
By definition it cannot be reasonable to put in place measures that are not known to be necessary.
It may be practicable to do so but it cannot be said to be reasonably practicable.
As the Court of Appeal in the present case said at para 83 of Smith LJs judgment, it is a matter of common sense [that], if the employer does not know of the risk and cannot reasonably have been expected to know of it, it cannot be reasonably practicable for him to take any steps at all.
Once it is clear that the employer knew or should have known that there was a risk, an evaluation of the chances of the risk materialising is relevant to an examination of what it is reasonably practicable for an employer to do as Lord Goff put it in Austin Rover Group Ltd v HM Inspector of Factories [1990] 1 AC 619, 626 627: for the purpose of considering whether the defendant has discharged the onus which rests upon him to establish that it was not reasonably practicable for him, in the circumstances, to eliminate the relevant risk, there has to be taken into account (inter alia) the likelihood of that risk eventuating.
The degree of likelihood is an important element in the equation.
It follows that the effect is to bring into play forseeability in the sense of likelihood of the incidence of the relevant risk, and that the likelihood of such risk eventuating has to be weighed against the means, including cost, necessary to eliminate it.
I agree with Smith LJ in her conclusion (at para 84 of her judgment) that for the defence to succeed, the employer must establish a gross disproportion between the risk and the measures necessary to eliminate it.
In the words of Asquith LJ in Edwards v National Coal Board [1949] 1 KB 704, 712, the risk [must be] insignificant in relation to the sacrifice.
In the present case, the provision of ear defenders at relatively modest cost was entirely practicable.
For that reason, and since I have concluded that the employers ought to have been aware of the risk of noise induced hearing loss to the respondent, I do not consider that the defence of reasonable practicability was available to them.
Conclusions
Although the respondent has chosen, for what her counsel described as pragmatic reasons, not to challenge the findings of the Court of Appeal as to the date on which the appellants could have been said to be negligent for failing to recognise the risk of noise induced hearing loss, I have concluded that this was much earlier than was found by Smith LJ.
Since the Court of Appeals findings on this issue were not challenged by the respondent, however, and since I have found that the statutory defence was not available to the appellants, I must content myself with saying that I would dismiss the appeal.
LORD CLARKE
Introduction
As Lord Dyson observes, the history and awareness of the risks of occupational exposure to noise have been fully set out by Lord Mance.
In addition, the issues have been discussed in considerable detail by Lord Mance, Lord Kerr and Lord Dyson.
I shall therefore try not to repeat what they say, save in so far as it is necessary to explain the conclusions which I have reached.
One of the striking features of the issues in this case, at any rate as it seems to me, is that the science upon which decisions as to what precautions employers should take to protect their employees from hearing loss caused by noise in the workplace had scarcely changed since the research carried out by Burns and Robinson in 1970, which led to the Code of Practice in 1972.
All that has changed is the formation of a different view on the part of industry and the regulators as to the level of risk that it is acceptable to disregard.
In these cases the claimants allege breaches by the employers of their duty under section 29(1) of the Factories Act 1961 (the 1961 Act), so far as reasonably practicable, to make and keep their place of work safe for them.
If there is a breach of this duty, the question whether they were also in breach of their duty of care at common law becomes irrelevant because, so far as I am aware, nobody suggests that the claimants could recover more or different damages at common law from those recoverable for breach of statutory duty.
I shall therefore consider first the issues under section 29.
It is important to keep the questions relevant to the two bases of claim separate because the issues are different.
If section 29 applies, the approach to the question whether there was a breach of duty under that section is materially different from the approach to the question whether there was a breach of duty at common law.
Lord Wright made this clear in Caswell v Powell Duffryn Associated Collieries Ltd [1940] AC 152, 178 and London Passenger Transport Board v Upson [1949] AC 155, 168.
Section 29 the principles
Section 29(1) of the 1961 Act provided: There shall, so far as is reasonably practicable, be provided and maintained safe means of access to every place at which any person has at any time to work, and every such place shall, so far as is reasonably practicable, be made and kept safe for any person working there.
The first question that arises is whether section 29(1) applies in this class of case.
Lord Mance discusses this question in detail.
He asks three questions.
They are whether section 29(1) applies to activities carried on in the workplace, whether it applies to risks of noise induced hearing loss arising from such activities in relation to long term employees working in the workplace and what is the meaning of safe.
He answers the first two questions in the affirmative.
Both Lord Kerr and Lord Dyson agree with him, essentially for the reasons he gives.
So do I.
In particular, I agree with Lord Kerr and Lord Dyson that, for the reasons they give, the language of the section is always speaking.
I agree with Lord Kerr that in this context safety cannot connote absolute safety: Sheppey v Matthew T Shaw & Co Ltd [1952] 1 TLR 1272 and Trott v WE Smith (Erectors) Ltd [1957] 1 WLR 1154.
In Sheppey Parker J said that it cannot mean absolutely safe in the sense that no accident could possibly occur.
Trott was concerned with regulation 5 of the Building (Safety, Health and Welfare) Regulations 1948 (SI 1948/1145), which included a provision that: . sufficient safe means of access shall so far as is reasonably practicable be provided to every place at which any person has at any time to work.
The Court of Appeal accepted that the regulation did not require absolute safety.
Parker J was by now Parker LJ.
He said at p 1162 that a means of access was not safe within regulation 5 if it was a possible means of injury to someone acting in a way that a human being might reasonably be expected to act in circumstances that might reasonably be expected to occur.
I would accept that approach.
The section does not say reasonably safe.
Nor does it say that the workplace is safe if it is believed to be safe.
The question remains simply whether the workplace was, at the relevant time, safe.
I note in passing that Jenkins LJ said at p 1158 that the obligation to provide a safe means of access so far as reasonably practicable placed a stricter obligation on the employer than is placed upon him in the discharge of the general duty of reasonable care at common law.
I agree.
The word safe in section 29(1) is not limited by the concept of reasonable foreseeability.
However, as Lord Mance and Lord Dyson have explained, there is a line of authority that it should be construed as if it were, by reference to the meaning of dangerous in section 14(1) of the 1961 Act and its predecessors.
See eg Hindle v Birtwhistle [1897] 1 QB 192, John Summers & Sons Ltd v Frost [1955] AC 740, Close v Steel Co of Wales Ltd [1962] AC 367 and, to similar effect, the unreported decision of Rose J in Taylor v Fazakerley Engineering Co, 26 May 1989.
This line of authority imports the concept of reasonable foreseeability into the meaning of safe on the basis that safe is the converse of dangerous: see to this effect the judgment of Diplock LJ in Taylor v Coalite Oils & Chemicals Ltd [1967] 3 KIR 315 and Allen v Avon Rubber Co Ltd [1986] ICR 695.
There is, however, a second line of authority in which the Court of Appeal and the Extra Division of the Inner House of the Court of Session concluded that it is inappropriate to equiparate section 14 with section 29 of the 1961 Act: see Larner v British Steel plc [1993] ICR 551, Neil v Greater Glasgow Health Board [1994] SLR 673, Mains v Uniroyal Engelbert Tyres Ltd [1995] SC 518 and Robertson v RB Cowe & Co [1970] SLT 122.
I do not think there is any basis on which it is possible to distinguish this second line of authority.
The question then arises which line of authority to follow.
I see the force of the approach of Lord Mance and Lord Dyson, which is to prefer the first strand of authority: see Lord Mance at para 71 and Lord Dyson at para 118.
For my part I prefer the second.
I do so for these reasons.
The reasoning in the second line of cases is to my mind compelling.
In particular, it is supported by the language of section 29(1), which is not reflected in section 14(1).
This is emphasised by the reasoning of both Hirst LJ and Peter Gibson J in the Court of Appeal in Larner.
At p 559 Hirst LJ quoted from the 11th edition of Munkmans Employers Liability (1990), pp 292 293: (v) When is access or place unsafe? Safe is, however, a simple English word and there is no reason why it should not be decided as a pure question of fact whether a place is safe or not.
Unfortunately, the vague and uncertain notion of foreseeability has been introduced as a test.
Hirst LJ added at pp 559 560 This view seems to me to have considerable force in the light of the very clear wording of section 29(1), which contains no reference to foreseeability, and seeing that, if [counsels] argument is correct, the distinction between the common law duty of care and the statutory duty will be virtually obliterated.
Peter Gibson J said at pp 560 561 that the way in which the duty in section 29(1) was framed made it clear that to make good a claim for breach of statutory duty under section 29(1) the plaintiff had to allege and prove injury while and in consequence of working at a place at which he had to work and that such place was not made or kept safe for him.
It was then for the employer to establish that it was not reasonably practicable to make and keep such place safe.
It was common ground in the present appeal that in this last respect the burden was on the employer: Nimmo v Alexander Cowan & Sons Ltd [1968] AC 107, Gibson v British Insulated Callenders Construction Co Ltd 1973 SLT 2 and Bowes v Sedgefield District Council [1981] ICR 234.
In Larner the employer had not sought to discharge that burden; so the critical issue was whether the workplace was safe.
This raised two questions.
The first was whether the word safe meant safe from a reasonably foreseeable danger, so that a workman injured at his place of work by an accident which the employer could not reasonably foresee was unable to succeed in a claim for breach of statutory duty.
The second question was whether, if so, the danger was reasonably foreseeable on the facts.
Peter Gibson J answered the first question no.
He did so convincingly and with clarity, by reference both to the language of section 29 and to the authorities.
He said this at p 562: I start by considering the words of section 29(1) apart from authority.
They contain no express reference to foreseeability, reasonable or otherwise.
Safe is an ordinary English word and I cannot see any reason why the question whether a place of work is safe should not be decided purely as a question of fact, without putting any gloss on the word: see Munkman, Employer's Liability, p 292.
Further, to imply words in the section so as to introduce a test of reasonable foreseeability is to reduce the protection afforded by the Act of 1961 for the workman, the plain object of the section being to provide for a safe working place: see Nimmo v Alexander Cowan & Sons Ltd [1968] AC 107, 122, per Lord Guest.
On principle and on authority that is impermissible: see John Summers & Sons Ltd v Frost [1955] AC 740, 751, per Viscount Simonds.
This is not unfair on the employer whose duty to make and keep the working place safe is qualified by so far as is reasonably practicable, and I see no necessity to imply any other qualification.
It would also seem wrong to me to imply a requirement of foreseeability, as the result will frequently be to limit success in a claim for breach of statutory duty to circumstances where the workman will also succeed in a parallel claim for negligence; thus it reduces the utility of the section. [Counsel] accepted that there was no authority that compels us to conclude that section 29 requires such a test and in Robertson v RB Cowe & Co, 1970 SLT 122 an argument that the test of reasonable foreseeability applied to section 29(1) was specifically rejected by the First Division of the Inner House of the Court of Session.
However, [counsel] referred us to a number of other authorities in which the reference to safety in section 29 and other similar statutory provisions has been construed as importing the test of reasonable foreseeability.
These authorities are based on certain comments by Lord Reid in the John Summers case [1955] AC 740 on the meaning of dangerous in section 14(1) of the Factories Act 1937.
That subsection imposed the duty that Every dangerous part of any machinery shall be fenced.
Lord Reid referred, at pp 765766, to what du Parcq J said in Walker v Bletchley Flettons Ltd [1937] 1 All ER 170, 175: a part of machinery is dangerous if it is a possible cause of injury to anybody acting in a way in which a human being may be reasonably expected to act in circumstances which may be reasonably expected to occur and queried the word possible, adding If the question of degree of danger has to be considered it might perhaps be better to say a reasonably foreseeable cause of injury.
These comments on the meaning of dangerous in that provision which contains no qualification of reasonable practicability have, surprisingly, been relied on in obiter comments on the meaning of its antonym safe in section 29 of the Act of 1961 and other similar provisions notwithstanding that they do contain such a qualification.
Peter Gibson J then noted that the views to the contrary by Diplock LJ in Taylor v Coalite were obiter and expressed before the decision in Nimmo, where Lord Guest said this at p 122: To treat the onus as being on the pursuer seems to equiparate the duty under the statute to the duty under common law, namely, to take such steps as are reasonably practicable to keep the working place safe.
I cannot think that the section was intended to place such a limited obligation on employers.
Peter Gibson J referred to three conflicting Scottish cases, namely Keenan v Rolls Royce Ltd 1970 SLT 90, Robertson v RB Crowe & Co 1970 SLT 122 and Morrow v Enterprise Sheet Metal Works (Aberdeen) Ltd 1986 SLT 697.
He concluded that on the then state of the authorities the court was free to choose whether to apply the test of reasonable foreseeability.
In agreement with Hirst LJ he said that he preferred to read the section without implying any such test.
I entirely agree with both the approach of Peter Gibson J and with his reasons, which he put very clearly.
Section 14 was in significantly different terms from section 29(1).
It provided, so far as relevant: (1) Every dangerous part of any machinery shall be securely fenced unless it is in such a position or of such construction as to be as safe to every person employed or working on the premises as it would be if securely fenced.
It is noteworthy that there was no reference in section 14 either to reasonable foreseeability or to reasonable practicability.
In Mains v Englebert Tyres, which was a decision of the Inner House, both Lord Sutherland and Lord Johnston convincingly rejected the suggestion that section 29 should be construed by reference to the construction of section 14.
The Lord Ordinary had rejected the pursuers case on the basis that the accident had not been reasonably foreseeable.
The Inner House, comprising Lord Sutherland, Lord Johnston and Lord Wylie allowed the pursuers appeal.
They rejected the argument that reasonable foreseeability was a necessary prerequisite in the determination of whether or not a place of work was made and kept safe within the meaning of section 29(1).
Lord Sutherland, with whom Lord Wylie agreed, analysed the authorities in some detail at pp 521 to 530.
He agreed with the decision in Larner.
At pp 530 to 531 he expressed his reasons, both as to the meaning of safe and as to the scope of the defence of reasonable practicability.
In short, he concluded that reasonable foreseeability was not relevant to the question whether the workplace was safe but was relevant to the question whether it was reasonably practicable for them to prevent the breach.
He said this: In my opinion, the construction of section 29(1) must depend upon the wording of that section itself.
Since Nimmo the obligation under the section must be read as being that every working place shall be made and kept safe.
If that obligation has not been met then it may be open to the employers to invoke the qualification that it was not reasonably practicable for them to prevent the breach and it may well be that reasonable foreseeability has a part to play in that.
As considerations of reasonable practicability involve weighing the degree and extent of risk on the one hand against the time, trouble and expense of preventing it on the other, quite clearly foreseeability comes into the matter as it is impossible to assess the degree of risk in any other way.
To that extent I agree that reasonable foreseeability can play its part in a consideration of section 29(1) but only at the later stage of considering whether the employers have discharged the onus upon them of showing that there were no reasonably practicable precautions which could have been taken.
The initial part of the section is, in my view, clear.
The duty is to make the working place safe.
That means that there is a duty to prevent any risk of injury arising from the state or condition of the working place.
There is nothing whatever in the section to suggest that the obligation is only to prevent any risk arising if that risk is of a reasonably foreseeable nature.
Had that been the intention of Parliament it would have been perfectly simple for Parliament to have said so.
If the duty had only been to take reasonably practicable precautions against reasonably foreseeable risks it is difficult to see how this section would have added anything of substance to the common law.
Where the statute is designed to protect the safety of workmen it is, in my view, not appropriate to read into the statute qualifications which derogate from that purpose.
It cannot be said that this reading of section 29 imposes an intolerable or impossible burden upon employers.
They have the opportunity of establishing that there were no practicable precautions which could have been taken to prevent their breach of obligation.
If they can do so they have a complete answer both to civil and criminal liability even though they are prima facie in breach of their obligation.
This puts section 29 into an entirely different category from section 14 and I see no legitimate reason for forcing a construction upon section 29 which its plain words will not bear just because in the different context of section 14 the word dangerous has been construed in a particular way.
Lord Johnston said this at pp 535 to 536, with particular reference to the relationship between sections 14 and 29: I do not consider that it is appropriate to equiparate section 14 with section 29, with particular reference to the line of authority construing the word dangerous in section 14.
In my opinion that issue arises under that section in order to determine the scope of the section in the particular instance and indeed whether it applies at all.
Whether rightly or wrongly, accordingly, the fact that the courts have interpreted dangerous under reference to reasonable foreseeability does not mean that necessarily the same criteria should apply when considering a different provision raising the questions of safety, particularly where that latter provision is qualified by a so called escape clause, viz reasonable practicability, and section 14, when it comes to breach, is absolute.
I do not consider that it is appropriate to apply the law which limits or determines the scope of section 14 before considering a breach of it, to what constitutes a breach of section 29(1) under reference to safety or lack of it.
I therefore consider that section 29(1) stands on its own and authorities relating to section 14 fall to be ignored.
While, as a matter of English language, safe may be the converse of dangerous, in my opinion section 29 has to stand on its own and be construed as such.
I entirely agree with the reasoning of Lord Sutherland and Lord Johnston in those passages.
In doing so, I do not conclude that safe is not the antonym of dangerous in the two sections, only that there is nothing in section 29 to introduce the principle of reasonable foreseeability into the meaning of safe.
I note in passing that, as Lord Mance says at para 67, the Close line of case law has received mixed academic commentary.
It was criticised by Munkman in his article The Fencing of Machinery 1962 LJ 761, where he said at p 761 that foreseeability is not to be found in the Factories Act, that it is an alien importation from the law of negligence and that, since negligence is a lower standard of liability, to import its concepts would necessarily reduce liability under the statute.
Close was also criticised by the authors of the 1970 72 Safety and Health at Work Report of the Committee chaired by Lord Robens.
Appendix 7 reviewed the case law on statutory safety provisions.
At para 7 on p 186, the authors criticised the Close line of case law as contrary to the interests of accident prevention.
In my opinion, given that the section 14(1) cases are susceptible to criticism, even on their own terms, we should be cautious about transferring the rationale to other provisions, particularly when so many cases have decided that it is inappropriate to do so.
The language of section 29(1) to my mind shows that it is a results provision.
That it provides that, subject to the defence of reasonable practicability, it requires that the workplace be and remain safe.
Lord Johnston put it thus in Mains at p 536: The obvious starting point in my opinion is that the wording of the section, putting aside the qualification, does not admit immediately any reference to reasonable foreseeability.
The verb shall is relentless and the phrase made and kept safe, if looked at on the basis of made and kept accident free, would immediately admit a construction so far as these words go that if an accident occurs within the workplace and related to it the pursuer need prove no more.
The defender then can raise the issue of reasonable practicability on any basis that he thinks fit.
Some reference has been made to sections 2 and 3 of the Health and Safety at Work etc Act 1974.
Section 2(1) provides that it is the duty of every employer to ensure, so far as is reasonably practicable, the health, safety and welfare at work of all his employees and section 3(1) provides that it is the duty of every employer to conduct his undertaking in such a way as to ensure, so far as is reasonably practicable, that persons not in his employment who may be affected thereby are not thereby exposed to risks to their health or safety.
In para 63 Lord Mance has made some reference to the decision of the House of Lords and to the speech of Lord Hope, with whom the other members of the House agreed, in R v Chargot Ltd (trading as Contract Services) [2008] UKHL 73, [2009] 1 WLR 1.
As I read Lord Hopes judgment in that case, the central issue was whether in prosecutions for breaches of those duties it was for the prosecution to prove the acts and omissions by which it was alleged there had been a breach of duty and, in particular, whether it was enough for it simply to assert that a state of affairs existed which gave rise to risk to health or safety: see the statement of the issues at para 15.
This involved a consideration of the scope of the duties in paras 17 to 21.
In para 17 Lord Hope noted that both sections provided for a duty to ensure certain things.
He then asked what the employer must ensure and concluded: The answer is that he is to ensure the health and safety at work of all his employees, and that persons not in his employment are not exposed to risks to their health and safety.
These duties are expressed in general terms, as the heading to this group of sections indicates.
They are designed to achieve the purposes described in section 1(1)(a) and (b).
The description in section 2(2) of the matters to which the duty in section 2(1) extends does not detract from the generality of that duty.
They describe a result which the employer must achieve or prevent.
These duties are not, of course, absolute.
They are qualified by the words so far as is reasonably practicable.
If that result is not achieved the employer will be in breach of his statutory duty, unless he can show that it was not reasonably practicable for him to do more than was done to satisfy it.
The same is true of section 29(1), as Lord Hope explained in para 18, by reference to Nimmo, to which I have already referred.
He said that this method of prescribing a statutory duty was not new.
As Lord Reid explained in the opening paragraphs of his speech in Nimmo, the steps which an employer must take to promote the safety of persons working in factories, mines and other premises are prescribed by a considerable number of statutes and regulations.
Sometimes the duty imposed is absolute.
In such a case the step that the statutory provision prescribes must be taken, and it is no defence to say that it was impossible to achieve it because there was a latent defect or that its achievement was not reasonably practicable.
In others it is qualified so that no offence is committed if it was not reasonably practicable to comply with the duty.
Sometimes the form that this qualified duty takes is that the employer shall do certain things, of which Lord Hope gave a number of examples.
He added that sometimes the statute provides that the employer must achieve or prevent a certain result.
He concluded thus: Section 29(1) of the Factories Act 1961, which was considered in Nimmo, took that form.
So too do sections 2(1) and 3(1) of the 1974 Act.
It is the result that these duties prescribe, not any particular means of achieving it.
So the House of Lords recognised in Chargot that section 29(1) prescribed a certain result, namely that the workplace must be kept safe, subject of course to the employer showing that it was not reasonably practicable to do so.
Lord Mance, however, relies upon para 27 of Lord Hopes speech, where he said this: The framework which the statute creates is intended to be a constructive one, not excessively burdensome.
The law does not aim to create an environment that is entirely risk free.
It concerns itself with risks that are material.
That, in effect, is what the word risk which the statute uses means.
It is directed at situations where there is a material risk to health and safety, which any reasonable person would appreciate and take steps to guard against.
It is important to note that there is a distinction between the language of sections 2 and 3 of the 1974 Act on the one hand and section 29 of the 1961 Act on the other.
As I read it, para 27 does not detract from Lord Hopes previous statement at para 17 that the obligation to achieve the statutorily prescribed result is absolute.
Rather, it is by analysing the result prescribed by sections 2 and 3 of the 1974 Act by reference to the use of the word risk that he imports the notion of relativity, namely that the result is to protect against material risks.
Given the difference between the wording of the sections, I am not persuaded that the reasoning in para 27 is applicable to section 29(1) of the 1961 Act.
Both Lord Mance and Lord Dyson (at paras 64 and 111 respectively) refer to passages from the speeches of Lord Nicholls and Lord Hobhouse in R (Junttan Oy) v Bristol Magistrates Court [2003] UKHL 55, [2003] ICR 1475, again to the effect that safety is a relative concept.
The issue was whether there was any difference between the standards set by the Machinery Directive 98/37/EC and those set by the 1974 Act.
Both require machinery to be safe.
It was in the context of the discussion of that issue that Lord Nicholls said at para 22: Section 6(1)(a) of the 1974 Act imposes a duty to ensure, so far as is reasonably practicable, that machinery is so designed and constructed that it will be safe.
The effect of regulations 11 and 12(1)(e) of the 1992 Regulations is to prohibit the supply of machinery which is not in fact safe.
So far there is no difficulty.
But safe is not an absolute standard.
There may be differences of view on whether the degree of safety of a particular piece of machinery is acceptable.
Unlike the 1974 Act, the 1992 Regulations define what is meant by safe.
At once there may be room for argument that the standards set by the Act and the Regulations are not necessarily the same.
This in itself is not satisfactory.
As already noted, the inhibiting effect of differently worded provisions having much the same result was one of the matters the Machinery Directive was specifically intended to eradicate: see recital 6 in the preamble.
To my mind, that statement reads as an acknowledgment that the use of the word safe in different statutory contexts can mean different things, not, as Lord Mance suggests at para 64, that safety is always a relative concept, at any rate if so to construe it is to import the notion of reasonable foreseeability.
Finally, Lord Mance refers at para 68 to Robb v Salamis (M&I) Ltd [2006] UKHL 56, [2007] ICR 175 in support of the proposition that reasonable foreseeability is generally accepted to be relevant to determining the standard of safety required across the health and safety legislation.
In that case, Lord Hope confirmed the relevance of reasonable foreseeability to regulations 4 and 20 of the Provision and Use of Work Equipment Regulations 1998 (SI 1998/2306).
However, as Lord Hope makes clear at para 3 of his judgment, the starting point for his analysis is the words of the regulations.
Regulation 4(1) requires the work equipment to be suitable and regulation 4(4) provides that suitable in that regulation means suitable in any respect which it is reasonably foreseeable will affect the health and safety of any person.
It thus contains an express reference to reasonable foreseeability.
So it must be queried how far, if at all, this case supports the general argument that reasonable foreseeability is relevant in health and safety legislation in the absence of express words used in the statute.
I agree with Lord Mance and Lord Dyson (at paras 60 61 and 111 respectively) that, given the divergent strands of authority and the differences of opinion identified in the cases, it is relevant to have regard to considerations of policy in construing section 29(1).
Such considerations seem to me to point away from importing the concept of reasonable foreseeability into the meaning of safe.
The critical first question in every case under section 29(1) is whether the workplace was in fact safe for the employee.
The purpose of the section is to protect the employee not the employer.
This is plain from the unqualified use of the word safe.
Moreover it makes sense.
First, the employer is in a much better position to obtain insurance against unforeseeable risks than the employee.
Secondly, the employer, and industry more broadly, are better placed to investigate and identify risks to health and safety.
As I see it, one of the purposes of such legislation is to provide every incentive for employers to do precisely that.
Thirdly, in section 29, the balance between the employer and the employee is struck by the reasonable practicability defence, which itself imports considerations of reasonable foreseeability.
Fourthly, it is no doubt for these reasons that, when commenting on the distinction between breach of statutory duty and negligence, the editors of the 14th edition of Munkman say at para 33 that it is not generally necessary to establish foresight of harm or fault on the employers part to establish breach of statutory duty.
These are essentially the considerations that Peter Gibson J had in mind in the passage from his judgment in Larner at p 562 quoted above.
Finally, I note that at para 61 Lord Mance expresses doubt as to whether section 29 can apply to a case of this kind if it imposes absolute liability.
For my part I do not agree.
Once it is accepted, as it is by Lord Mance at para 48, that a workplace can be rendered unsafe by operations constantly and regularly carried on in it, it would seem to me to follow that section 29(1) will cover any hazards created by such operations.
The requirement is to achieve the result of safety, as opposed to safety from a particular hazard.
It seems contrary to the clear wording of the statute to exclude from the scope of section 29 a category of hazard on the basis that the particular hazard was not in the mind of the draftsman.
If noise can cause injury by damaging a persons hearing, then that workplace is unsafe for those who are working there.
It does not matter that the hazard that renders a working environment unsafe was not contemplated at the time of the Act.
In any event, as explained above, section 29 does not impose absolute liability because the employer has a defence if he can establish that he took all reasonably practical precautions, which involves a consideration of what risks are reasonably foreseeable.
As stated above, the first question in each case is whether the workplace was safe.
If the claimant proves that it was not, the second question arises, namely whether the employer has shown that, so far as reasonably practicable, it was safe for those working there.
I agree with the reasoning in Larner and Mains that, in considering whether the employer has shown that, so far as reasonably practicable, it was safe it is relevant to consider whether it was reasonably foreseeable that it was unsafe.
While (as demonstrated by Lord Dyson at para 125) the language could be construed more narrowly, I agree with Lord Sutherlands opinion expressed in the passage quoted above that, as considerations of reasonable practicability involve weighing the degree and extent of risk on the one hand against the time, trouble and expense of preventing it on the other, quite clearly foreseeability comes into the matter because it is impossible to assess the degree of risk in any other way.
I also agree with Peter Gibson J to the same effect in the passage from Larner quoted above.
Those conclusions are consistent with the view expressed in the 14th edition of Munkman at para 5.89: In considering what is practicable, account must be taken of the state of knowledge at the time.
A defendant cannot be held liable for failing to use a method which, at the material time, had not been invented: Adsett v K and L Steelfounders and Engineers Ltd [1953] 2 All ER 320; nor for failing to take measures against a danger which was not known to exist: Richards v Highway Ironfounders (West Bromwich) Ltd [1955] 3 All ER 205.
That view is consistent with the view expressed by Smith LJ in the Court of Appeal at para 83 (and quoted by Lord Kerr at para 182 above) that it is a matter of common sense [that], if the employer does not know of the risk and cannot reasonably have been expected to know of it, it cannot be reasonably practicable for him to take any steps at all.
Section 29 the facts
I turn to the facts.
Although I have discussed the meaning of safe in some detail because I regard it as a point of some general importance, I have reached the conclusion that the employers were liable on the facts, whatever the true meaning of safe.
I agree with Lord Kerrs analysis of the facts.
I agree with him (at para 155) that the Code of Practice of 1972 was the source of warning that noise levels of less than 90 dB(A) would damage some workers hearing and that, thus alerted, an employers obligation to remain abreast of information that would allow him to know what percentage of his workforce was likely to be affected was plain.
In these circumstances there was a clear duty to keep abreast of developments, which included giving consideration to the information that became available in 1975 and 1976.
That information would have led to the conclusion that a significant percentage of a workforce exposed to noise at levels greater than 85dB(A) would suffer a hearing loss.
The judge made two unchallenged findings of fact of some importance: (1) that the information would have revealed that, when exposed to noise above the level of 85dB(A), the risk of suffering hearing loss accelerates up to 90dB(A) and in the high 80s, given long enough exposure, significant hearing loss may be expected in at least a substantial minority of individuals; and (2) that the evidence did not show that the cost of implementing a policy of voluntary hearing protection at levels below 90dB(A) was such that a reasonable employer could use cost or difficulty as a valid reason for not having such a policy.
See Lord Kerr above at paras 157 to 159.
At paras 161 to 168 Lord Kerr considers in some detail the practice of employers of taking no steps in respect of levels below 90dB(A) in the light of the Code of Practice of 1972.
I agree with his critique of the evidence of Mr Bramer, Mr Currie and Mr Worthington.
I agree with his conclusion at para 165 that employers should have considered the data shortly after it became available in 1976 and, if they had, that they would have concluded that a significant minority would suffer hearing loss if exposed to noise levels exceeding 85dB(A) over a prolonged period.
They would have discovered that this could be avoided by the provision of ear defenders at not unreasonable cost and that they would or should have provided their employees with ear defenders.
On the construction of section 29 preferred by Lord Mance and Lord Dyson, the correct conclusion on those facts is that it was reasonably foreseeable that if nothing was done a substantial minority of employees would suffer from significant hearing loss and that the workplace was therefore unsafe, from which it follows that the employers had not procured that it was safe.
That conclusion is inconsistent with the conclusion both that the risk of sustaining damage was minimal and that the number of those affected was minimal.
This is not a case of de minimis non curat lex.
Nor is it a case in which the employers can rely upon the practice in industry, for the reasons given by Lord Kerr.
It is clear that in these circumstances the employers could not successfully rely upon the defence that they had done what was reasonably practicable: see per Lord Kerr at paras 182 to 184 above.
On my construction of the meaning of safe, on the judges findings of fact there can be no doubt that the workplace was unsafe and the employers cannot rely upon the defence.
They cannot show that it was not reasonably foreseeable that the workplace was unsafe and, for the reasons already given, they cannot show that they took all reasonably practicable steps to make it safe.
For these reasons, like Lord Kerr, I would dismiss the appeal on the basis that the employers were liable for breach of the duty contained in section 29 of the 1961 Act.
Liability at common law
The above conclusion makes it unnecessary to express a concluded view under this head.
I was initially attracted by the employers case that they were not in breach of duty having regard to the fact that they complied with the practice in the industry as set out in the 1972 Code.
However, on reflection I am persuaded by the reasons in Lord Kerrs judgment.
In doing so, I do not intend to depart from the principles stated by Swanwick J in Stokes v Guest, Keen and Nettlefold (Bolts and Nuts) Ltd [1968] 1 WLR 1776, 1783 and by Mustill J in Thompson v Smith Shiprepairers (North Shields) Ltd [1984] QB 405, 422, quoted by Lord Kerr at paras 156 and 166 respectively.
It is appropriate for an employer to have regard to any relevant industry code, but, as Swanwick J put it, employers must give positive thought to the safety of their workers in the light of what they know or ought to know.
I agree with Lord Kerr that an application of that approach would have led employers to take action long before they did.
In this regard (as stated earlier) I agree in particular with Lord Kerrs critique of the expert evidence at paras 162 to 166 and with his conclusions at paras 166 to 168.
In short, the employers should have given consideration to the risks posed to those exposed to levels of noise between 85 and 90dB(A).
If they had they would have appreciated that a significant number of their employees would be exposed to significant hearing loss, which should (and perhaps would) have led to their making ear protectors available to their workforce.
Conclusion
For the reasons I have given I would dismiss the appeal.
| UK-Abs | This appeal concerns the liability of employers in the knitting industry of Derbyshire and Nottinghamshire for hearing loss suffered by employees prior to 1 January 1990.
The central issue is whether liability existed at common law in negligence and/or under s.29(1) of the Factories Act 1961 towards an employee who suffered noise induced hearing loss due to exposure to noise levels between 85 and 90dB(A)lepd.
Mrs Baker, the Respondent, worked in a factory in Sutton in Ashfield, Nottinghamshire, from 1971 until 2001.
From 1971 to 1989 she was exposed to noise which was found at trial to have been between 85 and 90dB(A)lepd and which had led to her sustaining a degree of noise induced hearing loss.
The measure db(A)lepd indicates exposure at a given sound level over a period of eight hours.
Mrs Baker brought a claim against her employers, for whom liability now rests with Quantum Clothing Group Ltd, one of the Appellants.
A number of other individuals brought similar claims against Meridian Ltd, Pretty Polly Ltd and Guy Warwick Ltd, and all the claims were decided together as test cases.
Only Mrs Baker was found to have suffered hearing loss due to noise exposure in her employment and the other claims were therefore dismissed.
Mrs Bakers claim was dismissed on the different basis that her employers had not committed any breach of common law or statutory duty.
The Court of Appeal allowed an appeal by Mrs Baker and reached conclusions less favourable to all four employers than those arrived at by the judge at first instance.
The Court held that liability at common law arose in January 1988 for employers with an average degree of knowledge, which included Guy Warwick.
Quantum, Meridian and Pretty Polly were found to have had greater than average knowledge and were liable at common law from late 1983.
S.29(1) of the Factories Act 1961 provides that, every place at which any person has at any time to work shall, so far as is reasonably practicable, be made and kept safe for any person working there.
The Court held that the section imposes a more stringent liability than at common law and in particular that what was safe was to be judged irrespective of whatever was regarded as an acceptable risk at the time.
On this basis the Court held that the date from which liability arose under the section was January 1978.
The present appeal has been brought by Quantum, Meridian and Pretty Polly, with Guy Warwick intervening.
The Supreme Court allows the appeal by a majority of 3:2 and restores the judges decision at first instance.
Lord Mance gives the lead judgment.
Lord Dyson gives an additional concurring judgment, and Lord Saville agrees with both.
Lord Kerr and Lord Clarke give dissenting judgments.
The Supreme Court first dealt with common law liability in negligence.
The central question was whether a 1972 Code of Practice published by the Department of Employment, which recommended a noise exposure limit of 90dB(A)lepd, constituted an acceptable standard for average employers to adhere to during the 1970s and 1980s.
The judge at first instance had found that it did until the terms of a draft European Directive of 1986, which proposed a lower limit, came to be generally known in 1988 via a consultative document.
The Court upheld that conclusion of the judge.
Examination of the underlying statistical material did not undermine the relevance of the Code as a guide to acceptable practice.
It was official and clear guidance which set an appropriate standard upon which a reasonable and prudent employer could legitimately rely in conducting his business until the late 1980s.
The Court also endorsed a further two year period beyond 1988 allowed by the judge for implementing protective measures, thus meaning that the average employer had no common law liability before 1 January 1990.
The Court of Appeal had been incorrect to replace that period with a period of six to nine months.
On the facts, Quantum and Guy Warwick were in the position of average employers to whom the 1 January 1990 date applied.
Courtaulds and Pretty Polly, however, were in a special position.
By the beginning of 1983 they had an understanding of the risk that some workers would suffer damage from exposure to between 85 and 90dB(A)lepd, which distinguished their position from that of the average employer.
Allowing a further two years to implement protective measures, they were potentially liable at common law from the beginning of 1985.
The Court then dealt with liability under s.29(1) of the 1961 Act.
In construing the section, the Court first held that a workplace may be unsafe within the meaning of the section not only due to its physical fabric, but also due to activities carried on in it.
The next question was whether the section applies to risks created by noise.
The Court held that it did, on the basis that the section could accommodate attitudes to safety that were not held at the time when it was enacted.
Thirdly, the Court held that what is safe is a relative concept that must be judged having regard to general knowledge and standards at the time of the alleged breach of duty.
Finally, the Court held that the qualification, so far as is reasonably practicable, also allows such general knowledge and standards to be taken into account.
Applying that construction, the section did not impose in this respect a more stringent liability than at common law.
The employers by complying with the Code of Practice were not in breach of the statutory duty before like dates as those from which they were potentially liable at common law.
Lord Kerr and Lord Clarke dissented.
They held that the terms of the Code of Practice and other material available by 1976 were such that employers should have been aware that damage to hearing could occur at levels below 90dB(A)lepd and that certain individuals in the workforce would be particularly vulnerable at those levels.
Further, the employers should have been aware that they could have reduced that risk at not inordinate cost by the provision of ear protection.
Liability therefore arose at common law from the late 1970s onwards.
As to liability under s.29(1), the concept of safety, unlike the qualification of reasonable practicability, does not include an assessment of what was foreseeable at the time.
On the facts, the workplaces were not safe and it was reasonably practicable to provide ear protection.
The dissenting Justices therefore held that employers were liable under the section from 1978 as held by the Court of Appeal.
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This appeal concerns the liability of employers in the knitting industry of Derbyshire and Nottingham for hearing loss shown by employees to have been suffered during the years prior to 1 January 1990, the date when the Noise at Work Regulations 1989 (SI 1989/1790) came into force.
The central issue is whether liability exists at common law and/or under section 29(1) of the Factories Act 1961, towards an employee who can establish noise induced hearing loss resulting from exposure to noise levels between 85 and 90dB(A)lepd.
Noise is generated by pressure levels in the air.
The loudness of a noise depends on the sound pressure level of the energy producing it, measured in decibels (dB).
The decibel scale is logarithmic, so that each 3dB increase involves a doubling of the sound energy, even though a hearer will not actually perceive a doubled sound pressure as involving much, if any, increase in sound.
Noise is rarely pure, it usually consists of a broadband combination of sounds at different frequencies, and the human ear is more sensitive to noise at some (particularly middle) frequencies than at others.
The sound pressure level across a range of frequencies is in a general industrial context commonly expressed by a weighted measurement described as dB(A).
Apart from very loud, immediately damaging noise, with which this case is not concerned, damage to the human ear by noise exposure depends upon both the sound pressure level from time to time and the length of exposure, as well the individual susceptibility of the particular individual.
Sound pressure level averaged over a period is described as dB(A)leq.
Exposure at a given dB(A)leq for 8 hours is described as dB(A)lepd.
Exposure at a given dB(A)lepd for a year gives a Noise Immission Level (NIL), which will build up slowly with further years exposure.
Sound is perceived by the hearer as a result of the conversion by the ear drum of the sound pressure variations in the air into mechanical vibrations.
These are conveyed by the middle ear to the cochlea, which, by a process of analysis and amplification, translates these vibrations into nerve impulses which are then transmitted to the brains auditory nerve.
Hair cells in the cochlea play a vital part in the process, and noise induced hearing loss (described as sensorineural) is the result of damage to such hair cells resulting from exposure to noise over time.
Other causes of hearing loss include decline in the conductive function of the outer and/or inner ear, due for example to disease, infection, excess wax or very loud traumatic noise, as well as loss due to simple ageing (presbyacusis).
Hearing loss is commonly measured by ascertaining the average threshold below which hearing is affected and comparing it with a normal threshold.
Both the rate at which any individual will suffer ageing loss and the susceptibility of any individual to damage as a result of noise exposure are, as between different individuals, very variable as well as unpredictable.
Statistics, produced as will appear in the 1970s, do no more than attempt to indicate what percentage of a particular population may be predicted to suffer a particular level of hearing loss by a particular time in their lives by these different causes depending upon their circumstances.
In 1971 a Code of Practice was prepared by the Industrial Health Advisory Committees Sub Committee on Noise, and in 1972 it was published by the Department of Employment as a blueprint for action.
This Code remained in issue at the material times thereafter, and it said that a level of 90dB(A) should not be exceeded [i]f exposure is continued for eight hours in any one day, and is to a reasonably steady sound (para 4.3.1).
On 14 February 2007, His Honour Judge Inglis decided test cases, involving seven claims against four different companies: Taymil Ltd (successors to the liabilities of several employing companies and now known as Quantum Clothing Group Ltd), Meridian Ltd, Pretty Polly Ltd and Guy Warwick Ltd. The cases were all brought on the basis that there had been exposure to noise levels between 80 and 90dB(A)lepd.
Mrs Bakers claim was against Taymil.
She had worked in Simpson Wright & Lowes factory in Huthwaite Road, Sutton in Ashfield from 1971 (when she was 15) to 2001.
The judge found that for 18 years, from 1971 to 1989, she is likely to have been exposed to a noise level that attained 85dB(A)lepd, but did not at any time substantially exceed that level by more than 1db (para 182).
He also found that some other condition was affecting her left ear, but that her years of exposure at or slightly above 85dB(A)lepd had led to her sustaining a degree of noise induced hearing loss and had played a small part in her suffering tinnitus.
But Mrs Bakers claim failed on the ground that her employers had not committed any breach of common law or statutory duty.
Had liability been established, the judge would have awarded her 5,000 for this slight hearing loss and slight contribution to the tinnitus (paras 192 193).
All the other employees claims failed.
In none of their cases was any noise induced hearing loss shown to have occurred due to the relevant employment.
Only for a few months in the 1960s in the case of Mrs Moss claiming against Taymil and for about two years (1985 1986) in the case of Mrs Grabowski claiming against Pretty Polly was there shown to have been any exposure to noise levels of or over 85dB(A)lepd in the relevant defendants employment.
However, in the case of Meridian (employers of Mr Parkes and Mrs Baxter and a subsidiary of Courtaulds plc) and Pretty Polly (employers of Mrs Grabowski and a subsidiary of Thomas Tilling Ltd until 1982 and of BTR plc until 1994) the judge would have held liability to exist from the beginning of 1985, had noise induced hearing loss been shown to have been incurred due to exposure to noise exceeding 85dB(A) in such defendants employment.
Mrs Baker appealed to the Court of Appeal as against Quantum, and Meridian and Pretty Polly were joined to enable issue to be taken with certain of the judges conclusions potentially affecting other claims.
Guy Warwick was a respondent to an appeal brought only on costs.
The Court of Appeal (Sedley, Smith and Jacob LJJ) allowed Mrs Bakers appeal on 22 May 2009, and reached conclusions less favourable to all four employers than those arrived at by the judge.
The present appeal is brought by Quantum, Meridian and Pretty Polly, with Guy Warwick intervening by permission of the Supreme Court given on 30 June 2010.
The test of an employers liability for common law negligence is common ground.
In Stokes v Guest, Keen and Nettlefold (Bolts and Nuts) Ltd [1968] 1 WLR 1776, 1783, Swanwick J described the position as follows: From these authorities I deduce the principles, that the overall test is still the conduct of the reasonable and prudent employer, taking positive thought for the safety of his workers in the light of what he knows or ought to know; where there is a recognised and general practice which has been followed for a substantial period in similar circumstances without mishap, he is entitled to follow it, unless in the light of common sense or newer knowledge it is clearly bad; but, where there is developing knowledge, he must keep reasonably abreast of it and not be too slow to apply it; and where he has in fact greater than average knowledge of the risks, he may be thereby obliged to take more than the average or standard precautions.
He must weigh up the risk in terms of the likelihood of injury occurring and the potential consequences if it does; and he must balance against this the probable effectiveness of the precautions that can be taken to meet it and the expense and inconvenience they involve.
If he is found to have fallen below the standard to be properly expected of a reasonable and prudent employer in these respects, he is negligent.
Mustill J adopted and developed this statement in another well known judgment in Thompson v Smiths Shiprepairers (North Shields) Ltd [1984] QB 405, when he said (at pp 415F 416C): I shall direct myself in accordance with this succinct and helpful statement of the law, and will make only one additional comment.
In the passage just cited, Swanwick J drew a distinction between a recognised practice followed without mishap, and one which in the light of common sense or increased knowledge is clearly bad.
The distinction is indeed valid and sufficient for many cases.
The two categories are not, however, exhaustive: as the present actions demonstrate.
The practice of leaving employees unprotected against excessive noise had never been followed without mishap.
Yet even the plaintiffs have not suggested that it was clearly bad, in the sense of creating a potential liability in negligence, at any time before the mid 1930s.
Between the two extremes is a type of risk which is regarded at any given time (although not necessarily later) as an inescapable feature of the industry.
The employer is not liable for the consequences of such risks, although subsequent changes in social awareness, or improvements in knowledge and technology, may transfer the risk into the category of those against which the employer can and should take care.
It is unnecessary, and perhaps impossible, to give a comprehensive formula for identifying the line between the acceptable and the unacceptable.
Nevertheless, the line does exist, and was clearly recognised in Morris v West Hartlepool Steam Navigation Co Ltd [1956] AC 552.
The speeches in that case show, not that one employer is exonerated simply by proving that other employers are just as negligent, but that the standard of what is negligent is influenced, although not decisively, by the practice in the industry as a whole.
In my judgment, this principle applies not only where the breach of duty is said to consist of a failure to take precautions known to be available as a means of combating a known danger, but also where the omission involves an absence of initiative in seeking out knowledge of facts which are not in themselves obvious.
The employer must keep up to date, but the court must be slow to blame him for not ploughing a lone furrow.
An employer following generally accepted practice will not therefore necessarily be liable for common law negligence, even if the practice involves an identifiable risk of leading to noise induced hearing loss.
There is, as Hale LJ also said succinctly in Doherty v Rugby Joinery (UK) Ltd [2004] EWCA Civ 147; [2004] ICR 1272, para 44, a distinction between holding that a reasonable employer should have been aware of the risks and holding that certain steps should have been taken to meet that risk.
Section 29 of the Factories Act 1961 provides: (1) There shall, so far as is reasonably practicable, be provided and maintained safe means of access to every place at which any person has at any time to work, and every such place shall, so far as is reasonably practicable, be made and kept safe for any person working there. (2) Where any person has to work at a place from which he will be liable to fall a distance more than six feet six inches, then, unless the place is one which affords secure foothold and, where necessary, secure hand hold, means shall be provided, so far as is reasonably practicable, by fencing or otherwise, for ensuring his safety.
The judgments below
In his clear and comprehensive judgment, His Honour Judge Inglis followed the authority of Taylor v Fazakerley Engineering Co (Rose J, 26 May 1989) in concluding that the standard of safety required under section 29(1) is governed by the general standard which ought reasonably to have been adopted by employers at the relevant time, and therefore that the section did not add materially to the common law duty in that respect (para 99).
He held (para 87), in the light of the Code of Practice 1972 and extensive oral evidence called before him, that neither Taymil nor Guy Warwick as reasonable and prudent employers could be said to have been in breach of duty at common law or under section 29(1) during the 1970s and 1980s, certainly until the time when the terms of [European Economic Community Directive 86/188/EEC of 12 May 1986] became generally known in the consultative document.
The consultative document in question was Prevention of damage to hearing from noise at work, Draft proposals for Regulations and Guidance, issued by the Health and Safety Commission in 1987.
The document invited comments by 30 June 1988 and led to the Noise at Work Regulations 1989 (SI 1989/1790) which took effect from 1 January 1990.
In the case of Meridian and Pretty Polly, the judge held that they had a greater understanding of the risks of noise by the beginning of 1983, that this required them to put in place a conservation programme accompanied by information and instruction, and that they were potentially liable from the beginning of 1985.
The judge thus allowed a two year period for action from the date when there was or should have been appreciation that action was necessary.
However, it is in issue whether, in the case of Taymil and Guy Warwick, he was treating the two year period as expiring at some undefined time during 1989 or as expiring on 1 January 1990, the same date as the 1989 Regulations came into force.
In the Court of Appeal, the main judgment was given by Smith LJ, with whom the two other members of the court agreed.
Sedley LJ gave some short additional concurring reasons.
The court differed from the judge.
It held section 29 of the Factories Act 1961 to involve a more stringent liability than liability for negligence at common law, and it held further that, were it material, it would have concluded that liability for negligence at common law arose at earlier dates than the judge had adopted.
With regard to section 29, Smith LJ concluded that the court was bound by the previous authority of Larner v British Steel [1993] ICR 551, with which she anyway agreed, to hold that whether a place was safe involved applying [an] objective test without reference to reasonable foresight and that what is objectively safe cannot change with time (paras 77 and 78).
In the alternative, if foresight was relevant, she would have held that by the early 1970s, any employer who kept abreast of developing knowledge would have known that prolonged exposure to 85dB(A)lepd was harmful to some people, making the workplace unsafe for an undefined section of his workforce, and, so, that he must do what was reasonably practicable to make and keep it safe.
She concluded that having regard to a method available in a British Standard BS 5330 published in July 1976 which could be used by anyone with a modest degree of mathematical skill the position was that by late 1976 or early 1977, the average sized employer in the knitting industry could and should have been able to make an informed assessment of the quantum of risk arising from the below 90dB(A)lepd noise in his workshops.
She then allowed, instead of the judges two year period, about six to nine months for the provision of ear protectors once the decision had been taken that they should be provided and, for the sake of simplicity fixed the date, by which action should have been taken and as from which liability arose under section 29(1), as January 1978 (paras 101 102).
On this basis, Mrs Baker was awarded, for breach of statutory duty, 66.67% of 5,000 in respect of the 12 years of noise exposure which she suffered from January 1978.
With regard to the common law claim, Smith LJ concluded that HHJ Ingliss holding in para 87 of his judgment (para 16 below) cannot be faulted, and upheld his view that there was no breach of the duty at common law during the period for which a responsible body of opinion regarded it as acceptable to expose employees to noise in the 85 89dB(A)lepd range (para 105).
While indicating her personal inclination towards an earlier date (based on the publication in 1982 by the European Commission of a first draft directive, later withdrawn), she also agreed with the judges conclusion that for the employer with the ordinary, or average degree of knowledge, that period came to an end in 1987, following publication of the second draft Directive (para 105).
In this connection, she again held that to allow longer than six to nine months was over generous, and so fixed the date of any breach of common law duty by the average employer at January 1988 (para 106).
She agreed that Meridian and Pretty Polly should have known by early 1983 which of their workers required protection and should within six to nine months thereafter have provided such protection (paras 107 108); and she regarded it as irrational to treat Quantum any differently, merely because it was part of a smaller group and operated as an individual company without the benefit of the central advice on health and safety issues enjoyed by the Courtaulds group and Pretty Polly.
So Quantum would, in the Court of Appeals view, have been liable at common law, like Meridian and Pretty Polly, from late 1983 (para 109).
The history
The judge set out in paras 29 to 45 the history of investigation and awareness regarding the risks of occupational exposure to noise from the early 1960s to date.
The Court of Appeal helpfully summarised the historical background in terms which I quote, interposing a number of observations of my own.
Historical Background 2.
For well over a hundred years, it has been known that prolonged exposure to loud noise causes deafness.
Such deafness was long regarded as an unavoidable occupational hazard.
In the early 20th century, ear protectors were developed and were supplied to some members of the armed forces during both world wars.
But it was not until the second half of the century that any real interest was taken in preventing noise induced deafness in industrial workers. 3.
In April 1960, the government of the day instructed Sir Richard Wilson to chair a committee to report on the problems of noise.
The committee's first report was published in 1963.
In the same year, in reliance on that report, a Ministry of Labour publication entitled 'Noise and the Worker' drew the attention of employers to the need to protect their workers from excessive noise.
At that time, scientific knowledge was not such that it could be said with confidence at what noise level harm was likely to occur.
A rough guide was given that workers who were regularly exposed to noise of 85 decibels (dB) at any frequency for eight hours a day should be protected.
I interpose that the author of the report was in fact Sir Alan Wilson FRS.
An interim report was published in March and the final report in July.
Noise and the Worker was published in the light of the interim report. 4.
Further research was carried out during the 1960s, in particular by a team led by Professor W Burns, Professor of Physiology at the University of London and Dr D W Robinson, then head of the acoustics section of the National Physical Laboratory.
In 1970, the result of their work was published as 'Hearing and Noise in Industry'.
By that time, a method had been developed of measuring noise levels by reference to the weighted average for all frequencies (expressed as dB(A)) and for assessing the equivalent noise exposure over an eight hour working day (expressed as dB(A)leq or more recently dB(A)lepd).
Burns and Robinson explained that they were now in a position to predict the degree of risk of hearing loss to groups of an exposed population of varying susceptibility from various levels of noise exposure.
Their work would make it possible to prepare a code of practice for employers.
They discussed the possibility of establishing a limit of maximum exposure as follows: The limit can be set at a variety of levels according to the ultimate risk judged to be acceptable and we suggest that it should not be set higher than 90dB(A) for normal continuous daily exposure which is likely to persist for many years. 5.
In 1968 and 1971 two further editions of 'Noise and the Worker' were published.
The gist of the advice given in the third edition was that, if employees were exposed to noise in excess of 90dB(A), there should be a programme of noise reduction or hearing conservation.
That level of noise exposure corresponded approximately to the 85dB which had been the level at which action was recommended in the first edition of 'Noise and the Worker'.
The third edition encouraged employers to reduce noise exposure below the maximum permitted level in order to avoid risk to the hearing of 'the minority of people who are exceptionally susceptible to hearing damage.
The guidance given in the third edition to help to protect most people against serious hearing loss was that they should not be exposed to levels of noise exceeding maximum sound levels specified in table 1 by reference to duration of exposure.
In the case of an exposure duration of eight hours a day (the longest covered), the maximum sound level specified was 90dB(A).
The encouragement given to reduce noise exposure below the maximum was to reduce noise exposure if possible and was expressed to be in order to avoid risk to the hearing of the minority of people who are exceptionally susceptible to hearing damage, and for reasons of general welfare.
In the foreword to impressions published after April 1972, two of them by 1976, the third edition also said: This booklet has been overtaken by the publication in April 1972 of the Code of Practice .
However it is a useful introduction to the subject and should be read as a supplement to the Code.
The third edition referred under the head Monitoring Audiometry to the possibility of monitoring checks, but did not repeat the suggestion in the second edition that monitoring should take place in respect of noise levels approaching those set out in table 1. 6.
A Code of Practice, based on the work of Burns and Robinson was published by the Department of Employment in 1972.
Its main messages were that employers must measure the noise in their premises and, if the noise level was 90dB(A)leq or above, must take steps to reduce the noise at source and, if that was not practicable, to provide ear protectors.
The Code of Practice also explained that protection from noise of 90dB(A)leq would not protect all workers from hearing damage; some harm was likely to be caused to some susceptible workers by noise below that level.
The Court of Appeal was not justified in using the word likely.
What the relevant paragraph (1.1.2) in fact said was: The Code sets out recommended limits to noise exposure.
It should be noted that, on account of the large inherent variations of susceptibility between individuals, these limitations are not in themselves guaranteed to remove all risk of noise induced hearing loss. 7.
A set of tables first published in 1973 by the National Physical Laboratory (the NPL tables) showed the relationship between noise dose and the expected extent of hearing loss of persons with different degrees of susceptibility.
Noise dose was based upon the daily exposure adjusted for the number of days' exposure in the year and the number of years' exposure.
These tables were based on the work of Burns and Robinson.
They were republished in 1977 in a more user friendly form but the underlying science was the same as before and indeed it remains valid today.
The tables demonstrated the harmful effect of prolonged exposure to noise below 90dB(A)leq but, because they were based on empirical data and because the data available for these lower noise levels was limited, there was some dependence on extrapolation.
The degree of predicted risk arising from exposure to these lower levels of noise is therefore less certain than that caused by noise over 90dB(A)leq.
That is of significance in the context of this appeal which raises the issue of when employers ought to have taken steps to protect their employees from exposure to such lower levels of noise.
These tables consisted of some 15 pages of introductory material and 149 pages of tables.
The latter would require expert advice to interpret, but, even with such advice, they did no more than indicate in detailed statistical terms the risk to susceptible employees identified by the Code of Practice.
The judge recorded (para 23) the expert evidence that the NPL tables were (as distinct from the ISO1999 tables mentioned in point 10 below) less accurate below 90dB(A), though reasonably accurate above that level.
They tend at lower levels to exaggerate the effect of noise.
Some of the NPL tables were used in BS 5330: 1976 mentioned in point 11, below. 8.
Until 1989, the Government of the United Kingdom made no attempt of general application to regulate noise exposure in industry.
In 1974, regulations were made to control noise in the woodworking industry and in tractor cabs.
The regulations required employers to reduce noise to the greatest extent practicable and to provide ear protectors where persons were likely to be exposed to noise at or above 90dB(A)leq, 9.
In 1975, a sub committee of the Industrial Health Advisory Committee, set up after publication of the Code of Practice in 1972, reported on the problems of framing protective legislation.
The gist of this report was that the noise limit recommended by the 1972 Code had widespread acceptance although it did not eliminate all risk of harm. 90dB(A)leq was the most practicable standard although a lower limit should be considered at regular intervals.
More particularly, para 19 of the report, Framing Noise Legislation, read: The Codes noise limit of 90dB(A)leq has widespread international acceptance, and although it does not eliminate all risk of hearing damage, we feel it continues to be the most practicable standard, in recognition of the necessity of concentrating limited resources on workers subject to the most significant risks and of eliminating these risks as a first priority.
Prediction of risks of hearing damage at these levels, based on a lifetimes exposure of 30 or 40 years, indicates that the proportion of an exposed population likely to suffer unacceptable degrees of impairment falls off rapidly below 90dB(A).
The specification of a daily dose introduces a further margin of safety since it is unlikely that a large number of workers would receive the full daily limit throughout their entire working lifetimes.
Similar conclusions have been reached in other major industrial countries, and none of those examined in our survey has introduced a generally applicable environmental limit lower than 90dB(A).
Nevertheless, the question of a lower limit should be reconsidered at regular intervals.
A level of 90dB(A) is by no means ideal, and the aim should be to ensure a progressive reduction. 10.
In 1975 an international standard was published (ISO1999).
This proposed a formula by which hearing loss could be predicted from various levels of noise exposure.
It was not easy for a lay person to use.
IS01999 did not suggest limits of tolerable exposure.
It said that that was the province of 'competent authorities' who would demand the institution of hearing conservation programmes if limits were exceeded.
It mentioned that 'in many cases', 85 to 90dB(A) equivalent continuous sound level had been chosen. 11.
In 1976, a British Standard was published (BS 5330: 1976).
This was based on the work of Burns and Robinson and explained the relationship between noise exposure and the expected incidence of hearing disability.
The foreword stated that determination of a maximum tolerable noise exposure was outside the scope of the standard and referred the reader to the 1972 Code of Practice.
More particularly, BS 5330 said: Determination of a maximum tolerable noise exposure is outside the scope of this standard; it involves consideration of risk in relation to other factors.
For occupational noise exposure such a limit is specified in the Department of Employment (HMSO, 1972) Code of Practice for Reducing Exposure of Employed Persons to Noise. 12.
In 1981, the Health and Safety Executive (HSE) issued a consultative document 'Protection of Hearing at Work' which included draft regulations and a draft approved code of practice.
The proposed level of protection was at or above 90dB(A)lepd.
These draft regulations were not promulgated. 13.
In 1982, a draft directive was published by the European Commission, proposing a general limit of 85dB(A)lepd with ear protection to be provided at or above that level with medical surveillance and routine audiometry for all employees exposed at or above that level.
This was greeted with some dismay by industry and was withdrawn in 1984.
A further draft directive was published and was promulgated in 1986.
This required member states to enact legislation which would, inter alia, require employers to provide ear protectors and information as to risks where employees were exposed to noise likely to exceed 85dB(A)lepd.
Medical surveillance was to be made available to all exposed employees by means of access to a doctor.
Thus, the only change of significance between the 1982 draft and the 1986 directive was that responsibility for medical surveillance would not fall on the employer but (at any rate in this country) would be satisfied through the provisions of the National Health Service.
The Noise at Work Regulations 1989 (SI 1989/1790) implementing the directive came into effect on 1 January 1990.
The directive promulgated in (May) 1986 was Council Directive 86/188/EEC.
It required member states to enact and to bring into force the relevant legislation by 1 January 1990.
The Court of Appeal was not accurate in stating that the only difference between the 1982 draft and the actual directive in 1986 related to responsibility for medical surveillance.
As the judge noted (para 39), the directive replaced the earlier withdrawn draft with less stringent proposals: in short, where daily personal noise exposure of a worker exceeded 90dB(A), the directive required the use by the worker of personal ear protectors (article 6(1)), but where such exposure was likely to exceed 85dB(A), it only required such protectors to be made available to workers (article 6(2)). 14.
For the sake of completeness, although not relevant to this appeal, I mention that, in 2003, the European Commission issued a further directive imposing more stringent requirements.
The Control of Noise at Work Regulations 2005 (SI 2005/1643) gave effect to that directive.
Inter alia, they introduced a maximum permitted noise level of 87dB(A) and required employers to provide ear protectors to workers exposed to 85dB(A) and to make them available on request to workers exposed to 80dB(A).
The judge in paras 46 to 48 also set out the general approach to noise in industry until the end of the 1980s, based on the oral evidence called before him.
Paras 46 to 48 of HHJ Ingliss judgment led him to reach the following conclusions on liability in para 87: 87.
There is no doubt that research into the question of what risks to the hearing of employees exposure below 90dB(A)leq posed would have yielded the answer that 90dB(A) was not a natural cut off point, and that there were risks to susceptible individuals below that level.
Indeed, the 1972 Guidelines themselves made that clear.
From the early 1970s, certainly by 1976 with the publication of BS 5330 and of IS0 1999 in the previous year, the information was available if researched to give an indication of the level of the risk.
It was a level of risk that came by the end of the 1980s to be seen as unacceptable if not accompanied by at least voluntary protection, though the 90dB(A) limit had remained, both in 1975 and in 1981, the proposed regulatory standard in England.
In the end though I am not persuaded that employers in industry who conformed to the maximum acceptable level of exposure in the 1972 Guidelines were in breach of their duty of care to their employees who were exposed over 80dB(A)lepd.
In rejecting the primary case for the claimants I acknowledge that I do not see the issue as only one of foreseeability.
It would in my judgment be futile to hide behind the 1972 Guidelines for that purpose, or behind the third edition of Noise and the Worker, when the documents themselves proclaim that the level proposed will not be safe for all workers.
But good practice as informed by official guidance has in my view to be taken into account as well.
The guidance as to the maximum acceptable level was official and clear.
It would in my view be setting too high a standard to say that it was incumbent on employers to ignore it, and to reach and act, even as early as the 1960s, on a view that the standard set was inadequate to discharge their duty to their employees.
To put it in the context of Swanwick J's judgment, complying with 90dB(A)lepd as the highest acceptable level was, I think, meeting the standards of the reasonable and prudent employer during the 1970s and 1980s, certainly until the time when the terms of the 1986 directive became generally known in the consultative document of 1987.
I accept that this means that employers were not bound in the discharge of their duty to ask the question Who are those at risk in my factory, and how big is the risk.
It is a question that none of them in this case asked.
But the effect of the maximum acceptable level in the Guidelines means in my judgment, that they were not in breach of their duty for not asking it.
The judge then distinguished the position of Meridian (Courtaulds) and Pretty Polly: 88.
There is room, however, for greater than average knowledge as Swanwick J put it, to inform the steps that individual employers should have taken at an earlier time than the late 1980s.
At first sight it is not attractive that those who have a safety department and medical officers and take the matter of noise seriously should be worse off than those who wallow in relative ignorance, but it is an inevitable consequence of a test that depends on what an individual employer understood.
On that basis, I have found that by the beginning of 1983 management both at Courtaulds and at Pretty Polly had sufficient understanding of the risks to hearing below 90dB(A)lepd to require them to take action.
Both in fact say that they did so.
Plainly putting a conservation programme into action, accompanied by information and instruction is not to be done in an instant, as Mustill J recognised in the passage in Thompson that I have set out above.
In the case of those two employers, because of the particular state of their knowledge, I would say that they were in breach of their duty to employees who suffered damage through exposure at 85dB(A)lepd and over, without having the opportunity of using hearing protection, from the beginning of 1985.
Earlier in his judgment, HHJ Inglis had made detailed factual findings about the conduct and understanding of each of the relevant employers with regard to the risks of noise induced hearing loss.
I summarise these in the appendix to this judgment.
Smith LJ addressed the judges conclusions on liability at common law as follows: 105.
I consider that the opinion, implied by the Code of Practice, that exposure to noise below 90dB(A)lepd was 'acceptable' was a factor which could properly be taken into account when an employer considered what it was reasonable for him to do in respect of the health and safety of his employees.
In short, I take the view that Judge Inglis's holding which I quoted at paragraph 46 cannot be faulted.
I would uphold his view that there was no breach of the duty at common law during the period for which a responsible body of opinion regarded it as 'acceptable' to expose employees to noise in the 85 89dB(A)lepd range.
I consider that, for the employer with the ordinary or average degree of knowledge, the judge's conclusion that that period came to an end in 1987, following publication of the second European draft directive, was a reasonable conclusion, although, left to myself, I would have said that the publication of the first draft directive in 1982 would have put all employers on notice that it could no longer be regarded as acceptable or reasonable to leave this group of employees exposed. 107.
The judge imposed different dates of common law liability on Courtaulds and Pretty Polly from that of Quantum and Guy Warwick which he regarded as having only an average degree of knowledge.
It is clear that from 1972 all employers should have been aware of the risk to some of their employees from exposure to 85 89dB(A)lepd.
The question at common law was when they should have realised that it was no longer to be regarded as acceptable to disregard that risk.
The judge's conclusion in respect of Courtaulds was plainly justified.
They actively opposed the proposal in the first draft directive, not on the ground that the risk was minimal but on the ground that the cost to them would be too great.
By early 1983, they could no longer have thought that a responsible body of opinion took the view that it was acceptable to ignore the risks of harm below 90dB(A)lepd.
They should by that time have known which of their workers required protection and only a further six to nine months should be allowed for provision. 108.
Pretty Polly was in a different position in that there was no direct evidence that it knew of the first draft directive.
However, in my view the judge was entitled to hold that it must have done.
In any event, there was other evidence that it had been advised of the need to take action in respect of the lower levels of noise.
In my view, the judge's holding was justified, subject to the reduction in the period allowed for provision. 109.
As a fall back submission, Mr Hendy argued that the judge had been wrong to reach a different conclusion in respect of Quantum.
There was evidence that it was aware of the first draft directive and Mr Hendy submitted that, given that knowledge, it was irrational to say that, because the group was smaller than Pretty Polly or Courtaulds and operated as individual companies without the benefit of central advice on health and safety issues, they should be treated differently from the other two employers.
I would accept that submission and would hold that, if it were to become material, Quantum would have been in breach of its common law duty at the same date as Courtaulds.
The judge and the Court of Appeal therefore accepted the Code of Practice as the generally appropriate standard for employers with average knowledge during the 1970s and early 1980s, differing only as to the date in the 1980s when it ceased to be so.
The judge and, ostensibly at least, the Court of Appeal also distinguished between average employers and other employers, described by the judge as having greater than average knowledge, differing however as to which employers fell into the latter category.
The parties respective cases on common law liability
The respondent challenges the conclusion reached by both courts below that the Code of Practice represented a generally appropriate standard; she submits that it ceased to be such from at least 1976, though she does not in this case ask for that date to be substituted for the dates found by the Court of Appeal.
For opposite reasons, the distinction drawn by the judge between employers with average and greater than average knowledge finds little support in any sides submissions.
Mr Hendy positively asserts that all three appellant employers and the interveners were in the same position; that they should all be treated as having the same constructive knowledge (based on the generally available published provisions and materials); and that neither court below based its decision upon specific evidence of knowledge of incidence of hearing problems in particular workforces, or technical or operational knowledge specific to the particular defendants (respondents case, para 202).
So, on his submission, it was not appropriate to regard Quantum and Guy Warwick, or any employer, as any less liable than the judge held Meridian and Pretty Polly to be.
The Court of Appeal, by putting Quantum into the same category as Meridian and Pretty Polly, went some, though not the whole, way towards accepting this submission.
The appellants, on the other hand, support the concurrent conclusion below that the Code of Practice constituted an appropriate standard for employers with average knowledge, submit that it continued to be so, as the judge held, until the late 1980s, but also submit that the judge failed to provide any satisfactory analysis of what he meant by greater than average knowledge in para 88, and that he had no basis for treating Meridian and Pretty Polly as liable by reference to any date other than that which he held applicable to the reasonable and prudent employer during the 1970s and 1980s of whom he spoke in para 87.
Analysis of common law position: (a) Greater than average knowledge?
At the level of principle, the parties submissions take one back to Swanwick and Mustill JJs classic statements regarding the test of negligence at common law (paras 9 and 10 above).
These statements identify two qualifications on the extent to which an employer can rely upon a recognised and established practice to exonerate itself from liability in negligence for failing to take further steps: one where the practice is clearly bad, the other where, in the light of developing knowledge about the risks involved in some location or operation, a particular employer has acquired greater than average knowledge of the risks.
The question is not whether the employer owes any duty of care; that he (or it) certainly does.
It is what performance discharges that duty of care.
For that reason, I find difficult to accept as appropriate in principle some of the reasoning in another, more recent Court of Appeal authority, Harris v BRB (Residuary) Ltd [2005] EWCA Civ 900; [2005] ICR 1680 (Neuberger and Rix LJJ).
In Harris, the issue was whether regular exposure of train locomotive drivers between 1974 and 2000 to noise levels between 85dB(A) and 90dB(A) gave rise to liability for any noise induced hearing loss shown to have resulted.
Neuberger LJ gave the sole reasoned judgment.
He accepted on the evidence before the court that, at least until the 1989 Regulations came into force, an employer would not normally be expected to be liable to an employee who was exposed to a level of sound lower than 90dB(A)leq, but said that this evidence cannot go so far as to negative in all circumstances liability to employees whose health is impaired as a result of exposure to sound below that level (para 39).
After quoting Swanwick J, Neuberger LJ suggested that a good working approach might be to treat 90dB(A) as giving rise to a presumption, with the effect that, below 90dB(A), it was for the employee to show why a duty should be imposed at all (paras 40 41).
The reference to a duty being imposed derives from the way in which the defendants case was presented: the submission was that the mere fact that a particular level of sound is potentially injurious does not of itself give rise to a duty of care. the existence of a duty of care depends not merely on foreseeability of injury but whether it is just and equitable to impose the duty (para 36).
On this basis, Neuberger LJ said that, while not intending to call into question the applicability in the general run of cases of the 90dB(A)leq threshold each case must turn very much on its facts, not least because of the just and equitable test accepted, indeed advanced on behalf of the defendant (para 38).
In my opinion, however, the adoption of such a test would import an extraneous concept.
The primary inquiry, when considering whether an employer has acted with due care to avoid injury from noise induced hearing loss, is whether there is a recognised and established practice to that end; if there is, the next question is whether the employer knows or ought to know that the practice is clearly bad, or, alternatively, if the area is one where there is developing knowledge about the risks involved in some location or operation, whether the employer has acquired greater than average knowledge of the risks.
Considerations of justice and equity no doubt underlie both Swanwick and Mustill JJs statements of principle.
But to ignore the statements and to restate the inquiry in simple terms of justice and equity opens a wide and uncertain prospect, despite the courts attempts in Harris to emphasise that it was not departing from a position whereby an employer would not normally be expected to be liable for a level of sound lower than 90dB(A).
That prospect has a present resonance, although HHJ Inglis did not base himself on the reasoning in Harris, but used language picking up the more conventional statements of principle.
Nonetheless, I consider that he did not apply those statements in the sense in which they were meant.
He did not consider the practice represented in the Code to be clearly bad during the 1970s or until the end of the 1980s; and it is common ground that the general state of knowledge about the risks involved in the knitting industry remained essentially static throughout this period (see also the first seven sentences of para 87 of the judges judgment).
As Mr Hendy made clear in the Court of Appeal (Core II, pp.749 750), no question of special resources arises, since no amount of research would have led to further knowledge, or indeed to different conclusions about the level of risk than those indicated in the Code of Practice.
Mr Hendy is in my opinion also correct in saying that the judge based his conclusions, including those relating to Courtaulds and Pretty Polly, on generally available published provisions and materials, rather than on any specific knowledge.
That is particularly apparent from the final sentences of paras 56 and 66 of his judgment (cited in the appendix) as well as in paras 87 and 88.
It might perhaps have been suggested, in relation to Courtaulds, that the rising incidence of claims which they experienced in the early 1980s gave rise to some degree of special knowledge, but that is not how the matter has been put.
It follows that, on the judges approach, the only real difference between employers lay in the degree of their consideration of and reaction to such risks.
In these circumstances, the judges conclusions in relation to Meridian (Courtaulds) and Pretty Polly amount in substance to saying that, because these companies focused more closely on the potential risk below 90dB(A) and displayed greater than average social awareness (to use Mustill Js words in Thompson at p 415H) by resolving that some action should probably be taken at times before ordinary, reasonable employers arrived at any such conclusion, they incurred greater liability than such employers.
The judge himself recognised here a paradox (para 88).
Those who have a safety department and medical officers and take noise more seriously than the ordinary reasonable employer are liable, while others are not.
That is appropriate if extra resources or diligence lead to relevant fresh knowledge.
But here they have led simply to the formation or inception of a different view to that generally accepted about what precautions to take.
In such a case, the effect of the judges approach is not to blame employers for not ploughing a lone furrow; rather, it positively blames them for ploughing a lone furrow but not doing so deeply enough.
When Mustill J spoke of changes in social awareness (p 415H), he was referring to changes leading to a general raising of the standard which average employers were expected to observe, not of individual employers spear heading such changes by forming the view that the standard should be raised.
In my view, therefore, no real basis was shown for treating Courtaulds and Pretty Polly differently.
On this aspect of the appeal, I would only add two points: first, had I considered there to be a sound basis for treating Courtaulds and Pretty Polly as having relevantly different and greater knowledge than average employers, I would see no basis for the Court of Appeals addition of Quantum into the same special category; Lord Dyson and Lord Saville agree, I understand, that there was no such basis; secondly, since Lord Dyson does not share the view that the judge should not have treated even Courtaulds and Pretty Polly as falling into a special category (see para 104 below), it follows that there is no majority in favour of this view and that (in reflection of the common ground between Lord Dyson, Lord Saville and myself), the appeal should be allowed only to the extent of restoring the judges decision in this regard. (b) Was the Code of Conduct an acceptable standard for average employers?
In my opinion, the respondent is correct in submitting that the real question is the sustainability of the judges conclusion that the Code of Practice constituted an acceptable standard for average employers to adhere to during the 1970s and 1980s.
The Court of Appeal expressed agreement with the judges conclusion that the Code of Practice remained a generally acceptable standard.
Smith LJ stated that this conclusion cannot be faulted and that I would uphold his view that there was no breach of the duty at common law during the period for which a responsible body of opinion regarded it as acceptable to expose employees to noise in the 85 89dB(A)lepd range (para 105).
Endorsing, in effect, the judges approach of distinguishing between employers with average and greater than average knowledge, she concluded para 105 by saying: I consider that, for the employer with the ordinary or average degree of knowledge, the judge's conclusion that that period came to an end in 1987, following publication of the second European draft directive, was a reasonable conclusion, although, left to myself, I would have said that the publication of the first draft directive in 1982 would have put all employers on notice that it could no longer be regarded as acceptable or reasonable to leave this group of employees exposed.
Turning to examine the different dates of common law liability which the judge had imposed, Smith LJ identified the issue as being when employers should have realised that it was no longer to be regarded as acceptable to disregard the risk to some of their employees from exposure to 85 89dB(A)lepd, of which they should, because of the Code of Practice, have been aware from 1972 (para 107).
As regards Courtaulds, she regarded the judges conclusion as plainly justified, saying that By 1983, they could no longer have thought that a responsible body of opinion took the view that it was acceptable to ignore the risks of harm below 90dB(A)lepd (para 107).
However, that appears to say that from 1983 there was no responsible body of opinion in favour of relying on the Code of Practice, and, if so, it should on its face have led automatically to a conclusion that no reasonable employer could do so.
Nonetheless, Smith LJ went on to consider the state of Pretty Pollys awareness about the need to take action and the 1982 draft directive and of Quantums awareness of the draft directive.
After noting Quantums awareness of the draft directive, she accepted Mr Hendys submission that it was irrational to say that, because the group was smaller than Pretty Polly or Courtaulds and operated as individual companies without the benefit of central advice on health and safety issues, they should be treated differently from the other two employers (para 109).
While Smith LJ ostensibly viewed the issue (as the judge did) as depending upon analysis of each individual employers position, in reality her approach seems to suggest a conclusion that the Code of Practice ceased to be an acceptable standard for any responsible employer in 1982.
In effect, the Court of Appeal appears to have disagreed with HHJ Ingliss conclusion that the period during which a reasonable employer could rely upon the Code of Practice continued until 1987.
The basis for this, despite the passage concluding para 105 of Smith LJs judgment, quoted above, appears to have been the publication in 1982 of the first draft directive.
The judges conclusion in para 87 was the product of a lengthy trial, and was based on extensive expert evidence.
The Code of Practice itself repeatedly refers to a limit defined in section 4.3.1 in relation to continuous noise exposure as 90dB(A)lepd: see e.g. sections 2.2.1, 3.1.2, 4.1.1, 4.2.1, 5.1.1, 6.1.3, 6.7.1 and 7.1.1.
It also says that Where it is reasonably practicable to do so it is desirable for the sound to be reduced to lower levels (section 4.1.1), but this has to be read with section 6.1.3, which states: Reduction of noise is always desirable, whether or not it is practicable to reduce the sound level to the limit set out in section 4, and whether or not it is also necessary for people to use ear protectors.
Reduction below the limit in section 4 is desirable in order to reduce noise nuisance.
When addressing section 29(1) of the Factories Act 1961, the Court of Appeal said (para 101) that, although the Code of Practice was not irrelevant, it was, in itself, plainly inadequate as an assessment tool, in that it advised only that there was some risk to susceptible individuals from exposure below 90dB(A)lepd; and it went on to conclude that the publication of BS 5330 in July 1976 could and should have enabled any average sized employer in the knitting industry, with the assistance of anyone with a modest degree of mathematical skill or any consultant acoustic engineer, to make an informed assessment of the quantum of risk arising from noise below 90dB(A)lepd.
These statements are not on their face easy to reconcile with the judges findings (in particular in paras 46 48 and 87).
However, they were made in the course of considering the issue of reasonable practicability under section 29, and on the basis that it was irrelevant in that context whether a reasonable employer could reasonably rely upon the Code of Practice as setting an acceptable standard of conduct in relation to exposure of employees to noise: see paras 89 and 100 (quoted in para 75 below).
Even if regarded as consistent with the judges findings, they do not therefore bear on the question whether the Code of Practice provided such a standard.
In any event, however, I do not consider that examination of the underlying statistical material undermines either the appropriateness or relevance of the Code of Practice as a guide to acceptable practice.
Both the Code of Practice and BS 5330 were based on the research and statistics developed through the work of Burns and Robinson.
BS 5330 itself stated that determination of a maximum tolerable noise exposure was outside its scope, that it involved consideration of risk in relation to other factors, and that for occupational exposure a limit was specified by the Code of Practice (para 15, above).
The respondent in fact accepted in the Court of Appeal that there was no basis in this case for going behind the Code of Practice, while submitting that the Code was enough for her purposes (Core II, pp 749 750).
If general standards of, or attitudes to, acceptable risk are left out of account, the statistical tables contained in the NPL tables, BS 5330 and ISO1999 could be used to suggest that no reasonable employer could from the early or mid 1970s expose his employees to noise exceeding 80dB(A)lepd.
This would not be consistent with the contemporary recognition of the Code of Practice as setting a generally appropriate standard in BS 5330 itself as well as in other documents such as Noise and the Worker and the Industrial Health Advisory Committee report of 1975 (see para 15 above).
The statistically identified risks at levels between 80dB(A)lepd (currently, at least, identified with no risk) and 90dB(A)lepd do not enable any easy distinction to be drawn within that bracket, if the elimination of all statistical risk is taken as a criterion.
This is highlighted by consideration of the tables in BS 5330: 1976 upon which the respondent and the Court of Appeal (para 101) have relied to show the risk attaching at levels of exposure between 85 and 90dB(A) lepd.
The same tables can be used to demonstrate the existence of risks (in terms of the percentage of persons exposed attaining or exceeding a mean hearing level of 30dB) arising below noise levels of 85dB(A)lepd.
Caution is necessary because of the inherent inaccuracy, and tendency to exaggerate, of the NPL tables, and to the extent that they were based on them, the BS 5330: 1976 tables at all levels below 90dB(A) (para 15 above).
But another, separate problem, which also applies to the ISO1999 tables, is that reliance on such tables as demonstrating the existence of a risk which needed counter acting makes it necessary to confront the question on what basis any distinction exists between say an increase by an additional 6% in the level of risk for 60 year old persons who have been exposed for 40 years at 86dB(A)lepd and by 5% for such a person so exposed at 85dB(A)lepd or by 4% for such a person so exposed at 84dB(A)lepd.
The equivalent increases for 60 year olds so exposed for 30 years would be 52, 42, and 32%, and for 60 year olds exposed for 20 years, 4, 3 and 2%.
Consistently with this, the respondent did argue before the judge that 80dB(A)lepd was the only acceptable limit.
But, despite this, the judge concluded that any risk below 85dB(A)lepd was minimal (para 26), and that the risk between 85dB(A)lepd and 90dB(A)lepd was at the relevant times an acceptable risk for reasonable employers without greater than average knowledge to take.
The judge, correctly, did not resolve the issues before him by considering statistical extrapolations at low levels of exposure, but by forming a judgment on the whole of the expert, documentary and factual evidence adduced before him.
On the issue whether there was an acceptable contemporary standard to which reasonable employers could adhere, in the light of the terms of the Code of Practice and on the basis of the expert evidence, HHJ Inglis held (para 48) that the 90dB(A)lepd level was regarded . as the touchstone of reasonable standards that should be attained.
Confirmation existed in notes published by the Wolfson Unit for Noise and Vibration Control in the University of Southampton.
These were intended to supplement a series of seminars held round the country in the autumn of 1976 on the theme "Industrial Noise The Conduct of the Reasonable and Prudent Employer".
The seminars were intended "primarily for company lawyers, solicitors, insurance claims and risk assessors, safety officers, medical officers and others with interests in occupational hearing loss".
The notes were, the judge said, strong evidence of the prevailing advice being given to people in industry concerned with noise at that time.
They described the 1972 Guidelines as establishing a comprehensive "damage risk criterion" based on 90dB(A)lepd, and said that they had been actively promulgated by the Factory Inspectorate.
In discussing the emerging principles of legal liability for noise induced hearing loss, the authors said: Over the last 15 years knowledge as to the relationship between noise and deafness has grown and become more precise .
Today a reasonable employer ought to know that to expose an employee to noise in excess of 90dB(A) for eight hours or its equivalent is potentially hazardous.
It also seems a fair assumption that the reasonable employer should have known of the criteria set out in "Noise in Factories" and "Noise and the Worker" by the mid 1960s." The introduction in 1974 and continuance in force at all times thereafter of woodworking and tractor regulations based on maximum exposures of 90dB(A) reinforce this comment (para 15, above, and para 56, below).
At least until the mid 1980s, there were still many people employed in industry exposed to over 90dB(A)lepd, and the approach of enforcement agencies and others was to concentrate on them (HHJ Inglis, para 48).
The expert evidence before the judge also included the following, summarised by him in paras 46 48: 46.
There was evidence given by the expert witness engineers for Courtaulds (Mr Bramer and Mr Currie) about the approach to control of noise in the period from the 1970s in industry.
The report of Mr Worthington for Pretty Polly and Guy Warwick is also in evidence.
To Mr Bramer, the guidance in Noise and the Worker and the 1972 Guidelines provided a clear and consistent recommendation to employers as to how they ought to deal with noise in the workplace.
The result was that in his practice, his invariable advice until the late 1980s, was that the relevant level was a daily personal noise exposure of 90dB(A).
This approach, he said, was standard during the period up to 1989 among noise professionals, and taught at training courses.
In the mid 1980s, when it appeared that EEC regulation would involve a first action level of 85dB(A) his advice changed to reflect that.
He was not aware of the NPL tables before the 1980s when he found that they were being used by medical experts writing reports for the purpose of deafness claims.
He has never come across them being used in any part of industry.
In evidence Mr Bramer said that he gave advice to employers in terms of complying with the 1972 Code.
He was speaking to the 90dB(A) level, as were all his colleagues.
He agreed that the advice would be to answer the question Tell us how to comply with legislation and the Code of Practice, rather than Tell me how to avoid reasonably foreseeable risk to my workforce.
He would have recommended 90dB(A) as the cut off point, but would also have said that does not actually stop some more susceptible people from having some small noise induced hearing loss.
If asked about risk, he would have had some difficulty, and regarded the question as more one for medical people. 47.
Mr Currie said that the Health and Safety Executive and factory inspectors after the Health and Safety at Work etc Act 1974 concentrated their advice and enforcement on the 90dB(A) level.
He was not aware of any instance in which the NPL tables had been used by employers to predict the level of risk for their workforce.
In evidence Mr Currie said that good practice won't necessarily remove all risk.
He agreed that there has been no very different understanding about noise induced hearing loss since the 1970s.
The first thing to look at when deciding on practices, which is what employers have to do, is to look at the guidance available.
Mr Worthington's report is to the effect that employers looked to the 90dB(A) limit in the Code of Practice as the maximum acceptable limit, and that the Factory Inspectorate and HSE did not refer employers to the risks below that limit as risks about which they should take action.
That was the practice of the day, and employers taking advice, if they did, would be referred to the standard in the Code as being what had to be observed. 48.
It is clear from some of the documents referred to above that by the beginning of the 1980s there were still many people employed in industry exposed over 90dB(A)lepd, and that the approach of enforcement agencies was to concentrate on those people.
The evidence of the engineers referred to above suggests that that was a common approach until at least into the mid 1980s.
That the 90dB(A)lepd level was regarded, as is the effect of the evidence of the engineers referred to above, in industry as the touchstone of reasonable standards that should be attained is evidenced by notes published by the Wolfson Unit for Noise and Vibration Control in the University of Southampton in 1976.
Mr Bramer and Mr Currie were independent engineers called as witnesses at trial.
There is no suggestion that they were employed by or advisers to Courtaulds or any of the other employers involved in this case at any date relevant to liability in this litigation.
The judge was clearly impressed by their evidence.
Whatever critique might, with hindsight, be directed at the advice or approach they said was being given or taken in respect of employers does not alter the fact that this was the contemporaneous advice and approach, upon which the judge found that reasonable employers could generally rely, unless they fell into his category of employers with greater than average knowledge.
The Court of Appeal attached considerable relevance to employers awareness of the first draft directive prepared by the Commission in October 1982.
As I have observed, the court did not accurately place the position of this directive in the development of legislation at the European level (para 15 above).
More importantly, a Commission draft is only a proposal for legislation by the Council of Ministers, and no reliance was or is placed on any underlying material which may, or may not, have been produced in its preparation or support.
The first draft directive was proposed by the Commission as a basis for legislation in 1982, proved controversial, and was withdrawn in 1984.
It was superseded by a differently framed legislative proposal, agreed by the Council of Ministers in May 1986, which gave member states until 1 January 1990 to bring into force provisions complying with the directive.
In the light of the above, there is, in my opinion, no basis for the court to disturb the judges conclusion in para 87 that the Code of Practice was an official and clear guidance which set an appropriate standard upon which a reasonable and prudent employer could legitimately rely in conducting his business until the late 1980s.
Before leaving this aspect, it is also worth noting one further small indication of the consistency of the judges conclusion with informed contemporary attitudes.
The relevant level of noise exposure above which a reasonable employer should take protective steps was of direct relevance in the early case of noise induced hearing loss, Kellett v British Rail Engineering Ltd (Popplewell J, 3 May 1984).
The strength of the representation attests to the importance attached to the issues.
On the facts and in the light of agreed expert evidence, Popplewell J recorded that there had been exposure for long periods initially in the period 1946 to 1955 below 90dB(A) and then in the period 1955 to 1979 above 90dB(A), and proceeded on the basis that The level of 90 is generally recognised as being a figure above which it is necessary for precautions to be taken.
That was the basis on which it was accepted that the defendants, who had taken no precautions until 1979, were negligent. (c) What period should be allowed for implementation of any different standard?
It follows, in relation to all the employers before the court, that the date when they should have been aware that it was no longer acceptable simply to comply with the Code of Practice was the date identified by the judge as applicable to Quantum and Guy Warwick, that is the time when the terms of the 1986 directive became generally known in the consultative document of 1987 (para 87).
Dealing with this point, Smith LJ said (para 105): I consider that, for the employer with the ordinary or average degree of knowledge, the judge's conclusion that that period came to an end in 1987, following publication of the second European draft directive, was a reasonable conclusion Adding a further six to nine months for implementing protective measures (instead of the judges period of two years), she went on to conclude (para 106) that: In case it should ever become material, I would fix the date for breach of common law duty for the average employer at January 1988.
Leaving aside for the moment the difference in the period allowed for protective measures, that approach does not reflect the nuances of the judges finding.
The consultative document was issued in 1987, but seeking responses no later than 30 June 1988.
Its terms would have become generally known during the period of consultation, which was to last to 30 June 1988.
The judge was prepared to add a period of two years for putting a conservation programme into action, accompanied by information and instruction (para 88).
This would bring the period before ear protection would have to be made available to those exposed to noise levels over 85dB(A)lepd to 1 January 1990, the date when the Directive and Regulations under it anyway required such protection to be made available to them.
I therefore understand the judge as having held that Quantum and Guy Warwick had no potential common law liability in negligence before 1 January 1990.
The judge, in taking two years as the appropriate period for putting a conservation programme into action, accompanied by information and instruction, referred to a further passage in Thompson.
Mustill J there said (pp 423 424): From what date would a reasonable employer, with proper but not extraordinary solicitude for the welfare of his workers, have identified the problem of excessive noise in his yard, recognised that it was capable of solution, found a possible solution, weighed up the potential advantages and disadvantages of that solution, decided to adopt it, acquired a supply of the protectors, set in train the programme of education necessary to persuade the men and their representatives that the system was useful and not potentially deleterious, experimented with the system, and finally put it into full effect? This question is not capable of an accurate answer: and indeed none is needed, as will appear when the scientific aspects of the case are considered.
Various years were selected as rough markers, for the purpose of argument.
I reject without hesitation the notion that the date lay somewhere in the years immediately preceding and following the Second World War.
It was not until 1951, with the inconspicuous entry of the V 51R into the United Kingdom market that even a really enlightened employer would have started to ask himself whether something could be done.
Even then, I consider that it pitches the standard of care too high to say that an employer would have been negligent, from that date, in failing to find, decide upon, and put into effect a system of using the protectors then available.
At the other extreme, I consider that the choice of a date as late as 1973 cannot be sustained.
The problem, and the existence of different ways in which it might have been combated, had been well known for years; there had been devices which were both reasonably effective, and reasonably easy to wear; and if the employers did not know precisely what they were they would have had no difficulty in finding out.
All this being so, I conclude that the year 1963 marked the dividing line between a reasonable (if not consciously adopted) policy of following the same line of inaction as other employers in the trade, and a failure to be sufficiently alert and active to measure up to the standards laid down in the reported cases.
After the publication of Noise and the Worker there was no excuse for ignorance.
Given the availability of Billesholm wool and reasonably effective ear muffs, there was no lack of a remedy.
From that point, the defendants, by offering their employees nothing, were in breach of duty at common law.
The Court of Appeal disagreed with HHJ Ingliss period of two years on the basis that he was allowing time not merely for the provision of ear protectors but also for the noise measurement and policy decisions which preceded the actual provision of protection and that, by the time when employers should have appreciated the need for noise protection below 90dB(A), they must be taken to have known already to which workshops that applied (para 106).
In paras 32 and 48 of her judgment, Smith LJ also noted that Courtaulds noise committee had over a period of a year (between March 1983 and March 1984: see para 52 of HHJ Ingliss judgment) identified areas of over 90dB(A)lepd and areas of 85 to 90dB(A)lepd.
There is a paucity of evidence in this area of the case.
It is common ground that some period should be allowed, and the period chosen by the judge fits with periods chosen by courts in other contexts see e.g. Armstrong v British Coal Corporation [1998] CLY 975, para 2842, Smith v Wright & Beyer Ltd [2001] EWCA Civ 1069, para 6, and Brookes v South Yorkshire Passenger Transport Executive [2005] EWCA Civ 452, paras 22 23 (and, less clearly on this point, Doherty v Rugby Joinery (UK) Ltd [2004] EWCA Civ 147; [2004] ICR 1272, paras 21 and 33 35) as well as with periods commonly allowed for the implementation of new health or safety measures, e.g. under Directive 86/188/EEC and the Noise at Work Regulations 1989 which gave effect to it domestically.
I do not see how it can be said that all employers who exposed their employees to noise levels between 85 and 90dB(A)lepd up to the end of 1987 must, Smith LJs words (para 106) by that time be taken to have known already to which workshops the provisions of the Directive and Regulations would apply.
An employers duty towards a particular employee depends upon the circumstances of that particular employees employment.
Smith LJ appears to have derived the duty to have measured noise levels from the fact or likelihood that there were other employees exposed elsewhere by the relevant employers to noise levels exceeding 90dB(A)lepd (paras 92 93).
But the relevant circumstance is that none of the employees to whom this case relates were employed in circumstances where they were exposed to noise levels exceeding 90dB(A)lepd.
Accordingly, the relevant employers were not, on the judges findings, under any duty to take further steps.
The Code of Practice only stipulated that All places where it is considered the limit in section 4 may be exceeded should be surveyed (section 5.1.1).
The limit referred to in section 4 for continuous exposure was that If exposure is continued for eight hours in any one day, and is to a reasonably steady sound, the sound level should not exceed 90dB(A) (section 4.3.1).
I do not therefore consider that the basis on which the Court of Appeal interfered with the judges conclusion on this point was justified.
Had my view prevailed that Courtaulds were in no significantly different position from Quantum and Guy Warwick as regards the date when they should have taken further steps to protect employees against the risk of hearing loss, I would still have held Courtaulds position to differ in one material respect.
At this point it would have been relevant that they were to some extent already ploughing a lone furrow.
By mid 1984 they had in fact undertaken the relevant noise surveys and they already knew to which workshops the issue of exposure between 85 and 90dB(A)lepd applied.
Accordingly, in relation to Courtaulds alone, I would have seen force in the view that a period of no more than nine months was long enough to perfect such steps as they were already contemplating.
Bearing in mind that the consultation paper, on which the judge based the date by reference to which employers generally should have begun to take action, was open for responses until mid 1988, I would have taken the end of 1988 as the latest date by when Courtaulds should have had full and effective protective measures in place for employees exposed to noise between 85 and 90dB(A)lepd.
But since (as stated in paragraph 25 above) the judges view will prevail that Courtaulds were (along with Pretty Polly) in a special position, and should have acted to take further steps from the start of 1983, they too must in my view be entitled to the two years allowed by the judge for the actual implementation of such steps, making them liable as the judge held from the start of 1985.
The Factories Act 1961
In relation to the scope and application of section 29(1) (set out in para 11 above), the Court of Appeal disagreed substantially from the judge, holding that the section involves a significantly more stringent standard of liability than any arising at common law.
Several important issues arise on which there is no prior authority at the highest level: whether section 29(1) applies at all, where the claim relates not simply to the workplace, but to activities carried on at it; whether it applies to risks of noise induced hearing loss arising from such activities in relation to long term employees working in the place; whether the safety of a place is an absolute and unchanging concept or a relative concept, the practical implications of which may change with time; and what is meant by so far as is reasonably practicable and how it relates to the concept of safety.
(i) Lack of safety arising from activities
The first issue concerns the extent to which a place can be rendered unsafe by activities carried on at it.
The appellants rely on the background to section 29(1) to argue that it cannot.
Section 29 re enacts section 26 of the Factories Act 1937, as amended by section 5 of the Factories Act 1959.
Section 26, as originally enacted, did not have wording corresponding with the second part of section 29(1).
The words and every such place shall, so far as is reasonably practicable, be made and kept safe for any person working there were added by section 5 of the 1959 Act.
The amendment adding them was proposed late in the passage of the bill.
It was felt to be a real fault and a gap in the existing legislation that it covered only the means of access to, and not the safety of, the place of work.
The Minister, Mr Macleod, accepted the idea, and, ultimately accepted in substance the whole amendment (House of Commons Standing Committee B, 12 March 1959, 17th Sitting, cols 747 752).
There had been a series of prior cases in which courts had had to distinguish, less than happily, between the place of work and means of access to it, and to reject claims on, for example, the ground that the employee was injured at his workplace on his way to the lavatory, rather than on his way to his workplace: see Davies v de Havilland Aircraft Co Ltd [1951] 1 KB 50; Rose v Colvilles Ltd 1950 SLT (Notes) 72; Dorman Long & Co Ltd v Hillier [1951] 1All ER 357 and Prince v Carrier Engineering Co Ltd [1955] 1 Lloyds Rep 401.
Looking at the matter today, one might perhaps have expected responsibility for the safety of the workplace to be a subject for legislative attention even before responsibility for the means of access to it.
But, for whatever reason, that was not the original statutory scheme.
The gap was filled by the 1959 amendment.
In considering the scope of the words added, Mr Beloff QC, on behalf of the first appellant, submits that the means of access looks to physical dangers or obstructions, that section 29(2) is likewise clearly focused on the physical risks inherent in working at height, and that the whole section is part of a scheme of criminal liability, from which any civil liability only follows by judicial interpretation (Taylor v Coalite Oils & Chemicals Ltd (1967) 3 KIR 315, 318, per Diplock LJ).
This last point has some, though only limited, force, for two reasons.
First, the criminal liability is under the Act imposed on the occupier or, in certain cases not presently relevant, on the owner of the factory.
That to my mind suggests that responsibility under section 29 is likely to attach to matters over which an occupier (typically of course the employer him or itself) would be expected to have control.
But such matters would include not merely the physical state of the premises, but also, at least, the carrying on there of regular activities.
Secondly, a person is not to be put in peril upon an ambiguity, however much the purpose of the Act appeals to the predilection of the court (London and North Eastern Railway Co v Berriman [1946] AC 278, 313 314, per Lord Simonds).
However, it is only if the section is ambiguous, unclear or open to two reasonable interpretations that its penal effect may indicate the narrower construction (Franklin v Gramophone Co Ltd [1948] 1 KB 542, 557, per Somervell LJ), and courts should remember that the Factories Act is a remedial measure passed for the protection of the workmen [which] must, therefore, be read so as to effect its object so far as the wording fairly and reasonably permits (Harrison v National Coal Board [1951] AC 639, 650, per Lord Porter; McCarthy v Coldair Ltd [1951] 2 TLR 1226, per Denning LJ).
Mr Beloff is however also right to remind the Court that it is always necessary to consider in what respects and to what extent the Act involves remedial measures.
Mr Beloff QC submits that there are three possible interpretations of section 29(1): a minimalist, a maximalist and a middle way.
The minimalist would involve treating the section as confined to intrinsic aspects of the physical place, ignoring any activities carried on there.
With the possible exception of the Delphic rejection of the claim under section 29 by Mustill J in Thompson at p 449C D, there appears to be no reported case rejecting a claim under that section on this basis.
Reference was made to the interpretation given to section 25(1) and by extension section 26(1) of the 1937 Act: in Latimer v AEC Ltd [1953] AC 643, the House held that section 25(1), which in its then form provided: All floors, steps, stairs, passages and gangways shall be of sound construction and properly maintained, was not breached when a structurally sound factory floor became wet and oily after a flood due to an unusually heavy rainstorm; and that approach was then applied under section 26(1) in Levesley v Thomas Firth & John Brown Ltd [1953] 1 WLR 1206 (CA), where in the course of some loading operations a block of iron was left temporarily protruding three inches out into a gangway, used as a means of access.
This restriction of the word maintained in relation to the means of access has been strongly criticised in successive editions of Munkmans Employers Liability at Common Law, and there is no reason to extend it to the words be made and kept safe which govern the duty, first introduced in 1959, in relation to the safety of the workplace.
Indeed, it is clear from the Parliamentary materials that the words and kept were introduced specifically with the Latimer case in mind, and to make clear that employers should so conduct their business as to see that a workplace did not become unsafe.
The examples were given of overstocking or slippery substances left on the floor (Factories Bill, Standing Committee B, 12 March 1959, cols 749 750).
A workplace may therefore be unsafe because of some feature which is neither structural nor permanent.
But this does not determine whether a workplace may be unsafe by reason of operations carried on in or at it.
Mr Beloff submits that the law took a wrong turn in Evans v Sant [1975] QB 626, when the Divisional Court initiated what he described as a middle approach which was later followed by the Court of Appeal in Wilson v Wallpaper Manufacturers [1982] CLY para 1364 and Homer v Sandwell Castings Ltd [1995] PIQR P318.
In Evans v Sant, the Divisional Court (Lord Widgery CJ, Bridge and Shaw JJ), on a case stated by magistrates after conviction, said that the guiding light in their approach was that in deciding whether the place of work was made safe, it is the place qua place that we look at, and not the place qua operation carried on upon the place (p 635G H).
But Lord Widgery CJ then went on (pp 635H 636B) That does not mean of course that in deciding whether the place is made safe one has total disregard for the activities which go on in the place itself.
The safety of the place depends not simply on the construction of the floor or the solidity of the walls, but it also depends in some degree upon the nature of the operations carried on therein.
In so far as there is permanent equipment in the place, then its safety can in my judgment reflect on the safety of the place.
In so far as there are activities carried on in the place which are constant, regular and recurring, I can well see that they may have their impact on the question of whether the place has been made safe.
In Evans v Sant, even this relaxed or middle approach did not enable the prosecution to succeed.
The facts were that, in the course of laying a water main, a test head was attached between the pipe and a pump to test the water pressure, but it was insecurely fitted and, as pressure built up, it blew off, causing the death of a workman who ran into the path of a passing car.
In allowing the defendants appeal against conviction, Widgery CJ said, at p 636, that: where, as in the present case, you start with a place safe in every degree, and the only thing which renders it unsafe is the fact that equipment brought upon it for a particular operation, and being used for a particular operation on a particular day, produces an element of danger, it seems to me that that is not enough to justify the allegation, certainly in criminal proceedings, that the place itself has not been made safe.
In Homer v Sandwell Castings Ltd, a civil claim failed because the danger did not arise from any static condition of the place of work, but arose from the operation upon which the plaintiff was engaged (p 320, per Russell LJ).
The employee had noticed a slight leak through sand paste, which he had himself introduced to seal a gap, but had carried on working, with the result that an eruption of molten metal through the seal fell onto his foot.
The appellants support their case on section 29(1) by reference to the layout as well as other specific sections of the 1961 Act.
These, they submit, are only consistent with a limited interpretation, confining it to physical dangers inherent in the structure.
They point out that section 55 addresses any process or work carried on or to be carried on in any premises used or intended to be used as a factory; it gives a magistrates court power, if satisfied that such process or work cannot be so carried on with due regard to the safety, health and welfare of the persons employed, to prohibit the use of the premises for that process or work.
They also point to various other sections designed to address problems arising from operations carried on in premises.
For example section 4 requires suitable and effective provision for circulation of fresh air, and for rendering harmless, so far as practicable, all such fumes, dust and other impurities generated in the course of any process or work carried on in the factory as may be injurious to health; section 14 requires (with immaterial exceptions) Every dangerous part of any machinery [to] be securely fenced unless it is in such a position or of such construction as to be as safe to every person employed or working on the premises as it would be if securely fenced; and section 27 requires all parts and working gear to be of good construction, sound material, adequate strength and free from patent defect, and properly maintained.
However, the sections of the Act are not exclusive codes in relation to their particular subject matters (see e.g. Liptrot v British Railways Board [1969] 1 AC 136), and it is not axiomatic that there cannot be overlap between the application of two different sections.
It seems to me good sense to describe a workplace as unsafe, if operations constantly and regularly carried on in it make it so.
It is unnecessary to comment on the decisions on particular facts, but section 29(1) cannot in my opinion have a narrower meaning than that given it in Evans v Sant and the later cases following Evans v Sant.
To take another example, a place may well, as it seems to me, be unsafe by reason of activities carried on in it, e.g. if a shop floor were to be constantly crossed by fork lift trucks passing from a store on one side to somewhere else on the other side of it.
In the present case, the noise generated by knitting and other machines was a permanent feature of the operations which were intrinsic to the workplace.
If the section is directed to noise at all, then such noise must, on the approach taken in Evans v Sant, make the place unsafe.
It is unnecessary to say more on the facts of this case.
(ii) Lack of safety arising from noise
The second issue is whether section 29 is directed to noise.
This is more open to question.
There is much to suggest that noise was not in the legislatures mind at all, when section 26(1) of the 1937 Act was expanded to cover the safety of the workplace in 1959 and later re enacted as section 29(1) of the 1961 Act.
Further, the relevant noise is not noise of a literally deafening nature, causing immediate injury.
It is noise which would only injure some people and then only if they were exposed to it for continuous periods lasting many years.
The appellants submit that a requirement that the workplace be made and kept safe for any person working there is inapt to cover a situation where many or all of the persons working there may never be at any risk, because they have not been there long enough and may never be, or because they may not be susceptible to suffering such noise induced hearing loss.
The appellants further submit that the fact that the principal protective measure suggested consists in the provision of ear protectors, rather than any corrective measures affecting the workplace itself or any regular feature of it, indicates or suggests that section 29(1) is inapplicable.
I am not impressed by this point.
If a workplace can be unsafe for employees by reason of constant and regular activities carried on at it, I do not see why it should not be rendered safe by counter acting measures of an equally constant and regular nature relating to the clothes or equipment worn by employees.
On the other hand, the scheme of the 1961 Act does indicate that, even though section 29(1) is to be read as indicated in Evans v Sant, it is essentially dealing with safety, rather than health.
Safety typically covers accidents.
Health covers longer term and more insidious disease, infirmity or injury to well being suffered by an employee.
Hearing loss, at least of the nature presently in issue, falls most naturally into this latter category.
The 1961 Act is divided into Parts, the first four being headed (I) Health (General Provisions), (II) Safety (General Provisions), (III) Welfare (General Provisions) and (IV) Health, Safety and Welfare (Special Provisions and Regulations).
Part I comprising sections 1 to 11 deals with cleanliness, overcrowding, temperature, ventilation, lighting, drainage of floors, sanitary conveniences, and enforcement powers; while Part II contains, in addition to section 29, a wide variety of sections covering inter alia machinery, dangerous substances, hoists, lifts, openings and doorways, chains, ropes, lifting apparatus, floors, passages and stairs, fumes and lack of oxygen in confined spaces, explosive or inflammable dust, vapour or substance, boilers, means of escape and fire.
The general distinction between health and safety provisions was also present in the 1937 Act, and significance was attached to it in Clifford v Charles H Challen & Son Ltd [1951] 1 KB 495, 498, per Denning LJ and Ebbs v James Whitson & Co Ltd [1952] 2 QB 877, 886, per Hodson LJ.
As to the legislative mind set in 1959 and 1961, the government promoting the 1959 Act made no mention of noise.
The only relevant reference to noise by any MP in debate concerned the possibility that the minister might take advice on and look more closely at noise, with a view to making regulations under section 60 of the 1937 Act as amended (later section 76 of the 1961 Act), enabling the minister to make regulations where satisfied that, inter alia, any process was of such a nature as to cause risk of bodily injury.
Likewise, when the Offices, Shops and Railways Premises Bill came before Parliament in November 1962 and March 1963, comments were made on the absence of any provision dealing with noise.
Initially, the minister directed attention to the general power to make regulations for securing health and safety, but ultimately section 21 was included, specifically permitting regulations to protect from risks of bodily injury or injury to health arising from noise or vibrations.
The minister in the House of Lords commented on section 21: This is a new subject, on which we still have much to learn (House of Commons, 2nd reading, 15 November 1962, Hansard cols 615, 618 619 and House of Lords 2nd reading, 18 March 1963, Hansard, col 948).
It was not until April 1960 that Sir Alan Wilsons committee was set up to report on noise, and only in March and July 1963 that it issued interim and final reports.
The main focus was on ambient noise and, in discussing the general effects of noise in chapter II, the report said, in relation to noise in a working environment, merely that it may disturb concentration, and perhaps affect the efficiency of someone working at a difficult or skilful task; it may affect personal safety.
In outlining the law relating to noise in chapter III, the report identified the common law of nuisance and the Noise Abatement Act 1960.
However, chapter XIII addressed occupational exposure to high levels of noise.
It noted that it had been established that a permanent reduction of hearing sensitivity can occur in people who are exposed for long periods to noisy environments, such as are found in some industries (para 513).
But it made clear the understanding that there was no existing legislation applicable to such noise and no sufficient basis for introducing any without further research.
It said (para 534): Although voluntary action is now possible and, indeed, essential, we do not consider that the present knowledge of this complex problem provides a sufficient basis for legislation.
Although the levels of continuous, broadband noise which represent a hazard to the hearing of people who are exposed to them for long, unbroken periods have been established within certain margins of error, many uncertainties remain.
There is no satisfactory means of predicting the susceptibility of individuals to hearing loss, nor is the distribution of susceptibility known; the comparative danger of noises in which energy is concentrated in narrow frequency bands is not determined; nor is the influence on hearing loss of impulsive noises, which are common in industry.
Neither is there much information on the physical properties of industrial noise, the distribution of noise of any given type in industry and the practicability of minimising those properties which are found to be dangerous to hearing.
If early legislation were introduced it could do no more than lay down general standards, the effect and cost of which cannot at present be estimated.
If the standards adopted proved to be too severe in some respects the industries affected might be exposed to heavy unnecessary expenditure; on the other hand if minimum standards were adopted, these would tend to suggest that compliance with these standards was all that was needed even in parts of industry where there were important hazards at lower sound pressure levels or with shorter exposure.
Legislative insistence on the wearing of ear protectors would be particularly difficult to introduce until there is a wider recognition of the need for them in noisy industries.
Early legislation would, therefore, have to be very general in its terms and it would be impossible to enforce effectively.
We think that, at present, it would not achieve as much as vigorous voluntary action.
In our view, before practical legislation could be considered, it would be necessary to establish the extent of the risk to average people of exposure to industrial noise, and the cost and possibility of measures which would effectively reduce this risk to the point which, on balance, was regarded as acceptable.
In paras 535 536, the report suggested a further research programme, to be followed by more detailed surveys of individual industries and processes, and then, when the results of such surveys were available, consideration by government whether the time has not then come to lay down by legislation minimum standards to protect workers against damaging noise exposure in industry.
The Annual Report of HM Chief Inspector of Factories on Industrial Health for 1965 (Cmnd. 3081) also stated at p 79 that At present there is no legislation requiring the control of noise in factories, nor is occupational deafness prescribed under the National Insurance (Industrial Injuries) Act 1965.
The problem was examined in detail by the Wilson Committee, whose report was published in 1963.
They concluded that the knowledge then existing was insufficient to enable legislation to be made.
They advocated research and indicated some of the lines this should take.
At present a very great deal of research is being conducted by various bodies.
The Report of a Committee chaired by Lord Robens in 1970 72 (Cmnd 5034) referred to the Wilson Committees words (para 341), but went on to record the research recorded in Prof Burnss and Dr Robinsons 1970 report, Hearing and Noise in Industry.
The research had established a system of predicting on a statistical basis the hearing deterioration to be expected for specified exposures within a wide range of industrial noise and the report had amongst other things suggested that workers should not be consistently exposed over long periods to a noise emission level higher than 90dB(A) (para 342).
Robens then mentioned that industrial noise had now become a live issue in the field of compensation claims, referring to a case where a court awarded damages for the first time (para 344).
This must have been Berry v Stone Manganese and Marine Ltd [1972] 1 Lloyds Rep 182, where a claim for common law negligence succeeded in respect of noise which amounted to about 115 to 120 decibels, whereas the tolerable noise is about 90 and no ear muffs had been provided (p 184).
A claim under section 29(1) was in fact also introduced by amendment at trial.
It was not argued on the basis of failure to provide ear muffs, but of alleged failure to reduce the actual noise level as far as reasonably practicable, and it failed on the facts.
Robens continued that, since the relationship between exposure to certain levels of noise and hearing loss [was] now recognised the time was ripe to include basic requirements on noise control in occupational safety and health legislation (para 345).
Lord Robenss recommendation stimulated the inclusion of regulation 44 in the Woodworking Machines Regulations 1974 (SI 1974/903) made under section 76 of the 1961 Act.
In relation to factories using woodworking machines, regulation 44 requires that, where on any day any person employed is likely to be exposed continuously for eight hours to a sound level of 90dB(A) or equivalent or greater, then (i) such measures as are reasonably practicable shall be taken to reduce noise to the greatest extent which is reasonably practicable; and (ii) suitable ear protectors shall be provided and made readily available for the use of every such person.
Later in 1974, there were also made, under agricultural health and safety legislation, the Agriculture (Tractor Cabs) Regulations 1974 (SI 1974/2034), regulation 3(3) of which provided that ministerial approval of safety cabs required ministers to be satisfied that the noise levels inside would not be more than 90dB(A).
The existence of specific regulations under section 76 is not necessarily inconsistent with a more general duty of safety existing in respect of noise under section 29(1), though the inter relationship could give rise to problems and one might have expected or at least hoped that it would be clarified.
HM Chief Inspector of Factories report for 1974 (Cmnd 6322) referred to the Woodworking Machines Regulations 1974 as the first British regulations to contain a legal requirement specifically intended to protect factory workers against the effects of noise (p 73).
Under the heading of Noise and Vibration, it also noted (p 71) that The Inspectorate has been mainly concerned with protection of workers against levels of noise exposure likely to cause permanent hearing damage.
To this end continuing efforts have been made to encourage voluntary compliance with the Code of Practice , which recommends that where people are likely to be exposed to sound levels over 90dB(A) for eight hours per day (or to suffer an equivalent exposure) action should be taken to reduce the noise exposure, and ensure that ear protection is provided and used.
The position is therefore that section 29(1) is part of the statutory provisions dealing with safety, and it was enacted without any appreciation that it could cover noise or noise induced hearing loss.
Noise induced hearing loss was not a newly discovered phenomenon, at least in heavy industry, where it was evidently regarded as an inescapable fact of life (see e.g. Thompson, p 409A, per Mustill J).
An immediately injuring noise (like that which punctured the Duke of Wellingtons ear drum when he stood too close to the firing of a battery in his honour) could probably only occur as a result of some one off error or break down in the workplace, which would not reflect on its safety, although it could give rise to common law liability in negligence.
None of the contemporary reports or documents suggests that the possibility of noise was in anyones mind or would have been conceived of as an element of safety of the workplace in 1959 or 1961.
It follows that there is considerable force in the appellants submission that section 29(1) does not refer to safety in a sense depending not upon the current condition of the workplace with its noisy machinery, but upon the periods for which employees have worked, or are likely to continue to work in that, or another, workplace with equivalent or greater noise levels and upon their particular susceptibility to noise.
Ultimately, however, I have come to the conclusion that it is not possible to be so categorical, and that the answer to the present issue links up with the next issue, that is how far responsibility under section 29(1) is absolute or relative.
If section 29(1) imposes absolute liability, irrespective in particular of current attitudes or standards from time to time, then noise induced loss appears so far outside the thinking behind and aim of section 29(1) that I doubt whether it would be right to construe the section as covering it.
But if liability under section 29(1) is relative, depending in particular on knowledge about and attitudes to safety from time to time, then, as thinking develops, the safety of a workplace may embrace matters which were previously disregarded, but have now become central or relevant to reasonable employers and employees view of safety.
(iii) The absolute or relative nature of safety
The third issue is whether the requirements regarding safety in section 29(1) are absolute or relative.
In the respondents submission, they are absolute: what is safe is objective, unchanging and independent of any foresight of injury; the only qualification on an employers liability, where a workplace is unsafe because of employees exposure to noise, is if the employer can show that it was not reasonably practicable to reduce or avoid the exposure, e.g. by providing ear protectors.
The House of Lords, by a majority, held in Nimmo v Alexander Cowan & Sons Ltd [1968] AC 107 that the onus lies on the employer to plead and prove under section 29(1) that it was not reasonably practicable to make and keep a place safe.
Smith LJ accepted the submission that safety is an absolute.
She said that what is objectively unsafe cannot change with time (para 78).
She also associated lack of safety with the occurrence of injury to a single person, for she continued: If 85dB(A)lepd causes deafness to a particular claimant, that claimants place of work was not safe for him or her.
It might have been safe for another person working alongside.
But for the susceptible worker who has in fact been damaged, it can be demonstrated, without more, that his or her place of work was not safe.
Looking at matters from the point of view of the work force generally, it is known that a minority of people will suffer appreciable harm as the result of prolonged exposure to 85dB(A)lepd.
Therefore, it can be said that the place of work is not safe for the workforce because there is a risk of injury to all of them.
I do not accept this approach.
Whether a place is safe involves a judgment, one which is objectively assessed of course, but by reference to the knowledge and standards of the time.
There is no such thing as an unchanging concept of safety.
The Court of Appeals approach means in reality that any court determining an issue of safety would be applying (retrospectively) whatever happened to be the view of safety current at the time the matter came before it.
Further, the fact that a single person has suffered injury due to some feature of the workplace is not, without more, proof that the workplace was unsafe.
As Lord Upjohn (one of the majority) said in Nimmo (p 126C D), the section requires the occupier to make it [the workplace] 100 per cent safe (judged of course by a reasonable standard of care) if that is reasonably practicable and, if it is not, to make it as safe so far as is reasonably practicable to a lower percentage.
Prior to the 1959 and 1961 Acts, the requirement, under regulation 5 of the Building (Safety, Health and Welfare) Regulations 1948 (SI 1948/1145), that sufficient safe means of access shall so far as is reasonably practicable be provided, had been considered in Sheppey v Matthew T Shaw & Co Ltd [1952] 1 TLR 1272 and Trott v WE Smith (Erectors) Ltd [1957] 1 WLR 1154 (CA).
There it was said, by respectively Parker J at p 1274 and Jenkins LJ at p 1159, that safe cannot mean absolutely safe, although it must take account of circumstances likely to occur, including the fact that employees do not always behave with reasonable care for their own safety.
I also note that in Trott, Jenkins LJ after suggesting that the statutory obligation was stricter than the general duty of reasonable care at common law and anticipating Nimmo by identifying the qualification so far as is reasonably practicable as involving a shift of the burden of proof (pp 1158 59), ended his judgment by saying that to regard the standard of care prescribed by regulation 5 and at common law as approximating to each other was if not absolutely right . at all events not very far wrong (p 1162).
Likewise, in relation to a similar requirement under the Shipbuilding and Ship repairing Regulations 1960 (SI 1960/1932), it was argued in Paramor v Dover Harbour Board [1967] 2 Lloyds Rep 107 that if the bare possibility of injury and accident could reasonably be foreseen, then the means of access is not safe.
In response, Salmon LJ said (p 109) that there is, of course, a risk of injury and accident inherent in every human operation but that whether a means of access was safe involved assessing the risk in all the circumstances of the case and must be a question of fact and degree in each case.
The successor legislation to the 1961 Act, the Health and Safety at Work Act etc 1974 was differently, and on its face more broadly, formulated.
It required every employer by section 2(1) to ensure, so far as is reasonably practicable, the health, safety and welfare of all his employees, and by section 3(1) to conduct his undertaking in such a way that other persons were not thereby exposed to risks to their health or safety.
The concept of safety was considered in this context in R v Chargot Ltd (trading as Contract Services) [2008] UKHL 73 [2009] 1 WLR 1.
Lord Hope, with whose speech all other members of the House agreed, said that the legislation was not contemplating risks that are trivial or fanciful, that the statutory framework was intended to be a constructive one, not excessively burdensome, that the law does not aim to create an environment that is entirely risk free and that the word risk which the statute uses is directed at situations where there is a material risk to health and safety, which any reasonable person would appreciate and take steps to guard against (para 27).
It would be strange if the earlier, narrower formulation in section 29(1) had a more stringent effect.
Similar comments to Lord Hopes had also been made in the earlier case of R (Junttan Oy) v Bristol Magistrates Court [2003] UKHL 55; [2003] ICR 1475, in relation to regulations requiring machinery to be in fact safe, safe being defined to mean giving rise to no risk (apart from one reduced to a minimum) of its endangering the health of or of its being the cause or occasion of death or injury to persons.
Lords Nicholls and Hobhouse (both dissenting on presently immaterial points) made clear in that context that safe is not an absolute standard.
Lord Nicholls said (para 22): There may be differences of view on whether the degree of safety of a particular piece of machinery is acceptable.
Lord Hobhouse said (para 103) that: to describe questions of safety as simple questions of fact, just as if one was asking whether a given bird is a sparrow or a sparrowhawk, is to make a fundamental and elementary mistake.
Safety is a question of opinion.
There is no such thing as absolute safety.
All safety is relative.
Two men can legitimately hold different opinions [as to] whether a machine is safe or unsafe.
Different assessments can be and are made of the safety of a particular machine by the authorities in different countries.
If safety is a relative concept, then foreseeability must play a part in determining whether a place is or was safe.
Mr Hendy submits that foresight has no such role; it can come in, if at all, only at the second stage, when considering whether it was reasonably practicable to make and keep the place safe.
He also notes that there was in any event, on the judges findings, foresight in the present case of some statistical risk of injury.
On the role of foresight, there are differing strands of authority.
Not long before the 1959 Act, the House had in John Summers & Sons Ltd v Frost [1955] AC 740 considered the requirement under section 14(1) of the 1937 Act that Every dangerous part of any machinery shall be securely fenced unless it is in such a position or of such construction as to be as safe to every person employed or working on the premises as it would be if securely fenced, and had applied to the concept of dangerousness an approach dating back to Hindle v Birtwhistle [1897] 1 QB 192, namely that a machine or part is dangerous if in the ordinary course of human affairs danger may reasonably be anticipated from the use of them without protection, and that it was impossible to say that because an accident had happened once therefore the machine was dangerous.
Lords Reid and Keith at pp 765 766 and 774 expressly endorsed the relevance of determining whether the degree of danger was such that there was a reasonably foreseeable cause of injury.
The same approach, again based on Hindle v Birtwhistle, was followed under section 14 in Close v Steel Co of Wales Ltd [1962] AC 367.
The claim there failed because in the ordinary course of human affairs danger could not reasonably be anticipated from the use of the drill unfenced (p 382, per Lord Denning, with whom Lord Morton agreed on this point at p 398); the risk of injury, serious and regrettable as it proved to be, was not reasonably foreseeable (p 389, per Lord Goddard); and No reasonable employer could have been expected to anticipate any risk of significant injury (p 412, per Lord Guest).
Close proved controversial on another, presently irrelevant, aspect (whether the duty to fence extended to preventing fragments flying out of a machine) on which it was criticised in paragraph 7 of Appendix 7 to the Robens Report.
But the endorsement in Close of the concept of foreseeability taken from Hindle v Birtwhistle was noted without criticism in paragraph 5 of Appendix 7 to the Robens Report and was regarded as correct by contemporaneous commentators in The Solicitors Journal (The Duty to fence dangerous machinery: (1961) 105 Sol J 997) and The Modern Law Review (New Wave of Interpretation of the Factories Acts: (1962) 25 MLR 98, commending the broad common sense view of danger taken in Hindle v Birtwhistle), though it was regretted by John Munkman, writing in The Law Journal (The Fencing of Machinery: (1962) LJ 761).
The concept of foreseeability continued to be adopted by courts, most notably, in Taylor v Coalite Oils & Chemicals Ltd (1967) 3 KIR 315.
In Allen v Avon Rubber Co Ltd [1986] ICR 695, the Court of Appeal also endorsed it under section 29(1) of the 1961 Act.
In Taylor, Diplock LJ said, obiter (pp 319 320): Safe is the converse of dangerous.
A working place is safe if there is nothing there which might be a reasonably foreseeable cause of injury to anyone working there, acting in a way in which a human being may reasonably be expected to act, in circumstances which may reasonably be expected to occur: see John Summers & Sons Ltd v Frost [1955] AC 740, per Lord Reid at p 766.
In determining, therefore, whether the occupier was under a duty to take any measures to prevent an accident which was caused by the presence at a working place of a particular object, it is necessary to ask, first, whether the possibility of an object of that kind being at that particular place was reasonably foreseeable, and, if so, secondly, whether it was reasonably foreseeable that it would be a cause of injury to a person working there.
It is only if both those questions are answered affirmatively that it becomes necessary to consider whether it was reasonably practicable to avert the danger.
More recently, in Robb v Salamis (M & I) Ltd [2006] UKHL 56; [2007] ICR 175, Lord Hope confirmed the relevance of reasonable foreseeability to article 5(1) of the Framework Directive 89/391/EEC (imposing on employers the duty to ensure the safety and health of workers in every aspect related to the work) and article 3(1) of the Work Equipment Directive 89/655/EEC (requiring employers to take the measures necessary to ensure that the work equipment made available to workers is suitable for the work to be carried out), stating that The obligation is to anticipate situations which may give rise to accidents (para 24).
The respondent relies on a different stream of authority, consisting of Robertson v RB Cowe & Co 1970 SLT 122, Larner v British Steel plc [1993] ICR 551, Neill v Greater Glasgow Health Board [1994] SLR 673, [1996] SC 185 and Mains v Uniroyal Englebert Tyres Ltd [1995] SC 518.
The Court of Appeal in the present case held that it was bound by Larner, as well as expressing agreement with it.
Robertson concerned a trestle erected on a marine slipway which moved causing a workman to fall.
Lord Guthrie concluded from the whole circumstances elicited as to the position of the staging, the way in which the pursuer worked, the outward movement of the trestle, and where the pursuer fell that on a balance of probabilities the erection was insecure and unsafe (p 129).
Lord Migdale treated the fact that the trestle fell over as proof that it was not safe, and both he and, with hesitation, Lord President Clyde concluded that the decision in Nimmo meant that breach of section 29(1) was established once it was proved that the trestle was not sufficiently stable to support a workman doing his job there normally.
There was no plea that it was not reasonably practicable to make or keep the trestle safe, and Lord Guthrie noted the obvious difficulty that such a plea would have faced.
Lords Guthrie and Migdale rejected a submission based on the line of authority including John Summers and Close, that the employee had to prove that the accident was reasonably foreseeable.
The basic issue was whether the trestle was insecure as erected, or whether it fell because the pursuer over reached (pp 128 129).
Larner concerned an undetected crack which caused a structure to fall on the plaintiff.
The Court of Appeal preferred the reasoning in Robertson to Diplock LJs dicta in Taylor and rejected foreseeability as a test of safety.
In Mains the injury arose when a piece of machinery made an involuntary and unexpected movement, the cause of which was never ascertained, and so trapped the workmans hand; and it was common ground that the circumstances of the accident and its cause were not reasonably foreseeable.
The Inner House took the same view as in, and followed, Larner.
In so far as Robertson, Larner and Mains stand for a proposition accepted by the Court of Appeal in the present case, that safety is an eternal absolute independent of any judgment based on current standards and attitudes, then I do not accept their correctness.
One factor in the decisions in both Larner and Robertson was that the introduction of foreseeability would reduce the utility of the section, by frequently limiting success under it to circumstances in which a common law claim for negligence would succeed (Larner, p 560A, per Hirst LJ, and p 562C D, per Peter Gibson J; Mains, p 531D E, per Lord Sutherland and p 535G H and 536H 537B, per Lord Johnston).
This begs the question as to the intended scope and effect of the section.
Not only does the section introduce criminal sanctions, but, as established in Nimmo, if the workplace is unsafe, then the burden shifts to the employer to show that it was not reasonably practicable to make and keep it safe.
It was in this connection that in Nimmo Lord Guest said that he could not think that the section was intended to place such a limited obligation on employers as they would have at common law (where it would be for an injured employee to plead and prove failure to take reasonably practicable steps) (p 122F G), and that Lord Upjohn (whose view that safety is judged of course by a reasonable standard I have already quoted in paragraph 64 above) added that it is not in doubt that the whole object of the Factories Act is to reinforce the common law obligation of the employer to take care for the safety of his workmen (p 125B).
Further, section 29(1) imposes a non delegable duty, so that an employer is responsible for achieving or for the taking all reasonably practicable measures to achieve the requisite safety irrespective of whether he chooses to set about doing this through himself, his servants or independent contractors.
There is nothing to show that section 29(1) was intended to go further, and there is no assumption (or, in my opinion, likelihood) that it was intended to.
The standard of reasonableness expressed in the qualification so far as is reasonably practicable (in respect of which the onus of proof is on the employer) makes it more, rather than less, likely in my view that the concept of safety is itself to be judged, as Lord Upjohn thought obvious in Nimmo, by reference to what would, according to the knowledge and standards of the relevant time, have been regarded as safe (see further paragraph 79 et seq. below).
Peter Gibson J (at p 562G H) regarded it as surprising that the approach in John Summers, based on section 14(1) of the 1937 Act containing no qualification of reasonable practicability, should have been regarded as relevant under section 29(1) of the 1961 Act which does contain such a qualification.
The same point was made in Mains (pp 527A D and 531D F, per Lord Sutherland and p 536A, per Lord Johnston).
But there was authority pre dating 1959 which took the same approach to safety where there was such a qualification: see Sheppey v Matthew T Shaw & Co Ltd and Trott v W E Smith (Erectors) Ltd (para 65 above).
The force of the point depends in any event upon the effect of the qualification.
In Mains it was contemplated that the qualification might enable a defender to say it was not reasonably practicable to make this place safe, because this particular mishap was not reasonably foreseeable (p 527C D, per Lord Sutherland) and that The unforeseeable accident occurring in an unforeseeable way may well give the defenders a defence under the qualification (p 637E, per Lord Johnston).
Likewise, in the present case the Court of Appeal considered as a matter of common sense that if, the employer does not know of the risk and cannot reasonably have been expected to know of it, it cannot be reasonably practicable for him to take any steps at all (paras 83 and 91).
On that basis, foresight can be very relevant under section 29(1).
But, if this is so, then section 29(1) is to that extent merely shifting the onus of proof, which weakens the argument that it must be seen as departing substantially from conceptions of common law negligence.
In summary, safety must, in my view, be judged according to the general knowledge and standards of the times.
The onus is on the employee to show that the workplace was unsafe in this basic sense.
(iv) Reasonably practicable
Since it took the view that safety is absolute and unchanging, the Court of Appeal had to consider whether the qualification so far as is reasonably practicable enabled the employers to exonerate themselves by showing that reasonable employers would not have considered that there was cause to reduce noise exposure in the workplace below 90dB(A).
The Court of Appeal held that the qualification gave no scope for such a defence.
It said (para 89): Under the statute, the employer must first consider whether the employee's place of work is safe.
If the place of work is not safe (even though the danger is not of grave injury or the risk very likely to occur) the employer's duty is to do what is reasonably practicable to eliminate it.
Thus, once any risk has been identified, the approach must be to ask whether it is practicable to eliminate it and then, if it is, to consider whether, in the light of the quantum of the risk and the cost and difficulty of the steps to be taken to eliminate it, the employer can show that the cost and difficulty of the steps substantially outweigh the quantum of risk involved.
I cannot see how or where the concept of an acceptable risk comes into the equation or balancing exercise.
I cannot see why the fact that a responsible or official body has suggested that a particular level of risk is 'acceptable' should be relevant to what is reasonably practicable.
In that respect, it appears to me that there is a significant difference between common law liability where a risk might reasonably be regarded as acceptable and statutory liability where the duty is to avoid any risk within the limits of reasonable practicability.
Smith LJ reiterated the point at the end of para 100, when rejecting the relevance of the Code of Practice to the question whether it was reasonably practicable to provide protection.
In the light of my conclusion that safety is a relative concept, the correctness of these passages does not strictly arise for consideration in this case.
Had it arisen, I would have regarded the qualification as wide enough to allow current general knowledge and standards to be taken into account.
Even the Court of Appeal in its formulation acknowledged the quantum of risk involved as material in the balancing exercise.
But this can only mean that some degree of risk may be acceptable, and what degree can only depend on current standards.
The criteria relevant to reasonable practicability must on any view very largely reflect the criteria relevant to satisfaction of the common law duty to take care.
Both require consideration of the nature, gravity and imminence of the risk and its consequences, as well as of the nature and proportionality of the steps by which it might be addressed, and a balancing of the one against the other.
Respectable general practice is no more than a factor, having more or less weight according to the circumstances, which may, on any view at common law, guide the court when performing this balancing exercise: see Swanwick and Mustill JJs statements of principle, set out earlier in this judgment, and also Charlesworth on Negligence (12th ed) (2010), chapter 7, The Standard of Care, both generally and especially at para 7.38.
It would be strange if the Court of Appeal was right in suggesting that, under the statutory formulation, this one factor is irrelevant, when the whole aim of the balancing exercise must, in reality, be to identify what is or is not acceptable at a particular time.
That the qualification so far as may be reasonably practicable may, if necessary, receive a broad interpretation is also indicated by the reasoning of the House in Marshall v Gotham Co Ltd [1954] AC 360.
Under the Metalliferous Mines General Regulations 1938 (SR & O No 630) the roof and sides of every travelling road in a mine were required to be made secure.
An employee was killed by a fall of roof, due to the presence of an unusual geological condition known as slickenside, which there was no known means of detecting prior to a fall.
It was argued that the mine owner could have propped all roofs, and that reasonably practicable meant no more than practicable (p 364).
The argument was rejected.
Lord Oaksey at p 370 agreed with Jenkins LJs statement, [1953] 1 WB 167, 179, that what is reasonably practicable in this context is no more nor less than what is capable of being done to make roofs and sides secure within the limits of what it is reasonable to do; and it cannot be reasonable to do for this purpose anything more than that which it appears necessary and sufficient to do according to the best assessment of what is necessary and sufficient that can be made at the relevant time, that is, in the present instance a point of time immediately prior to the accident.
Lord Reid at p 373 said that if a precaution is practicable it must be taken unless in the whole circumstances that would be unreasonable and took into account that the danger was a very rare one, that the trouble and expense involved in the use of the precautions, while not prohibitive, would have been considerable, that the precautions would not have afforded anything like complete protection against the danger, and that their adoption would have had the disadvantage of giving a false sense of security.
Lord Keith considered at p 378 that there was no general rule or test that can safely be relied on for measuring the discharge of such a duty, but that he could not, as at present advised, accept that the measure of an employers liability can satisfactorily be determined by having regard solely to the proportion which the risk to be apprehended bears to the sacrifice in money, time or trouble involved in meeting the risk.
Lord Tucker (with whom Lord Cohen agreed at p 377) said at pp 374 375 that the word secure does not involve security from the effects of earthquake or an atom bomb, but added that it must include security from all the known geological hazards inherent in mining operations.
At p 376 he echoed the list of factors which Lord Reid had identified in support of his conclusion that the precautions were not reasonably practicable.
A further aspect of para 84 in Smith LJs judgment is the suggestion that there must be at least a substantial disproportion before the desirability of taking precautions can be outweighed by other considerations.
This theme was developed in paras 82 to 84 of her judgment, on the basis of dicta in two cases prior to Marshall v Gotham.
But it represents, in my view, an unjustified gloss on statutory wording which requires the employer simply to show that he did all that was reasonably practicable.
In deciding the appeal in favour of the respondent, the Court of Appeal relied upon HHJ Ingliss estimation of the quantum of risk below 90dB(A).
HHJ Inglis said that the description given to the risk to hearing of exposure below 85dB(A) as minimal is one that I accept and adopt.
Above 85dB(A) the risk accelerates up to 90dB(A).
In the high 80s, given long enough exposure, significant hearing loss may be expected in at least a substantial minority of individuals.
On that basis, Smith LJ said that, assuming (as she did) that the employers well knew that some of their workforce stayed in their employment over many years, they would, if they had asked a suitably qualified expert, have received advice conveying to them that a substantial minority of their workforce in the relevant departments were likely to suffer significant hearing loss, and could not then have hoped to establish that the burden of providing ear protectors was substantially disproportionate to the quantum of risk to their employees (para 98).
Advice of this nature as to the quantum of the risk should have been received by late 1976 or early 1977 (para 101).
To this, Smith LJ added six to nine months, for reasons already discussed, putting Quantum in breach of its statutory duty under section 29(1) from 1 January 1978.
Neither Quantum nor any other of the employers before the court exposed their workforce to noise levels in the high 80s.
The exposure found was in the case of Mrs Baker to levels of 86dB(A).
As I have already stated, every 3dB(A) represents a doubling of the sound pressure level of the energy involved in the noise, even though it will not be appreciated as such by the hearer.
More importantly, the approach taken by the Court of Appeal requires employers to take expert advice and to identify the quantum of risk in circumstances in which current standards and thinking did not expect any such steps.
And if risks which are not currently regarded by responsible employers as calling for any action are required to be addressed, then, despite Smith LJs references to the balancing of the quantum of risk against other factors, any employer who was or should have been aware of any risk at all greater than de minimis would be obliged to address it unless the trouble and cost involved were prohibitive.
This is highlighted by consideration of the arguments which can be made if one has regard simply to the statistical tables in BS 5330: 1976 upon which the respondent and the Court of Appeal have relied to show the risk attaching at levels of exposure between 85 and 90dB(A) lepd: see para 31 above.
The respondent, as I understand, accepts that the logic of her case is that the risks below 85dB(A) cannot and should not have been regarded as immaterial.
But this highlights how independent her case on section 29(1) is of contemporary standards of behaviour or thought.
Only since 2005 have employers been obliged to require ear protectors to be worn by workers exposed to 85dB(A) and obliged to make them available on request to workers exposed to 80dB(A) (see para 14 of the Court of Appeals judgment, quoted in para 15, above).
There is nothing in the history of section 29(1) or the mischief to which it was addressed to suggest that the legislature in 1959 or 1961 intended in this way to detach the penal liability which it then introduced in respect of the workplace from the ordinary understanding of reasonable employers.
Contrary to the Court of Appeals view, I consider that HHJ Inglis was correct in the approach he took to section 29(1), which followed that taken by Rose J in Fazakerley.
Conclusion
I would allow the appellants appeals both at common law and under section 29(1).
At common law, Quantum, and other employers in a similar position such as Guy Warwick, were not in breach of their duty of care or of their duty under section 29(1) in not implementing measures to protect their employees in respect of noise exposure at levels below 90dB(A) prior to 1 January 1990.
As regards Meridian and Pretty Polly, in reflection of the common ground between Lord Dyson, Lord Saville and myself (paragraphs 25 and 43 above), the appeal will be allowed by restoring the judges decision that they were in breach of duty in not having implemented such measures as from 1 January 1985.
APPENDIX (para 18) This Appendix indicates the factual position as found by the judge in relation to each employer.
Meridian (Courtaulds) 1.
Taking the Courtaulds group of which Meridian was part, the judge found that the group had spinning and weaving divisions with high noise levels, that in the early 1980s the issue of noise began to be widely discussed, that claims for industrial deafness were emerging by 1983 and at the end of 1982 a Dr Cooper was asked to form and chair a noise committee.
This committee met on 17 March 1983, and considered a paper indicating that a number of other countries had set a maximum exposure level of 85dB(A)lepd.
It set companies in the division the task of surveying noise levels in all the factories.
Also in the first half of 1983, Courtaulds legal department and medical officer circulated a memorandum, containing this passage: It has been suggested that some impairment may be caused by noise levels in the range of 85 90dB(A) .
We strongly recommend that hearing protectors be provided for all those who may be exposed to noise within the range 85 90dB(A)leq. 2.
Factory surveys were completed by the committee meeting in March 1984.
They identified areas above 90dB(A), as well as between 85dB(A) and 90dB(A), and in relation to the latter a 75% aim of acceptance of hearing protection by mid 1985 was suggested.
At a further meeting in October 1984 the difficulties of obtaining compliance without Code of Practice backing were discussed, but the target was increased to 80% by the end of 1985, and the need for information, instruction and encouragement was recognised.
By the meeting of 12 March 1986, Directive 86/188/EEC was imminent, and the committee noted that their policies already complied with the directive.
The evidence showed that the drivers for the activity from the early 1980s were proposed legislation, and the rising incidence of claims.
Courtaulds were active in the debate stimulated by the consultation in 1981 and in opposing on economic and competition grounds the European proposal for legislation from 1982 (judgment, para 53).
The judge also said that Courtaulds had the resources to look beyond the 1972 Guidelines and reach their own conclusion about the nature and extent of the risks posed to the hearing of their employees exposed below 90dB(A), but 56 nobody actually considered or sought to answer the question What are the actual risks to members of the workforce exposed to different levels of noise? The 90dB(A) standard from 1972 was considered to be the standard that the law and good practice required.
There was a clear awareness by the early 1980s that exposure to levels of noise between 85 and 90dB(A) could be expected to damage the hearing of some workers to the extent that action was desirable at those levels.
No large company who responded to the consultation document or read the background document and was aware of the EEC proposals in 1982, and one that then took part in the debates trying to fend off compulsory protection at 85dB(A) on economic grounds, but not on grounds that such levels of exposure were not harmful, could be said to be ignorant of the facts by the beginning of 1983 at the latest.
Pretty Polly 3.
This company disclosed a substantial quantity of material consisting of or based on documents in the public domain.
In 1975 a Factory Inspector found noise levels of 89dB(A) and did not recommend any steps.
Further, as the judge found (para 63): The internal documents include a Guide to Preparing a Noise Control Policy from Midland Insurance, undated but probably from the late 1970s or early 1980s, in which it is said that [on] exposure to 90dB(A)lepd over a long period there is a possibility of damage to hearing, so that adequate steps should be taken to prevent this; also that a noise reduction programme should aim at reducing noise to 84dB(A) or less if practicable; a Commercial Union Risk Management Ltd paper from 1977 saying that research has shown that few industrial workers will suffer serious hearing loss if the intensity and duration of exposure is controlled to allow a maximum of 90db(A) and, later, that the exposure standard of [90dB(A) lepd] is based on the prediction that not more than 1 % of those exposed to this level over a 30 year working lifetime will suffer social handicap as a result.
Levels should thus be reduced whenever possible and 90dB(A) regarded as a ceiling rather than a safe level. 4.
In December 1982 Pretty Pollys work studies department produced a memorandum, probably written by a Mr John Butler, later manager of the department, stating that 90dB(A) was the maximum level, that noise at that level involved accepting a certain risk of hearing damage and that: if we as a company feel that we require a zero risk of hearing damage for our employees, then no person should be exposed to a noise level of more than 80dB(A) for an eight hour day.
There followed a table of percentage risk of hearing damage (such damage not being defined) showing 0% at 80dB(A), and at 85dB(A) 1, 3, 5, 6, 7, 8, 9 and 10% for 5, 10, 15, 20, 25, 30, 35 and 40 years of exposure respectively.
The percentages for the same periods at 90dB(A) were said to be 4, 10, 14, 16, 16, 18, 20 and 21 %.
These figures came in fact from ISO: 1999 of 1975, and some, but not all of this information about low level exposure, was in the 1981 consultative document. 5.
In 1985 Mr Butler distributed an assessment with essentially the same table, noting that with one exception all machinery areas in the company were in excess of 85dB(A) and that: Even at this level we are accepting a certain risk of damage for our employees.
If a zero risk of hearing damage is required, then no employee should be exposed to a noise level of more than 80dB(A) for more than eight hours a day.
The judge found (para 66) that: There is no evidence that anyone at Pretty Polly turned their mind towards any evaluation of the risks below 90dB(A) before 1982.
It is not really likely that they did so.
It is plain from Mr Butler's documents that by that year he had done so.
Indeed, it is unlikely that a company of that size where there had been some collection of materials, and where they cannot have been unaware of the EEC proposals and the very public debate that followed, could not have known that there was a real case to be made that exposure below 90dB(A) could cause levels of hearing damage that should be guarded against.
I would put actual awareness of the nature of the real risk below 90dB(A), as with Courtaulds, as having arisen by the beginning of 1983.
Taymil (now Quantum) and its subsidiaries 6. employers, the judge found: In relation to the subsidiaries of Taymil, which included Mrs Bakers 60.
The factories in the group seem to have run largely independently, with factory management being responsible for health and safety, reflecting the origins of each factory in a separate business.
There was no central health and safety function.
Mr Jones said that he thought that in 1977 or thereabouts a Health and Safety policy document had been produced.
He said it would probably have been destroyed when the company folded.
There is no reason to think that such a policy, if it did in fact exist, would on noise have done anything but refer to the limit of 90dB(A).
The knitting shops were recognised as being the areas with possibly dangerous levels of noise, not making up areas.
Of the documents referred to the first is a noise survey and accompanying documents done for Huthwaite Avenue by Midland Insurance in June 1983.
Mr Watson had discussed the conclusions of it with Midland Insurance, as appears on the face of the document, though he said in evidence that he could not remember it.
The survey refers to the 90dB(A) limit and suggests that all areas in the survey above 87dB(A) should be areas where ear protection is worn until the noise is reduced by engineering methods.
A number of areas were identified as having noise over that level.
Proper training and instruction of staff is advised; and appended is a guide to preparing a noise control policy, in which it is suggested that any noise reduction programme should aim at reducing noise to 84dB(A) or less if practicable.
There is a noise survey of Botany Avenue by Mr Graham Allin, an engineer working to Mr Gage in August 1984 in which Mr Allin refers to company policy taking 85dB(A) as the exposure threshold level.
I am satisfied that there was no such policy.
Mr Gage, who was a good witness was quite clear about that, and explained how Mr Allin may have got that idea from Mr Gage's view about a margin of safety below 90dB(A) so as to ensure the 90dB(A) level was achieved.
Moreover, in a draft survey of the Ollerton factory written after June 1984 when the EEC proposals were changed there is no mention of such a policy.
The quality of their evidence was not as good as that of Mr Gage, but both Mr Watson and Mr Ivan Jones said that the limit to be worked to was 90dB(A).
There is no evidence of any steps towards protection being taken in the Nottingham Manufacturing years aimed at conservation over 85dB(A).
Mr Watson said in evidence that he was aware of the EEC proposal in 1982 to reduce the exposure level to 85dB(A).
He was aware of the existence of the debate about that proposal, from discussions with insurers: It was viewed with some scepticism, I think.
Coats was a large organisation.
By the time they came on the scene attention, if any, must have been focused on the EEC proposals that led to the 1989 regulations. 61.
There is therefore no evidence that anyone in Nottingham Manufacturing or its subsidiaries with which this case is concerned turned their mind towards the level of risk about possible harm below 90dB(A)leq, except that Mr Watson was aware after 1982 of a debate going on about what levels would ultimately be imposed, and by the summer of 1984 it was known that though the compulsory level would remain at 90, some measures, possibly audiometry, would be imposed at 85dB(A).
The 1983 Midland Insurance document is an important document, with its plain implication that the 90dB(A) Code of Practice level did not provide protection to everyone, and that a noise conservation policy should do better, but it does not provide the information that means that management at Nottingham Manufacturing were in a position of knowledge and understanding that set them apart from what I take to be the understanding of the great majority of employers, that 90dB(A)lepd was the official limit that had to be worked to.
I do not think it is shown that Nottingham Manufacturing had a greater than average degree of knowledge.
Guy Warwick 7.
The judge said that, by comparison with other defendants, they were a very small company, engaged in making up operations, with at their height four factories and under 400 employees, and (para 68) that There is no evidence that anyone at Guy Warwick knew about the 1972 Code of Practice, or even about the Noise at Work Regulations 1989, which were in force for the last two years of the company's life.
Mr Kettle was involved in health and safety and set up the health and safety committee.
There were committee meetings at which he said in his statement the question of noise was never raised.
The factory inspectors who came round periodically and the insurance representatives never raised it.
No surveys were ever done.
In my opinion said Mr Kettle, the industry was not renowned for excessive noise.
Whether, on the facts of actual noise to which Mrs Hooley was exposed, Guy Warwick were in breach of any duty to her, has to be judged on the basis that they had no actual knowledge of the relevance of noise to their operation.
LORD DYSON Common law negligence
The decisions below
The history of investigation and awareness of the risks of occupational exposure to noise is fully set out by Lord Mance at para 15 of his judgment.
On the basis of this material, the judge applied the well known test enunciated by Swanwick J in Stokes v Guest, Keen and Nettleford (Bolts and Nuts) Ltd [1968] 1 WLR 1776, and held at para 87 that complying with 90dB(A) lepd as the highest acceptable limit met the standards of the reasonable and prudent employer during the 1970s and 1980s certainly until the time when the terms of the 1986 directive became generally known in the consultative document of 1987.
He concluded, therefore, that the average employer was not in breach of its common law duty of care to its employees in failing to provide ear protectors before about the beginning of 1990.
At para 88, however, he held that by the beginning of 1983 Courtaulds and Pretty Polly had sufficient understanding of the risks to hearing below 90dB(A) lepd to require them to take action.
He then considered what was a reasonable period to allow for these two companies to take action and held that they should have done so by the beginning of 1985.
Accordingly, from that date they were in breach of duty to employees who suffered damage through exposure at 85dB(A) lepd and above without having the opportunity of using hearing protection.
He must also have held that the other (average) employer defendants were entitled to a period of about two years to take action.
Although the judge gave no precise dates, it is for this reason that he dismissed the claim by Mrs Baker.
Smith LJ (with whom Sedley and Jacob LJJ agreed) said at para 105 that the judges conclusion at para 87 of his judgment cannot be faulted.
She said that she would uphold his view that there was no breach of duty at common law during the period for which a responsible body of opinion regarded it as acceptable to expose employees to noise in the 85 89dB(A) lepd range.
For the employer with the ordinary or average degree of knowledge, the judges conclusion that this period came to an end in 1987 following the publication of the consultation paper on the 1986 draft directive was a reasonable conclusion.
She differed from the judge only in that she considered that the average employer should have needed no more than six to nine months from the date of the publication of the consultation paper.
For that reason, in respect of the average employer she fixed the date for breach of the common law duty of care at January 1988.
As for Courtaulds and Pretty Polly, she upheld the judges conclusion that these companies had the requisite knowledge in early 1983.
But, differing from the judge, she allowed them only six to nine months to provide ear protection.
Finally, at para 109 she explained why Quantum should not be treated as an average employer and why its position should be assimilated to that of Courtaulds and Pretty Polly.
The judge had found that the group insurance and risk manager of Quantum admitted that he was aware of the first draft EEC directive in 1982.
Having reviewed the evidence, the judge said at para 61 that the company management were not in a position of knowledge and understanding that set them apart from what I take to be the understanding of the great majority of employers that 90dB(A) lepd was the official limit that had to be worked to.
Smith LJ accepted the submission of Mr Hendy QC that, since there was evidence that Quantum was aware of the first draft directive, it was irrational to treat Quantum differently from Courtaulds and Pretty Polly, who also had such knowledge.
Is compliance with the 1972 Code of Practice a defence for the average employer?
On this appeal, Mr Hendy challenges the decision of the judge (upheld by the Court of Appeal) that the 1972 Code of Practice constituted an acceptable standard for average employers to adhere to until the late 1980s.
I shall deal first with this challenge before coming to the question whether there was any basis for the judge to treat Courtaulds and Pretty Polly (and the Court of Appeal additionally to treat Quantum) differently.
I agree for the reasons given by Lord Mance at paras 28 to 37 of his judgment that there is no basis for interfering with the judges finding at para 87 that until the late 1980s the Code of Practice set the standard for the reasonable and prudent employer without specialist knowledge.
The avowed purpose of the Code was to set standards to protect loss of hearing due to noise at work.
The Foreword by the Rt Hon Robert Carr MP, Secretary of State for Employment, states that until the pioneering work of Professor Burns and Dr Robinson (both members of the committee that prepared the Code of Practice) we lacked the necessary scientific knowledge of the precise levels of noise, and the duration of exposure to them, which can cause damage.
Mr Carr wrote that he regarded the publication of the Code as the first important step in the prevention of loss of hearing due to noise at work.
It should be considered as a blueprint for action.
Section 1.1.2 stated: The Code sets out recommended limits to noise exposure.
It went on to say: It should be noted that, on account of the large inherent variations of susceptibility between individuals, these limitations are not in themselves guaranteed to remove all risk of noise induced hearing loss.
At section 4.3.1, the Code defines the limit in these terms: If exposure is continued for eight hours in any one day, and is to a reasonably steady sound, the sound level should not exceed 90dB(A).
It is this limit which the Code specifies [as] a limit for exposure to noise (section 2.1.1); which if not achieved triggered the obligation to provide ear protectors and ensure their use (sections 3.1.2 and 7.1.1); which should be regarded as maximum acceptable levels and not as desirable levels (section 4.1.1); and which if it was considered that it may be exceeded dictated the obligation to carry out a survey (section 5.1.1).
On a fair reading of the Code, this blueprint for action provided that, although it was desirable to reduce levels where reasonably practicable to below the 90dB(A) level, continuous exposure for eight hours in any one day to a reasonably steady sound below 90dB(A) was acceptable and did not require the provision of ear protectors.
It was made clear that, having regard to the large inherent variations of susceptibility between individuals, exposure below 90dB(A) could not guarantee to remove all risk of noise induced hearing loss.
But the clear message of the document, based on the latest scientific knowledge, was that ear protectors were not required if the noise levels were below 90dB(A) and that at levels below 90dB(A) the risk to particularly susceptible people was sufficiently small, both in terms of the numbers who might be affected and the seriousness of any damage that might result, to be acceptable.
That is how I would interpret the document.
That is also how the document was interpreted by those in the industry.
Lord Mance has referred at paras 32 and 34 of his judgment to the evidence on this point summarised by the judge at paras 46 to 48 of his judgment and his findings at para 48.
In summary, the judge found that the 90dB(A) limit was regarded by everyone in the industry, the Health and Safety Executive and factory inspectors as the touchstone of reasonable standards that should be attained.
This finding was supported by the notes published by the Wolfson Unit for Noise and Vibration Control in the University of Southampton in 1976.
As the judge said, with the publication of BS 5330 in 1976, there was information available which, if researched, would give an indication of the level of risk below 90dB(A).
But in the light of the terms of the Code itself and all the evidence summarised at paras 46 to 48, I agree with the Court of Appeal that the judge was entitled to hold that an average reasonable and prudent employer was not in breach of its duty of care to its employees in simply relying on the 90dB(A) limit as an acceptable limit.
There is no rule of law that a relevant code of practice or other official or regulatory instrument necessarily sets the standard of care for the purpose of the tort of negligence.
The classic statements by Swanwick J in Stokes and Mustill J in Thompson v Smiths Shiprepairers (North Shields) Ltd [1984] QB 405 which have been quoted by Lord Mance at paras 9 and 10 of his judgment remain good law.
What they say about the relevance of the reasonable and prudent employer following a recognised and general practice applies equally to following a code of practice which sets out practice that is officially required or recommended.
Thus to follow a relevant code of practice or regulatory instrument will often afford a defence to a claim in negligence.
But there are circumstances where it does not do so.
For example, it may be shown that the code of practice or regulatory instrument is compromised because the standards that it requires have been lowered as a result of heavy lobbying by interested parties; or because it covers a field in which apathy and fatalism has prevailed amongst workers, trade unions, employers and legislators (see per Mustill J in Thompson at pp 419 420); or because the instrument has failed to keep abreast of the latest technology and scientific understanding.
But no such circumstances exist here.
The Code was the result of careful work by an expert committee.
As the judge said, at para 87, the guidance as to the maximum acceptable level was official and clear.
He was entitled to accept the evidence which led him to conclude that it remained the touchstone of reasonable standards for the average reasonable and prudent employer at least until the publication of the consultation paper on the 1986 draft Directive (para 48).
Remaining questions
There remain three questions in relation to the issue of common law negligence.
First, was the judge right to treat Courtaulds and Pretty Polly as different from the average employer? Secondly, was the Court of Appeal right to hold that employers should have provided ear protectors within six to nine months of the publication in 1987 of the consultation paper on the draft second EEC Directive (and not two years as held by the judge)? Thirdly, was the Court of Appeal right to hold that Quantum was not an average employer, but had particular knowledge, which assimilated its position to that of Courtaulds and Pretty Polly as it was found by the judge to be?
As regards the first question, the judge held that by the beginning of 1983 Courtaulds and Pretty Polly had an understanding of the risk that some workers would suffer damage at exposure between 85 and 90dB(A)lepd which led him to distinguish their position from that of the average prudent employer.
Lord Mance (paras 21 to 25) says that neither Courtaulds nor Pretty Polly had acquired any new knowledge by this time.
All that had happened was that they had formed a different view from that generally accepted about what precautions to take.
He says that the failure to give effect to that different view does not amount to a breach of the duty of care.
I would not interfere with the judges assessment on this point.
The position of the average employer was that, until about 1987, it knew or should have known that there was a risk at below 90dB(A), but that it was officially regarded as so small as to be acceptable.
But as the judge said at para 56 in relation to Courtaulds, that company had the resources to look beyond the 1972 Guidelines and reach their own conclusion about the nature and extent of the risks posed to the hearing of their employees exposed below 90dB(A).
It is true that they did not seek to assess the actual risks to members of the workforce exposed to different levels of noise.
But the judge found that the company had a clear awareness by the early 1980s that exposure to noise between 85 and 90dB(A) could be expected to damage the hearing of some workers to the extent that action was desirable at those levels.
So too as regards Pretty Polly.
Thus, on the basis of their own research into the problem and the discussion generated in the industry by the EEC proposals, by early 1983 large employers such as Courtaulds and Pretty Polly had come to the conclusion that the 90 limit was no longer acceptable.
Unlike Lord Mance, I would not characterise the decision of the two companies that some action should probably be taken as a display of greater than average social awareness.
As responsible employers, they understood that they owed a duty of care to their employees and were keeping the content of that duty under review.
But even if the decision that action was desirable was a display of social awareness, I do not see how that would necessarily afford a defence.
On the finding by the judge, their appreciation that the Code limit was no longer acceptable was sufficient to found liability.
I note, in any event, that Mustill J in Thompson said that changes in social awareness may transfer the risk into the category against which the employer can and should take care (pp 415 416).
As regards the second question, in my view the Court of Appeal was not entitled to interfere with the judges assessment of what was a reasonable lead in time for the average employer.
A period of two years from the publication of the consultation paper takes one to the end of 1989, which was effectively the date when the 1989 Regulations came into force.
The judge was entitled to hold that it was reasonable not to require the average employer to implement protective measures before the impending regulations came into force.
As regards the third question, the judge carefully considered all the evidence about the knowledge and understanding of Quantum at paras 57 to 61 of his judgment.
He concluded that it did not show that the management were in a position of knowledge and understanding that set them apart from what I take to be the understanding of the great majority of employers, that 90dB(A) lepd was the official limit that had to be worked to.
In my view, this assessment of the facts was reasonably open to the judge.
The Court of Appeal should not have interfered with it.
Section 29(1) of the Factories Act 1961
I agree with and do not wish to add anything to what Lord Mance has said on the issue of whether section 29 applies to operations carried out within the place of work.
I also agree that the section applies to noise.
Like Lord Mance, I recognise the force of the arguments to the contrary.
Noise was clearly not in the contemplation of Parliament when section 29 or its predecessors were enacted.
But the language of section 29(1) (every such place shall, so far as is reasonably practicable, be made and kept safe for any person working there) is general and always speaking.
Thus it can accommodate working methods and technological developments that were not foreseeable (and attitudes to safety that were not held) at the time when the statute was enacted.
I would hold that section 29 applies to noise for the simple reason that excessive noise can cause injury by damaging a persons hearing thereby rendering a place of work unsafe for those who are working there.
For my part, I would reach this conclusion regardless of whether section 29(1) imposes absolute liability in the sense to which Lord Mance refers at para 61.
Meaning of safe
The judge held that what was safe within the meaning of section 29(1) was not to be judged objectively, but was really a jury question, to be answered in the light of all the circumstances prevailing at the time, including what might reasonably have been foreseen by an employer (para 97).
And again at para 99: as contemplated by Rose J in Taylor v Fazakerley, the standard of safety in the section is governed by the general standard which ought reasonably to have been adopted by employers at the relevant time.
Having reviewed the facts in detail, he concluded that the standard of safety was determined by the 1972 Code until the coming into force of the Noise at Work Regulations 1989 and that, judged by the standard of the 1972 Code, Mrs Bakers place of work was safe.
Having reached this conclusion, he did not go on to consider whether her employers had discharged the burden of proving that they had done all that was reasonably practicable to make and keep the place safe for any person working there.
Smith LJ agreed with and applied the Court of Appeal decision in Larner v British Steel plc [1993] ICR 551 (which was followed by the Inner House of the Court of Session in Scotland in Mains v Uniroyal Englebert Tyres Ltd [1995] IRLR 544) and held (para 76) that the safety of a place of work within the meaning of section 29 was to be judged objectively without reference to reasonable foresight of injury.
She said that what is objectively safe cannot change with time.
On the evidence before the judge, she held that the places of work where the ambient noise levels were 85dB(A) lepd or above were not safe (para 78).
In the alternative, if reasonable foresight was relevant, she said that by the early 1970s any employer who kept abreast of developing knowledge would have known that prolonged exposure to 85dB(A) lepd was harmful to some people (para 79).
On that basis, by the early 1970s there would have been liability for breach of section 29, subject to the reasonable practicability defence.
Like Lord Mance, I prefer the approach of the judge, with the qualification that what is safe is an objective question in the sense that safety must be judged by reference to what might reasonably be foreseen by a reasonable and prudent employer.
The concept of what is safe is not, however, absolute.
As Lord Nicholls and Lord Hobhouse said in R (Junttan Oy) v Bristol Magistrates Court [2003] UKHL 55, [2003] ICR 1475, safety is a relative concept.
People can legitimately hold different opinions as to what is safe.
Opinions as to what is safe may vary over time as, with developing knowledge, changes occur to the standards that are reasonably expected to be followed.
I do not, therefore, agree with Smith LJ (para 78) that what is objectively safe cannot change with time.
Standards of safety are influenced by the opinion of the reasonable person and foreseeability of risk plays a part in the forming of that opinion.
If reasonable foreseeability is not imported into the concept of safety, then unless the Court of Appeal are right in holding that it is relevant to reasonable practicability, section 29(1) imposes an obligation on employers to guard against dangers of which they cannot reasonably be aware (in so far as it is reasonably practicable to do so).
Breach of that obligation exposes the employer to potential criminal liability: see section 155 of the 1961 Act.
That is an unreasonable interpretation to place on the statute, which I would not adopt unless compelled to do so by clear words, whether express or necessarily to be implied.
In my view, there are no such words.
As Lord Mance points out, there are two strands of authority on the meaning of safe in section 29(1).
Before I come to these, I should refer to section 14(1) of the 1961 Act which provides: (1) Every dangerous part of any machinery.shall be securely fenced unless it is in such a position or of such construction as to be as safe to every person employed or working on the premises as it would be if securely fenced.
It will be seen that section 14(1) does not include a reasonable practicability qualification.
There is a line of authority to the effect that reasonable foreseeability is a component of the meaning of dangerous in section 14(1) and its predecessors: see, for example, cases such as Hindle v Birtwhistle [1897] 1 QB 192, John Summers & Sons Ltd v Frost [1955] AC 740 and Close v Steel Company of Wales Ltd [1962] AC 367.
In Close, Lord Denning referred with approval to Hindle, a case involving a shuttle which flew out and injured a weaver.
He said at pp 380 381: The Divisional Court held that it was capable of being a dangerous part of the machinery.
It depended on the frequency with which shuttles were likely to fly out.
If it was so frequent as to be a reasonably foreseeable cause of injury, it was dangerous.
But if it was so rare as to be a minimal risk, it was not dangerous.
Wills J gave a definition which has been repeatedly approved: It seems to me that machinery or parts of machinery is and are dangerous if in the ordinary course of human affairs danger may be reasonably anticipated from the use of them without protection .
Lord Denning added: My Lords, anyone who has practised in the Queens Bench Division knows that the case of Hindle v Birtwhistle has been cited very, very many times.
Du Parcq LJ vouched for it up to 1940 in Stimpson v Standard Telephones and Cables Ltd [1940] 1 KB 342 and I can vouch for it since.
The first strand of authority on section 29(1) imports the concept of reasonable foreseeability into the meaning of safe.
Lord Mance has mentioned two of the cases at para 71 above.
There are others including a number of Scottish cases and the unreported decision of Rose J in Taylor v Fazakerley Engineering Co (26 May 1989), which I mention only because he was a judge who had great experience of personal injury litigation.
The second strand includes the cases mentioned by Lord Mance at para 73.
In Larner v British Steel plc [1993] ICR 551, Hirst LJ approved a passage in Munkman, Employers Liability, 11th ed (1990) p 292, where the author expressed the view that safe was a simple English word and there was no reason why the safety of a place of work should not be decided as a pure question of fact.
Hirst LJ regretted the introduction of the vague and uncertain notion of foreseeability.
Peter Gibson J said that it was not unfair on employers to impose a strict duty, because the duty was qualified by the defence of reasonable practicability.
To introduce the concept of reasonable foreseeability into the question of safety was effectively to equate the duty under the section with the duty at common law.
Mr Hendy QC seeks to uphold this reasoning.
He submits that the word safe is a plain English word.
It is not qualified.
In this respect, it may be contrasted with, for example, reg 4 of the Provision and Use of Work Equipment Regulations 1998 by which the duty to ensure that work equipment is suitable for its purpose is conditioned by reg 4(4), which provides that the word suitable means suitable in any respect which it is reasonably foreseeable will affect the health or safety of any person.
Mr Hendy has referred to a number of decisions on other health and safety provisions in which the court held that the duty on the employer was absolute and did not import any element of reasonable foreseeability.
In my view, the meaning of section 14(1) is highly relevant.
As a matter of ordinary English, the word dangerous is an antonym of safe.
The text of section 14(1) suggests that it is being so used in the subsection.
The subsection provides that every dangerous part of any machinery shall be securely fenced unless it is in such a position or of such construction as to be as safe to every person employed or working on the premises as it would be if securely fenced (emphasis added).
The contrast between dangerous and safe is striking.
As I have said, the meaning of section 14(1) is long established: there can be no liability for dangerous parts of machinery unless the danger is reasonably foreseeable.
In these circumstances, it would be surprising if Parliament had intended to impose liability under section 29(1) for a danger (or lack of safety) which is not reasonably foreseeable.
The only justification for interpreting safe in section 29(1) as not importing the concept of reasonable foreseeability is that it is unnecessary to do so because reasonable foreseeability is imported into the reasonable practicability qualification.
I accept that, if it is imported into the reasonable practicability qualification, there is no need to interpret safe as importing reasonable foreseeability in order to avoid an inexplicable mismatch between sections 14(1) and 29(1).
Smith LJ accepted (and Mr Hendy QC accepts) that reasonable foreseeability is relevant to reasonable practicability: As a matter of common sense, if the employer does not know of the risk and cannot reasonably have been expected to know of it, it cannot be reasonably practicable for him to take any steps at all (para 83).
That was also the view of the courts in Larner and Mains.
But in my view, the foreseeability of a risk is distinct from the question whether it was reasonably practicable to avoid it.
Diplock LJ explained the point in Taylor v Coalite at pp 319 320 in the passage quoted by Lord Mance at para 71 above.
It is only if a risk is reasonably foreseeable and it was reasonably foreseeable that an injury would be caused that it becomes necessary to consider whether it was reasonably practicable to avert the risk.
Thus, for the purpose of deciding the issue of reasonable practicability, it is assumed that the risk was reasonably foreseeable.
The importance of the section 14(1) line of cases is that they recognise that the mere fact that a risk of injury is foreseeable as a possibility is not necessarily sufficient to make the machinery dangerous.
It is dangerous only if the risk of injury is sufficiently likely to make it more than a minimal risk: see, for example, the passage in Lord Dennings judgment in Close which I have quoted at para 113 above.
I would apply that approach in the present case.
The 1972 Code specified a limit of 90dB(A)lepd.
As the HSE report Framing Noise Legislation published in 1975 made clear, this noise limit has widespread international acceptance, and although it does not eliminate all risk of hearing damage, we feel it continues to be the most practicable standard (para 19).
The Code itself stated that exposure below 90dB(A) lepd could not guarantee to remove all risk of noise induced hearing loss.
But the implication was that the risk was very small and acceptable in the view of the Government Department responsible for issues of health and safety and the experts who were advising them.
I would agree, however, that if the concept of reasonable foreseeability is not imported into safe in section 29(1), then it is imported into reasonable practicability for the reasons given by Smith LJ.
This is the position for which Mr Hendy contends.
In agreement with the Court of Appeal in Larner, there is more than a hint in the reasoning of Smith LJ as to the meaning of safe in section 29(1) that it is influenced by the idea that it is necessary to interpret the subsection as imposing a greater obligation than would be imposed at common law.
In this respect, at paras 59 and 60, she criticises Rose J in Taylor v Fazakerley for doing no more than formulating the common law test.
At para 67, she refers with approval to Peter Gibson Js statement in Larner that to introduce the concept of reasonable foreseeability into the question of safety was effectively to equate the duty under the section with the duty at common law.
At para 70, she refers to a similar observation by Lord Sutherland in Mains.
Finally, when discussing the issue of reasonable practicability at paras 87 to 89, she draws a distinction between section 29(1) and the common law.
The critical passage is quoted by Lord Mance at para 81.
She says that at common law a risk might be regarded as acceptable, whereas under the statute the duty is to avoid any risk within the limits of reasonable practicability.
There is a similar passage at para 100 of her judgment.
I assume that the justification for saying that the statutory duty must differ from the common law duty is that the statutory provisions would otherwise be otiose.
But there is no principle of law that a statutory obligation cannot be interpreted as being co terminous with a common law duty.
As Stephenson LJ said in Bux v Slough Metals Ltd [1973] 1 WLR 1358, 1369 1370: The statutory obligation may exceed the duty at common law or it may fall short of it or it may equal it.
Sometimes Parliament may decide that, in the interests of clarity and certainty, there is advantage in providing a detailed all embracing set of rules.
The merit in setting these out in a single authoritative document, such as a statute, is not undermined even if they do no more than reflect what the courts would be likely to decide when applying the common law.
There are, in any event, two important respects in which section 29(1) clearly does not reflect the common law.
First, if a defendant wishes to say that it was not reasonably practicable to make or keep a place of work safe, the burden is on him to do so; it is not on the claimant to prove that it was reasonably practicable.
I accept that few cases of this kind are likely to be decided on an application of the burden of proof.
Nevertheless, in this respect there is a legal difference between the statutory and common law positions.
Secondly, the fact that breaches are offences is a very significant difference.
The fact that, as we were told, there have been few (if any) prosecutions is immaterial.
Parliament considered that a breach of section 29(1) was sufficiently serious to attract potential liability to criminal sanctions.
Were the places of work safe?
Safety must be judged by the understanding and standards of the times.
Where these are set out in a clear and official publication such as a Code of Practice issued by a relevant government department based on the most up to date expert advice, they are likely to set the bounds of what risks are reasonably foreseeable and acceptable and what is reasonably to be expected of an employer.
If the guidance given in such a publication becomes out of date and a reasonable and prudent employer becomes aware of this (or ought reasonably to do so), then it can no longer rely on the publication to meet an allegation that its place of work is no longer safe.
And employers with special expertise fall into a special category, as the positions of Courtaulds and Pretty Polly demonstrate.
I see no reason to disturb the judges conclusion on the issue of safety.
He was entitled to conclude that the standard of safety was determined by the 1972 Code until the coming into force of the 1989 Regulations and that, judged by the standard of the 1972 Code, Mrs Bakers place of work was safe.
Reasonably practicable
In view of the conclusion I have reached on the meaning of safe the question of reasonable practicability does not arise.
But as I have said, if reasonable foreseeability is not imported into the meaning of safe, I would agree with the Court of Appeal that it is imported into reasonable practicability.
On this hypothesis, however, I do not agree with the Court of Appeal that the acceptability of risk is irrelevant to reasonable practicability.
I would adopt what Lord Mance says at paras 82 and 83.
Smith LJ refers to the quantum of the risk as being relevant to whether it is reasonably practicable to eliminate it.
I agree.
But if the quantum of the risk is relevant to that question, how can the fact that a Code of Practice says that a risk is acceptable not be relevant? As Smith LJ said, the classic exposition of reasonable practicability is to be found in Edwards v National Coal Board [1949] 1 KB 704.
Tucker LJ said at p 710: in every case it is the risk that has to be weighed against the measures necessary to eliminate the risk.
The greater the risk, no doubt, the less will be the weight to be given to the factor of cost.
If, to use the words of Smith LJ, a responsible or official body has suggested that a particular level of risk is acceptable, that is likely to be cogent evidence that this level of risk is minimal and one that can reasonably be disregarded.
Smith LJ acknowledged that an official view as to the acceptability of a risk might well have a role to play in the determination of common law liability.
Having said at paras 89 and 100 that it had no part to play in the determination of whether it was reasonably practicable to make a place of work safe, she acknowledged at para 101 (rightly in my view) that the 1972 Code was relevant to the employers assessment of the quantum of the risk, although it was inadequate as an assessment tool.
In my view, the 1972 Code was plainly relevant to an employers assessment of the risk.
The central question is whether, and during what period, it was reasonable for an employer to rely on the 1972 Code for the assessment of the risk and whether in all the circumstances it was reasonable for an employer not to provide ear protectors.
At para 101, Smith LJ gave her reasons for holding that by late 1976 or early 1977 the average sized employer in the knitting industry could and should have been able to make an informed assessment of the quantum of risk arising from noise in the range of 85 to 90dB(A) lepd and that this assessment would have led the employer to the conclusion that ear protectors should be provided.
It is true that the judge did not deal with the issue of reasonable practicability since, on his view as to the meaning of safe, it did not arise.
But he did deal with the issue of the appreciation of risk by a reasonable employer when he addressed the issue of common law negligence: see paras 69 to 89.
This section of his judgment must be considered against the background of his earlier findings of fact at paras 46 48 to which I have earlier made reference.
The critical paragraph in the judgment of the judge is para 87 which Lord Mance has set out at para 16.
It can be seen that para 101 of the judgment of Smith LJ is at variance with para 87 of the judges judgment.
The judge said that the guidance given as to the maximum acceptable level by the 1972 Code was official and clear.
His assessment was that complying with the 90dB(A) lepd as the highest acceptable level was meeting the standards of the reasonable and prudent employer during the 1970s and 1980s, certainly until the time when the terms of the 1986 Directive became generally known in the consultative document of 1987.
They were not in breach of duty for not asking the question who is at risk in my factory and how big is the risk?
In my judgment, the Court of Appeal should not have interfered with this assessment of the standards of the reasonable and prudent employer during the 1970s and 1980s.
For the purpose of the reasonable practicability issue, Smith LJ accepted that an employer was entitled to rely on the 1972 Code until the publication of BS 5330 in July 1976.
She said that the significance of that document was that it now became possible for anyone with a modest degree of mathematical skill to assess the quantum of risk from noise in the range 85 to 90dB(A) lepd.
But in expressing this view, Smith LJ must have overlooked paras 46 to 48 of the judges judgment.
In the light of that evidence (which was accepted by the judge), he was entitled to hold that a reasonable and prudent employer would not have sought advice from an acoustic engineer on the basis of BS 5330.
All the evidence was that nobody used the tables to do the kind of calculation that Smith LJ said should have been carried out.
The evidence was that the 90dB(A) lepd limit stated in the 1972 Code was regarded as the touchstone of reasonable standards at least until the mid 1980s.
In my judgment, there was no basis for the Court of Appeal to interfere with that assessment either in relation to the issue of reasonable practicability or the standard to be expected of the reasonable prudent employer.
Conclusion
It follows that I would allow the appeals both at common law and on the section 29(1) issue.
For the reasons that I have given, I agree with the conclusions reached by Judge Inglis (to whose judgment I would pay tribute).
LORD SAVILLE
For the reasons given by Lord Mance and Lord Dyson, I would allow this appeal to the extent proposed by those Justices.
To my mind the contrary views depend to a significant degree on hindsight and consequently place an undue burden on employers.
LORD KERR
Liability at common law
The report of the Committee under the chairmanship of Sir Alan Wilson on the Problem of Noise (the Wilson Committee) of March 1963 was presented to Parliament in July 1963.
It contained the following observations: 508 Permanent reductions in sensitivity of hearing can be caused by damage to the inner ear, resulting from exposure over a considerable period to certain types of noise.
The existence of this damage, which is irreversible, has been demonstrated in people who work in noisy industrial environments. 509.
Though the existence of these temporary and permanent reductions is well established, as this chapter shows, our knowledge is very inadequate. 518.
Different individuals vary considerably in the amount of hearing loss produced in them by a given noise exposure. 521. (b) the British Medical Association stated in their evidence that they believed that there is general acceptance of the view that working conditions involving continuous exposure throughout working hours for a prolonged period to noise whose intensity exceeds 85 dB [approx 90dB(A)] in any octave band in the speech frequency range (250 4,000 cycles per second) may cause permanent damage to hearing; 533.
Much could be done voluntarily within industry, and, indeed, we know that some firms already have well established hearing conservation programmes.
There is, however, a need for a wider and more urgent interest in the problem.
We recommend, as immediate steps, that the Ministry of Labour should: (a) disseminate as widely as possible existing knowledge of the hazard of noise to hearing; (b) impress on industry the need to take action to reduce the hazard as it is at present recognised; and (c) advise industry on practical measures to this end. 534.
Although voluntary action is now possible and, indeed, essential, we do not consider that the present knowledge of this complex problem provides a sufficient basis for legislation.
Acting on the advice contained in para 533 of the Wilson Report, in June 1963 the first edition of a Ministry of Labour publication entitled Noise and the Worker made the following recommendations: The first steps in the programme [i.e. a Noise Reduction and Hearing Conservation Programme] are to carry out a noise survey and to obtain specialist advice. (page 5) Our knowledge of the relation of noise to hearing loss is as yet too limited for it to be possible to say with certainty what amount of exposure is safe partly because people vary greatly in their susceptibility to noise.
It is generally agreed, however, that if workers are exposed for eight hours a day, five days a week, to a continuous steady noise of 85 dB or more in any octave band, in the speech range of frequency (500 to 4,000 cycles per second), it is desirable to introduce a programme of noise reduction or hearing conservation. (page 7) Where it is not possible, by environmental control, to reduce noise to sufficiently safe levels, workers should be protected by ear defenders. (page 14)
The second edition of Noise and the Worker was published in June 1968.
In a section entitled Monitoring Workers Hearing it stated that workers exposed to levels of noise at or approaching those set out in a table should have their hearing tested periodically.
The table contained a range of decibel levels from 80 to 100 with corresponding frequency bands of 1200 4800 (in relation to 80 decibels) up to 37.5 150 (in the case of 100 decibels).
The third edition of Noise and the Worker was prepared by the Health and Safety Executive in 1971.
It gave the following warning: Because some people are more liable to hearing loss than others and because our knowledge of the effects of noise exposure, especially exposure to intensive noise of short duration, is still incomplete it is not possible to set out a simple table of permissible limits for all types of noise.
The publication nevertheless contained a table which set out levels of noise which indicated a serious hazard to hearing.
Eight hours exposure to noise levels of 90 dBA was stated to constitute such a serious hazard.
This can only be taken to mean that there was a distinct, albeit less serious, hazard to hearing at lower levels.
That conclusion is confirmed by the injunction that appears later in the text (page 9) to the effect that damage risk criteria should be regarded as maximum permissible levels and not as desirable levels.
If possible the noise should be reduced to levels lower than the danger levels set out in the table.
This was particularly required in order to avoid risk to the minority of people who are exceptionally susceptible to hearing damage, and for reasons of general welfare.
Two salient conclusions can be drawn from these statements.
Employers should have been aware that damage to hearing could occur at levels less than 90 dBA.
They ought also to have realised that there may well be vulnerable individuals within the workforce whose hearing was particularly at risk at those lower levels.
Other material was available about the risk of noise induced damage to hearing, most notably Hearing and Noise in Industry detailing the research carried out by Burns and Robinson in 1970.
Together with the publications that I have so far reviewed, this provided the essential setting in which the seminal Code of Practice for reducing the exposure of employed persons to noise was published in 1972.
The gradually evolving state of knowledge that emerges from the earlier documents is manifest from the Code of Practice itself.
In a foreword, the Secretary of State for Employment, Rt Hon Robert Carr MP, said: It has been common knowledge for many years that high levels of noise at work can cause impairment of hearing.
In a few firms where there is this danger, good work has been done in suppressing noise, but in many others the problem has not been recognised, or has been under estimated.
In those firms, the tragedy is that all too often the workers are accustomed to the noise and do not notice the gradual deterioration of their hearing until it is too late.
For hearing lost in this way cannot be recovered.
The general solution to this problem, which is a complex one, has been hampered more by ignorance than by neglect.
Until the pioneer work of Professor Burns and Dr. Robinson was published in March 1970, we lacked the necessary scientific knowledge of the precise levels of noise, and the duration of exposure to them, which can cause damage.
It is largely due to their work that this Code of Practice has been made possible.
The provisions in the code, and its publication, have been recommended by my Industrial Health Advisory Committee on which both sides of industry are represented.
It is the outcome of 12 months' work by a sub committee.
I regard the publication of the Code as the first important step in the prevention of loss of hearing due to noise at work.
It should be considered as a blueprint for action.
The Code was at pains to reinforce the message that had been conveyed by earlier publications to the effect that recommended limits on noise exposure could not be taken as eliminating all risk of noise induced hearing loss.
Prominently, at para 1.1.2, it stated: The Code sets out recommended limits to noise exposure.
It should be noted that, on account of the large inherent variations of susceptibility between individuals, these limitations are not in themselves guaranteed to remove all risk of noise induced hearing loss.
Section 4 of the Code, dealing with limits on sound levels, reiterated the need to regard these as maximum levels which ought not to be exceeded.
It was desirable that levels of noise be reduced below those specified.
Para 4.3.1 provided that if exposure was continued for eight hours in any single day, and was to a reasonably steady sound, the sound level should not exceed 90 dB(A).
In her judgment in the Court of Appeal Smith LJ had said at para 6 that the Code of Practice, having explained that protection from noise of 90dB(A)leq would not protect all workers from hearing damage, had indicated that some harm was likely to be caused to some susceptible workers by noise below that level.
Lord Mance has observed that the use of the word likely in this context was not justified because the Code had in fact stated that the limitations which it specified were not in themselves guaranteed to remove all risk of noise induced hearing loss.
It may well be that the particular formulation chosen by Smith LJ was not strictly justified but by 1972 it was recognised that a minority of workers would suffer hearing loss if exposed to noise levels of less than 90 dB(A) see the third edition of Noise and the Worker (referred to in para 5 above).
Lord Mance and Lord Dyson have concluded that the Code of Practice set an appropriate standard on which a reasonable and prudent employer could legitimately rely.
In Lord Mances view, it was acceptable for such an employer to continue to rely on the Code for this purpose until the late 1980s.
Lord Dyson agreed with the trial judge, His Honour Judge Inglis, that the Code remained the touchstone of reasonable standards for the average reasonable and prudent employer at least until the publication in 1986 of the draft proposal for a Council directive on the protection of workers from the risks related to exposure to noise.
The Court of Appeal, although expressing a preference for an earlier date, felt that the trial judge was entitled to reach the conclusion on this issue that he expressed in para 87 of his judgment.
I shall consider this paragraph in a little detail presently.
Before examining the question of how long an employer might reasonably rely on the Code, it is, I believe, necessary to look at what a reasonable employer would have taken from the information contained not only in the Code but also in the earlier publications that I have discussed.
True it is that 90 dBA was the stipulated danger level.
But employers were not told that lower levels were safe.
On the contrary, they were told that certain employees could well suffer a hearing loss if exposed to noise at lower levels.
That risk had been clearly signalled.
Employers had also been told that too little was known about the relationship of noise to hearing loss to say with certainty what amount of exposure was safe.
What ought to have been the reaction of a prudent and reasonable employer to that information? It seems to me that adopting a passive, sanguine attitude to the risk of hearing loss in workers exposed to noise of less than 90 dBA was not an available option.
The Code was described as a blueprint for action.
It was certainly not a blueprint for inaction.
In Doherty v Rugby Joinery (UK) Ltd [2004] ICR 1272 Hale LJ stressed that the duty on the employer was to consider those within the workforce who (although not identifiable in advance) would be particularly susceptible to vibration injury.
This seems to me to be an important argument against passivity on the part of employers following the publication of the 1972 Code.
A prudent employer should have concluded that the health of a minority was at risk when exposed to noise levels below 90dB(A).
The law should not, and in other areas does not, deny protection to a minority simply because they are a minority.
An employers duty extends to the protection of those of his employees who are, by dint of their susceptibility to injury, more likely to sustain it.
Whatever may have been the position immediately after the Code was published, treating it as an enduring touchstone was no longer possible after 1976, in my opinion.
The effect of ISO 1999, published in 1975 and BS 5330 in 1976 was described by Judge Inglis in para 87 of his judgment in the following passage: There is no doubt that research into the question of what risks to the hearing of employees exposure below 90dB(A)leq posed would have yielded the answer that 90dB(A) was not a natural cut off point, and that there were risks to susceptible individuals below that level.
Indeed, the 1972 Guidelines themselves made that clear.
From the early 1970s, certainly by 1976 with the publication of BS5330 and of lS0 1999 in the previous year, the information was available if researched to give an indication of the level of the risk.
Judge Inglis considered that research was required to unearth the information that there was a risk to the hearing loss of some employees who were exposed to noise at a lesser level than 90 dB(A).
There appears to me to be an inherent contradiction in play here.
The Code has been hailed as the basis on which a reasonable and prudent employer might determine that protection was required.
This obviously presupposes that the reasonable and prudent employer was aware of the contents of the Code.
But within the very Code that provided the basis for the defence that an employer might deploy was the cautionary admonition that some workers would suffer some damage if exposed to noise levels of less than 90 dB(A).
In this connection, Lord Dyson has said that the clear message of the Code was that the risk to particularly susceptible people was sufficiently small, both in terms of the numbers who might be affected and the seriousness of any damage that might result, to be acceptable.
With respect, I cannot agree.
Nowhere in the Code is any estimate made of the numbers who might constitute this exceptional category.
Nor is there any assessment offered of the degree of disability that might accrue to those who were affected.
What the 1972 Code should have conveyed to employers (especially those who sought subsequently to rely on it for the defence of noise induced hearing loss claims) was that an unquantified minority of their workforce would suffer hearing loss if exposed to noise levels at less than 90 dB(A).
As a minimum, this should have made them alert to further information from public authority sources that might emerge in coming years.
By contrast with the Code, ISO 1999 and BS 5330 did permit an estimate to be made of the number of workers who would be affected by exposure to various levels of noise below 90 dB(A).
Thus, in para 13 of his judgment the judge, by reference to a table produced by Professor Lutman, was able to calculate that noise exposure of 85 dB(A)lepd over 40 years would cause 8.5dB hearing loss at 4khz.
At para 14 the judge reproduced a table from a paper by Professor Robinson which showed that 10% of a typical population exposed for 30 years to 85dB(A)lepd will have a hearing loss of 35dB.
This can be compared to a non noise exposed population, 10% of whom at age 48 would have a hearing loss of 31.5.
It was thus possible to show that noise exposure added a further 3.5dBs of hearing loss in this percentile.
And at para 21 the judge reproduced a further table from Professor Lutman which showed a 9dB threshold loss at 4 kHz in 5% of men exposed to 85 dB(A)lepd for 45 years.
Now it is true, as Lord Mance has pointed out, that neither ISO 1999 nor BS 5330 purported to identify a maximum tolerable noise exposure.
Indeed, both documents disavowed any attempt to do so.
But that, as it seems to me, is neither here nor there.
What is important in this context is that employers who exposed their employees to noise had been alerted in 1972 to the fact that some employees who were exposed to noise levels of less than 90 dB(A) would suffer hearing loss and in 1976 a means of calculating what percentage of their workforce would be affected was available to them.
From 1976 onwards, therefore, employers, who should since 1972 have been alive to the dangers of noise induced hearing loss in a percentage of their employees exposed to levels of noise in excess of 85 dB(A), could estimate what the percentage was likely to be.
All that was unknown was which particular workers would fall into that category.
What was certain was that, if they were exposed over a sufficiently long period, some at least of their workforce would suffer permanent, irremediable damage to their hearing.
Although that hearing loss would not be substantial, its impact on those who were affected by it is not to be underestimated.
As the respondent submitted, it diminishes the lives of those who suffer from it in a real and significant way.
The appellants have argued that a reasonable employer could not have been expected to read, absorb and apply ISO 1999 and BS 5330.
I do not accept that argument.
The cornerstone of the appellants defence is the Code of Practice of 1972.
If this is proffered as the reason that it was acceptable for employers not to supply ear defenders to employees unless they were exposed to noise levels of 90 dB(A) and greater, it must also be acknowledged as the source of warning that noise levels less than that would damage some workers hearing.
Thus alerted, it seems to me that an employers obligation to remain abreast of information that would allow him to know what percentage of his workforce was likely to be affected was plain.
This conclusion does not conflict with the classic statement of principle by Swanwick J in Stokes v Guest, Keen and Nettlefold (Bolts and Nuts) Ltd [1968] 1 WLR 1776, 1783: the overall test is still the conduct of the reasonable and prudent employer, taking positive thought for the safety of his workers in the light of what he knows or ought to know; where there is a recognised and general practice which has been followed for a substantial period in similar circumstances without mishap, he is entitled to follow it, unless in the light of common sense or newer knowledge it is clearly bad; but, where there is developing knowledge, he must keep reasonably abreast of it and not be too slow to apply it He must weigh up the risk in terms of the likelihood of injury occurring and the potential consequences if it does; and he must balance against this the probable effectiveness of the precautions that can be taken to meet it and the expense and inconvenience they involve.
If he is found to have fallen below the standard to be properly expected of a reasonable and prudent employer in these respects, he is negligent.
While, for reasons that I shall discuss below, it could be concluded that a practice of recommending protection for those exposed to 90 dB(A) and above had grown up, so far from there being a recognised and general practice which had been followed for a substantial period in similar circumstances without mishap, as I have sought to demonstrate in the review of the various government publications on this subject, thinking on the problems of noise at work was characterised by uncertainty and qualification until 1972 and beyond.
In the 1970s knowledge was developing and conclusions, albeit qualified conclusions, were emerging.
There was a clear duty on the part of employers to keep abreast of these, a duty made all the more acute by the uncertainty of the past.
The information that became available in 1975 and 1976 would have led to the conclusion that a sufficiently significant percentage of a workforce exposed to noise at levels greater than 85dB(A) would suffer a hearing loss.
I therefore agree with Smith LJs analysis on this issue, although not with her conclusion on liability at common law.
At para 101 of her judgment, Smith LJ said this: from July 1976, there was a method available which could be used by anyone with a modest degree of mathematical skill.
Certainly any consultant acoustic engineer could have used the British Standard method.
Accordingly, I conclude that by late 1976 or early 1977, the average sized employer in the knitting industry could and should have been able to make an informed assessment of the quantum of risk arising from the below 90dB(A)lepd noise in his workshops.
As I have said above, this assessment would have led the employer to broadly the same conclusion as was reached by Judge Inglis.
Once that assessment had been made, it could not in my judgment be said that it was not reasonably practicable to provide ear protectors.
The conclusion reached by Judge Inglis referred to in this passage was that when exposed to noise above the level of 85dB(A) the risk of suffering hearing loss accelerates up to 90dB(A) and in the high 80s, given long enough exposure, significant hearing loss may be expected in at least a substantial minority of individuals.
That important finding was not challenged either in the Court of Appeal or in this court.
It appears to me to lie at the heart of the issue of the liability of the appellants at common law.
The finding was complemented by another important conclusion reached by the judge, a conclusion which again no one has sought to challenge.
At para 73 of his judgment he said: The evidence does not show that at any time the cost of implementing a policy of voluntary hearing protection at levels below 90dB(A) was such that a reasonable employer could use cost or difficulty as a valid reason for not having such a policy.
Shortly put, therefore, from 1977 onwards an employer in the knitting industry should have known that a percentage of his workforce would suffer hearing loss if they were exposed to and remained unprotected from noise levels of more than 85dB(A).
Such an employer should also have known that he could provide ear protection that would have reduced the risk of that hearing loss occurring at not inordinate cost.
Both Judge Inglis and Smith LJ appear to have absolved employers of liability at common law because, until the late 1980s, advice was not given to them that ear protection was required for noise levels below 90 dB(A).
The failure to give this advice seems to have been due to the manner in which the experts addressed the question.
Thus in paras 46 and 47 of Judge Ingliss judgment the following appears: There was evidence given by the expert witness engineers for Courtaulds (Mr Bramer and Mr Currie) about the approach to control of noise in the period from the 1970s in industry.
The report of Mr Worthington for Pretty Polly and Guy Warwick is also in evidence.
To Mr Bramer, the guidance in Noise and the Worker and the 1972 Guidelines provided a "clear and consistent recommendation to employers as to how they ought to deal with noise in the workplace".
The result was that in his practice, his invariable advice until the late 1980s, was that "the relevant level was a daily personal noise exposure of 90dB(A)".
This approach, he said, was standard during the period up to 1989 among noise professionals, and taught at training courses.
In the mid 1980s, when it appeared that EEC regulation would involve a first action level of 85dB(A) his advice changed to reflect that.
He was not aware of the NPL tables before the 1980s when he found that they were being used by medical experts writing reports for the purpose of deafness claims.
He has never come across them being used in any part of industry.
In evidence Mr Bramer said that he gave advice to employers in terms of complying with the 1972 Code.
He was speaking to the 90dB(A) level, as were all his colleagues.
He agreed that the advice would be to answer the question "Tell us how to comply with legislation and the Code of Practice", rather than "Tell me how to avoid reasonably foreseeable risk to my workforce".
He would have recommended 90dB(A) as the cut off point, but would also have said "that does not actually stop some more susceptible people from having some small noise induced hearing loss".
If asked about risk, he would have had some difficulty, and regarded the question as more one for medical people. 47.
Mr Currie said that the Health and Safety Executive and factory inspectors after the 1974 Act concentrated their advice and enforcement on the 90dB(A) level.
He was not aware of any instance in which the NPL tables had been used by employers to predict the level of risk for their workforce.
In evidence Mr Currie said that good practice won't necessarily remove all risk.
He agreed that there has been no very different understanding about noise induced hearing loss since the 1970s.
The first thing to look at when deciding on practices, which is what employers have to do, is to look at the guidance available.
Mr Worthington's report is to the effect that employers looked to the 90dB(A) limit in the Code of Practice as the maximum acceptable limit, and that the Factory Inspectorate and HSE did not refer employers to the risks below that limit as risks about which they should take action.
That was the practice of the day, and employers taking advice, if they did, would be referred to the standard in the Code as being what had to be observed.
Mr Bramers evidence, recorded uncritically by Judge Inglis, so far from bolstering the case for the appellants, seems to me to have exposed critical weaknesses in it.
To deliver invariable advice that the relevant level was a daily personal noise exposure of 90dB(A) (by which, one presumes, he means that it was acceptable to ignore dangers arising from noise exposure below that level) crucially fails to take account of the unambiguous evidence that risks to a percentage of employees from exposure to noise of over 85 dB(A) had been recognised.
What was to become of this group in Mr Bramers equation? Were they to be discounted as an insignificant minority? If so, on what basis did he assess their significance? And on what basis did he conclude (if indeed he did conclude) that the hearing loss that they would sustain could be overlooked?
Of course, Mr Bramer sidestepped most of these difficult issues by saying that he tailored his advice to address the question how would the legislation and the Code of Practice be complied with, rather than how could the employer comply with his elementary duty of avoiding foreseeable risk to his employees.
Judge Inglis appears again not to have cast a critical eye on this aspect of Mr Bramers testimony and the Court of Appeal was likewise silent as to its reaction to it.
But the fundamental duty of an employer is that he should ascertain by whatever reasonable means are at his disposal, what are the likely dangers to his employees from the work that he asks them to do and that he should then do what he reasonably can to avoid those dangers.
Mr Bramer gave evidence that if he had been asked what appears to me to be not only the right, but also the obvious, question of how to avoid reasonably foreseeable risk to employees, he would have adverted to the fact that some risk to susceptible employees of small noise induced hearing loss would arise.
But he would not have been able to assess what that risk was, how many employees would be affected nor the level of disability that it would give rise to, these matters lying more in the province of medical people.
Of course he was not asked the right and obvious question.
He ought to have been.
But if he had been asked that question, he could not have given any meaningful reply.
It seems to me remarkable that an employer who should have asked, in light of what the Code of Practice had said, what were the dangers to the minority of his workforce who would suffer damage to their hearing by exposure to levels of noise that were current in his factory and what he could do about those dangers, can be relieved of liability because he did not ask the right question and because his expert did not direct him to the right issue.
The evidence of Mr Currie and Mr Worthington is open to the same criticisms which attach to that of Mr Bramer.
The fact that after the 1974 Act the Health and Safety Executive and factory inspectors concentrated their advice and enforcement on the 90dB(A) level does not relieve employers of the duty to inform themselves of the true purport of the available evidence.
After all, Judge Inglis was able to calculate without difficulty what percentage of workers would be likely to suffer hearing loss on the basis of data that were available to any employer from 1977 onwards.
He may have been directed to those data by reports of the experts produced at trial but the data existed in the 1970s.
Employers and those who advised them ought to have considered those data shortly after they became available in 1976; they should have made the calculation that Judge Inglis was able to make many years later; they ought to have concluded, as he did, that a significant minority would suffer hearing loss if exposed to noise levels exceeding 85 dB(A) over a prolonged period; they should have discovered that this could be avoided by the provision of ear defenders at not unreasonable cost; and they should have provided their workers with those ear defenders.
Because of their failure to do so, they were, in my opinion, guilty of negligence.
In reaching this conclusion I have kept in mind the salutary warning of Mustill J in Thompson v Smith Shiprepairers [1984] QB 405, 422 where he said: One must be careful, when considering documents culled for the purpose of a trial, and studied by reference to a single isolated issue, not to forget that they once formed part of a flood of print on numerous aspects of industrial life, in which many items were bound to be overlooked.
However conscientious the employer, he cannot read every textbook and periodical, attend every exhibition and conference, on every technical issue which might arise in the course of his business; nor can he necessarily be expected to grasp the importance of every single item which he comes across.
The employers in this appeal and their advisers were not required to immerse themselves in esoterica in order to understand what I believe to be the clear and simple import of the material that confronted them.
The evidence that some of their employees were at risk was unmistakable.
Hindsight is not required in order to see that clearly.
The means of mitigating that risk were also clear.
The need to take the necessary steps cannot plausibly be challenged.
It is not only unnecessary, in light of my view about the common law liability of the appellants from the late 1970s onwards, for me to embark on any exegesis about how soon employers should have been alerted by the imminence of European legislation to the need to protect workers from noise levels of 85dB(A), it would be inappropriate for me to do so on what would be an academic basis.
In my view, their liability arose much earlier.
The employers liability under statute
As Lord Mance has said, several issues arise in addressing the questions whether section 29 of the Factories Act 1961 covers exposure to noise in the workplace, and, if so, what standards it sets.
It seems to me that these can be grouped in four categories.
First whether the section is designed to cover only the physical fabric and structure of the workplace.
Second, are the duties imposed applicable only to occupiers as opposed to employers? (This issue was raised for the first time on the hearing of the appeal to this court).
Thirdly, even if activity within the workplace is covered, does it apply to environmental conditions which may only have a deleterious effect over a long period of time? Finally, what does safe mean? Does it mean what can be reasonably foreseen or does it set an absolute standard?
On the first of these issues, for the reasons given by Lord Mance, with which I agree, the answer must surely be that activities carried on in the workplace which render it unsafe, come clearly within the embrace of the section.
The context of the provision is the protection of workers in factories.
The nature of factories is that employees will carry on working activities, some at least of which will carry potential, inherent dangers.
When an employer is enjoined to provide a safe place of work, it can only be for the purpose of ensuring that the work that is carried on in the place where it occurs does not jeopardise the employees safety.
The work activity cannot be divorced from the physical location where it takes place.
On the second question, it is, I think, significant that neither employer nor occupier is defined in the legislation and the terms, I am satisfied, are used interchangeably throughout the Act.
Employers duties are imposed and require to be discharged in the factory setting.
It would thwart the entire purpose of the legislation to confine the discharge of those duties artificially to occupiers and to exempt employers from their reach.
I have concluded that the duties arising under the Factories legislation were intended to be imposed on employers, whether they be occupiers or not.
The third question does not admit of quite such an easy answer as the first two.
It is, I believe, helpful to have regard to the general character or nature of the provision and the timing of its enactment.
It is a provision which imposes a general requirement and it can be assumed, I think, that Parliament realised that it would be impossible, at the moment of its enactment, to prescribe comprehensively all the ways in which a place of work might become dangerous.
This was therefore a catch all provision designed to ensure that workplaces be kept safe in any and all of the myriad ways that danger might arise in the future.
One rather prosaic way of considering the question might be to imagine what the response of the enactors of the legislation might be if they had been asked in 1961, whether, if in 20 years time it proved that a workroom where women were required to operate knitting machines at a level of noise that would irreversibly damage their hearing, they intended that the requirement that employers maintain a safe place of work should apply to that situation.
I believe that their answer would unquestionably be yes.
A rather more principled way of addressing the question can be found in Bennions treatment of the subject of the presumption that an updating construction is to be given to an enactment.
At section 288 of the fifth edition (2008) of his work on Statutory Interpretation, he says this: Section 288.
Presumption that updating construction to be given (1) With regard to the question of an updating construction, Acts can be divided into two categories, namely the usual case of the Act that is intended to develop in meaning with developing circumstances (in this Code called an ongoing Act) and the comparatively rare case of the Act that is intended to be of unchanging effect (a fixed time Act). (2) It is presumed that Parliament intends the court to apply to an ongoing Act a construction that continuously updates its wording to allow for changes since the Act was initially framed (an updating construction).
While it remains law, it is to be treated as always speaking.
This means that in its application on any date, the language of the Act, though necessarily embedded in its own time, is nevertheless to be construed in accordance with the need to treat it as current law. (3) A fixed time Act is intended to be applied in the same way whatever changes might occur after its passing.
Updating construction is not therefore applied to it. (4) Where, owing to developments occurring since the original passing of an enactment, a counter mischief comes into existence or increases, it is presumed that Parliament intends the court so to construe the enactment as to minimise the adverse effects of the counter mischief.
This appears to me to be a classic case of the mischief of noise induced hearing loss from exposure to 85 dB(A) becoming recognised during the lifetime of the relevant legislation.
An updating construction is clearly called for and should be applied to the updated mischief.
The always speaking principle is well established.
Its clearest exposition remains that of Lord Wilberforce in Royal College of Nursing of the United Kingdom v Department of Health and Social Security [1981] AC 800, 822: In interpreting an Act of Parliament it is proper, and indeed necessary, to have regard to the state of affairs existing, and known by Parliament to be existing, at the time.
It is a fair presumption that Parliament's policy or intention is directed to that state of affairs.
Leaving aside cases of omission by inadvertence, this being not such a case, when a new state of affairs, or a fresh set of facts bearing on policy, comes into existence, the courts have to consider whether they fall within the parliamentary intention.
They may be held to do so, if they fall within the same genus of facts as those to which the expressed policy has been formulated.
They may also be held to do so if there can be detected a clear purpose in the legislation which can only be fulfilled if the extension is made.
How liberally these principles may be applied must depend upon the nature of the enactment, and the strictness or otherwise of the words in which it has been expressed.
The discernible policy of section 29 was to ensure that the place at which employees had to work was safe and since, for the reasons given, this aspiration was directed not only at the fabric and structure of the place but also at the working activities within it, the fresh set of facts represented by the risks of hearing loss from exposure to noise must be taken to fall within the parliamentary intention.
Indeed, to exclude noise as a possible means by which a place of work might be rendered unsafe would run directly counter to the parliamentary intention that places of work were generally rendered into a safe condition.
Now that it is well known that exposure to loud noise in a working environment without protection will bring about irreversible hearing loss, it is inconceivable that noise should not be accommodated within the reach of the section.
The final question is perhaps the most difficult.
Must safety be seen as an objective standard or is it a relative concept? The straightforward answer is that a place is safe or it is not.
A place which is not safe cannot be said to be safe merely because it is believed to be, however justified the belief.
Lord Mance has said that there is no such thing as an unchanging concept of safety.
I agree, but as he has also observed, safety must be assessed objectively.
It appears to me that the truly critical question is to which point in time should the assessment relate.
Lord Mances view is that what he describes as a retrospective assessment based on knowledge current at the time that the court is considering the matter is impermissible.
I am afraid that I cannot agree with that view.
I do agree, however, that safety, in the context of section 29, does not connote absolute safety in the sense of the elimination of every conceivable risk.
As was said in Sheppey v Matthew T Shaw & Co Ltd [1952] 1 TLR 1272 and Trott v WE Smith (Erectors) Ltd [1957] 1 WLR 1154 (CA) (to which Lord Mance has referred) a safe means of access does not mean absolutely safe so that no accident could possibly occur.
But as Parker J in Sheppey pointed out, simply because safe does not mean absolutely safe, it does not follow that it means reasonably safe.
A means of access is unsafe if it is a possible cause of injury to anybody acting in a way a human being may be reasonably be expected to act.
There is nothing in Sheppey or Trott which suggests that the court in either case considered that safety had to be judged solely according to the state of knowledge at the time that the injury was sustained.
Of course, neither case involved a re evaluation of what constituted safe in the light of evolving knowledge.
As I have said, both cases are authority for the proposition that safe does not mean absolutely safe but I do not consider that this provides the answer to the question whether safety is to be judged by reference to what was believed to be safe at the time that the damage occurred.
Therefore, when Lord Hope in R v Chargot Ltd (trading as Contract Services) [2008] UKHL 73; [2009] 1 WLR 1, 12 13 said that the Health and Safety at Work etc Act 1974 was not contemplating risks which are trivial or fanciful, and that the statutory framework was intended to be a constructive one, not excessively burdensome, and that the law does not aim to create an environment that is entirely risk free, he should not, in my opinion, be taken as suggesting that a state of affairs which is undoubtedly unsafe should be held not to have been unsafe for the purposes of the legislation simply because, at the time that injury was suffered, it was believed to be safe.
Since safety is not an absolute, immutable concept, forseeability may play a part in the assessment whether a place was safe but I do not believe that this must necessarily be rooted in perceptions of what was historically considered to be safe.
There is nothing wrong in principle in recognising that a place of work was unsafe based on contemporary knowledge.
Forseeability of risk based on current information is relevant to the judgment whether a place of work was in fact safe.
Thus, since it is now indisputable that a substantial minority of employees will develop hearing loss if exposed to noise levels of more than 85 dB(A) over a prolonged period, it is possible to recognise that the place at which the respondent was required to work was unsafe within the meaning of section 29.
The role played by forseeability in this context is necessarily limited.
It is confined to the judgment as to what is necessary, in light of all currently available information, to render a workplace free from such risks as might befall anybody acting in a way a human being may be reasonably be expected to act.
By contrast, however, reasonable practicability does import consideration of what was known at the time that the injury was sustained.
By definition it cannot be reasonable to put in place measures that are not known to be necessary.
It may be practicable to do so but it cannot be said to be reasonably practicable.
As the Court of Appeal in the present case said at para 83 of Smith LJs judgment, it is a matter of common sense [that], if the employer does not know of the risk and cannot reasonably have been expected to know of it, it cannot be reasonably practicable for him to take any steps at all.
Once it is clear that the employer knew or should have known that there was a risk, an evaluation of the chances of the risk materialising is relevant to an examination of what it is reasonably practicable for an employer to do as Lord Goff put it in Austin Rover Group Ltd v HM Inspector of Factories [1990] 1 AC 619, 626 627: for the purpose of considering whether the defendant has discharged the onus which rests upon him to establish that it was not reasonably practicable for him, in the circumstances, to eliminate the relevant risk, there has to be taken into account (inter alia) the likelihood of that risk eventuating.
The degree of likelihood is an important element in the equation.
It follows that the effect is to bring into play forseeability in the sense of likelihood of the incidence of the relevant risk, and that the likelihood of such risk eventuating has to be weighed against the means, including cost, necessary to eliminate it.
I agree with Smith LJ in her conclusion (at para 84 of her judgment) that for the defence to succeed, the employer must establish a gross disproportion between the risk and the measures necessary to eliminate it.
In the words of Asquith LJ in Edwards v National Coal Board [1949] 1 KB 704, 712, the risk [must be] insignificant in relation to the sacrifice.
In the present case, the provision of ear defenders at relatively modest cost was entirely practicable.
For that reason, and since I have concluded that the employers ought to have been aware of the risk of noise induced hearing loss to the respondent, I do not consider that the defence of reasonable practicability was available to them.
Conclusions
Although the respondent has chosen, for what her counsel described as pragmatic reasons, not to challenge the findings of the Court of Appeal as to the date on which the appellants could have been said to be negligent for failing to recognise the risk of noise induced hearing loss, I have concluded that this was much earlier than was found by Smith LJ.
Since the Court of Appeals findings on this issue were not challenged by the respondent, however, and since I have found that the statutory defence was not available to the appellants, I must content myself with saying that I would dismiss the appeal.
LORD CLARKE
Introduction
As Lord Dyson observes, the history and awareness of the risks of occupational exposure to noise have been fully set out by Lord Mance.
In addition, the issues have been discussed in considerable detail by Lord Mance, Lord Kerr and Lord Dyson.
I shall therefore try not to repeat what they say, save in so far as it is necessary to explain the conclusions which I have reached.
One of the striking features of the issues in this case, at any rate as it seems to me, is that the science upon which decisions as to what precautions employers should take to protect their employees from hearing loss caused by noise in the workplace had scarcely changed since the research carried out by Burns and Robinson in 1970, which led to the Code of Practice in 1972.
All that has changed is the formation of a different view on the part of industry and the regulators as to the level of risk that it is acceptable to disregard.
In these cases the claimants allege breaches by the employers of their duty under section 29(1) of the Factories Act 1961 (the 1961 Act), so far as reasonably practicable, to make and keep their place of work safe for them.
If there is a breach of this duty, the question whether they were also in breach of their duty of care at common law becomes irrelevant because, so far as I am aware, nobody suggests that the claimants could recover more or different damages at common law from those recoverable for breach of statutory duty.
I shall therefore consider first the issues under section 29.
It is important to keep the questions relevant to the two bases of claim separate because the issues are different.
If section 29 applies, the approach to the question whether there was a breach of duty under that section is materially different from the approach to the question whether there was a breach of duty at common law.
Lord Wright made this clear in Caswell v Powell Duffryn Associated Collieries Ltd [1940] AC 152, 178 and London Passenger Transport Board v Upson [1949] AC 155, 168.
Section 29 the principles
Section 29(1) of the 1961 Act provided: There shall, so far as is reasonably practicable, be provided and maintained safe means of access to every place at which any person has at any time to work, and every such place shall, so far as is reasonably practicable, be made and kept safe for any person working there.
The first question that arises is whether section 29(1) applies in this class of case.
Lord Mance discusses this question in detail.
He asks three questions.
They are whether section 29(1) applies to activities carried on in the workplace, whether it applies to risks of noise induced hearing loss arising from such activities in relation to long term employees working in the workplace and what is the meaning of safe.
He answers the first two questions in the affirmative.
Both Lord Kerr and Lord Dyson agree with him, essentially for the reasons he gives.
So do I.
In particular, I agree with Lord Kerr and Lord Dyson that, for the reasons they give, the language of the section is always speaking.
I agree with Lord Kerr that in this context safety cannot connote absolute safety: Sheppey v Matthew T Shaw & Co Ltd [1952] 1 TLR 1272 and Trott v WE Smith (Erectors) Ltd [1957] 1 WLR 1154.
In Sheppey Parker J said that it cannot mean absolutely safe in the sense that no accident could possibly occur.
Trott was concerned with regulation 5 of the Building (Safety, Health and Welfare) Regulations 1948 (SI 1948/1145), which included a provision that: . sufficient safe means of access shall so far as is reasonably practicable be provided to every place at which any person has at any time to work.
The Court of Appeal accepted that the regulation did not require absolute safety.
Parker J was by now Parker LJ.
He said at p 1162 that a means of access was not safe within regulation 5 if it was a possible means of injury to someone acting in a way that a human being might reasonably be expected to act in circumstances that might reasonably be expected to occur.
I would accept that approach.
The section does not say reasonably safe.
Nor does it say that the workplace is safe if it is believed to be safe.
The question remains simply whether the workplace was, at the relevant time, safe.
I note in passing that Jenkins LJ said at p 1158 that the obligation to provide a safe means of access so far as reasonably practicable placed a stricter obligation on the employer than is placed upon him in the discharge of the general duty of reasonable care at common law.
I agree.
The word safe in section 29(1) is not limited by the concept of reasonable foreseeability.
However, as Lord Mance and Lord Dyson have explained, there is a line of authority that it should be construed as if it were, by reference to the meaning of dangerous in section 14(1) of the 1961 Act and its predecessors.
See eg Hindle v Birtwhistle [1897] 1 QB 192, John Summers & Sons Ltd v Frost [1955] AC 740, Close v Steel Co of Wales Ltd [1962] AC 367 and, to similar effect, the unreported decision of Rose J in Taylor v Fazakerley Engineering Co, 26 May 1989.
This line of authority imports the concept of reasonable foreseeability into the meaning of safe on the basis that safe is the converse of dangerous: see to this effect the judgment of Diplock LJ in Taylor v Coalite Oils & Chemicals Ltd [1967] 3 KIR 315 and Allen v Avon Rubber Co Ltd [1986] ICR 695.
There is, however, a second line of authority in which the Court of Appeal and the Extra Division of the Inner House of the Court of Session concluded that it is inappropriate to equiparate section 14 with section 29 of the 1961 Act: see Larner v British Steel plc [1993] ICR 551, Neil v Greater Glasgow Health Board [1994] SLR 673, Mains v Uniroyal Engelbert Tyres Ltd [1995] SC 518 and Robertson v RB Cowe & Co [1970] SLT 122.
I do not think there is any basis on which it is possible to distinguish this second line of authority.
The question then arises which line of authority to follow.
I see the force of the approach of Lord Mance and Lord Dyson, which is to prefer the first strand of authority: see Lord Mance at para 71 and Lord Dyson at para 118.
For my part I prefer the second.
I do so for these reasons.
The reasoning in the second line of cases is to my mind compelling.
In particular, it is supported by the language of section 29(1), which is not reflected in section 14(1).
This is emphasised by the reasoning of both Hirst LJ and Peter Gibson J in the Court of Appeal in Larner.
At p 559 Hirst LJ quoted from the 11th edition of Munkmans Employers Liability (1990), pp 292 293: (v) When is access or place unsafe? Safe is, however, a simple English word and there is no reason why it should not be decided as a pure question of fact whether a place is safe or not.
Unfortunately, the vague and uncertain notion of foreseeability has been introduced as a test.
Hirst LJ added at pp 559 560 This view seems to me to have considerable force in the light of the very clear wording of section 29(1), which contains no reference to foreseeability, and seeing that, if [counsels] argument is correct, the distinction between the common law duty of care and the statutory duty will be virtually obliterated.
Peter Gibson J said at pp 560 561 that the way in which the duty in section 29(1) was framed made it clear that to make good a claim for breach of statutory duty under section 29(1) the plaintiff had to allege and prove injury while and in consequence of working at a place at which he had to work and that such place was not made or kept safe for him.
It was then for the employer to establish that it was not reasonably practicable to make and keep such place safe.
It was common ground in the present appeal that in this last respect the burden was on the employer: Nimmo v Alexander Cowan & Sons Ltd [1968] AC 107, Gibson v British Insulated Callenders Construction Co Ltd 1973 SLT 2 and Bowes v Sedgefield District Council [1981] ICR 234.
In Larner the employer had not sought to discharge that burden; so the critical issue was whether the workplace was safe.
This raised two questions.
The first was whether the word safe meant safe from a reasonably foreseeable danger, so that a workman injured at his place of work by an accident which the employer could not reasonably foresee was unable to succeed in a claim for breach of statutory duty.
The second question was whether, if so, the danger was reasonably foreseeable on the facts.
Peter Gibson J answered the first question no.
He did so convincingly and with clarity, by reference both to the language of section 29 and to the authorities.
He said this at p 562: I start by considering the words of section 29(1) apart from authority.
They contain no express reference to foreseeability, reasonable or otherwise.
Safe is an ordinary English word and I cannot see any reason why the question whether a place of work is safe should not be decided purely as a question of fact, without putting any gloss on the word: see Munkman, Employer's Liability, p 292.
Further, to imply words in the section so as to introduce a test of reasonable foreseeability is to reduce the protection afforded by the Act of 1961 for the workman, the plain object of the section being to provide for a safe working place: see Nimmo v Alexander Cowan & Sons Ltd [1968] AC 107, 122, per Lord Guest.
On principle and on authority that is impermissible: see John Summers & Sons Ltd v Frost [1955] AC 740, 751, per Viscount Simonds.
This is not unfair on the employer whose duty to make and keep the working place safe is qualified by so far as is reasonably practicable, and I see no necessity to imply any other qualification.
It would also seem wrong to me to imply a requirement of foreseeability, as the result will frequently be to limit success in a claim for breach of statutory duty to circumstances where the workman will also succeed in a parallel claim for negligence; thus it reduces the utility of the section. [Counsel] accepted that there was no authority that compels us to conclude that section 29 requires such a test and in Robertson v RB Cowe & Co, 1970 SLT 122 an argument that the test of reasonable foreseeability applied to section 29(1) was specifically rejected by the First Division of the Inner House of the Court of Session.
However, [counsel] referred us to a number of other authorities in which the reference to safety in section 29 and other similar statutory provisions has been construed as importing the test of reasonable foreseeability.
These authorities are based on certain comments by Lord Reid in the John Summers case [1955] AC 740 on the meaning of dangerous in section 14(1) of the Factories Act 1937.
That subsection imposed the duty that Every dangerous part of any machinery shall be fenced.
Lord Reid referred, at pp 765766, to what du Parcq J said in Walker v Bletchley Flettons Ltd [1937] 1 All ER 170, 175: a part of machinery is dangerous if it is a possible cause of injury to anybody acting in a way in which a human being may be reasonably expected to act in circumstances which may be reasonably expected to occur and queried the word possible, adding If the question of degree of danger has to be considered it might perhaps be better to say a reasonably foreseeable cause of injury.
These comments on the meaning of dangerous in that provision which contains no qualification of reasonable practicability have, surprisingly, been relied on in obiter comments on the meaning of its antonym safe in section 29 of the Act of 1961 and other similar provisions notwithstanding that they do contain such a qualification.
Peter Gibson J then noted that the views to the contrary by Diplock LJ in Taylor v Coalite were obiter and expressed before the decision in Nimmo, where Lord Guest said this at p 122: To treat the onus as being on the pursuer seems to equiparate the duty under the statute to the duty under common law, namely, to take such steps as are reasonably practicable to keep the working place safe.
I cannot think that the section was intended to place such a limited obligation on employers.
Peter Gibson J referred to three conflicting Scottish cases, namely Keenan v Rolls Royce Ltd 1970 SLT 90, Robertson v RB Crowe & Co 1970 SLT 122 and Morrow v Enterprise Sheet Metal Works (Aberdeen) Ltd 1986 SLT 697.
He concluded that on the then state of the authorities the court was free to choose whether to apply the test of reasonable foreseeability.
In agreement with Hirst LJ he said that he preferred to read the section without implying any such test.
I entirely agree with both the approach of Peter Gibson J and with his reasons, which he put very clearly.
Section 14 was in significantly different terms from section 29(1).
It provided, so far as relevant: (1) Every dangerous part of any machinery shall be securely fenced unless it is in such a position or of such construction as to be as safe to every person employed or working on the premises as it would be if securely fenced.
It is noteworthy that there was no reference in section 14 either to reasonable foreseeability or to reasonable practicability.
In Mains v Englebert Tyres, which was a decision of the Inner House, both Lord Sutherland and Lord Johnston convincingly rejected the suggestion that section 29 should be construed by reference to the construction of section 14.
The Lord Ordinary had rejected the pursuers case on the basis that the accident had not been reasonably foreseeable.
The Inner House, comprising Lord Sutherland, Lord Johnston and Lord Wylie allowed the pursuers appeal.
They rejected the argument that reasonable foreseeability was a necessary prerequisite in the determination of whether or not a place of work was made and kept safe within the meaning of section 29(1).
Lord Sutherland, with whom Lord Wylie agreed, analysed the authorities in some detail at pp 521 to 530.
He agreed with the decision in Larner.
At pp 530 to 531 he expressed his reasons, both as to the meaning of safe and as to the scope of the defence of reasonable practicability.
In short, he concluded that reasonable foreseeability was not relevant to the question whether the workplace was safe but was relevant to the question whether it was reasonably practicable for them to prevent the breach.
He said this: In my opinion, the construction of section 29(1) must depend upon the wording of that section itself.
Since Nimmo the obligation under the section must be read as being that every working place shall be made and kept safe.
If that obligation has not been met then it may be open to the employers to invoke the qualification that it was not reasonably practicable for them to prevent the breach and it may well be that reasonable foreseeability has a part to play in that.
As considerations of reasonable practicability involve weighing the degree and extent of risk on the one hand against the time, trouble and expense of preventing it on the other, quite clearly foreseeability comes into the matter as it is impossible to assess the degree of risk in any other way.
To that extent I agree that reasonable foreseeability can play its part in a consideration of section 29(1) but only at the later stage of considering whether the employers have discharged the onus upon them of showing that there were no reasonably practicable precautions which could have been taken.
The initial part of the section is, in my view, clear.
The duty is to make the working place safe.
That means that there is a duty to prevent any risk of injury arising from the state or condition of the working place.
There is nothing whatever in the section to suggest that the obligation is only to prevent any risk arising if that risk is of a reasonably foreseeable nature.
Had that been the intention of Parliament it would have been perfectly simple for Parliament to have said so.
If the duty had only been to take reasonably practicable precautions against reasonably foreseeable risks it is difficult to see how this section would have added anything of substance to the common law.
Where the statute is designed to protect the safety of workmen it is, in my view, not appropriate to read into the statute qualifications which derogate from that purpose.
It cannot be said that this reading of section 29 imposes an intolerable or impossible burden upon employers.
They have the opportunity of establishing that there were no practicable precautions which could have been taken to prevent their breach of obligation.
If they can do so they have a complete answer both to civil and criminal liability even though they are prima facie in breach of their obligation.
This puts section 29 into an entirely different category from section 14 and I see no legitimate reason for forcing a construction upon section 29 which its plain words will not bear just because in the different context of section 14 the word dangerous has been construed in a particular way.
Lord Johnston said this at pp 535 to 536, with particular reference to the relationship between sections 14 and 29: I do not consider that it is appropriate to equiparate section 14 with section 29, with particular reference to the line of authority construing the word dangerous in section 14.
In my opinion that issue arises under that section in order to determine the scope of the section in the particular instance and indeed whether it applies at all.
Whether rightly or wrongly, accordingly, the fact that the courts have interpreted dangerous under reference to reasonable foreseeability does not mean that necessarily the same criteria should apply when considering a different provision raising the questions of safety, particularly where that latter provision is qualified by a so called escape clause, viz reasonable practicability, and section 14, when it comes to breach, is absolute.
I do not consider that it is appropriate to apply the law which limits or determines the scope of section 14 before considering a breach of it, to what constitutes a breach of section 29(1) under reference to safety or lack of it.
I therefore consider that section 29(1) stands on its own and authorities relating to section 14 fall to be ignored.
While, as a matter of English language, safe may be the converse of dangerous, in my opinion section 29 has to stand on its own and be construed as such.
I entirely agree with the reasoning of Lord Sutherland and Lord Johnston in those passages.
In doing so, I do not conclude that safe is not the antonym of dangerous in the two sections, only that there is nothing in section 29 to introduce the principle of reasonable foreseeability into the meaning of safe.
I note in passing that, as Lord Mance says at para 67, the Close line of case law has received mixed academic commentary.
It was criticised by Munkman in his article The Fencing of Machinery 1962 LJ 761, where he said at p 761 that foreseeability is not to be found in the Factories Act, that it is an alien importation from the law of negligence and that, since negligence is a lower standard of liability, to import its concepts would necessarily reduce liability under the statute.
Close was also criticised by the authors of the 1970 72 Safety and Health at Work Report of the Committee chaired by Lord Robens.
Appendix 7 reviewed the case law on statutory safety provisions.
At para 7 on p 186, the authors criticised the Close line of case law as contrary to the interests of accident prevention.
In my opinion, given that the section 14(1) cases are susceptible to criticism, even on their own terms, we should be cautious about transferring the rationale to other provisions, particularly when so many cases have decided that it is inappropriate to do so.
The language of section 29(1) to my mind shows that it is a results provision.
That it provides that, subject to the defence of reasonable practicability, it requires that the workplace be and remain safe.
Lord Johnston put it thus in Mains at p 536: The obvious starting point in my opinion is that the wording of the section, putting aside the qualification, does not admit immediately any reference to reasonable foreseeability.
The verb shall is relentless and the phrase made and kept safe, if looked at on the basis of made and kept accident free, would immediately admit a construction so far as these words go that if an accident occurs within the workplace and related to it the pursuer need prove no more.
The defender then can raise the issue of reasonable practicability on any basis that he thinks fit.
Some reference has been made to sections 2 and 3 of the Health and Safety at Work etc Act 1974.
Section 2(1) provides that it is the duty of every employer to ensure, so far as is reasonably practicable, the health, safety and welfare at work of all his employees and section 3(1) provides that it is the duty of every employer to conduct his undertaking in such a way as to ensure, so far as is reasonably practicable, that persons not in his employment who may be affected thereby are not thereby exposed to risks to their health or safety.
In para 63 Lord Mance has made some reference to the decision of the House of Lords and to the speech of Lord Hope, with whom the other members of the House agreed, in R v Chargot Ltd (trading as Contract Services) [2008] UKHL 73, [2009] 1 WLR 1.
As I read Lord Hopes judgment in that case, the central issue was whether in prosecutions for breaches of those duties it was for the prosecution to prove the acts and omissions by which it was alleged there had been a breach of duty and, in particular, whether it was enough for it simply to assert that a state of affairs existed which gave rise to risk to health or safety: see the statement of the issues at para 15.
This involved a consideration of the scope of the duties in paras 17 to 21.
In para 17 Lord Hope noted that both sections provided for a duty to ensure certain things.
He then asked what the employer must ensure and concluded: The answer is that he is to ensure the health and safety at work of all his employees, and that persons not in his employment are not exposed to risks to their health and safety.
These duties are expressed in general terms, as the heading to this group of sections indicates.
They are designed to achieve the purposes described in section 1(1)(a) and (b).
The description in section 2(2) of the matters to which the duty in section 2(1) extends does not detract from the generality of that duty.
They describe a result which the employer must achieve or prevent.
These duties are not, of course, absolute.
They are qualified by the words so far as is reasonably practicable.
If that result is not achieved the employer will be in breach of his statutory duty, unless he can show that it was not reasonably practicable for him to do more than was done to satisfy it.
The same is true of section 29(1), as Lord Hope explained in para 18, by reference to Nimmo, to which I have already referred.
He said that this method of prescribing a statutory duty was not new.
As Lord Reid explained in the opening paragraphs of his speech in Nimmo, the steps which an employer must take to promote the safety of persons working in factories, mines and other premises are prescribed by a considerable number of statutes and regulations.
Sometimes the duty imposed is absolute.
In such a case the step that the statutory provision prescribes must be taken, and it is no defence to say that it was impossible to achieve it because there was a latent defect or that its achievement was not reasonably practicable.
In others it is qualified so that no offence is committed if it was not reasonably practicable to comply with the duty.
Sometimes the form that this qualified duty takes is that the employer shall do certain things, of which Lord Hope gave a number of examples.
He added that sometimes the statute provides that the employer must achieve or prevent a certain result.
He concluded thus: Section 29(1) of the Factories Act 1961, which was considered in Nimmo, took that form.
So too do sections 2(1) and 3(1) of the 1974 Act.
It is the result that these duties prescribe, not any particular means of achieving it.
So the House of Lords recognised in Chargot that section 29(1) prescribed a certain result, namely that the workplace must be kept safe, subject of course to the employer showing that it was not reasonably practicable to do so.
Lord Mance, however, relies upon para 27 of Lord Hopes speech, where he said this: The framework which the statute creates is intended to be a constructive one, not excessively burdensome.
The law does not aim to create an environment that is entirely risk free.
It concerns itself with risks that are material.
That, in effect, is what the word risk which the statute uses means.
It is directed at situations where there is a material risk to health and safety, which any reasonable person would appreciate and take steps to guard against.
It is important to note that there is a distinction between the language of sections 2 and 3 of the 1974 Act on the one hand and section 29 of the 1961 Act on the other.
As I read it, para 27 does not detract from Lord Hopes previous statement at para 17 that the obligation to achieve the statutorily prescribed result is absolute.
Rather, it is by analysing the result prescribed by sections 2 and 3 of the 1974 Act by reference to the use of the word risk that he imports the notion of relativity, namely that the result is to protect against material risks.
Given the difference between the wording of the sections, I am not persuaded that the reasoning in para 27 is applicable to section 29(1) of the 1961 Act.
Both Lord Mance and Lord Dyson (at paras 64 and 111 respectively) refer to passages from the speeches of Lord Nicholls and Lord Hobhouse in R (Junttan Oy) v Bristol Magistrates Court [2003] UKHL 55, [2003] ICR 1475, again to the effect that safety is a relative concept.
The issue was whether there was any difference between the standards set by the Machinery Directive 98/37/EC and those set by the 1974 Act.
Both require machinery to be safe.
It was in the context of the discussion of that issue that Lord Nicholls said at para 22: Section 6(1)(a) of the 1974 Act imposes a duty to ensure, so far as is reasonably practicable, that machinery is so designed and constructed that it will be safe.
The effect of regulations 11 and 12(1)(e) of the 1992 Regulations is to prohibit the supply of machinery which is not in fact safe.
So far there is no difficulty.
But safe is not an absolute standard.
There may be differences of view on whether the degree of safety of a particular piece of machinery is acceptable.
Unlike the 1974 Act, the 1992 Regulations define what is meant by safe.
At once there may be room for argument that the standards set by the Act and the Regulations are not necessarily the same.
This in itself is not satisfactory.
As already noted, the inhibiting effect of differently worded provisions having much the same result was one of the matters the Machinery Directive was specifically intended to eradicate: see recital 6 in the preamble.
To my mind, that statement reads as an acknowledgment that the use of the word safe in different statutory contexts can mean different things, not, as Lord Mance suggests at para 64, that safety is always a relative concept, at any rate if so to construe it is to import the notion of reasonable foreseeability.
Finally, Lord Mance refers at para 68 to Robb v Salamis (M&I) Ltd [2006] UKHL 56, [2007] ICR 175 in support of the proposition that reasonable foreseeability is generally accepted to be relevant to determining the standard of safety required across the health and safety legislation.
In that case, Lord Hope confirmed the relevance of reasonable foreseeability to regulations 4 and 20 of the Provision and Use of Work Equipment Regulations 1998 (SI 1998/2306).
However, as Lord Hope makes clear at para 3 of his judgment, the starting point for his analysis is the words of the regulations.
Regulation 4(1) requires the work equipment to be suitable and regulation 4(4) provides that suitable in that regulation means suitable in any respect which it is reasonably foreseeable will affect the health and safety of any person.
It thus contains an express reference to reasonable foreseeability.
So it must be queried how far, if at all, this case supports the general argument that reasonable foreseeability is relevant in health and safety legislation in the absence of express words used in the statute.
I agree with Lord Mance and Lord Dyson (at paras 60 61 and 111 respectively) that, given the divergent strands of authority and the differences of opinion identified in the cases, it is relevant to have regard to considerations of policy in construing section 29(1).
Such considerations seem to me to point away from importing the concept of reasonable foreseeability into the meaning of safe.
The critical first question in every case under section 29(1) is whether the workplace was in fact safe for the employee.
The purpose of the section is to protect the employee not the employer.
This is plain from the unqualified use of the word safe.
Moreover it makes sense.
First, the employer is in a much better position to obtain insurance against unforeseeable risks than the employee.
Secondly, the employer, and industry more broadly, are better placed to investigate and identify risks to health and safety.
As I see it, one of the purposes of such legislation is to provide every incentive for employers to do precisely that.
Thirdly, in section 29, the balance between the employer and the employee is struck by the reasonable practicability defence, which itself imports considerations of reasonable foreseeability.
Fourthly, it is no doubt for these reasons that, when commenting on the distinction between breach of statutory duty and negligence, the editors of the 14th edition of Munkman say at para 33 that it is not generally necessary to establish foresight of harm or fault on the employers part to establish breach of statutory duty.
These are essentially the considerations that Peter Gibson J had in mind in the passage from his judgment in Larner at p 562 quoted above.
Finally, I note that at para 61 Lord Mance expresses doubt as to whether section 29 can apply to a case of this kind if it imposes absolute liability.
For my part I do not agree.
Once it is accepted, as it is by Lord Mance at para 48, that a workplace can be rendered unsafe by operations constantly and regularly carried on in it, it would seem to me to follow that section 29(1) will cover any hazards created by such operations.
The requirement is to achieve the result of safety, as opposed to safety from a particular hazard.
It seems contrary to the clear wording of the statute to exclude from the scope of section 29 a category of hazard on the basis that the particular hazard was not in the mind of the draftsman.
If noise can cause injury by damaging a persons hearing, then that workplace is unsafe for those who are working there.
It does not matter that the hazard that renders a working environment unsafe was not contemplated at the time of the Act.
In any event, as explained above, section 29 does not impose absolute liability because the employer has a defence if he can establish that he took all reasonably practical precautions, which involves a consideration of what risks are reasonably foreseeable.
As stated above, the first question in each case is whether the workplace was safe.
If the claimant proves that it was not, the second question arises, namely whether the employer has shown that, so far as reasonably practicable, it was safe for those working there.
I agree with the reasoning in Larner and Mains that, in considering whether the employer has shown that, so far as reasonably practicable, it was safe it is relevant to consider whether it was reasonably foreseeable that it was unsafe.
While (as demonstrated by Lord Dyson at para 125) the language could be construed more narrowly, I agree with Lord Sutherlands opinion expressed in the passage quoted above that, as considerations of reasonable practicability involve weighing the degree and extent of risk on the one hand against the time, trouble and expense of preventing it on the other, quite clearly foreseeability comes into the matter because it is impossible to assess the degree of risk in any other way.
I also agree with Peter Gibson J to the same effect in the passage from Larner quoted above.
Those conclusions are consistent with the view expressed in the 14th edition of Munkman at para 5.89: In considering what is practicable, account must be taken of the state of knowledge at the time.
A defendant cannot be held liable for failing to use a method which, at the material time, had not been invented: Adsett v K and L Steelfounders and Engineers Ltd [1953] 2 All ER 320; nor for failing to take measures against a danger which was not known to exist: Richards v Highway Ironfounders (West Bromwich) Ltd [1955] 3 All ER 205.
That view is consistent with the view expressed by Smith LJ in the Court of Appeal at para 83 (and quoted by Lord Kerr at para 182 above) that it is a matter of common sense [that], if the employer does not know of the risk and cannot reasonably have been expected to know of it, it cannot be reasonably practicable for him to take any steps at all.
Section 29 the facts
I turn to the facts.
Although I have discussed the meaning of safe in some detail because I regard it as a point of some general importance, I have reached the conclusion that the employers were liable on the facts, whatever the true meaning of safe.
I agree with Lord Kerrs analysis of the facts.
I agree with him (at para 155) that the Code of Practice of 1972 was the source of warning that noise levels of less than 90 dB(A) would damage some workers hearing and that, thus alerted, an employers obligation to remain abreast of information that would allow him to know what percentage of his workforce was likely to be affected was plain.
In these circumstances there was a clear duty to keep abreast of developments, which included giving consideration to the information that became available in 1975 and 1976.
That information would have led to the conclusion that a significant percentage of a workforce exposed to noise at levels greater than 85dB(A) would suffer a hearing loss.
The judge made two unchallenged findings of fact of some importance: (1) that the information would have revealed that, when exposed to noise above the level of 85dB(A), the risk of suffering hearing loss accelerates up to 90dB(A) and in the high 80s, given long enough exposure, significant hearing loss may be expected in at least a substantial minority of individuals; and (2) that the evidence did not show that the cost of implementing a policy of voluntary hearing protection at levels below 90dB(A) was such that a reasonable employer could use cost or difficulty as a valid reason for not having such a policy.
See Lord Kerr above at paras 157 to 159.
At paras 161 to 168 Lord Kerr considers in some detail the practice of employers of taking no steps in respect of levels below 90dB(A) in the light of the Code of Practice of 1972.
I agree with his critique of the evidence of Mr Bramer, Mr Currie and Mr Worthington.
I agree with his conclusion at para 165 that employers should have considered the data shortly after it became available in 1976 and, if they had, that they would have concluded that a significant minority would suffer hearing loss if exposed to noise levels exceeding 85dB(A) over a prolonged period.
They would have discovered that this could be avoided by the provision of ear defenders at not unreasonable cost and that they would or should have provided their employees with ear defenders.
On the construction of section 29 preferred by Lord Mance and Lord Dyson, the correct conclusion on those facts is that it was reasonably foreseeable that if nothing was done a substantial minority of employees would suffer from significant hearing loss and that the workplace was therefore unsafe, from which it follows that the employers had not procured that it was safe.
That conclusion is inconsistent with the conclusion both that the risk of sustaining damage was minimal and that the number of those affected was minimal.
This is not a case of de minimis non curat lex.
Nor is it a case in which the employers can rely upon the practice in industry, for the reasons given by Lord Kerr.
It is clear that in these circumstances the employers could not successfully rely upon the defence that they had done what was reasonably practicable: see per Lord Kerr at paras 182 to 184 above.
On my construction of the meaning of safe, on the judges findings of fact there can be no doubt that the workplace was unsafe and the employers cannot rely upon the defence.
They cannot show that it was not reasonably foreseeable that the workplace was unsafe and, for the reasons already given, they cannot show that they took all reasonably practicable steps to make it safe.
For these reasons, like Lord Kerr, I would dismiss the appeal on the basis that the employers were liable for breach of the duty contained in section 29 of the 1961 Act.
Liability at common law
The above conclusion makes it unnecessary to express a concluded view under this head.
I was initially attracted by the employers case that they were not in breach of duty having regard to the fact that they complied with the practice in the industry as set out in the 1972 Code.
However, on reflection I am persuaded by the reasons in Lord Kerrs judgment.
In doing so, I do not intend to depart from the principles stated by Swanwick J in Stokes v Guest, Keen and Nettlefold (Bolts and Nuts) Ltd [1968] 1 WLR 1776, 1783 and by Mustill J in Thompson v Smith Shiprepairers (North Shields) Ltd [1984] QB 405, 422, quoted by Lord Kerr at paras 156 and 166 respectively.
It is appropriate for an employer to have regard to any relevant industry code, but, as Swanwick J put it, employers must give positive thought to the safety of their workers in the light of what they know or ought to know.
I agree with Lord Kerr that an application of that approach would have led employers to take action long before they did.
In this regard (as stated earlier) I agree in particular with Lord Kerrs critique of the expert evidence at paras 162 to 166 and with his conclusions at paras 166 to 168.
In short, the employers should have given consideration to the risks posed to those exposed to levels of noise between 85 and 90dB(A).
If they had they would have appreciated that a significant number of their employees would be exposed to significant hearing loss, which should (and perhaps would) have led to their making ear protectors available to their workforce.
Conclusion
For the reasons I have given I would dismiss the appeal.
| UK-Abs | This appeal concerns the liability of employers in the knitting industry of Derbyshire and Nottinghamshire for hearing loss suffered by employees prior to 1 January 1990.
The central issue is whether liability existed at common law in negligence and/or under s.29(1) of the Factories Act 1961 towards an employee who suffered noise induced hearing loss due to exposure to noise levels between 85 and 90dB(A)lepd.
Mrs Baker, the Respondent, worked in a factory in Sutton in Ashfield, Nottinghamshire, from 1971 until 2001.
From 1971 to 1989 she was exposed to noise which was found at trial to have been between 85 and 90dB(A)lepd and which had led to her sustaining a degree of noise induced hearing loss.
The measure db(A)lepd indicates exposure at a given sound level over a period of eight hours.
Mrs Baker brought a claim against her employers, for whom liability now rests with Quantum Clothing Group Ltd, one of the Appellants.
A number of other individuals brought similar claims against Meridian Ltd, Pretty Polly Ltd and Guy Warwick Ltd, and all the claims were decided together as test cases.
Only Mrs Baker was found to have suffered hearing loss due to noise exposure in her employment and the other claims were therefore dismissed.
Mrs Bakers claim was dismissed on the different basis that her employers had not committed any breach of common law or statutory duty.
The Court of Appeal allowed an appeal by Mrs Baker and reached conclusions less favourable to all four employers than those arrived at by the judge at first instance.
The Court held that liability at common law arose in January 1988 for employers with an average degree of knowledge, which included Guy Warwick.
Quantum, Meridian and Pretty Polly were found to have had greater than average knowledge and were liable at common law from late 1983.
S.29(1) of the Factories Act 1961 provides that, every place at which any person has at any time to work shall, so far as is reasonably practicable, be made and kept safe for any person working there.
The Court held that the section imposes a more stringent liability than at common law and in particular that what was safe was to be judged irrespective of whatever was regarded as an acceptable risk at the time.
On this basis the Court held that the date from which liability arose under the section was January 1978.
The present appeal has been brought by Quantum, Meridian and Pretty Polly, with Guy Warwick intervening.
The Supreme Court allows the appeal by a majority of 3:2 and restores the judges decision at first instance.
Lord Mance gives the lead judgment.
Lord Dyson gives an additional concurring judgment, and Lord Saville agrees with both.
Lord Kerr and Lord Clarke give dissenting judgments.
The Supreme Court first dealt with common law liability in negligence.
The central question was whether a 1972 Code of Practice published by the Department of Employment, which recommended a noise exposure limit of 90dB(A)lepd, constituted an acceptable standard for average employers to adhere to during the 1970s and 1980s.
The judge at first instance had found that it did until the terms of a draft European Directive of 1986, which proposed a lower limit, came to be generally known in 1988 via a consultative document.
The Court upheld that conclusion of the judge.
Examination of the underlying statistical material did not undermine the relevance of the Code as a guide to acceptable practice.
It was official and clear guidance which set an appropriate standard upon which a reasonable and prudent employer could legitimately rely in conducting his business until the late 1980s.
The Court also endorsed a further two year period beyond 1988 allowed by the judge for implementing protective measures, thus meaning that the average employer had no common law liability before 1 January 1990.
The Court of Appeal had been incorrect to replace that period with a period of six to nine months.
On the facts, Quantum and Guy Warwick were in the position of average employers to whom the 1 January 1990 date applied.
Courtaulds and Pretty Polly, however, were in a special position.
By the beginning of 1983 they had an understanding of the risk that some workers would suffer damage from exposure to between 85 and 90dB(A)lepd, which distinguished their position from that of the average employer.
Allowing a further two years to implement protective measures, they were potentially liable at common law from the beginning of 1985.
The Court then dealt with liability under s.29(1) of the 1961 Act.
In construing the section, the Court first held that a workplace may be unsafe within the meaning of the section not only due to its physical fabric, but also due to activities carried on in it.
The next question was whether the section applies to risks created by noise.
The Court held that it did, on the basis that the section could accommodate attitudes to safety that were not held at the time when it was enacted.
Thirdly, the Court held that what is safe is a relative concept that must be judged having regard to general knowledge and standards at the time of the alleged breach of duty.
Finally, the Court held that the qualification, so far as is reasonably practicable, also allows such general knowledge and standards to be taken into account.
Applying that construction, the section did not impose in this respect a more stringent liability than at common law.
The employers by complying with the Code of Practice were not in breach of the statutory duty before like dates as those from which they were potentially liable at common law.
Lord Kerr and Lord Clarke dissented.
They held that the terms of the Code of Practice and other material available by 1976 were such that employers should have been aware that damage to hearing could occur at levels below 90dB(A)lepd and that certain individuals in the workforce would be particularly vulnerable at those levels.
Further, the employers should have been aware that they could have reduced that risk at not inordinate cost by the provision of ear protection.
Liability therefore arose at common law from the late 1970s onwards.
As to liability under s.29(1), the concept of safety, unlike the qualification of reasonable practicability, does not include an assessment of what was foreseeable at the time.
On the facts, the workplaces were not safe and it was reasonably practicable to provide ear protection.
The dissenting Justices therefore held that employers were liable under the section from 1978 as held by the Court of Appeal.
|
As a result of the experience of the pre war dictatorships, the right to free elections was emphasised during and immediately following the Second World War as an essential element of personal freedom and equality before the law.
As Professor Hersch (later Sir Hersch) Lauterpacht put it in 1945: the right of self government which in developed society means government by persons freely chosen by and accountable to the electors is in itself an expression and a condition of freedom.
No individual is free if he is governed against his will, that is, if the persons who exercise authority are not chosen by and accountable to the community at large. (Lauterpacht, An International Bill of the Rights of Man (1945), 135)
Five years later Lauterpacht said: Without an effective guarantee of these political rights of freedom, personal freedom and equality before the law must be, at best, precarious; at worst they may be meaningless The insistence on an International Bill of Rights and the proclamation of the enthronement rights of man as a major purpose of the Second World War were prompted by the experience of dictatorships the essence of which was the denial of the political right of freedom.
There is no intrinsic reason why the right to free, secret and periodic elections should not be recognised by law and declared enforceable. (Lauterpacht, International Law and Human Rights (1950), 281 2)
Consequently the right to free elections as an essential element of the developing international law of human rights was recognised in Lauterpachts own draft International Bill of the Rights of Man (Article 10), in the American Law Institutes 1944 draft Statement of Essential Human Rights (Article 16), in the Inter American Juridical Committees 1946 draft Declaration of the International Rights and Duties of Man (Article XIII), and in the Universal Declaration of Human Rights adopted by the General Assembly in 1948 (Article 21(1)), and later in the International Covenant on Civil and Political Rights (1966) (Article 25) and the American Convention on Human Rights (1969) (Article 23).
The Preamble to the European Convention on Human Rights states that fundamental freedoms are best ensured by (inter alia) an effective political democracy.
In Bowman v United Kingdom (1998) 26 EHRR 1, para 42, the European Court of Human Rights said: Free elections and freedom of expression, particularly freedom of political debate, together form the bedrock of any democratic system.
In United Communist Party of Turkey and Others vs Turkey (1998) 26 EHRR 121, para 45, it was said: Democracy is without doubt a fundamental feature of the European public order .
The Preamble goes on to affirm that European countries have a common heritage of political traditions, ideals, freedom and the rule of law.
The Court has observed that in that common heritage are to be found the underlying values of the Convention; it has pointed out several times that the Convention was designed to maintain and promote the ideals and values of a democratic society.
The First Protocol to the European Convention on Human Rights was signed in Paris on March 20, 1952.
The Protocol was ratified by the United Kingdom in November 1952, and entered into force on May 18, 1954.
By Article 3 of the Protocol: Right to free elections The High Contracting Parties undertake to hold free elections at reasonable intervals by secret ballot, under conditions which will ensure the free expression of the opinion of the people in the choice of the legislature.
Background to the appeal
Sark is a small island in the Channel Islands, with a population of about 600.
appeal from the Court of Appeal (Pill, Jacob and Etherton LJJ: [2008] EWCA Civ 1319, [2009] 2 WLR 1205) principally concerns the application of Article 3 of the First Protocol to the constitutional changes introduced on Sark under the Reform (Sark) Law, 2008 (the Reform Law) in relation to the composition of the Chief Pleas, which is its legislature (and also its executive).
Under the Reform Law the members of the electorate (consisting of some 500 voters) each vote for 28 Conseillers, and the 28 candidates with the largest number of votes are elected.
After approval of the Reform Law by Order in Council, the first election of the 28 Conseillers took place on December 10, 2008.
Sir David Barclay and Sir Frederick Barclay, the first and second appellants (the Barclay brothers), own property on Sark.
The third appellant, Dr Slivnik, lives on Sark and wants to stand for election to the Chief Pleas.
The appellants have two complaints.
First, they claim that because of the position under the Reform Law of two office holders and prominent members of the community, the Seigneur (or Lord) of Sark and the Seneschal (or Steward), the Reform Law is incompatible with Article 3.
Each of them is an ex officio, unelected, member of the Chief Pleas, and the Seneschal is the president of the Chief Pleas.
Neither of them has the right to vote, but the Seigneur may speak in debate, and has the right of temporary veto of certain legislation.
Second, the appellants claim that the Reform Law is incompatible with Article 3 (read alone or in conjunction with the prohibition on discrimination in Article 14 of the Convention) because Dr Slivnik is prevented from standing for election: as a resident he has the right to vote, but he is ineligible to stand because, as a citizen of Slovenia, he is an alien for the purposes of the Reform Law.
Dr Slivnik also made a number of complaints about the conduct of the Seigneur and the Seneschal, but they are not relevant to the outcome of the appeal.
The Channel Islands
The Channel Islands consist of two Bailiwicks, Jersey and Guernsey.
The Channel Islands are Crown dependencies but they are not part of the United Kingdom nor are they colonies.
When King Philippe Auguste retook possession of continental Normandy in 1204, King John retained the Channel Islands.
His right as Duke of Normandy lapsed, and a separate title grew up by force of occupation, which attached to him as King of England.
This was confirmed by the Treaty of Bretigny in 1360.
See Matthews (1999) 3 Jersey L Rev 177; Minquiers and Ecrehos Case (France v United Kingdom) 1953 ICJ Rep 47, 56 57.
The Channel Islands are not represented in the United Kingdom Parliament.
Acts of Parliament do not extend to them automatically, but only if they expressly apply to the Islands or to all HM Dominions or do so by necessary implication.
By convention Parliament does not legislate for the Islands without their consent in matters of taxation or other matters of purely domestic concern.
The United Kingdom Government is responsible for their international relations and for their defence.
It is the practice for the Island authorities to be consulted before an international agreement is reached which would apply to them.
The Crown has ultimate responsibility for the good government of the Islands.
The Secretary of State for Justice and Lord Chancellor (the Secretary of State), the first respondent, has departmental responsibility for the constitutional relationship between the Crown and the Channel Islands.
The second respondent, the Committee for the Affairs of Jersey and Guernsey, is a committee of the third respondent, the Privy Council.
It is the practice for such a Committee to be appointed at the start of each sovereigns reign to deal with the affairs of the Channel Islands.
The Committee consists of three Privy Counsellors: the Secretary of State, a Minister in the Department of Justice, and the Lord President of the Council.
The Privy Councils main business in connection with the Islands is to deal with legislative measures submitted for ratification by Order in Council.
The Crown acts through the Privy Council on the recommendation of the Committee.
In 1565, acting by letters patent, Queen Elizabeth I appointed Helier de Carteret as the Seigneur of Sark (or Lord of Sark), and granted it to him as a royal fief as a reward for his having secured the island against the French.
Inheritance of the fief and any land sublet by the Seigneur is by male primogeniture in the manner of the Crown.
The Seigneur has always been free to sell the fief subject to royal consent.
The present Seigneur is John Michael Beaumont.
His family acquired the fief with Crown permission in 1852.
He inherited it on the death of his grandmother Dame Sibyl Hathaway in 1974.
The letters patent granted in 1565 required the Seigneur to keep the island continually inhabited or occupied by 40 men who had to be English subjects or swear allegiance to the Crown.
To achieve and to maintain the islands defences, Helier de Carteret leased 40 parcels of land (known as tenements) at a low rent on condition that a house was built and maintained on each parcel and that the Tenant provided one man, armed with a musket, for the defence of the island.
The 40 tenements still exist, with minor boundary changes.
There are 36 Tenants because some Tenants own more than one tenement.
In 1675 the office of Seneschal (or Steward) was created by the Crown.
The main function of the Seneschal was to dispense justice, as Sarks chief judge.
The present Seneschal is Lieutenant Colonel Reginald Guille MBE.
Sark is part of the Bailiwick of Guernsey, but has a large measure of independence from Guernsey.
The States of Guernsey may legislate for Sark on criminal matters without the consent of the Chief Pleas and on any other matter with their consent.
The European Convention on Human Rights and Sark
The European Convention on Human Rights provided in Article 63 (now Article 56, since the Eleventh Protocol) that a Contracting State could declare that the Convention should extend to all or any of the territories for whose international relations it was responsible, with the effect that the provisions of the Convention would be applied in such territories with due regard, however, to local requirements.
The Convention was extended in this way to the Bailiwick of Guernsey in 1953, and the First Protocol, which contains a similar power to extend in Article 4, was extended to the Bailiwick of Guernsey in 1988.
One of the questions canvassed on this appeal is whether the remedies under the Human Rights Act 1998 are available to the appellants.
In the course of the passage of the 1998 Act the House of Lords rejected an amendment to apply the Act to the Channel Islands and the Isle of Man, and a similar amendment was withdrawn in the House of Commons: Human Rights Law and Practice, 3rd ed 2009, ed Lester et al, para 2.22.4.
Instead the Convention was applied by local legislation.
The Human Rights (Bailiwick of Guernsey) Law 2000 has given effect to Convention rights and came into force in November 2006.
Legislation in Sark
The Chief Pleas legislates by two methods, Laws and Ordinances.
It can legislate for Sark on any matter by Projet de Loi, which requires the Royal Assent.
After the Chief Pleas passes a Law, it is remitted as a Projet de Loi to departmental officials at the Ministry of Justice to be referred to the Committee for the Affairs of Jersey and Guernsey for its consideration and report.
If the Committee recommends that Royal Assent be granted, the Projet de Loi is presented to the next available meeting of the Privy Council, together with a report on any petitions which have been received.
The Projet de Loi will not go to the Privy Council if the Committee decides not to recommend it for Royal Assent.
Her Majesty in Council then gives Royal Assent (by Order in Council) to any Projet de Loi presented by the Privy Council pursuant to a recommendation by the Committee.
She will also dismiss any petitions as appropriate.
The evidence in these proceedings was that, in considering whether or not to recommend approval, the Committee will in general respect the decision of the Chief Pleas, and there would tend to be a presumption in favour of recommending Royal Assent.
But consideration is given to the Crowns responsibilities, so that if a Projet de Loi violates the Crowns international obligations or any fundamental constitutional principle, or if it is clearly not in the public interest for it to become law, then a recommendation may be made to withhold Assent.
The Chief Pleas also legislates on a range of local affairs by Ordinance.
The Royal Court of Guernsey may annul an Ordinance on the ground that it is unreasonable or ultra vires the Chief Pleas, but the Chief Pleas may appeal to the Privy Council against the annulment.
The Seigneur had (and continues to have) power to veto an Ordinance, but it must be placed before the Chief Pleas again (not more than 21 days later), and the Chief Pleas will then consider whether the Ordinance should be confirmed.
The Seigneur had (and has) no power to veto Laws.
Between meetings, the business of the Chief Pleas is conducted through various Committees which function in effect as the executive government of Sark.
The Reform (Sark) Law 1951 (the 1951 Law)
Until the Reform Law became law in 2008, the majority of the members of the Chief Pleas were unelected Tenants, whose entitlement to sit derived from their status as landowners.
Until 1922 the Seigneur and the Tenants were the only members, together with a Seneschal chosen by the Seigneur.
The Sark Reform Law of 1922 introduced adult suffrage for the election of 12 Peoples Deputies.
Under the 1951 Law the Chief Pleas consisted of the Seigneur, the Seneschal (who was appointed for a three year term of office by the Seigneur with the approval of the Lieutenant Governor and was ex officio President of the Chief Pleas), the Tenants, and 12 Deputies of the People elected triennially.
In the case of a tenement jointly owned by two or more persons, one of those persons was appointed as the Tenant, by those owners or a majority of them.
Both the Seigneur and the Seneschal had the right to vote in the Chief Pleas.
The Seneschal was entitled, in the event of an equality of votes, to a casting vote in addition to his original vote, but following McGonnell vs United Kingdom (2000) 30 EHRR 289 (involving the compatibility of the judicial functions of the Bailiff of Guernsey with Article 6(1) of the Convention), the Seneschal agreed not to exercise his casting vote pending further reform.
Under the 1951 Law, aliens were not eligible to vote or stand for election to the Chief Pleas.
Reform process
Sark has been considering constitutional reform since 1999.
In March 2006, the Chief Pleas voted for a reform which would have provided for a legislature to consist of 16 Tenants elected by the Tenants and 16 Deputies elected by the rest of the population.
In April 2006 the Chief Pleas withdrew its support for that option.
On May 7, 2006, the Secretary of State (at that time Lord Falconer) wrote to the Seigneur to say that he was pleased with the decision of the Chief Pleas to withdraw the plan to reserve 16 seats in the Chief Pleas for Tenants because he would not have been able to recommend for Royal Assent legislation about which there are serious or substantial ECHR compliance issues".
He said that [a]ny option which falls short of a wholly democratic process would cause me serious difficulties.
I am concerned that Sark should give itself, and the UK, the best protection it can from ECHR challenge and its possible consequences [i]t is the UK which is vulnerable to an ECHR challenge.
The UK cannot stand by and give that situation its tacit approval by doing nothing".
In April 2007, the Chief Pleas approved another version of a new law
would still reserve seats in the Chief Pleas for Tenants, but with those Tenants elected by universal suffrage.
The Secretary of State (by then Mr Jack Straw) decided not to submit that proposal to the Privy Council, because there were some aspects of the proposed law which he considered not to be unquestionably compliant with international law and the United Kingdoms obligations, having regard to the Crowns responsibility for the good government of the Crown Dependencies.
In particular, there were concerns that (a) the composition of the legislature was not consistent with modern democratic principles; (b) the dual role of the Seneschal as judge in Sarks sole court of justice and President of Chief Pleas might cast doubt on the judicial impartiality of a person subsequently called upon to determine a dispute concerning legislation with which he had been involved; and (c) the role of the Seigneur, his membership of the Chief Pleas and his wider functions, sat uneasily with democratic principles.
On February 21, 2008, the Chief Pleas approved a new version of a Reform Law.
Under that Law, the reserved seats for Tenants are removed.
The Seigneur and the Seneschal remain members, but without the right to vote.
The Seigneurs right of temporary veto of Ordinances is preserved.
The Seneschal can now only speak for the purposes of exercising his role as President.
Neither is now entitled to sit on Committees of the Chief Pleas.
The Barclay brothers presented several Petitions opposing the reform proposals as they evolved, and in particular a Petition dated March 3, 2008, asking that the Privy Council withhold approval of the Reform Law as enacted.
The Petition complained, so far as is now material, that (a) in violation of Article 3 of the First Protocol, the Seigneur would be an unelected member of Chief Pleas, with a right to address it and with a power to veto Ordinances; (b) the membership of the Seneschal as President of Chief Pleas was incompatible with Article 3; (c) the prohibition on non British nationals standing for election was incompatible with Article 3 and with Article 14 of the Convention.
The Committee for the Affairs of Jersey and Guernsey rejected the Petitions.
Schedule to an Order in Council dated April 9, 2008 notes that the Committee recommended that the Petitions be dismissed and that the Reform Law should receive Royal Assent at the next meeting of the Privy Council on April 9, 2008.
The Schedule then gave a summary of the Committees conclusions, which included: The Reform Law would not violate any of the Crown's international obligations, and that therefore those international obligations provided no basis for refusing Royal Assent".
The Reform Law
The following are the principal features of the Reform Law which are relevant on this appeal.
The Chief Pleas
All legislative and executive functions which may be exercised within Sark are exercisable by the Chief Pleas, or by the relevant Committee of the Chief Pleas or other body on which the function is imposed or conferred: section 1.
The Chief Pleas consists of the Seigneur, the Seneschal, and 28 elected Conseillers, with elections to take place every fourth year: section 21(1).
The number of Conseillers may be varied by ordinance: section 21(5).
A person is entitled to have his name inscribed in the register of electors if he is ordinarily resident in Sark and has been for 12 months: section 28(4).
A person who is registered in the Cadastre (rating register) as the possessor of real property in Sark is deemed to be ordinarily resident: section 28(5).
A person is eligible to be elected a Conseiller if he is entitled to vote and he is not an alien within the meaning of the law in force in the United Kingdom (section 28(3)(b)).
By section 50(1) of the British Nationality Act 1981, an alien is: a person who is neither a Commonwealth citizen nor a British protected person nor a citizen of the Republic of Ireland.
Both the Seigneur and the Seneschal are now prohibited from being members of a Committee of the Chief Pleas: section 45(3).
Thus, neither can be directly concerned in the day to day running of Sarks Executive Government.
The 1951 Law did not prevent the Seneschal and the Seigneur from sitting on executive Committees of Chief Pleas, and they exercised their right to do so.
The Seigneur
The Seigneur is a member of the Chief Pleas: section 21(1)(a).
The Seigneur has the right to speak at any meeting of the Chief Pleas but does not have the right to vote: section 35(3).
He cannot be a member of a Committee of the Chief Pleas: section 45(3).
The Seigneur has the power temporarily to veto Ordinances made by the Chief Pleas.
Section 38 provides: (1) Subject to subsections (2) and (3), the Seigneur may, during any meeting of the Chief Pleas at which an Ordinance is made, veto any Ordinance made at that meeting. (2) Where an Ordinance has been vetoed pursuant to subsection (1), it shall not be registered but shall again be laid before the Chief Pleas not earlier than 10 days, and not later than 21 days, after the meeting at which it was made. (3) Where an Ordinance is laid before the Chief Pleas pursuant to subsection (2), the Chief Pleas may either (a) confirm the Ordinance, whereupon the veto shall cease to be operative and the Ordinance shall take effect from the date of its registration, or otherwise in accordance with its provisions, as if it had not been vetoed; or refuse to confirm the Ordinance, whereupon it shall not be registered and shall not take effect". (b)
The Seigneur has other powers and responsibilities under the Reform Law.
The most significant for the purposes of this appeal are these: (1) the Seigneur appoints the Seneschal (with the approval of the Lieutenant Governor): section 6(1); (2) the Seigneurs consent is needed for the Seneschal to summon an extraordinary meeting of the Chief Pleas: section 32(2)(b); (3) the Seigneur is a Trustee (section 56), making him responsible, together with the other three Trustees (the Seneschal, Prvt and Greffier) for all Island Properties, i.e. schools, teachers houses, the medical centre, and administrative offices.
The Seneschal
The Seneschal continues to be appointed by the Seigneur with the approval of the Lieutenant Governor: section 6(1).
He is no longer appointed for a limited 3 year term: his appointment is for life.
The reason is that it was thought that a Seneschal with a three year term might not give a fair trial in litigation involving the Crown or the Seigneur if he were seeking re appointment.
By section 6(2), the Seneschal may only be removed by the direction of the Lieutenant Governor for good cause (formerly, he was simply subject to removal by the direction of the Crown: section 22(1) of the 1951 Law).
The Seneschal is an unelected member of the Chief Pleas: section 21(1)(b).
The Seneschal continues to be the ex officio President of the Chief Pleas: section 35(1).
He is a Trustee of Island property (section 56).
Meetings of the Chief Pleas are convened by the Seneschal by the publication of an Agenda (section 32(1)).
He has power (if the Seigneur consents) to summon an extraordinary meeting of the Chief Pleas, and a discretion to determine whether an extraordinary meeting will be held at the request of at least nine Conseillers (section 32(2)(b) and (c)).
The Seneschal has no right to speak or to vote at any meeting of the Chief Pleas (section 35(4)).
It was common ground that he may speak insofar as is necessary to enable him to preside over the Chief Pleas.
But he cannot speak in favour of or against the substance of any matter raised by the Conseillers.
Seneschals procedural powers
The Chief Pleas has power to make rules of procedure (section 36(1)) but the Rules of Procedure under the 1951 Law have been applied by the Chief Pleas under the Reform Law.
New rules were adopted in April 2009.
The procedural powers of the Seneschal under the rules which were current when the decisions of the Committee for the Affairs of Jersey and Guernsey and the Privy Council were taken are these.
He convenes meetings by means of an agenda: rule 1(2).
He may, on grounds of public interest, decline to allow a question to be put or rule that the question need not be answered: rule 8.
He is responsible for maintaining order at a meeting and, subject to the provisions of the Rules, regulates the conduct of business: rule 10(1).
He may direct a member to discontinue his speech if he considers it irrelevant or tedious repetition of the member's arguments: rule 10(4).
Where he considers that grave disorder has arisen in a meeting he may adjourn the meeting: rule 10(7).
He decides whether to allow an amendment to be moved in the case of non compliance with the requisite notice period (rule 11(2)).
He decides whether or not a member's oral contribution to the debate is relevant and therefore permissible (rule 11(6)), and he decides the order of proposed amendments (rule 11(8)).
He provides clarification on the Rules: rule 13.
The proceedings: jurisdiction
By claim form dated April 4, 2008, the appellants sought judicial review of (1) the decision dated March 19, 2008 of the Committee for the Affairs of Jersey and Guernsey to recommend that Royal Assent be granted to the Reform Law; and (2) the decision of the Privy Council to advise Her Majesty, on April 9, 2008, to grant Royal Assent in accordance with the first decision, which resulted in an Order in Council of that date.
There is no issue on this appeal about jurisdiction to determine the legality of the decisions of the Committee and the Privy Council.
Wyn Williams J held in the Administrative Court [2008] 3 WLR 867, paras 98 102, and the respondents accepted in the Court of Appeal [2009] 2 WLR 1205 (see Pill LJ at paras 19 21) that to the extent that the Reform Law is in breach of Convention rights, then the appellants are entitled to appropriate relief in these proceedings.
That is because the respondents expressly advised Her Majesty the Queen to approve the Reform Law on the ground that it did not involve any breach of the obligations of the United Kingdom under the Convention.
It will, however, be necessary to revert to the question of jurisdiction because of the appellants contention that the courts of this country also have jurisdiction to grant relief on the basis that the respondents were acting as public authorities for the purposes of section 6 of the Human Rights Act 1998 when recommending the Order in Council by which the Reform Law was given Royal Assent.
The judgments below
Wyn Williams J decided that the comparatively limited rights and powers conferred upon the Seigneur and the Seneschal did not impair the essence of the rights conferred under Article 3 of the First Protocol.
Neither was entitled to vote.
The Seigneurs right of veto was limited to Ordinances and was no more than a means by which he could ask Chief Pleas to revisit a decision.
It was impossible to envisage that the power could ever be used in such a way that it would frustrate the will of the Conseillers permanently.
There was no principle that a State could not comply with Article 3 unless every member of its legislative body were democratically elected.
The positions of Seigneur and Seneschal had been inextricably linked with the governance of Sark over centuries, and there was no legal impediment to there being some continuation of those links.
Their membership was being pursued for a legitimate aim, namely to form part of a package of measures which was most likely or at least very likely to find favour with a majority of the members of Chief Pleas as currently constituted, and to provide some link between the past and the future.
The Reform Law was not in breach of Article 3 in not permitting aliens to stand for election.
Wyn Williams J also decided that the combination of the judicial and other functions of the Seneschal was consistent with the duty under Article 6(1) of the Convention to establish an independent and impartial tribunal.
His decision on that point was reversed by the Court of Appeal, and there was no further appeal on that point.
The Court of Appeal agreed with Wyn Williams J so far as the position of the Seigneur was concerned, and by a majority (Etherton LJ dissenting) with regard to the Seneschal.
The principal points made by Pill and Jacob LJJ were these: all members of the Chief Pleas entitled to vote were elected in accordance with a procedure about which there was no complaint.
The power of the Seigneur to speak (but not vote) in Chief Pleas made sense in a small community such as Sark, and would not undermine the free expression of the people.
The power of the Seigneur to veto Ordinances temporarily, and the requirement for the Seneschals consent to an extraordinary meeting of Chief Pleas requested in writing by nine Conseillers, might serve the democratic will in providing the opportunity at a later date for a more representative meeting, if some members of Chief Pleas were away from Sark.
There was no reason to believe that the Seneschal would use his position as ex officio President to thwart the will of elected members.
If his procedural powers were not acceptable to the elected members, Chief Pleas could alter the rules.
Jacob LJ added that if the elected members of Chief Pleas were to decide that the continued presence and powers of the Seigneur and Seneschal in Chief Pleas were obstructive to the expression or exercise of the will of the people, there would be nothing that could be done legally to prevent Chief Pleas from voting for a change.
The Reform Law did not breach Article 3 in failing to grant to aliens the right to stand for election to Chief Pleas and, in the absence of such a breach, Article 14 of the Convention did not apply.
Etherton LJ dissented with respect to the role and functions of the Seneschal.
His view was that an unelected President for life of a unicameral legislature, who was not appointed to office by the electorate or by the elected members of the legislature, and whom the elected members had no power to discipline or remove as President, was in principle fundamentally inconsistent with a political democracy.
His procedural powers and the requirement of his consent for extraordinary meetings taken as a whole were capable of enabling suppression of free and appropriate debate within the Chief Pleas by elected members on topics they or some of them wished to raise.
There was no clearly practicable means for the elected members of the Chief Pleas to control abusive or otherwise incorrect exercise by the Seneschal of his powers as President.
They had no power to dismiss or suspend him.
They could apply in writing to the Lieutenant Governor under section 6(2) of the Reform Law for his removal as Seneschal, but that process would be neither swift nor certain.
The particular features of the Sark constitution under the Reform Law and the social and constitutional standing of the Seneschal in Sark were obvious disincentives for elected members to challenge the rulings and conduct of the Seneschal as President.
In addition to serving as President of the Chief Pleas he held the following positions under the Reform Law: one of the four trustees who, subject to any direction of the Chief Pleas, manage, control and dispose of its property and who sign contracts on its behalf; the returning officer for the purposes of elections of Conseillers to the Chief Pleas and, as such, is required to do everything necessary for effectually conducting the election; critically, under the Reform Law the only court on Sark was the Court of the Seneschal in which, unless a Deputy Seneschal or a Lieutenant Seneschal is appointed to sit, the Seneschal sat alone.
The elected members would doubtless bear in mind the possibility that at some point in the future they might have to appear in court before him or one of his deputies or lieutenants in civil or criminal proceedings.
The issues on appeal
The principal issues on this appeal are (1) whether (as the appellants contend) the position of the Seneschal and the Seigneur in the Chief Pleas of Sark, as provided for in the Reform Law, constitutes a breach of the right conferred by Article 3 of the First Protocol to participate in elections which ensure the free expression of the opinion of the people in the choice of the legislature; and (2) whether (as the appellants contend) the prohibition imposed by the Reform Law on persons who are aliens from standing for election to the Chief Pleas of Sark is a breach of the right under Article 3 of the First Protocol, read alone and/or in conjunction with Article 14 of the Convention.
Although there is no cross appeal by the respondents on the issue of jurisdiction, the appellants invited the House of Lords to determine whether, had it not been accepted by the respondents that the decisions of the Committee for the Affairs of Jersey and Guernsey and the Privy Council were amenable to judicial review (because the respondents expressly advised Her Majesty to approve the Reform Law on the ground that it did not involve any breach of the international obligations of the United Kingdom under the Convention), the Human Rights Act 1998 applies to the decisions.
Article 3 of the First Protocol
There have been more than 50 decisions of the European Court of Human Rights on Article 3 of the First Protocol.
The following principles emerge from these decisions, particularly from the relatively early case of Mathieu Mohin v Belgium (1988) 10 EHRR 1, and the recent decision of the Grand Chamber in Yumak v Turkey (2009) 48 EHRR 61.
First, Article 3 of the First Protocol enshrines a characteristic principle of an effective democracy.
It is of prime importance in the Convention system, of which democracy constitutes a fundamental element, and the rights guaranteed under Article 3 of the First Protocol are crucial to establishing and maintaining the foundations of an effective and meaningful democracy governed by the rule of law: Mathieu Mohin v Belgium, at para 47; Yumak v Turkey, at paras 105 and 107.
See also Zdanoka v Latvia (2007) 45 EHRR 478, para 98 (Grand Chamber); Tanase v Moldova [2008] ECHR 1468, at paras 100 101.
Second, although Article 3 is phrased in terms of the obligation of the Contracting States to hold elections which ensure the free expression of the opinion of the people rather than in terms of individual rights, Article 3 guarantees individual rights, including the right to vote and the right to stand for election: Mathieu Mohin v Belgium, at paras 48 51; Yumak v Turkey, at para 109(i); Zdanoka v Latvia, at para 102.
Third, there is room for implied limitations on the rights enshrined in Article 3, and Contracting States must be given a wide margin of appreciation in this sphere: Mathieu Mohin v Belgium, at para 52; Yumak v Turkey, at para 109(ii).
Fourth, the content of the obligation under Article 3 varies in accordance with the historical and political factors specific to each State; and for the purposes of applying Article 3, any electoral legislation must be assessed in the light of the political evolution of the country concerned, so that features which would be unacceptable in the context of one system may be justified in the context of another, at least so long as the chosen system provides for conditions which will ensure the free expression of the opinion of the people in the choice of the legislature: Yumak v Turkey at para 109(iii); Aziz v Cyprus (2005) 41 EHRR 164, para 28.
Fifth, Article 3 is not (by contrast with some other Convention rights, such as those enumerated in Articles 8 to 11) subject to a specific list of legitimate limitations, and the Contracting States are therefore free to rely in general in justifying a limitation on aims which are proved to be compatible with the principle of the rule of law and the general objectives of the Convention: Yumak v Turkey, at para 109(iii); Tanase v Moldova, at para 105.
Sixth, limitations on the exercise of the right to vote or stand for election must be imposed in pursuit of a legitimate aim, must not be arbitrary or disproportionate, and must not interfere with the free expression of the opinion of the people in the choice of the legislature: Yumak v Turkey, at para 109(iii) (iv).
Seventh, such limitations must not curtail the rights under Article 3 to such an extent as to impair their very essence, and deprive them of their effectiveness.
They must reflect, or not run counter to, the concern to maintain the integrity and effectiveness of an electoral procedure aimed at identifying the will of the people through universal suffrage.
Any departure from the principle of universal suffrage risks undermining the democratic validity of the legislature and the laws which it promulgates: Mathieu Mohin v Belgium, at para 52; Yumak v Turkey, at para 109(iv).
Eighth, as regards the right to stand for election, the Court accepts that stricter requirements may be imposed on the eligibility to stand for election to parliament, as distinguished from voting eligibility: Melnychenko v Ukraine (2006) 42 EHRR 784, para 57.
In Zdanoka vs Latvia (2007) 45 EHRR 478, para 106 the Grand Chamber said: The Convention institutions have had fewer occasions to deal with an alleged violation of an individuals right to stand as a candidate for election, i.e, the so called passive aspect of the rights under Article 3 of Protocol no. 1.
In this regard the Court has emphasised that the Contracting States enjoy considerable latitude in establishing constitutional rules on the status of members of parliament, including criteria governing eligibility to stand for election.
Although they have a common origin in the need to ensure both the independence of elected representatives and the freedom of choice of electors, these criteria vary in accordance with the historical and political factors specific to each State.
The multiplicity of situations provided for in the constitutions and electoral legislation of numerous member States of the Council of Europe shows the diversity of possible approaches in this area.
Therefore, for the purposes of applying Article 3, any electoral legislation must be assessed in the light of the political evolution of the country concerned.
Ninth, the Court takes account of the practice of members of the Council of Europe in assessing the compatibility of electoral rules with Article 3, in particular in the area of qualifications to stand for election.
In Yumak v Turkey (at para 111) the Court said in relation to electoral systems that the large variety of situations provided for in the electoral legislation of numerous Member States of the Council of Europe shows the diversity of the possible options.
In Melnychenko v Ukraine, at para 30, the Court, when considering whether it was compatible with Article 3 to impose a residence requirement before citizens could stand for election, referred to the fact that 19 States did not impose any such requirement for participation in elections while 21 States did so for elections to one or more of the legislative chambers.
In Gitonas v Greece (1997) 26 EHRR 691 the Court decided that the disqualification in Greece of civil servants from elected office was compatible with Article 3, and at para 40 it said that equivalent provisions exist in several member States of the Council of Europe.
In Sukhovetsky v Ukraine (2007) 44 EHRR 57, at para 76, the Court, in deciding that the Ukrainian rules with regard to electoral deposits were compatible with Article 3, considered the practice of the Convention States with regard to the amount of the deposit and whether it was appropriate that it should be forfeit if the candidate failed to win election irrespective of the percentage of votes cast.
Examples of the operation of these principles as regards the right to vote include Yumak v Turkey, which concerned a Turkish law under which a political party had to receive at least 10% of the national vote in an election in order to obtain any seats in the Turkish parliament, and which was the highest threshold in the Contracting States.
The effect was that two of the eighteen parties which had taken part in the 2002 elections had passed the 10% threshold and secured seats, with the result that 45% of the voting public were not represented in the parliament.
It was held that the threshold law served the legitimate aim of avoiding excessive and destabilising parliamentary fragmentation and thus strengthening governmental stability.
Although it appeared excessive, it was not disproportionate in that it did not impair the essence of the rights secured by Article 3 of the First Protocol.
But a blanket disenfranchisement of convicted prisoners regardless of the nature of the offence or length of sentence was held to be disproportionate: Hirst v United Kingdom (No 2) (2006) 42 EHRR 41 (Grand Chamber).
As regards the right to stand for election, it has been held that public servants could be barred from standing for election: Ahmed v United Kingdom (2000) 29 EHRR 1; Gitonas v Greece, supra; and a former member of the Communist Party could be banned from standing for election in Latvia because she could be presumed to be anti democratic: Zdanoka v Latvia (2007) 45 EHRR 478.
But the requirement of a command of Latvian at the highest level from a Russian minority candidate for election was disproportionate: Podkolzina v Latvia [2002] ECHR 405.
The effect of these principles is that there is no narrow focus on one particular element of democracy.
The electoral rules have to be looked at in the round, and in the light of historical and political factors.
The proper application of these principles leads inevitably to the conclusion that the Reform Law is not in breach of Article 3 of the First Protocol.
The appellants submit that it is incompatible with the most basic principles of democracy as expressed in Article 3 of the First Protocol for unelected individuals to be members of the Chief Pleas with the power (1) in the case of the Seigneur, to speak in the Chief Pleas and to veto (even on a temporary basis) legislation and (2) in the case of the Seneschal, to preside and control proceedings in the Chief Pleas, in each case in addition to their other important functions and powers on Sark (Appellants Case, at para 58).
The appellants exaggerate their case.
The starting point is that only Conseillers are entitled to vote in the Chief Pleas, and therefore it is only Conseillers who determine whether legislation is to be enacted.
The electorate of Sark consists of fewer than 500 voters, who choose 28 elected Conseillers by a process of casting 28 votes each and electing the 28 candidates with the largest number of votes.
There is therefore one Conseiller for every 17 18 persons in the electorate.
It is not easy to envisage, in the words of Article 3, conditions which are more likely to ensure the expression of the opinion of the people in the choice of the legislature.
The appellants case was, in part, that to the extent that members of the legislature (implicitly including both chambers) were not elected, Article 3 was not satisfied: Appellants Case at para 63(2).
That was put too widely.
It is plain that the effect of Article 3 is not to require that all members of the legislature of a Contracting State be elected.
A legislature may consist of two chambers, and a wholly unelected second chamber, such as the House of Lords, is not in itself incompatible with Article 3.
When the First Protocol was under negotiation, the formula The High Contracting Parties undertake to hold free elections of the Legislature was proposed, but it was not acceptable to some countries, because it might be interpreted as an obligation to hold elections for both chambers of the legislature.
This was unacceptable to the Governments of some States where the upper chamber was in whole or in part not elected but hereditary (such as the United Kingdom) or appointed (as in Belgium).
The Committee of Ministers recorded that the original text, which was maintained, had been carefully drafted to avoid this difficulty: Collected Edition of the Travaux Prparatoires of the European Convention on Human Rights, Vol VIII (1985), pp 48 52, letter dated November 28, 1951, from Chairman of the Committee of Ministers to the President of the Consultative Assembly.
It was for that reason and by reference to those documents that the Court in Mathieu Mohin v Belgium said, at para 53, that Article 3 applies only to the election of the legislature, or at least of one of its chambers if it has two or more.
The European Commission for Democracy through Law (also known as the Venice Commission) was established in 1990 as the Council of Europes advisory body on constitutional matters.
The Venice Commission adopted guidelines on elections as part of a code of good practice in electoral matters.
Guideline 5 was that at least one chamber of the national parliament must be elected by direct suffrage.
Consequently the appellants also formulated the principle for which they contended as being that all the members of a unicameral legislature must be elected: Appellants Case at para 63(3).
No doubt where, as here, there is a unicameral legislature, best practice is that it should be an elected assembly.
Jacob LJ observed correctly in the Court of Appeal that [i]f one were starting from scratch, there can be few who would think the new Reform Law of Sark satisfactory [T]o confer by heredity upon an unelected man the positions and powers of the Seigneur would be going too far by the standards of modern democratic governance: para 117.
It does not follow, however, that as a matter of Convention law there is an invariable rule that all members must be elected irrespective of their powers and irrespective of the circumstances.
The effect of the jurisprudence under Article 3 is that all the circumstances must be considered.
It is not a necessary consequence, therefore, that the mere existence of some unelected members contravenes Article 3.
In 2007 the Barclay brothers themselves made a representation supporting an option for constitutional change which would have continued the reservation of half of the seats for 16 Tenants elected by the Tenants.
Membership of two unelected individuals in the circumstances of this case does not contravene Article 3.
The purpose of Article 3 is to ensure that legislation is enacted through genuinely democratic processes.
An electorate of about 500 elects 28 voting representatives.
Neither the Seigneur nor the Seneschal can vote.
It is true that the Seigneur can speak on matters of substance in debate.
But the fact that unelected persons may influence the outcome of debate is not undemocratic, especially when the influence is open and transparent.
Even if Article 3 did in principle require that even non voting members be elected, then a limitation on that principle by having two prominent non voting members would be well within the margin of appreciation in the light of the constitutional history and the political factors relevant to Sark.
The position of the Seigneur dates from 1565, and the position of the Seneschal from 1675.
Until 1922 the composition of the Chief Pleas reflected the feudal system in Sark.
Between 1922 and 2008, the feudal Tenants dominated the Chief Pleas.
Even the introduction in 1922 of a minority of elected Deputies was not easily achieved.
At the time this was a very controversial change.
The Lieutenant Governor told the Chief Pleas members that, unless they agreed to changes approved by the Privy Council, the Islands administration would be taken over forcibly: Sark Constitutional Review Committee, Report on the Future Constitution of the Island of Sark, January 2002, para 62.
The Reform Law eventually introduced universal suffrage for the election of all those members who could vote on legislation.
The fact that the Reform Law was enacted by, and therefore with the consent of, the legislature was relied on by the respondents.
But that would not save it from incompatibility with the Convention.
Some profoundly undemocratic laws have been enacted by democratically elected legislatures.
In any event, the Reform Law was enacted by the unreformed Chief Pleas which was certainly not fully democratic.
But the respondents are right in their contention that the Chief Pleas support for the Reform Law is a political factor of weight, because it offers confidence that the Reform Law will command the level of respect and legitimacy in the eyes of the people of Sark that is necessary to secure significant constitutional change.
Thus even if the membership of the Seigneur and the Seneschal is to be regarded as a limitation on the peoples right to choose the legislature, then the limitation falls well within the margin of appreciation allowed by Article 3.
It fulfils all the conditions suggested by the jurisprudence of the Strasbourg Court.
It cannot be said to be arbitrary.
Because the Seigneur and the Seneschal cannot vote, it cannot be said to be lacking in proportionality.
The free expression of the opinion of the people of Sark is not impeded by it.
Nor could it be plausibly suggested that their membership impairs the very essence of the peoples right to choose the legislature, or deprives the right of its effectiveness.
Nor can it be argued seriously that the Seigneurs right to speak in the Chief Pleas will frustrate the free expression of the opinion of the people in the choice of the legislature.
Nor is the conclusion affected by the other powers and responsibilities of the Seigneur and the Seneschal.
The Seigneur has the power temporarily to veto Ordinances (but not Laws) under section 38 of the Reform Law.
The effect of section 38 is that where an Ordinance has been vetoed then it is laid before the Chief Pleas again not earlier than 10 days later, but no later than 21 days later, whereupon the Chief Pleas will either confirm, or refuse to confirm, the Ordinance.
The appellants argue that the existence of this power will inevitably deter the Chief Pleas from adopting a position opposed by the Seigneur, whether because the Chief Pleas wishes to avoid a veto or simply because it prefers to seek the approval, or avoid the disapproval, of the Seigneur.
It is true that HM Procureur, the head of the Government legal service in Guernsey, in a letter of April 30, 2004 to the Chairman of the Sark Constitutional Steering Committee, wrote: I regret that I remain opposed to the retention by the Seigneur of any power of veto.
In my opinion it is simply unacceptable in the 21st century for an unelected and unappointed citizen, whatever his civic role, or whatever his rank or position in Sark society, to be able to veto legislation passed by the (soon to be more democratically constituted) Chief Pleas, irrespective of whether that veto is absolute or limited.
The Seigneur has informed me that he has no strong feelings on the Seigneurial veto.
He writes: If it is a possibility that it might cause problems in the
future then I am quite happy that it should be abolished
The present Seigneurs evidence was that he had never used his power of temporary veto, and that he had no recollection of his predecessor (his grandmother, Dame Sybil Hathaway) having used it.
His evidence was that he would only consider using it in, at most, two circumstances: (a) if an Ordinance had not been drafted by the Guernsey Law Officers and he considered that it might be ultra vires; or (b) in what he describes as the unlikely event that an ordinance were passed by a close vote at a meeting of the Chief Pleas at which only a minimal number of members were present and he were to feel that, with a normal turnout, the Ordinance might possibly have been rejected.
The suggestion by the appellants that the power might have a chilling effect on the exercise of the power of the democratically elected members to legislate is wholly speculative.
It is legitimate to take account of the fact that the power has not been used in modern times, and that the Seigneur has indicated that it will be used in only very limited circumstances.
The use of the power if few members are present and voting will tend to ensure that the democratic will is respected by ensuring that sufficient numbers of members are present.
That objective could have been achieved by different means (such as a special quorum for the passage of legislation), but the method proposed is proportionate and consistent with Article 3.
The unelected House of Lords has power (subject to the Parliament Acts 1911 and 1949) to delay United Kingdom legislation, and that is a power which directly affects the process of the elected chamber.
The appellants do not suggest that that power is inconsistent with Article 3.
The reason why the power is compatible with Article 3 is that it has its origin in historical and political factors, it is not arbitrary or disproportionate, and it does not affect the essence of democratic rights.
Indeed in R (Jackson) v Attorney General [2005] UKHL 56, [2006] 1 AC 262, para 32, Lord Bingham of Cornhill suggested that the use of the Parliament Acts to secure extension of the maximum duration of Parliament by overriding the need for the passage of legislation through the House of Lords might itself be contrary to Article 3.
So also in theory Her Majesty could refuse Royal Assent, although by convention it cannot be refused except on the advice of ministers, and the power to refuse it has not been exercised since 1708: see Bradley and Ewing, Constitutional and Administrative Law, 14th ed 2007, p 21.
The appellants argue that the delaying power of the House of Lords is not incompatible with Article 3 because the requirements of Article 3 are satisfied if there is one wholly elected legislative chamber.
This is unpersuasive.
It does not follow from the fact that Article 3 does not regulate the composition of a second chamber that there are no limitations imposed by Article 3 on the powers of the second chamber.
If a second chamber had a power permanently to frustrate the will of the democratically elected chamber, and the power was not purely theoretical, like Her Majestys power to withhold Royal Assent, then there would at the least be a case for breach of Article 3.
Nor are the appellants assisted by the existence of the Seigneurs other powers.
Apart from the power of temporary veto of Ordinances already discussed, the only one which affects proceedings of the Chief Pleas is that the Seigneurs consent is needed for the Seneschal to summon an extraordinary meeting of the Chief Pleas: Reform Law, section 32(2)(b).
The Chief Pleas has to meet four times annually: section 32(2).
All three methods of summoning extraordinary meetings require the action of an unelected official: (1) at the direction of the Lieutenant Governor; (2) by the Seneschal with the consent of the Seigneur; and (3) with the consent of the Seneschal on the written request of at least nine Conseillers.
The mere existence of this power does not undermine effective political democracy.
If there were any serious prospect of its being abused, the Chief Pleas could amend the Reform Law.
The Seigneurs other powers do not affect the democratic process.
They simply underline his status on Sark.
He appoints the Seneschal (with the approval of the Lieutenant Governor) and the Deputy Seneschal (in consultation with the Seneschal and with the approval of the Lieutenant Governor), and he appoints the Deputy Seigneur.
He appoints the Prvt and the Greffier subject to the approval of the Lieutenant Governor.
His consent is required for Guernsey police officers to attend in Sark, and his consent is required for removal of a special constable.
The Seigneur is a Trustee, making him responsible, together with the other three Trustees (the Seneschal, Prvt and Greffier) for all Island Properties.
It is not suggested that the existence of these powers is contrary to Article 3.
So far as the position of the Seneschal is concerned, it is true that it is anomalous that the presiding officer of an elected assembly should be an unelected official appointed by another unelected (and indeed hereditary) official.
Etherton LJ was right to say that it is relevant that the members of Chief Pleas have no power to dismiss or suspend the Seneschal, and that the process of applying in writing to the Lieutenant Governor under section 6(2) of the Reform Law for his removal as Seneschal would not be swift or certain.
But it does not follow that legislation which provides for an unelected presiding officer is contrary to the duty to allow free elections for the choice of the legislature under Article 3 of the First Protocol.
In any event, for essentially the same reasons as apply in the case of the Seigneur, the position of the Seneschal is well within the margin of appreciation, taking into account historical and political factors, and cannot realistically be said to impair the essence of the rights under Article 3 nor to deprive them of effectiveness.
It is not suggested that the procedural powers themselves are contrary to Article 3.
What is said is that the width of the procedural powers makes it inappropriate that they should be exercised by an unelected person.
But they are powers which any presiding officer would be given or would need.
It is true that they are capable of being misused, but they could equally be misused by an elected officer.
If there were any abuse of the powers, the Chief Pleas could alter the procedural rules under section 36(1) of the Reform Law without the need for any consent.
There is nothing in the appellants reliance on the other powers of the Seneschal.
He is ex officio the returning officer for elections held under the Reform Law.
He is a Trustee of Island property.
In both capacities he must act according to law, and in the latter capacity on behalf and subject to the direction of the Chief Pleas: section 57.
The right to stand for election
The appellants do not suggest that Article 3 of the First Protocol itself gives resident aliens a right to stand for election.
The primary way it is put in relation to Article 3 is that the prohibition on aliens from standing for election to the Chief Pleas advances no legitimate aim and is disproportionate, and therefore contrary to Article 3 of the First Protocol, given that (1) resident aliens may vote for elections to the Chief Pleas; and (2) the Law does not identify as eligible to stand those with sufficiently continuous or close links to, or a stake in Sark.
Commonwealth citizens, British protected persons and citizens of the Republic of Ireland may stand for election to the Chief Pleas, so long as they are resident in Sark or own property there, even if they do not live there.
The appellants alternative case is that if citizens have the right to vote, then the prohibition on aliens (or, perhaps, resident aliens) standing for election to the Chief Pleas is unjustifiable discrimination on grounds of nationality contrary to Article 3 of the First Protocol read with Article 14 of the Convention.
The principal answer to the appellants case is that there are many decisions of the Strasbourg Court which proceed on the basis that the rights under Article 3 belong to citizens, and therefore not to aliens.
In a passage in Mathieu Mohin at (1988) 10 EHRRI, para 54 repeated or referred to in many subsequent judgments, the Court referred to the principle of equality of treatment of all citizens in the exercise of their right to vote and their right to stand for election.
For example, in Kovach v Ukraine [2008] ECHR 125, para 49, the Court said in the same context: In this field, Contracting States enjoy a wide margin of appreciation, provided that they ensure the equality of treatment for all citizens.
In Makuc v Slovenia [2007] ECHR 523, para 206, the Court said The Court recalls that this provision guarantees individual rights, including the right to vote and to stand for election.
However, these rights are not absolute but rather subject to limitations, such as citizenship citing Hirst v United Kingdom (No 2) (2006) 42 EHRR 41.
The Guidelines on Elections of the Venice Commission (referred to above, para 68) said, in the context of conditions for voting and standing for election, that a nationality requirement may apply, but that it would be advisable for foreigners to be allowed to vote in local elections after a certain period of residence: Guideline 1.1.b.
The Explanatory Report said (para 6.b c) that most countries legislation laid down a nationality requirement, but that the right to vote and/or the right to stand for election might be subject to residence requirements.
The International Covenant on Civil and Political Rights (1966) is consistent with this interpretation of the European Convention.
Article 25 grants every citizen, without any of the distinctions in Article 2 (race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status) and without unreasonable restrictions the right and the opportunity to vote and to be elected at genuine periodic elections which shall be by universal and equal suffrage .
In Melnychenko v Ukraine (2006) 42 EHRR 784 the Court considered whether a residence requirement could be imposed before a refugee from the Ukraine living in the United States could stand for election to the Parliament.
As mentioned above (para 61), the Court looked at the practice of some 40 Council of Europe States, all of which had a nationality requirement together with (in about half of the States) a residence requirement for participation in elections by expatriate citizens as regards at least one chamber.
It treated the International Covenant as expressing the relevant international law on the subject.
The Court accepted that a residence requirement was compatible with Article 3, but concluded that the electoral commissions decision that the applicant was not resident was unlawful.
On the hearing of this appeal the parties did not provide any comparative material on the practice of the Contracting States, but the website of the Inter Parliamentary Union has a table of the conditions for voting and for standing for election, which confirms what was said in Melnychenko v Ukraine.
There does not appear to be a single member of the Council of Europe which does not impose a citizenship requirement (in some cases coupled with a residence requirement).
Py v France (2005) 42 EHRR 548 does not justify the appellants argument that the Court has implicitly recognised that a person who was not a citizen was within the scope of Article 3 of the First Protocol.
New Caledonia was a French overseas territory, and as part of its move towards self determination the French Constitution was amended to provide for a referendum on self determination in the territory.
A French law provided that persons resident in New Caledonia since 1988 would have the right to vote in the referendum.
There was an identical qualification for obtaining citizenship.
A French national was appointed to a university post in New Caledonia in 1995, and claimed the right to vote in the referendum although he had not been resident there since 1988.
It was held that the residence requirement pursued a legitimate aim and that although a ten year requirement might have seemed disproportionate, local requirements (Article 63, now Article 56) justified the restrictions.
There was therefore no breach of Article 3 of the First Protocol (or of Article 14 of the Convention).
This is not a decision that non citizens have a right to vote or stand for election.
It was simply a decision that the length of residence required by the French law as a qualification for voting in the referendum was justified by local requirements.
In view of New Caledonias transitional status the right to vote was given to the population defined by reference to 10 years residence, which was identical to the citizenship requirement.
The Court specifically referred (at [46]) to the need to ensure citizen participation and knowledge in framing rules on voting eligibility.
Consequently both in international law, as reflected in the International Covenant and in the practice of States, and under the European Convention, as reflected in the decisions of the Strasbourg Court and in the practice of the members of the Council of Europe, it is citizens, and not non resident aliens, who have the right to vote and stand for election.
There may be some exceptional cases, for example where citizenship is withheld on, for example, linguistic grounds from communities who have been settled on the territory of a State for several generations: see Venice Commission Explanatory Report, para 1.16b.
But the general rule is clear.
Sark is not an entity in international law and has no separate citizenship.
It is entitled to restrict the right to stand for election to persons who are entitled to vote (which requires 12 months residence or registration in the rating register as the possessor of land) and who are not aliens within the meaning of United Kingdom law, where an alien is a person who is neither a Commonwealth citizen nor a British protected person nor a citizen of the Republic of Ireland: British Nationality Act 1981, section 50(1).
Article 3 does not require a justification for qualifications which are stricter for standing for election than for voting.
As already indicated, it is well established that stricter requirements may be imposed on the eligibility to stand for election to parliament, as distinguished from voting eligibility: Melnychenko v Ukraine (2006) 42 EHRR 39, para 57; Zdanoka vs Latvia (2007) 45 EHRR 478, para 106 (Grand Chamber).
Historical and political factors have determined the definition of alien in United Kingdom law.
The concept of Commonwealth citizenship is of course very wide, but eligibility is limited to those with a genuine connection with Sark in the form of residence or ownership of property.
It is clear that in the light of those factors and the breadth of the margin of appreciation, the exclusion of aliens from eligibility to stand for election is justifiable.
Articles 14 and 16 of the Convention
Nor does Article 14 assist the appellants.
Article 14 provides that the enjoyment of the rights and freedoms set forth in [the] Convention shall be secured without discrimination on any ground The crucial element under Article 14 is that the discrimination must be in the enjoyment of the rights under the Convention.
The applicant must have a Convention right before he can complain of discrimination: Moustaquim vs Belgium (1991) 13 EHRR 802, and contrast Gaygusuz vs Austria (1996) 23 EHRR 364.
As the Court said in, for example, Aziz v Cyprus (2005) 41 EHRR 164, paras 35 36: The Court further observes that Article 14 has no independent existence, but plays an important role by complementing the other provisions of the Convention and the Protocols, since it protects individuals, placed in similar situations, from any discrimination in the enjoyment of the rights set forth in those other provisions.
Where a substantive Article of the Convention has been invoked, both on its own and together with Article 14, and a separate breach has been found of the substantive Article, it is not generally necessary for the Court to consider the case under Article 14 also, though the position is otherwise if a clear inequality of treatment in the enjoyment of the right in question is a fundamental aspect of the case.
Consequently, where there is a breach of Article 3, it has not normally been necessary to deal with Article 14: e.g. Matthews v United Kingdom (1999) 28 EHRR 361, para 68; Hirst v United Kingdom (No 2) (2006) 42 EHRR 41, para 87; Tanase v Moldova [2008] ECHR 1468, para 116.
Podkolzina v Latvia [2002] ECHR 405, para 42; Sadak v Turkey (No 2) (2003) 36 EHRR 23, para 47; Melnychenko v Ukraine (2006) 42 EHRR 784, para 71.
So also where the claim under Article 3 is dismissed and the complaint under Article 14 is essentially the same, it will not be necessary to consider Article 14: Mathieu Mohin (1988) 10 EHRRI, para 59; Sukhovetskyy v Ukraine (2007) 44 EHRR 57, para 76.
Aziz v Cyprus (2005) 41 EHRR 164 is an example of a case where there was a separate breach of Article 14, because the applicant was excluded from the electoral register because he was a member of the Turkish Cypriot community.
The complaint under Article 14 was not a mere restatement of the applicants complaint under Article 3 of the First Protocol.
The applicant was a Cypriot national, resident in the Government controlled area of Cyprus.
The difference in treatment in that case resulted from the very fact that the applicant was a Turkish Cypriot.
The present case is not a case of discrimination in this sense.
There was some discussion in argument of the relevance of Article 16 of the Convention to the present appeal.
It provides that nothing in Articles 10, 11 and 14 shall be regarded as preventing the High Contracting Parties from imposing restrictions on the political activity of aliens.
Article 16 is of very limited scope.
It applies only to Articles 10, 11 and 14, and has been held not to apply to non nationals who are citizens of EU countries: Piermont v France (1995) 20 EHRR 301.
Because aliens do not have a right under Article 3 of the First Protocol to stand for election, there is no scope for the operation of Article 16.
The applicability of the Human Rights Act 1998
The respondents accept that to the extent that the Reform Law breaches Convention rights, then the appellants are entitled to relief in these proceedings.
That is because the respondents expressly advised Her Majesty to approve the Reform Law on the ground that it did not involve any breach of the obligations of the United Kingdom under the Convention: R v Secretary of State for the Home Department, Ex p Launder [1997] 1 WLR 839, 867, per Lord Hope of Craighead.
Consequently the decision of the Committee for the Affairs of Jersey and Guernsey and the Order in Council are subject to judicial review: R (Bancoult) v Secretary of State for Foreign and Commonwealth Affairs (no. 2) [2009] 1 AC 453, para 35 (Lord Hoffmann) and para 105 (Lord Rodger of Earlsferry).
The Human Rights Act 1998 contains no provision as to its territorial scope, except that section 22(6) provides that it extends to Northern Ireland.
As already mentioned, amendments to extend the Act to the Channel Islands and the Isle of Man were rejected or withdrawn during the passage of the Act.
The appellants contend that the courts of this country also have the power and the duty to grant relief on the basis that the respondents were acting as public authorities for the purposes of section 6 of the Human Rights Act 1998 when recommending the Order in Council by which the Reform Law was given Royal Assent.
The respondents position is that the Act does not apply because (a) it was not intended to apply to obligations of the United Kingdom assumed under Article 56 (formerly Article 63) of the Convention, and Article 4 of the First Protocol, in respect of compliance with the Convention in territories for the international relations of which it is responsible; and (b) in any event the respondents were not acting as public authorities of the United Kingdom for the purposes of section 6 of the Act, but were acting to advise Her Majesty in respect of her role as sovereign of the Bailiwick of Guernsey.
Wyn Williams J accepted both points: [2008] 3 WLR 867, paras 89 96.
The Court of Appeal agreed with Wyn Williams J on the first point, but disagreed on the second point: Pill LJ: [2009] 2 WLR 1205, paras 106 109.
The appellants accepted in the hearing before the Appellate Committee that the point was academic, but drew attention to the fact that the House of Lords was prepared to address such points if they were of general importance: R v Secretary of State for the Home Department, Ex p Salem [1999] 1 AC 450, 456 457.
In R (Quark Fishing Ltd) v Secretary of State for Foreign and Commonwealth Affairs [2006] 1 AC 529 the Secretary of State had instructed the Commissioner of South Georgia to issue fishing licences to two specified vessels, which had the effect that the claimants vessel did not receive a licence.
The claimant sought judicial review and damages for deprivation of a possession under Article 1 of the First Protocol.
The Convention had been extended to South Georgia and the South Sandwich Islands, but not the First Protocol.
The instruction was quashed on the ground of procedural unfairness: [2002] EWCA Civ 1409.
The question before the House of Lords was whether the claimant could sue for damages under sections 6 and 7 of the Human Rights Act 1998.
As in the present appeal, this was taken to involve two issues, failure on either of which was fatal to the claim.
The first issue was whether the instruction had been issued by the Crown in right of the United Kingdom, or in right of South Georgia and the Sandwich Islands.
In the latter event the Secretary of State acting on behalf of HM the Queen would not be a United Kingdom public authority for the purposes of section 6.
The second issue was whether the claimant had established breach of a Convention right for the purposes of section 7 of the Human Rights Act.
On the first issue it was held by a majority that the instruction had been given by the Crown acting through the Secretary of State in the context of South Georgia and the South Sandwich Islands, and Secretary of State had acted on behalf of HM the Queen in right of that territory and not of the United Kingdom.
For the majority the question was the constitutional standing of the instruction: at para 19, per Lord Bingham, para 64, per Lord Hoffmann, and para 79, per Lord Hope.
The argument for the claimant that the instruction was given in the interests of the United Kingdom was rejected on the basis that whether the Secretary of States decision was motivated by the wider political and diplomatic interests of the United Kingdom was unsuitable for judicial determination (at para 18, per Lord Bingham), the court was neither concerned nor equipped to decide in whose interests the act was done (at para 64, per Lord Hoffmann); or that, although the question might be justiciable, for it to be explored would give rise to great uncertainty; it was irrelevant because the question was simply in what capacity the instruction was given by the Crown: at paras 78 79, per Lord Hope.
Lord Nicholls of Birkenhead and Baroness Hale, dissenting, considered that the capacity in which the Crown acted was irrelevant: paras 45 46, 94 95.
Baroness Hale of Richmond said that to treat capacity as decisive, when the legality of the instruction could be raised in United Kingdom courts, and when the Secretary of State was answerable, if at all, to the United Kingdom Parliament, would be a surrender of substance to form.
The authority of the majority was weakened when in R (Bancoult) v Secretary of State for Foreign and Commonwealth Affairs (no. 2) [2009] 1 AC 453, para 46 Lord Hoffmann said that, in the light of Finnis, Common Law Constraints: Whose Common Good Counts? (2008) Oxford Legal Studies Research Paper 10/2008 (criticising the decision of the House of Lords in Quark and of the Court of Appeal in Bancoult [2008] QB 365), he thought that Lord Nicholls was right.
Since it is agreed that this issue does not arise on the present appeal, it is not necessary to say more than that, as matters now stand, the approach laid down by the then majority of the House of Lords leads to the conclusion that the decisions of the Committee for the Affairs of Jersey and Guernsey and the Privy Council were taken as part of the constitutional machinery of the Bailiwick of Guernsey and of Sark for the approval and enactment of Laws in Sark, and that the fact that the decisions were taken by Ministers of the Crown who took into account the international obligations of the United Kingdom is irrelevant.
It would be quite wrong for the approach in Quark to be revisited on an appeal (particularly with a panel of five) in which it does not arise, and in which it is not argued that Quark was wrongly decided and ought to be reconsidered.
The second issue in Quark was whether the claimant had established breach of a Convention right for the purposes of section 7 of the Human Rights Act.
Lord Nicholls considered that, even if the First Protocol had been extended to South Georgia and the South Sandwich Islands, the claimants would not have had a Convention right on which they claim damages under the Human Rights Act.
He said at para 36: The Human Rights Act is a United Kingdom statute.
The Act is expressed to apply to Northern Ireland: section 22(6).
It is not expressed to apply elsewhere in any relevant respect.
What, then, of Convention obligations assumed by the United Kingdom in respect of its overseas territories by making a declaration under article 56? In my view the rights brought home by the Act do not include Convention rights arising from these extended obligations assumed by the United Kingdom in respect of its overseas territories.
I can see no warrant for interpreting the Act as having such an extended territorial reach.
If the United Kingdom notifies the Secretary General of the European Council that the Convention shall apply to one of its overseas territories, the United Kingdom thenceforth assumes in respect of that territory a treaty obligation in respect of the rights and freedoms set out in the Convention.
But such a notification does not extend the reach of sections 6 and 7 of the Act.
The position is the same in respect of protocols
Lord Hoffmann came to the same view on this point: The Act is concerned only with the Convention as it applies to the United Kingdom and not by extension to other territories: para 62.
Lord Hope emphasised that the United Kingdom government would not be answerable in Strasbourg if the international obligation had not been extended to the overseas territory, but he said that he agreed with Lord Nicholls: para 93.
Lord Bingham expressed no view on this point: para 26.
Baroness Hale left the question open: para 98.
Lord Hoffmann in R (Bancoult) v Secretary of State for Foreign and Commonwealth Affairs (no. 2) [2009] 1 AC 453, para 48, reiterated his view, but that too was a case in which the Convention had not been extended to the overseas territory (the British Indian Ocean Territory).
In R (Al Skeini) vs Secretary of State for Defence [2008] 1 AC 153 Lord Bingham
said, at para 20, that it was not clear that the view of Lord Nicholls in Quark commanded majority support.
But Lord Brown (with whom Lord Carswell agreed: para 96) endorsed Lord Nicholls approach.
He said (at para 134): . there is a distinction between rights arising under the Convention and rights created by the Act by reference to the Convention.
A plain illustration of this arises from the temporal limitations imposed by the Act .
Another illustration is the Act's non applicability in article 56 cases.
Consider R (Quark Fishing Ltd) v Secretary of State for Foreign and Commonwealth Affairs .
Even had the UK extended article 1 of the First Protocol to [South Georgia and the South Sandwich Islands], no claim would have been available against the Secretary of State under the Act although the UK would clearly have been liable internationally for any breach.
It is for the dependent territorys own legislation to give effect to Convention rights, just as for Jersey, Guernsey and the Isle of Man.
I would therefore dismiss the appeal.
This is a case, by contrast with those in which the point has been canvassed, where the relevant Convention obligation has been extended to a dependency.
But this point does not arise for decision on this appeal for the principal reason that it was conceded that there was jurisdiction to determine the lawfulness of the decisions of the Committee and the Privy Council.
It might conceivably have arisen on the question of remedy, but that too would not arise on the view of the merits expressed in this judgment.
In addition there would have been a separate ground for the non applicability of the Human Rights Act, namely the capacity in which the decisions were taken.
Consequently it would also be wrong for the question whether the claimant had established breach of a Convention right to be decided on an appeal where it does not arise and would be an academic question.
LORD HOPE
I am in full agreement with the opinion of Lord Collins.
I wish to add a few comments on two points only.
First, while I agree that some of what Dr Slivnik (who appeared in person) said in his brief address was not relevant to the outcome of this appeal, he did bring vividly to life what it means to live in a small island community.
He said that Sark works so well because of its small size.
That was why it was possible to achieve such a high degree of democracy in such a small society, where everyone knows everyone else.
His experience since coming to live there was that it was possible for someone to make a much greater contribution to public life than he had found anywhere else.
It was a place where one could go round and talk to people.
One could have much greater direct access to the legislators.
This led to two considerations which he wished to stress.
The first was that it would be in conflict with democracy in a small society to vest too much power in individuals.
The powers that the Reform Law gave to the Seneschal, the highest paid official on the island, were disproportionate.
The second was that, as membership of the Chief Pleas was unpaid, there was a very real problem in attracting able and willing candidates for election.
The fact that so few tenants had expressed an interest in standing tended to reinforce his perception that the Seneschal had too much power.
He himself was keen to volunteer for public life.
But he was prevented from doing so because, as an alien, he was not entitled to stand for election.
He said that the greatest prospect in achieving reforms that were truly in the best interests of democracy lay in quashing the Reform Law, so that the 1951 Law could be restored and more time given to the process of reform.
The answer to these points lies, as Lord Collins has explained so carefully, in the principles that are to be derived from Article 3 of the First Protocol.
As he has said, electoral rules have to be looked at in the round and in the light of each states own historical and political factors.
Taken in the round, having regard to the things that the Seneschal can and cannot do and to the potential means of addressing any abuse, the powers that are given to him are well within the margin of appreciation allowed by that article.
Dr Slivniks frustration at not being eligible for election is readily understandable.
But there is ample authority for the proposition that the Chief Pleas decision granting the right to stand for elections only to those who are citizens of Sark was well within that margin of appreciation also.
I agree that the appeal must be dismissed.
Second, I wish to clear up any uncertainty which my remarks in R (Quark Fishing Ltd) v Secretary of State for Foreign and Commonwealth Affairs [2006] 1 AC 529, paras 92 93 may have caused; see paras 109 110 above.
As I stated in para 93 of my opinion in that case, I was in full agreement with what Lord Nicholls of Birkenhead said about the territorial scope of the Human Rights Act 1998.
This extended to para 36 of his opinion, where he said that notification by the United Kingdom that the Convention was to apply to its overseas territories did not extend the reach of the Act to those territories.
I would respectfully endorse the observation by Pill LJ in the Court of Appeal [2009] 2 WLR 1205, para 105 that my own remarks should not be interpreted as meaning that notification attracted the application of the Act.
What I was seeking to show, as an additional reason for agreeing with Lord Nicholls, was that notification under article 56 or, as the case may be, article 4 of the First Protocol was a pre condition for a consideration of that issue and that on the facts of that case this condition could not be satisfied.
LORD SCOTT
I am in full agreement with the reasons Lord Collins gives for dismissing this appeal.
I can add nothing useful and for the reasons he gives I would do likewise.
LORD BROWN
I have read Lord Collins judgment and regard it as convincing and definitive on all the issues we have to decide.
With regard to the applicability of the Human Rights Act 1998, to my mind the most interesting question debated before us, tempted though I have been to address it, I am persuaded by Lord Collins (see paras 100 111 of his judgment) that it would not be right to succumb.
LORD NEUBERGER
I have read the magisterial judgment of Lord Collins and agree with it.
Accordingly, I too would dismiss this appeal.
| UK-Abs | Sark is an island in the Channel Islands of about 600 inhabitants.
In this appeal, Sir David and Sir Frederick Barclay sought to challenge new constitutional arrangements in Sark contained in the Reform (Sark) Law 2008.
Under the Reform Law, the electorate (of about 500 people) vote for 28 members of Sarks legislature, which is called the Chief Pleas.
But there are two members of the Chief Pleas who are not elected.
The first is the Seigneur (or Lord) of Sark, who holds a title first granted by Queen Elizabeth I in the sixteenth century.
Although he may speak, the Seigneur cannot vote at any meeting of the Chief Pleas, but he does have a power temporarily to veto Ordinances of the Chief Pleas.
The second is the Seneschal (or Steward), whose office was created by the Crown in the seventeenth century.
The Seneschal convenes meetings of and presides over the Chief Pleas, but has no power to speak in debates or to vote.
Historically, both the Seigneur and the Seneschal were able to vote in the Chief Pleas.
The Barclay brothers argued that the position of the Seigneur and the Seneschal, under the new arrangements, was incompatible with Article 3 of the First Protocol to the European Convention on Human Rights, which protects the free expression of the opinion of the people in the choice of the legislature.
They argued that the effect of that Article is that all members of a single chamber legislature must be elected members.
An appeal was also brought by Dr Tomas Slivnik, who wanted to stand for election to the Chief Pleas.
He argued that the Reform Law discriminated against him contrary to the European Convention.
He said that this was because, even though he had a right to vote as a resident, he nevertheless did not have a right to stand for election as he was a citizen of Slovenia.
The Supreme Court held that the unelected position of the Seigneur and the Seneschal was not incompatible with Article 3 of the First Protocol to the European Convention on Human Rights.
It held also that the restriction on Dr Slivniks standing for election complied with his Convention rights.
The appeals were unanimously dismissed.
The leading judgment was given by Lord Collins, with whom the other Justices (Lords Hope, Scott, Brown and Neuberger) agreed. [ As to whether the position of the Seneschal and the Seigneur in the Chief Pleas of Sark, as provided for in the Reform Law, was a breach of Article 3 of the First Protocol to the European Convention on Human Rights: There was no invariable rule in Article 3 of the First Protocol that all members of a legislature had to be elected irrespective of their powers and irrespective of the circumstances [67], [70].
Until 1922 the composition of the Chief Pleas reflected the feudal system in Sark and between 1922 and 2008 the feudal Tenants dominated the Chief Pleas.
Against that background, and in light generally of the constitutional history and the political factors relevant to Sark, the position of the Seigneur and the Seneschal was well within the margin of appreciation given to Contracting States to the Convention under Article 3 of the First Protocol.
The free expression of the opinion of the people of Sark was not impeded by their membership of the Chief Pleas [71] [72], [74].
The Seigneurs power temporarily to veto legislation was proportionate and consistent with Article 3 of the First Protocol.
In reaching that conclusion, it was legitimate to take account of the fact that the power had not been used in modern times, and that the Seigneur had indicated it would only be used in very limited circumstances [78].
The Seneschals powers were those which any presiding officer would be given or would need.
His position could not realistically be said to impair the essence of the rights under Article 3 of the First Protocol [83].
As to whether the prohibition imposed by the Reform Law on persons who are aliens from standing for election to the Chief Pleas of Sark is a breach of the right under Article 3 of the First Protocol, read alone and / or in conjunction with Article 14 of the Convention: Under the European Convention, as reflected in the decisions of the Strasbourg Court and in the practice of the members of the Council of Europe, it is citizens, and not non resident aliens, who have the right to vote and stand for election.
There may be some exceptions, but the general rule is clear [93].
Article 3 of the First Protocol does not require a justification for qualifications which are stricter for standing for election than for voting.
Historical and political factors have determined the definition of alien in UK law.
Eligibility for standing for election in Sark was limited to those with a genuine connection with Sark in the form of residence or ownership of property.
It was clear that in the light of those factors and the breadth of the margin of appreciation, the exclusion of aliens from eligibility to stand for election was justifiable [95].
|
The Refugee Convention was drafted for a world scarred by long years of war crimes and other like atrocities.
There remain, alas, all too many countries where such crimes continue.
Sometimes those committing them flee abroad and claim asylum.
It is not intended that the Convention will help them.
However clearly in need of protection from persecution an asylum seeker may be, he is not to be recognised as a refugee where there are serious reasons for considering that (a) he has committed a crime against peace, a war crime, or a crime against humanity, as defined in the international instruments drawn up to make provision in respect of such crimes.
So states article 1F(a) of the Convention (and, for good measure, article 12(2)(a) of the Qualification Directive (2004/83/EC) this being implemented into domestic law by Regulations 2 and 7(1) of the Refugee or Person in Need of International Protection (Qualification) Regulations 2006 (SI 2006/2525)).
It is the Courts central task on the present appeal to determine the true interpretation and application of this disqualifying provision.
Who are to be regarded as having committed such a crime (war criminals as I shall generally refer to them) within the meaning of article 1F(a)? More particularly, assuming that there are those within an organisation who clearly are committing war crimes, what more than membership of such an organisation must be established before an individual is himself personally to be regarded as a war criminal?
It is common ground between the parties (i) that there can only be one true interpretation of article 1F(a), an autonomous meaning to be found in international rather than domestic law; (ii) that the international instruments referred to in the article are those existing when disqualification is being considered, not merely those extant at the date of the Convention; (iii) that because of the serious consequences of exclusion for the person concerned the article must be interpreted restrictively and used cautiously; and (iv) that more than mere membership of an organisation is necessary to bring an individual within the articles disqualifying provisions.
The question is, I repeat, what more?
As need hardly be stated, only if the decision maker in respect of a particular application for asylum correctly identifies and answers this question will he be in a position to decide, in all but the clearest cases, whether there are serious reasons for considering the asylum seeker to be disqualified as a war criminal under article 1F(a).
The particular context within which the question arises on the present appeal can be comparatively briefly stated.
A substantially fuller description of the facts can be found in the judgment below.
The respondent is a 28 year old Sri Lankan Tamil.
In 1992, at the age of 10, he became a member of the Liberation Tigers of Tamil Eelam (LTTE), the following year joining the LTTEs Intelligence Division.
At 16 he became team leader of a nine man combat unit, at 17 the leader of a 45 man platoon, on each occasion engaging in military operations against the Sri Lankan army, and on each being wounded.
At 18 he was appointed to lead a mobile unit responsible for transporting military equipment and other members of the Intelligence Division through jungles to a point where armed members of the Division could be sent in plain clothes to Colombo.
He continued to do this for some three years from September 2000 until early 2004 except for some two and a half months (from late April to early July 2002) when he was appointed one of the chief security guards to Pottu Amman, the Intelligence Divisions leader, whom he accompanied as a trusted aide on visits to the LTTE District Leader, Colonel Karuna, and other prominent LTTE members.
From early 2004 to September 2006 he served as second in command of the combat unit of the Intelligence Division.
In October 2006 he was sent incognito (in plain clothes and under an assumed name) to Colombo to await further instructions.
In December 2006 he learned that his presence in Colombo had been discovered and arrangements were made for him to leave the country.
On 7 February 2007 he arrived in the UK and two days later applied for asylum.
The respondents application (and a subsidiary application for humanitarian protection based on the fear of mistreatment if returned) was refused on 14 September 2007 solely by reference to article 1F(a).
The core of the appellant Secretary of States reasoning appears in paragraphs 34 and 35 of the decision letter: 34 . [I]t is considered that you continued [during the six year period from the respondents 18th birthday until he left the intelligence wing of the LTTE] to operate within the LTTE and even gained promotions.
This shows that you were a voluntary member of the LTTE.
In this regard the case of Gurung [2002] UKIAT 04870 (starred) has been considered in which it was determined that voluntary membership of an extremist group could be presumed to amount to personal and knowing participation, or at least acquiescence, amounting to complicity in the crimes in question. 35.
Accordingly, it is concluded that your own evidence shows voluntary membership and command responsibility within an organisation that has been responsible for widespread and systemic war crimes and crimes against humanity.
From the evidence you have provided it is considered that there are serious reasons for considering that you were aware of and fully understood the methods employed by the LTTE.
By virtue of section 83 of the Nationality, Immigration and Asylum Act 2002, the appellants decision was unappealable: the respondent had been granted only six months leave to enter.
The respondent therefore sought judicial review.
Leave was eventually granted and an order made for the substantive challenge to be heard by the Court of Appeal.
On 30 April 2009, following a single days hearing on 25 February, the Court of Appeal quashed the appellants decision: [2009] EWCA Civ 364; [2010] 2 WLR 17.
Toulson LJ gave the sole reasoned judgment with which Waller LJ, Vice President of the Court of Appeal Civil Division, and Scott Baker LJ simply agreed.
In his lengthy and (right or wrong) impressive judgment, Toulson LJ disapproved certain aspects of the guidance given in the starred tribunal case of Gurung (on which the Secretary of State had relied), criticized parts of the UNHCRs approach, and reached the following main conclusions: Para 119: . [I]n order for there to be joint enterprise liability: (1) there has to have been a common design which amounted to or involved the commission of a crime provided for in the statute; (2) the defendant must have participated in the furtherance of the joint criminal purpose in a way that made a significant contribution to the crimes commission; and (3) that participation must have been with the intention of furthering the perpetration of one of the crimes provided for in the statute.
Para 123: .
I conclude that the Secretary of State failed to address the critical questions.
Given that it was the design of some members of the LTTE to carry out international crimes in pursuit of the organisations political ends, [the Secretary of State] acted on a wrongful presumption in para 34 of the decision letter that the claimant, as a member of the LTTE, was therefore guilty of personal and knowing participation in such crimes, instead of considering whether there was evidence affording serious reason for considering that he was party to that design, that he had participated in a way that made a significant contribution to the commission of such crimes and that he had done so with the intention of furthering the perpetration of such crimes.
The fact that he was a bodyguard of the head of the intelligence wing . shows that he was trusted to perform that role, but not that he made a significant contribution to the commission of international crimes or that he acted as that persons bodyguard with the intention of furthering the perpetration of international crimes.
Reference was made by the Secretary of State . to his command responsibilities in a combat unit, but there was no evidence of international crimes committed by the men under his command for which he might incur liability under article 28.
His own engagement in non criminal military activity was not of itself a reason for suspecting him of being guilty of international crimes.
That reference to article 28 is to the Rome Statute of the International Criminal Court (the ICC Statute) which Toulson LJ (at para 115) had said, correctly in my view, should now be the starting point for considering whether an applicant is disqualified from asylum by virtue of article 1F(a) and upon which Toulson LJ had already drawn in stating his view (at para 119, set out above) of the constituents of joint enterprise liability.
It is convenient to go at once to the ICC Statute, ratified as it now is by more than a hundred States and standing as now surely it does as the most comprehensive and authoritative statement of international thinking on the principles that govern liability for the most serious international crimes (which alone could justify the denial of asylum to those otherwise in need of it).
Although (by article 5) the ICC Statute confers on the Court (established by article 1) jurisdiction also with respect to the crime of genocide and (once provision is adopted to define it) the crime of aggression, it is crimes against humanity and war crimes to which article 1F(a) is directed.
Crimes against humanity are defined in article 7 which lists a series of criminal acts and states them to be crimes against humanity when committed as part of a widespread or systematic attack directed against any civilian population, with knowledge of the attack.
Article 8 defines war crimes by reference to an extensive list of wrongful acts and confers jurisdiction on the Court in respect of such crimes in particular when committed as part of a plan or policy or as part of a large scale commission of such crimes.
The requirement that the listed criminal acts are widespread (the chapeau requirement as it has been called) needs no further consideration here nor, indeed, is it necessary to consider the detailed criminal acts listed.
On the evidence before her the Secretary of State was amply entitled to conclude that the LTTE in general, and the Intelligence Division in particular, were guilty of widespread such criminal acts and atrocities, the most obvious perhaps being suicide bombings, attacks upon civilians, assassinations, kidnappings and the forcible recruitment of children.
I can therefore pass at once to articles 25 and 30 of the ICC Statute, those most central to the issue now before the Court.
Article 25 (headed Individual criminal responsibility) includes within its provisions: 3.
In accordance with this Statute, a person shall be criminally responsible and liable for punishment for a crime within the jurisdiction of the Court if that person: (a) Commits such a crime, whether as an individual, jointly with another or through another person, regardless of whether that other person is criminally responsible; (b) Orders, solicits or induces the commission of such a crime which in fact occurs or is attempted; (c) For the purpose of facilitating the commission of such a crime, aids, abets or otherwise assists in its commission or its attempted commission, including providing the means for its commission; (d) In any other way contributes to the commission or attempted commission of such a crime by a group of persons acting with a common purpose.
Such contribution shall be intentional and shall either: (i) Be made with the aim of furthering the criminal activity or criminal purpose of the group, where such activity or purpose involves the commission of a crime within the jurisdiction of the Court; or (ii) Be made in the knowledge of the intention of the group to commit the crime; .
Article 30 (headed Mental element) provides: 1.
Unless otherwise provided, a person shall be criminally responsible and liable for punishment for a crime within the jurisdiction of the Court only if the material elements are committed with intent and knowledge. 2.
For the purposes of this article, a person has intent where: (a) In relation to conduct, that person means to engage in the conduct; (b) In relation to a consequence, that person means to cause that consequence or is aware that it will occur in the ordinary course of events. 3.
For the purposes of this article, knowledge means awareness that a circumstance exists or a consequence will occur in the ordinary course of events.
Know and knowingly shall be construed accordingly.
I should also refer briefly to article 28 under the heading Responsibility of commanders and other superiors.
Essentially this provides that military commanders and other superiors shall be criminally responsible for crimes committed by forces under their effective command and control, or subordinates under their effective authority and control, as a result of their failure to exercise proper control over such forces or subordinates, where they knew or should have known that such crimes were being or were about to be committed and where they failed either to take all necessary and reasonable measures to prevent them or subsequently to submit them to the competent authorities for investigation and prosecution.
I would mention at this stage two other international instruments.
First, the Qualification Directive (2004/83/EC) which provides a common standard for the application of the Refugee Conventions requirements across the EUs 27 Member States.
As already noted, article 12(2)(a) precisely mirrors article 1F(a) itself.
Article 12(3), however, provides in addition that article 12(2) applies to persons who instigate or otherwise participate in the commission of the crimes or acts mentioned therein.
The effect of article 12(3) has been helpfully considered by the German Federal Administrative Court in BVerwG 10C 48.07, judgment dated 14 October 2008: 21.
In the case of the activities of terrorist organisations in particular, the question additionally arises as to attribution.
Under Article 12(3) of Directive 2004/83EC, the reasons for exclusion also apply to persons who instigate or otherwise participate in the mentioned crimes or acts.
Thus the person seeking protection need not have committed the serious non political crime himself, but he must be personally responsible for it.
This must in general be assumed if a person has committed the crime personally, or made a substantial contribution to its commission, in the knowledge that his or her act or omission would facilitate the criminal conduct (see Paragraph 18 of the UNHCR Guidelines).
Thus this principle covers not only active terrorists and participants in the criminal sense, but also persons who perform advance acts in support of terrorist activities. 22.
In this Courts opinion, all three prerequisites of fact are met in the case of a person who actively supported the armed struggle of a terrorist organisation.
Paragraph 18 of the UNHCR Guidelines On International Protection: Application of the Exclusion Clauses: Article 1F of the 1951 Convention relating to the Status of Refugees (the paragraph there referred to) reads: 18.
For exclusion to be justified, individual responsibility must be established in relation to a crime covered by Article 1F.
In general individual responsibility flows from the person having committed, or made a substantial contribution to the commission of the criminal act, in the knowledge that his or her act or omission would facilitate the criminal conduct.
The individual need not physically have committed the criminal act in question.
Instigating, aiding and abetting and participating in a joint criminal enterprise can suffice.
The other important international instrument to be noted is the Statute of the International Criminal Tribunal for the former Yugoslavia (ICTY), articles 2 5 of which define comparatively succinctly the war crimes which it governs.
Article 7 then sets out the principles for determining individual criminal responsibility.
These include: 1.
A person who planned, instigated, ordered, committed or otherwise aided and abetted in the planning, preparation or execution of a crime referred to in articles 2 to 5 of the present Statute, shall be individually responsible for the crime. 2. [Article 7(2) is concerned with Heads of State or Government, or responsible government officials.] 3. [Article 7(3) is concerned with the criminal responsibility of superiors for the criminal acts of their subordinates and is comparable, therefore, to article 28 of the ICC Statute.] 4.
The fact that an accused person acted pursuant to an order of a Government or of a superior shall not relieve him of criminal responsibility, but may be considered in mitigation of punishment if the International Tribunal determines that justice so requires.
As was noted by the court below, the principles on which a person may incur criminal responsibility through participation in a joint criminal enterprise essentially, therefore, responsibility pursuant to article 7(1) of the ICTY Statute have been considered by the ICTY Appeals Chamber in a series of cases.
These begin with Prosecutor v Tadic, 15 July 1999, (1999) 9 IHRR 1051 where the Chamber identified from the post World War II war crimes jurisprudence about common criminal purpose three distinct categories of collective criminality.
First, the usual sort of joint enterprise case where all the co defendants have the same criminal intent and each plays a part in executing the crime (paras 196 201).
Second, the so called concentration camp cases where all those in authority who participate in enforcing the repressive system are to be regarded as co perpetrators of the war crime of ill treatment really a variant of the first category as the Chamber itself recognised (paras 202 203).
Third, cases where the principal offender commits an offence outside the common design but where the defendant foresaw and knowingly took the risk of its occurrence (para 204) the standard basis for secondary liability for joint enterprise criminality under domestic law.
Describing the actus reus for each of the 3 categories of collective criminality the Chamber noted (para 227): (iii) Participation of the accused in the common design involving the perpetration of one of the crimes provided for in the Statute . need not involve commission of a specific crime under one of those provisions (for example, murder, extermination, torture, rape, etc) but may take the form of assistance in, or contribution to, the execution of the common plan or purpose.
Turning then to the required mens rea the Chamber said (para 228): By contrast, the mens rea element differs according to the category of common design under consideration.
With regard to the first category, what is required is the intent to perpetrate a certain crime (this being the shared intent on the part of all co perpetrators).
With regard to the second category (which, as noted above, is really a variant of the first), personal knowledge of the system of ill treatment is required (whether proved by express testimony or a matter of reasonable inference from the accuseds position of authority), as well as the intent to further this common concerted system of ill treatment.
For my part I have not found the Tadic three part categorisation of collective criminality especially helpful.
The third category has no present relevance: it is not suggested here that the Tamils war crimes were committed outside the common design of such part of the LTTEs (or its Intelligence Divisions) organisation as were directly responsible for them.
Such crimes were clearly committed intentionally as a means of furthering their aims.
As for category 2, this, as Tadic itself recognises, is just an illustration of how category 1 liability may be engaged, a particular case of joint enterprise criminal responsibility.
The real question is how category 1 applies in a case like this.
More recently, in Prosecutor v Brjanin (unreported) 3 April 2007, the ICTY Appeals Chamber re asserted that, although the accused need not have performed any part of the actus reus of the crime, he had to have participated in furthering the common purpose at the core of the criminal enterprise and not every type of conduct would amount to a significant enough contribution to the crime for this to create criminal liability (para 427) JCE [joint criminal enterprise] is not an open ended concept that permits convictions based on guilt by association (para 428). (The later ICTY Tribunal decision in Prosecutor v Krajinik (unreported) 17 March 2009 considered by the court below at paras 45 51 appears to me of little assistance here: Krajiniks criminal liability was based upon high governmental responsibilities, a very different factual scenario from what we are considering here.)
It is convenient next to turn to Gurung v Secretary of State for the Home Department [2003] Imm AR 115, the starred decision of the IAT (under its President, Collins J) on which the Secretary of States refusal decision was based in the present case.
It is necessary, I fear, to cite it at some length.
It was, after all, the only case to which the decision letter referred.
Having noted (at para 102) that in many article 1F cases an adjudicator will be faced with evidence that an individual is a member of an organisation committed to armed struggle or the use of violence as a means to achieve its political goals, the Tribunals judgment continued: 104.
The Tribunal has consistently stated that mere membership of such organisations is not enough to bring an appellant within the Exclusion Clauses: In the light of previous case law and the further materials now before us, we would highlight two further principles that should be borne in mind when considering complicity. 105.
One is that it would be wrong to say that an appellant only came within the Exclusion Clauses if the evidence established that he has personally participated in acts contrary to the provisions of Art 1F.
If the organisation is one or has become one whose aims, methods and activities are predominantly terrorist in character, very little more will be necessary.
We agree in this regard with the formulation given to this issue by UNHCR in their post September 11, 2001 document, Addressing Security Concerns without Undermining refugee Protection: UNHCRs Perspective, at paragraph 18: Where, however, there is sufficient proof that an asylum seeker belongs to an extremist international terrorist group, such as those involved in the 11 September attacks, voluntary membership could be presumed to amount to personal and knowing participation, or at least acquiescence amounting to complicity in the crimes in question.
In asylum procedures, a rebuttable presumption of individual liability could be introduced to handle such cases.
Drawing up lists of international terrorist organisations at the international level would facilitate the application of this procedural device since such certification at the international level would carry considerable weight in contrast to lists established by one country alone.
The position of the individual in the organisation concerned, including the voluntariness of his or her membership, as well as the fragmentation of certain groups would, however, need to be taken into account. 106.
That complicity in this type of case should be sufficient to bring an appellant within the Exclusion Clauses is necessary in order to adequately reflect the realities of modern day terrorism.
The terrorist acts of key operatives are often possible only by virtue of the infrastructure of support provided by other members who themselves undertake no violent actions.
As the US Court of Appeals, Ninth Circuit noted in McMullen v INS (1986) 788 F2d 591 at 599: We interpret both the convention and the [A]ct to permit deportation of individuals who commit serious, non political crimes, and we have concluded that this includes terrorist acts against ordinary citizens.
We refuse to interpret these documents to apply only to those who actually pulled the trigger, because we believe that this interpretation is too narrow.
In our judgment, the only reasonable interpretation of the exception is that it encompasses those who provide the latter with the physical, logistical support that enables modern, terrorist groups to operate. 107.
Likewise the Tribunal noted in Ozer (10922, May 1994) when considering the appeal of a person who had voluntarily joined and supported Dev Sol which, with reference to objective country materials on Turkey was described as then being an illegal party dedicated to violence, . then it is no use his asserting that he does not support its policy or methods.
If he does not endorse a central policy of the party he should not be a member of it: in any event his membership and contribution to the life of the party is indirect support for its violent acts. 108.
The other principle to be borne in mind is that whilst complicity may arise indirectly, it remains essential in all cases to establish that the appellant has been a voluntary member of such an organisation who fully understands its aims, methods and activities, including any plans it has made to carry out acts contrary to Art 1F.
Thus for example it would be wrong to regard the mere fact that an appellant has provided a safe house for LTTE combatants as sufficient evidence that he has committed an excludable offence.
If, however, he has transported explosives for LTTE combatants in circumstances where he must have known what they were to be used for, there may well be a serious 1F issue. 109.
We would also observe that international criminal law and international humanitarian law, which in our view should be the principal sources of reference in dealing with such issues as complicity, adopt similar although more detailed criteria in respect of those who for the purpose of facilitating an international crime aid, abet or otherwise assist in its commission or its attempted commission, including providing the means for its commission (see Art 25 of the International Criminal Court Statute and Art 7(1) of the ICTY Statute as analysed in the case of Tadic Case No.
IT 94 1 T, 7 May 1997).
Of course such reference will need to bear in mind the lower standard of proof applicable in Exclusion Clause cases. 110.
However, as the passage just cited from UNHCR highlights, even when complicity is established the assessment under Art 1F must take into account not only evidence about the status and level of the person in the organisation and factors such as duress and self defence against superior orders as well as the availability of a moral choice; it must also encompass evidence about the nature of the organisation and the nature of the society in which it operates.
Such evidence will need to include the extent to which the organisation is fragmented. 111.
Observing as we do that in certain past Tribunal cases, Karthirpillai (12250) being an unhappy example, adjudicators and the Tribunal have not always taken a contextual approach, we think it useful to consider cases along a continuum. 112.
On the one end of the continuum, let us postulate an organisation that has very significant support amongst the population and has developed political aims and objectives covering political, social, economic and cultural issues.
Its long term aims embrace a parliamentary, democratic mode of government and safeguarding of basic human rights.
But it has in a limited way or for a limited period created an armed struggle wing in response to atrocities committed by a dictatorial government.
In such a case an adjudicator should be extremely slow to conclude that an appellants mere membership of such an organisation raises any real issue under Art 1F, unless there is evidence that the armed actions of this organisation are not in fact proportionate acts which qualify as non political crimes within Art 1F(b) and, if they are not, that he has played a leading or actively facilitative role in the commission of acts or crimes undertaken by the armed struggle wing. 113.
At the other end of this continuum, let us postulate an organisation which has little or no political agenda or which, if it did originally have genuine political aims and objectives, has increasingly come to focus on terrorism as a modus operandi.
Its recruitment policy, its structure and strategy has become almost entirely devoted to the execution of terrorist acts which are seen as a way of winning the war against the enemy, even if the chosen targets are primarily civilian.
Let us further suppose that the type of government such an organisation promotes is authoritarian in character and abhors the identification by international human rights law of certain fundamental human rights.
In the case of such an organisation, any individual who has knowingly joined such an organisation will have difficulty in establishing he or she is not complicit in the acts of such an organisation.
Before coming to consider the correctness or otherwise of those paragraphs it is to be noted that the UNHCR have consistently followed the approach adopted in paragraph 18 of their post 9/11 Addressing Security Concerns without Undermining Refugee Protection: UNHCRs Perspective of 29 November 2001 (referred to in paragraphs 105 and 110 of Gurung as above).
Indeed, as recently as 8 December 2009, in a letter to the parties following the Court of Appeals judgment in this case, their Representative, Roland Schilling, stated (at page 5): In some instances, depending on the organisations purposes, activities, methods and circumstances, individual responsibility for excludable acts may be presumed if membership is voluntary, and when the members of such groups can be reasonably considered to be individually responsible for acts falling within the scope of article 1F(a).
For example, this would be the case where such activities involve indiscriminate killings or injury of the civilian population, or acts of torture, or where the person concerned is in control of the funds of an organisation that s/he knows is dedicated to achieving its aims through such violent crimes; or if the individual concerned contributed to the commission of excludable crimes by substantially assisting the organisation to continue to function effectively in pursuance of its aims.
However, caution must be exercised when such a presumption arises, as due consideration needs to be given to the individuals involvement and role, including his/her position; the voluntariness of his/her membership; his/her personal involvement or substantial contribution to the criminal act in the knowledge that his/her act or omission would facilitate the criminal conduct; his/her ability to influence significantly the activities of the group or organisation; and his/her rank and command responsibility.
Mr Schillings letter concludes: The exclusion clauses are intended to deny refugee status to certain persons who otherwise qualify as refugees but who are undeserving of refugee protection on account of the severity of the acts they committed.
It is important that the rigorous legal and procedural standards required of an exclusion analysis outlined above are followed carefully.
UNHCR shares the legitimate concern of States to ensure that there is no impunity for those responsible for crimes falling within article 1F(a) of the 1951 Convention.
Care needs to be taken to ensure a rigorous application in line with international refugee principles whilst avoiding inappropriate exclusion of refugees.
In particular, in cases involving persons suspected of being members of, associated with, or supporting an organisation or group involved in crimes that may fall under article 1F(a), where presumption of individual responsibility for excludable acts may arise, a thorough and individualised assessment must be undertaken in each case.
Due regard needs to be given to the nature of the acts allegedly committed, the personal responsibility and involvement of the applicant with regard to those acts, and the proportionality of return against the seriousness of the act.
The court below examined a number of domestic cases concerning article 1F, cases for the most part decided by the AIT.
To my mind the most assistance is to be found in the Court of Appeals judgment in KJ (Sri Lanka) v Secretary of State for the Home Department [2009] EWCA Civ 292, a case concerning a Tamil whose surveying and reconnaissance work in support of LTTE military operations enabled these more accurately to target the Sri Lankan forces.
Although the appellant was never involved in any conflict causing injury or death to civilians, the AIT nevertheless held him disqualified from refugee protection by reference to article 1F(c) it was common ground that acts contrary to the purposes and principles of the United Nations included acts of terrorism such as the deliberate killing of civilians holding the appellant must have known the type of organisation he was joining, its purpose and the extent to which the organisation was prepared to go to meet its aims.
Stanley Burnton LJ, giving the leading judgment allowing the appeal, said: 37.
The application of article 1F(c) will be straightforward in the case of an active member of [an] organisation that promotes its objects only by acts of terrorism.
There will almost certainly be serious reasons for considering that he has been guilty of [relevant] acts . 38.
However, the LTTE, during the period when [the appellant] was a member, was not such an organisation.
It pursued its political ends in part by acts of terrorism and in part by military action directed against the armed forces of the Government of Sri Lanka.
The application of article 1F(c) is less straightforward in such a case.
A person may join such an organisation, because he agrees with its political objectives, and be willing to participate in its military actions, but may not agree with and may not be willing to participate in its terrorist activities.
Of course, the higher up in the organisation a person is the more likely will be the inference that he agrees with and promotes all of its activities, including its terrorism.
But it seems to me that a foot soldier in such an organisation, who has not participated in acts of terrorism, and in particular has not participated in the murder or attempted murder of civilians, has not been guilty of acts contrary to the purposes and principles of the United Nations.
At this point in the judgment it seems to me worth noting that the court on this appeal has essentially three tasks.
The first, and easiest, is to decide whether the Court of Appeal was right to quash the refusal decision and remit the case for redetermination by the Secretary of State.
Secondly and less easily we must decide on the correctness of the principles laid down in Gurung and make such criticisms of its approach as seem appropriate.
Our third and to my mind altogether more difficult task is to decide whether the Court of Appeal was right to interpret war crimes liability under article 1F(a) as narrowly as para 119 of Toulson LJs judgment appears to do, essentially so as to encompass no more than joint enterprise liability akin to that in respect of domestic law crimes (extended where appropriate, when crimes go beyond the scope of the joint enterprise).
To some extent, of course, these three questions inter relate.
I shall seek, however, to address them separately. (1) Should the Secretary of States decision be quashed?
Although I wondered at the hearing whether, realistically, the Secretary of State could properly not have found on the facts of this case serious reasons for considering the respondent to be a war criminal, I have not thought it right to allow the Secretary of States appeal on this basis.
The plain fact is that, whatever view one takes on questions 2 and 3, the Secretary of States reasoning in the decision letter is insupportable.
It could not be said of the LTTE nor even, on the available evidence, of its Intelligence Division that as an organisation it was (it seems inappropriate in the light of recent events in Sri Lanka to continue speaking of the LTTE in the present tense) predominantly terrorist in character (Gurung para 105) or an extremist international terrorist group (para 18 of the UNHCRs Perspective, quoted in the same para 105).
There was accordingly no question of presuming (consistently with Gurung) that the respondents voluntary membership of this organisation amount[ed] to personal and knowing participation, or at least acquiescence, amounting to complicity in the crimes in question as para 34 of the decision letter stated.
Nor was the respondents command responsibility within the organisation a basis for regarding him as responsible for war crimes.
As Toulson LJ pointed out (para 123 of his judgment), the respondents command was of a combat unit and there was never any suggestion here of article 28 liability.
Nor, of course, as Stanley Burnton J noted in KJ (Sri Lanka), is military action against government forces to be regarded as a war crime.
Surely the better case against the respondent arises from the three years when he led a mobile unit transporting military equipment and personnel through the jungle so that members of the Intelligence Division could go armed in plain clothes to Columbo.
As para 108 of Gurung concluded: If, however, he has transported explosives for LTTE combatants in circumstances where he must have known what they were to be used for, there may well be a serious 1F issue.
(2) The Gurung approach
As noted at para 93 of Toulson LJs judgment, the appellant below did not on the surface challenge the guidance given by the IAT in Gurungs case.
There are, however, criticisms to be made of it and it should not in future be accorded the same oracular standing as it seems hitherto to have enjoyed.
In the first place, it is unhelpful to attempt to carve out from amongst organisations engaging in terrorism a sub category consisting of those whose aims, methods and activities are predominantly terrorist in character, and to suggest that membership of one of these gives rise to a presumption of criminal complicity: very little more will be necessary (Gurung para 105).
True it is that this approach finds support from the quoted paragraph 18 of the UNHCRs post 9/11 Perspective and, indeed, from a line of Canadian authority commencing with the decision of the Canadian Federal Court of Appeal in Ramirez v Canada (Minister of Employment and Immigration) (1992) 89 DLR (4th) 173, 180 where to MacGuigan JA it seem[ed] apparent . that where an organisation is principally directed to a limited, brutal purpose, such as a secret police activity, mere membership may by necessity involve personal and knowing participation in persecutorial acts.
Rather, however, than be deflected into first attempting some such sub categorisation of the organisation, it is surely preferable to focus from the outset on what ultimately must prove to be the determining factors in any case, principally (in no particular order) (i) the nature and (potentially of some importance) the size of the organisation and particularly that part of it with which the asylum seeker was himself most directly concerned, (ii) whether and, if so, by whom the organisation was proscribed, (iii) how the asylum seeker came to be recruited, (iv) the length of time he remained in the organisation and what, if any, opportunities he had to leave it, (v) his position, rank, standing and influence in the organisation, (vi) his knowledge of the organisations war crimes activities, and (vii) his own personal involvement and role in the organisation including particularly whatever contribution he made towards the commission of war crimes.
No doubt, as Stanley Burnton LJ observed in KJ(Sri Lanka), at para 37, if the asylum seeker was an active member of [an] organisation that promotes its objects only by acts of terrorism, [t]here will almost certainly be serious reasons for considering that he has been guilty of [relevant] acts.
I repeat, however, the nature of the organisation itself is only one of the relevant factors in play and it is best to avoid looking for a presumption of individual liability, rebuttable or not.
As the present case amply demonstrates, such an approach is all too liable to lead the decision maker into error.
The second major criticism to be made of Gurung relates to its introduction (at paras 111 113) of the idea of a continuum for war crimes cases.
The reality is that there are too many variable factors involved in each case, some militating one way, some the other, to make it helpful to try to place any given case at some point along a continuum.
But more troublingly still, the tribunal in these paragraphs introduces considerations which properly have no place at all in determining how article 1F applies.
Whether the organisation in question is promoting government which would be authoritarian in character or is intent on establishing a parliamentary, democratic mode of government is quite simply nothing to the point in deciding whether or not somebody is guilty of war crimes.
War crimes are war crimes however benevolent and estimable may be the long term aims of those concerned.
And actions which would not otherwise constitute war crimes do not become so merely because they are taken pursuant to policies abhorrent to western liberal democracies.
(3) The correct approach to article 1F
There can be no doubt, as indeed article 12(3) of the Qualification Directive provides, that article 1F disqualifies not merely those who personally commit war crimes but also those who instigate or otherwise participate in the commission of [such] crimes.
Article 12(3) does not, of course, enlarge the application of article 1F; it merely gives expression to what is already well understood in international law.
This is true too of paragraphs (b), (c) and (d) of article 25(3) of the ICC Statute, each of which recognises that criminal responsibility is engaged by persons other than the person actually committing the crime (by pulling the trigger, planting the bomb or whatever) who himself, of course, falls within article 25(3)(a).
Paragraph (b) encompasses those who order, solicit or induce (in the language of article 12(3) of the Directive, instigate) the commission of the crime; paragraph (c) those who aid, abet, or otherwise assist in its commission (including providing the means for this); paragraph (d) those who in any other way intentionally contribute to its commission (paras (c) and (d) together equating, in the language of article 12(3) of the Directive, to otherwise participat[ing] in the commission of the crime).
All these ways of attracting criminal liability are brought together in the ICTY Statute by according individual criminal responsibility under article 7(1) to anyone who planned, instigated, ordered, committed or otherwise aided and abetted in the planning, preparation or execution of the relevant crime.
The language of all these provisions is notably wide, appreciably wider than any recognised basis for joint enterprise criminal liability under domestic law.
That, it seems to me, is what the German court was saying, at para 21 of the BverwG judgment (cited at para 14 above) when holding that the exclusion covers not only active terrorists and participants in the criminal sense, but also persons who perform advance acts in support of terrorist activities.
It must surely be correct to say, as was also said in that paragraph, that article 1F disqualifies those who make a substantial contribution to the crime, knowing that their acts or omissions will facilitate it.
It seems to me, moreover, that Mr Schilling, the UNHCR Representative, was similarly correct to say in his recent letter that article 1F responsibility will attach to anyone in control of the funds of an organisation known to be dedicated to achieving its aims through such violent crimes, and anyone contributing to the commission of such crimes by substantially assisting the organisation to continue to function effectively in pursuance of its aims.
This approach chimes precisely with that taken by the Ninth Circuit in McMullen (see para 106 of Gurung cited above): [Article 1F] encompasses those who provide [the gunmen etc] with the physical, logistical support that enable modern, terrorist groups to operate.
Of course, criminal responsibility would only attach to those with the necessary mens rea (mental element).
But, as article 30 of the ICC Statute makes plain, if a person is aware that in the ordinary course of events a particular consequence will follow from his actions, he is taken to have acted with both knowledge and intent. (I would for this reason reject the respondents criticism of the omission from paragraph 21 of the German courts judgment of any separate reference to intent; that ingredient of criminal responsibility is already encompassed within the Courts existing formulation).
Similarly, and I think consistently with this, the ICTY Chamber in Tadic defines mens rea in a way which recognises that, when the accused is participating in (in the sense of assisting in or contributing to) a common plan or purpose, not necessarily to commit any specific or identifiable crime but to further the organisations aims by committing article 1F crimes generally, no more need be established than that the accused had personal knowledge of such aims and intended to contribute to their commission.
Returning to the judgment below with these considerations in mind, I have to say that paragraph 119 does seem to me too narrowly drawn, appearing to confine article 1F liability essentially to just the same sort of joint criminal enterprises as would result in convictions under domestic law.
Certainly para 119 is all too easily read as being directed to specific identifiable crimes rather than, as to my mind it should be, wider concepts of common design, such as the accomplishment of an organisations purpose by whatever means are necessary including the commission of war crimes.
Put simply, I would hold an accused disqualified under article 1F if there are serious reasons for considering him voluntarily to have contributed in a significant way to the organisations ability to pursue its purpose of committing war crimes, aware that his assistance will in fact further that purpose.
It would not, I think, be helpful to expatiate upon article 1Fs reference to there being serious reasons for considering the asylum seeker to have committed a war crime.
Clearly the Tribunal in Gurung (at the end of para 109) was right to highlight the lower standard of proof applicable in exclusion clause cases lower than that applicable in actual war crimes trials.
That said, serious reasons for considering obviously imports a higher test for exclusion than would, say, an expression like reasonable grounds for suspecting.
Considering approximates rather to believing than to suspecting.
I am inclined to agree with what Sedley LJ said in Yasser Al Sirri v Secretary of State for the Home Department [2009] EWCA Civ 222, para 33: [the phrase used] sets a standard above mere suspicion.
Beyond this, it is a mistake to try to paraphrase the straightforward language of the Convention: it has to be treated as meaning what it says.
In the result I would dismiss this appeal but vary the order below to provide that in re determining the respondents asylum application, the Secretary of State should direct himself in accordance with this Courts judgments, not those of the Court of Appeal.
LORD HOPE
There is always a risk, as one court after another seeks to formulate the principles that are to be applied in the interpretation of an international instrument, of making things worse, not better.
A misplaced word here or there can make all the difference between an interpretation that will be respected internationally because it accords with the true purpose of the instrument and one that will not.
Counsel for the Secretary of State said that until the judgment of the Court of Appeal in this case there was a significant degree of international consensus as to the correct approach to article 1F(a) of the Refugee Convention.
This was built largely on the jurisprudence of the Canadian courts as explained by the Immigration Appeal Tribunal in the starred case of Gurung v Secretary of State for the Home Department [2002] UKIAT 4870, [2003] Imm AR 115.
The Tribunals formulation was referred to with approval in Nagamany v Canada (Minister of Citizenship and Immigration), 2005 FC 1554, where the judge said that it provided excellent information as to how a decision maker should approach a case involving that article.
It was adopted by the UNHCR in their Background Note on Article 1F of the 1951 Convention relating to the Status of Refugees of 4 September 2003: para 61, fn 61.
And it was followed by the Court of Appeal in MH (Syria) v Secretary of State for the Home Department [2009] EWCA Civ 226, [2009] 3 All ER 564 and KJ (Sri Lanka) v Secretary of State for the Home Department [2009] EWCA Civ 292: see also DKN v Asylum and Immigration Tribunal [2009] CSIH 53.
Counsel submitted that the Court of Appeal in this case failed to explain why it was departing from that approach, and that the scope of article 1F(a) and the complicity doctrine was correctly stated in Gurung.
Like Lord Brown, I think that the guidance given in Gurung is not without its difficulties.
The Tribunal was, of course, right to stress that mere membership of an organisation that is committed to the use of violence for political ends is not enough to bring an appellant within the exclusion clauses: para 104.
As Toulson LJ observed in the Court of Appeal in this case, everyone is agreed on this point: [2009] EWCA Civ 364, [2010] 2 WLR 17, para 98.
The complicity doctrine, too, is well established in international law: McMullen v INS (1986) 788 F2d 591, 599; Ramirez v Canada (Minister of Employment and Immigration) (1992) 89 DLR (4th) 173, 178 180 per MacGuigan JA; the Rome Statute of the International Court, article 25(3)(c) and (d) and article 30; Prosecutor v Tadic 15 July 1999, ICTY; Prosecutor v Krajinik 17 March 2009, ICTY.
The problem lies in formulating what more is needed to bring the person within article 1F(a).
How close does the person need to get to these activities for the protection of the Convention not to apply to him?
The Tribunals mistake, it respectfully seems to me, was to say that if the organisation was or has become one whose aims, methods and activities are predominantly terrorist in character very little more will be necessary: para 105.
As the Tribunal explains later in the same paragraph, this proposition was based on the formulation by the UNCHR in their post 9/11 document Addressing Security Concerns without Undermining refugee Protection, para 18.
But it is a dangerous doctrine.
It leads people to think, as the Secretary of State did in this case, that voluntary membership of such a group gives rise to a presumption of personal and knowing participation, or at least acquiescence, amounting to complicity: para 34.
It diverts attention from a close examination of the facts and the need for a carefully reasoned decision as to precisely why the person concerned is excluded from protection under the Convention.
It is true that the Tribunals invitation to consider cases along a continuum reduces the force of the very little more will be necessary dictum at one end of it: para 112.
But it reinforces it at the other end: para 113.
Here too the Tribunals approach is liable to mislead.
Even in the case of the extremist organisation that is envisaged in para 113, joining it will not be enough to suggest complicity or that little more is required for it to be presumed.
This mistaken approach tends to infect the whole length of the continuum.
As Toulson LJ said in the Court of Appeal, para 114, the continuum approach takes the decision makers eye off the really critical question whether the evidence provides serious reasons for considering the applicant to have committed the actus reus of an international crime with the requisite mens rea.
It invites a less clearly focused judgment.
That was the trap that the Secretary of State fell into in this case.
I would therefore reject the Secretary of States submission that the complicity doctrine was correctly stated in Gurung.
The Court of Appeals criticisms of it seem to me to be well founded.
This leads inevitably to the question whether the approach which it sought to put in its place should be endorsed by this court.
Appeals judgment, where Toulson LJ said: I have no difficulty with the formulation in para 115 of the Court of The starting point for a decision maker addressing the question whether there are serious reasons for considering that an asylum seeker has committed an international crime, so as to fall within article 1F(a), should now be the Rome Statute.
The decision maker will need to identify the relevant type or types of crime, as defined in articles 7 and 8,; and then to address the question whether there are serious reasons for considering that the applicant has committed such a crime, applying the principles of criminal liability set out in articles 25, 28 and 30 and any other articles relevant to the particular case.
Article 12(3) of the Qualification Directive 2004/83/EC and article 7(1) of the ICTY Statute are founded on the same principles, which are wider than those that apply in domestic law for joint enterprise criminal liability.
As the German Federal Administrative Court said in BVerwG 10C 48.07, para 21: Thus this principle covers not only active terrorist and participants in the criminal sense, but also persons who perform advance acts in support of terrorist activities.
Had Toulson LJ stopped at para 115 I would not have been disposed to find fault with his judgment.
As it is, he went on to give further guidance to the decision maker which, as Lord Brown has indicated in para 38, appears to have been drawn too narrowly.
He was careful to base what he said on the provisions of the Rome Statute.
But the guidance was more elaborate than it needed to be.
He used the word participation, which does not appear in the relevant articles of the Rome Statute.
It tends to suggest a closer connection with the criminal act than the international law principle requires.
The German Administrative Court, in para 21 of its judgment, used the words personally responsible to express what, in international law, is the underlying concept: Thus the person seeking protection need not have committed the serious non political crime himself, but he must be personally responsible for it.
This must in general be assumed if a person has committed the crime personally, or made a substantial contribution to its commission, in the knowledge that his or her act or omission would facilitate the criminal conduct.
The court then added, by way of further explanation, the sentence which I have quoted in para 47, above.
The words substantial contribution indicate what is needed to attach personal responsibility for what was done.
I agree with Lord Brown that the German courts formulation encompasses the mental element that is required by article 30 of the Rome Statute: para 36, above.
Lord Brown puts the test for complicity very simply at the end of para 38 of his judgment.
I would respectfully endorse that approach.
The words serious reasons of considering are, of course, taken from article 1F itself.
The words in a significant way and will in fact further that purpose provide the key to the exercise.
Those are the essential elements that must be satisfied to fix the applicant with personal responsibility.
The words made a substantial contribution were used by the German Administrative Court, and they are to the same effect.
The focus is on the facts of each case and not on any presumption that may be invited by mere membership.
For these reasons, and those given by Lord Brown with which I entirely agree, I would dismiss the appeal.
I would make the order that Lord Brown proposes.
LORD RODGER
I agree with the judgment of Lord Brown.
For the reasons which he gives, and for the further reasons of Lord Hope and Lord Kerr, I would dismiss the appeal but vary the order below, as Lord Brown proposes.
LORD WALKER
I am in full agreement with the judgment of Lord Brown.
For the reasons that he gives, and for these further reasons given by Lord Hope and Lord Kerr, I would dispose of this appeal in the manner that Lord Brown proposes.
LORD KERR
For the reasons given by Lord Brown with which I am in complete agreement, I too would dismiss this appeal and vary the order of the Court of Appeal in the manner that he has suggested.
As Lord Brown has said, the critical question is what more is required beyond mere membership of an organisation which commits war crimes for a person to be excluded from the protection of the Refugee Convention.
It was suggested for the Secretary of State that in the case of an organisation which was not exclusively terrorist (in the sense that their only modus operandi was the commission of war crimes or crimes against humanity) the presence of the further necessary element apart from membership was to be determined by the examination of six factors: the nature of the organisation; the method of recruitment to it; the opportunity to leave it; the position and rank enjoyed by the individual concerned; the length of time that he had spent in the organisation; and his knowledge of the organisations atrocities.
I would be reluctant to accept that this list of factors provides the invariable and infallible prescription by which what I have described as the critical question is to be answered.
What must be shown is that the person concerned was a knowing participant or accomplice in the commission of war crimes etc.
The evaluation of his role in the organisation has as its purpose either the identification of a sufficient level of participation on the part of the individual to fix him with the relevant liability or a determination that this is not present.
While the six factors that counsel identified will frequently be relevant to that evaluation, it seems to me that they are not necessarily exhaustive of the matters to be taken into account, nor will each of the factors be inevitably significant in every case.
One needs, I believe, to concentrate on the actual role played by the particular person, taking all material aspects of that role into account so as to decide whether the required degree of participation is established.
The nature of the participation required has been described in various ways in the cases that Lord Brown has considered in his judgment.
In an Amicus Curiae Brief of Professor Antonio Cassese and members of the Journal of International Criminal Justice on Joint Criminal Enterprise Doctrine (for Case File No 001/18 07 2007 ECCC OCIJ) (2009) 20 CLF 289 it was suggested that the participation should be such as allowed the institution to function or that it allowed the crimes to be perpetrated or that it was an indispensable cog.
In Prosecutor v Krajinik 17 March 2009 it was stated that what matters in terms of law is that the accused lends a significant contribution to the crimes involved in the [joint common enterprise] (para 696).
Common to all these expositions is that there should be a participation that went beyond mere passivity or continued involvement in the organisation after acquiring knowledge of the war crimes or crimes against humanity.
The Canadian cases to which Lord Brown has referred seem for the most part to at least imply that the participative element involves either a capacity to control or at least to influence events.
They appear to contemplate a minimum requirement that the mind of the individual be given to the enterprise so that some element of personal culpability is involved.
A notable exception to this theme is to be found in the obiter statements in paragraph 16 of the judgment in Ramirez v Canada (Minister of Employment and Immigration) (1992) 89 DLR (4th) 173 where it is suggested that voluntary knowing participation can be assumed from membership of a brutal organisation.
These statements have not been relied on by the Secretary of State in this case and, in my judgment, wisely so.
The broad thrust of authority in this area is to contrary effect.
A focus on the actual participation of the individual, as opposed to an assumption as to its significance from mere membership, appears to me to accord more closely with that general trend and with the spirit of articles 25 and 30 of the ICC Rome Statute and article 12 (3) of Council Directive 2004/83/EC.
No consideration of the respondents personal role was undertaken here, however.
While it is true that the Secretary of State required only to be satisfied that there were serious grounds for considering that he had been involved in the relevant criminal activity, some examination of the respondents actual involvement was needed.
This inevitably involved recognition of the ingredients of the offences in which he was said to be complicit and of what it was about the known behaviour of the respondent that might be said to bring him to the requisite level of participation.
I do not consider that it is necessary to show that he participated (in the sense that this should be understood) in individual crimes but his participation in the relevant criminal activity can only be determined by focusing on the role that he actually played.
Only in this way can a proper inquiry be undertaken into the question whether the requirements of articles 25 and 30 of the ICC Rome Statute have been met.
It is true that an extensive rehearsal of some relevant facts is to be found in the earlier part of the decision letter but there is nothing to indicate that this in fact played a part in the Secretary of States analysis.
Indeed, a review of the sources which the author of the letter used to compose it indicates the contrary to be the case.
It is clear that the facts were culled from the War Crimes Unit report and that the statement of the reasons for the decision was replicated from the legal annexe.
The latter document stated that Gurung had held that voluntary membership of an extremist group could be presumed to amount to personal and knowing participation, or at least acquiescence amounting to complicity.
In effect therefore the Secretary of State was being invited to decide as a matter of automatic consequence that membership of the Intelligence Division of LTTE equated to complicity.
This implicitly (at least) suggested that no consideration of the personal responsibility of the respondent was required and indeed that it was not appropriate to inquire into it beyond acknowledging that the respondent was a member of the Intelligence Division.
| UK-Abs | The respondent is a Sri Lankan Tamil.
In 1992, at the age of 10, he became a member of the Liberation Tigers of Tamil Eelam (LTTE), the following year joining the LTTEs Intelligence Division.
He occupied various positions of responsibility and gained promotions within the organisation.
At 18 he was appointed to lead a mobile unit transporting military equipment and other members of the Intelligence Division through jungles to a point where armed members of the Division could be sent in plain clothes to Colombo.
He continued to do this for some three years from September 2000 until early 2004 except for some two and a half months where he was appointed one of the chief security guards to the Intelligence Divisions leader, whom he accompanied as a trusted aide on visits to the LTTE District Leader and other prominent LTTE members.
From early 2004 he served as second in command of the combat unit of the Intelligence Division.
In October 2006 he was sent incognito to Colombo to await further instructions.
In December 2006 the respondent learned that his presence in Colombo had been discovered by the Sri Lankan government and his LTTE membership known.
On 7 February 2007 he arrived in the UK and two days later applied for asylum on the basis that if he returned to Sri Lanka he would face mistreatment due to his race and LTTE membership.
The respondents application for asylum was refused by the Secretary of State (SoS) in September 2007 solely by reference to article 1F(a) of the Refugee Convention.
It states that a person is not to be recognised as a refugee where there are serious reasons for considering that (a) he has committed a crime against peace, a war crime, or a crime against humanity, as defined in the international instruments drawn up to make provision in respect of such crimes.
In his decision letter the SoS referred to the case of Gurung [2002] UKIAT 04870 (starred), which the SoS considered was authority for the proposition that voluntary membership of an extremist group could be presumed to amount to personal and knowing participation, or at least acquiescence amounting to complicity in the crimes in question.
The SoS was of the view that the respondents own evidence showed voluntary membership and command responsibility within an organisation that has been responsible for widespread and systemic war crimes and crimes against humanity, such that there were serious reasons for considering that the respondent was aware of and fully understood the methods employed by the LTTE.
The respondent sought judicial review of the SoSs decision.
The Court of Appeal quashed the SoSs decision.
The Court of Appeal held that as it was the design of some members of the LTTE to carry out international crimes in pursuit of the organisations political ends, the SoS acted on a wrongful presumption that the respondent, as a member of the LTTE, was guilty of personal and knowing
participation in such crimes.
He should have considered whether there was evidence affording serious reasons for considering that he was party to that design, that he had participated in a way that made a significant contribution to the commission of such crimes and that he had done so with the intention of furthering the perpetration of such crimes.
The SoS appealed the decision.
The Supreme Court unanimously dismisses the appeal, but varies the order made by the Court of Appeal to provide that in re determining the respondents asylum application, the SoS should direct himself in accordance with the Courts judgments, not those of the Court of Appeal.
Lord Brown gives the leading judgment of the Court.
Lord Hope and Lord Kerr give concurring judgments.
The Court on this appeal has essentially three tasks.
The first is to decide whether the Court of Appeal was right to quash the refusal decision and remit the case for redetermination by the SoS.
Secondly, the Court has to decide on the correctness of the principles laid down in Gurung.
The Courts third task is to decide whether the Court of Appeal was right to interpret war crimes liability under article 1F(a) as narrowly as they appeared to do, essentially so as to encompass no more than joint enterprise liability (para 26).
In relation to the first issue, it could not be said of the LTTE or its Intelligence Division that as an organisation it was predominantly terrorist in character Gurung para 105.
There was accordingly no question of presuming that the respondents voluntary membership of this organisation amounted to personal and knowing participation, or at least acquiescence amounting to complicity in the crimes in question.
Nor was the respondents command responsibility within the organisation a basis for regarding him as responsible for war crimes (para 27).
As to the second issue, there are criticisms to be made of Gurung and it should not in future be accorded the same standing as it seems hitherto to have enjoyed. o In the first place, it is unhelpful to attempt to carve out from amongst organisations engaging in terrorism a sub category of those whose aims, methods and activities are predominantly terrorist in character, and to suggest that membership of one of these gives rise to a presumption of criminal complicity Gurung para 105 (para 29).
It is preferable to focus on what must prove to be the determining factors in any case, principally (in no particular order): the nature and (potentially of some importance) the size of the organisation and particularly that part of it with which the asylum seeker was himself most directly concerned, whether and, if so, by whom the organisation was proscribed, how the asylum seeker came to be recruited, the length of time he remained in that organisation and what, if any, opportunities he had to leave it, his position, rank, standing and influence in the organisation, his knowledge of the organisations war crimes activities, and his own personal involvement and role in the organisation including particularly whatever contribution he made towards the commission of war crimes. o The second major criticism to be made of Gurung is its introduction of the idea of a continuum in relation to the types of organisations, and their political aims and objectives, for war crimes cases.
War crimes are war crimes however benevolent and estimable may be the long term aims of those concerned.
And actions which would not otherwise constitute war crimes do not become so merely because they are taken pursuant to policies abhorrent to western liberal democracies (para 32).
As to the third issue, article 1F disqualifies persons who make a substantial contribution to the crime, knowing that their acts or omissions will facilitate it (para 35).
Criminal responsibility will only attach to those with the necessary mental element.
But, as article 30 of the Rome Statute of the International Criminal Court makes plain, if a person is aware that in the ordinary course of events a particular consequence will follow from his actions, he is taken to have acted with both knowledge and intent (para 36).
The Court of Appeal took too narrow an approach.
It appeared to confine article 1F liability essentially to just the same sort of joint criminal enterprises as would result in convictions under domestic law.
An accused is disqualified under article 1F if there are serious reasons for considering him voluntarily to have contributed in a significant way to the organisations ability to pursue its purpose of committing war crimes, aware that his assistance will in fact further that purpose (para 38).
|
Section 82(1) of the Nationality, Immigration and Asylum Act 2002 (the 2002 Act) provides that where an immigration decision is made in respect of a person he may appeal to the Asylum and Immigration Tribunal, now the First Tier Tribunal (Immigration and Asylum) (the Tribunal).
Section 82(2) and (3A) define the meaning of an immigration decision and include at section 82(2)(h): a decision that an illegal entrant is to be removed from the United Kingdom by way of directions under paragraphs 8 to 10 of Schedule 2 to the Immigration Act 1971 (c77) (control of entry: removal).
We shall refer to the Immigration Act 1971 as the 1971 Act.
The issue that arises on this appeal is whether it is possible to challenge by way of an appeal an immigration decision within the meaning of section 82(2)(h) on the ground that the country or territory of destination stated in the notice of the decision is not one that would satisfy the requirements of para 8(1)(c) of Schedule 2 to the 1971 Act should removal directions to that country or territory in fact be given.
The facts
The appellant was born in Gaza in 1985.
In 1990, he left Gaza and went to Libya where he lived until about 2002.
He then spent time first in Italy and then in France before arriving clandestinely in a lorry in the United Kingdom in April 2007.
Some time after his arrival in the United Kingdom, he claimed asylum and humanitarian protection.
On 25 April 2007, he was served with a notice of illegal entry and of his liability to be detained under para 16(2) of Schedule 2 to the 1971 Act pending a decision whether or not he was to be given removal directions and be removed in pursuance of such directions.
By a letter dated 24 May 2007, the Secretary of State rejected the appellants asylum and human rights claims.
The letter was accompanied by a Form IS151B entitled Decision to remove an illegal entrant/person subject to administrative removal under section 10 of the Immigration and Asylum Act 1999 [the 1999 Act]Asylum/Human Rights Claim refused.
The notice said: a decision has now been taken to remove you from the United Kingdom.
It gave details about the appellants right of appeal.
Against the rubric REMOVAL DIRECTIONS appeared the following: If you do not appeal, or you appeal and the appeal is unsuccessful, you must leave the United Kingdom.
If you do not leave voluntarily, directions will be given for your removal from the United Kingdom to Palestine National Authority.
The appellant appealed.
By a determination promulgated on 19 July 2007, Immigration Judge Lloyd dismissed his appeal on both the asylum and human rights issues that he had raised.
She also dismissed his appeal in so far as it was based on the contention that the immigration decision made on 24 May was not in accordance with the law within the meaning of section 84(1)(e) of the 2002 Act.
The argument advanced was that the decision was not in accordance with the law because removal directions could not lawfully be given to remove the appellant to the Palestinian Territories pursuant to Schedule 2 to the 1971 Act, since it was not a country or territory to which there was reason to believe that he would be admitted within the meaning of para 8(c)(iv) of Schedule 2 to the 1971 Act.
The immigration judge accepted the evidence given on behalf of the appellant by Elizabeth Griffith, a case worker with the Refugee Legal Centre (as it then was).
Her evidence was that she had been told by a Mr Sumara at the Palestine General Delegate Office that a Palestinian could not return to the Palestinian Territories without an ID card.
An ID card was proof that the bearer was resident in either Gaza or West Bank.
Once in possession of an ID card, a Palestinian could apply for a passport/travel document.
She said that she explained the appellants circumstances to Mr Sumara.
These were that upon leaving Gaza, the appellant had lost contact with his family and that to the best of his knowledge, he did not have a birth certificate and had no other Palestinian identity papers.
Based on this information, Mr Sumara said that it was very unlikely that the appellant would be able to return to the Palestinian Territories.
Mr Sumara later said that it would be impossible for the appellant to return in view of the fact that he had no birth certificate, no living parents and no ID.
The appellant sought a reconsideration of the immigration judges determination by the Tribunal under section 103A of the 2002 Act.
He did not challenge the immigration judges findings in relation to his appeal on asylum or human rights grounds.
The sole basis for his challenge was that the immigration judge had materially erred in law in failing to accept his argument that the immigration decision was not in accordance with the law within the meaning of section 84(1)(e) of the 2002 Act.
On 17 August 2007, Senior Immigration Judge Jordan made an order for reconsideration.
On the reconsideration, the Tribunal (Mr Ockelton, Deputy President, Designated Immigration Judge OMalley and Immigration Judge Parkes) concluded that the immigration judge had not made any material error of law and ordered her decision to stand.
The appellants appeal against this decision was dismissed by the Court of Appeal (Rix, Scott Baker and Jacob LJJ): [2009] EWCA Civ 17; [2009] Imm AR 3.
The statutory framework
Section 82(1) of the 2002 Act provides that where an immigration decision is made in respect of a person, he may appeal to the Tribunal.
Section 82(2) defines immigration decision as meaning: (a) refusal of leave to enter the United Kingdom. (b) refusal of entry clearance, (c) refusal of a certificate of entitlement under section 10 of this Act, (d) refusal to vary a persons leave to enter or remain in the United Kingdom if the result of the refusal is that the person has no leave to enter or remain, (e) variation of a persons leave to enter or remain in the United Kingdom if when the variation takes effect the person has no leave to enter or remain, (f) revocation under section 76 of this Act of indefinite leave to enter or remain in the United Kingdom, (g) a decision that a person is to be removed from the United Kingdom by way of directions under section 10(1)(a), (b), (ba) or (c) of the Immigration and Asylum Act 1999 (c33) (removal of person unlawfully in United Kingdom), (h) a decision that an illegal entrant is to be removed from the United Kingdom by way of directions under paragraphs 8 to 10 of Schedule 2 to the Immigration Act 1971 (c77) (control of entry: removal), (ha) a decision that a person is to be removed from the United Kingdom by way of directions under section 47 of the Immigration, Asylum and Nationality Act 2006 (removal: persons with statutorily extended leave), (i) a decision that a person is to be removed from the United Kingdom by way of directions given by virtue of paragraph 10A of that Schedule (family), (ia) a decision that a person is to be removed from the United Kingdom by way of directions under paragraph 12(2) of Schedule 2 to the Immigration Act 1971 (c77) (seamen and aircrews), (ib) a decision to make an order under section 2A of that Act (deprivation of right of abode), (j) a decision to make a deportation order under section 5(1) of that Act, and (k) .
Section 84(1) specifies the grounds on which an appeal under section 82(1) against an immigration decision must be brought.
They include: (c) that the decision is unlawful under section 6 of the Human Rights Act 1998 (c42) (public authority not to act contrary to Human Rights Convention) as being incompatible with the appellants Convention rights; (e) that the decision is otherwise not in accordance with the law; . (g) that removal of the appellant from the United Kingdom in consequence of the immigration decision would breach the United Kingdoms obligations under the Refugee Convention or would be unlawful under section 6 of the Human Rights Act 1998 as being incompatible with the appellants Convention rights.
Section 120 provides: (1) This section applies to a person if (a) he has made an application to enter or remain in the United Kingdom, or (b) an immigration decision within the meaning of section 82 has been taken or may be taken in respect of him. (2) The Secretary of State or an immigration officer may by notice in writing require the person to state (a) his reasons for wishing to enter or remain in the United Kingdom, (b) any grounds on which he should be permitted to enter or remain in the United Kingdom, and (c) any grounds on which he should not be removed from or required to leave the United Kingdom.
Schedule 2 to the 1971 Act provides: 8. (1) Where a person arriving in the United Kingdom is refused leave to enter, an immigration officer may, subject to sub paragraph (2) below (a) give the captain of the ship or aircraft in which he arrives directions requiring the captain to remove him from the United Kingdom in that ship or aircraft; or (b) give the owners or agents of that ship or aircraft directions requiring them to remove him from the United Kingdom in any ship or aircraft specified or indicated in the directions, being a ship or aircraft of which they are the owners or agents; or (c) give those owners or agents directions requiring them to make arrangements for his removal from the United Kingdom in any ship or aircraft specified or indicated in the direction to a country or territory so specified being either (i) a country of which he is a national or citizen; or (ii) a country or territory in which he has obtained a passport or other document of identity; or (iii) a country or territory in which he embarked for the United Kingdom; or (iv) a country or territory to which there is reason to believe that he will be admitted. 9. (1) Where an illegal entrant is not given leave to enter or remain in the United Kingdom, an immigration officer may give any such directions in respect of him as in a case within paragraph 8 above are authorised by paragraph 8(1). (2) Any leave to enter the United Kingdom which is obtained by deception shall be disregarded for the purposes of this paragraph. 10. (1) Where it appears to the Secretary of State either that directions might be given in respect of a person under paragraph 8 or 9 above, but that it is not practicable for them to be given or that, if given, they would be ineffective; or (a) (b) that directions might have been given in respect of a person under paragraph 8 above but that the requirements of paragraph 8(2) have not been complied with; then the Secretary of State may give to the owners or agents of any ship or aircraft any such directions in respect of that person as are authorised by paragraph 8(1)(c). (2) Where the Secretary of State may give directions for a persons removal in accordance with sub paragraph (1) above, he may instead give directions for his removal in accordance with arrangements to be made by the Secretary of State to any country or territory to which he could be removed under sub paragraph (1).
The 2002 Act was enacted on 7 November 2002 and the provisions relating to appeals came into force on 1 April 2003.
The Immigration (Notices) Regulations 2003 (SI 2003/658) (the 2003 Regulations) were made on 11 March 2003 and came into force on 1 April 2003.
The 2003 Regulations were made by the Secretary of State in exercise of the powers conferred on him by section 105 and 112(1) to (3) of the 2002 Act.
They were subject to annulment in pursuance of a resolution by either House of Parliament.
Regulation 4(1) provides that: Subject to regulation 6, the decision maker must give written notice to a person of any immigration decisiontaken in respect of him which is appealable.
Regulation 2 provides that an immigration decision has the same meaning as in section 82(2) and (3A) of the 2002 Act.
Regulation 5 provides: (1) A notice given under regulation 4(1) . (b) if it relates to an immigration decision specified in section 82(2)(a), (g), (h), (ha), (i), (ia) (j) or (3A) of the 2002 Act (i) shall state the country or territory to which it is proposed to remove the person; or (ii) may, if it appears to the decision maker that the person to whom the notice is to be given may be removable to more than one country or territory, state such countries or territories
The relevant legislative background to the 2002 Act
The 1971 Act did not create a general right to challenge removal directions, but limited that right to two circumstances.
First, section 16 provided that, where removal directions were given for a persons removal (a) on the ground that he was an illegal entrant or had entered the United Kingdom in breach of a deportation order, or (b) under the special powers conferred by Schedule 2 to the 1971 Act in relation to members of the crew of a ship or aircraft coming to the United Kingdom to join a ship or aircraft as a member of the crew, he could appeal on the ground that on the facts of the case there was no power to give the directions on the ground on which they were given.
Secondly, section 17 of the 1971 Act gave a right of appeal against removal directions on the basis that removal should be to a different country or territory from that specified by the Secretary of State.
That right was only given where directions were given for a persons removal from the United Kingdom (a) on his being refused leave to enter; or (b) on a deportation order being made against him; or (c) on his having entered the United Kingdom in breach of a deportation order.
This position did not change following the introduction of the Asylum and Immigration Act 1993 (the 1993 Act).
Section 8(4) of the 1993 Act did, however, extend the right of illegal entrants to appeal against removal directions on the ground that removal would be contrary to the United Kingdoms obligations under the Refugee Convention.
Section 10(1) of the 1999 Act provided: A person who is not a British citizen may be removed from the United Kingdom, in accordance with directions given by an immigration officer, if (a) having only a limited leave to enter or remain, he does not observe a condition attached to the leave or remains beyond the time limited by the leave; (b) he uses deception in seeking (whether successfully or not) leave to remain; or (ba) his indefinite leave to enter or remain has been revoked under section 76(3) of the Nationality Immigration and Asylum Act 2002 (person ceasing to be refugee); (c) directions have been given for the removal under this section of a person to whose family he belongs.
The 1999 Act repealed Part 2 of the 1971 Act (which included sections 16 and 17), but the restricted right to challenge removal directions provided by the earlier statute was reproduced in sections 66 and 67 of the 1999 Act.
The right of appeal on the ground that on the facts of the case there was no power in law to give removal directions on the ground on which they were given was extended to those who could be removed under section 10 of the 1999 Act.
It was also held by the Court of Appeal in R (Kariharan & Another) v Secretary of State for the Home Department [2002] EWCA Civ 1102, [2003] QB 933 that there was a right of appeal against removal directions under section 65 of the 1999 Act on the ground that removal would be in breach of a persons rights under the European Convention on Human Rights (the ECHR).
The appellants argument
The following is a summary of the submissions of Mr Knafler QC.
An immigration decision may be appealed by an illegal entrant on the ground that it is otherwise not in accordance with the law within the meaning of section 84(1)(e) when the notice of the decision states that he is to be removed to a country or territory to which he contends it is not lawful to give directions to remove him under the 1971 Act.
The decision under section 82(2)(h) is not simply that an illegal entrant is to be removed.
It is that he is to be removed by way of directions under paragraphs 8 to 10 of Schedule 2 to the Immigration Act 1971.
Para 8(1)(c) limits the countries or territories to which removal is legally possible.
Whether it is legal to remove an illegal entrant to a particular country or territory is manifestly relevant to the lawfulness of the decision to remove.
The specifying or proposing of a particular country or territory in a notice of an immigration decision to remove an illegal entrant is an integral part of the decision.
The Secretary of State has to do no more than show that the destination country or territory to which he proposes to remove an illegal entrant is one to which there is reason to believe that the illegal entrant will be admitted within a reasonable time of the making of the immigration decision.
An appeal to the Tribunal is a more effective mechanism than judicial review for resolving disputes as to the lawfulness of removing persons to particular destinations.
To require a challenge to the proposed destination country or territory to be by way of appeal against the immigration decision, rather than by judicial review of the removal directions when given is also more consistent with the one stop policy that is embodied in section 120 of the 2002 Act.
It means that any challenge to the proposed destination stated in the notice of decision can be resolved by an appeal at the decision stage rather than by judicial review at the stage when the removal directions are actually given.
Mr Knafler also says that his interpretation is supported by regulation 5(1)(b)(i) of the 2003 Regulations, which provides that the notice of an immigration decision : shall state the country or territory to which it is proposed to remove the person (emphasis added).
Discussion
Central to this appeal is the question whether the specifying or proposing of a particular country or territory in a notice of an immigration decision to remove an illegal entrant within the meaning of section 82(2)(h) of the 2002 Act is an integral part of the decision.
If it is, then there is a right of appeal under section 84(1)(e) if it is not in accordance with the law to specify the country or territory that has been specified.
We shall use the phrase destination country to denote the country or territory to which the notice proposes to remove the illegal entrant.
The language of the 2002 Act
There are a number of reasons why the language of section 82(2)(h), when read in its statutory context, does not support the argument that the proposing of a destination country is an integral part of an immigration decision.
First, in section 84 a clear distinction is drawn between an immigration decision that a person is to be removed from the United Kingdom and removal pursuant to removal directions in consequence of an immigration decision.
Section 84(1)(g) provides as a ground of appeal that removal of the appellant from the United Kingdom in consequence of the immigration decision would breach the Refugee Convention or be incompatible with the appellants ECHR rights.
The use of the conditional would is to be contrasted with the use of the present tense is in sections 84(1)(a)(c) and (e).
Thus Parliament has provided that in a case where it is alleged that removal in consequence of a decision to remove would involve a breach of the Refugee Convention or the ECHR, there is a right of appeal against the immigration decision itself.
But that is the only case where Parliament has provided a right of appeal against a decision to remove by reference to the potential illegality of a consequent removal.
This is a strong indication that the proposing of a destination country is not an integral part of an immigration decision under section 82(2)(h).
Secondly, the decisions referred to in section 82 that a person is to be removed are all decisions that a person is to be removed from the United Kingdom.
None refers to a destination.
This indicates that a destination is not part of a decision.
That is consistent with the fact that some removal directions are not required to propose a destination at all: see para 8(1)(a) and (b) of Schedule 2 to the 1971 Act.
Thirdly, the words by way of directions under paragraphs 8 to 10 of Schedule 2 to the Immigration Act 1971 Act do not mean that the immigration decision itself must comply with the requirements of paras 8 to 10 of Schedule 2 to the 1971 Act.
Section 82(2) describes one of five types of immigration decision that a person is to be removed from the United Kingdom.
The same formula of by way of directions under is used in each case.
In each case, the words by way of directions etc describe and identify the type of immigration decision that may be the subject of an appeal.
The purpose is not to describe the content of lawful directions under the relevant statutory provision, since that is done by the statutory provision itself.
Fourthly, a person who is not an illegal entrant, but is refused leave to enter, can be the subject of removal directions under para 8 of Schedule 2.
But an immigration decision under section 82(2)(a) (refusal of leave to enter) is not required to say anything about removal, still less specify the destination country to which it is proposed to remove the person.
It follows that a person who is refused leave to enter cannot appeal against the refusal of leave to enter on the ground that removal to the destination country proposed in the notice of decision would not be in accordance with para 8 of Schedule 2 to the 1971 Act.
But if the proposing of a destination country is an integral part of an immigration decision under section 82(2)(h), it is difficult to see why Parliament did not provide that the proposing of a destination country should not also be an integral part of any decision from which removal directions will result.
There is no rational basis for distinguishing between an immigration decision within the meaning of section 82(2)(h) and any other immigration decision from which removal directions will result.
This indicates that Parliament is unlikely to have intended that the proposing of a destination country should be an integral part of any immigration decision.
Fifthly, it is (rightly) common ground that there is no right of appeal against removal directions under the 2002 Act.
The power to give removal directions is given by Schedule 2 to the 1971 Act.
It includes the power to give detailed directions requiring arrangements to be made for the removal of a person in any ship or aircraft specified.
Mr Knafler acknowledges that there is no right of appeal against directions of a technical nature in relation to the removal, such as the specifying of a particular ship or aircraft and other detailed mechanics of return or technical matters: see HH (Somalia) and others v Secretary of State for the Home Department [2010] EWCA Civ 426 at [82] to [84].
But he says that the specifying of a particular destination is of a different character from directions of a technical nature and that there is a right of appeal in respect of that.
We shall deal with his argument based on the 2003 Regulations later.
But it is impossible, as a matter of construction of section 82(2)(h), to make the distinction between the different removal directions that Mr Knafler seeks to make.
Either section 82(2)(h) imports into the immigration decision all future removal directions or it imports none.
There is no warrant in the language of section 82(2)(h) for saying that the only direction that is imported into the decision is that which specifies the country of destination.
The legislative history
When the legislative history is taken into account, it becomes even clearer that Parliament did not intend that any of the removal directions should be treated as an integral part of the immigration decision.
When Parliament provided for a right of appeal against removal directions in previous legislation, it did so in express terms.
The 1971 and 1999 Acts permitted an appeal against the directions.
When the 1999 Act introduced a right to challenge prospective removal to a particular country, it did so in similarly clear terms: see section 67(2).
The 2002 Act does not permit a challenge to removal directions on any grounds.
And yet, if Mr Knafler is right, the effect of sections 82(2)(h) and 84(1)(e) is that an illegal entrant can challenge the lawfulness of future removal directions on grounds which could not have been the subject of challenge under any of the previous legislation.
Under the pre 2002 legislation, those who were refused leave to enter, leave to remain or were the subject of a deportation order could challenge removal directions on the basis that removal should be a different country or territory from that specified by the Secretary of State, but no class of person could challenge removal directions on the ground that there were no grounds for believing that he or she would not be admitted to the destination country.
The declared purpose of the 2002 Act in relation to removal directions was set out in the Explanatory Notes to the statute which at para 220 stated: .
The position relating to removal directions has been clarified.
It is the initial immigration decision which may result in removal which attracts the right of appeal, not any consequential giving of directions to the carrier or re giving of directions following an appeal or temporary suspension.
In the light of this purpose, it would be remarkable if the effect of the 2002 Act were that a person could challenge future removal directions at all, let alone on grounds on which removal directions that had been given could not have been challenged under the previous legislation.
Practical and policy considerations
There are also practical and policy considerations which justify the conclusion that Parliament is unlikely to have intended a scheme such as that for which the appellant contends.
These provide yet further support for the interpretation of section 82(2)(h) which, for the reasons already given, we would adopt.
The controversial issues raised by immigration decisions are usually (i) whether the person is entitled to benefit from the immigration rules (eg whether he is an illegal entrant or entitled to leave to enter or leave to remain) and (ii) whether he is entitled to international protection under the Refugee Convention or the ECHR.
These are suitable for determination at a one stop appeal as envisaged by section 120 of the 2002 Act.
We acknowledge that, if there is a long period between the date of determination and the date when removal directions are given, there may be a change in circumstances which materially affects the decision on asylum and humanitarian issues.
But in many cases a decision on these issues will be determinative of the question whether an immigration decision that a person is to be removed from the United Kingdom is lawful.
On the other hand, the ability of the Secretary of State to give removal directions (whether under Schedule 2 to the 1971 Act or otherwise) will frequently depend on practical and operational issues which are only capable of being addressed shortly before the removal is to take place.
These issues are inherently unsuitable for resolution at the time of an appeal, when the question of entitlement to international protection and/or whether there is a right to leave to enter or remain in the United Kingdom is being determined and at a time which may be long before the Secretary of State is in a position to give removal directions.
As Sedley LJ stated in the Court of Appeal in R (MS, AR and FW) v Secretary of State for the Home Department [2009] EWCA Civ 1310 at [26]: It is also the case that the obstacles to return are commonly an amalgam of fact, governmental practice and policy, international law and local law, often in a form which is impossible to disentangle.
Thus at the stage when no removal directions have yet been given, it may be difficult, if not impossible, for the Secretary of State or the Tribunal to determine when, if at all, it will be practicable to give them.
We take account of the fact that, as Mr Knafler points out, the threshold set by para 8(1)(c)(iv) of Schedule 2 to the 1971 Act is no higher than that the destination country is one to which there is reason to believe that he will be admitted.
But take the present case where the obstacles to the appellants removal are of a practical nature and concern the documentation necessary to secure his admission to the Palestinian Territories.
It may be very difficult for the Secretary of State at the decision stage and the Tribunal at the appeal stage to decide whether, when the removal directions come to be given in the future, the Palestinian Territories will be a country or territory to which there is reason to believe that the appellant will be admitted.
There is no reason to suppose that the Secretary of State will give directions for the removal of the appellant to the Palestinian Territories until he is satisfied that there is reason to believe that he will be admitted.
The Secretary of State may need to engage in a detailed dialogue with the Palestine General Delegates Office about the appellants circumstances and possible methods of re documentation.
The Tribunal would not be in a position to evaluate any of this at an appeal before removal directions have been given.
In the unlikely event that removal directions are given which cannot be implemented and the Secretary of State stands by his directions despite the practical problems identified by the person to be removed, then judicial review is available.
But that should rarely be necessary, because the practical issues of the type that are not susceptible to appeal under section 84 of the 2002 Act are unlikely to be controversial.
On the other hand, the construction advanced on behalf of the appellant is inimical to the finality which the one stop procedure is intended to achieve.
If Mr Knafler is right, in the case of a person who has successfully challenged prospective removal directions, the Secretary of State is required to make a fresh section 82(2)(h) decision before the removal can proceed.
In this way, a further right of appeal may be generated, although it has already been finally determined that the person had no entitlement to remain in the United Kingdom at all, whether under this countrys international obligations or under the immigration rules.
The 2003 Regulations
Is a different conclusion as to the true interpretation of section 82(2)(h) compelled by regulation 5 of the 2003 Regulations? Mr Knafler submits that regulation 5 sheds light on the meaning of section 82(2)(h) of the 2002 Act.
As Lord Lowry said in Hanlon v The Law Society [1981] AC 124, 193H 194C, there are circumstances in which regulations made under a statute and contemporaneously with it may confirm a certain interpretation of the statute or be a reliable guide to its meaning.
But, as he also said, regulations do not decide or control its meaning, since that would be to substitute the rule making authority for the judges as interpreter and would disregard the possibility that the regulation relied on was misconceived or ultra vires.
We doubt whether regulation 5 may be used as an aid to the true construction of section 82(2)(h).
Although the 2003 Regulations and the relevant provisions of the 2002 Act came into force on the same day, the regulations were made on 11 March 2003, some months after the 2002 Act was enacted on 7 November 2002.
As Lord Lowry said, regulations do not decide or control the meaning of the statute under which they are made, since the possibility that the regulations are ultra vires cannot be disregarded.
For the reasons that we have given, we consider that the meaning of section 82(2)(h) is clear and unambiguous and there is no need to seek confirmation or light from the 2003 Regulations as an aid to construction, even if it is a legitimate exercise to do so.
The explanation for the requirement in regulation 5(1)(b)(i) that the notice of decision should state the country or territory to which it is proposed to remove the person is that given by the Court of Appeal in this case and in the other decisions referred to at [28] of Rix LJs judgment.
It is that the proposed country of destination is needed in order to provide a focus for the issues which might arise for the purpose of an applicants asylum and human rights claims.
Indeed, it will usually be necessary for the immigration decision to identify the proposed destination country if the person is to be able to appeal under section 84(1)(c) or (g) at all.
Appeals on the ground that to remove a person would breach his rights under the ECHR or the Refugee Convention usually involve a consideration of whether the conditions in a particular proposed destination country are such that his removal to that country would breach those rights.
In the context of a proposed removal, an appeal on asylum or human rights grounds cannot be made in the abstract.
The purpose of regulation 5, therefore, is to make the right of appeal given by section 84(1)(c) and (g) effective.
We would add that we agree with the further point made by Rix LJ at [29] that: a proposed destination is not the same as a destination to which the Secretary has decided to remove the applicant, and may not even amount to a destination to which the Secretary of State intends to remove the applicant.
Conclusion
Our attention has been drawn to a number of previous decisions, including GH (Iraq) v Secretary of State for the Home Department [2005] EWCA Civ 1182, [2006] INLR 36; AK v Secretary of State for the Home Department [2006] EWCA Civ 1117, [2007] INLR 195; MA (Somalia) v Secretary of State for the Home Department [2009] EWCA Civ 4, [2009] Imm AR 413 and HH (Somalia) (already cited).
We do not consider that anything that we have said in this judgment calls into question the decisions in these cases.
For the reasons that we have given, we would dismiss this appeal.
There is no right of appeal against an immigration decision under section 82(2)(h) on the ground that the country or territory stated in the notice of the decision is not one that would satisfy the requirements of para 8(1)(c) of Schedule 2 to the 1971 Act.
| UK-Abs | The appellant was born in Gaza in 1985.
Having lived in Libya until about 2002, he then spent time in mainland Europe before arriving in the UK in April 2007.
He subsequently claimed asylum and humanitarian protection.
On 24 May 2007, the Home Secretary refused the appellants asylum and human rights claims.
The letter sent by the Home Secretary recorded that a decision had been taken to remove the appellant from the UK and stated: If you do not appeal, or you appeal and the appeal is unsuccessful, you must leave the United Kingdom.
If you do not leave voluntarily, directions will be given for your removal from the United Kingdom to Palestine National Authority.
The appellant appealed the decision under section 82 (2) (h) of the Nationality, Immigration and Asylum Act 2002 (the 2002 Act).
He did so on the grounds that the decision was not in accordance with the law within the meaning of section 84 (1) (e) of the 2002 Act.
The appellant argued that this was so because directions for his removal to the Palestinian Territories could not lawfully be given under Schedule 2 of the Immigration Act 1971 (the 1971 Act), since paragraph 8 (1) (c) of Schedule 2 required that there was reason to believe that he would be admitted to the country chosen.
The immigration judge accepted the evidence given in support of the appellant that, owing to his lack of documents and the fact that he did not have any living parents, he would not be admitted to the Palestinian Territories.
However, the immigration judge rejected the appellants argument that this meant that the decision was not in accordance with the law under section 84 of the 2002 Act.
The Immigration Tribunal and the Court of Appeal agreed with the immigration judge.
The appellant appealed to the Supreme Court.
The Supreme Court unanimously dismissed the appeal.
The Court held that there is no right of appeal against an immigration decision under section 82 (2) (h) of the 2002 Act on the ground that the country or territory stated in the notice of the decision is not one that would satisfy the requirements of paragraph 8 (1) (c) of Schedule 2 to the 1971 Act.
Sir John Dyson SCJ gave the courts judgment.
Central to the appeal was the question of whether the proposal, in a notice of an immigration decision, of a particular country to which the appellant was to be removed was an integral part of that decision [para 21].
A clear distinction was drawn in section 84 of the 2002 Act between the decision that a person is to be removed from the United Kingdom and removal under removal directions [22].
This was a strong indication that the proposal of a destination country in an immigration decision was not an integral part of the decision itself.
Section 82 of the 2002 Act referred to decisions that a person is to be removed from the United Kingdom.
None of the decisions referred to mentioned a country of destination [24].
The fact that one type of decision mentioned in section 82 (2) (h) of the 2002 Act referred to a decision that an illegal entrant is to be removed from the United Kingdom by way of directions under paragraphs 8 to 10 of Schedule 2 to the Immigration Act 1971 (emphasis added) did not mean that an immigration decision must comply with Schedule 2 of the 1971 Act.
The reference to the 1971 Act was merely descriptive of the type of decision appealed [25].
Not all of the decisions mentioned in section 82 required a proposed destination to be indicated to an applicant when the decision was communicated to him/her.
If the proposal of a destination was an integral part of an immigration decision under section 82 (2) (h), it was difficult to see why Parliament did not provide that the proposal of a destination country should not also be an integral part of any decision from which removal directions will result [26].
It was acknowledged by both parties that there was no right of appeal against removal directions under the 2002 Act.
The power to make removal directions was granted by Schedule 2 to the 1971 Act.
The Appellant had acknowledged that there was no right of appeal against directions of a technical nature such as the specification of a particular ship or aircraft to be used for removal, but submitted that the specification of a particular destination was of a different character to these types of directions.
It was, however, impossible to make the distinction sought by the Appellant [27].
The legislative background and explanatory notes to the 2002 Act supported the Courts conclusion [28 29].
There were also policy reasons which prevented the kind of challenge put forward by the Appellant [30 34].
The ability of the Secretary of State to give removal directions frequently depended on practical and operational issues that were inherently unsuitable for resolution at the time of the appeal against the decision.
In the unlikely event that removal directions were given which could not be implemented as the person concerned could not enter the country of destination, judicial review was available.
Regulation 5 (1)(b)(i) of the Immigration (Notices) Regulations 2003 (the Regulations), which stated that the notice of an immigration decision should state the country or territory to which it is proposed to remove the person, did not assist the Appellant [35 38].
The Appellant had submitted that the Regulations shed light on the meaning of the 2002 Act.
However, the meaning of section 82 (2) (h) was clear and unambiguous and there was no need to use the Regulations to discern its meaning.
The reason for the requirement in regulation 5 was that the proposed destination was needed in order to provide a focus for the issues which might arise under an applicants asylum and human rights claims.
|
The appellant Dermot Patrick OBrien (Mr OBrien) is a retired barrister.
He also held part time judicial office as a recorder appointed under section 21 of the Courts Act 1971, as amended.
He claims to be entitled to a pension in respect of his part time non salaried judicial work.
The case raises questions of domestic law about the status and terms of service of part time non salaried judges in England and Wales.
They include chairmen and members of tribunals and others exercising judicial functions for remuneration.
It also raises important questions of EU law as to which, having sought a preliminary ruling under article 267 of the Treaty for the Functioning of the European Union (the TFEU), the court has now received guidance from the Court of Justice of the European Union (the CJEU).
The effect of section 3(1) of the European Communities Act 1972 is that the questions of EU law must be determined in accordance with the principles laid down in its preliminary ruling by that court.
The EU law questions relate to Council Directive 97/81/EC of 15 December 1997 [1997] OLJ 14/9 (the PTWD) concerning the Framework Agreement on part time work which was concluded on 6 June 1997 between the general cross industry organisations (UNICE, CEEP and ETUC) and is annexed to the Directive (the Framework Agreement).
Directives are binding as to the result to be achieved, leaving only the choice of form and methods to the Member State: article 288 TFEU.
The PTWD was extended to the United Kingdom by Directive 98/23 [1998] OJL 131/10.
It was transposed into domestic law by the Part time Workers (Prevention of Less Favourable Treatment) Regulations 2000, SI 2000/1551 (the 2000 Regulations), which were made under section 19 of the Employment Relations Act 1999.
They came into force on 1 July 2000.
Background
With the encouragement of the leader of the Western Circuit, Mr OBrien, who was then in practice as a barrister, decided to apply to become a recorder.
He was appointed as a recorder with effect from 1 March 1978, and he continued sitting as a recorder with regular extensions until he ceased to hold that office on 31 March 2005.
The question then arose as to whether, as he was no longer the holder of a judicial office, he was entitled to a pension under the judicial pension scheme.
The office of recorder is not one of the judicial offices for which provision for the payment of pensions was made in the Judicial Pensions Act 1981.
Further provisions for the payment of pensions to judicial office holders are contained in the Judicial Pensions and Retirement Act 1993 (the 1993 Act).
Section 2 of the 1993 Act provides that any person retiring from qualifying judicial office having attained the age of 65 and having completed at least 5 years service in qualifying judicial office is entitled to receive a pension at the appropriate annual rate.
Section 1(6) provides that, for the purposes of the Act, any reference to a qualifying office is a reference to any office specified in Schedule 1 to the Act if that office is held on a salaried basis.
The office of recorder is not one of the offices specified in Schedule 1.
On 9 June 2005 Mr OBrien wrote to the Department of Constitutional Affairs requiring that he be paid a retirement pension on the same basis, adjusted pro rata temporis, as that paid to former full time judges who had been engaged on the same or similar work.
He was informed by the Department in its reply dated 5 July 2005 that he fell outside the categories of judicial office holder to whom a judicial pension was payable.
This was because the office of recorder was not a qualifying judicial office under the 1993 Act, and because there was no obligation to provide him with a pension under European law as he was an office holder, not a worker.
Mr OBrien was not satisfied with the reasons he was given.
On 29 September 2005 he started proceedings in the Employment Tribunal in which he claimed among other things that he was being discriminated against because he was a part time worker.
His claim was brought under the Equal Pay Act 1970, the Sex Discrimination Act 1975 and the Human Rights Act 1998 together with the PTWD and the 2000 Regulations.
The claim was opposed by the Department of Constitutional Affairs (now the Ministry of Justice) unsuccessfully in the Employment Tribunal, but successfully on appeal to the Employment Appeal Tribunal, on the grounds that it was out of time, as it ought to have been presented within three months of the date when he ceased to hold office, and that there was no relevant statutory extension of the time within which a claim could be presented.
But it was later ordered, by consent, that the substantive issue and the time limit issue should both be heard by the Court of Appeal as a test case.
On 19 December 2008 the Court of Appeal (the Chancellor, Smith and Maurice Kay LJJ) allowed Mr OBriens appeal on the time limit issue, but directed the Employment Tribunal to dismiss the claim on the issue of substance: Department of Constitutional Affairs v OBrien [2008] EWCA Civ 1448, [2009] ICR 593, [2009] 2 CMLR 15.
Its findings on the substantive issue were that judges are not workers, either under the main definition in regulation 1(2) of the 2000 Regulations which requires there to be a contract or under the extended definition of worker in regulation 12 which applies to Crown employment: see paras 15 and 17, below.
Mr OBrien was given permission to appeal to the Supreme Court.
On 28 July 2010 this court, having considered the parties written and oral submissions and submissions for the Council of Immigration Judges as interveners, referred two questions to the CJEU for a preliminary ruling under Article 267 TFEU: see [2010] UKSC 34, [2011] 1 CMLR 36, to which reference may be made for much of the background.
The questions that were referred were as follows: 1) Is it for national law to determine whether or not judges as a whole are workers who have an employment contract or employment relationship within the meaning of clause 2.1 of the Framework Agreement, or is there a Community norm by which this matter must be determined? 2) If judges as a whole are workers who have an employment contract or employment relationship within the meaning of clause 2.1 of the Framework Agreement, is it permissible for national law to discriminate (a) between full time and part time judges, or (b) between different kinds of part time judges in the provision of pensions?
On 1 March 2012 the Second Chamber of the CJEU, having received the opinion of the Advocate General (Kokott) on 17 November 2011, gave judgment.
It answered the questions as follows [2012] ICR 955, para 68: 1) European Union law must be interpreted as meaning that it is for the member states to define the concept of workers who have an employment contract or an employment relationship in clause 2.1 of the Framework Agreement . and in particular, to determine whether judges fall within that concept, subject to the condition that that does not lead to the arbitrary exclusion of that category of persons from the protection offered by Directive 97/81, as amended by Directive 98/23, and that agreement.
An exclusion from that protection may be allowed only if the relationship between judges and the Ministry of Justice is, by its nature, substantially different from that between employers and their employees falling, according to national law, under the category of workers. 2) The Framework Agreement . must be interpreted as meaning that it precludes, for the purpose of access to the retirement pension scheme, national law from establishing a distinction between full time judges and part time judges remunerated on a daily fee paid basis, unless such a difference in treatment is justified by objective reasons, which is a matter for the referring court to determine.
The effect of the questions that were referred, and of the ruling in response to them, is to divide the issues raised by Mr OBriens case into two parts.
Firstly, there is the worker issue: whether the relationship between judges and the Ministry of Justice is substantially different from that between employers and persons who fall to be treated in national law as workers.
The principles to which the CJEU refers are of general application.
So although the argument was directed to the position of recorders like Mr OBrien, the issue is of interest to all part time judges, not just recorders.
Secondly, there is the objective justification issue: whether the difference in treatment of part time judges is justified by objective reasons.
The answer to this issue may differ from one kind of non salaried part time judge to another.
So, in addressing it, the court will confine its attention to recorders.
The question is whether there is an objective justification for treating recorders, all of whom are non salaried, differently from full time or salaried judges for the purposes of access to the retirement pension scheme.
The matter came before this court for a further oral hearing on 4 July 2012, when it also had before it written submissions on behalf of the Council of Immigration Judges.
In the light of the discussion at that hearing the court made a preliminary ruling that Mr OBrien was at the material time a part time worker within the meaning of clause 2.1 of the Framework Agreement, for reasons that were to be given in writing at a later date.
That ruling was communicated to the parties by the Registrar on 9 July 2012.
The court also gave case management directions for the future course of the proceedings.
The parties were told that the court had decided not to direct an immediate remission to the Employment Tribunal on the issue of objective justification, and that remission would be appropriate only if there were significant disputed issues of fact to be determined.
Directions were given for the presentation of the parties cases on the objective justification issue as it applied to recorders at a further hearing to be held on 21 November 2012, at which the court would determine what issues, if any, should be remitted and decide any issues that were not to be remitted.
This judgment does two things.
First, it sets out the courts reasons for its preliminary ruling on the worker issue which, together with the introduction, have been prepared by Lord Hope.
Secondly, it sets out the courts reasoning and conclusions on the issue of objective justification.
They have been prepared by Lady Hale.
The court acknowledges and is grateful for all the work by the legal advisers on both sides in preparing a considerable volume of documentary evidence and other material against a demanding timetable.
The PTWD and the Framework Agreement
The PTWD contains in recital (11) a reference to the parties to the Framework Agreement wishing to establish a general framework for eliminating discrimination against part time workers and to contribute to developing the potential for part time work on a basis which is acceptable for employers and workers alike.
Recital (16) is as follows: Whereas, with regard to terms used in the Framework Agreement which are not specifically defined therein, this Directive leaves Member States free to define those terms in accordance with national law and practice, as is the case for other social policy Directives using similar terms, providing that the said definitions respect the content of the Framework Agreement.
Article 1 states that the purpose of the Directive is to implement the Framework Agreement.
Article 2 requires Member States to transpose it into national law by 20 January 2000 at the latest.
Clauses 1 and 2 of the Framework Agreement are as follows: Clause 1: Purpose The purpose of this Framework Agreement is: (a) to provide for the removal of discrimination against part time workers and to improve the quality of part time work; (b) to facilitate the development of part time work on a voluntary basis and to contribute to the flexible organization of working time in a manner which takes into account the needs of employers and workers.
Clause 2: Scope 1.
This Agreement applies to part time workers who have an employment contract or employment relationship as defined by the law, collective agreement or practice in force in each Member State. 2.
Member States, after consultation with the social partners in accordance with national law, collective agreements or practice, and/or the social partners at the appropriate level in conformity with national industrial relations practice may, for objective reasons, exclude wholly or partly from the terms of this Agreement part time workers who work on a casual basis.
Such exclusions should be reviewed periodically to establish if the objective reasons for making them remain valid.
The Ministry of Justice do not place any reliance on Clause 2(2).
Clause 3 contains definitions of part time worker and comparable full time worker.
Clause 4 sets out the principle of non discrimination: Clause 4: Principle of non discrimination 1.
In respect of employment conditions, part time workers shall not be treated in a less favourable manner than comparable full time workers solely because they work part time unless different treatment is justified on objective grounds. 2.
Where appropriate, the principle of pro rata temporis shall apply. 3.
The arrangements for the application of this clause shall be defined by the Member States and/or social partners, having regard to European legislation, national law, collective agreements and practice. 4.
Where justified by objective reasons, Member States after consultation of the social partners in accordance with national law, collective agreements or practice and/or social partners may, where appropriate, make access to particular conditions of employment subject to a period of service, time worked or earnings qualification.
Qualifications relating to access by part time workers to particular conditions of employment should be reviewed periodically having regard to the principle of non discrimination as expressed in Clause 4.1.
The domestic regulations
The United Kingdom gave effect to the PTWD and the Framework Agreement by the 2000 Regulations which were made on 8 June 2000 and came into force on 1 July 2000.
The Regulations were made under section 19 of the Employment Relations Act 1999.
Regulation 1(2) contains definitions, including: contract of employment means a contract of service or of apprenticeship, whether express or implied, and (if it is express) whether oral or in writing; worker means an individual who has entered into or works under or (except where a provision of these Regulations otherwise requires) where the employment has ceased, worked under (a) a contract of employment; or (b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.
There is no reference to employment relationship.
Regulation 2 (as amended) contains definitions of a full time worker, a part time worker and a comparable full time worker.
It is common ground that if Mr OBrien was a worker at all, he was a part time worker.
Regulation 5 sets out the prohibition on unjustified less favourable treatment of part time workers: 5.
Less favourable treatment of part time workers (1) A part time worker has the right not to be treated by his employer less favourably than the employer treats a comparable full time worker (a) as regards the terms of his contract; or (b) by being subjected to any other detriment by any act, or deliberate failure to act, of his employer. (2) The right conferred by paragraph (1) applies only if (a) the treatment is on the ground that the worker is a part time worker, and (b) the treatment is not justified on objective grounds. (3) In determining whether a part time worker has been treated less favourably than a comparable full time worker the pro rata principle shall be applied unless it is inappropriate.
Part IV of the regulations is headed Special Classes of Person and contains six Regulations numbered 12 to 17.
Regulation 12 (Crown employment) provides (so far as now material): (1) Subject to regulation 13, these Regulations have effect in relation to Crown employment and persons in Crown employment as they have effect in relation to other employment and other employees and workers. (2) In paragraph (1) Crown employment means employment under or for the purposes of a government department or any officer or body exercising on behalf of the Crown functions conferred by a statutory provision.
Regulations 13 (Armed forces), 14 (House of Lords staff), 15 (House of Commons staff) and 16 (Police service) make similar provision for the classes of service personnel, office holders or employees to which they relate (but subject to an exception for certain types of military training under the Reserve Forces Acts).
Subject to that exception, all these provisions include within the scope of the Regulations persons who would not or might not otherwise be included.
By contrast regulation 17 (Holders of judicial offices) disapplies the Regulations in relation to fee paid part time judges: These Regulations do not apply to any individual in his capacity as the holder of a judicial office if he is remunerated on a daily fee paid basis.
The parties take different views as to whether, in the absence of regulation 17, fee paid part time judges would have been treated as part time workers for the purposes of the Regulations.
The facts
Until the 1970s part time judges, variously styled as recorders, commissioners or chairmen of Quarter Sessions, were a smaller proportion of the judiciary in England and Wales than they are now.
Many part time judicial officers who are now called judges were then designated by other terms such as registrars, stipendiary magistrates, tribunal chairmen and social security or tax commissioners.
Professor Bell, Judiciaries in Europe (2006), p 312 records that in 1970 full time judges outnumbered part time judges by about three to one.
All these part time judges were the holders of a statutory judicial office.
They were remunerated by fees calculated on a daily fee paid basis.
The Courts Act 1971 made major changes in the justice system and (as amended) conferred the powers under which all recorders are still appointed.
Section 21 of the Courts Act 1971, as originally enacted, was in the following terms: (1) Her Majesty may from time to time appoint qualified persons, to be known as Recorders, to act as part time judges of the Crown Court and to carry out such other judicial functions as may be conferred on them under this or any other enactment. (2) Every appointment of a person to be a Recorder shall be of a person recommended to Her Majesty by the Lord Chancellor, and no person shall be qualified to be appointed a Recorder unless he is a barrister or solicitor of at least ten years standing. (3) The appointment of a person as a Recorder shall specify the term for which he is appointed and the frequency and duration of the occasions during that term on which he will be required to be available to undertake the duties of a Recorder. (4) Subject to subsection (5) below the Lord Chancellor may, with the agreement of the Recorder concerned, from time to time extend for such period as he thinks appropriate the term for which a Recorder is appointed. (5) Neither the initial term for which a Recorder is appointed nor any extension of that term under subsection (4) above shall be such as to continue his appointment as a Recorder after the end of the completed year of service in which he attains the age of 72. (6) The Lord Chancellor may if he thinks fit terminate the appointment of a Recorder on the ground of incapacity or misbehaviour or of a failure to comply with any requirement specified under subsection (3) above in the terms of his appointment. (7) There shall be paid to Recorders out of money provided by Parliament such remuneration and allowances as the Lord Chancellor may, with the approval of the Minister for the Civil Service, determine.
The section has been amended from time to time.
The most significant amendment, influenced by the Human Rights Act 1998, was the introduction of safeguards limiting the Lord Chancellors right to decline to extend, or to terminate, an appointment.
This amendment gave effect to new terms and conditions of service promulgated by the Lord Chancellors Department in 2000.
Recorders appointments are automatically extended under section 21(4) at the end of the five year appointment for further successive terms of five years, subject to the individuals agreement and the upper age limit, unless a question of cause for non renewal is raised or the individual no longer satisfies the conditions or qualifications for appointment.
Since the Courts Act 1971 was enacted there has been a remarkable growth in the number and type of part time judges.
The Council of Immigration Judges estimate that there are now about thirty types of fee paid part time judges in the United Kingdom, and that they are relied upon substantially in all but three specialist tribunals.
Statistics in Professor Bells chapter (table 6.1a) show that there were 2,041 part time judges (recorders and deputy district judges) in 1993 and 2,414 in 2005 (including 200 female deputy district judges, up from 89 in 1993, indicating the success of the official policy of encouraging women to become part time judges).
There are now almost twice as many part time judges (recorders and deputy district judges) as full time judges.
These figures do not take account of remunerated chairmen and members of tribunals, the structure of which has been radically reformed by the Tribunals Courts and Enforcement Act 2007.
Submissions from the Council of Immigration Judges show that in 2009 there were 145 full time immigration judges and 440 part time immigration judges (the latter group being divided between salaried part time judges and fee paid part time judges as mentioned below).
The proportion of sitting days worked by fee paid judges rose from 49% in 2008 to 72% in 2010 and 2011.
For about 30 years after the Courts Act 1971 all part time judges were remunerated on a fee paid basis.
That was not a statutory requirement, as section 21(7) is in very general terms.
It was an administrative arrangement chosen by the Lord Chancellors Department (later the Department of Constitutional Affairs, and now the Ministry of Justice).
Since about 2000 there has been an increase in salaried part time judges, especially among district judges and immigration judges.
As they are salaried holders of qualifying judicial offices, they are entitled to receive a judicial pension under the 1993 Act on their retirement.
The Lord Chancellor has from time to time issued and amended written memoranda as to the terms and conditions of service of recorders.
The memorandum current in 1978 when Mr OBrien was appointed contained 15 paragraphs covering, among other things, a requirement for attendance at sentencing conferences, and the frequency and duration of sittings and fees.
There was a minimum sitting requirement of at least 20 days a year, which could be split into two periods of at least ten days.
Subject to certain limitations provided for in the terms and conditions, he was not precluded from continuing in professional practice.
Many recorders continued to provide services for remuneration as barristers or solicitors in addition to holding that judicial office.
It was the expectation of the Lord Chancellor when preparing these memoranda that persons appointed as recorders would normally be in active practice or hold a full time judicial office.
The version of the terms and conditions current at Mr OBriens retirement, which was issued in April 2000, is a more elaborate document of 49 paragraphs together with two appendices on relations with the media.
Most of the new material dealt with the renewal of appointments and judicial conduct.
A recorder is entitled to be offered a minimum of fifteen sitting days a year and may be required to sit for up to thirty days unless there are reasonable grounds for not sitting.
The daily fee is unspecified.
But in practice all part time judicial office holders are paid one 220th of the annual salary of a full time judicial office holder of the same court or tribunal.
A fee at half the daily rate is paid for attending Judicial Studies Board residential conferences.
The submissions for the Council of Immigration Judges state that some immigration judges work part time on a salaried basis.
A substantial majority, estimated to be about 75%, work part time on a daily fee paid basis.
Fee paid part time immigration judges sittings should not normally exceed 105 days a year, but for each days sitting an immigration judge is credited a further days work and pay for writing determinations and similar out of court duties.
In practice they work up to 210 days per year.
They are paid at about half a days fee to attend mandatory training days.
Some immigration judges combine their work as a fee paid immigration judge with other fee paid judicial work in courts and other tribunals.
But about half are estimated to rely on their remuneration as fee paid immigration judges as their principal income.
All part time judges are entitled, where appropriate, to sick pay, maternity or paternity pay and similar benefits during service.
Full time judges and salaried part time judges are entitled to pensions on retirement, subject to and in accordance with the provisions of the Judicial Pensions Act 1981 and the Judicial Pensions and Retirement Act 1993.
Fee paid part time judges have no entitlement to a judicial pension on retirement.
Pensions under the 1981 Act are calculated on a basis related to salary and, as already noted, references in the 1993 Act to a qualifying judicial office limit the entitlement to the holder of an office specified in Schedule 1 to the Act that is held on a salaried basis: 1993 Act, section 2(1).
The worker issue
The CJEU noted in paras 30 to 33 of its judgment that there is no single definition of worker in EU law.
The PTWD and the Framework Agreement do not aim at complete harmonisation of national laws in this area, but only, as the agreements name indicates, to establish a general framework for eliminating discrimination against part time workers.
It is for national law to determine whether a person in part time work has a contract of employment or an employment relationship: Wippel v Peek & Cloppenburg GmbH & Co KG C 313/02 [2005] 1CR 1604, para 40.
The discretion given to member states is however qualified by the need to respect the effectiveness of the PTWD, and general principles of EU law: paras 34 to 38.
A member state may not remove at will, in violation of the effectiveness of the directive, categories of persons from protection.
In particular, the sole fact that judges are treated as judicial office holders is insufficient in itself to exclude the latter from enjoying the rights provided for by the Framework Agreement: para 41.
Such an exclusion may be permitted, if it is not to be regarded as arbitrary, only if the nature of the employment relationship is substantially different from the relationship between employers and their employees which fall within the category of workers under national law.
The CJEU stated in para 43 of its judgment: It is ultimately for the referring court to examine to what extent the relationship between judges and the Ministry of Justice is, by its nature, substantially different from an employment relationship between an employer and a worker.
The court may, however, mention to the referring court a number of principles and criteria which it must take into account in the course of its examination. [emphasis added] The principles and criteria which it then set out include the following: (1) The term worker is used in the definition of the scope of the Framework Agreement to draw a distinction from a self employed person, and the court will have to bear in mind that this distinction is part of the spirit of the Framework Agreement on part time work: para 44, referring to para 48 of the opinion of the Advocate General. (2) The rules for appointing and removing judges must be considered, and also the way their work is organised.
The fact that judges are expected to work during defined times and periods, albeit with a greater degree of flexibility than members of other professions, and that they are entitled to benefits such as sick pay are also relevant: paras 45 and 46. (3) The fact that judges are subject to terms of service and that they might be regarded as workers within the meaning of the Framework Agreement on part time work would not undermine the principle of the independence of the judiciary, or respect for the national identities of Member States.
It merely aims to extend to those judges the scope of the principle of equal treatment and to protect them against discrimination as compared with full time workers: paras 47 to 49.
At the hearing on 4 July 2012 there was argument about whether the case should be remitted to the Employment Tribunal for further fact finding on the issues of (i) whether Mr OBrien was a worker for EU law purposes, and (ii) objective justification.
This court concluded, although only after the end of the oral argument, that it had sufficient evidence to determine the worker issue.
It has also concluded that it need not, and should not, decide the very large question of whether all or any servants of the Crown have contracts of employment.
Mr Allen QC for Mr OBrien pragmatically observed that his client wanted to win and that, so long as his client did so, he did not intend to press the court to express a view about the existence of a contract of employment.
So the issue turns on whether there is an employment relationship in the relevant sense.
Mr Allen pointed out that in making the reference to the CJEU the Supreme Court had already expressed the view that recorders are subject to the sort of terms of service referred to by Sir Robert Carswell LCJ in Perceval Price v Department of Economic Development [2000] IRLR 380.
The claimants in that case were three female holders of full time judicial office.
They brought claims on sex discrimination grounds, but the statutory provisions under which they were made excluded the holder of a statutory office.
Giving the judgment of the court, Sir Robert Carswell pointed out that the purpose of article 119 of the Treaty and of the Equal Pay and Equal Treatment Directives was to protect against discrimination.
At p 384 he said: All judges, at whatever level, share certain common characteristics.
They all must enjoy independence of decision without direction from any source, which the respondents quite rightly defended as an essential part of their work.
They all need some organisation of their sittings, whether it be prescribed by the president of the industrial tribunals or the Court Service, or more loosely arranged in collegiate fashion between the judges of a particular court.
They are all expected to work during defined times and periods, whether they be rigidly laid down or managed by the judges themselves with a greater degree of flexibility.
They are not free agents to work as and when they choose, as are self employed persons.
Their office accordingly partakes of some of the characteristics of employment .
Agreeing with these observations, this court said in para 27 of its judgment on the reference that judicial office partakes of most of the characteristics of employment.
However, because domestic law could not readily be disentangled from EU law on this issue, it preferred to express no concluded view as to whether judges as a general class would qualify as workers under the Regulations, or whether Mr OBrien would qualify as a worker if regulation 17 were to be disregarded, until it had received guidance from the CJEU.
Mr Allen submitted that nothing in the judgment of the CJEU tended to cast doubt on this courts provisional opinion.
The argument for the Ministry of Justice is that there is no obligation to provide Mr OBrien with a pension under European law as he was a judicial office holder, not a worker.
As Mr David Staff of the then Department of Constitutional Affairs explained in a statement that was shown to the Employment Tribunal, judicial office holders were seen as being in a distinct category with an entirely separate status.
Fundamental to the concept of judicial independence was the fact that judicial office holders exercise their function wholly independently of influence or direction by any Minister, Government Department or agency.
The CJEU has, however, made it clear that the principle that judges are independent in the exercise of the function of judging as such is not called into question by extending to part time judges the scope of the principle of equal treatment to protect them against discrimination as compared with full time workers: paras 47 49.
In these paragraphs the court was, in effect, endorsing the observations of Advocate General Kokott, where she said in paras 50 51 of her opinion: 50 In this connection, I would also point out that it is difficult to determine how the rights granted by the Framework Agreement in general, and an entitlement to a retirement pension in particular, can jeopardise the essence of the independence of a judge; on the contrary, an entitlement to a retirement pension strengthens the economic independence of judges, and thus also the essence of their independence. 51 Independence in terms of the essence of an activity is not therefore an appropriate criterion for justifying the exclusion of a professional category form the scope of the Framework Agreement.
In these circumstances Mr Cavanagh QC for the Ministry did not pursue the
argument that the principle of the independence of the judiciary justified according a different status for the purposes of the Framework Agreement to recorders from that which governed ordinary departmental staff in the civil service.
The fact that recorders are not subject to direction or control over the decisions that they take in the performance of the responsibilities of their office does not deprive them of the protection against discrimination that the Framework Agreement was designed to provide.
Instead, recognising that this argument was no longer open to him, Mr Cavanagh confined his argument to addressing points of detail.
He submitted that a recorders terms and conditions of service, as set out in a succession of memoranda from the Lord Chancellor, did not tell the whole story.
It was, he submitted, necessary to go into the reality and substance of the matter.
The issue could only be resolved if one was in possession of the full facts.
In particular, evidence could usefully be heard about such matters as the way recorders were appointed and removed, the way their work was organised, whether sanctions were imposed upon recorders for sitting less than the minimum of 15 days a year and whether in practice the fixing and carrying out of sitting engagements was substantially different from the other professional commitments they undertook.
He submitted that, while salaried part time judges would have a stronger case for being regarded as workers, fee paid part time judges are in a position similar to self employed persons.
If the case were remitted to the Employment Tribunal, the evidence would show that the booking of judicial sittings by a recorder is similar to the booking of counsels engagements.
One could not assume that the position of other judges was the same as that for recorders, although his position was that they all fell outside the definition of worker within the meaning of the Framework Agreement.
As narrated in para 11, above, the court was satisfied that it was unnecessary to remit the matter to the Employment Tribunal on the worker issue, and that it should confirm its provisional view expressed in paragraph 27 of its judgment on the reference.
Nothing in the judgment of the CJEU is inconsistent with that provisional view, and much of the judgment supports it.
Following the guidance that the CJEU provided in para 43 of its judgment (see para 30, above), account in arriving at this decision was taken of the following matters mentioned in paras 44 46: (i) the fact that the character of the work that a recorder does in the public service differs from that of a self employed person; (ii) the rules for their appointment and removal, to which no self employed person would subject himself; (iii) the way their work is organised for them, bearing in mind that recorders, in common with all other part time judges, are expected to work during defined times and periods; (iv) their entitlement to the same benefits during service, as appropriate, as full time judges.
The court does not accept that the terms and conditions laid down by the Lord Chancellor for recorders do not give a true picture of the reality of the work that is done by a recorder.
On the contrary, Mr OBriens evidence shows that he was on one occasion required to explain why he had in two successive years failed to achieve the required number of sittings, and Mr OBrien had to explain and apologise.
The reality is that recorders are expected to observe the terms and conditions of their appointment, and that they may be disciplined if they fail to do so.
The very fact that most recorders are self employed barristers or solicitors merely serves to underline the different character of their commitment to the public service when they undertake the office of recorder.
As the CJEU made clear in para 44, the spirit and purpose of the Framework Agreement requires that a distinction must be made between the category of worker and that of self employed persons.
The matters referred to in the previous paragraph, taken together, really speak for themselves.
The self employed person has the comparative luxury of independence.
He can make his own choices as to the work he does and when and where he does it.
He works for himself.
He is not subject to the direction or control of others.
Of course, he must adhere to the standards of his trade or profession.
He must face the reality that, if he is to succeed, he must satisfy the needs and requirements of those who engage his services.
They may be quite demanding, and the room for manoeuvre may be small.
But the choices that must be made are for him, and him alone, to take.
In Percy v Board of National Mission of the Church of Scotland [2005] UKHL
73, [2006] 2 AC 28, para 141, Lady Hale referred to the authors comment in Harvey on Industrial Relations and Employment Law, para A[4] that the distinction as to whether a person is in an employment relationship is between those who work for themselves and those who work for others, regardless of the nature of the contract under which they are employed.
This was the same distinction that in para AG48 Advocate General Kokott said must be made in order to have regard to the spirit and purpose of the Framework Agreement.
In para 145 Lady Hale quoted the passage from Sir Robert Carswells judgment in Perceval Price v Department of Economic Development [2000] IRLR 380, 384, where he said that judges are not free agents to work as and when they choose as are self employed persons, and that their office partakes of some of the characteristics of employment: see para 31, above.
In para 146 Lady Hale went on to say this: I have quoted those words because they illustrate how the essential distinction is, as Harvey says, between the employed and the self employed.
The fact that the worker has very considerable freedom and independence in how she performs the duties of her office does not take her outside the definition.
Judges are servants of the law, in the sense that the law governs all that they do and decide, just as clergy are servants of God, in the sense that Gods word, as interpreted in the doctrine of their faith, governs all that they practise, preach and teach.
This does not mean that they cannot be workers or in the employment of those who decide how their ministry should be put to the service of the Church.
As that was a case about the rights of a member of the clergy, she did not say, and did not have to say, in so many words that judges can be workers.
But in their case too, and especially in the case of those who work as part time judges, the same essential distinction between the employed and the self employed can be drawn.
The fact is, as the matters referred to above make clear, that they are not free agents to work as and when they choose.
They are not self employed persons when working in that capacity.
For these reasons the court holds recorders are in an employment relationship within the meaning of clause 2.1 of the Framework Agreement on part time work and that, as the result to be achieved by the PTWD is binding on the United Kingdom, they must be treated as workers for the purposes of the 2000 Regulations.
Objective justification
The Part Time Workers Directive, like the Fixed term Work Directive, is unusual in allowing the justification of direct discrimination against part time workers.
Clause 4.1 of the Framework Agreement (quoted at para 14 above) prohibits treating part time workers less favourably than comparable full time workers, solely because they work part time, unless different treatment is justified on objective grounds.
Regulation 5(2) of the domestic 2000 Regulations (quoted at para 17 above) is to the same effect.
However, clause 4.2 of the Framework Agreement sets out the general principle that where appropriate, the principle of pro rata temporis shall apply.
Regulation 5(3) is to the same effect.
Hence the usual expectation is that part time workers will receive the same remuneration and other benefits as comparable full time workers, calculated on a pro rata basis, unless there are objective grounds for departing from this principle.
There is, however, little guidance from the CJEU as to what might constitute such objective grounds, other than that which we have been given in this particular case, at paras 64 to 66 of the judgment of the court: 64 . the concept objective grounds . must be understood as not permitting a difference in treatment between part time workers and full time workers to be justified on the basis that the difference is provided for by a general, abstract norm.
On the contrary, that concept requires the unequal treatment at issue to respond to a genuine need, be appropriate for achieving the objective pursued and be necessary for that purpose: see, by way of analogy with clause 5.1(a) of the Framework Agreement on Fixed term Work, Del Cerro Alonso [2008] ICR 145, paras 57 and 58. 65 Since no justification has been relied on during the proceedings before the court, it is for the referring court to examine whether the inequality of the treatment between full time judges and part time judges remunerated on a daily fee paid basis may be justified. 66 It must be recalled that budgetary considerations cannot justify discrimination: see, to that effect, Schnheit v Stadt Frankfurt am Main (Joined Cases C 4/02 and C 5/02 [2003] ECR I 12575, para 85, and Zentralbetriebsrat der Landeskrankenhuser Tirols v Land Tirol (Case C 486/08) [2010] ECR I 3527, para 46.
The first sentence of para 64 means no more than that it is not enough for a member state to provide for the difference in treatment in its law (or enforceable collective agreement): see Adeneler v Ellenikos Organismos Galaktos (Case C 212/04) [2006] ECR I 6057.
The fact that regulation 17 of the domestic Regulations excludes fee paid part time judicial officers from the protection given by the Regulations is neither here nor there.
The second sentence of para 64 repeats the familiar general principles applicable to objective justification: the difference in treatment must pursue a legitimate aim, must be suitable for achieving that objective, and must be reasonably necessary to do so.
The opinion of Advocate General Kokott is slightly more expansive at para 62: 62 The unequal treatment at issue must therefore be justified by the existence of precise, concrete factors, characterising the employment condition concerned in its specific context and on the basis of objective and transparent criteria for examining the question whether that unequal treatment responds to a genuine need and whether it is appropriate and necessary for achieving the objective pursued: see Del Cerro Alonso [2008] ICR 145, para 58, and Ang Serrano v European Parliament (Case C 496/08P) [2010] ECR I 1793, para 44.
This court proposes to follow the guidance given by the CJEU and the Advocate General in those passages.
Although the CJEU did not repeat the first part of para 62 of the Advocate Generals opinion, it is merely a longer quotation from para 58 of the judgment in Del Cerro Alonso v Osakidetza Sevvicio Vasco del Salud [2008] ICR 145 which the court did cite.
The Ministry of Justice face the difficulty that they have not until now articulated a justification for their policy.
It is clear from the history that when the 2000 Regulations were made the Lord Chancellor took the view that judges were not workers for this purpose, a view which was maintained until this court rejected it following the renewed hearing of this case in July 2012.
This does not preclude the Ministry from now advancing a justification for maintaining the policy: see Seldon v Clarkson Wright & Jakes [2012] UKSC 16, [2012] ICR 716, para 60, citing Petersen v Berufsausschuss fr Zahnrtze fr den Bezirk Westfalen Lippe (Case C 341/08) [2010] ECR I 47.
It is also clear from the history that, insofar as there was a reason for ensuring that fee paid part time judges were not covered by the 2000 Regulations, it was to save cost.
By itself, of course, this cannot constitute justification.
But once again, this does not preclude the Ministry from now advancing a different and better justification: see Finalarte Sociedade Construo Civil Lda v Urlaubs und Lohnausgleichskasse der Bauwirtschaft (Cases C 49/98, C 50/98, C 52/98 to C 54/98 and C 68/98 to C 71/98) [2003] 2 CMLR 11.
However, in this as in any other human rights context, this court is likely to treat with greater respect a justification for a policy which was carefully thought through by reference to the relevant principles at the time when it was adopted: see Belfast City Council v Miss Behavin Ltd [2007] UKHL 19, [2007] 1 WLR 1420, paras 26 and 37; R (SB) v Governors of Denbigh High School [2006] UKHL 15, [2007] 1 AC 100, para 31.
In particular, as Mummery LJ pointed out in R (Elias) v Secretary of State for Defence [2006] EWCA Civ 1293, [2006] 1 WLR 3213, at paras 128 to 132, it is difficult for the Ministry to justify the proportionality of the means chosen to carry out their aims if they did not conduct the exercise of examining the alternatives or gather the necessary evidence to inform the choice at that time.
treatment complained of: In their pleaded case, the Ministry advance three inter related aims for the (i) fairness in the distribution of the States resources that are available to fund judicial pensions; (ii) to attract a sufficiently high number of good quality candidates to salaried judicial office; and (iii) to keep the cost of judicial pensions within limits which are affordable and sustainable.
In Mr Cavanaghs written and oral submissions on their behalf, fairness was divided into two elements: (a) the alternative opportunities available to part timers, but denied to full timers, to make provision for their retirement; and (b) the greater contribution made by the full timers to the working of the justice system.
Remission?
Before considering each of these suggested justifications, it is necessary to consider whether the case should be remitted to the Employment Tribunal for the determination of any relevant disputed facts.
The Ministry, Mr OBrien and the interveners have all filed extensive evidence in accordance with this courts directions in July 2012.
While much is agreed, Mr Cavanagh argues that there are five key areas of dispute: (i) the extent to which Recorders also have practices as barristers or solicitors; (ii) the number of days which Recorders are required to sit in a year and the extent of the flexibility which they are allowed in order to accommodate the demands of their practices; (iii) whether the work of Recorders is in general less onerous than the work of Circuit Judges; (iv) the extent to which Recorders suffer a drop in pay if they become Circuit Judges and whether there would be a drop in high quality candidates for full time appointment if the pensions payable to full timers were reduced; and (v) how much it would cost to provide pro rata pensions to Recorders.
Mr Cavanagh acknowledges that the most important areas are (i) and (iii), as these are directly relevant to the fairness justification.
Once the arguments were examined in detail, however, it became apparent that resolving these factual issues would not resolve the central issue of whether the discrimination is objectively justified.
To the extent that it might do so, the court was content to take the factual basis of the Ministrys case at the highest at which it could properly be put.
Accordingly, the court decided not to remit for this purpose.
Fairness: alternative means of providing for retirement
The Ministry point out that recorders are far removed from the type of part time worker for whom the protection of the PTWD was designed.
These were, it is said, low paid workers who were driven to take part time jobs by their personal circumstances, often their childcare or other domestic responsibilities, and were in a very weak bargaining position compared with their full time and more often unionised colleagues.
Many of them were women.
Indeed, before the PTWD, there were many cases decided where discrimination against part time workers was held to be indirect discrimination on grounds of sex because women were so much more likely to be adversely affected by it than men: see, for example, R v Secretary of State for Employment, Ex p Seymour Smith (No 2) [2000] 1 WLR 435.
The aim of the Directive was to promote more flexible working patterns, by eliminating discrimination against part time workers and assisting the development of opportunities for part time working in a way which would benefit both employers and workers.
Recorders, it is said, do not undertake their part time judicial work in order to prepare for retirement, reconcile professional and family life, and take up education and training opportunities (the reasons mentioned in the fifth of the General Considerations listed in the Framework Agreement for attaching importance to measures which would facilitate access to part time work).
The great majority of recorders are either in practice at the Bar or as solicitors or hold other judicial offices as District or Tribunal Judges.
A few may be employed, for example as academic lawyers or even Law Commissioners.
The point is that they have a principal occupation which is not judging.
This means that they can provide for their retirement in other ways: a sole practitioner such as a barrister can build up his own pension pot from his earnings at the Bar; a partner in a solicitors practice can take part in the firms pension scheme; an employed person can take part in his occupational or other pension arrangements.
They do not need to rely upon a pension from their very limited time sitting in court.
The availability of other resources has been taken into account in the justification of age discrimination: see, for example, Palacios de la Villa v Cartefiel Services SA (Case C 411/05) [2009] ICR 1111; Rosenbladt v Oellerking Gebudereinigungs GmbH (Case C 45/09) [2011] IRLR 51.
Full timers, on the other hand, have hardly any opportunity for outside earnings and have no means other than the judicial pension scheme to make provision for their retirement.
It is fair, therefore, that the limited sums available for judicial pensions should be allocated to the full timers (and to the salaried part timers) rather than to the fee paid part timers.
The full timers need them and the part timers do not.
The Ministry are able to make this argument with particular force because this case happens to be about a recorder.
The great majority of recorders do have other sources of income from which to provide for their retirement.
As the Council of Immigration Judges make clear, this is by no means true of many fee paid judicial officers.
Some, indeed, are sitting virtually full time but on a part time fee paid basis.
Some have a portfolio of fee paid offices which add up to a full time post.
Some are sitting part time precisely because they need more flexible work to accommodate their domestic or other responsibilities.
None of these have the opportunity to provide for their retirement out of other income.
They are just the sort of people for whom the PTWD was designed.
The fallacy in the Ministrys argument, it is said, is that fee paid part timers may (or may not) have the opportunity to provide for their retirement out of other earnings, but they do not have the opportunity to do so while they are engaged in their part time sittings.
While engaged on judicial duties they are deprived of the opportunity to make other earnings and the pension contributions which could be made from them.
Occupational pension schemes are part of the package of remuneration which goes with a particular occupation: they are often referred to as deferred pay.
They are part of the price which the employer pays for the workers services.
It would not be justifiable for an employer to pay a lesser daily rate to a fee paid part timer than to a full timer: indeed, recorders are paid a daily rate which is the equivalent pro rata temporis to the salary of a full time circuit judge, but without the pension element in the package.
It is equally unjustifiable, it is said, to separate out the pension element in the remuneration package and refuse to apply the pro rata temporis principle to it.
In this respect, it is irrelevant that the employer is the State.
The Ministry should be regarded like any other employer.
A private employer would not be able to justify paying part time workers less or denying them access to its occupational pension scheme and the State should be in no different position.
At bottom, this is not an argument about fairness.
It is premised on there being a limited pot of money available to fund judicial pensions.
That, it is said, is an impermissible premise: budgetary considerations cannot justify discriminatory treatment.
Fairness: the greater contribution made by full timers
Another aspect of fairness, argue the Ministry, is that recorders generally do the less onerous work in the Crown and county courts.
They only sit for a limited period each year and so cannot try the longer and more complicated cases, nor do they generally have to do the paperwork which the full time judges have to do.
There are also a few, very limited, powers which are statutorily reserved to circuit judges.
Against that, and with those very limited exceptions, it is said that the statutory jurisdiction of recorders is exactly the same as the jurisdiction of a circuit judge (as indeed the jurisdiction of a deputy district judge is exactly the same as the jurisdiction of a district judge).
Certain types of work require a ticket for example, to try serious sexual offences, for child care cases, or for Technology and Construction Court work.
But some recorders have such tickets (Mr OBrien, for example, was ticketed to do Technology and Construction Court work) and many circuit judges do not.
Some recorders, especially if they sit in the smaller courts, may also be required to do paperwork.
If circuit judges do undertake tasks which recorders are not required to undertake, the proper response is to reward these with extra responsibility payments, not to make a whole sale and indiscriminate exception to the pro rata temporis principle.
A further aspect of this fairness argument, which tells against the Ministry, is that it suits Her Majestys Courts and Tribunals Service to have a cadre of fee paid part timers who can be flexibly deployed to meet the varying demands of court business.
If all the work was done by full timers, there would have to be enough judges to cater for the busiest times.
Inevitably, some would not have enough to do at other times.
But once a judge is appointed to a full time post, it is not possible to dismiss him for redundancy.
Appointing a large number of fee paid part timers enables the system to respond economically and flexibly to the fluctuations in demand for the courts services.
Like a bank of agency nurses or supply teachers, it is an efficient method of working which benefits everyone.
This efficiency should not be purchased at a price which discriminates against the part timers.
Recruitment
The Ministry argue that (even with the recent and proposed changes) the judicial pension scheme is a substantial incentive for high quality practitioners to seek and accept a full time appointment.
It is a matter of general public importance that the remuneration package of circuit judges is sufficiently appealing to attract a sufficient number of high quality candidates.
Barristers and solicitors in private practice frequently suffer a drop in income when they are appointed to the Bench.
The pension sweetens the pill.
This argument does, of course, assume that the persons best qualified to serve as circuit judges are the barristers and solicitors who have been most successful in private practice.
Even assuming that to be the case, however, it is difficult to see why denying pensions to recorders increases the attractions of full time appointment. (It has echoes of the argument that denying the benefits of marriage to same sex couples increases the attractions of marriage to couples of opposite sexes.) The effect of paying pensions to part timers would be to increase their remuneration package for the limited number of days on which they sit.
For recorders in particular, it would come nowhere close to making proper provision for their retirement.
The pension entitlement attached to a full time appointment would still present a significant attraction, especially to a practitioner who had not already built up a very substantial pension pot of his own.
Further, the Ministry do not argue that the recent and proposed changes to the judicial pension scheme, which will significantly reduce its attractiveness to the most successful practitioners, have had any impact upon the quantity and quality of applications for the full time Circuit bench.
Quite the reverse.
Their assessment of the impact of the introduction of contributions last year was that this would not have a significant effect upon recruitment.
Promoting a high quality judicial system is of course a legitimate aim but it applies just as much to the part timers as to the full timers.
Both must be of a high standard, so it is not an aim which divides them.
While there is no evidence that the lack of a pension deters good quality candidates from applying to be recorders, the same may not be true of those parts of the justice system which rely upon fee paid part timers to do the great majority of the work.
The Ministry accept that cost alone cannot justify discriminating against part time workers.
But they argue that cost plus other factors may do so.
This is a subtle point which is not without difficulty.
The starting point for the discussion of this issue is the statement of the ECJ in MA de Weerd (Roks) v Bestuur Van de Bedrijfsvereniging voor de Gezondheid, Geestilijke en Maatschappelijke Belangen (Case C 343/92) [1994] 2 CMLR 325, a case about sex discrimination in social security benefits, at para 35: 35although budgetary considerations may influence a Member States choice of social policy and affect the nature or scope of the social protection measures it wishes to adopt, they cannot in themselves constitute the aim pursued by that policy and cannot, therefore, justify discrimination against one of the sexes.
In other words, richer states may have more generous benefits systems than do poorer states.
Cost may inform how much the state will spend upon its benefits system, but the choices made within that system must pursue policy aims other than saving cost.
The court continued: 36 Moreover, to concede that budgetary considerations may justify a difference in treatment as between men and women which would otherwise constitute indirect discrimination on grounds of sex . would be to accept that the application and scope of as fundamental a rule of Community law as that of equal treatment between men and women might vary in time and place according to the state of the public finances of the Member States.
It is one thing to set benefits at a particular level for budgetary reasons.
It is another thing to pay women less than men because it is cheaper so to do.
Sex discrimination is wrong whether the state (or the employer) is rich or poor.
But, say the Ministry, the fact that a social policy aim is affected by budgetary considerations does not invalidate it if it is otherwise justified.
Mr Cavanaghs best case is Jrgensen v Foreiningen af Speciallaeger and Sygesikringens Forhandlingsudvalg (Case C 226/98) [2000] IRLR 726.
Mrs Jrgensen, a specialist rheumatologist, complained about a rule which meant that, if she sold her practice, it would, because of its turnover, be treated as a part time practice and subject to a cap on the fees it could receive from the Danish national health authorities.
She argued that this was indirectly discriminatory on grounds of sex, because her lower turnover was the result of her domestic responsibilities, which affected many more women than men.
The aim of the scheme which imposed the cap was to limit the exercise of part time specialist practice, it being considered that many doctors who worked principally in a hospital and part time in their own practices neglected the former for the sake of the latter.
Among other questions, the Danish court asked the ECJ whether considerations relating to budgetary stringency, savings or medical practice planning might be regarded as objective considerations justifying a measure which adversely affected a larger number of women than men.
In answering the question, the court repeated (at para 39) paragraphs 35 and 36 of Roks (see para 64 above) but agreed with the Commission that reasons relating to the need to ensure sound management of public expenditure on specialised medical care and to guarantee peoples access to such care are legitimate (at para 40).
Their answer to the question was that budgetary considerations cannot in themselves justify discrimination on grounds of sex.
However, measures intended to ensure sound management of public expenditure on specialised medical care and to guarantee peoples access to such care may be justified if they meet a legitimate objective of social policy, are appropriate to attain that objective and are necessary to that end (at para 42).
If this is the Ministrys best case on budgetary considerations, it can be said, then it does not take them very far.
Sound management of the public finances may be a legitimate aim, but that is very different from deliberately discriminating against part time workers in order to save money.
In European Commission v The Netherlands (Case C 542/09), the Commission complained that imposing a residence requirement upon migrant workers and their families for eligibility for student support for courses outside the Netherlands breached the principle of non discrimination against migrant workers.
The Netherlands argued that the requirement was necessary in order to avoid an unreasonable financial burden which could have consequences for the very existence of the assistance scheme (para 56).
The court reiterated (at paras 57 and 58), mutatis mutandis, the principles set out in Roks (see para 64 above) and concluded that the objective pursued by the Kingdom of the Netherlands of avoiding an unreasonable financial burden cannot be regarded as an overriding reason relating to the public interest, capable of justifying the unequal treatment of workers from other Member States as compared with Netherlands workers (para 69).
As Advocate General Sharpston had put it in her opinion, Any conditions attached to [the scheme] in order to keep expenditure within acceptable limits must be borne equally by migrant workers and Netherlands workers (para 89).
On the other hand, the court held that the aim of promoting student mobility was legitimate and a residence requirement was an appropriate means of achieving that aim, as only students resident in the Netherlands would need to be encouraged to study elsewhere; but the Netherlands had not succeeded in establishing that the particular residence rule adopted did not go beyond what was necessary in order to achieve that objective.
So a completely different aim might have been capable of justifying the policy.
Hence the European cases clearly establish that a Member State may decide for itself how much it will spend upon its benefits system, or presumably upon its justice system, or indeed upon any other area of social policy.
But within that system, the choices it makes must be consistent with the principles of equal treatment and non discrimination.
A discriminatory rule or practice can only be justified by reference to a legitimate aim other than the simple saving of cost.
No doubt it was because the CJEU foresaw that the Ministry would seek to rely upon considerations of cost when the case returned to the national courts that it took care to reiterate that budgetary considerations cannot justify discrimination (para 66).
Our attention was drawn to some domestic authorities, and in particular to Woodcock v Cumbria Primary Care Trust [2012] EWCA Civ 330, [2012] ICR 1126.
This was an age discrimination case, in which the claimant complained that the trust had deliberately failed to comply with a requirement to consult before declaring him to be redundant, so that his employment would cease before he reached the age which would trigger a higher severance payment.
The Court of Appeal held that the dismissal notice was not served with the simple aim of dismissing him before his 49th birthday but in order to give effect to a genuine decision that his position was redundant.
It was justifiable to implement that decision in a way which saved money.
This court must, however, take its guidance from the jurisprudence of the CJEU, and in particular the guidance which we have been given in this very case.
In the circumstances it is unnecessary for us to express a view upon whether the case of Woodcock was rightly decided.
Conclusions
We agree with the arguments advanced on behalf of Mr OBrien.
The Ministry have struggled to explain what they are seeking to achieve by denying a pension to part timers while granting one to full timers.
One aim seems to be to give a greater reward to those who are thought to need it most.
This might be a legitimate aim, but (as Advocate General Kokott explained) the unequal treatment of different classes of employees must be justified by the existence of precise, concrete factors, characterising the employment condition concerned in its specific context and on the basis of objective and transparent criteria.
An employer might devise a scheme which rewarded its workers according to need rather than to their contribution, but the criteria would have to be precise and transparent.
That is not so here.
Some part timers will need this provision as much as, if not more than, some of the full timers.
On examination, this objective amounts to nothing more than a blanket discrimination between the different classes of worker, which would undermine the basic principle of the PTWD.
Similarly (but inconsistently), an employer might aim to give a greater reward to those who make the greater contribution to the justice system, but the Ministry have failed to demonstrate that fee paid part timers, as a class, make a lesser contribution to the justice system than do full timers, as a class.
Once again, the criteria for assessing such contributions are not precise and transparent.
They amount to nothing more than a blanket discrimination between the two classes of worker.
The proper approach to differential contributions is to make special payments for extra responsibilities.
The argument also fails to take into account the benefits to the system in having a cadre of fee paid part timers who can be flexibly deployed to meet the changing demands upon it.
The aim of recruiting a high quality judiciary is undoubtedly legitimate, but it applies to the part time judiciary as much as it applies to the full timers.
Nor has it been shown that denying a pension to the part timers has a significant effect upon the recruitment of full timers.
In effect, the arguments presented to us are the same as the arguments
presented by the Kingdom of the Netherlands in Commission v The Netherlands: that if recorders get a pension, then the pensions payable to circuit judges will have to be reduced.
That is a pure budgetary consideration.
It depends upon the assumption that the present sums available for judicial pensions are fixed for all time.
Of course there is not a bottomless fund of public money available.
Of course we are currently living in very difficult times.
But the fundamental principles of equal treatment cannot depend upon how much money happens to be available in the public coffers at any one particular time or upon how the State chooses to allocate the funds available between the various responsibilities it undertakes.
That argument would not avail a private employer and it should not avail the State in its capacity as an employer.
Even supposing that direct sex discrimination were justifiable, it would not be legitimate to pay women judges less than men judges on the basis that this would cost less, that more money would then be available to attract the best male candidates, or even on the basis that most women need less than most men.
It follows that no objective justification has been shown for departing from the basic principle of remunerating part timers pro rata temporis.
Although this case is concerned only with the case of a recorder, it seems unlikely that the Ministrys argument could be put any higher than it has been.
The court holds that the appellant is entitled to a pension on terms equivalent to those applicable to a circuit judge.
Disposal
Trinity Term [2010] UKSC 34 On appeal from: [2008] EWCA Civ 1448 JUDGMENT O'Brien (Appellant) v Ministry of Justice (Formerly the Department for Constitutional Affairs) (Respondents) Lord Hope, Deputy President before Lord Walker Lady Hale Lord Clarke Lord Dyson 28 July 2010 JUDGMENT GIVEN ON Heard on 14 and 15 June 2010 Appellant Robin Allen QC Rachel Crasnow (Instructed by Browne Jacobson LLP) Respondent John Cavanagh QC Sarah Moore Holly Stout (Instructed by Treasury Solicitor) Intervener (Council of Immigration Judges) Ian Rogers (Instructed by Underwood Solicitors LLP) LORD WALKER (delivering the judgment of the court) Introductory 1.
This appeal raises questions of EU law relating to Council Directive 97/81/EC of 15 December 1997 (the PTWD) concerning the Framework Agreement on part time work concluded by UNICE, CEEP and ETUC (the Framework Agreement) which the Court considers it necessary to refer to the Court of Justice under article 267 of the Treaty on the Functioning of the European Union.
The appeal also raises questions of domestic law, as to the status and terms of service of judges in England and Wales (the term judges being here used as a compendious term so as to include, in general, chairmen and members of tribunals and others exercising judicial functions for remuneration, but not lay magistrates).
The domestic law questions cannot easily be disentangled from the questions of EU law, partly because of the Marleasing principle (see Marleasing SA v La Comercial Internacional de Alimentacion SA C 106/89 [1991] I ECR 4135) and partly because Clause 2(1) of the Framework Agreement refers to employment contract or employment relationship as defined by the law, collective agreement or practice in force in each Member State. 2.
This judgment is in five sections.
The first section summarises the relevant parts of the PTWD, the Framework Agreement and the regulations transposing these EU measures into domestic law.
The second and third sections set out the (largely undisputed) facts both as to the wider factual context (including the growing importance of part time judges in the English legal system) and as to Mr OBriens claim against the Ministry of Justice.
The fourth section considers and gives this Courts opinion on the relevant principles of domestic law, but with the important qualification that (because of their entanglement with EU issues) some of the Courts conclusions must be treated as provisional, and may have to be revisited in the light of the Court of Justices preliminary ruling.
The fifth and final section explains why a preliminary ruling is necessary, and sets out the questions referred to the Court of Justice.
I The PTWD, the Framework Agreement and the domestic regulations 3.
The PTWD contains in recital (11) a reference to the parties to the Framework Agreement wishing to establish a general framework for eliminating discrimination against part time workers and to contribute to developing the potential for part time work on a basis which is acceptable for employers and workers alike.
Recital (16) is as follows: Whereas, with regard to terms used in the Framework Agreement which are not specifically defined therein, this Directive leaves Member States free to define those terms in accordance with national law and practice, as is the case for other social policy Directives using similar terms, providing that the said definitions respect the content of the Framework Agreement.
Article 1 states that the purpose of the Directive is to implement the Framework Agreement.
Article 2 requires Member States to transpose it into national law by 20 January 2000 at latest. 4.
Clauses 1 and 2 of the Framework Agreement are as follows: Clause 1: Purpose The purpose of this Framework Agreement is: (a) to provide for the removal of discrimination against part time workers and to improve the quality of part time work; (b) to facilitate the development of part time work on a voluntary basis and to contribute to the flexible organization of working time in a manner which takes into account the needs of employers and workers.
Clause 2: Scope 1.
This Agreement applies to part time workers who have an employment contract or employment relationship as defined by the law, collective agreement or practice in force in each Member State. 2.
Member States, after consultation with the social partners in accordance with national law, collective agreements or practice, and/or the social partners at the appropriate level in conformity with national industrial relations practice may, for objective reasons, exclude wholly or partly from the terms of this Agreement part time workers who work on a casual basis.
Such exclusions should be reviewed periodically to establish if the objective reasons for making them remain valid.
The Ministry of Justice does not place any reliance on Clause 2(2).
Clause 3 contains definitions of part time worker and comparable full time worker.
Clause 4 sets out the principle of non discrimination: Clause 4: Principle of non discrimination 1.
In respect of employment conditions, part time workers shall not be treated in a less favourable manner than comparable full time workers solely because they work part time unless different treatment is justified on objective grounds. 2.
Where appropriate, the principle of pro rata temporis shall apply. 3.
The arrangements for the application of this clause shall be defined by the Member States and/or social partners, having regard to European legislation, national law, collective agreements and practice. 4.
Where justified by objective reasons, Member States after consultation of the social partners in accordance with national law, collective agreements or practice and/or social partners may, where appropriate, make access to particular conditions of employment subject to a period of service, time worked or earnings qualification.
Qualifications relating to access by part time workers to particular conditions of employment should be reviewed periodically having regard to the principle of non discrimination as expressed in Clause 4.1. 5.
The PTWD did not initially apply to the United Kingdom.
But Council Directive 98/23/EC of 7 April 1998 provided for it to apply to the United Kingdom with 7 April 2000 being substituted for 20 January 2000 as the final date for transposition. 6.
The United Kingdom gave effect to the PTWD and the Framework Agreement by the Part time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2000 No.1551) (the Regulations) which were made on 8 June 2000 and came into force on 1 July 2000.
The Regulations were made under section 19 of the Employment Relations Act 1999. 7.
Regulation 1(2) contains definitions, including: contract of employment means a contract of service or of apprenticeship, whether express or implied, and (if it is express) whether oral or in writing; worker means an individual who has entered into or works under or (except where a provision of these Regulations otherwise requires) where the employment has ceased, worked under (a) a contract of employment; or (b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.
There is no reference to employment relationship.
Regulation 2 (as amended) contains definitions of a full time worker, a part time worker and a comparable full time worker.
It is common ground that if Mr OBrien was a worker at all, he was a part time worker. 8.
Regulation 5 sets out the prohibition on unjustified less favourable treatment of part time workers: 5.
Less favourable treatment of part time workers (1) A part time worker has the right not to be treated by his employer less favourably than the employer treats a comparable full time worker (a) as regards the terms of his contract; or (b) by being subjected to any other detriment by any act, or deliberate failure to act, of his employer. (2) The right conferred by paragraph (1) applies only if (a) the treatment is on the ground that the worker is a part time worker, and (b) the treatment is not justified on objective grounds. (3) In determining whether a part time worker has been treated less favourably than a comparable full time worker the pro rata principle shall be applied unless it is inappropriate.
Part IV of the Regulations is headed Special Classes of Person and 9. contains six Regulations numbered 12 to 17.
Regulation 12 (Crown employment) provides (so far as now material) (1) Subject to regulation 13, these Regulations have effect in relation to Crown employment and persons in Crown employment as they have effect in relation to other employment and other employees and workers. (2) In paragraph (1) Crown employment means employment under or for the purposes of a government department or any officer or body exercising on behalf of the Crown functions conferred by a statutory provision.
Regulations 13 (Armed forces), 14 (House of Lords staff), 15 (House of Commons staff) and 16 (Police service) make similar provision for the classes of service personnel, office holders or employees to which they relate (but subject to an exception for certain types of military training under the Reserve Forces Acts).
Subject to that exception all these provisions include within the scope of the Regulations persons who would not or might not otherwise be included. 10.
By contrast Regulation 17 (Holders of judicial offices) disapplies the Regulations in relation to fee paid part time judges: These Regulations do not apply to any individual in his capacity as the holder of a judicial office if he is remunerated on a daily fee paid basis.
The parties take different views as to whether, in the absence of Regulation 17, fee paid part time judges would have been treated as part time workers for the purposes of the Regulations.
II The facts: the part time judiciary 11.
Until the 1970s the English judicial system had relatively few part time judges, variously styled recorders, commissioners or chairmen of quarter sessions.
All these part time judges were remunerated by fees calculated on a daily basis (fee paid).
Professor Bell (Judiciaries in Europe (2006) p312) records that in 1970 full time judges outnumbered part time judges by about three to one.
Many judicial officers who are now called judges were then designated by other terms such as registrars, stipendiary magistrates and social security or tax commissioners. 12.
The Courts Act 1971 made major changes in the justice system and (as amended) conferred the powers under which all recorders are still appointed.
Section 21 of the Courts Act 1971, as originally enacted, was in the following terms: (1) Her Majesty may from time to time appoint qualified persons, to be known as Recorders, to act as part time judges of the Crown Court and to carry out such other judicial functions as may be conferred on them under this or any other enactment. (2) Every appointment of a person to be a Recorder shall be of a person recommended to Her Majesty by the Lord Chancellor, and no person shall be qualified to be appointed a Recorder unless he is a barrister or solicitor of at least ten years standing. (3) The appointment of a person as a Recorder shall specify the term for which he is appointed and the frequency and duration of the occasions during that term on which he will be required to be available to undertake the duties of a Recorder. (4) Subject to subsection (5) below the Lord Chancellor may, with the agreement of the Recorder concerned, from time to time extend for such period as he thinks appropriate the term for which a Recorder is appointed. (5) Neither the initial term for which a Recorder is appointed nor any extension of that term under subsection (4) above shall be such as to continue his appointment as a Recorder after the end of the completed year of service in which he attains the age of 72. (6) The Lord Chancellor may if he thinks fit terminate the appointment of a Recorder on the ground of incapacity or mis behaviour or of a failure to comply with any requirements specified under subsection (3) above in the terms of his appointment. (7) There shall be paid to Recorders out of money provided by Parliament such remuneration and allowances as the Lord Chancellor may, with the approval of the Minister for the Civil Service, determine.
The section has been amended from time to time.
The most significant amendment, influenced by the Human Rights Act 1998, was the introduction of safeguards limiting the Lord Chancellors right to decline to extend, or to terminate, an appointment.
This amendment gave effect to new terms and conditions of service promulgated by the Lord Chancellors Department (the predecessor to the Ministry of Justice) in 2000. 13.
Since the Courts Act 1971 there has been a remarkable growth in the number of part time judges.
Statistics in Professor Bells chapter (table 6.1a) show that there were 2,041 part time judges (recorders and deputy district judges) in 1993 and 2,414 in 2005 (including 200 female deputy district judges, up from 89 in 1993, indicating the success of the official policy of encouraging women to become part time judges).
There are now almost twice as many part time judges (recorders and deputy district judges) as full time judges.
These figures do not take account of remunerated chairmen and members of tribunals, the structure of which has been radically reformed by the Tribunals Courts and Enforcement Act 2007.
Submissions from the Council of Immigration Judges show that in 2009 there were 145 full time immigration judges and 440 part time immigration judges (the latter group being divided between salaried part time judges and fee paid part time judges as mentioned below). 14.
For about thirty years after the Courts Act 1971 all part time judges were remunerated on a fee paid basis.
That was not a statutory requirement (section 21(7) is in very general terms) but it was the administrative arrangement chosen by the Lord Chancellors Department (later the Department of Constitutional Affairs, and now the Ministry of Justice).
Since about 2000, however, there has been an increase in salaried part time judges, especially among district judges and immigration judges. 15.
The Lord Chancellor has from time to time issued and amended written memoranda as to the terms and conditions of service of recorders.
The memorandum current in 1978 (when Mr OBrien was appointed) contained fifteen paragraphs covering (among other things) the requirement for attendance at sentencing conferences, the frequency and duration of sittings (at least twenty days a year, which could be split into two periods of at least ten days) and fees (60 a day).
The version (issued in April 2000) current at his retirement is a more elaborate document of 49 paragraphs together with two appendices (on relations with the media).
Most of the new material dealt with the renewal of appointments and judicial conduct.
A recorder was entitled to be offered a minimum of fifteen sitting days a year and might be required to sit for up to thirty days.
The daily fee was unspecified but in practice was (and still is) 1 220th of the salary of a full time circuit judge.
A fee at half the daily rate is paid for attending Judicial Studies Board residential conferences.
The CIJs submissions state that fee paid part time immigration judges sittings should not normally exceed 105 days a year, and that for each days sitting an immigration judge is credited a further days work and pay for writing determinations and similar out of court duties. 16.
All part time judges are entitled (where appropriate) to sick pay, maternity or paternity pay, and similar benefits during service.
Full time judges and salaried part time judges are entitled to pensions on retirement, subject to and in accordance with the provisions of the Judicial Pensions Act 1981 as amended and the Judicial Pensions and Retirement Act 1993 as amended.
Fee paid part time judges have no entitlement to a judicial pension on retirement.
That is what Mr OBrien complains of in these proceedings.
His complaint is founded on the PTWD and the Framework Agreement.
III Facts relevant to Mr OBriens complaint 17.
Mr OBrien was born in 1939 and called to the bar in 1962.
From about 1970 his practice was in civil (as opposed to criminal) work on the western circuit.
He was appointed Queens Counsel in 1983. 18.
With the encouragement of the leader of the western circuit Mr OBrien applied to become a recorder and was appointed as a recorder with effect from 1 March 1978.
He then continued sitting as a recorder until 31 March 2005, with regular extensions, the last extension being in 1999.
In 1986 and 1987 he was unable to comply with his sitting requirement because he was engaged in a heavy case in Hong Kong.
For this he received what he called a polite but firm reprimand from the Lord Chancellors Department.
In 1998 the Department adopted the policy, set out in its memorandum of terms and conditions, of not renewing a recorders appointment beyond the year in which he or she attained the age of 65.
From 2000 the policy was for recorders terms to be five years, automatically renewable except in the case of incapacity or misbehaviour. 19.
Mr OBrien started proceedings in the Employment Tribunal on 29 September 2005.
Initially his claim was opposed by the Department of Constitutional Affairs (now the Ministry of Justice) unsuccessfully in the Employment Tribunal, but successfully on appeal to the Employment Appeal Tribunal, on the ground that it was out of time.
But it was later ordered, by consent, that the substantive issue and the time limit issue should both be heard by the Court of Appeal as a test case.
On 19 December 2008 the Court of Appeal (the Chancellor and Smith and Maurice Kay LJJ) [2008] EWCA Civ 1448, [2009] ICR 593 allowed Mr OBriens appeal on the time limit issue, but directed the Employment Tribunal to dismiss the claim on the issue of substance. 20.
Mr OBrien was given permission to appeal to the Supreme Court and this Court heard submissions on 14 and 15 June 2010.
As often happens, each sides primary submission to the Court was that the matter was acte clair in its favour, and its secondary submission was that if the Court did not accept its primary submission, a reference under Article 267 was necessary.
For the reasons set out at V below the Court accepts each sides secondary submission.
IV Domestic law issues 21.
Mr OBrien makes two main alternative submissions, described by his counsel as his high ground and low ground positions.
These submissions were developed at length but essentially both are founded on the contention that as a recorder appointed under section 21 of the Courts Act 1971 (as amended) Mr OBrien worked for remuneration subject to terms and conditions akin to an employment contract.
Either it was a contract, Mr OBrien says, of a type falling within the definition of worker in Regulation 1(2) of the Regulations (his high ground position) or there was an employment relationship falling within Clause 2(1) of the Framework Agreement (his low ground position). 22.
By contrast the position of the Ministry of Justice is that Mr OBrien was not a person working under any sort of contract.
He was, it is said, the holder of an office and (as the independence of the judiciary demands) was not subject to the direction of any employer.
The fact that he was subject to income tax under Schedule E is of no assistance to him since income tax under Schedule E is charged on the earnings of an office or employment (Income Tax (Earnings and Pensions) Act 2003 section 5). 23.
Both sides referred to numerous authorities, the most important being the decision of the House of Lords in Percy v Board of National Mission of the Church of Scotland [2005] UKHL 73 [2006] 2 AC 28.
That case concerned a claim for sex discrimination by a female associate minister of the Church of Scotland.
Her claim was made under the Sex Discrimination Act 1975, section 82(1) of which contains a definition of employment substantially similar (in its requirement of a contract of service or a contract for personal execution of work or labour) to that in the Regulations.
The House of Lords, by a majority of four (Lord Nicholls, Lord Hope, Lord Scott and Lady Hale) to one (Lord Hoffmann) allowed Ms Percys appeal, holding that she was in employment and that the Employment Tribunal had jurisdiction to hear her claim.
In Percy the majority held that tenure of an office does not necessarily 24. exclude employment, especially where there is a wide statutory definition of that term (see especially Lord Nicholls at paras 18 22, concurred in by Lord Scott and Lady Hale).
Employment may extend beyond the traditional concept of a contract of service between master and servant (Lord Nicholls at para 13, Lord Hope at para 113, Lady Hale at para 141; compare Lord Hoffmann in dissent at para 66).
The degree of control exercised over the employee is therefore less important, and in any case Ms Percy was, in that case, conducting her ministry under the control of a senior minister (Lord Nicholls at para 13, Lord Hope at para 127, Lady Hale at paras 145 146 and 148). 25.
Lord Hoffmann (at para 73) and Lady Hale (at para 145) referred to the principle laid down by the Court of Justice in Lawrie Blum v Land Baden Wurttenberg C66/85 [1986] ECR 2121, para 17: That concept [worker] must be defined in accordance with objective criteria which distinguish the employment relationship by reference to the rights and duties of the persons concerned.
The essential feature of an employment relationship, however, is that for a certain period of time a person performs services for and under the direction of another person in return for which he receives remuneration.
That was a case on free movement of workers under what was then article 48 of the Treaty.
The claimant was a trainee teacher working in Germany.
As the Court of Justice was concerned with a fundamental freedom, the term worker had to be given an autonomous Community meaning, and the concept was to be interpreted broadly (para 16). 26.
Lady Hale, at paras 143 148, gave detailed consideration to the decision of the Court of Appeal of Northern Ireland in Perceval Price v Department of Economic Development [2000] IRLR 380, a claim on sex discrimination grounds brought by three female holders of full time judicial office (two were chairmen of tribunals and one was a social security commissioner).
Their claims were made under statutory provisions which excluded the holder of a statutory office, but the Court of Appeal of Northern Ireland disregarded the exclusion as being inconsistent with the Equal Treatment Directive 76/207/EEC of 9 February 1976 (which had direct effect).
Sir Robert Carswell LCJ, giving the judgment of the court, pointed out that the purpose of article 119 of the Treaty and the Equal Pay and Equal Treatment Directives was to protect against discrimination and continued (p384): All judges, at whatever level, share certain common characteristics.
They all must enjoy independence of decision without direction from any source, which the respondents quite rightly defended as an essential part of their work.
They all need some organisation of their sittings, whether it be prescribed by the President of the Industrial Tribunals or the Court Service, or more loosely arranged in collegiate fashion between the judges of a particular court.
They are all expected to work during defined times and periods, whether they be rigidly laid down or managed by the judges themselves with a greater degree of flexibility.
They are not free agents to work as and when they choose, as are self employed persons.
Their office accordingly partakes of some of the characteristics of employment .
The Supreme Court agrees with these observations. 27.
A recorder appointed under section 21 of the Courts Act 1971 (as amended) undoubtedly holds an office.
Judicial office is one of the oldest and most important offices known to English law.
That office is marked by a high degree of independence of judgment, as it must be in order to satisfy the requirements of Article 6 of the European Convention on Human Rights for an independent and impartial tribunal.
A recorder, unlike the associate minister of religion in Percy, is not subject to the directions of any superior authority as to the way in which he or she performs the function of judging.
Nevertheless recorders (and all judges at every level) are subject to terms of service of the sort referred to by Sir Robert Carswell LCJ.
Indeed judicial office partakes of most of the characteristics of employment.
However, because domestic law cannot readily be disentangled from EU law on this issue the Court prefers to express no concluded view, as to whether judges (as a general class) would qualify as workers under the Regulations, and as to whether Mr OBrien would qualify as a worker if regulation 17 were to be disregarded (in the same way as part of a domestic measure was disregarded in Perceval Price v Department of Economic Development).
V The need for a reference to the Court of Justice 28.
In approaching the EU issues this Court considers that three general points are clear.
First, there is no single definition of worker which holds good for all the purposes of Community law: Martinez Sala v Freistaat Bayern C 85/96 [1998] ECR I 2691 para 31; Allonby v Accrington and Rossendale College C 256/01 [2004] ICR 1328.
Second, in contrast to the position under other Directives (where references to workers have an autonomous European meaning) the effect of Clause 2(1) of the Framework Agreement, read together with Recital (16) of the PTWD, is to make domestic law relevant to the interpretation of the expression worker.
Thirdly, however, domestic law is not to oust or trump the principles underlying the EU legislation in such a way as to frustrate them.
Its underlying purposes must be (as Recital (16) puts it) respected. 29.
The Court has heard sharply conflicting submissions as to how these general points, which are not in dispute, should be applied to the circumstances of Mr OBriens case.
In particular the Court has heard detailed submissions on three comparatively recent decisions of the Court of Justice, that is Landeshauptstadt Kiel v Jaeger C 151/02 [2004] ICR 1528, Wippel v Peek & Cloppenburg GmbH & Co KG C 313/02 [2005] ICR 1604 and Del Cerro Alonso v Osakidetza (Servicio Vasco de Salud) C 307/05 [2008] ICR 145. 30.
Jaeger was concerned with the application of the definition of working time in para 2(1) of the Working Time Directive 93/104/EC of 23 November 1993 to time spent on call by junior doctors in German hospitals: working time shall mean any period during which the worker is working, at the employers disposal and carrying out his activity or duties, in accordance with national laws and/or practice.
The doctors had to be on call at the hospital, but when not actually working could sleep in accommodation provided for them at the hospital. 31.
The Advocate General (Colomer) stated in para 36 of his opinion: despite the fact that article 2(1) of Directive 93/104 provides that the three criteria used to define working time are to be specifically delimited in accordance with national laws and/or practice, that stipulation does not mean that member states may refrain from applying those criteria and rely on rules of national law .
However a member state may not rely on its own legislation to support the view that a doctor who carries out periods of duty on call in a hospital is not at the employers disposal at times when he is inactive but is waiting for his services to be called on again. 32.
The Court of Justice stated (paras 58 and 59 of the judgment): In any event the concepts of working time and rest period within the meaning of Directive 93/104 may not be interpreted in accordance with the requirements of the various legislations of the member states, but constitute concepts of Community law which must be defined in accordance with objective characteristics by reference to the scheme and purpose of that Directive as the Court did in SIMAP, at p1147, paras 48 50.
Only such an autonomous interpretation is capable of securing for that Directive full efficacy and uniform application of those concepts in all the member states.
Accordingly, the fact that the definition of the concept of working time refers to national laws and/or practice does not mean that the member states may unilaterally determine the scope of that concept.
Thus, those states may not make subject to any condition the right of employees to have working periods and corresponding rest periods duly taken into account, since that right stems directly from the provisions of that Directive.
Any other interpretation would frustrate the objective of Directive 93/104 of harmonising the protection of the safety and health of workers by means of minimum requirements: see United Kingdom of Great Britain and Northern Ireland v Council of the European Union (Case C 84/94) [1999] ICR 443, 506, 510, paras 47 and 75.
That passage has been adopted in another case on the Working Time Directive, Pfeiffer v Deutsches Rotes Kreuz C 397 403/01 [2005] ICR 1307, para 99. 33.
These decisions seem to show that the need to make some reference to domestic law cannot be permitted to frustrate the overriding Community purpose of safeguarding the health and safety of workers.
The Ministry of Justices written submissions (para 109) contend that a claim under the PTWD does not engage any fundamental Community right.
But the aim of the PTWD and the Framework Agreement is to eliminate inequality and discrimination.
As the Advocate General (Sharpston) stated in Istituto Nazionale della Previdenza Sociale v Bruno & Pettini C 395/08, para 119: The prohibition on discrimination in Clause 4 of the Framework Agreement is a particular expression of the general principle of equality.
It must therefore be interpreted in accordance with that principle.
Any national implementing measures must likewise respect the general principles of Community law, including the principle of equal treatment.
The elimination of inequality and discrimination is at least as important a Community principle as the health and safety of workers. 34.
Wippel was concerned with an Austrian part time worker whose contract was of an exiguous character in that she was not entitled to be offered any minimum amount of work, nor was she bound to accept work if it was offered.
Nevertheless the Austrian Oberster Gerichtshof, in making its reference, stated that the claimant was recognised as a worker by domestic law.
She was therefore within para 2(1) of the Framework Agreement. 35.
In that case the Advocate General (Kokott) stated (para 45): Consequently, for the purposes of the Framework Agreement, the term worker is not a Community law concept.
Indeed, the personal scope of application of the Framework Agreement is defined by reference to the national law applicable in each case.
The term worker therefore has to be defined in reliance on the law, collective agreements and practices in force in each member state.
The member states have wide discretionary powers in this respect.
Only the very broadest limits can be determined in this respect by reference to Community law.
It could therefore constitute a breach of the duty of co operation (article 10 EC) if a member state were to define the term worker so narrowly under its national law that the Framework Agreement on part time work were deprived of any validity in practice and achievement of its purpose, as stipulated in Clause 1, were greatly obstructed.
However, there is no sign of that here.
The Ministry of Justice relies heavily on this passage, as did the Court of Appeal ([2008] EWCA Civ 1448, para 46) following Elias J in Christie v Department of Constitutional Affairs [2007] ICR 1553, para 40.
The Court of Justice reached the same conclusion as the Advocate General, but its judgment on the first question (paras 35 40) appears to give no support to her statement that member states have wide discretionary powers or that only the very broadest limits can be set by reference to Community law. 36.
Del Cerro Alonso was concerned with workers in the Basque health service who were initially classified as temporary regulated staff but were then regraded as permanent staff.
They were refused length of service allowances in respect of their service in the temporary grade and made complaints under Council Directive 99/70/EC of 28 June 1999 concerning the Framework Agreement on fixed term work.
Their claims were resisted by the health service on the ground of objective justification, but the Kingdom of Spain intervened to contend that the regulated staff, as public sector workers, were completely outside the scope of the Directive (which contained a definition of worker in terms very similar to that in Clause 2(1) of the Framework Agreement under the PTWD). 37.
The Advocate General (Poiares Maduro) considered this point in a long passage in his opinion (paras 11 15).
It is sufficient to cite the conclusion in para 15: That conditional renvoi appears to me to be the process which is most faithful to both the letter and the spirit of the Community legislation.
The effect of it is that the member state cannot merely rely on the formal or special nature of the rules applicable to certain employment relationships in order to exclude the latter from the benefit of the protection afforded by the Framework Agreement.
If that were the case, there would be grounds for concern that the Framework Agreement could be rendered completely redundant.
If it were the case, it would be open to any member state to make the contract staff of the public authorities subject to special rules in order to call in question the decisions adopted by the Court of Justice in Adeneler v Ellinikos Organismos Galaktos (ELOG) (Case C 212/04) [2006] ECR I 6057; Marrosu v Azienda Ospedaliera Ospedale San Martino di . Genova . (Case C 53/04) [2006] ECR I 7213 and Vassalo v Azienda Ospedaliera Ospedale San Martino di Genova . (Case C 180/04) [2006] ECR I 7251.
Consequently, the exclusion of public servants from the scope of Directive 99/70 cannot be accepted unless it is demonstrated that the nature of the employment relationship between them and the administration is substantially different from that between employees falling, according to national law, within the category of workers and their employers. 38.
The Court of Justice observed (para 29 of the judgment): The mere fact that a post may be classified as regulated under national law and has certain characteristics typical of the Civil Service in the member state in question is irrelevant in that regard.
Otherwise, in reserving to member states the ability to remove at will certain categories of persons from the protection offered by Directive 99/70 and the Framework Agreement, the effectiveness of those Community instruments would be in jeopardy as would their uniform application in the member states: see, by analogy, Landeshauptstadt Kiel v Jaeger (Case C 151/02) [2004] ICR 1528, paras 58 and 59, and Pfeiffer v Deutsches Rotes Kreuz (Joined Cases C 397 403/01) [2005] ICR 1307, para 99.
As is clear not only from the third paragraph of article 249 EC, but also from the first paragraph of article 2 of Directive 99/70, in light of recital (17) of the preamble to that Directive [which is identical to recital (16) of the PTWD] the member states are required to guarantee the result imposed by Community law: Adeneler [2006] ECR I 6057, para 68. 39.
For the Ministry of Justice, the high point of these citations is the statement by Advocate General Kokott in Wippel that member states have wide discretionary powers (a statement not endorsed by the Court of Justice).
For Mr OBrien the high point is the passage (set out in the last paragraph) from the judgment of the Court of Justice in Del Cerro Alonso.
The jurisprudence of the Court of Justice appears to give little clear guidance as to what type of national deviation from the Community norm shows a lack of respect (Recital (16) of the PTWD), or is justified by the nature of the post or office being substantially different from that of normal workers (para 15 of the opinion of Advocate General Poiares Maduro in Del Cerro Alonso). 40.
Accordingly the Supreme Court of the United Kingdom seeks guidance as to whether the permissibility of a national deviation from the Community norm should be judged by some or all of the following considerations: (1) the number of persons affected (large numbers of doctors and healthcare workers must have been affected by the issues raised in Jaeger and Del Cerro Alonso); or (2) the special position of the judiciary, for whose work independence of judgment, is an essential feature; or (3) the degree to which a particular exclusion under national law appears to have been effected with a particular Community measure in mind.
In connection with this last point it is a particular cause for concern that the exclusion of fee paid part time judges by Regulation 17 of the Regulations has some appearance of being a deliberate ad hoc exclusion of a particular category while their full time or salaried part time colleagues, doing the same or similar work, will be entitled to judicial pensions on retirement. 41.
The Supreme Court has therefore concluded that it is necessary to refer the following questions to the Court of Justice: (1) Is it for national law to determine whether or not judges as a whole are workers who have an employment contract or employment relationship within the meaning of clause 2.1 of the Framework Agreement, or is there a Community norm by which this matter must be determined? (2) If judges as a whole are workers who have an employment contract or employment relationship within the meaning of clause 2.1 of the Framework Agreement, is it permissible for national law to discriminate (a) between full time and part time judges, or (b) between different kinds of part time judges in the provision of pensions? For these reasons the appeal is allowed and the order of the Court of Appeal of 19 December 2008 is set aside.
Working out exactly what this conclusion entails will not be without its difficulties.
The case will be remitted to the Employment Tribunal for the determination of the amount of the pension to which Mr OBrien is entitled under the Regulations in accordance with this judgment.
| UK-Abs | This appeal raises questions of European Union law.
These questions have their origins in an EU Framework Agreement on part time work which was concluded in 1997.
It was implemented by a Council Directive of the same year, which was extended to the United Kingdom in 1998.
Directives are binding as to the result to be achieved, leaving only the choice of form and methods to the Member State.
The Council Directive was transposed into UK law by the Part time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (the 2000 Regulations).
In essence, the 2000 Regulations provide that a part time worker has the right not to be treated by his employer less favourably than a comparable full time worker [2, 13 and 17].
Recorders are one of several types of part time judge who are paid a fee for their work.
Mr OBrien is now a retired barrister.
During his practice at the bar, he sat as a recorder from 1 March 1978 until 31 March 2005.
Mr OBrien claimed to be entitled to a pension in respect of his part time non salaried judicial work as a recorder on the same basis, adjusted pro rata temporis, as that paid to former full time judges who had done the same or similar work.
The then Department for Constitutional Affairs (DCA) told him that he was not entitled to a judicial pension since the office of recorder was not a qualifying judicial office under the relevant UK legislation and because, under European law, he was an office holder rather than a worker [1 and 5].
Mr OBrien began proceedings in the Employment Tribunal, claiming amongst other things that he was being discriminated against because he was a part time worker.
His claim was successful but the DCA (now the Ministry of Justice (MoJ)) appealed successfully to the Employment Appeal Tribunal on the grounds that Mr OBriens claim was made after the relevant time limit.
The Court of Appeal allowed Mr OBriens appeal on the time limit issue but directed the Employment Tribunal to dismiss his claim, since it found that judges were not workers under the 2000 Regulations [6 and 7].
Mr OBrien appealed to the Supreme Court which, in 2010, made a reference to the Court of Justice of the European Union (CJEU) for a preliminary ruling.
Because domestic law could not readily be disentangled from EU law on the issue, the Supreme Court preferred to express no concluded view on whether Mr OBrien would qualify as a worker under the 2000 Regulations until it had received guidance from the CJEU.
The CJEU issued its preliminary ruling, and the matter returned to the Supreme Court.
The Supreme Court is obliged under section 3(1) of the European Communities Act 1972 to determine the questions of EU law in this case in accordance with the principles laid down in the CJEUs preliminary ruling [1, 8 and 33].
As a result of the questions that were referred and of the CJEUs preliminary ruling in response to them, there were two issues before the Supreme Court: (1) whether the relationship between the MoJ and judges is substantially different from that between employers and those treated in national law as workers (the worker issue); and (2) whether the difference in treatment of recorders as compared to full time or salaried judges for the purposes of access to the retirement pension scheme is justified by objective reasons (the objective justification issue).
After a hearing in July 2012, the Supreme Court ruled that Mr OBrien was a part time worker within the meaning of the Framework Agreement.
The parties were heard on the objective justification issue in November 2012.
The judgment of the Supreme Court sets out the reasons for its ruling on the worker issue and its reasoning and conclusions on the objective justification issue [10 12].
The Supreme Court unanimously allows Mr OBriens appeal.
Recorders are in an employment relationship within the meaning of the Framework Agreement on part time work and must be treated as workers for the purposes of the 2000 Regulations.
No objective justification has been shown in this case for departing from the basic principle of paying a part time worker the same as a full time worker calculated on a pro rata temporis basis.
Mr OBrien is entitled to a pension on terms equivalent to those applicable to a circuit judge.
The case will be remitted to the Employment Tribunal for the determination of the amount of the pension to which he is entitled.
The judgment is given by Lord Hope and Lady Hale [12, 42, 75 and 76].
The CJEU stated that it was ultimately for the Supreme Court to decide the worker issue, but it set out a number of factors which the Supreme Court had to take into account, including that the term worker in the Framework Agreement is used to draw a distinction from a self employed person, which distinction is part of the spirit of the Framework Agreement.
In arriving at its ruling on the worker issue, and following the guidance from the CJEU, the Supreme Court took into account the following: (1) the character of the work that a recorder does in the public service differs from that of a self employed person; (2) the rules for the appointment and removal of recorders, to which no self employed person would subject himself; (3) the way recorders work is organised for them, bearing in mind that, in common with all other part time judges, recorders are expected to work during defined times and periods; and (4) recorders entitlement to the same benefits during service, as appropriate, as full time judges [30 and 37].
Recorders are expected to observe the terms and conditions of their appointment, and they may be disciplined if they fail to do so.
The very fact that most recorders are self employed barristers or solicitors merely serves to underline the different character of their commitment to the public service when they undertake the office of recorder.
As the CJEU made clear, the spirit and purpose of the Framework Agreement requires a distinction between worker and self employed person.
When taken together, the matters taken into account by the Supreme Court following the guidance of the CJEU really speak for themselves.
In the case of part time judges, the essential distinction between the employed and the self employed can be drawn.
The self employed person has the comparative luxury of independence.
Part time judges are not free agents to work as and when they choose.
They are not self employed persons when working in that capacity [38 40].
The Supreme Court follows the guidance given by the CJEU and the Advocate General (who presents an impartial opinion on the case to assist the CJEU) in relation to the objective justification issue.
To give a greater reward to those who are thought to need it most or alternatively to those who make the greater contribution to the justice system may be legitimate aims for the MoJ. However, they ultimately amount to nothing more than blanket discriminations between the different classes of worker, which would undermine the basic principle of the Council Directive.
The criteria adopted in relation to each of the MoJs stated aims are not precise and transparent.
In relation to the first aim, some part timers will need pension provision as much as, if not more than, some of the full timers.
In relation to the second aim, the MoJ have failed to demonstrate that fee paid part timers, as a class, make a lesser contribution to the justice system than do full timers, as a class.
The proper approach to differential contributions is to make special payments for extra responsibilities.
The argument also fails to take into account the benefits to the system in having a cadre of fee paid part timers who can be flexibly deployed to meet the changing demands upon it.
The aim of recruiting a high quality judiciary is undoubtedly legitimate, but it applies to the part time judiciary as much as it applies to the full timers.
Nor has it been shown that denying a pension to the part timers has a significant effect upon the recruitment of full timers [71 73].
The MoJs argument was essentially that if recorders receive a pension, then the pensions payable to circuit judges will have to be reduced.
That is a pure budgetary consideration which depends upon the assumption that the present sums available for judicial pensions are fixed for all time.
Of course there is not a bottomless fund of public money available and we are currently living in very difficult times.
But the fundamental principles of equal treatment cannot depend upon how much money happens to be available in the public coffers at any one particular time or upon how the State chooses to allocate the funds available between the various responsibilities it undertakes.
That argument would not avail a private employer and it should not avail the State in its capacity as an employer [74].
|
This appeal raises a short question on the true construction of the Immigration Rules, House of Commons Paper 395 (HC 395).
The question is what rules apply to family members seeking entry to the United Kingdom, where the sponsor has been granted asylum and has subsequently obtained British citizenship.
The respondent Entry Clearance Officer (ECO) says that they must satisfy the ordinary rules dealing with applications by family members, notably paras 281 (spouses and civil partners) and 297 (children) of HC 395.
The appellant family members say that that is wrong and that their cases fall to be considered under the rules dealing with applications to join relatives in this country who have been granted asylum here, notably paras 352A (spouses and civil partners) and 352D (children) of HC 395.
The distinction is important to the family because a person entitled to apply under para 352A or 352D does not have to meet the requirements concerning maintenance and accommodation imposed by paras 281 and 297.
The facts
The appellants are nationals of Afghanistan.
The first appellant, ZN, married her husband (the sponsor) in Afghanistan in 1979.
ZN and the sponsor are the parents of the other six appellants, who were born between 1985 and 1998.
The sponsor fled Afghanistan in order to seek international protection and arrived in the United Kingdom on 8 August 1999.
At some time in 1999 the family went to Pakistan, where they have extended family members.
The sponsor was granted indefinite leave to remain in the United Kingdom as a refugee on 13 December 2001.
Since 2002 the sponsor has made a number of attempts to bring his family to the UK to join him.
None of these is relevant to the resolution of the issues in this appeal.
The sponsors application for British citizenship was granted on 22 March 2005.
On 15 October 2005 the appellants made a fresh application for entry clearance as, respectively, the spouse and children of a person granted asylum.
It was stated that the appellants were seeking entry clearance under paras 352A and 352D of HC 395.
On 7 July 2006 the ECO refused the applications under the rules relating to family members, namely paras 281 and 297 of HC 395.
He held that they could not meet the accommodation and maintenance requirements imposed by sub paras (iv) and (v) of paras 281 and 297.
The appellants appealed against those refusals to the Asylum and Immigration Tribunal (the Tribunal) on the ground that ZNs application should have been considered under para 352A as the sponsors wife and that four of the childrens applications should have been considered under para 352D.
The other two children, the sixth and seventh appellants, were by that time over eighteen years of age.
All the appellants also relied upon their rights protected by Article 8 of the European Convention on Human Rights (ECHR).
The appeals
The appeals were heard by IJ Wiseman on 23 July 2007 and were dismissed on 9 August 2007.
He held that the sponsor and ZN had been married in 1979, which had been in dispute, and that the remaining appellants were their children.
He also found that the sponsor had at all material times been in poor health, suffering from heart disease and osteoarthritis, and must on any showing be significantly handicapped in the labour market.
He held that paras 352A and 352D did not apply because the sponsor had acquired British nationality at the time of the ECOs decision.
He rejected the appellants case under Article 8 on the basis (1) that the decision did not interfere with their right to respect for their private life because the sponsor could return to Pakistan and resume family life there, and/or (2) that any such interference was proportionate to the interests of immigration control and/or (3) that the decision was in accordance with the law because the appellants had the ability to comply with the immigration rules by various means.
The appellants sought and obtained an order for the reconsideration of that decision but on 8 February 2008 SIJ Eshun held that IJ Wiseman had made no error of law and that the decision therefore stood.
On 17 May 2008, on consideration of the papers, Buxton LJ gave permission to appeal to the Court of Appeal on the basis that the issue as to the extent of paras 352A and 352D was important.
The appeal was heard with another appeal in the case of ECO (Pretoria) v DL (DRC), in which the appellants had succeeded.
This Court is not concerned with that case.
The Court of Appeal considered three issues as follows: 1(a) Is a person who is outside his country of origin and recognised as a refugee, and who has subsequent to that recognition taken on the nationality of the host country, still a refugee within the meaning of the 1951 Geneva Convention on the Status of Refugees? (b) If such a person does cease to be a refugee, does his refugee status cease only following a procedural process, or automatically by operation of law? 2.
What is the effect, if any, of Directives 2004/83/EC and 2005/85/EC on these cases? 3.
Do paragraphs 352A (relating to spouses) and 352D (relating to dependant children) apply to a person who was recognised as a refugee and is now a British citizen?
Laws LJ, with whom Rix and Wilson LJJ agreed, considered issue 3 first.
He restated the question as being whether the sponsor must enjoy refugee status at the time his spouse or child seeks to join him under the paras 352A and 352D.
He held that the references to asylum and refugee were directed to a status of the sponsor that was current and accepted.
He so held as a matter of construction of the language (at paras 18 to 20), which he said was entirely clear (at para 25), because any other result would lead to absurdity (at para 21) and because there are no considerations going the other way (at paras 22 to 24).
In the light of that conclusion, he considered issues 1 and 2 together, which he restated as being whether a person who has been recognised as a refugee, but thereafter assumes the nationality of his host country, remains a refugee within the meaning of the Refugee Convention and, if not, whether his status ceases automatically or only by a procedure as contemplated by EC Directives 2004/83 and 2005/85 (the Directives).
Laws LJ answered the first of those questions in the negative (at paras 29 to 31).
As to the second, he held that it was open to a State Party to the Refugee Convention to prescribe the procedures under which cessation of refugee status pursuant to Article 1C(3) would have effect but that, if a State Party had not done so, cessation would occur automatically (see para 32).
He then considered whether the Directives laid down such a procedure and held that they did not (see paras 33 to 35).
In a judgment handed down on 18 December 2008 the Court of Appeal accordingly rejected the appellants submission that paras 352A and 352D applied.
It also rejected their case under Article 8 of the ECHR (at paras 44 and 45).
It refused permission to appeal but this Court subsequently gave permission.
Is this appeal academic?
The circumstances have recently changed from those that existed when the case was before the Court of Appeal.
On 27 January 2010 the UK Border Agency wrote to the appellants solicitors saying that the position under Article 8 had been reconsidered and that it was accepted that the Immigration Judges decision was not sustainable, principally because he did not take the familys recent history into account when considering whether it was reasonable to expect the sponsor to relocate to Pakistan.
There followed some correspondence between the parties.
The upshot was that the Treasury Solicitor (TSol) wrote on 3 February to say that the appellants would be granted three years discretionary leave to remain without any restrictions on employment or recourse to public funds.
The TSol further wrote on 9 February to say that, if the appellants were successful on issues one and/or two they would, due to the particular circumstances, and subject to the terms of the judgment be granted indefinite leave to enter or remain, depending upon whether the person concerned was in the United Kingdom by then.
It follows from the exchanges between the parties that the appeal against the decision under Article 8 is academic but that the appeal on issues one and/or two is not.
Those issues are as stated in the statement of facts and issues, as follows: 1) Did the Court of Appeal err in its construction of paragraphs 352A and 352D of HC 395 and, in particular, did it err in concluding that the said paragraphs apply only to the family members of a person who has the status of a refugee at the time those family members apply to join him or her in the UK? 2) Does a person who has been recognised as a refugee, but thereafter assumes the nationality of his host country, remain a refugee within the meaning of the Refugee Convention; or does his status cease automatically upon acquisition of that nationality or only by a procedure such as that contemplated by Directives 2004/83 and 2005/85?
The correspondence thus shows that if, for example, this Court were to hold that the Court of Appeal erred in holding that paras 352A and 352D did not apply to the appellants because their sponsor had become a British citizen on 22 March 2005 and was thus a British citizen when they made their application for entry clearance on 15 October, they would be granted indefinite leave to enter or remain, depending upon whether the particular appellant was in the United Kingdom by then.
That position was subject only to the terms of the judgment.
When this appeal came on for hearing on 15 February, this Court accepted that there is a significant difference between the position, on the one hand, of a person to whom paras 352A or 352D apply and, on the other hand, of each of the appellants as set out in the letter of 3 February.
It is true that in each case there would be no restrictions on employment or recourse to public funds.
However, in the former case the appellants would have indefinite leave to remain or enter, whereas in the latter case they would only have three years discretionary leave to remain.
In these circumstances the Court decided that the appeal was not academic in the case of all the appellants other than the sixth and seventh appellants and heard argument on the true construction of paras 352A and 352D.
The sixth and seventh appellants cannot succeed under para 352D because they were over 18 at the relevant time.
They do however have the benefit of the concession of three years discretionary leave to remain granted under Article 8 of the ECHR.
The decision of the court
Having heard argument directed to paras 352A and 352D, the Court considered the submissions and decided to allow the appeal.
It said that it would give its reasons later.
These are the reasons of the Court for reaching that conclusion.
The Refugee Convention and the Immigration Rules
Article 1A(2) of the 1951 United Nations Convention on the Status of Refugees (the Refugee Convention) defines a refugee as a person who: owing to well founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion, is outside the country of his nationality and is unable or, owing to such fear, is unwilling to avail himself of the protection of that country.
Article 1C provides: This Convention shall cease to apply to any person falling under the terms of section A if: . (3) protection of the country of his new nationality.
He has acquired a new nationality, and enjoys the Article 1F provides: The provisions of this Convention shall not apply to any person with respect to whom there are serious reasons for considering that: (a) he has committed a crime against peace, a war crime, or a crime against humanity, as defined in the international instruments drawn up to make provision in respect of such crimes; (b) he has committed a serious non political crime outside the country of refuge prior to his admission to that country as a refugee; (c) he has been guilty of acts contrary to the purposes and principles of the United Nations.
As Laws LJ observed, the ordinary rules dealing with applications by family members seeking leave to enter to join a sponsor are to be found in Part 8 of HC 395.
Para 281 (as it stood at the material time) includes a number of specific requirements.
Critically for present purposes they include requirements (iv) and (v): (iv) there will be adequate accommodation for the parties and any dependants without recourse to public funds in accommodation which they own or occupy exclusively; and (v) dependants adequately without recourse to public funds; the parties will be able to maintain themselves and any There are similar provisions relating to children under 18 in para 297, which, like para 281, is set out by Laws LJ at his para 9.
For present purposes the critical paras of HC 395 are paras 352A and 352D because they deal with applications to join relations who have been granted asylum here.
At the material time they provided: 352A.
The requirements to be met by a person seeking leave to enter or remain in the United Kingdom as the spouse or civil partner of a refugee are that: (i) the applicant is married to or the civil partner of a person granted asylum in the United Kingdom; and (ii) the marriage or civil partnership did not take place after the person granted asylum left the country of his former habitual residence in order to seek asylum; and (iii) the applicant would not be excluded from protection by virtue of article 1F of the United Nations Convention and Protocol relating to the Status of Refugees if he were to seek asylum in his own right; and (iv) each of the parties intends to live permanently with the other as his or her spouse or civil partner and the marriage or civil partnership is subsisting; and (v) if seeking leave to enter, the applicant holds a valid United Kingdom entry clearance for entry in this capacity. 352D.
The requirements to be met by a person seeking leave to enter or remain in the United Kingdom in order to join or remain with the parent who has been granted asylum in the United Kingdom are that the applicant: (i) is the child of a parent who has been granted asylum in the United Kingdom, and (ii) is under the age of 18, and (iii) is not leading an independent life, is unmarried and is not a civil partner, and has not formed an independent family unit; and (iv) was part of the family unit of the person granted asylum at the time that the person granted asylum left the country of his habitual residence in order to seek asylum; and (v) would not be excluded from protection by virtue of article 1F of the United Nations Convention and Protocol relating to the Status of Refugees if he were to seek asylum in his own right; and (vi) if seeking leave to enter, holds a valid United Kingdom entry clearance for entry in this capacity.
Para 352E provided: 352E. Limited leave to enter the United Kingdom as the child of a refugee may be granted provided a valid United Kingdom entry clearance for entry in this capacity is produced to the Immigration Officer on arrival.
Limited leave to remain in the United Kingdom as the child of a refugee may be granted provided the Secretary of State is satisfied that each of the requirements of paragraph 352D(i) (v) are met.
The question
The essential question is the third question considered by the Court of Appeal and the first issue in the statement of facts and issues set out at paras 6 and 12 above respectively.
It is whether paras 352A and 352D apply to a person who has been recognised as a refugee and granted asylum but has become a British citizen before the date of the relevant application for, or perhaps decision as to, entry clearance.
Discussion
The answer to the question depends upon the true construction of paras 352A and 352D.
The correct approach to such a question in the context of the Immigration Rules has recently been considered in both the House of Lords and this Court.
In Odelola v Secretary of State for the Home Department [2009] UKHL 25, [2009] 1 WLR 1230, Lord Hoffmann said at para 4 that the correct interpretation: depends upon the language of the rule, construed against the relevant background.
That involves a consideration of the immigration rules as a whole and the function which they serve in the administration of immigration policy.
In Ahmed Mahad v Entry Clearance Officer [2009] UKSC 16, [2010] 1 WLR 48, Lord Brown said at para 10: The Rules are not to be construed with all the strictness applicable to the construction of a statute or a statutory instrument but, instead, sensibly according to the natural and ordinary meaning of the words used, recognising that they are statements of the Secretary of State's administrative policy. the courts task is to discover from the words used in the Rules what the Secretary of State must be taken to have intended.
See also per Lord Kerr at para 51.
The critical words of para 352A (omitting the references to civil partnership for simplicity) are these: 352A.
The requirements to be met by a person seeking leave to enter or remain in the United Kingdom as the spouse of a refugee are that: (i) the applicant is married to a person granted asylum in the United Kingdom; There is also a reference to the person granted asylum in sub para (ii).
The respondent ECO points to the necessity for the applicant to be the spouse of a refugee and submits that that indicates that he or she must be a refugee at the time of the application.
The ECO further relies upon para 352E, which refers to the child of a refugee.
The appellants, on the other hand, say that the opening words of para 352A make it clear that the rule is identifying the requirements to be met by an applicant seeking leave to enter or remain in the United Kingdom as the spouse of a refugee and that the sub paras simply identify the criteria to be satisfied by the applicant.
The only relevant requirements, which are contained in sub paras (i) and (ii) respectively, are that the applicant must be married to a person granted asylum and that the marriage did not take place after the person granted asylum left his former habitual residence in order to seek asylum.
The appellants point to the fact that the rules do not say when the person must have been granted asylum.
Nor do they say that such a person is not a refugee for this purpose once he or she becomes a British citizen.
Para 352D contains a curiosity.
When it was introduced it was in the same terms as para 352A.
However, with effect from 18 September 2002, the words in order to join or remain with the parent who has been granted asylum replaced the original phrase as the child of a refugee.
It is submitted on behalf of the appellants that that is significant because it shows that the expression the child of a refugee in the original para 352D could not have referred to the status of the refugee at the time of the application for, or decision as to, entry, at any rate unless it was intended to have a different test for refugee in para 352D from the test in para 352A, which seems very unlikely.
It is further submitted that in the new para 352D, the position is clear.
The expression parent who has been granted asylum appears, not only in the first words of the para but also in sub para (i), where the applicant must be the child of a parent who has been granted asylum.
Similarly, by sub para (iv) the applicant must have been part of the family unit of the person granted asylum at the time that the person granted asylum left the country of his habitual residence in order to seek asylum.
It is submitted that para 352D makes it clear that part of the purpose of the rules was to protect the refugees family unit as recommended in the Final Act of the Conference that adopted the Refugee Convention.
Reliance in this regard is placed on Chapter VI, entitled The Principle of Family Unity, in the UN High Commissioner for Refugees Handbook on Procedures for Determining Refugee Status under the Refugee Convention and the 1967 Protocol.
The reasoning of the Court of Appeal accepting the ECOs submissions can be seen in paras 18 to 20 of Laws LJs judgment.
The key to his analysis is in para 18: 18.
The opening words of paragraph 352A seeking leave to enter . as the spouse . of a refugee import that the sponsor is currently a refugee.
Compare 352E: Limited leave to enter[/remain in] the United Kingdom as the child of a refugee .
The references to refugee are references to a current status.
It is true that paragraph 352D has a different formulation: . in order to join or remain with the parent who has been granted asylum.
However this is a familiar use of the perfect tense, to denote a state of affairs which arose in the past but is still continuing.
It is in contrast to the aorist or past historic tense, which denotes a past state of affairs which has come to an end.
Compare It rained last night with It has been raining since last night.
The Court is not persuaded by that approach.
In particular, it is not persuaded that the difference between the language of paras 352D and 352A can be explained by reference to the familiar use of the perfect tense to denote that the state of affairs is still continuing.
This involves reading the expression the parent who has been granted asylum as if it read the parent who has been granted asylum and remains a refugee, which it does not.
The Court regards the construction advanced on behalf of the appellants as the more natural meaning of the words used.
The grant of asylum is a specific event.
This is underlined by the words of sub para (i) of para 352A, which simply says that the applicant must be married to a person granted asylum and thus naturally refers to a particular historic event and not to an existing condition.
See also sub para (ii).
In para 19 Laws LJ made the point that it is apparent from Article 1A(2) of the Refugee Convention that it is no part of the definition of refugee that the subject be formally recognised as such.
He added that it was plain that those who drafted the rules did not intend that persons seeking entry to the United Kingdom might have the benefit of the especially advantageous provisions of the rules relating to the family members of a refugee in cases where there was only an assertion that the sponsor was a refugee, but no authoritative finding or confirmation to that effect.
The Court entirely accepts that that is so.
It further accepts that the term has been granted asylum is used in para 352D so as to confine the rules operation to circumstances where the sponsor has been recognised as a refugee by the Secretary of State before an application for family reunion under the paragraph can be made.
Finally, it accepts that the expression person granted asylum in sub paras 352A(i) and (ii) has the same effect.
However, these conclusions are not inconsistent with the appellants case.
As the Court understands it, it is accepted that a person is not granted asylum until the Secretary of State has formally granted it.
In any event, whether it is accepted or not, in the instant case it could not properly be argued that the sponsor had been granted asylum until he was given indefinite leave to remain as a refugee on 13 December 2001.
Until then he was not a person granted asylum within the meaning of the rules.
In para 20 Laws LJ gave a particular example of his conclusion that the indications are that the references to asylum/refugee in 352A, 352D and 352E are directed to a status of the sponsor which is current and accepted.
It was that the requirements in sub paras (iii) and (v) of paras 352A and 352D respectively that the applicant would not be excluded from protection by virtue of article 1F of the [Refugee Convention] if he were to seek asylum in his own right suggests that the rule is directed to current status.
The Court does not agree that it is appropriate to draw the inference sought to be drawn from those sub paras.
They apply, not to the sponsor, but to the applicant.
The fact that, by Article 1F, the Refugee Convention does not apply to an applicant where there are serious reasons for considering that he or she has committed a serious crime of the kind identified in sub paras (a) or (b) or has been guilty of acts contrary to the purposes and principles of the United Nations within the meaning of (c), is not, in the opinion of the Court, relevant to the question whether a sponsor is no longer a refugee within the meaning of para 352A or para 352E or whether he is a parent who has been granted asylum within the meaning of para 352D.
At para 21 the Court of Appeal accepted a submission made to it that any other construction would lead to absurd results.
The plainest instance was said to be where a persons refugee status has been cancelled because it had been obtained by fraud.
On the appellants argument he would still be a person who has been granted asylum and his relatives could rely on the special provisions of paras 352A et seq.
However, in the opinion of this Court it is implicit in the rules read as a whole that a person would not be treated as having been granted asylum for the purpose of the rules if he or she had obtained the grant by fraud.
At paras 22 to 24 the Court of Appeal rejected a number of policy points made on behalf of the appellants.
However, it ultimately did so on the basis that, as Laws LJ put it at para 25, the language of paras 352A and 352D is clear.
This Court has reached a different conclusion on the language of the rules.
It has done so for the reasons given above.
As to policy, it may well be that it would be possible to produce a coherent policy argument for the view that applications for leave to enter or remain in the United Kingdom made by the spouse or children of those granted asylum should be dealt with under paras 352A and 352D until the other spouse or parent became a British citizen but that thereafter such applications should be dealt with under paras 281 and 297.
It can be said with force that all applications by a spouse or child to join or remain with a British citizen should be subject to the same rules.
On the other hand there are coherent policy reasons for applying the same principles to applications to join or remain with a spouse or parent who has been granted asylum both before and after such a sponsor has become a British citizen.
An important factor in this regard is that referred to in para 25 above, namely that one of the purposes of the Refugee Convention is to protect and preserve the family unit of a refugee.
The need for protection for a member of such a family unit is likely to be the same whether the sponsor obtains British citizenship or not.
Moreover, the risk of persecution may be such that the need for protection for family members is particularly stark.
The question is what policy is encapsulated in the rules, which is essentially a matter of construction of the language of the rules.
For the reasons given above the Court has reached a different conclusion from the Court of Appeal.
It agrees that the sponsor must have been granted asylum in order to be (1) a refugee within the meaning of the opening words of para 352A and of para 352E; (2) a person granted asylum within sub paras (i) and (ii) of para 352A and sub para (iv) of para 352D; and (3) a person who has been granted asylum within the opening words of para 352D.
However it does not agree that there is an additional requirement, namely that the person granted asylum or the person who has been granted asylum must not have become a British citizen before the application for entry clearance is made, or perhaps determined.
There is no express language to that effect and it is not, in the judgment of the Court, implicit in the language used.
The fact that British citizenship has been granted to the spouse or parent does not change the fact that the spouse or parent is a person granted asylum or a person who has been granted asylum.
The Court has reached this conclusion as a matter of construction of the rules.
In these circumstances there is no need for the Court to analyse the decisions of the Tribunal.
It is sufficient to note that there have been a number of decisions of the Tribunal which reached a conclusion consistent with that stated above: see eg Case no OA/27245/2007, 1 September 2008 Joined Appeals OA/45531, OA/45526/2007 and OA/45522/2007, 27 June 2008, and YS and YY, 16 September 2008 [2008] UKAIT 00093.
It was for the reasons stated above that the Court decided that the appeals of the first to fifth appellants should be allowed on the footing that para 352A applied to the first appellant as the sponsors wife, and that para 352D applied to the second, third, fourth and fifth appellants as the sponsors children who were under 18 at the relevant time.
As the Court reads the letter of 9 February 2010, it follows that in the light of this judgment they will be granted indefinite leave to enter or remain without any restrictions on employment or recourse to public funds.
The appeals of the sixth and seventh defendants, which relied only upon Article 8 of the ECHR, became academic because of the concession referred to above, namely that they would be granted three years discretionary leave to remain without any restrictions on employment or recourse to public funds.
In the light of the decision made at the hearing on the construction of paras 352A and 352D, the Court did not hear oral submissions on any of the other issues raised in the written cases.
In particular, the Court did not hear argument on the position which would have obtained if, contrary to the Courts conclusion, paras 352A and 352D would only have applied if they required that the sponsor remain a refugee after being granted British citizenship.
This would have involved argument on issues one and two identified by the Court of Appeal (set out at para 6 above) and issue two in the statement of facts and issues (set out in para 12 above), which covers essentially the same ground.
In these circumstances the Court expresses no view upon these questions one way or the other.
| UK-Abs | This appeal raises the question of which immigration rules apply to family members seeking entry to the United Kingdom, where the sponsor has been granted asylum and consequently obtained British Citizenship.
The Appellants are the wife and children of Israr Naimi (the Sponsor).
The Sponsor came to the UK from Pakistan in 1999 and in December 2001 was granted refugee status and indefinite leave to remain.
On 22 March 2005, the Sponsor was granted British citizenship.
On 15 October 2005, the Appellants, who had remained in Pakistan, applied for entry clearance to join the Sponsor in the UK.
The Appellants applications were considered under the Immigration Rules, House of Commons Paper 395 (the Rules).
Para 281 of the Rules applies to spouses and civil partners of UK citizens and para 297 to children of UK citizens.
Those paragraphs require the family of a UK citizen to meet certain accommodation and maintenance requirements before entry clearance is granted.
By contrast, spouses and children of refugees who have been granted asylum in the UK may apply for entry clearance under paras 352A and 352D respectively, which do not require them to meet any accommodation or maintenance conditions.
In making the applications for entry clearance, the Appellants also relied on their rights to respect for family life protected by Article 8 of the European Convention of Human Rights.
The Appellants applications for entry clearance were refused on the grounds that the family could not meet the accommodation and maintenance requirements imposed by paras 281 and 297 of the Rules.
The Appellants Article 8 arguments were also rejected.
The Appellants appealed the decision, arguing that their cases should be considered under paras 352A and 352D.
The Respondents case is that the exceptions granted to the family members of people granted asylum do not apply to the Appellants as the Sponsor had been granted British citizenship before their applications for entry clearance were made.
The Respondent argued that the Appellants applications fell to be considered under paras 281 and 297 and that they must therefore satisfy the ordinary rules dealing with applications by family members of UK citizens.
The Court of Appeal held that paras 352A and para 352D only applied in cases where the sponsor was currently recognised as a refugee.
A refugee who thereafter obtained the citizenship of his host country lost his refugee status.
In relation to the Article 8 claim, there was no interference with those rights as the Sponsor was free to return to Pakistan where the family as a whole could continue their family life.
The Article 8 arguments having become academic in the meantime, the essential questions for the Supreme Court to consider were the proper construction of paras 352A and 352D of the Rules and whether those paragraphs apply to family members seeking entry to the UK where their sponsor has been recognised as a refugee but has become a British citizen before the date of the application for entry clearance.
The Supreme Court unanimously allows the appeal of the first to the fifth appellants.
The Court holds that paragraph 352A applied to the first appellant (the Sponsors wife) as a spouse of a refugee and paragraph 352D applied to the second to fifth appellants (the Sponsors children who were under the age of 18 at the relevant time) as children of a refugee.
Lord Clarke delivered the judgment of the Court.
In construing the Rules, the Court agrees with the Court of Appeal that the sponsor must have been granted asylum in order to be (1) a refugee within the meaning of the opening words of para 352A and of para 352E; (2) a person granted asylum within sub paras (i) and (ii) of para 352A and sub para (iv) of para 352D; and (3) a person who has been granted asylum within the opening words of para 352D.
However, the Court does not agree with the Court of Appeal that there is an additional requirement, namely that the person granted asylum or the person who has been granted asylum must not have become a British citizen before the application for entry clearance is made.
The Rules contain no express language to that effect and it is not implicit in the language used.
The fact that British citizenship has been granted to the sponsor does not change the fact that the sponsor is a person who has been granted asylum (paras [31] [33], [36], [37]).
In the light of the decision made at the hearing on the construction of paragraphs 352A and 352D, the Court did not hear oral submissions on any of the other issues raised in the written cases.
In particular, the Court did not hear argument on what the position would be if, contrary to the Courts conclusion, paragraphs 352A and 352D would only have applied if they required that the sponsor remain a refugee after being granted British citizenship.
The Court expresses no view upon these questions one way or the other (para [40]).
Accordingly, the appeals of the first to fifth appellants are allowed.
|
The law as to the duty of disclosure is now reasonably well settled.
The Lord Advocate accepts that article 6(1) of the European Convention on Human Rights requires that the Crown disclose to the defence any material of which it is aware which would tend either to materially weaken the Crown case or materially strengthen the case for the defence: McLeod v HM Advocate (no. 2) 1998 JC 67, 79F G, 80E F; Holland v HM Advocate [2005] UKPC D1, 2005 1 SC (PC) 3, para 64; Sinclair v HM Advocate [2005] UKPC D2, 2005 1 SC (PC) 28, paras 28, 33; McDonald v HM Advocate [2008] UKPC 46, 2008 SLT 993, para 50; Allison v HM Advocate [2010] UKSC 6, para 25.
It follows, applying this principle, that all police statements as a class must be disclosed to the accused: HM Advocate v Murtagh [2009] UKPC 36, 2009 SLT 1060 para 17.
The appellant, Paul McInnes, went to trial in December 2001 and was convicted before it had become the practice of the Crown Office to make police statements available to the defence.
Statements made to the police by a Crown witness named Brian Pearce, including statements which he made after attending two identification parades, were not disclosed.
In the light of what was decided in the cases of Holland and Sinclair the Scottish Criminal Cases Review Commission decided to refer this case to the High Court of Justiciary under section 194B of the Criminal Procedure (Scotland) Act 1995.
The appellant then lodged grounds of appeal in which he submitted that his conviction amounted to a miscarriage of justice.
One of his grounds of appeal was that there had been a misdirection by the trial judge, but it was not insisted upon at the hearing of the appeal.
The other, which was insisted upon, was directed to the issue of disclosure.
A minute was also lodged in which it was contended that the reference gave rise to a devolution issue, in that there had been a failure by the Crown to disclose information that would have been of material assistance to the defence.
The appeal court held that the failure to disclose Pearces police statements did not give rise to the appellant being denied a fair trial or, in so far as the question might be different, mean that there had been a miscarriage of justice: [2008] HCJAC 53, 2009 JC 6, para 22.
For the appellant it had been submitted that the proper question was not whether disclosure of the police statements would have made a difference to the outcome of the trial but whether it might have made a difference: para 15.
The appeal court rejected this argument.
The test which it applied was whether there was a real risk of prejudice: para 20.
The appellant applied for leave to appeal against the determination of the devolution issue to the Judicial Committee of the Privy Council.
The question which he sought to raise was whether the appeal court had applied the correct test.
On 29 January 2009 the appeal court granted leave to appeal.
On 1 October 2009 the devolution jurisdiction of the Judicial Committee was transferred to this Court by section 40 of and Schedule 9 to the Constitutional Reform Act 2005.
At first sight it might appear that the question whether the High Court of Justiciary applied the correct test when disposing of an appeal does not give rise to a devolution issue at all.
Devolution issues as defined in para 1 of Schedule 6 to the Scotland Act 1998 mean questions about the legislative competence of the Scottish Parliament and the exercise or non exercise of functions by members of the Scottish Executive.
They do not extend to things that are done or not done by the courts.
As I said in Robertson v Higson [2006] UKPC D2, 2006 SC(PC) 22, para 5, however, it can be taken to be well settled that it is open to the Supreme Court to determine under para 13 of Schedule 6 to the Scotland Act 1998 not only the devolution issue itself but also questions which are preliminary to and consequential upon the determination of that issue: see also Mills v HM Advocate [2002] UKPC D2, 2003 SC (PC) 1, para 34.
The question of remedy forms part of the devolution issue.
So too does the test that is to be applied in determining whether the appellant is entitled to that remedy.
In some cases these questions will give rise to no special features of Scots criminal law or practice.
In others, as in this case, the reverse will be true.
That does not mean that it is not open to this Court to determine the question.
But we must be careful to bear in mind the fact that the High Court of Justiciary is the court of last resort in all criminal matters in Scotland, and that when we are dealing with questions of this kind it is the law of Scotland that must be applied: see Montgomery v HM Advocate [2000] UKPC D2, 2001 SC (PC) 1, pp 12, 13; Robertson v Higson, paras 5, 6.
In Spiers v Ruddy [2007] UKPC D2, 2009 SC (PC) 1, para 16 Lord Bingham of Cornhill referred to the need for reticence, given the Boards restricted role in deciding devolution issues.
It is not for this Court to comment on the test that is applied in fresh evidence appeals which do not raise a devolution issue.
Its task is to identify the test where the complaint is of non disclosure in violation of the article 6(1) right to a fair trial.
It is for this purpose, if I may respectfully say so, that Lord Browns helpful references to the position in English law fall to be read.
To set the question before this court into its proper context I must now describe the facts of the case in more detail.
The statements
The appellant, with two others, was convicted after trial in the High Court of Justiciary at Glasgow of assaulting Brian James Sweeney to his severe injury, permanent impairment and the danger of his life and of his attempted murder.
He was sentenced to eight years imprisonment.
The incident that gave rise to his conviction took place outside a hotel in Duntocher, Dunbartonshire.
A fight broke out on the dance floor and stewards ejected various persons, including the appellant, his two co accused and the complainer, from the premises.
As soon as he was outside the hotel the complainer was struck on the head and brought to the ground, where he was set upon by a number of individuals.
The crucial issue at the trial was the identity of those individuals.
The complainer had no recollection of the events which led to the assault upon him.
The case against the appellant rested on the evidence of two stewards, Craig McKernan and Brian Pearce.
The argument for the appellant was directed solely to the non disclosure of police statements relevant to Pearces evidence.
Pearce gave a statement to the police within a few hours of the incident.
In that statement he identified one of the co accused as an assailant.
He also described another man by his appearance and clothing, neither of which fitted the appellant.
In a further statement later that same day he said that he saw one of the group kick the complainer on the head.
He gave a description of that person in which he said, among other things, that he was wearing a black leather jacket, jeans and a T shirt.
He made further statements to the police after viewing two identification parades.
It is those statements that lie at the heart of this appeal.
At a relatively early stage in the police inquiry after the incident attention had focused upon, among others, a man named Gary Esdale.
Pearce was asked to attend an identification parade on 17 January 2001, where Esdale was placed at position four.
Pearce was unable to identify positively any person on that parade as having been involved in the incident.
But when he was asked whether any of those present resembled any such person he replied four or six.
He said that the basis for the resemblance was the shape of his face.
The person at position six was a stand in.
In a statement which he then gave to the police Pearce said: I identified the men standing at positions four and six as being similar to the persons to whom I referred to [sic] in my earlier statement to the police.
Numbers 4 and 6 looked very familiar and I would say that one of them was the guy that kicked Mr Sweeney on the face that night that resulted in him being knocked to the ground.
I am unsure of this identification.
Pearce having been precognosced, suspicion then centred upon the appellant.
On 2 August 2001 he was put on an identification parade.
He was placed at position three.
Pearce, having viewed the parade, was again unable positively to identify anyone.
When he was asked if there was anyone who resembled anyone who had been involved in the incident, he said number three.
He said that this was because of his facial features.
He was again interviewed by the police after this parade.
In the statement that he gave on this occasion he said: I identified the person at position number three as similar to the person I described to the police in my statement.
This person had the same facial features as I described in my original police statement.
I cannot be sure if it was the same person as on the night who [sic] I have partially indentified.
No proceedings were taken against Esdale.
After the appellant and his co accused had been indicted the appellants solicitor, in preparation for his defence, attended the offices of the procurator fiscal.
In accordance with the then practice, Crown precognitions were read out to him in a way which allowed him to take a detailed note of what the witnesses were expected to say at the trial.
The note which the solicitor took of what Pearce was expected to say included this passage: He later attended an identification parade for Paul McInnes and he indicated that he was similar to the man in the leather jacket.
He appeared to him to be familiar.
Facially he was different because he had a goatee beard which the person at the dancing had not had, he was therefore unsure about this identification at that time but indicated that without the beard he was certainly more like to one in the leather jacket than the person he identified at the Gary Easedale [sic] parade.
The proceedings in the courts below
At the trial Pearce identified all three accused as persons who were inside the hotel on the night of the incident.
He identified the appellant as the person whom he had seen delivering the kick to the complainers head which caused him to fall to the ground.
In the course of his evidence in chief he was asked to explain his reference to the facial features of the person he said that he recognised when he viewed the identification parade on 2 August 2001.
He gave this explanation: It was because I told to the police at the time he never had a goatee beard but on the line up he had a goatee beard and I couldnt identify him positively and I told that to the police.
In his submission to the appeal court the appellants solicitor advocate, Mr Carroll, emphasised that counsel conducting the appellants defence had not had available to him the various statements that Pearce had given to the police.
He drew attention to inconsistencies in these statements.
On exiting the Esdale parade, which the appellant did not attend, Pearce said that one of the persons on that parade was the guy who had kicked the complainer on the face.
In his exit statement after viewing the parade which the appellant did attend he did not refer to the appellant as doing anything, nor did he withdraw the identification that he had made at the Esdale parade.
The explanation that he later gave for his uncertainty at the appellants parade, attributing this to the goatee beard, was not given in his exit statement.
Mr Carroll said that, if he had had these statements, counsel would have been able to put to Pearce the precise words that had been recorded in these statements.
This would have enabled him to undermine Pearces more confident identification at the trial of the appellant as the person who had administered the kick on the head.
The appellants solicitor advocate accepted that the issue was whether, the police statements not having been made available to the defence prior to or at the trial, the appellant had been denied a fair trial.
In developing that submission however he said that the proper question was not whether disclosure of those statements would have made a difference to the outcome of the trial but whether it could have made a difference.
He based this part of his argument on the following passage from Lord Rodger of Earlsferrys judgment in Holland v HM Advocate, para 82: Information about the outstanding charges might therefore have played a useful part in the defence effort to undermine the credibility of the Crowns principal witness on charge 2.
At least, that possibility cannot be excluded.
One cannot tell, for sure, what the effect of such cross examination would have been.
But applying the test suggested by Lord Justice General Clyde in Hogg v Clark 1959 JC 7, 10, I cannot say that the fact that counsel was unable to cross examine in this way might not possibly have affected the jurys (majority) verdict on charge 2 and hence their verdict on charge 3.
The appeal court, as I have said, did not accept this argument.
Delivering the opinion of the court, the Lord Justice General (Hamilton) said in para 20 that the critical issue was whether the principle of equality of arms had been breached, and that it would be if access to the statement in question would have been of material assistance to the defence or, viewing the matter realistically, the denial of access might have prejudiced the defence.
Whether that was so would be a matter for assessment by the appeal court in the circumstances of each case.
It was not entitled in effect to avoid that task by adopting a test which depended simply on whether the denial of access might not possibly have affected the outcome.
The Lord Justice General then added these words at the end of that paragraph: Lord Rodgers test has been used (or abused) in argument in this jurisdiction to suggest that the threshold for reversing the verdict of a jury in non disclosure and analogous cases is low.
This may be a misreading of Lord Rodgers words.
In the context of determining whether there has been a miscarriage of justice (or, we venture to think, an unfair trial) a robust test is required.
The test of a real risk of prejudice to the defence was, rightly in our view, adopted in Kelly v HM Advocate [2005] HCJAC 126, 2006 SCCR 9.
In Kelly v HM Advocate, where a statement to the police by the complainer was not made available to the defence, counsel for the appellant based his submission on the test that had been suggested in Hogg v Clark, which he said had been approved by Lord Rodger in Holland v HM Advocate, at para 82.
Delivering the opinion of the court in Kelly, Lady Cosgrove did not adopt that approach.
She rejected the submission that non disclosure of the statement might have made a difference to the outcome, saying that it did not give rise to any real risk of prejudice to the appellant: para 33.
She said that in all the circumstances the court was of the opinion that the appellant was not denied a fair trial, and that as a consequence there was no miscarriage of justice: para 35.
The issue before this court
The Crown maintained in the appeal court that it had performed its duty of disclosure by reading to the appellants solicitor the terms of Pearces precognition in circumstances where the solicitor had been able to take, and had taken, full and accurate notes.
The appeal court rejected that argument on the ground that the Crown was obliged to disclose all police statements of witnesses who were to be led at the trial, and it has not been renewed in this court.
The Crown now accepts that there was a failure in the duty of disclosure.
So this point is no longer in issue.
The question for this court, given that there was a failure in the duty of disclosure, is what the correct test is for the determination of the appeal.
It does not extend to the question whether the test, once it has been identified, was applied correctly.
This is because section 124(2) of the Criminal Procedure (Scotland) Act 1995, as amended by the Scotland Act 1998 (Consequential Modifications) (No 1) Order 1999 (SI 1999/1042), provides that every interlocutor and sentence pronounced under Part VIII of the Act, which deals with solemn appeals, shall be final and conclusive and not subject to review in any court whatsoever except for the purposes of an appeal under para 13 (a) of Schedule 6 to the Scotland Act 1998.
The application of the test to the facts of the case was a matter that lay exclusively within the jurisdiction of the appeal court.
But, as the appeal court itself recognised when it gave leave in this case, the question as to what the correct test is forms part of the devolution issue.
It is properly the subject of an appeal under para 13(a) of Schedule 6 and is open to review by the Supreme Court.
The test
Two questions arise in a case of this kind to which a test must be applied.
The tests in each case are different, and they must be considered and applied separately.
The first question is whether the material which has been withheld from the defence was material which ought to have been disclosed.
The test here is whether the material might have materially weakened the Crown case or materially strengthened the case for the defence: HM Advocate v Murtagh, para 11.
The Lord Advocates failure to disclose material that satisfies this test is incompatible with the accuseds article 6 Convention rights.
In the case of police statements, the position is clear.
Applying the materiality test, all police statements of any witnesses on the Crown list must be disclosed to the defence before the trial: McDonald v HM Advocate, para 51.
The second question is directed to the consequences of the violation.
This is the question that arises at the stage of an appeal when consideration is given to the appropriate remedy: see Spiers v Ruddy 2009 SC (PC) 1.
In that case it was the reasonable time guarantee that was in issue, but I think that the ratio of that case applies generally.
As Lord Bingham of Cornhill put it in para 17, the Lord Advocate does not act incompatibly with a persons Convention right by continuing to prosecute after the breach has occurred.
A trial is not to be taken to have been unfair just because of the non disclosure.
The significance and consequences of the non disclosure must be assessed.
The question at the stage of an appeal is whether, given that there was a failure to disclose and having regard to what actually happened at the trial, the trial was nevertheless fair and, as Lady Cosgrove said in Kelly v HM Advocate, para 35, as a consequence there was no miscarriage of justice: see section 106(3) of the Criminal Procedure (Scotland) Act 1995.
The test that should be applied is whether, taking all the circumstances of the trial into account, there is a real possibility that the jury would have arrived at a different verdict.
It has been suggested that Lord Rodgers observations in Holland v HM Advocate, para 82, indicate that it is for the Crown to show that the non disclosure could not possibly have affected the jurys verdict: Holland v HM Advocate 2005 SCCR 417, commentary by Sir Gerald Gordon, para. 5.
If so, the effect would be to set a relatively low threshold.
In my opinion, however, his observations must be read in their proper context.
In para 43 Lord Rodger said that the ultimate question was whether the trial as a whole was fair.
He then dealt with the Crowns obligation of disclosure in para 64, where he referred to the accepted test as to whether the information was material.
Having done this, he returned to the issue of fairness.
In para 77 he said: It is now necessary to consider whether, taken as a whole, the appellants trial was fair in terms of article 6(1).
Having examined the significance of the Crowns failures in paras 78 85, he said that he had arrived at the conclusion that the failures to disclose and the Advocate Deputes reliance on dock identifications were incompatible with the Convention right since, taken together, they had resulted in an unfair trial.
The sentence in Holland v HM Advocate, para 82 on which Mr Carroll relies (quoted in para 14, above) was directed to the use that might have been made of the outstanding charges to undermine the appellants credibility.
The issue with which he was dealing here was the materiality of that information.
This was a necessary step in the assessment of the question whether there had been a fair trial.
The words might not possibly have affected the jurys (majority) verdict are used.
But Lord Rodger does not say that this is the test to be applied in determining whether the trial as a whole was fair.
In any event, I do not think that it would be the correct way of describing it.
Commenting on what Lord Rodger said in para 82, the Lord Justice General said in the passage which I have quoted from para 20 of his opinion (see para 16, above) that it would be a misreading of Lord Rodgers words to conclude that the threshold for reversing the verdict of the jury in non disclosure and analogous cases is low.
I would endorse this assessment.
The threshold which must be crossed is the same as that which applies in any case where it is maintained that, because there was a violation of article 6(1) that affected the way the trial was conducted, there has been a miscarriage of justice.
I also agree that, in a case of that kind, the question whether there has been a miscarriage of justice and the question whether the trial was unfair run together.
It is axiomatic that the accused will have suffered a miscarriage of justice if his trial was unfair.
The statutory ground for setting aside the jurys verdict under section 106(3) of the 1995 Act enables the appeal court to provide an effective remedy to the appellant for the breach of his Convention right.
This is done when the appeal court makes its own assessment as to whether the trial as a whole was fair.
It will allow the appeal on the ground that there was a miscarriage of justice if it concludes that it was not.
The Lord Justice General then said at the end of para 20 that a robust test was required.
The test which he identified was whether there was a real risk of prejudice to the defence.
These remarks, I would respectfully suggest, need some explanation.
They invite questions as to how robust the test must be and how the real risk is to be identified.
They need to be taken just one step further to indicate more precisely the test that should be applied.
The question which lies at the heart of it is one of fairness.
The question which the appeal court must ask itself is whether after taking full account of all the circumstances of the trial, including the non disclosure in breach of the appellants Convention right, the jurys verdict should be allowed to stand.
That question will be answered in the negative if there was a real possibility of a different outcome if the jury might reasonably have come to a different view on the issue to which it directed its verdict if the withheld material had been disclosed to the defence.
Conclusion
Although I have suggested that the description of the test which the Lord Justice General gave at the end of para 20 was incomplete, it is clear from the discussion that follows that the test that the appeal court actually applied was the correct one.
As I have already observed, it is not for this court to say whether the test was applied correctly.
But it is open to it to examine the reasons given by the appeal court for concluding that there had not been a miscarriage of justice to see whether they show that it applied the correct test.
Having considered what the Lord Justice General said in paras 21 22, I am entirely satisfied on this point.
There was a thorough examination of all the relevant issues, and the conclusion that the appeal court came to was one which a court, applying the correct test, could be expected to have come to.
I would dismiss the appeal.
I agree that the appeal should be dismissed.
I make only two brief
LORD RODGER
observations.
It is now settled that the Crown must disclose certain classes of material, including the police statements of witnesses on the Crown list.
In this case, as Lord Hope has explained, the Crown failed to disclose certain statements which their witness, Pearce, made to the police.
There was therefore an infringement of the appellants article 6(1) Convention rights.
Sometimes, it is possible to say that certain material does actually weaken the Crown case.
For example, where identity is an issue, the Crown case is weakened by the failure of the principal eyewitness, when viewing an identity parade, to pick out the accused as one of those involved in an assault.
So, evidence of that failure would have to be disclosed.
But the obligation to disclose is not so limited.
As Lord Macfadyen held in Maan v HM Advocate 2001 SLT 408, 416, at para 27, in a passage adopted in the Privy Council in Holland v HM Advocate 2005 1 SC (PC) 3, 24, at para 72, the accuseds right is to have disclosed to him material necessary for the proper preparation as well as the proper presentation of his defence.
And, quite often, even the accuseds advisers will not know whether material will actually prove useful until they see it.
Nevertheless, as Lord Brown indicates at para 39 of his judgment, police statements of Crown witnesses must be disclosed because there is always the possibility that, in the hands of the defence, they may materially weaken the Crown case or materially strengthen the defence case.
The same approach is appropriate when the Crown have to decide whether to disclose a particular piece of material.
It must be disclosed to the accuseds representatives if, in their hands, it might materially weaken the Crown case or materially strengthen the defence case.
How, if at all, they actually use the material when preparing or presenting the defence is, of course, entirely a matter for them.
I accordingly agree with Lord Browns observations in para 39 of his judgment and with Lord Hopes observations to similar effect in Allison v HM Advocate.
The significance of any infringement of an accuseds article 6(1) Convention rights will depend on the circumstances.
As has been said on many occasions, not every infringement of a particular right will mean that the accuseds trial as a whole has been unfair.
Obviously, for example, failure to disclose a police statement of a Crown witness who is not called to give evidence will usually have no effect on the fairness of the trial.
And, even in a case like the present where the witness, Pearce, gave evidence, an appellate court will have to assess how the failure by the Crown to disclose various statements which he made to the police actually affected the trial.
Of course, an appellant can always argue that, if his advocate had been armed with the statements, it is possible that he could have persuaded the jury to come to a different conclusion.
But the law deals in real, not in merely fanciful, possibilities.
So, in cases like the present, an appellate court will only hold that a trial has been unfair and quash the jurys verdict as a miscarriage of justice if there is a real possibility that, if the statements had been disclosed, a jury might reasonably have come to a different verdict.
Mutatis mutandis, this is the same as the test in Stirland v DPP [1944] AC 315, 321, which has often been applied by the appeal court.
with what Lord Brown says in para 35 of his.
I therefore agree with what Lord Hope says in para 24 of his judgment and
LORD WALKER
Hope and Lord Rodger in their judgments, with which I agree.
I agree that this appeal should be dismissed for the reasons given by Lord
LORD BROWN
The central question raised in this devolution appeal is whether the appeal court applied the right test in deciding that the Crowns failure to disclose a particular prosecution witnesss statement to the police did not result in a miscarriage of justice.
Lord Hope has set out the relevant facts of the case and none of these need I repeat.
Lord Hope also most helpfully explains, first, that it is the law of Scotland that must be applied in this case and, secondly, the limits of a devolution appeal to this court, namely that we should decide whether the court below adopted the correct legal test but not whether (assuming it did) it then applied that test correctly on the facts.
I also share what I understand to be Lord Hopes view that there will have been a miscarriage of justice if, but only if, the trial as a whole was unfair and, in turn, that it is only if the trial as a whole was unfair that the Crown can properly be held to have acted in breach of article 6 of the Convention so as to require that the appellants conviction be set aside.
The question, therefore, is whether the non disclosure of Pearces statement made the appellants trial unfair.
What, then, in the context of an undisclosed statement, makes a trial unfair? This, ultimately, is the determinative question in the case.
I would answer it as follows.
The trial will be adjudged unfair if, but only if, the appeal court concludes that the non disclosure gave rise to a real risk of prejudice to the defence.
This in turn depends upon whether the appeal court regards the non disclosure as having denied the defence the real possibility of securing a different outcome.
In short, in a case such as this, the appeal should be allowed if the court decides that, had defence counsel been in a position to make use of the undisclosed statement, the jury might reasonably have come to a different conclusion, otherwise not.
It is that which must decide whether the jurys verdict should be allowed to stand.
I understand Lord Hopes approach in para 22 to be entirely consistent with this formulation.
This, I apprehend, would be the position in English law (both as to the test to be applied in England as to whether the conviction under appeal is unsafe and as to the decision being one for the appeal court itself) and I can see no good reason why it should be any different under Scottish law.
In Bain v The Queen 72 JCL 34, BC ([2007] UKPC 33) (cited at para 7 51 of Archbold 2009) Lord Bingham of Cornhill, giving the opinion of the Privy Council, put the matter thus (at para 103): A substantial miscarriage of justice will actually occur if fresh, admissible and apparently credible evidence is admitted which the jury convicting a defendant had no opportunity to consider but which might have led it, acting reasonably, to reach a different verdict if it had had the opportunity to consider it.
True, that was a case of fresh evidence rather than an undisclosed statement but, as a member of that Board, I did not regard the opinion there as inconsistent with an earlier opinion I myself had given in Dial and Dottin v The State [2005] UKPC 4, para 31, in the context of fresh evidence which showed the main prosecution witness to have lied during his evidence at trial: In the Boards view the law is now clearly established and can be simply stated as follows.
Where fresh evidence is adduced on a criminal appeal it is for the Court of Appeal, assuming always that it accepts it, to evaluate its importance in the context of the remainder of the evidence in the case.
If the Court concludes that the fresh evidence raises no reasonable doubt as to the guilt of the accused it will dismiss the appeal.
The primary question is for the Court itself and is not what effect the fresh evidence would have had on the mind of the jury.
That said, if the Court regards the case as a difficult one, it may find it helpful to test its view by asking whether the evidence, if given at the trial, might reasonably have affected the decision of the trial jury to convict (Pendleton at p83, para 19 [R v Pendleton [2002 1 WLR 72]).
The guiding principle nevertheless remains that stated by Viscount Dilhorne in Stafford (at p906 [Stafford v Director of Public Prosecutions 1974 AC 878]) and affirmed by the House in Pendleton: While . the Court of Appeal and this House may find it a convenient approach to consider what a jury might have done if they had heard the fresh evidence, the ultimate responsibility rests with them and them alone for deciding the question [whether or not the verdict is unsafe].
That being the correct approach, is there any reason for concluding that the Lord Justice General adopted some different (and, from the appellants point of view, less favourable) test in the present case? In my judgment there is not.
The test he adopted was that of a real risk of prejudice to the defence.
True, he did not spell out that what is meant by this is that the defence was denied the real possibility of securing a different outcome.
But really that was implicit in his rejection of the argument that the question to be asked was merely whether the non disclosure might not possibly have affected the outcome.
There is a critical difference between asking whether disclosure might not possibly have led the jury to acquit and whether that was a real possibility.
The difference is between what is merely conceivable and what is realistic.
The Lord Justice General rejected the former test as too low, rightly preferring the latter as robust.
The judgment cannot be seriously criticised for speaking of a robust test, a test immediately then explained as the test of a real risk of prejudice to the defence.
Nor is the Lord Justice General to be criticised for his subsequent comment that questioning based on the undisclosed statement here would hardly have constituted a coup de grce a throwaway expression from which it cannot possibly (still less realistically) be inferred that the appeal court was approaching the case on the footing that nothing short of this would suffice.
The one other matter I want to touch on is disclosure.
The devolution case law now establishes that all police statements are disclosable, on the basis that, as a class, they are to be regarded as material which either materially weakens the Crown case or materially strengthens the case for the defence (para 11 of Lord Hopes judgment in HM Advocate v Murtagh [2009] UKPC 36).
As, however, Lord Hope points out at para 18, it by no means follows that, because the statement should have been disclosed on this basis, a failure to disclose it involves a breach of the accuseds article 6 Convention right to a fair trial.
Statements as a class are routinely disclosable because there is always the possibility that they may prove to be harmful to the Crown or helpful to the defence.
In the event of non disclosure, however, the trial is only to be regarded as unfair if in fact disclosure might have harmed the Crown or helped the defence to such an extent that in retrospect the defence can be shown to have lost a real possibility of acquittal.
To say that Pearces statement here should have been disclosed because it materially weakened the Crowns case is not to say that realistically its disclosure would in fact have significantly weakened the Crowns case.
Indeed, in retrospect it might have been better to formulate the test for disclosability in terms of material which might materially weaken the Crowns case or might materially strengthen the case of the defence.
Certainly, a finding of materiality relative to the disclosability of a document is not to be confused with a finding that it would actually have been of value to the defence nor regarded as pre empting the defendants need on appeal to establish that, but for the non disclosure, he would have had a realistic prospect of acquittal.
I too would dismiss this appeal.
LORD KERR
For the reasons given by Lord Hope and Lord Brown, with which I am in full agreement, I too would dismiss the appeal.
| UK-Abs | In December 2001 the Appellant, Paul McInnes, was convicted at the High Court of the Justiciary in Glasgow in respect of an assault outside a hotel in Duntocher, Dunbartonshire.
He was sentenced to eight years imprisonment.
The crucial issue at the trial was the identification of the persons who participated in the assault.
The prosecution evidence in the case included the statement of Mr Brian Pearce, a steward at the nearby hotel who described how he witnessed the Appellant assault the victim.
At the trial, Mr Pearce described how he witnessed the Appellant administer a kick to the head of the victim of the assault.
Prior to the Appellants criminal trial, Mr Pearce failed to correctly identify the Appellant at two separate identity verification parades.
On the first occasion (when the Appellant did not participate in the parade), Mr Pearce identified a person other than the Appellant as the perpetrator of the assault.
On the second occasion (when the Appellant did participate), Mr Pearce identified a police stand in as the perpetrator.
The prosecution failed to disclose either failed identification to the Appellant in advance of his trial.
The Appellants defence were of the view that if they had been in possession of the information relating to the failed identification parades it would have enabled them to more effectively attack the reliability of Mr Pearces evidence at trial and that this may have affected the outcome of the proceedings.
Following discovery of this omission, the Appellants case was referred to the High Court of Justiciary.
The Appellant lodged a Devolution Minute contending that the failure of the prosecution to disclose the relevant information had rendered his trial unfair contrary to Article 6 of the European Convention on Human Rights and constituted a miscarriage of Justice.
The High Court of Justiciary dismissed the Devolution Minute, holding that it could not be said that the non disclosure gave rise to a real risk of prejudice.
The Appellant appealed to the Supreme Court on the basis that the High Court of Justiciary had erred in applying the wrong legal test.
Rather than enquiring as to whether there was a real risk of prejudice it was contended that the court should simply have considered whether disclosure could have made a difference to the outcome of the prosecution.
The Supreme Court unanimously dismisses the appeal, with Lord Hope delivering the leading judgment of the Court.
The law on disclosure is reasonably well settled.
The prosecution must disclose any material which might materially weaken its case or strengthen the defence.
Accordingly, all police statements as a class must be disclosed [para [1] per Lord Hope].
The Courts jurisdiction in this case was confined to analysing whether the High Court of Justiciary had applied the correct legal test.
The application of the test to the facts of the case was exclusively within the jurisdiction of the High Court of Justiciary [para [18] per Lord Hope].
Two questions arise for determination in this type of case.
Firstly, whether the information is of a type that must be disclosed.
In respect of police statements the answer to this question is clearly affirmative [para [19] per Lord Hope].
Secondly, whether, taking all the circumstances of the trial into account, there was a real possibility that the jury would have arrived at a different verdict if the relevant information had been disclosed [para [20] per Lord Hope].
The question which the appeal court must ask itself is whether after taking account of all the circumstances of the trial, including the non disclosure in breach of the appellants Convention right, the jurys verdict should be allowed to stand.
The question will be answered in the negative if there was a real possibility at a different outcome if the jury might reasonably have come to a different view on the issue to which it is directed its verdict if the withheld material had been disclosed to the defence [para [24] per Lord Hope; see also paras [30] [31] per Lord Rodger and paras [35] and [38] per Lord Brown].
The test to determine whether there has been a fair trial in terms of Article 6 is the same that is to be applied to determine whether there has been a miscarriage of justice [para [23] per Lord Hope].
It is clear from the judgment of the High Court of Justiciary that it applied the correct legal test [para [25] per Lord Hope].
|
This is an appeal by HM Revenue and Customs (HMRC) against a decision of the Court of Appeal (Ward, Rimer and Elias LJJ) dated 2 July 2009: [2009] EWCA Civ 625, [2009] 2 BCLC 309, [2009] STC 1639.
The Court allowed an appeal by Mr Michael Holland (Mr Holland) against an order dated 4 July 2008 by Mr Mark Cawson QC sitting as a Deputy High Court Judge of the Chancery Division, following a judgment which he issued on 24 June 2008: [2008] EWHC 2200 (Ch), [2008] 2 BCLC 613, [2008] STC 3142.
The trial over which the deputy judge presided arose out of 42 originating applications issued by HMRC on 27 July 2006 against Mr Holland and his wife Linda.
The applications were made under section 212 of the Insolvency Act 1986 (IA 1986).
It was alleged that Mr and Mrs Holland were de facto directors of 42 insolvent companies of which HMRC is the only creditor, and that they had been guilty of misfeasance and breach of duty in causing the payment of dividends to the companies shareholders between 24 April 2002 and 19 October 2004 when the companies had insufficient distributable reserves to pay their creditors.
Orders were sought requiring them to contribute sums to the assets of the insolvent companies by way of compensation in respect of their misfeasance and breach of duty of amounts totalling in excess of 3.5m.
The background to the litigation was the setting up by Mr and Mrs Holland in 1999 of a complicated structure of companies, including the 42 companies of which they were alleged to be de facto directors.
Their business was the administering of the business and tax affairs of contractors working in various sectors, but mainly that of information technology.
Each contractor was taken on as an employee of one of the 42 companies and allotted a non voting share.
This enabled him to be rewarded on a weekly or monthly basis by way of both salary and dividends.
The contractors services were provided to clients through an agency which paid the parent company.
The intention was to provide the same tax advantages to the non voting shareholders/employees as they would have enjoyed had they each set up and run their own individual service companies, while relieving them of the administrative burden of doing so.
It was of the essence of this scheme that each of the 42 companies would be liable to pay corporation tax at the small companies rate under section 13 of the Income and Corporation Taxes Act 1988 (ICTA 1988).
So long as they were not regarded as associated for the purposes of section 416 ICTA 1988, they could achieve this aim provided that each company kept its profits below the 300,000 threshold, which it did.
As it turned out, however, the scheme was doomed to fail.
By the operation of section 417(3) ICTA 1988 Mr Holland, as the settlor of the one share in each company which had voting rights, fell to be treated as being in control of them.
The result was that the 42 companies were treated as associated for tax purposes.
Because their collective turnover exceeded the 300,000 threshold, each company was liable for higher rate corporation tax (HRCT).
Dividends had been paid after making provision only for corporation tax at the lower rate.
So there was a substantial deficiency in the liquidation of each company in respect of its HRCT liability.
The deputy judge dismissed the claims against Mrs Holland, and there has been no appeal against that decision.
He took a different view of the position of Mr Holland.
He found that he was a de facto director of each of the 42 companies and so was answerable to HMRCs claims under section 212.
He divided the allegations against Mr Holland into three different periods.
First, in respect of the period from 24 April 2002 to 18 August 2004, the deputy judge held that Mr Holland was at no stage liable or, if he was, that he ought to be relieved from liability pursuant to section 727 of the Companies Act 1985 (CA 1985).
Second, he held that Mr Holland was entitled to a short period of grace from 19 to 22 August 2004 as, although he was liable for the payment of dividends during this period, the circumstances were such that he was entitled to be relieved under section 727 from that liability.
Third, in respect of the remaining period from 23 August to 19 October 2004, he held that Mr Holland had been guilty of misfeasance and breach of duty in relation to each company in causing the payment to its shareholders of the unlawful dividends, and that it would not be a proper exercise of the power under section 727 to relieve him of that liability: [2008] EWHC 2200 (Ch), paras 236 237.
He ordered an assessment of the amount that Mr Holland was liable to contribute to the companies assets, but he limited this amount to the HRCT that the companies had failed to provide for to meet the claims of HMRC in respect of their trading during that period.
The Court of Appeal allowed Mr Hollands appeal against the orders which the deputy judge made against him, dismissed the originating applications and dismissed a cross appeal by HMRC as the points that it sought to raise were no longer in issue.
Had it been necessary to decide them it would, by a majority (Rimer LJ dissenting), have dismissed HMRCs appeal against the deputy judges decisions to allow Mr Holland a period of grace from 19 to 22 August 2004 and as to the amount that he was liable to contribute to the assets of the companies, its contention being that he should have been ordered to repay the full amount of the unlawful dividends.
In the appeal by HMRC to this court all of these points are in issue, although if Mr Holland succeeds on the question whether he was a de facto director the other issues will become academic.
The corporate structure
From about June 1997 to February 1999 Mr and Mrs Holland ran a company called Paycheck Services Ltd (Paycheck), whose function, in return for a fee, was to administer the business and tax affairs of contractors who did not want to go to the trouble of setting up and running their own companies.
Each contractor who joined the scheme became an employee of Paycheck and was allotted a non voting share in the company.
This entitled him to dividends as well as a salary.
Paychecks income was derived from charging the contractors clients for his services.
Most contractors did not pay higher rate income tax, and the bulk of their income from Paycheck was by way of a dividend.
It soon became apparent, however, that the income of Paycheck was likely to exceed the limit for the small companies rate of corporation tax of 300,000, which was between 19% and 21% during the relevant period.
So Mr and Mrs Holland, with the help of a number of professional advisers, set about devising a new structure which would enable them to expand their business while avoiding corporation tax at the higher rate, which during the relevant period was between 30% and 33%.
The new structure was established in February 1999.
It operated until 13 October 2004, when all the companies went into administration and later into liquidation.
Under this structure Mr and Mrs Holland each held 50% of the issued shares in, and were directors of, a new company called Paycheck Services Ltd (Paycheck Services).
Paycheck Services held 100% of the issued shares in, and Mr and Mrs Holland were appointed as directors of, two further new companies called Paycheck (Directors Services) Ltd (Paycheck Directors) and Paycheck (Secretarial Services) Ltd (Paycheck Secretarial).
Paycheck Directors and Paycheck Secretarial were incorporated to act respectively as the sole director and secretary of 42 trading companies (the composite companies), each of which had similar names distinguished only by a number.
Their names were Paycheck Services 3 Ltd, Paycheck Services 4 Ltd, and so on.
Each of the composite companies had a single voting A share and 50 non voting shares, each of a separate class (B1, B2, C1, C2, etc).
The A share was held by yet another new company called Paycheck Services Trustee Limited (Paycheck Trustee), of which Mr and Mrs Holland were each directors and in which they each held 50% of the issued share capital.
The A share was held by Paycheck Trustee pursuant to a Trust Deed of which Mr Holland was the settlor, which provided that each A share was be held for the benefit of the members of the composite companies.
The non voting shares were, in the case of each composite company, held by about 50 shareholders/employees, each of whom held one each of the separate classes of shares in the company.
Article 8(b)(i) of the Articles of Association of the composite companies provided: each class of Non Voting Shares shall carry the right to the receipt of such dividends payable on each such class of Shares, in such amounts, at such frequency, at such times as, on the recommendation of the Directors, the holder of the A share shall, in General Meeting, resolve in accordance with the following: (aa) subject to the provisions of the Act and to the following provisions of this Article, the Company may, by Ordinary Resolution passed at a General Meeting upon the recommendation of the Directors, declare a dividend for any class of the Non Voting Shares; (ee) when paying interim dividends, the Directors may make payments of interim dividends to one or more classes of Non Voting Shares to the exclusion of one or more other classes of Non Voting Shares on the same basis that final dividends may be paid by the Company to each class of Non Voting Shares in accordance with the foregoing; (ff) Regulations 102 and 103 of Table A shall be read and construed accordingly with the foregoing provisions of this Article.
As had been the case under the previous structure, the services of the shareholders/employees were contracted out, typically through employment agencies.
Under the new structure this was done by the composite companies which, out of the income they received, made the following payments: (i) a fee to Paycheck Services for its administrative services; (ii) a salary to each shareholder/employee, typically limited to the national minimum wage and the associated PAYE tax and National Insurance contributions; and (iii) after making provision for the payment of corporation tax at the small companies rate, a dividend to each shareholder/employee.
The dividends were paid on a regular basis.
The shareholders/employees put in timesheets for the work that they had done.
The relevant figures were entered into Paycheck Services computer, and the accountancy software thereon then calculated the dividend payable after making provision for the items listed in the previous paragraph.
The computer programme then generated a document purporting to be a minute of a directors meeting of the relevant composite company.
It recorded as present M Holland Paycheck (Director Services) Ltd, LM Holland Paycheck (Secretarial Services) Ltd and that it had been resolved that a dividend of a specified amount be distributed to the specified shareholder/employee.
The computer generated on the minute a copy of Mr Hollands signature, beneath which appeared the words for and on behalf of Paycheck (Director Services) Ltd. This was the only authority for payment by the composite company of the relevant dividend.
The corporation tax problem
As already noted, it was crucial to the commercial viability of the scheme that the composite companies should have annual taxable profits of no more than 300,000, so as to get the benefit of the small companies rate of corporation tax.
There was, however, a flaw in the structure which, as Rimer LJ said in para 16, was not spotted when the structure was established.
Section 13(3) ICTA 1988 limited the benefit of the small companies rate by providing that where a company had two or more associated companies during an accounting period they would have to share a single 300,000 limit.
Mr Holland was the settlor of the trust under which Paycheck Trustee held the A shares in each of the composite companies.
The effect of section 417(3) ICTA 1988 was that Mr Holland was regarded as in control of all the composite companies, so they were associated within the meaning of section 13 of that Act.
Their collective profits all had to be aggregated, and they had to be treated for the purposes of the small companies rate of corporation tax as a single company.
It had been thought by Mr and Mrs Holland and their advisers that an escape from this consequence was provided by Extra Statutory Concession C9 (ESC C9).
Its effect was believed to be that the composite companies would not be regarded as associated.
It was not appreciated when the new structure was established that the fact that Mr Holland was the common settlor of the A shares in each company meant that he fell to be regarded as being in control of each of the companies, with the result that ESC C9 did not apply.
But, as Rimer LJ observed in the Court of Appeal, para 18, the advice that Mr and Mrs Holland received that the companies would not be regarded as associated was not unqualified.
The risk of HMRC attacking the scheme was recognised in written advice given by tax counsel on 22 January 1999.
The deputy judge commented that the advice contained a number of apparent contradictions: para 44.
Mr Hollands solicitor advised in February 1999 that the two trading companies then in existence should restrict their profits to 150,000 each.
In March 2001 the composite companies accountants received an informal telephone enquiry about the arrangements from an official at the Wrexham 1 Tax Office.
This was followed by a letter in relation to three of the composite companies in which a detailed profit and loss account, with notes to indicate whether the companies were grouped or associated, was requested.
The accountants and the solicitor repeated their advice to Mr Holland about restricting profits of each of the two companies to 150,000.
Subsequent contacts with HMRC are described in detailed findings made by the deputy judge: paras 55 and following.
He found that the accountants, and through them Mr Holland, were led to believe in March 2001 that HMRC would treat the matter as covered by ESC C9 and that it was content, in the light of an explanation common to all the composite companies, that there was no association between them: para 66.
But he added that it would have been open to HMRC at any time to take the point on the effect of section 417(3) of the 1988 Act and of Mr Hollands position as the settlor of the A shares that was not, in fact, taken until over three years later: para 67.
On 24 April 2002 Mr Williams of HMRC wrote to say that in his view the companies were associated.
Throughout the rest of 2002 and most of 2003 there was what Rimer LJ called sporadic and inconclusive correspondence between HMRC and the composite companies advisers: para 25.
Mr Williams was dissatisfied with the arrangements but he failed to identify its crucial flaw.
It was not at this stage suggested to Mr Holland by his advisers that he should cease trading or consider not continuing to cause the composite companies to pay dividends without making provision for HRCT.
On 4 December 2003 HMRC opened a formal inquiry into the claims for the small companies rate made for all the composite companies for the year ended 31 July 2002.
On 8 December 2003 it issued closure notices for the years ended 31 July 2000 and 2002 and assessments in relation to the year ended 31 July 2001 on the basis that the composite companies were liable to HRCT.
At a meeting of professional advisers on 24 February 2004 the corporation tax deficit, if HMRC were to succeed, was estimated at 2m.
Nevertheless it was decided that the composite companies should continue to trade and continue to pay dividends without making any reservation for HRCT.
There was a meeting with HMRC on 21 June 2004 at which officials raised the issue of the composite companies solvency.
On 25 June 2004 Mr Russell (who had taken over HMRCs file from Mr Williams) wrote expressing the view that the structure was an avoidance scheme and identifying the common settlor point under section 417(3) of the 1988 Act.
This was the first time that HMRC had taken this point.
Mr Hollands solicitor sought advice from counsel whose advice had been taken when the scheme was set up.
Neither of them identified the importance of the common settlor point raised by HMRC, but on 6 August 2004 another tax counsel advised on the telephone that it blows our scheme out of the water.
In written advice he recommended that the composite companies should cease trading or that the structure should be substantially revised as soon as practicable.
He also proposed an alternative structure that would avoid the association problem and suggested that it might be possible to persuade HMRC not to pursue a claim for periods up to 31 July 2004 if it was adopted.
It was decided to take a second opinion from leading counsel, and a conference with Mr John Tallon QC in London was arranged for 18 August 2004.
He advised that, although HMRC had dealt with the issue badly and that leave for judicial review might well be granted, the composite companies would ultimately lose if such an application were made.
He agreed that the new corporate structure that had been suggested was basically sound and that a letter should be sent requesting a meeting with HMRC in the hope that it might be possible to achieve a favourable settlement.
A discussion took place between Mr Holland and his advisers on the train back from London to Colwyn Bay after the conference.
In the light of Mr Tallons advice Mr Hollands solicitor advised him that he and Mrs Holland might be unlawfully trading and that trading should not continue if there was no reasonable prospect of avoiding insolvent liquidation.
But Mr Holland was not, for reasons that the deputy judge regarded as understandable, in any mood to engage properly in this discussion: para 160.
His solicitor did not repeat the advice that he gave on the train, nor was there any evidence that Mr Holland sought, or was given, advice as to the propriety of continuing to pay dividends.
The letter which Mr Tallon had settled was sent to HMRC, and a meeting took place on 4 October 2004 with a view to attempting a settlement.
HMRC were told for the first time of the intention to transfer the business to a new structure.
Mr Hollands advisers proposed to HMRC that they should accept that ESC C9 did apply to the existing companies to the end of October on the basis that they would cease to trade then, pay all outstanding corporation tax at the small companies rate and then be dissolved.
It was suggested that the pot available to HMRC would be less if the composite companies were forced to cease trading and go into insolvency.
HMRC rejected this proposal.
By a letter dated 5 October 2004, which was received on 13 October 2004 and forwarded at once to Mr Holland, Mr Russell made it clear that HRCT was still being sought from 2002.
Mr Holland was advised that there was now no prospect of a deal with HMRC and that no further dividends should be declared.
No dividends were declared after 13 October 2004.
On 19 October 2004 administrators were appointed to the composite companies and the various service contracts were transferred to the new companies.
The composite companies were left with a total deficiency of about 3.5m in respect of unpaid corporation tax.
The issues
The first issue, which lies at the heart of this appeal, is whether Mr Holland was a de facto director of the composite companies.
If he was, a number of further issues arise concerning the nature and scope of the remedy.
As set out in the agreed Statement of Facts and Issues, they are as follows: (2) Whether Mr Hollands liability for payment of unlawful dividends is strict or whether it is necessary to show that he was negligent (in breach of his common law duty of care). (3) Whether the correct remedy for any breach of Mr Hollands duties as a director not to cause the companies to make unlawful payments of dividends is damages or equitable compensation for the net loss sustained by the company as a result of the breach, or restitution or restoration of the amount of the unlawful dividends without an inquiry into the loss sustained. (4) The scope of the discretion under section 212 of the IA 1986.
In particular: (a) whether the discretion is wide enough to allow the court to reduce the award to nil or some other sum (as Mr Holland contends) ; or (b) whether it is more circumscribed as HMRC contends so that the judge did not have power to limit Mr Hollands liability to the amount of HRCT that fell due during the relevant period (approximately 144,000). (5) Whether, in the light of the judges findings as to whether Mr Holland acted reasonably from 18 August 2004 onwards, there was jurisdiction under section 727 CA 1985 to allow Mr Holland a few days grace between 18 and 23 August 2004. (6) Whether the judge should have relieved Mr Holland of liability under section 727 CA 1985 in respect of the period from 23 August 2004 onwards.
The first issue: was Mr Holland a de facto director?
(a) background
An examination of this issue must start with some of the basic elements of company law.
A company is, of course, an artificial entity, a creature of statute.
So it can act only through human beings.
Inevitably it is human beings who must take the decisions, and give effect to them by actions, if the company is to do anything at all: Palmers Company Law (25th ed) para 8.101; Gower and Davies Principles of Modern Company Law (8th ed), para 7 1.
A company is formed by one or more persons subscribing their names to a memorandum of association and complying with the requirements of the Act as to registration: Companies Act 1985, section 1; see now Companies Act 2006, section 7.
Among the requirements for registration is a statement of the companys proposed officers, including the required particulars of the person or persons who are to be the first director or directors of the company: CA 1985, section 10(2); see now CA 2006, section 12(1).
The expression director is not defined in the Companies Acts.
All section 741(1) of CA 1985 says is: In this Act, director includes any person occupying the position of director, by whatever name called: see now CA 2006, section 250.
In Re Lo Line Electric Motors Ltd [1988] Ch 477, 489 Sir Nicolas Browne Wilkinson V C, noting that this definition was inclusive and not exhaustive, said that its meaning had to be derived from the words of the Act as whole.
The definition extends, of course, to persons who are validly appointed as directors.
Persons who are not directors de jure may nevertheless be treated as directors de facto.
Sir Nicolas Browne Wilkinson said that in his judgment it was not possible to treat a de facto director as a director for all the purposes of CA 1985.
But it is not in dispute that de facto directors are within section 212 IA 1986.
That section, as amended by para 18 of Schedule 17 to the Enterprise Act 2002, provides so far as relevant as follows: (1) This section applies if in the course of the winding up of a company it appears that a person who (a) is or has been an officer of the company, (b) has acted as liquidator or administrative receiver of the company, or (c) not being a person falling within paragraph (a) or (b), is or has been concerned, or has taken part, in the promotion, formation or management of the company, has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company. (3) The Court may, on the application of the official receiver or the liquidator, or of any creditor or contributory examine into the conduct of the person falling within subsection (1) and compel him (a) to repay, restore or account for the money or property or any part of it, with interest at such rate as the Court thinks just, or (b) to contribute such sum to the companys assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the Court thinks just.
Section 251 IA 1986, as amended, provides that officer, in relation to a body corporate, includes a director, manager or secretary.
Mr Knox QC for Mr Holland accepted that, as section 212 IA 1986 was concerned with the conduct of directors and their liability for actions or decisions in relation to the company, de facto directors must be assumed to be covered by this expression and treated as directors.
As he put in his written case, this is to ensure that the persons with real directorial control but who, for whatever reason, lack a formal appointment are held responsible in law for their conduct of the affairs of the company.
There is a third type of director, known as a shadow director.
Section 741(2) CA 1985 (see now sections 251(1) and (2) CA 2006) provided: In relation to a company, shadow director means a person in accordance with whose directions or instructions the directors of the company are accustomed to act.
However, a person is not deemed a shadow director by reason only that the directors act on advice given by him in a professional capacity.
But, as Rimer LJ observed in para 57, it has not been asserted in this case that Mr Holland was a shadow director of the composite companies.
Section 214 IA 1986, which provides a remedy in relation to a person who is or has been a director of a company for wrongful trading, is extended to shadow directors expressly by subsection (7).
But HMRC do not rely on that section.
Section 212 IA 1986, under which a summary remedy is sought in this case, applies to a person who is or has been an officer of the company.
It does not apply to shadow directors because, unlike section 214, the statute does not provide for this.
There is another feature of company law that must be taken into account in the examination of the question whether Mr Holland was a de facto director of the composite companies.
As has already been noted, Paycheck Directors and Paycheck Secretarial were incorporated to act respectively as the sole director and secretary of 42 trading companies.
The nineteenth century company law statutes made no provision for corporate directors.
The question whether a company could act as the director of another company does not appear to have been raised in any reported case until In re Bulawayo Market and Offices Co Ltd [1907] 2 Ch 458.
Objection was taken by a minority of the shareholders to the appointment of a limited company as the companys sole manager.
Warrington J dismissed the application without calling on the respondents.
He said, at p 463, that there was nothing in the Companies Act 1862 which made it incumbent on a company to have directors who were individual persons and responsible as individuals to the shareholders.
The Companies Act 1929 was the first statute to recognise in terms that a company could be a director: sections 144, 145; see also sections 176, 178 and 201 of the Companies Act 1948.
Section 282(3) CA 1985, which was the Act in force in February 1999 when the new corporate structure was established, provided that every private company shall have at least one director.
Section 283(4)(b) CA 1985 provided that no company shall have as sole director of the company a corporation the sole director of which is secretary to the company.
Section 305(1) CA 1985 provided that a company which stated the name of any of its directors on any business letter had to state the name of every director who was an individual and the corporate name of every corporate director.
Section 155(1) CA 2006 now provides that a company must have at least one director who is a natural person.
But no such requirement was in force during the events that gave rise to the claim in this case.
The position then was that CA 1985 allowed a company to have a corporation as its sole director, so long as its sole director was not the secretary to the company.
The new corporate structure was created on the assumption that it was open to the composite companies to have, as their sole de jure director, Paycheck Directors of which Mr and Mrs Holland were the directors.
Mr Holland and his advisers cannot be criticised for doing so, as this was expressly permitted by the statute.
Drawing on the reasoning in Salomon v A Salomon & Co Ltd [1897] AC 22, Mr Knox submitted that the separate legal personality of Paycheck Directors from that of its directors had to be respected.
I do not think that he needed the authority of Salomons case for that proposition.
Salomon was concerned with the different question whether, as Lord Macnaghten put it at p 51, a body corporate could lose its individuality by issuing the bulk of its capital to one person.
The deputy judge acknowledged that it was not alleged by HMRC that Paycheck Directors was a pure shell or a faade.
Nor was it asserted that Mr Holland acted outside his authority as a director of Paycheck Directors in directing the affairs of the composite companies: para 172; see also Rimer LJ, para 47.
The question whether Mr Holland was acting as de facto director of the composite companies so as to impose on him fiduciary duties in relation to those companies when the purported directors meetings were held on his direction at which the relevant dividends were declared must be approached on the basis that Paycheck Directors and Mr Holland were in law separate persons, each with their own separate legal personality.
(b) de facto directors: the authorities
The expression de facto director has been in use for a long time, as Robert Walker LJ observed in Re Kaytech International plc [1999] 2 BCLC 351, 420.
It was used by Sir George Jessel MR in Re Canadian Land Reclaiming and Colonising Co, Coventry and Dixon's case (1880) 14 Ch D 660, where the question was whether two individuals who had been appointed and acted as directors while they were ineligible were directors or other officers liable to a summons for misfeasance.
The test which he applied at pp 664 665 was whether a man who had assumed a position could be allowed to deny in court that he was really entitled to occupy it.
But it is not easy to identify a simple and reliable test for determining whether a person in Mr Hollands position was acting as de facto director of a company whose sole director was a company of which he was a director de jure.
There are a number of first instance cases which offer some assistance.
But I do not think that they provide a clear and simple solution to the problem, as the facts which can give rise to it are so variable.
In Re Lo Line Electric Motors Ltd [1988] Ch 477 it was accepted that Mr Browning, against whom the disqualification proceedings were brought and who had not actually been appointed a director, de facto ran one of the companies which he allowed to trade after his retirement as a director de jure knowing it to be insolvent.
Sir Nicolas Browne Wilkinson V C held that the court had to have regard to his conduct as director whether validly appointed or invalidly appointed or merely de facto acting as a director.
At p 490 he said: the plain intention of Parliament in section 300 was to have regard to the conduct of a person acting as a director, whether validly appointed, invalidly appointed, or just assuming to act as director without any appointment at all.
But he did not need to explore what was needed to determine whether an individual could properly be held to be acting de facto as a director of a company in a case such as this, where a corporate director was interposed between him and the subject company and his actions could be attributed entirely to the position which he occupied de jure as a director of the corporate director.
That question was however in issue in Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180.
That was a company which had only two directors, which were two Channel Islands companies.
It went into compulsory liquidation, and its liquidator brought claims for wrongful trading under section 214 IA 1986 against 14 defendants who included two of the directors of Eagle Trust plc of which Hydrodam was, by several removes, an indirect subsidiary.
It was alleged that they were responsible for the wrongful trading of Hydrodam from the date when they were appointed to be directors of Eagle Trust.
But, as Millett J observed at p 183, the Channel Islands companies were Hydrodams titular directors and there was nothing pleaded in the points of claim to suggest that there were, in addition to the titular directors, any other persons who claimed to be directors of the company at all.
The case was argued on the basis that sufficient facts had been pleaded to justify the inference that Eagle Trust acted as a shadow director of the company, and that as directors of the shadow director its directors were collectively responsible for Eagle Trusts conduct in relation to the company as its de facto or shadow directors.
Millett J held that the liquidator had failed to plead or adduce any evidence to support the allegation that the directors of Eagle Trust were at any material time directors of Hydrodam, and the proceedings were struck out.
There are significant differences between that case and this.
It is not alleged here that Mr Holland was a shadow director and section 212 IA 1986, unlike section 214, does not extend to shadow directors.
But it is of interest because of what Millett J said in the course of his judgment about what is needed to establish that a person is a de facto director.
At pp 182 183 he said: I would interpose at this point by observing that in my judgment an allegation that a defendant acted as de facto or shadow director, without distinguishing between the two, is embarrassing.
It suggests and counsels submissions to me support the inference that the liquidator takes the view that de facto or shadow directors are very similar, that their roles overlap, and that it may not be possible to determine in any given case whether a particular person was a de facto or a shadow director.
I do not accept that at all.
The terms do not overlap.
They are alternatives, and in most and perhaps all cases are mutually exclusive.
A de facto director is a person who assumes to act as a director.
He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such.
To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director.
It is not sufficient to show that he was concerned in the management of the companys affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level.
A de facto director, I repeat, is one who claims to act and purports to act as director, although not validly appointed as such.
A shadow director, by contrast, does not claim or purport to act as director.
On the contrary, he claims not to be a director.
He lurks in the shadows, sheltering behind others who, he claims, are the only directors of the company to the exclusion of himself.
He is not held out as a director by the company.
Here too, as in Re Lo Line Electric Motors Ltd, the test which is being suggested is whether the individual assumed office as a director.
But Millett J added these words at p 184: The liquidator submitted that where a body corporate is a director of a company, whether it be a de jure, de facto or shadow director, its own directors must ipso facto be shadow directors of the company.
In my judgment that simply does not follow.
Attendance at board meetings and voting, with others, may in certain limited circumstances expose a director to personal liability to the company of which he is a director or its creditors.
But it does not, without more, constitute him a director of any company of which his company is a director.
The words without more are important.
They indicate that the mere fact of acting as a director of a corporate director will not be enough for that individual to become a de facto director of the subject company.
In Re Richborough Furniture Ltd [1996] 1 BCLC 507 the question was raised whether one of the three respondents, who was not a director of the company de jure, was nevertheless a director of the company de facto and as such liable under section 6 of the Company Directors Disqualification Act 1986 to be disqualified.
Asking himself what is a de facto director, Timothy Lloyd QC (sitting as a Deputy High Court judge) said at p 524: It seems to me that for someone to be made liable to disqualification under section 6 as a de facto director, the court would have to have clear evidence that he had been either the sole person directing the affairs of the company (or acting with others all equally lacking in a valid appointment, as in Morris v Kanssen [1946] AC 459) or, if there were others who were true directors, that he was acting on an equal footing with the others in directing the affairs of the company.
It also seems to me that, if it is unclear whether the acts of the person in question are referable to an assumed directorship, or to some other capacity such as shareholder or, as here, consultant, the person in question must be entitled to the benefit of the doubt.
He held that the individual in question, who was a business consultant providing computer and other management services to the company, was not a de facto director despite having undertaken negotiations with creditors and performed some of the functions of a finance director.
In Secretary of State for Trade and Industry v Tjolle [1998] 1 BCLC 333 Jacob J was referred to what was said in Re Hydrodam (Corby) Ltd, including a passage at p 182 where Millett J pointed to the purpose of any test as being to impose liability for wrongful trading on those persons who were in a position to prevent damage to creditors by taking steps to protect their interests, and to Re Richborough Furniture Ltd.
At pp 343 344 he said: For myself I think it may be difficult to postulate any one decisive test.
I think what is involved is very much a question of degree.
The court takes into account all the relevant factors.
Those factors include at least whether or not there was a holding out by the company of the individual as a director, whether the individual used the title, whether the individual had proper information (eg management accounts) on which to base decisions, and whether the individual had to make major decisions and so on.
Taking all these factors into account, one asks was this individual part of the corporate governing structure, answering it as a kind of jury question.
In deciding this, one bears very much in mind why one is asking the question.
That is why I think the passage I quoted from Millett J is important.
There would be no justification for the law making a person liable to misfeasance or disqualification proceedings unless they were truly in a position to exercise the powers and discharge the functions of a director.
Otherwise they would be made liable for events over which they had no real control, either in fact or law.
In that case the individual in question was given the courtesy title of deputy managing director but did not form part of the real corporate governance of the company.
There was no function that she performed that could only be properly discharged by a director.
In Re Kaytech International plc [1999] 2 BCLC 351, 423 Robert Walker LJ said that he saw much force in what Jacob J said in Tjolle when he declined to formulate a single test.
Referring to the passage which I have just quoted, he added this observation: I do not understand Jacob J, in the first part of that passage, to be enumerating tests which must all be satisfied if de facto directorship is to be established.
He is simply drawing attention to some (but not all) of the relevant factors, recognising that the crucial issue is whether the individual in question has assumed the status and functions of a company director so as to make himself responsible under the 1986 Act as if he were a de jure director.
Here again the word assumed is used.
But, as Lewison J said in Re Mea Corpn Ltd [2006] EWHC 1846 (Ch); [2007] 1 BCLC 618, para 83, in considering whether a person assumes to act as a director what is important is not what he calls himself but what he did: see also Secretary of State for Trade and Industry v Hollier [2007] BCC 11, para 66.
The question whether a director of a corporate director could, through his control of the corporate director, be held to be a de facto director of the subject company which was in issue in Re Hydrodam (Corby) Ltd was raised again in Secretary of State for Trade and Industry v Hall [2006] EWHC 1995 (Ch); [2009] BCC 190.
The first respondent to those proceedings for disqualification, Mr Hall, did not respond, did not appear and was not represented.
The question which the court had to consider was whether the second respondent, Mr Nuttall, was a de facto director of the subject company by reason of the fact that he owned and controlled and was the sole director of its corporate director.
The case against him failed because he had not, either individually or through his control of the corporate director, taken any step which indicated that either he or his company had assumed the status and functions of a director of the subject company.
It was accepted by the Secretary of State that Mr Nuttall did not fit the description of a de facto director which emerged from Millett Js judgment in the Hydrodam case.
This was because that description required positive action by an individual which showed that he was acting as if he was a director.
It was contended that it was sufficient that he was in a position to exercise the powers and discharge the functions of a director of the subject company, even if he did not actually do anything.
But Evans Lombe J said that he could not accept that argument: para 30.
Among the reasons which Evans Lombe J gave for coming to that conclusion in that paragraph were the following: (ii) In the Hydrodam case Millett J finds that the director of a corporate director is not, without more, constituted a director, whether shadow or de facto, of a subject company.
However I do not read his judgment as saying that this can never happen.
I can well accept that an individual through his control of a corporate director can constitute himself a de facto director of a subject company.
It seems to me that whether or not he does so will depend on what that individual procures the corporate director to do.
In theory I am not bound by the judgment of Millett J in the Hydrodam case.
Even putting on one side the authority of that judge in this and other fields of the law, I would need convincing reasons for not following it.
I can find none. (iii) It seems to me that in order to be constituted a de facto director of a subject company, a director of a corporate de jure director must cause the corporate director to take actions with relation to the subject company as would have constituted it a de facto director of that company were it not already a director de jure. (iv) In addition the degree of control which the director of the corporate director exercises over that company will be of relevance.
In the present case Mr Nuttalls control was absolute but the situation may be substantially different where the corporate director is controlled by a board with a number of members with different responsibilities.
Equally the shareholder control of the corporate director may be relevant.
The deputy judge was impressed by para (iii) in this list of reasons.
He said that applying that test to Mr Hollands case would clearly lead to the conclusion that he was a de facto director of the composite companies in that he, in so far as he is properly to be regarded as having acted on behalf of Paycheck Directors, clearly caused it to act in such a way as would have caused the latter to be treated as a de facto director were it not already a de jure director: para 176.
This left for consideration Mr Knoxs argument that to make that finding would involve piercing the corporate veil which, on the authority of Salomon v A Salomon & Co Ltd [1897] AC 22, was contrary to principle.
He was not persuaded that arguments as to separate corporate personality were of assistance or relevant to the issue.
He said that as a matter of fact Mr Holland did, by what he actually did, direct the affairs of the composite companies and that it was beside the point whether he purported to do so on his own account or as agent for Paycheck Directors: para 177.
As the corporate veil point was the only point taken on behalf of Mr Holland, he found that it necessarily followed that he was a de facto director of the composite companies.
In the Court of Appeal Rimer LJ (with whom Ward and Elias LJJ agreed on this aspect of the case) reached the opposite conclusion.
He accepted that the critical issue was, as Robert Walker LJ put it in Re Kaytech International plc [1999] 2 BCLC 351, 423, whether the individual assumed the status and function of a company director so as to make himself responsible as if he were a de jure director and that it mattered not what the individual called himself but what he did: para 65.
He concluded, I think rightly, that the only authorities that lent any assistance on the question posed by this case were Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180 and Secretary of State for Trade and Industry v Hall [2009] BCC 190.
Recalling that the essence of Millett Js reasoning in Hydrodam was that membership of the board of a corporate director will not, without more, make such member a shadow or de facto director of any company, he said that he did not find anything in that judgment to suggest that the requisite more would be satisfied merely by the active participation of the board member in the making of board decisions by the corporate director in relation to the actions of the subject company: para 66.
As for the test suggested by Evans Lombe J in para 30(iii) of his judgment in Hall which had impressed the judge, he said that it appeared to him to be somewhat artificial and that it was wrong in principle.
He saw no reason why a director of a corporate director who is doing no more than discharging his duties as such should thereby become a de facto director of the subject company: para 70.
In para 74 Rimer LJ added these comments: I emphasise that nothing that I have said is intended to suggest that there can never be circumstances in which a director of a corporate director can or will so act as to cause himself to be regarded as a de facto director of the subject company.
But something more will be required than the mere performance by him of his duties as a de jure director of the corporate director.
On the facts accepted by the judge, there was nothing more in the present case.
(c) Mr Hollands case
The remedy that is provided by section 212 IA 1986 may be sought only against persons to whom that section applies, as described in section 212(1).
The description that applies to this case is that set out in para (a) of the subsection: is or has been an officer of the company.
The word officer includes a director, but it is accepted that the section does not apply to shadow directors because the statute does not provide for this.
It follows that HMRC must plead and prove against Mr Holland that he was a de facto director of the composite companies.
How is this to be done? It is plain from the authorities that the circumstances vary widely from case to case.
Jacob J declined to formulate a single decisive test in Secretary of State for Trade and Industry v Tjolle [1998] 1 BCLC 333, as he saw the question very much as one of fact and degree.
He was commended by Robert Walker LJ in Re Kaytech International plc [1999] 2 BCLC 351, 423 for not doing so, and I respectfully agree that there is much force in Jacob Js observation.
All one can say, as a generality, is that all the relevant factors must be taken into account.
But it is possible to obtain some guidance by looking at the purpose of the section.
As Millett J said in Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180, 182, the liability is imposed on those who were in a position to prevent damage to creditors by taking proper steps to protect their interests.
As he put it, those who assume to act as directors and who thereby exercise the powers and discharge the functions of a director, whether validly appointed or not, must accept the responsibilities of the office.
So one must look at what the person actually did to see whether he assumed those responsibilities in relation to the subject company.
The problem that is presented by this case, however, is that Mr Holland was doing no more than discharging his duties as the director of the corporate director of the composite companies.
Everything that he did was done under that umbrella.
Mr Green QC for HMRC was unable to point to anything that he did which could not be said to have been done by him in his capacity as a director of the corporate director.
When asked what it was that lay outside his performance of that role, he said that it was simply the quality of his acts.
He did everything.
He was the decision maker, and he was the person who gave effect to those decisions.
In Hydrodam at p 184 Millett J rejected the proposition that, where a body corporate is a director of a company, whether it be de jure, de facto or shadow director, its own directors must ipso facto be shadow directors of the subject company.
He said that attendance at board meetings and voting with others did not, without more, constitute him a director of any company of which his company is a director.
That would not be a fair description of what Mr Holland did in this case.
But in a later paragraph on p 184 Millett J said this: It is possible (although it is not so alleged) that the directors of Eagle Trust as a collective body gave directions to the directors of the company and that the directors of the company were accustomed to act in accordance with such directions.
But if they did give such directions as directors of Eagle Trust, acting as the board of Eagle Trust, they did so as agents for Eagle Trust (or more accurately as the appropriate organ of Eagle Trust) and the result is to constitute Eagle Trust, but not themselves, shadow directors of the company.
This passage indicates that the without more requirement that Millett J had in mind would not be satisfied by evidence that the individual director of the body corporate was actually giving instructions in that capacity to the subject company and the subject company was accustomed to act in accordance with those directions.
That would not be enough to prove that the individual director assumed a role in the management of the subject company which imposed responsibility on him for misuse of the subject companys assets.
The facts of this case do not precisely match those in Hydrodam.
But I think, with respect, that Rimer LJ put his finger on the way the question in this case should be answered.
In para 67 of his judgment he referred to the principle that emerges from Millett Js judgment.
In para 70 he said that the proposition that Evans Lombe J set out in para 30(iii) of his judgment in Secretary of State for Trade and Industry v Hall [2009] BCC 190 was wrong in principle.
He rejected the argument that the mere fact that an individual has been acting as a director of the corporate director can, or may, result in his also becoming a director of the subject company.
In para 68 he expressed the principle that he had in mind in these words: The relevant act in relation to the affairs of the subject company is an act directed by the corporate director, not one directed by the latter companys individual board members.
That may be regarded as a distinction of some technicality.
But so long as we have a system of company law which recognises the difference between a company and its directors, it is a distinction which must be recognised and respected.
This was, I think, the point that Mr Knox was seeking to make when he referred to the speeches in Salomon v A Salomon & Co Ltd [1897] AC 22.
As Lord Davey said at p 54, the intention of the legislature must be collected from the language of its enactments.
One can properly say, as Lord Macnaghten did about the company and its subscribers at p 51, that a company is at law a different person from its directors and that it is the intention of the enactment that this distinction should be recognised.
I do not think that one can overcome this distinction by pointing, as Mr Green seeks to do, simply to the quality of the acts done by the director and asking whether he was the guiding spirit of the subject company or had a real influence over its affairs.
As a test, that would create far too much uncertainty.
Those who act as directors of a corporate director are entitled to know what it is that they can and cannot do when they are procuring acts by the corporate director.
That is as true of a case such as this, where the affairs of the corporate director are effectively in the hands of one individual, as it is where there is a board comprised of several directors who always act collectively.
As Lord Collins says (see paras 53 and 95, below), the question is one of law and it is a question of principle.
I think that the guiding principle can be expressed in this way, unless and until Parliament provides otherwise.
So long as the relevant acts are done by the individual entirely within the ambit of the discharge of his duties and responsibilities as a director of the corporate director, it is to that capacity that his acts must be attributed.
It is, of course, right to bear in mind the interests of the creditors.
Their protection lies in the remedies that are available for breach of the fiduciary duty that rests on the shoulder of every director.
But the essential point, which Millett J was at pains to stress in Hydrodam, is that for a creditor of the subject company to obtain those remedies the individual must be shown to have been a director, not just of the corporate director but of the subject company too.
I agree with Rimer LJ that, on the facts accepted by the deputy judge, it has not been shown that Mr Holland was acting as de facto director of the composite companies so as to make him responsible for the misuse of their assets.
I also agree with the reasons that Lord Collins gives for reaching this conclusion.
The other issues
On the view that I take on the first issue, the points raised about the extent of the liability do not require to be decided.
But I would offer these brief comments on some of them, as these points were fully and carefully argued by counsel on both sides.
First, there is the question whether the liability for the payment of unlawful dividends is strict or depends on a degree of fault being established.
There are two lines of authority on this issue.
On the one hand there are cases in which it has been said without qualification that directors are under a duty not to cause an unlawful and ultra vires payment of a dividend: Re Exchange Banking Co, Flitcroft's Case (1882) 21 Ch D 519; Re Lands Allotment Co [1894] 1 Ch 616 at 638; Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555 at 1575; Belmont Finance Corpn v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 at 404; Re Loquitur Ltd [2003] EWHC 999 (Ch); [2003] 2 BCLC 442 at 471 472.
On the other there is a line of authority to the effect that a director is only liable if he makes a misapplication of a companys assets if he knew or ought reasonably to have known that it was a misapplication: Re County Marine Insurance Co (Rance's Case) (1870) LR 6 Ch App 104 at 118; Re Kingston Cotton Mill Co (No 2) [1896] 1 Ch 331 at 345 348; Dovey v Cory [1901] AC 477 at 489 490; Re City Equitable Fire Insurance Co Ltd [1925] Ch 407, per Romer J at 426.
The trend of modern authority supports the view that a director who causes a misapplication of a companys assets is in principle strictly liable to make good the misapplication, subject to his right to make good, if he can, a claim to relief under section 727 CA 1985.
The authorities that favour the contrary view really come to an end with Dovey v Cory [1901] AC 477, as the later judgment of Romer J in Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 can be read, at least in relation to dividends, as supporting strict liability.
Furthermore, the whole point of introducing the right to claim relief under section 727 was to enable the court to mitigate the potentially harsh effect of being held strictly liable.
That relief was introduced by section 32 of the Companies Act 1907, so it was not available when most of the cases in this line of authority were being decided.
It is not necessary to express a definite view on this issue in this case.
As counsel for HMRC pointed out in their written case, there has been no challenge to the finding by the deputy judge that as from 18 August 2004 all the dividends were unlawful, and it is accepted that the relief available by way of a defence under section 727 CA 1985 would have been available if Mr Holland could show that he acted reasonably.
So the issue is academic here, and it was no doubt for this reason that it was not thought to be necessary to develop the point fully in oral argument.
But the better view seems to me that in cases such as this, where it is accepted that the payment of dividends was unlawful, a director who causes their payment is strictly liable, subject of course to his right to claim relief under the statute.
Then there is the question whether the correct remedy for any breach of the duties of a director not to make unlawful payments of dividends is damages or equitable compensation for the net loss sustained by the company, or restitution or restoration of the amount of the unlawful dividends without any inquiry into the loss sustained.
The deputy judge held that the established remedy was to require the director to reinstate the amount of the payment without any inquiry as to the loss suffered by the company as a result of the breach of duty: para 218.
But he declined to make an order in these terms.
What he did, having refused relief under section 727 CA 1985 for this period as he held that Mr Holland had not acted reasonably in paying the dividend without taking all appropriate advice and properly informing himself, was to order him to pay the amount of HRCT that the companies had not provided for in the period of trading from 23 August 2004.
He said that he was doing this in the exercise of his discretion under section 212 IA 1986: para 274.
I agree with the Court of Appeal that the obligation is to restore the moneys wrongfully paid out.
This, as the deputy judge accepted, is the established remedy.
Where dividends have been paid unlawfully, the directors obligation is to account to the company for the full amount of those dividends: see Bairstow v Queens Moat Houses plc [2001] EWCA Civ 712, [2001] 2 BCLC 531, para 54, per Robert Walker LJ.
But there is a discretion under section 212 IA 1986 that it is open to the judge to exercise.
This is indicated by the use of the word may in subsection (3).
Rimer LJ said that the judges order should have reflected the wrong that had actually been committed and the fact that he had refused relief under section 727 CA 1985 in respect of it.
Elias LJ, paras 133 134, and Ward LJ, para 143, disagreed.
In their view it was open to the deputy judge to limit the amount that Mr Holland should pay to what HMRC had lost from his unlawful conduct.
Had it been necessary to reach a view on this point, I would have agreed with the majority.
HMRC is the only creditor.
There is no evidence that anyone would have been disadvantaged by limiting the liability in this way.
It would have been a different matter if the deputy judge had misdirected himself as to the extent of the obligation.
That plainly is not so.
As he made clear in para 274 of his judgment, he proceeded on the basis that, while restoration is the established remedy, he had a discretion under section 212 IA 1986 to limit the award to what was required to make up the deficiency of a particular creditor where the claim was made by a party other than the liquidator.
In my opinion it was open to him to exercise his discretion in this way, and I do not think that he can be faulted for doing so in this case.
Lastly, there are the questions about relief under section 727 CA 1985.
There are two points.
First, there is the decision by the deputy judge that Mr Holland was entitled to a few days grace after the events of 18 August 2004 to enable him to take stock.
Rimer LJ thought the deputy judge was in error in giving Mr Holland this grace period: para 88.
He said that Mr Holland had not conducted himself so as to deserve it and that there was no factual basis for the decision.
Here too Elias LJ, para 128, and Ward LJ, para 138, disagreed.
Elias LJ said that there was evidence justifying the deputy judges analysis.
I respectfully agree with the majority on this point too.
It seems to me that the judge provided a sufficient explanation for his decision in paras 269 270, and that his was a decision with which an appellate court could not properly interfere.
The second question is whether, as Mr Knox submitted, the judge should have gone further and relieved Mr Holland from the obligation to pay anything at all.
He suggested that account should have been taken of the fact that, as he put it, the course taken by Mr Holland was the least bad of all the alternatives.
I do not see how, on the facts found by the deputy judge, this argument can be supported.
He found that Mr Holland acted unreasonably because he did not take appropriate advice or inform himself as to the merits of what he was doing.
But there is a more fundamental point.
Mr Knox submitted that the discretion under section 212 was wide enough to allow the court to reduce the award to nil even if it declined relief under section 727 CA 1985.
I agree with Rimer LJ that the discretion under section 212(3), which is essentially procedural in nature, is a discretion as to amount only once liability has been established.
It is not so wide as to allow the judge, having determined that the section applies, to decline to make any order at all: paras 108 110.
The discretion which he is given by section 212(3) is as to the order that would be appropriate once liability has been established, not to grant relief against liability.
It is a discretion as to how much the director should be ordered to pay, so as to do what is just in all the circumstances: Re Loquitur Ltd [2003] 2 BCLC 442, per Etherton J at para 245.
The deputy judge was right to reject this argument.
Conclusion
As I agree with the Court of Appeal that it has not been shown that when he was directing payment by the composite companies of the unlawful dividends Mr Holland was acting as their de facto director, I would dismiss the appeal.
LORD COLLINS
Introduction
I agree with Lord Hope that the appeal should be dismissed, and write to set out my own approach on the main issue.
In my judgment what divides this court is not simply a matter of appreciation of the facts, namely whether what Mr Holland did in fact was sufficient to make him a de facto director of the composite companies, but a question of law and a question of principle.
The question is whether fiduciary duties can be imposed, in relation to a company whose sole director is a corporate director, on a director of that corporate director when all of his relevant acts were done as a director of the corporate director and can be attributed in law solely to the activities of the corporate director.
My reasons will require some elaboration, particularly because they involve examination of older case law which was not cited in argument, but can be summarised in this way.
Mr Holland is sought to be made liable for breach of fiduciary duty as a de facto director of the composite companies.
For almost 150 years de facto directors in English law were persons who had been appointed as directors, but whose appointment was defective, or had come to an end, but who acted or continued to act as directors.
There was a striking judicial innovation in Re Lo Line Electric Motors Ltd [1988] Ch 477 and Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180 (endorsed by the Court of Appeal in Re Kaytech International plc [1999] 2 BCLC 351) by which (at the risk of over simplification) persons who were held to be part of the corporate governance of a company, even though not directors, could be treated as directors for the purposes of statutory provisions relating to such matters as wrongful trading by, and disqualification of, directors.
To extend that line of authority so as to impose fiduciary duties on Mr Holland in relation to the composite companies, when all of his acts can be attributed in law solely to the activities of Paycheck Directors would be an unjustifiable judicial extension of the concept of de facto director, and best left to the legislature, given that it was as recently as 2006 that it intervened to require that at least one director of a company be a natural person: Companies Act 2006, section 155(1).
The issue is whether Mr Holland can be made liable, pursuant to the Insolvency Act 1986, section 212 (as amended), to account for the funds paid out by the insolvent composite companies on the basis that they have been misapplied by him, or he is accountable for them, or has been guilty of misfeasance or breach of any fiduciary or other duty in relation to the funds.
It is common ground that (a) a de facto director is covered by section 212; (b) shadow directors (i.e. a person in accordance with whose directions or instructions the directors of the company are accustomed to act: Companies Act 1985, section 741(2); Companies Act 2006, section 251(1)) are not within section 212; and (c) section 212 is a procedural provision which does not create any substantive obligations, and consequently for a person to be made liable under section 212, that person must be guilty of breach of an independent duty: Re Canadian Land Reclaiming and Colonising Co, Coventry and Dixons case (1880) 14 Ch D 660; Re City Equitable Fire Insurance Co Ltd [1925] Ch 407.
In this case the basis of the relevant independent duty is significant.
The only basis on which liability is sought to be placed on Mr Holland is that as a de facto director of the composite companies he was in breach of his fiduciary duty not to misapply their funds by paying unlawful dividends.
Directors are accountable for breach of fiduciary duty to a company for unlawful distributions paid in contravention of what is now the Companies Act 2006, section 830: see eg Bairstow v Queens Moat Houses plc [2001] EWCA Civ 712, [2001] 2 BCLC 531.
In Re Exchange Banking Co, Flitcroft's Case (1882) 21 Ch D 519 the liquidator of an insolvent banking company issued a summons against five former directors who had been concerned in paying dividends at a time when they knew the company had no distributable profits.
The Court of Appeal held the directors jointly and severally liable for the amount of the dividends.
The principle was put by Sir George Jessel MR (at p 534): It follows then that if directors who are quasi trustees for the company improperly pay away the assets to the shareholders, they are liable to replace them.
It is not suggested that (in the absence of dishonesty) persons who facilitate the payment of unlawful dividends are responsible for knowing assistance in a breach of trust.
In my judgment the decision of the House of Lords in Standard Chartered Bank v Pakistan National Shipping Corpn [2002] UKHL 43; [2003] 1 AC 959, is of no assistance in the solution of the problem raised on this appeal.
The basis of that decision is that a director who makes fraudulent representations is liable in deceit irrespective of whether he makes the representations on behalf of a company.
The decision of the Court of Appeal, which was reversed by the House of Lords and which had held that he was not liable because he had been acting on behalf of the company, was plainly wrong (although I used more diplomatic language in Daido Asia Japan Co Ltd v Rothen [2002] BCC 589).
But in the present case there can be no suggestion that Mr Holland is not responsible because the corporate director is responsible.
He will be responsible if what he did was unlawful.
The question, to which it is now necessary to turn, is whether he was himself in breach of duty.
The development of the law relating to de facto directors
Validity of acts of de facto directors
Most of the early cases are about the validity of the acts of de facto directors, but they are relevant to the question of principle, namely what makes a person a de facto director.
The first mention in the case law of de facto directors appears to have been in Mangles v Grand Collier Dock Co (1840) 10 Simons 519, a case involving the formation of a dock company by private Act of Parliament.
Sir Lancelot Shadwell V C said (at p 535) that the Act assumed that persons by whom a call was made had to be directors de facto, and that all that Parliament meant was that, if the call were made by persons appearing to be directors, it should not be necessary to prove their appointment.
The first full discussion of the de facto director was in the famous case of Foss v Harbottle (1843) 2 Hare 461, which was of course concerned with the right of shareholders in a company incorporated by Act of Parliament to sue for wrongs alleged to have been done to the company, a matter which has no relevance to the present appeal.
The shareholders claimed that the extinction of the board of directors by the bankruptcy and consequent disqualification of three of them, and the want of any clerk or officer, effectually prevented the due convening of a general meeting of shareholders competent to secure the remaining property of the company, and provide for its due application.
That argument was rejected on the basis that the continued existence of a board of directors de facto must be intended; and that the possibility of convening a general meeting of shareholders capable of controlling the acts of the existing board was not excluded by the allegations of the bill; that in such circumstances there was nothing to prevent the company from obtaining redress in its corporate character in respect of the matters complained of.
Sir James Wigram V C held that shareholders could serve a notice requiring an extraordinary general meeting at the place where the board of directors de facto, whether qualified or not, carry on the business of the company at a given place (at p 496).
He said (at p 498): Whatever the bill may say of the illegal constitution of the board of directors, because the individual directors are not duly qualified, it does not anywhere suggest that there has not been during the whole period, and that there was not when the bill was filed, a board of directors de facto, acting in and carrying on the affairs of the corporation, and whose acting must have been acquiesced in by the body of proprietors; at least, ever since the illegal constitution of the board of directors became known, and the acts in question were discovered.
But if there has been or is a board de facto, their acts may be valid, although the persons so acting may not have been duly qualified.
The concept of de facto directors is used in that case to validate acts which might otherwise have been invalid, and most of the early cases are not only about persons who purported to be directors but whose appointment was defective, but they are also mainly concerned with whether the acts of those persons were legally valid or effective.
Several of the cases are also applications of the principle in the Companies Acts or in articles of association that notwithstanding that it might be afterwards discovered that there was some defect or error in the appointment of the directors, any acts of those directors were to be valid: see from the Companies Clauses Consolidation Act 1845, section 99, and the Joint Stock Companies Act 1856, Sched, Table B, reg 60, through to the Companies Act 2006, section 161, and the Companies (Tables A to F) Regulations 1985 (SI 1985/805), Table A, reg 92.
The question in Re County Life Assurance Co (1870) LR 5 Ch App 288 was whether a claim under a policy could be admitted in the liquidation of an insurance company.
The directors who were named in the articles, and signed the memorandum of association, refused to act and passed a resolution that the company should not carry on business or allot shares.
Notwithstanding this resolution, Mr Preston, the promoter of the company, and one of the shareholders carried on business and allotted shares and appointed directors.
A stranger effected a policy at the companys office which was signed by three of the de facto directors, and sealed with what purported to be the seal of the company.
It was held to be binding because, per Sir GM Giffard LJ (at p 293) The company is bound by what takes place in the usual course of business with a third party where that third party deals bona fide with persons who may be termed de facto directors, and who might, so far as he could tell, have been directors de jure.
In Murray v Bush (1873) LR 6 HL 37, the first of three decisions of the House of Lords dealing with de facto directors, the question concerned the validity of a share transfer and whether the purported transferee was a contributory.
Its articles of association required (inter alia) that the directors at a board meeting had to certify their approval of the proposed transferee.
Bush was a shareholder and a director.
The articles also required directors to have a share qualification.
The transfer was approved at a board meeting, but it was claimed that three of the directors were not duly appointed because they had not executed a deed binding themselves to obey the regulations of the company.
The Joint Stock Companies Act 1844, section 30, provided that notwithstanding that it might be afterwards discovered that there was some defect or error in the appointment of the directors, any acts of those directors were to be valid.
The House of Lords was equally divided on the outcome of the appeal (which was from a decision of Lord Hatherley LC, who also sat on the appeal) and therefore the appeal was dismissed.
Lord Cairns and Lord Hatherley decided that the transfer was to be treated as valid because of section 30 and because the company itself had approved the transfer.
Lord Hatherley (at pp 76 77) referred to directors to whom section 30 applied as directors de facto.
This case concerned persons who acted in all respects as if they were directors.
In the second decision of the House of Lords, Mahony v East Holyford Mining Co Ltd (1875) LR 7 HL 869, it was held that bankers who held funds of a company could lawfully honour the cheques of the directors without being bound to inquire whether the persons pretending to sign as directors had been duly appointed in conformity with the provisions of the memorandum and articles of association.
The persons purporting to act as directors had not been appointed, as required by the articles, by the subscribers to the memorandum.
Lord Cairns LC, Lord Hatherley and Lord Penzance considered that the case was covered by the normal validating provision in the articles that acts done by the board or by a committee of directors should, notwithstanding that it be afterwards discovered that there was some defect in the appointment be as valid as if every such person had been duly appointed, and was qualified to be a director.
Lord Cairns said (at p 888) that the House of Lords: should now hold that there having been de facto directors of the company, who were suffered and permitted by the majority of those who signed the articles of association to occupy the position of and act as directors, and the bankers having, in the full belief that these persons were directors, as they were represented to be, honoured the cheques drawn by them, the payment of these cheques is an answer
to the action of the liquidator of the company
Lord Penzance said (at pp 900 901): In the present case, from the time when the East Holyford Mining Company came into existence, that is after the registration of the memorandum and articles of association, three persons usurped the position of directors (I say usurped, because they do not seem to have been regularly appointed) and another person usurped the office of secretary.
This they did in the face of the subscribers to and shareholders in the company, as well as of persons dealing with the company; and both before the company was legally formed, and after it was formed, they publicly advertised themselves in the prospectus as directors and secretary respectively.
They occupied the offices designated in the prospectus and they opened an account with the bank therein named.
During the six months following they assumed, to the exclusion of all others, the executive functions of the company; no subscribers, nor shareholders, nor strangers dealt with any one else, and no one questioned their authority.
Therefore, during the whole of the time that this company was acting as a company, these individuals were ostensibly directors and secretary respectively, and they were the de facto directors and secretary.
It seems to me, therefore, my Lords, that we have here the case of three individuals being de facto directors, and one being de facto secretary.
Slade J, in Rama Corpn Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147, considered that the point in Mahony was whether the bank was entitled to treat the persons who were described in the mandate as directors.
They were directors de facto, and whether they were directors de jure depended on whether the provisions in the articles relating to the appointment of directors had been complied with.
This was a matter of internal management into which the bank was not bound to inquire: Royal British Bank v Turquand (1856) 6 E & B 327.
In Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, 507, Diplock LJ said that the basis of the decision in Mahony was that the conduct of those who were entitled to appoint the directors was relied on as a representation that they had been appointed.
The issue in John Morley Building Co v Barras [1891] 2 Ch 386 was whether an action was properly brought by de facto directors on behalf of the company to restrain the defendants from holding themselves out as directors.
The persons who had brought the action were persons who had been appointed directors by a document which had been signed by only seven of the subscribers instead of all of them.
It claimed that because they were de facto directors under the articles at the first ordinary meeting after the registration of the company they retired from office after that as vacating directors, they continued in office until the ordinary meeting in the next year.
It was held that the provision did not apply to persons who were only de facto directors.
It applied only to those directors who had been validly appointed in pursuance of the articles.
De facto directors did not derive any authority from that clause as against directors duly appointed.
The defendants were validly appointed and the action was not properly brought.
In Channel Collieries Trust Ltd v Dover, St Margaret's and Martin Mill Light Railway Co [1914] 2 Ch 506 the sole remaining director purported to fill vacancies on the board, even though there was no quorum.
It was held that their acts as de facto directors were validated by the Companies Clauses Consolidation Act 1845, section 99.
Swinfen Eady LJ approved (at pp 514 515) the way in which it was put in the then current edition of Buckley on the Companies Acts (9th ed) p 169 in relation to the equivalent provision in the Companies (Consolidation) Act 1908, section 74: Endangering accuracy for the sake of brevity, it may be said that the effect of this section is that, as between the company and persons having no notice to the contrary, directors etc de facto are as good as directors etc de jure.
The third decision of the House of Lords on de facto directors, Morris v Kanssen [1946] AC 459, was concerned with the validation provision in section 143 of the Companies Act 1929.
It was held that the appointment of X as a director at a board meeting attended by A and B, and the allotment of shares to X, were not validated by the section in a case where A and B had falsely claimed that B had been duly appointed a director, and where A had ceased to be a director in accordance with the companys articles because no general meeting had been held in the relevant year.
Lord Simonds said (at p 475) that there was no authority for the proposition that a director or de facto director could invoke the rule so as to validate a transaction which was in fact irregular and unauthorised.
The decision raises difficulties which are not relevant on this appeal: see Gower and Davies, Principles of Modern Company Law (8th ed) (2008), para 7 15), and the Companies Act 2006, section 161.
All of the cases discussed thus far concerned persons who actually acted as directors, and all are about the authority of de facto directors or the validity of their acts.
There was an invalid appointment in all of them, except Foss v Harbottle (where there had been a valid appointment, but the directors had ceased to hold office), and in Morris v Kanssen, where two de facto directors were involved, one of whom had ceased to hold office and the other had been invalidly appointed.
The liability of de facto directors
The only cases touching on the liability of de facto directors before the modern developments in the law are Gibson v Barton (1875) LR 10 QB 329, Re Canadian Land Reclaiming and Colonising Co, Coventry and Dixons case (1880) 14 Ch D 660, Re New Par Consols Ltd [1898] 1 QB 573, and R v Lawson [1905] 1 KB 541.
Like the cases on the validity of directors acts, both Re Canadian Land Reclaiming and Colonising Co, Coventry and Dixons case and Re New Par Consols Ltd were about individuals who had been appointed directors: in the former case, the appointment of the two directors was defective, and in the latter case the defendant had ceased to be a director through an act of bankruptcy.
Neither Gibson v Barton nor R v Lawson directly involved de facto directors.
In each of those cases the question was whether a person who had acted as a manager of a company could be treated as a manager for the purposes, in the former case, of a predecessor of the Insolvency Act 1986, section 212 and in the latter case, of the Larceny Act 1861, even though he had not been appointed as such.
Gibson v Barton deals obiter with the position of directors.
Gibson v Barton (1875) LR 10 QB 329 is the first case in which the liability of a de facto director is considered (but again in the context of a director whose appointment is invalid), and the first case in which the analogy of executor de son tort is employed.
The issue was whether a penalty under the Companies Act 1862 for failure to file an annual return could be imposed under a section which imposed the penalty on the company and on every director and manager of the company who shall knowingly and wilfully authorise or permit such default.
The appellant was held to have been rightly convicted because he had been permitted by the board to manage the company generally, just as if he had been legally appointed to act as manager.
Blackburn J also dealt with the position of directors, but he also was plainly thinking of a director whose appointment was defective, or, as he put it, illegally elected.
He said (at pp 338 339): There are many instances in which a person who de facto exercises an office cannot defend himself by saying, when he is called upon to bear liability in consequence of his wrong, I am not rightfully in the office, there is another man who may turn me out.
An executor de son tort is an instance in which a man incurs all the liabilities of an executor as to third persons, and he is not permitted to say, I am not executor; there is another man who may take out probate.
The answer is, Your liability as to a third person rests upon your being executor de son tort; you have usurped the office and must bear the liabilities.
So, if a director were to set up in answer to a penalty under section 27, that he was not a director, that he was illegally elected, the answer would be, You have acted as director, and were a director in your own wrong.
I think there was evidence to justify the Lord Mayor in drawing the conclusion that the appellant was de facto manager.
No doubt the appellant is called secretary, but was he a person to whom the whole management had been delegated, probably improperly delegated, by the board of directors, and who had taken upon himself to act as sole manager? He himself says in the minutes, The secretary, that is himself, reported that, in order to comply with the requirement of the Joint Stock Companies Acts he had called a general meeting of the shareholders, &c.
That is evidence upon which the Lord Mayor might find that he had taken on himself the management of the company; he has of his own authority done an act which was to be done only by the directors.
So, again, in the letter he tells the directors he will call a meeting.
I do not say he had power to call a meeting.
I think he had not, but I think that is evidence that he had assumed to act for the directors, and had taken the management of the company on himself.
The Lord Mayor rightly drew the inference that the appellant was, by his own wrong, manager of the company.
An executor de son tort is a person who has not been lawfully appointed executor or administrator who by reason of his intrusion upon the affairs of the deceased is treated for some purposes as having assumed the executorship: Williams, Mortimer and Sunnucks, Executors, Administrators and Probate (19th ed) (2008), para 8 16.
The analogy with an executor de son tort was taken up in Re Canadian Land Reclaiming and Colonising Co, Coventry and Dixons case (1880) 14 Ch D 660, which is the authority for the proposition that de facto directors are directors for the purposes of what is now the Insolvency Act 1986, section 212, but it too (like all of the older cases) is a case about persons who were appointed as, and acted as, directors, but whose appointment was defective.
Coventry and Dixon were appointed, and for some time acted, as directors of a company in which the qualification for a director was the holding of a hundred shares.
Neither of them was the holder of any shares.
In the course of the winding up the liquidator applied under section 165 of the Companies Act 1862 (a predecessor of the Insolvency Act 1986, section 212) to charge them for misfeasance in acting as directors without qualification.
In the Court of Appeal it was held, reversing the judgment of Sir George Jessel MR, that section 165 created no right and merely provided a summary mode of calling directors to account for acts of impropriety, and that to make a person liable under it he must be shown to have been guilty of some misconduct by which the company had suffered loss.
But there was no disagreement on the concept of de facto directors.
Sir George Jessel MR, in a passage which was not affected by the reversal of his decision, said (at pp 664 665): No doubt they were not properly elected, and were, therefore, not de jure directors of the company; but that they were de facto directors of the company is equally beyond all question.
The point I have to consider is whether the person who acts as de facto director is a director within the meaning of this section, or whether he can afterwards be allowed to deny that he was a director within the meaning of this section.
I think he cannot.
We are familiar in the law with a great number of cases in which a man who assumes a position cannot be allowed to deny in a court of justice that he really was entitled to occupy that position.
The most familiar instance is that of executor de son tort.
In like manner, it seems to me, in an application under this section, the de facto director is a director for the purposes of this section.
James LJ said (at p 670): It was admitted by the appellants that these persons, as de facto directors, would be liable for any act of commission or any omission on their part in the same manner and to the same extent as if they had been de jure as well as de facto directors.
They were, so to say, directors de son tort, and liable in that character, but not otherwise, and you must shew something that they did which resulted in loss to the company, and for which, if they had been duly appointed directors of the company, the company would have been entitled to a remedy against them.
Bramwell LJ said (at p 673): If he has done anything wrong as a de facto director, no doubt he can be got at under the clause.
In Re Western Counties Steam Bakeries and Milling Co [1897] 1 Ch 617, 630, AL Smith LJ said in a phrase which is the only one in the older cases to foreshadow the modern development of the law: When examined, Coventry and Dixon's case is only the case of Gibson v Barton over again.
I agree that doing the
work of a director may make a person a de facto director
In Re New Par Consols Ltd [1898] 1 QB 573 Mr Gregory was a director of the company, and continued to act as such until it was wound up on 14 August 1897.
He was adjudicated bankrupt in October 1896, having committed an act of bankruptcy on 3 August 1896.
The articles provided that the office of director be vacated if he became a bankrupt.
The bankruptcy dated back to the act of bankruptcy in August 1896 and he took the point that he was not bound to submit a statement of affairs because he had ceased to be a director of the company more than one year before the winding up.
It is hardly surprising that the argument was rejected.
Lord Russell of Killowen CJ said (at p 576) that the object of the legislation (the Companies (Winding up) Act 1890, section 7) was to get at the persons who had the information which the court required, and accordingly even if he had properly and legally ceased to be a director, but was de facto acting as a director within the prescribed period of a year, he was a director within the meaning of the section, and subject to the obligation to prepare and sign the accounts which are required by that section.
Gibson v Barton was applied in R v Lawson [1905] 1 KB 541.
The Larceny Act 1861, section 84, made it a misdemeanour for any director, manager, or public officer of any body corporate or public company to publish false statements with intent to deceive or defraud.
It was held that it applied to a person who, without having been appointed an officer of the company, had in fact acted throughout as the manager of the affairs of the company.
The modern law
It seems that there is not a single case prior to the 1980s in which the term de facto director was applied to anyone other than one who had been appointed a director, but whose appointment was defective, or one who had been, but had ceased to be, a director.
Consequently the extension of statutory provisions relating to disqualification of directors and wrongful trading by directors to persons who had not been appointed as directors but who took part in management was a judicial innovation, first fully articulated in Re Lo Line Electric Motors Ltd [1988] Ch 477 by Sir Nicolas Browne Wilkinson V C.
Prior to that decision, in Re Eurostem Maritime Ltd [1987] PCC 190, there was a disqualification application under the Companies Act 1985, section 300 (now the Company Directors Disqualification Act 1986, section 6).
The application related to the respondents association with seven companies.
He was a director of four of them.
Mervyn Davies J held that the respondent was actively concerned in the administration of all seven companies and that section 300 applied to de facto directors.
The relevant facts in Re Lo Line Electric Motors Ltd [1988] Ch 477 were that the respondent had been a director of company A; he resigned as a director but continued as production manager; after the sole remaining director had absconded to the United States, the respondent took over the running of the company, but was not appointed as a director; the respondent also acted as a director of company B, although he was never appointed as such.
Sir Nicolas Browne Wilkinson V C held that for the purposes of a disqualification order under the 1985 Act, in considering whether a person was unfit to be a director, only his conduct as director was relevant, and that, as a matter of construction, director in section 300 included a person de facto acting as a director, though not appointed as such.
It is apparent from the report of the argument that the respondent did not dispute that he had run the companies.
The only argument relevant to the present case is that, relying on Morris v Kanssen [1946] AC 459, it was suggested that a de facto director was a director whose purported appointment was invalid, and not a person who had never been appointed.
Sir Nicolas Browne Wilkinson V C rejected this argument: [Counsel for the respondent] sought to draw a distinction between two types of de facto director, viz (a) a person who has been appointed director, but invalidly and (b) a person who has never been appointed director at all.
He submitted that if, contrary to his primary submission, section 300 of the Act of 1985 permitted regard to be paid to the conduct of a director who was invalidly appointed, the section did not extend to the conduct of a person who had never been appointed a director at all.
He relied on Morris v Kanssen [1946] AC 459, 471, in which the House of Lords drew exactly that distinction in holding that the statutory predecessor of section 285 of the Act of 1985 (validation of acts of directors) did not validate the acts of a person who had never been appointed a director at all.
I do not accept this submission.
For the reasons I have given the plain intention of Parliament in section 300 was to have regard to the conduct of a person acting as a director, whether validly appointed, invalidly appointed, or just assuming to act as director without any appointment at all.
In this context, there is no logic in drawing the distinction put forward by [counsel].
Morris v Kanssen was dealing with quite a different section which validated the acts of a director notwithstanding any defect that may afterwards be discovered in his appointment or qualification.
In that case, both the words of the section and the common sense of the matter pointed to the section being concerned only with the acts of a person who had been invalidly appointed a director. (At 490)
The most discussed modern authority is Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180.
Hydrodam had two corporate directors, which were companies incorporated in the Channel Islands.
It was a subsidiary of Eagle Trust plc.
The liquidator commenced proceedings against Eagle Trust plc (the ultimate parent company of Hydrodam through two other subsidiaries) and all of Eagle Trusts directors, alleging that they were liable as de facto or shadow directors of Hydrodam under the Insolvency Act 1986, section 214, for wrongful trading.
The decision concerned an application by two of the directors to strike out the proceedings.
It was alleged that as directors of Eagle Trust they were, with the other directors, collectively responsible for the conduct of Eagle Trust in relation to Hydrodam.
The proceedings were struck out because the liquidator had neither pleaded nor adduced evidence to support any allegation that either of the respondents was a director of Hydrodam.
Millett J accepted that the liability for wrongful trading imposed by section 214 extended to de facto directors as well as to de jure and shadow directors.
Millett J said (at p 183): A de facto director is a person who assumes to act as a director.
He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such.
To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director.
It is not sufficient to show that he was concerned in the management of the company's affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level.
A de facto director, I repeat, is one who claims to act and purports to act as a director, although not validly appointed as such.
Millett J, in a much debated passage, dealt with the question whether the directors of a corporate director of a company must ipso facto be what he described as shadow directors (by which he probably also meant to include de facto directors) of the company.
His answer was (at p 184): Attendance of board meetings and voting, with others, may in certain limited circumstances expose a director to personal liability to the company of which he is a director or its creditors.
But it does not, without more, constitute him a director of any company of which his company is a director.
On the facts Millett J held that the liquidator had neither pleaded nor adduced evidence that either of the directors was a director of Hydrodam.
As regards one of them, Dr Hardwick, he had never acted as a director, and as regards the other, Mr Thomas, it was not alleged that he acted in any way in relation to the companys affairs.
Since the decision in Re Hydrodam there have been many decisions on de facto directors, most of which have been in disqualification cases at first instance.
Many of the cases have involved a textual analysis of Millett Js judgment (which was, according to the report, a reserved judgment delivered on the day following the oral hearing).
The most notable developments have been in Re Richborough Furniture Ltd [1996] 1 BCLC 507 (Timothy Lloyd QC), and Secretary of State for Trade and Industry v Tjolle [1998] 1 BCLC 333 (Jacob J), and in the decision of the Court of Appeal in Re Kaytech International plc [1999] 2 BCLC 351, which contains a valuable analysis by Robert Walker LJ.
The decisions have treated Re Hydrodam as a starting point.
But although in Re Hydrodam Millett J used expressions such as held out as a director and claims and purports to be a director, it has been held that although these were relevant factors, they were not necessary factors, and he could not have meant that the label director had to have been attached to the person or that he be held out as a director: Re Moorgate Metals Ltd [1995] BCC 143 (Warner J); Re Richborough Furniture Ltd [1996] 1 BCLC 507 (Timothy Lloyd QC); cf Secretary of State for Trade and Industry v Tjolle [1998] 1 BCLC 333, 343.
Once the concept of de facto director was divorced from the unlawful holding of office, there were two consequences.
The first consequence was that the distinction between de facto directors and shadow directors was eroded.
A shadow director is a person in accordance with whose directions or instructions the directors of the company are accustomed to act: Companies Act 1985, section 741(2); Companies Act 2006, section 251(1).
In Re Hydrodam [1994] 2 BCLC 180, 183, Millett J said that de facto and shadow directorship do not overlap.
They are alternatives and in most and perhaps all cases are mutually exclusive.
But the distinction was impossible to maintain with the extension of the concept of de facto directorship and the consideration of such matters as the taking of major decisions by the individual, which might be through instructions to the de jure directors, and the evaluation of his real influence in the affairs of the company: see Re Kaytech International plc [1999] 2 BCLC 351, 424, per Robert Walker LJ.
The second consequence is that the courts were confronted with the very difficult problem of identifying what functions were in essence the sole responsibility of a director or board of directors.
A number of tests have been suggested of which the following are the most relevant.
First, whether the person was the sole person directing the affairs of the company (or acting with others equally lacking in a valid appointment), or if there were others who were true directors, whether he was acting on an equal footing with the others in directing its affairs: Re Richborough Furniture Ltd. Second, whether there was a holding out by the company of the individual as a director, and whether the individual used the title: Secretary of State for Trade and Industry v Tjolle.
Third, taking all the circumstances into account, whether the individual was part of the corporate governing structure: Secretary of State for Trade and Industry v Tjolle, at pp 343 344, approved in Re Kaytech International plc [1999] 2 BCLC 351, 423, where Robert Walker LJ also approved the way in which Jacob J in Tjolle had declined to formulate a single test.
He also said that the concepts of shadow director and de facto director had in common that an individual who was not a de jure director is alleged to have exercised real influence (otherwise than as a professional adviser) in the corporate governance of a company (at p 424).
See also especially Re Mea Corpn Ltd [2006] EWHC 1846 (Ch), [2007] 1 BCLC 618 (Lewison J); Ultraframe (UK) Ltd v Fielding (No 2) [2005] EWHC 1638 (Ch) (Lewison J); Secretary of State for Trade and Industry v Hollier [2006] EWHC 1804 (Ch), [2007] BCC 11 (Etherton J).
In fact it is just as difficult to define corporate governance as it is to identify those activities which are essentially the sole responsibility of a director or board of directors, although perhaps the most quoted definition is that of the Cadbury Report: Corporate governance is the system by which businesses are directed and controlled (Report of the Committee on the Financial Aspects of Corporate Governance, 1992, para.2.5).
Other common law jurisdictions have had to deal with similar problems, and they have also imposed liabilities not only on irregularly appointed directors or persons who, without being appointed as directors, have been held out as directors, but also on persons who perform the functions of directors with any appointment, irregular or otherwise, and without any holding out: for Australia see the Corporations Act 2001, section 9, and eg Gebo Investments (Labuan) Ltd v Signatory Investments Pty Ltd [2005] NSWSC 544; Chameleon Mining NL v Murchison Metals Ltd [2010] FCA 1129; for Canada, contrast Wheeliker v Canada (1999) 172 DLR (4th) 708, at [19] (Fed CA) (remedies available against persons who act as directors or who are held out by the company as directors although they lack the required qualification or authority) with Scavuzzo v The Queen [2006] 2 CTC 2429, at para 32 (a person must have some semblance of qualification as director and must hold himself out as a director); in the United States de facto director still connotes a person who, without being a director, claims to be one (eg Osler Institute Inc v Forde, 333 F 3d 832 (7th Cir 2003)), but the courts impose fiduciary duties on other persons who, without being directors, are control persons (eg Re Parmalat Securities Litigation, 684 F Supp 2d 453, 475 476 (SDNY 2010)).
It does not follow that de facto director must be given the same meaning in all of the different contexts in which a director may be liable.
It seems to me that in the present context of the fiduciary duty of a director not to dispose wrongfully of the companys assets, the crucial question is whether the person assumed the duties of a director.
Both Sir Nicolas Browne Wilkinson V C in Re Lo Line (at p 490) and Millett J in Re Hydrodam (at p 183) referred to the assumption of office as a mark of a de facto director.
In Fayers Legal Services Ltd v Day, (unreported) 11 April 2001, a case relating to breach of fiduciary duty, Patten J, rejecting a claim that the defendant was a de facto director of the company and had been in breach of fiduciary duty, said that in order to make him liable for misfeasance as a de facto director the person must be part of the corporate governing structure, and the claimants had to prove that he assumed a role in the company sufficient to impose on him a fiduciary duty to the company and to make him responsible for the misuse of its assets.
It seems to me that that is the correct formulation in a case of the present kind.
See also Primlake Ltd v Matthews Associates [2006] EWHC 1227 (Ch), [2007] 1 BCLC 666, at para 284.
Conclusion
It follows that I do not consider that the answer to the question on this appeal lies in considering what Millett J meant by the words without more, and then attempting to catalogue what Mr Holland did.
If the question is, as I believe, whether Mr Holland was part of the corporate governing structure of the composite companies and whether he assumed a role in those companies which imposed on him the fiduciary duties of a director, then I would answer that he was not.
This is not simply a question of fact, since it raises the question of principle of the effects of acts done by a director of a corporate director in that capacity.
The sole director of the composite companies was Paycheck Directors.
From the time of the decision in Re Bulawayo Market and Offices Co Ltd [1907] 2 Ch 458 that a company could have a sole corporate director and its statutory recognition from the Companies Act 1929, sections 144 and 145, until the requirement in the Companies Act 2006, section 155(1), that a company have at least one director who is a natural person, the corporate structure of the type in this case was perfectly lawful.
There is no material to suggest that Mr Holland was doing anything other than discharging his duties as the director of the corporate director of the composite companies.
It does not follow from the fact that he was taking all the relevant decisions that he was part of the corporate governance of the composite companies or that he assumed fiduciary duties in respect of them.
If he was a de facto director of the composite companies simply because he was the guiding mind behind their sole corporate director, then that would be so in the case of every company with a sole corporate director.
The development of the law of de facto directors from Re Lo Line and Re Hydrodam onwards was a significant judicial innovation given that for some 150 years de facto directors meant individuals who had actually been appointed, or purportedly appointed, as directors.
As has been seen, in two of the three older cases which dealt with the liability of de facto directors, an analogy was drawn with executors de son tort: Gibson v Barton (1875) LR 10 QB 329 and Re Canadian Land Reclaiming and Colonising Co, Coventry and Dixons case (1880) 14 Ch D 660.
That suggests strongly that the basis of liability was the assumption of responsibility.
The legislature has already intervened in the 2006 Act to ensure that there is a natural person to whom responsibility is attributed.
The purpose of what became Companies Act 2006, section 155(1), was to ensure that every company would have at least one individual who could, if necessary, be held to account for the companys actions: Department of Trade and Industry, Company Law Reform (Cm 6456, 2005), para 3.3.
For the court to hold that every significant decision of individual directors of a corporate director is to be regarded as being taken as if they were directors of the company of which it is the corporate director goes considerably beyond the law as it has been developed at first instance and by the Court of Appeal in the modern de facto director cases, and beyond what I would regard as the function of the court.
I would not wish to question the modern judicial development of the de facto director concept, and I well understand the policy reasons why in such a case as this a person in the position of Mr Holland should be liable, although those reasons may not be as powerful as they were prior to the enactment of the Companies Act 2006, section 155(1).
The legislature could have intervened to require that all directors be natural persons, as under the Corporations Act 2001, section 201B (Australia), the Canada Business Corporations Act 1985, section 105(1)(c), the New York Business Corporation Law, section 701, and the Delaware General Corporate Law, section 141(b).
But it did not, and in my judgment the proposed extension which is inherent in HMRCs case is a matter for the legislature and not for this court.
LORD SAVILLE
To my mind the appellants case necessarily involves substantial inroads into the long established principle that although a company is an artificial entity and can only act through natural persons, it is to be treated as a legal personality separate and distinct from its directors and members.
It is the case that Mr Holland was the guiding mind behind the sole corporate director of the composite companies.
He was the natural person who decided that the composite companies should pay the dividends in question.
But he did so in the course of directing the corporate director, not by acting or purporting to act as a director of the composite companies.
In my judgment, it does not follow from the fact that Mr Holland caused the corporate director to make decisions in relation to the composite companies that he was accordingly a de facto director of the composite companies.
To suggest that he was is to ignore or bypass the separate legal personality of the corporate director and instead to treat Mr Holland as though he, rather than the corporate director, was the legal personality running the composite companies.
As Lord Collins has pointed out in paragraph 96 of his judgment, if this were the law, then in the case of every company with a sole corporate director, the natural person or persons who caused the corporate director to make decisions relating to the company would necessarily be de facto directors of that company.
Such a state of affairs would lie awkwardly with the fact that in 2006 Parliament enacted that a company must have at least one director who is a natural person; hardly necessary if the natural person or persons who were the guiding minds behind the corporate directors decisions relating to the company were ipso facto to be treated as de facto directors of the company.
I accordingly agree that for the reasons given by Lord Hope and Lord Collins, this appeal should be dismissed.
LORD WALKER
I am unable to agree with the reasoning and conclusions of the majority on the first issue in this appeal.
The Courts decision will, I fear, make it easier for risk averse individuals to use artificial corporate structures in order to insulate themselves against responsibility to an insolvent companys unsecured creditors.
I gratefully adopt Lord Hopes summary of the relevant facts.
I would add only that the specimen of the standard form computer generated document purporting to be a minute of a meeting of the board of directors of the composite company does not specify whether the dividend to be paid is an interim dividend or a final dividend.
This last point is potentially of some importance because Article 8(b)(i) of the articles of each of the composite companies, part of which is set out in para 8 of Lord Hopes judgment, makes the payment of dividends a matter for the decision of the company in general meeting acting on the recommendation of the directors.
Article 8(b)(i)(ee) and (ff) provide as follows: (ee) when paying interim dividends, the Directors may make payments of interim dividends to one or more classes of Non Voting Shares to the exclusion of one or more other classes of Non Voting Shares on the same basis that final dividends may be paid by the Company to each class of Non Voting Shares in accordance with the foregoing; (ff) regulations 102 and 103 of Table A shall be read and construed accordingly with the foregoing provisions of this Article.
Rather surprisingly, the question whether the dividends purportedly paid by the composite companies were interim or final dividends seems not to have been considered in the courts below.
Nor was it raised in argument in this Court.
It may have been assumed that every single dividend paid by any of the composite companies was an interim dividend payment of which was a decision for the corporate director alone.
But for a company to pay an endless stream of interim dividends, with no final dividend ever recommended by the directors and approved by the company in general meeting, could not be a proper exercise of the powers conferred by the article.
That conclusion is reinforced by the opening words of article 8(b)(i) (such dividends payable on each such class of Shares in such amounts, at such frequency, at such times as, on the recommendation of the Directors, the holder of the A share shall, in General Meeting, resolve ).
The holder of the A share in each of the composite companies was of course Paycheck Services Trustee Limited, the directors and shareholders of which were Mr and Mrs Holland.
Paycheck Services Trustee Limited held each A share on the trusts of a settlement made by Mr Holland.
The beneficiaries were the other shareholders in the composite company in questions.
Clause 3.1 of the form of settlement expressly provided for how the voting control conferred by the A share was to be exercised: In the exercise by the Trustees of their duties hereunder and of the voting rights attached to the A share the Trustees shall act at all times in the best interests of the [relevant composite company] and the Members and the Companys employees.
The authorities
In the courts below counsel for Mr Holland relied heavily on the decision of Millett J in Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180.
That company (Hydrodam) had two corporate directors, both incorporated in the Channel Islands.
Millett J commented (p183): That fact alone may be sufficient to justify an inference that they were accustomed to act in accordance with the directions of others; in which case there were shadow directors of the company.
But there is nothing pleaded in the points of claim to suggest that there were, in addition to the titular directors, any other persons who claimed to be directors of the company at all.
Millett J went on to explain in detail why the pleaded case was so deficient.
Hydrodams liquidator had made claims for wrongful trading against numerous respondents including two individuals who were (with six or seven co directors) directors of Eagle Trust plc (Eagle) of which Hydrodam was (at two removes) an indirect subsidiary.
The pleaded case against the two individuals was that they were collectively responsible for decisions taken by Eagle in relation to Hydrodam.
In that case, the judge said, it was Eagle, not two members of its fairly large board, who should be regarded as a shadow director: (at p 184) but if all they have done is to act in their capacity as directors of the ultimate holding company, in passing resolutions at board meetings, then in my judgment the holding company is the shadow director of the subsidiary, and they are not.
To put the point another way, in the statutory definition of shadow director, the context in which person is used does not permit the singular to include the plural.
In striking out the defective pleading as against the two directors of Eagle, Millett J, was, if I may respectfully say so, obviously right.
But he also made some general observations which have been much quoted and discussed, and not accepted without some qualification, in later cases.
The key passage (at pp 182 183) is set out in para 29 of Lord Hopes judgment and I need not repeat it.
Later authority, at first instance and in the Court of Appeal, has qualified some of Millett Js propositions and developed others.
It is unnecessary to embark on a lengthy discussion of all the first instance authorities.
There are three main points of qualification.
First, Millett J said that a de facto director assumes to act as such, is held out as such, and claims and purports to be a director.
That is true of some of the early cases in which an apparently de jure director had been disqualified by failing to obtain the requisite share qualification, or by bankruptcy (see for instance the cases mentioned by Sir Nicolas Browne Wilkinson V C in Re Lo Line Electric Motors Ltd [1988] Ch 477, 489 490).
But it is not required in every case.
The Vice Chancellors view (at p 490) was that: The plain intention of Parliament in section 300 [of the Companies Act 1985, the predecessor of the Company Directors Disqualification Act 1986] was to have regard to the conduct of a person acting as a director, whether validly appointed, invalidly appointed, or just assuming to act as director without any appointment at all.
Here the context shows that assuming was used in a neutral sense, simply drawing attention to what the individual in question actually did.
To the same effect are the observations of Etherton J in Secretary of State for Trade and Industry v Hollier [2006] EWHC 1804 (Ch); [2007] BCC 11, para 66 (but compare para 81(4)).
This analysis is supported by the observations of Lewison J in Re Mea Corpn Ltd [2007] 1 BCLC 618, paras 83 and 84, citing Jacob J in Secretary of State for Trade and Industry v Tjolle [1998] 1 BCLC 333, 343 344.
Lewison J said, In considering whether a person assumes to act as a director what is important is not what he calls himself, but what he did.
Secondly (though not directly relevant in this appeal), it is not necessary that a shadow director should be someone who lurks in the shadows.
He may do so, especially if he has a bad commercial reputation (or has actually been disqualified from acting as a director).
But he may be the chief executive of a group of companies who openly gives directions to the board of a subsidiary company on which he does not sit.
This point has been made by the Court of Appeal in Re Kaytech International plc [1999] 2 BCLC 351, 424 (Robert Walker LJ) and in Secretary of State for Trade and Industry v Deverell [2001] Ch 340, para 36 (Morritt LJ).
Indeed, Millett J could be said to have recognised it himself in the example that he gave in a later paragraph in Hydrodam (at p 184 f).
Thirdly (following on from the first two points) it is not the case that the concepts of de facto director and shadow director are fundamentally different, and always, or nearly always, to be regarded as mutually exclusive categories.
This point has been made in Kaytech at p 424.
It was left open in Deverell at para 36 but in Mea Lewison J has taken Deverell as leading to the same conclusion (para 89): Now that Morritt LJ has explained that the role of a shadow director does not necessarily extend over the whole range of the companys activities, it seems to me that there is no conceptual difficulty in concluding that a person can be both a shadow director and a de facto director simultaneously In each case, it is necessary to examine the facts, bearing in mind that, as Morritt LJ explained ([2001] Ch 340 at 354), the purpose of the legislation is to identify those, other than professional advisers, with real influence in the corporate affairs of the company.
Subject to these qualifications (which are in my opinion correct and necessary) Hydrodam still provides valuable guidance especially in emphasising (p 183) that to establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director.
This essential feature has been further explained and developed in Kaytech at pp 423 424 (citing Tjolle), in Hollier at paras 66 81 and in Mea at paras 82 83.
Something more
In Hydrodam, at p184, Millett J added some further observations to the passage already referred to: Attendance of board meetings and voting, with others, may in certain limited circumstances expose a director to personal liability to the company of which he is a director or its creditors.
But it does not, without more, constitute him a director of any company of which his company is a director.
The theme that something more is required has been repeated in later cases, including the judgment of Rimer LJ in this case, para 66.
Rimer LJ did not take from Hydrodam (and I entirely agree) that the requisite more would be satisfied merely by the active participation of the board member in the making of board decisions by the corporate director in relation to the actions of the subject company.
In a section of his judgment headed Mr Hollands case (there is no parallel section considering the appellants case) Lord Hope observes (para 41), the facts of this case do not precisely match those of Hydrodam.
That is, with respect, a considerable understatement.
In Hydrodam, as already noted, each of the individuals in question was one of about eight persons who made up the board of directors of Eagle, of which Hydrodam was a sub sub subsidiary.
The pleaded case was that the Eagle directors were collectively responsible.
Being a de facto director is a matter of what the individual himself does on his own initiative, not simply as part of a process of collective decision making.
Mr Holland was (with his professional advisers, who took their instructions from Mr Holland, and whose function was simply to give advice) the founder and guiding spirit of the whole Paycheck empire.
With the concurrence of his wife (whose responsibilities were no more than secretarial) he was the only active director of both Paycheck Directors and Paycheck Secretarial; he was the original holder of all the A shares which carried voting control of the composite companies, and he was the only active director of the corporate trustee which held the A shares under settlements which he had created.
He took the decision (after receiving the advice of leading counsel at the consultation on 18 August 2004) that composite companies should continue trading, and should continue to pay dividends without reserving for higher rate corporation tax.
If those facts did not amount to the something more referred to in the authorities, it is hard to imagine circumstances that would do so.
The repeated assertion that everything that Mr Holland did was done in his capacity as a director of Paycheck Directors, and was within his authority as a director of that company, is no doubt not pure sham but it is, in my view, the most arid formalism.
In my view Mr Holland was acting both as a de jure director of Paycheck Directors and as a de facto director of the composite companies.
A de facto director is not formally invested with office, but if what he actually does amounts to taking all important decisions affecting the relevant company, and seeing that they are carried out, he is acting as a director of that company.
It makes no difference that he is also acting as the only active de jure director of a corporate director of the company.
I reach that conclusion without reference to the point, raised earlier in this judgment, about the status of the payments as interim dividends.
The Court heard no argument on the point, and it would not be right to place any reliance on it.
But Mr Hollands apparent disregard for the provisions of articles tailor made for his own purposes makes his reliance on formalities even less convincing.
The Standard Chartered case
Mr Green QC, for HMRC, relied strongly on the decision of the House of Lords in Standard Chartered Bank v Pakistan National Shipping Corpn (Nos 2 and 4) [2002] UKHL 43; [2003] 1 AC 959.
In that case Mr Mehra had made fraudulent misrepresentations on behalf of a company called Oakprime, of which he was a director.
The Court of Appeal accepted the argument that he was not personally liable for deceit because he had been acting solely on behalf of Oakprime.
The House of Lords trenchantly exposed the fallacy of this reasoning.
The most important passages are paras 20 23 in the opinion of Lord Hoffmann and paras 35 41 in the opinion of Lord Rodger of Earlsferry.
These passages in their entirety call for careful study, but I will limit quotation to para 41 of Lord Rodgers opinion: The Court of Appeal sought support for their view that Mr Mehra should not be held personally liable in the speech of Lord Steyn in Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, 834 835.
In truth it provides no such support.
The issue in that case related to the personal liability of a director for a misleading projection, prepared in large part by him and issued by the company, as to the profits which the plaintiffs might earn by opening a health food shop under a franchise.
Lord Steyn, with whom the other members of the House concurred, said ([1998] 1 WLR 830, 835B C): But in order to establish personal liability under the principle of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, which requires the existence of a special relationship between plaintiff and tortfeasor, it is not sufficient that there should have been a special relationship with the principal.
There must have been an assumption of responsibility such as to create a special relationship with the director or employee himself.
Since the plaintiffs had failed to show a special relationship with the director himself, the House held that he was not liable.
Lord Steyn was dealing with the tort of negligence where a claimant must establish that the defendant owed him a duty of care.
There is no such requirement in the case of deceit.
Liability for deceit is so self evident that we do not consider it as resulting from a breach of duty (Tony Weir, Tort Law (2002), p 30).
Mr Mehra set out by his fraudulent acts to make Standard Chartered pay under the letter of credit.
He succeeded.
He is accordingly personally liable for the loss which he thereby caused them.
Mr Knox QC, for Mr Holland, summarily dismissed this case as irrelevant on the ground that it was a claim in deceit.
So it was, and there has never been any pleading or finding of dishonesty against Mr Holland.
Nevertheless there is to my mind a significant parallel between liability for deceit (which is in Lord Rodgers words so self evident that we do not consider it as resulting from a breach of duty) and the unqualified statutory prohibition in section 263 of the Companies Act 1985 on payment of a dividend otherwise than out of available profits.
Contravention of this prohibition is a statutory wrong giving rise to strict liability, and anyone who is in a position to contravene it is likely to be in a fiduciary position (see further below).
Mr Holland was the human cause of (and apart from his wifes secretarial assistance, the only human being who took any part in) the payment of unlawful dividends.
They were, as Rimer LJ said (para 112) payments which should never have been made.
Mr Holland is liable for the payments because he deliberately made them.
His liability has nothing to do with limited liability of shareholders, or with Salomon v A Salomon & Co Ltd [1897] AC 22.
I have carefully considered the judgment of Lord Collins.
It contains a very full analysis of the early cases and the development of the law relating to de facto directors.
It notes that Re Lo Line Electric Motors Ltd [1988] Ch 477 was a striking judicial innovation.
But its innovation has been followed and developed in many decisions at first instance and in the Court of Appeal.
I agree with Lord Collins that section 212 is procedural in nature, and that for liability to arise under the section, a breach of some identifiable duty must be established.
I also agree that assumption of responsibility is the appropriate test, so long as that expression is understood as focusing on what the individual in question did, rather than what he was called (see the authorities mentioned in para 108 above).
In this case the assumption of responsibility equates with the fiduciary duty that a company director owes to his company not to make an unauthorised distribution of capital.
But in the circumstances of this case I think that there would be some element of putting the cart before the horse in looking for a fiduciary duty before looking at what Mr Holland did, because it is what he did that demonstrates that he was undertaking responsibility and exposing himself to a claim for breach of fiduciary duty.
Lord Collins makes a modest reference to his own monumental first instance judgment in Primlake Ltd v Matthews Associates [2006] EWHC 1227 (Ch), [2007] 1 BCLC 666.
It would be inappropriate, in a dissenting judgment, to go far into that decision, which was not cited to the court.
But it is to my mind a striking example, comparable on its facts to this case, of an individual held to be a de facto director, and to be liable for breach of fiduciary duty, because of what he did (see the summary at para 311 of the judgment).
Lord Savilles brief judgment overlooks the important difference between a multiplicity of human directors participating in the collective governance of a single corporate director (as is common and as was the case, indirectly, in Hydrodam), and a single individual director who is the guiding mind of a single corporate director, as Mr Holland was in this case.
Other issues
On the other issues I agree with Rimer LJ in the Court of Appeal.
The discretion conferred by section 212(3) of the Insolvency Act 1986 is not a wide discretion.
It does not replicate or extend the courts power to grant relief under section 727 of the Companies Act 1985.
What it does is to enable the court to adjust the remedy to the circumstances of the particular case (some examples are given by Dillon LJ in West Mercia Safetywear Ltd v Dodd [1988] BCLC 250).
For these reasons I would for my part have allowed the appeal and restored the order of the deputy judge but without the restriction on Mr Hollands liability imposed by para 2 of the judges order.
LORD CLARKE
I agree with Lord Walker that this appeal should be allowed for the reasons he gives.
I state the principal considerations which have led me to that conclusion because others take a different view.
I entirely agree with Lord Walkers analysis of and qualifications to the decision and reasoning of Millett J in Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180.
In particular, I agree that, as Lewison J said in Re Mea Corpn Ltd [2007] 1 BCLC 618 at para 89 (in the passage quoted by Lord Walker), there is no conceptual difficulty in holding that a person can be both a shadow director and a de facto director simultaneously and that the real purpose of each is to identify those, other than professional advisers, with real influence in the corporate affairs of the company.
As I read the judgments in the present case, it is accepted in them all that, in order to establish that a person was a de facto director, it is necessary to plead and prove that he undertook functions in relation to a company which could properly be carried out only by a director and that he must have done something more than merely participate in decisions by the corporate director in relation to the actions of the subject company.
This requirement was not satisfied in Hydrodam because each of the individuals alleged to be de facto directors was, as Lord Walker describes it, one of about eight people who made up the board of Eagle, of which Hydrodam was a sub sub subsidiary.
The allegation was that the directors of Eagle were collectively responsible.
I agree with Lord Walker that being a de facto director depends upon what the individual does on his own initiative.
The question in each case is whether the individual did something more than participate in a collective decision.
In this case the question is whether Mr Holland did an act which was a directorial act of each composite company.
I agree with Lord Walker that it does not follow from the fact that he did the act in his capacity as a director of Paycheck Directors, which was the corporate director of each composite company, that he did not also do it as a de facto director of each composite company.
There is no reason in principle why it cannot be held as a matter of fact that Mr Holland decided to pay the dividends both as a de jure director of Paycheck Directors and as a de facto director of each composite company.
Section 263(1) of the Companies Act 1985 provides: (1) A company shall not make a distribution except out of profits available for the purpose.
As Lord Hope observes at para 47, it was held by the deputy judge that, as from 18 August 2004, all the dividends were unlawful and it is accepted that the relief available under section 727 of that Act would have been available to Mr Holland if he could show that he acted reasonably.
It is thus accepted that, if Mr Holland was a de facto director of the composite companies, his position is the same as that of the de jure director of those companies, namely Paycheck Directors.
The de jure director would be liable, subject to section 727, because it procured the payment of unlawful dividends and, if Mr Holland was a de facto director, he would be liable on the same basis.
It is in this regard that I agree with Lord Walker that assistance is to be found in the reasoning of the House of Lords in Standard Chartered Bank v Pakistan National Shipping Corpn [2002] UKHL 43, [2003] 1 AC 959.
If Mr Holland was a de facto director of the composite companies, he is liable because, as a matter of fact, he procured the unlawful payment of the dividends to the shareholders and because he cannot show that he acted reasonably so as to enable him to seek relief under section 727.
In Standard Chartered Bank Mr Mehra was liable not because he was a director but because he committed a fraud: see per Lord Hoffmann at para 22.
In the extract from para 41 of the speech of Lord Rodger quoted by Lord Walker he said: Mr Mehra set out by his fraudulent acts to make Standard Chartered pay under the letter of credit.
He succeeded.
He is accordingly personally liable for the loss that he thereby caused them.
As I see it, the position is essentially the same here.
If Mr Holland is a de facto director of the composite companies, it is because he personally procured the payment of the unlawful dividends and is liable to restore them just as the de jure director is.
Mr Michael Green QC submitted that if agency and therefore capacity are irrelevant to the question whether an individual has committed a tort, as was held in Standard Chartered Bank, then so capacity should be irrelevant to the question whether an individual is a de facto director.
I would accept that submission.
In both cases the answer to the question depends upon what the individual did, not upon the capacity in which he did it.
Lord Collins has expressed the view that what divides the court is not simply a matter of the facts, namely whether what Mr Holland did was in fact sufficient to make him a de facto director of the composite companies, but a question of law and a question of principle.
He formulates the question at para 53 as being whether fiduciary duties can be imposed, in relation to a company whose sole director is a corporate director, on a director of that corporate director when all of his relevant acts were done as a director of the corporate director and can be attributed in law solely to the activities of the corporate director.
That appears to me to be a similar principle to that stated by Lord Hope at para 42 that, so long as the relevant acts are done by the individual entirely within the ambit of the discharge of a persons duties and responsibilities as a director of a corporate director, it is to that capacity that his acts must be attributed.
As I understand it, those propositions are advanced as propositions of law.
However, no authority is cited for them and, for my part, I would not accept them.
I recognise of course that, as Lord Collins points out at para 95, until section 155(1) of the Companies Act 2006 was enacted, it was perfectly lawful for a company to have a corporate director as a sole director.
I also recognise that Mr Holland was a director of Paycheck Directors.
However, as I see it, it does not follow as a matter of law that he cannot be a de facto director of the composite companies.
Whether he was or not is a question of fact.
Lord Collins says at para 93 that in the present context the crucial question is whether Mr Holland assumed the duties of a director.
He then approves the test stated by Patten J in the unreported case of Fayers Legal Services Ltd v Day, where the question was whether the defendant was a de facto director of a company and liable for misfeasance or breach of fiduciary duty.
The test stated by Patten J was whether the defendant was part of the corporate governing structure; the claimant had to prove that he assumed a role in the company sufficient to impose upon him a fiduciary duty to the company and make him responsible for the misuse of its assets.
I do not think that either Patten J or Lord Collins can have intended that the question whether a person is a de facto director always depends upon whether he owed a fiduciary duty.
In most cases, it is logical and, to my mind, correct in principle to ask the single question whether he is a de facto director.
If he is, it follows that he owes fiduciary duties.
If he is not, it equally follows that he does not.
It may have been appropriate to ask a rolled up question in the Fayers Legal Services case because the issue there was whether what the alleged director did amounted to acting in a directorial manner on the facts.
It was held by Patten J at para 73 that his acts were essentially managerial and not directorial.
It may well have been relevant to the issue in that case to ask whether the acts performed by him were of a kind which might be expected to give rise to a fiduciary duty and thus to be the acts of a de facto director.
The two questions posed by Lord Collins in para 94, are whether the alleged de facto director assumed the duties of a director and whether he was part of the governing structure.
I agree that those are relevant questions to ask but I also agree with Lord Walker that they are questions of fact.
So too are other questions identified in the authorities.
Examples include those given by Lord Collins in para 91 including the following: whether the individual was taking the major decisions, which might be through instructions to the de jure directors, and what was real influence in the affairs of the company (see Re Kaytech International plc [1999] 2 BCLC 351, per Robert Walker LJ at p 424); whether he was the sole person directing the affairs of the company or whether there were others who were the true directors and whether he was acting on an equal footing with the others (see Re Richborough Furniture Ltd [1996] 1 BCLC 507); and whether he exercised real influence, otherwise than as a professional adviser, in the corporate governance of the company (see Re Kaytech at p 424).
As Lord Collins has observed at para 91 in a quotation from the Cadbury Report, corporate governance is the system by which businesses are directed and controlled.
In my opinion all those questions are questions of fact.
For my part, I do not see how they can be questions of law when the question is whether someone who is not a de jure director is a de facto director.
That question depends ultimately on the answer to the question what Mr Holland did.
The question is thus one of fact.
What did Mr Holland do? There can be no doubt that the decision to pay dividends was a directorial act and not a mere managerial act.
It seems to me that, if (as the deputy judge has held), Mr Holland in fact deliberately procured the payment of the dividends by the directors of Paycheck Directors and had the de facto power to do so, he was a de facto director.
As such, he owed a fiduciary duty to the company and the procuring of the payment of the dividends was a breach of fiduciary duty and, on the deputy judges findings of fact, an unlawful act.
He is accordingly liable to restore the dividends.
I agree with Lord Walker that such a liability has nothing to do with the limited liability of shareholders or with Salomon v A Salomon & Co Ltd [1897] AC 22.
The conclusion that Mr Holland was a de facto director does not involve the piercing of the corporate veil but simply the application of the principles identified in the modern cases to the facts of this case.
On the detailed facts, again I agree with Lord Walker.
As he explains, and is not in dispute, all the decisions were made by Mr Holland.
Each decision by Mr Holland to procure Paycheck Directors to pay the dividends without reserving for the relevant composite companys liability to tax was a decision to commit an unlawful act.
Each decision was, as I see it, a decision to carry out the underlying decision previously made by Mr Holland, who was then wearing a number of hats, that none of the composite companies would reserve for higher rate tax.
When each decision to pay a particular dividend was made, he was thus acting, both as a de jure director of Paycheck Directors and as a de facto director of the particular composite company.
Moreover, he was not acting merely as a director of Paycheck Directors, but pursuant to a decision he had already made wearing all his hats.
In these circumstances, it is in my opinion artificial and wrong to hold that he was doing no more than merely discharging his duties as a de jure director of Paycheck Directors, as Rimer LJ suggested at paras 70 72 and 74 of his judgment.
There is no reason in principle why a person may not act in more than one capacity.
The question is again one of fact.
On the deputy judges findings of fact, Mr Holland was not merely discharging his duties as a director of the corporate director.
He was in fact acting as a director of the composite companies by deciding (after taking leading counsels advice) that the composite companies should both continue trading and continue paying dividends without reserving for higher rate corporation tax and by procuring the directors of Paycheck Directors as a director of the composite companies to pay the unlawful dividends.
The specific decision in each case was no more than an implementation of the scheme which he had devised (as described by Lord Walker) by entering the particular figures in the computer programme and authorising payments the particular shareholders/employees.
If Mr Holland had not been a director of Paycheck Directors but had simply directed other directors of Paycheck Directors to make those payments as a director of the relevant composite company, there could, as I see it, be no doubt that Mr Holland was acting as a de facto director of the composite companies, simply on the basis of what he actually did.
Suppose, for example, his wife was the sole director of Paycheck Directors and he had instructed her to pay the dividends and she had done so without giving independent thought to the matter, he would surely have been doing so as inter alia a de facto director of the composite companies.
The fact that he was a director of Paycheck Services to my mind would make no difference.
On the facts the answers to the various questions posed above are clear.
He was part of the governing structure because he in fact made every decision as to the payment of dividends.
He thus assumed the duties of a director because paying dividends is what directors do.
He was taking the major decisions through instructions to the de jure director of the composite companies.
His real influence on the affairs of the companies was total.
Indeed, he was the sole person directing the affairs of the company.
There were no others who were taking decisions other than in accordance with his directions.
In short, he exercised real influence, otherwise than as a professional adviser, in the corporate governance of the company.
In so concluding I use the expression corporate governance in the sense to used in the Cadbury Report as being the system by which the composite companies businesses were directed and controlled.
They were directed and controlled by Mr Holland.
In all the circumstances I would hold that Mr Holland was a de facto director of the composite companies on the ground that he in fact made directorial decisions with regard to them.
As to the other issues, like Lord Walker, I agree with the views of Rimer LJ in the Court of Appeal.
For the reasons I have given I would allow the appeal and make the order proposed by Lord Walker.
| UK-Abs | The primary question in this appeal is when a person should be considered to be a de facto director of a company so that he can be held responsible for the payment of unlawful dividends as if he had been formally appointed as a director.
When a company is wound up, section 212 of the Insolvency Act 1986, as amended, allows a creditor to request a court to compel an officer of the company to pay sums in respect of misuse of a power or breach of fiduciary duty.
It was accepted that the definition of officer includes a director, whether he is formally appointed or not.
Mr and Mrs Holland ran a business administering the business and tax affairs of contractors, especially those working in the IT sector, who did not want to go to the trouble of setting up and running their own companies.
In February 1999 a complicated corporate structure was established to run the business.
Under the new structure, 42 trading companies were created, referred to in these proceedings as the composite companies.
Two further companies called Paycheck (Directors Services) Ltd and Paycheck (Secretarial Services) Ltd were created to act respectively as the sole director and secretary of each composite company.
Mr and Mrs Holland were the directors of Paycheck Directors and Paycheck Services and owned each company via another company.
The business model involved the composite companies contracting out the services of the contractors to their clients.
The contractors became both employees and (non voting) shareholders of the composite companies.
The aim of the structure was to seek to ensure that the annual taxable profits of each composite company did not exceed 300,000, in order to get the benefit of the small companies rate of corporation tax.
From the income the composite companies received from the contractors clients, they paid a salary to each employee/shareholder and also declared dividends to each shareholder/employee (after making provision for the payment of corporation tax at the small companies rate).
Dividends were paid regularly on the basis of timesheets submitted by shareholders/ employees for the work they performed as contractors.
Paycheck Services used a software programme which calculated the dividends due and generated a document purporting to be a minute of a directors meeting of the relevant composite company.
The programme generated onto the minute a copy of Mr Hollands signature authorising the dividend, beneath which appeared the words for and on behalf of Paycheck (Director Services) Ltd. Paycheck Services received a fee for its administrative services.
No allegation was made that this structure was a sham and there was never any pleading of dishonesty against Mr or Mrs Holland.
However, HMRC did challenge the structure.
The structure failed because Mr Holland was the settlor of the one voting share in each composite company, with the result that the composite companies were treated as associated for tax purposes thus exceeding the 300,000 threshold.
The resultant increased tax liability meant that the composite companies were insolvent,
with HMRC being the only creditor.
HMRC alleged that Mr and Mrs Holland were de facto directors of the insolvent companies and responsible under section 212 for causing the payment of dividends to the companies shareholders (the contractors) when the companies had insufficient distributable reserves.
HMRC sought orders requiring Mr and Mrs Holland to pay amounts in excess of 13m to compensate the insolvent companies.
The High Court dismissed the claims against Mrs Holland and that decision was not appealed.
However, the High Court held that Mr Holland was a de facto director of each composite company and so in principle answerable to HMRCs claims.
The Court of Appeal unanimously allowed Mr Hollands appeal and held that he was not a de facto director of the composite companies.
The Supreme Court (by a majority of 3 to 2) dismisses the appeal.
Lords Hope, Collins and Saville gave the majority judgments.
Lords Walker and Clarke gave dissenting judgments.
Lord Hope considered that the question of whether Mr Holland was acting as a de facto director of the composite companies must be approached on the basis that Paycheck Directors (the sole corporate director of each of the composite companies) and Mr Holland were in law separate persons, each with their own separate legal personality: [25].
The mere fact of acting as a director of a corporate director will not be enough for an individual to become a de facto director of the subject company: [29].
One must look at what a person actually did to see whether he assumed the responsibilities of the office of director: [39].
Everything Mr Holland did was under the umbrella of being the director of a sole corporate director: [40].
Until Parliament provides otherwise, if acts are entirely within the ambit of the duties and responsibilities of a director of the corporate director, it is to that capacity that acts are attributed: [42].
Lord Collins agreed with Lord Hope.
Lord Collins held that whether a person is a de facto director is not simply a question of fact: the question was whether all of his acts can be attributed in law solely to the activities of the corporate director: [95].
It did not follow from the fact that Mr Holland took all the relevant decisions that he was a de facto director of the composite companies; if that were so, the guiding mind of every sole corporate director would find themselves the de facto director of another company: [96].
The basis of liability for a de facto director is an assumption of responsibility and being part of the governing structure.
Parliament has already intervened in the Companies Act 2006 to ensure that there is a natural person to whom responsibility is attributed.
The further extension of the concept of de facto director contended for by HMRC is a matter for the legislature and not for the Supreme Court: [96] Lord Saville agreed with Lord Hope and Lord Collins.
Lord Walker considered that if a person takes all the important decisions affecting a company and sees that they are carried out, then he is acting as a director of that company.
Lord Walker considered that to attribute acts on the basis of capacity in a corporate structure was the most arid formalism: [115].
Lord Clarke agreed with Lord Walker and held that capacity should be irrelevant to the question of whether an individual is a de facto director: [132].
Lord Clarke thought it artificial and wrong to hold that Mr Holland was doing no more than merely discharging his duties as a de jure director of Paycheck Directors: [142].
|
The seventh chapter of Deuteronomy records the following instructions given by Moses to the people of Israel, after delivering the Ten Commandments at Mount Sinai: 1.
When the Lord thy God shall bring thee into the land whither thou goest to possess it, and hath cast out many nations before thee, the Hittites, and the Girgashites, and the Amorites, and the Canaanites, and the Perizzites, and the Hivites, and the Jebusites, seven nations greater and mightier than thou; 2 And when the Lord thy God shall deliver them before thee; thou shalt smite them, and utterly destroy them; thou shalt make no covenant with them, nor show mercy unto them: 3.
Neither shalt thou make marriages with them; thy daughter thou shalt not give unto his son, nor his daughter shalt thou take unto thy son. 4.
For they will turn away thy son from following me, that they may serve other gods: so will the anger of the Lord be kindled against you, and destroy thee suddenly.
The third and fourth verses appear to be a clear commandment against intermarriage lest, at least in the case of a Jewish man, the foreign bride persuade her husband to worship false gods.
It is a fundamental tenet of Judaism, or the Jewish religion, that the covenant at Sinai was made with all the Jewish people, both those then alive and future generations.
It is also a fundamental tenet of the Jewish religion, derived from the third and fourth verses that I have quoted, that the child of a Jewish mother is automatically and inalienably Jewish.
I shall describe this as the matrilineal test.
It is the primary test applied by those who practise or believe in the Jewish religion for deciding whether someone is Jewish.
They have always recognised, however, an alternative way in which someone can become Jewish, which is by conversion.
Statistics adduced in evidence from the Institute for Jewish Policy Research (the Institute) show that in the first half of the 20th century over 97% of the Jews who worshipped in this country did so in Orthodox synagogues.
Since then there has been a diversification into other denominations, and a minority of Jews now worship in Masorti, Reform and Progressive synagogues.
The Institute records a significant decline in the estimated Jewish population in the United Kingdom, which now numbers under 300,000, of which about 70% are formally linked to a synagogue and 30% unaffiliated.
Those who convert to Orthodox Judaism in this country number only 30 or 40 a year.
The requirements for conversion of the recently formed denominations are less exacting than those of Orthodox Jews.
Lord Jonathan Sacks, Chief Rabbi of the United Hebrew Congregation of the Commonwealth and leader of the Orthodox Jews in this country, issued a paper about conversion, through his office (the OCR) on 8 July 2005.
In it he stated that conversion was irreducibly religious.
He commented: Converting to Judaism is a serious undertaking, because Judaism is not a mere creed.
It involves a distinctive, detailed way of life.
When people ask me why conversion to Judaism takes so long, I ask them to consider other cases of changed identity.
How long does it take for a Briton to become an Italian, not just legally but linguistically, culturally, behaviourally? It takes time.
A Jew by conversion is a Jew for all purposes.
Thus descent by the maternal line from a woman who has become a Jew by conversion will satisfy the matrilineal test.
JFS is an outstanding school.
For many years far more children have wished to go there than there have been places in the school.
In these circumstances it has been the policy of the school to give preference to those whose status as Jews is recognised by the OCR.
That is to children whose mothers satisfy the matrilineal test or who are Jews by conversion by Orthodox standards.
The issue raised by this appeal is whether this policy has resulted in an infringement of section 1 of the Race Relations Act 1976 (the 1976 Act).
These proceedings were brought on the application of E in relation to M, his 13 year old son.
E wished to send M to JFS and M wished to go there.
He was refused admission because he was not recognised as a Jew by the OCR.
His father is recognised as such but the OCR does not regard that as relevant.
What matters is whether his mother was a Jew at the time of his birth.
She is Italian by birth.
As she was not born of a Jewish mother she could only have been recognised by the OCR as a Jew and as capable of conferring Jewish status on M if she had converted to Judaism before M was born.
She had undergone a course of conversion to Judaism before Ms birth under the auspices of a non Orthodox Synagogue, not in accordance with the requirements of Orthodox Jews.
The result is that, while her conversion is recognised by Masorti, Reform and Progressive Jews, it is not recognised by the OCR.
E and his wife are divorced.
They practise the Jewish faith and worship at a Masorti synagogue.
E failed in these judicial review proceedings in which he challenged the admissions policy of JFS before Munby J, but succeeded on an appeal to the Court of Appeal.
The question of Ms admission has already been resolved between the parties, but the Governing Body of JFS is concerned at the finding of the Court of Appeal that the schools admissions policy infringes the 1976 Act, as are the United Synagogue and the Secretary of State for Children, Schools and Families.
Indeed this case must be of concern to all Jewish faith schools which have admissions policies that give preference to Jews.
While the court has appreciated the high standard of the advocacy addressed to it, it has not welcomed being required to resolve this dispute.
The dissatisfaction of E and M has not been with the policy of JFS in giving preference in admission to Jews, but with the application of Orthodox standards of conversion which has led to the OCR declining to recognise M as a Jew.
Yet this appeal necessarily raises the broader issue of whether, by giving preference to those with Jewish status, JFS is, and for many years has been, in breach of section 1 of the 1976 Act.
The implications of that question extend to other Jewish faith schools and the resolution of the bone of contention between the parties risks upsetting a policy of admission to Jewish schools that, over many years, has not been considered to be open to objection.
This demonstrates that there may well be a defect in our law of discrimination.
In contrast to the law in many countries, where English law forbids direct discrimination it provides no defence of justification.
It is not easy to envisage justification for discriminating against a minority racial group.
Such discrimination is almost inevitably the result of irrational prejudice or ill will.
But it is possible to envisage circumstances where giving preference to a minority racial group will be justified.
Giving preference to cater for the special needs of a minority will not normally involve any prejudice or ill will towards the majority.
Yet a policy which directly favours one racial group will be held to constitute racial discrimination against all who are not members of that group see, for instance, Orphanos v Queen Mary College [1985] AC 761 at p. 771.
Nothing that I say in this judgment should be read as giving rise to criticism on moral grounds of the admissions policy of JFS in particular or the policies of Jewish faith schools in general, let alone as suggesting that these policies are racist as that word is generally understood.
Direct discrimination
I propose in the first instance to consider whether the admissions policy of the JFS has led it to discriminate directly against M on racial grounds.
The relevant provisions of the 1976 Act are as follows.
Racial discrimination (1) A person discriminates against another in any circumstances relevant for the purposes of any provision of this Act if (a) On racial grounds he treats the other less favourably than he treats or would treat other persons 3.
Meaning of racial grounds (1) In this Act, unless the context otherwise requires racial grounds means any of the following grounds, namely colour, race, nationality or ethnic or national origins; racial group means a group of persons defined by reference to colour, race, nationality, or ethnic or national origins; (2) The fact that a racial group comprises two or more distinct racial groups does not prevent it from constituting a particular racial group for the purposes of this Act.
Section 17 deals with educational establishments and provides that it is unlawful for the governors of a maintained school, such as JFS, to discriminate against a person in the terms on which it offers to admit him to the establishment as a pupil.
It is common ground that JFS discriminated against M in relation to its terms of admission to the school.
The issue of whether this amounted to unlawful direct discrimination on racial grounds depends on the answer to two questions: (1) What are the grounds upon which M was refused entry? (2) Are those grounds racial?
Grounds
In the phrase grounds for discrimination, the word grounds is ambiguous.
It can mean the motive for taking the decision or the factual criteria applied by the discriminator in reaching his decision.
In the context of the 1976 Act grounds has the latter meaning.
In deciding what were the grounds for discrimination it is necessary to address simply the question of the factual criteria that determined the decision made by the discriminator.
This approach has been well established by high authority.
In R v Birmingham City Council, Ex p Equal Opportunities Commission [1989] AC 1155 the entry criteria applied by the Council for admission to selective single sex grammar schools was in issue.
More places were available in boys schools than in girls schools.
The result was that girls had to obtain higher marks in the entry examination than boys.
The motive for the disparity was, no doubt, that this was necessary to ensure that entry to the schools was determined on merit.
The House of Lords held, none the less, that the disparity constituted unlawful discrimination contrary to the Sex Discrimination Act 1975 which prohibited discrimination against a woman on the ground of her sex.
Lord Goff of Chieveley, with whom the other members of the Committee agreed, said at p. 1194: There is discrimination under the statute if there is less favourable treatment on the ground of sex, in other words if the relevant girl or girls would have received the same treatment as the boys but for their sex.
The intention or motive of the defendant to discriminate, though it may be relevant so far as remedies are concerned (see section 66(3) of the Act of 1975), is not a necessary condition of liability; it is perfectly possible to envisage cases where the defendant had no such motive, and yet did in fact discriminate on the ground of sex.
Indeed, as Mr. Lester pointed out in the course of his argument, if the councils submission were correct it would be a good defence for an employer to show that he discriminated against women not because he intended to do so but (for example) because of customer preference, or to save money, or even to avoid controversy.
In the present case, whatever may have been the intention or motive of the council, nevertheless it is because of their sex that the girls in question receive less favourable treatment than the boys, and so are the subject of discrimination under the Act of 1975.
The difference between the motive for discrimination and the factual criteria applied by the discriminator as the test for discrimination lay at the heart of the division between the majority and the minority of the House of Lords in James v Eastleigh Borough Council [1990] 2 AC 751, another case where sex discrimination was in issue.
The Council discriminated between men and women, aged between 60 and 65, in relation to the terms on which they were admitted to swim in a leisure centre run by the Council.
Women in this age band were admitted free whereas men had to pay an entry charge.
The motive for this discrimination could perhaps be inferred by the manner in which this rule was expressed, namely that those of pensionable age were to be admitted free of charge; women became of pensionable age when they were 60, men when they were 65.
Counsel for the Council explained at p. 758 that the councils reason for giving free access to those of pensionable age was that their resources were likely to have been reduced by retirement.
The Court of Appeal had treated this motive as being the relevant ground for discriminating in favour of women and against men rather than the factual criterion for discrimination, which was plainly the sex of the person seeking admission to the centre.
Lord Bridge, delivering the first opinion of the majority, held that the reasoning of the Court of Appeal was fallacious and that the Councils policy discriminated on the ground of sex.
At p. 764 he said of their judgment: The Court of Appeals attempt to escape from these conclusions lies in construing the phrase on the ground of her sex in section 1(1)(a) as referring subjectively to the alleged discriminators reason for doing the act complained of.
As already noted, the judgment had earlier identified the councils reason as to give benefits to those whose resources would be likely to have been reduced by retirement and to aid the needy, whether male or female.
But to construe the phrase, on the ground of her sex as referring to the alleged discriminators reason in this sense is directly contrary to a long line of authority confirmed by your Lordships House in Reg. vs Birmingham City Council, Ex parte Equal Opportunities Commission.
Having cited the passage from Lord Goffs judgment that I have set out at paragraph 12 above, he commented, at p 765: Lord Goffs test, it will be observed, is not subjective, but objective.
Adopting it here the question becomes: Would the plaintiff, a man of 61, have received the same treatment as his wife but for his sex? An affirmative answer is inescapable.
This but for test was another way of identifying the factual criterion that was applied by the Council as the basis for their discrimination, but it is not one that I find helpful.
It is better simply to ask what were the facts that the discriminator considered to be determinative when making the relevant decision.
Lord Ackner, concurring, remarked at pp. 769 770: There might have been many reasons which had persuaded the council to adopt this policy.
The Court of Appeal have inferred that the councils reason for giving free swimming to those of pensionable age was to give benefits to those whose resources would be likely to have been reduced by retirement: per Sir Nicolas Browne Wilkinson V. C. [1990] 1 Q.B. 61, 73D. I am quite prepared to make a similar assumption, but the councils motive for this discrimination is nothing to the point: see the decision of this House in Reg. vs Birmingham City Council, Ex parte Equal Opportunities Commission [1989] AC 1155.
Lord Griffiths, giving the first of the minority opinion, took a different view.
He said at p. 768: The question in this case is did the council refuse to give free swimming to the plaintiff because he was a man, to which I would answer, no, they refused because he was not an old age pensioner and therefore could presumably afford to pay 75p to swim.
In a lengthy opinion Lord Lowry concurred with Lord Griffiths.
The essence of
his reasoning appears in the following passage at pp. 775 776: section 1(1)(a) refers to the activities of the discriminator: the words on the ground of his sex provide the link between the alleged discriminator and his less favourable treatment of another.
They introduce a subjective element into the analysis and pose here the question Was the sex of the appellant a consideration in the councils decision? Putting it another way, a ground is a reason, in ordinary speech, for which a person takes a certain course.
He knows what he is doing and why he has decided to do it.
In the context of section 1(1)(a) the discriminator knows that he is treating the victim less favourably and he also knows the ground on which he is doing so.
In no case are the discriminators thought processes immaterial.
The contrast between the reasoning of the majority and of the minority in this case is, I believe, clear.
I find the reasoning of the majority compelling.
Whether there has been discrimination on the ground of sex or race depends upon whether sex or race was the criterion applied as the basis for discrimination.
The motive for discriminating according to that criterion is not relevant.
The observations of Lord Nicholls in Nagarajan v London Regional Transport [2000] 1 AC 501 and Chief Constable of West Yorkshire Police v Khan [2001] 1 WLR 1947, cited by Lord Hope at paragraphs 193 and 194 of his judgment, throw no doubt on these principles.
Those observations address the situation where the factual criteria which influenced the discriminator to act as he did are not plain.
In those circumstances it is necessary to explore the mental processes of the discriminator in order to discover what facts led him to discriminate.
This can be illustrated by a simple example.
A fat black man goes into a shop to make a purchase.
The shop keeper says I do not serve people like you.
To appraise his conduct it is necessary to know what was the fact that determined his refusal.
Was it the fact that the man was fat or the fact that he was black? In the former case the ground of his refusal was not racial; in the latter it was.
The reason why the particular fact triggered his reaction is not relevant to the question of the ground upon which he discriminated.
In Nagarajan, Lord Nicholls approved the reasoning in both the Birmingham City Council case and the Eastleigh Borough Council case.
At p. 511 he identified two separate questions.
The first was the question of the factual basis of the discrimination.
Was it because of race or was it because of lack of qualification? He then pointed out that there was a second and different question.
If the discriminator discriminated on the ground of race, what was his motive for so doing? That question was irrelevant.
When, at para 29 in Khan, Lord Nicholls spoke of a subjective test he was speaking of the exercise of determining the facts that operated on the mind of the discriminator, not his motive for discriminating.
The subjective test, described by Lord Nicholls, is only necessary as a seminal step where there is doubt as to the factual criteria that have caused the discriminator to discriminate.
There is no need for that step in this case, for the factual criteria that governed the refusal to admit M to JFS are clear.
The JFS Admissions Policy
The admissions policy published by JFS for the 2007/8 academic year began as follows: 1.1 It is JFS (the School) policy to admit up to the standard admissions number children who are recognised as being Jewish by the Office of the Chief Rabbi of the United Hebrew Congregation of the Commonwealth (OCR) or who have already enrolled upon or who have undertaken, with the consent of their parents, to follow any course of conversion to Judaism under the approval of the OCR.
The passage that I have placed in italics was introduced in the 2007/8 year for the first time.
No candidate has yet satisfied that criterion, and for present purposes it can be disregarded.
In recent years there have been more applicants for entry to JFS who were recognised as Jewish by the OCR than there were places in the school.
The admissions policy, somewhat confusingly, describes this as a situation where the school is oversubscribed.
Further criteria are laid down for establishing priority in this situation.
Here also there has recently been a significant change.
Children in care and children with a sibling in the school were and are given priority; the change comes at the next stage.
Up to the 2007/8 year priority was next given to applicants who had attended a Jewish primary school.
This has now been changed so that these are pro rated with children who have attended a non Jewish primary school.
The former criterion would have been likely to favour Jewish children who were being brought up in the Jewish faith.
We were not told the reason for this change, and it has no direct bearing on the issues raised by this appeal.
The criteria whose application debarred M from entry to JFS are readily identified.
They are the criteria recognised by the OCR as conferring the status of a Jew.
The child will be a Jew if at the time of his birth his mother was a Jew.
His mother will be a Jew if her mother was a Jew or if she has converted to Judaism in a manner that satisfies the requirements of the Orthodox religion.
M does not satisfy those criteria because of his matrilineal descent.
His mother was not born of a Jewish mother and had not at the time of his birth complied with the requirements for conversion, as laid down by the OCR.
Accordingly M does not satisfy the Orthodox test of Jewish status.
Are the grounds racial?
In answering this question it is important to distinguish between two different, albeit not wholly independent, considerations.
The first is the reason or motive that leads the OCR to impose these criteria.
The second is the question of whether or not the criteria are characteristics of race.
The reason why the OCR has imposed the criteria is that the OCR believes that these are the criteria of Jewish status under Jewish religious law, established at and recognised from the time of Moses.
This is not the end of the enquiry.
The critical question is whether these requirements of Jewish law are racial, as defined by section 3 of the 1976 Act.
Do the characteristics define those who have them by reference to colour, race, nationality or ethnic or national origins?
The JFS case
I shall summarise the case advanced by Lord Pannick QC for JFS in my own words.
There exists a Jewish ethnic group.
Discrimination on the ground of membership of this group is racial discrimination.
The criteria of membership of this group are those identified by Lord Fraser of Tullybelton in Mandla v Dowell Lee [1983] 2 AC 548.
In that case a declaration was sought that refusing admission to a school of a Sikh wearing a turban was indirect racial discrimination.
The critical question was whether Sikhs comprised a racial group for the purposes of the 1976 Act.
It was common ground that they were not a group defined by reference to colour, race, nationality or national origins.
It was contended, however, that they were a group defined by ethnic origins.
In considering the meaning of this phrase, Lord Fraser at pp 561 562 referred to a meaning of ethnic given by the Supplement to the Oxford English Dictionary (1972): pertaining to or having common racial, cultural, religious, or linguistic characteristics, esp. designating a racial or other group within a larger system.
His comments in relation to this definition have been set out in full by Lord Mance at paragraph 83 of his judgment and as Lord Mance remarked they merit reading in full.
It suffices, however, to cite the passage at p. 562 where Lord Fraser set out the seven characteristics, some of which he held would be shared by, and would be the touchstone of, members of an ethnic group: The conditions which appear to me to be essential are these: (1) a long shared history, of which the group is conscious as distinguishing it from other groups, and the memory of which it keeps alive; (2) a cultural tradition of its own, including family and social customs and manners, often but not necessarily associated with religious observance.
In addition two essential characteristics the following characteristics are, in my opinion, relevant; (3) either a common geographical origin, those to or descent from a small number of common ancestors; (4) a common language, not necessarily peculiar to the group; (5) a common literature peculiar to the group; (6) a common religion different from that of neighbouring groups or from the general community surrounding it; (7) being a minority or being an oppressed or a dominant group within a larger community, for example a conquered people (say, the inhabitants of England shortly after the Norman conquest) and their conquerors might both be ethnic groups.
A group defined by reference to enough of these characteristics would be capable of including converts, for example, persons who marry into the group, and of excluding apostates.
Provided a person who joins the group feels himself or herself to be a member of it, and is accepted by other members, then he is, for the purposes of the Act, a member.
The Orthodox test of who is a Jew focuses on matrilineal descent.
Discrimination on the basis of descent simpliciter is not necessarily discrimination on racial grounds.
To discriminate against someone because he is not the son of a peer, or the son of a member of the SOGAT printing union, is not racial discrimination.
Under the Orthodox test the Jewish woman at the head of the maternal line may be a convert of any nationality and from any ethnic background.
Furthermore, because the Orthodox test focuses exclusively on the female line, any Jewish national or ethnic blood can become diluted, generation after generation, by the blood of fathers who have no Jewish characteristics of any kind.
This is likely to happen if a Jewish woman marries out of and abandons the Jewish faith.
It is possible today to identify two different cohorts, one by the Mandla criteria and one by the Orthodox criteria.
The cohort identified by the Mandla criteria forms the Jewish ethnic group.
They no longer have a common geographical origin or descent from a small number of common ancestors, but they share what Lord Fraser regarded as the essentials, a long shared history, of which the group is conscious as distinguishing it from other groups and the memory of which it keeps alive and a cultural tradition of its own, including family and social customs and manners, often but not necessarily associated with religious observance.
The man in the street would recognise a member of this group as a Jew, and discrimination on the ground of membership of the group as racial discrimination.
The Mandla group will include many who are in the cohort identified by the Orthodox criteria, for many of them will satisfy the matrilineal test.
But there will be some who do not.
So far as the cohort identified by the Orthodox test is concerned, many of these will also fall within the Mandla group.
But there will be some, indeed many, who do not.
Most of these will be descendants from Jewish women who married out of and abandoned the Jewish faith.
They will not satisfy the two vital criteria identified by Lord Fraser.
Indeed, they may be unaware of the genetic link that renders them Jewish according to the Orthodox test.
Thus, in Lord Pannicks submissions the Orthodox test is not one that necessarily identifies members of the Jewish ethnic group.
It is a test founded on religious dogma and discrimination on the basis of that test is religious discrimination, not racial discrimination.
Discussion
Initially I found Lord Pannicks argument persuasive, but on reflection I have concluded that it is fallacious.
The fallacy lies in treating current membership of a Mandla ethnic group as the exclusive ground of racial discrimination.
It ignores the fact that the definition of racial grounds in section 3 of the 1976 Act includes ethnic or national origins (my emphasis).
Origins require one to focus on descent.
Lord Pannick is correct to submit that descent simpliciter is not a ground of racial discrimination.
It will only be such a ground if the descent in question is one which traces racial or ethnic origin.
This leads me to a further argument advanced on behalf of JFS, which found favour with Munby J and is accepted by Lord Hope.
This is that the matrilineal test is a religious test and that discrimination on the basis of that test is religious, not racial.
This argument falls into two parts: (i) the matrilineal test is a test laid down by Jewish religious law; (ii) the matrilineal test is not a test of ethnic origin or ethnic status but a test of religious origin and religious status.
The first part of this argument focuses, as has Lord Hope, on the reason why the matrilineal test is applied.
The reason is that the JFS and the OCR apply the test for determining who is a Jew laid down by Orthodox Jewish religious law.
What subjectively motivates them is compliance with religious law, not the ethnicity of the candidates who wish to enter the school.
My reaction to this argument will already be clear.
It is invalid because it focuses on a matter that is irrelevant the motive of the discriminator for applying the discriminatory criteria.
A person who discriminates on the ground of race, as defined by the Act, cannot pray in aid the fact that the ground of discrimination is one mandated by his religion.
The second argument requires more detailed analysis.
It is that the criteria applied by the matrilineal test are religious criteria.
They identify the religious status of the woman at the head of the maternal line and the religious status of the child at the end of the line.
They have nothing to do with ethnicity.
Lord Hope suggests that the validity of this argument can be demonstrated by contrasting the position of a person descended from a woman converted a century ago in an Orthodox synagogue with the position of a person descended from a woman converted a century ago in a non Orthodox synagogue.
JFS would recognise the former as having Jewish status, but not the latter but the discrimination would result from the application of religious criteria.
This example illustrates the fact that today, although not a century ago, in the very small number of cases where the question of whether someone is Jewish depends upon conversion, there is a possibility that different denominations will, as a result of differences between the criteria that they require for conversion, differentiate between them.
If so, identifiable sub groups of Jews may develop, distinguished by religious criteria.
This does not, however, help to determine whether the sub groups are sub groups of those who share the Jewish religion or sub groups of those who share Jewish ethnicity, or indeed both.
Conversion has, for millennia, been accepted by all Jews as one of the ways in which a person can become a Jew, and the evidence that we have seen does not suggest that different tests of conversion have been applied until recent times.
One of the difficulties in this case lies in distinguishing between religious and ethnic status.
One of the criteria of ethnicity identified by Lord Fraser is a shared religion.
In the case of Jews, this is the dominant criterion.
In their case it is almost impossible to distinguish between ethnic status and religious status.
The two are virtually co extensive.
A woman who converts to Judaism thereby acquires both Jewish religious status and Jewish ethnic status.
In the Chief Rabbis paper about conversion that I quoted at the beginning of this judgment he says: What is conversion? People often refer to the case of Ruth the Moabite, whose story is told with such beauty in the book that bears her name.
It is from Ruths reply to her mother in law Naomi that the basic principles of conversion are derived.
She said: Where you go, I will go.
Where you stay, I will stay.
Your people will be my people, and your God my God.
That last sentence a mere four words in Hebrew defines the dual nature of conversion to this day.
The first element is an identification with the Jewish people and its fate (Your people will be my people).
The second is the embrace of a religious destiny, the covenant between Israel and God and its commands (Your God will be my God).
I also found helpful in this context a passage in the response to a request for information from the Treasury Solicitor by Rabbi Dr Tony Bayfield, the head of the movement for Reform Judaism.
It is headed Background Information and I do not believe it to be controversial: I believe that you are correct in your understanding of the OCRs criteria for determining whether a child is Jewish.
This definition is, in essence, shared by the entire Jewish world both in Britain and globally.
There are nuances the most significant of which is that the Liberal Movement (Liberal Judaism) in Britain regards as Jewish a child either of whose parents is Jewish (Liberal Judaism represents about 8% of synagogue affiliations; the other 92% of affiliations are to groupings which follow the tradition of the maternal line).
However, all Jewish institutions worldwide as far as I know would say that Jewish identity is determined by either descent or conversion.
There is a verse in the Book of Deuteronomy (Ch 29 v14) which describes the covenant between God and the Jewish people made at Sinai as being made both with those who stood there [at the foot of Sinai on] that day and also with those who were not there that day.
Tradition defines those who were not there as descendants and converts.
Conversion has been a feature of Jewish life for thousands of years.
It has been most prolific when Jews have lived in tolerant, open societies and least prolific when Jews have been persecuted and state law has prohibited conversion to Judaism.
But it has always taken place and means that Jews exhibit a range of facial features any visit to Israel will reveal Jews of different skin colours and appearance.
Jews are not a race within any accepted or acceptable definition of the word.
The phrase ethnic group is sometimes suggested but since ethnic can mean either cultural or racial or a mixture of the two, it is not very helpful.
The best definition or description that I know is that Jews are a people bound together by ties of history and culture.
Which brings us back to the verse from Deuteronomy.
Jews are a people defined by the Sinai myth (not a pejorative term) of descent, of a continuous chain made up of descendants and converts, the latter becoming parts of the chain, indistinguishable from those who are Jewish by descent, inheriting the history, the culture (at core a religious culture) and at once becoming part of it.
So, the OCRs definition of Jewish status is, in its essence, universal descent or conversion.
This passage demonstrates a number of matters.
First that the test of descent is not restricted to Orthodox Jewry but is a universal test applied by those who consider themselves to be Jews.
Secondly that, whatever their racial, national and ethnic background, conversion unquestionably brings the convert within the Mandla definition of Jewish ethnicity.
She becomes a member of the Jewish people.
See also the comparison made by the Chief Rabbi between conversion and changing nationality in my earlier quotation.
Thirdly the passage demonstrates that the religious test of matrilineal descent does not apply an idiosyncratic criterion that has no connection to race.
It is a test which focuses on the race or ethnicity of the woman from whom the individual is descended.
Where a Jew is descended by the maternal line from a woman who has converted to Judaism, the matrilineal link is with an ethnic Jew.
There is this further important point.
Focusing on conversion ignores the fact that the matrilineal test is not restricted to descent from Jews by conversion.
The Jews to whom Moses spoke at Mount Sinai would have shared all seven of the characteristics of ethnic identity itemised by Lord Fraser in Mandla.
The passage in Deuteronomy to which Jews look as the basis of the matrilineal test plainly focuses on race.
Many Jews are highly conscious of their particular geographical and national roots.
We had evidence of Cohens who trace their ancestry back to the servants at the Temple and who, for that reason, are prohibited from marrying a convert.
For these reasons it is plain that the relevant characteristics of the relative to whom the maternal line leads are not simply religious.
The origin to which the line leads can be racial and is, in any event, ethnic.
Thus we are not here dealing with descent from a peer, or from a member of SOGAT, but a woman whose race, possibly, and her ethnicity, certainly, as well as her religion, are Jewish.
David Frei, the Registrar of the London Beth Din, states in his witness statement that matrilineal descent is a criterion of Jewish identity, that being Jewish is a matter of religious status under Jewish religious law and that in orthodoxy, Jewish status is solely and irreducibly a religious issue.
I take these statements to mean that the test of Jewish status is a test laid down exclusively by religion.
It would not be right to read them as meaning that the only thing that matrilineal descent does is to identify religious status, whether of the ancestor at the head of the line or of the descendant at the other.
This would not be consistent with the first element of the dual nature of conversion, as described by the Chief Rabbi.
Nor would it be consistent with the fact that the matrilineal test embraces racial origin.
To the Jew the matrilineal descendant is a member of the Jewish family and a member of the Jewish religion.
The two are inextricably intertwined.
The descendant will not necessarily be a member of a Mandla Jewish ethnic group; that is the group that has the essential criteria identified by Lord Fraser.
He may, indeed, have none of the seven criteria in the list.
The gentile in the street would not identify such a person as a Jew.
Equally, he would not identify such a person as a member of the Jewish religion.
Membership of a religion or faith normally indicates some degree of conscious affiliation with the religion or faith on the part of the member.
The question of the status of the matrilineal descendant may thus depend upon whether one is applying the subjective viewpoint of a Jew or the objective Mandla test.
But one thing is clear about the matrilineal test; it is a test of ethnic origin.
By definition, discrimination that is based upon that test is discrimination on racial grounds under the Act.
Lord Pannick is correct to say that it is possible to identify two different cohorts, or groups, with an overlapping membership, those who are descended by the maternal line from a Jew, and those who are currently members of the Jewish ethnic group.
Discrimination against a person on the grounds that he or she is, or is not, a member of either group is racial discrimination.
JFS discriminates in its admission requirements on the sole basis of genetic descent by the maternal line from a woman who is Jewish, in the Mandla as well as the religious sense.
I can see no escape from the conclusion that this is direct racial discrimination.
The consequences of the majority decision.
The website of the JFS states that Whilst two thirds or more of our students have attended Jewish primary schools, a significant number of our year 7 intake has not attended Jewish schools and some enter the school with little or no Jewish education.
Many come from families who are totally committed to Judaism and Israel; others are unaware of Jewish belief and practice.
Initially this gave me the impression that successful candidates for entry to JFS included a significant number who had no connection with Judaism other than a matrilineal link with a Jewish woman, so that they fell outside the Mandla ethnic Jewish group.
On reflection I found this an unlikely scenario.
Any parents who apply to send their children to JFS relying on matrilineal Jewish descent must, at least, have an awareness of that link with Judaism.
Evidence from the JFS suggests rather more than this.
The schools information sheet which is sent to prospective teaching staff states: The modern JFS serves almost the whole breadth of the Anglo Jewish community in Greater London.
About 85% of its students come from Barnet, Harrow, Brent and Hertsmereour students come from the widest possible range of social, economic and religious backgrounds.
Our parents represent a very broad range of society.
They all, however, share two things in common; a strong sense of Jewish identity and, in almost all cases, a keen sense of ambition for their children (emphasis added).
This suggests that those who decide to send their children to JFS satisfy the Mandla criteria for belonging to an ethnic group, even though some of them do not attend a synagogue.
They live in the same part of London, they are conscious of the wifes Jewish descent, and they have a strong sense of Jewish identity.
This is likely to include an appreciation of Jewish history and culture.
If this is correct, then the reality is that the JFS, in common with other Jewish faith schools, is in practice discriminating in favour of a sub group of Mandla ethnic Jews, who also satisfy the matrilineal requirement.
The fact that the JFS conditions of admission would give precedence to candidates who satisfy the descent requirement but do not satisfy the Mandla test of Jewish ethnicity is of no practical significance.
This appeal has been concerned with what has, in practice, been only the threshold test for admission to the JFS; matrilineal descent.
For at least the last ten years the JFS has been oversubscribed with candidates for admission who satisfy this test.
The problem has been how to choose between them.
The evidence does not suggest that anyone has challenged the matrilineal test in principle.
It is, after all, a test that has general acceptance as the criterion of being a Jew.
Apart from Ms challenge, evidence has been given of two others, but each of these was a challenge on the ground of a failure to recognise the mothers conversion, not a challenge against the admission criteria themselves.
Concern has been expressed that the majority decision will compel Jewish faith schools to admit children whom the Jewish religion does not recognise as being Jewish, that is children who are not descended from Jews by the maternal line.
It is not clear that this is so.
As a result of the decision of the Court of Appeal the JFS has published a new admission policy for admission in September 2010.
This applies a test of religious practice, including synagogue attendance, Jewish education and/or family communal activity.
As matrilineal descent or conversion is the requirement for membership of the Jewish faith according to the law of that faith, those who satisfy a practice test are likely to satisfy this requirement.
Thus, instead of applying the matrilineal descent test by way of direct discrimination, the school will be applying a test that will indirectly discriminate in favour of those who satisfy the matrilineal descent test.
It is not clear that the school will now be faced with applications from those who do not satisfy the test.
Indirect discrimination
Having decided that there has been in this case direct racial discrimination, it would be possible to go on to consider the hypothetical question of whether, if JFSs admissions policy had constituted indirect discrimination, it would have been justifiable.
I do not propose to embark on that exercise, which would involve, among other considerations, an analysis of the policy underlying the exception made for faith schools in relation to religious discrimination by section 50 of the Equality Act 2006.
I have not found it necessary to consider the provisions of that Act, for they have no bearing on the issue of direct racial discrimination.
For the reasons that I have given I would dismiss the substantive appeal.
The United Synagogue has appealed against the order for Costs made by the Court of Appeal.
I concur in the basis upon which Lord Hope has held that this appeal should be allowed.
Submissions in writing as to the appropriate order in respect of the costs of both appeals to the Supreme Court should be submitted within 14 days.
LADY HALE
No one in this case is accusing JFS (as the Jews Free School is now named) or the Office of the Chief Rabbi of discrimination on grounds of race as such.
Any suggestion or implication that they are racist in the popular sense of that term can be dismissed.
However, the Race Relations Act 1976 caters also for discrimination on grounds of colour, nationality or ethnic or national origins: see s 3(1).
This case is concerned with discrimination on account of ethnic origins.
And the main issue is what that means specifically, do the criteria used by JFS to select pupils for the school treat people differently because of their ethnic origins?
My answer to that question is the same as that given by Lord Phillips, Lord Mance, Lord Kerr and Lord Clarke and for the same reasons.
That we have each written separate opinions underlines the fact that we have each reached the same conclusion through a process of independent research and reasoning.
It is only because the debate before us and between us has called in question some fundamental principles of discrimination law that I feel it necessary to underline them yet again.
First, the Race Relations Act 1976 creates two different statutory torts, direct and indirect discrimination.
It also creates two different forms of indirect discrimination, the original form provided for in section 1(1)(b) and the later form derived from the European Directive (2000/43 EC), provided for in section 1(1A).
The later form applies to the discrimination prohibited by section 17, in admission to educational establishments, which is the context here: see s 1(1B)(b).
If the later form applies, the original form does not: see s 1(1C).
The basic difference between direct and indirect discrimination is plain: see Mummery LJ in R (Elias) v Secretary of State for Defence [2006] EWCA 1293, [2006] 1 WLR 3213, para 119.
The rule against direct discrimination aims to achieve formal equality of treatment: there must be no less favourable treatment between otherwise similarly situated people on grounds of colour, race, nationality or ethnic or national origins.
Indirect discrimination looks beyond formal equality towards a more substantive equality of results: criteria which appear neutral on their face may have a disproportionately adverse impact upon people of a particular colour, race, nationality or ethnic or national origins.
Direct and indirect discrimination are mutually exclusive.
You cannot have both at once.
As Mummery LJ explained in Elias, at para 117, The conditions of liability, the available defences to liability and the available defences to remedies differ.
The main difference between them is that direct discrimination cannot be justified.
Indirect discrimination can be justified if it is a proportionate means of achieving a legitimate aim.
But it is significant that section 57(3) provides that, in respect of the earlier form of indirect discrimination under section 1(1)(b), no award of damages shall be made if the respondent proves that the requirement or condition in question was not applied with the intention of treating the claimant unfavourably on racial grounds.
We are concerned with the later form of indirect discrimination, under section 1(1A), to which section 57(3) does not apply, but the fact that this exception to the available remedies was made suggests that Parliament did not consider that an intention to discriminate on racial grounds was a necessary component of either direct or indirect discrimination.
One can act in a discriminatory manner without meaning to do so or realising that one is.
Long standing authority at the highest level confirms this important principle.
The leading case on direct discrimination is R v Birmingham City Council, ex p Equal Opportunities Commission [1989] 1 AC 1155.
So far as I am aware, it has never previously been suggested that it set the law on the wrong track: quite the reverse.
As is well known, there were more grammar school places for boys than for girls in Birmingham with the result that girls had to do better than boys in the entrance examination in order to secure a place.
The council did not mean to discriminate.
It bore the girls no ill will.
It had simply failed to correct a historical imbalance in the places available.
It was nevertheless guilty of direct discrimination on grounds of sex.
Lord Goff of Chieveley said this, at p 1194A: There is discrimination under the statute if there is less favourable treatment on the ground of sex, in other words if the relevant girl or girls would have received the same treatment as the boys but for their sex.
The intention or motive of the defendant to discriminate, although it may be relevant so far as remedies are concerned . is not a necessary condition of liability; it is perfectly possible to envisage cases where the defendant had no such motive, and yet did in fact discriminate on the ground of sex.
Indeed, . if the councils submission were correct it would be a good defence for an employer to show that he discriminated against women not because he intended to do so but (for example) because of customer preference, or to save money, or even to avoid controversy.
In the present case, whatever may have been the intention or motive of the council, nevertheless it is because of their sex that the girls in question receive less favourable treatment than the boys, and so are the subject of discrimination under the Act of 1975.
He went on to point out that this was well established in a long line of authority, citing Jenkins v Kingsgate (Clothing Productions) Ltd [1981] 1 WLR 1485, 1494, per Browne Wilkinson J; R v Secretary of State for Education and Science, Ex parte Keating (1985) 84 LGR 469, 475, per Taylor J; and Ministry of Defence v Jeremiah [1980] QB 87, 98, per Lord Denning MR.
The but for test was endorsed again by the House in the rather more controversial case of James v Eastleigh Borough Council [1990] 2 AC 751.
Again, the facts are well known.
A husband and wife, both aged 61, went to their local swimming pool.
The husband was charged 75 pence and the wife was let in free.
Once again the council had the best of motives.
People who had reached pensionable age were let in free.
But pensionable age directly discriminated between men and women on grounds of their sex.
It followed that the swimming pool admission charges did so too.
As Lord Bridge of Harwich said, at pp 765 6, the purity of the discriminators subjective motive, intention or reason for discriminating cannot save the criterion applied from the objective taint of discrimination on the ground of sex.
Lord Ackner was to the same effect, at p 769: The policy itself was crystal clear if you were a male you had, vis vis a female, a five year handicap.
The reason why this policy was adopted can in no way affect or alter the fact that the council had decided to implement and had implemented a policy by virtue of which men were to be treated less favourably than women, and were to be so treated on the ground of, i.e. because of, their sex.
Lord Goff of Chieveley amplified what he had said in Birmingham, at p 774: Whether or not the treatment is less favourable in the relevant sense, i.e. on the ground of sex, may derive either from the application of a gender based criterion to the complainant, or from selection by the defendant of the complainant because of his or her sex; but, in either event, it is not saved from constituting unlawful discrimination by the fact that the defendant acted from a benign motive.
However, in the majority of cases, I doubt if it is necessary to focus upon the intention or motive of the defendant in this way.
This is because, as I see it, cases of direct discrimination under section 1(1)(a) can be considered by asking the simple question: would the complainant have received the same treatment from the defendant but for his or her sex.
Although this decision was clearly on all fours with the Birmingham case, it was reached only by a majority.
Lord Lowry preferred a subjective rather than an objective approach to on grounds of sex.
Lord Griffiths, interestingly, pointed out that to impose a retirement age of 60 on women and 65 on men was discriminatory on the grounds of sex.
It would result in women being less well off than men at 60.
But what I do not accept is that an attempt to redress the result of that unfair act of discrimination by offering free facilities to those disadvantaged by the earlier act of discrimination is, itself, necessarily discriminatory on grounds of sex (p 768).
Lord Griffiths was there challenging the concept of symmetrical formal equality: that it is just as discriminatory to treat a man less favourably than a woman, even though the object is to redress the impact of previous less favourable treatment of a woman.
But there can be no doubt that the original sex and race discrimination legislation intended, through the mechanism of direct discrimination, to achieve symmetrical formal equality between men and women, black and white, rather than to redress any historic disadvantage of one against the other.
Attempts to do so, for example by quotas or all women shortlists, are still highly controversial.
Despite this difference of opinion, the decisions in Birmingham and James have been applied time and time again.
They were affirmed by the House of Lords in the victimisation case of Nagarajan v London Regional Transport [2000] 1 AC 501.
As Lord Nicholls of Birkenhead said, at p 511: Racial discrimination is not negatived by the discriminators motive or intention or reason or purpose (the words are interchangeable in this context) in treating another person less favourably on racial grounds.
In particular, if the reason why the alleged discriminator rejected the complainants job application was racial, it matters not that his intention may have been benign.
However, Lord Nicholls had earlier pointed out that there are in truth two different sorts of why question, one relevant and one irrelevant.
The irrelevant one is the discriminators motive, intention, reason or purpose.
The relevant one is what caused him to act as he did.
In some cases, this is absolutely plain.
The facts are not in dispute.
The girls in Birmingham were denied grammar school places, when the boys with the same marks got them, simply because they were girls.
The husband in James was charged admission to the pool, when his wife was not, simply because he was a man.
This is what Lord Goff was referring to as the application of a gender based criterion.
But, as Lord Goff pointed out, there are also cases where a choice has been made because of the applicants sex or race.
As Lord Nicholls put it in Nagarajan, in every case it is necessary to inquire why the complainant received less favourable treatment.
This is the crucial question.
Was it on grounds of race? Or was it for some other reason, for instance, because the complainant was not so well qualified for the job? Save in obvious cases, answering the crucial question will call for some consideration of the mental processes of the alleged discriminator (pp 510 511).
In James, Lord Bridge was not to be taken as saying that the discriminators state of mind is irrelevant when answering the crucial, anterior question: why did the complainant receive less favourable treatment?
The distinction between the two types of why question is plain enough: one is what caused the treatment in question and one is its motive or purpose.
The former is important and the latter is not.
But the difference between the two types of anterior enquiry, into what caused the treatment in question, is also plain.
It is that which is also explained by Lord Phillips, Lord Kerr and Lord Clarke.
There are obvious cases, where there is no dispute at all about why the complainant received the less favourable treatment.
The criterion applied was not in doubt.
If it was based on a prohibited ground, that is the end of the matter.
There are other cases in which the ostensible criterion is something else usually, in job applications, that elusive quality known as merit.
But nevertheless the discriminator may consciously or unconsciously be making his selections on the basis of race or sex.
He may not realise that he is doing so, but that is what he is in fact doing.
As Lord Nicholls went on to say in Nagarajan, An employer may genuinely believe that the reason why he rejected an applicant had nothing to do with the applicants race.
After careful and thorough investigation of a claim members of an employment tribunal may decide that the proper inference to be drawn from the evidence is that, whether the employer realised it at the time or not, race was the reason why he acted as he did .
Conduct of this nature by an employer, when the inference is legitimately drawn, falls squarely within the language of section 1(1)(a) (p 512).
This case is not in that category.
There is absolutely no doubt about why the school acted as it did.
We do not have to ask whether they were consciously or unconsciously treating some people who saw themselves as Jewish less favourably than others.
Everything was totally conscious and totally transparent.
M was rejected because he was not considered to be Jewish according to the criteria adopted by the Office of the Chief Rabbi.
We do not need to look into the mind of the Chief Rabbi to know why he acted as he did.
If the criterion he adopted was, as in Birmingham or James, in reality ethnicity based, it matters not whether he was adopting it because of a sincerely held religious belief.
No one doubts that he is honestly and sincerely trying to do what he believes that his religion demands of him.
But that is his motive for applying the criterion which he applies and that is irrelevant.
The question is whether his criterion is ethnically based.
So at long last I arrive at what, in my view, is the only question in this case.
Is the criterion adopted by the Chief Rabbi, and thus without question by the school, based upon the childs ethnic origins? In my view, it clearly is.
M was rejected because of his mothers ethnic origins, which were Italian and Roman Catholic.
The fact that the Office of the Chief Rabbi would have over looked his mothers Italian origins, had she converted to Judaism in a procedure which they would recognise, makes no difference to this fundamental fact.
M was rejected, not because of who he is, but because of who his mother is.
That in itself is not enough.
If M had been rejected because his mother shopped in Waitrose rather than Marks and Spencer, that would not have been because of her or his ethnicity.
But it was because his mother was not descended in the matrilineal line from the original Jewish people that he was rejected.
This was because of his lack of descent from a particular ethnic group.
In this respect, there can be no doubt that his ethnic origins were different from those of the pupils who were admitted.
It was not because of his religious beliefs.
The school was completely indifferent to these.
They admit pupils who practise all denominations of Judaism, or none at all, or even other religions entirely, as long as they are halachically Jewish, descended from the original Jewish people in the matrilineal line.
There is no doubt that the Jewish people are an ethnic group within the meaning of the Race Relations Act 1976.
No Parliament, passing legislation to protect against racial discrimination in the second half of the twentieth century, could possibly have failed to protect the Jewish people, who had suffered so unspeakably before, during and after the Holocaust.
If Parliament had adopted a different model of protection, we would not be here today.
Parliament might have adopted a model of substantive equality, allowing distinctions which brought historically disadvantaged groups up to the level of historically advantaged groups.
But it did not do so.
It adopted a model of formal equality, which allows only carefully defined distinctions and otherwise expects symmetry.
A man must be treated as favourably as a woman, an Anglo Saxon as favourably as an African Caribbean, a non Jew as favourably as a Jew.
Any differentiation between them, even if it is to redress historic disadvantage, must be authorised by legislation.
This means that it is just as unlawful to treat one person more favourably on the ground of his ethnic origin as it is to treat another person less favourably.
There can be no doubt that, if an employer were to take exactly the same criterion as that used by the Office of the Chief Rabbi and refuse to employ a person because the Chief Rabbi would regard him as halachically Jewish, the employer would be treating that person less favourably on grounds of his ethnic origin.
As Lord Kerr explains, there can be no logical distinction between treating a person less favourably because he does have a particular ethnic origin and treating him less favourably because he does not.
Some may feel that discrimination law should modify its rigid adherence to formal symmetry and recognise a greater range of justified departures than it does at present.
There may or may not be a good case for allowing Jewish schools to adopt criteria which they believe to be required by religious law even if these are ethnically based.
As far as we know, no other faith schools in this country adopt descent based criteria for admission.
Other religions allow infants to be admitted as a result of their parents decision.
But they do not apply an ethnic criterion to those parents.
The Christian Church will admit children regardless of who their parents are.
Yet the Jewish law has enabled the Jewish people and the Jewish religion to survive throughout centuries of discrimination and persecution.
The world would undoubtedly be a poorer place if they had not.
Perhaps they should be allowed to continue to follow that law.
But if such allowance is to be made, it should be made by Parliament and not by the courts departing from the long established principles of the anti discrimination legislation.
The vehicle exists in the Equality Bill, which completed its committee stage in the House of Commons in the 2008 09 session and will be carried over into the 2009 10 session.
The arguments for and against such a departure from the general principles of the legislation could then be thoroughly debated.
The precise scope of any exception could also be explored.
We know from the helpful intervention of the Board of Deputies of British Jews that the Masorti, Reform and Liberal denominations of Judaism have welcomed the result, if not the reasoning, of the decision of the Court of Appeal and would not wish for the restoration of the previous admission criteria.
That is a debate which should not be resolved in court but by Parliament.
We must not allow our reluctance to enter into that debate, or to be seen to be imposing our will upon a well meaning religious body, to distort the well settled principles of our discrimination law.
That is to allow the result to dictate the reasoning.
This was, in my view, a clear case of direct discrimination on grounds of ethnic origin.
It follows that, however justifiable it might have been, however benign the motives of the people involved, the law admits of no defence.
It also follows that it cannot be a case of indirect discrimination.
There is indeed some difficulty in fitting this case into the model of indirect discrimination.
The discriminator has to apply to the complainant a provision, criterion or practice which he applies or would apply equally to persons not of the same race or ethnic or national origins as [the complainant].
But if the criterion we are talking about is being halachically Jewish, then it is not applied equally between those who are and those who are not.
And there is no question of those who are not being at a particular disadvantage when compared with others persons in the sense that more of the others can comply than they can.
None of the non halachically Jewish can comply, while all of the halachically Jewish can do so.
There is an exact correspondence between compliance and the criterion, just as there was in the Birmingham and James cases.
This too suggests, although it does not prove, that the criterion is itself ethnically based.
If not, I would agree with Lord Mance on this issue.
I have tried only to explain how the long established principles of discrimination law apply in this case.
In agreement with the more ample reasoning of Lord Phillips, Lord Mance, Lord Kerr and Lord Clarke on the facts of the case, I would dismiss the appeal of JFS on the main issue.
On the United Synagogues costs appeal, I agree with the reasoning and conclusions of Lord Hope.
LORD MANCE
Introduction
Two issues arise: whether the admissions policy adopted by JFS for 2007/08 involved direct discrimination, and, if not, whether it involved indirect discrimination, in each case against M, represented by his respondent father, E. M applied for admission to year 7 at JFS commencing in September 2007.
The school was over subscribed and by letter dated 13 April 2007 it refused, because the school has not received evidence of [Ms] Jewish status, to consider M for a place unless and until all those applicants whose Jewish status has been confirmed have been offered places.
An appeal to the independent admission appeal panel for JFS failed on 11 June 2007.
The schools admissions policy (determined by its governing body pursuant to the School Standards and Framework Act 1998, ss.88 and 88C) treated an applicant in Ms position less favourably than other persons.
The policy was to admit children recognised as being Jewish by the Office of the Chief Rabbi of the United Hebrew Congregation of the Commonwealth (OCR) or who have already enrolled upon or who have undertaken, with the consent of their parents, to follow any course of conversion to Judaism under the approval of the OCR.
In the event of oversubscription, only children satisfying this test were to be considered for admission, in the following order: looked after children, those with one or more siblings attending JFS and then other applicants (the last category on a pro rata basis within each ability band according to the numbers of applicants attending respectively Jewish and non Jewish primary schools).
The OCR, applying the Orthodox Jewish test, recognises as Jewish children who can show an Orthodox Jewish mother or ancestress in the matrilineal line.
The mother or matrilineal ancestress can be Orthodox Jewish by birth or by conversion prior to the birth of her relevant child.
The respondent is unable to show such descent, because his mother was a non Jewish Italian by birth and converted to Judaism before Ms birth not in the Orthodox tradition, but with the assistance of a non Orthodox Rabbi.
The respondent and his father, with whom he now lives, practise Masorti Judaism, and M is recognised as Jewish by Reform and Masorti synagogues. (Before the late eighteenth century, the Court was told, these distinctions in Jewish observance did not exist.)
The first question is whether the respondents less favourable treatment was on the grounds of his ethnic origins within s.1(1)(a) of the Race Relations Act 1976.
JFS supported by the United Synagogue and the Secretary of State for Children, Schools and Families as interveners submit that M was treated as he was not on ethnic, but on purely religious grounds, while E and M, supported by the Equality and Human Rights Commission and the British Humanist Association as interveners submit that, although the schools motivation was and is religious, the treatment derived from a test which was, or was substantially, based on inherently ethnic grounds.
JFS is a school designated as having a religious (Jewish) character under the School Standards and Framework Act 1998, s.69(3), and is accordingly exempted by the Equality Act 2006, s.50(1) from the prohibition against discrimination on the grounds of religion or belief which would otherwise apply under ss.45 and 47 of that Act.
But this exemption does not affect the pre existing prohibition of discrimination on the grounds of ethnic origin, under the 1976 Act.
The difficulty of the present case is that the word Jewish may refer to a people, race or ethnic group and/or to membership of a religion.
In the case of JFS, JFS submits that it refers only to the latter.
Munby J found that common to all Jewish denominations is a belief that being Jewish is a matter of status, defined in terms of descent or conversion, and not a matter of creed or religious observance (para. 21).
However, JFS exists as an Orthodox Jewish institution, and (while Judaism is not a proselytising religion those who are not Jews can still earn salvation) Education about the Jewish faith is considered by Orthodox Jews to be a fundamental religious obligation on all Jews .
An understanding and appreciation of the Jewish faith takes many years .
This is one of the primary purposes of schools such as JFS, which seek to help those who are Jewish (or who are undergoing conversion) understand, learn about and follow their faith (the words come from a statement of Dayan Gelley dated 26 February 2008 approved by the Chief Rabbi, and were quoted by Munby J in para. 13).
JFSs Instrument of Government, with which its governing body, when determining its admissions policy, was obliged to comply under Education Act 2002 s.21(4), records the schools ethos as being to preserve and develop its religious character in accordance with the principles of Orthodox Judaism, under the guidance of the Chief Rabbi of the United Hebrew Congregations .
JFS has further explained in answers dated 17 December 2007 (to questions put by Ms solicitors in a letter dated 17 August 2007 written pursuant to the judicial review protocol and s.65(2) of the Race Relations Act) that JFSs admission criteria seek to maintain the schools religious ethos.
In his statement dated 8 February 2008, para. 27, the chair of JFSs admissions committee described the admissions policy as pursuing a legitimate aim because it is developing the religious character of JFS in accordance with the principles of Orthodox Judaism.
The same aim was reflected in para. 14 of a determination dated 27 November 2007, made by an Adjudicator appointed under the School Standards and Framework Act 1998 to consider Es objection to JFSs admissions policy.
The Adjudicator added the further explanation that the legitimate aim being pursued is seeking to ensure that those children who are Jewish (applying Orthodox Jewish principles) are admitted to the school.
While many who are eligible for and obtain admission to JFS as Orthodox Jews do not practise and may profess no or a different religious faith, the schools aim is to inculcate the ethos and, so far as possible, encourage the practice and observance of Orthodox Judaism in and by all who attend.
In formulating the schools admissions policy, it was also the governing bodys duty under s.84(3) of that Act to act in accordance with the relevant provisions of the code for school admissions prepared under s.84(1) by the Secretary of State.
The Secretary of States Schools Admissions Code for 2003 stated that schools like JFS designated as having a religious character might give preference in their admission arrangements to members of a particular faith or denomination , providing this does not conflict with other legislation, such as race relations legislation (para. 3.9), and that, where they do, their admissions arrangements should make clear whether a statement of religious affiliation or commitment would be sufficient, or whether it is to be tested and if so how and what if any references from a religious leader will be required.
The Code for 2007 permits priority in case of over subscription to children who are members of, or who practise, their faith or denomination (para. 2.41) and states that It is primarily for the relevant faith provider group or religious authority to decide how membership or practice is to be demonstrated (para 2.43).
Quite apart from the fact that they are subject to the application of the Race Relations Act 1976, the references to membership in the Codes do not specifically address descent based membership which may exist in the eyes of the faith provider or religious authority, while not doing so in the eyes of the child or his or her parents.
Direct discrimination
Direct discrimination can arise in one of two ways: because a decision or action was taken on a ground which was, however worthy or benign the motive, inherently racial within the meaning of s.1(1)(a), or because it was taken or undertaken for a reason which was subjectively racial: R v Birmingham City Council, ex p Equal Opportunities Commission [1989] AC 1155, 1194C D per Lord Goff of Chieveley, James v Eastleigh Borough Council [1990] 2 AC 751, 772B G per Lord Goff, and Nagarajan v London Regional Transport [2000] 1 AC 501, 511A per Lord Nicholls of Birkenhead and 520H 521B per Lord Steyn.
In the Birmingham City Council case, girls were required to achieve a higher standard than boys for grammar school entry because of a disparity in the number of grammar school places available for boys and girls.
Whatever may have been the intention or motive of the council, nevertheless it [was] because of their sex that the girls in question receive[d] less favourable treatment than the boys, and so [were] the subject of discrimination: per Lord Goff at p.1194C D.
It was for the council to find some way of avoiding this, e.g. by balancing the places available.
In James the motive for adopting as the test for free entry to the swimming pool to people who had reached state pension age was no doubt benign (it was probably because they were perceived as more likely to be needy).
But being of pensionable age is not to be equated with ceasing to work or being in receipt of a pension, and the difference between the ages (65 and 60 respectively) at which men and women became of pensionable age made the test inherently discriminatory on the ground of sex.
In Nagarajan at p.511A Lord Nicholls noted that Save in obvious cases, answering the crucial question will call for some consideration of the mental processes of the alleged discriminator, while Lord Steyn at pp.520H 521B approved the statements in the Birmingham City Council and James cases.
The allegation in the present case is that a decision or action was taken on inherently ethnic grounds within s.1(1)(a), although the schools subjective motivation was its purely religious convictions.
I appreciate that even the first part of this allegation involves what may be described as a subjective element a question of fact in Lord Nicholls words in Chief Constable of West Yorkshire Police v Khan [2001] UKHL 48, [2001] 1 WLR 1947, para, 29 in so far as it requires an answer to the question: why in fact was M refused a place? But there is here no room for doubt about the answer.
He was refused a place by reason of the application of the admissions policy set out in para 74 above.
With that answer, the next, relevant question is simply whether that policy, religiously motivated as it was, involved grounds for admission or refusal of admission which were in their nature inherently ethnic.
Lord Pannick submits that, taking the test of an ethnic group recognised by the House of Lords in Mandla v Dowell Lee [1983] 2 AC 548, Jews constitute an ethnic group, but a group which embraces, on the one hand, a wide spectrum of Jewish observance (including that practised by the respondent) and excludes, on the other hand, many individuals who would, on Orthodox Jewish principles, be regarded as Jewish (e.g. a lapsed Jew who had converted to Catholicism or an atheist with a matrilineal Orthodox Jewish ancestress).
There is thus no complete identity between a Jew in the sense suggested by that test and an Orthodox Jew according to Orthodox Jewish principles.
He relies upon this as reinforcing his submission that JFSs admissions policy is based, and based solely, on religious grounds.
I do not, however, consider that this submission resolves the issue.
First, Mandla was a case of alleged indirect discrimination under s.1(1)(b) of the Act, which addresses differential treatment between persons of different racial groups.
The test under s.1(1)(a) is whether a person has treated another person less favourably on racial grounds, defined by s.3 as meaning on any of the following grounds, namely colour, race, nationality or ethnic or national origins.
This test is not expressed to be limited by reference to a need to identify a difference in treatment of persons currently members of different ethnic groups.
Further, subsequent to the enactment by the European Community of Council Directive 2000/43/EC of 29th June 2000, which addresses both direct and indirect discrimination without using the concept of racial group in either connection, and since the consequent introduction of s.1(1A) of the Race Relations Act 1976 which equally omits any such concept, it seems to me inappropriate to read s.1(1)(a) as importing any such concept.
All that is required is discrimination on grounds of a persons ethnic origins.
A second, point, based on the international legal background and of possible relevance to the construction of s.1(1)(a), derives from the International Convention on the Elimination of All Forms of Racial Discrimination (CERD), in force since 1969, to which the United Kingdom is party and to which Directive 2000/43/EC recites that it was intended to give effect.
Article 1(1) of CERD defines racial discrimination to mean any distinction, exclusion, restriction or preference based on race, colour, descent, or national or ethnic origin which has the purpose or effect of nullifying or impairing the recognition, enjoyment or exercise, on an equal footing, of human rights and fundamental freedoms in the political, economic, social, cultural or any other field of public life.
The reference to descent (although not explicitly repeated after the general prohibition on racial discrimination in article 5) is, on its face, very pertinent in the present case.
However, it is suggested that, having been introduced on a proposal by India, the word descent is limited to caste, but India itself disputes this, and it has been forcefully suggested that the background to its introduction indicates that it was not concerned with caste at all: Caste based Discrimination in International Human Rights Law, David Keane (Brunel University, Ashgate Publishing Ltd., 2007, chap. 5).
Nevertheless, the Committee established to monitor implementation of CERD under article 8 has itself treated descent as including caste in its General Recommendation XXIX A/57/18 (2002) 111, where it recommended, in para 1, that states take steps to identify those descent based communities under their jurisdiction who suffer from discrimination, especially on the basis of caste and analogous systems of inherited status.
Whether or not descent embraces caste, the concepts of inherited status and a descent based community both appear wide enough to cover the present situation.
That in turn tends to argue for a wide understanding of the concept of discrimination on grounds of ethnic origins, although the point is a marginal one.
Thirdly, and in any event, the Mandla test is broad, flexible and judgmental.
It was adopted in order to embrace a group such as the Sikhs, of whom it could not be said that they were a different race in any narrow sense.
There is some irony in the fact that, prior to the decision of the House in Mandla, there would have been little doubt that a narrow test based on birth or descent would have been regarded as required in order for there to be discrimination on the ground of ethnic origins.
That was the gist of the judgments in the early case of Ealing London Borough Council v Race Relations Board [1972] AC 342.
Unlike Mandla, the Ealing case was a case of alleged direct discrimination under s.1(1)(a), and in it statements were made to the effect that discrimination on account of race, or ethnic or national origins involved consideration of a persons antecedents (per Viscount Dilhorne at p.359E), that Origin, in its ordinary sense, signifies a source, someone or something from which someone or something has descended (per Lord Simon of Glaisdale at p.363H) and that national origins normally indicated a connection arising because the parents or one of the parents are or is identified by descent with the nation in question, but it may also sometimes arise because the parents have made their home among the people in question (per Lord Cross of Chelsea at p.365E F).
The Court of Appeal in Mandla [1983] QB 1 picked up this approach in relation to indirect discrimination.
It identified an ethnic group as one with common ancestral origins, however remote (see per Lord Denning MR at p.10A B and p.11B, expressly instancing Jews as an ethnic group, and per Kerr LJ at p.22B E), and on that basis excluded Sikhs on the ground that they constituted essentially a religious and cultural group.
The House disagreed and developed the wider test, but there may still, in my view, be discrimination on grounds of ethnic origin in the narrower and more traditional sense, even under s.1(1)(b), let alone under the differently worded s.1(1)(a).
The following passage in which Lord Fraser of Tullybelton developed the test in Mandla [1983] 2 AC 548, 561 563 is also worth quoting in full: I turn, therefore, to the third and wider meaning which is given in the Supplement to the Oxford English Dictionary (1972).
It is as follows: 'pertaining to or having common racial, cultural, religious, or linguistic characteristics, esp. designating a racial or other group within a larger system . ' Mr Irvine, for the appellants, while not accepting the third (1972) meaning as directly applicable for the present purpose, relied on it to this extent, that it introduces a reference to cultural and other characteristics, and is not limited to racial characteristics.
The 1972 meaning is, in my opinion, too loose and vague to be accepted as it stands.
It is capable of being read as implying that any one of the adjectives, 'racial, cultural, religious or linguistic', would be enough to constitute an ethnic group.
That cannot be the sense in which 'ethnic' is used in the Act of 1976, as that Act is not concerned at all with discrimination on religious grounds.
Similarly, it cannot have been used to mean simply any 'racial or other group'.
If that were the meaning of 'ethnic', it would add nothing to the word group, and would lead to a result which would be unacceptably wide.
But in seeking for the true meaning of 'ethnic' in the statute, we are not tied to the precise definition in any dictionary.
The value of the 1972 definition is, in my view, that it shows that ethnic has come to be commonly used in a sense appreciably wider than the strictly racial or biological.
That appears to me to be consistent with the ordinary experience of those who read newspapers at the present day.
In my opinion, the word 'ethnic' still retains a racial flavour but it is used nowadays in an extended sense to include other characteristics which may be commonly thought of as being associated with common racial origin.
For a group to constitute an ethnic group in the sense of the Act of 1976, it must, in my opinion, regard itself, and be regarded by others, as a distinct community by virtue of certain characteristics.
Some of these characteristics are essential; others are not essential but one or more of them will commonly be found and will help to distinguish the group from the surrounding community.
The conditions which appear to me to be essential are these: (1) a long shared history, of which the group is conscious as distinguishing it from other groups, and the memory of which it keeps alive (2) a cultural tradition of its own, including family and social customs and manners, often but not necessarily associated with religious observance.
In addition to those two essential characteristics the following characteristics are, in my opinion, relevant; (3) either a common geographical origin, or descent from a small number of common ancestors (4) a common language, not necessarily peculiar to the group (5) a common literature peculiar to the group (6) a common religion different from that of neighbouring groups or from the general community surrounding it (7) being a minority or being an oppressed or a dominant group within a larger community, for example a conquered people (say, the inhabitants of England shortly after the Norman conquest) and their conquerors might both be ethnic groups.
A group defined by reference to enough of these characteristics would be capable of including converts, for example, persons who marry into the group, and of excluding apostates.
Provided a person who joins the group feels himself or herself to be a member of it, and is accepted by other members, then he is, for the purposes of the Act, a member.
That appears to be consistent with the words at the end of section 3(1) 'references to a person's racial group refer to any racial group into which he falls.' In my opinion, it is possible for a person to fall into a particular racial group either by birth or by adherence, and it makes no difference, so far as the Act of 1976 is concerned, by which route he finds his way into the group.
This view does not involve creating any inconsistency between direct discrimination under paragraph (a) and indirect discrimination under paragraph (b).
A person may treat another relatively unfavourably 'on racial grounds' because he regards that other as being of a particular race, or belonging to a particular racial group, even if his belief is, from a scientific point of view, completely erroneous.
This passage makes clear that Lord Fraser was not excluding the relevance of descent from a small number of common ancestors.
It was one among a number of factors which included, he considered essentially, a long shared history distinguishing a group from other factors and a shared cultural tradition, but which could also include a common geographical origin, language and/or religion and a status as a minority group.
The whole passage emphasises the flexibility of the test adopted, and it is consistent with this that its application should depend on the context.
A fourth, important point appears from the final sentence in the passage quoted from Lord Frasers speech: A person may treat another relatively unfavourably 'on racial grounds' because he regards that other as being of a particular race, or belonging to a particular racial group, even if his belief is, from a scientific point of view, completely erroneous.
Lord Fraser probably had in mind a situation such as that where A, who dislikes Sikhs, discriminates against B in the (in fact erroneous) belief that B is a Sikh.
Whether the victim actually has the sexual orientation or racial origins on the ground of which he or she is treated less favourably is irrelevant: English v Thomas Sanderson Blinds Ltd. [2008] EWCA Civ 1421; [2009] ICR 543 (where the majority also held it to be irrelevant whether the discriminator believed the victim to have, or whether the victim thought that the discriminator believed the victim to have, the relevant sexual orientation on the ground of which he was harassed).
If A, applying his own view of the relative significance of the various factors mentioned by the House in Mandla, identifies a particular group of people as an ethnic group and discriminates against them on that ground that would, in my view (and as Lord Pannick accepted, with the proviso that there would have to be some basis in the Mandla criteria) be embraced by s.1(1)(a) of the Act.
Any definition of an ethnic group applying the Mandla criteria is on this basis also flexible, whether the definition is undertaken for religious, charitable or educational purposes or, as happened only too terribly in Nazi Europe, for entirely malign purposes.
In the present case, many of Lord Frasers factors could be seen as pointing without more to a conclusion that Orthodox Judaism should be regarded as a separate ethnic group or sub group including the sharing of a long history distinguishing themselves from other groups, a shared cultural tradition, a common religion and a separate status within any wider Jewish community.
Others, such as a common geographical origin and a common language, they share with that wider community.
Munby Js reasons for rejecting any suggestion that Orthodox Jews could be regarded as a separate ethnic group or sub group were that there was no evidence that they had separate ethnic origins from other, or most other, Jews.
That may be said to focus purely on ethnic origins in a way which the Mandla test was intended to discourage.
But, assuming that Orthodox Jews are not a separate ethnic group or sub group for the purposes of indirect discrimination (the relevant subsection for that purpose being now s.1(1A), rather than s.1(1)(b)), I consider that the Orthodox Jewish test of descent in the matrilineal line must still be regarded as a test based on ethnic origins, for the purposes of direct discrimination under s.1(1)(a) of the Act.
On the evidence, it is at its core a test by which Orthodox Judaism identifies those to be regarded today as the descendants of a particular people, enlarged from time to time by the assimilation of converts, that is the Jewish people whose ancestor was the patriarch Jacob (Israel) and with whom the covenant of Mount Sinai was made through Moses upon the Exodus from Egypt.
That the Jewish people was from its outset also defined by its religion does not lead to a different conclusion.
A test of membership of a religion that focuses on descent from a particular people is a test based on ethnic origins.
Whether matrilineal descent was originally chosen because it was an easy and secure way of identifying ancestry or because some other special significance was attached to womens role is not relevant.
Other tests identifying a people by drawing on descent or ancestry can of course exist, for example, a test based on patrilineal origins, or on the origins of both parents.
Some other Jewish denominations, the Court was told, have other tests, e.g. looking, or looking also, at the patrilineal line.
But all such tests look, in one way or another, at ethnic origins.
They merely take different views as to the form of descent or birth link by reference to which a persons origins in a particular (here biblical) people can be defined.
I find instructive in this connection and generally the Background Information provided by Rabbi Dr Tony Bayfield which Lord Phillips quotes in paragraph 40.
If a school admissions policy identifying Jews by descent is inadmissible, this will be the case in relation to any denomination of Jewish school applying such a policy, however the relevant descent is identified.
This case cannot therefore be viewed as a mere disagreement between different Jewish denominations, for example about the criteria for conversion.
It turns, more fundamentally, on whether it is permissible for any school to treat one child less favourably than another because the child does not have whatever ancestry is required, in the schools view, to make the child Jewish.
Fifthly, there is, not surprisingly in the circumstances, also material tending positively to confirm that there is in the eyes of JFS no distinction between Jewishness in the religious sense and Jewishness on account of ethnic origins.
The Agreed Statement of Facts records that M was refused admission for the year 2007 8, on the ground that he was not recognised as being Jewish by the Office of the Chief Rabbi .
The same answer (that this child cannot be recognised as Jewish) was given by the OCR in relation to the child of the marriage of a Cohen (member of the Jewish priestly class) and an English woman who had undertaken conversion with an Orthodox Jewish Beth Din in Israel, on the ground that she had intended to marry her future husband at the time of her conversion, contrary to a prohibition on the marriage of Cohens with converts, with the consequence that her conversion could not have been sincere and was accordingly invalid in the eyes of the OCR.
By their letter dated 17 August 2007 Ms solicitors asked JFS, with reference to the time when children applied and/or when a decision on admission was taken, how many children were Jewish on account of their race and/or ethnic origins and how many were not.
The schools answer given through its solicitors on 17 December 2007 was that Those children confirmed as Halakhically Jewish were treated as Jewish by the school and those not so confirmed were treated as not Jewish.
M set out this answer in his further response dated 19 December 2007 to the appellants notice of acknowledgement of service, in support of a plea that the appellants now belatedly, but rightly, accept that Halakhical Jewish status is synonymous with membership of a racial group for the purposes of section 3 of the Act a plea to which there was no response before the matter came to court.
Further, according to a statement quoted in the respondents case, which JFS has not challenged or controverted, the Chair of JFSs Governors responded to fears about the opening in future of new Jewish schools (including or consisting of non Orthodox Jewish schools), by saying: If we are going to be able to maintain the three [existing Orthodox Jewish] schools, we are going to need to supply children out of thin air.
The only way to fill all of those places would be to open the doors to children who are not Jewish by ethnicity or not at all.
The inference is that the school recognises no distinction even today between Jewishness in a religious and in an ethnic sense.
The one dictates the other.
When Lord Pannick said on behalf of JFS that JFS does not dispute that there are thousands with Jewish ethnic claims in the Mandla sense who fail the test for a religious reason, that may be the effect of the Mandla test, applied objectively; if so, it is a conclusion about English law which no one could sensibly gainsay.
But it does not follow that JFS or the Chief Rabbi themselves concur with or take the view of ethnicity which would follow from applying the Mandla test and the passages which I have quoted indicate that they do not (quite apart from the fact that the Mandla test was not directed to the present issue of less favourable treatment on the ground of ethnic origins).
Apart from descent a person may become an Orthodox Jew by conversion.
Conversion, in accordance with the principles of Orthodox Judaism, is recognised by Orthodox Judaism as making a person an Orthodox Jew.
Some of the greatest figures in Jewish history have been converts, starting with Ruth the Moabite, great grandmother of King David, and Onkelos, Rabbi Akiva and other sages.
From conversion, a convert is treated as an Orthodox Jew, and so too is any child of a female convert born after the completion of the mothers conversion (although some distinction exists between converts and other Orthodox Jews: witness the prohibition on the former marrying a Cohen, to which reference is made above).
The Chief Rabbi has in 2005 compared conversion with acquiring a changed, foreign identity, while adding that the analogy is imperfect: Converting to Judaism is a serious undertaking, because Judaism is not a mere creed.
It involves a distinctive, detailed way of life.
When people ask me why conversion to Judaism takes so long, I ask them to consider other cases of changed identity.
How long does it take for a Briton to become an Italian, not just legally but linguistically, culturally, behaviourally? It takes time.
The analogy is imperfect, but it helps to explain the most puzzling aspect of conversion today the sometimes different standards between rabbinical courts in Israel and Britain.
Several decades ago an Israeli Chief Rabbi argued that Israeli rabbinical courts should be more lenient than their counterparts in the Diaspora.
His reasons were technical, but they make sense.
It is easier to learn Italian if you are living in Italy.
In Israel, many aspects of Jewish identity are reinforced by the surrounding culture.
Its language is the language of the Bible.
Its landscape is saturated by Jewish history.
Shabbat is the day of rest.
The calendar is Jewish.
The reason for Ms ineligibility can be said to be that his mother converted to Judaism under a procedure and principles other than those accepted by Orthodox Jews.
However, M remains at a disadvantage because of his descent, and, speaking generally, the test for admission of any child to JFS is for practical purposes one of descent.
The possibility of a child applying to JFS being him or herself a convert, or even in the course of converting, appears negligible.
JFS in its answers dated 17 December 2007 believed there never to have been any such child in the three years preceding the answers.
Further, discrimination may be on an ethnic ground, even though this is not the sole ground for the decision, so long as an ethnic ground was a cause, the activating cause, a substantial and effective cause, a substantial reason, an important factor: Nagarajan, per Lord Nicholls at pp.512H 512B.
As Miss Rose QC for E pointed out, an organisation which admitted all men but only women graduates would be engaged in direct discrimination on the grounds of sex.
Similar reasoning would apply here to any suggestion that the possibility of conversion eliminated any possibility of direct discrimination on ethnic grounds.
Finally, I also consider it to be consistent with the underlying policy of s.1(1)(a) of the Act that it should apply in the present circumstances.
The policy is that individuals should be treated as individuals, and not assumed to be like other members of a group: R (European Roma Rights Centre) v Immigration Officer at Prague Airport [2005] 2 AC 1, paras 82 and 90, per Baroness Hale of Richmond and R (Gillan) v Commissioner of Police for the Metropolis [2006] 2 AC 307, paras. 44 and 90 per Lords Hope of Craighead and Brown of Eaton under Heywood.
To treat individual applicants to a school less favourably than others, because of the happenstance of their respective ancestries, is not to treat them as individuals, but as members in a group defined in a manner unrelated to their individual attributes.
JFS, supported on this point by the British Board of Deputies, argue that respect for religious freedom under article 9(1) of the European Convention on Human Rights and the importance attaching to the autonomous existence of religious communities (emphasised for example in Lffelmann v Austria (Application no. 42967/98, 12 March 2009, para 47) militate in favour of a conclusion upholding JFSs admissions policy.
But freedom to manifest one's religion or beliefs is, under article 9(2) of the Convention, subject to such limitations as are prescribed by law and are necessary in a democratic society for the protection of the rights and freedoms of others.
Under the United Nations Convention on the Rights of the Child 1989, article 3, it is the best interests of the child which the United Kingdom is obliged to treat as a primary consideration.
Under Protocol 1, article 2 to the European Convention on Human Rights, it is the right of parents to ensure education and teaching in conformity with their own religions and philosophical convictions that the state must ensure in the exercise of any functions which it assumes in relation to education and to teaching. (I note in parenthesis that this has, since the hearing before the Supreme Court, been emphasised by the second section of the European Court of Human Rights in its judgment in Affaire Lautsi c. Italie (Requte no. 30814/06, 3 November 2009, paras. 47(b) and (c)).
I express no further view on the reasoning or decision in that case, which may well go to the Grand Chamber.
To treat as determinative the view of others, which an applicant may not share, that a child is not Jewish by reason of his ancestry is to give effect not to the individuality or interests of the applicant, but to the viewpoint, religiously and deeply held though it be, of the school applying the less favourable treatment.
That does not seem to me either consistent with the scheme or appropriate in the context of legislation designed to protect individuals from discrimination.
I accept that parental responsibility and choice relating to a child can determine the extent to which children are treated as having certain attributes, e.g. membership of a particular religion in the case of Christian baptism.
But neither parental birth nor the fact that a mother has not converted to Orthodox Judaism at a time prior to a childs birth can be regarded as within the concept of parental responsibility and choice.
Emphasis was put in submissions on difficulties which Orthodox or indeed other Jewish schools face in adopting any admissions policy other than that based on Jewish status.
It was not, and could not, be suggested that these present any absolute legal answer to Ms case, but rather that they should cause any court to think very hard about whether the legislation can really require the result for which E and M contend and which the Court of Appeal accepted.
How far such difficulties exist is contentious.
Just before the hearing in the Supreme Court, statements were tendered by two interveners, in the case of the British Board of Deputies a statement dated 15 October 2009 from its chief executive, Mr Jon Benjamin, and in the case of the United Synagogue a statement dated 18 October 2009 from its chief executive, Mr Jeremy Jacobs.
These came too late for proper investigation or answer and their contents are in issue, though there is evidence of Orthodox Jewish schools which in addition to a test based on Orthodox Jewish descent also apply tests based on religious observance.
What can be said is that, since the Court of Appeals judgment, JFS and other Orthodox Jewish schools have instituted admissions policies based, in one way or another, on religious observance, but they have done so very reluctantly, and submit that its introduction is inconsistent with such schools missions to all Orthodox Jews.
However, as I have said, such considerations cannot be decisive either way.
For the reasons I have given, the Court of Appeal in my view reached the correct conclusion, when it held that as a matter of law the admissions policy followed by JFS was inherently discriminatory, contrary to s.1(1)(a) of the 1976 Act, although the policy was adopted by the school for the most benign, religious motives.
On that basis, the issue of indirect discrimination cannot arise.
However, I will address some words to it.
This must, necessarily, be on the hypothesis that a different answer is given on the issue of direct discrimination to that which I have given.
Indirect discrimination
The relevant statutory provision governing indirect discrimination is s.1(1A).
This was introduced into the 1976 Act by the Race Relations Act 1976 (Amendment) Regulations (SI 2003/1626), in order to implement in Great Britain Council Directive 2000/43/EC of 29th June 2000 (which contains a number of references showing its intended application to education).
Subsequent Regulations (SI 2008/3008) have added the presently immaterial words or would put in s.1(1A)(b).
The first question arising under s.1(1A) is whether JFSs admissions policy involved a provision, criterion or practice which puts persons of the same race or ethnic origins at a particular disadvantage when compared with other persons.
Lord Pannick submits not.
He accepts that the policy had the effect of putting at a disadvantage applicants with no ethnic link with Judaism.
But, in his submission, it did not discriminate against M, because both M and those eligible for admission had the same Jewish ethnic origin, and the distinction drawn between them by the policy was on the basis of their religious, not ethnic status.
Here too, the Mandla test of ethnicity is relied upon to assimilate M and those eligible for admission.
As I have pointed out, Mandla was decided under s.1(1)(b) of the Race Relations Act 1976.
Since the introduction of s.1(1A) to give effect to Council Directive 2000/43/EC of 29th June 2000, Lord Pannick accepts that any allegation of indirect discrimination falls to be considered primarily (and in reality, despite s.1(1C), almost certainly only) under s.1(1A).
Assuming, contrary to my view, that the Mandla test of ethnic grouping controls the question whether there has been direct discrimination on ethnic grounds within s.1(1)(a), I do not consider that it can do so under s.1(1A).
I see no reason under Community law to suppose that the Directive is limited to discrimination against ethnic groups in the Mandla sense, and s.1(1A) should, so far as possible, be construed consistently with the Directive.
The language of s.1(1A) is general (although in one respect, the effect if any of which I need not consider, it adopts less exhaustive terminology than s.1(1)(a) and (b), in so far as it omits express reference to colour and nationality).
On any ordinary understanding, Ms ethnic origins differed from those of most Orthodox Jews, because he had a non Jewish Italian mother.
As Munby J said (para. 34), M is in Es eyes, and doubtless in the eyes of many who would consider themselves Jews, of mixed Jewish and (through the maternal line) Italian ethnic origins.
True, some Orthodox Jews become such by conversion rather than birth, and some children of non Jewish Italian mothers can be Orthodox Jews by virtue of their mothers conversion according to Orthodox Jewish principles before their birth.
But, both in general terms and in the case of M in particular, his mothers non Jewish Italian birth and so his ethnic origins led to M being at a particular disadvantage when compared with persons recognised as Orthodox Jews by JFS and by Orthodox Jewish authorities.
The next question is whether JFS has shown that the disadvantage at which M was put was a proportionate means of achieving a legitimate end.
Munby J in para. 192 of his judgment summarised the aim or objective of JFS as spelled out in the materials before him (and indicated out in paragraph 76 above) as being: to educate those who, in the eyes of the [Office of the Chief Rabbi] are Jewish, irrespective of their religious beliefs, practices or observances, in a school whose culture and ethos is that of Orthodox Judaism.
The Court of Appeals reasoning on indirect discrimination appears to have been influenced by this characterisation.
The Court of Appeal thought, with some justification, that the aim or objective as so advanced was circular.
Sedley LJ, in paras. 45 47, described the schools admissions criteria as explicitly related to ethnicity and as having an ethnic component in character and said that an aim of which the purpose or inevitable effect is to make and enforce distinctions based on race or ethnicity cannot be legitimate.
That is no doubt so.
But, on the evidence, the truth which Munby Js characterisation can be read as omitting or perhaps obscuring is that, in Orthodox Jewish belief, anyone who is regarded by Orthodox Judaism as a Jew by birth is also regarded as being under a religious duty to educate him or herself about and to observe the tenets of Orthodox Judaism: see the statement of Dayan Gelley dated 26 February 2008 referred to in paragraph 76 above, and also that of Registrar Frei of the London Beth Din dated 6 February 2008.
JFSs mission was to encourage and assist children regarded by Orthodox Judaism as being Jews to do this as far as possible.
For that reason, the admission to the school of a range of pupils, who are Orthodox Jewish in the schools eyes, but who do not actually practise Orthodox Judaism or necessarily any religion at all, was and would still be regarded as a very positive feature, even if their or their parents actual motivation for seeking their admission to the school were to have been its excellent academic record.
On the basis of this explanation of the thinking underlying the schools policy, it is possible to identify a legitimate aim, founded in the schools Orthodox Jewish character and the religious convictions of those responsible for its admissions policy; and the circularity which the Court of Appeal thought existed no longer does.
The question thus arises, which the Court of Appeal thought it unnecessary to address, whether JFS as the alleged discriminator can show the differential treatment to be a proportionate means of achieving a legitimate aim: s.1(1A)(c).
JFS accepts that its admissions policy treated the schools religious aim as an over riding absolute.
Prior to the Court of Appeals decision, it had not considered or sought to weigh the practical implications or effect of adopting either it or any alternative policy, though it was aware both that the school included many non observing pupils and that there were many ineligible pupils who were intensely religious.
No information is in these circumstance available as to the extent to which children admitted to the school were or became interested in learning to observe Orthodox Judaism, or to which the schools policy excluded other children who would be deprived of Jewish based schooling which they were keen for religious reasons to pursue.
Munby J recorded (para. 8) that until the 1940s over 97% of synagogue membership was of Orthodox (United Synagogue) synagogues, but that by 2000, according to a report A Community of Communities, published under the auspices of the Institute for Jewish Policy Research, current membership of Jews affiliated to a synagogue consisted of 60.7% Orthodox, 10.5% Strictly Orthodox (Haredi), 27.3% Progressive (Reform and |Liberal), and 1.5% Masorti (Conservative), while 30% of all Jews were not affiliated to any synagogue at all.
There has been and is a paucity of available and accessible Jewish schools other than Orthodox Jewish schools it appears that 29 of the total of 36 Jewish schools in England are Orthodox Jewish and applied a similar admissions policy to JFSs.
JFS also regarded as irrelevant when formulating the admissions policy whether it might lead to unhappiness in relations between adherents to different Jewish denominations.
The standard set in s.1(1A)(c) is a high one, adopting the more exacting EC test of proportionality: R (Elias) v Secretary of State for Defence [2006] 1 WLR 3213, para. 151, per Mummery LJ.
The Directive also provides, in article 2(2)(b) that any indirectly discriminatory provision, criterion or practice is only justifiable if it is objectively justified by a legitimate aim and the means of achieving that aim are appropriate and necessary, but it refers to the European Convention on Human Rights and the language used equates with the test of proportionality which appears in s.1(1A)(c) of the 1976 Act.
An ex post facto justification for a measure which is prima facie indirectly discriminatory can prove difficult to show: Elias, para.129 per Mummery LJ.
It is for the school to show, in the circumstances, that its aim or objective corresponds to a real need and that the means used are appropriate and necessary to achieving that aim, and any decision on these points must weigh the need against the seriousness of the detriment to the disadvantaged group: Elias, para. 151 per Mummery LJ.
The interests of society must also be considered: Huang v Secretary of State for the Home Department [2007] UKHL 11; [2007] 2 AC 167, para. 19, per Lord Bingham of Cornhill.
In the case of JFS, as an educational establishment maintained by a local education authority, its general duty was supplemented by specific duties under s.71 of the 1976 Act, according to which it was incumbent on its governing body in carrying out its functions, [to] have due regard to the need (a) to eliminate unlawful racial discrimination; and (b) to promote equality of opportunity and good relations between persons of different racial groups.
Munby J held that the school had, despite the good intentions and work which had gone into its race equality policy, failed to comply in full with s.71 of the 1976 Act.
The schools race equality policy, which indicated that the school would disregard considerations based upon colour, disability, ethnic or racial origins, gender, marital status, nationality or religion except as provided for in the Schools authorised Admissions Policy, showed that it had in a general sense considered matters of racial discrimination.
But it had not specifically considered either of the goals mentioned in s.71(1)(a) and (b) or, more particularly, specific ways in which these goals might be achieved (Munby J, para. 213).
Nonetheless, Munby J considered that the schools policy satisfied the requirements of s.1(1A)(c), saying at paras. 199 202, first, that JFSs admissions policy was not, properly analysed, materially different from that which gives preference in admission to a Muslim school to those who were born Muslim or preference in admission to a Catholic school to those who have been baptised and, secondly, that some alternative admissions policy based on such factors as adherence or commitment to Judaism (even assuming that such a concept has any meaning for this purpose in Jewish religious law) would not be a means of achieving JFSs aims and objectives; on the contrary it would produce a different school ethos.
JFS exists as a school for Orthodox Jews.
If it is to remain a school for Orthodox Jews it must retain its existing admissions policy; if it does not, it will cease to be a school for Orthodox Jews.
On that basis, Munby J held that the policy constituted a proportionate means of achieving a legitimate aim, and that the claim of indirect discrimination failed.
Munby J also thought it quite idle to imagine that the fullest and most conscientious compliance with s.71 would have led to any difference either in the crucial part of JFSs admissions policy or in its application in Ms case (para. 214).
On the evidence before the Court, and in the absence of any actual consideration or weighing of the need [to pursue the schools aim] against the seriousness of the detriment to the disadvantaged group (see Elias [2006] 1 WLR 3213, para 151), I find it impossible to reach the same conclusion.
There is, as I have indicated, no information about the extent to which the school succeeds in its stated aim of inculcating Orthodox Judaism in the minds and habits not only of those who already practise it, but also of those pupils who gain admission as Orthodox Jews in the eyes of Orthodox Judaism.
The latter may not on entry practise or have any interest in practising Orthodox Judaism.
They or their parents may adhere in religious observance to a Jewish denomination other than the Orthodox Jewish and be concerned that their children receive a, rather than no, Jewish education; or they or their parents may be seeking entry for reasons associated with the schools acknowledged educational excellence, and may be themselves agnostic or atheist.
The schools policy was formulated without considering the extent to which others professing the Jewish faith, but not in the Orthodox Jewish tradition, were separated by it from friends and from the general Jewish community by the schools admissions policy, or about the extent to which this might cause grief and bitterness in inter or intra community relations matters about which some evidence was tendered before the Court.
It would, in parenthesis, also appear difficult to regard a school not considering such matters as complying with the School Admissions Code 2007, para. 2.48, which requires that admission authorities for faith schools should consider how their particular admission arrangements impact on the communities in which they are physically based and those faith communities which they serve.
It was submitted that the school would become less diverse in a practising religious sense, if it admitted pupils only by reference to a test of Jewish religious observance.
This could be so, but no consideration has been given to any possibility of ensuring continuing diversity on a structured basis, rather than simply excluding, by reference essentially to birth link criteria, all those not regarded by Orthodox Judaism as Orthodox Jews.
Paragraph 1.4 of the schools existing admissions policy already provides that The School recruits from the whole range of ability, and this policy has the objective of securing a balanced, comprehensive, co educational intake.
The schools Information Sheet for staff describes the modern JFS as serving almost the whole breadth of the Anglo Jewish community in Greater London and its admissions policy (not further detailed in this connection) as reflect[ing] positive selection to ensure a truly comprehensive ability intake.
It continues: We aim to achieve a balanced intake across four ability bands.
In addition to a thoroughly comprehensive spread of ability, our students come from the widest possible range of social, economic and religious backgrounds.
On the information available, it is not shown that inability to select on the basis of birth link criteria will prevent the school from serving the wider community and achieving diversity in accordance with these stated aims.
I would also not be as confident as Munby J was with regard to s.71.
But, in any event, the test is not what the school would have done in the past if it had fully and properly considered its obligations under s.71.
The test is whether objectively it can justify its present policy under s.1(1A)(c), once the test set by that subsection is fully and properly addressed.
Munby Js comparison in para. 200 with the position of Catholic or Muslim children would, if exact, be no more than another way of stating the issue, but in reality it is not exact, at least if one takes the parental choice to baptise.
His other reason echoes the schools case that its policy of giving preference to those regarded as Orthodox Jews by Orthodox Jews must, in case of over subscription, prevail over all other considerations, with which I have already dealt.
It must, furthermore, be an exaggeration to say that the school would cease (or, presumably, with the introduction of its new policy after the Court of Appeals decision, has ceased) to be a school for Orthodox Jews (para. 214).
If and when the number of places exceeds the number of those applying who are regarded by the school as Orthodox Jews, the school is anyway obliged under the legislation and paragraph 1.3 of its own admissions policy to admit other pupils.
Until the matter came before the Adjudicator, Appendix A to its admissions policy in fact indicated that the remaining places would be filled according to the following criteria in this order: (1) looked after children, (2) children with one Jewish parent, (3) children with one or more Jewish grandparents and, finally, (4) all other applicants. (The Adjudicator by his Determination of 27 November 2007 held that criteria (2) and (3) involved indirect ethnic discrimination by reference to ancestry, which could not be justified by any presumption that children with one Jewish parent or one or more Jewish grandparents were more likely to be receptive or sympathetic to the schools Jewish Orthodox ethos than children of other parentage or grand parentage, and required the deletion of those two criteria on that basis.
He rejected a suggestion that criteria (2) and (3) involved direct discrimination on the ground that they were based on religious grounds not racial grounds, despite the absence of any apparent basis in Orthodox Judaism for attaching any significance to fatherhood or grand parentage, except in the matrilineal line.
Miss Rose QC for E submits, correctly in my view as I have already indicated, that the Adjudicator should logically have gone further by recognising criteria (2) and (3) as involving direct discrimination).
In my view and (I emphasise) on the material before the Court, JFS has not and could not have justified its admissions policy.
Accordingly, had the matter arisen for decision, I would have held that its admissions policy discriminated against M in a way which was not justified under s.1(1A), and was invalid accordingly.
However, for reasons given earlier, I conclude that the policy was directly discriminatory, because it depended on birth link criteria which led to M being less favourably treated on ethnic grounds within s.1(1)(a) and 3(1) of the 1976 Act, and invalid on that basis.
I would therefore dismiss the schools appeal.
On the United Synagogues appeal in respect of costs, I agree with the reasoning and conclusions of Lord Hope.
LORD KERR
This case gives rise to perplexing issues of law.
It involves an examination of the interface between religion and legal principle.
It requires a close scrutiny of the statutory definition of racial discrimination.
At its heart, however, lies the simple issue of a young boys desire to attend a particular school; his familys earnest wish that he be educated there; and the reasons that he was refused admission.
That JFS is the school of choice for very many Jewish families is not in the least surprising.
As well as achieving excellent academic results for its pupils, it promotes indeed embodies the values that most, if not all, practising Jews regard as central to their faith.
It is therefore inevitably and regularly oversubscribed, that is to say, it attracts many more applicants for places than it can accommodate.
The criteria for admission to the school are of intense interest to aspiring pupils and their parents.
Those who devise and apply those criteria have a formidable, not to say daunting, responsibility.
This situation is by no means unique.
All over the United Kingdom and, no doubt, in many other parts of the world, every year, conscientious parents, anxious for their childrens continuing education at secondary level, pore over the entrance requirements for schools that they hope their sons and daughters will attend and strive to bring their childrens circumstances and in many instances, their own within the stipulated standards.
Where JFS is unique, however, is in its imposition of a criterion that can only be achieved by an accident of birth or by conversion to the Orthodox Jewish faith.
Apart from conversion, a child who wishes to be educated at JFS must be born of an Orthodox Jewish mother or have a female antecedent who is recognised as an Orthodox Jew by the Office of the Chief Rabbi (OCR).
That condition of Orthodox Jewishness is normally acquired by the female by reason of the circumstances in which she herself was born; less commonly, it arises by her conversion to Judaism before the childs birth.
In the latter case the circumstances of her conversion must be such as to satisfy the requirements of the OCR.
Common to both situations, however, is the unalterable requirement that, at the moment of birth, the child must be a Jew as the Chief Rabbi, in his application of what he considers to be the requirements of Jewish law, defines that status.
Central to the question of direct discrimination in this case is the breadth of meaning to be given to the phrase ethnic origins.
The conventional meaning of origin is something from which anything arises or is derived.
It also means ancestry, parentage, or extraction.
Although ethnic is normally used as pertaining to or characteristic of a people or a group, clearly there can be mixed ethnic origins that do not fall neatly into one group or category.
Thus, in this case, it is undeniable that M has mixed ethnic origins.
He has derived these, as everyone derives their ethnicity, from his parents.
At the moment of birth we are all endowed with characteristics that are as inalienable as they are inevitable.
Our DNA is inescapable.
Our parentage and the ancestry that it brings are likewise fixed and irreversible.
These are part and parcel of our ethnic origins.
M is not simply a Jew.
His ethnic origins comprehend much more than his Jewishness.
He is born of an Italian.
He is, in the colloquial, half Italian.
He would be recognised indeed, no doubt, claimed as such by his mothers family.
He cannot disavow his mothers former Catholicism.
That is as much part of his undeniable ethnic make up as is his fathers Masorti Jewishness and Englishness.
M is, therefore, half English and half Italian; he is a Masorti Jew with an Italian mother who was once Catholic.
All of these are aspects of his ethnic origins.
And those origins are defined as much by what they do not contain as they are by what they include.
What, of course, Ms ethnic origins do not and can never include is a matrilineal connection to Orthodox Jewry.
That is an unchangeable aspect of his parentage, of his origins and of his ethnicity.
He cannot be categorised as and can never claim to be born of an Orthodox Jewish mother as recognised by OCR.
That this forms part of his ethnic origins can perhaps best be illustrated by comparing his situation with that of someone whose mother is recognised by OCR as Jewish.
An assertion by such a person that this matrilineal feature formed part of his ethnic origins could surely not be challenged.
Logically, therefore, the absence of such a feature from Ms heritage cannot be denied, and must be accepted, as a defining characteristic of his ethnicity.
Direct discrimination
The basic question that arises on the issue of direct discrimination can be simply stated.
It is, Was M treated less favourably on racial grounds? Racial grounds being defined (in section 3 (1) of the Race Relations Act 1976) as including ethnic origins, and there being no dispute between the parties that he was treated less favourably than those who, by reason of their matrilineal connection to an Orthodox Jewish mother, were admitted to the school, the basic question can be refined to the following formulation, Was M refused admission to the school on grounds of his ethnic origins?
It has been strongly asserted that the Chief Rabbi was not remotely interested in Ms ethnic origins for other than religious reasons.
This is no doubt true, but the decision to refuse M entry to the school was unquestionably bound up with those origins.
It was because of what was missing from Ms ethnic origins; because they did not include the indispensable matrilineal connection to Orthodox Judaism that the less favourable treatment occurred.
Does this mean that he was discriminated against on ethnic grounds? Or does the fact that the refusal to admit him to the school was based on a decision on a religious issue remove the case from the sphere of racial discrimination altogether?
These questions focus attention on the problematical issue of what is meant by discrimination on racial grounds.
As Lord Hope has observed, the opinions in cases such as R v Birmingham City Council, Ex p Equal Opportunities Commission [1989] AC 1155 and James v Eastleigh Borough Council [1990] 2 AC 751 tended to dismiss as irrelevant any consideration of the subjective reasons for the alleged discriminator having acted as he did unless it was clear that the racial or sex discrimination was overt.
A benign motivation on the part of the person alleged to have been guilty of discrimination did not divest the less favourable treatment of its discriminatory character if he was acting on prohibited grounds.
Later cases have recognised that where the reasons for the less favourable treatment are not immediately apparent, an examination of why the discriminator acted as he did may be appropriate.
In Nagarajan v London Transport [2000] 1 AC 501, 511A, Lord Nicholls of Birkenhead, having identified the crucial question as why did the complainant receive less favourable treatment, said this: Save in obvious cases, answering the crucial question will call for some consideration of the mental processes of the alleged discriminator.
It is, I believe, important to determine which mental processes Lord Nicholls had in mind in making this statement.
It appears to me that he was referring to those mental processes that are engaged when the discriminator decides to treat an individual less favourably for a particular reason or on a particular basis.
That reason or the basis for acting may be one that is consciously formed or it may operate on the discriminators subconscious.
In my opinion Lord Nicholls was not referring to the mental processes involved in the alleged discriminator deciding to act as he did.
This much, I believe, is clear from a later passage of his opinion, at p 511B where he said: The crucial question just mentioned is to be distinguished sharply from a second and different question: if the discriminator treated the complainant less favourably on racial grounds, why did he do so? The latter question is strictly beside the point when deciding whether an act of racial discrimination occurred.
This latter passage points clearly to the need to recognise the distinction between, on the one hand, the grounds for the decision (what was the basis on which it was taken) and on the other, what motivated the decision maker to make that decision.
The need for segregation of these two aspects, vital to a proper identification of the grounds on which the decision was made, is well illustrated, in my view, by the circumstances of this case.
The school refused entry to M because an essential part of the required ethnic make up was missing in his case.
The reason that they took the decision on those grounds was a religious one OCR had said that M was not a Jew.
But the reason that he was not a Jew was because of his ethnic origins, or more pertinently, his lack of the requisite ethnic origins.
The basis for the decision, therefore, or the grounds on which it was taken, was Ms lack of Jewishness.
What motivated the school to approach the question of admission in this way was, no doubt, its desire to attract students who were recognised as Jewish by OCR and that may properly be characterised as a religious aspiration but I am firmly of the view that the basis that underlay it (in other words, the grounds on which it was taken) was that M did not have the necessary matrilineal connection in his ethnic origin.
This conclusion appears to me to be inescapable from Lord Nicholls analysis of the two aspects of decision making and to chime well with a later passage in his speech where he said: Racial discrimination the is not negatived by discriminators motive or intention or reason or purpose (the words are interchangeable in this context) in treating another person less favourably on racial grounds.
In particular, if the reason why the alleged discriminator rejected the complainants job application was racial, it matters not that his intention may have been benign.
In the present case, the reason why the school refused M admission was, if not benign, at least perfectly understandable in the religious context.
But that says nothing to the point.
The decision was made on grounds which the 1976 Act has decreed are racial.
The recognition of Jewishness a religious question?
As Lord Brown has pointed out, all Jews define membership of their religion by reference to descent or conversion.
It is therefore quite logical to describe the decision, taken as a matter of Jewish law, as to whether one is or is not a Jew, as a religious one.
Descent is employed as a means of determining an essentially religious question.
But, when the answer to that religious question has consequences in the civil law sphere, its legality falls to be examined.
If the decision has consequences that are not permitted under the law, the fact that it was taken for a religious purpose will not save it from the condition of illegality.
In this case the OCR decision that M was not a Jew had profound consequences for him since he was denied admission to an educational establishment that he wished to attend.
The fact that the decision not to admit him was based on the determination of a religious issue cannot, of itself, insulate it from the charge of discrimination on racial grounds.
Once it is recognised that Ms ethnic origins underpinned the conclusion on the religious issue, it becomes plain that it cannot be characterised as an exclusively religious question.
The terminus for OCR was a decision on a matter of religion but the route to that terminus was one of ethnic origin.
Ethnic groups
It is unquestionably true that Jews, whether they be Orthodox, Masorti, Liberal or Progressive, constitute an ethnic group.
It is also undoubtedly the case that M belongs to that ethnic group.
He is an ethnic Jew.
But, belonging to that group is not comprehensive of his ethnicity.
As I have said (at 109 above) Ms ethnic origins extend well beyond the fact that he is a Jew.
The circumstance that he is an ethnic Jew in the Mandla [Mandla v Dowell Lee [1983] 2 AC 548] sense does not assist, in my opinion, in determining whether he has been discriminated against on racial grounds.
Although those who receive the more favourable treatment (in being admitted to the school) belong to the same racial or ethnic group as M, this does not, of itself, preclude a finding that he has been treated less favourably on account of his ethnic origins.
This might be so if his ethnic origins were confined to his Jewishness.
They are not.
It is because of his lack of the requisite feature of Jewishness that he has received less favourable treatment.
That perceived deficiency is as much part of his ethnic make up as is the fact that he is an ethnic Jew in the Mandla sense.
Indirect discrimination
Since I have reached the conclusion that this is a case of direct discrimination, it is unnecessary to say anything about the alternative case made on Ms behalf on indirect discrimination, particularly in light of Lord Mances discussion of that subject.
I find myself in complete agreement with all that he has had to say on that issue and, incidentally, with all that he has had to say on the issue of direct discrimination.
Conclusion
One can have sympathy with the school authorities in their wish to pursue what must have seemed to them an entirely legitimate religious objective.
It is plain that the Chief Rabbi and the governors of JFS are entirely free from any moral blame.
That they have fallen foul of the 1976 Act does not involve any reprehensible conduct on their part for it is accepted on all sides that they acted on sincerely and conscientiously held beliefs.
Their motives are unimpeachable.
The breach of the legislation arises because of the breadth of its reach.
The grounds on which the rejection of M was made may well be considered perfectly reasonable in the religious context but it is because they amount to ethnic grounds under the legislation that a finding against the school became, in my opinion, inescapable.
I would dismiss the appeal.
LORD CLARKE
The division of opinion in this court and in the courts below demonstrates that this appeal raises issues which are difficult to resolve.
The issues have been discussed in detail in all the above judgments.
I have reached the same conclusion as Lord Phillips, Lady Hale, Lord Mance and Lord Kerr, essentially for the reasons they have given.
Rather against my general principle, which is that there should be fewer judgments in the Supreme Court and not more, I add a judgment of my own in order to explain my own reasons for agreeing that the appeal should be dismissed.
Direct discrimination
The facts have been fully set out by others.
I therefore refer only to those facts which seem to me to be critical.
The policy of JFS, when oversubscribed, was to admit children who are recognised as being Jewish by the Office of the Chief Rabbi (OCR) or who have already enrolled upon or undertaken, with the consent of their parents, to follow a course of conversion to Orthodox Judaism under the approval of the OCR.
As I understand it, nobody has ever been enrolled at JFS under the second head.
Leaving adopted children on one side, children recognised by the OCR as being Orthodox Jewish are only those with a biological mother who is either Orthodox Jewish by birth or who has converted to Orthodox Judaism before the birth of the child by a process approved by the OCR.
As I see it, the sole question for decision is whether those criteria offend section 1(1)(a) of the 1976 Act (as amended) by discriminating against some children (here M) on racial grounds, which, by section 3, include ethnic origin.
On the facts of this case I prefer to ask whether the criteria offend against some children on the ground of their ethnic origin.
To my mind the answer to that question does not depend upon the subjective state of mind of the Chief Rabbi or anyone else.
Moreover, I do not think that the correct question to ask is whether OCRs guidance was given either on grounds of ethnic origin or on grounds of religion.
That is because, so formulated, the test suggests that, if the guidance was given on the grounds of religion, it was not given on the grounds of ethnic origin.
So formulated, the question could have only one answer because I entirely accept that the guidance was given on grounds of religion.
That is clear from the guidance itself and indeed from a wealth of evidence before the court.
Moreover, I fully understand that it can in one sense be said that those not recognised by the criteria as Orthodox Jews are, as Lord Brown puts it, being treated less favourably, not because of their ethnic origins, which he says are a matter of total indifference to the OCR, but rather because of their religion because they are not members of the Orthodox Jewish religion.
However, again as Lord Brown puts it, the reason they are not members of the Orthodox Jewish religion is that their forbears in the matrilineal line were not recognised as Jewish by Orthodox Jews and in this sense their less favourable treatment is determined by their descent.
Thus the ground upon which the OCR criteria defined those children to be admitted was that their forbears in the matrilineal line must be recognised as Jewish by Orthodox Jews.
As I see it, in agreement with Lord Phillips, Lady Hale, Lord Mance and Lord Kerr, that is an ethnic ground, so that the discrimination was on both ethnic grounds and religious grounds.
It is, in my opinion, wrong in principle to treat the question as an either/or question because that excludes the possibility that there were two grounds for the decision to exclude M, one religious and the other ethnic.
If the religious ground was itself based upon an ethnic ground, then in my opinion the question asked by section 1(1)(a) of the 1976 Act, namely, whether M was discriminated against on ethnic grounds must be answered in the affirmative.
It would be too narrow a construction of section 1(1)(a) to hold that that was not to discriminate on ethnic grounds.
M was excluded because his mother was not Orthodox Jewish, whether by birth or conversion.
That conclusion does not depend upon the state of mind of the OCR, but follows from an examination of the criteria laid down by the OCR.
The question is not whether the guidance was given on religious grounds but whether the admitted discrimination was on ethnic grounds.
In my opinion the answer is that the discrimination was on both religious and ethnic grounds because the criteria were arrived at on religious grounds but, since those religious grounds involved discrimination on ethnic grounds, it follows that the admissions policy of JFS was contrary to section 1(1)(a) because it discriminated against M and others on racial grounds.
To hold that there were two grounds for the discrimination, both religious and ethnic, is not in my opinion to reduce, as Lord Rodger suggests, the religious element to the status of a mere motive.
It is to recognise that the ethnic element is an essential feature of the religious ground.
If Ms mother had been born a Masorti Jew (because someone in her matrilineal line been converted to Masorti Judaism) and had not been converted to Orthodox Judaism before Ms birth, Ms application would have been rejected because his mother was not, in the relevant sense, Jewish by birth.
As I see it, for the reasons given in much more detail by others (and in particular Lord Mance) that would be discrimination on the ground of his ethnicity.
To my mind the same is true on the facts of this case since at the time of Ms birth his mother was not, in the relevant sense, Jewish because she had not been converted to Orthodox Judaism in the manner accepted by the OCR.
In both cases, as Lord Kerr puts it, the problem would be that M does not have the necessary matrilineal connection in his ethnic origin.
Again as Lord Kerr puts it, the terminus for the OCR was a decision on a matter of religion but the route to that terminus was one of ethnic origin.
In my opinion the state of mind of JFS, the Chief Rabbi and the OCR are all irrelevant to the determination of the critical question under section 1(1)(a).
I agree with Lord Mance that there are two ways in which direct discrimination can be established.
The first is where, whatever the motive and whatever the state of mind of the alleged discriminator, the decision or action was taken on a ground that was inherently racial and the second is where the decision or action was taken on a ground that was subjectively racial.
Until now this distinction has not perhaps been as clearly identified in the authorities as it should be.
The first class of case was established by R v Birmingham County Council ex p Equal Opportunities Commission [1989] AC 1155, where (as Lord Mance puts it) girls were required to achieve a higher standard than boys for grammar school entry because of a disparity in the number of grammar school places for boys and girls.
Lord Goff, with whom the other members of the appellate committee agreed, made it clear at page 1194B that the question was simply whether there was less favourable treatment on the ground of sex, in other words if the relevant girl or girls would have received the same treatment as the boys but for their sex.
The intention or motive of the council was not a necessary condition of liability.
That was a question of fact and it was held by Lord Goff in the passage quoted by Lord Mance from page 1194C D that whatever may have been the intention or motive of the council, nevertheless it is because of their sex that the girls in question receive less favourable treatment than the boys, and so are the subject of discrimination under the Act of 1975.
In James v Eastleigh Borough Council [1990] 2 AC 751, the swimming pool case, it was held that the test for free entry to the swimming pool at pensionable age unlawfully discriminated against men because men did not reach pensionable age until 65 whereas women reached it at 60.
It is true that the House of Lords divided three to two but that seems to me to be irrelevant.
The simple question was again a question of fact, namely whether men and women were treated differently.
It was held that they were, even though, as Lord Mance has suggested, the test was probably adopted because it was thought that those of pensionable age would be more needy.
Lord Goff said much the same as he had said in the Birmingham case.
He put it thus at page 772B G: I turn to that part of the Vice Chancellor's reasoning which is based upon the wording of section 1(1)(a).
The problem in the present case can be reduced to the simple question did the defendant council, on the ground of sex, treat the plaintiff less favourably than it treated or would treat a woman? As a matter of impression, it seems to me that, without doing any violence to the words used in the subsection, it can properly be said that, by applying to the plaintiff a gender based criterion, unfavourable to men, which it has adopted as the basis for a concession of free entry to its swimming pool, it did on the ground of sex treat him less favourably than it treated women of the same age and in particular Mrs. James.
In other words, I do not read the words on the ground of sex as necessarily referring only to the reason why the defendant acted as he did, but as embracing cases in which a gender based criterion is the basis upon which the complainant has been selected for the relevant treatment.
Of course, there may be cases where the defendant's reason for his action may bring the case within the subsection, as when the defendant is motivated by an animus against persons of the complainant's sex, or otherwise selects the complainant for the relevant treatment because of his or her sex.
But it does not follow that the words on the ground of sex refer only to case where the defendants reason for his action is the sex of the complainant; and, in my opinion, the application by the defendant to the complainant of a gender based criterion which favours the opposite sex is just as much a case of unfavourable treatment on the ground of sex.
Such a conclusion seems to me to be consistent with the policy of the Act, which is the active promotion of equal treatment of men and women.
Indeed, the present case is no different from one in which the defendant adopts a criterion which favours widows as against widowers, on the basis that the former are likely to be less well off; or indeed, as my noble and learned friend, Lord Bridge of Harwich has pointed out, a criterion which favours women between the ages of 60 and 65, as against men between the same ages on the same basis.
It is plain to me that, in those cases, a man in either category who was so treated could properly say that he was treated less favourably on the ground of sex, and that the fact that the defendant had so treated him for a benign motive (to help women in the same category, because they are likely to be less well off) was irrelevant.
Lord Bridge and Lord Ackner said much the same.
For example, Lord Bridge said at page 763H that the use of the statutory criterion for pensionable age, being fixed at 60 for women and 65 for men, was to use a criterion which directly discriminated between men and women.
See also per Lord Bridge at page 765G.
Lord Ackner said at page 769F H that the formula used was inherently discriminatory.
He noted that no evidence had been given in the county court as to why the council had decided on the policy.
He said that such evidence would have been irrelevant because, as he put it, the policy was crystal clear.
If you were a woman you could swim at 60 without payment whereas if you were a man you had to wait until you were 65.
The reason why the policy was adopted could in no way affect or alter the fact that the council had decided to implement a policy by virtue of which men were to be treated less favourably than women and were to be treated on the ground of, ie by reason of, their sex.
In my opinion that analysis applies here.
Just as in that case the admissions criteria were gender based and thus discriminatory on the ground of sex contrary to section 1(1)(a) of the Sex Discrimination Act 1975, so here the JFS admissions criteria were based on ethnicity and thus discriminatory on racial grounds as defined in section 1(1)(a) of the 1976 Act.
For my part I do not accept that more recent decisions of the House of Lords call for a more nuanced approach than that stated in the Birmingham and Eastleigh cases.
As I read the later cases, they simply accept, as Lord Goff accepted in the passage from his speech in the Eastleigh case quoted above, that there may be cases where the defendant's reason for his action may bring the case within the subsection, as when the defendant is motivated by an animus against persons of the complainant's sex, or otherwise selects the complainant for the relevant treatment because of his or her sex or (I am sure he would have added) because of his or her race or ethnicity.
As I see it, this is a separate basis on which direct discrimination can be established.
It does not involve any alteration to the principle stated by Lord Goff, Lord Bridge and Lord Ackner and set out above.
In Nagarajan v London Regional Transport [2000] 1 AC 501 the House of Lords was concerned with an allegation of alleged unlawful victimisation under section 2 of the 1976 Act.
It applied the same principles as those applicable under section 1(1)(a).
The leading speech was given by Lord Nicholls, Lord Steyn made a concurring speech, Lord Hutton and Lord Hobhouse agreed with Lord Nicholls and Lord Steyn, and Lord Browne Wilkinson dissented.
Lord Steyn said at page 520H that the Birmingham and Eastleigh cases established the principle that conscious motivation is not required for direct discrimination.
In these circumstances it is inherently unlikely that there is any distinction between the principles established by those cases and the reasoning in Nagarajan.
In my opinion there is not.
Reliance was placed on part of the speech of Lord Nicholls.
Read in context, the relevant passage is in these terms at pages 510H 511E: The first point raised is whether conscious motivation is a prerequisite for victimisation under section 2 of the Act.
Section 2 should be read in the context of section 1.
Section 1(1)(a) is concerned with direct discrimination, to use the accepted terminology.
To be within section 1(1)(a) the less favourable treatment must be on racial grounds.
Thus, in every case it is necessary to inquire why the complainant received less favourable treatment.
This is the crucial question.
Was it on grounds of race? Or was it for some other reason, for instance because the complainant was not so well qualified for the job? Save in obvious cases, answering the crucial question will call for some consideration of the mental processes of the alleged discriminator.
Treatment, favourable or unfavourable, is a consequence which follows from a decision.
Direct evidence of a decision to discriminate on racial grounds will seldom be forthcoming.
Usually the grounds of the decision will have to be deduced, or inferred, from the surrounding circumstances.
The crucial question just mentioned is to be distinguished sharply from a second and different question: if the discriminator treated the complainant less favourably on racial grounds, why did he do so? The latter question is strictly beside the point when deciding whether an act of racial discrimination occurred.
For the purposes of direct discrimination under section 1(1)(a), as distinct from indirect discrimination under section 1(1)(b), the reason why the alleged discriminator acted on racial grounds is irrelevant.
Racial discrimination is not negatived by the discriminator's motive or intention or reason or purpose (the words are interchangeable in this context) in treating another person less favourably on racial grounds.
In particular, if the reason why the alleged discriminator rejected the complainant's job application was racial, it matters not that his intention may have been benign.
For instance, he may have believed that the applicant would not fit in, or that other employees might make the applicant's life a misery.
If racial grounds were the reason for the less favourable treatment, direct discrimination under section 1(1)(a) is established. (My emphasis)
Lord Nicholls then added at page 511E H that this law, which is well established was confirmed by the House of Lords in the Birmingham and Eastleigh cases as described above.
He said that in the Birmingham case the answer to the crucial question was plain because, as a matter of fact, girls received less favourable treatment than boys.
It followed that there was direct sex discrimination and the reason for it was irrelevant.
The same was true in Eastleigh because the reduction in swimming pool charges was geared to a criterion which was itself gender based.
It is true that Lord Nicholls added this: Lord Bridge of Harwich, at p 765, described Lord Goff's test in the Birmingham case as objective and not subjective.
In stating this he was excluding as irrelevant the (subjective) reason why the council discriminated directly between men and women.
He is not to be taken as saying that the discriminator's state of mind is irrelevant when answering the crucial, anterior question: why did the complainant receive less favourable treatment?
The essence of Lord Nicholls view can be seen in the italicised passages in the quotation at para 139 above.
If, viewed objectively, the discriminator discriminated against the claimant on racial grounds the reason why he did so is irrelevant.
Thus in Birmingham and Eastleigh the sex discrimination was objectively plain from the criteria adopted.
Once that was established, the state of mind of the discriminator was, as Lord Nicholls put it, strictly beside the point.
That, as I see it, is this case.
This is a plain or obvious case of the kind Lord Nicholls had in mind because the position is clear from the OCRs criteria.
When he said in the first of the italicised passages that, save in obvious cases, answering the crucial question will call for some consideration of the mental processes of the alleged discriminator, he had in mind, not this kind of case, which he would have regarded as obvious, but the kind of case he had just mentioned namely where the claimant was discriminated against but it was not clear whether that was because of unlawful discrimination on the ground of, say, race or sex, or for some other reason, for instance, because the complainant was not so well qualified for the job.
This is not such a case.
In this connection I cannot agree with Lord Hopes analysis of the passage quoted at para 194 from page 512 of Lord Nicholls speech in Nagarajan.
Lord Nicholls was there considering the question of unconscious motivation.
He was doing so because that was not a case of discrimination inherent in the relevant rules such as existed in Birmingham, Eastleigh and this case.
In these circumstances it is not, in my opinion, possible to draw from that passage in Lord Nicholls speech the proposition that if, after careful and thorough investigation, the tribunal were to conclude that the employers actions were not racially motivated, in the sense that race was not the reason why he acted as he did, it would be entitled to draw the inference that the complainant was not treated less favourably on racial grounds.
It would not be so entitled for the reasons given in Birmingham and Eastleigh, namely that this is a case of inherent discrimination.
Equally, when Lord Nicholls said in Chief Constable of West Yorkshire Police v Khan [2001] 1 WLR 1947, para 29 that the question was why the discriminator acted as he did or, put another way, what consciously or unconsciously was his reason, Lord Nicholls was not considering this kind of case.
For the same reason I do not think that the decision in Shamoon v Chief Constable of the Royal Ulster Constabulary [2003] UKHL 11, [2003] ICR 337, is of any assistance in this kind of case.
In these circumstances I agree with Lord Hope at para 195 that at the initial stage, when the question is whether or not the discrimination was on racial grounds, the alleged discriminators motivation may not only be relevant but also necessary, in order to reach an informed decision as to whether or not this was a case of racial discrimination.
However, I emphasize the word may because, for the reasons I have already given, the discriminators motivation or subjective reasoning is not in my opinion relevant in every case.
The authorities, namely Birmingham, Eastleigh and Nagarajan show that it is not relevant where the criteria adopted or (in Lord Ackners words) the formula used are or is inherently discriminatory on ethnic grounds.
Lord Nicholls has however shown that it is relevant in other cases where, without investigating the state of mind of the alleged discriminator, it is not possible to say whether the discrimination was on ethnic grounds or not.
The question arises what considerations are relevant in answering the question whether the criteria were inherently racial.
I entirely accept (and there is indeed no dispute) that JFS, the Chief Rabbi and the OCR are, as Lord Hope puts it at para 201, thoughtful, well intentioned and articulate and that, as Lord Pannick submitted, the Chief Rabbi was not in the least interested in Ms ethnicity.
It is true that, if the Chief Rabbi were asked why he acted as he did, he would say that his reason was that this was what was required of him by fundamental Orthodox Jewish religious law.
Again as Lord Hope puts it, Jewishness based on matrilineal descent from Jewish ancestors has been the Orthodox religious rule for many thousands of years, subject only to the exception for conversion.
I agree so far.
However, I do not agree that to say that his ground was a racial one is to confuse the effect of the treatment with the ground itself.
The reason I disagree with Lord Hope (or perhaps the ground on which I do so) is that his opinion depends upon the state of mind of the Chief Rabbi.
Thus in the passage in Lord Nicholls speech to which Lord Hope refers Lord Nicholls was considering the kind of case in which it is necessary to consider the mental processes of the alleged discriminator.
Lord Hope makes it clear at para 201 that to categorise the criteria as based on racial grounds might be justified if there were reasons for doubting the Chief Rabbis frankness or good faith.
However, to my mind it does not follow that the criteria were not based on racial grounds because neither the Chief Rabbi nor the OCR thought that they were.
If the religious grounds were themselves based on racial (or ethnic) grounds then one of the grounds upon which there was discrimination based on the criteria was ethnic.
This appears from both the Birmingham and the Eastleigh cases.
I have already expressed the view that the principles in those cases apply here.
Lord Rodger however says that they do not come into the picture.
As I see it, that could only be on the basis that the issue is resolved by the subjective state of mind of the Chief Rabbi, the OCR and the governors of JFS.
It is said that the governors were not asked to consider and, did not actually consider, Ms ethnic origins and, if they had done so, that they would have regarded them as irrelevant.
However, they considered the criteria which Orthodox Judaism had applied for very many years and, although I entirely accept that they did so for religious reasons, I do not accept they were not considering Ms ethnic origins or making a decision on ethnic grounds.
Such a view would be to take too narrow a view of the concept of ethnic origins or of the meaning of ethnic origin in sections 1(1)(a) and 3 of the 1976 Act.
As I see it, once it is accepted (as Lord Brown does) that the reason M is not a member of the Jewish religion is that his forbears in the matrilineal line were not Orthodox Jews and that, in that sense his less favourable treatment is determined by his descent, it follows that he is discriminated against on ethnic grounds.
It makes no difference whether the reason M is not acceptable is that neither his mother nor anyone in his matrilineal line was born Jewish or that his mother was not converted to Orthodox Judaism.
The question is, in my opinion, not that espoused by Lord Rodger, but whether it is discrimination on ethnic grounds to discriminate against all those who are not descended from Jewish women.
In my opinion it is.
Lord Phillips, Lady Hale, Lord Mance and Lord Kerr have explained in detail why in their view the criteria were indeed discriminatory on ethnic and therefore racial grounds.
I agree with their reasoning and do not wish further to add to it.
In short, it is not in dispute that the decision in Ms case was taken on the basis of the criteria laid down by the OCR and followed by JFS.
It follows that, if the criteria involved discrimination based on ethnic grounds, the decision was taken on a ground that was inherently racial and there was direct discrimination within section 1(1)(a) of the 1976 Act.
If that is so, as I see it, the fact that the discrimination was also on religious grounds is irrelevant, as are both the fact that the religious grounds have been adopted for thousands of years and the fact that the Chief Rabbi and the OCR (and therefore JFS) concentrated wholly on the religious questions.
In the Court of Appeal at para 30 Sedley LJ, with whom Smith LJ and Rimer LJ agreed, expressed the view that if that were not so, a person who honestly believed, as the Dutch Reformed Church of South Africa until recently believed, that God had made black people inferior and had destined them to live separately from whites, would be able to discriminate openly against them without breaking the law.
I agree.
It is to my mind no answer to say that the discrimination invited by the belief, on the grounds of colour, was overtly racist.
It is true that such discrimination would be overtly on racial grounds but that is because the criteria were inherently based on racial grounds and not because of the subjective state of mind of the members of the Dutch Reformed Church or because of some principle of public policy.
However, the 1976 Act banning direct discrimination is an application of public policy, rather like the decision of the of the United States Supreme Court in Bob Jones University v United States 461 US 574 (1983).
I would however add that if, contrary to the views I have expressed, the state of mind of the Chief Rabbi and the OCR are relevant they must surely have subjectively intended to discriminate against applicants like M on the grounds set out in the criteria so that, again, if the criteria are based on ethnic grounds contrary to section 1(1)(a), they must surely have subjectively intended that result, however much the reason they did so was, as they saw it, religious.
Finally, under the heading of direct discrimination, I would like to identify some of the aspects of the argument that I regard as irrelevant to the resolution of the single question whether the OCR criteria discriminate against applicants who do not meet the criteria on ethnic, and thus racial, grounds contrary to section 1(1)(a) of the 1976 Act.
They include the following. i) It is suggested that the 1976 Act does not outlaw discrimination by an ethnic group against the same ethnic group.
However, as I see it, the question is simply whether the discrimination is on ethnic grounds.
The discrimination is not in dispute.
I do not see that the identity of the discriminator is of any real relevance to the answer to the question.
There is certainly nothing in the language or the context of section 1 of the Act or in its statutory purpose to limit the section in that way. ii) Like any statutory provision, the language of section 1(1)(a) should be construed in its context and having regard to its statutory purpose.
Parliament decided to distinguish between direct and indirect discrimination.
Adopting that approach, I am not persuaded that it is appropriate to construe section 1(1)(a) narrowly because it is not possible to justify the discrimination outlawed by it.
Parliament could, like the European Convention on Human Rights, have permitted justification but, for policy reasons, chose not to. iii) For whatever reason, the question of construction of section 1(1)(a) has not arisen before.
I do not, however, think that it can be relevant to that question that, if the respondents argument is correct, JFS has been acting unlawfully for more than thirty years.
The question is the same now as it would have been if it had been raised thirty years ago.
The provisions of the Equality Act 2006 are irrelevant for the same reasons.
I accept that this case is curious in that both M and E are Masorti Jews who, like Orthodox Jews, recognise those whose mothers or others in the matrilineal line were Jews by descent or conversion.
The real complaint is that the OCR does not accept conversion as practised by Masorti Jews because otherwise M would have qualified.
I take Lord Browns point at para 248, (a) that E is not really seeking to prevent JFS from adopting oversubscription criteria which give priority to Jews but rather for JFS to define Jews more expansively than Orthodox Jews in fact do, and (b) that on the respondents argument it is strictly immaterial that E is Jewish or that Ms mother converted to Judaism, so that the policy could by struck down by anyone excluded by the application of the criteria.
I recognise that there is an irony here but I do not see that that fact is relevant in answering the question posed by the statute, namely whether the discrimination is on ethnic grounds.
I do not regard the consequences of the conclusion that the OCR criteria discriminate on ethnic grounds as relevant to the question whether they do or not.
I am in any event not persuaded that they are anything like as serious as was suggested in argument. iv) v)
It follows that I too would dismiss the appeal.
Indirect discrimination
Like Lord Kerr, I entirely agree with the reasoning and conclusion of Lord Mance on this issue, although if the appeal is dismissed on the direct discrimination issue, the issue of indirect discrimination does not arise.
I agree with Lord Hopes reasoning and conclusions on costs.
Postscript
I wish to stress that nothing in the reasoning which has led me (or I believe others) to the conclusion that the criteria adopted by JFS discriminated against applicants on ethnic grounds is based on the view that the Chief Rabbi, the OCR or JFS acted in a racist way.
In this regard I entirely agree with Lord Phillips and Lady Hale that any suggestion that they acted in a racist way in the popular sense of that term must be dismissed.
Finally I direct the reader to the final paragraph in the judgment of Lord Kerr, at para 124 above, with which I am in complete agreement.
The Minority Judgments
LORD HOPE
It has long been understood that it is not the business of the courts to intervene in matters of religion.
In R v Chief Rabbi of the United Hebrew Congregations of Great Britain and the Commonwealth, ex p Wachmann [1992] 1 WLR 1036, 1042 1043, Simon Brown J observed that the court was hardly in a position to regulate what was essentially a religious function in that case, the determination whether someone was morally and religiously fit to carry out the spiritual and pastoral duties of his office.
As he put it, the court must inevitably be wary of entering so self evidently sensitive an area, straying across the well recognised divide between church and state.
This too is the approach of the legislature, as Hoffmann LJ said in R v Disciplinary Committee of the Jockey Club, ex p Aga Khan [1993] 1 WLR 909, 932: religion is something to be encouraged but it is not the business of government.
It is just as well understood, however, that the divide is crossed when the parties to the dispute have deliberately left the sphere of matters spiritual over which the religious body has exclusive jurisdiction and engaged in matters that are regulated by the civil courts.
In Percy v Board of National Mission of the Church of Scotland [2005] UKHL 73, [2006] 2 AC 28, for example, the appellant was employed by the Board of Mission under a contract personally to execute work within the meaning of section 82(1) of the Sex Discrimination Act 1975.
The articles declaratory of the constitution of the Church of Scotland set forth in the Schedule to the Church of Scotland Act 1921 contain an assertion that the civil authority has no right of interference in the proceedings and judgments of the Church within the sphere of its spiritual government and jurisdiction.
But it was held that by entering into a contract binding under the civil law the parties had put themselves within the jurisdiction of the civil courts and that the appellants claim of sex discrimination could not be regarded as a spiritual matter.
The same approach to arguments based on religious doctrine has been adopted by the Supreme Court of Israel.
In No'ar K'halacha v The Ministry of Education, HCJ 1067/08, 6 August 2009 the Court held that, although religious affiliation as a basis for treating students differently was recognised by Israeli law, it was not an absolute claim and could not prevail over the overarching right to equality.
The school in question had established a two tier, ethnically segregated system by which students of Ashkenazi descent were automatically assigned to one group and those of Sephardi descent were assigned to another.
Although this was purportedly on religious grounds, the thinly disguised subtext was that the Ashkenazi group were superior to the Sephardi and that, as they were the elite, their education should be organised accordingly.
The Supreme Court rejected the schools argument that this was due to religious considerations, holding that they were a camouflage for discrimination cloaked in cultural disparity.
It ordered the school to end all discriminatory practices against students who were of Sephardi ethnic origin.
It is accepted on all sides in this case that it is entirely a matter for the Chief Rabbi to adjudicate on the principles of Orthodox Judaism.
But the sphere within which those principles are being applied is that of an educational establishment whose activities are regulated by the law that the civil courts must administer.
Underlying the case is a fundamental difference of opinion among members of the Jewish community about the propriety of the criteria that the Office of the Chief Rabbi of the United Hebrew Congregation of the Commonwealth (the OCR) applies to determine whether a person is or is not Jewish.
It is not for the court to adjudicate on the merits of that dispute.
But the discrimination issue is an entirely different matter.
However distasteful or offensive this may appear to be to some, it is an issue in an area regulated by a statute that must be faced up to.
It must be resolved by applying the law laid down by Parliament according to the principles that have been developed by the civil courts.
By far the most important issue in the appeals which are before this court is whether it is unlawful direct or indirect race discrimination for a faith school to adopt oversubscription criteria which give priority to children who are recognised by the OCR to be Jewish according to Orthodox Jewish principles.
There is also an appeal by the United Synagogue in relation to a costs order made against it by the Court of Appeal, which I shall deal with briefly at the end of this opinion.
Almost everything that I wish to say will be devoted to the main issue.
I should make it clear at the outset that I agree with everything that Lord Rodger and Lord Brown say on the issue of direct discrimination.
With much regret, I differ from them on the indirect discrimination issue.
But I differ from them only when I reach the final step in that part of the argument.
On both issues I agree entirely with Lord Walker.
As for the facts, I have dealt with them more fully than would normally be appropriate in a minority judgment.
I hope that, by doing so, I will have made it easier for all other members of the court to concentrate on the issues of law that arise in this case.
The facts
JFS, formerly the Jewish Free School, is a voluntary aided comprehensive secondary school which is maintained by the local authority, the London Borough of Brent.
It has a long and distinguished history which can be traced back to 1732.
It has over 2000 pupils, and for more than the past 10 years it has been over subscribed.
It regularly has twice the number of applicants for the places that are available.
Clause 8 of its Instrument of Government dated 18 October 2005 provides: Statement of School Ethos Recognising its historic foundation, JFS will preserve and develop its religious character in accordance with the principles of orthodox Judaism, under the guidance of the Chief Rabbi of the United Hebrew Congregations of the Commonwealth.
The School aims to serve its community by providing education of the highest quality within the context of Jewish belief and practice.
It encourages the understanding of the meaning of the significance of faith and promotes Jewish values for the experience of all its pupils.
Further information is given by the school on its website, which states: The outlook and practice of the School is Orthodox.
One of our aims is to ensure that Jewish values permeate the School.
Our students reflect the very wide range of the religious spectrum of British Jewry.
Whilst two thirds or more of our students have attended Jewish primary schools, a significant number of our Year 7 intake has not attended Jewish schools and some enter the School with little or no Jewish education.
Many come from families who are totally committed to Judaism and Israel; others are unaware of Jewish belief and practice.
We welcome this diversity and embrace the opportunity to have such a broad range of young people developing Jewish values together.
The culture and ethos of the school is Orthodox Judaism.
But there are many children at JFS whose families have no Jewish faith or practice at all.
Prior to the decision of the Court of Appeal in this case the principal admissions criterion of JFS was that, unless undersubscribed, it would admit only children who were recognised as being Jewish by the OCR.
Its policy for the year 2008/09, which can be taken to be the same as that for the year in question in this case, was as follows: It is JFS (the School) policy to admit up to the standard admissions number children who are recognised as being Jewish by the Office of the Chief Rabbi of the United Hebrew Congregation of the Commonwealth (OCR) or who have already enrolled upon or who have undertaken, with the consent of their parents, to follow any course of conversion to Judaism under the approval of the OCR.
The Chief Rabbi is the head of the largest groups of Orthodox synagogues in the United Kingdom.
But he does not represent all Orthodox communities, nor does he represent the Masorti, Reform and Progressive Jewish communities.
In accordance with Jewish law, the OCR recognises as Jewish any child who is descended from a Jewish mother.
The mother herself must be descended from a Jewish mother or must have been converted to Judaism before the birth of the child in a manner recognised as valid by the OCR.
Such a child is recognised by the OCR as Jewish regardless of the form of Judaism practised by the family (Orthodox, Masorti, Reform or Progressive).
He is so recognised even if the entire family has no Jewish faith or observance at all.
A family may be entirely secular in its life and outlook.
Its members may be atheists or even be practising Christians or practising Muslims.
Yet, if the child was himself born of a Jewish mother, he will be recognised as Jewish by the OCR and eligible for a place at JFS.
These proceedings have been brought in relation to a child, M on the application of his father, E. Ms father is of Jewish ethnic origin.
Ms mother is Italian by birth and ethnic origin.
Before she married E she converted to Judaism under the auspices of a non Orthodox synagogue.
Her conversion is recognised as valid by the Masorti, Reform and Progressive Synagogues.
But it was undertaken in a manner that is not recognised by the OCR.
She and E are now divorced and M lives mainly with his father.
He and his father practise Judaism, and they are both members of the Masorti New London Synagogue.
M practices his own Jewish faith, prays in Hebrew, attends synagogue and is a member of a Jewish Youth Group.
But the OCR does not recognise him as of Jewish descent in the maternal line.
His mother is not recognised as Jewish by the OCR and he has not undergone, or undertaken to follow, a course of approved Orthodox conversion.
Consequently he was unable to meet the schools criterion for admission.
In April 2007 he was refused a place at JFS for year 7 in the academic year 2007 2008.
The effect of this decision on M and his family was profound and it was distressing.
There was no other Jewish secondary school in London to which he could be admitted.
So he was denied the opportunity of obtaining a Jewish secondary education in accordance with the familys religious beliefs and preference.
On 15 April 2007 E notified JFSs Admission Appeals Panel that he wished to appeal.
After a hearing on 5 June 2007, the Appeal Panel dismissed his appeal.
In its decision letter of 11 June 2007 the Appeal Panel said that a challenge to the admissions criteria was outside its remit.
On 2 July 2007 E referred his objection to the Schools Adjudicator, challenging JFSs admissions criteria for both under subscription and oversubscription.
On 27 November 2007 the Schools Adjudicator upheld his complaint about the under subscriptions criteria, but he dismissed it in relation to the oversubscription criteria with which this case is concerned.
E then raised proceedings for judicial review of JFSs decision to refuse M a place at the school and of the decision of the Appeal Panel to dismiss his appeal.
In separate proceedings he sought judicial review of the decision of the Schools Adjudicator.
On 3 July 2008 Munby J dismissed both claims for judicial review, except for Es claim that the Governing Body of JFS was in breach of its duty under section 71 of the Race Relations Act 1976 to have due regard to the need to eliminate racial discrimination and to promote equality of opportunity and good race relations: [2008] EWHC 1535 (Admin); [2008] ELR 445.
He rejected Es argument that there had been direct discrimination on the grounds of race or ethnic origins, holding that it was based on religion: para 174.
He also rejected his argument that there was indirect race discrimination, holding that, as JFS exists as a school for Orthodox Jews, its admissions policy of giving preference to children who were Jewish by reference to Orthodox Jewish principles was a proportionate means of achieving a legitimate aim within the meaning of section 1(1A)(c) of the 1976 Act: paras 201 202.
He made a declaration to the effect that JFS was in breach of section 71.
But in para 214 of his judgment he said that even the fullest and most conscientious compliance with that section would not have led to any difference in the crucial part of the admissions policy or its application in Ms case.
On 25 June 2009 the Court of Appeal (Sedley, Smith and Rimer LJJ) allowed the appeal by E in both sets of proceedings: [2009] EWCA Civ 626; [2009] 4 ALL ER 375.
Sedley LJ said that the courts essential difference with Munby J was that what he characterised as religious grounds were, in its judgment, racial grounds notwithstanding their theological motivation: para 48.
As that observation indicates, the point at issue in this case is how the grounds are to be characterised.
It is, in the end, a very narrow one.
But it is by no means a simple one to resolve, as the division of opinion in this court indicates.
The Race Relations Act 1976
Section 1 of the Race Relations Act 1976 defines race discrimination.
It was amended by the Race Relations Act 1976 (Amendment) Regulations 2003 (SI 2003/1626) which, implementing Council Directive 2000/43 EC of 29 June 2000, rewrote in European terms the concept of indirect discrimination.
So far as material it provides as follows: (1) A person discriminates against another in any circumstances relevant for the purposes of any provision of this Act if (a) on racial grounds he treats that other less favourably than he treats or would treat other persons (1A) A person also discriminates against another if, in any circumstances relevant for the purposes of any provision referred to in subsection (1B), he applies to that other a provision, criterion or practice which he applies or would apply equally to persons not of the same race or ethnic or national origins as that other, but (a) which puts or would put persons of the same race or ethnic or national origins as that other at a particular disadvantage when compared with other persons, (b) which puts or would put that other at that disadvantage, and (c) which he cannot show to be a proportionate means of achieving a legitimate aim. (1B) The provisions mentioned in subsection (1A) are (b) section 17;
(c) section 19B
Section 3 of the 1976 Act provides: (1) In this Act, unless the context otherwise requires racial grounds means any of the following grounds, namely colour, race, nationality or ethnic or national origins; racial group means a group of persons defined by reference to colour, race, nationality or ethnic or national origins, and references to a persons racial group refer to any racial group into which he falls. (2) The fact that a racial group comprises two or more distinct racial groups does not prevent it from constituting a particular racial group for the purposes of this Act. (4) A comparison of the case of a person of a particular racial group with that of a person not of that group under section 1(1) or (1A) must be such that the relevant circumstances in the one case are the same, or not materially different, in the other.
Section 17 makes it unlawful for the governing body of a maintained school to discriminate against a person in the terms that it offers to admit him to the establishment as a pupil, or by refusing or deliberately omitting to accept an application for his admission to the establishment as a pupil.
Section 19B(1) provides that it is unlawful for a public authority in carrying out any functions of the authority to do any act which constitutes discrimination.
These provisions make it clear that the sphere within which the OCR was providing guidance to JFS was firmly within the jurisdiction of the civil courts.
The admission arrangements
The context in which JFSs admissions criteria must be examined is provided by statute.
The functioning of publicly funded schools is governed by the School Standards and Framework Act 1998 (the 1998 Act).
Schools maintained by local authorities are referred to as maintained schools.
They include voluntary aided schools such as JFS: section 20(1)(c).
Section 20(1) of the Education Act 2002 provides that for every maintained school there shall be an instrument of government which determines the constitution of the governing body and other matters relating to the school.
Section 69 of the 1998 Act imposes duties in regard to the provision of religious education in community, foundation and voluntary schools.
Section 69(3) provides that a foundation or voluntary school has a religious character if it is designated as a school having such a character by an order made by the Secretary of State.
Section 69(4) requires such an order to state the religion or religious denomination in accordance with whose tenets religious education is, or may be, required to be provided at the school.
Under the Religious Character of Schools (Designation Procedure) Regulations 1998 (SI 1998/2535) the Secretary of State is required to designate the religion or religious denomination he considers relevant, following consultation with the schools governing body.
By the Designation of Schools Having a Religious Character (England) Order 1999 (SI 1999/2432) the Secretary of State designated JFS as having a religious character which is Jewish.
Some other schools have been designated as Orthodox Jewish.
By the Designation of Schools Having a Religious Character (Independent Schools) (England) (No 2) Order 2003 (SI 2003/3284) two schools were designated under this description.
Part 2 of the Equality Act 2006 introduced a prohibition on discrimination on grounds of religion or belief in the provision of goods and services.
Section 49 provides that it is unlawful for the responsible body of, among others, a school maintained by a local education authority to discriminate against any person by, among other things, refusing to accept an application to admit him as a pupil.
Section 50 contains a list of exceptions to section 49, among which is one in favour of a school designated under 69(3) of the 1998 Act.
As Munby J pointed out, this provision does no more than immunise the school from liability for religious discrimination under the 2006 Act: para 137.
It does not immunise it from any liability for racial discrimination that it may have under the Race Relations Act 1976.
Section 84 of the 1998 Act provides that the Secretary of State shall issue, and may from time to time revise, a code of practice for the discharge of their functions under Chapter 1 of Part III of the Act by, among others, the governing bodies of maintained schools and that the governing bodies must act in accordance with the code.
Paragraphs 2.41 2.43 of the School Admissions Code for 2007 deals with faith based oversubscription criteria.
Paragraph 2.41 states that schools designated by the Secretary of State as having a religious character (faith schools) are permitted by section 50 of the Equality Act 2006 to use faith based oversubscription criteria in order to give priority in admission to children who are members of, or who practise, their faith or denomination.
It also states that faith based criteria must be framed so as not to conflict with other legislation such as equality and race relations legislation.
Paragraph 2.43 of the 2007 Code states: It is primarily for the relevant faith provider group or religious authority to decide how membership or practice is to be demonstrated, and, accordingly, in determining faith based oversubscription criteria, admission authorities for faith schools should only use the methods and definitions agreed by their faith provider group or religious authority.
Paragraph 2.47 states: Religious authorities may provide guidance for the admission authorities of schools of their faith that sets out what objective processes and criteria may be used to establish whether a child is a member of, or whether they practise, the faith.
The admission authorities of faith schools that propose to give priority on the basis of membership or practice of their faith should have regard to such guidance, to the extent that the guidance is consistent with the mandatory provisions and guidelines of this Code.
Section 88C(2) and (3) of the 1998 Act provides that Regulations may prescribe who should be consulted by the admission authority about admission arrangements.
Regulation 12 of and Schedule 2 to the School Admissions (Admission Arrangements) (England) Regulations 2008 (SI 2008/3089) provide that the person that the governing body of JFS must consult about the admission arrangements for JFS for the academic year 2010 2011 is the Chief Rabbi.
The regulations that were in force in 2007 when M was seeking admission to JFS were the Education (Determination of Admission Arrangements) Regulations 1999 (SI 1999/126) as amended which, by Regulation 5ZA and the Schedule, introduced provisions similar to those in the 2008 Regulations.
The Chief Rabbi was the person to be consulted at the time when Ms application for admission was being considered.
Provision has been made under section 88H (formerly section 90) of the 1998 Act for parents of a child of primary school age to refer an objection to a schools admission arrangements to the Schools Adjudicator.
The procedure for determining admission arrangements is governed by section 88C of the 1998 Act, formerly (as regards England) section 89.
It states that the admission arrangements are to be determined by the admission authority.
For a voluntary aided school the governing body is the admission authority: see section 88(1).
The governing body of JFS adopted an admissions policy which set out the schools over subscription criteria.
The policy that was in force in 2007 stated: 1.1 It is JFS (the School) policy to admit up to the standard admissions number children who are recognised as being Jewish by the Office of the Chief Rabbi of the United Hebrew Congregation of the Commonwealth (OCR) or who have already enrolled upon or who have undertaken, with the consent of their parents, to follow any course of conversion to Judaism under the approval of the OCR. 1.2 In the event that the School is oversubscribed then only children who satisfy the provisions of paragraph 1.1 above will be considered for admission, in accordance with the oversubscription criteria set out in Section 2 below.
JFS cannot be criticised for basing its oversubscription criteria on the guidance that it received from the OCR.
But this does not excuse it from liability for racial discrimination under the Race Relations Act 1976 if the guidance that it received was itself racially discriminatory.
The OCR's guidance
In connection with JFSs admissions for the year 2009 an application form, Application for Confirmation of Jewish Status, was issued by the OCR.
Parents were required to select from the following options: (a) I confirm that the childs biological mother is Jewish by birth. (b) I confirm that the childs biological mother has converted to Judaism. (c) I confirm that the child is adopted [in which case the childs Jewish status must be separately verified].
The guidance notes to the application form state: Jewish status is not dependent on synagogue affiliation per se, though Jewish status will not be confirmed if the child, or any of his/her maternal antecedents, converted to Judaism under non orthodox auspices.
If the childs parents were not married under orthodox auspices, further investigation will be necessary before confirmation of Jewish status is issued.
This usually entails obtaining additional documentary evidence down the maternal line.
If the childs mother was not herself born to a Jewish mother but converted to Judaism before the birth of the child, further inquiries are undertaken by the OCR before it is prepared to recognise the child as Jewish.
The OCR does not recognise the validity of conversions carried out by non Orthodox authorities, as they do not require converts to subscribe fully to the tenets of Orthodox Judaism.
The exacting process that is indicated by the wording of the application form is firmly rooted in Orthodox Jewish religious law.
Religious status is not dependent on belief, religious practice or on attendance at a synagogue.
It is entirely dependent upon descent or conversion.
It depends on establishing that the person was born to a Jewish mother or has undergone a valid conversion to Judaism.
That is a universal rule that applies throughout all Orthodox Judaism.
Ms ineligibility for admission to JFS was due to the fact that different standards are applied by the Chief Rabbi from those applied by the Masorti, Reform and Progressive communities in the determining of a persons religious status.
Nothing that I say in this opinion is to be taken as calling into question the right of the OCR to define Jewish identity in the way it does.
I agree with Lord Brown that no court would ever dictate who, as a matter of Orthodox religious law, is to be regarded as Jewish.
Nor is it in doubt that the OCRs guidance as to the effect of Orthodox Jewish religious law was given in the utmost good faith.
The question that must now be faced is a different question.
It is whether it discriminates on racial grounds against persons who are not recognised by the OCR as Jewish.
The Jewish race and ethnicity
It is common ground that for the purposes of the Race Relations Act 1976 Jews can be regarded as belonging to a group with common ethnic origins.
As Lord Brown says (see paras [245] and [250]), it is possible (leaving aside those with no connection with Judiasm at all) to regard those who are being treated less favourably and those being treated more favourably by JFSs admissions policy as being all in the same ethnic group since they are all Jews.
Lord Mance says (see paras 79, 80 and 86) that Orthodox Jews according to Orthodox Jewish principles and Jews who are not Orthodox should be regarded as forming separate ethnic groups or subgroups for present purposes.
But the evidence in this case shows that it all depends on the context.
Out on the shop floor, for example, all Jews are Jews and an employer who discriminates against them because they are Jews will be in breach of the Act.
The problem in this case is that the Chief Rabbi does not recognise as a Jew anyone who is not a Jew according to Orthodox Jewish principles.
So far as he is concerned and his concern is only with the Jewish religion there is no division of Jews into separate ethnic groups.
I agree with Lord Brown that the difficulty in this case arises because of the overlap between the concepts of religious and racial discrimination and, in the case of Jews, the overlap between ethnic Jews and Jews recognised as members of the Jewish religion.
The case does not fit easily into the legislative pattern.
It was designed to deal with obvious cases of discrimination on racial grounds.
Of course, as we are dealing in this case with faith schools, the religious test has come under scrutiny in the educational context.
But the test that is employed is nevertheless a religious one, as that is what faith schools are expected to do.
An approach to this case which assumes that Jews are being divided into separate subgroups on the grounds of ethnicity is an artificial construct which Jewish law, whether Orthodox or otherwise, does not recognise.
The Act invites this approach, as it is clear that M was being treated less favourably than other persons and this raises the question whether this was on racial grounds.
But it must be handled with very great care.
As both Lord Phillips in para 9 and Lady Hale in para 54 have emphasised, no one in this case is suggesting that the policy that JFS has adopted is racist.
The choice of words is important, and I too would wish to avoid that appalling accusation.
The use of the word racial is inevitable, however, although the discrimination that is perceived in this case is on grounds of ethnicity.
In DH v Czech Republic (2007) 47 EHRR 59, para 176, the European Court said: Discrimination on account of, inter alia, a persons ethnic origin is a form of racial discrimination.
Racial discrimination is a particularly invidious kind of discrimination and, in view of its perilous consequences, requires from the authorities special vigilance and a vigorous reaction.
It is for this reason that the authorities must use all available means to combat racism, thereby reinforcing democracys vision of a society in which diversity is not perceived as a threat but as a source of enrichment.
One has to ask whether, on the facts of this case, we really are in that territory.
The problem is that section 1(1) of the 1976 Act which prescribes direct discrimination does not distinguish between discrimination which is invidious and discrimination which is benign.
A defence of justification is not available.
In Mandla v Dowell Lee [1983] 2 AC 548 Lord Fraser of Tullybelton discussed the meaning of the word ethnic in the context of the refusal by a private school to admit a Sikh pupil whose religion and culture would not permit him to comply with the schools rules on uniform.
At p 562 he said: For a group to constitute an ethnic group in the sense of the 1976 Act, it must, in my opinion, regard itself, and be regarded by others, as a distinct community by virtue of certain characteristics.
Some of these characteristics are essential; others are not essential but one or more of them will commonly be found and will help to distinguish the group from the surrounding community.
The conditions which appeared to him to be essential were (1) a long shared history, of which the group is conscious as distinguishing it from other groups, and the memory of which it keeps alive; (2) a cultural tradition of its own, including family and social customs and manners, often but not necessarily associated with religious observance.
At p 564 he quoted with approval a passage from the judgment of Richardson J in King Ansell v Police [1979] 2 NZLR 531, 543, where he said: a group is identifiable in terms of its ethnic origins if it is a segment of the population distinguishable from others by a sufficient combination of shared customs, beliefs, traditions and characteristics derived from a common or presumed common past, even if not drawn from what in biological terms is a common racial stock.
It is that combination which gives them an historically determined social identity in their own eyes and in the eyes of those outside the group.
They have a distinct social identity based not simply on group cohesion and solidarity but also on their belief as to their historical antecedents.
It is not disputed that the group or groups to which Jews belong are ethnic according to this analysis.
They have a shared history which extends back for over three thousand years.
Their traditions and practices are maintained with much devotion and attention to detail, in a manner that is designed to keep the memory of that shared history alive.
Less favourable treatment of a person because he is, or is thought to be Jewish may therefore be regarded as discrimination against him on racial grounds: see, for example, Seide v Gillette Industries Ltd [1980] IRLR 427, paras 21 22, per Slynn J.
In that case the Employment Appeal Tribunal upheld the tribunals decision that the anti semitic comments that were made by Mr Seides fellow worker were made because he was a member of the Jewish race, not because of his religion.
The same would be true if he were to be discriminated against because he is, or is thought to be, of a particular Jewish ethnic origin.
In Mandla v Dowell Lee at p 562 Lord Fraser said that the 1976 Act is not concerned at all with discrimination on religious grounds.
But a finding that a person was treated less favourably on religious grounds does not exclude the possibility that he was treated in that way on racial grounds also.
I agree with Lord Clarke that it would be wrong in principle to treat this as an either/or question.
Direct discrimination
At one level there is no dispute about the reason why M was denied admission to JFS.
The schools admissions policy was based on the guidance which it received from the OCR.
Thus far the mental processes of the alleged discriminator do not need to be examined to discover why he acted as he did.
The dispute between the parties is essentially one of categorisation: was the OCRs guidance given on grounds of race, albeit for a religious reason, or was it solely on religious grounds? For JFS, Lord Pannick QC submits that M failed only because JFS was giving priority to members of the Jewish faith as defined by the religious authority of that faith, which was a religious criterion.
That was the ground of the decision.
The Court of Appeal was wrong to hold that the ground was that M was not regarded as of Jewish ethnic origin, and that the theological reasons for taking this view was the motive for adopting the criterion: para 29.
For E, Ms Rose submits that Lord Pannicks submissions confused the ground for the decision with its motive.
The ground spoke for itself.
It was that M was not regarded according to Orthodox Jewish principles as Jewish.
This meant that he was being discriminated against on grounds relating to his ethnicity.
This was racial discrimination within the meaning of the statute.
These contradictory assertions must now be resolved.
I wish to stress again that the issue is not simply whether M is a member of a separate ethnic group from those who are advantaged by JFSs admissions policy.
That is not where the argument in this case stops.
I agree with Lord Rodger that the decision of the majority which, as it respectfully seems to me, does indeed stop there leads to extraordinary results.
As he puts it in para 226, one cannot help feeling that something has gone wrong.
Lord Brown makes the same point when, in para 247 he stresses the importance of not expanding the scope of direct discrimination and thereby placing preferential treatment which could be regarded as no more than indirectly discriminatory beyond the reach of possible justification.
The crucial question is whether M was being treated differently on grounds of that ethnicity.
The phrase racial grounds in section 1(1)(a) of the 1976 Act requires us to consider what those words really mean whether the grounds that are revealed by the facts of this case can properly be described as racial.
Only if we are satisfied that this is so would it be right for this Court to hold that this was discrimination on racial grounds.
The development of the case law in this area has not been entirely straightforward.
The problem is that, in a new and difficult field, the need for the court to clarify one issue may result in a principle being stated too broadly.
This may make it more difficult for it to resolve other different but interlocking issues when they arise at a later date.
In Ealing London Borough Council v Race Relations Board [1972] AC 342 the House of Lords considered the phrase on the ground of colour, race or ethnic or national origins in section 1(1) of the Race Relations Act 1968 in the context of an application for housing by a Polish national It held (Lord Kilbrandon dissenting) that national origins meant something different from nationality and that it did not include it since, as Viscount Dilhorne put it at p 358, the word national in national origins means national in the sense of race and not citizenship.
There was no discussion of the meaning of the word ethnic.
Lady Hale has commented that Lord Simon of Glaisdales speech at p 364 is an interesting example of stereotyping which might raise judicial eyebrows today: The Judicial House of Lords (2009), p 578, fn 32.
The House of Lords returned to this topic in Mandla v Dowell Lee [1983] 2 AC 548.
By then nationality had been included in the definition of racial grounds in section 3(1) of the Race Relations Act 1976.
There was still no statutory prohibition of discrimination on religious grounds.
A Sikh schoolboy had been refused a place at a private school because he would not agree to cut his hair and stop wearing a turban.
The question was whether this was discrimination on grounds of race as defined in section 3(1).
The essential issue was how wide a meaning should be given to ethnic origins.
Lord Fraser, with the agreement of the other members of the Appellate Committee, gave these words a wide meaning: see para 185, above.
The next important case, which as this case shows may have sent the laws development off in the wrong direction, was R v Birmingham City Council, Ex p Equal Opportunities Commission [1989] AC 1155.
The council had three grammar schools for girls and five grammar schools for boys.
This was a historical fact, and it was not the councils policy to discriminate.
But the House held that it was unlawful for it to provide fewer grammar school places for girls than for boys.
The decision was plainly right.
But the reasons given by Lord Goff of Chieveley, with whom the other members of the Appellate Committee agreed, have led to difficulty in other cases.
At p 1194 he said: The intention or motive of the defendant to discriminate, though it may be relevant so far as remedies are concerned is not a necessary condition of liability; it is perfectly possible to envisage cases where the defendant had no such motive, and yet did in fact discriminate on the ground of sex.
That decision was applied in James v Eastleigh Borough Council [1990] 2 AC 751.
This was a case about a municipal swimming pool where there was free swimming for children under three years of age and for persons who had reached the state pension age, which was then 65 for men and 60 for women.
Mr James and his wife, who were both aged 61, went swimming and he alone was charged a sum of money for doing so.
He complained of sex discrimination.
The House of Lords, by a majority of three to two, reversed the Court of Appeal and upheld his complaint.
It held that the Court of Appeal had been wrong to treat this as a case of indirect discrimination since the councils policy was, as Lord Ackner put it at p 769, inherently discriminatory.
Lord Goff in James deprecated the use, in the present context, of words such as intention, motive, reason and purpose: p 773.
He added, at pp 773 774, that: taking the case of direct discrimination under section 1(1)(a) of the Act, I incline to the opinion that, if it were necessary to identify the requisite intention of the defendant, that intention is simply an intention to perform the relevant act of less favourable treatment.
Whether or not the treatment is less favourable in the relevant sense, ie on the ground of sex, may derive either from the application of a gender based criterion to the complainant, or from selection by the defendant of the complainant because of his or her sex; but in either event, it is not saved from constituting unlawful discrimination by the fact that the defendant acted from a benign motive.
More recent decisions of the House of Lords show, however, that where the facts are not so clear cut a more nuanced approach may be called for.
The need to establish an objective link between the conduct of the alleged discriminator and the unequal treatment complained of does not exclude the need to explore why the alleged discriminator acted as he did.
As the division of Jews into separate subgroups is in itself such an artificial concept (see paras 183 and 184 above), that seems to me to be the real issue in this case.
In Nagarajan v London Regional Transport [2000] 1 AC 501, 510 511 Lord Nicholls of Birkenhead made an important statement of principle which has often been cited and applied: Thus, in every case it is necessary to inquire why the complainant received less favourable treatment.
This is the crucial question.
Was it on grounds of race? Or was it for some other reason, for instance, because the complainant was not so well qualified for the job? Save in obvious cases, answering the crucial question will call for some consideration of the mental processes of the alleged discriminator.
Treatment, favourable or unfavourable, is a consequence which follows from a decision.
Direct evidence of a decision to discriminate on racial grounds will seldom be forthcoming.
Usually the grounds of the decision will have to be deduced, or inferred, from the surrounding circumstances.
Having thus identified the ground of the decision the reason why as the crucial question, he went on to deal with the question of motive: The crucial question just mentioned is to be distinguished sharply from a second and different question: if the discriminator treated the complainant less favourably on racial grounds, why did he do so? The latter question is strictly beside the point when deciding whether an act of racial discrimination occurred.
For the purposes of direct discrimination under section 1(1)(a), as distinct from indirect discrimination under section 1(1)(b), the reason why the alleged discriminator acted on racial grounds is irrelevant.
Racial discrimination is not negatived by the discriminators motive or intention or reason or purpose (the words are interchangeable in this context) in treating another person less favourably on racial grounds.
In particular, if the reason why the alleged discriminator rejected the complainants job application was racial, it matters not that his intention may have been benign.
As for Lord Goffs test in Birmingham, which Lord Bridge had described as objective and not subjective, Lord Nicholls said however that: He is not to be taken as saying that the discriminators state of mind is irrelevant when answering the crucial, anterior question: why did the complainant receive less favourable treatment? [my emphasis] Developing the same point in Chief Constable of West Yorkshire Police v Khan [2001] UKHL 48, 1 WLR 1947, para 29, Lord Nicholls said that the question was: [W]hy did the alleged discriminator act as he did? What, consciously or unconsciously, was his reason? Unlike causation, this is a subjective test.
At p 512 in Nagarajan Lord Nicholls, considering the question of subconscious motivation, added these words: Many people are unable, or unwilling, to admit even to themselves that actions of theirs may be racially motivated.
An employer may genuinely believe that the reason why he rejected an applicant had nothing to do with the applicants race.
After careful and thorough investigation of a claim members of an employment tribunal may decide that the proper inference to be drawn from the evidence is that, whether the employer realised it at the time or not, race was the reason why he acted as he did.
Conduct of this nature by an employer, when the inference is legitimately drawn, falls squarely within the language of section 1(1)(a).
The employer treated the complainant less favourably on racial grounds.
I would draw from this passage the proposition that if, after careful and thorough investigation, the tribunal were to conclude that the employers actions were not racially motivated that race was not the reason why he acted as he did it would be entitled to draw the inference that the complainant was not treated less favourably on racial grounds.
The use of the words motivated and reason in the passage which I have just quoted appears at first sight not to be in harmony with the passage which I have quoted from p 511 where he said that racial discrimination is not negatived by the discriminators motive or intention or reason or purpose (the words are interchangeable in this context) in treating another person less favourably on racial grounds.
But I do not think that, if these passages taken together are properly analysed, there is any inconsistency.
The point that he was making on p 512 was that an examination of the employers motivation, or the reason why he acted as he did, may be highly relevant to a determination of the crucial question: was this discrimination on racial grounds.
On the other hand, once that conclusion has been reached, the fact that there may have been a benign reason for the discrimination is beside the point.
In other words, the statutory ground of discrimination, once it has been established, is unaffected by the underlying motive for it.
This may be misguided benevolence as in James, or passive inertia as in Birmingham or racial hatred as in Seide.
In the Birmingham case neither the reason nor the underlying motive left much room for argument.
It was enough that the council was responsible for the continuation of the discriminatory system of grammar school education.
In James there was a worthy underlying motive but, as the sole criterion that had been chosen was the unequal pension ages for men and women, the reason was clearly gender based.
But where the complaint is that a black or female employee has not been selected for promotion, or has been taken off some particular duty, there will usually be a disputed issue as to the reason.
This will require the tribunal to inquire more closely into the mind of the alleged discriminator.
This is illustrated by Nagarajan and also by Shamoon v Chief Constable of the Royal Ulster Constabulary [2003] UKHL 11, [2003] ICR 337.
I would hold therefore that Lord Goffs rejection of a subjective approach was expressed too broadly.
The proposition that the alleged discriminators motive, or reason, is irrelevant needs therefore to be reformulated.
It all depends on the stage of the enquiry at which these words are being used.
At the initial stage, when the question is whether or not this was discrimination on racial grounds, an examination of the alleged discriminators motivation may be not only relevant but also necessary, to reach an informed decision as to whether this was a case of racial discrimination.
As the issue is a subjective one, his mental processes will, as Lord Nicholls said at p 511, call for some consideration.
Everything that may have passed through his mind that bears on the decision, or on why he acted as he did, will be open to consideration.
But once it has been determined that this was a case of racial discrimination, that is an end of the matter.
The treatment cannot be excused by looking beyond it to why he decided to act in that way.
I regret the fact that Lord Clarke does not agree with this analysis.
As I understand his position, he prefers a test which makes the state of mind of the alleged discriminator irrelevant where the criteria he adopts are inherently discriminatory: see paras 127, 132.
The question which divides us is whether his approach is supported by Lord Nicholls statements in Nagarajan and later in Khan.
Lord Clarkes reading of the passage in Nagarajan which he has highlighted in para 139 of his opinion is that in the obvious cases, where discrimination is inherent, there is a prohibition on looking at the motivation of the alleged discriminator: see also his para 142.
But Lord Nicholls does not say this.
He makes no mention of any such prohibition.
It may be that the tribunal will not need to look at the alleged discriminators mental processes in obvious cases, as his mental state is indeed obvious.
But he does not say that the tribunal is precluded from doing so.
Lord Steyn said in Nagarajan at pp 520H 521A that conscious motivation is not required.
But, as he made clear, this does not mean that the alleged discriminators state of mind is always irrelevant.
Confirmation that this is not Lord Nicholls approach is to be found in the last full paragraph on p 511 of Nagarajan, where he explains Lord Bridges description of the test which Lord Goff adopted in Birmingham.
Lord Bridge described it as objective.
But Lord Nicholls said that he is not to be taken as saying that there is no investigation into the mind of the alleged discriminator.
He does not draw any distinctions here between cases like Birmingham and James, which Lord Clarke describes as cases of inherent discrimination (see para 142, above), and other types of cases.
The point that he is making is that even in obvious cases such as Birmingham the tribunal is not precluded from looking at the state of mind of the discriminator.
The passage from his speech in Khan to which I refer in para 193 supports this conclusion.
He describes the test as a subjective one.
Here again he does not distinguish between different types of cases.
I believe therefore that an accurate reading of what Lord Nicholls actually said, and did not say, supports my analysis.
There are few reported cases in which the tribunal has had to decide as between two prohibited reasons, such as race and gender or (since 2006) race and religion or belief.
The only authority referred to by the parties was Seide v Gillette Industries Ltd [1980] IRLR 427.
The appeal turned on the question of causation relating to the aftermath of a series of incidents of anti Semitic abuse of Mr Seide by a fellow worker.
The report does not give any details of the content of the abuse.
The only relevant passage in the judgment is at paras 21 22, recording that it was common ground that Jewish could refer to a member of an ethnic group or to a member of a religious faith, and that the tribunals decision, which it was entitled to reach on the facts, was that Mr Seide was subjected to anti Semitic abuse because of his Jewish origin.
It is reasonable to infer that it would have been open to the members of the tribunal to conclude that the abuse was as much on the ground of ethnicity as on the ground of religion and that that was enough to constitute discrimination on a prohibited ground.
This would be consistent with the principle that this is not an either/or question.
As for this case, it is as different from Seide as it is possible to imagine.
This was not a case of foul mouthed anti Semitic abuse.
Those who are said to have been responsible for the discrimination, whether at the level of the school authorities, the OCR or the Chief Rabbi himself, are thoughtful, well intentioned and articulate.
I would accept Lord Pannicks submission that the Chief Rabbi was not in the least interested in Ms ethnicity.
The OCR has left us in no doubt as to why it was acting as it did.
If the Chief Rabbi were to be asked the question that was framed by Lord Nicholls, he would say his reason was that this was what was required of him by fundamental Orthodox Jewish religious law.
The question whether or not M was Jewish in the secular sense was of no interest to him at all.
His advice was based simply and solely on his understanding of Jewish law.
Jewishness based on matrilineal descent from Jewish ancestors has been the Orthodox religious rule for many thousands of years, subject only to the exception for conversion.
To say that his ground was a racial one is to confuse the effect of the treatment with the ground itself.
It does have the effect of putting M into an ethnic Jewish group which is different from that which the Chief Rabbi recognises as Jewish.
So he has been discriminated against.
But it is a complete misconception, in my opinion, to categorise the ground as a racial one.
There is nothing in the way the OCR handled the case or its reasoning that justifies that conclusion.
It might have been justified if there were reasons for doubting the Chief Rabbis frankness or his good faith.
But no one has suggested that he did not mean what he said.
As Lord Rodger points out, to reduce the religious element to the status of a mere motive is to misrepresent what he is doing.
This case is quite different too from the example of the Dutch Reformed Church that was referred to by Sedley LJ in the Court of Appeal, para 30, and referred to again during the argument in this court.
The discrimination that its belief invited, on grounds of colour, was overtly racist.
A court would have no difficulty in dismissing the religious belief as providing no justification for it at all; see also Bob Jones University v United States, 461 US 574 (1983), where the US Supreme Court upheld the decision of the Inland Revenue Service to revoke the Universitys tax exempt status because, while permitting unmarried people who were black to enrol as students, it had adopted a racially discriminatory policy of denying admission to applicants engaged in an interracial marriage or known to advocate interracial marriage or dating although it had been based on sincerely held religious beliefs.
Beliefs of that kind are not worthy of respect in a democratic society or compatible with human dignity: Campbell and Cosans v United Kingdom (1982) 4 EHRR 293, para 36.
Here the discrimination between those who are, and those who are not, recognised as Jewish was firmly and inextricably rooted in Orthodox Jewish religious law which it is the duty of the Chief Rabbi to interpret and apply.
The Chief Rabbis total concentration on the religious issue, to the exclusion of any consideration of ethnicity, can be illustrated by two contrasting examples.
Several similar examples were referred to in the course of argument.
A is the child of parents, and the grandchild of grandparents, all of whom led wholly secular lives similar to those of their largely secular neighbours.
They never observed Jewish religious law or joined in the social or cultural life of the Jewish communities where they lived, but there is unimpeachable documentary evidence that more than a century ago the mother of As maternal grandmother was converted in an Orthodox synagogue.
To the OCR A is Jewish, despite his complete lack of Jewish ethnicity.
By contrast B is the child of parents, and the grandchild of grandparents, all of whom have faithfully observed Jewish religious practices and joined actively in the social and cultural life of the Jewish community, but there is unimpeachable documentary evidence that more than a century ago the mother of Bs maternal grandmother was converted in a non Orthodox synagogue.
To the OCR B is not Jewish, despite his obvious Jewish ethnicity.
Descent is only necessary because of the need, in these examples, to go back three generations.
But having gone back three generations, the OCR applies a wholly religious test to what has been identified as the critical event.
For the reasons given by Lord Rodger, the part that conversion plays in this process is crucial to a proper understanding of its true nature.
It cannot be disregarded, as Lady Hale suggests in para 66, as making no difference.
It shows that the inquiry is about a religious event to be decided according to religious law.
For these reasons I would hold that the decision that was taken in Ms case was on religious grounds only.
This was not a case of direct discrimination on racial grounds.
On this issue, in respectful agreement with Lord Rodger, Lord Walker and Lord Brown, I would set aside the decision reached by the Court of Appeal.
Indirect discrimination
An examination of the question whether the application of the oversubscription policy to M amounted to indirect discrimination within the meaning of section 1(1A) of the Race Relations Act 1976 falls into two parts: (1) did the policy put persons of the same race or ethnic or national origins as M at a particular disadvantage when compared with other persons: section 1(1A)(a) and (b); and, if so, (2) can JFS show that the policy was a proportionate means of achieving a legitimate aim: section 1(1A)(c).
Lord Pannick did not seek to argue that the first question should be answered in the negative.
I think that he was right not to do so, as it is clear that M and all other children who are not of Jewish ethnic origin in the maternal line, together with those whose ethnic origin is entirely non Jewish, were placed at a disadvantage by the oversubscriptions policy when compared with those who are of Jewish ethnic origin in the maternal line.
They may in theory gain entry to the school by undergoing a process of conversion that is approved by the OCR, but this in itself is a severe disadvantage.
It appears that no child has ever been admitted to JFS on this basis.
The issue on this branch of the case, therefore, is whether JFS can show that the policy had a legitimate aim and whether the way it was applied was a proportionate way of achieving it.
The burden is on JFS to prove that this was so: R (Elias) v Secretary of State for Defence [2006] EWCA Civ 1293, [2006] 1 WLR 3213, per Mummery LJ at paras 131 132.
The Court of Appeal accepted the submission that the admission criteria were explicitly related to ethnicity and so incapable of constituting or forming part of a legitimate aim and that it was not possible to justify indirect discrimination by reliance on the very thing that made the test discriminatory: para 45.
But I think that is to misapply the test that the Act lays down.
I agree with Lord Brown that there was a failure by the Court to address the questions of legitimate aim and proportionality on the assumption that the admissions policy was not directly discriminatory.
For E, Ms Rose submitted that if the aim pursued was itself related to the ethnic origins of the pupils it was not capable of being a legitimate aim.
This was how Lord Fraser put it in Mandla v Dowell Lee [1983] 2 AC 548, 566; see also Orphanos v Queen Mary College [1985] AC 761, 772.
Those were indirect discrimination cases, but they were decided under section 1(1)(b) of the 1976 Act which has now been superseded by section 1(1A): see para [170], above.
An aim which is itself discriminatory in character cannot be legitimate for the purposes of sections 1(1A).
So the assumption on which the argument about indirect discrimination proceeds is that, for the reasons I have given, JFSs admission criteria did not discriminate on grounds of ethnicity.
The question is whether, given that persons of given ethnic origins were at a particular disadvantage when compared with other persons, the school nevertheless had an aim which was legitimate.
That is a different question.
In the Administrative Court Munby J said that the aim was to educate those who, in the eyes of the OCR, are Jewish, irrespective of their religious beliefs, practices or observances, in a school whose culture and ethos is that of Orthodox Judaism: para 192.
Developing this argument, Lord Pannick submitted that it was legitimate for a faith school to give preference to those children who are members of the faith as recognised by the OCR.
If children in Ms position were admitted to the school there would inevitably be fewer places for those recognised as Jewish by the OCR.
The policy of the government was to allow schools to give priority to those of the religion for which they have been designated.
It was open to the school, under the 2007 Code, to adopt criteria based on membership or practice.
As its ethos was that of Orthodox Judaism, which the Chief Rabbi seeks to promote, membership was a legitimate criterion.
If that criterion was not adopted it would open the door to children who were not recognised as Jewish and virtually exclude those who were.
As against this, Ms Rose submitted that it was impossible to ignore the close relationship between the criterion of membership and the ethnic origins of the children.
This made it impossible for JFS to justify the criterion as legitimate.
In my opinion, however, it is necessary to look at all the circumstances to test the issue of legitimacy.
The assumption on which section 1(1A)(c) proceeds it that the treatment is open to the objection that it puts a person at a disadvantage in comparison with persons not of his race or ethnic or national origins.
The question is whether treatment which has that effect can nevertheless be shown to have a legitimate aim.
Questions about the motive and aims of the alleged discriminator come in at this stage.
An aim may be held to be legitimate even though it discriminates in the ways referred to in section 1(1A)(a) and (b).
In my opinion, for the reasons that Lord Brown gives in paras 252 253, JFS has shown that its aim is a legitimate one.
The essential point is that a faith school is entitled to pursue a policy which promotes the religious principles that underpin its faith.
It is entitled to formulate its oversubscriptions criteria to give preference to those children whose presence in the school will make it possible for it to pursue that policy.
The legitimacy of the policy is reinforced by the statutory background.
It has not emerged out of nowhere.
It has been developed in accordance with the Code which permits faith schools to define their conditions for admission by reference either to membership of the faith or to practice.
The justification for the Code lies exclusively in a belief that those who practise the faith or are members of it will best promote the religious ethos of the school.
In Orphanos v Queen Mary College [1985] AC 761, 772 773 Lord Fraser said that a typical example of a requirement which could be justified without regard to the nationality or race of the person to whom it was applied was Panesar v Nestl Co Ltd (Note) [1980] ICR 144, where it was held that a rule forbidding the wearing of beards in the respondents chocolate factory was justifiable on hygienic grounds notwithstanding that the proportion of Sikhs who could conscientiously comply with it was considerably smaller than the proportion of non Sikhs who could comply with it.
It was, he said, purely a matter of public health and nothing whatever to do with racial grounds.
I would apply the same reasoning to this case.
This leaves, however, the question of proportionality.
The Court of Appeal, having concluded that the criterion did not have an aim that was legitimate, did not attempt to examine this issue: para 47.
Before Munby J it was submitted by Ms Rose that JFSs admissions policy did not properly balance the impact of the policy on those like M adversely affected by it and the needs of the school: para 199.
He rejected this argument for two reasons.
One was that the kind of policy that is in question in this case is not materially different from that which gives preference in admission to a Muslim school to those who were born Muslim or preference in admission to a Catholic school to those who have been baptised.
The other was that an alternative admissions policy based on such factors as adherence or commitment to Judaism would not be a means of achieving JFSs aims and objectives: paras 200 201.
In my opinion these reasons miss the point to which Ms Roses submission was directed.
The question is whether putting M at a disadvantage was a proportionate means of achieving the aim of the policy.
It was for JFS to show that they had taken account of the effect of the policy on him and balanced its effects against what was needed to achieve the aim of the policy.
As Peter Gibson LJ noted in Barry v Midland Bank plc [1999] ICR 319, 335 336 the means adopted must be appropriate and necessary to achieving the objective.
I do not think that JFS have shown that this was so.
Lord Pannick submitted that there was no other way of giving effect to the policy.
If the school were to admit M, this would be to deny a place to a child who was regarded as Jewish by the OCR.
This was inevitable as the school was oversubscribed.
But what is missing is any sign that the schools governing body addressed their minds to the impact that applying the policy would have on M and comparing it with the impact on the school.
As Ms Rose pointed out, the disparate impact of the policy on children in Ms position was very severe.
They are wholly excluded from the very significant benefit of state funded education in accordance with their parents religious convictions, whereas there are alternatives for children recognised by the OCR although many in the advantaged group do not share the schools faith based reason for giving them priority.
The school claimed to serve the whole community.
But the way the policy was applied deprived members of the community such as M, who wished to develop his Jewish identity, of secondary Jewish education in the only school that is available.
There is no evidence that the governing body gave thought to the question whether less discriminatory means could be adopted which would not undermine the religious ethos of the school.
Consideration might have been given, for example, to the possibility of admitting children recognised as Jewish by any of the branches of Judaism, including those who were Masorti, Reform or Liberal.
Consideration might have been given to the relative balance in composition of the schools intake from time to time between those recognised as Jewish by the OCR who were committed to the Jewish religion and those who were not, and as to whether in the light of it there was room for the admission of a limited number of those committed to the Jewish religion who were recognised as Jewish by one of the other branches.
Ms Rose said that the adverse impact would be much less if a different criterion were to be adopted.
But the same might be true if the criterion were to be applied less rigidly.
There may perhaps be reasons, as Lord Brown indicates (see para 258), why solutions of that kind might give rise to difficulty.
But, as JFS have not addressed them, it is not entitled to a finding that the means that it adopted were proportionate.
There are cases, of which R(SB) v Governors of Denbigh High School [2006] UKHL 15, [2007] 1 AC 100 and Belfast City Council v Miss Behavin Ltd [2007] UKHL 19, [2007] 1 WLR 1420 are the best examples, where it can be said in the human rights context that the fact that the public authority had applied its mind to the issue is immaterial.
This is because in that context the issue is one of substance, not procedure.
Lord Hoffmann in Governors of Denbigh High School, para 68, gave this explanation: In domestic judicial review, the court is usually concerned with whether the decision maker reached his decision in the right way rather than whether he got what the court might think to be the right answer.
But article 9 [of the European Convention on Human Rights] is concerned with substance, not procedure.
It confers no right to have a decision made in any particular way.
What matters is the result: was the right to manifest a religious belief restricted in a way which is not justified under article 9(2)?
The problem that JFS faces in this case is a different one, as the context is different.
Under section 1(1A)(c) of the Race Relations Act 1976 the onus is on it to show that the way the admissions policy was applied in Ms case was proportionate.
It is not for the court to search for a justification for it: see Mummery LJs valuable and instructive judgment in R (Elias) v Secretary of State for Defence [2006] 1 WLR 3213, paras 131 133.
JFS failed to discharge its duty under section 71 of the Act to have regard to the need to eliminate discrimination.
It is having to justify something that it did not even consider required justification.
The question, as to which there is no obvious answer either way, was simply not addressed.
As a result the court does not have the statistical or other evidence that it would need to decide whether or not the application of the policy in Ms case was proportionate.
It may well be, as Lord Brown indicates, that devising a new oversubscriptions policy that is consistent with the schools legitimate aim would be fraught with difficulty.
But it was for JFS to explore this problem and, having done so, to demonstrate that whatever policy it came up with was proportionate.
So, although I do not arrive at this conclusion by the same route as Lord Mance, I agree with him that on the material before the Court the admissions policy cannot be held to have been justified.
I would hold that, by applying the oversubscription criteria to M in a way that put him at a particular disadvantage when compared with others not of the same ethnicity by reason of matrilineal descent, JFS discriminated against him in breach of section 1(1A) of the Race Relations Act 1976, and that E is entitled to a declaration to that effect.
The appeals on costs
In its order for costs the Court of Appeal directed that the United Synagogue and the Secretary of State must each pay 20% of Es costs in the Court of Appeal and below, and that the Schools Adjudicator must pay 10% of those costs.
The United Synagogue and the Secretary of State have both appealed, the United Synagogue formally and the Secretary of State informally, against that order to this court.
I did not understand Mr Linden QC, who appeared for the Secretary of State, to press his informal appeal and, as it has no merit, I would dismiss it.
But Mr Jaffey for the United Synagogue did make submissions in support of its appeal.
His point was that the United Synagogue had intervened in the Administrative Court on the express basis that it would not be found liable in costs which was not challenged by any other party, and that the basis for its intervention had been endorsed by Munby J when he allowed it to intervene.
He submitted that his client ought not to have been found liable by the Court of Appeal for the costs incurred at first instance, nor should it have been found liable for costs in the Court of Appeal as there was no appeal against the basis on which it had been permitted to intervene.
The situation is more complicated than that brief summary might suggest.
The nature of the United Synagogues intervention was transformed when the case reached the Court of Appeal.
Lord Pannick QC, who had not appeared below, was instructed on its behalf and assumed much responsibility for presenting the case on behalf of JFS so much so, that when the case reached this court, he appeared for JFS and not for the United Synagogue.
In that situation, as it had assumed a role that went well beyond that of an intervener, the Court of Appeal cannot be faulted for finding it liable for a share of the costs in that court.
But I do not think that what happened in the Court of Appeal should deprive the United Synagogue of the protection against an order for costs that it sought and was granted in the Administrative Court.
So I would recall that part of the Court of Appeals order.
I would replace it by a finding that the United Synagogue must pay 20% of Es costs in the Court of Appeal but not below, and that 20% of Es costs at first instance must be borne by JFS in addition to the 50% that it has already been ordered to pay.
Conclusion
I would allow the appeal by JFS against the Court of Appeals finding that the Chief Rabbis criteria discriminated directly against M on racial grounds.
I would however dismiss its appeal against the Court of Appeals finding that this was a case of indirect discrimination, although on different grounds.
I would allow the appeal by the United Synagogue against the Court of Appeals order for costs to the extent that I have indicated.
I would dismiss the Secretary of States appeal.
LORD RODGER
The claimant, E, is Jewish by matrilineal descent.
By conviction, he is a Masorti Jew.
Masorti Judaism differs in certain respects from what is generally called Orthodox Judaism.
Masorti Jews adhere to a set of beliefs and practices which have their origins in Orthodox Judaism but which are not now the same.
In particular, while both Masorti and Orthodox Judaism believe that the written and oral Torah (from which the halakhah is derived) are unchangeable and bind Jews today, they differ in their interpretation of some parts of the halakah.
Es wife converted to Judaism in an independent synagogue.
At the risk of some slight imprecision, her conversion can be described as having taken place under non Orthodox auspices.
Since the requirements for Orthodox conversion reflect Orthodox rather than Progressive or Masorti teachings and practices, her conversion is recognised by the Masorti authorities, but is not recognised by the Office of the (Orthodox) Chief Rabbi.
Therefore, while the Masorti authorities recognise her son, M, as Jewish, the Office of the Chief Rabbi does not.
But, of course, both E and M consider that M is Jewish, on the basis that his mother was Jewish when he was born.
JFS is designated by the Secretary of State under the School Standards and Framework Act 1998 as having a Jewish religious character.
The relevant regulations provide that the Schools governing body (the governors) must consult the Chief Rabbi about its admission arrangements.
Having done so, the governors adopted an admissions policy which provided that, if the School were oversubscribed, then only children who were recognised as being Jewish by the Office of the Chief Rabbi would be considered for admission.
E wanted to get M into the School.
It has an excellent reputation and has been oversubscribed for many years.
So, when E applied to have M admitted, hardly surprisingly, his application was rejected because the Office of the Chief Rabbi would not have recognised M as being Jewish.
Indeed the point was so clear that E did not apply to the London Beth Din for a determination of Ms status in Orthodox Jewish law.
In theory, the School would have considered admitting him if he had undertaken to convert under Orthodox auspices.
But the process would have taken several years and have involved M adhering to a set of beliefs that are materially different from those of Masorti Judaism.
E and M decided not to pursue that option.
The purpose of designating schools as having a religious character is not, of course, to ensure that there will be a school where Jewish or Roman Catholic children, for example, can be segregated off to receive good teaching in French or physics.
That would be religious discrimination of the worst kind which Parliament would not have authorised.
Rather, the whole point of such schools is their religious character.
So the whole point of designating the Jewish Free School as having a Jewish character is that it should provide general education within a Jewish religious framework.
More particularly, the education is to be provided within an Orthodox religious framework.
Hence the oversubscription admission criteria adopted after consulting the Chief Rabbi.
The Schools policy is to give priority to children whom the Orthodox Chief Rabbi recognises as Jewish.
From the standpoint of Orthodoxy, no other policy would make sense.
This is because, in its eyes, irrespective of whether they adhere to Orthodox, Masorti, Progressive or Liberal Judaism, or are not in any way believing or observant, these are the children and the only children who are bound by the Jewish law and practices which, it is hoped, they will absorb at the School and then observe throughout their lives.
Whether they will actually do so is, of course, a different matter.
The dispute can be summarised in this way.
E, who is himself a Masorti Jew, wants his son, whom he regards as Jewish, to be admitted to the School as a Jewish child.
He complains because the School, whose admission criteria provide that only children recognised as Jewish by the Office of the (Orthodox) Chief Rabbi are to be considered for admission, will not consider admitting his son, who is recognised as Jewish by the Masorti authorities but not by the Chief Rabbi.
If anything, this looks like a dispute between two rival religious authorities, the Office of the Chief Rabbi and the Masorti authorities, as to who is Jewish.
But E claims and this Court will now declare that, when the governors refused to consider M for admission, they were actually treating him less favourably than they would have treated a child recognised as Jewish by the Office of the Chief Rabbi on racial grounds: Race Relations Act 1976, section 1(1)(a).
The decision of the majority means that there can in future be no Jewish faith schools which give preference to children because they are Jewish according to Jewish religious law and belief.
If the majority are right, expressions of sympathy for the governors of the School seem rather out of place since they are doing exactly what the Race Relations Act exists to forbid: they are refusing to admit children to their school on racial grounds.
That is what the Courts decision means.
And, if that decision is correct, why should Parliament amend the Race Relations Act to allow them to do so? Instead, Jewish schools will be forced to apply a concocted test for deciding who is to be admitted.
That test might appeal to this secular court but it has no basis whatsoever in 3,500 years of Jewish law and teaching.
The majoritys decision leads to such extraordinary results, and produces such manifest discrimination against Jewish schools in comparison with other faith schools, that one cant help feeling that something has gone wrong.
The crux of the matter is whether, as the majority hold, the governors actually treated M less favourably on grounds of his ethnic origins.
They say the governors did so, but for a bona fide religious motive.
If that is really the position, then, as Lord Pannick QC was the first to accept on their behalf, what the governors did was unlawful and their bona fide religious motive could not make the slightest difference.
But to reduce the religious element in the actions of those concerned to the status of a mere motive is to misrepresent what they were doing.
The reality is that the Office of the Chief Rabbi, when deciding whether or not to confirm that someone is of Jewish status, gives its ruling on religious grounds.
Similarly, so far as the oversubscription criteria are concerned, the governors consider or refuse to consider children for admission on the same religious grounds.
The only question is whether, when they do so, they are ipso facto considering or refusing to consider children for admission on racial grounds.
Lady Hale says that M was rejected because of his mothers ethnic origins which were Italian and Roman Catholic.
I respectfully disagree.
His mother could have been as Italian in origin as Sophia Loren and as Roman Catholic as the Pope for all that the governors cared: the only thing that mattered was that she had not converted to Judaism under Orthodox auspices.
It was her resulting non Jewish religious status in the Chief Rabbis eyes, not the fact that her ethnic origins were Italian and Roman Catholic, which meant that M was not considered for admission.
The governors automatically rejected M because he was descended from a woman whose religious status as a Jew was not recognised by the Orthodox Chief Rabbi; they did not reject him because he was descended from a woman whose ethnic origins were Italian and Roman Catholic.
As in any complaint of racial discrimination, the point can be tested by reference to the appropriate comparator.
The starting point is that both E and M believe M to be Jewish by descent.
So E applied to the School to admit M on the basis that he was Jewish because his Italian Catholic mother had converted to Judaism before he was born.
The mothers Jewish status as a result of her conversion was accordingly the only issue which the governors were asked to consider or did consider.
They refused Es application because her conversion had been under non Orthodox auspices.
Therefore the appropriate comparator is a boy with an Italian Catholic mother whom the governors would have considered for admission.
He could only be a boy whose mother had converted under Orthodox auspices.
The question then is: did the governors treat M, whose mother was an Italian Catholic who had converted under non Orthodox auspices, less favourably than they would have treated a boy, whose mother was an Italian Catholic who had converted under Orthodox auspices, on grounds of his ethnic origins? Plainly, the answer is: no.
The ethnic origins of the two boys are exactly the same, but the stance of the governors varies, depending on the auspices under which the mothers conversion took place.
Faced with a boy whose mother had converted under Orthodox auspices, the governors would have considered him for admission without pausing for a single second to enquire whether he or his mother came from Rome, Brooklyn, Siberia or Buenos Aires, whether she had once been a Roman Catholic or a Muslim, or whether he or she came from a close knit Jewish community or had chosen to assimilate and disappear into secular society.
In other words, the ethnic origins of the child or his mother in the Mandla v Dowell Lee [1983] 2 AC 548 sense would not have played any part in the governors decision to admit him.
All that would have mattered was that his mother had converted under Orthodox auspices.
Equally, in Ms case, the governors did not refuse to consider admitting him on grounds of his Mandla ethnic origins.
Even supposing that the governors knew about his origins, they were quite irrelevant and played no part in their decision.
The governors were simply asked to consider admitting him as the son of a Jewish mother.
They declined to do so because his mother had not converted under Orthodox auspices.
It was her non Orthodox conversion that was crucial.
In other words, the only ground for treating M less favourably than the comparator is the difference in their respective mothers conversions a religious, not a racial, ground.
Since, therefore, when applying the religious test, the governors were not asked to consider, and did not actually consider, Ms ethnic origins, James v Eastleigh Borough Council [1990] 2 AC 751 and all the other cases to which the majority refer simply do not come into the picture.
For these reasons, which are essentially those set out so clearly in the judgment of Munby J, and in agreement with the opinion of Lord Brown, I would hold that the governors did not discriminate against M directly on racial grounds.
So far as indirect discrimination is concerned, again I agree with Lord Brown and indeed with Munby J.
The aim of the School, to instil Jewish values into children who are Jewish in the eyes of Orthodoxy, is legitimate.
And, from the standpoint of an Orthodox school, instilling Jewish values into children whom Orthodoxy does not regard as Jewish, at the expense of children whom Orthodoxy does regard as Jewish, would make no sense.
That is plainly why the Schools oversubscription policy allows only for the admission of children recognised as Jewish by the Office of the Chief Rabbi.
I cannot see how a court could hold that this policy is a disproportionate means of achieving the Schools legitimate aim.
I would accordingly allow the Governing Bodys appeal and restore the order of Munby J.
On the United Synagogues costs appeal, I agree with Lord Hope.
LORD WALKER
I respectfully agree with Lord Hope that this was a case of indirect, but not direct discrimination on grounds of ethnic origins contrary to section 1 of the Race Relations Act 1976 as amended.
I do not wish to make any addition or qualification to the reasons set out in Lord Hopes judgment.
But I do wish to express my respectful agreement with much of Lady Hales judgment, although we reach different conclusions.
In particular I agree with her references to the conspicuously clear and thoughtful judgment of Mummery LJ in R (Elias) vs Secretary of State for Defence [2006] 1 WLR 3213.
Lord Hope has rightly referred to Mummery LJs treatment (at paras 128 to 133, in the context of justification of indirect discrimination) of the significance of a failure to address the issue of potential discrimination, especially when section 71 of the Race Relations Act 1976 applies.
But the whole of Mummery LJs discussion of the boundary between direct and indirect discrimination (paras 60 to 123) merits close attention.
The division of opinion in this Court illustrates that the separateness and mutual exclusivity of direct and indirect discrimination, although immovably established as part of the law (for all the reasons given by Mummery LJ at paras 114 to 122), is sometimes elusive in practice.
In consequence the sharp distinction between the impossibility of justifying direct discrimination in any circumstances, and the possibility of justifying indirect discrimination, sometimes seems a little arbitrary.
LORD BROWN
Jews of all denominations define membership of the Jewish religion by reference to descent or conversion.
The question is one of status: you are a Jew if, whether by descent or conversion, your mother (or anyone else up the matrilineal line) was a Jew or if you yourself convert to Judaism.
Orthodox Jews require that the conversion be recognised by the Office of the Chief Rabbi (OCR).
Other denominations of Jewry (Masorti, Reform and Liberal) apply less exacting criteria for conversion.
It is that which has given rise to the underlying dispute between the parties in this case.
JFSs oversubscription admissions policy gives priority to those recognised by the OCR as Jewish.
M, because his mother converted to Judaism under the auspices of a non Orthodox rabbi and not an orthodox rabbi, is not so recognised.
There is much debate within the Jewish community about the proper standards to apply to conversion and many would like JFS to include within their admissions policy anyone recognised as Jewish by any of the denominations.
Ms real complaint here is that in deciding who is a Jew the OCRs approach to conversion is misguided.
That, however, is not an issue which is, or ever could be, before the Court.
No court would ever intervene on such a question or dictate who, as a matter of orthodox religious law, is to be regarded as Jewish.
Thus it is that this legal challenge has nothing to do with the standards of conversion to Judaism and who shall be recognised under religious law as Jews but instead, somewhat surprisingly at first blush, invites the Court to decide questions of racial discrimination.
Is JFSs policy of giving priority in admissions to those recognised by the OCR as Jewish to be characterised and outlawed as direct racial discrimination contrary to section 1(1)(a) of the Race Relations Act 1976? Is the school on racial grounds (defined by section 3 of the Act to include the ground of ethnic origins) treating others less favourably? That is the central issue before the Court.
Ms father (E), supported by the Equality and Human Rights Commission and the British Humanist Society, submits that those not recognised by JFS as Jews are being treated less favourably than those recognised as Jews (so much is obvious) on the ground of the ethnic origins of those not recognised i.e. because no one in their matrilineal line is recognised as Jewish.
Integral to the argument is that any definition of Jewish status based on descent is necessarily dependent on ethnic origin and therefore to be regarded as racially discriminatory.
In this case the argument arises in the context of an orthodox Jewish school and at the suit of a child who would be regarded as Jewish according to all other Jewish denominations.
But the same argument could arise equally in the context of schools giving priority to children recognised as Jews by any other Jewish denomination.
I repeat, all Jews define membership of their religion by reference to descent (or conversion).
The contrary argument, advanced by JFS, United Synagogue, the Secretary of State for Children, Schools and Families, and the Board of Deputies of British Jews, is that those not recognised by the school as Jews are being treated less favourably not because of their ethnic origins a matter of total indifference to the OCR but rather because of their religion: they are not members of the Jewish religion whereas those preferred are.
Of course, the reason they are not members of the Jewish religion is that their forebears in the matrilineal line (or, in the case of Liberal Jews, either ancestral line) were not Jews and in this sense their less favourable treatment is determined by their descent.
The ground for their less favourable treatment, however, is religion, not race.
Both arguments are to my mind entirely coherent and entirely respectable.
Only one, however, can be correct.
The difficulty in the case arises because of the obvious overlap here between the concepts respectively of religious and racial discrimination.
If the ground for discrimination is racial, it is unlawful.
If however the ground (and not merely the motive) is religious, that is lawful.
The Equality Act 2006 for the first time outlawed religious discrimination inter alia with regard to school admissions but not in the case of oversubscribed designated faith schools like JFS.
Plainly the 2006 Act cannot operate to legitimise what would otherwise be racial discrimination under the 1976 Act.
One may note, however, that if Ms argument is correct, JFS (and all other Jewish schools, whether maintained or independent, whose admissions criteria similarly depend upon the child being recognised under religious law as Jewish) have been operating an unlawful directly racially discriminatory policy for upwards of 30 years.
There can be no doubt that Jews, including those who have converted to Judaism, are an ethnic group.
That, since the decision of the House of Lords in Mandla v Dowell Lee [1983] 2 AC 548, is indisputable.
And it is plain too why the courts have given a wide definition to the phrase ethnic origins so as to provide comprehensive protection to those suffering discrimination on racial grounds.
Manifestly Jews and those perceived by discriminators to be Jews have welcomed such an approach and benefit from it.
It by no means follows, however, that to discriminate against a person on the ground that he or someone else either is or is not Jewish is therefore to discriminate against him on racial grounds (as the Court of Appeal concluded at paragraph 32 of its judgment).
That to my mind is a considerable over simplification of an altogether more difficult problem.
This is perhaps best illustrated by reference to Ms position relative to those benefited under JFSs admissions policy.
True, M was refused admission because his mother, and therefore he himself, although plainly both ethnically Jewish in the Mandla sense, were not recognised by the OCR as Jewish.
But those granted admission under the policy were admitted for the very reason that they were recognised as Jewish.
Does the 1976 Act really outlaw discrimination in favour of the self same racial group as are said to be being discriminated against? I can find no suggestion of that in any of the many authorities put before us.
Nor can I see a parallel between the present case and the example apparently thought indistinguishable by the Court of Appeal of the Dutch Reformed Church of South Africa who until recently honestly believed that God had made black people inferior and had destined them to live separately from whites.
The discrimination there was plainly against blacks and in favour of whites self evidently, therefore, on the ground of race and irredeemable by reference to the Churchs underlying religious motive.
Ethnic Jews and Jews recognised as members of the religion, distinguishable as groups though they are, clearly overlap.
Not so blacks and whites.
What I am suggesting here is that it is quite unrealistic, given that those being treated less favourably and those being treated more favourably by JFSs policy are all (save, of course, for those who have no connection with Judaism whatsoever) in the same ethnic group, to regard the policy as discriminatory on racial rather than religious grounds.
I recognise, of course, that under section 3(2) of the 1976 Act a particular racial group within a wider racial group still enjoys protection under the Act.
The point I am making, however, is that the differential treatment between Jews recognised by the OCR and those not so recognised within the wider group of ethnic Jews (no less obviously than the differential treatment between the former and those with no connection whatever to Judaism) is plainly on the ground of religion rather than race.
Still less does it seem to me that this case is covered by the House of Lords decision in James v Eastleigh Borough Council [1990] 2 AC 751.
Once it was recognised that the Council there might just as well have said that entry to its swimming pools was free to women, but not men, in the 60 65 age group, the direct discrimination against men became indisputable.
The condition of pensionability was itself patently gender based.
The position would surely have been different had the policy been instead to admit free, say, those who were in fact retired.
That would not have involved direct discrimination and, if challenged as indirect discrimination, would surely have been capable of justification, certainly if free admittance was granted not only to those retired but also if the applicant could otherwise establish that he or she was of limited means.
Mandatory retirement age and sex were there precisely coterminous.
Even then, the case was decided only by the narrowest majority of the House overturning a unanimous Court of Appeal.
The 1976 Act, unlike, for example, article 14 of the European Convention on Human Rights, draws a distinction between direct and indirect discrimination, only the latter being capable of justification.
It therefore seems to me of the greatest importance not to expand the scope of direct discrimination and thereby place preferential treatment which could well be regarded as no more than indirectly discriminatory beyond the reach of possible justification.
This is especially so where, as here, no one doubts the Chief Rabbis utmost good faith and that the manifest purpose of his policy is to give effect to the principles of Orthodox Judaism as universally recognised for millennia past.
There is not the same exact correlation between membership of the Jewish religion and membership of the group regarded on the Mandla approach as being of Jewish ethnicity as there was between retirement age and sex in James v Eastleigh and I for my part would regard the Court of Appeals judgment as going further than that decision and as impermissibly expanding the scope of direct discrimination beyond its proper limits.
As I have already indicated, E is not really seeking to prevent JFS from adopting oversubscription criteria which give priority to Jews but rather is asking for JFS to define Jews more expansively than Orthodox Jews in fact do.
But it is, of course, the logic of his argument that JFSs policy must be regarded as racially discriminatory not merely because it rules out ethnic Jews like M who are not recognised as Jews by the OCR but also because it rules out all other racial groups whether or not they have any connection with Judaism at all.
On this argument, it is strictly immaterial that E is Jewish or that Ms mother converted to Judaism.
This policy could as well have been struck down at the suit of anyone desiring admission to the school.
If the argument succeeds it follows that Jewish religious law as to who is a Jew (and as to what forms of conversion should be recognised) must henceforth be treated as irrelevant.
Jewish schools in future, if oversubscribed, must decide on preference by reference only to outward manifestations of religious practice.
The Court of Appeals judgment insists on a non Jewish definition of who is Jewish.
Jewish schools, designated as such by the Minister and intended to foster a religion which for over 3000 years has defined membership largely by reference to descent, will be unable henceforth even to inquire whether one or both of the applicant childs parents are Jewish. (Yet is that so very different from a Catholic school asking if the child has been baptised? It is hardly likely to have been unless one at least of its parents was a Christian).
The root question for the Court is simply this: can a Jewish faith school ever give preference to those who are members of the Jewish religion under Jewish law.
I would answer: yes, it can.
To hold the contrary would be to stigmatise Judaism as a directly racially discriminating religion.
I would respectfully disagree with that conclusion.
Indeed I would greatly regret it.
On this issue of direct discrimination my views coincide entirely with those of Lord Rodger.
I turn to the question of indirect discrimination.
As already noted, it is obvious
that JFSs policy involves those not recognised by the OCR as Jews being treated less favourably than those who are so recognised.
It is rather less obvious, however, that this policy puts persons of the same race or ethnic or national origins as [M] at a particular disadvantage when compared with other persons and that it puts [M] at that disadvantage (section 1(1A)(a) and (b) of the 1976 Act).
After all, as already observed, M is himself, although personally disadvantaged by the policy, a member of the very same ethnic group as the policy advantages.
The view could, therefore, be taken that M is disadvantaged not by his ethnic origins but by his inability to satisfy the Orthodox religious test.
Put that aside, however, and suppose that section 1(1A) is here engaged and that JFS must establish that its policy is a proportionate means of achieving a legitimate aim pursuant to section 1(1A)(c) as certainly they would need to do were this challenge brought, as theoretically it could have been, at the suit of a child in no way of Jewish ethnic origin.
The legitimacy of JFSs aim is surely clear.
Here is a designated faith school, understandably concerned to give preference to those children it recognises to be members of its religion, but so oversubscribed as to be unable to admit even all of these.
The School Admissions Code expressly allows admission criteria based either on membership of a religion or on practice.
JFS have chosen the former.
Orthodox Jews regard education about the Jewish faith as a fundamental religious obligation.
Unlike proselytising faiths, however, they believe that the duty to teach and learn applies only to members of the religion, because the obligations in question bind only them.
JFSs purpose is to develop in those recognised by the OCR as Jewish an understanding and practice of the faith.
The fact that many of those admitted do not practise the Jewish faith on their admission is intended and, indeed, welcomed.
Such children are admitted and taught alongside children already committed to the Orthodox Jewish faith so as to enhance their level of religious knowledge and observance and in the hope and expectation that they may come to practise it.
In short, to impose a religious practice test, besides being felt by many to be invasive, difficult to measure and open to abuse, would be contrary to the positive desire of schools like JFS to admit non observant as well as observant Jewish children.
Ironically, moreover, to impose such a test would narrow, rather than widen, the character of the schools intake so as to make it appear more, rather than less, discriminatory.
As the Court of Appeal itself noted (at para 44), those presently admitted come from a wide disparity of religious and cultural family backgrounds . even . from atheist or Catholic or Moslem families.
Inevitably too, it would require the school to educate those not recognised as Jewish by Orthodox Jewish law at the expense of those who are.
The Court of Appeals conclusion that the aim of JFSs admissions policy is illegitimate was based on its view that its purpose or inevitable effect is to make and enforce distinctions based on race or ethnicity (para 46), essentially a repetition of its earlier finding of direct race discrimination.
In truth the Court of Appeal never addressed the questions of legitimate aim and proportionality on the assumption (the only basis on which indirect discrimination would fall to be considered) that the policy is not directly discriminatory.
I turn finally, then, to the question of proportionality.
Given JFSs legitimate aim of educating children recognised to be Jewish, is their policy of invariably giving preference to these children over those not so recognised a proportionate means of achieving that aim? Answering that question in the affirmative, Munby J, in the course of a lengthy, impressive and to my mind convincing judgment, said this: 200.
Two quite separate considerations drive me to this conclusion.
In the first place, the kind of admissions policy in question here is not, properly analysed, materially different from that which gives preference in admission to a Moslem school to those who were born Moslem or preference in admission to a Catholic school to those who have been baptised.
But no one suggests that such policies, whatever their differential impact on different applicants, are other than a proportionate and lawful means of achieving a legitimate end.
Why, [counsel] asks rhetorically, should it be any different in the case of Orthodox Jews? .
I agree.
Indeed, the point goes even wider than the two examples I have given for, as [counsel] submits, if Es case on this point is successful then it will probably render unlawful the admission arrangements in a very large number of faith schools of many different faiths and denominations. 201.
The other point is that made both by the Schools Adjudicator and by [counsel for JFS].
Adopting some alternative admissions policy based on such factors as adherence or commitment to Judaism (even assuming that such a concept has any meaning for this purpose in Jewish religious law) would not be a means of achieving JFSs aims and objectives; on the contrary it would produce a different school ethos.
If JFSs existing aims and objectives are legitimate, as they are, then a policy of giving preference to children who are Jewish applying Orthodox Jewish principles is, they say, necessary and proportionate indeed, as it seems to me, essential to achieve those aims .
JFS exists as a school for Orthodox Jews.
If it is to remain a school for Orthodox Jews it must retain its existing admissions policy; if it does not, it will cease to be a school for Orthodox Jews. Precisely.
To this argument there is, and can be, no satisfactory answer.
I find myself in full agreement with all of that.
To ask why JFS should give preference to a Jewish child with little or no interest in Judaism whilst rejecting a committed child like M is to misunderstand the essential aim of an Orthodox Jewish school.
This, as I have explained, is to fulfil its core religious duty: the education of members of its religion in the Orthodox faith, whether or not they practise it or will ever come to do so.
It can no more be disproportionate to give priority to a Jewish child over that of a child, however sincere and committed, not recognised as Jewish than it would be to refuse to admit a boy to an oversubscribed all girls school.
Whilst I respectfully agree with Lord Hopes judgment on the direct discrimination issue, I regretfully find myself differing from his conclusion on indirect discrimination.
For my part I would have allowed JFSs appeal in its entirety.
I understand Lord Hope to conclude that JFS have never addressed the question of
proportionality and must now do so and devise a fresh policy allowing applications for admission by those not recognised as Jewish to be considered on an individual basis.
Quite apart from the fact that this approach to my mind runs counter to the schools central aim, it seems to me fraught with difficulty.
Quite how such a policy will be formulated and applied on a consistent basis is not easy to discern.
That said, I regard it as altogether preferable to the new policy presently dictated by the Court of Appeals judgment: the imposition of a test for admission to an Orthodox Jewish school which is not Judaisms own test and which requires a focus (as Christianity does) on outward acts of religious practice and declarations of faith, ignoring whether the child is or is not Jewish as defined by Orthodox Jewish law.
That outcome I could not contemplate with equanimity.
On the United Synagogues costs appeal I agree entirely with Lord Hope.
| UK-Abs | E challenged JFSs (formerly the Jews Free School) refusal to admit his son, M, to the school.
JFS is designated as a Jewish faith school.
It is over subscribed and has adopted as its oversubscription policy an approach of giving precedence in admission to those children recognised as Jewish by the Office of the Chief Rabbi of the United Hebrew Congregation of the Commonwealth (the OCR).
The OCR only recognises a person as Jewish if: (i) that person is descended in the matrilineal line from a woman whom the OCR would recognise as Jewish; or (ii) he or she has undertaken a qualifying course of Orthodox conversion.
E and M are both practising Masorti Jews.
E is recognised as Jewish by the OCR but Ms mother is of Italian and Catholic origin and converted to Judaism under the auspices of a non Orthodox synagogue.
Her conversion is not recognised by the OCR.
Ms application for admission to JFS was therefore rejected as he did not satisfy the OCR requirement of matrilineal descent.
E challenged the admissions policy of JFS as directly discriminating against M on grounds of his ethnic origins contrary to section 1(1)(a) of the Race Relations Act 1976 (the 1976 Act).
Alternatively, E claimed that the policy was indirectly discriminatory.
The High Court rejected both principal claims.
The Court of Appeal unanimously reversed the High Court, holding that JFS directly discriminated against M on the ground of his ethnic origins.
JFS appealed to the Supreme Court.
The United Synagogue also appealed a costs order made against it by the Court of Appeal.
The Supreme Court has dismissed the appeal by The Governing Body of JFS.
On the direct discrimination issue, the decision was by a majority of five (Lord Phillips, Lady Hale, Lord Mance, Lord Kerr and Lord Clarke) to four (Lord Hope, Lord Rodger, Lord Walker and Lord Brown).
The Majority held that JFS had directly discriminated against M on grounds of his ethnic origins.
Lords Hope and Walker in the minority would have dismissed the appeal on the ground that JFS had indirectly discriminated against M as it had failed to demonstrate that its policy was proportionate.
Lords Rodger and Brown would have allowed JFSs appeal in its entirety.
The Supreme Court unanimously allowed in part the United Synagogues appeal on costs.
The Majority Judgments The judgments of the Court should not be read as criticising the admissions policy of JFS on moral grounds or suggesting that any party to the case could be considered racist in the commonly understood, pejorative, sense.
The simple legal question to be determined by the Court was whether in being denied admission to JFS, M was disadvantaged on grounds of his ethnic origins (or his lack thereof) (paras [9], [54], [124] and [156]).
Direct Discrimination General Principles In determining whether there is direct discrimination on grounds of ethnic origins for the purposes of the 1976 Act, the court must determine, as a question of fact, whether the victims ethnic origins are the factual criterion that determined the decision made by the discriminator (paras [13], [16], [20] and [62]).
If so, the motive for the discrimination and/or the reason why the discriminator considered the victims ethnic origins significant is irrelevant (paras [20], [22], [62] and [142]).
Where the factual criteria upon which discriminatory treatment is based are unclear, unconscious or subject to dispute the court will consider the mental processes of the discriminator in order to infer as a question of fact from the available evidence whether there is discrimination on a prohibited ground (paras [21], [64], [115] and [133]).
It is only necessary to consider the mental processes of the discriminator where the factual criteria underpinning the discrimination are unclear (para [114]).
To treat an individual less favourably on the ground that he lacks certain prescribed ethnic origins constitutes direct discrimination.
There is no logical distinction between such a case and less favourable treatment predicated upon the fact that an individual does possess certain ethnic origins (paras [9] and [68]).
Direct discrimination does not require that the discriminator intends to behave in a discriminatory manner or that he realises that he is doing so (para [57]).
There is no need for any consideration of mental processes in this case as the factual criterion that determined the refusal to admit M to JFS is clear: the fact that he is not descended in the matrilineal line from a woman recognised by the OCR as Jewish.
The subjective state of mind of JFS, the OCR and/or the Chief Rabbi is therefore irrelevant (paras [23], [26], [65], [78], [127], [132], [136], [141] and [147] [148]).
The crucial question to be determined is whether this requirement is properly characterised as referring to Ms ethnic origins (paras [27], [55] and [65]).
Application in This Case The test applied by JFS focuses upon the ethnicity of the women from whom M is descended.
Whether such women were themselves born as Jews or converted in a manner recognised by the OCR, the only basis upon which M would be deemed to satisfy the test for admission to JFS would be that he was descended in the matrilineal line from a woman recognised by the OCR as Jewish (para [41] per Lord Phillips).
It must also be noted that while it is possible for women to convert to Judaism in a manner recognised by the OCR and thus confer Orthodox Jewish status upon their offspring, the requirement of undergoing such conversion itself constitutes a significant and onerous burden that is not applicable to those born with the requisite ethnic origins this further illustrates the essentially ethnic nature of the OCRs test (para [42] per Lord Phillips).
The test of matrilineal descent adopted by JFS and the OCR is one of ethnic origins.
To discriminate against a person on this basis is contrary to the 1976 Act (para [46] per Lord Phillips).
The reason that M was denied admission to JFS was because of his mothers ethnic origins, which were not halachically Jewish.
She was not descended in the matrilineal line from the original Jewish people.
There can be no doubt that the Jewish people are an ethnic group within the meaning of the 1976 Act.
While JFS and the OCR would have overlooked this fact
if Ms mother had herself undergone an approved course of Orthodox conversion, this could not alter the fundamental nature of the test being applied.
If Ms mother herself was of the requisite ethnic origins in her matrilineal line no conversion requirement would be imposed.
It could not be said that M was adversely treated because of his religious beliefs.
JFS and the OCR were indifferent to these and focussed solely upon whether M satisfied the test of matrilineal descent (paras [66] and [67] per Lady Hale).
Direct discrimination on grounds of ethnic origins under the 1976 Act does not only encompass adverse treatment based upon membership of an ethnic group defined in the terms elucidated by the House of Lords in Mandla v Dowell Lee [1983] 2 AC 548.
The 1976 Act also prohibits discrimination by reference to ethnic origins in a narrower sense, where reference is made to a persons lineage or descent (paras [80] [84] per Lord Mance).
The test applied by JFS and the OCR focuses on genealogical descent from a particular people, enlarged from time to time by the assimilation of converts.
Such a test is one that is based upon ethnic origins (para [86] per Lord Mance).
This conclusion is buttressed by the underlying policy of the 1976 Act, which is that people must be treated as individuals and not be assumed to be like other members of a group: treating an individual less favourably because of his ancestry ignores his unique characteristics and attributes and fails to respect his autonomy and individuality.
The UN Convention on the Rights of the Child requires that in cases involving children the best interests of the child are the primary consideration (para [90] per Lord Mance).
The reason for the refusal to admit M to JFS was his lack of the requisite ethnic origins: the absence of a matrilineal connection to Orthodox Judaism (para [112] per Lord Kerr).
Ms ethnic origins encompass, amongst other things, his paternal Jewish lineage and his descent from an Italian Roman Catholic mother.
In denying M admission on the basis that he lacks a matrilineal Orthodox Jewish antecedent, JFS discriminated against him on grounds of his ethnic origins (paras [121] [122] per Lord Kerr).
It might be said that the policy adopted by JFS and the OCR was based on both ethnic grounds and grounds of religion, in that the reason for the application of a test based upon ethnic origins was the conviction that such a criterion was dictated by Jewish religious law.
The fact that the rule adopted was of a religious character cannot obscure or alter the fact that the content of the rule itself applies a test of ethnicity (paras [129] [131] per Lord Clarke).
The fact that a decision to discriminate on racial grounds is based upon a devout, venerable and sincerely held religious belief or conviction cannot inoculate or excuse such conduct from liability under the 1976 Act (paras [35], [92], [113] and [119] [120]).
Further Comments It is not clear that the practice based test adopted by JFS following the Court of Appeals judgment will result in JFS being required to admit children who are not regarded by Jewish by one or more of the established Jewish movements (para [50] per Lord Phillips).
It may be arguable that an explicit exemption should be provided from the provisions of the 1976 Act in order to allow Jewish faith schools to grant priority in admissions on the basis of matrilineal descent; if so, formulating such an exemption is unquestionably a matter for Parliament (paras [69] [70] per Lady Hale).
Indirect Discrimination As the case is one of impermissible direct discrimination it is unnecessary to address the claim of indirect discrimination (para [51] per Lord Phillips).
Direct and indirect discrimination are mutually exclusive; both concepts cannot apply to a single case concurrently.
As this case is one of direct discrimination it could not be one of indirect discrimination (para [57] per Lady Hale).
Ex hypothesi, if the case was not direct discrimination, then the policy was indirectly discriminatory (para [103]).
The policy pursued the legitimate aim of effectuating the obligation imposed by Jewish religious law to educate those regarded by the OCR as Jewish (paras [95] [96]).
However, JFS had not, and on the basis of the evidence before the court could not, demonstrate that the measures it adopted, given the gravity of their adverse effect upon
individuals such as M, were a proportionate means of pursuing this aim (paras [100] [103], [123] and [154]).
The Minority Judgments Direct Discrimination In identifying the ground on which JFS refused to admit M to the school the Court should adopt a subjective approach which takes account of the motive and intention of JFS, the OCR and the Chief Rabbi (para [195] [197] per Lord Hope).
In the instant case JFS, the OCR and the Chief Rabbi were subjectively concerned solely with Ms religious status, as determined by Jewish religious law.
There is no cause to doubt the Chief Rabbis frankness or good faith on this matter (para [201] per Lord Hope).
The availability of conversion demonstrates that the test applied is inherently of a religious rather than racial character (para [203] per Lord Hope).
It is inapt to describe the religious dimension of the test being applied by JFS as a mere motive (paras [201] per Lord Hope; [227] per Lord Rodger).
The appropriate comparator for M in this case is a child whose mother had converted under Orthodox Jewish auspices.
The ground of difference in treatment between M and such a child would be that the latters mother had completed an approved course of Orthodox conversion (paras [229] [230] per Lord Rodger).
Indirect Discrimination Lords Hope and Walker Clearly, children who were not of Jewish ethnic origin in the matrilineal line were placed at a disadvantage by JFSs admission policy relative to those who did possess the requisite ethnic origins (para [205]).
JFSs policy pursued the legitimate aim of educating those regarded as Jewish by the OCR within an educational environment espousing and practising the tenets of Orthodox Judaism (para [209]).
The 1976 Act placed the onus on JFS to demonstrate that in formulating its policy it had carefully considered the adverse effect of its policy on M and other children in his position and balanced this against what was required to give effect to the legitimate aim which it sought to further (para [210]).
There is no evidence that JFS considered whether less discriminatory means might be adopted which would not undermine its religious ethos: the failure to consider alternate, potentially less discriminatory, admission policies means that JFS is not entitled to a finding that the means which it has employed are proportionate (paras [212] and [214]).
Lords Rodger and Brown The objective pursued by JFSs admission policy educating those children recognised by the OCR as Jewish was irreconcilable with any approach that would give precedence to children not recognised as Jewish by the OCR in preference to children who were so recognised.
JFSs policy was therefore a rational way of giving effect to the legitimate aim pursued and could not be said to be disproportionate. (para [233] per Lord Rodger; para [256] per Lord Brown).
The United Synagogue Costs Appeal The United Synagogue must pay 20 per cent. of Es costs from the Court of Appeal but not those incurred in the High Court.
The 20 per cent. of Es costs in the High Court previously allocated to the United Synagogue must be borne by JFS in addition to the 50 per cent. that it has already been ordered to pay (para [217]).
|
Sigma Finance Corporation (Sigma) and those who invested in it are victims of the current financial crisis.
Sigma is a structured investment vehicle, whose business involved acquiring asset backed securities and other instruments, using funds raised by issuing or guaranteeing US dollar and Euro medium term notes (MTNs) as well as liquidity from other sources, such as facilities, derivatives, repurchase (or repo) contracts and capital notes (the last two categories representing its unsecured creditors).
All of Sigmas assets are secured in favour of its secured creditors upon the terms of a Security Trust Deed (STD), dated 27 March 2003, made between Sigma as issuer and Deutsche Trustee Company Limited (Deutsche Trustee) as security trustee and governed by English law.
The financial crisis affected the value and liquidity of Sigmas assets, as well as its ability to issue notes and raise funds to cover its obligations under previously issued notes and instruments as they matured from time to time.
As a result, it began to resort to selling assets, either outright or under repo agreements.
The latter involved Sigma in further potential liability to meet margin calls, if and when the value of the assets sold and agreed to be repurchased at some future date fell below a certain level.
In September 2008, Sigma received margin calls which it did not honour.
On 30 September 2008, its board resolved that it could no longer continue in business, and on 1 October 2008 Sigma wrote informing Deutsche Trustee as security trustee that it had resolved that there was no reasonable likelihood of Sigma avoiding an insolvent liquidation and that there had been non payment of interest due on 30 September 2008 constituting a Potential Enforcement Event for the purposes of the Security Trust Deed.
On 2 October 2008 one of Sigmas liquidity providers gave notice of an event of default under its facility agreement.
In consequence, an actual Enforcement Event occurred and the floating charge created under clause 4.1 of the Security Trust Deed crystallised on that date, and the liquidity facility was also cancelled.
On 6 October 2008 the Security Trustee appointed Receivers under clause 14.1 of the Deed, and directed them to comply with clauses 7.6 to 7.9 of the Deed as if references in those clauses to the Security Trustee were references to the Receivers.
Under the Security Trust Deed, the occurrence of an Enforcement Event started a 60 day Realisation Period, and triggered an obligation on the Trustee to use its reasonable endeavours to establish by the end of that period a Short Term Pool (for Short Term Liabilities, defined by clause 1 to cover outstanding payment obligations which are due 2 and payable or which have scheduled maturity or payment dates falling less than 365 days from the Enforcement Date), as well as a number of Long Term Pools (for any liabilities . which are not Short Term Liabilities) and a Residual Equity Pool.
Following realisation of its remaining portfolio in December 2008 after the Court of Appeal had given judgment and refused a further stay, Sigmas assets consist of cash of no more than around US$450m.
Sigmas unpaid secured liabilities are estimated to total around US$6.2bn.
They include (a) about US$900,000, representing coupon payments on notes which fell due on 30 September and 1 October 2008, (b) about US$1.350bn, representing principal and coupon payments on notes which fell due during the Realisation Period, (c) about US$3.134bn, representing principal on notes constituting Short Term Liabilities falling due between 30 November (i.e. after the end of the Realisation Period) and 1 October 2009 and (d) about US$1.511bn, representing principal on notes constituting Long Term Liabilities falling due after 2 October 2009.
As is evident, Sigmas remaining assets fall far short of the liabilities included in (a) and (b), or in (b) alone.
The issue on these appeals is how Sigmas remaining assets are to be distributed.
This is an issue of construction of the Security Trust Deed.
Secured creditors are under the terms of their notes precluded from seeking to wind up Sigma, and the Security Trust Deed defines their contractual rights against Sigma and in respect of its assets.
Four interested creditors have advanced various possibilities.
Interested parties A and B submit that the assets fall to be distributed preferentially to the creditors in respect of the debts identified in (b), or in (a) and (b).
Assuming that to be right, they differ between themselves as to priority.
Mr Howard QC representing interested party A submits that the assets are to be distributed according to the dates when the relevant debts became due, while Mr Sheldon QC representing interested party B submits that all debts falling due in (or prior to) the Realisation Period are part of a single pool, within which Sigmas remaining assets fall to be distributed pari passu.
Mr Mortimore QC representing interested party C and Miss Prevezer QC representing interested party D maintain, first, that Sigmas remaining assets fall to be allocated equitably as between Short and Long Term Liabilities, and, secondly, that, having been so allocated, its Short Term Liabilities identified in (a), (b) and (c) fall in effect to be distributed pari passu in relation to each other, and that its Long Term Liabilities identified in (d) fall to be treated likewise in relation to each other.
Sales J and, by a majority, the Court of Appeal accepted the case advanced by Mr Howard for interested party A. Lord Neuberger 3 dissented, concluding that the case advanced by interested parties C and D was generally correct, but with the refinement that creditors with debts falling due in the Realisation Period were entitled to be paid within that period such amount as the Trustee was confident would ultimately be paid to them out of the Short Term Pool, with any balance due being paid later from that Pool.
Against the decision of the majority, these appeals are brought by leave of the House of Lords.
The Security Trust Deed
The appeals turn ultimately on the meaning given to the final sentence of clause 7.6 of the Deed.
But this needs to be set in its context.
Clause 7 is long and detailed, and provides inter alia: 7.
ENFORCEMENT 7.1 The Security Trustee shall be entitled to enforce the Security on and from the Enforcement Date only in accordance with this Clause notwithstanding any contrary instruction or direction from any Beneficiary or any other person.
The Security Trustee shall not exercise any of its powers under this Clause until the Enforcement Date. 7.2 Without prejudice to any rule of law which may have a similar effect, the floating charge constituted by Clause 4.1.2 shall on the Enforcement Date automatically be converted with immediate effect into a fixed charge as regards the assets subject to such floating charge and without notice from the Security Trustee to the Issuer. 7.3 On the Enforcement Date or as soon thereafter as can practicably be arranged the Security Trustee shall (to the extent that the relevant Liquidity Facility has not been cancelled by the relevant Liquidity Provider) on behalf of, and as attorney for, the Issuer draw Advances under each Liquidity Facility up to the Available Amount and shall specify repayment dates (except in the case of Swing line Advances) for such Advances falling after the Realisation Period.
If the Issuer has Committed Liquidity (as defined in the IMC) and more than one Liquidity Facility, the Security Trustee shall ensure that, as between Liquidity Facilities, any drawings are made pro rata to the aggregate available commitments under such Liquidity Facilities.
Advances drawn shall be used in order (i) to discharge the Issuers obligations to pay sums due and owing to Beneficiaries in accordance with the relevant Beneficiaries Documents and (ii) to effect replaying of any Advance made 4 under a Liquidity Facility.
If and to the extent that all or any part of the Advances drawn down are not immediately required by the Security Trustee for the purposes of (i) or (ii) above, the Security Trustee shall deposit the unutilised portion(s) of such Advances on a call basis with any bank or financial institution whose short term unsecured, unguaranteed and unsubordinated debt is rated A 1 by S&P, P 1 by Moodys and F1 by Fitch or shall invest such portion(s) in certificates of deposit, United States or United Kingdom government securities or commercial paper rated A 1 + by S&P and P 1 by Moodys.
If the Security Trustee applies an Advance (or part 7.4 thereof) to discharge any of the Issuers Short Term Liabilities because of the default, late payment or non performance of any Asset in the Short Term Pool (a non performing asset) any monies subsequently recovered or received in respect of such non performing asset shall be applied by the Security Trustee in repayment (or part payment) of such Advance before being applied pursuant to the trust declared in Clause 7.11.2. 7.6 The Security Trustee shall use its reasonable endeavours (and in doing so may rely upon the advice of any investment or other advisers as it shall in its absolute discretion consider appropriate and shall not be responsible for any loss which results from such reliance) to establish by the end of the Realisation Period a Short Term Pool, a number of Long Term Pools (one in relation to each Series of EMTNs each Series of ADMTNs and each Series of USMTNs, and one in relation to each other group of Long Term Liabilities having the same payment and/or maturity dates), and a Residual Equity Pool.
In order to establish such Pools, the Security Trustee shall during Realisation Period (but not thereafter) realise, dispose of or otherwise deal with the Assets in such manner as, in its absolute discretion, it deems appropriate.
During the Realisation Period the Security Trustee shall so far as possible discharge on the due dates therefor any Short Term Liabilities falling due for payment during such period, using cash or other realisable or maturing Assets of the Issuer. 7.7 The Security Trustee shall use its reasonable endeavours (and in doing so may rely upon the advice of any investment or other advisers as it shall in its absolute discretion consider appropriate and shall not be responsible for any loss which results from such reliance) to ensure that at the time the Short Term Pool and each Long Term Pool is established (1) 5 the aggregate principal amount of the Assets allocated to each such Pool is equal to the aggregate principal amount of the liabilities to which such Pool has been allocated, (2) the Assets allocated to each such Pool have maturity and payment dates corresponding to the relevant liabilities and (3) payments, recoveries and receipts in respect of the Assets allocated to each such Pool are scheduled to be made or received in the currency in which the relevant liabilities are denominated and (4) the aggregate principal value of Assets rated AA/Aa or lower (or if the Asset has a short term rating, A 1 + or lower) issued or guaranteed by any one single body corporate or sovereign or by separate bodies corporate which are members of the same group does not exceed an amount equal to 50% of the Residual Equity Pool Stake attributable to such Short Term Pool or, as the case may be, Long Term Pool and (5) the aggregate principal value of Assets rated A (or if the Asset has a short term rating, A 1/P 1) issued or guaranteed by any one single body corporate or sovereign or by separate bodies corporate which are members of the same group does not exceed an amount equal to 50% of the Residual Equity Pool Stake attributable to the Issuers Short Term Liabilities or, as the case may be, those of its Long Term Liabilities in relation to which a Long Term Pool is established.
The Security Trustee shall also use its reasonable endeavours to ensure that the credit quality by rating category and percentage of Assets comprising the Short Term Pool and each Long Term Pool is the same or better than the following: Long Term Rating Short Term Rating Percentage by Principal Value of Short Term/ Long Term Pool AAA (S&P)/Aaa Minimum 20% AA (S&P)/Aa A 1 + (S&P) Minimum 50% A A 1/P 1 Maximum 30% 7.8 Subject to Clause 7.7, it is a matter for the Security Trustees absolute discretion which Assets are allocated to 6 which Pool and no liability shall attach to the Security Trustee if its allocation of Assets between Pools proves to be unfavourable or disadvantageous to any person.
Provided that the Security Trustee uses its reasonable endeavours as provided in Clause 7.7, no liability shall attach to the Security Trustee if the purpose for which such endeavours were to be made fails to be realised and the Security Trustee shall be under no liability to any Beneficiary if the Assets allocated to any Pool are insufficient to meet the liabilities of the Issuer to which such Pool related in full or in a timely manner, notwithstanding that the claim of any other Beneficiary shall have been discharged in full.
For the avoidance of doubt, the Security Trustee shall not be obliged to ensure that each Pool complies with the criteria set out in the Second Schedule to the IMC.
Subject to the above and to Clause 7.7, the Security Trustee (i) shall have no regard to the credit quality of each Asset when establishing the Short Term and Long Term Pools and when determining which Assets should be allocated to which Pool and (ii) shall not be concerned with the ultimate composition of each of the Short Term Pool and Long Term Pools with regard to the concentration of assets by rating category nor to the spread across the Pools of Assets of any given rating category. 7.9 If the principal amount of the Assets is less than the principal amount of the Issuers Total Indebtedness, the Security Trustee shall calculate the proportion borne by the deficit to the Issuers Total Indebtedness and shall reduce the principal amount of the Assets allocable to the Short Term Pool and each Long Term Pool accordingly. 7.11 Subject to Clause 7.4, all payments, recoveries or receipts in respect of Assets in the Short Term Pool shall be held by the Security Trustee on trust and shall be applied in accordance with the following priority of payments: 7.11.1 first, to pay the Relevant Proportion of the remuneration payable to the Security Trustee pursuant to this Deed and of any amount due in respect of costs, charges, liabilities and expenses incurred by the Security Trustee or a Receiver appointed by it (and for the purposes of this sub clause the Relevant Proportion shall be the principal amount of the Issuers Short Term Liabilities divided by the Issuers Total Indebtedness, 7 both such amounts to be determined on the last day of the Realisation Period); 7.11.2 second, to pay when due or as soon thereafter as can practicably be arranged all principal, interest or other amounts in respect of the Issuers Short Term Liabilities to Beneficiaries (pro rata to the respective amounts of the Short Term Liabilities due, owing or incurred to each Beneficiary); and third, in accordance with the provisions of 7.11.3 Clause 7.13 Provided that (in respect of 7.11.2 above): (a) if at any time after the Realisation Period the Security Trustee reasonably believes that payments, recoveries and receipts in respect of Assets allocated to the Short Term Pool will be insufficient to meet the Issuers Short Term Liabilities, the Security Trustee shall calculate the proportion of the Short Term Liabilities which, in its reasonable opinion, can be met and shall pay only that proportion of any amounts due in respect of the Issuers Short Term Liabilities to any Beneficiary; and (b) if at the time a payment is proposed to be made to a Beneficiary pursuant to this Clause such Beneficiary is in default under any of its obligations to make a payment to the Issuer pursuant to any Beneficiaries Document (the defaulted payment) the amount of the payment which shall be made to such Beneficiary shall be reduced by an amount equal to the amount of the defaulted payment.
Any amount so withheld shall be paid to the relevant Beneficiary as and when (and pro rata to the extent that) the defaulted payment is duly paid by that Beneficiary. 7.12 Subject to Clause 7.5, all payments, recoveries or receipts in respect of Assets in the Long Term Pool shall be held by the Security Trustee on trust and shall be applied in accordance with the following priority of payments: [There follow provisions largely similar to those of clause 7.11, relating to the Short Term Pool] Clause 17 further provides: . 17 GENERAL PROVISIONS.
SECURITY TRUSTEE 8 17.3 The Security Trustee (save as expressly provided otherwise herein) as regards all the trusts, powers, authorities and discretions vested in it by these presents or by operation of law, have absolute and uncontrolled discretion as to the exercise or non exercise thereof . 17.5 The Security Trustee as between itself and the other Beneficiaries shall have full power to determine all questions and doubts arising in relation to any of the provisions of these presents and every such determination, whether made upon a question actually raised or implied in the acts or proceedings of the Security Trustee, shall be conclusive and shall bind the Security Trustee and the other Beneficiaries.
The scheme of the Security Trust Deed is thus that, upon the occurrence of an Enforcement Event, there will be a Realisation Period of up to 60 days, to enable the Security Trustee to establish the relevant Pools using Sigmas Assets.
Assets are defined in clause 1 in the widest possible terms, including, in a final sub clause, all other rights, benefits, property, assets and undertaking whatsoever and wheresoever situate.
The Short and Long Term Pools are under clauses 7.7 and 7.8 to be structured with a view to matching the principal amount of Sigmas short and long term liabilities with high quality rated assets in corresponding principal amounts and with corresponding maturity and payment dates.
If that is not possible, because the principal amount of Sigmas Assets is less than that of its Total Indebtedness, then, under clause 7.9, the Trustee is to calculate the proportionate deficit, and reduce the principal amount of Assets allocable to each Pool accordingly.
Once the Pools have been set up, then, under clauses 7.11 and 7.12, each Pool is to operate separately, but within each Pool, if it later appears that the Assets allocated to that Pool will be insufficient to meet the Pools liabilities, the Trustee is to calculate and pay to any creditor only that proportion which can, in its reasonable opinion, be met.
Under clause 17.3 and 17.5, the Trustee is given the broadest discretion and powers.
It is in the context of this scheme that it is necessary to read and understand the provision in the third and last sentence of clause 7.6, that During the Realisation Period the Security Trustee shall so far as possible discharge on the due dates therefor any Short Term Liabilities falling due for payment during such period, using cash or other realisable or maturing Assets of the Issuer. 9
The Law
The principles upon which a court should interpret a document such as the present are not in doubt.
They have been reviewed and restated by the House of Lords in a series of cases: Charter Reinsurance Co. Ltd. v Fagan [1997] AC 313, Mannai Investment Co. Ltd. v Eagle Star Life Assurance Co. Ltd. [1997] AC 749, Investors Compensation Scheme Ltd. v West Bromwich Building Society [1998] 1 WLR 896 and Chartbrook Ltd. v Persimmon Homes Ltd. [2009] UKHL 38.
In Charter Reinsurance Lord Mustill underlined the danger of focusing too narrowly on a critical phrase (in that case, a phrase defining the term net loss as meaning the sum actually paid by the Reinsured in settlement of claims), saying (at p.384G H) that: This is . an occasion when a first impression and simple answer no longer seem the best, for I recognise that the focus of the argument is too narrow.
The words must be set in the landscape of the instrument as a whole.
Once this is done the shape of the policy and the purpose of the terms become quite clear Adopting that approach, the House concluded that the words actually paid were in context intended not to introduce a pre condition of pre payment by the insurer to the original insured, but to ensure that the reinsurers liability was measured precisely by reference to any settlement of liability as between the insurer and insured.
Later (at p.387D) Lord Mustill said that the principle that the liability of a reinsurer is wholly unaffected by whether the insurer has in fact satisfied the claim under the inward insurance is one which can undoubtedly be changed by express provision, but clear words would be required; and it would to my mind be strange if a term changing so fundamentally the financial structure of the relationship were to be buried in a provision such as clause 2, concerned essentially with the measure of indemnity, rather than being given a prominent position on its
In Investors Compensation Scheme at pp.912G 913F, Lord Hoffmann summarised the development of the principles of contractual interpretation in this well known passage: 10 The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life.
Almost all the old intellectual baggage of "legal" interpretation has been discarded.
The principles may be summarised as follows: (1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. (2) The background was famously referred to by Lord Wilberforce as the "matrix of fact," but this phrase is, if anything, an understated description of what the background may include.
Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man. (3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent.
They are admissible only in an action for rectification.
The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life.
The boundaries of this exception are in some respects unclear.
But this is not the occasion on which to explore them. (4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words.
The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against relevant background would reasonably have been understood to mean.
The background may not merely enable the the 11 reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax. (see Mannai Investments Co. Ltd. vs Eagle Star Life Assurance Co. Ltd. [1997] AC 749). (5) The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents.
On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.
Lord Diplock made this point more vigorously when he said in The Antaios Compania Neviera S.A. vs Salen Rederierna A.B. [1985] A.C. 191, 201: . if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.
In the present case the focus is on the general nature of the business involved apparent from the document itself and upon the scheme and wording of the Security Trust Deed read as a whole.
As in Miramar Maritime Corporation v Holborn Oil Trading Ltd [1984] 1 AC 676 (per Lord Diplock at p 682A F), so here the document is one which would be expected to have a consistent meaning as between all parties to whom it applied.
I therefore also agree with Lord Collins supplementary remarks on the approach to interpretation.
I pay tribute to the speed with which the courts below have addressed the issue, and the meticulous attention which they have given it.
Ultimately, Sales J and the majority in the Court of Appeal were persuaded in favour of interested party As case by the consideration that the last sentence of clause 7.6 had a clear natural meaning, and that there was nothing in its language (particularly in the phrase so far as possible) to affect the operation of that meaning in the circumstances which arose.
The Trustees obligation during the Realisation Period was to continue to discharge Sigmas debts as and when they fell due, so 12 long and so far as such payment was possible using cash or other realisable or maturing Assets; and the reference to such debts being discharged on the due dates therefor was inconsistent with party Bs argument in favour of pari passu distribution of available assets between creditors whose debts fell due during the Realisation Period.
Analysis
In my opinion, the conclusion reached below attaches too much weight to what the courts perceived as the natural meaning of the words of the third sentence of clause 7.6, and too little weight to the context in which that sentence appears and to the scheme of the Security Trust Deed as a whole.
Lord Neuberger was right to observe that the resolution of an issue of interpretation in a case like the present is an iterative process, involving checking each of the rival meanings against other provisions of the document and investigating its commercial consequences (para. 98, and also 115 and 131).
Like him, I also think that caution is appropriate about the weight capable of being placed on the consideration that this was a long and carefully drafted document, containing sentences or phrases which it can, with hindsight, be seen could have been made clearer, had the meaning now sought to be attached to them been specifically in mind (paras. 100 1).
Even the most skilled drafters sometimes fail to see the wood for the trees, and the present document on any view contains certain infelicities, as those in the majority below acknowledged (Sales J, paras. 37 40, Lloyd LJ, paras. 44, 49 52 and 53, and Rimer LJ para. 90).
Of much greater importance in my view, in the ascertainment of the meaning that the Deed would convey to a reasonable person with the relevant background knowledge, is an understanding of its overall scheme and a reading of its individual sentences and phrases which places them in the context of that overall scheme.
Ultimately, that is where I differ from the conclusion reached by the courts below.
In my opinion, their conclusion elevates a subsidiary provision for the interim discharge of debts so far as possible to a level of pre dominance which it was not designed to have in a context where, if given that pre dominance, it conflicts with the basic scheme of the Deed.
The starting point is that the occurrence of an Enforcement Event is not necessarily to be equated with insolvency, still less insufficiency of assets to meet all secured liabilities.
On the contrary, and this is I think a point with a relevance which does not emerge from the judgments below, clauses 7.3 to 7.8 are all drafted on the assumption of a situation in which Sigma has enough assets to cover at least its secured creditors.
The detailed provisions in clause 7.3 and 7.4 for drawing down on any relevant Liquidity Facility can have little or very limited 13 application in any situation where Sigma lacked funds to cover such creditors, since in such a situation any liquidity provider would be expected to cancel any relevant facility (as happened in this case: see para. 12 above).
The provisions of clauses 7.7 and 7.8 contemplate that there will be sufficient assets to create matching Pools of assets of high rating quality and liabilities.
Only in clause 7.9 does the Deed turn to and address the possibility of a shortfall in the principal amount of the Assets needed to cover Sigmas liabilities.
The provision by clause 7.6 for discharge of Short Term Liabilities as they fall due thus appears in a context where the underlying assumption is that all secured liabilities can be covered and no issue of priority can arise.
To treat it, in the different context of insolvency, as creating effective priority for such Short Term Liabilities as may happen to fall due during the Realisation Period may, therefore, involve a similar risk to that identified by Lord Mustill in Charter Re that of giving to a sentence, buried in a provision like clause 7.6 concerned essentially with a different situation, the effect of changing fundamentally the apparent financial structure of the relationship.
A second point is that the Short and Long Term Pools were under clauses 7.6, 7.9, 7.11 and 7.12 to be established to meet Sigmas total indebtedness, with the Short Term Pool covering all its Short Term Liabilities and the Long Term Pool covering all its Long Term Liabilities as defined by clause 1.
Any suggestion that the final sentence of clause 7.6 was intended to extract, from the Short Term Liabilities, any which happened to fall due during the Realisation Period and to constitute them a separate pool or class with effective priority over other Short Term Liabilities is questionable on its face.
Yet, the conclusion accepted in the courts below means that Realisation Period debts will not (or only in very rare circumstances) form part of the Short Term Liabilities to be met out of the Short Term Pool.
Sigmas assets could normally be expected to consist of cash or other maturing or realisable Assets even if, in the case of some realisable assets, their realisation prior to maturity would come at some cost, because of the element of fire sale involved.
Accordingly, on the approach taken by the courts below, Realisation Period debts will either have been paid during the Realisation Period before any Pools are established at all, or their payment will exhaust all the Assets with the result that there will never be any Pools at all.
In any case where there is an overall shortfall of Assets, the priority given by the courts below to Realisation Period debts would also skew the relationship of any Short and Long Term Pools which were created.
Clause 7.9 requires an overall comparison of Total 14 Indebtedness and Assets, and a pro rata reduction of the amount of Assets allocated to each Pool.
Realisation Period debts fall within the definition of Short Term Liabilities.
However, they would on the approach of the courts below have been paid in full.
This would further reduce the amount available for payment to other Short Term Liabilities, which would accordingly receive a lesser pro rata payment than Long Term Liabilities.
The only alternative, to treat Realisation Period debts as an entirely separate pool, conflicts with the definition of Short Term Liabilities in clause 1 and with the express recognition of such debts as Short Term Liabilities in the third sentence of clause 7.6 itself, and gives the third sentence a significance which seems in context improbable.
There are further conceptual difficulties about drawing any clear cut distinction between Realisation Period debts and other Short Term Liabilities.
Three subsidiary points arise.
First, the last sentence of clause 7.6 contemplates on any view that it may not always be possible to pay Realisation Period debts on their due dates during the Realisation Period.
Some might as a result not even be paid within that Period.
They would then fall within the general body of Short Term Liabilities where they would have no especial priority.
That raises the question why Realisation Period debts should be given priority according to the happenstance that their payment was possible within the Realisation Period.
The second subsidiary point is that Pools were to be established by the end of the Realisation Period.
The processes of making realisations and establishing matching Assets envisaged by clauses 7.6 and 7.7 and of calculating whether any and if so what deficit adjustment was necessary under clause 7.9 were bound to take time and to be potentially complex.
In a fully solvent situation, there would be little problem about continuing to discharge Realisation Period debts as they fell due.
But, in an insolvent situation, with the risk that further indebtedness might arise during that Period from margin calls or the acceleration of other debts and a shortage of Assets overall, the Trustee would, on the approach accepted by the courts below, face conflicting pressures which it would be difficult to reconcile: on the one hand, the short term duty to meet Realisation Period debts as they arose, if necessary by fire sales; on the other the long term duty to ensure balanced and equitable Pools for the benefit of Short and Long Term creditors.
The third subsidiary point is that the language of clause 7.6 indicates on its face that Pools might be established before the end of the Realisation Period, as Rimer LJ accepted (para. 89), though Sales J, as I read his judgment, did not (para. 28).
It is true that clauses 7.11.1, 7.11.3(a) and 7.12.1 all operate by reference to the last day of the 15 Realisation Period, in a way which might be said to assume that the Pools will not have been established until then.
This may well be no more than a drafting infelicity, since it would seem strange, if it were not open, as clause 7.6 suggests it is, to the Trustee to establish the Pools on a day prior to the 60th day after the Enforcement Event.
Assuming this to be so, then, in a situation where clause 7.9 came into operation, the setting up of the Pools would be expected to exhaust Sigmas assets.
Yet, on the approach of the courts below, clause 7.6 would, read literally, require the Trustee to continue to discharge Realisation Period debts in full, after the setting up of the Pools, in circumstances where Sigmas assets were now held on the express trusts established by clauses 7.11 and 7.12.
The only alternative would be to treat the obligation under clause 7.6 as coming to an end, despite its terms, before the end of the Realisation Period.
However, this third subsidiary point is a small one.
A third main point is the fortuitous effect of the interpretation placed on clause 7.6 by the courts below.
Depending upon when an Enforcement Event occurred, those whose debts happened to fall due during the ensuing Realisation Period would gain priority.
Creditors might be able to procure priority for themselves by making a margin call or giving notice advancing the payment date of their debts.
Sales J treated this as representing a normal assumption of risk, under which every lender to Sigma took a chance . that it might be in the advantageous position in which Party A now finds itself (para. 26).
Rimer LJ was also influenced by the fact that the Deed was a commercial bargain, intended to operate in insolvent and solvent situations, although he thought it improbable that the parties had foreseen the possibility of the extraordinary, probably unprecedented, market events that had actually unfolded (para. 92).
Accepting what Rimer LJ says, it remains in my view improbable that commercial parties would contemplate that, after so important an occurrence as an Enforcement Event, priority would be conferred even to a modest extent and in the short term on a particular group of creditors on the basis of the chance of their indebtedness falling due, or being capable of being made to fall due, during the Realisation Period.
The basic aim of clause 7.6 is to provide for the establishment of the Pools and the realisation of Assets, in such manner as the Trustee may in its absolute discretion deem appropriate, for that purpose.
The Pools are under clauses 7.7 to 7.9 to contain Assets matching, or corresponding pro rata with, the payment and maturity dates of Sigmas Short and Long Term Liabilities.
The third sentence of clause 7.6 has in this context the flavour of an ancillary provision designed to achieve a similar interim position during the Realisation Period.
To my mind, it is unlikely that the Trustees obligation under the third sentence was 16 intended to override the absolute discretion given to it under the second sentence.
This may be part of the explanation for the use of the phrase so far as possible.
Whether that is so or not, the third sentence appears in a context and form which makes it, to my mind, an improbable vehicle for a duty to pay Realisation Period debts, regardless of any conclusion by the Trustee that clause 7.9 applies or will apply and that such payment will accordingly diminish the Assets capable of allocation to the Short Term Pool (or to the Short and Long Term Pools).
The fourth point is that, if the final sentence of clause 7.6 is intended to operate even in circumstances where this would give Realisation Period creditors priority over other Short and Long Term creditors, it fails notably to address the position of creditors whose unpaid debts fell due for payment prior to the Realisation Period, i.e. in this case the US$900,000 of debts representing coupon payments on notes which fell due on 30 September and 1 October 2008 (para. 4 above).
Sales J thought that there was no difficulty about reading the words falling due as embracing debts already due, once it was borne in mind that a debt remains due on each day until it is satisfied (para. 36).
Lloyd LJ (para. 51) and Rimer LJ (para. 90) thought that no specific thought can have been given to such liabilities when clause 7 was drafted (although they fall within the definition of Short Term Liabilities and so naturally within clause 7.11.2).
Both thought that it would not be a major qualification to read the final sentence of clause 7.6 as if it referred to Short Term Liabilities already due or falling due (paras. 52 and 90).
Elsewhere, Lloyd LJ laid some weight upon the Deed being a commercial document prepared by skilled and specialist lawyers for use in relation to sophisticated financial transactions (para. 67), and Rimer LJ upon it being a 45 page document reflecting the considered input of (probably) a team of commercial lawyers (para. 86).
But it contains, as their judgments also accept (paras. 51 52 and 90) infelicities, which indicate, at the lowest, the importance of keeping an eye on and making sense of the overall picture.
I add that, on the view I take of the third sentence of clause 7.6, it is not surprising that it makes no reference to unpaid pre enforcement debts; the sentence appears, as I have said, in a context where the assumption is one of solvency, in which context one would not expect any unpaid pre enforcement debts.
However, when the sentence is transposed and applied to a situation of insolvency, pre enforcement debts are more easily and naturally catered for as part of the general body of Short Term Liabilities, on the construction advanced by parties C and D, with or without Lord Neubergers refinement, for reasons pointed out by Lord Neuberger (para. 107).
A fifth point relates to the provisions for payment of the fees and expenses of the Security Trustee and any Receiver.
Under clauses 7.11.1 and 7.12.1, these are, as one would expect, express prior charges on the relevant Pool Assets.
In a solvent situation, there would be no problem about payment of such fees and expenses out of Sigmas Assets during the Realisation Period before any Pools or Pool Assets were established.
But, if the final sentence of clause 7.6 applies to require payment out in insolvent situations, although discharge in full of the Realisation Period debts might (as here) exhaust the whole of the available Assets, there is nothing in clause 7.6 to give the Security Trustee or Receiver any priority or protection.
Sales J (paras. 37 40), with whom Lloyd LJ agreed on the point (para. 53), regarded this as no more than infelicity of drafting.
Sales J suggested that, in practice, the Receiver could be covered if the Trustee fixed his remuneration and directed that it be paid out of the Assets under clause 14.3.4 and if the Receiver, with the Trustees permission, then, in order to cover his fees and expenses, borrowed money on the security of Sigmas Assets in priority to any secured creditor, as expressly permitted by clause 14.3.6.
As to the Trustee, he thought the position slightly less clear, but that the Trustee could cover itself in one or two ways.
First, it could appoint a Receiver to act on its behalf, in which case the Receivers fees and expenses would be recoverable as above.
Second, clause 13.2 allowed the Trustee, out of the profits and income of the Assets and monies received by it in the exercise of any of its powers, to pay and discharge all expenses and outgoings incurred in and about the exercise of any such powers, and the word expenses could be read as including remuneration.
These ingenious solutions do not overcome the basic problem, that, if the last sentence of clause 7.6 was ever envisaged as creating a continuing pay as you go regime, which would give effective priority to Realisation Period creditors, even though nothing would then remain for other creditors, it is remarkable that no special provision was made for the Trustees or Receivers fees and expenses.
However remote the risk of non payment, such priority would normally be standard form.
The inference is that the Trustees and Receivers prior right under clauses 7.11.1 and 7.12.1 was thought to be all that could ever be required, and that it was never contemplated that payments could or would be made under clause 7.6 in circumstances which could conceivably affect their entitlement to such fees and expenses.
That argues for considerable caution before concluding that it must nevertheless be interpreted and so taken to have been intended to have that effect.
Most if not all of the above points were identified by both Sales J and by the majority in the Court of Appeal and are summarised clearly and cogently, for example by Lloyd LJ (paras. 57 and 58) and Rimer LJ (para. 80).
At the end of the day, other considerations persuaded them that the last sentence of clause 7.6 must be regarded as applying so as to 18 require payment in full of Realisation Period debts as they fell due, regardless of the effect on the creation of the Pools in general or on other Short Term creditors in particular.
In support of this approach, Mr Howard and Mr Sheldon submit that an important key to understanding the last sentence of clause 7.6 is to see it as no more than the agreed continuation for a short period of the pay as you go regime prevailing prior to the occurrence of the Enforcement Event.
While realisations were being made, they submit, it would have been thought convenient to continue this regime and to be unlikely to have much if any effect on non Realisation Period creditors.
However, that in my opinion fails to give proper weight to the major significance attaching under the scheme of the Deed to an Enforcement Event.
It may be (although the House understood it to be contentious) that Sigma was free to continue with a pay as you go system after it had become clear that this could affect later creditors, by realising assets and entering into repo agreements for the purpose.
But the purpose of clause 7 is evidently to draw a line at a certain point.
The crystallisation of powers and of the floating charge under clauses 7.1 and 7.2 and the definitions in clause 1 of Short and Long Term Liabilities and of the Pools to be established under clauses 7.6 to 7.9 strongly support a conclusion that that point was the Enforcement Date.
The argument remains, nevertheless, that the third sentence of clause 7.6 is an unequivocal short term provision, and that nothing in its language or in the Deed as a whole limits, or entitles the court to limit, its application in a situation like the present.
The majority in the Court of Appeal in rejecting the arguments advanced for parties C and D attached importance to the fact that the sentence used the words so far as, rather than if.
Further, in rejecting Lord Neubergers refinement of the argument, they noted the absence of any definition of the state of mind which the Trustee would have to have or of what it would have to do, as well as the absence of any definition of the scope of the Trustees discretion, or judgment, if it was in whatever was the relevant state of mind as regards the prospects for payment in full, or only on account, of Sigmas various secured liabilities (paras.62 72, per Lloyd LJ).
I think that a similar objection could however be made in relation to clause 7.9.
Its operation must involve a substantial and time consuming process of evaluation and judgment during the Realisation Period.
Whether and how it applies must be potentially complex matters for the Trustees judgment, having regard to the provisions of clause 7.7 regarding maturity and rating quality.
Ultimately, in Lloyd LJs view, the position was that the sentence is on the face of it, clear and unequivocal as to the Trustee's obligation to discharge the Short Term Liabilities falling due during the 19 Realisation Period (para. 63), in a commercial document prepared by skilled and specialist lawyers, the clear and natural meaning of the words should prevail (para. 67) and, especially bearing in mind the elaborate and careful provisos to clauses 7.11 and 7.12 whereby an obligation to pay pro rata was introduced, the argument for pari passu distribution involves placing on the words so far as possible a weight and significance that they cannot bear (para. 69).
Rimer LJ adopted similar reasoning, considering that, if the approaches advanced by parties C and D or adopted by Lord Neuberger had been intended, that could and would have been said (paras. 86 88).
Both Lloyd and Rimer LJJ recognised that the parties would, when subscribing to notes on the terms of the Deed, not have had in contemplation the extraordinary market events which have occurred, or what, they recognised, might be regarded on their approach as leading to an unfair result (paras. 69 and 92).
But they noted (paras.30 31, 85 and 92) that the Deed foresaw that an Enforcement Event might result from insolvency as from solvency.
In those circumstances, and in the absence of any appropriate limitation, they saw the last sentence of clause 7.6 as equally applicable in both situations.
At one point in his judgment (para. 59), Lloyd LJ also said that The sentence does not say if possible, but so far as possible; the latter phrase seems clearly to indicate that partial payment may be possible.
However, if he was here suggesting that the sentence was expressly addressing a situation of insolvency in which Realisation Period debts would exhaust all Sigmas assets, the suggestion is in conflict with what was said elsewhere about the improbability of the parties foreseeing any such situation, and with the probable reality.
I return to my starting point.
The last sentence of clause 7.6 appears in and was drafted in contemplation of the situation where no question of insolvency arose.
It is not until clause 7.9 that any such possibility is addressed.
In practice, no doubt, an Enforcement Event would be more likely than not to result from some financial difficulty on Sigmas part.
But that is not the situation which clauses 7.6 to 7.8 are drafted to address.
The last sentence of clause 7.6 has therefore now to be interpreted in a quite different context to that in which it appears and for which it was designed.
This is not an unusual phenomenon, as Sales J and the majority in the Court of Appeal recognised, when they found it necessary to expand or to qualify or read words into certain of the Deeds provisions in the light of the infelicities of drafting which on their approach emerged.
In the present situation, the reasonable mans task in understanding the meaning and application of the last sentence of clause 7.6 is in my opinion greatly facilitated by the existence of a clear basic 20 scheme, from which it is improbable that the parties would have wished to depart.
That basic scheme involved the creation of a Short and of Long Term Pools, each with sufficient nominal assets of sufficient rating quality to meet, or meet pro rata, the Pools liabilities as and when they matured.
The basic purpose of the Realisation Period was to give time for the creation of such Pools.
Realisation Period debts were to be part of the Short Term Pool.
Seen in the context in which the third sentence of clause 7.6 appears, its aim was to put Realisation Period debts in the same position as other Short Term Liabilities.
They were to be paid so far as possible on their maturity and payment dates.
Seen in a context where the Trustee concludes that clause 7.9 applies, the approach of the courts below achieves the opposite result.
It elevates Realisation Period creditors to a special status, extracts them from the Pool to which the Deed assigns them, distorts the apparent aim to achieve equity between all creditors by the creation of Short and Long Term Pools, and probably also distorts the relationship between the Short and the Long Term Pools.
These considerations are sufficient to persuade me, as they persuaded Lord Neuberger, that the parties to the Deed cannot have contemplated the approach adopted by the courts below, even in a less extreme situation of insolvency than the present, such as they might have foreseen.
The phrase so far as possible was used in a context where what were in mind were no doubt relatively minor discrepancies (during the Realisation Period when the Trustees main concern would be the creation of appropriate Pools) between available cash or other realisable or maturing Assets and liabilities, which could delay or prevent payment of all or some Realisation Period debts.
That alone would explain why the word if was not used instead of so far as.
But, when the sentence is transposed and applied to a situation in which clause 7.9 applies, those words are apposite to enable the Trustee to determine that no further payments can appropriately be made, having regard to the overall aim of achieving equitable Pools and an equitable allocation of Assets between the two (or more) main Pools.
I would, in this context and so far as necessary, be prepared to read the words so far as as equating with if.
I find it difficult in any event to attach as much weight as the Court of Appeal did to the difference.
But it seems to me, as it did to Lord Neuberger, that it would also be open to the Trustee to make on account payments during the Realisation Period in respect of Realisation Period debts as they fell due.
The calculation made or being made under clause 7.9 would indicate what proportion of such debts could safely be paid.
The Trustees extensive and absolute discretions and powers under clauses 17.3 and 17.5 would avoid any argument.
It is however unnecessary on the facts to reach any concluded decision on the correctness of Lord Neubergers refinement to the case advanced by 21 parties C and D.
It is not, in my opinion, critical to the outcome of these appeals whether or not that refinement be accepted.
Conclusion
I would therefore allow the appeals of interested parties C and D and dismiss the appeal of interested party B, set aside the decisions of the courts below and declare that, on the true construction of clause 7.6 of the Security Trust Deed, and in the events that have happened, the Receivers were not obliged to use cash or other realisable or maturing assets of Sigma to pay Short Term Liabilities falling due for payment during the Realisation Period after 6 October 2008 either in the order in which they fell due or pari passu with other Short Term Liabilities due for payment during the Realisation Period.
I would further declare that such Liabilities are to be treated along with all other Short Term Liabilities in respect of which payments fall to be made under clause 7.11 out of the Short Term Pool to be established under clauses 7.6 to 7.10.
LORD COLLINS (with whom Lords Hope and Mance concur)
I agree with Lord Mance that the appeals of interested parties C and D should be allowed for the reasons he gives, and I add only a few remarks of my own on the approach to interpretation.
In complex documents of the kind in issue there are bound to be ambiguities, infelicities and inconsistencies.
An over literal interpretation of one provision without regard to the whole may distort or frustrate the commercial purpose.
This is one of those too frequent cases where a document has been subjected to the type of textual analysis more appropriate to the interpretation of tax legislation which has been the subject of detailed scrutiny at all committee stages than to an instrument securing commercial obligations: cf Satyam Computer Services Ltd v Upaid Systems Ltd [2008] EWCA Civ 487, [2008] 2 CLC 864, at [2].
Sigma financed its investments over a 13 year period by debt securities issued or guaranteed by it.
It entered into liquidity facilities intended to hedge against market liquidity risks.
It entered into financial instruments intended to hedge against currency and interest rate risk.
Others provided liquidity facilities, or entered into financial hedging instruments.
The Security Trust Deed secures a variety of creditors, who hold different instruments, issued at different times, and in different circumstances.
Consequently this is not the type of case where the background or matrix of fact is or ought to be relevant, except in the most generalised 22 way.
I do not consider, therefore, that there is much assistance to be derived from the principles of interpretation re stated by Lord Hoffmann in the familiar passage in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912 913.
Where a security document secures a number of creditors who have advanced funds over a long period it would be quite wrong to take account of circumstances which are not known to all of them.
In this type of case it is the wording of the instrument which is paramount.
The instrument must be interpreted as a whole in the light of the commercial intention which may be inferred from the face of the instrument and from the nature of the debtors business.
Detailed semantic analysis must give way to business common sense: The Antaios [1985] AC 191, 201.
Once clause 7.6 of the Security Trust Deed is seen in context, the conclusion that the Receivers were not obliged to give priority to the first maturing Short Term Liabilities is consistent with the wording of the clause in the context of the Trust Deed as a whole and with the commercial purpose of the instrument.
LORD WALKER (dissenting)
These appeals will determine how the enormous loss incurred by Sigma Finance Corporation is to be borne as between the anonymous investment banks, hedge funds and other entities which are its secured creditors.
Lord Mance refers to them as victims of the current financial crisis.
An alternative view would be that they are among the authors of the crisis.
But that is not an issue for the Court.
Although I was one of those who gave permission for a further appeal (as it then was, to the Appellate Committee of the House of Lords) I find, on closer consideration, that the case involves no issue of general public importance.
There is no doubt as to the principles of construction to be applied.
They are clearly summarised (under the heading the law) in Lord Mances judgment.
The only issue is as to the interpretation of the security trust deed in the light of those principles.
Sales J and the majority of the Court of Appeal (Lloyd and Rimer LJJ) took one view but Lord Neuberger (sitting in the Court of Appeal) took a different view.
In respectful dissent from the majority of this Court I prefer the view taken by the judge and the majority of the Court of Appeal.
Since no issue of principle is involved it would be quite inappropriate to give any lengthy explanation of my reasons.
I will limit myself to three fairly general points.
First, I completely agree that it is necessary to construe the language of clause 7.6 of the deed in the landscape of the instrument as a whole (in the words of Lord Mustill in Charter Reinsurance Co Ltd v Fagan [1997] AC 313, 384H).
One of the most striking features of the landscape of the deed, to my mind, is that clause 7 does not provide for the immediate winding up of Sigma on the occurrence of a default which amounts to an enforcement event.
On the contrary, secured creditors are prohibited from taking steps to wind up the company.
It is therefore necessary to repress any instinctive feeling (and it is, I acknowledge, a strong instinctive feeling) that pari passu distribution at the earliest practicable date is the most natural (one might almost say the only rational) solution.
Instead, the assets were to be retained and marshalled (in accordance with the detailed provisions of clauses 7.6 to 7.10) in order to match the companys short term and long term liabilities, as defined, all of which were to be paid (under clause 7.11 or 7.12) as they fell due.
The procedure envisaged was comparable to that of a funded occupational pension scheme which is closed to new entrants but not wound up.
In such a case the trustees would adjust the way in which the fund was invested in order to match its predictable short term, medium term and long term liabilities.
Scheme members would still have to wait for the payment of their respective pensions to fall due, and as each became entitled to a pension he or she would (in the typical case) then be entitled to preference, as against those whose pensions had not fallen due, if and when there was eventually a winding up.
Second, the need to exclude any instinctive feeling about insolvent winding up is reinforced by the fact, to which Lord Mance rightly attaches importance, that the parties cannot have contemplated that Sigma would have insufficient assets to meet its liabilities even to secured creditors especially not on the scale of the extraordinary loss that has actually occurred.
These skilled and sophisticated investors expected to make money, not to lose it.
The fact that the effect of the deed, in a situation which the parties never contemplated, may appear fortuitous or arbitrary does not therefore carry much weight.
It is not for the Court to make a new contract for experienced commercial operators advised by expert lawyers.
Third, clause 7.6 (the crucial provision which has to be fitted into the landscape of the deed as a whole) is concerned with what is to happen during the 60 day realisation period.
In setting up the pools the trustee was to perform what might well be a difficult exercise, but it was essentially an exercise of an administrative nature.
The references to the trustees absolute discretion are to my mind explained by the trustees 24 wish to protect itself from possible criticism, rather than to any power for the trustee to prefer one secured creditor to another.
The direction for payment of liabilities falling due for payment during the realisation period was no doubt expected to be more or less ancillary (as Lord Mance puts it) but it has, in the wholly unexpected events which have occurred, assumed unexpected importance.
Reference was made to the direction applying so far as possible (rather than if and so far as possible) and to the fact that those words are not immediately adjacent to the words on the due dates therefore.
I would not attach any importance to those details of language.
The words are wide enough to cover both the possibility that a payment might for practical reasons have to be delayed by a few days, and the much more remote possibility (as it would have appeared to the parties at the time) that there would be a permanent deficiency of assets.
I would therefore dismiss these appeals.
| UK-Abs | Sigma Finance Corporation is a structured investment vehicle (SIV) established to invest in certain types of asset backed securities and other financial instruments.
Sigma aimed to profit from the difference between the cost of funding its activities and the returns made on its investment portfolio.
However, the impact on the financial markets stemming from the sub prime mortgage market in the United States has meant that Sigmas available assets now fall very far short of the amount needed to pay even the secured creditors of the SIV.
All of Sigmas assets are secured under a security trust deed (STD) in favour of those of its creditors investing in and through Sigma.
The dispute in this case is between various classes of creditors as to the correct application of the STD where Sigma has insufficient funds to satisfy all its creditors and had failed to meet a margin call.
The STD provided that in that event there should be a 60 day realisation period during which the trustees should use Sigmas assets to create, so far as possible, two pools of funds relating to its short and long term liabilities.
But clause 7.6 of the STD also provided that: During the Realisation Period the Security Trustee shall so far as possible discharge on the due dates therefor any Short Term Liabilities falling due for payment during such period, using cash or other realisable or maturing Assets of the Issuer.
The Court of Appeal, by a majority, construed clause 7.6 as meaning that the remaining assets fall to be distributed preferentially to the creditors whose debts fall due during the realisation period, with distribution to be made according to the dates when payment became due.
The Supreme Court by a majority of four to one allowed the appeal by other creditors whose debts fell due after the realisation period.
The principal judgment was delivered by Lord Mance, with whom Lords Hope, Scott and Collins agreed.
Lord Walker dissented for the reasons outlined below).
The principles of contractual construction to be applied were well established and required consideration of the basic scheme of the STD.
Clause 7.6 appeared in the STD in the context of an assumption that Sigma would retain sufficient assets to cover its secured creditors.
It was not intended to deal with a situation requiring the application of priorities between creditors.
was improbable that clause 7.6 could be read as extracting from the short term pool debts which fell due during the 60 day realisation period so as to give priority over other creditors. (Paras [9] [10], [12], [13] [17]) It was also improbable that the parties would have contemplated priorities being conferred by the fortuitous timing of debts falling due during the realisation period.
Clause 7.6 was an ancillary provision which did not override the trustees absolute discretion as to the manner in which assets were to be realised.
No provision would have been made for the fees of the trustee if the Court of Appeal were correct.
The reasonable persons understanding of clause 7.6 was aided by a clear basic scheme that debts arising during the realisation period were to be part of the short term pool of creditors with the assets to be distributed equitably amongst all the creditors at the discretion of the trustee. (Paras [21] [22], [25], [32] [33]) Lord Collins added that textual analysis of the type used to interpret tax legislation was not appropriate to a commercial contract.
Detailed semantic analysis must give way to common sense. (Paras [35] [38]) Lord Walker dissented.
He found that on closer examination the case involved no issue of general public importance.
The legal principles were not disputed and the Court should avoid making new contracts for experienced commercial parties. (Paras [42] [46])
|
Sexual offences can inflict harm whose consequences persist throughout the lives of their victims and some sexual offenders never lose their predisposition to commit sexual offences.
Section 82 of the Sexual Offences Act 2003 (the 2003 Act) imposes on all who are sentenced to 30 months imprisonment or more for a sexual offence the duty to keep the police notified of where they are living and of travel abroad (the notification requirements).
This duty persists until the day they die.
There is no right to a review of the notification requirements.
These appeals raise the question of whether the absence of any right to a review renders the notification requirements incompatible with article 8 of the European Convention on Human Rights (the Convention).
That article provides: 1.
Everyone has the right to respect for his private and family life, his home and his correspondence.
There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others. 2.
These appeals arise out of two independent claims for judicial review.
The first was brought by F.
When he was eleven years old he committed a number of serious sexual offences, including two offences of rape, on a six year old boy.
On 17 October 2005, having been convicted of these offences after a contested trial, he was sentenced to 30 months imprisonment on each count concurrent.
This sentence automatically brought into effect the notification requirements.
The second claim was brought by Mr Thompson.
He was born on 1 March 1951.
On 12 December 1996 he was sentenced to 5 years imprisonment, concurrent, on two counts of indecent assault on his daughter, together with other concurrent sentences for assault occasioning actual bodily harm.
This sentence also brought into effect the notification requirements.
Neither claimant was in a position to bring proceedings pursuant to section 7(1) of the Human Rights Act 1998 on the ground that the imposition of the notification requirements unlawfully infringed his Convention rights, for section 6(2) of that Act precluded such a claim.
Each commenced proceedings for judicial review claiming a declaration that the notification requirements were incompatible with article 8 of the Convention.
The claims succeeded before the Divisional Court (Latham LJ, Underhill and Flaux JJ) on 19 December 2008, whose decision was upheld by the Court of Appeal (Dyson, Maurice Kay and Hooper LJJ) on 23 July 2009, [2010] 1 WLR 76.
The ground on which the claims succeeded was a narrow one.
The courts below held that the notification requirements interfered with article 8 rights, that the interference was in accordance with the law and that it pursued legitimate aims, namely the prevention of crime and the protection of the rights and freedoms of others, but that the lack of any provision for review of the notification requirements rendered these a disproportionate manner of pursuing that legitimate aim.
It is not to be inferred from the judgments below that, had either claimant been entitled to challenge, by way of a review, the notification requirements made in his case, the challenge would have succeeded.
The only issue raised by these appeals is a general one.
Does the absence of any right to a review render lifetime notification requirements disproportionate to the legitimate aims that they seek to pursue?
The statutory provisions
relevant statutory provisions set out by the Court of Appeal.
Statutory notification requirements for sex offenders were first introduced by section 1(3) of the Sex Offenders Act 1997 (the 1997 Act).
They were automatic on conviction.
Under the 1997 Act regime, the notification requirements were to give the police details of the offenders name, address and date of birth within 14 days of conviction, and to notify any address at which he would be staying for 14 days or longer.
The Criminal Justice and Courts Services Act 2000 (the 2000 Act) reduced the initial notification time to 3 days and introduced a new requirement that an offender notify the police if he intended to travel overseas in accordance with regulations made by the Secretary of State.
Regulations were made pursuant to the 2000 Act which required that notification of travel should be made at least 48 hours prior to departure and that it should include the identity of the carrier, all I propose to adopt, with some additions, the helpful summary of the points of arrival in destination countries, accommodation arrangements, return date and point of arrival if known.
Under the 1997 and 2000 Acts the required notifications could be given either by attending in person at a local police station or by sending a written notification to any such station.
All these provisions were repealed by the 2003 Act.
Section 82(1) of the 2003 Act contains a table which prescribes the notification periods for different categories of offenders.
As I have said, for persons who have been sentenced to imprisonment or detention for 30 months or more, an indefinite period beginning with the relevant date is prescribed.
For present purposes the relevant date is defined as the date of conviction (section 82(6)).
Section 82(2) provides that, where a person is under the age of 18 on the relevant date, the determinate periods prescribed in the table are halved in respect of sentences shorter than 30 months.
Section 83 makes provision for initial notification.
Thus, within 3 days of the relevant date, the offender must notify to the police the information specified in subsection (5), namely his date of birth; his national insurance number; his name on the relevant date and, where he used one or more other names on that date, each of those names; his home address on the relevant date; his name on the date on which notification is given and, where he uses one or more other names on that date, each of those names; his home address on the date on which notification is given; and the address of any other premises in the United Kingdom at which, at the time the notification is given, he regularly resides or stays.
Section 84 makes provision for the notification of changes in the information given pursuant to section 83 within 3 days of the changes occurring.
This includes notification of the person's "having resided or stayed, for a qualifying period, at any premises in the United Kingdom the address of which has not been notified to the police" (subsection (1)(c)).
Subsection (6) provides that "qualifying period" means (a) a period of 7 days, or (b) two or more periods, in any period of 12 months, which taken together amount to 7 days.
Section 85 provides for periodic notification of the information specified in section 83(5).
Section 86(1) provides that the Secretary of State may by regulations make provision requiring offenders who leave the United Kingdom to give a notification under subsection (2) before they leave and a notification under subsection (3) about their subsequent return.
A notification under subsection (2) must disclose the date on which the offender will leave; the country (or the first country) to which he will travel and his point of arrival in that country; and any other information prescribed by the regulations which the offender holds about his departure from or return to the United Kingdom or his movements while outside the United Kingdom.
A notification under subsection (3) must disclose any information prescribed by the regulations about the offender's return to the United Kingdom.
Section 87(1) provides that a person gives a notification by "(a) attending at such police station in his local police area as the Secretary of State may by regulations prescribe, and (b) giving an oral notification to any police officer, or to any person authorised for the purpose by the officer in charge of the station".
Section 87(4) provides that where a notification is given, the relevant offender must, if requested to do so by the police officer or authorised person, allow the officer or person to take his fingerprints and/or photograph any part of him.
Section 91(1) provides that a person commits an offence "if he (a) fails, without reasonable excuse, to comply with section 83(1), 84(1), 84(4)(b), 85(1), 87(4)or any requirement imposed by regulations made under section 86(1)".
Section 91(2) provides that a person guilty of an offence under this section is liable on conviction on indictment to imprisonment to a term not exceeding 5 years and on summary conviction to a term not exceeding 6 months or a fine or both.
Pursuant to section 86 the Secretary of State made the Sexual Offences Act 2003 (Travel Notification Requirements) Regulations 2004 (SI 2004/1220).
These require extremely detailed information to be given in relation to travel plans.
Just as in the case of information required by sections 83, 84 and 85, this information had to be provided in person at a police station.
The approach to proportionality
In order to decide whether interference with a fundamental right is proportionate to the legitimate end sought to be achieved the court has to ask the questions identified by the Privy Council in de Freitas v Permanent Secretary of Ministry of Agriculture, Fisheries, Lands and Housing [1999] 1 AC 69 at p 80: whether: (i) the legislative objective is sufficiently important to justify limiting a fundamental right; (ii) the measures designed to meet the legislative objective are rationally connected to it; and (iii) the means used to impair the right or freedom are no more than is necessary to accomplish the objective.
However, as Lord Bingham of Cornhill observed in Huang v Secretary of State for the Home Department [2007] UKHL 11; [2007] 2 AC 167 at para 19, there is an overriding requirement to balance the interests of the individual against those of society.
In this case the importance of the legislative objective has never been in doubt.
The prevention of sexual offending is of great social value and the respondents have not suggested that, insofar as notification requirements play a useful role in assisting to achieve this objective, they are not a proportionate means of doing so.
The debate has been as to the necessity and utility of imposing notification requirements for life without any review.
In respect of this debate the observations of Lord Nicholls of Birkenhead in Wilson v First County Trust Ltd (No 2) [2003] UKHL 40; [2004] 1 AC 816 at paras 62 64 are in point.
He remarked that when a court makes a value judgment in respect of proportionality the facts will often speak for themselves, but that sometimes the court may need additional background information tending to show, for instance, the likely practical impact of the statutory measure.
Such information may be provided in the course of Parliamentary debate, and it is legitimate to have recourse to Hansard in the search for it.
Domestic jurisprudence
The Court of Appeal considered three cases, to which this court has also been referred, in which the relevant provisions of the 2003 Act, or its predecessor the 1997 Act, were considered.
The first was In re an application by Kevin Gallagher for Judicial Review [2003] NIQB 26, a decision of Kerr J sitting in the High Court of Northern Ireland.
The applicant had been sentenced to 33 months imprisonment on three counts of indecent assault and, in consequence, become subject to the automatic reporting restrictions.
He complained that these were disproportionate in that they were automatic.
The trial judge had no jurisdiction to disapply or vary them where it was clear to him that they were unnecessary or inappropriate.
The applicant was particularly concerned with the obligation to give notification of proposed travel arrangements added by the 2000 Act as he moved regularly across the border to the Republic of Ireland, usually for very short periods.
The decision and reasoning of Kerr J appear from the following paragraphs of his judgment. 22 . the absence of a dispensing provision whereby the applicant might apply to be relieved of the reporting requirements after a stipulated period will not render the provisions automatically disproportionate.
That feature is undoubtedly relevant to the issue but it alone cannot dictate the outcome of the examination of a schemes proportionality. 23.
It is inevitable that a scheme which applies to sex offenders generally will bear more heavily on some individuals than others.
But to be viable the scheme must contain general provisions that will be universally applied to all who come within its purview.
The proportionality of the reporting requirements must be examined principally in relation to its general effect.
The particular impact that it has on individuals must be of secondary importance. 24.
The gravity of sex offences and the serious harm that is caused to those who suffer sexual abuse must weigh heavily in favour of a scheme designed to protect potential victims of such crimes.
It is important, of course, that one should not allow revulsion to colour ones attitude to the measures necessary to curtail such criminal behaviour.
A scheme that interferes with an individuals right to respect for his private and family life must be capable of justification in the sense that it can be shown that such interference will achieve the aim that it aspires to and will not simply act as a penalty on the offender. 25.
The automatic nature of the notification requirements is in my judgment a necessary and reasonable element of the scheme.
Its purpose is to ensure that the police are aware of the whereabouts of all serious sex offenders.
This knowledge is of obvious assistance in the detection of offenders and the prevention of crime.
If individual offenders were able to obtain exemption from the notification requirements this could at least potentially compromise the efficacy of the scheme. 26.
By the same token the fact that the notification requirements persist indefinitely does not render the scheme disproportionate.
While this is unquestionably an inconvenience for those who must make the report, that inconvenience must be set against the substantial benefit that it will achieve of keeping the police informed of where offenders are living and of their travel plans so that further offending may be forestalled both by rendering detection more easily and deterring those who might be tempted to repeat their offences. 27.
I am therefore satisfied that the notification requirements are proportionate and the application for judicial review must be dismissed.
This passage is of obvious relevance, albeit that Kerr J was considering submissions directed at the role of the trial judge.
I observe that he treated as axiomatic both the substantial benefit to which he referred in paragraph 26 and the statement in paragraph 25 that it could, at least potentially, compromise the efficacy of the scheme if individual offenders were able to obtain exemption from the notification requirements.
In Forbes v Secretary of State for the Home Department [2006] EWCA Civ 962; [2006] 1 WLR 3075 Sir Igor Judge P endorsed Kerr Js analysis of the principles underpinning and justifying the notification requirements.
As the Court of Appeal observed, however, Forbes was not concerned with indefinite notification requirements, nor with the possibility of a review of these.
A v Scottish Ministers [2007] CSOH 189; 2008 SLT 412 concerns the 2003 Act, as it applies in Scotland, and regulations made pursuant to it.
The provisions are not in all respects identical in the two jurisdictions.
A brought a petition for judicial review, challenging the compatibility of these provisions with article 8 of the Convention.
The petition was refused by the Lord Ordinary and a reclaiming motion was considered by the Inner House on 19 to 21 January.
The First Division has reserved judgment until after the court has delivered judgment in this appeal.
In these circumstances the court granted permission to intervene in these appeals to both the Lord Advocate and to A.
The Lord Ordinary reviewed the relevant jurisprudence in a lengthy judgment and concluded that the notification requirements were proportionate to the legitimate aim at which they were directed and were compatible with article 8 of the Convention (paragraph 58).
As the Court of Appeal observed, however, this conclusion was not easy to reconcile with the following passage in paragraph 52 of his judgment: In light of the importance of the aims being pursued I am satisfied that the rigid and indeterminate nature of the scheme under discussion does not result in this petitioner having to bear an individual and excessive burden.
That is not to say that if the facts of the case were different the same view would necessarily be arrived at.
For example, the proportionality of an indefinite interference with the art 8 rights of an elderly man who had been in no trouble for very many years might cause the issue to be focused in quite a different way.
The Lord Ordinary had earlier accepted the proposition that his task was to look at the facts as they applied to the applicant rather than in the abstract, albeit in the context of the general aims of the legislation (para 49), and this is what he appears to have done.
His judgment did not focus on the question of whether the lack of any review of the notification requirements could be justified.
The Strasbourg jurisprudence
An appropriate starting point when considering the Strasbourg jurisprudence is the following statement of the Strasbourg Court in Stubbings & Others v United Kingdom (1996) 23 EHRR 213 at para 62 in relation to the positive obligation owed by States to protect individuals against sexual abuse: Sexual abuse is unquestionably an abhorrent type of wrongdoing, with debilitating effects on its victims.
Children and other vulnerable individuals are entitled to state protection, in the form of effective deterrence, from such grave types of interference with essential aspects of their private lives.
The reference to deterrence was particularly relevant on the facts of that case, and the duty extends to taking such other steps as are reasonable to prevent the commission of sexual offences.
In Ibbotson v United Kingdom (1998) 27 EHRR CD 332, an admissibility decision, the issue was whether the notification requirements under the 1997 Act constituted a penalty for the purposes of article 7 of the Convention.
The Commission held that it did not, remarking that the measures did not go beyond a requirement to furnish to the authorities information which could, in any event, be in the public domain.
The same conclusion was reached in another admissibility decision, Adamson v United Kingdom (1999) 28 EHRR CD 209.
The Court reached the following conclusion as to the purpose of the notification requirements: . the purpose of the measures in question is to contribute towards a lower rate of reoffending in sex offenders, since a persons knowledge that he is registered with the police may dissuade him from committing further offences and since, with the help of the register, the police may be enabled to trace suspected reoffenders faster.
The applicant in that case also sought to make an article 8 challenge to the notification requirements.
In finding such a challenge inadmissible the Court held that the notification requirements amounted to an interference with private life within article 8(1).
The requirements were, however, in accordance with the law and they pursued the legitimate aims of the prevention of crime and the protection of the rights and freedoms of others.
It was thus necessary to consider whether the measures were proportionate.
This required weighing the fact that they required no more than registration of information with the police against the importance of the aims pursued by the Act, namely to protect individuals from grave forms of interference.
The Court found the notification requirements proportionate and the complaint manifestly ill founded.
As the Court of Appeal observed at paragraph 21 the Court did not expressly consider the impact of the lack of a mechanism for review since that was not the subject of the complaint.
Massey v United Kingdom (Application No 14399/02) (unreported) 8 April 2003 was another case where the Court ruled an application in relation to the notification requirements inadmissible.
In that case the applicant made a discrete complaint that there was no assessment or review of the necessity for registration in his particular case.
The Court of Appeal at paragraph 23 treated this as a complaint that focussed on the moment when the sentence was imposed.
I am not sure that this reading is justified.
While assessment naturally applies to the time of sentence review suggests a subsequent process.
But this complaint was a subsidiary point to more fundamental challenges to the applicants conviction and sentence and the absence of any review of the notification requirements received no separate consideration by the Court.
I now turn to the Strasbourg decisions that have the greatest relevance, and which were particularly relied upon by the respondents.
The second of these post dates the decision of the Court of Appeal.
In S and Marper v United Kingdom (2008) 48 EHRR 1169 the first applicant had been charged with attempted robbery and acquitted.
The second applicant had been charged with harassment of his partner, but the case against him was formally discontinued.
Each had had fingerprints, cellular samples and DNA samples taken.
They complained that the fact that the police were lawfully entitled to retain these indefinitely infringed their article 8 rights.
In holding that there had been a violation of article 8 the Court had regard to a number of matters: the blanket and indiscriminate nature of the power of retention; the fact that the nature and gravity of the suspected offence was immaterial, as was the age of the suspected offender; the fact that the power to retain was unlimited in time and in particular, there is no provision for independent review of the justification for the retention according to defined criteria, including such factors as the seriousness of the offence, previous arrests, the strength of the suspicion against the person and any other special circumstances.
In Bouchacourt v France (Application No 5335/06) (unreported) 17 December 2009 an unsuccessful application was made by a man who had been sentenced to ten years imprisonment for rape and sexual assault on minors.
This resulted in his name being placed automatically on a Register of Sexual and Violent Offenders.
It also resulted in an obligation to confirm his address every year and to give notice of any change of address.
This could be done by registered letter including a receipt or invoice, not more than three months old, containing the applicants name and address.
How long an offenders name remained on the register depended on the gravity of the offence, but it could be for twenty or thirty years.
The Court held that there had been no violation of article 8, for reasons that appear in the following paragraphs of its judgment: 67.
Comme lindique le Gouvernement, il sagit dune dure maximale.
Quoi quimportante en lespce puisquelle est de trente ans, la Cour observe que leffacement des donnes est de droit, une fois ce dlai coul, lequel se compute ds que la dcision ayant entran linscription cesse de produire tous ses effets.
La Cour relve galement que la personne concerne peut prsenter une demande deffacement au procureur de la Rpublique si la conservation des donnes la concernant napparat plus pertinente compte tenu de la finalit du fichier, au regard de la nature de linfraction, de lge de la personne lors de sa commission, du temps coul depuis lors et de sa personnalit actuelle (paragraphe 16, article 706 53 10 du CPP).
La dcision du procureur est susceptible de recours devant le juge des liberts et de la dtention puis devant le prsident de la chambre de linstruction. 68.
La Cour considre que cette procdure judiciaire deffacement des donnes assure un contrle indpendant de la justification de la conservation des informations sur la base de critres prcis (section et Marper, prcit, 119) et prsente des garanties suffisantes et adquates du respect de la vie prive au regard de la gravit des infractions justifiant linscription sur le fichier.
Certes, la mmorisation des donnes pour une priode aussi longue pourrait poser un problme sous langle de larticle 8 de la Convention, mais la Cour constate que le requrant a, en tout tat de cause, la possibilit concrte de prsenter une requte en effacement des donnes mmorises alors que la dcision ayant entran son inscription a cess de produire tous ses effets.
Dans ces conditions, la Cour est davis que la dure de conservation des donnes nest pas disproportionne au regard du but poursuivi par la mmorisation des informations.
Unofficial translation: 67.
As the Government points out, it is a maximum duration.
Although significant in this case, since it is of thirty years, the Court observes that what is important in this case, where the period is thirty years, is that the deletion of information is of right once the time has lapsed, as calculated from the date on which the sentence giving rise to registration ceases to have effect.
The Court also notes that the person concerned can apply to the prosecutor for the deletion of the information if its preservation no longer appears to be relevant, taking into account the purpose of the register and having regard to the nature of the offence, the age of the person at the time that it was committed, the length of time that has lapsed since then, and the offenders current character (paragraph 16, Article 706 53 10 of the Code of Criminal Procedure).
The prosecutors decision is subject to appeal to the juge des liberts et de la detention, then to the president of the investigating chamber. 68.
The Court considers that this judicial procedure for removing the information ensures independent review of the justification for the retention of the information according to defined criteria (S and Marper, already cited, para 119) and provides adequate and sufficient safeguards in relation to respect for private life, with regard to the seriousness of the offences justifying registration on the sex offenders register.
Certainly, the retention of data for so long a period could be problematic in terms of Article 8 of the Convention, but the Court notes that the Applicant has in any case the concrete opportunity to apply for the deletion of the data retained when the sentence giving rise to his registration has ceased to have effect.
In these circumstances, the Court is of the opinion that the length of time that the data is kept is not disproportionate to the aim pursued by the storage of the information.
The effect of the jurisprudence
The Court of Appeal found in paragraph 35 that there was no authority binding on the court which decided the question of whether the imposition of indefinite notification requirements without the possibility of review was itself a disproportionate interference with an offenders article 8 rights.
It might have held that there was no such authority, binding or otherwise.
That analysis holds good, despite the decisions in S and Marper and Bouchacourt.
Those decisions show, however, that the Strasbourg Court considers that the possibility of reviewing the retention of sensitive personal information and notification requirements in respect of such information is highly material to the question of whether such retention and notification requirements are proportionate and thus compliant with article 8.
Paragraph 68 of Bouchacourt suggests that, but for the right to apply for deletion of the data retained, the lengthy registration period would have been held disproportionate.
The decision of the Divisional Court
Giving a judgment with which the other two members of the court agreed, Latham LJ found that there was general justification for continuing notification requirements for the lifetime of serious sexual offenders.
He held, however, that the real question was whether an offender who can clearly demonstrate that he presents no risk, or no measurable risk, of re offending should be precluded from obtaining a review of the notification requirements.
Latham LJ gave a negative answer to that question.
He held that it was not justifiable in article 8 terms to deny to a person who believed himself to be in a position to establish that he presented no risk the opportunity to do this.
The decision of the Court of Appeal
The Court of Appeal considered the impact of the notification requirements imposed by the 2003 Act.
The court concluded that counsel for the Secretary of State was wrong to describe these as no more than very slight interference with article 8 rights.
The court annexed in an appendix to its judgment examples of the difficulty that the requirements posed to those who needed to travel frequently and at short notice, either within the jurisdiction or abroad.
The court also made the point that the notification requirements are capable of leading to the disclosure to third parties of the fact that the person subject to them has a past conviction for a sexual offence.
For these reasons, while the impact of the notification requirements might be modest for some, for others they would be more substantial.
The court considered the submission that a right of review would compromise the utility of the notification requirements as a tool for the prevention and detection of sexual offences.
It did not accept that submission for the reasons set out in paragraph 44: .
The aim of the notification requirements regime is to assist in the prevention and detection of sexual offences.
The assumptions that underpin the provision for indefinite notification requirements are that (i) there is a risk that those who have committed serious sexual offences (ie offences which attract a custodial sentence of at least 30 months in length) may commit further sexual offences for the rest of their lives; and (ii) the notification requirements will assist the police in preventing and detecting such offences and may deter offenders from further offending.
These two assumptions are falsified in a case where it is clear that there is no real risk that the sexual offender will re offend.
No purpose is served by keeping on the Sexual Offences Register a person of whom it can confidently be said that there is no risk that he will commit a sexual offence.
To keep such a person on the police data base does nothing to promote the aims of the notification requirements.
To say that the data base is no longer complete begs the question of what a complete data base should comprise.
In our judgment, it should not include offenders who no longer present a risk of sexual offending.
The court rejected the submission that resource implications were a bar to granting a right of review and that it would be difficult to operate a review process.
It observed that a flood of applications could be avoided by setting a high threshold for review as to the time that an application could first be made, the frequency of applications and what had to be proved in order to succeed on the review.
To the submission that it would be difficult for applicants to demonstrate that they no longer presented a risk of sexual offending the court observed that this was not a reason for depriving them of the opportunity of attempting to do this, regardless of the circumstances of the particular case.
For these reasons the court concluded that an offender was, as a matter of principle, entitled to have the question of whether the notification requirements continued to serve a legitimate purpose determined on a review.
This entitlement was even stronger in the case of child offenders because of the fact that children change as they mature.
Discussion
The issue in this case is one of proportionality.
It is common ground that the notification requirements interfere with offenders article 8 rights, that this interference is in accordance with the law and that it is directed at the legitimate aims of the prevention of crime and the protection of the rights and freedoms of others.
The issue is whether the notification requirements, as embodied in the 2003 Act, and without any right to a review, are proportionate to that aim.
That issue requires consideration of three questions. (i) What is the extent of the interference with article 8 rights? (ii) How valuable are the notification requirements in achieving the legitimate aims? and (iii) To what extent would that value be eroded if the notification requirements were made subject to review? The issue is a narrow one.
The respondents case is that the notification requirements cannot be proportionate in the absence of any right to a review.
The challenge has been to the absence of any right to a review, not to some of the features of the notification requirements that have the potential to be particularly onerous.
I turn to consider the extent of interference with article 8 rights that can result from the notification requirements.
When the Strasbourg Court held in Adamson that the notification requirements interfered with private life within the meaning of article 8.1 the interference identified was the obtaining and retention of information by law enforcement authorities.
The information, name, date of birth and address was, on the face of it innocuous.
The reality is, however, that it is implicit in the requirement to notify the police of his name and address that the ex offender will have to explain the purpose of the notification.
The significance of notification is that it links the ex offender with the recorded particulars of his conviction.
Thus the notification requirements have been treated as being equivalent to being placed on a Sexual Offences Register and it is convenient to use this terminology, as did the Court of Appeal, see paragraph 44.
The notification requirements become a much more serious interference with private life when the information that the individual is on the Sexual Offences Register is conveyed to third parties.
As Mr Eadie QC pointed out, one of the objects of the notification requirements is that this information should be conveyed to third parties in circumstances where this is necessary for the prevention of further offending, as in some circumstances it will be.
He rightly submitted that the possibility of such use should not be held to add to the case that the requirements are disproportionate.
He further submitted that the court should proceed on the premise that the information will only be conveyed to third parties where this is necessary.
I do not accept this submission.
Giving information to the local police in relation to ones address and ones movements coupled with the explanation that this is necessary because one is on the Sexual Offences Register will necessarily carry the risk that the information may be conveyed to third parties in circumstances where this is not appropriate.
This said, the fact that under the 1997 Act the relevant notification could be made in writing and that the information to be provided was limited meant that the task of giving the notification could be described as a mere inconvenience.
This ceased to be the case with the increased requirements imposed first by the 2000 Act and then by the 2003 Act.
These requirements, which included the requirement to give notification in person at a police station, imposed a considerable burden on anyone who was a frequent traveller, whether within or outside the jurisdiction, as illustrated by the examples given by the Court of Appeal.
There is an obvious risk inherent in making repeated visits to a police station to give notification of travel plans that third parties will become aware of the reason for so doing.
In short, the changes made by the 2000 and 2003 Acts to the notification requirements will have given some of those subject to those requirements very good reason for wishing to have the requirements lifted, for they are capable of causing significant interference with article 8 rights.
I turn to consider how important notification requirements are in furthering the aims of preventing crime and protecting potential victims of crime.
It is obvious that it is necessary for the authorities that are responsible for the management and supervision of those convicted of sexual offences to be aware of the whereabouts of those who are subject to active management or supervision.
The nature and extent of the management and supervision of such offenders will vary and will depend, in part, upon an assessment of the degree of risk of re offending that they pose.
I do not propose to attempt to set out all the complex statutory provisions in relation to sentencing that are relevant, but will summarise the effect of some of them.
An offender who has received a fixed term sentence will be released on licence after serving the requisite custodial period.
The licence will remain in effect for the length of the sentence.
An offender who has been given a life sentence, or a sentence of imprisonment for public protection (IPP) will be released on licence after serving his minimum term if the Parole Board is satisfied that it is no longer necessary for the protection of the public that he be confined.
An offender who has been given a life sentence will remain on licence for the rest of his life.
An IPP prisoner can apply to the Parole Board which will order the licence to cease to have effect if satisfied that it is no longer necessary for the protection of the public that the licence remain in force.
While the licence remains in force, the conditions of the licence will make provision for the supervision of the offender by the appropriate authority.
Thus where the Parole Board orders a licence to cease to have effect it is presumably satisfied that such supervision is no longer necessary for the protection of the public.
Section 104 of the 2003 Act grants power to a magistrates court to make a sexual offences prevention order (SOPO) in relation to a qualifying offender who has acted in such a way as to give reasonable cause to believe that it is necessary for such an order to be made.
Those subject to notification requirements are qualifying offenders.
Section 114 of the 2003 Act grants power to a magistrates court to impose a foreign travel order in respect of a qualifying offender where his behaviour makes it necessary to make such an order for the purpose of protecting children generally or any child from serious sexual harm.
Such an order prevents the offender from travelling to the countries specified, which may be all countries, outside the United Kingdom.
Section 325 of the Criminal Justice Act 2003 requires the responsible authority for each area to establish arrangements for the purpose of assessing and managing the risks posed in that area by relevant sexual and violent offenders.
The responsible authority means the chief officer of police, the probation board or provider of probation services and the Minister of the Crown exercising functions in relation to prisons, acting jointly.
Relevant sexual offenders include those who are subject to notification requirements.
Section 327A of the same Act requires the responsible authority for each area, in the course of discharging its functions under section 325, to consider whether to disclose information in its possession about the relevant previous convictions of any child sex offender managed by it and goes on to make detailed provision for circumstances in which there is a presumption that this should be done.
The responsible authority has made Multi Agency Public Protection Arrangements (MAPPA) pursuant to the duty imposed on it by section 325 and makes an annual report in relation to the operation of these.
Counsel provided the court with a little information about the manner in which risk is managed under MAPPA and the court has since obtained a press notice issued on the occasion of the publication of MAPPAs 8th Report for 2009.
This states that there are three levels of management of offenders.
At Level 1 offenders are subject to the usual management arrangements applied by whichever agency is supervising them.
At Level 2 risk management involves the active involvement of several agencies via regular multi agency public protection meetings.
At Level 3 cases require the involvement of senior officers to authorise the use of special resources, such as police surveillance or specialised accommodation and, sometimes, senior management oversight.
The interrelationship between these measures and the notification requirements is obvious.
In the first place, the same criteria often apply to determine those who are subject to the notification requirements as apply to determine those who are potentially subject to the various methods of management and supervision.
In the second place, notification requirements are important in that they assist the responsible authorities to keep tabs on those whom they are supervising and managing.
This case turns, however, on one critical issue.
If some of those who are subject to lifetime notification requirements no longer pose any significant risk of committing further sexual offences and it is possible for them to demonstrate that this is the case, there is no point in subjecting them to supervision or management or to the interference with their article 8 rights involved in visits to their local police stations in order to provide information about their places of residence and their travel plans.
Indeed subjecting them to these requirements can only impose an unnecessary and unproductive burden on the responsible authorities.
We were informed that there are now some 24,000 ex offenders subject to notification requirements and this number will inevitably grow.
Both the Divisional Court and the Court of Appeal proceeded on the premise that there were some who were subject to notification requirements who could clearly demonstrate that they presented no risk of re offending or of whom it can confidently be said that there was no risk that they would commit a sexual offence.
Mr Eadie came close to admitting that, if this premise were correct, it would be hard to gainsay the proposition that there ought to be a right to a review to enable notification requirements to be lifted in respect of those who no longer posed a risk.
He submitted, however, that the nature of sexual offences was such that it was never possible to be sure that someone who had been guilty of a serious sexual offence posed no significant risk of re offending, and that this was borne out by statistical evidence.
Either all sexual offenders had a (possibly) latent predisposition to commit further sexual offences or, if some did not, it was impossible to identify who these were.
Whether these submissions are well founded is the question that lies at the heart of this appeal.
I turn to consider the evidence before the court.
Parliamentary material
Mr Eadie told the court that there had been a consultation exercise before the introduction of the 1997 Bill that led to the 1997 Act, but that this provided no assistance on the issue raised by this appeal.
No material was placed before the court to explain the changes that were made to the notification requirements by the 2000 Act or the 2003 Act.
The court was referred to an extract from Hansard for 4 February 1997 (HC Debates), Cols 19, 23, 25 which reported the moving of two amendments in Standing Committee D to the 1997 Bill.
I have considered this in the search for background information to explain why the Act contained no right to a review of the notification requirements.
The second proposed amendment would have introduced a right to apply to the court to vary the duration of the notification requirements if a chief officer of police certified that the applicant was no longer likely to be a danger to others.
Mr Timothy Kirkhope, resisting this amendment, raised the question of how the court would decide whether the need for a notification requirement remained and suggested that such a provision would have resource implications, would create bureaucracy and could weaken the Bills protection.
He said that the course adopted reflected the results of consultation.
This throws little light on the question of whether reliable risk assessment can be carried out in the case of sex offenders.
Mr Eadie relied primarily on statistical evidence to support his submission that a reliable review of the risk posed by those convicted of serious sexual offences was not practicable.
The most detailed statistics were provided in a paper published in 2004 in Legal and Criminological Psychology by Ms Jenny Cann and others, then of the Research, Development and Statistics Department of the Home Office.
This examined reconviction rates of sexual offenders released from prison in England and Wales in 1979, over a 21 year period.
Of 419 offenders 103, or about 25%, committed a total of 405 sexual offences during this period.
Of these 37 first re offended over 5 years after release from prison and 19 at least 10 years after release.
The authors comment that these figures suggest that sexual offending by sexual offenders released from custody has a longer life span than general re offending and one which often begins a number of years after discharge.
The paper recommends further research to look at the type of sexual offender most at risk of receiving a first reconviction for a sexual offence 10 years following discharge.
This recommendation illustrates why this paper is inconclusive.
Caution must, of course, be taken in relying on reconviction statistics because these will necessarily be lower than the actual incidence of re offending.
Nonetheless, these statistics show that 75% of the sexual offenders who were monitored were not reconvicted.
No light is thrown on the question of whether it was possible to identify by considering these whether there were some reliable indications of offenders who did not pose a significant risk of re offending.
No evidence has been placed before this court or the courts below that demonstrate that it is not possible to identify from among those convicted of serious offences, at any stage in their lives, some at least who pose no significant risk of re offending.
It is equally true that no evidence has been adduced that demonstrates that this is possible.
This may well be because the necessary research has not been carried out to enable firm conclusions to be drawn on this topic.
If uncertainty exists can this render proportionate the imposition of notification requirements for life without review under the precautionary principle? I do not believe that it can.
I have referred earlier to a number of situations in which the degree of risk of re offending has to be assessed in relation to sexual offenders.
I think that it is obvious that there must be some circumstances in which an appropriate tribunal could reliably conclude that the risk of an individual carrying out a further sexual offence can be discounted to the extent that continuance of notification requirements is unjustified.
As the courts below have observed, it is open to the legislature to impose an appropriately high threshold for review.
Registration systems for sexual offenders are not uncommon in other jurisdictions.
Those acting for the first respondent have drawn attention to registration requirements for sexual offenders in France, Ireland, the seven Australian States, Canada, South Africa and the United States.
Almost all of these have provisions for review.
This does not suggest that the review exercise is not practicable.
For these reasons I have concluded that the Divisional Court and the Court of Appeal were correct to find that the notification requirements constitute a disproportionate interference with article 8 rights because they make no provision for individual review of the requirements.
I would dismiss this appeal and repeat the declaration of incompatibility made by the Divisional Court.
LORD HOPE
I agree with the judgment of Lord Phillips.
For the reasons he gives, with which I agree, I too would hold that the indefinite notification requirements in section 82(1) of the Sexual Offences Act 2003 are incompatible with article 8 of the European Convention on Human Rights because they do not contain any mechanism for the review of the justification for continuing the requirements in individual cases.
I wish also to associate myself with Lord Rodgers comments, with which I am in full agreement.
I would dismiss the appeals.
I agree that the appeal should be dismissed for the reasons given by Lord
LORD RODGER
Phillips, but subject to the following comments.
First, at para 33 of his judgment, Lord Phillips quotes the unofficial translation of para 67 of the judgment of the European Court of Human Rights in Bouchacourt v France (Application No 5335/06) 17 December 2009, unreported.
The beginning of that translation is inaccurate and misleading.
What the court actually says is As the Government points out, [the prescribed period of preservation of the data] is a maximum duration.
Although significant in this case, since it is of thirty years, the Court observes that the deletion of the data is by right once this period has elapsed.
Secondly, in the case of the most serious offenders, of which the respondents in these cases are examples, the notification period under section 82 of the Sexual Offences Act 2003 (the 2003 Act) is an indefinite period.
Although the language was, no doubt, carefully chosen, it is perhaps a little surprising: life would have been a shorter and clearer way of expressing what is actually involved, since, whatever happens, there is no means of ever bringing the notification requirements in question to an end.
Indeed such a requirement can only be ended in one situation: under section 93 and Schedule 4, where it relates to an abolished homosexual offence.
Schedule 4 provides a mechanism of an application to the Secretary of State, with the possibility of an appeal to the High Court, with the permission of the court.
Thirdly, I see no basis for saying that, in themselves, the notification requirements, including those relating to travel, are a disproportionate interference with the offenders article 8 rights to respect for their family life, having regard to the important and legitimate aim of preventing sexual offending.
That is particularly the case where, as Lord Phillips explains, these requirements are not to be seen in isolation, but as underpinning the scheme of Multi Agency Public Protection Arrangements which are designed to manage the risk of re offending.
Of course, it is possible that the information which offenders provide to the police will be wrongly conveyed to third parties in circumstances where disclosure is not appropriate.
The same can be said of the information which we have to supply, say, to Her Majestys Revenue and Customs, or to the social security authorities.
The proportionality of the requirement to provide that information has to be judged by reference to its proper use, not by reference to any possible misuse.
Organisations which gather sensitive information will, in practice, have adopted administrative practices that are designed to minimise the risk of misuse.
The Data Protection Act 1998 provides a legal framework for handling personal data and makes knowing or reckless disclosure of the data a criminal offence.
That framework applies to the gathering and retention of information supplied under the 2003 Act.
In that situation the proportionality of the requirements made by the Act should be judged on the basis that the information supplied will be handled appropriately.
If, as may well happen on occasions, the information is wrongly disclosed or otherwise misused, then the assumption must be that appropriate steps will be taken both to identify and punish those who misuse it and to prevent similar misuse in the future.
Fourthly, the need for an offender to give the notification in person at a police station does, of course, impose a burden on him and entails some additional risk of his status becoming known.
But it also helps to eliminate the familiar excuses (such as letters allegedly going astray, or real or imaginary delays in the post) which can bedevil the operation of a system which depends, for its effectiveness, on notification being given within short, fixed, time limits limits which those affected may be understandably reluctant to comply with and astute to avoid.
Again, I see nothing disproportionate in the requirement.
Finally, the case of F shows that, where his offence has been of the most serious kind, a child will be subject to an indefinite notification requirement.
That requirement will affect the whole of his adult life.
Judges, as individuals, may have views on whether children who offend in this way are likely to have a tendency to repeat that behaviour when they are adults, or will tend to grow out of it.
No doubt, in years to come, advances in genetic research may clarify the position.
In the meantime it must be open to Parliament to take the view that, as a precaution against the risk of them committing serious sexual offences in future, even such young offenders should be required to comply with the notification rgime indefinitely.
But that makes it all the more important for the legislation to include some provision for reviewing the position and ending the requirement if the time comes when that is appropriate.
| UK-Abs | Under section 82 Sexual Offences Act 2003 all persons sentenced to 30 months imprisonment or more for a sexual offence become subject to a lifelong duty to keep the police notified of where they are living and of travel abroad (the notification requirements).
There is no right to a review of the necessity for the notification requirements at any time.
The respondents are convicted sex offenders subject to the notification requirements.
Both brought claims for judicial review claiming that the absence of a right of review of the requirements rendered them a disproportionate manner of pursuing the legitimate aim of preventing crime and thereby breached their right to privacy protected by Article 8 of the European Convention on Human Rights.
The Divisional Court granted the respondents claims and made a declaration that s 82 (1) Sexual Offences Act 2003 was incompatible with Article 8.
The Court of Appeal dismissed an appeal by the Secretary of State for the Home Department, who then appealed to the Supreme Court.
The Supreme Court unanimously dismissed the appeal and repeated the declaration of the lower courts that s 82(1) Sexual Offences Act 2003 was incompatible with Article 8 because it made no provision for individual review of the notification requirements.
Lord Phillips (with whom all the members of the court agreed) stated that the issue in the case was one of proportionality.
It was common ground that the notification requirements interfered with the offenders rights to privacy, that the interference was in accordance with the law and that it was directed at the legitimate aims of the prevention of crime and the protection of the rights and freedoms of others.
The court had to consider three questions: (i) what was the extent of the interference with the Article 8 rights, (ii) how valuable were the notification requirements in achieving the legitimate aims and (iii) to what extent would that value be eroded if the notification requirements were made subject to review [paragraph 41]?
If someone subject to the notification requirements could demonstrate that they no longer posed any significant risk of committing further sexual offences, there was no point in subjecting them to the interference with their Article 8 rights, which would then merely impose an unnecessary and unproductive burden on the responsible authorities [paragraph 51].
The critical issue was whether a reliable risk assessment could be carried out in the case of sex offenders.
The research into reoffending rates relied on by the Secretary of State showed that 75% of the sexual offenders who were monitored over a 21 year period were not reconvicted and there was no evidence before the court that showed that it was impossible to identify some at least who posed no significant risk of re offending [paragraph 56].
For various other provisions affecting sex offenders the degree of risk of reoffending had to be assessed.
It was obvious that there must be some circumstances in which an appropriate tribunal could reliably conclude that the risk of an individual carrying out a further sexual offence could be discounted to the extent that continuance of the notification requirements was unjustified.
The existence of review provisions in other countries with similar registration requirements for sex offenders suggested that a review exercise was practicable [paragraph 57].
Accordingly the courts below were correct to find that the notification requirements constituted a disproportionate interference with Article 8 rights because they made no provision for individual review of the requirements.
|
A limited company not in liquidation cannot lawfully return capital to its shareholders except by way of a reduction of capital approved by the court.
Profits may be distributed to shareholders (normally by way of dividend) but only out of distributable profits computed in accordance with the complicated provisions of the Companies Act 2006 (replacing similar provisions in the Companies Act 1985).
Whether a transaction amounts to an unlawful distribution of capital is not simply a matter of form.
As Hoffmann J said in Aveling Barford Ltd v Perion Ltd [1989] BCLC 626, 631, Whether or not the transaction is a distribution to shareholders does not depend exclusively on what the parties choose to call it.
The court looks at the substance rather than the outward appearance.
Similarly Pennycuick J observed in Ridge Securities Ltd v Inland Revenue Commissioners [1964] 1 WLR 479, 495, A company can only lawfully deal with its assets in furtherance of its objects.
The corporators may take assets out of the company by way of dividend, or, with the leave of the court, by way of reduction of capital, or in a winding-up.
They may of course acquire them for full consideration.
They cannot take assets out of the company by way of voluntary distribution, however described, and if they attempt to do so, the distribution is ultra vires the company.
The sole issue in this appeal is whether there may have been an unlawful distribution of capital when the appellant company, Progress Property Company Ltd (PPC), sold the whole issued share capital of a wholly-owned subsidiary, YMS Properties (No. 1) Ltd (YMS1) to another company, Moorgarth Group Ltd (Moorgarth).
All these companies were indirectly controlled by Dr Cristo Wiese, a South African investor.
The facts have not yet been fully established, which is why the issue must be stated in this inconclusive way.
PPC was originally called Tradegro (UK) Property Holdings Ltd and has since changed its name to BLN Property Company Ltd. Moorgarth was originally called Foldfree Ltd. But it is simplest to use the names used by Mummery LJ in his judgment in the Court of Appeal.
The transaction between PPC and Moorgarth has been vigorously attacked by the appellant PPC on the ground that it was (as must be assumed for the purposes of this appeal) at an undervalue (PPC says, a gross undervalue).
YMS1, a company whose net assets might on PPCs most ambitious case have been worth as much as 4m, was sold for little more than 60,000.
But the attack has been stoutly resisted on the ground that (as is now no longer in dispute) Mr Cornus Moore (Dr Wieses right-hand man, and a director of both PPC and Moorgarth) genuinely believed that the sale of the shares in YMS1 was at market value.
It is also to be assumed for the purposes of this appeal that Mr Moore was in breach of duty in failing to realise that the transaction was in fact a sale at an undervalue.
Had this appeal been allowed, the correctness of these undetermined assumptions (and also issues of valuation and quantum) might have had to be decided in further proceedings.
The facts
The scale of the undervaluation alleged by PPC, in a transaction negotiated between experienced businessmen advised by experienced surveyors, solicitors and accountants, is truly remarkable.
It suggests that the circumstances were such as to call for close enquiry; and the deputy judge, Mr David Donaldson QC, did enquire into them closely in the course of a fourteen-day trial of this action (together with two other actions in which there has been no appeal).
The deputy judges task in fact-finding was difficult, as he found Mr Charles Price, the individual indirectly interested (as a minority shareholder in PPC and as prospective purchaser of the majority holding) in the disposal of the YMS1 shares, to be an unreliable witness.
PPCs failure to call as a witness its solicitor, Mr Gerber, added to the deputy judges difficulties in making full and clear findings of fact.
He dismissed the action on the basis that it could not succeed even if there had been an unintentional sale at an undervalue, and even if Mr Moore was in breach of duty in failing to recognise it.
The Court of Appeal (Mummery, Toulson and Elias LJJ) [2009] EWCA Civ 629, [2010] 1 BCLC 1 unanimously upheld the deputy judges dismissal of the action.
In doing so Mummery LJ (with whom Toulson and Elias LJJ concurred) did not find it necessary to go far into the factual circumstances.
He summarised the essential facts with admirable brevity in paras 6 and 12 of his judgment: The sale and purchase agreement was made on 20 October 2003 at an agreed price of 63,225.72.
The sale price was calculated on the basis of the open market value of the YMS1 properties (11.83m), from which there was subtracted liabilities for creditors approaching 8m and the sum of 4m in respect of a repairing liability.
The subtraction of 4m was made in the belief that PPC had given an indemnity or counter-indemnity under which that liability would ultimately fall on PPC.
As part of the transaction that liability of PPC was to be released.
In fact, it turned out that there was no such indemnity liability and there was nothing from which PPC could be released.
In consequence there was no 4m to subtract from the value of the YMS1 properties.
There was no justification for the reduction in the sale price.
So it was said that the sale of the shares was at a gross undervalue. . . .
There was no dispute before the deputy judge that Mr Moore genuinely believed that the price of the shares in YMS1 sold by PPC to Moorgarth was their market value.
It was not alleged that there was any intention on his part to prefer Moorgarth or to commit a fraud on the creditors of PPC.
He acted in the honest belief that the sale of the shares in YMS1 was a commercial transaction.
I am reluctant to expand on Mummery LJs summary unless there is a good reason to do so.
But in an appeal which is centrally concerned with the substance and reality of the impugned transaction, I think it is appropriate to set out some of the deputy judges findings of fact in rather more detail.
They help to answer some (but not all) of the questions prompted by Mummery LJs summary.
At the material time (roughly April to October 2003) Dr Wieses investments included interests in the value (or down-market) sector of the United Kingdom retail market.
He indirectly controlled (through Brown & Jackson Plc B & J) two retail chains, Poundstretcher and Your More Store.
These businesses (especially Your More Store) were not flourishing, and in the early months of 2003 he took various steps intended to improve their prosperity.
Your More Store Limited (YMS), which ran Your More Store and two other retail businesses, became a subsidiary of Tradegro (UK) Ltd (Tradegro), another company controlled by Dr Wiese.
Mr Carel Stassen was appointed as managing director of YMS and became a minority shareholder in YMS.
Mr Price was appointed as managing director of PPC, which was at that time a wholly-owned subsidiary of Tradegro.
Mr Price became the holder of 24.9% of the shares in PPC, leaving Tradegro with 75.1%.
The freehold interest in the Your More Store premises was vested in a company called YMS Properties (No. 2) Ltd (YMS2).
YMS2 was a wholly-owned subsidiary of YMS1, which was a wholly-owned subsidiary of PPC.
In the short term YMS continued to occupy its retail premises informally, without any leases from YMS2.
There was a similar reorganization of the Poundstretcher business.
YMSs informal occupation of the retail premises did not last long.
An essential part of Mr Prices task was to manage and raise finance from YMS2s property portfolio.
Mr Price embarked on negotiations with Nationwide Building Society (Nationwide) and on 2 May 2003 Nationwide entered into a facilities agreement to advance funds of more than 20m secured on the YMS and Poundstretcher freeholds.
But Nationwide insisted that formal leases, with tenants covenants including full repairing and insurance obligations, should be entered into between YMS2 as landlord and YMS as tenant and between the corresponding Poundstretcher companies.
The deputy judge summarised the resulting situation in paras 8 and 9 of his judgment: This posed a problem.
The properties in the portfolio, and in particular those occupied by YMS, were in significant disrepair.
A survey produced by independent surveyors GRD in early 2003 estimated the existing cost of repairs to the YMS properties at more than 4.6m.
YMS, whose trading position was already parlous, was in no position to shoulder a liability of this magnitude, and Mr Stassen refused to agree.
Moreover, the execution of FRI leases would at a stroke bring about a substantial increase in the value of the [freeholds the judge wrote leases but this must have been a slip] compared with the vacant possession value at which they currently stood in the books of YMS1.
As all parties recognised, commercial logic and indeed fairness required that the costs of this benefit should not rest with YMS.
It might be that no serious problem would arise so long as both the freeholds and YMS remained within the [Tradegro] group (though a question might still be posed as a result of the minority interests of Mr Stassen and Mr Price in, respectively, YMS and PPC), but that position was always open to change.
In the event, YMS did sign FRI leases.
Mr Stassen did not however agree to this course until he had obtained an assurance from Mr Moore, with the approval of Dr Wiese, that YMS would be given an indemnity against the costs it might be required to incur in satisfying the repairing liability.
At that stage there was a falling out between Mr Price and Dr Wieses management team, and in July 2003 Dr Wiese gave six months notice to terminate the arrangements with Mr Price.
But during the next two months there were negotiations which led to an agreement for Mr Price to acquire Tradegros 75.1% shareholding in PPC.
The agreed terms were quite complex and were embodied in a share purchase agreement (the SPA), the parties to which were (1) Wigmore Street Investments Ltd (WSIL), then called Real Estate Property Corporation Ltd, a Bermuda company controlled by Mr Price, as purchaser and (2) Tradegro as vendor.
The dispute in this appeal is not concerned with the sale of the PPC shares themselves, but with a preliminary step provided for in clause 4.1 of the SPA, that is, the sale by PPC, before completion of the SPA, of the whole share capital of YMS1 to Moorgarth (a direct subsidiary of Tradegro).
The deputy judge commented (in para 12 of his judgment) on how matters stood as the negotiations progressed: Since ownership of the freeholds would now move out of the [Tradegro] group, it became imperative to honour Mr Moores assurance to Mr Stassen that YMS would be given an indemnity against the FRI liability.
Logic also suggested that in the new circumstances the ultimate liability should pass to the new owner of YMS2.
Consistent with this, the running document entitled Summary of principal commercial terms passing between the parties indicated that (1) a deed of indemnity was being discussed between Tradegro and YMS (2) there was broad agreement on the provision of a counter-indemnity by PPC.
The same applied to the [Poundstretcher] properties.
His comment about what logic suggested must have been directed at the position before the change of plan (embodied in clause 4.1 of the SPA) to extract the YMS freeholds from PPC before the sale of its shares was completed.
There would have been no logic in PPC accepting ultimate responsibility for an unquantifiable liability for repairs to dilapidated YMS properties that it was not going to own.
What happened instead, and gave rise to the issue in this appeal, was the extraction of the YMS freeholds by the sale of YMS1 by PPC to Moorgarth at the price of 63,225.72.
This took place under a simple written agreement entered into on 20 October 2003.
It was negotiated mainly by two solicitors, Mr Gerber instructed by Mr Price on behalf of PPC and Mr Emmett instructed by Mr Moore on behalf of Moorgarth.
The agreement was signed by Mr Paul Clarke (who was a director of both PPC and Moorgarth) on behalf of both companies.
He signed it after a board meeting of the directors of PPC attended by Mr Clarke in person and by Mr Price by telephone.
On the same day Tradegro and its overseas holding company gave a formal release of PPC from any possible liability under the supposed indemnity or counter-indemnity.
That liability had never actually come into existence, though it had been much discussed.
The deputy judges judgment (paras 13 to 31) gives a detailed account of the fairly hectic negotiations leading up to 20 October 2003, and of the events of that day.
That is for the present sufficient, and perhaps more than sufficient, as to the factual findings made at first instance in relation to the issue of sale at an undervalue.
To recapitulate, that there was a sale at an undervalue is an undetermined assumption made for the purposes of this appeal, as is Mr Moores breach of duty, but his genuine belief in an arms length sale is common ground.
I shall return to the facts briefly at the end of this judgment.
The authorities
PPCs case, as finally formulated at first instance, relied not on section 263 of the Companies Act 1985 (now replaced by sections 829 and 830 of the Companies Act 2006) but on what Mummery LJ referred to (para 23) as the common law rule: The common law rule devised for the protection of the creditors of a company is well settled: a distribution of a companys assets to a shareholder, except in accordance with specific statutory procedures, such as a winding up of the company, is a return of capital, which is unlawful and ultra vires the company.
The rule is essentially a judge-made rule, almost as old as company law itself, derived from the fundamental principles embodied in the statutes by which Parliament has permitted companies to be incorporated with limited liability.
Mummery LJs reference to ultra vires must be understood in the wider and looser sense of the term identified in Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1986] Ch 246 at 276-278 (Slade LJ) and 302 (Browne-Wilkinson LJ).
But in this appeal there is no difference between the parties as to the narrower and wider meanings of ultra vires in the company law context.
Whether a transaction infringes the common law rule is a matter of substance, not form.
The label attached to the transaction by the parties is not decisive.
That is a theme running through the authorities, including Ridge Securities Ltd v Inland Revenue Commissions [1964] 1 WLR 479 and Aveling Barford Ltd v Perion Ltd [1989] BCLC 626 to which I have already referred.
I shall take some of the best-known cases in chronological order.
Ridge Securities was concerned with a complicated and artificial tax- avoidance scheme carried out at a time when companies were still subject to income tax (rather than corporation tax).
Pennycuick J (at p493), upheld the Special Commissioners disallowance of payments of interest grotesquely out of proportion to the principal amounts secured as not being interest within the meaning of section 169 of the Income Tax Act 1952.
That was simply a point of construction on the taxing statute.
More radically, Pennycuick J also dealt with a company law point not raised before the Special Commissioners, and held that the payments of so-called interest were in fact gratuitous (and so unlawful) dispositions of the companys money.
In the crucial passage ([1964] 1 WLR 479, 495, set out at para 1 above) the words however described are important.
Re Halt Garage (1964) Ltd [1982] 3 All ER 1016 was, on its facts, at the other extreme from Ridge Securities as regards the sophistication of the parties involved and the outlandishness of the impugned transaction.
The company owned what was essentially a husband-and-wife business running a garage near Woburn Sands.
From 1964 the couple worked very hard to build up the business, which included recovering broken-down vehicles from the newly-opened M1.
They paid themselves modest remuneration as directors.
But unfortunately in 1967 the wife became seriously ill and they decided to move to the Isle of Wight.
They tried to sell the business but repeatedly failed to do so, and at one stage the husband was commuting between the Isle of Wight and Bedfordshire in an attempt to look after his invalid wife and the ailing business.
Other misfortunes followed and the company went into insolvent liquidation in 1971.
The liquidator challenged the propriety of directors remuneration paid to the husband and wife during the companys decline.
Oliver J upheld the husbands remuneration but reluctantly disallowed most of the wifes last two years remuneration.
He observed (at 1043) The real question is, were these payments genuinely directors remuneration? If your intention is to make a gift out of the capital of the company, you do not alter the nature of that by giving it another label and calling it remuneration.
That was, with respect, hardly apt on the facts of the case.
The evidence suggested that the couple knew little about company law and took the advice of their accountant.
But the case does show that if the label of remuneration does not square with the facts, the facts will prevail and the result may be an unlawful distribution, even if the directors in question intended no impropriety.
Later in his judgment Oliver J recognized that, observing (at 1044): In the absence of any evidence of actual motive, the court must, I think, look at the matter objectively and apply the standard of reasonableness.
In Aveling Barford Ltd v Perion Ltd [1989] BCLC 626 a Singapore businessman, Dr Lee, who indirectly owned and controlled Aveling Barford, procured the sale by it to Perion (a Jersey company also controlled by Dr Lee) of a country house and 18 acres of land at Grantham, formerly used as an employees social and sports club.
This property had development potential and had been valued by Strutt and Parker at 650,000 and by Humberts (for prospective mortgagees) at 1,150,000.
The price on the sale to Perion was 350,000 (with a provision of doubtful authenticity for 400,000 overage if the property sold for over 800,000 within a year).
In the event it was sold within a year for over 1.5m.
That was the context in which Hoffmann J made the observations set out in para 1 above.
The need to look at substance rather than form also extended to Dr Lees being treated as the real shareholder in Aveling Barford and the real purchaser of the land: Hoffmann J made a passing reference to this at p632 but it was not an issue in the case.
Hoffmann J referred to Ridge Securities and Halt Garage and concluded (at 633) with an instructive passage referring to Rolled Steel: It is clear however that Slade LJ excepted from his general principle cases which he described as involving a fraud on creditors (see . . .
[1986] Ch246 at 296).
As an example of such a case, he cited Re Halt Garage.
Counsel for the defendants said that frauds on creditors meant transactions entered into when the company was insolvent.
In this case Aveling Barford was not at the relevant time insolvent.
But I do not think that the phrase was intended to have such a narrow meaning.
The rule that capital may not be returned to shareholders is a rule for the protection of creditors and the evasion of that rule falls within what I think Slade LJ had in mind when he spoke of a fraud on creditors.
There is certainly nothing in his judgment to suggest that he disapproved of the actual decisions in Re Halt Garage or Ridge Securities.
As for the transaction not being a sham, I accept that it was in law a sale.
The false dressing it wore was that of a sale at arms length or at market value.
It was the fact that it was known and intended to be a sale at an undervalue which made it an unlawful distribution.
Hoffmann Js acceptance that the sale was not a sham, but was a transaction in a false dressing, has an obvious parallel in developments which were taking place at the same time in landlord and tenant law.
In Street v Mountford [1985] AC 809 Lord Templeman famously struck down an artificial arrangement designed to avoid a tenancy protected by the Rent Acts.
He declared (at 825) that the court should be astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts.
But three years later in Antoniades v Villiers [1990] 1 AC 417, 462 Lord Templeman said that it would have been more accurate to have used the word pretence, and the rest of the Appellate Committee took the same line (Lord Bridge at 454 an attempt to disguise the true character of the agreement; Lord Ackner at 466 the substance and reality of the transaction . . .
he sought vigorously to disguise them; Lord Oliver at 467 an air of total unreality about these documents ; Lord Jauncey at 477 mere dressing up in an endeavour to clothe the agreement with a legal character which it would not otherwise have possessed).
Antoniades v Villiers was decided before Aveling Barford and Hoffmann J may well have had it in mind when writing his judgment.
There is however one obvious difference between the typical case of a disguised company distribution and the typical case of a tenancy disguised as a licence in order to avoid the Rent Acts.
There is no identity of interest between the landlord and the putative licensee quite the reverse and the latter agrees to enter an artificial arrangement, against his or her interest, because of the weak bargaining position of anyone looking for affordable accommodation in an overcrowded city.
In the disguised company distribution case, by contrast, the same human beings are usually interested directly or indirectly, on both sides of the corporate manoeuvring: Dr Lee in Aveling Barford, anonymous financiers in Ridge Securities.
The fact that the same individuals are interested on both sides is not of course, by itself, a cause for alarm, since company reconstructions are carried out for all sorts of entirely proper purposes (and now have the benefit of sections 845 and 846 of the Companies Act 2006).
The point to which I draw attention is simply that where there is a degree of identity of interest between both sides to a corporate transaction, both sides are likely to be in agreement as to its real purpose and its true nature and substance.
A question of characterisation
The essential issue then, is how the sale by PPC of its shareholding in YMS is to be characterised.
That is how it was put by Sir Owen Dixon CJ in Davis Investments Pty Ltd v Commissioner of Stamp Duties (New South Wales) (1957) 100 CLR 392, 406 (a case about a company reorganisation effected at book value in which the High Court of Australia were divided on what was ultimately an issue of construction on a stamp duty statute).
The same expression was used by Buxton LJ in MacPherson v European Strategic Bureau Ltd [2000] 2 BCLC 683, para 59.
The deputy judge did not ask himself (or answer) that precise question.
But he did (at paras 39-41) roundly reject the submission made on behalf of PPC that there is an unlawful return of capital whenever the company has entered into a transaction with a shareholder which results in a transfer of value not covered by distributable profits, and regardless of the purpose of the transaction.
A relentlessly objective rule of that sort would be oppressive and unworkable.
It would tend to cast doubt on any transaction between a company and a shareholder, even if negotiated at arms length and in perfect good faith, whenever the company proved, with hindsight, to have got significantly the worse of the transaction.
In the Court of Appeal Mummery LJ developed the deputy judges line of thought into a more rounded conclusion (para 30): In this case the deputy judge noted that it had been accepted by PPC that the sale was entered into in the belief on the part of the director, Mr Moore, that the agreed price was at market value.
In those circumstances there was no knowledge or intention that the shares should be disposed of at an undervalue.
There was no reason to doubt the genuineness of the transaction as a commercial sale of the YMS1 shares.
This was so, even though it appeared that the sale price was calculated on the basis of the value of the properties that was misunderstood by all concerned.
In seeking to undermine that conclusion Mr Collings QC (for PPC) argued strenuously that an objective approach is called for.
The same general line is taken in a recent article by Dr Eva Micheler commenting on the Court of Appeals decision, Disguised Returns of Capital An Arms Length Approach, [2010] CLJ 151.
This interesting article refers to a number of cases not cited to this court or to the courts below, and argues for what the author calls an arms length approach.
If there were a stark choice between a subjective and an objective approach, the least unsatisfactory choice would be to opt for the latter.
But in cases of this sort the courts real task is to inquire into the true purpose and substance of the impugned transaction.
That calls for an investigation of all the relevant facts, which sometimes include the state of mind of the human beings who are orchestrating the corporate activity.
Sometimes their states of mind are totally irrelevant.
A distribution described as a dividend but actually paid out of capital is unlawful, however technical the error and however well-meaning the directors who paid it.
The same is true of a payment which is on analysis the equivalent of a dividend, such as the unusual cases (mentioned by Dr Micheler) of In re Walters Deed of Guarantee [1933] Ch 321 (claim by guarantor of preference dividends) and Barclays Bank plc v British & Commonwealth Holdings plc [1996] 1 BCLC 1 (claim for damages for contractual breach of scheme for redemption of shares).
Where there is a challenge to the propriety of a directors remuneration the test is objective (Halt Garage), but probably subject in practice to what has been called, in a recent Scottish case, a margin of appreciation: Clydebank Football Club Ltd v Steedman 2002 SLT 109, para 76 (discussed further below).
If a controlling shareholder simply treats a company as his own property, as the domineering master-builder did in In re George Newman & Co Ltd [1895] 1 Ch 674, his state of mind (and that of his fellow-directors) is irrelevant.
It does not matter whether they were consciously in breach of duty, or just woefully ignorant of their duties.
What they do is enough by itself to establish the unlawful character of the transaction.
The participants subjective intentions are however sometimes relevant, and a distribution disguised as an arms length commercial transaction is the paradigm example.
If a company sells to a shareholder at a low value assets which are difficult to value precisely, but which are potentially very valuable, the transaction may call for close scrutiny, and the companys financial position, and the actual motives and intentions of the directors, will be highly relevant.
There may be questions to be asked as to whether the company was under financial pressure compelling it to sell at an inopportune time, as to what advice was taken, how the market was tested, and how the terms of the deal were negotiated.
If the conclusion is that it was a genuine arms length transaction then it will stand, even if it may, with hindsight, appear to have been a bad bargain.
If it was an improper attempt to extract value by the pretence of an arms length sale, it will be held unlawful.
But either conclusion will depend on a realistic assessment of all the relevant facts, not simply a retrospective valuation exercise in isolation from all other inquiries.
Pretence is often a badge of a bad conscience.
Any attempt to dress up a transaction as something different from what it is is likely to provoke suspicion.
In Aveling Barford there were suspicious factors, such as Dr Lees surprising evidence that he was ignorant of the Humberts valuation, and the dubious authenticity of the overage document.
But in the end the disparity between the valuations and the sale price of the land was sufficient, by itself, to satisfy Hoffmann J that the transaction could not stand.
The right approach is in my opinion well illustrated by the careful judgment of Lord Hamilton in Clydebank Football Club Ltd v Steedman 2002 SLT 109.
It is an example of the problems which can arise with football clubs owned by limited companies, where some small shareholders see the club as essentially a community enterprise, and other more commercially-minded shareholders are concerned with what they see as underused premises ripe for profitable redevelopment.
The facts are complicated, and the main issue was on section 320 of the Companies Act 1985 (approval by company in general meeting of acquisition of non-cash asset by director or connected person).
But the judge also dealt with a claim under section 263 (unlawful distribution).
He held that the sale of the clubs derelict ground at Kilbowie Park, and another site originally purchased under an abortive plan for a new ground, was a genuine arms-length sale even though effected at a price 165,000 less than the value as eventually determined by the court after hearing expert evidence.
In para 76 Lord Hamilton said: It is also clear, in my view, that a mere arithmetical difference between the consideration given for the asset or assets and the figure or figures at which it or they are in subsequent proceedings valued retrospectively will not of itself mean that there has been a distribution.
If the transaction is genuinely conceived of and effected as an exchange for value and the difference ultimately found does not reflect a payment manifestly beyond any possible justifiable reward for that in respect of which allegedly it is paid, does not give rise to an exchange at a gross undervalue and is not otherwise unreasonably large, there will not to any extent be a dressed up return of capital.
In assessing the adequacy of the consideration, a margin of appreciation may properly be allowed.
The words quoted by Lord Hamilton are from Halt Garage and Aveling Barford.
In para 79 Lord Hamilton said: It is plain, in my view, that directors are liable only if it is established that in effecting the unlawful distribution they were in breach of their fiduciary duties (or possibly of contractual obligations, though that does not arise in the present case).
Whether or not they were so in breach will involve consideration not only of whether or not the directors knew at the time that what they were doing was unlawful but also of their state of knowledge at that time of the material facts.
In reviewing the then authorities Vaughan Williams J in Re Kingston Cotton Mill Co (No 2) said at [1896] 1 Ch, p347: In no one of [the cases cited] can I find that directors were held liable unless the payments were made with actual knowledge that the funds of the company were being misappropriated or with knowledge of the facts that established the misappropriation.
Although this case went to the Court of Appeal, this aspect of the decision was not quarrelled with (see [1896] 2 Ch 279).
I agree with both those passages.
In this case there are concurrent findings that the sale of YMS1 to Moorgarth was a genuine commercial sale.
The contrary was not pleaded or put to Mr Moore in cross-examination.
I would dismiss this appeal.
The facts briefly revisited
Although the deputy judge refrained from making any findings about the true value of the YMS freeholds, he set out a good deal of information about valuations in the latter part of his judgment (paras 78 and following, dealing with a tax indemnity claim).
Crucially, he recorded, at para 80, that the figure of 11.83m in the DTZ valuation of September 2003 explicitly refrained from considering or taking account of the covenant strength of YMS and the state of repair of the property.
The valuation disregarding those matters was no doubt prepared on that basis on instructions, and it seems almost certain that if those matters had been taken into account, it would have been much lower.
One retrospective valuation produced a figure of just under 8m, and in 2006 Mr Farr, instructed by Tradegro, produced a figure of 5.85m (the deputy judge described this as sitting at an extreme end of pessimism).
In October 2003 YMS1s liabilities to Nationwide and Tradegro totalled about 7.6m, according to the minutes of the PPC board meeting on 20 October 2003 (Mummery LJ, para 6, says approaching 8m).
So a figure approaching 8m for the true value of the YMS freeholds was the break-even point for whether or not YMS1 had any positive value, in the absence of large-scale financial support from elsewhere in the Tradegro group so as to enable YMS to perform its extensive repairing obligations.
In the absence of such financial support the disrepair was a black hole making the DTZ figure of 11.83m unsupportable, and the non-existence of a counter-indemnity from PPC was totally irrelevant.
So long as PPC owned the YMS freeholds, it owned property which had been overvalued (on instructions) by about 4m.
On this analysis the sale negotiated between Mr Price and Mr Moore, two experienced businessmen, was not at a gross undervalue, and perhaps not at an undervalue at all.
But the dismissal of this appeal means that these matters will not be the subject of any further adjudication by the court.
I gratefully adopt the statement of the facts contained in Lord Walkers judgment, and I agree with his reasoning and conclusions.
I write only to underline aspects of the facts which make this, in my view, both an odd case and one in which the suggestion that the relevant transaction should be re-categorised as an illegitimate distribution of capital at common law is particularly artificial and unappealing.
The question is whether the agreement dated 20 October 2003 involved a return of capital by PPC to its shareholder TUK through TUKs subsidiary Moorgarth (it being common ground that no relevant distinction exists in this context between TUK and Moorgarth).
PPC submits that the value of its freehold properties was some 11.83 million, from which fell to be deducted some 8 million for creditors, leaving a net value on the face of it in the region of 4 million.
PPC further submits that Moorgarth and so Tradegro were aware of these facts through Mr Cornus Moore, then a director of TUK, PPC and Moorgarth.
The appeal comes before us on the hypothesis that these submissions can be made good, although they are in issue.
As explained by the deputy judge, Mr David Donaldson QC, in his judgment dated 15 October 2008, the reason for a net purchase price of only 63,225.72 appears from a Summary of principal commercial terms and from minutes for a board meeting of PPC held on 20 October 2003 to approve the sale.
The summary was prepared before the idea of stripping YMS1 and YMS2 out of PPC had emerged.
It indicated that a deed of indemnity was being discussed between TUK and YMS and that there was broad agreement that PPC should provide TUK with a (back-to-back) counter-indemnity.
The minutes were prepared after it had been decided that YMS1 and YMS2 should be stripped out of PPC, to explain the basis of the agreement by which this was achieved.
Clause 2.2 of the minutes, drafted by solicitors, reads: It was further noted that the Company had previously agreed to counter indemnify [TUK] in respect of TUKs indemnity to Your More Store Ltd. (YMS) in relation to the repairing obligations referred to in paragraph 2.1 and it was a precondition of the Sale that TUK (which is Foldfrees parent company) release the Company from those indemnity obligations.
Copies of deeds under which TUK had agreed to indemnify YMS in respect of those repairing obligations were produced to the meeting and its contents noted.
Consistently with this, the agreement itself recites (clause 4.1.4) that on completion: the Purchaser shall hand over to the Seller: (a) a certified copy of a deed of indemnity executed by [TUK] and Tradegro Limited in favour of [YMS]; and (b) a deed in favour of the Seller executed by [TUK] and Tradegro Limited under which the Seller is released from any and all liabilities to [TUK] and Tradegro Limited and [they] waive any and all rights and/or claims which they may have against the Seller under or arising out of repairing obligations in respect of properties owned by [YMS2] ..
The stated indemnity by TUK to YMS would have ensured that YMS did not suffer loss through having entered into the full repairing and insuring (FRI) leases in order to assist YMS2 to raise money, while PPCs counter-indemnity to TUK ensured that PPC as owner of YMS1, and through it of YMS2, did not benefit from YMSs willingness to do this.
The indemnity and counter-indemnity were valued at around 4 million.
When YMS1 and YMS2 were stripped out of PPC, PPCs counter-indemnity could either have been maintained in place, in which case the amount payable for YMS1 would have had to be around 4 million, or the counter-indemnity could have been released, in which case TUK/Moorgarth would be entitled to credit for its value (around 4 million).
The latter course was chosen, which explains why the actual net payment to be made under the agreement dated 20 October 2003 was only 63,225.72.
The illogicality, noted perceptively by the deputy judge, is that the credit for release of the counter- indemnity, which in fact was a credit due between TUK/Moorgarth and PPC, was expressed as if it reduced the value of YMS1, with which it had nothing in reality to do.
At trial PPC accepted that Mr Moore genuinely believed in the existence of TUKs indemnity to YMS and of PPCs counter-indemnity to TUK.
But it was by the time of trial conceded by TUK/Moorgarth that they could not establish the existence of either TUKs indemnity or PPCs counter-indemnity.
I confess to some surprise at this concession, and also at the absence of any suggestion of an estoppel, based in particular on the minutes to which I have referred.
But the concession must be accepted, and PPC seeks to build on it by arguing that, although Mr Moore in fact believed in the existence of both the indemnity and the counter-indemnity, he should have appreciated that they did not exist.
This is not an attractive submission, in circumstances where the judge disbelieved Mr Price when he denied any knowledge of and agreement to the minutes of 20 October 2003.
The judge thus found, in effect, that Mr Price was willing for the transaction to go ahead on a basis which he knew to be incorrect.
There appear to be two possible explanations for this attitude.
One is that Mr Price took it because he thought that the whole transaction, including the sale of PPC to his own company, would not have gone ahead on any other basis.
(In parenthesis, I note that Mr Collings did not controvert Mr McGhees answer during oral submissions, to the effect that, had the transactions relating to PPC and YMS1 not proceeded on the basis that the indemnity and counter-indemnity already existed as TUK/Moorgarth believed, TUK/Moorgarth could have insisted on their being put into express form, as a pre-condition to any such transactions proceeding.) The other, appearing clearly from the exchange of notes by the parties after the oral hearing, is that any increase in the amount of the price payable by Moorgarth to PPC for YMS1 would, under the terms of clause 5.6 of the agreement dated 3 October 2003 for the sale of TUKs 75.1% shareholding in PPC to WSIL, simply have resulted in an equivalent increase in the consideration payable by WSIL to TUK for such shares with the two increases, in commercial terms, cancelling each other out precisely.
However, Mr Collings for PPC submits that this is irrelevant.
The Court must look only at PPC and its position as a separate legal entity.
On this basis, the question now before the Court is one of characterisation.
Did the agreement between PPC and Moorgarth involve a distribution of PPCs capital to TUK through Moorgarth? This is a question of substance (or of examining the essence of the agreement, as the New Zealand Court of Appeal put it in Jenkins v Harbour View Courts Ltd. [1966] 1 NZLR 1).
It is not necessarily answered by the way in which the parties have expressed themselves.
Like Lord Walker, I would not go so far as Mr McGhee QC for Moorgarth in his submission that the ultimate test is always one of the directors (subjective) motives in effecting the transaction.
The courts will not second-guess companies with regard to the appropriateness or wisdom of the terms of any transaction (see e.g. re Halt Garage (1964) Ltd. [1982] 3 AER 1016.
But there may come a point at which, looking at all the relevant factors, an agreement cannot be regarded as involving in substance anything other than a return or distribution of capital, whatever the label attached to it by its parties.
I do not regard Aveling Barford Ltd v Perion Ltd [1989] BCLC 626 as inconsistent with this.
The facts in that case made it possible to speak of knowledge and intention to sell at an undervalue, but that does not mean that such knowledge or intention are always necessary factors.
In the present case, it is however unnecessary in my view to go further into such areas.
Here, the expressed justification for the payment to PPC of only 63,225.72 consisted in PPCs stated liability to TUK under the counter-indemnity stated to have been given by PPC to TUK.
It was illogical to treat that liability as reducing the value of YMS1.
The court can and must look at the substance of what happened.
The amount payable by Moorgarth to PPC was reduced by reference to an independent liability supposed to exist against a somewhat complicated commercial background in which Mr Moore believed PPC to have such liability to TUK under a counter-indemnity.
The fact that Mr Price, PPCs managing director, did not believe this can be put aside as irrelevant.
He was not a director of TUK or Moorgarth and Mr Collings QC for PPC stated explicitly that PPCs case depends upon attributing to both Moorgarth and PPC the knowledge (about the absence of any indemnity or counter-indemnity) which it is said that Mr Moore had or should have had as a director of both companies.
That, he said, was what made the agreement between PPC and Moorgarth one under which PPC was distributing assets at an undervalue.
Thus, he accepted that a shareholder (like TUK/Moorgarth) might agree to buy, at what it believed to be a fair price, even though the company selling knew or ought to know that the asset being sold was under-valued on the sale.
I will proceed on this basis, namely that it is essential, at least in circumstances such as the present, to attribute to both seller and buyer at least notice of the circumstances involving the alleged undervalue.
I need not examine whether it is correct as a general proposition that a companys rights to challenge a transaction as involving a disposition at an under-value necessarily depend upon establishing knowledge or notice of such circumstances by both parties to the transaction, or that they depend upon establishing fault on the part of a director, still less a common director.
The argument before us did not examine any such general proposition.
On the facts found by the judge, I am unable to accept PPCs case that the agreement between PPC and Moorgarth can or should be treated as involving an element of distribution of capital.
First, even putting aside the telling points made in the last two paragraphs of Lord Walkers judgment regarding the probable weakness of YMSs covenant, I cannot see how as a matter of substance it can be said that YMS1 was sold at an under-value.
The reason why only 63,225.72 was paid by Moorgarth was unrelated to any view that YMS1 had a net value less than about 4 million.
The reason was that PPC (not YMS1) was seen as having independent counter-indemnity obligations to TUK, which fell to reduce (in effect by agreed set-off) any net sum otherwise payable by Moorgarth to PPC on account of the value of YMS1.
In so far as PPCs obligations to TUK were seen or presented as reducing the value of YMS1, that was, as the deputy judge said, illogical.
The court must look at the real position, not at the parties illogical presentation of the position in an agreement which, read in context, makes clear what was actually happening and motivating the parties.
Second, with regard to the value attached as between PPC and Moorgarth to the release of PPCs supposed counter-indemnity, directors can make mistakes about the nature or extent of liabilities attaching to their companies, and can accept or settle supposed liabilities, even though they ought to have known or could have done better.
Their acceptance or settlement of such supposed liabilities remains just that, even though it may have been ill-advised or unwise.
It does not axiomatically fall to be re-categorised as a distribution of capital, even if it is in relation to a shareholder.
Accordingly, if one assumes that Mr Moore as a director ought to have known that PPC had not in fact entered into the counter-indemnity which he believed had been entered into, it does not follow that the release of the supposed counter-indemnity should be regarded as a distribution of capital.
This point alone is in my view sufficient to answer PPCs present case.
Third, the way PPC has chosen to put its case depends, as I have said, upon the knowledge which it is said that Mr Moore ought to have acquired, being treated as knowledge that he ought to have had as a director of TUK/Moorgarth.
I would not, as presently advised, accept this.
As a director of TUK and Moorgarth, Mr Moore achieved all that was in their interests.
He achieved a recognition and recital of the existence of the indemnity and counter-indemnity in which he believed, and on that basis a credit in the region of 4 million, reducing the net payment to PPC for YMS1 and YMS2 to 63,225.72.
If the agreement of 20 October 2003 stands, Mr Moore therefore achieved for TUK and Moorgarth what it was, from the time when the FRI leases were executed, always understood that they would receive.
Only if the agreement fails, might it sensibly be said that he was in breach of duty to TUK and Moorgarth.
But it is circular to start with an assumption which depends upon the agreement failing.
Viewing the position overall, PPCs current case depends upon re- categorising an understandable commercial agreement, involving on its face the giving of value for the release of a counter-indemnity, which Moorgarth genuinely believed to exist and the acknowledgement of which was made a pre-condition to the agreement, and treating it as an entirely different nature of transaction.
The case is very far from any previous case in which any such exercise has ever been undertaken, and I see no basis for any such re-categorisation.
We have read the judgments of Lord Walker and Lord Mance and we agree that, for the reasons they give, this appeal should be dismissed.
The essential question in this case is whether, on the assumed facts, the sale by the appellant to the respondent of the whole issued share capital of a wholly owned subsidiary of the appellant was in truth an unlawful distribution of capital dressed up as a sale.
I agree with Lord Walker and Lord Mance that, for the reasons they give, it was not.
It follows that I agree that the appeal should be dismissed.
| UK-Abs | The issue in this appeal is whether there may have been an unlawful distribution of capital to a shareholder when the Appellant (PPC) sold the whole issued share capital of a wholly owned subsidiary YMS Properties (No 1) Ltd (YMS1) to the Respondent (Moorgarth).
PPC and Moorgarth were both subsidiaries of Tradegro (UK) Ltd (Tradegro).
It was accepted that Mr Moore, a director of both PPC and Moorgarth, had genuinely believed that the sale of the shares was at market value.
However PPC later claimed that the sale had been at an undervalue.
The appeal raises a question as to the approach to be taken to establishing whether there has been an unlawful distribution of capital by a company.
The factual background to the sale lies in the corporate structure being used to carry on the business of another company, called simply YMS Limited (YMS), which at the relevant time had also become a subsidiary of Tradegro.
Mr Price was appointed as managing director of PPC and became holder of 24.9% of its shares.
Tradegro retained 75.1% of PPCs shares.
The freehold interests in the properties from which YMS traded were held by another company, YMS Properties (No 2) Ltd (YMS2).
YMS2 was a wholly owned subsidiary of YMS1, which was itself a wholly owned subsidiary of PPC.
YMS occupied the properties on an informal basis.
YMS2s property portfolio was used as security to borrow money.
The lender insisted that formal leases be entered into between YMS2 (as holder of the freeholds) and YMS (as occupiers of the properties).
These were to include full repairing and insuring obligations on the tenants.
The properties were in significant disrepair at the time.
The cost of repairs was estimated at 4.6m and YMS was not able to bear that liability.
It therefore sought an assurance that it would be given an indemnity against the costs which it might have to pay to satisfy the repairing liability to YMS2.
Although it received that assurance, no indemnity or counter indemnity was ever entered into.
Later, following a falling out of those involved in managing the business, it was agreed that Mr Price should acquire Tradegros 75.1% holding of PPC.
A preliminary step was to be the sale by PPC of the whole share capital of YMS1 to Moorgarth, another subsidiary of Tradegro.
In effect, the YMS properties were being extracted from PPC prior to its sale to Mr Price.
On 20 October 2003, PPC agreed to sell the whole issued share capital of YMS1 to Moorgarth for 63,225.72.
The sale price was calculated on the basis of the open market value of the YMS1 properties (said to be 11.83m), less liabilities for creditors approaching 8m and the sum of 4m in respect of repairing obligations.
The deduction of 4m was made in the belief that PPC had given an indemnity or a counter indemnity in respect of YMSs repairing liabilities under the leases, under which that liability would ultimately fall on PPC.
As part of the sale by PPC to Moorgarth, PPCs liability under that indemnity or counter indemnity was to be released.
In fact, there was no indemnity or counter indemnity.
PPC (now under the control of its new owner) claimed that the sale was at an undervalue, by as much as 4m, and was in breach of the common law rule against unlawful distributions of capital.
It was not, however, disputed that Mr Moore, a director of both PCC and Moorgarth at the time the sale was negotiated, genuinely believed that the sale of the shares was at market value.
The claim was dismissed in the High Court and by the Court of Appeal.
The Supreme Court unanimously dismisses the appeal.
Lord Walker gives the main judgment.
Lord Mance agrees with it, but issues a separate judgment.
Lords Phillips, Collins and Clarke agree with both.
Lord Walker holds that that whether a transaction infringes the common law rule against unlawful distributions is a matter of substance and not form.
The label attached by the parties is not decisive: [16].
The essential issue was how the sale is to be characterised: [24].
PPC argued that the court should adopt an objective approach, so that there is an unlawful distribution whenever a company enters into a transaction with a shareholder which results in a transfer of value not covered by distributable profits, regardless of the purpose of the transaction.
Such a relentlessly objective rule would be oppressive and unworkable.
It would tend to cast doubt on any transaction between a company and a shareholder, even if negotiated at arms length and in perfect good faith, whenever the company proved, with hindsight, to have got significantly the worse of the transaction: [24].
The courts task is to inquire into the true purpose and substance of the transaction.
That calls for an investigation of all the relevant facts, which sometimes include the state of mind of the human beings involved: [27].
Sometimes their states of mind are totally irrelevant.
They will be irrelevant, for example, where a distribution described as a dividend is actually paid out of capital.
Where there is a challenge to the level of directors remuneration, the test is objective but probably subject to a margin of appreciation: [28].
The participants subjective intentions are, however, sometimes relevant.
Something said to be an arms length commercial transaction is the paradigm example: [29].
If the transaction was a genuine arms length transaction then it will stand, even if it may, with hindsight, appear to have been a bad bargain for the company.
If, however, it was an improper attempt to extract value from the company by the pretence of an arms length sale, it will be held unlawful.
Deciding which category the transaction falls into will depend on a realistic assessment of all the relevant facts, not simply a retrospective valuation exercise in isolation from all other inquiries: [29].
Here there were findings by the Deputy Judge and the Court of Appeal that this was a genuine commercial sale.
The appeal was therefore dismissed: [33].
Lord Mance agreed with Lord Walkers reasoning and conclusions.
The courts will not second guess companies with regard to the appropriateness or wisdom of the terms of any transaction.
There may, however, come a point at which, looking at all the relevant factors, an agreement cannot be regarded as involving in substance anything other than a return or distribution of capital, whatever label the parties attach to it: [42].
That was not the position here: [45].
It could not be said that YMS1 was sold at an undervalue.
The reason why only 63,225.72 was paid to PPC was not related to the question of the net value of the YMS properties.
It was because PPC itself was seen as having independent counter indemnity obligations to Tradegro which would reduce any sum payable by Moorgarth to PPC (such as the purchase price for YMS1 shares): [45].
Directors can make mistakes about the extent of liabilities attaching to their companies.
Even if ill advised or unwise, it does not follow that settlement of such a liability must be re categorised as a distribution of capital, even if it is in relation to a shareholder: [46].
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Recitals 4, 5 and 7, taken together with Article 1, of Council Directive 2003/9/EC (the Reception Directive), encapsulate its purpose.
They respectively provide: The recitals (4) The establishment of minimum standards for the reception of asylum seekers is a further step towards a European asylum policy. (5) This Directive respects the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union.
In particular, this Directive seeks to ensure full respect for human dignity and to promote the application of Articles 1 and 18 of the said Charter [inviolability of human dignity and the guarantee of the right to asylum with due respect to the Geneva Convention 28 July 1951 and the Protocol of 31 January 1967 relating to the status of refugees] (7) Minimum standards for the reception of asylum seekers that will normally suffice to ensure them a dignified standard of living and comparable living conditions in all Member States should be laid down.
Article 1 Purpose The purpose of this Directive is to lay down minimum standards for the reception of asylum seekers in Member States.
Notwithstanding the seemingly clear terms of these provisions, the appellant in these cases argues that where an asylum seeker makes a second application for asylum after his first application has been finally rejected, he is not entitled to the benefits that are conferred by the Reception Directive.
Those benefits include (in Article 11) certain provisions in relation to entitlement to be employed while awaiting the outcome of an asylum application.
The Secretary of States argument was rejected by the Court of Appeal (Regina (ZO (Somalia) and others) v Secretary of State for the Home Department [2009] 1 WLR 2477, [2009] EWCA Civ 442) in its judgment delivered on 20 May 2009, allowing appeals by ZO (Somalia) and MM (Burma) from a decision of HH Judge Mackie QC of 25 June 2008.
The Court of Appeal had also dismissed an appeal by the Secretary of State from a decision of Blake J of 11 December 2008 in the case of DT (Eritrea).
Originally the appellant had appealed to this court against all three decisions of the Court of Appeal.
Subsequently, however, DT was granted indefinite leave to remain in this country and, with the agreement of all the parties, the Secretary of State was permitted to withdraw the appeal in that case.
The facts and history of proceedings
ZO is a Somali national who arrived in the United Kingdom in 2003.
She applied for asylum.
That application was refused on 17 February 2004.
A number of challenges were made to that refusal but the last of these finally foundered towards the end of 2004.
On 31 March 2005 the Immigration Appeal Tribunal issued its determination in the case of NM and others (Lone Women Ashraf) (Somalia) CG [2005] UKIAT 00076.
On 9 May 2005, solicitors acting on behalf of ZO made further submissions to the Secretary of State based on the IATs determination in the NM case.
It was contended that this amounted to a fresh claim for asylum within the meaning of rule 353 of the Immigration Rules.
AT the time of the hearing of this appeal, the Secretary of State had yet to decide whether leave to enter the UK should be given to ZO or whether the further submissions made on her behalf constitute a fresh claim.
On 27 February 2007 ZO was granted permission to apply for judicial review to challenge the delay in dealing with her further submissions.
On 5 June 2007 she wrote to the Secretary of State asking for permission to work.
She advanced this claim on the grounds of hardship and suggested that, if it could not be granted, she would seek priority for her application for judicial review.
The Secretary of State refused to prioritise consideration of ZOs further submissions and on 31 August 2007 refused permission to work.
ZO renewed her application for permission to work on 8 October 2007, referring to rule 360 of the Immigration Rules (which deals with applications for permission to work) but this was rejected on 15 October 2007, on the ground that her application for asylum had been refused on 17 February 2004.
Prompted by consideration of the decision of the High Court in R (FH) v Home Secretary [2007] EWHC 1571 (Admin), ZO conceded the ground of her application in relation to delay but in November 2007 she was given permission to amend the judicial review proceedings in order to challenge the refusal of permission to work under rule 360 of the Immigration Rules.
The gravamen of the grounds of this latter challenge was that she had made an asylum claim on 9 May 2005.
At an oral hearing on 30 January 2008, Stanley Burnton J set aside the grant of permission on the delay ground and refused permission to apply for judicial review on the Secretary of States refusal of consent to her taking up employment.
She was subsequently given permission to appeal the dismissal of her application in relation to the employment ground and by a consent order of 7 May 2008, the Court of Appeal granted permission to apply for judicial review.
This was the application that was subsequently heard and dismissed by HH Judge Mackie QC.
MM is a Burmese national who made an application for asylum after he arrived in the United Kingdom in 2004.
That application was refused and all attempts to challenge the refusal had failed by March 2005.
On 9 May 2005 he also made further submissions which, he said, amounted to a fresh claim based on new evidence.
Again in his case the Secretary of State has not yet decided whether to grant MM leave to enter the United Kingdom or whether he has made a fresh claim for asylum.
On 27 July 2007 MM wrote to the Secretary of State asking for permission to work and referring to rule 360.
This application was refused on 26 September.
On 25 October 2007 MM applied for judicial review to challenge the delay in considering his further submissions and to challenge the refusal of permission to work.
As in the case of ZO he based this on the circumstance that he had made an asylum application some 2 years and 5 months previously.
On 10 March 2008, applying the decision in FH, the High Court refused permission to apply for judicial review on the delay ground but granted permission on the refusal of consent to take up employment.
This application was also dismissed by Judge Mackie and allowed by the Court of Appeal.
The issues
On the hearing of the appeal to this court two principal issues were identified.
The first was whether Article 11 of the Reception Directive applies to a person who has had an application for asylum in the United Kingdom finally determined against him when he makes a further application for asylum.
Article 11 (2) of the Reception Directive is the critical provision in this instance.
It provides: If a decision at first instance has not been taken within one year of the presentation of an application for asylum and this delay cannot be attributed to the applicant, Member States shall decide the conditions for granting access to the labour market for the applicant.
The second main issue was whether this court should make a request of the Court of Justice for the European Union under Article 267 of the Treaty on the Functioning of the European Union (TFEU) for a preliminary ruling on the proper interpretation of the Reception Directive, in particular whether it is a measure intended to cover only the first application for asylum made by an individual to a Member State.
A subsidiary argument was made in the printed case for MM and supported by ZO in her printed case.
It was contended that, even if the Secretary of States claimed interpretation of the Reception Directive was accepted, the policy of refusing permission to work was in violation of Article 8 of the European Convention on Human Rights and Fundamental Freedoms.
Blake J had dealt with this argument in the case of DT.
He held that the Secretary of States policy was unlawful as an unjustified interference with the right to respect for a private life.
The Court of Appeal did not address the Article 8 issue because of its conclusion on the reach of the Reception Directive.
Notwithstanding this, Mr Fordham QC for MM submitted that this court should deal with the Article 8 argument and uphold the reasoning of Blake J.
The court indicated that, if we required argument on the Article 8 point, an opportunity would be given to present it.
In the event, however, since we have reached the same conclusion as did the Court of Appeal on the interpretation of the Reception Directive, this is not necessary.
The case for the Secretary of State
For the appellant Mr Tam QC submitted that the clear purpose of the Reception Directive was to devise minimum standards for those who were received by Member States for the first time as asylum seekers.
He drew particular attention to the use of the expression reception in Article 1 and the title of the Directive.
This, he said, indicated that the Directive was concerned with the initial encounter between the asylum seeker and the receiving State.
That this was its purpose was reinforced by consideration of the corresponding words in some of the other Community languages, for example, opvang, accueil, aufnahme, accoglienza, acogida which translated to acceptance, reception or welcome.
Mr Tams second argument was that the Directive had a settled meaning at the time of its adoption.
That meaning could not be influenced by subsequent EU measures such as Directive 2004/83/EC of 29 April 2004 (the Qualifications Directive), Council Directive 2005/85/EC of 1 December 2005 (the Procedures Directive) or Council Regulation 343/2003/EC (the Dublin Regulation) adopted on 18 February 2003.
The Court of Appeal had been wrong, Mr Tam said, to have had regard to these subsequent measures in reaching a conclusion on the interpretation to be applied to the Reception Directive.
Mr Tam also argued that support for the interpretation that he advanced was to be found in various of the specific provisions of the Reception Directive.
He suggested that, if the literal interpretation that the respondents contended for was adopted, a number of anomalies in the application of those provisions would be produced.
He further claimed that the scheme that the Directive contained for dealing with abuse was inapt for repeat applications.
If the Reception Directive was held to apply to such applications there was no effective mechanism to deal with abuse of the system.
The enactment of the Directives, the Immigration Rules and the Dublin Regulation
The Reception Directive was made pursuant to the power conferred by Article 63 (1) (b) of the Treaty Establishing the European Community (TEC).
Article 63 was introduced to the TEC by the Treaty of Amsterdam which was concluded on 2 October 1997 and came into force on 1 May 1999.
So far as is material, Article 63 provides: The Council, acting in accordance with the procedure referred to in Article 67, shall, within a period of five years after the entry into force of the Treaty of Amsterdam, adopt: 1. measures on asylum, in accordance with the Geneva Convention of 28 July 1951 and the Protocol of 31 January 1967 relating to the status of refugees and other relevant treaties, within the following areas: (a) criteria and mechanisms for determining which Member State is responsible for considering an application for asylum submitted by a national of a third country in one of the Member States, (b) minimum standards on the reception of asylum seekers in Member States, (c) minimum standards with respect to the qualification of nationals of third countries as refugees, (d) minimum standards on procedures in Member States for granting or withdrawing refugee status;
Quite clearly, a comprehensive charter dealing with the various aspects of asylum applications was contemplated.
This circumstance alone suggests that an identity of purpose for all the measures adopted to implement the proposed scheme was to be expected and, as we shall see, this conclusion is reinforced by examining the legislative history of those measures.
The Reception Directive was adopted on 27 January 2003 and by Article 26 (1) it was required to be transposed into national law by 6 February 2005.
Immigration Rules intended to implement the Directive were laid before Parliament on 11 January 2005.
Rules 360 and 360A provide: 360 An asylum Applicant may apply to the Secretary of State for permission to take up employment which shall not include permission to become self employed or to engage in a business or professional activity if a decision at first instance has not been taken on the Applicant's asylum application within one year of the date on which it was recorded.
The Secretary of State shall only consider such an application if, in his opinion, any delay in reaching a decision at first instance cannot be attributed to the Applicant. 360A If an asylum Applicant is granted permission to take up employment under Rule 360 this shall only be until such time as his asylum application has been finally determined.
Rules 353 and 353A of the Immigration Rules deal with the question of whether submissions made after an asylum claim has been refused should be treated as a fresh claim.
They provide: 353 When a human rights or asylum claim has been refused or withdrawn or treated as withdrawn under paragraph 333C of these Rules and any appeal relating to that claim is no longer pending, the decision maker will consider any further submissions and, if rejected, will then determine whether they amount to a fresh claim.
The submissions will amount to a fresh claim if they are significantly different from the material that has previously been considered.
The submissions will only be significantly different if the content: had not already been considered; and (i) (ii) taken together with the previously considered material, created a realistic prospect of success, notwithstanding its rejection.
This paragraph does not apply to claims made overseas. 353A Consideration of further submissions shall be subject to the procedures set out in these Rules.
An Applicant who has made further submissions shall not be removed before the Secretary of State has considered the submissions under paragraph 353 or otherwise.
This paragraph does not apply to submissions made overseas.
The Secretary of State does not treat as an asylum seeker a person who has made a new application for asylum until that application has been accepted as a fresh claim.
Once it is accepted, however, the asylum seeker enjoys the same rights of appeal as those given to a person whose first claim for asylum in this country has been rejected.
He is also given the right to apply for permission to work (PTW).
The Enforcement Instructions and Guidance Manual (the manual) issued by the Secretary of State provides in paragraph 23.10.4: Permission to work Fresh claims If a failed asylum seeker makes a fresh asylum claim then provided it is accepted as a fresh claim the procedures set out above should be followed, i.e. the Claimant will be entitled to apply for PTW provided he satisfies the criteria in Paragraph 360 of the Rules, otherwise any request for PTW would be a mandatory refusal.
If the new asylum claim is not accepted as a fresh claim the person will have no entitlement to apply for PTW.
As a matter of general practice the Secretary of State does not make a preliminary decision on whether a repeat application constitutes a fresh claim.
Instead, the decision on whether the new application is to be treated as a fresh claim is made at the same time as the decision to either allow or reject the claim.
On this account, the Court of Appeal unsurprisingly decided that paragraph 23.10.4 was unlikely to benefit a subsequent asylum seeker.
It was also concluded that the fact that para 23.10.4 of the manual gives the potential benefit of article 11 to a subsequent asylum seeker whose claim has been accepted as a fresh claim does not assist in the interpretation of the Reception Directive.
A short time after the adoption of the Reception Directive, on 18 February 2003, the Dublin Regulation was adopted.
This established the criteria and mechanisms for determining which Member State should have the responsibility of examining an asylum application lodged in one of the Member States by a third country national.
It came into force on 17 March 2003.
The Qualification Directive was adopted on 29 April 2004.
It prescribed minimum standards for the qualification and status of third country nationals or stateless persons as refugees or as persons who otherwise need international protection and the content of the protection to be granted to them.
The Procedures Directive was adopted on 1 December 2005.
As Mr Tam pointed out, this was some ten months after the Reception Directive was required to be transposed into national law.
The Procedures Directive set out minimum standards on procedures in Member States for granting and withdrawing refugee status.
The interpretation of application for asylum in the Reception and Procedures
Directives
Article 2 of the Reception Directive contains definitions of the expressions, application for asylum and applicant or asylum seeker as follows: (b) 'application for asylum' shall mean the application made by a third country national or a stateless person which can be understood as a request for international protection from a Member State, under the Geneva Convention.
Any application for international protection is presumed to be an application for asylum unless a third country national or a stateless person explicitly requests another kind of protection that can be applied for separately; (c) 'applicant' or 'asylum seeker' shall mean a third country national or a stateless person who has made an application for asylum in respect of which a final decision has not yet been taken;
Virtually identical definitions are contained in Article 2 of the Procedures Directive: (b) "application" or "application for asylum" means an application made by a third country national or stateless person which can be understood as a request for international protection from a Member State under the Geneva Convention.
Any application for international protection is presumed to be an application for asylum, unless the person concerned explicitly requests another kind of protection that can be applied for separately; (c) "applicant" or "applicant for asylum" means a third country national or stateless person who has made an application for asylum in respect of which a final decision has not yet been taken;
There can be no doubt that subsequent applications for asylum come within the definitions contained in Article 2 of the Procedures Directive and Mr Tam did not seek to argue otherwise.
Subsequent applications are mentioned in recital 15 of the Procedures Directive and in Articles 7 (2), 23 (4) (h), 32, 34 and 39 (1) (c).
It is clear that the scheme of the Directive is workable only if the definition covers repeat applications.
In particular, Article 32 gives power to Member States to undertake a preliminary examination of a subsequent application in order to ascertain whether new elements or findings have arisen or have been presented by the applicant which touch on the question whether he or she qualifies as a refugee.
This unquestionably means that a subsequent application is an application for asylum within the meaning given to that term in Article 2 (b).
On the Secretary of States case, the expression application for asylum must be given a markedly different meaning in the Reception Directive from that in the Procedures Directive.
Mr Tam seeks to dismiss this apparent anomaly by suggesting that the purpose of each of the Directives is quite different.
By way of preliminary observation on this claim, one may note that, if it is correct, it is surprising that the draftsman of the later measure did not employ a different formulation for the definitions of the terms application for asylum and applicant for asylum from those used in the Reception Directive.
If Mr Tam is right, using almost identical language was, at best, highly misleading.
But it is even more surprising, if the Reception Directive was not intended to apply to subsequent applications, that the text of the Directive did not make it unequivocally clear that these would not be covered.
It is in any event clear that the purpose of both Directives (and, incidentally the Qualification Directive and the Dublin Regulation) is the same.
Apart from mirroring the definitions contained in Article 2 of the Reception Directive, the critical recitals in the Procedures Directive bear a striking resemblance to those in the Reception Directive.
While Mr Tam may be right that, as a matter of general principle, later legislation should not operate to change the established meaning of an earlier enactment, the manner in which the later legislation is framed may provide an insight into the proper interpretation of the earlier instrument.
Whatever may be said on this matter on a theoretical basis, however, the matter is put beyond any doubt by an examination of the legislative history of the two measures.
Much was made by Mr Tam of the fact that the Procedures Directive was a much later instrument than the Reception Directive but it is quite clear that both Directives shared if not an exactly time coincident genesis at least a broadly common ancestry.
In fact, the proposal for a Council Directive on minimum standards on procedures in Member States for granting and withdrawing refugee status was first made on 20 September 2000 whereas the proposal for the Reception Directive was published in the Official Journal of the European Union on 31 July 2001 (Official Journal 213E, 31/07/2001 P. 0286 0295).
The proposal for the Reception Directive contained an overview of the standards that the Directive would be designed to cover.
Among these were the reception conditions that should be granted, in principle, at all stages and in all kinds of asylum procedures (the emphasis has been added).
The most significant portion of the proposal document, however, is found in the part that deals with definitions.
The proposed definition for application for asylum is in broadly similar terms to those that ultimately were enacted.
The proposal for Article 2 (c) is particularly illuminating.
It is in these terms: Applicant or applicant for asylum means a third country national or a stateless person who has made an application for asylum in respect of which a final decision has not yet been taken.
A final decision is a decision in respect of which all possible remedies under Council Directive //EC [on minimum standards on procedures in Member States for granting and withdrawing refugee status] have been exhausted;
From this it is indisputably clear that it had always been intended not only that the definitions of applicant for asylum in both Directives should be congruent with one another but also that an application should not be regarded as having been subject to a final decision until all possible remedies had been pursued and determined.
This can only mean that subsequent applications would fall within the purview of the definitions of application for asylum and asylum seeker in the Reception Directive.
If further proof that this was so was needed, it is provided in a document which sets out the suggested amendments of the proposal document.
Amendment 114 deals with Article 2 (c).
It states: (c) Applicant means a third country national or a stateless person who has made an application for asylum or another form of international protection in respect of which a final decision has not yet been taken.
A final decision is a decision in respect of which all possible remedies have been exhausted (original emphasis but underlining added).
I therefore conclude that an application for asylum in the Reception Directive must be interpreted to include a subsequent application made after an original application has been determined and that the term asylum seeker should be construed accordingly to include a person who makes such a subsequent application.
This conclusion seems to me to chime well with the spirit of the recitals to the Directive, particularly recital 7.
The Directive seeks to set minimum standards for the reception of asylum seekers that will normally suffice to ensure them a dignified standard of living.
It would be, in my view, anomalous and untoward that an applicant who makes a subsequent application after his first application has been finally disposed of should be denied access to standards that are no more than the minimum to permit him to live with some measure of dignity.
Moreover, if the Directive was found not to apply to subsequent applications for asylum this would give rise to a surprising incongruity.
First time applications for asylum made long after an asylum seeker arrived in this country would be governed by the Directive but a perfectly genuine applicant who makes a subsequent application, perhaps within a relatively short time of arrival, would be denied the benefits that it affords.
Article 3 applies the Directive to all third country nationals and stateless persons who make an application for asylum at the border or in the territory of a Member State.
It is clear, therefore, that a person who has been in the United Kingdom for some time can apply for asylum and, on the interpretation that the appellant espouses, such a person would be entitled to the benefits of the Reception Directive whereas an applicant who has made an application immediately on arrival would lose those benefits forever after the first application has been determined.
The Court of Appeal considered that the strongest argument in favour of the interpretation advanced by the Secretary of State was that the word reception had been used so prominently in the Directive.
I have therefore considered that argument carefully but, as Mr Fordham pointed out, one can be received, or have an application received, or return to reception more than once.
The Directive stipulates what must happen when one is received into the asylum system.
There is nothing unusual or untoward in the notion that one can be received into that system on more than one occasion.
I do not consider that the corresponding words of the other Community languages on this point detract from that conclusion.
One can be received, accepted or even welcomed several times.
I would therefore dismiss the appeals.
Since, however, much of the argument for the appellant was devoted to the anomalies that, it was said, would arise if the Reception Directive was held to apply to subsequent applications, it is right that I should deal, albeit briefly, with those claims.
By way of preamble, however, I should observe that, while seeking to deduce the purpose of an item of legislation from claimed difficulties that its literal implementation will involve is not an illegitimate exercise, it is one that must be approached with caution.
Where a different purpose from that canvassed is unmistakably clear from, for instance, the text of the instrument and its enacting history, supposed problems that may arise from giving effect to that purpose cannot be permitted to frustrate the intention of the legislative body.
The claimed anomalies
Articles 5 and 6 of the Reception Directive deal respectively with information and documentation that must be given to an applicant for asylum.
Mr Tam pointed out that there is no reference in either article to subsequent applications and it is therefore to be supposed that, if the Reception Directive applies to these, the same information and documentation will have to be provided on each occasion.
In order to assess the administrative burden that Mr Tam suggests will thereby be cast on the Home Department, it is necessary to look at the actual provisions.
Article 5 is in the following terms: Article 5 Information 1.
Member States shall inform asylum seekers, within a reasonable time not exceeding fifteen days after they have lodged their application for asylum with the competent authority, of at least any established benefits and of the obligations with which they must comply relating to reception conditions.
Member States shall ensure that applicants are provided with information on organisations or groups of persons that provide specific legal assistance and organisations that might be able to help or inform them concerning the available reception conditions, including health care. 2.
Member States shall ensure that the information referred to in paragraph 1 is in writing and, as far as possible, in a language that the applicants may reasonably be supposed to understand.
Where appropriate, this information may also be supplied orally.
The information that is required to be provided under this Article is likely to be of a routine nature and one may reasonably anticipate that in most cases it will involve no more than issuing precisely the same material as was provided when the first application was made.
Presumably, it could be conveniently held on file and generated more or less automatically on receipt of a second or subsequent application.
On that basis, it is difficult to accept that this would impose a substantial logistical burden on the authorities.
In any event, it is not in dispute that subsequent applicants for asylum must be provided with information under Article 10 (1) (a) of the Procedures Directive which provides: 1.
With respect to the procedures provided for in Chapter III, Member States shall ensure that all applicants for asylum enjoy the following guarantees: (a) they shall be informed in a language which they may reasonably be supposed to understand of the procedure to be followed and of their rights and obligations during the procedure and the possible consequences of not complying with their obligations and not cooperating with the authorities.
They shall be informed of the time frame, as well as the means at their disposal for fulfilling the obligation to submit the elements as referred to in Article 4 of Directive 2004/83/EC.
This information shall be given in time to enable them to exercise the rights guaranteed in this Directive and to comply with the obligations described in Article 11;
To have to provide the further information that Article 5 of the Reception Directive requires does not seem to me to be a significant encumbrance.
There has to be a relay of information in any event.
The extra material that has to be provided will in most cases have been prepared already.
In those circumstances, I find it impossible to accept that the requirement to supply the Article 5 information again could be described as an anomaly.
Moreover, as Mr Fordham put it, a renewed entitlement to information is not in the least absurd.
If it is considered that the provision of the information on the first application for asylum is vital, why should it not be considered important on subsequent applications?
Article 6 of the Reception Directive provides: Documentation 1.
Member States shall ensure that, within three days after an application is lodged with the competent authority, the applicant is provided with a document issued in his or her own name certifying his or her status as an asylum seeker or testifying that he or she is allowed to stay in the territory of the Member State while his or her application is pending or being examined.
If the holder is not free to move within all or a part of the territory of the Member State, the document shall also certify this fact. 2.
Member States may exclude application of this Article when the asylum seeker is in detention and during the examination of an application for asylum made at the border or within the context of a procedure to decide on the right of the applicant legally to enter the territory of a Member State.
In specific cases, during the examination of an application for asylum, Member States may provide applicants with other evidence equivalent to the document referred to in paragraph 1. 3.
The document referred to in paragraph 1 need not certify the identity of the asylum seeker. 4.
Member States shall adopt the necessary measures to provide asylum seekers with the document referred to in paragraph 1, which must be valid for as long as they are authorised to remain in the territory of the Member State concerned or at the border thereof. 5.
Member States may provide asylum seekers with a travel document when serious humanitarian reasons arise that require their presence in another State.
The provision of a document that confirms the holder as an asylum seeker is obviously important to any applicant for asylum.
Without it, he or she is liable to be removed from the jurisdiction.
So far from being anomalous that this should be provided to someone who has made a subsequent application for asylum, it seems to me that, in order to forestall removal, the availability of such a document is imperative so that the applicants continued entitlement to remain in the jurisdiction may be established.
I do not therefore accept that the need to provide documentation under Article 6 on subsequent applications can be characterised as irregular or anomalous.
Furthermore, there is no requirement under the Procedures Directive to supply the documentation specified by Article 6 of the Reception Directive.
Plainly, an asylum seeker who makes a subsequent application must be entitled to remain in the jurisdiction in which the application is made until the procedures provided for in the Procedures Directive have been completed.
This is a clear indication that Article 6 of the Reception Directive was intended to apply to subsequent applications for asylum and, by the same token, an obvious sign that the Procedures Directive was drafted on the assumption that this was so.
Otherwise, one would have expected that the Directive which was enacted later would have contained provision for the supply of documentation that would have protected the asylum seeker from removal.
The next avowed anomaly that Mr Tam identified was in the application of Article 9.
It provides that Member States may require medical screening for applicants on public health grounds.
He suggested that this power makes sense only in the context of an initial encounter between an asylum seeker and a Member State.
Properly understood, the appellants complaint about this Article being applied to subsequent applications, is that it is unnecessary rather than anomalous for this to happen.
Even if this is so, it is contrived to argue that because medical screening is not necessary for subsequent applications for asylum, it must be taken that the entire Reception Directive should be held not to apply to such applications.
This is a power to be used when required and it is entirely unsurprising that it is expressed in the general and pithy way in which it appears in the Directive.
The assertion made by the appellant in relation to Article 10 falls into essentially the same category.
It provides: Schooling and education of minors 1.
Member States shall grant to minor children of asylum seekers and to asylum seekers who are minors access to the education system under similar conditions as nationals of the host Member State for so long as an expulsion measure against them or their parents is not actually enforced.
Such education may be provided in accommodation centres.
The Member State concerned may stipulate that such access must be confined to the State education system.
Minors shall be younger than the age of legal majority in the Member State in which the application for asylum was lodged or is being examined.
Member States shall not withdraw secondary education for the sole reason that the minor has reached the age of majority. 2.
Access to the education system shall not be postponed for more than three months from the date the application for asylum was lodged by the minor or the minor's parents.
This period may be extended to one year where specific education is provided in order to facilitate access to the education system. 3.
Where access to the education system as set out in paragraph 1 is not possible due to the specific situation of the minor, the Member State may offer other education arrangements.
The appellant is unquestionably right that some of the provisions contained in this Article cannot be fitted comfortably into second time applications.
The power to postpone access to education, for instance, provided for in para 2 of the Article cannot have been intended to be exercisable by the Member State on more than one occasion.
But this is not a sound basis on which to reason that, as a consequence, it cannot have been intended that the Reception Directive should apply to subsequent asylum applications.
The Article should be understood for what it is a general purpose provision setting out various duties and powers covering a variety of circumstances.
It would perhaps have been preferable if the Article had stated which of its parts should not apply to subsequent applications but the absence of such a statement does not establish that those applications are not covered by the Directive.
I have concluded therefore that none of the claimed anomalies (or their collective impact) constitutes a reason for believing that it was intended that the Reception Directive should not apply to subsequent applications for asylum.
I am reinforced in that view by the consideration that, if the Reception were held not to apply, some decidedly curious consequences would follow.
For instance, the duties under Article 8 of the Directive (to maintain as far as possible family unity) and under Article 13 (2) (to ensure a standard of living adequate for the health of applicants and capable of ensuring their subsistence) and 15 (1) (the provision of necessary health care) would not apply to those who make subsequent applications for asylum.
When one considers that many of these will be genuine applicants, it is impossible to believe that it was intended that they should not have access to these basic amenities and facilities.
Mr Tam submitted that, if the Reception Directive is held to apply to subsequent applications, the potential for abuse of the system of applications for asylum is greatly increased.
Wholly unmeritorious claims would be put forward by applicants who saw the opportunity of not only delaying their removal but also of gaining access to the benefits that the Directive confers.
This argument was rejected by the Court of Appeal on, according to Mr Tam, two grounds first that administrative problems because of unmeritorious claims should not determine the proper interpretation to be given to the Directive and, second, that abuse of the system by lodging subsequent applications was sufficiently catered for by Article 16 of the Directive which provides: Reduction or withdrawal of reception conditions 1.
Member States may reduce or withdraw reception conditions in the following cases: (a) where an asylum seeker: abandons the place of residence determined by the competent authority without informing it or, if requested, without permission, or does not comply with reporting duties or with requests to provide information or to appear for personal interviews concerning the asylum procedure during a reasonable period laid down in national law, or has already lodged an application in the same Member State.
When the applicant is traced or voluntarily reports to the competent authority, a duly motivated decision, based on the reasons for the disappearance, shall be taken on the reinstallation of the grant of some or all of the reception conditions; (b) where an applicant has concealed financial resources and has therefore unduly benefited from material reception conditions.
If it transpires that an applicant had sufficient means to cover material reception conditions and health care at the time when these basic needs were being covered, Member States may ask the asylum seeker for a refund. 2.
Member States may refuse conditions in cases where an asylum seeker has failed to demonstrate that the asylum claim was made as soon as reasonably practicable after arrival in that Member State. 3.
Member States may determine sanctions applicable to serious breaching of the rules of the accommodation centres as well as to seriously violent behaviour. 4.
Decisions for reduction, withdrawal or refusal of reception conditions or sanctions referred to in paragraphs 1, 2 and 3 shall be taken individually, objectively and impartially and reasons shall be given.
Decisions shall be based on the particular situation of the person concerned, especially with regard to persons covered by Article 17, taking into account the principle of proportionality.
Member States shall under all circumstances ensure access to emergency health care. 5.
Member States shall ensure that material reception conditions are not withdrawn or reduced before a negative decision is taken.
Systemic difficulties which the interpretation adopted by the Court of Appeal would create were not advanced in order to influence the choice of interpretation, Mr Tam claimed, but to demonstrate that an interpretation that leads to such difficulties is not consistent with the purpose of the Reception Directive.
As a general principle, it is of course correct that difficulties in implementing legislation may provide a useful guide to the identification of the true purpose of an enactment but where, as here, the purpose of the Directive is unmistakably clear, the fact that this may give rise to administrative difficulties cannot impel an interpretation which is inconsistent with that purpose.
It appears to me that Hooper LJ was saying no more when he observed in para 70 that he would be loath to interpret the Reception Directive restrictively because of the administrative problems which this country faces dealing with the backlog.
It is, I think, clear that the impact of Article 16 will fall principally on first time applications for asylum.
I consider that there is force in the appellants argument that the first and second tirets of Article 16 (1) (a) cannot sensibly be applied to subsequent applications.
Mr Tam accepted, however, that the third tiret could perform an effective attenuation of abuse but he characterised this as a bootstrap argument.
In other words, just because the third tiret can be applied to those who re apply for asylum after their first application has been finally determined, this is not a reason to expand the overall relevance of the Directive to subsequent applications.
This argument is eclipsed, however, by the determination that, for the reasons given earlier, the Directive does apply to subsequent applications.
Once that position is reached, the efficacy albeit limited of Article 16 (1) (a) to subsequent applications emerges.
Mr Tam is also undoubtedly right in saying that Article 16 (2) does not apply to subsequent applications but his submission on this point is met by his own bootstrap argument.
Simply because one aspect of a particular provision is not capable of adaptation to a particular species of application it does not follow that it must fall outside the Directives ambit.
In other words, although the principal focus of Article 16 is on first applications, it should not be assumed that it was not intended to cover subsequent applications as well.
Article 16 (4) requires individual attention to be given to decisions for reduction, withdrawal or refusal of reception conditions and the appellant has argued that the detailed assessment that this will entail would impose an onerous burden on the immigration authorities which would in turn limit the scope for withdrawal or reduction of reception conditions.
I cannot accept this argument.
There does not appear to be any reason in principle why the State should not be able to adopt what the respondents described as the screening short cut of accelerated determinations, particularly in view of the inroads which Mr Tam has told us are being made in the backlog of repeat applications.
The answer to the possibility of abuse in the making of repeat applications must surely lie in the devising of streamlined procedures for identifying and rejecting promptly those that are devoid of merit.
This is undoubtedly what was contemplated by certain provisions in the Procedures Directive, particularly Article 24 (1) (a) (which empowers Member States to create specific procedures to allow for a preliminary examination for the purposes of processing cases); and Article 32 (2) (which permits a specific procedure to be applied after a decision has been taken on a previous application).
Recital 15 of the Procedures Directive is also relevant.
It states: (15) Where an applicant makes a subsequent application without presenting new evidence or arguments, it would be disproportionate to oblige Member States to carry out a new full examination procedure.
In these cases, Member States should have a choice of procedure involving exceptions to the guarantees normally enjoyed by the applicant.
These provisions point powerfully to the way in which the problem of unmeritorious applications should be confronted and dealt with.
This is not to be achieved by disapplying the Reception Directive to all repeat applications whether or not they have merit.
The problem of undeserving cases should be counteracted by identifying and disposing promptly of those which have no merit and ensuring that those applicants who are genuine are not deprived of the minimum conditions that the Directive provides for.
A reference under Article 267 of TFEU?
In support of the application for a reference to ECJ under Article 267 of TFEU, the appellant relied on Case 283/81 CILFIT Srl v Ministro della Sanita [1982] ECR 3415.
At paragraph 16 of its judgment in that case, the ECJ had said: the correct application of Community Law may be so obvious as to leave no scope for any reasonable doubt as to the manner in which the question raised is to be resolved.
Before it comes to the conclusion that such is the case, the national court or tribunal must be convinced that the matter is equally obvious to the courts of the other Member States and to the Court of Justice.
Only if those conditions are satisfied, may the national court or tribunal refrain from submitting the question to the Court of Justice and take upon itself the responsibility for resolving it.
This sets what appears at first sight to be a very high standard.
The national court must not only be convinced that there is no reasonable doubt as to how the question should be answered but must also be of the unequivocal view that its opinion would be shared by courts in all the Member States and the Court of Justice.
But I do not believe that this passage was meant to convey to national courts the need to conduct an analysis of how the matter might be approached in all of those other courts.
Rather, it seems to me that what is required is for the national court to conduct a careful examination of the reasoning underlying any contrary argument ranged against the view that it has formed.
If, having done so, the court is of the opinion that such an argument, on any conventional basis of reasoning, could not be accepted, a reference should not be made.
Having anxiously assessed the appellants arguments against this yardstick, I have come firmly to the view (particularly in light of the legislative history of the Reception Directive and the Procedures Directive) that a reference is not required in this case and I would therefore also dismiss the appellants application under Article 267 of TFEU.
| UK-Abs | The Supreme Court unanimously dismisses the Secretary of States Appeal holding that the Reception Directive can apply to second and subsequent applications for asylum.
Lord Kerr delivered the judgment of the Court.
The Supreme Court identified two principal issues in the appeal: (1) whether Article 11 of the Reception Directive applies to a person who has had an application for asylum in the United Kingdom finally determined against him when he makes a further application for asylum, and (2) whether the Court should apply for a reference to the European Court of Justice for a preliminary ruling on the proper interpretation of the Reception Directive, in particular whether it is intended to cover only the first application for asylum made by an individual to a Member State (paras [8][9]).
In relation to the first issue, considering the context in which the Reception Directive was made, it is clear that it was part of a comprehensive charter dealing with the various aspects of asylum applications.
The Procedures Directive, which was adopted ten months after the Reception Directive was required to be transposed into national law and sets out minimum standards on procedures in Member States for granting and withdrawing refugee status, is part of that charter.
Article 2 of both Directives contain virtually identical definitions for the terms application for asylum and applicant or asylum seeker.
There can be no doubt that subsequent applications for asylum come within the definitions contained in Article 2 of the Procedures Directive.
For the Secretary of State to be correct therefore, the expression application for asylum must be given a different meaning in each of two Directives.
Whilst as a matter of general principle, later legislation should not operate to change the established meaning of an earlier enactment, the later legislation may give an insight into the proper interpretation of the earlier instrument.
In any event, in this case the matter is put beyond doubt by an examination of the legislative history of the two measures (paras [14][15], [22][28]).
The proposal for the Reception Directive makes it clear that it had always been intended not only that the definitions of applicant for asylum in both Directives should be the same but also that an application should not be regarded as having been subject to a final decision until all possible remedies had been pursued and determined.
This can only mean that subsequent applications would fall within the definitions of application for asylum and asylum seeker in the Reception Directive.
Accordingly, an application for asylum in the Reception Directive must be interpreted to include a subsequent application made after an original application has been determined and asylum seeker should be construed accordingly to include a person who makes such a subsequent application (paras [29][30]).
Having decided to dismiss the appeals for the reasons set out above, the Court then considered the Secretary of States arguments that numerous anomalies would arise if the Reception Directive was held to apply to subsequent asylum claims.
The Court concludes that none of the claimed anomalies leads to the view that it was intended that the Reception Directive should not apply to subsequent asylum applications.
On the contrary, curious consequences would follow if the Reception were held not to apply to such applications (paras [33][42]).
The Secretary of State further argued that if the Reception Directive is held to apply to subsequent applications for asylum, the potential for abuse of the system would be greatly increased.
The Secretary of States concern was that applicants would bring wholly unmeritorious claims with the aim of delaying their removal and gaining access to the benefits that the Reception Directive confers.
Whilst there was some force in the Secretary of States arguments in this context, the Court considers that the problem of unmeritorious applications should be dealt with not by disapplying the Reception Directive to all repeat applications but by identifying and disposing promptly of those which have no merit and ensuring that genuine applicants are not deprived of the minimum conditions that the Reception Directive provides for (paras [43][49]).
On the second issue, the Court concluded, particularly in light of the legislative history of the Reception Directive and the Procedures Directive, that a reference to the ECJ was not required (paras [50][51]).
|
When the court issued its previous judgment on this appeal ([2013] UKSC 15), it allowed the parties an opportunity to make written submissions as to the form of the order to be made.
The Commissioners then made submissions inviting the court to make a further reference to the Court of Justice of the European Union under article 267 of the Treaty on the Functioning of the European Union.
LMUK made submissions opposing such a reference and inviting the court to dismiss the appeal.
Summarising matters developed at much greater length in the submissions, the Commissioners have put forward two principal arguments in favour of a further reference.
First, they submit that a national court is obliged under EU law to make a further reference if it finds the ruling of the CJEU on the first reference to be incomplete or unsatisfactory.
In support of that submission, they refer to the judgment in Wnsche Handelsgesellschaft GmbH & Co v Federal Republic of Germany (Case 69/85) [1986] ECR 947, in which the court said at para 15 that the authority of a preliminary ruling does not preclude the national court from properly taking the view that it is necessary to make a further reference before giving judgment.
The court added that such a procedure may be justified when the national court encounters difficulties in understanding or applying the judgment, when it refers a fresh question of law to the court, or when it submits new considerations which might lead the court to give a different answer to a question submitted earlier.
Secondly, the Commissioners submit that there must be an issue of EU law raised in the present appeal on which a decision is necessary, and which cannot be considered to be acte clair, given the difference of view on the court.
In relation to the first point, LMUK point out correctly that the court did not in its earlier judgment question the European courts ruling on any question of EU law.
On the contrary, the court recognised the binding character of the European courts judgment on questions as to the validity, meaning or effect of any EU instrument: see paras 56, 103 and 119.
The court proceeded however on the basis of a more comprehensive consideration of the facts of the case than that set out in the reference to the European court: see for example paras 38, 40, 48 and 49.
A different view of the facts from that on which the European court had based its ruling might of course necessitate a further reference in order to obtain further guidance, but it cannot be said that it would necessarily do so.
On a different view of the facts, the difficulty which had led to the reference might no longer arise.
That was the position in the present case, in the view of the majority of the court.
They considered that, with the benefit of hindsight, there had in reality been no need for a reference in the first place: see paras 30, 87 and 118.
They noted that the European court had itself considered that the case raised no new point of law: see paras 34, 55, 87 and 118.
They considered the judgment of the European court in order to identify the principles which it had applied to the incomplete account of the facts which it had been requested to consider: see for example para 56.
They then applied the principles established by the case law of the European court to the more comprehensive account of the facts which, in their judgment, this court required to consider: see paras 73 75 and 78 82.
On that view of the case, there is no question of EU law which now requires to be elucidated, and therefore no need for a further reference.
In relation to the second point, as I have explained the majority of the court considered that the case could be decided by applying well established principles to the particular facts.
They also noted, as I have mentioned, that the European court had dealt with the reference on the basis that it raised no new point of law.
That was also acknowledged by the minority of the court: para 129.
Although the minority of the court questioned the approach adopted in the majority judgments to the application of EU law and to the judgment of the European court, those criticisms were not accepted by the majority, and they are not regarded by the court as now requiring or justifying a further reference.
In so far as the minority raised issues of fairness under domestic law, they raise no issue of European law suitable for the European court.
In the circumstances, including the European courts own assessment that the case raised no new point of EU law, the court does not consider that a further reference to the European court is necessary.
It would be unfortunate if the position were otherwise, bearing in mind that this litigation has already lasted since 2003.
Hilary Term [2013] UKSC 15 On appeal from: [2007] EWCA Civ 938 JUDGMENT Her Majesty's Revenue and Customs (Appellant) v Aimia Coalition Loyalty UK Limited (formerly known as Loyalty Management UK Limited) (Respondent) Lord Hope, Deputy President before Lord Walker Lord Wilson Lord Reed Lord Carnwath JUDGMENT GIVEN ON 13 March 2013 Heard on 24 and 25 October 2012 Appellant Philippa Whipple QC Suzanne Lambert (Instructed by VAT & Duties Litigation Team, Solicitor's Office, HM Revenue and Customs) Respondent David Milne QC Michael Conlon QC (Instructed by Hogan Lovells International LLP) LORD REED Introduction 1.
This appeal concerns the well known Nectar scheme.
Its essential elements as at the relevant time can be summarised as follows.
A member of the scheme has an account with Aimia Coalition Loyalty UK Ltd, formerly called Loyalty Management UK Ltd (LMUK), the promoter of the scheme, and is issued with a Nectar card.
When a member purchases goods or services from a retailer which has agreed with LMUK to participate in the scheme in relation to the issue of points, the retailer swipes the Nectar card and the members account with LMUK is electronically credited with a number of points.
The member is then entitled to use the points to receive goods or services, either at no cost or at a reduced cost, from a retailer which has agreed with LMUK to participate in the scheme in relation to the redemption of points.
When the member receives goods or services from that retailer, the retailer swipes the Nectar card and the members account with LMUK is electronically debited with the number of points which have been redeemed. 2.
The scheme involves four parties: (1) the promoter of the scheme, LMUK; (2) the members of the scheme (collectors); (3) retailers of goods and services (sponsors), who pay for their customers, if they produce a Nectar card, to have points credited to their accounts with LMUK when they have purchased goods or services and their cards are swiped; and (4) other retailers of goods and services (redeemers), from whom collectors receive goods and services, at no cost or at a reduced cost, when their cards are swiped and points are debited to their accounts. 3.
The scheme depends upon a network of contracts between LMUK and the three other parties.
First, LMUK agrees with the collectors the terms upon which their accounts are operated, including an obligation on the part of LMUK that it will ensure that the collectors can obtain points when they purchase goods or services from sponsors, and that it will make goods and services available to the collectors at no cost, or at a reduced cost, when they redeem their points.
LMUK provides the members with information about the identities of sponsors and redeemers, the particular goods and services which can be obtained using the points, and the number of points required in order to receive the goods or services in question. 4.
Secondly, LMUK agrees with the sponsors that it will credit collectors accounts with the points for which the sponsor has agreed to pay and will secure that goods and services are made available to collectors on their redemption of the points.
In return, the sponsors make payments to LMUK based on the number of points credited to collectors accounts, at an agreed value per point, together with an annual marketing fee.
Each sponsor is granted by LMUK the exclusive right to participate in the Nectar scheme in a particular market sector.
The contract entered into between LMUK and each sponsor provides that their agreement does not create a relationship of partnership or agency. 5.
Thirdly, LMUK agrees with the redeemers that they will provide collectors with specified goods and services upon the redemption of the applicable number of points, and will in addition provide a number of other services to LMUK, in return for the payment of service charges by LMUK based on the number of points redeemed, at an agreed value per point.
That value is lower than the value agreed with the sponsors.
In relation to the other services which redeemers are required to supply, they must for example provide LMUK with information about problems affecting the quality or availability of goods and services, provide customer data and other information which LMUK requires for marketing purposes, grant permission for the use of their names and brands in marketing material, handle complaints by collectors and replace faulty goods.
The commercial arrangements between LMUK and each of the redeemers are negotiated individually.
The sponsors and collectors are not involved in these negotiations and are not normally in a position to know what arrangements have been made.
In particular, since a sponsor or collector does not normally know the agreed redemption value of the points, it is not normally in a position to know the price paid by LMUK to a redeemer for the provision of particular goods and services: a price which will however be less than the amount which the sponsor paid LMUK for the issue of the points in question to the collector. 6.
The three contracts involved in the scheme, described in the preceding paragraphs, are separate from, and should not be confused with, the contracts between the sponsors and the collectors, or the contracts between the collectors and the redeemers.
In particular, the purchase of goods or services by a collector from a sponsor is a separate transaction, between different parties, from the crediting of points by LMUK to a collectors account, or the payment of LMUK by a sponsor in respect of those points. 7.
As is apparent from this summary of the arrangements, which reflects the findings of fact made by the Value Added Tax and Duties Tribunal (the tribunal), to refer to points being issued, purchased and redeemed is to speak metaphorically.
The points are a means of describing the collectors contractual rights to receive goods and services at no cost or at a reduced cost.
The sponsors pay LMUK for the grant of those rights to collectors.
LMUK uses part of its receipts from the sponsors to pay the redeemers to provide collectors with the goods and services in accordance with their rights.
LMUK derives its profits from the difference between its receipts from the sponsors and its payments to the redeemers.
In essence, therefore, when sponsors pay LMUK for the points issued to collectors, they are paying LMUK for granting the collectors the right to receive goods and services in exchange for their points.
The redeemers provide the collectors with the goods and services to which their points entitle them, and LMUK pays the redeemers the redemption value of the points.
It is thus by means of the redeemers performance of their contractual obligations to LMUK that LMUK fulfils the obligations which it has undertaken to the sponsors and collectors and so carries on its business.
Since points are used by collectors to obtain goods or services, they may be regarded as a means of payment for those goods or services.
The amount paid for the right to obtain the goods or services is the amount paid to LMUK by the sponsors for the issue of the points which the collector uses.
The amount received by the redeemer, following the provision of the goods or services, is the lesser amount which it is paid by LMUK.
It is common ground that the provision of points to collectors in return for payment by the sponsors is a taxable supply by LMUK.
When LMUK charges VAT on the payments which it receives from the sponsors, it is therefore charging VAT on the amount which it receives as consideration for granting to collectors the right to receive goods and services in exchange for the points.
The redeemers in turn charge VAT on the payments which they receive from LMUK.
The VAT is charged at the standard rate, regardless of whether the goods and services provided to the collectors are zero rated or exempt, on the basis that it is charged in respect of a service supplied by the redeemers to LMUK.
The facts of this case, as I have described them, are both complex and unusual.
In particular, the business operated by LMUK differs in fundamental respects from sales promotion or customer loyalty schemes which are operated by retailers as part of their own business, and under which the issue of points or vouchers does not involve a taxable supply.
That being so, LMUKs business cannot be assumed to fall within the scope of decided cases concerned with schemes of the latter kind.
Rather than relying upon inexact analogies with other forms of business, it is essential to bear in mind the particular characteristics of the business carried on by LMUK when considering the issue raised in the present appeal.
The issue in dispute is whether LMUK is entitled to deduct as input tax the VAT element of the payments which it makes to the redeemers.
LMUK contends that the payments are the consideration for the redeemers supply to it of the services for which it has contracted with them.
Since that supply is made to LMUK for the purpose of its business, it maintains that it is entitled to deduct the VAT as input tax in accordance with article 17 of Council Directive 77/388/EEC of 17 May 1977 (the Sixth Directive), as implemented by the Value Added Tax Act 1994.
The Commissioners on the other hand decided in 2003 that the payments were third party consideration for the redeemers supply of goods and services to collectors, and that any VAT charged on such a supply was therefore not deductible by LMUK as input tax.
LMUK appealed to the tribunal against that decision.
The relevant legislation
The relevant EU legislation is contained in Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes (the First Directive), and the Sixth Directive, as amended by Council Directive 95/7/EC of 10 April 1995.
These are translated into domestic law by the Value Added Tax Act 1994.
It is sufficient to refer to the EU provisions.
Article 2 of the First Directive describes the basic system of value added tax: The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.
On each transaction, value added tax, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.
The common system of value added tax shall be applied up to and including the retail trade stage.
Article 2 of the Sixth Directive provides: The following shall be subject to value added tax: (1) the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such .
Articles 5 and 6 define supply of goods and supply of services respectively.
The former means the transfer of the right to dispose of tangible property as owner.
The latter means, generally, any transaction which does not constitute a supply of goods within the meaning of article 5.
Article 11 defines the taxable amount.
It provides, so far as relevant: (A) Within the territory of the country 1.
The taxable amount shall be: (a) in respect of supplies of goods and services, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies.
Article 17(2) allows a taxable person the right, in so far as the goods and services are used for the purpose of his taxable transactions, the right to deduct VAT due or paid in respect of goods or services supplied or to be supplied to him by another taxable person.
The decision of the tribunal
The tribunal allowed LMUKs appeal against the Commissioners decision ([2005] BVC 2628).
It considered that the transactions in question could only be understood in the context of the arrangements between LMUK, the sponsors, the redeemers and the collectors viewed as a whole.
Assessing the commercial and economic reality of the case on that basis, the tribunal concluded that the proper analysis of the transaction under which a [redeemer] provides goods to a [collector] in return for points is that the [redeemer] is providing a service to [LMUK] in assisting it to discharge its obligation to [collectors] (para 60).
The tribunal reached the same conclusion in relation to the provision of services to collectors.
The tribunal further concluded that LMUKs payments to redeemers were consideration only for the supply of the service which it received from them.
In that regard, the tribunal applied the principle, established by the case law of the Court of Justice of the European Union, that the concept of consideration requires a direct link between the goods or services provided and the consideration
received.
The tribunal considered that LMUK was provided by redeemers with a
In the view of the tribunal, the only taxable supply for which LMUK provided consideration was therefore the supply of services to itself.
Since that was a supply to a taxable person for the purpose of its business, it followed that the VAT element of the amounts for which the redeemers invoiced LMUK was deductible as input tax.
The tribunal declined to make a preliminary reference to the Court of Justice, observing that the real issue in the appeal did not concern the interpretation of the relevant directives but rather concerned the correct analysis of the facts.
The decision of the High Court
The Commissioners appealed against the tribunals decision: it is relevant to recall that an appeal lies on a point of law only.
The appeal was allowed by the High Court ([2007] STC 536).
Lindsay J noted that, when goods were provided by a redeemer to a collector, that must be a supply of goods to the collector.
That followed from the definition of a supply of goods in article 5(1) of the Sixth Directive (the transfer of the right to dispose of tangible property as owner) as interpreted by the Court of Justice, notably in Auto Lease Holland BV v Bundesamt fr Finanzen (Case C 185/01) [2003] ECR 1 1317; [2005] STC 598: a case to which it will be necessary to return.
Since there were passages in the tribunals decision where it had said that goods should be regarded as being supplied to LMUK, it followed that the tribunal had in that respect erred in law.
Lindsay J considered that this error was material to the tribunals decision.
Lindsay J stated that whether a redeemers provision of goods or services to a collector was wholly for points or partly for points, what the redeemer received had to include what LMUK became obliged to pay him upon his having supplied the collector.
On that basis the service charge paid by LMUK to the redeemer was third party consideration for that supply.
It followed that the payments made by LMUK to the redeemers could not also be consideration for the supply of services to LMUK.
Ultimately, Lindsay J stated that he preferred the argument of the Commissioners because it seems to me the more consistent with the requirements, illustrated in Auto Lease and the coupon cases, that one should stand back and look at the characteristics of the provision and payment in issue in a relatively robust and commonsensical way (para 78).
In that regard, emphasis was placed upon the fact that the payments made by LMUK were related to the number of points redeemed, and upon the absence of any separately identifiable fee for the services provided to LMUK other than the provision of goods and services to collectors.
The decision of the Court of Appeal
LMUKs appeal against the decision of the High Court was allowed by the Court of Appeal ([2008] STC 59).
Chadwick LJ, in a judgment with which the other members of the Court of Appeal agreed, regarded the decision of the House of Lords in Customs and Excise Commissioners v Redrow Group plc [1999] 1 WLR 408; [1999] STC 161 as authority for two propositions: first, that a supplier could be treated as making, in the same transaction, both a supply of services to one person and a supply of different services to another person; and secondly, that in addressing a claim for input tax by one of those persons, the relevant questions were (1) whether that person had made a payment to the supplier, (2) whether the payment was consideration for the services supplied to him, and (3) whether the services were used or to be used in the course of a business carried on by that person.
Applying the approach adopted by Lord Millett in the case of Customs and Excise Commissioners v Plantiflor Ltd [2002] UKHL 33; [2002] 1 WLR 2287; [2002] STC 1132, to which it will be necessary to return, Chadwick LJ observed that it might be said that LMUK made a supply of services to the collectors: it granted them rights which they could exercise to obtain goods and services.
When a collector received goods and services from a redeemer, the redeemer made two different supplies.
One was the supply of the goods and services to the collector; the other was the supply to LMUK of the services of providing the rewards to the collector and providing the agreed information and other services to LMUK.
In relation to the supply by the redeemer to LMUK, the answer to each of the three relevant questions identified in Redrow was an affirmative: (1) LMUK made a payment to the redeemer, (2) that payment was consideration for services supplied by the redeemer to LMUK, since LMUK received something of value in return for the payment, and (3) the services supplied by the redeemer to LMUK were used or to be used in the course of LMUK's business of operating the scheme.
It followed that there was a supply of services by the redeemer to LMUK and that the supply was made for a consideration.
If that was correct, it was not in dispute that LMUK was entitled to input tax credit in respect of the VAT paid on that supply.
Chadwick LJ also observed that it was important to keep in mind the tribunals finding that the collectors right to receive goods and services was a right which he acquired when he was credited with points.
The sponsor paid LMUK for the issue of the points, and thus for the grant of that right.
LMUK accounted to the tax authorities for the output tax.
The tax authorities therefore received VAT at that time on the supply of the right to receive goods and services in exchange for the points.
If, when the collector exercised that right, the provision of the goods or services was treated as a taxable supply to him, the tax authorities would receive not only VAT on the amount paid for the right to obtain those goods and services but also VAT on the amount paid to satisfy that right.
If, on the other hand, the provision of the goods and services to the collector formed part of a service supplied by the redeemer to LMUK, the tax authorities would still receive from LMUK the VAT chargeable on the amount paid for the collectors right to obtain those goods and services (and on any additional amount paid by the collector when it exercised that right) but account would also be taken of LMUKs entitlement to deduct as input tax the VAT element of the amount which it had to pay in order to satisfy that right.
The Court of Appeal declined to make a reference to the Court of Justice.
Chadwick LJ observed that the real issue in the appeal was not as to the interpretation of Community legislation, or as to the effect to be given to judgments of the Court of Justice, but as to how principles which were not in doubt should be applied to the particular facts.
That was an issue which the Court of Justice would expect the national court to resolve.
The preliminary reference
The Commissioners appealed against the decision of the Court of Appeal to the House of Lords.
It is that appeal which is now before this court.
The House referred the following questions to the Court of Justice for a preliminary ruling: In circumstances where a taxable person (the promoter) is engaged in the business of running a multi participant customer loyalty rewards programme (the scheme), pursuant to which the promoter enters into various agreements as follows: (a) Agreements with various companies referred to as sponsors under which the sponsors issue points to customers of the sponsors (collectors) who purchase goods or services from the sponsors and the sponsors make payments to the promoter; (b) Agreements with the collectors which include provisions such that, when they purchase goods and/or services from the sponsors, they will receive points which they can redeem for goods and/or services; and (c) Agreements with various companies (known as redeemers) under which the redeemers agree, among other things, to provide goods and/or services to collectors at a price which is less than would otherwise be payable or for no cash payment when the collector redeems the points and in return the promoter pays a service charge which is calculated according to the number of points redeemed with that redeemer during the relevant period; 1.
How are articles 14, 24 and 73 of the Council Directive 2006/112/EC of 28 November 2006 [the VAT Directive] (formerly Articles 5, 6 and 11(A)(1)(a) of Council Directive 77/388/EEC of 17 May 1977 [the Sixth Directive]) to be interpreted where payments are made by the promoter to the redeemers? 2.
In particular, are those provisions to be interpreted such that the payments of the kind made by the promoter to redeemers are to be characterised as: (a) consideration solely for the supply of services by the redeemers to the promoter; or (b) consideration solely for the supply of goods and services by the redeemers to the collectors; or (c) consideration in part for the supply of services by the redeemers to the promoter and in part for the supply of goods and/or services by the redeemers to the collectors? 3.
If the answer to question 2 is (c), so that the service charge is consideration for two supplies by the redeemers, one to the promoter and the other to the collectors, what are the criteria laid down by Community law to determine how a charge such as the service charge is to be apportioned between those two supplies?
The House of Lords reasons for concluding that it was necessary that a preliminary reference should be made are not recorded.
Although the case was not straightforward, the view of the tribunal and of the Court of Appeal, that the issue in the case was as to how established principles should be applied to the particular facts, was one for which there was in my view much to be said.
More importantly, it is apparent from what followed that the reference did not make sufficiently clear to the Court of Justice what the central issues were, as they emerged from the judgment of the Court of Appeal: issues which had appeared to the highest court in this country to be of such difficulty that a reference was required.
Nor did the reference direct the attention of the Court of Justice to the facts found by the tribunal which bore most directly upon those issues.
In relation to the facts, for example, the statement that the sponsors issue points to customers was a very compressed, and potentially misleading, way of describing the arrangement under which the sponsors computer communicates electronically with LMUK when a collectors card is swiped, LMUK then credits the collectors account with the rights represented by points, and the sponsor pays LMUK for the grant of those rights.
That compressed description gave no indication of how different the arrangement was from that involved in a typical loyalty rewards scheme, where a retailer issues points to its customers: on the contrary, it tended to suggest that the LMUK scheme was of a similar character.
Nor was it explained that, unlike the position in a typical loyalty rewards scheme, where no identifiable consideration is given for the issuing of points (as, for example, in Kuwait Petroleum (GB) Ltd v Customs and Excise Commissioners (Case C 48/97) [1999] STC 488, the issuing of points by LMUK was accepted by both parties to be a taxable supply.
Nor was it explained that LMUK therefore accounted for VAT on the consideration given for the supply to collectors of the right to receive rewards.
In relation to the issues emerging from the judgment of the Court of Appeal, one such was what might be described as the Redrow issue: that is to say, whether, considering the transactions in question in the context of the scheme as a whole, the payments made by LMUK to the redeemers were most aptly regarded as the consideration paid for the supply of services to it by the redeemers, which it required for the purposes of its business: services which included the provision of goods and services to collectors.
A second issue, closely related to the first, was whether the principle that VAT is neutral in its effect upon taxable persons required that LMUK, having accounted for VAT on its supply of the right to receive the goods and services provided by redeemers, should be able to deduct the VAT element of the costs which it incurred in order to satisfy that right.
As a consequence of these aspects of the reference, a situation was created in which, instead of the dialogue between the Court of Justice and national courts which is the essence of the preliminary reference procedure, there was a danger that the ruling of the Court of Justice would fail to address the issues which lay at the heart of the appeal before the referring court.
The Court of Justice joined the reference with another, in the case of Baxi Group Ltd v Commissioners for Her Majestys Revenue and Customs [2008] STC 491, which was concerned with a loyalty scheme of an entirely different character.
It appears to have considered that both cases alike involved the straightforward application of established principles, since it determined them without a submission from the Advocate General.
In terms of article 20, paragraph 5 of its Statute, it may do so only where it considers that the case raises no new point of law.
The preliminary ruling
In its judgment Commissioners for Her Majestys Revenue and Customs v Loyalty Management UK Ltd and Baxi Group Ltd (Joined Cases C 53/09 and C 55/09) [2010] STC 2651, the Court of Justice reformulated the questions so as to ask the following: whether, in the context of a customer loyalty reward scheme such as those at issue in the main proceedings: payments made by the operator of the scheme at issue to redeemers who supply loyalty rewards to customers must be considered, in Case C 53/09, as third party consideration for a supply of goods to those customers, and/or, as the case may be, for a supply of services made by those redeemers for the benefit of those customers, and/or as the consideration for a supply of services made by those redeemers for the benefit of the operator of that scheme.
The court answered the question which it had formulated as follows: Payments made by the operator of the scheme concerned to redeemers who supply loyalty rewards to customers must be regarded, in Case C 53/09, as being the consideration, paid by a third party, for a supply of goods to those customers or, as the case may be, a supply of services to them.
It is, however, for the referring court to determine whether those payments also include the consideration for a supply of services corresponding to a separate service.
The judgment of the Court of Justice
In its judgment, the court made a preliminary observation about the limited nature of the reference, and the fact that it did not touch on the relationship between LMUK and the sponsors: It must also be stated, in relation to Case C 53/09, that neither the questions referred by the national court nor the views exchanged before the Court of Justice touched on the relationship between the sponsors and the operator of the loyalty reward scheme, namely LMUK.
Consequently, the court will confine its assessment to the questions as referred by the national court. (para 32)
It is readily understandable that the Court of Justice should have made that preliminary observation.
The case law of the court, including its judgment in the present case, indicates that, when determining the relevant supply in which a taxable person engages, regard must be had to all the circumstances in which the transaction or combination of transactions takes place.
In the present case, in particular, it would be impossible to answer the questions on a proper footing without considering as a whole the relationships between LMUK, the sponsors, the collectors and the redeemers.
The Court of Justice was not however in a position to consider the matter in that way.
This preliminary observation also implied that the assessment by the Court of Justice would leave out of account matters which had been regarded as being of importance in the national proceedings.
In particular, the tribunal and the Court of Appeal had, as I have explained, attached significance to the undisputed fact that LMUK made taxable supplies when it granted to collectors, in return for payment by the sponsors, the right to receive goods and services from redeemers.
The Court of Justice then carried out an evaluation of the facts of the case on that limited basis.
It stated that it was evident from the orders for reference that the loyalty rewards schemes at issue in both the present case and the Baxi case were designed to encourage customers to make their purchases from particular traders.
To that end, the court said, LMUK, in the present case, and Baxis sub contractor, @1, in the Baxi case, provide a number of services linked to the operation of those schemes (para 41).
The court appears therefore to have inferred from the reference that the present case, like the Baxi case, concerned a scheme operated by traders with the assistance of a third party.
That approach does not however fully reflect the facts found by the tribunal, by which this court is bound.
LMUK did not provide a number of services linked to the operation of the scheme: it operated the scheme.
The scheme was established by LMUK.
It was designed to earn profits for LMUK, and to provide benefits to its millions of members (according to the evidence, 40% of UK households), as well as to the retailers who took part.
The court did not mention that the services provided by LMUK included the supply of the right to receive the rewards.
Nor did it mention that the payments made by LMUK to redeemers for the provision of the rewards were met out of the consideration which it received from sponsors for the supply of the right to receive the rewards.
As I have explained, these matters had not been focused in the reference.
They had however played an important part in the reasoning of the Court of Appeal.
On the basis of its assessment of the economic reality, the Court of Justice concluded, in the first place, that loyalty rewards were supplied by the redeemers to the collectors.
That much was not in dispute between the parties, and had been understood by the Court of Appeal.
The court then considered whether the transactions between the collectors and the redeemers constituted supplies of goods or services to the collectors within the meaning of the Sixth Directive.
In a case where the transaction involved the provision of goods, the court held that that must constitute a supply of goods within the meaning of article 5(1) of the Sixth Directive, since there was a transfer by the redeemer to the collector of the right to dispose of tangible property as owner.
In a case where the transaction did not constitute a supply of goods, it held that it must constitute a supply of services within the meaning of article 6(1) of the Sixth Directive, since the transaction did not constitute a supply of goods, and article 6(1) defines the expression supply of services as meaning any transaction which does not constitute a supply of goods.
These matters also were not in dispute and had been understood by the national courts.
The court next considered whether the supply of goods or services by the redeemer to the collector was a taxable supply.
As I have explained, that depended upon whether the supply was effected for consideration.
The court noted that it followed from its case law that, in order for that requirement to be satisfied, there must be a direct link between the goods or service provided and the consideration received.
These matters had been understood by the national courts.
The court then addressed the possibility that collectors might have provided consideration for the supply of the rewards when they purchased goods and services from sponsors.
It noted that the price which customers paid to the sponsors was the same whether the customers were collectors or not.
The court referred to its earlier judgment in Kuwait Petroleum (GB) Ltd v Customs and Excise Commissioners (Case C 48/97) [1999] STC 488.
That case had concerned a loyalty rewards scheme operated by a petrol retailer, under which customers received points which they could exchange for goods.
Since the customers paid the same price for their petrol regardless of whether they took the points or not, the court held that the price could not be regarded as containing an element representing the value of the points or of the goods for which they were exchanged.
The sale of the petrol which gave rise to the award of points, on the one hand, and the supply of goods in exchange for the points, on the other hand, were therefore two separate transactions.
In the view of the court, it followed that, in the case at hand, the sale of goods and services giving rise to the award of points, on the one hand, and the supply of goods and services in return for points, on the other hand, were also two separate transactions.
So far as it went, that conclusion was uncontentious.
What is however significant is that the court did not address the possibility that the sponsors might have provided consideration for the supply of the rewards when they paid LMUK for the points issued to collectors, as the Court of Appeals judgment had suggested.
The court again left out of account the fact (1) that the award of points was a taxable supply by LMUK, separate from the supply of goods or services by the sponsor, (2) that, as a consequence of LMUKs having made that supply, the collectors were entitled to receive goods and services at no cost or at a reduced cost, and LMUK had to make goods and services available to them on that basis, and (3) that it paid redeemers to provide those goods and services on that basis.
These features had not been present in the Kuwait case.
The court continued at para 57: In that regard, it is evident from the order for reference in Case C 53/09 that the exchange of points by the customers with the redeemers gives rise to the making of a payment by LMUK to those redeemers.
The amount of that payment is the sum total of the charges, which are of a fixed amount for each point redeemed against all or part of the price of the loyalty reward.
In that context, it must be considered that, as maintained by the United Kingdom Government, that payment corresponds to the consideration for the supply of the loyalty rewards.
On the basis of the approach to the facts which the court had adopted, its conclusion is unsurprising.
As I have explained, however, the terms of the reference resulted in the courts approaching the facts on a different basis from that which the referring court was bound to adopt.
It left out of account a number of matters found by the tribunal and relied upon by LMUK before the national courts, including (1) the fact that sponsors pay LMUK for the grant to collectors of the right to receive goods and services, (2) the fact that LMUK meets the cost of the provision of goods and services to collectors out of those payments, (3) the fact that LMUK has, in return for those payments, granted collectors the right to receive goods and services without further payment or at a reduced cost, (4) the fact that collectors obtaining goods and services from redeemers are therefore exercising a right which has already been paid for, (5) the fact that the provision of goods and services by the redeemers is the means by which LMUK discharges its obligations to sponsors and collectors and (6) the fact that the payments made by LMUK to redeemers are therefore an essential cost of its business.
More generally, as I have explained, the court does not appear to have assessed the transactions in question in the context of the arrangements considered as a whole, or determined on that basis what they amounted to in terms of economic reality.
Nor is it apparent that the court took into account, in reaching its conclusion, the fact that (1) LMUK was agreed to make a taxable supply when it granted to collectors the right to receive goods and services at no cost or at a reduced cost, and (2) collectors receiving goods and services on that basis were therefore exercising a right for which LMUK had already been paid, and the consideration for which had already been subject to VAT.
The court is not of course to be criticised for failing to take these matters into account.
As I have explained, they were not focused in the reference, and the court understandably confined its assessment to the matters raised in the questions referred.
The question whether there was also a supply of services to the promoter of the scheme was considered by the court principally in relation to the scheme with which the Baxi case was concerned.
That scheme was of a different character from the Nectar scheme.
It was an in house scheme under which Baxi issued points to its own customers, which they could redeem in order to obtain rewards in the form of goods.
The operation of the scheme had been subcontracted to an operator, @1, which purchased the rewards and supplied them to customers in return for points.
Baxi paid @1 the retail sale price of the rewards.
The court held that there was a supply of goods by @1 to the customers.
It was against that background that the court considered Baxis contention that (in the courts words) the consideration for the payment did not correspond to a supply of goods, but to a complex service under which the supply of rewards to customers was one of a number of services.
On the facts of the case, the court concluded that the payments made by Baxi could be divided into two elements, each of which corresponded to a separate service: the supply of the rewards to the customers on the one hand, and the service supplied by @1 to Baxi on the other.
In relation to the present case, the court stated at para 64: By contrast, in Case C 53/09, LMUK has, in both its written and oral observations, asserted that the payments which it makes to the redeemers are not the consideration for two or more separate services.
It is, however, for the referring court to determine whether that is the case.
The issues now arising
The first issue which now arises is how this court should apply the ruling of the Court of Justice.
Article 267 TFEU confers on the Court of Justice jurisdiction to give preliminary rulings concerning (a) the interpretation of the Treaties and (b) the validity and interpretation of acts of the institutions, bodies, offices or agencies of the Union.
In the present case, it is the courts jurisdiction to rule on the interpretation of the VAT directives which is relevant.
On the other hand, putting the matter very broadly, the evaluation of the facts of the case, and the application of EU law to those facts, are in general functions of the national courts.
The relevant principles were summarised more precisely by the Court of Justice in AC ATEL Electronics Vertriebs GmbH v Hauptzollamt Mnchen Mitte (Case C 30/93) [1994] ECR I 2305, paras 16 18: 16.
On that point, it should be borne in mind that Article [267] of the Treaty is based on a clear separation of functions between the national courts and the Court of Justice, so that, when ruling on the interpretation or validity of Community provisions, the latter is empowered to do so only on the basis of the facts which the national court puts before it (see the judgment in Case 104/77 Oehlschlger v Hauptzollamt Emmerich [1978] ECR 791, point 4).
It is not for the Court of Justice, but for the national court, to 17. ascertain the facts which have given rise to the dispute and to establish the consequences which they have for the judgment which it is required to deliver (see the judgment in Case 17/81 Pabst & Richarz v Hauptzollamt Oldenburg [1982] ECR 1331, paragraph 12). 18.
It is, moreover, 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 the judgments in Case 247/86 Alsatel v Novasam [1988] ECR 5987, paragraph 8, and in Case C 127/92 Enderby v Frenchay Health Authority and Secretary of State for Health [1993] ECR I 5535, paragraph 10).
As I have explained, the Court of Justice recognised that the reference in the present case raised no new point of law.
The court however endeavoured to clarify how established principles applied in the circumstances of the case, so far as they emerged from the reference.
It is particularly unfortunate in those circumstances that, as I have explained, the reference failed to reflect fully either the facts on the basis of which this court must proceed or the issues at the heart of the dispute, with the consequence that the Court of Justice did not fully address those facts or those issues.
The Court of Justices analysis of the legal issues focused in the reference, on the basis of the facts as it understood them, is not open to question.
This court is required by section 3(1) of the European Communities Act 1972 (as amended by section 3 of and the Schedule to the European Union (Amendment) Act 2008) to determine any question as to the validity, meaning or effect of any EU instrument in accordance with any relevant decision of the European Court.
Nevertheless, this courts responsibility for the decision of the present case on the basis of all the relevant factual circumstances, and all the arguments presented, requires it to take into account all the facts found by the tribunal, including those elements left out of account by the Court of Justice, and to consider all those arguments, including those which were not reflected in the questions referred.
That responsibility under domestic law is also recognised in EU law, as the Court of Justice explained at paragraphs 17 and 18 of its AC ATEL judgment.
In the exceptional circumstances of this case, this court cannot therefore treat the ruling of the Court of Justice as dispositive of its decision, in so far as it was based upon an incomplete evaluation of the facts found by the tribunal or addressed questions which failed fully to reflect those arguments.
This court must nevertheless reach its decision in the light of such guidance as to the law as can be derived from the judgment of the Court of Justice.
In that regard, important aspects of the judgment include the statement that consideration of economic realities is a fundamental criterion for the application of the common system of VAT (para 39), and the statement that, where a transaction comprises a bundle of features and acts, regard must be had to all the circumstances in which the transaction in question takes place (para 60).
Before turning to consider the present case on that basis, it is necessary to say something about the principal authorities which are relied upon by the parties in support of their contentions.
The Redrow line of authority
LMUK seeks support for its contentions from the approach adopted by the House of Lords in Customs and Excise Commissioners v Redrow Group plc [1999] 1 WLR 408; [1999] STC 161.
That case concerned a sales incentive scheme under which Redrow, a firm of housebuilders, promoted the sale of its houses to prospective customers by arranging for estate agents to value and market the customers existing homes.
This was done on the basis that the cost would be borne by Redrow, provided the customer bought a Redrow house.
The House concluded that there was a supply of services by the estate agents to the customers, and simultaneously a supply of services by the estate agents to Redrow.
Since the latter supply was received by Redrow for the purposes of its business, it followed that Redrow was entitled to deduct the VAT which it had paid as input tax.
The critical reasoning appears in the speeches of Lord Hope of Craighead and Lord Millett, with which the other members of the Committee agreed.
Lord Hope said at pp 412 413: Questions such as who benefits from the service or who is the consumer of it are not helpful.
The answers are likely to differ according to the interest which various people may have in the transaction.
The matter has to be looked at from the standpoint of the person who is claiming the deduction by way of input tax.
Was something being done for him for which, in the course or furtherance of a business carried on by him, he has had to pay a consideration which has attracted value added tax? The fact that someone else in this case, the prospective purchaser also received a service as part of the same transaction does not deprive the person who instructed the service and who has had to pay for it of the benefit of the deduction.
Lord Milletts reasoning was similar, at p 418: The fact is that the nature of the services and the identity of the person to whom they are supplied cannot be determined independently of each other, for each defines the other.
Where, then, should one begin? One should start with the taxpayer's claim to deduct tax.
He must identify the payment of which the tax to be deducted formed part; if the goods or services are to be paid for by someone else he has no claim to deduction.
Once the taxpayer has identified the payment the question to be asked is: did he obtain anything anything at all used or to be used for the purposes of his business in return for that payment? This will normally consist of the supply of goods or services to the taxpayer.
But it may equally well consist of the right to have goods delivered or services rendered to a third party.
The grant of such a right is itself a supply of services.
Applying this reasoning to the present case, LMUK argues that it is in a similar situation to Redrow.
LMUK pays the redeemers and obtains services in return, including the provision of goods and services to the collectors in fulfilment of its contractual obligations towards them, which it uses for the purposes of its business.
Following the approach adopted in Redrow, it is therefore entitled to deduct input tax.
LMUK seeks to draw further support from the decision of the House of Lords in Customs and Excise Commissioners v Plantiflor Ltd [2002] UKHL 33; [2002] 1 WLR 2287; [2002] STC 1132.
Plantiflor sold horticultural goods by mail order, and contracted with its customers to arrange for the delivery of the goods by Parcelforce and to meet the cost of that delivery, in return for the payment by its customers of a charge for postage.
It contracted with Parcelforce for the delivery of the goods in return for payment of the postage charge.
Plantiflor argued that it was not accountable for output tax on the postage charges paid by its customers, since it received those payments merely as the agent of its customers rather than as consideration for any service provided by itself: it maintained that the charges were the consideration for a service supplied to the customers by Parcelforce.
The majority of the House however rejected that analysis, holding that Plantiflor was acting as a principal and received consideration from its customers for providing them with the service of arranging the delivery of the plants.
Parcelforce made two supplies: it supplied to the customers the service of delivering the plants they had ordered, and it supplied to Plantiflor the service of delivering the goods which it had sold.
These authorities were followed by the Court of Appeal in WHA Ltd v Customs and Excise Commissioners [2004] STC 1081.
WHA was an insurance claims handler which acted on behalf of motor breakdown insurers.
It entered into agreements with garages under which it authorised and paid for repairs to policyholders cars.
The issue was whether it could deduct the VAT element of the repair bills as input tax.
The Court of Appeal held that it could.
It received a service from the garages, namely the carrying out of the repairs, and it did so for the purposes of its business, since it was discharging its obligations to the insurers.
Although there were other beneficiaries of the repairs, namely the car owners, that did not prevent the repairs being a supply of services to WHA.
That decision is currently under appeal to this court.
The Commissioners contend that the decision of the Court of Justice in the present case is incompatible with that line of authority, and in particular with both the reasoning and the conclusion reached in Redrow, which should therefore not be followed.
I cannot however find anything in the courts judgment which directly engaged with the issues considered in those cases.
That indeed is part of the problem with which this court is faced, since the decision of the Court of Appeal in this case was based upon the application of the principles established in Redrow.
I see no reason to question the correctness of the conclusions reached on the facts of Redrow and Plantiflor (it would not be appropriate to express any view in relation to WHA, since it is under appeal).
Nor do I question the reasoning.
On the contrary, the passages which I have cited from the speeches of Lord Hope and Lord Millett appear to me to provide valuable guidance.
I would at the same time stress that the speeches in Redrow should not be interpreted in a manner which would conflict with the principle, stated by the Court of Justice in the present case, that consideration of economic realities is a fundamental criterion for the application of VAT.
Previous House of Lords authority had emphasised the importance of recognising the substance and reality of the matter (Customs and Excise Commissioners v Professional Footballers Association (Enterprises) Ltd [1993] 1 WLR 153, 157; [1993] STC 86, 90), and the judgments in Redrow cannot have been intended to suggest otherwise.
On the contrary, the emphasis placed upon the fact that the estate agents were instructed and paid by Redrow, and had no authority to go beyond Redrows instructions, and upon the fact that the object of the scheme was to promote Redrows sales, indicates that the House had the economic reality of the scheme clearly in mind.
When, therefore, Lord Hope posed the question, Was something being done for him for which, in the course or furtherance of a business carried on by him, he has had to pay a consideration ?, and Lord Millett asked, Did he obtain anything anything at all used or to be used for the purposes of his business in return for that payment?, those questions should be understood as being concerned with a realistic appreciation of the transactions in question.
Reflecting the point just made, it is also necessary to bear in mind that consideration paid in respect of the provision of a supply of goods or services to a third party may sometimes constitute third party consideration for that supply, either in whole or in part.
The speeches in Redrow should not be understood as excluding that possibility.
Economic reality being what it is, commercial businesses do not usually pay suppliers unless they themselves are the recipient of the supply for which they are paying (even if it may involve the provision of goods or services to a third party), but that possibility cannot be excluded a priori.
A business may, for example, meet the cost of a supply of which it cannot realistically be regarded as the recipient in order to discharge an obligation owed to the recipient or to a third party.
In such a situation, the correct analysis is likely to be that the payment constitutes third party consideration for the supply.
It is also important to bear in mind that decisions about the application of the VAT system are highly dependent upon the factual situations involved.
A small modification of the facts can render the legal solution in one case inapplicable to another.
I would therefore hesitate to treat the judgments in Redrow as laying down a universal rule which will necessarily determine the identity of the recipient of the supply in all cases.
Given the diversity of commercial operations, it may not be possible to give exhaustive guidance on how to approach the problem correctly in all cases.
Auto Lease Holland
The Commissioners on the other hand rely upon the decision of the Court of Justice in Auto Lease Holland BV v Bundesamt fr Finanzen (Case C 185/01) [2003] ECR 1 1317; [2005] STC 598.
That case was concerned with fuel management agreements between Auto Lease, a vehicle leasing company, and its lessees, under which a lessee could fill up his vehicle in the name and at the expense of Auto Lease, using a credit card issued by a credit card company, DKV.
The lessee paid a monthly sum to Auto Lease based on his likely consumption of fuel, with a balancing sum being paid at the end of the year.
Auto Lease contended that it was entitled to deduct the VAT paid on the fuel as input tax, on the basis that it was the recipient of the supply of the fuel.
The Court of Justice rejected the contention.
It noted in the first place that the expression "supply of goods" was defined by article 5(1) of the Sixth Directive as meaning the transfer of the right to dispose of tangible property as owner.
The court continued: 34.
It is common ground that the lessee is empowered to dispose of the fuel as if he were the owner of that property.
He obtains the fuel directly at filling stations and Auto Lease does not at any time have the right to decide in what way the fuel must be used or to what end. 35.
The argument to the effect that the fuel is supplied to Auto Lease, since the lessee purchases the fuel in the name and at the expense of that company, which advances the cost of that property, cannot be accepted.
As the Commission rightly contends, the supplies were effected at Auto Lease's expense only ostensibly.
The monthly payments made to Auto Lease constitute only an advance.
The actual consumption, established at the end of the year, is the financial responsibility of the lessee who, consequently, wholly bears the costs of the supply of fuel. 36.
Accordingly, the fuel management agreement is not a contract for the supply of fuel, but rather a contract to finance its purchase.
This decision does not appear to me to assist the Commissioners in the present case.
Although the Court of Justice referred to it in its judgment, it did so in the context of identifying the recipient of a supply of goods in a situation where redemption goods are provided by a redeemer to a collector.
As the court held, the recipient of that supply is the collector.
That conclusion is not in dispute in this appeal: indeed, it was not in dispute before the Court of Justice.
The present case
The only issue which this court has to determine is whether LMUK is entitled to deduct as input tax the VAT element of the payments which it makes to the redeemers.
As the Court of Justice has explained many times, VAT is chargeable on each transaction in the production and distribution process only after deduction of the amount of VAT borne directly by the costs of the various price components.
The court has consistently stressed that the deduction system is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities, and that the VAT system consequently ensures complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are subject in principle to VAT (see for example the statement of the Grand Chamber to that effect in Halifax plc & Others v Customs and Excise Commissioners (Case C 255/02) [2006] Ch 387 para 78).
The right to deduct VAT, as an integral part of the VAT scheme, has been described by the court as a fundamental principle underlying the common system of VAT, which in principle may not be limited (see, for a recent statement to that effect, Commissioners for Her Majestys Revenue and Customs v RBS Deutschland Holdings GmbH (Case C 277/09) [2010] ECR I 13805, paras 38 39).
The consequence of the deduction of input VAT is that the tax is charged, at each stage in the production and distribution process, only on the added value and is ultimately borne only by the final consumer (see, for a recent statement to that effect, Lebara Ltd v Revenue and Customs Commissioners (Case C 520/10) [2012] STC 1536, paras 24 25).
In the present case, the Court of Justice focused upon the relationship between redeemers and collectors.
Since collectors are usually final consumers of the goods and services provided by redeemers, the principle described in paragraph 75 would suggest, at first sight, that final taxation should take place at the stage of that supply.
Since no monetary consideration is paid by the collector in so far as the goods or services are exchanged for points, but a payment is subsequently made by LMUK which is based on the value of the points as agreed with the redeemer, it would be possible, if these aspects of the present case were considered in isolation, to conclude that that payment should be regarded as third party consideration for that supply, and taxed accordingly.
As I have explained, however, there is another dimension to the case, which the Court of Justice was not requested to consider, and which it therefore left out of account.
The appeal before this court is concerned with the claim of LMUK, a taxable person, to deduct input tax.
LMUKs business is of an unusual character.
Through the Nectar scheme, it provides collectors with a contractual right to obtain goods and services from redeemers in exchange for points.
It is common ground before this court that that is a taxable supply, and that the taxable amount is the whole of the consideration which is received by LMUK.
The counterpart of the right supplied to collectors is an obligation on the part of LMUK to procure that redeemers provide goods and services in exchange for points.
The payments made to redeemers constitute the cost of fulfilling that obligation, and are therefore a cost of LMUKs business.
Applying the principles summarised in paragraphs 73 and 74 above, VAT should be chargeable on LMUKs taxable supplies only after deduction of the VAT borne by LMUKs necessary costs.
The most obvious of those costs, as I have explained, is the cost of securing that goods and services are provided to collectors in exchange for their points: that is to say, the payments made by LMUK to the redeemers.
The principles summarised in paragraphs 73 and 74 therefore indicate that LMUK should be authorised to deduct from the VAT for which it is accountable the VAT charged by the redeemers, so that it accounts for VAT only on the added value for which it is responsible.
Only in that way will VAT be completely neutral as regards LMUK.
It is implicit in that approach that the transaction between a redeemer and LMUK involves a taxable supply by the former to the latter.
That analysis appears to me to be consistent with economic reality.
LMUK carries on a genuine business for its own benefit.
It issues the points in its own name and on its own behalf: it is not a mere cipher for the sponsors.
As a matter of economic reality, the payments which it makes to redeemers are an essential cost of its business.
Its business model is to sell the right to receive goods and services, pay redeemers to provide the goods and services, and derive a profit from the difference between its income from the sponsors and its expenditure on the redeemers.
There is a legal relationship between the redeemer and LMUK pursuant to which there is reciprocal performance.
In accepting points, which have no inherent value, in exchange for goods or services, the redeemer is acting in a manner which is only explicable because of its agreement with LMUK, under which LMUK will pay it for doing so.
LMUK pays it for doing so because its business is dependent on redeemers accepting points in exchange for the provision of goods and services.
The only economically realistic explanation of LMUKs behaviour is the value to LMUK itself of the redeemers acceptance of points in exchange for the provision of goods and services.
In these circumstances, it can in my view be said that the remuneration received by the redeemer represents the value to LMUK of the service which the redeemer provides (cf Tolsma v Inspecteur der Omzetbelasting Leeuwarden (Case C 16/93) [1994] STC 509, para 14; First National Bank of Chicago v Customs and Excise Commissioners (Case C 172/96) [1999] QB 570; [1998] STC 850, paras 26 to 29).
The approach described in the foregoing paragraphs is consistent with the fundamental principle, as the Court of Justice has described it, that a taxable person is entitled to deduct the VAT payable in the course of his economic activities.
The alternative approach described in paragraph 76 is not.
This approach is also consistent with the application of the guidance given in Redrow.
If one asks whether, when the redeemer accepts points in exchange for the provision of goods or services to a collector, something is being done for LMUK for which, in the course or furtherance of its business, it has to pay a consideration, the answer seems to me to be in the affirmative, for the reasons given in paragraph 80.
If one asks, what about taxation of the supply to the final consumer, the answer is that the Commissioners have decided to treat the issue of the points to the collectors that is to say, the award of the right to obtain goods and services from redeemers as a taxable supply.
The taxable amount is agreed to be the whole of the consideration received by LMUK for the grant of those rights: an amount which exceeds the value received by the redeemers from LMUK when the rights are exercised.
No question arises in this appeal as to whether that tax treatment is correct.
Because of the principle of tax neutrality, however, that tax treatment has implications for the question in issue.
As the Court of Appeal pointed out, if the provision of goods or services by redeemers were treated as a taxable supply to the collector (other than to the extent to which any monetary consideration might be paid by the collector), the tax authorities would receive not only VAT on the amount received by LMUK for supplying the right to receive those goods and services, but also VAT on the amount which LMUK must pay to satisfy that right.
If, on the other hand, the consideration paid by LMUK to the redeemers is regarded as the consideration for the supply of a service to LMUK (a service which encompasses the provision of goods and services to collectors), the tax authorities will still receive VAT from LMUK on the difference between the value of the supplies which it makes in the course of its business (ie its receipts from the supply of the right to receive such goods and services) and the value of the supplies which it receives for the purposes of that business (ie the cost to LMUK of satisfying that right).
The tax authorities will thus recover VAT on the value added by the taxable transactions entered into by LMUK, taking the issue and redemption of points as a whole.
That conclusion is in accordance with the basic principle of VAT.
Conclusion
For these reasons, I would be inclined to uphold the decision of the Court of Appeal and dismiss the appeal.
The parties should however be afforded an opportunity to make written submissions on the form of order to be made.
LORD HOPE
I think that it was a pity that a preliminary ruling was sought in this case.
I agree with Chadwick LJs observation in the Court of Appeal that the real issue is not one as to the interpretation of Community legislation or as to the effect to be given to judgments of the Court of Justice, but rather as to how principles that are not themselves in doubt should be applied to particular facts: Loyalty Management UK Limited v Commissioners for HM Revenue and Customs [2007] EWCA Civ 938, [2008] STC 59, para 66.
The CJEU seems to have taken a similar view.
It did not seek an opinion from the Advocate General before it proceeded to judgment, indicating that in its view the case raised no new point of law.
This places the reader at a disadvantage, as its judgment lacks the depth of reasoning which a judgment informed by an opinion would have provided.
It is quite rare for the domestic court to find itself in this position.
The recent case of OBrien v Ministry of Justice (Case C393/10) [2012] 2 CMLR 25 is an excellent example of the guidance that the CJEU normally gives on issues of EU law and there are, of course, many more.
I also think that the questions that were referred, although agreed to by the parties and approved by the House of Lords, tended to obscure what became the real issue when the case was argued in Luxembourg.
For this reason the CJEU can hardly be blamed for not addressing that issue directly when it was conducting its analysis.
The situation was also complicated by the fact that in the case of Baxi Group Ltd (Case C 55/09), which was referred by the House to the CJEU at the same time, there was a separate set of questions designed to fit the facts of that case.
The CJEU analysed the Baxi Group Ltd case separately in the same judgment.
Its analysis of the facts of that case may have influenced its analysis of the present case to the disadvantage of its treatment of the case for LMUK.
The issue
Chadwick LJ said that the issue in the present case was whether there was a supply of redemption services by the redeemer to LMUK for the purposes of VAT: para 33.
This is how LMUK put its case in paragraph 29 of its written observations to the CJEU: LMUKs analysis is that the redeemers made supplies to both LMUK (redemption services) and the collectors (rewards) and that the recipient in either case can deduct VAT which it pays, subject to the normal rules.
Only LMUKs analysis results in the VAT being deductible (subject to the normal rules) by the person who has actually paid the VAT and ensures that the UK Government collects VAT on the amount of the consideration actually paid by the final consumer. [emphasis added] The words both and in either case in this analysis are important.
They directed attention to the fact that LMUKs argument was that the redeemers were making supplies in both directions.
The Revenues argument, on the other hand, was encapsulated in question (2)(b) of the reference (see para 29, above).
It asked whether the provisions of articles 14, 24 and 73 of Council Directive 2006/112/EC of 28 November 2006 were to be interpreted, where payments were made by the promoter to the redeemers, such that those payments were to be characterised as consideration solely for the supply of goods and/or services by the redeemers to the customers.
In paragraph 9 of its written observations the Revenue said that the correct analysis was that the relevant supplies were made by the redeemers to the collectors, and that the consideration given by LMUK to the redeemers was third party consideration for those supplies.
The questions in paragraphs (2) (c) and (3) of the reference then asked whether the consideration was in part for the supply of services by the redeemers to LMUK and in part for supplies by the redeemers to the customers and, if so, what the criteria are for an apportionment.
Their inclusion in the reference was unfortunate, as they tended to divert attention from the way the case was presented when it reached the CJEU.
This was not, in the event, an analysis which was argued for by either party.
It was not LMUKs case by that stage that the consideration that it paid to the redeemers was in part for the supply of services by the redeemers to it and in part for the supply of goods and services to the customers, and that the consideration could or should be apportioned accordingly.
A question which directed attention to the argument that the redeemers made supplies both to LMUK and the collectors, and that the recipient in either case could deduct the VAT which it paid on the consideration for the supply, was not included in the reference.
In his submissions to this court Mr Milne QC renewed the case which he had presented to the CJEU.
He said that apportionment was not what his clients wanted, and emphasised that it had not been a live issue before the tribunal.
LMUKs case, looked at from its point of view (see Customs and Execise Commissioners v Redrow Group plc [1999] 1 WLR 408, 412; [1999] STC 161, 166), was that services were supplied to it by the redeemers for which it paid consideration and, that as the payment it made to the redeemers attracted VAT, it was entitled to deduct input tax on that amount.
The scheme required the co operation of both the sponsors and the redeemers.
The redeemers were accountable for the VAT payable on the consideration which they received both for their supplies to the customers and for the services provided by them to LMUK.
The customers, assuming that they were traders (as some of them were), and LMUK were both entitled to the benefit of the doctrine of fiscal neutrality.
In para 33 of its judgment the Court said that the essence of the questions that were put to it in LMUKs case was whether payments made by LMUK to the redeemers must be considered as third party consideration for supplies to or for the benefit of customers (which was the Revenues case), or as the consideration for the supply of services made by the redeemers for the benefit of LMUK.
This was an incomplete appreciation of the alternative analyses on which the Courts interpretation of the EU legislation was sought.
The argument for the Revenue was that LMUKs ability to deduct the input tax on the consideration which it paid to the redeemers for the services that they provided for its benefit was excluded by the fact that the payments that it made to the redeemers were third party consideration for the goods or services provided by the redeemers to the customers.
LMUKs argument was that the treatment of the consideration passing between it and the redeemers should be considered separately from that passing between the redeemers and the customers.
A summary of the observations submitted to the CJEU is set out in paras 34 to 37 of the judgment.
The Revenues case is appropriately summarised in para 36, that the payments made by LMUK to the redeemers must be regarded as third party consideration for supplies of goods and services to the customers.
LMUKs case is summarised in para 34.
The summary is in these terms: In Case C 53/09, LMUK argues that the payments which it made to the redeemers constitute the consideration for services supplied to it by the redeemers.
Those services, it submits, consist of various contractually agreed services, including the redeemers undertaking to supply goods or services to customers without charge or at a reduced price.
This formulation takes the point made by LMUK in paragraph 29 of its written observations.
But it does not recognise the argument that the redeemers made supplies both to the collectors and to LMUK, and that the recipient in either case could deduct the VAT which it paid.
The judgment
The Courts reply to these observations begins in para 38.
The obvious point is made in that paragraph that the system of VAT involves the application of a general tax on consumption which is exactly proportional to the price of the goods and services.
In para 39 of the judgment reference is then made to economic realities as a fundamental consideration for the application of the system.
Two examples are given: first, the meaning of place of business and, secondly, the identification of the person to whom goods are supplied.
The second example is said to be illustrated by Auto Lease Holland BV v Bundesamt fr Finanzen (Case C 185/01) [2003] ECR I 1317.
Having asked itself what the nature was of the transactions under the schemes at issue, the Court said in para 42 that the economic reality was that loyalty rewards were supplied by the redeemers to the customers.
So far as it goes, this point was not in dispute.
But no mention is made of the effect of applying the economic reality test to the argument that there was also a supply of services by the redeemers to LMUK.
Here again the significance of the way LMUK put its case in paragraph 29 of its written observations, where the word both was used, appears to have been overlooked.
In para 43 of its judgment the Court asks itself whether the supply of the rewards constituted a supply of goods or services effected for consideration by a taxable person.
The conclusion is then drawn in para 49 that the redeemers were supplying goods and services to the customers within the meaning of articles 5(1) and 6(1) of the Sixth Directive.
This is unsurprising.
But it does not advance the argument, as it was already common ground between the parties.
In para 50 the Court asks itself the question whether these supplies were carried out for consideration.
In para 56 the point is made that article 11.A(1)(a) of the Sixth Directive provides that the consideration may be obtained from a third party.
There then follows para 57, which is in these terms: In that regard, it is evident from the order for reference in Case C 53/09 that the exchange of points by the customers with the redeemers gives rise to the making of a payment by LMUK to those redeemers.
The amount of that payment is the sum total of the charges, which are of a fixed amount for each point redeemed against all or part of the price of the loyalty reward.
In that context, it must be considered that, as maintained by the United Kingdom Government, that payment corresponds to the consideration for the supply of the loyalty rewards. [emphasis added]
At first sight the sentence which I have emphasised determines this appeal in favour of the Revenue.
But the proposition which I have emphasised does not include the word solely.
Nor is any mention made of the point that LMUK made in paragraph 29 of its observations, where the word both was used: that the redeemers were supplying services to LMUK too, and that the payments which LMUK made to the redeemers could also be seen as consideration for services supplied to it by the redeemers.
If that proposition was being rejected at this stage on the ground that it was not in accordance with the economic reality, this is not clearly stated.
Nor is any reason given here for its rejection.
In paras 58 to 63 of the judgment there is an analysis of the issues raised by Baxi Group Ltd (Case C 55/09), where it was contended by Baxi that the consideration for the payment by it to the redeemer did not correspond to a supply of goods but to a complex advertising service under which the supply of loyalty rewards to customers was one of a number of services.
The conclusion that the Court drew from its analysis of the facts of that case, assisted by a question directed to this issue, was that the payment could be divided into two elements, each of which corresponded to a separate service.
This was because it was possible to identify a profit margin consisting of the difference between the retail sale price of the loyalty rewards to the customer paid by Baxi and the price at which those rewards were purchased by the redeemer.
Its conclusion was that the payment was the consideration for two separate supplies.
It was in part consideration, paid by the third party Baxi, for a supply of goods to the customers and in part consideration for the supply of services to Baxi.
The answer to the question how, in view of that conclusion, the payment was to be apportioned between these two supplies was given in para 63.
The judgment then sets out the conclusion that, in contrast to its conclusion in Baxi, the Court reached in LMUKs case.
It is set out in para 64 as follows : By contrast, in Case C 53/09, LMUK has, in both its written and oral observations, asserted that the payments which it makes to the redeemers are not the consideration for two or more separate [supplies].
It is, however, for the referring court to determine whether that is the case.
The first sentence is a correct statement as far as it goes.
It distinguished LMUKs case from that of Baxi.
But, for the reasons already mentioned, it does not address the question that needed to be answered.
Here again, as in para 57 of its judgment, the Court seems to have overlooked the point that LMUK made in paragraph 29 of its observations that services were also supplied to LMUK by the redeemers in return for consideration paid by LMUK.
If that proposition was being rejected, once again this is not clearly stated.
The question which is then sent back to the referring court is not in point.
LMUK was not asserting, and did not seek to argue before us, that the payments made to the redeemers were the consideration for two or more separate supplies.
Lastly, there are the answers that the Court gives in para 65 to the questions referred in each case.
The answer to the questions referred in LMUKs case is as follows: [P]ayments made by the operator of the scheme concerned to redeemers who supply loyalty rewards to customers must be regarded as being the consideration, paid by a third party, for a supply of goods to those customers or, as the case may be, a supply of services to them.
It is, however, for the referring court to determine whether those payments also include the consideration for a supply of services corresponding to a separate [supply].
This answer brings together the points that the Court made in paras 57 and 64.
Here again, it respectfully seems to me, the point that is really in issue in this case is not answered.
The question sent back to the referring court must be taken to be the same as that which the Court set out in para 64.
An affirmative answer to it would lead to the making of an apportionment of the consideration between the two separate services.
But LMUK is not contending that there should be an apportionment.
The CJEU then sets out a proposition for which LMUK was not contending and did not contend when the case came back to this court.
The response
We are, of course, obliged to treat any question as to the meaning or effect of any EU instrument as a question of law which must be determined as such in accordance with the principles laid down by and any relevant decision of the CJEU: section 3 of the European Communities Act 1972, as substituted by the European Union (Amendment) Act 2008, section 3 and the Schedule, Part 1.
And where a question is referred to the CJEU for a preliminary ruling, it is our duty to give effect to the Courts ruling as to how the instrument must be interpreted according to the principles of EU law.
We must be loyal to our Treaty obligations.
But I do not read the ruling contained in this judgment as determining how the principles that it sets out are to be applied to the facts of this case.
That is our responsibility.
The problem that we face in looking to the judgment for guidance is that it does not say that the payments made by the promoters to the redeemers are to be characterised solely as consideration for the supplies by the redeemers to the customers.
Nor does it say that the proposition that the redeemers made supplies in both directions and that the recipients of those supplies could deduct VAT on the payments they made must be rejected.
That, as I understand the competing arguments which were advanced before us, is what is really at issue.
In this situation it must be treated as an issue of fact for us to decide.
It is worth recalling that in para 38 of his judgment in the Court of Appeal Chadwick LJ said that the passages which he had quoted from the speeches in Customs and Excise Commissioners v Redrow Group Plc provided clear authority for the propositions (a) that there is no reason why, in a VAT context, a supplier (S) may not be treated as making, in the same transaction, both a supply of services to one person (P1) and a supply of different services to another person (P2); and (b) that, in addressing a claim for input tax credit by P2, to whom services have been supplied in these circumstances, the relevant question are (i) did P2 make a payment to S, (ii) was that payment consideration for services supplied to P2 and (iii) were those services used or to be used in the course of a business carried on by P2.
Having considered the speeches in Customs and Excise Commissioners v Plantiflor Ltd [2002] 1 WLR 2287; [2002] STC 1132 and the judgment of Neuberger LJ in WHA Ltd and another v Customs and Excise Commissioners [2004] STC 1081, Chadwick LJ observed in para 51 that the argument that found favour with Lindsay J in the present case which was that, in a case where it was possible to identify different supplies to different recipients in the same transaction, only one could be the relevant supply for VAT purposes was not self evident.
His own conclusion was to the contrary.
Mr Milne invited us to endorse that conclusion.
As he put it, the fact that there was a supply to the customers did not eliminate the possibility of their having also been the supply of a service to LMUK.
The ruling that has been obtained from the CJEU does not, as I have sought to show, address this issue.
The question then is whether the judgment lays down any principles which are determinative of this issue.
Mrs Whipple QC for the Revenue said that the question in this case all the way up has been: to whom was the supply made? She submitted that it must be taken from what the Court said in para 39 of its judgment that this question must be answered by considering the economic realities, as this was a fundamental criterion for the application of the system of VAT: Customs and Excise Commissioners v DFDS A/S (Case C 260/95) [1997] 1 WLR 1037, para 23 and Planzer Luxembourg Srl v Bundeszentralamt fr Steuern (Case C 73/06) [2007] ECR I 5655, para 43.
The judgment in Auto Lease Holland [2003] ECR I 1317, paras 35 and 36 showed how this test was to be applied to identify the person to whom the goods are supplied.
The case of Redrow was wrongly decided.
The economic realities of the case could show that the supply was to a third party, not to the person who paid the consideration.
That was the position in this case.
The problem with this approach is that it does not exclude the possibility that there may, as a matter of economic reality, be two or more supplies within the same transaction.
Mrs Whipple said that one must start with the economic reality, and I have no difficulty in accepting that.
But what the economic reality is in a given case must surely be a question of fact for the domestic court.
The statement that the Court makes in para 42 of its judgment that the economic reality is that the loyalty rewards are supplied by the redeemers to the customers is only part of the story.
This is shown by the fact that the Court said in para 64 that it was for the referring court to determine whether the payments that LMUK makes to the redeemers were the consideration for two or more separate services.
Presumably the test which it would have to apply, if it were to address this question, would be to consider the economic realities.
If that is a question which it is proper to send back to the referring court, why is it not open to it to examine the question that the Court itself did not answer whether it is possible, upon consideration of the economic realities, to identify two different supplies by the redeemers to two different recipients in the same transaction?
If, as the Court of Appeal held, it is possible to identify different supplies by the redeemers to different recipients in the transaction by which LMUK pays consideration to the redeemers, what then? It is not easy to see why the economic realities test should exclude the possibility there can be more than one relevant supply for VAT purposes.
It seems to me that the judgment leaves it open to this court to determine whether, in fact and as a matter of economic reality, the redeemers may not be treated as having made, in the same transaction, both a supply of services to the customers and a supply of different services to LMUK or, as LMUK put its case in paragraph 29 of its written observations, the redeemers made supplies both to LMUK (redemption services) and to the customer (rewards).
For the reasons the Court of Appeal gave, I would answer that question in the affirmative.
Mrs Whipple argued strongly to the contrary.
She submitted that it followed from the CJEUs judgment that Customs and Excise Commissioners v Redrow Group plc, which the Court of Appeal applied to the facts of this case, was wrongly decided.
But I am unable to find anything in the CJEUs judgment that drives us to that conclusion.
The only statement of principle which it contains is that consideration of economic realities is a fundamental criterion for the application of VAT: para 39.
I do not see this as undermining the way the questions of fact were determined in Redrow or the conclusion by the appellate committee that, as the services in respect of which Redrow claimed input tax deductions were supplied for a consideration paid to it in return, it was entitled to the benefit of the deduction.
I am not persuaded that Redrow was wrongly decided.
I acknowledge, however, that some of the reasoning in Redrow needs to be adjusted in the light of later authority.
I would not wish to alter what I said at [1999] 1 WLR 408, 412H 413A: was something being done for the person claiming the deduction for which, in the course or furtherance of a business carried on by him, he has had to pay a consideration which has attracted value added tax? But I think that Lord Millett went too far at p 418 G when he said that the question to be asked is whether the taxpayer obtained anything anything at all used or to be used for the purposes of his business in return for that payment.
Payment for the mere discharge of an obligation owed to a third party will not, as he may be taken to have suggested, give rise to the right to claim a deduction.
A case where the taxpayer pays for a service which consists of the supply of goods or services to a third party requires a more careful and sensitive analysis, having regard to the economic realities of the transaction when looked at as a whole.
It may lead to the conclusion that it was solely third party consideration, or it may not.
Conclusion
For the reasons I have given, do I not see the CJEUs judgment as precluding a finding in LMUKs favour that the redeemers should be treated as having made, in the same transaction and as a matter of economic reality, both a supply of goods and services to the customers and a supply of different services to LMUK, and that LMUK is entitled to input tax credit on the consideration in return for which those different services were supplied to it.
In my opinion the only conclusion that can properly and fairly be reached in this case is that the Court of Appeals decision should be affirmed.
For these reasons, and for the further reasons given by Lord Reed, I would make the order that he proposes.
LORD WALKER
I am doubtful whether I can usefully add anything to the thorough and closely reasoned judgments of Lord Hope and Lord Reed, with which I am in full agreement.
But as this Court is divided I think it right to restate, as briefly as I can, what I see as the essential reasons for dismissing this appeal.
Anyone with even a passing acquaintance with value added tax is familiar with the basic concept of the fiscal neutrality of a chain of transactions which, however short or long, leaves the burden of the tax on the ultimate consumer.
In BLP Group Plc v Customs & Excise Commissioners (Case C 4/94) [1996] 1 WLR 174, 190, [1995] ECR I 983, 993, [1995] STC 424, 430, para 30, the Advocate General (Lenz) referred to . an ideal image of chains of transactions . intended to attach to each transaction only so much VAT liability as corresponds to the added value accruing in that transaction, so that there is to be deducted from the total amount the tax which has been occasioned by the preceding link in the chain.
In a simple chain (a wholly linear series of transactions) each transaction in the chain must be considered separately to determine what output tax is payable and what credit is available for input tax.
But in developed economies wholly linear series of transactions are relatively unusual.
Increasingly, businesses are organised so as to rely on subcontracting and outsourcing.
Consumers are increasingly encouraged to obtain packages of goods and services put together by entrepreneurs.
Many marketing schemes (such as that run by LMUK during the period now under consideration) operate through a construct of contractual relationships of some sophistication.
It is a construct that is more like a web than a chain.
In cases of that sort it is still necessary, in determining the proper amounts of output tax and input tax, to look separately at different parts of the web of transactions.
But in determining the economic reality it is also necessary to look at the matter as a whole.
This Court was not shown any authority establishing that a payment by A to B cannot be both consideration for a service supplied to A by B, and (as third party consideration) an element of the consideration paid for a supply by B to C (in this case, the collector, who is usually, but not always, also the final consumer).
That negative proposition was adopted by Lindsay J in the Chancery Division in his once and one way only theory: [2007] STC 536, paras 58 and 76 to 80.
In support of it he relied on EC Commission v Germany (Case C 427/98), [2002] ECR I 8315, [2003] STC 301.
That was a case about a simpler promotional scheme for reduction of the retailers price for goods on presentation of a coupon distributed by the manufacturer to potential retail customers.
But the Court of Justices decision related to the amount of tax on the supply by the retailer to the customer.
It did not rule that the manufacturer must suffer a loss of input tax credit when it reimbursed the retailer, and it would have been inconsistent to have made such a ruling.
Like Lord Hope and Lord Reed I consider that Customs & Excise Commissioners v Redrow Group Plc [1999] 1 WLR 408 and Customs & Excise Commissioners v Plantiflor Ltd [2002] 1 WLR 2287 were correctly decided, and are still good law.
Lord Milletts unqualified language (anything anything at all) at p 418 may be capable of being misunderstood, but in context (including his explanation at p 417 of BLP Group Plc v Customs & Excise Commissioners) it must be understood as referring to anything that can properly be regarded as a taxable supply.
Mrs Whipple QC suggested in her oral submissions that Plantiflor was an exception of a relatively small and insignificant category of cases of delivery.
But if that expression is taken, in the common modern usage, to cover the delivery of a variety of packages of outsourced services, it can be seen as more than a small or insignificant category.
The Court of Justice did not discern any significant issue of EU law arising on this case.
The issue of economic reality is for the national court.
I was one of the Law Lords who, five years ago, directed a reference to the Court of Justice, but with hindsight I recognise that it was unnecessary, and that it would have been better not to have made a reference.
For these reasons, and for the much fuller reasons stated by Lord Hope and Lord Reed, I would make the order proposed by Lord Reed.
LORD CARNWATH (with whom Lord Wilson agrees) (dissenting)
Luxembourg has spoken
In the light of the CJEU judgment, I would have regarded the appeal as bound to succeed.
With respect to my colleagues, I find it difficult to see how their contrary view can be compatible with our responsibilities under the European Communities Act 1972.
Criticism is made in the majority judgments of the form of the questions referred to the court, and even of the fact that a reference was made at all.
I find this very surprising.
The decision to refer was made by a panel of the House of Lords (Lords Hoffmann, Walker, and Mance, one of whom is a member of the present panel), following an oral hearing on 3 April 2008.
Although there is no formal record of the reasons, they can be inferred from the Commissioners request, which pointed to an apparent conflict between the decision of the House in Redrow and the CJEU judgment in Auto Lease.
The questions were then agreed by the parties in the normal way, submitted to the House on 30 June 2008, and adopted for the purpose of the reference.
They were substantially in the form of the draft appended to in the Commissioners petition of appeal.
LMUKs notice of objection, dated 16 November 2007, and signed by the counsel for LMUK (who had appeared successfully in the Court of Appeal), challenged the need for a reference; but LMUK did not take material issue with the form of questions proposed, then or later.
We must assume that they were thought by all, including the members of the House and LMUK, to be the questions which needed answers in order to determine the appeal.
I do not see how we can, properly or responsibly, go behind either the decision of the House to make the reference, or the questions which were then approved with LMUKs consent.
Nor, still less (with respect to Lord Reed), do I believe that it is appropriate or fair for us now to decide that there were other relevant facts , necessary for the determination, but which, through oversight of ourselves and the parties, were not drawn to the attention of the court; and, further, that the true issues were not questions of law at all, so that we are free to redetermine them for ourselves as questions of fact, without regard to the CJEUs conclusions on them.
Those are to me entirely novel and controversial propositions, on which at the very least I would have wished to hear submissions from the parties.
As it happened, there was a significant delay between the agreement of the questions in June 2008 and the formal order making the reference on 15 December 2008, which was registered by the CJEU on 6 February 2009.
This delay, as I understand it, was caused principally by the decision to link this case with the Baxi case.
The history is summarised in a letter to the judicial office dated 19 February 2009 from LMUKs solicitors.
In that letter, they complained of the delay and of the handling of the case by the office, but they made no criticism of the form of the questions.
At some point, certainly before May 2009, new counsel (Mr Milne QC) was instructed.
The hearing in the CJEU took place in January 2010.
If at any time during that period LMUKs representatives had formed the view that the questions were defective in some way, they had plenty of time to seek to amend or supplement them.
The real issue two supplies or one
Lord Hope (para 89 above) defines what he calls the real issue by reference to a paragraph in LMUKs written observations to the CJEU: LMUKs analysis is that the redeemers made supplies to both LMUK (redemption services) and the collectors (rewards) and that the recipient in either case can deduct VAT which it pays, subject to the normal rules.
Only LMUKs analysis results in the VAT being deductible (subject to the normal rules) by the person who has actually paid the VAT and ensures that the UK Government collects VAT on the amount of the consideration actually paid by the final consumer. (para 29, Lord Hopes emphasis) Lord Hope attaches importance to the words both and in either case, as showing the nature of LMUKs case.
It was not that the consideration was to be apportioned between the two forms of supply; rather that, following Redrow, and looking at the matter solely from LMUKs own point of view (regardless of the collectors position), the whole consideration was paid for services supplied to LMUK, which was accordingly entitled to deduct input tax on the whole amount.
If this was seen by LMUK as the real issue, it is strange that they took no steps to ensure that it was adequately reflected in the submitted questions.
In LMUKs notice of objection to HMRCs petition, the sole issue was said to be whether the supplies were made to LMUK notwithstanding that third parties, namely the Collectors, also benefited de facto from the making of such supplies.
The Commissioners suggested alternative of apportionment was said to have no merit in it.
Against that background, I can only infer that the omission of a question directed specifically to Chadwick LJs formulation was a matter of deliberate choice, presumably because it was thought unlikely to succeed in Europe.
As Lord Hope recognises, it is hard to criticise the CJEU for failing to answer an issue which had not been raised in the questions referred to it, even if mentioned in some of the subsequent observations.
I note in passing Mr Milnes separate complaint about the lack of any specific reference, either in the questions, or in the Courts response, to the issue of deduction of input tax as such.
I found this difficult to understand.
Since deduction of input tax was what the case had been about from the outset, it is fanciful to suggest that there was any doubt in anyones mind of the context in which the questions were asked.
It was referred to in terms in the European Commissions observations (see below), and the Court began its judgment by accurately summarising the course of proceedings below, beginning with LMUKs claim to deduct input VAT on its payments of service charges to the redeemers (para 13).
Absence of an Advocate Generals Opinion
In agreement with Lord Hope, I think it was unfortunate that there was no Advocate Generals Opinion in this case.
This is by no means unusual.
Published figures show that it happens in more than 40% of the cases decided by the court.
But those figures say nothing about the relative importance of the various cases, or the level of the court from which they have been referred.
Article 20, paragraph 5, of the CJEU Statute provides: Where it considers that the case raises no new point of law, the Court may decide, after hearing the Advocate General, that the case shall be determined without a submission from the Advocate General.
I can understand that this case was thought to raise no new point of law, as such.
The underlying principles had been discussed in many previous judgments.
However, it was a reference by the highest court in this country.
It should have been clear from the judgments below, and the submissions, that it had raised serious differences as to the correct application of those principles, including questions as to the authority of the leading House of Lords decision in the light of subsequent European authority.
The court itself does not as a matter of practice comment directly on domestic cases, but the Advocate General may have more flexibility in that respect, and more opportunity to look at the issues in a wider context.
Experience shows that the Advocate Generals Opinion can often provide a fuller discussion of the principles and their practical application, against which the sometimes sparse reasoning of the judgment can be easier to understand and apply.
In this case, at least in retrospect, as the present controversy demonstrates, it was an unfortunate omission.
On the other hand, it is important to note that United Kingdom interpretation was supported by the European Commission in written observations.
They provide some useful background information, and to that extent did something to fill the gap left by the absence of an Advocate Generals opinion.
In particular they addressed the possibility of a more comprehensive view, not dissimilar to that adopted by the Lord Reed: 21.
One possible approach to such schemes would be to say that there is no such thing as a free gift.
Loyal customers pay for those gifts as part of the price of goods they buy; customers who are not loyal, moreover, pay for the gifts enjoyed by those who are loyal.
The cost of operating a loyalty scheme is a cost of business for the trader, and at any given level of profit there is no difference between lowering the price for all customers and selectively lowering the price for loyal customers by giving them more products for the same price.
Nor is there any difference between giving loyal customers additional quantities of the products normally supplied by the trader and giving them other goods or services.
Again, this is a form of price discrimination in favour of loyal customers: it is no different from granting them a quantity discount or for that matter a cash rebate.
Over time, the customer has paid a certain amount for the whole of goods received by him, including those presented as being free.
Accordingly, he should bear the VAT on that amount, which is the total of his consumption.
There is no reason to charge additional VAT in respect of the free goods, because in reality he (together with the customers who are not loyal) has already paid for them.
They rejected this approach as inconsistent with Kuwait Petroleum.
They then considered whether the inclusion of the services made any difference to the analysis: 26.
The circumstances of the present cases appear at first sight to fall within that analysis.
However, in an apparent attempt to evade its consequences, the creators of the loyalty schemes concerned have introduced a nuance: the payments made to the redeemers, that is to say the persons supplying the goods to the customers, are described as payments for services.
Those services are said to be redemption services (compendiously described in point 8 of the order for reference in Case C 53/09) or marketing services (in Case C 55/09).
In the Commissions view the inclusion of the services did not make a material difference.
The economic reality of the situation was that the redeemer was being paid to provide goods to the customers, and nothing more.
Even if there can be said to be a service element, it is purely ancillary, and the core of the transaction is the supply of goods. (para 27) Accordingly, the payments were to be regarded as third party consideration for the supply of the goods, and no input VAT is deductible in respect of those payments.
Such payments could be considered as including payment for services to promoters only in so far as it is possible to identify a service separate from the provision of the goods and to determine the price of that service.
The courts reasoning
In spite of the criticisms which can be made of some aspects of the judgment, I do not myself find any serious uncertainty about what the court has decided and why.
In substance the court adopted the Commissions reasoning.
It is important to read the judgment in the light of the words of the directive, and the previous European case law, and without any preconceptions derived from domestic case law, or from an independent view as to how the tax should operate.
There are as I see it three crucial points underlying the courts decision.
First, the supply of loyalty rewards by the redeemers to the collectors was to be treated as a distinct transaction, separate from the other elements of the rewards scheme (para 55).
As the court noted (para 32), this approach accorded with the form of the questions and the submissions of the parties, and also with previous case law (Kuwait Petroleum [1999] ECR I 2323, para 28).
That being so, it is unsurprising (as Lord Reed acknowledges paras 36 38 above) that the court did not undertake a broader analysis of the relationships between LMUK and the other parties involved.
While I acknowledge the apparent attractions of Lord Reeds analysis and the elegance with which it is presented, the decision of the court is to my mind clear on this point and binding on us.
Nor did I understand LMUK to argue otherwise.
Secondly, the taxable event under the directive (article 2.1) is a supply of goods or services for consideration.
In relation to any transaction, it is therefore necessary to start by identifying the relevant supply in respect of which tax is said to be chargeable or deductible.
Thirdly, the amount of the charge to tax on the one hand, and the right to deduct on the other, are governed by two provisions of the Directive respectively: i) Article 11, which defines the taxable amount as everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies. ii) Article 17(2), which allows a taxable person the right, in so far goods and services are used for the purpose of his taxable transactions, to deduct value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person.
It is noteworthy that these two provisions are not directly matched.
From the point of view of the person making the supply, and accounting for the tax, the taxable amount is not limited to consideration from the recipient of the goods, but includes consideration from third parties.
Conversely, the person seeking to deduct tax has to show, not merely that he gave consideration and paid tax in connection with his own taxable transactions.
He must show also that the tax was paid in respect of goods or services supplied to him.
Consideration given by a third party is taken into account in assessing the taxable amount, but there is no corresponding provision giving the person paying third party consideration the right to deduct.
Applied to the facts of this case, if one ignores for the moment the incidental information and other support services given to LMUK by the redeemers, the CJEUs interpretation of those provisions is readily understandable.
As is now common ground, the goods were supplied by the redeemers to the collectors, not to LMUK, who merely paid third party consideration for them.
Article 17(2) gives LMUK no right to deduct, even though the consideration was paid in respect of their taxable transactions, because it was not paid in respect of supplies received by them.
It is true that the redeemers had a contractual obligation to LMUK to make the supplies to the collectors.
But there is nothing in the words of the directive to suggest that the mere fulfilment of a contractual obligation of this kind is to be equated with the supply of a service.
This approach can be seen as a natural extension of the courts reasoning in Auto Lease Holland BV v Bundesant fr Finanzen (Case C 185/01) [2003] ECR I 1317.
Under the fuel management agreement between Auto Lease and its lessees, the cost of petrol supplied to lessees was paid for by Auto Lease (through a credit card arrangement) and reimbursed by lessees by monthly payments and an annual balancing charge.
It was held that there was no relevant supply to Auto Lease.
The fuel management agreement was not a contract for the supply of fuel, but rather a contract to finance its purchase.
The fuel was purchased not by Auto Lease, but by the lessee having a free choice as to its quality and quantity, as well as the time of purchase. (para 36).
So here, the agreement between LMUK and the redeemers, so far as relates to the supply of goods, is no more than a contract to finance their purchase, the choice of goods and the time of purchase being left entirely to the collectors.
Does the addition of the information and other services make any difference? The courts answer (para 58 64) was no, unless the services can be separately identified, and part of the consideration properly apportioned to them.
That was possible in respect of Baxi but not LMUK.
There is nothing surprising about that conclusion.
Once it is accepted that the contractual obligation to supply the goods does not in itself amount to the taxable supply of a service to LMUK, there is no reason why the provision of such incidental services should fundamentally alter the position in relation to the goods element of the transaction, as opposed to any value properly attributable to the services as such.
Other interpretations might have been possible.
Arguably, a broader, more purposive interpretation might have led the court to an approach similar to that proposed by Lord Reed, and in line with that of the Court of Appeal in this case.
That might also have had the attraction of avoiding what appears to be an element of double taxation if the scheme is looked at as a whole (as Lord Reed suggests para 84 above).
However, that is (or should be) water under the bridge.
Interpretation of the directive is ultimately a matter for the CJEU, not the domestic courts.
We are bound to follow their lead.
LMUKs submissions
Mr Milne QC, for LMUK, submitted that, properly understood, the judgment is not inconsistent with the reasoning of the Court of Appeal.
The finding that the payments were third party consideration for supply of rewards to customers did not exclude the possibility of their being at the same time consideration for redemption services supplied to LMUK.
On the contrary, the judgment acknowledged that possibility in paragraph 64, by leaving it to the referring court to determine whether those payments also include the consideration for the supply of services corresponding to a separate supply.
Accordingly there is nothing in the judgment to undermine the reasoning of Chadwick LJ, or the decisions in Redrow and Plantiflor on which it was based.
In his oral submissions, Mr Milne relied strongly on the decision of the CJEU in Case C 165/86 Leesportefeuille Intiem CV v Staatssecretaris van Financin [1989] 2 CMLR 856 (Intiem), and the comments of the Advocate General in Case C 338/98 EC Commission v Netherlands [2004] 1 WLR 35; [2003] STC 1506.
They showed that there could be a taxable supply of goods to one person, notwithstanding that delivery was to a third party.
He also relied on a table, showing hypothetical payments and their tax consequences, as indicating that LMUKs argument alone was consistent with the underlying principle of fiscal neutrality.
As a fall back position, Mr Milne argued for an apportionment on the basis that the service charge should be split between the cost incurred by the redeemer in providing the rewards, and the difference between such cost and the total service charge; alternatively on the basis of the market value of the services provided to LMUK less the cost of the rewards.
He suggested that the issue might be remitted to a new tribunal for determination.
Discussion
Fairly read, it is impossible in my view to read the judgment as leaving open the possibility that the whole consideration might be taken as in respect of supplies both to LMUK and to the collectors.
Even if that possibility was not addressed in terms, the judgment as a whole, particularly the reasoning in the Baxi case, leaves no serious doubt what the answer would have been.
The court considered the argument that the payments should be treated, not as payment for supply of goods, but rather for a complex advertising service under which the supply of loyalty rewards to customers is one of a number of services (para 59).
That argument was clearly rejected.
The element of the payments, representing the price of the rewards and the cost of packaging and delivery, was treated solely as consideration for the supply of goods to collectors, only the profit margin being allocated to the services to Baxi (paras 61 63).
That reasoning is inconsistent with the proposition that, other than by apportionment, the consideration could be treated at the same time as being in respect of supplies to both parties.
Paragraph 64 of the judgment must be seen in that context.
It cannot be read as leaving open the issue of whether the whole consideration could be treated as in respect of two different supplies.
Although the issue of apportionment had not previously been raised in the LMUK case, and had been rejected by LMUK itself as without merit, it was included in the questions before the court, and therefore required an answer.
Paragraph 64 follows the treatment of the same issue in the Baxi case, where it did arise.
As I read paragraph 64, it is simply covering the same issue for the sake of completion in the LMUK case, indicating that, in the absence of any relevant findings before the court, it must be left to the domestic courts to determine.
Intiem
I turn to the argument based on Intiem.
The company operated a business involving the distribution by its employees of a catalogue to customers at their homes.
The employees used their own cars for deliveries.
At the end of each working day, they were able to refuel at the companys expense at a filling station near the companys office, under a contractual arrangement between the company and the station.
The filling station then invoiced Intiem for the petrol so supplied to employees.
The issue referred to the CJEU was whether the company could deduct the full amount of tax on the petrol so supplied, notwithstanding that it was supplied in fact to the employees.
That question was answered in the affirmative.
Having noted that the right to deduct applied to goods and services connected with the pursuit of the taxable persons business, the Court said: 14 It must accordingly be concluded that this deduction system must be applied in such a way that its scope corresponds as far as possible to the sphere of the taxable persons business activity.
Where, in such circumstances, article 17 (2) of the Sixth Directive restricts the taxable persons right of deduction, as regards the value added tax on supplied goods, to the tax due or paid in respect of goods . supplied to him, the purpose of that provision cannot be to exclude from the right of deduction the value added tax paid on goods which, although sold to the taxable person in order to be used exclusively in his business, were physically delivered to his employees.
As the Advocate General had said: The fact that the petrol is pumped directly into the tank of the employees car and is used on account of the undertaking in no way affects the legal and economic reality of the transaction In economic terms, the petrol with which Intiem is invoiced and for which it has to pay constitutes one of its production cost components which bears the value added tax charged on it at the previous stage ([1989] 2 CMLR at p 861)
That judgment was distinguished in Case C 338/98 EC Commission v Netherlands [2004] 1 WLR 35; [2003] STC 1506, where, under Dutch legislation, an employer was able to pay employees allowances for use of their cars in the employers business and a standard 12% deduction was allowed by way of input VAT.
That arrangement was held to be incompatible with the relevant EU legislation for a number of reasons.
The Court noted (para 37), and implicitly accepted, the Commissions identification of three significant differences from the facts of Intiem: first, there was no agreement between the employer and the supplier; secondly, the goods were not used exclusively for the employers business; and thirdly, the taxable employer was not invoiced by the taxable supplier.
The Court arrived at its conclusion on the true interpretation of the Sixth Directive, while accepting that it might not appear fully consistent with certain objectives pursued by that Directive such as fiscal neutrality and the avoidance of double taxation (para 55).
Mr Milne submits that this case is analogous to Intiem, rather than the Netherlands case, in that, while the goods are physically supplied to the customers, that is in pursuance of contracts between LMUK and the Redeemers, and invoiced accordingly, and it is done wholly for the purposes of LMUKs business.
Attractively though the argument was put, the short answer is that it is irreconcilable with the CJEUs decision in this case.
The Court has clearly decided that, on the facts of this case, and notwithstanding the contractual position, economic reality lies in treating the rewards as goods supplied to the collectors and not, directly or indirectly, as part of services supplied to LMUK.
Previous House of Lords authorities
It remains to consider how the judgment in this case affects the reasoning and conclusions of the House of Lords in the Redrow and Plantifor.
The relevant facts and the essential reasoning of the House of Lords in each case have been described by Lord Reed.
Like him, I see no reason to doubt the correctness of the decision in either case, but hesitate to regard either as laying down a universal rule.
The Commissioners position on the correctness of the decision in Redrow has fluctuated.
Lindsay J recorded, and in effect adopted, their submission (presented at that time by Mr Vajda QC) that Redrow was distinguishable on the facts: Mr Vajda draws attention to the very different facts of Redrow.
There it was Redrow not the prospective house purchaser who chose the estate agents and gave instructions to them.
Redrow obtained a contractual right as against the estate agents and could even prevent or override changes in the agents' instruction which the house purchasers might otherwise have been minded to make By contrast, says Mr Vajda, it was not LMUK that selected the particular goods or services enjoyed by way of reward by Collectors, nor, (in the sense that no Collector was bound to use points in all his acquisitions but could deal with retailers who were not Suppliers) was it LMUK that selected who it was that was to supply them.
LMUK had no role in determining whether goods or services should be acquired by Collectors only by the use of points or wholly by cash or partly for one and partly for the other or in what proportions between the two forms of satisfaction.
Nor is it the case that such provision as is made to Collectors is exclusively at LMUK's expense; in all cases where points alone did not suffice the Collectors, too, would bear some expense.
In Redrow it was easy enough to see the legal and financial characteristics that were there being examined as pointing to a supply to Redrow but the overriding characteristics of the Programme suggest a provision to Collectors, says Mr Vajda, with third party consideration for that provision coming from LMUK (para 72 73) Similar submissions were made in the Commissioners written observations to the CJEU, when it was asserted that the House of Lords reached the correct result in the Redrow case, but for the wrong reasons.
By contrast, before us Mrs Whipple for the Commissioners submitted that neither the reasoning nor the conclusion in Redrow was compatible with the CJEU decision in the present case.
The House of Lords had been wrong to focus on the position from the point of view of the taxpayer, rather than determining the economic reality of the transaction.
On that view, the estate agency services were supplied to the householders, albeit subject to a measure of control by Redrow.
Lord Hope was right to acknowledge that reality (clearly the estate agents were supplying services to prospective purchasers), but wrong to think that it could stand with a finding that tax was deductible by the person who instructed the service and who has had to pay for it of the benefit of the deduction ([1999] 1 WLR 408, 412).
I prefer the Commissioners earlier view.
The facts of Redrow differed markedly from those of the present case, for the reasons Mr Vajda gave.
Although the prospective purchasers benefited, Redrow did not merely pay for the services, but exercised a high degree of control and received benefits for purposes directly related to its own business objectives.
By contrast, in the present case LMUK had no direct or indirect interest in the reward goods themselves; their interest was only in the fulfilment of obligations previously undertaken as part of the rewards scheme as a whole.
As Lord Reed has noted, Redrow was followed and applied in Plantiflor, though the outcome in the latter case was victory for the Commissioners.
It is unnecessary to repeat his description of the case.
Mrs Whipple submitted that the decision in Plantifor is compatible with the reasoning of the CJEU in the present case.
As she put it in her printed submissions, in terms with which I readily agree: There plainly are cases which fall properly within the delivery model referred to by Lord Millett as being cases where the arrangements consist of the right to have goods delivered or services rendered to a third party.
A typical example is where A contracts with B to have flowers delivered to C.
The economic reality of those arrangements is that A and B contract, on terms that As payment is to B, for services provided to A, those services consisting of delivery to C.
In CEC v Plantifor, Plantifor contracted with Parcelforce to have flowers delivered to its customers.
The supply was by Parcelforce to P of the service of delivering Ps goods (plants and garden products) to Ps customers pursuant to a contract for delivery made between Parcelforce and P, and for a consideration payable by P. The House of Lords correctly identified the VAT supply as being, on these facts, by Parcelforce to P, and not to Ps customer.
I do not find it necessary or useful to consider in detail the other cases to which we have been referred.
They merely serve to illustrate, as Lord Reed has said, how difficult and fact sensitive the issues may be in individual cases.
Other issues
I have noted that the CJEU left open the possibility of an apportionment of the service charge, and LMUK has proposed that the issue should be referred back to the Tribunal.
I agree with Mrs Whipple that this point is not open to them at this stage, having clearly and repeatedly declined hitherto to make it a part of their case.
It would be contrary to well established principles to remit the case to the Tribunal for findings on factual issues which could have been but were not raised when the matter was originally before them.
Both parties have claimed that the principles of fiscal neutrality support their respective cases.
I have found this a somewhat elusive concept on the facts of this case.
It must be assumed that so far as appropriate this aspect has been taken into account by the CJEU in their decision.
We were told by Mr Milne that they were shown the tables which are before us, and which appear to show an element of double taxation looking at the scheme as a whole.
However, as I have indicated, where third party consideration is involved, a potential for imbalance is inherent in the definitions respectively of the taxable amount and of the right to deduct.
It is clear from the CJEU case law that the principle of neutrality is not to be treated as an overriding principle of interpretation such as to justify a departure from the words of the directive (see for example EC Commission v Netherlands cited above).
Conclusion
For these reasons, I would have allowed the appeal, and restored the order of Lindsay J.
| UK-Abs | The Respondent (LMUK) operates the Nectar loyalty card scheme (the scheme).
As part of the scheme, it enters into contracts with certain retailers (redeemers).
Under such contracts, each redeemer is required to provide customers (collectors) with goods and services wholly or partly in exchange for Nectar points.
That they do so is essential to the functioning of the scheme.
The collectors earn such points through purchases made from other retailers (sponsors), who pay LMUK for allowing them to do so.
Those payments are subject to VAT, on the basis that LMUK provides a taxable supply of services.
The Respondent pays each redeemer a service charge for allowing customers to exchange points for goods or services.
LMUK sought to deduct the VAT element of the service charge as input tax on the basis that, under the relevant EU legislation, the service charge was paid by LMUK to the redeemers for a service supplied to it for the purpose of its business.
The Appellant (the Commissioners) maintained that under that legislation the service charge constituted third party consideration for the redeemers supply of goods and services to collectors, and that therefore LMUK could not deduct input tax.
When the issue came before the House of Lords, it referred the question of how to characterise the service charge under EU law to the Court of Justice of the European Union (CJEU).
The CJEU concluded that the service charges amounted, at least in part, to third party consideration.
When the case returned to the Supreme Court, it nevertheless decided ([2013] UKSC 15) by a majority of three to two that LMUK was entitled to deduct the VAT element of the service charge.
It did so on the basis that, having regard to the contractual relationships between LMUK, the sponsors, the collectors and the redeemers, the service charge was paid by LMUK to the redeemers for a service supplied to LMUK for the purpose of its business.
The Court respectfully declined to follow the CJEUs characterisation of the service charge as third party consideration on the basis that the terms of the reference to it by the House of Lords had precluded the CJEU from considering all relevant aspects of the relationships between the parties involved in the Nectar scheme.
The Court allowed the parties an opportunity to make written submissions as to the form of the order it should make.
The Commissioners invited the Court to make a further reference to the CJEU on two principal grounds.
First, they argued that a national court is obliged under EU law to make a further reference if it finds the ruling of the CJEU on the first reference to be incomplete or unsatisfactory.
Second, they argued that there must be an issue of EU law raised in the present appeal on which a decision is necessary and which cannot be considered to be reasonably clear, as the Supreme Court decided the case by a narrow majority.
LMUK opposed a further reference and invited the Court to dismiss the appeal.
The Supreme Court unanimously refuses the Commissioners request for a further reference to the CJEU and dismisses the appeal.
Lord Reed gives the judgment of the Court.
The Court rejects the Commissioners first principal argument [4 5].
It notes that its previous judgment had not questioned the CJEUs ruling on any question of EU law, but rather had proceeded on the basis of a more comprehensive account of the facts than the CJEU was afforded.
The Courts previous judgment had, first, considered that the CJEUs judgment had identified the relevant principles of law but had applied them to the incomplete factual scenario it had been presented with by the House of Lords and, second, applied those principles to the fuller factual account of which it was apprised.
As such, no question of EU law now arises and a further reference is not necessary.
The Court also rejects the Commissioners second principal argument [6].
It does so on the basis that, in the Courts previous judgment, the majority considered that the case could be decided by applying well established principles to the facts of the case.
Further, the majority and the minority both acknowledged that the CJEU judgment dealt with the case on the basis that it raised no new point of law.
The issues raised by the minority in the previous judgment, so far as relating to EU law, are not considered to require or justify a further reference to the CJEU.
As a result of the above findings, the Court does not consider a further reference to the CJEU to be necessary.
It also notes that it would be unfortunate if the position were otherwise, given that this litigation commenced in 2003 [7].
|
Determining what is the effective date of the termination of a persons employment has fundamental implications for any claim for unfair dismissal.
This case illustrates the substantial penalty that will be paid by an employee who fails to recognise its significance, for the effective date of the termination of employment is the effective date on which time begins to run on the short period within which an employee must launch his or her claim for unfair dismissal.
The facts
On 19 October 2006 the respondent, Lauren Barratt, was suspended from her employment with the appellant, a small charitable organisation.
It was alleged that she had behaved inappropriately at a private party.
A disciplinary hearing was held on 28 November 2006.
At the end of the hearing Ms Barratt was told that she could expect to receive a letter on Thursday, 30 November.
This would inform her of the outcome of the hearing.
Ms Barratt knew that she was at risk of dismissal.
It was an important time for her, therefore.
As is so often the case in human affairs, however, this episode coincided with another significant event in her life.
She has a sister who had given birth to a baby a week earlier.
This was a happy circumstance for she had lost an earlier baby.
Naturally, Ms Barratt wanted to see her sister and the baby and to give what help she could so, at 8 am on 30 November, she left her home to travel to London.
Later on the same day a recorded delivery letter arrived for her.
It was signed for by the son of Ms Barratts boyfriend.
She had not left instructions for it to be opened or read and so it was left, unopened and unread, awaiting her return.
Ms Barratt did not return home until late on Sunday evening, 3 December.
She did not open the envelope containing the letter that evening.
Indeed, it was not until the following morning that she asked her boyfriend and his son whether any post had arrived.
The son remembered that he had signed for a recorded delivery item.
He found it among his school homework and handed it to Ms Barratt who, on reading the letter, discovered that she had been summarily dismissed for gross misconduct.
An internal appeal against the dismissal existed and, unsurprisingly, Ms Barratt availed of it.
She was unsuccessful in her appeal.
It was dismissed on 19 December 2006.
Thus it was that on 2 March 2007 a claim for unfair dismissal and sex discrimination was presented on her behalf to an Employment Tribunal.
Depending on the view that one takes of the date on which Ms Barratts employment was brought to an effective end, her complaint was lodged either just within or just outside the period of three months from that date.
This is of pivotal importance to the question of whether she is able to maintain her claim to have been unfairly dismissed.
The relevant statutory provisions
The effective date of the termination of employment is a term of art that has been used in successive enactments to signify the date on which an employee is to be taken as having been dismissed.
The fixing of the date of termination is important for a number of purposes.
These include, but are by no means confined to, the marking of the start of the period within which proceedings for unfair dismissal may be taken.
In the present case the relevant definition of the term, effective date of termination, is contained in section 97 (1) of the Employment Rights Act 1996.
This definition largely mirrors the meaning given to the same term by section 55 (4) of the Employment Protection (Consolidation) Act 1978, by paragraph 5 (5) of the First Schedule to the Trade Union and Labour Relations Act 1974 and by section 23 (5) of the Industrial Relations Act 1971.
So far as is relevant, section 97 (1) of the 1996 Act provides: (1) in this Part the effective date of termination (a) in relation to an employee whose contract of employment is terminated by notice, whether given by his employer or by the employee, means the date on which the notice expires, (b) in relation to an employee whose contract of employment is terminated without notice, means the
date on which the termination takes effect
Ms Barratt had been dismissed without notice and her case was therefore governed by sub paragraph (b) of the subsection.
The simple but crucial question therefore is, when did the termination of her employment take effect? Was it when her employer decided to terminate the employment? Alternatively, was it when the letter was sent or on the day that it was delivered? Was it when Ms Barratt read the letter or should the termination be regarded as having taken effect when she had a reasonable opportunity of learning of the contents of the letter? If so, when did that reasonable opportunity arise?
When, by whatever means, the effective date of the termination of employment is established, section 111 of the 1996 Act comes into play.
Subsection (2) of this section is the relevant provision.
It is in these terms: (2) an [employment tribunal] shall not consider a complaint [of unfair dismissal] unless it is presented to the tribunal (a) before the end of the period of three months beginning with the effective date of termination, or (b) within such further period as the tribunal considers reasonable in a case where it is satisfied that it was not reasonably practicable for the complaint to be presented before the end of that period of three months.
The dispensing provision contained in section 111 (2) (b) is not available to Ms Barratt.
Current jurisprudence suggests that that provision is to be narrowly construed and sparingly invoked.
One need not embark on an examination of that issue, however, for, whatever the possible scope of the sub paragraph, Ms Barratt could not have demonstrated that it was not reasonably practicable for her to present a claim within the three month period.
Establishing the effective date of the termination of employment is also important in relation to the availability of interim relief in unfair dismissal claims.
This subject is dealt with in section 128 of the 1996 Act, as amended by section 1 of the Employment Rights (Dispute Resolution) Act 1998.
The relevant provisions of the section are these: (1) An employee who presents a complaint to an employment tribunal (a) that he has been unfairly dismissed by his employer, may apply to the tribunal for interim relief. (2) The tribunal shall not entertain an application for interim relief unless it is presented to the tribunal before the end of the period of seven days immediately following the effective date of termination (whether before, on or after that date).
If the effective date of termination is taken to mean the date on which an employer decides to summarily dismiss an employee or the date on which a letter is dispatched to inform the employee of that decision, it can be seen that the period provided for in this subsection might either expire completely before the employee would become aware of the need to have recourse to it or be unrealistically shortened.
For reasons which I shall develop, this consideration militates strongly against the interpretation of section 97 (1)(b) for which the appellants contend.
The history of the proceedings
Having received the complaint, the employers (who are the appellant in the present appeal) argued during a pre hearing review that both claims were out of time.
The Employment Judge, Mr J C Hoult, held that both claims were in time.
He also held, however, that if he had been of the view that the unfair dismissal claim had not been made in time, he would not have found in Ms Barratts favour on the issue of reasonable practicability.
In respect of the sex discrimination claim he held that, if it had not been made in time, he would have exercised his discretion in her favour under the provisions of the Sex Discrimination Act 1975 (which, in section 76(5) allows a court or tribunal to consider a complaint which is out of time if, in all the circumstances of the case, it considers that it is just and equitable to do so).
Before the Employment Judge the case for the employers appears to have been put solely on the basis that Ms Barratt had had a reasonable opportunity to discover the contents of the letter and that, on that account, the effective date of the termination of her employment was more than three months before the presentation of her claim.
Mr Hoult rejected this argument in the following passages of his judgment: The Claimant clearly had the opportunity to make enquiries about any letter having been received and, had she have discovered that one had [been], she could have learnt the contents.
Had she have made an enquiry by the telephone this would not have given her a reasonable opportunity to read it but of course she could have discovered the contents.
I did not accept that the Claimant had gone away deliberately to avoid reading the letter.
I was satisfied that given the circumstances of her sister that the reason for the visit to London was genuine it was to help her sister with housekeeping and looking after her child.
It was clear that she left for London without knowing the decision.
In my view the Claimant did not have a reasonable opportunity of reading the letter of dismissal until 4 December 2006.
Whilst she may have been able to ask someone to read the letter over to her she did not and this did not seem to be an unreasonable position to adopt given the reason for her absence from the home.
The employers appeal against the decision of the Employment Judge was confined to the single issue of whether he had been right to find that the unfair dismissal claim had been brought in time.
No challenge was made to his finding in relation to the sex discrimination claim nor to his indication that he would not have found in Ms Barratts favour on the matter of the extension of time for the bringing of the unfair dismissal claim, if that had been in issue before him.
The case for the employers before the EAT was more broadly based than it had been before the Employment Judge.
It was argued that whether a contract of employment remained in force should not depend on an examination of what a claimant did or on an investigation of what he or she had the opportunity to do.
A contract could be terminated by one party without the other party actually being aware of the termination.
It was so terminated when the communication could be expected in the normal course of things to have come to the other party's attention.
The same approach should be followed in determining the effective date of termination under section 97 of the 1996 Act.
This argument was rejected by the EAT in a judgment delivered by Bean J. Mr Greatorex (who by then was appearing for the employers) had relied on a decision of the Court of Appeal in The Brimnes [1975] QB 929, [1974] 3 WLR 613, [1974] 3 All ER 88.
In that case the owners of a ship sent a telex to the charterers at 5.45 pm on 2 April 1970 purporting to withdraw the vessel on the ground of late payment of the hire charge.
The charterers normal business hours ended at 6.00 pm.
The telex was not seen until the morning of 3 April, although it had arrived in the charterers' office at 5.45 pm on 2 April.
Brandon J found that the notice must be regarded as having been received by the charterers before 6.00 pm on 2 April.
The Court of Appeal upheld that decision, Megaw LJ stating what Bean J took to be the correct principle of law in the following passage at pages 966 967: if a notice arrives at the address of the person to be notified, at such a time and by such a means of communication that it would in the normal course of business come to the attention of that person on its arrival, that person cannot rely on some failure of himself or his servants to act in a normal businesslike manner in respect of taking cognisance of the communication so as to postpone the effective time of the notice until some later time when it in fact came to his attention.
Bean J rejected the purported analogy with The Brimnes decision, saying in para 17 of his judgment: It is one thing to say that the owners or charterers of a ship, or similar large commercial concerns, must be taken to receive and read documents sent to them during normal business hours.
It is quite another thing to say that the same principle of constructive knowledge should apply to individuals to whom a letter is sent at their home address.
What of the person who lives alone and goes on holiday? What of the commercial traveller? What of the student who lives at university during term time and at the family home in the holidays? What of the individual fortunate enough to have a second home to which he or she goes at weekends? There is no principle equivalent to that enunciated in The Brimnes that an individual is expected to be at home to receive and open the post when it arrives or in the evening when he or she gets home, or that some arrangement must be made for someone else to open what may well be confidential correspondence in the recipient's absence.
The argument before the Court of Appeal followed the course that it took before the EAT.
It was submitted that the Employment Tribunal ought to have concluded that Ms Barratt had a reasonable opportunity of reading the dismissal letter before 3 December 2006.
Mr Greatorex argued that the Tribunal had erred in law in looking at the reasonableness of Ms Barratt's conduct rather than whether she had a reasonable opportunity to know of her dismissal before 3 December 2006.
What the Court of Appeal rightly called the more substantial and radical ground was contained in counsels second argument.
It was to the effect that earlier decisions of the EAT (such as Brown v Southall & Knight [1980] IRLR 130 EAT and McMaster v Manchester Airport plc [1998] IRLR 112 EAT), which suggested that the effective date of termination was when the employee had actually read the letter and knew of the decision or, at any rate, had a reasonable opportunity of reading it, had been wrongly decided and should be overruled.
By a majority, the Court of Appeal, [2009] IRLR 933, (Mummery LJ and Sir Paul Kennedy, Lloyd LJ dissenting) dismissed the appeal.
As to the first argument, it was unanimously held that the Tribunal had not erred in law.
Mummery LJ stated that it was open to the Employment Tribunal to conclude on the evidence that the claimant had not gone away deliberately to avoid reading the letter, that she had left for London without knowing the decision and that she did not have a reasonable opportunity of reading the letter of dismissal until 4 December.
Lloyd LJ agreed with the appellants argument that, in principle, an opportunity to read the letter could include an opportunity to have it read over to the addressee on the telephone, or to have its contents communicated in some other way but he did not agree that the tribunal's judgment on this issue involved an error of law.
On the second argument, the majority of the Court of Appeal accepted that Gisda's contractual analysis was a possible starting point in the approach to the proper interpretation of section 97(1).
The contractual analysis proffered by the appellant had been that since the effective termination of an employment contract may predate the employee's actual knowledge of the summary dismissal, and since there was no principle of contract law that required an employer to communicate the termination of the contract to the employee for the termination to take effect, it was wrong to fix the date of summary dismissal as the date of the employee's actual knowledge of the dismissal or the date on which he or she had a reasonable opportunity to learn of the dismissal.
The majority dismissed this argument for a number of reasons outlined by Mummery LJ in paras 34 38 of his judgment.
Those reasons may be broadly summarised as follows: (i) The expression effective date of termination is not a term of contract law but a statutory construct specifically defined for the purposes of a legislative scheme of employment rights based on a personal contract. (ii) The critical act triggering the time limit is that of the employer.
When and how the summary dismissal is notified is outside the employee's control.
If the employer chooses to communicate the summary dismissal by post rather than in a face to face interview, it is reasonable that he should accept that until the employee either knows of the dismissal or has a reasonable opportunity to learn of it, it will not be effective. (iii) The employment protection legislation is designed to achieve fairness in the dismissal process.
An employee cannot reasonably be expected to take action until informed of the dismissal on which action is to be taken.
The legislation gives the employee three months, not three months less a day or two, in which to make a complaint. (iv) The rule that the effective date of termination was when the employee actually knew of the decision or had a reasonable opportunity of discovering it had been established and followed for nearly 30 years without challenge.
While it was not binding on the Court of Appeal, considerations of certainty in practice and consistency in approach dictated that it should not be lightly cast aside. (v) Finally the rule had been in existence for a considerable period without legislative amendment, even though there have been Parliamentary opportunities to eliminate legal error, manifest injustice or practical inconvenience from the operation of employment protection laws.
Lloyd LJ considered that, since at first sight employment was a matter of contract, the termination date was to be determined according to the general law of contract as it applies to employment contracts.
In principle, therefore, the quest to discover the date on which the termination of the employment contract took effect should begin with the general law of contracts of employment.
This was the first opportunity for the Court of Appeal to pronounce on the subject and Lloyd LJ considered that the court should not be deterred from striking out on a different course simply because the opportunity to do so had not arisen since 1980.
He expressed his conclusions on the appeal in the following passage from para 77: the correct view of the law is that an employment contract is brought to an end by a dismissal letter sent by or on behalf of the employer to the employee at his or her address, and delivered to that address, and that it comes to an end on the date of such delivery, regardless of whether or not the employee was there at that time or later on that day, or did not see the letter, for whatever reason, until a later date
The appeal
In a submission of conspicuous ability, Mr Greatorex renewed the arguments that he had presented so forcefully to the Court of Appeal.
He asserted that it was fundamentally wrong to link the termination of the contract to knowledge (or the reasonable opportunity to obtain it) on the part of the employee that employment had been brought to an end.
Even if this was a correct approach, however, reasonable opportunity should be given a much narrower interpretation than that which it had been traditionally afforded.
Section 97 (1) was, in its essence, a jurisdictional provision.
As a matter of principle the question of jurisdiction should not be determined by examining the reasonableness of the behaviour of the person who sought to establish it.
If the concept of reasonable opportunity had any part to play in determining the effective date of termination, it should be objectively assessed.
The examination should focus on whether there was in fact an opportunity to learn of the dismissal, not whether, in failing to avail of the opportunity, the employee could be considered to have acted reasonably.
On the more substantial issue Mr Greatorex contended that, by reason of her misconduct, Ms Barratt had repudiated the contract of employment and that this repudiation had been accepted by the employer.
He acknowledged that, conventionally, acceptance of repudiation normally takes the form of communication of the decision to accept or an unequivocal overt act which is inconsistent with the subsistence of the contract State Trading Corporation of India Ltd v M. Golodetz Ltd [1989] 2 Lloyds Rep 277 at 286.
Where, as in this case, there was no unequivocal overt act, the question of what is required by way of communication predominates.
Relying again on The Brimnes, Mr Greatorex argued that, where an employer had done all that could reasonably be required of him to communicate his decision to accept the employees repudiation of the contract of employment, the termination has occurred.
In advancing this argument, counsel accepted that the contractual analysis route to the application of section 97 had not been followed by the EAT in Brown v Southall & Knight [1980] ICR 617 and McMaster v Manchester Airport plc.
But, he submitted, these decisions represented an unacceptable deviation from the normal application of contractual principles in the field of employment law.
They also provided a different and unfairly onerous rule for termination by employers from that of termination by employees.
Mr Greatorex pointed out that other decisions in employment law cases could be seen to cleave to common law contractual principles.
London Transport Executive v Clarke [1981] ICR 355, [1981] IRLR 166 and Kirklees Metropolitan Council v Radecki [2009] ICR 1244, for instance, were examples of the courts recognising that actions by employers can constitute an unequivocal overt act which is inconsistent with the subsistence of the contract of employment.
These actions were sufficient to bring those contracts to an end.
It was submitted that there was no justification for abandoning common law contractual principles where communication of the acceptance of the repudiatory breach was the issue rather than an unequivocal overt action which terminated the contract.
On the question of bringing a contract of employment to an end by communication, Mr Greatorex referred to two cases where, he suggested, ordinary contractual principles were applied.
In Potter v RJ Temple plc (in liquidation) [2003] All ER (D) 327 (Dec) the employee sent a letter of resignation by facsimile transmission to his employer.
The EAT held that the effective date of termination was when the fax was received, regardless of when it had been read or acted upon.
And in George v Luton Borough Council (EAT/0311/03) [2003] All ER (D) 04 (Dec) the EAT held that the effective date of termination of the contract was when the employees posted letter of resignation was date stamped as having been received.
Whether it had been read was neither here nor there.
Finally, Mr Greatorex argued that the adoption of contractual principles would lead to greater certainty in the application of section 97.
It would obviate the need for protracted hearings inquiring into the reasonableness of the opportunity to learn of the contents of a letter of summary dismissal and it would restore the necessary balance between the duties cast on employers and employees in relation to communications about the termination of employment.
The respondent was not represented on the appeal to this court and we are therefore particularly grateful to Mr Greatorex for his comprehensive and scrupulously fair examination of the arguments that lie on both sides of the debate on how section 97 should be interpreted.
The narrow issue
In examining the question whether Ms Barratt had the opportunity to learn of the contents of the letter, should the focus be on the reasonableness of her behaviour in failing to avail of the chance to discover what it contained, or should it be on the existence of the opportunity to do so? The Employment Judge, the EAT and all the members of the Court of Appeal were unanimous in the view that to include consideration of the behaviour of the respondent in an assessment of whether she had a reasonable opportunity to find out what the letter contained was not an error of law.
We agree.
The circumstances of the present case exemplify the need to be mindful of the human dimension in considering what is or is not reasonable to expect of someone facing the prospect of dismissal from employment.
To concentrate exclusively on what is practically feasible may compromise the concept of what can realistically be expected.
The prospect of summary dismissal for gross misconduct (which Ms Barratt apparently entertained) is a fairly unenviable one.
That she should wish to read the letter in which that prospect materialised is not in the least surprising.
If it contained details of the findings made against her, it is entirely to be expected that, at least in the first instance, she would wish to absorb these alone.
She is not to be condemned, therefore, for failing to give instructions that the letter should be opened and read to her during the weekend that she spent with her sister.
Of course, the fact that it would have been possible for her to have found out over the weekend what the letter contained is not to be left out of account in deciding when she had a reasonable opportunity to discover its contents but the fact that she chose to wait until she could read the letter herself should not be regarded as irrelevant to the reasonableness of the opportunity to be informed of her summary dismissal.
In common with all the judges who have pronounced on this issue hitherto, we consider that taking into account the actions and omissions of the respondent in relation to finding out what the letter contained was not erroneous in law.
The examination of the reasons for not having learned of the contents of the letter should not be a protracted affair.
It is to be expected that in the vast majority of cases, the reasons for not having done so can be shortly stated and equally shortly evaluated.
The substantial issue
The genesis of the reasonable opportunity to discover test is to be found in the decision of the EAT in Brown v Southall & Knight.
In that case it was held that where dismissal is communicated to an employee in a letter, the contract of employment does not terminate until the employee has actually read the letter or has had a reasonable opportunity of reading it.
It was not enough to establish that the employer had decided to dismiss a person or had posted a letter saying so.
If, however, the employee deliberately did not open the letter or if he went away to avoid reading it, he might well be debarred from saying that notice of his dismissal had not been given to him.
This decision has not been challenged (at least so far as reported cases are concerned) since it was promulgated.
It was followed in McMaster v Manchester Airport plc.
In that case Mr McMaster was summarily dismissed while he was on sickness leave.
A letter informing him of this arrived at his home on 9 November 1995.
He did not see the letter that day, however, because he was on a day trip to France.
He returned home the following day when he read the letter.
His unfair dismissal complaint was received by the industrial tribunal on 9 February 1996.
Accordingly, if the effective date of termination of his employment was 9 November when the letter arrived at his home, his complaint was presented one day out of time.
If, on the other hand, his employment did not effectively terminate until the following day when he read the letter, his complaint was in time.
The EAT held that the effective date of termination of a contract of employment could not be earlier than the date on which an employee received knowledge that he was being dismissed.
The doctrine of constructive or presumed knowledge had no place in questions as to whether a dismissal had been communicated, save only in the evidential sense that an industrial tribunal would be likely to assume that letters usually arrive in the normal course of post and that people are to be taken, normally, as opening their letters promptly after they have arrived.
Underlying both decisions (although not expressly articulated in either) is the notion that it would be unfair for time to begin to run against an employee in relation to his or her unfair dismissal complaint until the employee knows or, at least, has a reasonable chance to find out that he or she has been dismissed.
This is as it should be.
Dismissal from employment is a major event in anyones life.
Decisions that may have a profound effect on ones future require to be made.
It is entirely reasonable that the time (already short) within which one should have the chance to make those decisions should not be further abbreviated by complications surrounding the receipt of the information that one has in fact been dismissed.
These considerations provide the essential rationale for not following the conventional contract law route in the approach to an interpretation of section 97.
As Mummery LJ said, it is a statutory construct.
It is designed to hold the balance between employer and employee but it does not require nor should it that both sides be placed on an equal footing.
Employees as a class are in a more vulnerable position than employers.
Protection of employees rights has been the theme of legislation in this field for many years.
The need for the protection and safeguarding of employees rights provides the overarching backdrop to the proper construction of section 97.
An essential part of the protection of employees is the requirement that they be informed of any possible breach of their rights.
For that reason we emphatically agree with the EATs view in McMaster that the doctrine of constructive knowledge has no place in the debate as to whether a dismissal has been communicated.
For the short time of three months to begin to run against an employee, he or she must be informed of the event that triggers the start of that period, namely, their dismissal or, at least, he or she must have the chance to find out that that short period has begun.
Again, this case exemplifies the need for this.
During the three months after Ms Barratts dismissal, she pursued an internal appeal; she learned that she was unsuccessful in that appeal; she sought advice in relation to the lodging of a complaint of unfair dismissal; and she presumably required some time to absorb and act upon that advice.
Viewed in the abstract, three months might appear to be a substantial period.
In reality, however, when momentous decisions have to be taken, it is not an unduly generous time.
We do not consider, therefore, that what has been described as the general law of contract should provide a preliminary guide to the proper interpretation of section 97 of the 1996 Act, much less that it should be determinative of that issue.
With the proposition that one should be aware of what conventional contractual principles would dictate we have no quarrel but we tend to doubt that the contractual analysis should be regarded as a starting point in the debate, certainly if by that it is meant that this analysis should hold sway unless displaced by other factors.
Section 97 should be interpreted in its setting.
It is part of a charter protecting employees rights.
An interpretation that promotes those rights, as opposed to one which is consonant with traditional contract law principles, is to be preferred.
For these reasons we reject the thesis that cases such as London Transport Executive v Clarke, Kirklees Metropolitan Council v Radecki, Potter v RJ Temple plc and George v Luton Borough Council represent a general acceptance that statutory rights given to employees should be interpreted in a way that is compatible with common law contractual principles, if indeed they are as they have been represented to be. (On this latter point, we have not received contrary argument on the common law position and we wish to make clear that this judgment should not be taken as an endorsement of the appellants argument as to the effect of those principles).
Of course, where the protection of employees statutory rights exactly coincides with common law principles, the latter may well provide an insight into how the former may be interpreted and applied but that is a far cry from saying that principles of contract law should dictate the scope of employees statutory rights.
These cases do no more, in our opinion, than recognise that where common law principles precisely reflect the statutorily protected rights of employees they may be prayed in aid to reinforce the protection of those rights.
The need to segregate intellectually common law principles relating to contract law, even in the field of employment, from statutorily conferred rights is fundamental.
The common law recognised certain employment rights, but the right at common law not to be wrongfully dismissed is significantly narrower than the statutory protection against unfair dismissal.
The deliberate expansion by Parliament of the protection of employment rights for employees considered to be vulnerable and the significance of the creation of a separate system of rights was recognised by the House of Lords in Johnson v Unisys Ltd [2001] UKHL 13, [2003] 1 AC 518.
In that case the employee had succeeded in an unfair dismissal claim but, because of the statutory cap on compensation, sought to bring a claim at common law for breach of an implied term of trust and confidence during the dismissal process.
The House of Lords refused to permit the supplanting of the legislative scheme by entertaining a second claim at common law.
The leading judgment of Lord Hoffmann recognised the deliberate move by Parliament away from the ordinary law of contract as governing employer/employee contractual relations.
At para 35 of his opinion Lord Hoffmann said: At common law the contract of employment was regarded by the courts as a contract like any other.
The parties were free to negotiate whatever terms they liked and no terms would be implied unless they satisfied the strict test of necessity applied to a commercial contract.
Freedom of contract meant that the stronger party, usually the employer, was free to impose his terms upon the weaker.
But over the last 30 years or so, the nature of the contract of employment has been transformed.
It has been recognised that a person's employment is usually one of the most important things in his or her life.
It gives not only a livelihood but an occupation, an identity and a sense of self esteem.
The law has changed to recognise this social reality.
Most of the changes have been made by Parliament.
The Employment Rights Act 1996 consolidates numerous statutes
which have conferred rights upon employees
In an earlier case, essentially the same message was delivered.
In Redbridge London Borough Council v Fishman [1978] ICR 569, EAT, at 574 Phillips J described the difference between the contractual cause of action of wrongful dismissal and the statutory regime of unfair dismissal thus: The jurisdiction based on paragraph 6 (8) of Schedule 1 to the Trade Union and Labour Relations Act 1974 has not got much to do with contractual rights and duties.
Many dismissals are unfair although the employer is contractually entitled to dismiss the employee.
Contrariwise, some dismissals are not unfair although the employer was not contractually entitled to dismiss the employee.
Although the contractual rights and duties are not irrelevant to the question posed by paragraph 6(8), they are not of the first importance.
The essential underpinning of the appellants case, that conventional principles of contract law should come into play in the interpretation of section 97, must therefore be rejected.
The construction and application of that provision must be guided principally by the underlying purpose of the statute viz the protection of the employees rights.
Viewed through that particular prism, it is not difficult to conclude that the well established rule that an employee is entitled either to be informed or at least to have the reasonable chance of finding out that he has been dismissed before time begins to run against him is firmly anchored to the overall objective of the legislation.
The fact that this rule has survived, indeed has been tacitly approved by, successive enactments merely reinforces the conclusion that it is consonant with the purpose of the various provisions relating to time limits.
As Mummery LJ so pithily and appositely put it, the legislation is designed to allow an employee three months not three months less a day or two to make a complaint of unfair dismissal.
When one considers that the decision to lodge such a complaint is one not to be taken lightly, it is entirely to be expected that the period should run from the time that the need to make such a decision is known to the employee.
There is no reason to suppose that the rule in its present form will provoke uncertainty as to its application nor is there evidence that this has been the position hitherto.
The inquiry as to whether an employee read a letter of dismissal within the three months prior to making the complaint or as to the reasons for failing to do so should in most cases be capable of being contained within a short compass.
It should not, as a matter of generality, occupy a significantly greater time than that required to investigate the time of posting a letter and when it was delivered.
In any event, certainty, although desirable, is by no means the only factor to be considered in determining the proper interpretation to be given to section 97.
What will most strongly influence that decision is the question of which construction most conduces to the fulfilment of the legislative purpose.
And, of course, an employer who wishes to be certain that his employee is aware of the dismissal can resort to the prosaic expedient of informing the employee in a face to face interview that he or she has been dismissed.
On that issue, it appears to us that the matter is put beyond plausible debate when one considers the effect that the appellants suggested interpretation of section 97 would have on the availability of the relief provided for in section 128 of the 1996 Act.
An application for interim relief may well prove in certain cases to be an immensely important facility.
In the case of a whistleblower, for instance, the opportunity to forestall a recriminatory dismissal or one designed to frustrate the intentions of the conscientious employee may be of vital consequence.
But this right would be severely attenuated, and in many cases wholly eliminated, if the appellants interpretation of section 97 is accepted.
Sensibly recognising the significance of this point, Mr Greatorex sought to minimise its importance by pointing out that applications for interim relief are made in a very small percentage of cases.
But, as we have indicated, the true importance of this remedy lies not in the number of cases in which it might be invoked but in the nature of the few cases where it may be crucial.
No dispensing provision is available to extend the period within which an application for interim relief might be made.
It is therefore, in our view, inconceivable that Parliament would have intended that section 97 should be interpreted to mean that seven days only would be available for the making of such an application, regardless of whether the applicant was aware of the dismissal within that period.
Yet that is the inevitable consequence of interpreting section 97 in the manner that the appellants suggest.
Of all the reasons that this interpretation cannot be right, this is perhaps the most strikingly obvious.
Conclusion
The appeal must be dismissed.
| UK-Abs | This appeal concerns the question of what is the effective date of termination of a persons employment.
The determination of this date is important for a number of purposes.
These include the marking of the start of the three month period within which proceedings for unfair dismissal may be taken.
In the present case the relevant definition of the term is contained in section 97(1) of the Employment Rights Act 1996, which provides that, in relation to an employee whose contract of employment is terminated without notice, the effective date of termination means the date on which the termination takes effect.
The Respondent, Lauren Barratt, was suspended from her employment with the Appellant, a small charitable organisation, because of alleged inappropriate behaviour at a private party.
A disciplinary hearing was held on 28 November 2006 which the Respondent attended.
At the end of the hearing she was told that she could expect to receive a letter on Thursday, 30 November informing her of the outcome.
The Respondent left her home at 8 am on 30 November, however, before any letter arrived.
She went to London to see and help her sister, who had given birth a week earlier.
She did not return until late on Sunday evening, 3 December.
A recorded delivery letter had arrived for the Respondent on 30 November, informing her that she had been summarily dismissed for gross misconduct.
She did not read this letter until the morning of Monday, 4 December.
The Respondent filed a claim for unfair dismissal and sex discrimination at the Employment Tribunal on 2 March 2007.
Depending on the view that one takes of the date on which the Respondents employment was brought to an effective end, her claim was lodged either just within or just outside the period of three months from that date.
If outside the period, the Respondent would be unable to maintain her claim to have been unfairly dismissed.
The Employment Tribunal held that the unfair dismissal claim was in time.
The decision was upheld on appeal by the Employment Appeal Tribunal and also, on a further appeal, by the Court of Appeal.
Gisda Cyf appealed to the Supreme Court.
The Supreme Court unanimously dismisses the appeal.
It holds that: (1) the effective date of termination of employment is when the employee is informed of the dismissal or when the employee has had a reasonable opportunity of discovering that she has been dismissed; (2) it is correct to include consideration of the behaviour of the employee in an assessment of whether the employee has had a reasonable opportunity to find out about the dismissal.
The judgment of the Court is delivered by Lord Kerr.
The broader issue in the case was whether the effective date of termination of employment is: (1) when an employee is informed of her dismissal or at any rate when she has had a reasonable opportunity of finding out; or (2) some other time, for example when a letter of dismissal is posted.
In deciding that it was the former, the Court looked to the purpose of the 1996 Act.
Although conventional principles of contract law may point towards the second of the two options, the appellants argument that conventional principles of contract law should determine the interpretation of section 97 must be rejected.
The effective date of termination as defined in section 97 is a statutory construct which is to be interpreted in its statutory context.
The interpretation must be guided principally by the underlying purpose of the statute [para 35; 41].
Section 97 is intended to hold the balance between employer and employee but it does not require that both sides be placed on an equal footing.
The section is part of a charter protecting employees rights which recognises that employees as a class are in a more vulnerable position than employers.
An interpretation that promotes those rights, as opposed to one which is consonant with traditional contract law principles, is to be preferred.
An essential part of employees rights is the requirement that employees be informed of any possible breaches of their rights [para 35 37].
In particular, the legislation is designed to allow an employee three months not three months less a day or two to make a complaint of unfair dismissal [para 42].
Indeed, it would not be reasonable for time to begin to run against an employee in relation to his unfair dismissal complaint until the employee knows or, at least, has a reasonable chance to find out that he has been dismissed.
It is entirely proper that the time (already short) within which one has the chance to decide whether to bring a claim should not be further abbreviated by complications surrounding the circumstances that someone receives information that she has in fact been dismissed [para 34].
The Court felt that the matter was put beyond doubt by consideration of the interim relief provision in section 128 of the 1996 Act.
An application to the Employment Tribunal for interim relief by an employee who complains that he has been unfairly dismissed must be made within seven days following the effective date of termination of employment.
If the effective date is taken to mean the date of the employers decision to dismiss or the date of his letter, the seven day period might completely expire before the employee becomes aware of the need to have recourse to it.
Parliament could not have intended this [para 44 45].
The narrower issue in the case was whether it was correct to include consideration of the behaviour of an employee in an assessment of whether she has had a reasonable opportunity to find out about her dismissal.
The Court, in holding that it was correct to include such consideration, reasoned that there is a need to be mindful of the human dimension in considering what is reasonable to expect of someone facing the prospect of dismissal from employment.
To concentrate exclusively on what is practically feasible may compromise what can realistically be expected [para 30].
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This appeal arises from steps taken by the appellant, Dallah Real Estate and Tourism Holding Company (Dallah), to enforce in England a final award dated 23 June 2006 made in its favour in the sum of US$20,588,040 against the Government of Pakistan (the Government) by an International Chamber of Commerce (ICC) arbitral tribunal sitting in Paris.
The Government has hitherto succeeded in resisting enforcement on the ground that the arbitration agreement was not valid . under the law of the country where the award was made (Arbitration Act 1996, s.103(2)(b), reflecting Article V(I)(a) of the New York Convention), that is under French law.
Dallah now appeals.
The award was made against the Government on the basis that it was a true party to an Agreement dated 10 September 1996 expressed to be made between and signed on behalf of Dallah and Awami Hajj Trust (the Trust).
The Agreement contains an arbitration clause referring disputes or differences between Dallah and the Trust to ICC arbitration.
The tribunal in a first partial award dated 26 June 2001 concluded that the Government was a true party to the Agreement and as such bound by the arbitration clause, and so that the tribunal had jurisdiction to determine Dallahs claim against the Government.
The central issue before the English courts is whether the Government can establish that, applying French law principles, there was no such common intention on the part of the Government and Dallah as would make the Government a party.
Dallah is a member of a group providing services for the Holy Places in Saudi Arabia.
It had had long standing commercial relations with the Government.
By letter dated 15 February 1995, Mr Shezi Nackvi, a senior director in the Dallah group, made a proposal to the Government to provide housing for pilgrims on a 55 year lease with associated financing.
The Government approved the proposal in principle, and a Memorandum of Understanding (MOU) was concluded on 24 July 1995.
Land was to be purchased and housing facilities were to be constructed at a total cost not exceeding US$242 million and the Government was to take a 99 year lease subject to Dallah arranging the necessary financing to be secured by the Borrower designated by THE GOVERNMENT under the Sovereign Guarantee of THE GOVERNMENT.
The lease and financing terms were to be communicated to the Government within 30 days for approval, and Dallah was to supply detailed specifications within 60 days of the date of such approval.
In the event, Dallah in November 1995 acquired a larger and more expensive plot of land than the MOU contemplated, and the timetable was also not maintained.
Further, on 21 January 1996 the President of Pakistan promulgated Ordinance No VII establishing the Trust with effect from 14 February 1996.
Under article 89(2) of the Constitution of Pakistan, an Ordinance so promulgated shall stand repealed at the expiration of four months from its promulgation, although, under the same article, it should before then have been laid before Parliament, upon which it would have taken effect as a bill.
In the event, Parliament appears never to have been involved, but further Ordinances were promulgated to recreate and continue the Trust, viz Ordinance No XLIX of 1996 on a date unknown (presumably prior to 21 May 1996) and No LXXXI of 1996 on 12 August 1996.
Under each Ordinance the Trust was to maintain a fund with a trustee bank, to be financed from contributions and savings by pilgrims (Hujjaj) and philanthropists, as well as by any income from investments or property.
The Ordinances also assigned functions within the Trust to various public officers.
They prescribed, in particular, that the secretary of the Ministry of Religious Affairs (MORA) should act as secretary of the Board of Trustees and (unless some other person of integrity was appointed) as Managing Trustee of the Trust.
On 29 February 1996 Dallah wrote to the secretary of MORA with a revised proposal, increasing the cost to US$345 million to take account of the larger plot purchased, setting out options for a new legal and financial structure and stating: Legal issues In order to comply with the legal requirements of the various entities involved, the structure will be as follows: a) Government of Pakistan to set up AWAMI HAJJ TRUST b) Trust will borrow the US$100 Million from Dallah Albaraka c) Trust will make a down payment of US$100 million to Albaraka d) Trust will enter into a lease to use these buildings during the Hajj period Annex A detailed the financial structure: Loan terms for down payment of US $ 100 Million Approx 30% of project cost Amount: US $ 100 Million Borrower: Awami Hajj Trust
Guarantor: Government of Pakistan
On 3 April 1996 Dallah instructed its lawyers, Orr, Dignam & Co. that the current shape of the transaction involved an agreement to be entered into between Dallah and the Trust on terms which it described.
Further negotiations with the Government led to the signing of the Agreement between Dallah and the Trust on 10 September 1996.
The Agreement reflected the increased cost of $345 million, out of which it provided that: the Trust shall pay a lump sum of U.S. $ 100 [million] . to Dallah by way of advance . subject to (i) Dallah arranging through one of its affiliates a U.S. Dollar 100 [million] Financing Facility for the Trust against a guarantee of the Government of Pakistan, . (iii) A counter guarantee issued by the Trust and Al Baraka Islamic Investment Bank, E.C., Bahrain, . appointed by the Board of Trustees pursuant to Section 8 of the Awami Hajj Trust Ordinance, 1996 in favour of the Government of Pakistan.
Clause 27 provided that: The Trust may assign or transfer its rights and obligations under this Agreement to the Government of Pakistan without the prior consent in writing of Dallah.
The Agreement made no other references to the Government and was in terms introducing and setting out mutual obligations on the part of Dallah and the Trust.
These included the arbitration clause: 23.
Any dispute or difference of any kind whatsoever between the Trust and Dallah arising out of or in connection with this Agreement shall be settled by arbitration held under the Rules of Conciliation and Arbitration of the International Chamber of Commerce, Paris, by three arbitrators appointed under such Rules.
On 6 November 1996 Ms Benazir Bhuttos government fell from power, and was replaced by that of Mr Nawaz Sharif.
No further Ordinance was promulgated, and the Trust accordingly ceased to exist as a legal entity at midnight on 11 December 1996.
It will be necessary to look in detail at correspondence as well as three sets of proceedings in Pakistan which took place during the following years.
Dallah invoked ICC arbitration against the Government on 19 May 1998, nominating Lord Mustill as its arbitrator.
It is common ground that the Government has throughout the arbitration denied being party to any arbitration agreement, maintained a jurisdictional reservation and not done anything to submit to the jurisdiction of the tribunal or waive its sovereign immunity.
The ICC under its Rules appointed Justice Dr Nassim Hasan Shah to act as the Governments arbitrator and Dr Ghaleb Mahmassani to chair the tribunal.
Terms of Reference, in which the Government refused to join, were signed by the arbitrators and Dallah in March 1999 and approved by the ICC in April 1999.
The tribunal issued its first partial award on its own jurisdiction on 26 June 2001.
A second partial award on liability was issued on 19 January 2004 and the final award on 23 June 2006.
Leave to enforce the final award in England was given by Order of Christopher Clarke J dated 9 October 2006 on a without notice application by Dallah.
The Governments application to set aside the leave led to a three day hearing with oral evidence before Aikens J in July 2008.
His judgment setting aside the Order is dated 1 August 2008: [2008] EWHC 1901 (Comm); [2009] 1 All ER (Comm) 505.
A further three day hearing led to the Court of Appeals dismissal of Dallahs appeal on 20 July 2009 ([2009] EWCA Civ 755; [2010] 1 AER 592), against which the present appeal lies.
On 19 August 2009, Dallah filed an application in the French courts for enforcement of the final award, and, on 12 January 2010, it sought a stay of the present appeal pending the outcome of its French application.
On 25 January 2010, the Supreme Court refused such a stay.
On 21 December 2009, the Government applied in France to set aside all three awards.
It was in time to do this, since, under French law, the limitation period for doing so only starts to run one month after official notification of the award bearing an enforcement order.
The issue and the principles governing its resolution
The validity of the arbitration agreement depends in the present case upon whether there existed between Dallah and the Government any relevant arbitration agreement at all.
Dallahs case is that the Government has at all times been an unnamed party to the Agreement containing the arbitration clause.
Before the English courts, this case has been founded on a submission that it was the common intention of the parties that the Government should be such a party to the Agreement.
Before the arbitral tribunal Dallah put the matter differently.
It argued that either the Trust was the alter ego of the Government or the Government was the successor to the Trust or to the rights and obligations which the Trust had under the Agreement prior to its demise.
Neither of these ways of putting the case is now pursued.
Dallah did not argue before Aikens J that the Trust was the Governments alter ego (judgment, para 58, footnote 21), and it merely submitted that, if and so far as the Government behaved as if it were a successor to the Trust, this was relevant to the issue of common intention (judgment, paras 94 96).
The issue regarding the existence of any relevant arbitration agreement falls to be determined by the Supreme Court as a United Kingdom court under provisions of national law which are contained in the Arbitration Act 1996 and reflect Article V(1)(a) of the New York Convention.
The parties submissions before the Supreme Court proceeded on the basis that, under s.103(2)(b) of the 1996 Act and Article V(1)(a) of the Convention, the onus was and is on the Government to prove that it was not party to any such arbitration agreement.
This was so, although the arbitration agreement upon which Dallah relies consists in an arbitration clause in the Agreement which on its face only applies as between Dallah and the Trust.
There was no challenge to, and no attempt to distinguish, the reasoning on this point in Dardana Limited v Yukos Oil Company [2002] EWCA Civ 543; [2002] 1 All ER (Comm) 819, paras 10 12, and I therefore proceed on the same basis as the parties submissions.
S.103(2)(b) and article V(1)(a) raise a number of questions: (a) what is meant by the law of the country where the award was made? (b) what are the provisions of that law as regards the existence and validity of an arbitration agreement? (c) what is the nature of the exercise which an enforcing court must undertake when deciding whether an arbitration agreement existed under such law? and, in particular, (d) what is the relevance of the fact that the arbitral tribunal has itself ruled on the issue of its own jurisdiction? (a) The law of the country where the award was made.
It is common ground that the award was made in France and French law is relevant.
But it is also common ground that this does not mean the French law that would be applied in relation to a purely domestic arbitration.
In relation to an international arbitration, the experts on French law called before Aikens J by Dallah and the Government agreed in their Joint Memorandum (para 2.8) that: Under French law, the existence, validity and effectiveness of an arbitration agreement in an international arbitration . need not be assessed on the basis of a national law, be it the law applicable to the main contract or any other law, and can be determined according to rules of transnational law.
The approach taken in French law appears in decisions of the Court of Appeal of Paris, in particular Menicucci v Mahieux [1976] Rev Crit 507 (13 December 1975) and Coumet et Ducler v Polar Rakennusos a Keythio [1990] Rev Arb 675 (8 March 1990), and later in the decision of the Cour de Cassation (1re Ch.
Civ) (20 December 1993) in Municipalit de Khoms El Mergeb v Dalico [1994] 1 Rev Arb 116, where the court said that: en vertu dune rgle matrielle du droit international de larbitrage, la clause compromissoire est indpendante juridiquement du contrat principal qui la contient directement ou par rfrence et que son existence et son efficacit sapprcient, sous rserve des rgles impratives du droit franais et de lordre public international, daprs la commune volont des parties, sans quil soit ncessaire de se rfrer une loi tatique .
This language suggests that arbitration agreements derive their existence, validity and effect from supra national law, without it being necessary to refer to any national law.
If so, that would not avoid the need to have regard to French law as the law of the country where the award was made under Article V(1)(a) of the Convention and s.103(2)(b) of the 1996 Act.
The Cour de Cassation is, however, a national court, giving a French legal view of international arbitration; and Dallah and the Government agree that the true analysis is that French law recognises transnational principles as potentially applicable to determine the existence, validity and effectiveness of an international arbitration agreement, such principles being part of French law.
As Miss Heilbron QC representing Dallah put it, transnational law is part of French law.
Mr Landau QC representing the Government now accepts this analysis (although in his written case, para 157, he appeared to take issue with it and Aikens J, para 93, in fact disregarded transnational law on the basis that it was not part of French law, but relevant only under French conflict of laws principles and so not within Article V(1)(a) and s.103(2)(b)).
Since the point is common ground, I merely record that Mr Landau referred the Court to Pierre Mayers note on Ducler in KluwerArbitration, explaining the rationale of the Paris Court of Appeal decisions as being to confine the restrictive provisions of article 2061 of the French Civil Code to internal contracts.
He also referred to Fouchard, Gaillard, Goldmans International Commercial Arbitration (1999) (Kluwer), para 440, describing as somewhat unfortunate the terminology used in (French) decisions referring to an arbitration agreement as autonomous from any national law and as having its own effectiveness, and observing that a contract can only be valid by reference to a law that recognises such validity.
Finally, in response to a 1977 commentary, suggesting that the validity of an arbitration clause in an international contract resulted solely from the will of the parties, independently of any reference to the law of the main contract, and to any national law and describing this as the ultimate pinnacle of autonomy, Poudret and Bessons Comparative Law of International Arbitration 2nd ed (2007), para 180 also said that: it is only the first two aspects, i.e. indifference to the fate of the main contract and the possibility of being submitted to a separate law, that flow logically from the principle of separability.
The latter by no means implies that the arbitration agreement is independent of any national law.
The real justification of this regime lies elsewhere: as Philippe Fouchard emphasises in his note on the Menicucci judgment, the aim is to remove the obstacles which certain laws, including French law, bring to the development of international arbitration.
Although the judgment does not say so, this new conception of separability implies abandoning the conflict of laws approach in favour of material rules, which are in reality part of French law and not of any international or transnational system.
We shall see this point with the Dalico judgment.
In the light of the common ground between the parties, it is also unnecessary to engage with the competing representations of international arbitration lucidly discussed in Gaillards Legal Theory of International Arbitration (2010) pp. 13 66.
Whatever the juridical underpinning or autonomy of their role from the viewpoint of international arbitrators, the present case involves an application to enforce in the forum of a national court, subject to principles defined by s.103 of the 1996 Act and Article V of the New York Convention, upon the effect of which there is substantial, though not complete, agreement between the parties now before the Supreme Court. (b) The provisions of that law as regards the existence and validity of an arbitration agreement.
The parties experts on French law were agreed that a French court would apply a test of common intention to an issue of jurisdiction.
Dallahs expert, M. Derains, said this in his written report (p.14): Thus, my Experts opinion is that it is open to an arbitral tribunal seating in Paris in an international arbitration to find that the arbitration agreement is governed by transnational law.
Yet, the arbitrators must also look for the common will of the parties, express or implied, since it is a substantive rule of French law that the Courts will apply when controlling the jurisdiction of the arbitrators.
In para 2.9 of a joint memorandum to which Aikens J referred in paras 85 et seq of his judgment, the experts agreed upon the following statement: Under French law, in order to determine whether an arbitration clause upon which the jurisdiction of an arbitral tribunal is founded extends to a person who is neither a named party nor a signatory to the underlying agreement containing that clause, it is necessary to find out whether all the parties to the arbitration proceedings, including that person, had the common intention (whether express or implied) to be bound by the said agreement and, as a result, by the arbitration clause therein.
The existence of a common intention of the parties is determined in the light of the facts of the case.
To this effect, the courts will consider the involvement and behaviour of all the parties during the negotiation, performance and, if applicable, termination of the underlying agreement.
The experts agreement summarises a jurisprudence constante in the French courts.
The Cour de Cassation endorsed a test of common intention in the case of Dalico (para 14 above).
M. Derains endorsed its application to issues such as that in the present case.
Aikens J had cited to him the leading decisions of the Paris Court of Appeal spelling out the principle in greater detail in a series of cases concerning international arbitrations: Socit Isover Saint Gobain v Socit Dow Chemical [1984] 1 Rev Arb 98 (21 October 1983), Co. tunisienne de Navigation v Socit Comptoir commercial Andr [1990] 3 Rev Arb 675 (28 November 1989) and Orri v Socit des Lubrifiants Elf Aquitaine [1992] Jur Fr 95 (11 January 1990).
In the last case, the Court put the position as follows: Selon les usages du commerce international, la clause compromissoire insre dans un contrat international a une validit et une efficacit propres qui commandent den tendre lapplication aux parties directement impliques dans lexcution du contrat et les litiges qui peuvent en rsulter, ds lors quil est tabli que leur situation contractuelle, leurs activits et les relations commerciales habituelles existent entre les parties font prsumer quelles ont accept la clause darbitrage dont elles connaissaient lexistence et la porte, bien quelles naient pas t signataires du contrat qui la stipulait.
In translation: According to the customary practices of international trade, the arbitration clause inserted into an international contract has its own validity and effectiveness which require that its application be extended to the parties directly involved in the performance of the contract and any disputes which may result therefrom, provided that it is established that their contractual situation, their activities and the normal commercial relations existing between the parties allow it to be presumed that they have accepted the arbitration clause of which they knew the existence and scope, even though they were not signatories of the contract containing it.
This then is the test which must be satisfied before the French court will conclude that a third person is an unnamed party to an international arbitration agreement.
It is difficult to conceive that any more relaxed test would be consistent with justice and reasonable commercial expectations, however international the arbitration or transnational the principles applied.
Aikens J recorded that the experts were also agreed that: (i) when the court is looking for the common intention of all the potential parties to the arbitration agreement, it is seeking to ascertain the subjective intention of each of the parties, through their objective conduct.
The court will consider all the facts of the case, starting at the beginning of the chronology and going on to the end and looking at the facts in the round (para 87); (ii) when a French court is considering the question of the common intention of the parties, it will take into account good faith (para 90); and (iii) under French law a state entering into an arbitration agreement thereby waives its immunity, both from jurisdiction (as under English law: State Immunity Act 1978, s.9(1) and Svenska Petroleum Exploration AB v Government of the Republic of Lithuania (No 2) [2006] EWCA Civ 1529; [2007] QB 886) and (unlike English law) also from execution (para 91).
However the experts disagreed as to whether the last point had any relevance when considering whether a state had entered into such an agreement.
In the light of their conflicting evidence on this point, Aikens J found that: (iv) the correct analysis of French law is that when the court is ascertaining the subjective intention of the potential state party to the arbitration agreement, it will bear in mind the fact that the potential state party to the arbitration agreement would lose its state immunity if it were to become a party to the arbitration agreement (para 91). (c) The nature of the exercise which an enforcing court must undertake when deciding whether an arbitration agreement existed under such law, and (d) the relevance of the fact that the arbitral tribunal has itself ruled on the issue of its own jurisdiction.
These questions are here linked.
Miss Heilbrons primary submission on question (c) is that the only court with any standing to undertake a full examination of the tribunals jurisdiction would be a French court on an application to set aside the award for lack of jurisdiction.
An example of the French courts willingness to do this is provided by Rpublique arabe dEgypte v Southern Pacific Properties Ltd [1986] Ju Fr 75; [1987] Ju Fr 469 (12 July 1984, Paris Court of Appeal and 6 January 1987, Cour de Cassation) (the Pyramids case).
Article 1502 of the French Code of Civil Procedure entitles a French court to refuse to recognise or enforce an arbitral award made in the absence of any arbitration agreement, while article 1504 entitles the court to set aside an award made in France in an international arbitration on the grounds provided in article 1502.
An ICC arbitral tribunal sitting in Paris had held the Arab Republic of Egypt liable as being party to a contract signed between companies in the Southern Pacific group and the Egyptian General Organisation for Tourism and Hotels (EGOTH).
On an application by Egypt to set aside the award, the Court of Cassation held that the Court of Appeal had been entitled under articles 1502 and 1504 de rechercher en droit et en fait tous les elements concernant les vices en question (to examine in law and in fact all the elements relevant to the alleged defects: p 470), and that it had on that basis been up to the Court of Appeal to make up its own mind whether the arbitrators had exceeded their jurisdiction.
In Miss Heilbrons submission, any enforcing court (other than the court of the seat of the arbitration) should adopt a different approach.
It should do no more than review the tribunals jurisdiction and the precedent question whether there was ever any arbitration agreement binding on the Government.
The nature of the suggested review should be flexible and nuanced according to the circumstances.
Here, Miss Heilbron argues that the answer to question (d) militates in favour of a limited review.
She submits that the tribunal had power to consider and rule on its own jurisdiction (Kompetenz Kompetenz or comptence comptence), that it did so after full and close examination, and that its first partial award on jurisdiction should be given strong evidential effect.
In these circumstances, she submits, a court should refuse to become further involved, at least when the tribunals conclusions could be regarded on their face as plausible or reasonably supportable.
At times, Dallah has put its case regarding the first partial award even higher.
In her oral submissions, Miss Heilbron went so far as to suggest that the first partial award was itself an award entitled to recognition and enforcement under the New York Convention.
No application for its recognition or enforcement has in fact been made (the present proceedings concern only the final award), but, quite apart from that, the suggestion carries Dallah nowhere.
First, (in the absence of any agreement to submit the question of arbitrability itself to arbitration) I do not regard the New York Convention as concerned with preliminary awards on jurisdiction.
As Fouchard, Gaillard, Goldmans International Commercial Arbitration, para 654, observes the Convention does not cover the competence competence principle.
Dallah could not satisfy even the conditions of Article IV(1) of the Convention and s.102(1)(b) of the 1996 Act requiring the production of an agreement under which the parties agreed to submit the question of arbitrability to the tribunal let alone resist an application under Article V(1)(a) and s.103(2)(b) on the ground that the parties had never agreed to submit that question to the binding jurisdiction of the tribunal.
Second, Dallahs case quotes extensively from Fouchard, Gaillard, Goldman, para 658, pointing out that arbitral tribunals are free to rule on their own jurisdiction, but ignores the ensuring para 659, which says, pertinently, that: Even today, the competence competence principle is all too often interpreted as empowering the arbitrators to be the sole judges of their jurisdiction.
That would be neither logical nor acceptable.
In fact, the real purpose of the rule is in no way to leave the question of the arbitrators jurisdiction in the hands of the arbitrators alone.
Their jurisdiction must instead be reviewed by the courts if an action is brought to set aside or to enforce the award.
In its written case Dallah also argued that the first partial award gave rise, under English law, to an issue estoppel on the issue of jurisdiction, having regard to the Governments deliberate decision not to institute proceedings in France to challenge the tribunals jurisdiction to make any of its awards.
This was abandoned as a separate point by Miss Heilbron in her oral submissions before the Supreme Court, under reference to the Governments recent application to set aside the tribunals awards in France.
But, in my judgment, the argument based on issue estoppel was always doomed to fail.
A person who denies being party to any relevant arbitration agreement has no obligation to participate in the arbitration or to take any steps in the country of the seat of what he maintains to be an invalid arbitration leading to an invalid award against him.
The party initiating the arbitration must try to enforce the award where it can.
Only then and there is it incumbent on the defendant denying the existence of any valid award to resist enforcement.
Dallahs stance on question (d) cannot therefore be accepted.
Arbitration of the kind with which this appeal is concerned is consensual the manifestation of parties choice to submit present or future issues between them to arbitration.
Arbitrators (like many other decision making bodies) may from time to time find themselves faced with challenges to their role or powers, and have in that event to consider the existence and extent of their authority to decide particular issues involving particular persons.
But, absent specific authority to do this, they cannot by their own decision on such matters create or extend the authority conferred upon them.
Of course, it is possible for parties to agree to submit to arbitrators (as it is possible for them to agree to submit to a court) the very question of arbitrability that is a question arising as to whether they had previously agreed to submit to arbitration (before a different or even the same arbitrators) a substantive issue arising between them.
But such an agreement is not simply rare, it involves specific agreement (indeed clear and unmistakable evidence in the view of the United States Supreme Court in First Options of Chicago, Inc. v Kaplan 514 US 938, 944 (1995) per Breyer J), and, absent any agreement to submit the question of arbitrability itself to arbitration, the court should decide that question just as it would decide any other question that the parties did not submit to arbitration, namely, independently: ibid, per Breyer J, p.943.
Leaving aside the rare case of an agreement to submit the question of arbitrability itself to arbitration, the concept of competence competence is applied in slightly different ways around the world, but it says nothing about judicial review and it appears that every country adhering to the competence competence principle allows some form of judicial review of the arbitrators jurisdictional decision . : China Minmetals Materials Import and Export Co., Ltd. v Chi Mei Corporation 334 F 3d 274, 288 (2003), where some of the nuances (principally relating to the time at which courts review arbitrators jurisdiction) were examined.
In China Minmetals it was again held, following First Options, that under United States law the court must make an independent determination of the agreements validity and therefore of the arbitrability of the dispute, at least in the absence of a waiver precluding the defense: p 289.
English law is well established in the same sense, as Devlin J explained in Christopher Brown Ltd v Genossenschaft sterreichischer [1954] 1 QB 8, 12 13, in a passage quoted in the February 1994 Consultation Paper on Draft Clauses and Schedules of an Arbitration Bill of the DTIs Departmental Advisory Committee (then chaired by Lord Steyn): It is not the law that arbitrators, if their jurisdiction is challenged or questioned, are bound immediately to refuse to act until their jurisdiction has been determined by some court which has power to determine it finally.
Nor is it the law that they are bound to go on without investigating the merits of the challenge and to determine the matter in dispute, leaving the question of their jurisdiction to be held over until it is determined by some court which had power to determine it.
They might then be merely wasting their time and everybody elses.
They are not obliged to take either of those courses.
They are entitled to inquire into the merits of the issue whether they have jurisdiction or not, not for the purpose of reaching any conclusion which will be binding upon the parties because that they cannot do but for the purpose of satisfying themselves as a preliminary matter whether they ought to go on with the arbitration or not.
If it became abundantly clear to them, on looking into the matter, that they obviously had no jurisdiction as, for example, it would be if the submission which was produced was not signed, or not properly executed, or something of that sort, then they might well take the view that they were not going to go on with the hearing at all.
They are entitled, in short, to make their own inquiries in order to determine their own course of action, and the result of that inquiry has no effect whatsoever upon the rights of the parties.
This coincides with the position in French law: paras 20 and 22 above.
An arbitral tribunals decision as to the existence of its own jurisdiction cannot therefore bind a party who has not submitted the question of arbitrability to the tribunal.
This leaves for consideration the nature of the exercise which a court should undertake where there has been no such submission and the court is asked to enforce an award.
Domestically, there is no doubt that, whether or not a partys challenge to the jurisdiction has been raised, argued and decided before the arbitrator, a party who has not submitted to the arbitrators jurisdiction is entitled to a full judicial determination on evidence of an issue of jurisdiction before the English court, on an application made in time for that purpose under s.67 of the Arbitration Act 1996, just as he would be entitled under s.72 if he had taken no part before the arbitrator: see e.g. Azov Shipping Co. v Baltic Shipping Co. [1999] 1 Lloyds Rep 68.
The English and French legal positions thus coincide: see the Pyramids case (para 20 above).
The question is whether the position differs when an English court is asked to enforce a foreign award.
There is an irony about Dallahs stance that any enforcing court, other than the court of the seat, has a restricted role in reviewing an arbitral tribunals jurisdiction.
The concept of transnational arbitration has been advocated in arbitral circles, and was no doubt recognised by French courts, in order so far as possible to underline the autonomy of international arbitration from the seat of arbitration or its national legal system.
What matters in real terms is where an arbitration award can be enforced: see Gaillards Legal Theory of International Arbitration, (op. cit.) Chapter I.
Yet Miss Heilbrons submissions invoke in one and the same breath a transnational view and a view attaching a special and dominant significance to the law of the seat.
They also invite the spectre of dual sets of proceedings, conducted in two different countries (that of the seat and that of enforcement) involving different levels of review in relation to essentially the same issue whether the award should be enforced in the latter country.
It is true that Article V(1)(e) of the Convention and s.103(2)(f) of the 1996 Act recognise the courts of the country in which, or under the law of which an award was made as the courts where an application to set aside or suspend an award may appropriately be made; and also that Article VI and s.103(5) permit a court in any other country where recognition or enforcement of the award is sought to adjourn, if it considers it proper, pending resolution of any such application.
But Article V(1)(a) and s.103(2)(b) are framed as free standing and categoric alternative grounds to Article V(1)(e) of the Convention and s.103(2)(f) for resisting recognition or enforcement.
Neither Article V(1)(a) nor s.103(2)(b) hints at any restriction on the nature of the exercise open, either to the person resisting enforcement or to the court asked to enforce an award, when the validity (sc. existence) of the supposed arbitration agreement is in issue.
The onus may be on the person resisting recognition or enforcement, but the language enables such person to do so by proving (or furnishing proof) of the non existence of any arbitration agreement.
This language points strongly to ordinary judicial determination of that issue.
Nor do Article VI and s.103(5) contain any suggestion that a person resisting recognition or enforcement in one country has any obligation to seek to set aside the award in the other country where it was made.
None of this is in any way surprising.
The very issue is whether the person resisting enforcement had agreed to submit to arbitration in that country.
Such a person has, as I have indicated, no obligation to recognise the tribunals activity or the country where the tribunal conceives itself to be entitled to carry on its activity.
Further, what matters, self evidently, to both parties is the enforceability of the award in the country where enforcement is sought.
Since Dallah has chosen to seek to enforce in England, it does not lie well in its mouth to complain that the Government ought to have taken steps in France.
It is true that successful resistance by the Government to enforcement in England would not have the effect of setting aside the award in France.
But that says nothing about whether there was actually any agreement by the Government to arbitrate in France or about whether the French award would actually prove binding in France if and when that question were to be examined there.
Whether it is binding in France could only be decided in French court proceedings to recognise or enforce, such as those which Dallah has now begun.
I note, however, that an English judgment holding that the award is not valid could prove significant in relation to such proceedings, if French courts recognise any principle similar to the English principle of issue estoppel (as to which see The Sennar (no. 2) [1985] 1 WLR 490).
But that is a matter for the French courts to decide.
The nature of the present exercise is, in my opinion, also unaffected where an arbitral tribunal has either assumed or, after full deliberation, concluded that it had jurisdiction.
There is in law no distinction between these situations.
The tribunals own view of its jurisdiction has no legal or evidential value, when the issue is whether the tribunal had any legitimate authority in relation to the Government at all.
This is so however full was the evidence before it and however carefully deliberated was its conclusion.
It is also so whatever the composition of the tribunal a comment made in view of Dallahs repeated (but no more attractive for that) submission that weight should be given to the tribunals eminence, high standing and great experience.
The scheme of the New York Convention, reflected in ss.101 103 of the 1996 Act may give limited prima facie credit to apparently valid arbitration awards based on apparently valid and applicable arbitration agreements, by throwing on the person resisting enforcement the onus of proving one of the matters set out in Article V(1) and s.103.
But that is as far as it goes in law.
Dallah starts with advantage of service, it does not also start fifteen or thirty love up.
This is not to say that a court seised of an issue under Article V(1)(a) and s.103(2)(b) will not examine, both carefully and with interest, the reasoning and conclusion of an arbitral tribunal which has undertaken a similar examination.
Courts welcome useful assistance.
The correct position is well summarised by the following paragraph which I quote from the Governments written case: 233.
Under s.103(2)(b) of the 1996 Act / Art V.1(a) NYC, when the issue is initial consent to arbitration, the Court must determine for itself whether or not the objecting party actually consented.
The objecting party has the burden of proof, which it may seek to discharge as it sees fit.
In making its determination, the Court may have regard to the reasoning and findings of the alleged arbitral tribunal, if they are helpful, but it is neither bound nor restricted by them.
The application of the above principles
The above principles have already been applied to the facts of this case at two previous instances.
Not surprisingly, therefore, most of the emphasis of Dallahs written case and oral submissions before the Supreme Court was on the submissions of principle which have already been considered.
In the circumstances and in the light of the careful examination of the whole history in the courts below, it is unnecessary to go once again into every detail.
Each of the courts below has paid close attention to the arbitral tribunals reasoning and conclusions, before concluding that the tribunal lacked jurisdiction to make the final award now sought to be enforced.
Their examination of the case took place by reference to the same principles that a French court would, on the expert evidence, apply if and when called upon to examine the existence of an arbitration agreement between Dallah and the Government: see paras 17 20 above.
It took account of the whole history, including the Governments close involvement with and interest in the project from the original proposal onwards, the negotiation and signature of the MOU with the Government, the creation by the Government of the Trust and the re structuring of the project to introduce the Trust, the negotiation and signature of the Agreement between Dallah and the Trust, the subsequent correspondence, the three sets of proceedings in Pakistan and the arbitration proceedings.
The tribunals approach
The arbitral tribunal set out its approach to the issue of jurisdiction in the opening paragraphs of its first partial award.
Dallah and the Government had argued for a single law governing both arbitral jurisdiction and the substance of the issues: the law of Saudi Arabia in Dallahs submission and the law of Pakistan in the Governments.
The tribunal distinguished between jurisdiction and substance, relying on the principle of autonomy of arbitral agreements, and rejected both the suggested national laws.
It held (section III(I)) that: 3.
Judicial as well as Arbitral case law now clearly recognise that, as a result of the principle of autonomy, the rules of law, applicable to an arbitration agreement, may differ from those governing the main contract, and that, in the absence of specific indication by the parties, such rules need not be linked to a particular national law (French Cour de Cassation, 1er civ., Dec. 20, 1993, Dalico), but may consist of those transnational general principles which the Arbitrators would consider to meet the fundamental requirements of justice in international trade.
Dr Justice Shah and Lord Mustill would not endorse without reservation the concept of a transnational procedural law independent of all national laws.
They need not however pursue this, since it makes no difference to the result. 4. in view of the autonomy of the Arbitration Agreement, the Tribunal believes that such Agreement is not to be assessed, as to its existence, validity and scope, neither under the laws of Saudi Arabia nor under those of Pakistan, nor under the rules of any other specific local law connected or not, to the present dispute.
By reason of the international character of the Arbitration Agreement coupled with the choice, under the main Agreement, of institutional arbitration under the ICC Rules without any reference in such Agreement to any national law, the Tribunal will decide on the matter of its jurisdiction and on all issues relating to the validity and scope of the Arbitration Agreement and therefore on whether the Defendant is a party to such Agreement and to this Arbitration, by reference to those transnational general principles and usages reflecting the fundamental requirements of justice in international trade and the concept of good faith in business.
As to what this meant in practice, the tribunal noted (section III(III)(1)) that: a non signatory may be bound by an arbitration agreement, by virtue of any one of a number of legal theories such as representation, assignment, succession, alter ego or the theory of group of companies.
It recorded that Dallahs primary case was that the Trust was an alter ego of the Government, but went on immediately to say that: To arbitrate this disputed issue, the Arbitral Tribunal believes that it is very difficult to reason exclusively on the basis of juristic and abstract legal principles and provisions and to decide such issue by merely relying on general considerations of legal theory.
The tribunal then described the setting up and organisation of the Trust.
It concluded that the rules and regulations provided in the Ordinance did not contain sufficient evidence that would permit it to disregard the Trusts legal entity and to consider that the Trust and the Government are one such entity, and were fully consistent with the general features of the regulations of public entities, and that Such control of the Trust by the Government is not, in itself, sufficiently pertinent to impair the distinct legal personality enjoyed by the Trust or to lead to the disregard of such personality, and therefore to the extension of the Arbitration Agreement from the Trust to the Government.
The tribunal, or Dr Shah and Lord Mustill, added that particular caution must be observed where the party sought to be joined as defendant is a state or state body.
The tribunal continued (section III(III)): 5.
In fact, any reply to the present issue relating to whether or not the Present Defendant is a Party to the Arbitration Agreement depends on the factual circumstances of the case and requires a close scrutiny of the conduct and of the actions of the parties before, during and after the implementation of the main Agreement in order to determine whether the Defendant may be, through its role in the negotiation, performance and termination of such Agreement, considered as a party thereto, and hence to the Arbitration Agreement.
The control exercised by the State over the Trust becomes, within that framework, an element of evidence of the interest and the role that the party exercising such control has in the performance of the agreement concluded by the Trust, and provides the backdrop for understanding the true intentions of the parties. 6.
Arbitral as well as judicial case law has widely recognised that, in international arbitration, the effects of the arbitration clause may extend to parties that did not actually sign the main contract but that were directly involved in the negotiation and performance of such contract, such involvement raising the presumption that the common intention of all parties was that the non signatory party would be a true party to such contract and would be bound by the arbitration agreement.
In the context of the award as a whole, the last paragraph must be a statement by the tribunal of one of the transnational general principles and usages reflecting the fundamental requirements of justice in international trade and the concept of good faith in business, to which the tribunal had earlier referred in section III(I)(4).
In this light, the tribunal examined in turn the position prior to, at signature of, and during performance of the Agreement, and during the period after the Trust lapsed.
At each point, it focused on the Governments conduct.
It considered that it was clearly established that the Trust was organically and operationally under the Governments strict control, that its financial and administrative independence was largely theoretical, and that everything concerning the Agreement was at all times performed by the [Government] concurrently with the Trust and that the Trust functions . reverted back logically to the Government, after the Trust ceased to exist (section III(III)(12 1).
The tribunals examination led it to conclude (para 12 1) that: The Trust, in spite of its distinct legal personality in theory, appears thus in fact and in conduct to have been considered and to have acted as a part and a division of the Defendant to which it is fully assimilated, a temporary instrument that has been created by a political decision of the Defendant for specific activities which the Defendant wanted to perform, and which was cancelled also by a political decision of the Defendant.
Therefore, the Trust appears as having been no more than the alter ego of the Defendant which appears, in substance, as the real party in interest, and therefore as the proper party to the Agreement and to the Arbitration with the Claimant.
The tribunal went on (para 12 2) to say that the Governments behaviour, as in actual fact the party that was involved in the negotiation, implementation and termination of the Agreement . before, during and after the existence of the Trust, shows and proves that the [Government] has always been and considered itself to be a true party to the Agreement .
The tribunal acknowledged (para 13) that Certainly, many of the above mentioned factual elements, if isolated and taken into a fragmented way, may not be construed as sufficiently conclusive for the purpose of this section, but it recorded that Dr Mahmassani believed that, when looked at globally as a whole, such elements constitute a comprehensive set of evidence that may be relied upon to conclude that the Defendant is a true party to the Agreement, and that While joining in this conclusion Dr Shah and Lord Mustill note that they do so with some hesitation, considering that the case lies very close to the line.
In paragraph 14, the tribunal recorded a further divergence of view, with Dr Mahmassani believing that the general principle of good faith comforts the conclusion that the Trust is the alter ego of the Defendant, but Dr Shah and Lord Mustill not convinced that in matters not concerning the conduct of proceedings but rather the identification of those who should be participants in them, a duty of good faith can operate to make someone a party to an arbitration who on other grounds could not be regarded as such.
The tribunals ultimate conclusion on jurisdiction was thus expressed as a finding (in which two of the arbitrators only narrowly concurred) that the Trust was the alter ego of the Government, making the Government a true party to the Agreement.
That, as I have said (para 11 above), is not now Dallahs case.
But Dallah points out that the tribunals reasoning for its ultimate finding, and the lengthy analysis of conduct and events which the tribunal undertook, can be traced back to para 6 of section (III)(III) of its award, where the tribunal identified a test of common intention to be derived from judicial and arbitral case law.
How these strands of thought relate is not to my mind clear.
There is a considerable difference between a finding (and between the evidence relevant to a finding) that one of two contracting parties is the alter ego of a third person and a finding that it was the common intention of the other party to the contract that the third person should be a party to the contract made with the first party.
The former depends on the characteristics and relationship of the first contracting party and the third person.
The latter depends on a common intention on the part of the second contracting party and the third person (and possibly also on the part of the first contracting party, although no one has suggested that the Trust in the present case did not concur in any common intention that Dallah and the Government may be found to have had).
Since the tribunal focused throughout on the Trust and Government and their relationship and conduct, and ended with a conclusion that the former was the alter ego of the latter, it is not clear how far the tribunal was in fact examining or making any finding about any common intention of Dallah and the Government.
If it was, the weight attaching to the finding is diminished by the tribunals failure to focus on Dallahs intention.
The hesitation of two of the arbitrators about the conclusion they reached also suggests the possibility that even a slight difference in the correct analysis of the relevant conduct and events could have led the tribunal overall to a different conclusion.
More fundamentally, if and so far as the tribunal was applying a test of common intention, the test which it expressed in section III(III)(6) differs, potentially significantly, from the principle recognised by the relevant French case law on international arbitration.
Although the tribunal must have viewed its test as a transnational general principle and usage, it appears likely that it also had the French case law in mind.
This is suggested by its use of the words directly involved in and presumption, by its earlier mention of the Dalico case (see para 18 above), and by its letter dated 29 November 2000 written (after the oral hearings before it on jurisdiction) raising the possibility that reasoning embodied in the French Pyramids case might be relevant on the issue of jurisdiction.
In any event, in Dallahs submission, the tribunal applied principles which accord broadly with French law.
But, the French legal test, set out in para 18 above, is that an international arbitration clause be may extended to non signatories directly involved in the performance of a contract: provided that it is established that their contractual situation, their activities and the normal commercial relations existing between the parties allow it to be presumed that they have accepted the arbitration clause of which they knew the existence and scope.
In contrast, under the test stated by the tribunal (para 36 above), direct involvement in the negotiation and performance of the contract is by itself said to raise the presumption of a common intention that the non signatory should be bound.
The tribunals test represents, on its face, a low threshold, which, if correct, would raise a presumption that many third persons were party to contracts deliberately structured so that they were not party.
Asked about the tribunals test, M. Vatier did not consider it accurate enough, adding that the principles adopted were in general the principles that might be adopted in French law.
But they are too general.
I consider that Aikens J was therefore correct to doubt (in para 148) whether the tribunal had applied a test which accords with that recognised under French law.
Analysis of the history
I turn to the conduct of the Government and the events on which the tribunal relied.
As to the Ordinance, the tribunal said that it regarded the Governments organic control of the Trust as an element of evidence as to the true intention of the Defendant to run and control directly and indirectly the activities of the Trust, and to view such Trust as one of its instruments.
Miss Heilbron accepts that Dallah cannot rely on the last ten words.
Dallah is not advancing a case of agency, and the Ordinance does not support a case of agency.
The tribunals comment at this point is on its face also inconsistent with the tribunals earlier references to the normality of the control established by the Ordinance (para 35 above).
As to the negotiations leading up the Agreement, the courts below were in my view correct to observe that the fact that the Government was itself involved in negotiations and in the MOU and remained interested throughout in the project does not itself mean that the Government (or Dallah) intended that the Government should be party to the Agreement deliberately structured so as to be made, after the Trusts creation, between Dallah and the Trust.
It does not appear that a French court would adopt any different attitude to governmental interest and involvement in the affairs of a state entity.
An illustration of the careful analysis required in this context is provided by the decision of the Court of Appeal of Paris in the Pyramids case (above).
Under Heads of Agreement signed by the Egyptian government through its Minister of Tourism, the Egyptian General Organisation for Tourism and Hotels (EGOTH) and the claimant, the government had committed itself to do the necessary work to acquire property near the Pyramids and EGOTH and the claimants undertook to form a company (to be owned 40/60 by EGOTH and the claimants) to develop a tourist centre on such property.
A usufruct over the property was to be given to the company by the government and EGOTH, and the claimants were to be responsible for engineering, construction and architectural services, as well as financing.
Subsequently, EGOTH and the claimants entered into a Supplemental Agreement which defined the project and their obligations and contained an ICC arbitration clause.
Underneath their respective signatures on this agreement, the Minister of Tourism placed the words approved, agreed and ratified by the Minister of Tourism followed by his signature.
A worldwide outcry led to the Egyptian authorities cancelling the project.
The Paris Court of Appeal set aside an arbitral award against the state of Egypt, holding that the words and signature added by the Minister did not mean that the state was a party.
They were added because the Ministry was responsible for supervising tourist sites and approving the creation of economic complexes and the creation, operation and management of hotels, and EGOTH and the claimants had specifically contemplated that their agreement would be subject to such approval.
The added words and signature did not therefore indicate any intention to be bound and so to waive the states immunity.
Here, the structure of the Agreement made clear that the Government was distancing itself from any direct contractual involvement: see per Aikens J, para 129 and Moore Bick LJ, para 32.
The Governments only role under the Agreement (in the absence of any assignment or transfer under clause 27) was to guarantee the Trusts loan obligations and to receive a counter guarantee from the Trust and its trustee bank.
Dallah was throughout this period advised by lawyers, Orr, Dignam & Co. The tribunal confined itself in relation to the Agreement to statements that (a) it was the Government which decided to delegate to the Trust the finalisation, signature and implementation of the Agreement, (b) the Government was contractually involved in the Agreement, as the Government was bound, under Article 2, to give its guarantee and (c) clause 27 authorised the Trust to assign its rights and obligations to the Government without Dallahs prior approval, such a clause being normally used only when the assignee is very closely linked to the assignor or is under its total control . (no doubt true, but on its face irrelevant to the issue).
The delegate and bound tend to beg the issue, and nothing in these statements lends any support to Dallahs case that the Agreement evidences or is even consistent with an intention on the part of either Dallah or the Government that the Government should be party to the Agreement.
Nowhere did the tribunal address the deliberate change in structure and in parties from the MOU to the Agreement, the potential significance of which must have been obvious to Dallah and its lawyers, but which they accepted without demur.
As to performance of the Agreement, between April 1996 and September 1996, exchanges between Dallah and the Ministry of Religious Affairs (MORA) of the Government culminated in agreement that one of Dallahs associate companies, Al Baraka Islamic Investment Bank Ltd., should be appointed trustee bank to manage the Trusts fund as set out in each Ordinance (para 5 above), and in notification by letters dated 30 July and 9 September 1996 of such appointment by the Board of Trustees of the Trust.
In subsequent letters dated 26 September and 4 November 1996, the MORA urged Mr Nackvi of the Dallah/Al Baraka group to give wide publicity to the appointment and to the savings schemes proposed to be floated for the benefit of intending Hujjaj.
By letter dated 22 October 1996 Dallah submitted to the MORA a specimen financing agreement for the Trust (never in fact approved or agreed), under one term of which the Trust would have confirmed that it was under the control of the Government.
The Governments position and involvement in all these respects is clear but understandable, and again adds little if any support to the case for saying that, despite the obvious inference to the contrary deriving from the Agreement itself, any party intended or believed that the Government should be or was party to the Agreement.
The fact that the Trust never itself acquired any assets is neutral, since its acquisition of any property always depended upon the arrangement of financing through Dallah, which never occurred, and its acquisition of other funds was to depend on the savings and philanthropic schemes to be arranged through its trustee bank under the Ordinances, the time for which never came.
It is scarcely surprising that in these circumstances the Trust never itself acquired its own letter paper, and letters recording its activity were, like those reporting decisions of its Board of Trustees, written on MORA letter paper.
At the forefront of Dallahs factual case before the Supreme Court, as below, were exchanges and events subsequent to the Trusts demise.
One letter in particular, dated 19 January 1997, was described in Dallahs written case as playing a pivotal role in, and in Miss Heilbrons oral submissions as key to the differing analyses of the tribunal and the courts below.
The letter was written by Mr Lutfullah Mufti, signing himself simply as Secretary, on MORA letter paper, and faxed to Dallah on 20 January 1997.
It read: Pursuant to the above mentioned Agreement for the leasing of housing facilities in the holy city of Makkah, Kingdom of Saudi Arabia, you were required within ninety (90) days of the execution of the said Agreement to get the detailed specifications and drawings approved by the Trust.
However, since you have failed to submit the specifications and drawings for the approval of the Trust to date you are in breach of a fundamental term of the Agreement which tantamounts to a repudiation of the whole Agreement which repudiation is hereby accepted.
Moreover, the effectiveness of the Agreement was conditional upon your arranging the requisite financing facility amounting to U.S. $100,000,000.00 within thirty (30) days of the execution of the Agreement and your failure to do so has prevented the Agreement from becoming effective and as such there is no Agreement in law.
This is without prejudice to the rights and remedies which may be available to us under the law.
Mr Lutfullah Mufti was secretary of MORA from 26 August 1993 to 19 December 1995 and from 23 December 1996 to 3 June 1998, and it will be recalled that, under each Ordinance, the secretary of MORA was at the same time secretary of the Trust.
Also on 20 January 1997 Mr Mufti verified on oath the contents of a plaint issued in the name of the Trust as plaintiff to bring the first set of Pakistani proceedings against Dallah.
The plaint set out the establishment of the Trust by Ordinance LXXXI of 1996 dated 12 August 1996 as a body having perpetual succession and asserted that Dallah had repudiated the Agreement by failing to submit detailed specifications and drawings within 90 days of the execution of the Agreement which repudiation was accordingly accepted by the plaintiff vide its letter dated 19.01.1997.
The Trust sought a declaration that, in consequence of the accepted repudiation, the Agreement was not binding and is of no consequence upon the rights of the plaintiff and a permanent injunction restraining Dallah from claiming any right against the plaintiff.
By an undated application, also verified by Mr Mufti, the Trust further sought an interlocutory injunction restraining Dallah from representing or holding out itself to have any contractual relation with the applicant on the basis of the aforesaid repudiated Agreement.
Dallah made an application against the Trust for a stay of the Trusts proceedings in favour of arbitration under clause 23 of the Agreement.
The application is missing from the bundle, but a written reply to it was put in on behalf of the Trust.
This averred, in terms consistent with the stance taken in the plaint (though less obviously consistent with the principle of the separability of arbitration clauses), that since the plaintiff has challenged the very validity and existence of the agreement dated 10.09.1996, the instant application is, therefore, not maintainable.
Mr Mufti deposed on oath that allegations evidently made by Dallah against the Trust in its application for a stay were false and that the facts stated in the plaint are true and correct to the best of my knowledge and belief and are reiterated.
In early 1998, the first set of Pakistan proceedings were brought to an end by a judgment which commenced by recording that: Counsel for the defendant had objected at the last date of hearing that Awami Haj Trust was established [under section] 3 of the Awami Haj Trust Ordinance, 1996 but at the time of institution of this suit Ordinance had elapsed, there was no more ordinance in the field and suit has been filed on behalf of same which was formed under the Ordinance after the lapse of Ordinance.
Awami Haj Trust is plaintiff in this suit.
After the lapse of Ordinance, the present plaintiff was no more a legal person in the eye of law.
The judge went on to record and reject the submission of counsel appearing for the Trust that the Trust continued to be able to file suit in respect of things done during the life of the Trust, adding: Moreover the things done during the Ordinance can be sued and can sue by the parent department for which this Ordinance was issued by the government and that was ministry for religious affairs.
Suit should have been filed by the Ministry of religious affairs. [B]efore parting with this Order, I observe that the liabilities and duties against the present defendant can be agitated by the Ministry of Religious affairs government of Pakistan if any.
Since the suit has not been filed by the legal person.
The present plaintiff is no more a plaintiff in the eye of the law.
Suit is dismissed.
Dallah invoked ICC arbitration against the Government on 19 May 1998, on the basis that the Government was party to the Agreement.
Notice of Dallahs request for arbitration was received by the Government on 29 May 1998, and on 2 June 1998 a second Pakistani suit was filed in the Governments name against Dallah, verified once again by Mr Mufti.
Its terms were clearly drawn from those of the first suit, but it started by reciting that the Trust established under Ordinance no. LXXXI of 1996 no longer remained in field after the lapse of the Ordinance after four months, and that The present suit is, therefore, being filed by Pakistan who issued the said Ordinance.
The plaint went on to recite the Agreement, variously referring to the parties to it, to the Trust as a party, to the plaintiff Trust, to the plaintiff and to Dallahs alleged repudiation which repudiation was accordingly accepted by the plaintiff vide its letter dated 19.01.1997.
It further asserted that, on account of such repudiation, the Agreement is no longer binding on the plaintiff and then: 14.
That in January 1997, Awami Hajj Trust instituted a civil suit for declaration and permanent injunction against the defendant which suit was, however, dismissed vide order dated 21.02.1998 on the ground that after the lapse of the Ordinance, Awami Hajj Trust was no more a legal person and it could neither sue or be sued.
The learned civil court, however observed that liabilities and duties against the defendant can be agitated by the Government of Pakistan [sic].
The plaint concluded by praying for a declaratory decree in favour of the plaintiff that the Agreement stands repudiated on account of default of the defendant . and the same, as such, is not binding and is of no consequence upon the rights of the plaintiff and by seeking a permanent injunction restraining Dallah from claiming any right against the plaintiff under the said Agreement or representing or holding out that it has any contractual relationship with the plaintiff.
An interim injunction in the same terms was obtained on 2 June 1998.
On 5 June 1998 the Government, through its advocates, wrote to the ICC informing it of the proceedings and the interim injunction as well as relying on s.35 of the Pakistan Arbitration Act 1940 in support of a contention that any further proceedings in the ICC arbitration would be invalid in the light of the Pakistan proceedings.
Dallah responded to the second set of Pakistan proceedings on 12 June 1998 with an application for a stay for arbitration, asserting that the contract, admitted by the Plaintiff, which is complete, valid and fully effective between the parties, contains the following clause 23 ., which was then set out.
It pointed out, no doubt correctly, that the Governments plaint must be seen as a riposte to the recently notified request for ICC arbitration.
The Government replied on 27 June 1998 to the effect that there is no valid and effective Agreement between the parties.
The application, as such, is incompetent and is liable to be dismissed.
On 15 August 1998 the Governments advocates informed the ICC that the Government has already declined to submit to the jurisdiction of the International Court of Arbitration and spelled out that: There is no contract or any arbitration agreement between our client and Dallah .
The contract and the arbitration agreement referred to by the Claimant were entered into between the Claimant and Awami Hajj Trust.
The Trust has already ceased to exist after expiry of the period of the Ordinance under which it was established.
By a judgment dated 18 September 1998, the judge in the second set of Pakistan proceedings dismissed Dallahs application for a stay for arbitration on the ground that Dallah had neither alleged nor placed on record any instrument of transfer of rights and obligations of the Trust in the name of the [Government], which was not therefore prima facie bound by the Agreement dated 10 September 1996.
Dallah appealed on the ground that the Government was successor to the Trust, but on 14 January 1999 the Government withdrew its suit, as it was apparently entitled to, in view of its commencement of the third set of Pakistani proceedings.
Dallah has disclaimed, both before the tribunal and before the English courts, any suggestion that these short lived and abortive proceedings could give rise to any estoppel on the issue of the tribunals jurisdiction.
But Dallah relies on them in support of its current case of common intention.
In the third set of proceedings the Government claimed against Dallah declarations to the effect, inter alia, that it was not successor to the Trust, had not taken over the Trusts responsibilities and was not a party to the Agreement or any arbitration agreement with Dallah.
The claim was made under s.33 of the Arbitration Act 1940, which entitles a party to an arbitration agreement or any person claiming under such party to claim relief.
Dallahs response was that, since the Government was denying that it was party to an arbitration agreement, it had no locus standi to make the claim.
This response was upheld by judgment dated 19 June 1999, against the Governments argument that the purpose of s.33 was to enable a party alleged to be party to an arbitration agreement to seek the relief it claimed.
An appeal by the Government to the Lahore High Court was dismissed, again on the basis that the Government was not a party to the Agreement or arbitration agreement.
An appeal to the Pakistan Supreme Court has apparently remained unresolved.
No evidence was adduced from Mr Mufti before Aikens J. Aikens J said, in relation to the letter dated 19 January 1997 that, logically Mr Mufti must, in fact, have been writing the letter in his capacity of Secretary to MORA, whatever he may have thought at the time, but Aikens J found it possible to get a clearer indication of the state of mind of the [Government] at this stage by reference to the proceedings begun by Mr Mufti on 20 January 1997 (paras 117, 119).
These indicated, in Aikens Js view, that Mr Mufti thought that the Trust had rights it could enforce, and that there was no intention on the part of the Government to be bound by the Agreement or to step into the shoes of the Trust (para 119).
The Court of Appeal took a slightly different view.
It observed that the fact that, after the Trust ceased to exist, Mr Mufti could not have been writing (as opposed, I add, to purporting to write) as secretary to the Board of Trustees did not necessarily mean that he was writing on behalf of the Government or that the Government viewed itself as a party to the Agreement (Moore Bick LJ, para 36).
Moore Bick LJ continued: If, as I think likely, the letter was written in ignorance that the Trust had ceased to exist, it is almost certain that Dallah was equally unaware of the fact and that it was read and understood as written on behalf of the Trust.
Miss Heilbron challenges this reasoning as regards the Government, and invites attention to the letter on its face and to the Governments stance in the second set of Pakistan proceedings.
But one obvious explanation of the letter, read with the first set of proceedings of which it was clearly the precursor, is that neither Mr Mufti nor indeed Dallah was at that stage conscious of the drastic effect under Pakistan law of the failure to repromulgate the Ordinance.
Even if Mr Mufti was aware of the Trusts demise, he may well have believed (and one may understand why) that this could not affect the Trusts right to litigate matters arising during and out of the Trusts existence which was the stance taken by counsel for the Trust when Dallah eventually realised and pointed out that the Trust had lapsed.
However that may be, it seems clear that Mr Mufti was in January 1997 acting on the basis that and as if the Trust existed.
Further, Dallah clearly cannot have appreciated that the Trust had ceased to exist until a late stage in the course of the first set of Pakistan proceedings.
The arbitral tribunal regarded the letter dated 19 January 1997 as very significant because it confirmed in the clearest way possible that the Defendant [the Government], after the elapse of the Trust, regarded the Agreement with the Claimant as its own and considered itself as a party to such Agreement (para 11 1).
It went on to say that the Governments position in the arbitration: did not deal with the substance and contents of such letter, but was rather limited to a formal and very general challenge of the validity of said letter, on the ground that such letter was absolutely unauthorised, illegal and of no legal effect because all office bearers of the Trust, including the Secretary, had ceased to have any authority to act for the defunct Trust.
Such challenge is however completely unfounded as the signatory of the letter of 19.1.97, Mr Lutfallah Mufti, did not sign such letter in his capacity as official of the Trust, to which anyhow the letter makes no reference at all, but in his capacity as Secretary of the Defendant i.e. the Ministry of Religious Affairs which is an integral part of the Government of Pakistan.
As such, the signatory of the letter engages and binds the Government, as he has continued to bind it during the whole previous period where the Trust was in existence.
Several features of the arbitral tribunals reliance on the letter are notable.
First, the tribunal did not put the letter in its context.
It did not mention the first set of proceedings at all in addressing the letters significance.
In fact, it referred to those proceedings only once in its whole award.
That was much earlier in para 5(c) where it recited three short submissions by the Government With respect to the effect of the legal proceedings in Pakistan.
The first such submission read: The 1st [sic] January 1997 suit : Pakistan was not a party to such suit and as such it is not bound by any observation made by the Court in the said suit instituted by the defunct Trust. (In making this submission, the Government was evidently seeking to rebut a possible argument that it might be bound by the (obiter) observations of the judge in his judgment at the end of the first set of proceedings to the effect that the liabilities and duties against the present defendant can be agitated by the Ministry of Religious affairs government of Pakistan if any.
It has not been, and could not have been suggested in the present proceedings that these observations in any way bind the Government.)
Secondly, the tribunal rejected any idea that Mr Mufti was, when writing the letter, acting in a manner which was absolutely unauthorised, illegal and of no legal effect.
But that, on any view, was precisely what Mr Mufti can be seen, with hindsight, to have been doing, on the same day as the letter was faxed, by commencing the first set of proceedings in the Trusts name.
Thirdly, the tribunals comments on the letter assume that the Government or Mr Mufti on its behalf was aware of the elapse of the Trust and believed that this ended any possibility of the Trust taking any legal stance or proceedings.
That, for reasons I have indicated, cannot have been the case.
He must at least have believed that it was still possible for action to be taken in the Trusts name in respect of matters arising from the Agreement.
Fourth, the tribunal, in this context as in others, did not address Dallahs state of mind, or its objective manifestation an important point when considering a test based on common intention.
The letter dated 19 January 1997 and faxed on 20 January 1997 cannot be read in a vacuum, particularly when the issue is whether the parties shared a common intention, manifested objectively, to treat the Government as a or the real party to the Agreement and arbitration clause.
Read in the objectively established context which I have indicated, it is clear that it was written and intended as a letter setting out the Trusts position by someone who believed that the Trust continued either to exist or at least to have a sufficient existence in law to enable it to take a position on matters arising when the Ordinance was in force.
This is precisely how the plaint of 20 January 1997 put the matter when it said that the repudiation was accordingly accepted by the plaintiff [i.e. the Trust] vide its letter dated 19.01.1997.
It makes no sense to suppose that Mr Mufti on one and the same day sent a letter intended to set out the Governments position and caused proceedings to be issued by the Trust on the basis that the letter was intended to set out the Trusts position.
That Dallah also believed that the Trust continued to exist, certainly in a manner sufficient to enable it to pursue the proceedings, is confirmed by Dallahs application to stay the Trusts proceedings pending arbitration and is also (as I understood her) admitted by Miss Heilbron.
The arbitral tribunal also relied on the second set of Pakistan proceedings and on the Governments letter dated 5 June 1998 to the tribunal.
It saw Mr Muftis verification on oath of the plaint dated 2 June 1998 as an admission providing another piece of evidence to be added to the other pieces, as to the fact that the [Government] has always been and has considered itself a party to the agreement, and the letter as an admission that it was a party to such Agreement and that it could accept repudiation of the Agreement by [Dallah] (para 11 2).
Aikens J and the Court of Appeal did not accept this analysis.
They considered that the second set of proceedings viewed overall was premised on the basis that the Government had succeeded to the Trusts rights and obligations upon the Trusts demise, not that the Government had been a party to it always or at any previous date.
The Government was taking up the suggestion of the judge who, when determining the first set of proceedings, had remarked that the liabilities and duties against the present defendant can be agitated by the Ministry of Religious affairs government of Pakistan if any.
In my opinion this analysis is clearly correct.
If the search is for confirmation of an intention to be or belief that the Government was party to the Agreement throughout, the second set of proceedings does not therefore advance the matter.
Nor does the letter dated 5 June 1998.
This was written to draw express attention to the second set of proceedings, and it recorded and attached a copy of the Pakistan judges injunction in them restraining Dallah from representing or holding out itself to have contractual relations with the applicant on the basis of the disputed contract.
Further, nothing affirmed by the Government during the second set of proceedings or in the letter throws any light on Dallahs intention at any prior date, or therefore assists the case that there was any common intention that the Government should always be party to the Agreement.
If the search is for an admission in or after June1998 that the Agreement or arbitration clause was binding on the Government, this is equally lacking.
The Governments case in the second set of proceedings, and the gist of the injunction and the letter dated 5 June 1998 was that, although the Government could agitate the former Trusts rights and liabilities, the Governments acceptance of Dallahs alleged repudiation meant that the Agreement as such, is not binding and is of no consequence upon the rights of the [Government] (plaint of 20 January 1997).
However questionable the proposition that an accepted repudiation renders the whole agreement (let alone an arbitration clause) not binding, that was the Governments case, and such a case is inconsistent with an intention to be party to the Agreement or agreement clause in or after June 1998.
Further and in any event, a very short time afterwards on 15 August 1998 the Government wrote to the tribunal making clear also its current position that it had never been party to any contract or arbitration agreement with Dallah.
Even if the Government could be treated in June as having made any relevant, short lived admission, it would in context and in the overall course of events be incapable of giving rise to any real inference that the Government had always intended or been intended to be a party to the Agreement.
Finally, the search for a subjective common intention under the principle recognised by the French courts must be undertaken by examining, and so through the prism of, the parties conduct.
Account will in that sense necessarily be taken of good faith.
The tribunal also described the transnational general principles and usages, which it decided to apply, as reflecting the fundamental requirements of justice in international trade and the concept of good faith in business (award, section III (I)(4)), and this must also be true of the principle recognised by the French courts.
As both Aikens J (para 130) and Moore Bick LJ (para 45) said, and in agreement on this point with Justice Dr Shah and Lord Mustill, if conduct interpreted as it would be understood in good faith does not indicate any such common intention, then it is impossible to see how a duty of good faith can operate to make someone a party to an arbitration who on other grounds could not be regarded as such (award, section (III)(III)(14)).
This remains so, whatever comments might or might not be made about the Governments conduct in allowing the Trust to lapse without providing for the position following its lapse.
In my view, the third re examination by this court, in the light of the whole history, of the issue whether the Government was party to the Agreement, and so to its arbitration clause, leads to no different answer to that reached in the courts below.
The arbitral tribunals contrary reasoning is neither conclusive nor on examination persuasive in a contrary sense.
As to the law, it is far from clear that the tribunal was directing its mind to common intention and, if it was, it approached the issue of common intention in terms differing significantly from those which a French court would adopt.
In any event, as to the facts, there are a number of important respects in which the tribunals analysis of the Governments conduct and the course of events cannot be accepted, and this is most notably so in relation to the significance of the letter dated 19 January 1997 and the second set of proceedings in Pakistan.
The upshot is that the course of events does not justify a conclusion that it was Dallahs and the Governments common intention or belief that the Government should be or was a party to the Agreement, when the Agreement was deliberately structured to be, and was agreed, between Dallah and the Trust.
Discretion
Dallah has a fall back argument, which has also failed in both courts below.
It is that s.103(2) of the 1996 Act and Article V(1) of the New York Convention state that Recognition and enforcement of the award may be refused if the person against whom such is sought proves (or furnishes proof of) one of the specified matters.
So, Miss Heilbron submits, it is open to a court which finds that there was no agreement to arbitrate to hold that an award made in purported pursuance of the non existent agreement should nonetheless be enforced.
In Dardana Ltd v Yukos Oil Company [2002] 1 All ER (Comm) 819 I suggested that the word may could not have a purely discretionary force and must in this context have been designed to enable the court to consider other circumstances, which might on some recognisable legal principle affect the prima facie right to have enforcement or recognition refused (paras 8 and 18).
I also suggested as possible examples of such circumstances another agreement or estoppel.
S.103(2) and Article V in fact cover a wide spectrum of potential objections to enforcement or recognition, in relation to some of which it might be easier to invoke such discretion as the word may contains than it could be in any case where the objection is that there was never any applicable arbitration agreement between the parties to the award.
Article II of the Convention and ss.100(2) and 102(1) of the 1996 Act serve to underline the (in any event obviously fundamental) requirement that there should be a valid and existing arbitration agreement behind an award sought to be enforced or recognised.
Absent some fresh circumstance such as another agreement or an estoppel, it would be a remarkable state of affairs if the word may enabled a court to enforce or recognise an award which it found to have been made without jurisdiction, under whatever law it held ought to be recognised and applied to determine that issue.
The factors relied upon by Dallah in support of its suggestion that a discretion should be exercised to enforce the present award amount for the most part to repetition of Dallahs arguments for saying that there was an arbitration agreement binding on the Government, or that an English court should do no more than consider whether there was a plausible or reasonably supportable basis for its case or for the tribunals conclusion that it had jurisdiction.
But Dallah has lost on such points, and it is impossible to re deploy them here.
The application of s.103(2) and Article V(1) must be approached on the basis that there was no arbitration agreement binding on the Government and that the tribunal acted without jurisdiction.
General complaints that the Government did not behave well, unrelated to any known legal principle, are equally unavailing in a context where the Government has proved that it was not party to any arbitration agreement.
There is here no scope for reliance upon any discretion to refuse enforcement which the word may may perhaps in some other contexts provide.
Conclusion
It follows that Aikens J and the Court of Appeal were right in the conclusions they reached and that Dallahs appeal to this Court must be dismissed.
LORD COLLINS Introduction
I agree that this appeal from the excellent judgments of Aikens J [2009] 1 All ER (Comm) 505 and the Court of Appeal [2010] 2 WLR 805 (with Moore Bick and Rix LJJ giving the reasons) should be dismissed.
Because of the international importance of the issues on the appeal, I set out the steps which have led me to that conclusion.
The final award is a Convention award which prima facie is entitled to enforcement in England under the Arbitration Act 1996, section 101(2).
The principal issue is whether the courts below were right to find that the Government has proved that on the proper application of French law (as the law of the country where the award was made, since there is no indication in the Agreement as to the law governing the arbitration agreement), it is not bound by the arbitration agreement.
To avoid any misunderstanding, it is important to dispel at once the mistaken notion (which has, it would appear, gained currency in the international arbitration world) that this is a case in which the courts below have recognised that the arbitral tribunal had correctly applied the correct legal test under French law.
On the contrary, one of the principal questions before all courts in this jurisdiction has been whether the tribunal had applied French law principles correctly or at all.
The main issue involves consideration of these questions: (a) the role of the doctrine that the arbitral tribunal has power to determine its own jurisdiction, or Kompetenz Kompetenz, or comptence comptence; (b) the application of arbitration agreements to non signatories (including States) in French law, and the role of transnational law or rules of law in French law; (c) whether renvoi is permitted under the New York Convention (and therefore the 1996 Act) and whether the application by an English court of a reference by French law to transnational law or rules of law is a case of renvoi.
There is also a subsidiary issue as to whether, even if the Government has proved that it is not bound by the arbitration agreement, the court should exercise its discretion ( enforcement may be refused ) to enforce the award.
By Article V(1)(a) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958: Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (a) the [arbitration] agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made;
The New York Convention is given effect in the United Kingdom by Part III of the Arbitration Act 1996 (England and Wales and Northern Ireland) and by sections 18 to 22 of the Arbitration (Scotland) Act 2010.
Article V(1)(a) of the New York Convention is transposed in England and Wales and Northern Ireland by section 103 of the 1996 Act, which provides: (1) Recognition or enforcement of a New York Convention award shall not be refused except in the following cases. (2) Recognition or enforcement of the award may be refused if the person against whom it is invoked proves (b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made;
Although Article V(1)(a) (and section 103(2)(b)) deals expressly only with the case where the arbitration agreement is not valid, the consistent international practice shows that there is no doubt that it also covers the case where a party claims that the agreement is not binding on it because that party was never a party to the arbitration agreement.
Thus in Dardana Ltd v Yukos Oil Co [2002] 2 Lloyds Rep 326 it was accepted by the Court of Appeal that section 103(2)(b) applied in a case where the question was whether a Swedish award was enforceable in England against Yukos on the basis that, although it was not a signatory, it had by its conduct rendered itself an additional party to the contract containing the arbitration agreement.
In Sarhank Group v Oracle Corp, 404 F 3d 657 (2d Cir 2005) the issue, on the enforcement of an Egyptian award, was whether a non signatory parent company was bound by an arbitration agreement on the basis that its subsidiary, which had signed the agreement, was a mere shell; and in China Minmetals Materials Import and Export Co Ltd v Chei Mei Corpn, 334 F 3d 274 (3d Cir 2003) enforcement of a Chinese award was resisted on the ground that the agreement was a forgery.
See also Born, International Commercial Arbitration (2009), pp 2778 2779.
In this case, because there was no indication by the parties of the law to which the arbitration agreement was subject, French law as the law of the country where the award was made, is the applicable law, subject to the relevance of transnational law or transnational rules under French law.
II The applicable principles
Kompetenz Kompetenz or comptence comptence as a general principle
A central part of this appeal concerns the authority to be given to the decision of the arbitral tribunal as to its own jurisdiction, and the relevance in this connection of the doctrine of Kompetenz Kompetenz or comptence comptence.
These terms may be comparatively new but the essence of what they express is old.
The principle was well established in international arbitration under public international law by the 18th century.
In the famous case of The Betsy (1797) the question was raised as to the power of the commissioners under the Mixed Commissions organised under the Jay Treaty between United States and Great Britain of 19 November 1794 to determine their own jurisdiction.
On 26 December 1796 Lord Loughborough LC had a meeting at his house with the American Commissioners and the American Ambassador.
The Lord Chancellor expressed the view that the doubt respecting the authority of the commissioners to settle their own jurisdiction, was absurd; and that they must necessarily decide upon cases being within, or without, their competency: Moore, History and Digest of International Arbitrations to which the United States has been a Party, Vol 1 (1898), p 327.
While the point was under discussion, the American Commissioners filed opinions.
Mr. Christopher Gore, the eminent American Commissioner, said: A power to decide whether a Claim preferred to this Board is within its Jurisdiction, appears to me inherent in its very Constitution, and indispensably necessary to the discharge of any of its duties: Moore, op cit, Vol.3 (1898), p 2278.
The principle has been recognised by the Permanent Court of International Justice and the International Court of Justice: Rosenne, The Law and Practice of the International Court 1920 1996 (3rd ed 1997), Vol II, pp 846 et seq.
In the Advisory Opinion on the Interpretation of the Greco Turkish Agreement (1928) Series B No 16, 20, the Permanent Court of International Justice said: as a general rule, any body possessing jurisdictional powers has the right in the first place itself to determine the extent of its jurisdiction .
In the Nottebohm case (Liechtenstein v Guatemala), 1953 ICJ Rep 111, 119, the International Court of Justice, after referring to the Alabama case in 1872, and the views of the rapporteur of the Hague Convention of 1899 for the Pacific Settlement of International Disputes, said: it has been generally recognised.thatan international tribunal has the right to decide as to its own jurisdiction.
The principle has been recognised also by the European Court of Justice.
In West Tankers Inc v Allianz SpA (formerly Ras Riunione Adriatica di Sicurta SpA) (Case C 185/07) [2009] ECR I 663, [2009] AC 1138, para 57, it referred to the general principle that every court is entitled to examine its own jurisdiction (doctrine of Kompetenz Kompetenz).
The principle that a tribunal has jurisdiction to determine its own jurisdiction does not deal with, or still less answer, the question whether the tribunals determination of its own jurisdiction is subject to review, or, if it is subject to review, what that level of review is or should be.
Thus the International Courts decision on jurisdiction is not subject to recourse, although the State which denies its jurisdiction may decline to take any part at all in the proceedings (as in the Fisheries Jurisdiction cases (Federal Republic of Germany v Iceland; United Kingdom v Iceland), 1972 1974), or to take any further part after it has failed in its objections to the jurisdiction (as in Military and Paramilitary Activities in and against Nicaragua case (Nicaragua v United States, 1986).
By contrast, a decision of an ICSID tribunal (which shall be the judge of its own competence: Article 41(1) of the ICSID Convention) is subject to annulment on the grounds (inter alia) that the tribunal manifestly exceeded its powers (article 52(1)(b)), which includes lack of jurisdiction: Klckner v Cameroon, Decision on Annulment, 2 ICSID Rep 95; Schreuer, The ICSID Convention: A Commentary (2nd ed 2009), pp 943 947.
The principle in international commercial arbitration
So also the principle that a tribunal in an international commercial arbitration has the power to consider its own jurisdiction is no doubt a general principle of law.
It is a principle which is connected with, but not dependant upon, the principle that the arbitration agreement is separate from the contract of which it normally forms a part.
But it does not follow that the tribunal has the exclusive power to determine its own jurisdiction, nor does it follow that the court of the seat may not determine whether the tribunal has jurisdiction before the tribunal has ruled on it.
Nor does it follow that the question of jurisdiction may not be re examined by the supervisory court of the seat in a challenge to the tribunals ruling on jurisdiction.
Still less does it mean that when the award comes to be enforced in another country, the foreign court may not re examine the jurisdiction of the tribunal.
Thus Article 16(1) of the UNCITRAL Model Law on International Commercial Arbitration provides that the arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.
But by article 34(2) an arbitral award may be set aside by the court of the seat if an applicant furnishes proof that the agreement is not valid under the law to which the parties have subjected it, or, failing any indication thereon, under the law of the seat (and see also article 36(1)(a)(i)).
Articles V and VI of the European Convention on International Commercial Arbitration of 1961 also preserve the respective rights of the tribunal and of the court to consider the question of the jurisdiction of the arbitrator.
Comparative procedure
Consequently in most national systems, arbitral tribunals are entitled to consider their own jurisdiction, and to do so in the form of an award.
But the last word as to whether or not an alleged arbitral tribunal actually has jurisdiction will lie with a court, either in a challenge brought before the courts of the arbitral seat, where the determination may be set aside or annulled, or in a challenge to recognition or enforcement abroad.
The degree of scrutiny, particularly as regards the factual enquiry, will depend on national law, subject to applicable international conventions.
There was sometimes said to be a rule in German law that an arbitral tribunal had the power to make a final ruling on its jurisdiction without any court control, but if it ever existed, there is no longer any such rule: Poudret and Besson, Comparative Law of International Arbitration (2nd ed 2007), para 457; Born, International Commercial Arbitration, vol I (2009), pp 907 910.
In France the combined effect of articles 1458, 1466 and 1495 of the New Code of Civil Procedure (NCPC) is that, in an international arbitration conducted in France, the tribunal has power to rule on its jurisdiction if it is challenged.
If judicial proceedings are brought in alleged breach of an arbitration agreement the court must declare that it has no jurisdiction unless the jurisdiction agreement is manifestly a nullity: Fouchard, Gaillard, Goldman, International Commercial Arbitration (ed Gaillard and Savage 1999), paras 655, 672; Delvolv, Pointon and Rouche, French Arbitration Law and Practice (2nd ed. 2009), paras 139 et seq, 172 et seq; and eg Soc Laviosa Chimica Mineraria v Soc Afitex, Cour de cassation, 11 February 2009, 2009 Rev Arb 155 (Vu le principe comptence comptence selon lequel il appartient larbitre de statuer par priorit sur sa propre competence).
But the position is different once the arbitral tribunal has ruled on its jurisdiction.
Its decision is not final and can be reviewed by the court hearing an action to set it aside.
The French Cour dappel seised of an action for annulment of an award made in France for lack of jurisdiction, or seised with an issue relating to the jurisdiction of a foreign tribunal or an appeal against an exequatur granted in respect of a foreign award, has the widest power to investigate the facts: Fouchard, Gaillard, Goldman, paras 1605 to 1614; Delvolv, Pointon and Rouche, para 426.
In the Pyramids case (Rpublique Arabe dEgypte v Southern Pacific Properties Ltd, Paris Cour dappel, 12 July 1984 (1985) 10 Yb Comm Arb 113; Cour de cassation, 6 January 1987 (1987) 26 ILM 1004) the question was whether a distinguished tribunal had been entitled to find that Egypt (as opposed to a State owned entity responsible for tourism) was a party to an arbitration agreement.
The Cour dappel said that the arbitral tribunal had no power finally to decide the issue of its jurisdiction; if it decided the issue of the existence or of the validity of the arbitration agreement, nevertheless it only decided this question subject to the decision of the court on an application for the annulment of the award pursuant to article 1504, NCPC.
The Cour de cassation confirmed that the Cour dappel had been entitled de rechercher en droit et en fait tous les elements concernant les vices en question en particulier, il lui appartient dinterprter le contrat pour apprcier elle mme si larbitre a statu sans convention darbitrage. (to examine as a matter of law and as a matter of fact all circumstances relevant to the alleged defects in particular, it is for the court to construe the contract in order to determine itself whether the arbitrator ruled in the absence of an arbitration agreement.)
First Options of Chicago Inc v Kaplan, 514 US 938 (1995) was not an international case.
It concerned the application of the Federal Arbitration Act to an award of an arbitral panel of the Philadelphia Stock Exchange.
The question was whether the federal District Court should independently decide whether the arbitral panel had jurisdiction.
The United States Supreme Court drew a distinction between the case where the parties had agreed to submit the arbitrability question itself to arbitration, and the case where they had not.
In the former case the court should give considerable leeway to the arbitrator, setting aside the award only in certain narrow circumstances, but (at 943, per Breyer J): If, on the other hand, the parties did not agree to submit the arbitrability question itself to arbitration, then the court should decide that question just as it would decide any other question that the parties did not submit to arbitration, namely, independently.
That flowed inexorably from the fact that arbitration was simply a matter of contract between the parties and was a way to resolve those disputes, but only those disputes, that the parties had agreed to submit to arbitration.
This decision was applied in the international context, in connection with the enforcement of a CIETAC award, in China Minmetals Materials Import and Export Co Ltd v Chei Mei Corpn, 334 F 3d 274 (3d Cir 2003) in which Minmetals, a Chinese corporation, sought to enforce a CIETAC award against Chei Mei, a New Jersey corporation.
Chei Mei resisted enforcement on the ground that the contract containing the arbitration clause had been forged.
The tribunal had held that Chei Mei failed to show that the contracts were forged, but that even if its signature and stamp had been forged, it had taken various steps which confirmed its adherence to the arbitration agreement.
The Court of Appeals for the Third Circuit decided that the court asked to enforce an award may determine independently the arbitrability of the dispute.
After an illuminating discussion of the doctrine of comptence comptence and kompetenz kompetenz, it concluded (at 288, citing Park, Determining Arbitral Jurisdiction: Allocation of Tasks Between Courts and Arbitrators (1997) 8 Am Rev Int Arb 133, 140 142) that it appears that every country adhering to the competence competence principle allows some form of judicial review of the arbitrators jurisdictional decision where the party seeking to avoid enforcement of an award argues that no valid arbitration agreement ever existed.
The court said (ibid): After all, a contract cannot give an arbitral body any power, much less the power to determine its own jurisdiction, if the parties never entered into it.
The position in England
Prior to the 1996 Act the leading authority in England was Christopher Brown Ltd v Genossenschaft Osterreichischer [1954] 1 QB 8, in which Devlin J said (at pp 12 13): It is not the law that arbitrators, if their jurisdiction is challenged or questioned, are bound immediately to refuse to act until their jurisdiction has been determined by some court which has power to determine it finally.
Nor is it the law that they are bound to go on without investigating the merits of the challenge and to determine the matter in dispute, leaving the question of their jurisdiction to be held over until it is determined by some court which had power to determine it.
They might then be merely wasting their time and everybody elses.
They are not obliged to take either of those courses.
They are entitled to inquire into the merits of the issue whether they have jurisdiction or not, not for the purpose of reaching any conclusion which will be binding upon the parties because that they cannot do but for the purpose of satisfying themselves as a preliminary matter whether they ought to go on with the arbitration or not.
If it became abundantly clear to them, on looking into the matter, that they obviously had no jurisdiction as, for example, it would be if the submission which was produced was not signed, or not properly executed, or something of that sort, then they might well take the view that they were not going to go on with the hearing at all.
They are entitled, in short, to make their own inquiries in order to determine their own course of action, and the result of that inquiry has no effect whatsoever upon the rights of the parties.
The DTI Departmental Advisory Committee in its February 1994 Report on a draft Arbitration Bill said: [The German] doctrine of Kompetenz Kompetenz resolves logical difficulties in legal systems where the jurisdiction of state courts and the jurisdiction of arbitrators under a valid arbitration agreement are mutually exclusive in legal theory.
In these legal systems, the state courts must dismiss legal proceedings brought in violation of a valid arbitration agreement, thereby retaining no competence over the parties but in the case of an invalid or non existent arbitration agreement, the arbitrators can have no jurisdiction at all.
Who then decides what and in what order in the absence of a suitable doctrine of Kompetenz Kompetenz? In contrast, the courts of most common law countries (including England) merely stay legal proceedings because in legal theory an arbitration agreement can never oust the Courts jurisdiction over the parties; and this logical problem over jurisdiction has not arisen in the same form For these reasons, the law and practice of English arbitration does not require an express doctrine of Kompetenz Kompetenz.
English law achieves the same result as the German doctrine by a different route. [T]he practice of arbitration tribunals determining their own jurisdiction, subject to the final decision of the English Court, has long been settled in England . (Ch III, pp 4 5)
The position in England under the Arbitration Act 1996 as regards arbitrations the seat of which is in England is as follows.
By section 30(1) of the 1996 Act, which is headed Competence of tribunal to rule on its own jurisdiction the arbitral tribunal may rule on its own substantive jurisdiction, including the question whether there is a valid arbitration agreement.
By section 30(2) any such ruling may be challenged (among other circumstances) in accordance with the provisions of the Act.
Section 32 gives the court jurisdiction to determine any preliminary point on jurisdiction but only if made with the agreement of all parties or with the permission of the tribunal, and the court is satisfied (among other conditions) that there is good reason why the matter should be decided by the court.
By section 67 a party to arbitral proceedings may challenge any award of the tribunal as to its substantive jurisdiction but the arbitral tribunal may continue the arbitral proceedings and make a further award while an application to the court is pending in relation to an award as to jurisdiction.
The equivalent provisions in Scotland are in the Arbitration (Scotland) Act 2010, Sched 1, Rules 19, 42 (not limited to jurisdiction), and 67.
The consistent practice of the courts in England has been that they will examine or re examine for themselves the jurisdiction of arbitrators.
This can arise in a variety of contexts, including a challenge to the tribunals jurisdiction under section 67 of the 1996 Act, or in an application to stay judicial proceedings on the ground that the parties have agreed to arbitrate.
Thus in Azov Shipping Co v Baltic Shipping Co [1999] 1 Lloyds Rep 68 Rix J decided that where there was a substantial issue of fact as to whether a party had entered into an arbitration agreement, then even if there had already been a full hearing before the arbitrator the court, on a challenge under section 67, should not be in a worse position than the arbitrator for the purpose of determining the challenge.
This decision has been consistently applied at first instance (see, eg, Peterson Farms Inc v C&M Farming Ltd [2004] EWHC 121 (Comm), [2004] 1 Lloyds Rep 603) and is plainly right.
Where there is an application to stay proceedings under section 9 of the 1996 Act, both in international and domestic cases, the court will determine the issue of whether there ever was an agreement to arbitrate: Al Naimi (t/a Buildmaster Construction Services) v Islamic Press Agency [2000] 1 Lloyds Rep 522 (CA) (English arbitration); Albon (t/a NA Carriage Co) v Naza Motor Trading Sdn Bhd (No 4) [2007] EWCA Civ 1124, [2008] 1 Lloyds Rep 1 (Malaysian arbitration).
So also where an injunction was refused restraining an arbitrator from ruling on his own jurisdiction in a Geneva arbitration, the Court of Appeal recognised that the arbitrator could consider the question of his own jurisdiction, but that would only be a first step in determining that question, whether the subsequent steps took place in Switzerland or in England: Weissfisch v Julius [2006] EWCA Civ 218, [2006] 1 Lloyds Rep 716, para 32.
Consequently, in an international commercial arbitration a party which objects to the jurisdiction of the tribunal has two options.
It can challenge the tribunals jurisdiction in the courts of the arbitral seat; and it can resist enforcement in the court before which the award is brought for recognition and enforcement.
These two options are not mutually exclusive, although in some cases a determination by the court of the seat may give rise to an issue estoppel or other preclusive effect in the court in which enforcement is sought.
The fact that jurisdiction can no longer be challenged in the courts of the seat does not preclude consideration of the tribunals jurisdiction by the enforcing court: see, e.g. Svenska Petroleum Exploration AB v Government of the Republic of Lithuania (No 2) [2006] EWCA Civ 1529, [2007] QB 886, para 104; Paklito Investment Ltd v Klockner East Asia Ltd [1993] 2 HKLR 39, 48, per Kaplan J.
The application of the principles in the present case
Dallahs argument is that the enforcing court, faced with a decision by the tribunal that it has jurisdiction, should only conduct a limited review.
The argument is essentially this: (1) The arbitral tribunal remained a competent tribunal to determine its own jurisdiction, whether or not it determined it wrongly. (2) The first partial award was made with jurisdiction i.e. the Kompetenz Kompetenz jurisdiction, even if (on the English courts view) the later awards relating to the merits were subsequently found to be made without substantive jurisdiction. (3) It is universally accepted that an enforcing court cannot review the merits of an award, and a de novo rehearing at the enforcement stage (by contrast with an application to set aside at the seat of the arbitration) adds a fact finding layer to the process which was not envisaged by those drafting the New York Convention and which undermines the finality and efficiency of the system. (4) The review envisaged by the New York Convention is premised on the need to ensure that there is not a grave departure from the basic precepts of international arbitration and fairness and basic concepts of justice. (5) The award is itself an evidential element of the reviewing process, and deference must be given to such an award by the reviewing/enforcing court. (6) The degree of deference may vary according to many factors, for example, the experience of the tribunal or the nature of the underlying decision, such as whether it was one of fact or law or mixed fact and law, and enforcing courts must be particularly wary where, as here, the underlying decision is fact based or a case of mixed fact and law. (7) Where, as here, there is no dispute as to the underlying facts or law such that the decision is one upon which different tribunals can legitimately come to different conclusions, enforcing national courts should be slow to substitute their own interpretation unless it can be shown that the tribunals decision was unsustainable, and this is particularly so where, as in this case, the resisting party has offered no new evidence. (8) In essence the issue in this case is whether the English court should refuse to enforce the award on the basis that its views and interpretation of the same facts, applying the same principles of law, should be preferred to the decision of a former Law Lord and a doyen of international arbitration, a former Chief Justice of Pakistan and an eminent Lebanese lawyer.
Dallah relies in particular on international authorities relating to applications to annul awards on the basis that the matters decided by the arbitral tribunal exceeded the scope of the submission to arbitration: article V(1)(c) of the New York Convention; article 34 of the UNCITRAL Model Law.
In Parsons & Whittemore Overseas Co Inc v Soc Gn de lIndustrie du Papier, 508 F 2d 969 (2d Cir 1974) the Court of Appeals for the Second Circuit, in dealing with an attack on a Convention award based on Article V(1)(c), said (at p 976) that the objecting party must overcome a powerful presumption that the arbitral body acted within its powers.
That statement was applied by the British Columbia Court of Appeal, in a case under article 34 of the Model Law as enacted by the International Commercial Arbitration Act, SBC 1986: Quintette Coal Ltd v Nippon Steel Corpn [1991] 1 WWR 219 (BCCA).
These cases are of no assistance in the context of a challenge based on the initial jurisdiction of the tribunal and in particular when it is said that a party did not agree to arbitration.
Nor is any assistance to be derived from Dallahs concept of deference to the tribunals decision.
There is simply no basis for departing from the plain language of article V(1)(a) as incorporated by section 103(2)(b).
It is true that the trend, both national and international, is to limit reconsideration of the findings of arbitral tribunals, both in fact and in law.
It is also true that the Convention introduced a pro enforcement policy for the recognition and enforcement of arbitral awards.
The New York Convention took a number of significant steps to promote the enforceability of awards.
The Geneva Convention placed upon the party seeking enforcement the burden of proving the conditions necessary for enforcement, one of which was that the award had to have become final in the country in which it was made.
In practice in some countries it was thought that that could be done only by producing an order for leave to enforce (such as an exequatur) and then seeking a similar order in the country in which enforcement was sought, hence the notion of double exequatur (but in England it was decided, as late as 1959, that a foreign order was not required for the enforcement of a Geneva Convention award under the Arbitration Act 1950, section 37: Union Nationale des Co opratives Agricoles des Crales v Robert Catterall & Co Ltd [1959] 2 QB 44).
The New York Convention does not require double exequatur and the burden of proving the grounds for non enforcement is firmly on the party resisting enforcement.
Those grounds are exhaustive.
But article V safeguards fundamental rights including the right of a party which has not agreed to arbitration to object to the jurisdiction of the tribunal.
As van den Berg, The New York Arbitration Convention of 1958 (1981) puts it, at p 265: In fact, the grounds for refusal of enforcement are restricted to causes which may be considered as serious defects in the arbitration and award: the invalidity of the arbitration agreement, the violation of due process, the award extra or ultra petita, the irregularity in the composition of the arbitral tribunal or the arbitral procedure, the non binding force of the award, the setting aside of the award in the country of origin, and the violation of public policy.
In Kanoria v Guinness [2006] 1 Lloyds Rep 701, 706, May LJ said that section 103(2) concerns matters that go to the fundamental structural integrity of the arbitration proceedings.
Nor is there anything to support Dallahs theory that the New York Convention accords primacy to the courts of the arbitral seat, in the sense that the supervisory court should be the only court entitled to carry out a re hearing of the issue of the existence of a valid arbitration agreement; and that the exclusivity of the supervisory court in this regard ensures uniformity of application of the Convention.
There is nothing in the Convention which imposes an obligation on a party seeking to resist an award on the ground of the non existence of an arbitration agreement to challenge the award before the courts of the seat.
It follows that the English court is entitled (and indeed bound) to revisit the question of the tribunals decision on jurisdiction if the party resisting enforcement seeks to prove that there was no arbitration agreement binding upon it under the law of the country where the award was made.
Arbitration agreements and non signatories: groups of companies/State owned
entities and States
One of the most controversial issues in international commercial arbitration is the effect of arbitration agreements on non signatories: among many others see, eg, Hanotiau, Non Signatories in International Arbitration: Lessons from Thirty Years of Case Law, in International Arbitration 2006: Back to Basics? (2007, ed van den Berg), p 341; Park, Non signatories and International Contracts: An Arbitrators Dilemma, in Multiple Party Actions in International Arbitration (ed Macmahon, Permanent Court of Arbitration, 2009), p 1.
The issue has arisen frequently in two contexts: the first is the context of groups of companies where non signatories in the group may seek to take advantage of the arbitration agreement, or where the other party may seek to bind them to it.
The second context is where a State owned entity with separate legal personality is the signatory and it is sought to bind the State to the arbitration agreement.
Arbitration is a consensual process, and in each type of case the result will depend on a combination of (a) the applicable law; (b) the legal principle which that law uses to supply the answer (which may include agency, alter ego, estoppel, third party beneficiary); and (c) the facts of the individual case.
One of the decisions in the field of groups of companies best known internationally is the Dow Chemical case in France, which arose in the context of the setting aside of a French award.
The arbitrators (Professors Sanders, Goldman and Vasseur: (1984) 9 Yb Comm Arb 131) decided that non signatory companies in a group could rely on an arbitration clause in contracts between Isover St Gobain and two Dow Chemical group companies.
The tribunal said that a group of companies constituted one and the same economic reality (une realit conomique unique) of which the tribunal should take account when it ruled on its jurisdiction.
It decided that it was the mutual intention of all parties that the group companies should have been real parties to the agreement.
They relied in particular on the fact that group companies participated in the conclusion, performance and termination of the contract, and on the economic reality and needs of international commerce.
The Paris Cour dappel rejected an application to set aside the award: the effect of the ICC Rules was that the tribunal was bound to take account of the will of the parties and of trade usages; in the light of the agreements and of the documents exchanged in the course of their conclusion and termination, the tribunal had given relevant and consistent reasons for deciding that it was the joint intention of the parties that Dow Chemicals France and Dow Chemical Company had been parties to the agreements (and therefore to the arbitration agreements) although they had not physically signed them.
The court also mentioned that as a subsidiary reason the tribunal had invoked the notion of the group of companies, which had not been seriously disputed by Isover St Gobain: Soc.
Isover Saint Gobain v Soc.
Dow Chemical France, 21 October 1983, 1984 Rev Arb 98.
For other cases see, eg, Redfern and Hunter, International Arbitration (5th ed 2009, ed Blackaby and Partasides), paras 2.44 2.45; Wilske, Shore and Ahrens, The Group of Companies Doctrine Where is it heading? (2006) 17 Am Rev Int Arb 73.
As regards States, the Pyramids case (Rpublique Arabe dEgypte v Southern Pacific Properties Ltd, above, para 89) was also a case of setting aside rather than enforcement of a foreign award.
A company incorporated in Hong Kong (SPP) signed an agreement with an Egyptian state owned entity responsible for tourism (EGOTH).
The contract referred to a pre existing framework contract between the same parties and the Egyptian Government concerning the construction of two tourist centres, one of which was located near the Pyramids.
The contract contained an ICC arbitration clause with Paris as the seat.
The last page of the agreement contained the words approved, agreed and ratified followed by the signature of the Egyptian Minister for Tourism.
After political opposition to the project, the Egyptian authorities cancelled it, and SPP initiated arbitration proceedings against both EGOTH and Egypt.
The arbitral tribunal, with Professor Giorgio Bernini as Chairman, ruled that it had jurisdiction, because, although acceptance of an arbitration clause had to be clear and unequivocal, there was no ambiguity since the Government, in becoming a party to the agreement, could not reasonably have doubted that it would be bound by the arbitration clause contained in it.
The Egyptian Government brought proceedings in France to set aside the award.
The combined effect of articles 1502 and 1504, NCPC, is that the French court may set aside an award made in France in an international arbitration on the ground that there is no arbitration agreement.
The Paris Cour dappel held that the Government was not a party to the arbitration agreement because the words under the Ministers signature were to be read in the light of Egyptian legislation which simply gave the Minister the power to approve construction and in the light of a declaration by the signatories that the obligations assumed by EGOTH would be subject to approval by the relevant government authorities.
Subsequently an ICSID Tribunal found that it had jurisdiction and awarded the claimants $27m: 3 ICSID Rep 131 and 189.
See also the Westland case in the Swiss courts, involving the application of an arbitration agreement in a contract between Westland Helicopters and the Arab Organisation for Industrialisation to the organisations member States: (1991) 16 Yb Comm Arb 174; and Lew, Mistelis and Krll, Comparative International Commercial Arbitration (2003), paras 27 26 et seq; Westland Helicopters Ltd v Arab Organisation for Industrialisation [1995] QB 282.
An example in England of a foreign award prior to the present case is Svenska Petroleum Exploration AB v Government of the Republic of Lithuania (No 2) [2006] EWCA Civ 1529, [2007] QB 886, where the Court of Appeal, after a review of the principal arbitral decisions, confirmed (at para 81 et seq) that a government is not to be taken to be a party to an agreement or to have submitted to arbitration simply because it has put forward a state organisation to contract with a foreign investor.
But on the facts the Government had agreed to ICC arbitration in Denmark.
French law and transnational law
The Joint Memorandum of the experts stated (para 2.8): Under French law, the existence, validity and effectiveness of an arbitration agreement in an international arbitration need not be assessed on the basis of national law, be it the law applicable to the main contract or any other law and can be determined according to rules of transnational law.
To this extent, it is open to an international arbitral tribunal the seat of which is in Paris to find that the arbitration agreement is governed by transnational law.
The notion in French law that an arbitration clause may be valid independently of a reference to national law goes back to the decisions of the Cour de cassation in Hecht v Buismans, 4 July 1972, 1974 Rev Crit 82 and of the Paris Cour dappel in Menicucci v Mahieux, 13 December 1975, 1976 Rev Crit 507: see Fouchard, Gaillard, Goldman, para 418; Poudret and Besson, para 180.
In the Dow Chemical case the Paris Cour dappel (21 October 1983, 1984 Rev Arb 98) said that the arbitral tribunal could decide on its competence without reference to French law, and could rely on the notion of the group of companies as a customary practice in international trade.
In the Dalico case (Municipalit de Khoms El Mergeb v Soc Dalico, 20 December 1993, 1994 Rev Arb 116) the Cour de cassation was concerned with an application to set aside an award in which an arbitral tribunal had upheld the existence and validity of an arbitration clause in a document annexed to a works contract between a Libyan municipal authority and a Danish company (Dalico).
The main contract was subject to Libyan law and stipulated standard terms and conditions, amplified or amended by an annex, which formed part of the contract.
The standard terms and conditions conferred jurisdiction on the Libyan courts, but the annex amended them by providing for international arbitration.
Dalico referred the dispute to arbitration and obtained an award against the Libyan municipal authority.
An action to set aside the award was brought before the Paris Cour dappel.
The court dismissed the application to set aside, relying in particular on the fact that the principle of the autonomy of the arbitration agreement confirms the independence of the arbitration clause, not only from the substantive provisions of the contract to which it relates, but also from a domestic law applicable to that contract.
The court held that the wording of the documents revealed the parties intention to submit their dispute to arbitration.
The Cour de cassation dismissed an appeal, emphasising that the Cour dappel justified its decision in law by establishing the existence of the arbitration agreement without reference to Libyan law, which governed the contract.
The Cour de cassation said, at p 117: en vertu dune rgle matrielle du droit international de larbitrage, la clause compromissoire est indpendante juridiquement du contrat principal qui la contient directement ou par rfrence et que son existence et son efficacit sapprcient, sous rserve des rgles imperatives de droit franais et de lordre public international, daprs la commune volont des parties, sans quil soit ncessaire de se rfrer une loi tatique . (by virtue of a substantive rule of international arbitration, the arbitration agreement is legally independent of the main contract containing or referring to it, and the existence and effectiveness of the arbitration agreement are to be assessed, subject to the mandatory rules of French law and international public policy, on the basis of the parties common intention, there being no need to refer to any national law.).
On this case see Fouchard, Gaillard, Goldman, paras 388, 452.
The fact that the experts were agreed that an arbitral tribunal with a French seat may apply transnational law or transnational rules to the validity of an arbitration agreement does not mean that a French court would not be applying French law or that it is no longer a French arbitration.
It simply means that the arbitration agreement is no longer affected by the idiosyncrasies of local law, and its validity is examined solely by reference to the French conception of international public policy: Fouchard, Gaillard, Goldman, paras 420, 441.
As Poudret and Besson put it (at para 181): The result of this case law is that the arbitration agreement is subjected to a material rule which recognises its validity provided it does not violate international public policy.
Although this has been the subject of controversy, the rule is an international rule of French law and not a transnational rule.
Nor could there be any suggestion that the application of transnational law or transnational rules could displace the applicability in England, under article V(1)(a) of the New York Convention as enacted by section 103(2)(b) of the 1996 Act, of the law of the place where the award is made.
This case does not therefore raise the controversial question of delocalisation of the arbitral process which has been current since the 1950s.
It started with the pioneering work of Professor Berthold Goldman, Professor Pierre Lalive and Professor Clive Schmitthoff, which was mainly devoted to the question of disconnecting the substantive governing law in international commercial arbitration from national substantive law.
It expanded to promotion of the notion that international arbitration is, or should be, free from the controls of national law, or as Lord Mustill put it in SA Coppe Lavalin NV v Ken Ren Chemicals and Fertilizers Ltd [1995] 1 AC 38, 52, a self contained juridical system, by its very nature separate from national systems of law: see, among many others, Lew, Achieving the Dream: Autonomous Arbitration (2006) 22 Arb Int 179; Gaillard, Legal Theory of International Arbitration (2010); Paulsson, Arbitration in Three Dimensions (LSE Law, Society and Economy Working Papers 2/2010); the older material cited in Dicey, Morris and Collins, The Conflict of Laws (14th ed 2006), para 16 032; and the cases on the enforcement in France of awards which have been annulled in the country where they were rendered on the basis that they were international awards which were not integrated in the legal system of that country, e.g. Soc PT Putrabali Adyamulia v Soc Rena Holding, Cour de cassation, 29 June 2007 (2007) 32 Yb Comm Arb 299, and below at para 129.
Non signatories: the principle in French law
One of the odd features of this case is that there is nothing in the experts reports which suggests that there is any relevant difference between French arbitration law in non international cases and the principle in such cases as Dalico.
When counsel was asked at the hearing of this appeal what difference it made, there was no satisfactory answer.
No doubt that is because common intention would serve equally to answer the question in a non international case: cf Loquin, Arbitrage, para 18, in Juris Classeur Procdure Civile, Fasc 1032.
As M Yves Derains (Dallahs expert) put it in his report, the arbitrators may find that the arbitration agreement is governed by transnational law, but the arbitrators must also look for the common will of the parties, express or implied, since it is a substantive rule of French law that the courts will apply when examining the jurisdiction of the arbitrators.
There was, in the event, a large measure of agreement between the experts on French law who appeared before Aikens J, M le Btonnier Vatier for the Government and M Yves Derains for Dallah.
In their Joint Memorandum they agreed that in order to determine whether an arbitration clause upon which the jurisdiction of an arbitral tribunal is founded extends to a person who is neither a named party nor a signatory to the underlying agreement containing that clause, it is necessary to find out whether all the parties to the arbitration proceedings, including that person, had the common intention (whether express or implied) to be bound by the agreement and, as a result, by the arbitration clause; the existence of a common intention of the parties is determined in the light of the facts of the case; the courts will consider the involvement and behaviour of all the parties during the negotiation, performance and, if applicable, termination of the underlying agreement.
When a French court has to determine the existence and effectiveness of an arbitration agreement, and when for these purposes it must decide whether the agreement extends to a party who was neither a signatory nor a named party, it examines all the factual elements necessary to decide whether that agreement is binding upon that person.
The fact that an arbitration agreement is entered into by a State owned entity does not mean that it binds the State, and whether the State is bound depends on the facts in the light of the principles.
The principle as expressed in the jurisprudence of the Paris Cour dappel is as follows: Selon les usages du commerce international, la clause compromissoire insre dans un contrat international a une validit et une efficacit propres qui commandent den tendre lapplication aux parties directement impliques dans lexcution du contrat et les litiges qui peuvent en rsulter, ds lors quil est tabli que leur situation contractuelle, leurs activits et les relations commerciales habituelles existant entre les parties font prsumer quelles ont accept la clause darbitrage dont elles connaissaient lexistence et la porte, bien quelles naient pas t signatoires du contrat qui la stipulait. (According to international usage, an arbitration clause inserted in an international contract has a validity and an effectiveness of its own, such that the clause must be extended to parties directly implicated in the performance of the contract and in any disputes arising out of the contract, provided that it has been established that their respective contractual situations and existing usual commercial relations raise the presumption that they accepted the arbitration clause of whose existence and scope they were aware, irrespective of the fact that they did not sign the contract containing the arbitration agreement.
See Orri v Soc. des Lubrifiants Elf Acquitaine, 11 January 1990, 1991 Rev Arb 95 (affd Cour de cassation, 11 June 1991, 1992 Rev Arb 73, on different grounds); also Socit Korsnas Marma v Soc DurandAuzias, 30 November 1988, 1989 Rev Arb 691; Compagnie tunisienne de navigation (Cotunav) v Soc Comptoir commercial Andr, 28 November 1989, 1990 Rev Arb 675.
The principle applies equally where a non signatory seeks the benefit of an arbitration agreement, as in Dalico itself and in Dow Chemicals.
The common intention of the parties means their subjective intention derived from the objective evidence.
M le Btonnier Vatier, the Governments expert, confirmed in his oral evidence that under French law the court must ascertain the genuine, subjective, intention of each party, but through its objective conduct, and M Yves Derains, Dallahs expert, agreed.
M Derains confirmed that in order for an act (such as the letter of termination) of the Government to have the effect of establishing the subjective intention on the Governments part to be bound by the arbitration agreement, it would have to be a conscious, deliberate act by the government; that anything less than a conscious and deliberate act of the government might make the letter less relevant; and that the letter would not be relevant if it was written by mistake.
Renvoi
The parties were agreed before Aikens J that article V(1)(a) of the New York Convention established two conflict of laws rules.
The first was the primary rule of party autonomy: the parties could choose the law which governed the validity of the arbitration agreement.
In default of that agreement, the law by which to test validity was that of the country where the award to be enforced was made.
Because they were to be treated as uniform conflict of laws rules, the reference to the law of the country where the award was made in article V(1)(a) of the New York Convention and the same words in section 103(2)(b) of the 1996 Act must be directed at that countrys substantive law rules, rather than its conflicts of law rules.
Aikens J also drew support from section 46(2) in Part I of the 1996 Act, which defines the law chosen by the parties as the substantive laws of that country and not its conflict of laws rules, and which was specifically inserted to avoid the problems of renvoi: Mustill & Boyd, Commercial Arbitration, 2001 Companion (2001), p 328.
Aikens J considered that the same approach was intended for section 103(2)(b) in Part III of the 1996 Act, and that he should have regard to French substantive law and not its conflict of laws rules (at para 78) and that the principle of French law that the existence of an arbitration agreement in an international context may be determined by transnational law was a French conflict of laws rule (at para 93).
It is likely that renvoi is excluded from the New York Convention: see van den Berg, The New York Convention of 1958 (1981), p 291.
But it does not follow that for an English court to test the jurisdiction of a Paris tribunal in an international commercial arbitration by reference to the transnational rule which a French court would apply is a case of renvoi.
Renvoi is concerned with what happens when the English court refers an issue to a foreign system of law (here French law) and where under that countrys conflict of laws rules the issue is referred to another countrys law.
That is not the case here.
What French law does is to draw a distinction between domestic arbitrations in France, and international arbitrations in France.
It applies certain rules to the former, and what it describes as transnational law or rules to the latter.
As mentioned above, the applicability of transnational rules or law (and there was no evidence on their content) would not make a difference in this case.
But even if there were a difference, there is not, according to English notions, any reference on to another system of law.
All that French law is doing is distinguishing between purely domestic cases and international cases and applying different rules to the latter.
If a French court would apply different principles in an international case, for an English court to do what a French court would do in these circumstances is not the application of renvoi.
Discretion
The court before which recognition or enforcement is sought has a discretion to recognise or enforce even if the party resisting recognition or enforcement has proved that there was no valid arbitration agreement.
This is apparent from the difference in wording between the Geneva Convention on the Execution of Foreign Arbitral Awards 1927 and the New York Convention.
The Geneva Convention provided (article 1) that, to obtain recognition or enforcement, it was necessary that the award had been made in pursuance of a submission to arbitration which was valid under the law applicable thereto, and contained (article 2) mandatory grounds (shall be refused) for refusal of recognition and enforcement, including the ground that it contained decisions on matters beyond the scope of the submission to arbitration.
Article V(1)(a) of the New York Convention (and section 103(2)(b) of the 1996 Act) provides: Recognition and enforcement of the award may be refused See also van den Berg, p 265; Paulsson, May or Must Under the New York Convention: An Exercise in Syntax and Linguistics (1998) 14 Arb Int 227.
Since section 103(2)(b) gives effect to an international convention, the discretion should be applied in a way which gives effect to the principles behind the Convention.
One example suggested by van den Berg, op cit, p 265, is where the party resisting enforcement is estopped from challenge, which was adopted by Mance LJ in Dardana Ltd v Yukos Oil Co [2002] 2 Lloyds Rep 326, para 8.
But, as Mance LJ emphasised at para 18, there is no arbitrary discretion: the use of the word may was designed to enable the court to consider other circumstances, which might on some recognisable legal principle affect the prima facie right to have an award set aside arising in the cases listed in section 103(2).
See also Kanoria v Guinness [2006] 1 Lloyds Rep 701, para 25 per Lord Phillips CJ.
Another possible example would be where there has been no prejudice to the party resisting enforcement: China Agribusiness Development Corpn v Balli Trading [1998] 2 Lloyds Rep 76.
But it is not easy to see how that could apply to a case where a party had not acceded to an arbitration agreement.
There may, of course, in theory be cases where the English court would refuse to apply a foreign law which makes the arbitration agreement invalid where the foreign law outrages its sense of justice or decency (Scarman Js phrase in In the Estate of Fuld, decd (No 3) [1968] P 675, 698), for example where it is discriminatory or arbitrary.
The application of public policy in the New York Convention (article V(2)(b)) and the 1996 Act (section 103(3)) is limited to the non recognition or enforcement of foreign awards.
But the combination of (a) the use of public policy to refuse to recognise the application of the foreign law and (b) the discretion to recognise or enforce an award even if the arbitration agreement is invalid under the applicable law could be used to avoid the application of a foreign law which is contrary to the courts sense of justice.
Only limited assistance can be obtained from those cases in which awards have been enforced abroad (in particular in France and the United States) notwithstanding that they have been set aside (or supended) in the courts of the seat of arbitration.
In France the leading decisions are Pabalk Ticaret Sirketi v Norsolor, Cour de cassation, 9 October 1984, 1985 Rev Crit 431; Hilmarton Ltd v OTV, Cour de cassation, 23 March 1994 (1995) 20 Yb Comm Arb 663, in which a Swiss award was enforced in France even though it had been set aside in Switzerland: the award rendered in Switzerland is an international award which is not integrated in the legal system of that State, so that it remains in existence even if set aside (at p 665); Rpublique arabe dEgypte v Chromalloy Aero Services, Paris Cour dappel, 14 January 1997 (1997) 22 Yb Comm Arb 691.
Thus in Soc PT Putrabali Adyamulia v Soc Rena Holding, Cour de cassation, 29 June 2007 (2007) 32 Yb Comm Arb 299, an award in an arbitration in England which had been set aside by the English court (see PT Putrabali Adyamulia v Soc Est Epices [2003] 2 Lloyds Rep 700) was enforced in France, on the basis that the award was an international award which did not form part of any national legal order.
Those decisions do not rest on the discretion to allow recognition or enforcement notwithstanding that the award has been set aside by a competent authority of the country in which that award was made (New York Convention, article V(1)(e)).
They rest rather on the power of the enforcing court under the New York Convention, article VII(1), to apply laws which are more generous to enforcement than the rules in the New York Convention: see Born, International Commercial Arbitration (2009), pp 2677 2680; Gaillard, Enforcement of Awards Set Aside in the Country of Origin (1999) 14 ICSID Rev 16; and Yukos Capital SARL v OAO Rosneft, 28 April 2009, Case No 200.005.269/01 Amsterdam Gerechtshof.
In the United States the courts have refused to enforce awards which have been set aside in the State in which the award was made, on the basis that the award does not exist to be enforced if it has been lawfully set aside by a competent authority in that State: Baker Marine (Nigeria) Ltd v Chevron (Nigeria) Ltd, 191 F 3d 194 (2d Cir 1999); TermoRio SA ESP v Electranta SP, 487 F 3d 928 (DC Cir 2007).
But an Egyptian award which had been set aside by the Egyptian court was enforced because the parties had agreed that the award would not be the subject of recourse to the local courts: Chromalloy Aeroservices v Arab Republic of Egypt, 939 F Supp 907 (DDC 1996).
That decision was based both on the discretion in the New York Convention, article V(1) and on the power under article VII(1) (see Karaha Bodas Co v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 335 F 3d 357, 367 (5th Cir 2003)) and whether it was correctly decided was left open in TermoRio SA ESP v Electranta SP, ante, at p 937.
The power to enforce notwithstanding that the award has been set aside in the country of origin does not, of course, arise in this case.
The only basis which Dallah puts forward for the exercise of discretion in its favour is the Governments failure to resort to the French court to set aside the award.
But Moore Bick LJ was plainly right in the present case (at para 61) to say that the failure by the resisting party to take steps to challenge the jurisdiction of the tribunal in the courts of the seat would rarely, if ever, be a ground for exercising the discretion in enforcing an award made without jurisdiction.
There is certainly no basis for exercising the discretion in this case.
III The application of the principles to the appeal
The crucial facts have been set out fully by Lord Mance.
The essential question is whether the Government has proved that there was no common intention (applying the French law principles) that it should be bound by the arbitration agreement.
The essential points which lead to the inevitable conclusion that there was no such common intention are these.
First, throughout the transaction Dallah was advised by a leading firm of lawyers in Pakistan, Orr, Dignam & Co, which was responsible for the drafts of both the Memorandum of Understanding (MoU) which was concluded on 24 July 1995 between Dallah and the Government, and the Agreement of 10 September 1996 (the Agreement) between Dallah and the Trust.
It must go without saying that the firm well understood the difference between an agreement with a State entity, on the one hand, and the State itself, on the other.
Second, there was a clear change in the proposed transaction from an agreement with the State to an agreement with the Trust.
The MoU was expressed to be made between Dallah and the President of the Islamic Republic of Pakistan through the Ministry of Religious Affairs, and it was signed For and on behalf of The President of the Islamic Republic of Pakistan.
It was governed by Saudi Arabian law (clause 23).
It provided for ad hoc arbitration with a Jeddah seat (clause 24), and contained an express waiver of sovereign immunity, including immunity from execution (clause 25).
Third, the Trust was established as a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of property, and may by its name, sue and be sued.
Fourth, the Agreement (including the arbitration agreement) was plainly an agreement between Dallah and the Trust, and the Government was referred to in the Agreement only in its capacity of guarantor of loans to the Trust.
It described the parties as Dallah Real Estate and Tourism Holding Company and Awami Hajj Trust. (which is referred to as having been: established under Section 3 of the Awami Hajj Trust Ordinance, 1996 (Ordinance No VII of 1996) On the signature page, there are two signatories: Dallah and the Awami Hajj Trust.
Shezi Nackvi signed on behalf of Dallah, and Managing Trustee (Zubair Kidwai) signed on behalf of the Trust.
Clause 2 provided for the Trust to pay $100m to Dallah by way of advance, subject to (inter alia) Dallah providing a Financing Facility against a guarantee of the Government of Pakistan and the Trust and the Trustee Bank providing a counter guarantee in favour of the Government of Pakistan.
By clause 27 it was provided: The Trust may assign or transfer its rights and obligations under this Agreement to the Government of Pakistan without the prior consent in writing of Dallah.
The arbitration clause (article 23) related to Any dispute or difference of any kind whatsoever between the Trust and Dallah .
The parties amended the ICC model clause (which reads: All disputes arising out of or in connection with the present contract shall be finally settled), in order to specify the Trust and Dallah.
Fifth, it was the Trust which immediately following the termination letter of 19 January 1997, commenced proceedings against Dallah in Islamabad (the 1997 Pakistan Proceedings).
The proceedings were for a declaration that the Trust had validly accepted Dallahs repudiation of the Agreement between the Trust and Dallah on 19 January 1997.
The contents of the pleading were verified on oath by Mr Muhammad Lutfullah Mufti.
On the same day Mr Lutfullah Mufti made an application in the name of the Trust for an interim injunction restraining Dallah from holding itself out to have any contractual relationship with the Trust.
On 6 March 1997 Dallah filed an application to stay the action, given the existence of an arbitration agreement with the Trust.
The Trust took preliminary objections against this application, among which was that the Trust had challenged the validity and existence of the Agreement.
Mr Lutfullah Mufti, describing himself as Secretary Board of Trustees Awami Hajj Trust/Secretary, Religious Affairs Division, Government of Pakistan swore an affidavit verifying the objections by the Trust to the application.
There are only two serious contra indications.
The first is the fact that the termination latter was written, after the Trust had ceased to exist, by Mr. Lutfullah Mufti (who had been Secretary of the Board of Trustees of the Trust and its Managing Trustee, and who was also from time to time Secretary of the Ministry of Religious Affairs) under the letterhead of the Ministry of Religious Affairs, and signed as Secretary.
There is nothing in the text of the letter to suggest that it was written on behalf of the Government.
On the contrary, as Moore Bick LJ said [2010] 2 WLR 805, para 36 (differing on this point from Aikens J, at para 117) all the internal indications are that it was written on behalf of the Trust.
Thus the opening paragraph reads as follows: Pursuant to the above mentioned Agreement for the leasing of housing facilities in the holy city of Makkah, Kingdom of Saudi Arabia, you were required within ninety (90) days of the execution of the said Agreement to get the detailed specifications and drawings approved by the Trust.
However, since you have failed to submit the specifications and drawings for the approval of the Trust to date you are in breach of a fundamental term of the Agreement which tantamounts to a repudiation of the whole Agreement which repudiation is hereby accepted.
The second contra indication is contained in the fact that the 1998 Pakistan Proceedings were commenced in the name of the Government.
That was because, when the 1997 Pakistan Proceedings were dismissed by the Pakistan court on the ground that the Trust had ceased to exist as of 11 December 1996, the judge said that, on dissolution of the Trust suit should have been filed by the Ministry for Religious Affairs, apparently on the basis that the Government had succeeded to the rights and obligations of the Trust.
On 18 September 1998, the Islamabad judge ruled that the Government was not the legal successor of the Trust, and so not bound by the Agreement or the arbitration agreement.
On 14 January 1999, the Government applied voluntarily to withdraw the suit, which was granted on the same day.
Neither of these two matters, nor the other matters relied on, was sufficient to justify a finding of a common intention that the Government should be bound by the arbitration agreement.
It is true that the principle of common intention in French law was similar to that articulated by the tribunal, but M Le Btonnier Vatiers evidence made clear that there were significant differences.
He accepted that the principles adopted by the tribunal were in general the principles that might be adopted in French law, but they were too general.
That is undoubtedly a valid criticism of the way in which the Tribunal sought to use material from the period prior to termination to justify its conclusion.
The Tribunal first considered the conduct of the Government prior to the execution of the Agreement.
It drew the conclusion that the organic control of the Government over the Trust, although insufficient to lead to the disregard of the separate legal entity of the Trust, constituted nevertheless an element of evidence as to the true intention of the Government to run and control directly and indirectly the activities of the Trust, and to view the Trust as one of its instruments.
The Tribunal next considered the conduct of the Government at the time of execution of the Agreement.
From that it drew the conclusion that the Government was contractually involved in the Agreement, as the Government was bound, under article 2 thereof, to give its guarantee for the financial facility to be raised by [Dallah] and that the Trusts right to assign its rights and obligations to the Government was a provision which was normally used only where the assignee is closely linked to the assignor or is under its total control through ownership, management or otherwise.
The Tribunal considered that during the lifetime of the Agreement the Government continued itself to handle matters relating to the Agreement and to act and conduct itself in a way which confirmed that it regarded the Agreement as its own.
Government officials were actively involved in the implementation of the Agreement.
The Government decided not to re promulgate the Ordinance and therefore put an end to the Trust, and so the very existence of the Trust appeared to have been completely dependent on the Government.
None of these matters could possibly justify a finding that there was a common intention that the Government should be bound by the arbitration agreement.
The crucial finding was that after the dissolution of the Trust, the termination letter of 19 January 1997 was written on Ministry of Religious Affairs letterhead and signed by the Secretary of the Ministry, and confirmed in the clearest way possible that the Government regarded the Agreement with Dallah as its own and considered itself as a party to the Agreement and was entitled to exercise all rights and assume all responsibilities provided for under the Agreement.
The signature of the letter could only be explained as evidence that the Government considered itself a party to the Agreement.
But the Trust had no separate letterhead and it is plain from the surrounding circumstances, and particularly the way in which the 1997 Pakistan proceedings were commenced on behalf of the Trust, and verified by Mr Lutfullah Mufti, that the letter was written on behalf of the Trust and in ignorance of its dissolution.
The tribunal ignored the 1997 Pakistan proceedings, and relied on the 1998 Pakistan proceedings to find that they showed that the Government considered itself as a party to the Agreement.
But it is clear that those proceedings were commenced at the erroneous suggestion of the Pakistan judge and shed no light on whether the parties intended that the Government should be bound by the Agreement or the arbitration agreement.
Consequently on a proper application of French law as mandated by the New York Convention and the 1996 Act there was no material sufficient to justify the tribunals conclusion that the Governments behaviour showed and proved that the Government had always been, and considered itself to be, a true party to the Agreement and therefore to the arbitration agreement.
On the contrary, all of the material up to and including the termination letter shows that the common intention was that the parties were to be Dallah and the Trust.
On the face of the Agreement the parties and the signatories were Dallah and the Trust.
The Governments role was as guarantor, and beneficiary of a counter guarantee.
The assignment clause showed that the Government was not a party.
It permitted the Trust to assign or transfer its rights and obligations under the Agreement to the Government without the prior consent in writing of Dallah.
The arbitration clause related to any dispute between the Trust and Dallah.
The weakness of the conclusion of the tribunal is underlined by this passage in the Award: Certainly, many of the above mentioned factual elements, if isolated and taken into a fragmented way, may not be construed as sufficiently conclusive for the purpose of this section.
However, Dr Mahmassani believes that when all the relevant factual elements are looked into globally as a whole, such elements constitute a comprehensive set of evidence that may be relied upon to conclude that the Defendant is a true party to the Agreement with the Claimant and therefore a proper party to the dispute that has arisen with the Claimant under the present arbitration proceedings.
Whilst joining in this conclusion Dr Shah and Lord Mustill note that they do so with some hesitation, considering that the case lies very close to the line.
Aikens J rejected the argument that the discretion should be exercised in favour of enforcement because of the Governments failure to challenge the award in the French courts: Dallah had not submitted that the Government was estopped from challenging the jurisdiction of the tribunal; and the discretion would not be exercised where, as in this case, there was something unsound in the fundamental structural integrity of the ICC arbitration proceedings, namely that the Government did not agree to be bound by the arbitration agreement in clause 23 of the Agreement.
There was no error of principle and the Court of Appeal was right not to interfere with the judges exercise of discretion.
LORD HOPE
The essential question in this case, as Lord Mance and Lord Collins explain in paras 2 and 132 of their judgments, is whether the Government of Pakistan has proved that there was no common intention (applying French law principles) between it and Dallah that it should be bound by the arbitration agreement.
This is a matter which goes to the root of the question whether there was jurisdiction to make the award.
As such, it must be for the court to determine.
It cannot be left to the determination of the arbitrators.
For the reasons set out in the opinions of Lord Mance and Lord Collins, I agree that the facts point inevitably to the conclusion that there was no such common intention.
As Lord Mance says in para 66, the agreement was deliberately structured to be, and was agreed, between Dallah and the Trust.
I also agree that the Court of Appeal was right not to interfere with the judges exercise of his discretion to refuse enforcement of the award.
I too would dismiss the appeal.
LORD SAVILLE
In his judgment Lord Mance has set out in detail the facts of this case and no purpose would be served by repeating them in this judgment.
The case concerns an application by Dallah Real Estate and Tourism Holding Company to enforce in this country an ICC arbitration award dated 23rd June 2006 against the Ministry of Religious Affairs of the Government of Pakistan.
The amount of the award was US$20,588,040.
The application was opposed by the Ministry of Religious Affairs on the grounds that there was no arbitration agreement between the parties, so that the award was unenforceable.
The award was a New York Convention Award within the meaning of Section 100 of the Arbitration Act 1996 and was made in Paris.
Section 103(1) of the Arbitration Act 1996 provides that recognition and enforcement of a New York Convention Award shall not be refused except in the following cases.
The following sub sections set out the cases in question.
Section 103(2) contains a number of these cases and provides that recognition or enforcement of the award may be refused if the person against whom it is invoked proves (so far as the case relevant to these proceedings is concerned) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made.(Section 103(2) (b)) (emphases added).
The arbitrators considered the question of their jurisdiction before dealing with the merits of the claim and concluded that the Ministry of Religious Affairs of the Government of Pakistan was party to an arbitration agreement with Dallah Real Estate and Tourism Holding Company, for the reasons contained in what they described as a Partial Award dated 26th June 2001.
It was common ground that the question whether or not the Ministry of Religious Affairs was a party to the arbitration agreement relied upon by Dallah Real Estate and Tourism Holding Company, under which the ICC award was made, was to be determined under Section 103(2)(b) of the Arbitration Act 1996, and that the law to be applied was French law, being the law of the place where the award was made.
After a trial, during which both parties tendered expert evidence on French law, Aikens J (as he then was) held that the Ministry of Religious Affairs was not party to the arbitration agreement and refused to enforce the award.
The Court of Appeal upheld his decision.
Dallah Real Estate and Tourism Holding Company now appeal to the Supreme Court.
In their written case Dallah Real Estate and Tourism Holding Company submitted that the first issue for resolution by the Supreme Court concerned the nature and standard of review to be undertaken by an enforcing court when considering recognition and enforcement of a New York Convention award; and further submitted that the court should accord a high degree of deference and weight to the award of the arbitrators that there was an arbitration agreement between the parties.
In the present case the arbitrators have made a ruling, as they were doubtless entitled to do under the doctrine of kompetenz kompetenz, that there was an arbitration agreement between the parties, so that they were able to hear and decide the merits of the case, which they then proceeded to do.
However, under Section 103 of the Arbitration Act 1996 (as under the New York Convention itself) the person against whom the award was invoked has the right to seek to prove that there was no arbitration agreement between the parties, so that in fact the arbitrators had no power to make an award.
The question at issue before the court, therefore, was whether the person challenging the enforcement of the award could prove there was no such agreement.
In these circumstances, I am of the view that to take as the starting point the ruling made by the arbitrators and to give that ruling some special status is to beg the question at issue, for this approach necessarily assumes that the parties have, to some extent at least, agreed that the arbitrators have power to make a binding ruling that affects their rights and obligations; for without some such agreement such a ruling cannot have any status at all.
As the Departmental Advisory Committee on Arbitration Law put it in paragraph 1.38 of its 1996 Report on the Arbitration Bill, an arbitral tribunal may rule on its own jurisdiction but cannot be the final arbiter of jurisdiction, for this would provide a classic case of pulling oneself up by ones own bootstraps.
In my judgment therefore, the starting point cannot be a review of the decision of the arbitrators that there was an arbitration agreement between the parties.
Indeed no question of a review arises at any stage.
The starting point in this case must be an independent investigation by the court of the question whether the person challenging the enforcement of the award can prove that he was not a party to the arbitration agreement under which the award was made.
The findings of fact made by the arbitrators and their view of the law can in no sense bind the court, though of course the court may find it useful to see how the arbitrators dealt with the question.
Whether the arbitrators had jurisdiction is a matter that in enforcement proceedings the court must consider for itself.
I accept, as an accurate summary of the legal position, the way it was put in the written case of the Ministry of Religious Affairs: Under s103(2)(b) of the 1996 Act / Art V.1(a) NYC, when the issue is initial consent to arbitration, the Court must determine for itself whether or not the objecting party actually consented.
The objecting party has the burden of proof, which it may seek to discharge as it sees fit.
In making its determination, the Court may have regard to the reasoning and findings of the alleged arbitral tribunal, if they are helpful, but it is neither bound nor restricted by them.
In short, as was held in China Minmetals Materials Import and Export Co Ltd v Chi Mei Corporation (2003) 334 F3d 274, a decision of the United States Court of Appeals (3rd Circuit), the court must make an independent determination of the question whether there was an arbitration agreement between the parties.
In the present case, for the reasons given by Lord Mance and Lord Collins (and the courts below), the Ministry of Religious Affairs has succeeded in showing that no arbitration agreement existed to which it was party and that there were no other grounds for enforcing the award.
I would accordingly dismiss this appeal.
LORD CLARKE
I agree that this appeal should be dismissed for the reasons given by the other members of the court.
Both Lord Mance and Lord Collins have analysed the relevant principles so fully and so expertly that it would be inappropriate self indulgence for me to attempt a detailed analysis of my own.
| UK-Abs | The central issue on this appeal is whether the Government of Pakistan was a party to and bound by an arbitration agreement, so that an award made by an arbitral tribunal under that agreement can be enforced against the Government of Pakistan in the United Kingdom.
The appellant company (Dallah) is a member of a group providing services for the Holy Places in Saudi Arabia.
In July 1995, it concluded a Memorandum of Understanding with the respondent Government (the Government) for the provision by Dallah of housing for pilgrims.
In January 1996 the Awami Hajj Trust (the Trust) was established and subsequently continued by various ordinances of the President of Pakistan.
In September 1996, after Dallah put forward a revised proposal which differed from the Memorandum of Understanding and after further negotiations with the Government, an agreement between Dallah and the Trust was signed (the Agreement).
The Agreement contained an arbitration clause, whereby any dispute between Dallah and the Trust arising out of the Agreement was to be settled by arbitration.
In December 1996, the ordinances lapsed and were not renewed, and Trust ceased to exist as a legal entity.
Dallah invoked arbitration against the Government in May 1998.
On 23 June 2006 an International Chamber of Commerce arbitral tribunal sitting in Paris made an award in favour of Dallah in the sum of US$20,588,040 against the Government.
Dallah applied to the High Court in England for leave to enforce the award in this country.
The award was an award within the meaning of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958.
Article V(1)(a) of the Convention and s.103 of the Arbitration Act 1996, which transposes Article V(1)(a) in the UK, provide that enforcement of an award may be refused if the arbitration agreement was not valid under the applicable law, which is the case, in particular, if the person against whom enforcement is sought was not a party to the agreement.
The applicable law was in this case French law, where the arbitral tribunal sat and made its award.
The High Court held that the Government was not a party to the Agreement or therefore to the arbitration agreement and refused leave to enforce the award.
The Court of Appeal upheld the decision and Dallah appealed to the Supreme Court.
The Supreme Court unanimously dismisses the appeal.
It holds that the Government was not a party to the arbitration agreement.
An initial issue was the status and weight of the arbitral tribunals own decision that it had jurisdiction, based on its conclusion that the Government was a party to the Agreement and so to the arbitration agreement.
The Supreme Court, while recognising that a tribunal has jurisdiction to determine its own jurisdiction for its own purposes, held that a court, whether within the country where the tribunal is located or within a foreign country where an attempt is made to enforce the award, can and must revisit the question of jurisdiction.
The arbitral tribunal could only have jurisdiction by consent, and could not give itself jurisdiction, if there was no relevant consent under the applicable law.
Whether consent exists is an issue subject to ordinary judicial determination.
Article V of the Convention safeguards the right of a party which has not agreed to arbitration to object to the jurisdiction of the tribunal.
The language of Article V(1)(a) of the Convention and s.103(2)(b) of the 1996 Act requires the English court to revisit the tribunals decision on jurisdiction where the person resisting enforcement maintains that it was not party to any relevant arbitration agreement under the applicable law. [26] [31]; [79] [104] The central issue in the case was whether the Government could establish that, applying French law principles, there was no common intention on the part of the Government and Dallah, such as would make the Government a party to the Agreement.
The Court held that the Government had established that there was no such common intention, having regard amongst other matters to: The clear change in the proposed transaction from an agreement with the Government (the Government was a party to the initial Memorandum of Understanding) to an agreement with the Trust. [134] The deliberate structuring of the Agreement to be between Dallah and the Trust: the Governments only role under the Agreement was to guarantee the Trusts loan obligations and to receive a counter guarantee from the Trust.
Further, Dallah was throughout the transaction advised by lawyers who must have understood the difference between an agreement with a State entity and an agreement with the State itself. [42] [43]; [133] [136] The fact that the Trust was established as a body corporate capable of holding property and of suing and being sued. [135] The fact that it was the Trust which commenced proceedings against Dallah in Pakistan in 1997. [137] A final issue in the case concerned the nature and existence of any discretion to be found in Article V(1) and s.103(2), which provide that recognition or enforcement of the award may be refused if the arbitration agreement is proved to be invalid.
Dallah submitted that even if the Government could prove that it is not bound by the Agreement, the Court should exercise its discretion under Article V(1) and s.103(2) to enforce the award.
The Court refused to do this, saying that, in the absence of some fresh circumstance such as another agreement, it would be remarkable if the word may enabled a court to recognise or enforce an award which it found to have been made without jurisdiction. [68]
|
In 2006 and 2007 a number of London local authorities entered into arrangements for mutual insurance against various classes of risk, including property, liability and terrorism.
Mutual insurance occurs where a group of similarly placed persons or organisations agree to insure each other against risks in which they all have an interest.
It relieves its members of the profit element which is built into an ordinary commercial premium.
The criteria for membership may also reduce the level of risk, and thus the overall cost of cover, in comparison with the level of premium that is needed where risks are accepted from a large number of policy holders, some of whom represent a greater risk than others.
The aim of the arrangements that the London local authorities entered into was to reduce the cost of premiums to its members and to raise the standard of risk management.
In pursuing these objectives they were acting solely in the public interest.
The insurance was to be provided by London Authorities Mutual Ltd (LAML), a company limited by guarantee.
One of the local authorities involved in these arrangements was the London Borough of Brent (Brent).
On 9 October 2006 Brents Executive gave approval in principle to Brents participation in LAML, subject to a report from officers once they had fully explored the option and taken legal advice.
On 13 November 2006 the Executive was told that the cost of the insurance premiums with LAML would be at least 15% less than the premiums Brent was paying an insurance company for its insurance, and that this saving could be used in its budget to fund priority growth or to reduce overall expenditure and hence the level of council tax.
Having also been advised that Brent had power to enter into the arrangements, the Executive resolved to give approval to its participation in capitalising LAML.
In December 2006 Brent decided to invite tenders for combined and miscellaneous insurance for the period commencing 1 April 2007.
The invitation, which was divided into seven lots and was issued in accordance with the Public Contracts Regulations 2006 (2006 SI/5) (the 2006 Regulations), was extended to, among others, Risk Management Partners Ltd (RMP).
RMP was informed that the invitation was being issued because it was not clear whether LAML would be a viable option until January 2007, by which date it would be too late to seek tenders.
This invitation was abandoned because the brokers had used incorrect documentation.
Brent became a member of LAML, as did nine other of the 32 London boroughs including Harrow London Borough Council (Harrow), by subscribing to its Memorandum and Articles of Association on 18 January 2007.
In February 2007 Brent again invited tenders in accordance with the 2006 Regulations for the same period, to be submitted by 23 February.
RMP submitted a tender.
LAML did not do so.
It took no part in the public procurement process.
On 16 March 2007, after LAML had been authorised to carry out insurance business by the Financial Services Authority, Brent paid to LAML the sum of 160,500 as a capitalisation amount.
On 27 March 2007 it entered into a guarantee by which it undertook to pay sums on demand to LAML up to an aggregate amount of 609,500.
On the same date Brent informed RMP that it had abandoned the contract award procedure that was being carried out in accordance with the 2006 Regulations for six of the seven lots, as it was proposing to award the contract to LAML.
On 30 March 2007 LAML submitted an offer to insure Brent in respect of terrorism, liability, property and contents for 2007 2008.
Brent accepted this offer and, on payment of premiums of 520,328.14, it became a participating member of LAML.
On 6 April 2007 it issued a press notice announcing that LAML had opened for business.
The court was informed that the company is now in provisional liquidation.
The business of LAML was restricted to the provision of insurance to participating members or persons or bodies sponsored by them, referred to in the Memorandum of Association as affiliates.
It was funded by paid and guaranteed contributions from participating members, by premiums, by supplementary calls on participating members and by reinsurance placed in the open market.
The management of its affairs was vested in a Board which comprised a majority of directors appointed by participating members.
There had to be at least two independent directors.
On 27 March 2007 LAML entered into a management agreement with Charles Taylor & Co Ltd to perform for it the various management services described in the agreement.
RMP decided to challenge these arrangements.
It claimed that, as a commercial insurer, it might have obtained the insurance business that was placed with LAML had the tender process under the 2006 Regulations not been discontinued.
Its challenge took two distinct forms.
First, RMP took proceedings in the administrative court seeking judicial review of Brents decision to participate in LAML on the ground that it was beyond its statutory powers.
Harrow and LAML participated in those proceedings as interested parties.
Secondly, in separate proceedings in the Queens Bench Division, RMP claimed damages against Brent on the basis that by entering into insurance contracts under the mutual insurance scheme it had acted in breach of the 2006 Regulations.
By a judgment delivered on 22 April 2008 Stanley Burnton LJ declared that Brent had no power under either section 111 of the Local Government Act 1972 or section 2 of the Local Government Act 2000 to participate in establishing LAML or become a participating member of that company, or to make payment of the capitalisation amount or to grant a guarantee to the company: [2008] EWHC 692 (Admin); [2008] LGR 331.
By a further judgment delivered on 16 May 2008 Stanley Burnton LJ held that Brent had acted in breach of the 2006 Regulations when it abandoned the tender process and awarded the insurance contracts to LAML: [2008] EWHC 1094 (Admin); [2008] LGR 429.
His judgment in that action was confined to the issue of liability.
He reserved issues of causation and quantum of damages.
He granted permission to appeal in both cases.
By a single judgment the Court of Appeal (Pill, Moore Bick and Hughes LJJ) affirmed both decisions and dismissed the appeals: [2009] EWCA Civ 490; [2010] PTSR 349.
The scope of the dispute has narrowed considerably since the decision of the Court of Appeal.
There have been two significant developments.
First, on 12 November 2009 Royal Assent was given to the Local Democracy, Economic Development and Construction Act 2009 (the 2009 Act).
Section 34 of the 2009 Act gives power to local authorities to enter into mutual insurance arrangements of the kind in issue in this case.
It also permits the benefit of such arrangements to be extended to other persons to be specified by regulation.
That section is not yet in force, but it is expected to be brought into force shortly.
This change in the law has largely superseded any question as to the statutory power of local authorities to enter into such arrangements.
Secondly, the proceedings between Brent and RMP have been settled.
This has resulted in Brent being given leave to withdraw its appeal to this court.
In the result the appeal is now confined to the question of principle arising in the damages action only, in which Harrow still has an interest.
This is whether, by entering into the mutual insurance arrangements with LAML, Harrow was acting in breach of the 2006 Regulations.
In their written case Counsel for Harrow explain why, notwithstanding the enactment of section 34 of the 2009 Act, this question of principle continues to be of considerable importance.
Until it ceased trading in 1992, most insurance provided to local authorities in the United Kingdom was provided by Municipal Mutual Insurance Ltd. As its name indicates, that company was a mutual insurer.
It was created on the initiative of a number of local authorities and had been in existence since 1903.
Mutual insurance is potentially a source of significant financial savings for local authorities, and it provides other advantages which are not readily available in the commercial insurance market.
The effect of the decisions of Stanley Burton LJ and the Court of Appeal, if they are allowed to stand, is that local authorities are likely to find it difficult in practice to avail themselves of their expanded powers under section 34 of the Act of 2009 because of the requirement that they must comply with the 2006 Regulations.
This is a source of real concern not only to Harrow but also to other local authorities insured by LAML or who are interested in obtaining mutual insurance on a similar basis.
There are currently six other actions for damages pending in the High Court against local authorities who contracted with LAML.
They have been stayed pending this appeal.
The Public Contracts Regulations 2006
The 2006 Regulations were made under section 2(2) of the European Communities Act 1972.
They give effect to Council Directive 2004/18/EC of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (OJ 2004 L134, p 114).
The broad object of Directive 2004/18/EC, and of the Regulations that give effect to it, is to ensure that public bodies award certain contracts above a minimum value only after fair competition, and that the award is made to the person offering the lowest price or making the most economically advantageous offer.
Directive 2004/18/EC replaced earlier EC legislation to the same effect, including Directives 92/50/EEC and 93/36/EEC with which some of the decisions of the European Court that it will be necessary to refer were concerned.
But the differences between them are not relevant to the issue arising in this appeal.
So I shall refer to them all, without regard to which of them was in play in each case, as the Directive.
Regulation 5 of the 2006 Regulations provides that the Regulations apply whenever a contracting authority seeks offers in relation to the award of a variety of public contracts and other arrangements, including a Part A services contract.
It is agreed that insurance contracts of the kind and values awarded by Brent to LAML were contracts under which services specified in Part A of Schedule 3 were to be provided and that the definition of a Part A services contract in regulation 2(2) is satisfied.
Regulation 30(1) sets out the basic rule.
It provides that a contracting authority shall award a public contract on the basis of the offer which (a) is the most economically advantageous from the point of view of the contracting authority or (b) offers the lowest price.
Regulation 3 provides a list of bodies that are to be taken to be a contracting authority for the purposes of the Regulations.
Among those listed is a local authority.
Harrow is a contracting authority for those purposes, as of course was Brent.
Various expressions used in the 2006 Regulations are defined in regulation 2.
The expression public contract means a public services contract, a public supply contract or a public works contract.
Public services contract means a contract, in writing, for consideration (whatever the nature of the consideration) under which a contracting authority engages a person to provide services but does not include (a) a public works contract; or (b) a public supply contract; but a contract for both goods and services shall be considered to be a public services contract if the value of the consideration attributable to those services exceeds that of the goods covered by the contract and a contract for services which includes activities specified in Schedule 2 that are only incidental to the principal object of the contract shall be considered to be a public services contract.
Services provider means a person who offers on the market services and who sought, or would have wished, to be the person to whom a public services contract is awarded or to participate in a design contest and which is a national of and established in a relevant state.
RMP, as a commercial insurer, is a person who offers on the market services within the meaning of that definition.
The issues
Harrow does not claim to have observed the 2006 Regulations when it placed insurance with LAML.
As in Brents case, the contract which it entered into with LAML was not put out to tender.
The question which Harrow raises in its defence is whether the 2006 Regulations apply to the kind of collective provision of services that its contract with LAML involved.
Article 1(2)(a) of the Directive defines public contracts as contracts for pecuniary interest concluded in writing between one or more economic operators and one or more contracting authorities and having as their object the execution of works, the supply of products or the provision of services within the meaning of this Directive.
It submits that the question what is a public contract for the purposes of the EU public procurement regime is a question of EU law.
Under English law a contract requires agreement between two distinct juridical persons.
But EU law has developed its own autonomous concepts for determining whether the parties to an agreement are sufficiently distinct for it to constitute a public contract.
It is fundamental to the operation of the regime that it applies only to contracts awarded to external contractors, and is not intended to prevent a public authority from procuring the relevant goods or services from its own resources.
This gives rise to no particular difficulty where a public authority seeks to make use of services that it can provide for itself in house.
The problem arises where the public authority wishes to procure them from a distinct juridical entity with which the authority is closely associated or from a distinct juridical entity which is closely associated with a consortium of authorities to which it belongs.
There is now a substantial body of case law in the Court of Justice of the European Union on this issue.
The leading decision is Teckal Srl v Comune di Viano and Azienda Gas Acqua Consorziale (AGAC) di Reggio Emilia (Case C 107/98) [1999] ECR I 8121 (Teckal).
AGAC was a corporate entity which had been set up by a consortium of Italian municipalities to provide energy and environmental services to the participating authorities.
For some time prior to 1997 Teckal had supplied fuel to Viano and had serviced its heating systems.
In May 1997 Viano decided to switch its custom to AGAC.
It did so without inviting competing tenders from other interested persons.
Teckal challenged this decision on the ground that Viano had failed to comply with Directives 92/50/EEC (as to services) and 93/36/EEC (as to goods).
Vianos case was that it had decided to undertake these matters itself through a body which had been set up for the purpose.
In para 41 of its judgment the court said: In order to determine whether the fact that a local authority entrusts the supply of products to a consortium in which it has a holding must give rise to a tendering procedure as provided for under Directive 93/36, it is necessary to consider whether the assignment of that task constitutes a public supply contract.
In para 49, as to whether there was a contract for this purpose, it said that the national court must determine whether there had been an agreement between two separate persons.
In para 50 it then gave guidance as to how the issue as to whether it was a public service contract was to be determined: In that regard, in accordance with article 1(a) of Directive 93/36, it is, in principle, sufficient if the contract was concluded between, on the one hand, a local authority and, on the other, a person legally distinct from that local authority.
The position can be otherwise only in the case where the local authority exercises over the person concerned a control which is similar to that which it exercises over its own departments and, at the same time, that person carries out the essential part of its activities with the controlling local authority or authorities.
In para 51 it said that the Directive applied only to contracts between a public authority and an entity which was formally distinct from it and independent of it in regard to decision making.
Two conditions must therefore be satisfied if a contract between a public authority and a legally distinct entity is to be taken out of the scope of the Directive.
First, the public authority must exercise control over the entity with which it contracts.
But it may wish to co operate with other public authorities in the procurement of services.
As the contractor in Teckal was a consortium company, the decision in that case suggests, without actually saying so, that control can be exercised by a public authority jointly with other public authorities.
This condition was referred to in argument as the control test.
Secondly, the contractor must carry out the essential part of its activities with the controlling local authority or authorities.
This condition was referred to as the function test.
The Teckal exemption is not referred to anywhere in the Directive.
It is a judicial gloss on its language.
Harrow submits that it reflects the courts view of the Directives wider economic purpose and its traditional concern with economic substance as opposed to legal form.
Its case is that agreements between a public authority and a controlled entity, although satisfying all the requirements of contractual validity imposed by the national law of contract, are nevertheless not to be treated as public contracts for the purposes of the Directive if the reality is that they are in house arrangements made by the public authority itself or by a group of public authorities acting collectively for their public purposes.
RMP has however raised a threshold issue as to whether the Teckal exemption has any application in domestic law to the public procurement regime that the 2006 Regulations set out.
This is because the Regulations are drafted in terms of English law and do not refer to or expressly enact the exemption.
It was agreed that the following issues arise on this appeal: (1) Does the Teckal exemption apply to the 2006 Regulations? (2) If so, is the exemption applicable where the contract is for insurance? (3) If so, to satisfy the Teckal control test, must the contracting authority exercise a control over the legally distinct entity which is similar to that which it exercises over its own departments, or is it sufficient that control is exercised by the contracting authorities collectively? (4) If it is sufficient that the contracting authorities exercise that control collectively, is that requirement satisfied in this case? (5) Is the Teckal function test also satisfied in this case? (6) Is a reference to the Court of Justice required on issue (2) or the issues about the control test?
Stanley Burnton LJ held that the Teckal exemption applied to the 2006 Regulations.
He held that the term contract in the Regulations should be construed in the light of the expressed intention to implement the Directive and as requiring two contracting parties that do not satisfy the Teckal conditions: [2008] LGR 429, para 65.
He rejected RMPs argument that it would be inconsistent with the Teckal exemption to apply it to insurance: para 67.
The real issue, as he saw it, was whether on the facts the requirements of the exemption were satisfied.
Having examined the Memorandum and Articles of Association of LAML and the Rules appended to the Articles, he said that the general picture that they gave was of a business the administration of which was relatively independent, and of a relationship between Brent and LAML that was inconsistent with Teckal: para 78.
He did not find it necessary to consider whether the function test was satisfied.
The Court of Appeal agreed with Stanley Burnton LJ on the question whether the Teckal exemption formed part of the 2006 Regulations: [2010] PTSR 349, paras 133 (Pill LJ), 225 (Moore Bick LJ).
It held that the requirements of the Teckal control test were not satisfied.
Pill LJ said that the nature of LAMLs business and the possibly differing interests of different authorities and affiliates, were antithetic to the necessary local authority control: para 131.
Moore Bick LJ said that the facts showed that the Board of LAML was intended to exercise a substantial amount of discretionary control over the way the company was run, particularly in relation to its dealing with individual members, and that the nature of the relationship between the member as insured and LAML was essentially one between independent third parties: para 236.
Pill LJ said that, if he had found that the Teckal control test was satisfied, he would have been prepared to find that the Teckal function test was satisfied also: para 132.
Does the Teckal exemption apply to the 2006 Regulations?
Mr Howell QC for RMP submitted that the 2006 Regulations should be construed and applied in the same way as any other regulations made under domestic law, unless they were found to be incompatible with EU law.
There was no such incompatibility in this case.
They were within the powers of section 2(2) of the European Communities Act 1972, as it permits a domestic measure to be wider in its effects than the EU measure to which it gives effect.
So it would not have been incompatible for them to have subjected more contracts to the procurement regime than EU law required.
They did not contain a Teckal exemption, but the Directive did not in terms do so either.
As for their terms, they did not simply reproduce the wording of the Directive.
On the contrary, they set out the requirements for procurement in domestic law in terms of domestic legal concepts.
Instead of adopting the definition of public contracts in article 1(2)(a) of the Directive, they provided their own definitions of public contract and public services contract.
The definitions were all couched in terms of domestic contract law, in the interests of greater certainty.
There was no evidence as to whether national contract procurement rules in other member states included a Teckal exemption, but there was nothing odd about having different contract procurement regimes.
The Commission could have directed that it was to be applied in all Member states, but it had not done so.
I do not find these arguments persuasive.
It is a sufficient answer, as Mr Sumption QC for Harrow submitted, to say that the basis for implying the Teckal exemption into the 2006 Regulations is to be found in their underlying purpose, which was to give effect to the Directive.
The absence of any reference to the exemption in the Regulations is of no more significance than the absence of any reference to it in the Directive that was being transposed.
The exemption in favour of contracts which satisfy its conditions was read into the Directive by the European Court in Teckal because it was thought to be undesirable for contracts of that kind to be opened up for public procurement.
This was not just a technicality.
It was a considered policy of EU law.
It would be odd if a significant and policy based exemption were to apply in some member states and not others, especially as one of the aims of the Directive was to harmonise procedures.
This can be seen from recital (2) of the preamble to the Directive, which states in part: for public contracts above a certain value, it is advisable to draw up provisions of Community coordination of national procedures for the award of such contracts which are based on [the principles of non discrimination, mutual recognition, proportionality and transparency] so as to ensure the effects of them and to guarantee the opening up of public procurement to competition.
Furthermore, as some of the authorities that I will refer to later show, the Teckal exemption applies equally to cases where, because the relationship does not fall within the scope of the Directive, the issue is one as to its compatibility with articles 12, 43 and 49 of the EC Treaty: Parking Brixen GmbH v Gemeinde Brixen (Case C 458/03) [2005] ECR I 8585; Asociacin Nacional de Empresas Forestales (Asemfo) v Transformacin Agraria SA (Tragsa) (Case C 295/05) [2007] ECR I 2999; Coditel Brabant SA v Commune dUccle (Case C 324/07) [2008] ECR I 8457.
So it does not depend on the meaning to be given to particular words or phrases in the Directive, such as those to be found in the definition of public contracts in article 1(2)(a).
The basis for it is more fundamental than that.
That is why, as Advocate General Geelhoed pointed out in Asemfo [2007] ECR I 2999, paras 58 59, services where no element of a contract for a pecuniary interest is involved (and which, for that reason, lie outside the scope of the Directive but are within the scope of the EC Treaty) but which have the same effect in economic terms as an arrangement in which one authority entrusts services under contracts for pecuniary interest to an entity which is under the control of another authority (which are public contracts within the meaning of the Directive) should be judged as far as possible by the same measure.
It is true that section 2(2) of the European Communities Act 1972 is in wide terms.
It does not confine any measures made under it to doing the minimum necessary to give effect to a Directive.
But, if it is to be within the powers of the subsection, the measure has to arise out of or be related to an EU obligation.
As Waller LJ said in Oakley Inc v Animal Ltd (Secretary of State for Trade and Industry intervening) [2006] Ch 337, para 39, the primary objective of any secondary legislation under section 2(2) must be to bring into force laws which, under the Treaties, the United Kingdom has agreed to make part of its laws.
There is nothing in the Explanatory Memorandum to the Regulations that was prepared by the Office of Government Commerce and laid before Parliament to indicate that it was intended to depart from the jurisprudence of the court as to the scope of the Directive.
In paras 7.2 7.4 of the Memorandum it was stated that the change to the legislation was necessary to implement the new public procurement Directive, that it clarified and modernised the previous texts and that the simpler and more consistent public sector text should reduce the burdens involved under the EU rules.
If the Teckal exemption were to be held not to apply to the 2006 Regulations, it could only be because the purpose of the Regulations was to apply the public procurement rules to relationships that fell outside the regime provided for by the Directive.
But that would not be consistent with the Memorandum, and it would not be a permitted use of the power.
As for the meaning and effect of the 2006 Regulations, I think that it would be wrong to apply a literal approach to the words and phrases used in it, such as in the definitions of public contract and public service contract.
A purposive approach should be adopted.
As Lord Diplock in Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850, 881 indicated, this means that regard must be had to the context in which the Regulations were made, to their subject matter and to their purpose.
Would it be inconsistent with the achievement of that purpose if the Teckal exemption were not to be held to apply to them? Was this an exemption to which Parliament must have intended them to be subject? Having regard to the background of EU law against which the Regulations were made, the definitions in the Regulations can be taken to express the same idea as those in the Directive.
Thus something which amounts to a contract in domestic law can nevertheless be held, without doing undue violence to the words of the Regulations, not to be a relevant contract for the purpose of the public procurement rules.
I would hold accordingly that the Teckal exemption does apply to the 2006 Regulations.
By implication, the rules that it lays down do not apply to contracts between a public authority and a person which is legally distinct from it if, but only if, the control and function tests identified in Teckal are both satisfied.
Is the exemption applicable where the contract is for insurance?
Mr Howells argument on this issue was based in the proposition that the Teckal exemption applies only where there was no contract, by which he meant that there was in substance no agreement between two separate persons.
A contract of insurance, which by its very nature transferred the insured risk from one person to another, could not meet that requirement.
It was inherently a contract between two different people.
Insurance is not something which can be internal to the contracting authority.
So the arrangements between Harrow and LAML were not entitled to the benefit of the exemption.
Mr Sumptions reply to this submission was equally short.
It was obvious that a person could not insure himself.
As Moore Bick LJ said in the Court of Appeal, para 236, the nature of the relationship between the participating member and LAML as insurer was essentially one between independent third parties.
But it was not a pre condition of the Teckal exemption that the services which were the subject of the contract between the local authority and the other person should be services that were capable of being provided by one of the local authoritys own departments.
Stanley Burnton LJ was right to observe that there was no reason why a public authority could not establish a captive insurer with its own resources: [2008] LGR 429, para 67.
I would reject Mr Howells proposition that the Teckal exemption applies only where there is no agreement between two separate persons.
That is a misreading of paras 50 and 51 of Teckal.
It is, of course, necessary that there be a contract for pecuniary interest concluded in writing between one or more economic operators for the Directive to be applicable: see the definition of public contracts in article 1(2)(a).
The whole point of the Teckal exemption, however, is to build on that starting point and to define the circumstances in which, as para 50 puts it, the position can be otherwise.
It assumes that there is a contract between two separate entities.
So the mere fact that the nature of the relationship between an insured and his insurer is essentially one between two independent parties does not, of itself, make the exemption inapplicable.
It is a necessary consequence of the nature of that relationship that the transfer of risk from one person to another is not a service that a local authority can provide for itself.
But I can detect no indication from what was said in paras 50 51 of Teckal and subsequent authorities that this is a factor of the slightest importance.
This point is confirmed by the courts reasoning in Commission of the European Communities v Federal Republic of Germany (Case 480/06) [2009] ECR I 4747, para 47: see para 51, below.
What matters is whether the arrangement satisfies the control test.
If it does, an insurance contract is as just as eligible for exemption under Teckal as a contract for the collection and disposal of waste.
The control test
The first issue as to the application of the control test to this case is one of principle.
It arises where, as in this case, several local authorities combine together to procure services from an entity which is formally distinct from any of them.
For the Teckal exemption to apply must each contracting authority exercise the required control over the formally distinct entity itself in a manner which is similar to that which it exercises over its own departments? Or is it sufficient that the contracting authorities exercise that control over it collectively? In short, is individual control necessary?
The answer to this question lies at the heart of this case.
This is because of the way the Rules annexed to LAMLs Articles of Association deal with the handling and settlement of claims by LAML.
The third paragraph of rule 21 provides that all lawyers and others appointed by LAML for the account of the participating member shall be answerable to LAML without prior reference to the participating member.
Rule 22 sets out the powers of the board relating to recoveries from LAML.
It provides: The board shall consider claims which may be paid by [LAML] in accordance with these rules, but the board shall have power from time to time to authorise the managers to effect and determine payment of claims without prior reference to the board.
Without the prior agreement of the board, no member director of [LAML] shall sit on the board while it is engaged in the consideration or settlement of any claim in which the participating member of that member director is interested.
The effect of rule 22, as Stanley Burnton LJ observed [2008] LGR 429, para 78, is that a participating member will normally be excluded from the Boards consideration of its insurance claim.
The degree of independence of decision making in the handling and settlement of claims is apparent also from rule 21 and from article 11 of LAMLs Articles of Association which provides that a participating member shall cease to be a participating member if the board in its judgment determines it is undesirable for a participating member to continue to be a participating member.
These provisions are both appropriate and desirable given the importance of ensuring that there is fair dealing between all the participating members if one of them seeks an indemnity from LAML.
But they are very different from those which an individual local authority would agree to with one of its own departments.
It is hard to see how these arrangements could be said to be similar to that which Harrow, in particular, exercises over the departments which it employs to carry out its functions as a local authority.
Everything therefore is likely to depend on whether control can be exercised by the local authorities collectively.
In Teckal there was collective control.
AGAC was a consortium established by 45 Italian municipalities to manage and control energy and environmental services.
Viano, which was a member of the consortium, had been supplied with fuel and had its heating services serviced by Teckal, which was a private company.
It decided to switch its custom to AGAC without inviting tenders from others.
Teckal challenged this decision on the ground that Viano had failed to comply with the then current Directives.
It was met with the argument that Viano had merely decided to undertake these things for itself through a body which had been set up for the purpose.
The question whether individual control was necessary was not explored by the court.
The control test in para 50 is expressed in the singular, not the plural: similar to that which it exercises over its own departments.
The ruling is also expressed in the singular.
But the function test in para 50 ends with the phrase the controlling authority or authorities. (emphases added) The point of principle was left open.
So it is necessary to examine some of the later cases in which the Teckal exemption has been developed and explained to find the answer to it.
Mr Sumption selected six cases in support of his argument that it is now plain that it is enough if the control is exercised collectively.
He summarised his submission in this way.
Where the contractor is controlled by a consortium of public authorities, and is sufficiently identified with their public purposes and functions, the control test will be satisfied.
This will be so even though it is in the nature of collective control that no single authority can be said to exercise the kind of control which it would have over one of its own departments.
In effect EU law treats the controlling group as if it were a single public authority dealing with a captive contractor that is to say, a contractor which is wholly identified with the controlling group and has no wider commercial objectives.
There is no doubt that the case law on the Teckal exemption has become progressively clearer as the European Court has developed its jurisprudence on public procurement and has placed a growing emphasis on the underlying rationale.
In Stadt Halle v Arbeitsgemeinschaft Thermische Restabfall und Energieverwertungsanalage TREA Leuna (Case C 26/03) [2005] ECR I 1 (Stadt Halle) the City of Halle decided to award a contract for the handling and disposal of its waste to RPL, a company with limited liability.
Just over three quarters of RPLs shares were held by a wholly owned subsidiary of a company wholly owned by Halle.
Just under one quarter were held by a private company.
Leuna challenged the proposed contract on the ground that Halle had failed to comply with the Directives.
The question was whether the existence of a substantial private shareholding in the contractor was inconsistent with the control test.
The court observed in para 49 that in Teckal the distinct entity was wholly owned by the public authorities.
On the other hand, participation, even as a minority, of a private undertaking excluded the possibility of the contracting authority exercising a control similar to that which it exercises over its own departments.
This was incompatible with the Teckal exemption because the element of private capital meant that the control test was not satisfied.
That was not a case about collective control as the City of Halle was not a member of a consortium.
But the case is of interest nevertheless.
In her opinion Advocate General Stix Hackl broke new ground when she addressed the issue of what she called quasi in house procurement.
In para 49 she said that this differed from in house supply in that it involved awards to an entity entirely separate from the contracting authority and having legal personality.
In her opinion the case turned on the application of the control test and, despite the minority shareholding, this test was satisfied: paras 62, 70.
The court disagreed with her only on the question whether the control test was satisfied.
Any exception to the application of the obligation to apply the Community rules in the field of public procurement must be interpreted strictly: para 46.
In para 48 the court identified the exception on which the City of Halle sought to rely: A public authority which is a contracting authority has the possibility of performing the tasks conferred on it in the public interest by using its own administrative, technical and other resources, without being obliged to call on outside entities not forming part of its own departments.
In such a case, there can be no question of a contract for pecuniary interest concluded with an entity legally distinct from the contracting authority.
There is therefore no need to apply the Community rules in the field of public procurement.
The minority shareholding by the private company in RPL made all the difference, however.
The award of a public contract to what the court termed a semi public company without calling for tenders would interfere with the objective of free and undistorted competition and give it an advantage over its competitors: para 51.
The control test was not satisfied.
In Parking Brixen GmbH v Gemeinde Brixen (Case C 458/03) [2005] ECR I 8585 (Parking Brixen) the municipality of Brixen granted a concession for the management of two car parks to a company which it wholly owned.
The court held that this was a public service concession to which the then applicable Directive did not apply: para 43.
But it said that public authorities are nevertheless bound to comply with the fundamental rules of the EC Treaty in general and with the principles of non discrimination on grounds of nationality in particular as set out in articles 12EC, 43EC and 49EC: para 49.
Their application did not depend on the existence of a contract.
The Teckal principles could be transposed to the Treaty provisions, but it was not appropriate to apply the Community rules to public service concessions which were excluded from the scope of the public procurement Directives: para 61.
The application of the rules in articles 12EC, 43EC and 49EC was precluded if the control exercised was similar to that which the public authority exercises over its own departments and if the concessionaire carries out the essential part of its activities with the controlling authority: para 62.
As already noted, these findings provide authority for Mr Sumptions submission that the application of the Teckal exemption does not depend on the meaning to be given to particular words or phrases in the Directive, such as those to be found in the definition of public contracts in article 1(2)(a): see para 23, above.
The court recognised that the basis for the Directive was to be found in the fundamental rules that were to be found in the EC Treaty.
The problem for Brixen was that the concessionaire was a company limited by shares resulting from the conversion of a special undertaking of the public authority.
Applying the control test as described in Teckal, the court said in para 65 that the assessment must take account of all the legislative provisions and relevant circumstances: It must follow from that examination that the concessionaire in question is subject to a control enabling the concession granting public authority to influence the concessionaires decisions.
It must be a case of a power of decisive influence over both strategic objectives and significant decisions.
At the time of the award the concessionaire was wholly owned by the municipality, but it had become market oriented.
In pursuance of its objects it had begun to perform services on a commercial basis to third parties, its statute provided for the obligatory opening up of the company to private capital, considerable powers of management were conferred on its Board with in practice no control by the municipality and it could effect certain transactions up to a value of 5m Euros without the prior authority of a meeting of the shareholders: paras 67 68.
Because of these elements it was not possible for the concession granting public authority to exercise over the concessionaire control similar to that which it exercised over its own departments.
So the award of the concession to such a body could not be regarded as a transaction internal to the public authority to which the rules of Community law did not apply: paras 70 71.
That case did not involve a consortium.
But the court endorsed the point made in Stadt Halle, at para 48, that it was not appropriate to apply the Community rules on public procurement in case where a public authority performs tasks in the public interest for which it is responsible without calling upon external entities.
The decisive influence test described in Parking Brixen, at para 65, was applied in Carbotermo SpA v Comune di Busto Arsizio (Case C 340/04) [2006] ECR I 4137 (Carbotermo).
This was a consortium case.
The municipality of Busto Arsizio had awarded a contract for the supply of fuel and the maintenance and upgrading of its heating equipment to AGESP SpA. Its decision to do so was challenged by Carbotermo because it did not call for tenders before awarding the contract.
Busto Arsizio owned 99.98% of the shares in the company of which AGESP was a wholly owned subsidiary.
The remaining 0.2% of the shares was held by a number of adjoining municipalities.
The key issue was control.
Applying the test described in Parking Brixen the court said in para 37: The fact that the contracting authority holds, alone or together with other public authorities, all of the share capital in a successful tenderer tends to indicate, without being decisive, that that contracting authority exercises over that company a control similar to that which it exercises over its own departments, as contemplated in para 50 of Teckal. (emphasis added) Here, for the first time, the court recognised that individual control was not necessary for the Teckal exemption to apply.
The contracting public authority could exercise control over the contractor alone or together with other public authorities.
The point was made despite the fact that the proportion of shares held by the other public authorities was very small.
It was held nevertheless that the control test was not satisfied.
The statutes of both AGESP and its parent company conferred the broadest possible discretion on the boards of each of them for their ordinary and extraordinary management.
They gave no control or specific voting powers to the commune to enable it to restrict the boards freedom of action.
The court said that the control that the commune was given over these two companies could be described as consisting essentially of the latitude conferred by company law of a majority of the shareholders and that this places considerable limits on its power to influence the decisions of the companies: para 38.
The fact that any influence that it might have on AGESPs decisions was through a holding company might also weaken any control that might possibly be exercised: para 39.
It followed that the contracting authority did not exercise over the successful tenderer a control similar to that which it exercised over its own departments.
The court went on to deal with the Teckal function test.
It held that the undertaking in question could be viewed as carrying out the essential part of its activities with the controlling authority within the meaning of Teckal only if that undertakings activities were devoted principally to that authority and any other activities were only of marginal significance: para 63.
This condition could be met, where the undertaking was controlled by several public authorities, if it carried out the essential part of its activities with all of those authorities together: para 70.
Asociacin Nacional de Empresas Forestales (Asemfo) v Transformacin Agraria SA (Tragsa) (Case C 295/05) [2007] ECR I 2999 (Asemfo) was another case about collective control.
It was also a Treaty case.
Tragsa was a Spanish company which was owned as to 99% by the State and as to the remaining 1% by four autonomous communities.
It was established to carry out agricultural, forestry and other rural development activities for those public bodies.
Although it was a legally distinct entity, it was obliged to act in accordance with instructions received from them and to carry out work at rates fixed by regulation.
It could not negotiate terms.
Asemfo complained that the legal regime applicable to Tragsa, which allowed it to execute public works without being subject to the public procurement rules, was not compatible with Community law.
Advocate General Geelhoed observed in para 38 of his opinion that the effect of this regime, which created obligations in public law only, was that the contractual element between the contracting authority and the contractor considered in previous cases was entirely absent.
But he said, following Parking Brixen, that the issue of compatibility with primary Community law, and in particular with articles 12EC, 43EC and 49EC, had to be assessed: para 52.
The court too noted in para 54 of its judgment that the requirement for the application of the Directives relating to the existence of a contract was not met.
But it went on to consider whether the Teckal exemption applied.
Dealing first with the control test, the court referred to the point made in Carbotermo, at para 37, that the fact that all of the share capital in a successful tenderer is held, alone or with other public authorities, by the contracting authority tends to indicate, generally, that the contracting authority exercises over that company a control similar to that which it exercises over its own departments: para 57.
It rejected the argument that the condition could only be met for contracts performed at the demand of the Spanish State, which held a 99% interest in Tragsa, and not those which were the subject of a demand from the autonomous communities.
Tragsa could not be regarded as a third party in relation to the communities which held a part of its capital: paras 60 61.
As to the function test, it said in para 62 that it followed from the case law that, where several authorities control an undertaking, that condition may be met if that undertaking carries out the essential part of its activities, not necessarily with any one of those authorities but with all of them together: Carbotermo, para 70.
The courts finding in paras 60 61 of Asemfo as to the position of the autonomous communities is an important indication of the way the element of collective control operates.
All members of the consortium are entitled to take the benefit of it in the application of the Teckal exemption.
The decisive influence that a contracting authority must exercise over the contractor may be present even if it is exercisable only in conjunction with the other public authorities.
It is also clear, as was pointed out in Asociacin Profesional de Empresas de Reparto y Manipulado de Correspondencia v Adiminstracin General del Estado (Case C 220/06) [2007] ECR I 12175, para 52, that a critical factor in the courts decision in Asemfo was that, as Tragsa was an instrument and technical service of the Spanish Administration, it was required to implement only work entrusted to it by the General Administration of the State, the autonomous communities or the public bodies subject to them.
The principles applied in the previous cases were developed and expanded in Coditel Brabant SA v Commune dUccle (Case C 324/07) [2008] ECR I 8457 (Coditel).
The Belgian municipality of Uccle awarded a contract for the operation of its cable television network to a co operative called Brutl, which had been set up by a consortium of municipalities with separate legal personality.
Uccle had joined the consortium in order to be able to contract with Brutl.
Coditel challenged the award of the contract on the ground that Uccle had not followed the public contract procurement process.
The court held that the method of remuneration, which came not from the municipality but from payments made by the users of the network, was characteristic of a public service concession: para 24.
So, like Parking Brixen, this was a Treaty case to which the rules set out in articles 12EC, 43EC and 49EC applied.
Following Carbotermo, para 37 and Asemfo, para 57, the court said that the fact that Uccle, the concession granting public authority, held together with other public authorities all of the share capital in Brutl tended to indicate, but not conclusively, that the control test was satisfied: para 31.
It was clear that Brutl was an inter municipal company whose members were all public authorities and that it was not open to private members.
The fact that its governing council was composed of representatives of the participating public authorities showed that it was under the control of the public authorities, as they were able to exert decisive influence over both Brutls strategic objectives and significant decisions: paras 32 34.
The fact that the governing council enjoyed the widest powers of management was noted in para 35.
But this was not fatal because, as the court said in para 36: The question arises as to whether Brutl has thus become market oriented and gained a degree of independence which would render tenuous the control exercised by the public authorities affiliated to it.
Having noted that Brutls object under its statutes was the pursuit of the municipal interest that being the raison dtre for its creation and that it did not pursue any interest which was distinct from that of the public authorities affiliated to it, it held that the control that was exercised over it could be regarded as similar to that exercised by the participating public authorities over their own departments: paras 38 41.
It was the exclusively public nature of the interest that Brutl was pursuing that was decisive in this assessment.
The court then addressed the question whether the control had to be exercised by each of the participating public authorities individually or whether it can be exercised jointly by them, with decisions taken by a majority, as the case may be: para 43.
In answer to this question the court said it would be consistent with its reasoning in Carbotermo, paras 70 and 71, and Asemfo, para 62, to consider that the condition as to the control exercised by the public authorities may also be satisfied if account is taken of the control exercised jointly over the concessionaire by the controlling authorities.
It then made these important rulings: 46 According to the case law, the control exercised over the concessionaire by a concession granting public authority must be similar to that which the authority exercises over its own departments, but not identical in every respect (see, to that effect, Parking Brixen, para 62).
The control exercised over the concessionaire must be effective, but it is not essential that it be exercised individually. 47 Secondly, where a number of public authorities elect to carry out their public service tasks by having recourse to a municipal concessionaire, it is usually not possible for one of those authorities, unless it has a majority interest in that entity, to exercise decisive control over the decisions of the latter.
To require the control exercised by a public authority in such a case to be individual would have the effect of requiring a call for competition in the majority of cases where a public authority seeks to join a grouping composed of other public authorities, such as an inter municipal cooperative society. 48 Such a result, however, would not be consistent with Community rules on public procurement and concession contracts.
Indeed, a public authority has the possibility of performing the public interest tasks conferred on it by using its own administrative, technical and other resources, without being obliged to call on outside entities not forming part of its own departments (Stadt Halle, para 48). 49 That possibility for public authorities to use their own resources to perform the public interest tasks conferred on them may be exercised in cooperation with other public authorities (see to that effect, Asemfo, para 65.
It noted that in Asemfo, paras 56 61 the court recognised that in certain circumstances the condition relating to the control exercised by the public authority could be satisfied where such an authority held only 0.25% of the capital in a public undertaking: para 53.
Mr Howell said that the court had lost sight in Coditel of the fact that the purpose of the function test which was what it was discussing in Carbotermo, paras 70 and 71, and Asemfo, para 62 was different from that of the control test.
The last sentence of para 46 was a non sequitur.
In paras 47 48 the court had conflated two different things, namely becoming a member of an association of contracting authorities and the awarding the association a contract.
The Directive did not apply to the first, but it did to the second.
And the court did not, when it referred to Asemfo, para 53, ask itself what were the circumstances in which the condition could be satisfied.
It had therefore not grappled with the Directive and its scope.
I would not, for my part, accept these criticisms.
It is plain that the question of collective control arose directly in that case.
The courts reasoning shows that it was concerned with substance rather than with form.
That was the point that was made in Asemfo.
The proposition in the last sentence of para 46 encapsulates a perfectly rational principle.
I do not see it as containing a non sequitur.
The message which it conveys is very clear.
Collective control is enough.
Individual control is not necessary.
In Commission of the European Communities v Federal Republic of Germany (Case 480/06) [2009] ECR I 4747 (Commission v Germany) four local authorities entered into a contract with the cleansing department of the City of Hamburg to enable it to build a larger waste treatment facility than it required for its own purposes.
Capacity was to be reserved for them for a price to be paid to the facilitys operator so that it would serve their purposes also.
The contract was not put out for tender.
The Commission challenged the arrangement on the ground that there had been a failure to comply with the Directive.
The City of Hamburg was not a member of a consortium, and it was admitted that the four local authorities did not exercise any control which could be described as similar to that which they exercised over their own departments.
On these facts the local authorities did not satisfy the Teckal control test: para 36.
Their contract was nevertheless held to fall outside the Directive, for three main reasons.
First, the contract established cooperation between local authorities with the aim of ensuring that a public task they all had to perform was carried out: para 37.
It was concluded solely by public authorities without the participation of any private party, and it did not provide for or prejudice the award of any contracts that might be necessary in respect of the construction and operation of the waste treatment facility: para 44.
And Coditel, para 48 and 49 had established that a public authority had the possibility of performing the public interest tasks conferred on it by using its own resources without being obliged to call on outside entities not forming part of its own departments, and that it may do so in co operation with other public authorities: para 45.
The Commission said that, had there been cooperation by means of the creation of a body governed by public law to which the various local authorities entrusted performance of the task in the public interest of waste disposal, it would have accepted that the use of the facility did not fall under the rules of the Directive: para 46.
But it maintained that, as there was no such body, a call for tenders should have been issued.
The court summarised its response in para 47: It must be observed, though, first, that Community law does not require public authorities to use any particular legal form in order to carry out jointly their public service tasks.
Secondly, such cooperation between public authorities does not undermine the principal objective of the Community rules on public procurement, that is, the free movement of services and the opening up of undistorted competition in all the member states, where implementation of that cooperation is governed solely by considerations and requirements relating to the pursuit of objectives in the public interest and the principle of equal treatment of the persons concerned, referred to in Directive 92/50, is respected, so that no private undertaking is placed in a position of advantage vis vis competitors (see, to that effect, Stadt Halle, paras 50 and 51).
The reasoning in that paragraph shows how far we have travelled since the court issued its judgment in Teckal.
The same approach is taken whether the case concerns a service concession, to which the provisions of the Treaty apply, or a public service contract which falls within the ambit of the Directive: Sea Srl v Comune di Ponte Nossa (Case C 573/07) [2009] ECR I 8127, para 35.
There is now a much clearer focus on the purpose of the Community rules on public procurement so as not to inhibit public authorities from co operating with other public authorities for the purpose of carrying out some of their public service tasks.
The exact basis for the decision in Commission v Germany is not easy to detect from a reading of the courts judgment.
But it does confirm the conditions that need to be satisfied to fall within the Teckal exemption: para 34.
Collective control is enough, and para 47 tells us that public authorities do not require to follow any particular legal form in order to take advantage of it.
So long as no private interests are involved, they are acting solely in the public interest in the carrying out of their public service tasks and they are not contriving to circumvent the rules on public procurement (see para 48), the conditions are likely to be satisfied.
As to the last point, it should be noted that the management agreement between LAML and Charles Taylor & Co was put out for public tender, as were all LAMLs reinsurance contracts.
There is nothing in para 47 of Commission v Germany which cannot equally be said of the arrangements that are under scrutiny in this case.
I would sum up my conclusions on the control test, in the light of the guidance offered by these authorities, as follows.
Individual control is not necessary.
No injury will be caused to the policy objective of the Directive if public authorities are allowed to participate in the collective procurement of goods and services, so long as no private interests are involved and they are acting solely in the public interest in the carrying out of their public service tasks.
Asemfo shows that the decisive influence that a contracting public authority must exercise over the contractor may be present even if it is exercisable only in conjunction with the other public authorities.
This was confirmed by the last sentence of para 46 of Coditel and re affirmed in Sea Srl v Comune di Ponte Nossa, paras 54 57.
Where such a body takes its decisions collectively, the procedure used for the taking of those decisions is immaterial: Sea Srl, para 60.
These points illustrate the strength of the presumption referred to in Carbotermo, para 37 and Asemfo, para 57 that applies where the contracting authority holds, alone or together with other public authorities, all of the share capital in a successful tenderer.
The fact that two or more public authorities have collaborated to secure a service which is designed exclusively for the performance of their public functions, as in Commission v Germany where they did not hold any share capital in the cleansing department, carries at least as much weight.
The argument that the control test was satisfied failed in Carbotermo because the broadest possible discretion was conferred on the boards of the parent company and its subsidiary for their ordinary and extraordinary management.
No control was given to the commune to enable it to restrict the boards freedom of action, in the form of specific voting powers or otherwise.
It would have been otherwise if the commune had had power to give directions to the boards on strategic matters or important issues of policy.
Is the control test satisfied in this case?
This is a matter for the domestic court to determine in the light of the jurisprudence of the European Court.
Mr Sumption accepted that, if he was wrong on the question whether individual control was necessary, his case must fail.
For the reasons I have given in paras 48 and 49 above, I am satisfied that collective control is enough.
This means that the test will be satisfied even though it is in the nature of collective control that no single authority can be said to exercise the kind of control which it would have over its own departments.
The relevant facts as to the control of LAML are as follows.
The Board had the normal powers of management under articles 4 and 36 of its Articles of Association.
It consisted of not less than five and no more than 11 directors, of whom at least two had to be independent directors: article 16(a).
The Chairman was selected from the directors, but he was not to be an independent director: article 16(c).
No meeting of the directors was to be quorate unless the majority of directors present were member directors, that is to say directors representing a participating member: article 39 read with article 33(f) and (g).
Membership was personal to the London local authority concerned, and it was not transferable: article 10.
The participating members each had one vote at general meetings under article 15(a), and the member directors were elected by them.
By article 1 it was provided that regulation 70 of Table A of the Companies (Tables A F) Regulations 1985 (SI 1985/805) was expressly incorporated.
So the special resolution procedure, as defined by section 283(1) of the Companies Act 2006, applied.
This meant that the Board was subject to direction by the participating members in general meeting, so long as they achieved a 75% majority. 100% of the voting rights at general meetings lay with the participating members.
The insurance that might be offered to members was governed by the rules annexed to LAMLs Articles of Association.
Under rule 16 LAML could offer only such insurance as the participating members had agreed at general meeting.
The effect of rule 22 was that a member director of a participating member would normally be excluded from the boards consideration of its insurance claim.
But this is a matter of detail.
I cannot agree with Stanley Burnton LJ [2008] LGR 429, para 78 that the general picture that these provisions give is of a business the administration of which was relatively independent, or with the Court of Appeal [2010] PTSR 349, paras 131, 236 that the nature of LAMLs business and the possibly differing interests of different authorities were antithetic to the necessary local authority control.
It is true that, when it came to claims, the nature of the relationship between each participating member as insured and LAML was essentially one between independent third parties.
But, as I have already said, individual control is not required.
Collective control over strategic objectives and significant decisions was with the participating members at all times.
They controlled a service which was designed exclusively for the performance of their public functions.
No private interests whatever were involved.
On these facts I would hold that the Teckal control test is satisfied.
The function test
This issue can be dealt with quite shortly.
The question where several public authorities control an undertaking, as the court made plain in Carbotermo, para 70, and Asemfo, para 62, is whether that undertaking carries out the essential part of its activities with all of the public authorities together in the consortium.
As was explained in Asemfo, paras 62 and 65, this does not necessarily have to be with any one of those authorities individually.
It is enough that it is with the same authorities collectively as exercise control over it.
This is because, if this test is satisfied, it shows that implementation of the cooperation between the public authorities is governed solely by considerations and requirements relating to the pursuit of objectives in the public interest by those authorities.
The absence of private capital and private customers is another important indication that the cooperation is for that purpose only, and that there is no risk of putting any private undertaking at a disadvantage vis vis its competitors: Commission v Germany, para 47.
In this case the relevant facts are these.
There was no private involvement in the affairs of LAML, which had no external or private capital, other than the presence on the Board of a minority of independent directors.
This was required by the Financial Services Authority as a condition of its authorisation of LAML as an insurer.
The main objects of the company were to provide insurance to participating members and affiliates.
All the other objects in its Memorandum were restricted by reference to the main objects of the company.
The expression participating member meant any London Borough that subscribed to the Memorandum and Articles of Association and had received an indemnity from LAML.
By definition they were all public authorities.
For the purposes of the Memorandum affiliates comprised various persons or bodies associated with a participating member in respect of whom that participating member was empowered to arrange an indemnity.
They were insured only in their capacity as affiliates.
LAML existed only to serve the insurance needs of its members.
Rule 16 of its Rules confined the persons to whom LAML might offer indemnity to the London local authorities.
It could only be provided to an affiliate if the insurance was arranged by a participating member, who was responsible for payment of the premium.
As already noted (see para 52, above), all major contracts for the provision of goods and services to LAML were put out for public tender in accordance with the 2006 Regulations, including in particular its reinsurance contracts.
I would hold that, on these facts, it is plain that the Teckal function test also is satisfied.
It follows that, as the Teckal exemption applies to the 2006 Regulations and the arrangements between LAML and the London local authorities satisfy both tests, Harrow did not act in breach of the Regulations when it entered into insurance contracts with LAML under the mutual insurance scheme.
Is a reference required?
I would hold that the answers to be given to issue (2) and the issues about the control test do not give rise to any questions on which further guidance needs to be sought from the Court of Justice of the European Union by means of a preliminary ruling under article 267TFEU (ex article 234EC).
Conclusion
I would allow the appeal.
LORD RODGER
The facts and issues in this appeal have been explained by Lord Hope, whose detailed account I gratefully adopt.
The ultimate question for this court is whether Brent was entitled to enter into contracts of insurance with LAML without first putting those contracts out to tender in accordance with the Public Contracts Regulations 2006 (the 2006 Regulations).
Those Regulations were made in order to implement Directive 2004/18/EC (the Directive) on public procurement of goods, works and services.
Even though the proceedings involving Brent have now been settled, the question arising out of those proceedings remains significant because it determines the answer to the further question: would a local authority such as Harrow be entitled, in the future, to enter into contracts of insurance with LAML without having first having complied with the 2006 Regulations?
At the hearing before this court the debate concentrated on whether the relationship between Harrow and LAML was such that the so called Teckal exemption would take effect, with the result that the Directive would not apply and, even if that were the position, whether an equivalent exemption applies in the case of the 2006 Regulations.
The Teckal exemption derives from what the Court of Justice said in Teckal Srl v Comune di Viano (Case C 107/98) [1999] ECR I 8121, 8154, paras 49 and 50, in relation to Council Directive 93/36/EEC on the co ordination of procedures for the award of public supply contracts: 49.
As to whether there is a contract, the national court must determine whether there has been an agreement between two separate persons. 50.
In that regard, in accordance with article 1(a) of Directive 93/36, it is, in principle, sufficient if the contract was concluded between, on the one hand, a local authority and, on the other, a person legally distinct from that local authority.
The position can be otherwise only in the case where the local authority exercises over the person concerned a control which is similar to that which it exercises over its own departments and, at the same time, that person carries out the essential part of its activities with the controlling local authority or authorities.
It is common ground that the Teckal exemption applies to the current Directive.
In order to understand why it does so, it is necessary to look at the purpose of the Directive and the wider context in which it operates.
The starting point is that the principal objective of the Community rules in the field of public procurement [is] the free movement of services and the opening up to undistorted competition in all the member states.
That involves an obligation on all contracting authorities to apply the relevant Community rules where the conditions for such application are satisfied: Stadt Halle v Arbeitsgemeinschaft Thermische Restabfall und Energieverwertungsanlage TREA Leuna (Case C 23/03) [2005] ECR I 1, 46, para 44.
So the requirements of the Directive apply where a contracting authority sets out to purchase from an outside supplier, say, a product or services which it requires.
In that event the Directive ensures that potential suppliers have a proper opportunity to compete for the contract.
It follows, of course, that the Directive has no application in a situation where a public authority obtains the product or services which it requires from its own resources as it is perfectly free to do.
The Court of Justice pointed this out in para 48 of its judgment in Stadt Halle [2005] ECR I 1, 47 48: A public authority which is a contracting authority has the possibility of performing the tasks conferred on it in the public interest by using its own administrative, technical and other resources, without being obliged to call on outside entities not forming part of its own departments.
In such a case, there can be no question of a contract for pecuniary interest concluded with an entity legally distinct from the contracting authority.
There is therefore no need to apply the Community rules in the field of public procurement.
In short, the Directive is not intended to protect the commercial sector by forcing public authorities to obtain the services which they need on the commercial market.
For instance, a local authority can have its own architects department and does not need to look outside to obtain the services of an architect or architects to design municipal buildings or housing.
It is free to obtain these services in house.
The purpose of the Directive is simply to ensure that, if public authorities do decide to obtain the services which they need from outside bodies, proper procedures are followed to ensure that potential providers of the services have an opportunity to compete for the work.
While the general approach is clear, its application can give rise to problems where an authority obtains the services or products which it requires not from one of its own departments, but from a separate body which, it claims, is so closely connected with it that the authority should still be regarded as, in substance, obtaining the services or products in house rather than from an outside body.
Obviously, if interpreted over generously, that broadening of the circumstances in which the Directive does not apply might tend to undermine its effective operation.
The two criteria laid down in Teckal are designed to guard against that risk.
If, but only if, they are satisfied, the Directive does not apply because, even though the public authority is intending to contract with another body for the supply of the products or services, the authority can still be regarded as fulfilling its requirements in house, rather than looking to an outside body to fulfil them.
Again, since they are preconditions for an exception to the application of the obligations in the Directive, the criteria must be interpreted strictly: Stadt Halle [2005] ECR I 1, 47, para 46.
In practice, a local authority which can afford, say, to run its own architects department is unlikely to see any real advantage in simply establishing that department as a separate legal entity with which it can then enter into contracts to meet its requirement for architectural services.
Such an arrangement would probably not, for example, save costs.
But local authorities and other public bodies may well be able to make considerable savings by co operating to obtain the services and products which they require.
For instance, a single local authority might not have enough work to make it economically worthwhile to have its own architects department; but, between them, two authorities might well have enough work to make such a department viable.
The possibility of local authorities co operating in the provision of services has long been recognised: section 101(5) of the Local Government Act 1972 makes provision for two or more local authorities to discharge any of their functions jointly.
So, for example, two or more local authorities may arrange for trading standards services to be provided jointly.
Equally, two or more authorities may co operate to obtain the architectural services which they require.
One possible way of doing this would be for the authorities to co operate to establish and finance a body which was separate from them but whose employees could design buildings for them.
Each of the authorities would then contract with the body for the design services that it required.
Does the Directive apply if a local authority intends to contract with such a body to provide the products or services which it requires? The Court of Justice has seen no reason to distinguish in principle between a situation where the body in question exists to serve the interests of a single local authority and a situation where it exists to serve the interests of several authorities.
In both situations the Teckal criteria apply.
Indeed, the cases which have come before the Court of Justice have tended to concern situations where several local authorities were co operating to obtain products and services.
That was the position in Teckal itself and, for example, in Stadt Halle [2005] ECR I 1 and Asociacin Nacional de Empresas Forestales (Asemfo) v Transformacin Agraria SA (Tragsa) (Case C 295/05) [2007] ECR I 2999.
In short, not only are local authorities free to use their own resources to perform the services which they exist to provide, but they may also co operate with other local authorities to ensure that, collectively, they have the necessary resources to do so.
See, for example, Coditel Brabant SA v Commune dUccle (Case C 324/07) [2008] ECR I 8457, 8504, paras 48 49: Indeed, a public authority has the possibility of performing the public interest tasks conferred on it by using its own administrative, technical and other resources, without being obliged to call on outside entities not forming part of its own departments (Stadt Halle, para 48). 49.
That possibility for public authorities to use their own resources to perform the public interest tasks conferred on them may be exercised in cooperation with other public authorities.
The Court of Justice reaffirmed this, in the context of a different kind of arrangement between a number of local authorities, in Commission of the European Communities v Federal Republic of Germany (Case C 480/06) [2009] ECR I 04747, 04777, para 45.
Where the co operation among the local authorities takes the form of establishing a body which then provides them with the necessary products or services, the Directive will not apply if, in substance, each of the co operating authorities is intending to obtain the products or services from the resources contributed by the co operating authorities for the use of the body.
In such a case, in substance, the authority is intending to obtain the products or services in house, in co operation with other public authorities.
Since the whole point is that the Directive does not apply in the case of such an arrangement because the public authorities are intending to obtain the products or services from their own resources which are to be administered in the public interest, it is essential that any body which the authorities establish does not involve any private investment.
As the Court of Justice observed in Stadt Halle [2005] ECR I 1, 48, para 51: the award of a public contract to a semi public company without calling for tenders would interfere with the objective of free and undistorted competition and the principle of equal treatment of the persons concerned, referred to in Directive 92/50, in particular in that such a procedure would offer a private undertaking with a capital presence in that undertaking an advantage over its competitors.
Under reference to this passage, the Court of Justice returned to the point in Commission v Germany [2009] ECR I 04747, 04777, para 47, where it said that the co operation among the public authorities in that case: does not undermine the principal objective of the Community rules on public procurement, that is, the free movement of services and the opening up of undistorted competition in all the member states, where implementation of that cooperation is governed solely by considerations and requirements relating to the pursuit of objectives in the public interest and the principle of equal treatment of the persons concerned, referred to in Directive 92/50, is respected, so that no private undertaking is placed in a position of advantage vis vis competitors.
A couple of months later the Court of Justice summarised its approach in Sea Srl v Comune di Ponte Nossa (Case C 573/07) [2009] ECR I 8127, 8151, paras 45 46: the fact of the contracting authoritys holding, together with other public authorities, all the share capital in a contractor company, tends to indicate, but not conclusively, that that contracting authority exercises over that company control similar to that which it exercises over its own departments. 46.
In contrast, the holding, even a minority holding, of a private undertaking in the capital of a company in which the contracting authority in question also has a holding too means that, on any view, it is impossible for that contracting authority to exercise over that company control similar to that which it exercises over its own departments (internal citations omitted).
So, if a body becomes market oriented, the award of a contract to it by a public authority cannot be regarded as a transaction internal to that authority to which the rules of Community law do not apply.
Cf Parking Brixen GmbH v Gemeinde Brixen C 458/03 [2005] ECR I 8585, 8637, para 71.
Assuming, however, that there is no private investment, how are the Teckal criteria to be applied to a body, such as LAML, which provides services to more than one contracting authority?
The first of the two cumulative criteria for holding that the Directive does not apply is that the local authority exercises over the person concerned a control which is similar to that which it exercises over its own departments:Teckal [1999] ECR I 8121, 8154, para 50.
The Court of Justice has gone on to explain that this means that the authority should have a power of decisive influence over both the strategic objectives and significant decisions of the body with which it intends to contract: Parking Brixen GmbH v Gemeinde Brixen [2005] ECR I 8585, 8635, para 65.
Is it enough, however, if this decisive influence is exercised by all the authorities combined, or must it be exercised by the individual authority which intends to contract with the body concerned? There is an obvious contrast in para 50 of Teckal (set out at para 65 above) between the reference to the control which the local authority (singular) exercises over its own departments in the first criterion and the reference to the activities which the person concerned carries out with the controlling local authority or authorities (singular or plural).
On that basis Mr Howell QC submitted on behalf of RMP that the Directive always applies unless the authority which is intending to contract has, itself, the necessary degree of control over the other prospective party to the contract.
But, as a matter of substance, that argument is really inconsistent with the European Courts thinking on the right of local authorities to co operate in such matters.
As already explained, the court recognises that a local authority can perform its services for the public either entirely out of its own resources or by co operating with other local authorities to perform them out of their pooled resources.
That co operation may take the form of the authorities establishing and financing a body to provide what they require.
If, taken overall, the control of the body by the authorities is great enough to satisfy the first Teckal criterion, this will be an indication that the body is there to carry out the purposes of the local authorities which control it and, hence, that it is not to be regarded as an outside body vis vis any of them.
For this reason, the mere fact that any single authority does not exert the necessary degree of control by itself is irrelevant.
If there were ever any doubts on this matter, they were settled decisively by the decision of the Court of Justice in Coditel Brabant [2008] ECR I 8457, 8503 8504, paras 46 51: 46.
According to the case law, the control exercised over the concessionaire by a concession granting public authority must be similar to that which the authority exercises over its own departments, but not identical in every respect (see, to that effect, Parking Brixen, para 62).
The control exercised over the concessionaire must be effective, but it is not essential that it be exercised individually. 47.
Secondly, where a number of public authorities elect to carry out their public service tasks by having recourse to a municipal concessionaire, it is usually not possible for one of those authorities, unless it has a majority interest in that entity, to exercise decisive control over the decisions of the latter.
To require the control exercised by a public authority in such a case to be individual would have the effect of requiring a call for competition in the majority of cases where a public authority seeks to join a grouping composed of other public authorities, such as an inter municipal cooperative society. 48.
Such a result, however, would not be consistent with Community rules on public procurement and concession contracts.
Indeed, a public authority has the possibility of performing the public interest tasks conferred on it by using its own administrative, technical and other resources, without being obliged to call on outside entities not forming part of its own departments (Stadt Halle, para 48). 49.
That possibility for public authorities to use their own resources to perform the public interest tasks conferred on them may be exercised in cooperation with other public authorities (see, to that effect, Asemfo, para 65). 50.
It must therefore be recognised that, where a number of public authorities own a concessionaire to which they entrust the performance of one of their public service tasks, the control which those public authorities exercise over that entity may be exercised jointly.
Although Coditel Brabant was a public concession case, the reasoning of the court is general and is equally applicable to a case like the present.
Moreover, I see no force in Mr Howells suggestion that the last sentence of para 46 involves a non sequitur.
Rather, the court is making the cogent point that, in a situation where a number of public authorities have combined to exert effective control over the body and any one of them intends to contract with it, the fact that this authority exercises control along with the others indicates, though not conclusively, that the body is not to be regarded as an external entity and that the Directive should therefore not apply.
The position which the Court of Justice has adopted on this matter is not only unmistakable but is consistent with its overall thinking as to why the Directive does not apply in such cases.
Not surprisingly, the court reaffirmed its view in Sea Srl v Comune di Ponte Nossa (Case C 573/07) [2009] ECR I 8127, 8153 8155, paras 54 63.
Moreover, as Advocate General Trstenjak pointed out in Coditel Brabant [2008] ECR I 8457, 8482, para 82, if the individual local authority had to exercise the necessary control, then inter municipal cooperation would in future be rendered virtually impossible.
For it is an important feature of genuine cooperation that decisions are made as equals and that one of the partners in the cooperative does not dominate.
So the approach advocated by Mr Howell would, in effect, rule out genuine co operation or collaboration among authorities.
The Advocate General continued: 83.
As stated, that would render virtual impossible even pure inter municipal cooperation.
Inter municipal cooperating regional authorities would then always have to reckon with the likelihood of having to award their tasks to private third parties making more favourable bids; that would be tantamount to the compulsory privatisation by means of procurement law of public interest tasks.
To construe the first Teckal criterion so narrowly would be to attach disproportionate weight to competition law objectives at the same time as interfering too much with the municipalities right to self government and with it in the competences of the member states (citations omitted).
See also Sea Srl v Comune di Ponte Nossa (Case C 573/07) [2009] ECR I 8127, 8154, paras 56 and 57. 84.
In the light of these considerations I am satisfied that the first Teckal criterion is to be applied by reference to the control exercised by all the authorities which have co operated to establish and finance the body with which the individual authority intends to contract.
I have already noted that the Directive will apply if there is private investment in the body with which the local authority intends to contract or if the body is market oriented.
The Directive has to apply in such circumstances in order to prevent the body concerned enjoying an unfair competitive advantage.
The second Teckal criterion is therefore designed to ensure that the Directive always applies unless, in substance, the body concerned only trades with the local authority or authorities unless, in short, it is not market oriented.
In other words, the body must remain within the public authority sphere and cannot go out and compete with other suppliers for other primary insurance business on the open market.
It would obviously be unfair if the body could compete in this way, but, when one of the local authorities was contemplating contracting with it, other suppliers were prevented from competing for the business.
The second criterion prevents this.
The second Teckal criterion is not difficult to apply to the facts which give rise to this appeal.
In terms of clause 3(1) of the Memorandum, the object of LAML is to receive premiums from participating members or affiliates and to indemnify through a mutual fund the liabilities, losses or expenses incurred by participating members or affiliates in accordance with the rules.
In other words, there is no question of LAML insuring anyone other than participating members and affiliates.
Affiliates are public bodies sponsored by participating members.
In that situation the essential part of LAMLs activities is, unquestionably, with the boroughs which are participating members.
The evidence in the case shows that at the beginning of the 20th century many United Kingdom public authorities co operated to establish a mutual insurance company, Municipal Mutual Insurance Ltd (MMI), which would provide insurance cover to the authorities which were members of the company.
MMI flourished and, over the years, established itself as the leading provider of insurance to public bodies.
But, for various reasons, including the increase in claims against authorities in the 1980s, by 1992 MMI was no longer in a position to write new business or to renew existing business and it eventually ceased trading.
The idea that local authorities and other public authorities should work together to arrange the efficient and economical provision of insurance cover is therefore by no means new.
Although the detailed arrangements differ, the idea behind LAML is essentially the same as with MMI.
The relevant London boroughs set up a company limited by guarantee, for which they provided the necessary resources by means of paid capital contributions and guaranteed capital contributions.
In the case of a shortfall in the capital requirement of LAML, participating members (those who receive an indemnity from this company) can be called on to make an additional paid or guaranteed contribution.
Participating members are entitled to vote at a general meeting of the company.
In particular, it should be noted that a 75% majority of participating members present and voting at the meeting may issue any direction to the board by special resolution.
In my view, for this reason, the authorities who contract with LAML have a power of decisive influence over both the strategic objectives and significant decisions of LAML.
In respectful disagreement with the Court of Appeal, I would hold that this is sufficient to satisfy the first Teckal criterion.
In summary, LAML is a vehicle which the participating London boroughs control and through which they can arrange for the provision of insurance to each other and to their affiliates out of resources which they provide in the form of capital contributions and premiums.
No capital is contributed by any private body nor is any such contribution envisaged in the future.
Of course, like any other insurance company, LAML reinsures some of its risks on the secondary reinsurance market and, in doing so, it follows the public procurement procedure set out in the 2006 Regulations.
But the overall purpose and effect of the arrangement is that primary insurance should be provided to public authorities out of the resources which they and the other public authorities provide for the purpose.
Therefore to adapt the formulation of Advocate General La Pergola in Arnhem v BFI Holding BV (Case C 360/96) [1998] ECR I 6821, 6839, para 35 so far from removing primary insurance from the ambit of the responsibilities of the local authorities, the whole purpose of the scheme is to keep it within that ambit and not to transfer it to an outside body.
I am accordingly satisfied that in the circumstances of this case both of the Teckal criteria are satisfied and that, since the local authorities are not to be regarded as contracting with an outside body, Community legislation which is designed to secure the free movement of services and the opening up to undistorted competition has no application.
So the Directive is not intended to apply where a borough such as Harrow intends to contract with LAML.
The 2006 Regulations give effect to the Directive in English law.
In other words, they are the way in which English law secures the free movement of services and the opening up to undistorted competition in relation to contracts which are to be placed by English local authorities.
That being the purpose of the Regulations, they, too, cannot be meant to apply in circumstances where that purpose is not relevant because a contracting authority intends to contract with a body which is not properly to be regarded as an outside body.
Although the Teckal criteria were formulated with particular reference to the predecessors of the Directive, they are simply a way of identifying situations where the authority can be regarded as obtaining the products or services which it requires in house and, so, where there is no need to secure the free movement of services and the opening up to undistorted competition.
In my view, the criteria are an equally good indication of situations where, for that reason, the 2006 Regulations have no application.
The insight of Advocate General Trstenjak in para 83 of her opinion in Coditel Brabant [2008] ECR I 8457, 8482, is instructive.
To hold that the Regulations did apply in these circumstances would involve saying that the legislature intended to attach weight to competition law objectives in an area where they have no legitimate application.
This would, in turn, involve inappropriate interference with local authorities right to co operate in discharging their public functions.
For all these reasons, which are essentially the same as Lord Hopes, I would hold that the 2006 Regulations do not apply where a local authority, like Harrow, intends to enter into a contract of insurance with LAML.
The appeal should accordingly be allowed.
LORD WALKER, LORD BROWN AND LORD DYSON
For the reasons given by Lord Hope and Lord Rodger, with which we entirely agree, we too would allow this appeal.
| UK-Abs | This appeal considers the scope of what is known in public procurement law as the Teckal exemption.
It considers whether a local authority was entitled to enter into contracts of insurance with a mutual insurer, established in co operation with other local authorities, without first putting those contracts out to tender in accordance with the Public Contracts Regulations 2006 (the UK Regulations) In 2006 and 2007 various London local authorities co operated and entered arrangements for mutual insurance.
The aim was to reduce the cost of insurance premiums, by removing the element of profit built in to an ordinary commercial insurance premium, and to increase the standard of risk management.
London Authorities Mutual Limited (LAML) was established in order to provide insurance to participating London authorities and their affiliates.
Brent London Borough Council (Brent) was one of ten authorities involved.
It became a member of LAML, made a payment in order to capitalise LAML and also provided a guarantee, undertaking to pay further sums to LAML on demand.
Once LAML was established, it contracted to provide Brent with insurance.
Brent did not conduct a tendering process for the award of the contract of insurance which it entered into with LAML.
Risk Management Partners (RMP), a commercial insurer, claimed that there should have been a tendering process complying with the UK Regulations and that, had one been carried out, it might have obtained the insurance which was placed with LAML.
RMP claimed damages from Brent.
Although that claim has now been settled, the Courts decision will determine other damages claims against various other London authorities and will clarify for the future whether the UK Regulations apply to contracts which a public body proposes to award to an organisation such as LAML.
The UK Regulations apply whenever a contracting authority seeks offers in relation to the award of certain public contracts.
They give effect in domestic law to an EU Directive, Council Directive 2004/18/EC on the co ordination of procedures for the award of public work contracts, public supply contracts and public service contracts (the Directive).
It applies to the award of public contracts.
Case law of the European Court of Justice has developed an exception, known as the Teckal exemption.
It provides that, in certain circumstances, the award of a contract by one public body to another separate legal person will not fall within the definition of public contract in the Directive, with the result that the Directive will not apply to it and EU law will not require the contract to be put out to tender.
The Teckal exemption comprises both a control test and a function test. (1) The local authority must exercise over the person to whom the contract is proposed to be awarded a control which is similar to that which it exercises over its own departments, and (2) that person must carry out the essential part of its activities with the controlling local authority or authorities.
This appeal concerned three questions of principle. (1) Does the Teckal exemption apply to the UK Regulations at all? (2) Does the Teckal exemption apply to contracts of insurance? (3) In order for the Teckal exemption to apply, must the control which the contracting authority exercises over the contractor be exercised by that authority individually or is it sufficient that it could be exercised collectively, together with other local authorities?
The High Court and the Court of Appeal held that the Teckal exemption did apply to the UK Regulations and that it was available in respect of contracts of insurance.
However, they concluded that the control test was not satisfied because LAML was too independent from the local authorities which made up its membership.
The claim between RMP and Brent having settled, Harrow was given permission to continue the appeal so as to have the issues of principle decided.
The Supreme Court unanimously allows the appeal.
It holds that the Teckal exemption does apply to the UK Regulations, that it is available in respect of insurance contracts and that it is sufficient for it to apply that the co operating public authorities together exercise collective control over the party to whom contracts are awarded.
The requirements of the Teckal exemption were satisfied.
Lord Hope and Lord Rodger both give judgments; Lord Walker, Lord Brown and Lord Dyson agree with both.
The Teckal exemption applies to the UK Regulations.
Although the definitions in the UK Regulations differ in some respects from the Directive, the purpose of the UK Regulations was to give effect in domestic law to the Directive.
There is nothing to indicate that the UK Regulations intended to depart from the European Court of Justices case law: [22] [26], [92].
The Teckal exemption is available in respect of contracts of insurance.
It did not matter that insurance was not a service that the local authority could provide for itself.
What matters is whether the arrangement satisfies the control test: [27] [30].
Both Lord Hope and Lord Rodger review the ECJ case law to consider the purpose and scope of the Teckal exemption.
The Directive is not intended to protect the commercial sector by forcing public authorities to obtain the services which they need on the commercial market.
Rather, its purpose is to ensure that, if public authorities do decide to obtain the services which they need from outside bodies, proper procedures are followed to ensure that potential providers have an opportunity to compete for the work.
The Directive therefore does not apply where a public authority obtains the product or services from its own resources.
Nor, in light of Teckal, does it apply where an authority obtains services from a separate body which is so closely connected with it that the authority should still be regarded as, in substance, obtaining the services in house.
There is no reason in principle to distinguish between a situation where the body from which services are obtained exists to serve the interests of a single local authority and where it exists to serve the interests of several local authorities: [67] [73].
The Teckal control test requires that the public authority exercise a power of decisive influence over both the strategic objectives and significant decisions of the other body: [40].
That need not be exercised individually.
It is sufficient that the public authority could exercise control over the contractor alone or together with other public authorities: [41], [45], [47] [49], [52], [80] [85].
There must be no private investment in the contractor: [53] & [75].
No injury will be caused to the policy objectives of the Directive if public authorities are allowed to participate in the collective procurement of goods and services, so long as no private interests are involved and they are acting solely in the public interest in the carrying out of their public service tasks: [53].
The argument that individual control is necessary is simply inconsistent with European Court of Justices thinking: [80].
Here, the participating local authorities did exercise collective control over LAML.
Meetings of LAMLs board were not validly constituted unless a majority of those present were directors representing a participating member.
Participating local authorities each had one vote at general meetings and retained a power to direct the board by special resolution.
The fact that a director could not participate in a board meeting which considered a claim by a member which he or she represented was a matter of detail: [57].
No private interests were involved.
The function test was also satisfied.
LAML existed only in order to serve the insurance needs of its members: [59]
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This appeal concerns the correct approach in law to a request for environmental information when the public authority holding the information relies upon more than one of the exceptions to the duty to disclose such information.
Is each exception to be addressed separately, by considering whether the interest served by it is outweighed by the public interest in disclosure? Or can the interests served by different exceptions be combined and then weighed against the public interest in disclosure?
Domestically, the presently relevant exceptions are those provided by regulations 12(5)(a) (public safety) and 12(5)(c) (intellectual property) in The Environmental Information Regulations 2004 (S.I. 2004 no. 3391).
However, the Regulations were made under the European Communities Act 1972 to implement the United Kingdoms obligation to give effect to Directive 2003/4/EC of 28 January 2003 on public access to environmental information.
In the Directive, the relevant exceptions are found, in only slightly different terms, in article 4(2)(b) and (e).
The Directive was intended to be consistent with the Aarhus Convention of 25 June 1998, in which equivalent exceptions appear as article 4(4)(b) and (e).
The Directive merely permits exceptions of the nature indicated, and it was open therefore to the United Kingdom to introduce exceptions of a more limited nature (as Mr Lewis QC for the appellant, the Information Commissioner, submits).
However, the Supreme Court sees no indication that the Regulations intended to do more than introduce into domestic law exceptions matching in their terms and effect those permitted by the Directive.
Accordingly, the answer to the question in this appeal appears to the Court to depend upon the interpretation of the Directive.
In the Courts view, the answer is not obvious and is necessary for the Courts decision.
On this basis, the Courts duty is to refer the question to the Court of Justice under article 267 Treaty on the Functioning of the European Union (prior to 1 December 2009, article 234 EC).
The context
The information requested relates to the precise location of mobile phone base stations in the United Kingdom.
In 2000, the Report of the Independent Expert Group on Mobile Phones, Mobile Phones and Health (the Stewart Report) concluded that radiation from mobile phones did not constitute a health risk, but that, until much more detailed and robust information was available, a precautionary approach was called for.
The Stewart Report identified, as matters of public concern, the location of base stations and the authorisation processes for their erection, and recommended a national database.
The Sitefinder website was duly set up by the Government and has been operated since the end of 2003 by the respondent, the Office of Communications (Ofcom).
The site is constructed from information voluntarily provided by mobile network operators from their databases.
It has enabled individuals, by inputting a postcode, town or street name, to search a map square for information about the base stations within it.
The Sitefinder website shows the approximate location in each square of each base station, but does not show either its precise location to within a metre or whether it has been mounted at street level or concealed within or on top of a structure or building.
An Information Manager for Health Protection Scotland (a branch of the National Health Service) requested from Ofcom grid references for each base station, as it appears for epidemiological purposes.
The Information Managers request was refused by Ofcom, both initially and on review.
On application to the appellant, the Information Commissioner, disclosure was ordered.
On an appeal by Ofcom, the Information Tribunal upheld the order for disclosure, on different grounds which turned on the two presently relevant exceptions.
The Tribunal examined the application of each exception in turn.
As to the first exception (public safety), T Mobile (a mobile phone operator joined as a party before the Tribunal) submitted that the release of the precise locations of base stations would assist criminal activities.
The Tribunal found that the release of the whole database would provide some assistance to criminals (para. 40).
Criminals were more likely to use the Sitefinder website itself for the purpose of trawling valuable sites or disrupting public or police communications.
But it was conceivable that data manipulation would enable sophisticated criminals to detect patterns of development in base station construction, which could assist their activities and greater risks might result from the release of the five figure grid reference numbers which would enable criminals to establish the precise location of, and (in an urban environment) the resulting ease of access to, base stations.
The disclosure of the requested information would in some degree increase the risk of attacks and in that way may adversely affect public safety (para. 40).
However, although the matter fell therefore within the scope of the exception, the Tribunal did not accept that the public interest in maintaining it outweighed the public interest in disclosure (para. 41).
The public interest in disclosure arose from the recommendations of the Stewart Report, from the general importance attaching to the dissemination of environmental information and from the particular importance of the particular information for epidemiological purposes to the public, either as individuals or as members of interested groups.
As to the second exception (intellectual property rights), Ofcom and T Mobile relied upon database rights under the Copyright and Rights in Database Regulations 1997 (S.I. 1997 no. 3032) implementing Directive 96/9/EC of 11 March 1996 and, if and as necessary, copyright under section 3 of the Copyright Designs and Patents Act 1988.
It was, in the Tribunals view, clear that mobile network operators had database rights in respect of the dataset information which they provided to Ofcom from which the Sitefinder website was constructed.
It was also conceded by the Information Commissioner, although the Tribunal expressed reservations about the correctness of the concession, that the datasets contributed by mobile network operators also enjoyed copyright protection, and that the Sitefinder website itself enjoyed both dataset right and copyright protection.
Ofcom and T Mobile asserted that disclosure of the information requested would affect these intellectual property rights adversely in several respects.
The information had commercial value, and they might lose licensing opportunities (para. 50).
Although the public would still be bound to respect their intellectual property rights in the information, its public disclosure would make infringement more likely and less easy to detect (para. 51).
It could enable competitors to map their network and ascertain their network design a factor which, however, the Tribunal considerably discounted, having regard to the existing feasibility of undertaking such an exercise using the Sitefinder website, and the absence of any sign of any competitor as yet undertaking it (para. 52 54).
Landowners might be able to identify land where a mobile network operator would require to place a base station, and to demand a higher rent (para. 55).
The Tribunal thought the harm likely to be suffered under this last head minimal.
But it thought that the various factors considered together involved sufficient adverse effect to trigger the exception (para. 55).
Each represented some degree of interference with a property right, although none had any direct impact on the public (para. 62).
The Tribunal also thought it right to take into account, as a potential adverse consequence of disclosure, the possibility (now it appears in many cases a reality) that it might lead mobile network operators to refuse to continue to provide information to update the Sitefinder website.
Its conclusion was however that the consequences of the interference with intellectual property rights involved in disclosure were outweighed by the same public interest in disclosure as it had identified when considering the first exception.
Ofcom submitted to the Tribunal that it should go further and consider the potential adverse effects identified in respect of public safety and intellectual property rights together and weigh them on that basis against the public interest in disclosure.
The Tribunal, in rejecting such an approach as incorrect, said (para 58): We do not accept that the language or structure of EIR regulation 12 permits the public interest factors to be transferred and aggregated in this way.
It seems to us that for a factor to carry weight in favour of the maintenance of an exception it must be one that arises naturally from the nature of the exception . not any matter that may generally be said to justify withholding information from release to the public, regardless of content. If that were not the case then we believe that the application of the exceptions would become unworkable.
It could certainly produce a strange result on the facts of this case.
We have already found that the public interest in withholding information that might be of value to criminals does not justify maintaining the public safety exception.
On [Ofcoms] argument it could be supplemented by the public interest in not undermining intellectual property rights, in order to try to tip the scales in favour of maintaining the exception.
We think that this would produce a nonsensical outcome and it is not a procedure we propose to adopt.
Ofcom appealed to the Administrative Court, which took the same approach as the Tribunal on this last point: [2008] EWHC 1445 (Admin).
However, on a further appeal, the Court of Appeal reached the opposite conclusion: [2009] EWCA Civ 90.
It started with the domestic principle of statutory construction, according to which the singular includes the plural unless the contrary intention appears.
In its view, therefore, references to an exception in e.g. regulation 12(1)(a) were to be read as being to one or more exceptions.
It also considered that the language of other regulations and of the Directive supported its conclusion.
And it did not agree with the Tribunals view that an aggregate approach to the exceptions would be unworkable or nonsensical.
On the contrary, it said that it would consider it surprising if the Directive or EIR required disclosure in a case where the overall public interest favoured non disclosure (para. 42).
The proceedings before the Supreme Court
The appeal before the Supreme Court concerns the single point described in the previous two paragraphs.
In the light of the written and oral submissions on the point, the Court is at present divided in its views about the correct legal answer to this question, by a majority of three to two presently favouring the Court of Appeals approach.
But all the Courts members are agreed that, in order to ascertain the answer under domestic law, it is, as stated at the outset of this judgment, necessary to know the answer to the equivalent question posed under Directive 2003/4/EC of 28 January 2003, and accordingly, since this is also not obvious, to refer the matter to the Court.
It is unclear whether the Information Tribunal would have arrived at any different conclusion had it thought it feasible and appropriate to combine all the adverse factors under the two relevant exceptions and to weigh them against the public interest in disclosure.
The adverse factors identified by the Tribunal were on their face scattered and limited, in comparison with the general presumption and other specific factors favouring disclosure of the relevant environmental information.
But the point arises as one of general principle, and has been treated as relevant by the Tribunal and in the courts below.
In case it would assist the Court of Justice, the Supreme Court will explain in a little greater detail some of the considerations which have impressed its members thinking.
All members take as their approach the general guidance given in recital (16) of the Directive.
The restrictive interpretation of exceptions is a general Community law principle, evidenced elsewhere in the field of disclosure of information by Sweden and Turco v Council of the European Union Cases C 39 and 52/05 P and Sweden v Commission Case C 64/05P. Exceptions are set out under individual heads in two parts (article 4(1) and article 4(2)) followed by a general paragraph, which reads: The grounds for refusal mentioned in paragraphs 1 and 2 shall be interpreted in a restrictive way, taking into account for the particular case the public interest served by disclosure.
In every particular case, the public interest served by disclosure shall be weighed against the interest served by the refusal.
Member States may not, by virtue of paragraph 2(a), (d), (f), (g) and (h), provide for a request to be refused where the request relates to information on emissions into the environment.
The majority of the Court point to the references to the particular case (in German im Einzelfall and In jedem Einzelfall or in French dans le cas despce and Dans chaque cas particulire) as emphasising the need, in each case when disclosure is requested and refused, to consider the factors relevant to that case, but not as calling for treatment of each exception separately.
They also point to the reference to weighing the public interest served by disclosure against the interest served by the refusal and consider that, since the refusal may be on a number of grounds, the whole of the interest or interests giving rise to adverse effects under any and all grounds must be put into the scales at once when the weighing exercise is undertaken.
The majority view is that, since all the facets of the public interest in disclosure go into one side of the scales, it makes sense to put all the aspects of the interests served by refusal to go into the other side.
These latter interests may be highly diverse and without any common factor (as in the present case, where the arguments against disclosure under the public safety and intellectual property rights exceptions are separate, one being concerned with public, the other with private protection).
But that, in the majority view, can be seen as a positive reason why it is permissible to accumulate them.
If, in some future case, it was possible to identify some overlap, then some allowance might perhaps be appropriate to eliminate double counting.
The majority further point out that some of the heads of article 4(2), particularly (b), already involve different interests under which different factors could arise which could, they consider, presumably be cumulated.
The minority view is that each exception appears as a separate head, serving separate interests and requiring separate consideration.
First, the minority observes that this must be the case as regards article 4(1) and 4(2).
Factors relevant to an exception in article 4(1) could hardly have been intended to be cumulated with factors relevant to an exception in article 4(2).
That would not make sense.
Secondly, looking at article 4(1) and article 4(2) separately, the word or in the Aarhus Convention makes clear that the provisions in that Convention equivalent to article 4(1) and 4(2) constitute alternative exceptions; and the Directive was intended to be consistent with the Aarhus Convention.
Third, there is no common factor behind the exceptions in article 4(2) which enables any sensible cumulation.
The Court of Appeal over looked this factor when it spoke of some overall public interest favour[ing] non disclosure (see para. 9 above).
The exceptions serve disparate interests, which can and must each be weighed separately against the public interest in disclosure.
A public interest in limiting criminal activities which is itself insufficient to outweigh the public interest in disclosure cannot sensibly be cumulated with a private intellectual property right which is itself again also insufficient to outweigh the public interest in disclosure, in order to thereby arrive at some combined interest in non disclosure which would outweigh the public interest in disclosure.
The Information Tribunal was right to consider that cumulation of factors would lead to incongruities, and it is far from clear how it could or would work in practice.
Fourth, the minority considers that the natural interpretation of the language of the Directive views each exception as a separate potential reason for refusal.
If the interest served by it is outweighed by the public interest in disclosure, it ceases to be relevant.
If the interest it serves outweighs the public interest in disclosure, the refusal can and will identify that exception as the reason.
On Ofcoms case, however, the reason for refusal could however be that, although no particular exception applies, viewed collectively two (or more) exceptions apply.
Reasons for reference
The question referred is one of general principle, on which the courts below have expressed, and different members of the Supreme Court hold, different views.
If it is answered in the negative, that will resolve this litigation.
If it is answered in the affirmative, the matter is likely to have to be referred back to the Information Tribunal for further consideration.
The question referred
The Supreme Court therefore refers to the Court of Justice this question: Under Council Directive 2003/4/EC, where a public authority holds environmental information, disclosure of which would have some adverse effects on the separate interests served by more than one exception (in casu, the interests of public security served by article 4(2(b) and those of intellectual property rights served by article 4(2)(e)), but it would not do so, in the case of either exception viewed separately, to any extent sufficient to outweigh the public interest in disclosure, does the Directive require a further exercise involving the cumulation of the separate interests served by the two exceptions and their weighing together against the public interest in disclosure?
| UK-Abs | The Information Commissioner ordered the disclosure of information held by Ofcom concerning the precise location of mobile phone masts.
On appeal, the Information Tribunal found that the public interest in public security, and in the protection of intellectual property rights, were both engaged but that under each separate exception the public interest in disclosure outweighed the interest alleged by Ofcom.
It dismissed the argument of Ofcom that under the Environmental Information Regulations 2004 the Tribunal should conduct a third balancing test weighing all the interests in favour of disclosure against all the public interests in refusing disclosure.
The High Court upheld the Information Tribunal.
On appeal, the Court of Appeal overturned the Tribunal.
It held that the Regulations must be construed in the light of European Directive 2003/4/EC, which they implement.
The language of both documents supported an aggregate weighing exercise to assess the overall public interest.
The Supreme Court unanimously holds that the appeal raises an issue of general principle and that the answer is not obvious.
Different members of the Court hold different views on the correct construction of Environmental Information Regulations 2004, and Directive 2003/4/EC which they implement.
Consequently, the Supreme Court is under a duty to refer the question in the appeal to the European Court of Justice (paras [3], [10], [14]).
The question referred to the European Court under Article 267 of the Treaty on the Functioning of the European Union is: Under Council Directive 2003/4/EC, where a public authority holds environmental information, disclosure of which would have some adverse effects on the separate interests served by more than one exception (in casu, the interests of public security served by article 4(2(b) and those of intellectual property rights served by article 4(2)(e)), but it would not do so, in the case of either exception viewed separately, to any extent sufficient to outweigh the public interest in disclosure, does the Directive require a further exercise involving the cumulation of the separate interests served by the two exceptions and their weighing together against the public interest in disclosure? (para [15]) A majority of the Court would have upheld the judgment of the Court of Appeal.
The majority consider that there are certain linguistic clues in the Directive which favour an aggregate weighing exercise which considers the overall public interest.
The diversity of
reasons is a positive reason to accumulate them, and certain heads already involve more than one public interest (paras [10], [12]).
The minority of the Court also finds linguistic clues in the Directive to suggest that no cumulation of factors is possible given the disparate public interests involved which considered together would produce incongruities and be impractical (para [13]).
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This is an appeal against an interlocutor of an Extra Division of the Inner House of the Court of Session (Lords Kingarth, Wheatley and Clarke) dated 30 June 2009 ([2009] CSIH 56; 2009 SC 663) refusing a reclaiming motion by the defenders, Tullis Russell Papermakers Ltd (Tullis Russell), against an interlocutor of Lord Glennie sitting in the commercial court dated 11 September 2008 ([2008] CSOH 124).
By that interlocutor he granted decree in favour of the pursuers, Inveresk plc (Inveresk), in terms of the first conclusion of the summons, as amended, for payment by Tullis Russell of the sum of 909,395.
Prior to the raising of these proceedings Tullis Russell had raised a separate action in the commercial court against Inveresk (CA31/07) in which, among other things, they claimed damages for breach of contract arising out of the same transaction as that which had given rise to Inveresks claim for payment.
Those proceedings are the subject of a lengthy proof before answer which is in the course of being heard in the commercial court by Lord Drummond Young.
The transaction to which these two sets of proceedings relate was the sale by Inveresk to Tullis Russell of property rights in the Gemini brand of paper, customer information and related assets and the maintenance of the value of the brand by the effective transfer of customer connections.
It was recorded in two documents, following a style which is commonly used for transactions for the sale and purchase of intellectual property.
They were both executed at the same time on 9 June 2005.
They were (i) an agreement for the acquisition on 9 June 2005 by Tullis Russell of the Gemini brand, customer information and related assets (the Asset Purchase Agreement) and (ii) an agreement (the Services Agreement) by which Inveresk undertook to continue to manufacture, sell and distribute specified products for the period from 9 June 2005 until 8 November 2005 or until the agreement was terminated.
In recital (C) of the Services Agreement it was stated that Tullis Russell had requested that Inveresk enter into that agreement to ensure continuity in the manufacture and distribution of those products, facilitate the integration of their manufacture and distribution into Tullis Russells operations and enable Tullis Russell to obtain the full benefit and value of the assets being acquired under the Asset Purchase Agreement.
The transaction provided for various payments to be made to Inveresk for the assets and services that were being purchased by Tullis Russell.
The consideration for the assets that Tullis Russell were to acquire under the Asset Purchase Agreement consisted of an Initial Consideration amounting to 5 million and a further sum as Additional Consideration.
The amount of the Additional Consideration was dependent on the volume of certain products sold and invoiced by Tullis Russell during the period from 8 November 2005 to 8 November 2006.
It was payable in terms of clause 5 and Part 3 of the Schedule up to a maximum of 2 million.
Further sums were payable under the Services Agreement in consideration of Inveresk continuing to manufacture and distribute products pursuant to that agreement.
In implement of the transaction Tullis Russell have paid 13 million to Inveresk, consisting of 5 million under the Asset Purchase Agreement and 8 million under the Services Agreement.
In this action Inveresk seek a further payment of 909,395 as Additional Consideration under the Asset Purchase Agreement.
In the other action Tullis Russell seek payment by Inveresk of 5,358,032.90.
They aver that Inveresk failed to manufacture paper products during the currency of the Services Agreement that complied with the relevant quality standards and dealt with the customers in a way which diminished the value of the assets sold by them to Tullis Russell.
The proceedings in this action have been protracted.
By an interlocutor dated 15 February 2008, following a debate in the commercial court, Lord Drummond Young repelled the defences and granted decree in Inveresks favour for the sum of 909,395: [2008] CSOH 26.
Tullis Russell reclaimed against that decision to the Inner House.
They also sought leave to amend their pleadings by including a plea that they were entitled to retain any sums that might be due to Inveresk pending the resolution of their own claim against them for damages.
On 20 June 2008 an Extra Division of the Inner House, without hearing full argument or issuing an opinion, allowed the summons and defences to be amended, recalled the Lord Ordinarys interlocutor of 15 February 2008 and remitted the whole matter back to the commercial court for a fresh debate on the amended pleadings.
It was in the light of that debate that Lord Glennie pronounced the interlocutor of 11 September 2008 to which the Extra Division adhered in its interlocutor of 30 June 2009 which is the subject of this appeal.
Two distinct issues are raised in the appeal.
The first relates to Inveresks claim for 909,395 as Additional Consideration, which is the sum sued for in the first conclusion of their summons.
The question is whether the amount that is due to Inveresk as Additional Consideration has been determined in terms of clause 5 and Part 3 of the Schedule to the Asset Purchase Agreement.
Tullis Russell maintain that no sum is payable as Additional Consideration until the procedures provided for in the Schedule have been carried through and that this has not yet happened.
The second issue relates to Tullis Russells plea of retention.
The question is whether Tullis Russell are entitled to retain performance of their obligation to pay the Additional Consideration due under the Asset Purchase Agreement pending payment of sums due in respect of their claims against Inveresk in the other action, in which sums are sought as damages for breaches of the Services Agreement and of certain post sale obligations of the Inveresk under the Asset Purchase Agreement.
Inveresk maintain that the obligations for breach of which Tullis Russell claim damages are not the counterparts of their obligation to make payment of the Additional Consideration, so the plea of retention is not available.
Having examined the provisions of Part 3 of the Schedule and the actings of the parties with regard to them, the Lord Ordinary held that Tullis Russell were obliged to pay as Additional Consideration an amount based on the Tonnage shown in the draft Consideration Accounts and that their defence that the action had to be sisted for a Tonnage Audit to take place was irrelevant: para 23.
He also held that Tullis Russells plea of retention was irrelevant.
He said that, although the two agreements had to be viewed together, the plea must fail for want of mutuality or reciprocity between the obligations to perform the services in the manner required on the one hand and the obligation to pay any part of the price under the Asset Purchase Agreement on the other: para 45.
The Extra Division agreed with the Lord Ordinary that the situation that had arisen as a result of the parties actings could be accommodated within the provisions for payment in Part 3 of the Schedule and that a Tonnage Audit was not required.
They also agreed with him, for the reasons set out in paras 51 53 of Lord Clarkes opinion, that the plea of retention was irrelevant.
The Additional Consideration
(a)The Facts
The way which the amount due as Additional Consideration is to be calculated is set out in Part 3 of the Schedule.
Put very simply, the calculation of the amount due depends on the amount in tonnes of the relevant paper products for which Tullis Russell received orders during the period from 8 November 2005 to 8 November 2006 and issued invoices during the period from 8 November 2005 to 22 November 2006.
The first step is the preparation in draft by Tullis Russell of accounts, referred to in Part 3 as the draft Consideration Accounts, specifying the Tonnage and a calculation of the Additional Consideration according to an agreed arithmetical formula.
Inveresk are then given an opportunity according to a prescribed timetable to examine the draft Consideration Accounts, to decide whether or not to accept them or to elect that a Tonnage Audit be carried out by Tullis Russells accountants to confirm and verify the Tonnage to be included in the calculation.
Agreement as to the Tonnage, or its verification by means of a Tonnage Audit, provides the key to the amount of the Additional Consideration.
The date when payment is due varies according to the decisions that Inveresk takes with regard to the various options that are available.
The carefully defined procedures that Part 3 of the Schedule sets out appear to have been designed on the assumption that the Tonnage could be ascertained simply by examining the entries in the books and records kept by Tullis Russell during the relevant period.
Unfortunately that was not how things turned out when the procedures were put into practice.
Tullis Russell did prepare draft Consideration Accounts as required by Part 3 of the Schedule.
They were served on Inveresk by Tullis Russell on 8 November 2006, which was within the prescribed timetable.
This draft gave a figure for Tonnage which would have produced Additional Consideration amounting to 910,080.
Following a meeting at Tullis Russells premises on 10 and 11 January 2007 at which their books and records were available for inspection, Inveresk proposed adjustments to the Tonnage which would have produced an Additional Consideration of 1,030,494.40.
The prescribed timetable gave the parties five business days to attempt to agree Inveresks proposed adjustments, which by now had long passed.
This period was extended by agreement to 30 January 2007, but on that date Tullis Russells solicitors informed Inveresks solicitors that they were unable to agree Inveresks proposed adjustments.
They also told them that Tullis Russell had ascertained that the Tonnage figures used in the draft Consideration Accounts incorrectly included tonnage that related to non branded paper which, it was said, did not fall within the relevant definitions in the two agreements.
On the following day Inveresks solicitors wrote to Tullis Russells solicitors stating that, as it was their clients belief that agreement could not be reached, they had been instructed to invoke paragraph 4.4(b) of Part 3 of the Schedule and require that a Tonnage Audit be undertaken.
The parties then entered into correspondence about the carrying out of the audit and the accountants terms of engagement.
So far, apart from an agreed adjustment of the prescribed time limits, the procedures set out in Part 3 of the Schedule were being followed.
But events then happened which those procedures had not provided for.
It had become apparent that a more fundamental issue had arisen between the parties than could be resolved simply by examining the books and records kept during the relevant period.
This was an issue about the definition of the paper products that were to be included in the Tonnage calculation.
The word Product is defined in Part 3 of the Schedule as meaning Products (as defined in the Services Agreement) incorporating the Trade Marks.
The Services Agreement defines Products as meaning the products specified in Part 1 of the Schedule to that Agreement, which says that they are paper products which have been coated with Solid Bleached Sulphate.
Part 2 of the Schedule to the Services Agreement sets out a list of registered and unregistered trade marks that had been attached to various grades of Gemini and inverX brand products by Inveresk.
The expression Trade Marks is defined in the Asset Purchase Agreement as meaning all trade marks of Inveresk relating to the Gemini brand and the inverX brands.
Attempts to agree the figure for Tonnage broke down when Tullis Russell sought to exclude from that figure brands of coated paper which had been ordered by, and manufactured and packaged for, paper merchants under their own labels.
They maintained that Inveresks goodwill attached only to products which bore the trade marks which had been sold to them under the Asset Purchase Agreement.
The dispute as to whether own label brands fall to be excluded from the figure for Tonnage in the Consideration Accounts remains unresolved.
In their second conclusion Inveresk seek declarator that quantities of paper under the three own label brand names for which orders were received and invoices issued during the relevant period, which Tullis Russell maintain should be excluded, are included in the Tonnage for the purposes of calculating the Additional Consideration.
The Inner House did not hear any argument on this matter, and it does not form part of the subject matter of this appeal.
But it forms part of the background, as there is a dispute between the parties as to whether the issue as to what falls within the definition of Product is for determination by Tullis Russells accountants as part of their Tonnage Audit in paragraph 5 of Part 3 of the Schedule.
The accountants, Pricewaterhouse Coopers, were instructed to carry out the Tonnage Audit by Tullis Russell on 5 February 2007.
But on 20 February 2007 they wrote to the parties solicitors saying that they were unable to proceed with the Tonnage Audit.
They had provided the parties with their draft terms of reference, but by their letter dated 16 February 2007 Inveresks solicitors had made it clear that Inveresk did not agree with them.
They said that, as matters stood, they were unable to meet the timetable in paragraph 5.1 because they had not been provided by the parties with an agreed terms of reference which they considered necessary for conducting the audit.
The solicitors for Inveresk then offered to engage the accountants for the purpose of conducting an audit on a restricted basis, but this was not acceptable to Tullis Russell.
On 14 March 2007 Inveresks solicitors wrote to Tullis Russells solicitors stating that no adjustment needed to be made to the draft Consideration Accounts, withdrawing Inveresks request that a Tonnage Audit be undertaken and demanding payment of the sum of 909,395.
(b) Part 3 of the Schedule
Paragraph 2 lies at the heart of the scheme which Part 3 sets out.
It provides that Tullis Russell shall pay to Inveresk the Additional Consideration on the Payment Date in accordance with paragraph 7.
Paragraph 7.2 provides that the Tullis Russell shall pay to the Inveresk the Additional Consideration within 10 Business Days of the Payment Date.
The question is whether, in the events that have happened, Inveresk are able to show that the Payment Date, as defined in Part 3, has arrived.
Unless they are able to do that their claim for payment of the sum sued for in the first conclusion must be dismissed as irrelevant.
In the quotations that follow Inveresk are referred to in Part 3 as the Vendor and Tullis Russell as the Purchaser.
Paragraphs 4 and 5 of Part 3 of the Schedule provide as follows: 4 Finalisation of draft Consideration Accounts 4.1 The Purchaser shall prepare and serve on the Vendor within 5 Business Days of 1 November 2006 a draft of the Consideration Accounts (draft Consideration Accounts). 4.2 The Vendor may, within the period of 10 Business Days after service of draft Consideration Accounts on the Vendor in accordance with paragraph 4.1 (Review Period): (a) notify the Purchaser in writing of any adjustments they consider need to be made to the draft Consideration Accounts (together with the reasons for such adjustments); or (b) elect that the Purchasers Accountants carry out a Tonnage Audit in accordance with paragraph 5 of this Schedule. 4.3 If: (a) the Vendor notifies the Purchaser during the Review Period that no adjustment needs to be made to the draft Consideration Accounts; or (b) the Vendor notified (sic) the Purchaser during the Review Period that it does not wish to elect that a Tonnage audit be undertaken; (c) the Vendor does not notify the Purchaser during the Review Period of any proposed adjustment to the draft Consideration Accounts, the draft Consideration Accounts, Tonnage and Additional Consideration specified in it shall be the Consideration Accounts, Tonnage and Additional Consideration for all the purposes of this Agreement. 4.4 If the Vendor notifies the Purchaser during the Review period that certain adjustments need to be made and: (a) the Purchaser and the Vendor agree, in writing, on the adjustments to be made to the draft Consideration Accounts and/or Tonnage, and/or Additional Consideration they shall jointly incorporate such adjustments into the draft Consideration Accounts and the draft Consideration Accounts as so adjusted and the Tonnage and Additional Consideration Accounts specified in it shall be the Consideration Accounts and the Tonnage for all purposes of this Agreement; or (b) if the Vendor and the Purchaser are unable to so agree within 5 Business Days then paragraph 5 of this part 3 of the Schedule shall apply. 4.5 The Payment Date shall be: (a) in the case of paragraph 4.3(a) above, the date the Vendor notifies the purchaser that no adjustments need to be made; or (b) in the case of paragraph 4.3(b) above, the date the Vendor notifies the Purchaser that it does not require that a Tonnage Audit be undertaken; or (c) in the case in the case (sic) of paragraph 4.3(c), the last day of the Review Period; (d) and, in the case of paragraph 4.4(a) above, the date of the written agreement, of the adjusted Consideration Accounts and/or Tonnage and or Additional Consideration. 5 Tonnage Audit 5.1 Within 14 Business Days from the date that the Vendor notifies the Purchaser that it requires a Tonnage Audit, the Purchaser shall procure; (a) that the Purchasers Accountants carry out the Tonnage Audit to confirm and verify the Tonnage; (b) deliver to the Vendor the Tonnage Audit Statement. 5.2 In undertaking the Tonnage Audit, the Purchasers Accountants shall act as experts and not as arbitrators, and their decision as to any matter referred to them for determination shall, in the absence of manifest error or fraud, be final and biding in all respects on the parties and shall not be subject to question on any ground whatsoever. 5.3 The fees and expenses of the Purchasers Accountants, and any other professional fees incurred by them shall be borne and paid as they direct or, failing such direction, shall be shared equally between the Vendor and the Purchaser. 5.4 Within 5 Business Days of receipt by the Vendor of the Tonnage Audit Statement, the Vendor and the Purchaser shall jointly incorporate in the draft Consideration Accounts the Tonnage as determined by the Tonnage Audit Statement and shall date the Consideration Accounts and calculation of Tonnage with the date on which such adjustments are made (which date shall be the Payment Date).
The draft Consideration Accounts as amended, and the Tonnage stated in it, shall be the Consideration Accounts and the Tonnage for all the purposes of this Agreement.
(c) Discussion
As I mentioned when I was narrating the facts, apart from an agreed adjustment of the prescribed time limits, the procedures set out in Part 3 of the Schedule were being followed up to 31 January 2010 when Inveresks solicitors wrote to Tullis Russells solicitors stating that, as it was their clients belief that agreement could not be reached, they had been instructed to invoke paragraph 4.4(b) of Part 3 of the Schedule and require that a Tonnage Audit be undertaken.
None of the events referred to in paragraph 4.3 had occurred.
Inveresk had notified Tullis Russell that certain adjustments needed to be made to the draft Consideration Accounts, and meetings had taken place in an attempt to reach agreement as provided for in paragraph 4.4(a).
But the parties were unable to agree.
This had two consequences for the working out of the agreed procedures.
First, paragraph 4.4(b), which provides that paragraph 5 shall apply, came into effect.
Secondly, as none of the events referred to in paragraph 4.5 had occurred, the only event listed in Part 3 that remained to identify the Payment Date was the incorporation in the draft Consideration Accounts of the Tonnage as determined by the Tonnage Audit Statement.
Part 3 of the Schedule does not in terms oblige Inveresk to require a Tonnage Audit.
But Tullis Russells case is that the effect of its provisions is that, in the events that have happened and in the absence of agreement as to some other procedure, a Tonnage Audit has to be undertaken before Inveresk are entitled to demand payment.
In their second plea in law they state that, as the parties have agreed to expert determination in terms of the Asset Purchase Agreement, the Court of Session has no jurisdiction and the action should be dismissed.
In their third plea in law they state that, as the parties have agreed to refer the subject matter of the action to expert determination, the action should be sisted pending the outcome of that determination.
The Dean of Faculty said however that he was not insisting in either plea at this stage.
He invited this Court to hold that a Tonnage Audit was required to determine the amount of the Additional Consideration and to remit the case to the commercial judge for further procedure.
Inveresk acknowledge that, as they are seeking payment of the Additional Consideration under and in terms of the Asset Purchase Agreement, they must follow the procedure for determining its amount that is set out in Part 3 of the Schedule.
But they submit that the procedure for a Tonnage Audit is only engaged if the Vendor does not agree with the draft Consideration Accounts.
They also submit that the Purchaser has no right to submit new or revised draft Consideration Accounts in substitution for those served on the Vendor under paragraph 4.1.
Their position is that they are now in agreement with the figures in the draft Consideration Accounts.
That being so, they say, a Tonnage Audit is not necessary and they are entitled to payment of the sum sued for.
What they are seeking to do, in other words, is to resile from their notification under paragraph 5.1 that a Tonnage Audit was required and to rely instead on the option provided by paragraph 4.3(a).
This would mean that 14 March 2007, which was the date when they notified Tullis Russell that no adjustments needed to be made, was to be the Payment Date.
The date as from which interest is claimed in the first conclusion appears to have been chosen on that assumption.
Developing these submissions, Mr Currie QC said that the rationale for a Tonnage Audit disappeared if Inveresk did not dispute the draft Consideration Accounts.
He rejected any suggestion that Inveresk was seeking to take advantage of an obvious error in their favour in that document.
There was no such mistake in the original draft which had been served on them under paragraph 4.2.
But it had been prepared on a different view from that which Tullis Russell were now taking as to whether the figure for Tonnage should include non branded paper.
As this was not agreed Tullis Russell had failed to procure the carrying out of a Tonnage Audit within 14 days of Inveresks notification as required by paragraph 5.1.
Inveresk were entitled in this situation to withdraw their notification and to call for payment of the amount shown in the draft Consideration Accounts which was no longer disputed.
He submitted that the scope of the Tonnage Audit that was provided for in paragraph 5 was limited to a consideration of the figures in the draft Consideration Accounts.
Those were the figures that the Purchasers Accountants were required to confirm and verify.
That was the extent of their remit.
No provision was made for the consideration of any other figures that the Purchaser might produce.
I think that there would have been much to be said for Inveresks position if they had not exercised their right to require a Tonnage Audit under paragraph 5.1.
The earlier paragraphs proceed on the basis that the only question, following service of the draft Consideration Accounts on the Vendor, is whether the Vendor thinks that they are in need of adjustment.
There is no provision that entitles the Purchaser to withdraw the draft Consolidation Accounts once they have been served on the Vendor or to propose its own adjustments.
That is so even at the stage which is envisaged by the opening lines of paragraph 4.4, when the Vendor notifies the Purchaser during the Review Period that adjustments need to be made.
The question is whether the Purchaser is locked into that position once the stage has been reached that the parties are unable to agree on the adjustments and a Tonnage Audit is necessary to determine the amount that is to be paid and the Payment Date.
This in turn raises the question as to whether, as Mr Currie maintains, the scope of the Tonnage Audit is limited to a consideration of the figures in the draft Consideration Accounts.
This was an important part of Lord Glennies reasoning.
He said that the words as to any matter referred to them for determination in paragraph 5.2 pointed very strongly to an understanding that the Tonnage Audit was not a general assessment of tonnage in the round but was constrained by the positions adopted by the parties in the draft Consideration Accounts and the proposed adjustments (if any): para 22.
As it was not open to the Purchaser to revise its draft Consideration Accounts, it must have been open to the Vendor to drop its objections and indicate that it was content to accept the position put forward in the draft Consideration Accounts served under paragraph 4.1: para 23.
In the Inner House Lord Clarke too said that the agreement showed that the experts role was limited to confirming and verifying the figure in the draft Consideration Accounts, not to adjudicate in general between contesting figure proferred by either side: 2009 SC 663, 678, para 22.
The crucial question then is whether, on a proper construction of paragraph 5 of part 3 of the Schedule, the Purchasers Accountants role in conducting the Tonnage Audit is so limited.
Paragraph 5.1(a) provides that the Purchaser shall procure that its Accountants carry out the Tonnage Audit to confirm and verify the Tonnage.
The definition of Tonnage in paragraph 1.1 of Part 3 states that this word means the amount in tonnes of the Product for which the Purchaser receives orders during the Earnout period and thereafter issues invoices in relation to such tonnage in the Invoice Period as provided for in the Consideration Accounts.
The definition of Tonnage Audit in the same paragraph states that this expression means the external verification of the Tonnage by the Purchasers Accountants in accordance with paragraph 5 of the Schedule.
It seems to me that, read together with these definitions, paragraph 5.1(a) indicates that the experts task is to verify the amount in tonnes of the Product for which orders were received and invoices issued during the relevant periods.
The product of this exercise is the Tonnage Audit statement referred to in paragraph 5.1(b), which then falls to be incorporated as the Tonnage in the draft Consideration Accounts under paragraph 5.4.
I cannot find anything in wording of paragraph 5.1(a) to indicate that the experts are tied to the figures stated in the draft Consideration Accounts which the Vendor considers need to be adjusted.
Their attention is directed instead to a consideration of the relevant orders and invoices.
It is the product of that exercise that will produce the figure which they are required to confirm and verify as the Tonnage for the purposes of paragraph 5.4.
The words confirm and verify in paragraph 5.1(a) and as to any matter referred to them for determination in paragraph 5.2 were said to indicate that it was not open to the experts to consider any adjustments that the Purchaser might propose while they were undertaking the Tonnage Audit.
Pressed to its logical conclusion, however, this submission indicates that it would not have been open to the experts to correct an obvious mistake in computing the relevant figures which produced a greater figure for Tonnage in the draft Consideration Accounts than the Vendor was entitled to having regard to the definition of Tonnage in paragraph 1.1.
That produces a very strange result.
It would mean the experts were being required to confirm and verify a figure which was obviously not right.
It is hard to believe that this is what the parties intended when they entered into the agreement.
Commercial contracts are, of course, construed in the light of all the background which could reasonably have been expected to be available to the parties in order to ascertain what would objectively have been understood to have been their intention: Prenn v Simmonds [1971] 1 WLR 1381, 1383, per Lord Wilberforce; Mannai Investmment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, 779, per Lord Hoffmann.
But this is not a case where a clause appears to have been badly drafted.
On the contrary, the wording of paragraph 5.1(a) read together with the definitions, is perfectly intelligible.
It favours the wider approach to what was intended that is contended for by Tullis Russell.
This accords with business sense, as the agreed procedure must be taken to have been designed to ensure that the figure for Tonnage in the Consideration Accounts was an accurate statement of the amount in tonnes which in turn would produce the amount which Inveresk were entitled to be paid as Additional Consideration under the agreement.
That being the purpose of the procedure, it falls to be read and applied in a way that will give effect to it.
It is true that the Vendor can tie the Purchaser to the figure in the draft Consideration Accounts during the Review Period referred to in paragraph 4.2 even if they are not accurate.
During this stage the agreed procedures operate exclusively in the interests of the Vendor.
But that advantage comes to an end when it notifies the Purchaser that it requires a Tonnage Audit.
The focus now is on obtaining an accurate figure for Tonnage as defined in paragraph 1.1.
Both parties have an interest in seeing that the Tonnage that the experts confirm and verify is the figure that the parties intended to be used in the draft Consideration Accounts as so defined.
This is because a sensible commercial approach to the procedure indicates that the amount paid as Additional Consideration should be based on a correct assessment by the experts of the Tonnage as defined in paragraph 1.1, no more and no less.
An error either way would defeat that objective.
Once this position is reached, Inveresks position seems to me to be untenable.
The argument that it was entitled to resile from its election to require a Tonnage Audit rested on two foundations.
These were (a) the restricted nature of the material that the experts were entitled to consider when conducting that exercise, and (b) the proposition that the provision for the carrying out of a Tonnage Audit was conceived solely in the Vendors interests: Manheath Ltd v H J Banks & Co Ltd 1996 SC 42, 48 49.
For the reasons that I have given I would reject both of those arguments.
Tullis Russell are entitled to insist that, as Inveresk have notified them that they require a Tonnage Audit, the figure for Tonnage that is to be entered in the draft is accurate.
The definition of that expression in paragraph 1.1 shows that this figure must be based on an assessment of the amount in tonnes for which orders were received and invoices issued during the relevant periods.
That is the measure of the amount that Inveresk are entitled to be paid under the agreement.
All the information that is relevant to that assessment must be taken into account.
The dispute as to whether there should be excluded from Tonnage brands of paper ordered by, and manufactured and packaged for, paper merchants under their own labels will, of course, need to be resolved before that assessment is undertaken.
How this should be done will be for determination by the commercial judge, to whom I would remit the case for further procedure.
Retention
(a) Introduction
On one view, Tullis Russells plea of retention will not need to be considered if the action is sisted pending the outcome of the reference of the Tonnage to the experts for determination.
Until that happens Inveresks claim for Additional Consideration will be illiquid and, as such, unenforceable.
But the timetable for a resolution of the damages action, for perfectly understandable reasons, remains uncertain.
It is possible that the damages claims will still be illiquid when the sist is recalled.
In that event retention will once again become a live issue.
So, as the question was fully debated before us, I think that we should reach a decision as to whether the Extra Division were right to refuse the reclaiming motion against the Lord Ordinarys decision that the plea should be repelled because the averments in support of it were irrelevant.
Tullis Russell base their claim of retention pending resolution of their claim of damages on the rule that a party has the right to withhold performance where both claims arise under a mutual contract.
They aver that Inveresk failed, to a material extent, to perform properly obligations in both the Asset Purchase Agreement and the Service Agreement which they say are the counterparts of Tullis Russells obligation to pay Additional Consideration.
In their seventh plea in law they claim to be entitled to retain the sum sued for pending the resolution of their claim for damages.
For Inveresk Mr Currie did not dispute the rule on which Tullis Russell base their claim.
But he submitted that retention can only operate under Scots law where the respective claims arise out of one contract.
In this case there were two contracts, albeit both arising from a single transaction.
So the plea was not available in this case.
In any event fulfilment by Inveresk of the obligations in the Service Agreement was not a counterpart of Tullis Russells obligation to pay the Additional Consideration, and there were no relevant averments of a right to retain based on breaches of the Asset Purchase Agreement.
The Lord Ordinary found in favour of Tullis Russell on the first point.
He did not think that it was fatal to their plea that the relevant claims in the other action arose out of obligations under a different contract.
He saw no reason in principle why the concept of mutuality should not apply to the transaction as a whole: para 44.
But he held that the plea must fail for want of mutuality or reciprocity, because the Services Agreement was a wholly separate stage of the overall transaction from the initial acquisition of the assets that were being purchased: para 45.
The counterpart of the sale of the assets under the Asset Purchase Agreement was the payment of the Consideration, in the two instalments.
The counterpart of the provision of services under the Services Agreement was the payment of the fee for such services.
The Extra Division took as its starting point the fact that the parties had deliberately chosen to enter into separate agreements with two separate legal descriptions: one a contract of sale, the other a contract of services.
They had different consequences and no case had been referred to in which retention had been held to operate in such circumstances: para 49.
The enforcement of the respective obligations was not made dependent one upon the other, and it was not sufficient that some form of inter connectedness could be identified: para 51.
The nature of the plea
It may be helpful if I were to say something about the use of the word retention.
It is a word to be used with care: McBryde, The Law of Contract in Scotland 3rd ed, (2007), para 20 62.
This is because it tends to be used to describe a variety of remedies, each with different rules attached to them.
This has given rise to a good deal of confusion, with the result that it is not always easy to find clear guidance for the application of each remedy in the authorities.
In a footnote to a paragraph which precedes the passage which I have just referred to, McBryde states that confusion is endemic in this area of the law: para 20 61, fn 21.
In simple terms, what Tullis Russell seek to do is to withhold, or retain, payment of the sum sued for by Inveresk when the amount due to them has been ascertained, pending the ascertainment of their claim of damages so that, when it has become liquid, they may set off the amount of that claim against the sum payable to Inveresk.
As a general rule payment of a debt which has been found to be due and payable cannot be withheld on a plea of retention in respect of a claim which is still illiquid.
But Tullis Russell seek to rely on an exception to that rule which applies where the illiquid claim arises directly out of the same contract.
The obligation to pay the sum found to be due and payable to Inveresk will not be extinguished, but postponed.
It may ultimately be extinguished, however, on the principle known as compensation should it be found that the amount due as damages equals or exceeds the amount due as Additional Consideration to Inveresk.
Retention and compensation are sometimes confused with each other, but they are different remedies.
As McBryde, The Law of Contract in Scotland, para 20 64 explains, retention does not operate to extinguish claims, whereas compensation when pled and sustained does have this effect.
As matters stand in this case, compensation lies in the future.
The issue at this stage is whether Tullis Russell are entitled to exercise the remedy of retention.
Their case for its exercise rests on the mutuality of contractual obligations.
The principle that in mutual contracts neither party should obtain implement of the obligements to him, till he fulfil the obligements by him was recognised by Stair, The Institutions of the Law of Scotland (2nd ed, 1693), I, x, 17.
He does not use the word retention in his discussion of the principle.
But the examples which he gives in the previous paragraph show that he had in mind withholding performance of obligations which included the payment of money, such as the price in sale or the hire in location, so long as they were properly mutual causes of each other: I, x, 16.
As Erskine, An Institute of the Law of Scotland (Nicolsons edition, 1871), iii, 4, 20 points out, retention resembles compensation, though it has not the effect of extinguishing obligations, but barely of suspending them, till he who pleads it obtains payment or satisfaction for his counterclaim.
In para 21 he explains that the right of retention is more frequently pleaded by those who have bestowed either their money or their labour upon the subject sought to be retained; and that it commonly arises in that case from the mutual obligations which naturally lie upon the contractor.
definition based on Erskines treatment of the subject: Gloag and Irvine, Law of Rights in Security (1897), p 303, provide this Retention may be defined as a right to resist a demand for payment or performance till some counter obligation be paid or performed The law on the subject is complicated by the fact that the word retention is used to denote various rights, widely different in their origin and extent.
Thus the right of a party to withhold performance of his obligation under a mutual contract, if the counter obligation is not performed, is often spoken of as a right of retention, and may result in a right to retain money or goods.
This use of the word is contrasted with the right of a creditor in bankruptcy to set off the debt owed to him against a debt which he himself owes to the bankrupt, which is said to be in origin a right of retention.
As the authors explain at p 304, the law of retention of debts is an equitable extension of the statutory right of compensation under the Compensation Act 1592, c 143.
They then provide this summary of the law of retention at p 305: The cases where retention of debts is permissible form the exceptions to the general rule that an illiquid cannot be set off against a liquid claim.
These cases may be grouped under four heads: (1) Where the illiquid claim admits of instant verification. (2) Where both the liquid and the illiquid claim arise out of a mutual contract. (3) Where one or other of the parties is bankrupt or vergens ad inopiam. (4) Where, in exceptional circumstances, retention has been allowed to meet the justice or convenience of the particular case.
As their seventh plea in law makes clear, Tullis Russells claim for retention falls under the second of these four heads, it being assumed that Inveresks claim will become liquid when the amount due as Additional Consideration has been ascertained.
They do not seek an exercise of the courts equitable jurisdiction under the fourth head.
That is the second kind of retention to which Lord Rodger helpfully draws attention in his judgment.
I agree with him (see para 106) that Tullis Russells seventh plea in law would not be appropriate if their case was that they should be allowed, in the exercise of the equitable power, to retain any sum due to Inveresk pending the resolution of their claim of damages.
The fact that these remedies differ in their origin and content is also noted in Gloag and Hendersons Law of Scotland 12th ed, (2007), of which the general editors were Lord Coulsfield and Professor Hector MacQueen.
This edition, like all its recent predecessors, is the product of careful revision by its editors.
Its treatment of the subject is to be found in paras 3.31 3.32 where the right of compensation referable to the statute of 1592 is dealt with: Compensation is pleadable only between liquid debts, with an exception, largely in the discretion of the court, in cases where an illiquid debt may be rendered liquid without delay.
The right of retention when debts arise out of the same contract, or where bankruptcy has supervened, is considered further in a later chapter.
A footnote to the last sentence in this passage refers to paras 10.14 10.17.
In para 10.14 it is stated that the right, when it takes the form of refusal to pay a debt, is always known as a right of retention.
In para 10.16 the rule that applies where debts arise from the same contract is set out: When two claims, one liquid, the other in the nature of a claim for damages, arise from the same contract the creditor in the claim for damages may withhold payment of his debt until the amount due to him as damages is established.
The chapters in which the sentences which I have quoted appear have been re organised by the editors of the latest edition, but the sentences themselves can be traced at least as far back as the 6th edition of Gloag and Hendersons Introduction to the Law of Scotland (1964).
In my opinion they correctly state the law on this subject, which has been settled since at least 1693: see also Gloag on Contract, pp 626 628; Stair Memorial Encyclopaedia, vol 13, Judicial and Other Remedies, para 94; British Motor Body Co Ltd v Thomas Shaw (Dundee) Ltd 1914 SC 922, 926, per Lord President Strathclyde.
It follows, of course, that Tullis Russells case for retention stands or falls on the issue of mutuality.
As McBryde explains, it must be appreciated that the mutuality principle applies only where the obligations are counterparts of each other: The Law of Contract in Scotland, para 20 70.
So I do not think that either the Lord Ordinary or the Extra Division can be said to have fallen into error by dealing with the case on this basis, although I agree with Lord Rodger that the way the Extra Division dealt with the matter might be taken as suggesting, incorrectly, that retention was governed entirely by fixed rules and that there was no room for the equitable remedy.
I turn then to the question whether Inveresks argument that retention is not available because the respective obligations do not arise under a single contract is well founded.
This raises an important issue of principle.
In most cases where the plea of retention has been argued it has not been necessary to examine the point, as there was only one contract.
The many cases where a tenant has been held to be entitled to retain rent on the ground of the landlords failure to fulfil his obligations under the lease provide the most obvious example: eg Earl of Galloway v McConnell 1911 SC 846; John Haig & Co v Boswell Preston 1915 SC 339.
For this reason I would not regard references to a single contract in the discussion of the principle by Erskine, An Institute of the Law of Scotland III, iii, 86 and by Gloag on Contract, pp 626 627 as determinative.
On the contrary, Gloags observation at p 627 that even in cases where both debts arise out of the same contract a claim of retention is not the assertion of an absolute right suggests that he was willing to accept that it is not essential that the debts (or obligations) should arise under the same contract, so long as they arise from the same transaction and are dependent or conditional on each other.
As for the right of retention not being the assertion of an absolute right, this is a reference to the Courts power to prevent its abuse by, for example, compelling the party who seeks to invoke it to consign the sum sued for: Garscadden v Ardrossan Dry Dock Co 1910 SC 178, 180, per Lord Ardwall; Earl of Galloway v McConnell 1911 SC 846, 852, per Lord Salvesen.
Inveresk do not seek the exercise of that power in this case.
In Claddagh Steamship Co Ltd v Steven & Co 1919 SC (HL) 132 there were two contracts for the sale of two ships.
The question was whether, when one of them was requisitioned by the Government, the purchasers were obliged to accept and pay for the other.
Their case was that they were not obliged to do so, as the vendors were not able to perform their side of the bargain.
I think that this is a good example of the right of retention of the kind explained by Erskine, An Institute of the Law of Scotland, III, iii, 86: No party in a mutual contract, where the obligations on the parties are the causes of one another, can demand performance from the other, if he himself either cannot or will not perform the counter part, for the mutual obligations are regarded as conditional.
It was held that, as the evidence showed that the object of the two contracts was to give effect to an agreement for the sale of the two ships together, the purchasers were entitled to refuse to accept delivery of one ship without the other.
Viscount Finlay said at p 135 that it is always open to inquiry whether the existence of two separate documents represented the real bargain between the parties.
That was a case of a refusal to perform a contractual obligation on the ground that it was impliedly conditional on performance of his obligation by the other party.
In this case retention is relied on to delay performance until a claim of damages is satisfied.
The distinction between these two forms of retention is noted by Gloag on Contract, p 623.
But Viscount Finlays observation supports the view that it would be wrong in either case to insist that retention can only be relied on where the obligations are both to be found in the same contractual document.
That would be to give preference to form over substance, and the nature of the plea indicates that it cannot be the right approach.
I think that the position is accurately stated by McBryde, The Law of Contract in Scotland, para 20 67 as follows: The principle of mutuality of obligations applies to all contracts, and so in any type of contract a claim for the sums due under the contract may be met by the defence that the defender has claims arising from the pursuers failure to perform that contract. [emphasis added]
The law does not compel the parties to a contract to set out the obligations that each owes to the other in a single document.
For fiscal or other reasons it may be more helpful to use two or more contractual documents to record their overall agreement.
The question in each case of retention will be whether the obligations that are founded on, wherever they are to be found, are truly counterparts of each other.
It goes without saying that they must both be part of the same transaction, as there can be no mutuality between two or more transactions each of which has a life of its own.
But, as Lord Drummond Young said in Hoult v Turpie 2004 SLT 308, para 10, the principle of mutuality has generally been given a wide scope in Scots law.
It is derived from the exceptio non adimpleti contractus.
The principle, as explained by Corbett J in ESE Financial Services (Pty) Ltd v Cramer 1973(2) SA 805, 809, concentrates on the obligations that each party owes to the other rather than the way in which the contract is made up: Where a plaintiff sues to enforce performance of an obligation which is conditional upon performance by himself of a reciprocal obligation owed to the defendant, then the performance by him of this latter obligation (or, in cases where they are not consecutive, the tender of such performance) is a necessary pre requisite of his right to sue and should be pleaded by him.
Conversely in such a case the defendant may raise as a defence, known as the exceptio non adimpleti contractus, the fact that the plaintiff has failed to perform, or in the appropriate case, tender performance of, his own reciprocal obligation.
In the present case there are ample grounds for regarding the two agreements as depending upon one another and as each forming part of the same transaction.
Clause 16 of the Asset Purchase Agreement is an entire agreement clause.
It states that that Agreement (together with the documents referred to in it or executed at Completion) constitutes the entire agreement and understanding between the parties with respect to its subject matter.
The Services Agreement is referred to in clauses 1.1 and 7.1 of the Asset Purchase Agreement, and the parties are agreed that both agreements were executed at the same time.
Recital (C) of the Services Agreement, as has been already noted, makes it clear that that agreement was being entered into in order to facilitate the integration of the manufacture and distribution of the Products into existing Tullis Russell operations and to enable Tullis Russell to obtain the full benefit and value of the assets being acquired under the Asset Purchase Agreement.
Clause 22, the entire agreement clause, states that the Services Agreement and the Asset Purchase Agreement of even date contain the whole agreement between the parties in respect of the subject matter of that Agreement.
The conclusion that these two agreements were part of the same transaction to which, as a whole, the principle of mutuality can apply, is inescapable.
The Extra Divisions conclusion to the contrary seems to me, with respect, to be based on a misconception.
The fact that each was a nominate contract with different legal effects is no more significant than the fact that the parties decided to give effect to their transaction by entering into two agreements.
The true significance of these agreements is to be found in the respects in which they were each linked expressly with each other.
The basis for retention
For the principle to operate, therefore, the obligations in question must be the counterparts of each other.
So the next question is whether that requirement is satisfied in this case.
As Corbett J formulated it in ESE Financial Services (Pty) Ltd v Cramer 1973(2) SA 803, 809, is the basic requirement of the exceptio, viz. reciprocity of obligation, satisfied? It is necessary also to consider whether the respective obligations were contemporaneous, as it was because the Lord Ordinary thought that they were not that he held that the plea of retention should be repelled.
I think that this question can be taken with the first, as it is so closely related to the question whether there was reciprocity.
There is a third question whether the alleged breach by Inveresk was material.
In Purak Ltd v Byzak Ltd 2005 SLT 37, para 10, Lord Drummond Young said that the right only arises where one party is in material breach of contract: see also Turnbull v McLean & Co (1874) 1 R 730, 738, per Lord Moncreiff.
But lack of materiality is not an issue in this case.
The breaches of contract that are founded on by Tullis Russell are said to have been directly related to the benefits that they were seeking to obtain when they entered into the transaction.
The amount sued for is more than 5m.
It exceeds the sum sued for by Inveresk by a very large margin.
It is sufficiently large to allow for the possibility that they may fail to prove all that they aver both in the other action and in this one.
As for the question of reciprocity, Tullis Russell aver that they are entitled to retain any sums due to Inveresk pending payment of the claims against them which are set out in the other action (CA31/07).
These claims fall into two parts.
First, there is an allegation that Inveresk were in breach of clause 15.4 of the Asset Purchase Agreement, which provides that the Vendor shall promptly notify the Purchaser of any claims against the Vendor brought by any party in respect of any goods manufactured or services provided by the Vendor derived from any of the Assets.
Secondly, there are allegations that Inveresk were in breach of clauses 2.1(c) and (e), 5, 14(6) and 16.2(d) of the Services Agreement.
Clause 2.1(c) obliged Inveresk to maintain the existing levels of customer service to purchasers and potential purchasers of Products and Licensed Products, which as defined were the Products manufactured pursuant to the Services Agreement, and to promote the successful integration of the Owned Intellectual Property rights, as defined in the Asset Purchase Agreement, into Tullis Russell.
Clause 2.1(e) obliged Inveresk to conduct its business in the ordinary way so as to maintain that business relating to the Products and Licensed Products as a going concern.
Clause 5 is a provision about Quality Standards, which are defined as the quality standards in respect of any Licensed Stock to be acquired in terms of the Services Agreement.
Clause 14(6) obliged Inveresk to indemnify Tullis Russell against all loss and expenses incurred by Tullis Russell arising from Customer Claims, which as defined were claims relating to the Licensed Products or any other Products manufactured or supplied by Inveresk after the date of the Service Agreement but prior to 5 November 2005 or the date of termination of that agreement, whichever was the earlier.
Clause 16.2(d) refers to Goodwill.
It provided that Inveresk was not at any time after 5 November 2005 or the earlier termination of the Services Agreement to do or say anything which was likely to, or intended to, damage the goodwill or reputation of the Owned Intellectual Property Rights, which as defined had the meaning given to that expression in the Asset Purchase Agreement.
It can be seen from this brief summary that the two agreements have to be read together to understand the nature and effect of these various obligations.
But the Lord Ordinary held, for the reasons set out in his careful analysis in paras 41 45, that the Asset Purchase Agreement was concerned only with the sale and purchase of the Assets as defined in that agreement that is to say, the Owned Intellectual Property Rights, the Customer Information and the Related Assets.
The Services Agreement, on the other hand, was concerned only with the stock, Licensed Products and Products manufactured or supplied by Inveresk under that agreement.
On a proper construction of article 15.4 of the Asset Purchase Agreement, the Assets sold by Inveresk to Tullis Russell under that agreement and the reference to goods manufactured or sold by them derived from those assets must be a reference to goods manufactured or sold by them prior to the sale and purchase of assets under that agreement.
The manufacture and sale of goods thereafter was covered by the Services Agreement.
In his view therefore there was, on an ordinary reading of the two agreements, no overlap between them.
The obligations in the Services Agreement could not be seen as counterparts of the Asset Purchase Agreement.
For the breaches of the Services Agreement to be available in support of a plea of retention against the claim for Additional Consideration they must have been exigible by the time the Additional Consideration fell due.
But the Additional Consideration did not become due and payable at any time before the end of the Services Agreement.
The Services Agreement was a wholly separate stage of the overall transaction from the initial acquisition of the Assets.
It seems to me, with respect, that the approach which commended itself to the Lord Ordinary concentrated too much on the detail and overlooked the overall purpose and effect of the transaction.
Although he was right to reject the argument that it was fatal to the plea of retention that the obligations referred to in action CA31/07 arose out of a different contract, he did not carry his finding that the separate agreements were all part of the same transaction to its logical conclusion.
The guiding principle is that the unity of the overall transaction should be respected.
The analysis should start from the position that all the obligations that it embraces are to be regarded as counterparts of each other unless there is a clear indication to the contrary: see Gloag, p 594; Macari v Celtic Football and Athlectic Co Ltd 1999 SC 628, 639, per Lord President Rodger.
In Hoult v Turpie 2004 SLT 308, para 14, Lord Drummond Young said that the requirement that the obligations should be counterparts of each other should not be used in an artificial manner which breaks up the essential unity of a contract.
He cautioned against overuse of the mutuality rule as a means of controlling the right of retention lest it swamp the principle that contracts must be duly performed.
As he saw it, the most satisfactory means of control was the rule that, before a party is entitled to withhold performance, the other must be in material breach of contract.
It has been suggested that this theory needs to be treated with caution, as the breach does not need to be so material as to justify rescission: Gloag and Henderson, The Law of Scotland, 12th ed, para 10.14, footnote 85; McBryde, The Law of Contract in Scotland, para 20.60.
Subject to that qualification, however, it seems to me to be a useful protection against abuse.
The right of retention must, of course, be kept under control.
The rule that the relevant obligations must be counterparts of each other must be respected too, as the right of retention rests upon that principle.
It is possible to regard a contract as operating in stages, with the result that the principle will apply separately to each stage: Bank of East Asia Ltd v Scottish Enterprise 1997 SLT 1213.
But care should be taken not to lose sight of the overall purpose and unity of the transaction that the parties have entered into when conducting the analysis.
The essence of the case for the exercise of a right of retention is to be found in recital (C) of the Services Agreement.
It records that the Services Agreement was entered into to enable Tullis Russell to obtain the full benefit and value of the assets being acquired under the Asset Purchase Agreement.
Clause 2.1 of the Services Agreement states that the parties recognised that its purpose was to allow Tullis Russell time to integrate the manufacture and distribution of the Products into their existing operations and to protect the value of Tullis Russells investment in the Owned Intellectual Property Rights in terms of the Asset Purchase Agreement.
Underlying these complicated arrangements is Tullis Russells concern that the value of their investment could be affected by Inveresks conduct during and following the expiry of the life of the Services Agreement.
The basis of the claim of damages is that the value of its investment in the assets purchased under the Asset Purchase Agreement was diminished by Inveresks manufacture and distribution of products which did not meet the specified quality standards and the way they dealt with complaints by customers.
The fact that the principal assets that Tullis Russell were seeking to acquire were intellectual property rights, whose value was vulnerable to things said or done by Inveresk after those rights were transferred to Tullis Russell, helps to explain the complex nature of these arrangements.
Clause 15.4 of the Asset Purchase Agreement can be taken to refer, as the Extra Division held in para 52, to claims in relation to products manufactured before the transaction was entered into.
The clauses of the Service Agreement that are founded on perform the same function in relation to products manufactured after that date.
Although the transaction can be regarded as proceeding in stages, it is unrealistic to treat it as divisible into a series of separate and unrelated compartments.
The obligations undertaken by Inveresk were all designed to serve the same end, which was to preserve the value of the intellectual property rights and other assets acquired by Tullis Russell after the Completion Date.
As for the payments to be made by Tullis Russell, the Services Fees payable under clause 3.1 of the Services Agreement were a counterpart of Inveresks obligation to perform the services referred to in the clause.
But in my opinion their obligation to pay the sum of the Initial Consideration and the Additional Consideration to Inveresk was a counterpart of the performance by Inveresk of their obligations under both agreements.
For these reasons I would hold that the courts below were wrong to hold that the averments in support of the plea of retention were irrelevant.
In my opinion Tullis Russell are entitled to withhold payment of any sums due to Inveresk as Additional Consideration pending the outcome of their claim for damages for breach of the clauses in both the Asset Purchase Agreement and the Services Agreement that they found upon.
Conclusion
I would allow the appeal.
I would recall the Extra Divisions interlocutor and set aside the Lord Ordinarys interlocutor of 11 September 2008.
The future course of this action will be a matter for discussion in the commercial court.
I would remit the action to the commercial judge to proceed as accords.
LORD SAVILLE
I agree with Lord Hope and Lord Rodger that the appeal should be allowed for the reasons that they give.
I also agree with the views expressed by Lord Collins about the position in English law.
LORD RODGER
I agree with Lord Hope that, for the reasons he gives, the averments of the pursuers, Inveresk PLC (Inveresk), in support of their conclusion for payment by the defenders, Tullis Russell Papermakers Ltd (Tullis Russell), of the sum of 909,395 are irrelevant.
I add some observations on whether, as the issue is put, Tullis Russell would in any event be entitled to retain any sum for which they were found liable in these proceedings, until their claim against Inveresk for payment of various much larger sums by way of damages for breach of contract is resolved.
Tullis Russells damages claim against Inveresk is being litigated in another commercial action in the Court of Session.
That action began just before this one but, in certain respects at least, it has made rather more rapid progress.
In December 2008 Lord Drummond Young assigned a diet for the proof before answer to begin on 6 October 2009 and to take six weeks.
In August 2009 in a burst of optimism this was reduced to four weeks starting on 27 October 2009.
The proof began then and ran until 20 November, by which time the pursuers, Tullis Russell, had not finished leading evidence.
The continued proof is due to begin on 4 May 2010 and to last for sixteen days.
In the present action for payment, the seventh plea in law in the defences on behalf of Tullis Russell raises the issue of retention: The defenders, being entitled to payment by the pursuers of sums under the contract, are entitled until such sums have been paid to retain any sums found due to the pursuers.
The Lord Ordinary (Lord Glennie) repelled this and all their other pleas in law and granted Inveresk decree for the sum sued for.
The Extra Division refused Tullis Russells reclaiming motion.
The Parties Submissions
Before the courts below and before this Court the lines of battle were drawn very narrowly.
Essentially, both sides proceeded on what I would regard as the erroneous basis that in Scots Law the whole matter is regulated by fixed rules and that the court has no power to intervene where it would be equitable to do so.
Mr Currie QC, who appeared for Inveresk, maintained that the rule was that retention of a sum was not possible unless a pursuer had failed to perform an obligation under the same contract as gave rise to the right to payment; moreover, the defender could retain the sum only if the pursuer had failed to perform the very obligation under the contract for which the payment of the sum was the consideration.
Here, he argued, Tullis Russells claim for damages fulfilled neither of these conditions: their obligation to pay the price for the assets arose under Clause 2 of the Assets Purchase Agreement, while their claim for damages related to the separate Services Agreement; Tullis Russells obligation was to pay the price as consideration for Inveresk transferring the ownership of the assets under Clause 2 of the Assets Purchase Agreement.
In contrast, their claim for damages related to an alleged breach by Inveresk of clauses in particular, Clause 16 of the Services Agreement.
On behalf of Tullis Russell, the Dean of Faculty also proceeded on the basis that retention was entirely a matter of right, and that the right arose where the pursuers claim for the price and the defenders claim for damages derived from what amounted to the same contract.
He argued that the Inner House had been wrong, however, to see the two agreements between the parties in this case as separate contracts; there was, in effect, a single transaction which had been given effect in two contracts in order to assist Inveresks tax position.
This could be seen, for example, from Clause 4 of, and Part 1 of the Schedule to, the Assets Purchase Agreement and from Clause 22.2 of the Services Agreement.
Even if the contracts were separate, they were so closely interlinked that they should be treated together for purposes of retention.
Tullis Russell could not be required to pay the price for the assets when they were claiming damages for loss which they alleged they had suffered due to Inveresk failing to carry out, inter alia, their obligation, under Clause 16 of the Services Agreement, to enable Tullis Russell to obtain the full benefit and value of those assets.
In effect, the matter should be treated as if the defenders were claiming damages for breach of a contract on which they were being sued for the price.
The Approach of the Inner House
In essence, the approach advocated by Inveresk before this Court was the same as the approach of the Extra Division.
Indeed, subject to a minor qualification which is not of practical importance, Mr Currie went out of his way to adopt everything which the Division said on retention.
This included the following passage, 2009 SC 663, 695: The approach of the reclaimers, before us, appeared to be that a proper reading of the two agreements together led to the implication that the parties intended that performance of the obligation to pay the additional consideration was dependent on the fulfilment of the obligations under the services agreement and Clause 15.4 of the acquisition agreement and that was so because of the obvious interconnection of the matters covered by the two agreements.
In our system, at least, where the matter is not covered by express agreement, what the court is searching for is identification of obligations which might fall to be seen to be mutual.
There is, we think, a danger of focusing on the expression mutuality of contract rather than on mutuality of obligation in this context.
Within a single mutual contract, there may be obligations which are mutually dependent upon each other and can truly be described as reciprocal.
There may also be within that single contract an obligation, or obligations, in respect of which there is no direct reciprocal counterpart.
That is what Lord President Rodger in Macari v Celtic Football and Athletic Co Ltd 1999 SC 628, 640G H took from the speech of Lord Jauncey in Bank of East Asia Ltd v Scottish Enterprise 1997 SLT 1213 and what Lord Caplan had to say about the matter at page 650.
In a single contract situation, the obligation of an employee to carry out his employer's instruction was not regarded as the counterpart of his employer's implied obligation not to seek to damage the relationship of trust and confidence between the parties.
Accordingly, the operation of retention even within a single mutual contract, where not expressly provided for, operates subject to these requirements and qualifications.
Applying that approach, the Division went on to say, at p 696, Applying the law, as set out authoritatively in Bank of East Asia and Macari, it does not appear to us that, on any view, the reciprocal obligation for payment of the additional consideration under the acquisition agreement was the performance of obligations under the services agreement.
The reciprocal obligation in relation to the payment of the additional consideration arose solely from the acquisition agreement and constituted the obligation to transfer the assets in question in accordance with that agreement.
The reciprocal obligation for the performance of the obligations in the services agreement was to be found in the terms of the services agreement itself.
While it can, no doubt, be said that there was a connection between the obligations contained in both agreements, in that they both came into existence in the context of the whole transaction between the parties, that could have been said of the respective obligations in Macari and in the respective obligations in the South African case, [ESE Financial Services (Pty) v Cramer 1973 (2) SA 805 (C),] but, as in those cases, their enforcement was not, in our opinion, made dependent one upon the other.
As is plain from their emphasis on the need to focus on mutuality of obligation, the Extra Division are really confining retention to situations where the defender says that the pursuer has not performed the particular obligation in respect of which he claims payment of the sum in question.
In other words, the defender asserts his right not to perform his obligation to pay unless and until the pursuer performs the particular obligation which entitles him to payment as opposed to some other obligation under the contract.
Hence the references to Macari v Celtic Football and Athletic Co Ltd 1999 SC 628 where one of the issues was whether Mr Macari had been entitled to refuse to carry out the instructions of the managing director because the club were in breach of another obligation to him under the contract between the parties.
I shall have to examine the development of the law in a little detail.
In short, however, the approach of the Extra Division conflates two different legal doctrines, to both of which, most unhelpfully, Scots Law tends to apply the label retention.
Firstly, a defender has a right to withhold or retain payment of, say, the price of goods which he says are materially defective, until the pursuer proves that he has supplied goods which are conform to the contract.
Although their analysis was more detailed and sophisticated, that is the only kind of retention which the Extra Division considered in the passages which I have quoted.
But the term retention is also applied to the (different) situation where a defender admits that, say, the price of goods is due.
In that situation he cannot have any right to withhold payment of the price.
But he can submit to the court that he should not be obliged to pay the price until some unliquidated claim which he has against the pursuer (here, a claim for damages) is resolved.
In effect, the defender asks the court to allow him to retain the price meantime so that, if his claim for damages succeeds, he can offset the liquid damages against the liquid price.
Here the Extra Division concluded that the Additional Consideration was a liquid debt which Tullis Russell had no right to withhold because the obligation to pay it was not dependent on Inveresk performing their obligations under the Services Agreement.
As explained, there was actually a further possibility: that, even if the Additional Consideration was liquid, it would be just and equitable to allow Tullis Russell to retain it until their damages claim against Inveresk was resolved.
Their Lordships cannot be blamed for not considering that issue, since clearly it was not argued.
Nevertheless, the point is of some general importance.
So I shall deal with it, while recognising, of course, that my remarks are obiter, since the appeal is being allowed on other grounds.
I must first make good the distinction between the situations where the two different types of retention arise.
I can then deal with the first situation very shortly, since, on that form of retention, I agree with the judgment of Lord Hope.
I shall then examine how the court decides whether to allow retention of the second kind.
Retention withholding performance
The fact that the word retention is used in a variety of ways, which can lead to confusion, is well recognised.
See, for instance, W M McBryde, The Law of Contract in Scotland 3rd ed, (2007), pp 563 565, paras 20 62 20 65.
In W M Gloag and J M Irvine, Law of Rights in Security (1897), pp 303 304, Gloag mentions a number of different doctrines to which the term has been applied.
In particular, he identifies the right of a party to withhold performance of his obligation under a mutual contract, if the counter obligation is not performed.
He also mentions the case of retention or lien, where the person in possession of property belonging to another is entitled to retain it in security of debts or obligations due to him by the owner.
In his later work, The Law of Contract (2nd edition, 1929), p 623, Gloag says that the term retention is often used to refer to the right of one party to withhold performance of the obligations he has undertaken under a contract until performance of the obligations in which he is creditor.
A similar approach is found, for example, in Kames, Principles of Equity (new edition, 1825), p 344.
This formulation is wide enough to cover the situation where, for example, A leases 100 acres of land to B, but remains in possession of 10 of those acres.
B is entitled to refuse to pay the rent unless and until A actually performs his obligation to give B possession of the entire 100 acres.
Bs obligation to pay the rent arises only once A performs his obligation to put B in possession of the whole 100 acres.
Lord Fullerton put the point succinctly in a much quoted passage in Graham v Gordon (1843) 5 D 1207, 1211: Rent is not liquid in the sense that a sum due by bond is.
It is matter of contract in consideration of something to be done.
It is paid for possession of the subject let.
If the tenant says he has not got entire possession, that is a good answer to the claim for rent.
In such a case there is no question of the tenant withholding or retaining rent that is due to the landlord: on the contrary, the tenant withholds the rent on the ground that he has no obligation to pay it because the landlord has not performed the obligation for which the rent is the consideration.
See also, for example, Lovie v Bairds Trs (1895) 23 R 1.
The same can apply where a pursuer claims the price for carrying out works.
If the defender disputes that the works were properly carried out, the pursuer must prove that they were.
Unless and until he does so, his claim is illiquid and the defender is not obliged to pay.
See, for instance, Johnston v Robertson (1861) 23 D 646, 656, per Lord Justice Clerk Inglis: Every action on a mutual contract implies that the pursuer either has performed, or is willing to perform, his part of the contract; and it is, therefore, always open to the defender to say that under the contract a right arises also to him to demand performance of the contract before the pursuer can insist in his action.
In the present case Tullis Russell do not dispute that Inveresk transferred ownership of the various assets on the Completion Date, 9 June 2005, in accordance with Clause 2.1 of the Assets Purchase Agreement.
At which point, Tullis Russell paid the Initial Consideration.
But they say and the Court now holds that Inveresk have no liquid claim for the Additional Consideration for those assets because it has not been agreed or determined in accordance with Part 3 of the Schedule.
So, for that reason, Tullis Russell are under no obligation to pay the Additional Consideration at present.
Any possible obligation to do so will arise only when the Additional Consideration is ascertained, either by agreement, or under some procedure to be determined by the commercial judge.
If and when that day arrives, Tullis Russell want to be able to withhold payment of the Additional Consideration on two grounds: first, because, they say, Inveresk are in breach of their reciprocal contractual obligations to them and, secondly, pending the outcome of their claims for damages against Inveresk in the other action.
Withholding Performance and Claiming Damages
Besides withholding payment until the pursuer establishes that he has performed the obligation giving rise to the obligation to pay, a defender may undoubtedly go further and claim that the pursuers breach of contract actually caused him loss.
That said, the case law and literature on defenders claims for damages in actions for the price of a contract are notoriously confusing.
For a modern reader, the older arguments and discussions are particularly difficult to follow because the counsel and judges were working in a system where, in an action for payment of a debt, the defender could plead any entitlement to damages only as a defence to the pursuers claim in the hope of using those damages to reduce or even extinguish any sum that would otherwise be due to the pursuer.
If he wanted to go further, and actually recover the full amount of any damages, the defender had to raise a separate action against the pursuer.
So far as the Court of Session is concerned, that remained the position until the law was changed by section 6(2) of the Administration of Justice (Scotland) 1933 and Rule 13 of the Rules of Court 1935.
It then became possible for a defender to include in his defences a conclusion and pleadings, by virtue of which he could recover the whole sum of damages due to him without the need to raise a separate action.
In Taylor v Forbes (1830) 9 S 113 the pursuer sued for freight for carrying a cargo of flour for the defender from Perth to Aberdeen.
The pursuer did not insert sufficient planks to line the hold and protect the cargo from contact with the bilge water.
He claimed that it was not customary to do so.
When the flour was unloaded, part of the cargo was found to have been damaged by the bilge water.
The cargo was sold, the damaged part at a reduced price.
The reduction in value exceeded the freight.
The pursuer sued for the freight before the Judge Admiral and the defender pleaded his loss by way of defence.
The Judge Admiral was satisfied that the damage to the flour had been due to the pursuers fault in failing to line the hold properly.
In view of the fact that the defenders loss exceeded the freight, he assoilzied the defender.
When the matter came before the First Division, the pursuer argued that his claim for the freight was liquid and that the defender had to pay that liquid debt leaving him to bring any claim for damages in a separate action.
The First Division rejected that argument.
The brief report does not reveal their reasoning.
But, in reality, the defender was saying that the pursuer was in breach of contract because had failed to make appropriate arrangements for carrying the flour to Aberdeen.
So the pursuer had to show that, in the circumstances, he had earned the freight by duly performing his contract to carry the flour.
Since his claim for freight was therefore illiquid, the defender was entitled to plead in defence the illiquid claim for loss which he had suffered as a result of the pursuers failure to make appropriate arrangements for carrying the flour. (In fact, the line of cases reviewed and affirmed in Aries Tanker Corporation v Total Transport [1977] 1 WLR 185 indicates that the settled policy of English law, at least, is against allowing a claim in respect of cargo to be asserted by way of deduction from the freight.
It is unnecessary for present purposes to decide whether the same would now apply in Scots Law.)
In Johnston v Robertson (1861) 23 D 646 the parties had contracted for the pursuer to erect a poor house.
The work was to be completed and the keys were to be delivered by a specified day, under a penalty of 5 per week of delay in completing it.
The court held that this was not a penalty but a provision for pactional damages.
Since the pursuers claim for the price was itself illiquid, there could be no objection to the defender seeking to establish his countervailing illiquid claim for the appropriate pactional damages in the event that the jury held that the pursuer had not completed the works in time.
Depending on the finding of the jury as to whether the work had been done properly, and as to any sum due as liquidated damages for delay, the pursuers claim for the price would be reduced or, conceivably, extinguished.
Retention of liquid debt for purposes of compensation
In the cases I have been discussing the pursuers claim is not liquid.
He has to establish it and, in that situation, the defender can oppose the pursuers illiquid claim for the freight or price with his own illiquid claim for damages arising out of the pursuers alleged failure to perform the obligation in question.
A defender may, however, admit, say, that the work has been done, that the price has therefore been earned, and that the pursuer has a liquid claim for the price, but nevertheless maintain that the pursuer is liable to him in damages for loss which he suffered as a result of the pursuers failure to do the work within the time allowed by the contract.
As Lord Justice Clerk Inglis recognised, 23 D 646, 655, that was, essentially, the nature of one aspect of the defence to the action in Johnston v Robertson: supposing the pursuer was entitled to claim the price, still, in consequence of the pursuers delay in executing the work, a counter claim [for damages] arises to the defender under another clause of the contract, on which he specially founds, and his defence under which he desires to try by his counter issues (emphasis added).
In that part of his defence, the defender in Johnston v Robertson was seeking to retain payment of any sum, which he was otherwise due to pay as the price for the completed works, against his claim for damages for the loss which he had suffered as a result of the pursuers delay in completing them.
In other words, the defender maintained that, even if the pursuer were to prove his claim and it became a liquid debt, he should still not be required to pay the debt unless and until his claim for damages for breach of another clause of the contract had been resolved.
In effect, the defender was maintaining that the court should allow him to make his illiquid claim, for damages for the breach of the other clause, liquid so that he could then use that liquid sum to compensate any liquid sum which he was found to owe the pursuer.
The point can be focused by a hypothetical example.
Suppose that in January B buys an antique clock from a dealer, A.
The parties agree that, although B is to become owner and the clock is to be delivered to him forthwith, the price is not to be payable until 1 June.
In a separate clause of the contract the parties also agree that, in the period between January and 1 June A is to go to Bs house and renovate the clock.
B is to pay him 30 per hour for his work.
In fact, A fails to attend to do the renovations and B has to instruct another expert who charges a much higher rate.
On 1 June B is undoubtedly under an obligation to pay the price in respect of the transfer of ownership and delivery of the clock.
But he has a claim for damages for his loss due to As failure to carry out his obligation to renovate the clock.
If the approach of the Extra Division, which I have identified at para 56 above, is right, then the mere fact that Bs obligation to pay the price of the clock is not the counterpart of As obligation to renovate it means that B can never be permitted to retain the price in respect of his claim for damages for As breach of that obligation even if that claim could be easily and speedily quantified and even if it were made the subject of a counter claim in the same process.
B has to pay forthwith because A has delivered the clock and given him a good title.
So the judge would have to grant A decree de plano for the price and allow him to enforce that decree against B. B would then be left to pursue his counter claim against A for damages.
In effect, therefore, on the Extra Divisions approach, which Mr Currie adopted, retention would be confined to cases where the defender was simply withholding payment until the pursuer had proved that he had performed the particular obligation for which the price was the consideration.
Retention of liquid debts under a contract would, in effect, be impossible.
It would follow also that the court could never permit Tullis Russell to retain the price which is due under Clause 2 of the Assets Purchase Agreement in respect of their claim for damages for Inveresks alleged breach of Clause 16 of the Services Agreement even assuming that the two contracts could be construed as forming a single composite agreement.
Lord Hope has examined the two contracts and their relationship in great detail and has emphasised that care should be taken not to lose sight of the overall purpose and unity of the transaction entered into by the parties.
Approaching the matter in that way, he has concluded that Tullis Russells obligation to pay the total of the Initial Consideration and the Additional Consideration to Inveresk should be regarded as a counterpart of Inveresks performance of their obligations under both agreements.
The transaction between the parties, involving an Asset Purchase Agreement and a (Transitional) Services Agreement, is of a very familiar, indeed commonplace, kind.
And it may well be that, usually, it would be right to see the obligations in the two agreements as being related but not reciprocal.
Here, however, leaving aside the matter of the coater machine and the associated fees, Clause 3.1 of the Services Agreement provides for payment of a monthly fee of 1m for the five months during which the services were to be provided.
Clause 3.3 and part 4 of the Schedule contain elaborate provisions for the entire sum to be paid into an escrow account on completion or as soon as reasonably practicable thereafter.
The total sum of 5m is the same as the Initial Consideration under the Acquisition Agreement.
In these circumstances, it is hard to see these fees for the services to be supplied as being irrelevant to the real overall consideration that Tullis Russell are to pay for acquiring the assets.
That factor points to Lord Hopes conclusion that, in this particular case, the two agreements have to be looked at together and that Tullis Russells obligation to pay the Additional Consideration to Inveresk should be regarded as a counterpart of Inveresks performance of their obligations under both agreements.
It follows that, approaching the matter on the basis adopted by the Inner House and by counsel in argument before this Court, in agreement with Lord Hope, I would hold that, even if the Additional Consideration were ascertained, Tullis Russell would be entitled to withhold payment of that sum until the court decides whether Inveresk fulfilled their obligations under the Services Agreement.
If it is held that they did, then Tullis Russell will, ipso facto, no longer be entitled to withhold payment.
So decree will have to be granted against them for the Additional Consideration.
Alternatively, if it is held that Inveresk breached the Services Agreement and so are liable in a sum of damages to Tullis Russell, then, by paying the damages, they, in effect, make good their failure to perform their obligations under the Services Agreement and become entitled to the Additional Consideration.
But the liquid sum by way of Additional Consideration and the liquid sum by way of damages can be set off against one another.
The appeal raises a further, fundamental, point which requires to be addressed, however.
Although in this case the Court finds that the the Additional Consideration is a component of the counterpart of Inveresks obligations under both agreements, the hypothetical example of the clock which I have given in para 73 above suggests that there can be cases where a pursuer will have performed the obligation entitling him to payment of a particular sum, but the defender has a claim for damages for the pursuers breach of another clause in the contract.
The Extra Divisions approach suggests that, in such a case, the defender could never be allowed to retain the price, since a party can only retain or withhold a sum which is not actually due, because the other party has failed to perform the obligation for which that sum is the consideration.
But the authorities show, beyond all doubt, that, in certain circumstances, the court does permit a defender to retain a liquid debt which he would otherwise be obliged to pay to the pursuer.
The necessary conclusion is that there is actually another type of retention which operates on a different basis in Scots Law.
The Inner House did not refer to this second type of retention and counsel made no mention of it in argument even though, in their seventh plea in law, quoted at para 51 above, Tullis Russell claim to be entitled to retain any sum that is found due to the pursuers, pending the resolution of their claim for damages against Inveresk.
If this Court, too, fails to mention the second type of retention, there is a risk that its existence will continue to be overlooked.
This second kind of retention is closely related to compensation.
The right to compensation is based on the Compensation Act 1592: Oure Souerane Lord and estaitis of parliament statutis and Ordanis that ony debt de liquido ad liquidum instantlie verifiet be wreit or aith of the partie befoir the geving of decreit be admittit be all Jugis within this realme be way of exceptioun Bot nocht eftir the geving thairof In the suspensioun or in reductioun of the same decreit.
The Act provides that judges are to admit any liquid debt that can be instantly verified by writ or oath before judgment is pronounced.
Suppose, for example, A sues B for 20,000 as the price of a car which B bought from A and which A has delivered to B. Suppose, further, that A owes B a liquid sum of 10,000 under, say, a bond.
In As action for the price of the car, B can plead compensation.
In other words, B pleads that As liability to pay him 10,000 under the bond should be set off against Bs liability to pay A 20,000 as the price of the car.
In that situation, the effect of the plea of compensation is that Bs debt to A is reduced by 10,000.
The court therefore orders B to pay, not the full price, 20,000, but only 10,000.
Provided that the two debts are liquid, the basis of the debts does not matter.
So, for instance, Bs obligation to pay 20,000 as the price of a car which he bought from A can be compensated by a judgment debt of, say, 20,000, arising out of an action of damages in which B sued A successfully for injuries which A negligently caused him in a ski ing accident.
But, even when a defender cannot actually point to a liquid debt which is owed to him by the pursuer, he may insert a plea of compensation in his defences and refer to an obligation which is not yet liquid, but which he anticipates will become liquid.
If the debt owed by the pursuer is indeed made liquid before the action against the defender is completed, then the defender will be able to compensate any sum for which he is found liable with the (now) liquid debt owed by the pursuer.
But the pursuers action may look like being completed before the pursuers debt to the defender can be made liquid.
In that event, the defender will want to delay the final disposal of the pursuers action so as to give him time to make the pursuers debt to him liquid and so be able to set it off against his own liability.
This is where the law of retention comes in.
In such cases the defender argues that, even if the debt which the pursuer owes him is not yet actually liquid, it can (readily) be made liquid or is indeed in the course of being made liquid.
So the defender should not be obliged to pay any sum which he may owe the pursuer before the sum which the pursuer owes to him is made liquid.
In other words, the defender argues that the court should allow him to retain any sum for which he may be found liable to the pursuer until the sum owed to him by the pursuer can be ascertained and made liquid.
At which point, the defender will be able to set off the sum owed to him by the pursuer against the sum which he owes to the pursuer.
The Compensation Act 1592 is clear enough: by its very terms, it applies only to the compensation of a liquid debt with another liquid debt.
The whole point of this type of retention, however, is that, in certain circumstances, the court permits a defender to postpone payment of a liquid debt where the debt owed to him by his creditor is still illiquid.
Echoing Lord Kames, Principles of Equity, p 344, Gloag explains, in Gloag and Irvine, Rights in Security, p 304, that The law of retention of debts is an equitable extension of the statutory right of compensation.
In other words, the judges have allowed retention of debts where that would be equitable, having regard to the essential purpose of the Compensation Act.
The equitable nature of retention for purposes of compensation
The starting point for the development of the law of retention was the very stipulation in the Compensation Act that compensation is possible only between liquid debts, de liquido in liquidum.
Writing in the later eighteenth century, in his Institute of the Law of Scotland 3.4.16, Erskine describes what amounts to a liquid debt for these purposes: Compensation is not regularly receivable where the debts on both sides are not clear beyond dispute.
They must be ascertained, either by a written obligation, the oath of the adverse party, or the sentence of a judge.
So the rule is that compensation is allowed only where the debts on both sides cannot be disputed.
Erskine gives examples of such debts, before going on to say: Though the foresaid act 1592 requires that all grounds of compensation be instantly verified, yet by our uniform practice for near a century, which seems grounded on the Roman law, C.4.31.14, if a debtor in a liquid sum shall plead compensation upon a debt due by his creditor to him which requires only a short discussion to constitute it, sentence is delayed ex aequitate against the debtor in the clear debt, that he may have an opportunity of making good his ground of compensation, according to the rule, Quod statim liquidari potest, pro jam liquido habetur (punctuation and citation modernised).
The important point to notice is that, in postponing decree in such circumstances, the court is exercising an equitable power (ex aequitate).
In effect, from the seventeenth century onwards, the Court of Session had recognised that, in certain cases, it would be inequitable to force the defender to pay a debt and to ignore a countervailing debt owed by the pursuer, simply because that countervailing debt had not yet been ascertained in a written obligation, or by the pursuers oath or by a judgment.
So the court would proceed on the basis of the old brocard to the effect that, if a debt can be made liquid in the near future (mox), it should count as a liquid debt.
In other words, the court will not force a defender to pay a liquid debt owed to the pursuer, if a debt owed to him by the pursuer can be made liquid in the near future.
In such a case the court will delay matters to allow the defender to make the debt owed by the pursuer liquid.
This will enable the defender to compensate his liquid debt to the pursuer with the (now) liquid debt owed by the pursuer.
The equitable nature of the courts power to delay is again emphasised in Logan v Stephen (1850) 13 D 262.
A farmer sought to defend a claim for wages by the pursuer (variously described as his ploughman or his grieve) by reference to a claim based on an obligation of the pursuer as cautioner and security for a clerk who was alleged to have caused the farmer very large losses.
The pursuer submitted that the defence was irrelevant.
The First Division agreed and refused to allow the defender to retain the sum due to the pursuer as wages.
Lord Cuninghame observed, at p 267: Our ancient Scots Act (1592) sanctions the pursuers plea, as it only admitted mutual claims which are liquid, to be compensated.
We have no such case here.
The ploughmans wages are liquid, while his masters claims are illiquid, and of a very unfavourable, if not an incredible aspect.
No doubt, in practice, we sometimes allow counter claims not yet constituted, to be held pro jam liquido, when they admit almost of immediate ascertainment.
But it is always a question of circumstances, and of sound judicial discretion and equity, in what cases that should be allowed.
I cannot hang up a labourers wages, by such claims as those now in question.
So the defender had to pay the wages that were due and, if so advised, seek to establish his claims against the pursuer in a separate action.
Lord Cuninghame referred to the court allowing retention on the basis of a counter claim which admitted almost of immediate ascertainment.
That is indeed the starting point.
Plainly, much may depend on what will be involved in making the pursuers debt liquid.
If, for example, it simply involves counting up the number of items sold to the pursuer at an undisputed price, any delay involved is likely to be short and the court may be disposed to allow it.
Stair, Institutions of the Law of Scotland 1.18.6 and Bankton, An Institute of the Law of Scotland 1.24.28 refer to a rule of thumb that, if it would take the pursuer a day to prove his liquid debt, the defender would be given a day to prove and liquidate his grounds of compensation.
It would be a very different matter if, on the other hand, the defenders claim were for damages and he had not even begun proceedings against the pursuer.
In general, the court will not permit retention in that kind of case, since the delay is likely to be considerable and the outcome uncertain.
But, as the cases show, since the court is exercising an equitable power, there are no absolutely hard and fast rules.
Early cases on retention for the purposes of compensation
In Muir and Milliken v Kennedy (1697) M 2567 a minor was sued as heir to his father, for a sum in a bond of caution granted by his father.
The court allowed the defender time to show that the debt had already been paid.
He then craved compensation for a sum allegedly owed to the estate on the ground that one of the pursuers had stayed for several years in his fathers house.
The pursuers objected that this claim was not liquid.
The Lords, considering the favour of this case, being a minor and the heir of a cautioner, and given that the pursuers claim was being delayed in any event to allow the defender to try to prove that the debt had been paid, gave him a term to prove his compensations, seeing quod statim potest liquidari habetur pro jam liquido.
The reporter adds: yea, the Lords have allowed this without these favourable circumstances.
In Seton (1683) M 2566, the court seems to have been influenced by the fact that the defender was a widow.
She had been charged on a bond granted by her husband.
She defended the action on the basis that the pursuer had owed her husband freight under a charterparty.
The pursuer argued that the debt was not liquid, because the defender would need to prove that her husband had made the voyages.
Initially, the court upheld that objection.
The defender offered to remit the matter to the pursuers oath.
The court then allowed the matter to be proved prout de jure (by any means permitted by law) referring again to the quod mox liquidari brocard.
The court decerned for the sum in the bond, but superseded extract for three or four months, so that if the debt be liquidate betwixt and that time, then the compensation was to be received.
In other words, the court granted decree for the debt in the bond, but directed that it was not to be enforceable for three or four months, to give the defender time to establish the claim for freight, which could then be set off against the debt under the bond.
The reporter thought that this went too far and though it be materially just, yet it is a great relaxation of our antient form.
In Brown v Elies (1686) M 2566 the defender was again charged on a liquid bond.
He claimed that the pursuers father, who had assigned the bond to him, had actually, by virtue of a trust, uplifted and intromitted with sums equivalent to the debt under the bond.
Again, the argument was that the defenders claim was not liquid.
Under reference to various writers, there was discussion of how long the court could give a defender to liquidate a debt.
In the event, the court gave him two weeks to do so.
This was then extended for a further six weeks.
But more than six months after that, due to difficulties in getting evidence from someone in the Highlands, the court allowed a further extension of nearly two months.
Plainly, the court took the view that it could allow whatever period it thought appropriate in the particular circumstances.
Whether or not all, or indeed any, of these cases would be decided in the same way today does not matter for present purposes.
Rather, they are significant because they show a range of circumstances in which the court can allow a defender to retain a liquid debt.
In particular, first, the cases demonstrate that the court is not hamstrung by the requirement that, for compensation, the debts must be liquid.
That requirement is to be treated with a certain discretion cum aliquo temperamento, to use the expression in one of the cases.
Once that is admitted, in Lord Cunninghames words in Logan v Stephen (1850) 13 D 262, 267, it is always a question of circumstances, and of sound judicial discretion and equity.
In other words, it is a matter for the court to decide, by an application of judgment to all the relevant circumstances, whether to delay the proceedings to give the defender the opportunity to make the pursuers debt to him liquid.
Secondly, since a liquid contractual debt can be compensated by a liquid debt arising out of a completely different contract or on a completely different basis, the court must equally have the equitable power to allow the defender to retain a liquid contractual debt to allow the defender to make any other kind of debt liquid.
Whether the court will, in practice, do so depends on the policy it adopts and there is, of course, no reason why the policy adopted by the court in the circumstances of the seventeenth century should necessarily be appropriate today.
Thirdly, the court has more than one method at its disposal for giving effect to a claim to retain a sum until a countervailing debt can be made liquid.
As in Brown v Elies and Muir and Mulliken v Kennedy, it can allow the defender to retain the debt until the circumstances of the debt allegedly due by the pursuer can be clarified.
Alternatively, as in Seton, the court can grant decree for the sum sought by the pursuer, but supersede extract to give the defender time to prove the pursuers debt, which can then be set off against the sum in the decree.
Later cases on retention for the purposes of compensation
The same general approach can be seen in the nineteenth century cases, although by this time the court was anxious to emphasise that, as a rule, justice requires that a defender should not be allowed to postpone his liability to pay a liquid debt by reference to an illiquid debt of the pursuer.
Lord Cranworth LC made that point in an obiter passage in National Exchange Company of Glasgow v Drew and Dick (1855) 2 Macq 103.
He characterised an argument of the Solicitor General for the respondents as involving setting off against a liquidated demand something that may be recovered of the nature of unliquidated damages.
The Lord Chancellor continued, at pp 122 123: I think, that not only by the law of England and of Scotland, but by the law of other civilized countries, that cannot be done; the inconvenience of it would be excessive.
If a person has an actual liquidated money demand, which he seeks to enforce, the amount undisputed, it would be unjust, or might be unjust to him, to involve him in a question whether the person who is bound to pay him that liquidated sum may or may not have a right of action against him upon some collateral matter in respect of some damage on account of which he may have a right of action, for a fraudulent representation, or for an assault, or for a trespass, or any other of those various wrongs which may be inflicted upon the man, and for which he may be entitled to compensation.
It is clear, in my opinion, that that cannot be the case either by the law of England, or the law of Scotland, or, as I believe, by the law of any other country.
The passage has all the sweeping confidence of the Victorian Age.
Even so, the Lord Chancellor is careful to say that allowing in such collateral illiquid claims would be, or might be, unjust to the pursuer thereby leaving open the possibility that, in certain circumstances, it would not be unjust.
Ultimately, therefore, it is for the judges, having regard to this general rule and the other rules that they have developed, to decide whether it would be just and equitable, in the particular circumstances, to allow a defender to retain a liquid sum which he would otherwise be bound to pay.
Some twenty years later Lord Deas observed in Pegler v Northern Agricultural Implement Co (1877) 4 R 435, 439: The rule which prevents illiquid claims being set off against liquid claims is founded in justice.
It is intended to prevent parties from being kept out of their money by claims which may turn out to be altogether groundless, and which may be put forward for the mere purpose of delay.
So, for instance, in Thomson v Paxton (1849) 11 D 1113 the court refused to sist an action for payment of instalments of rent, which were disputed, in order to allow the defenders action of damages against the pursuer, for his loss due to the disrepair of the house, to be conjoined.
Nevertheless, Lord Justice Clerk Hope did suggest, at p 1115, that, before extract, the court might take account of the action of damages.
He was indicating that, if the defender established his claim for damages before the decree for rent became enforceable, then, at that stage, the court would allow the one liquid judgment debt to be set off against the other.
Similarly, as already explained, in Logan v Stephen (1850) 13 D 262, the court refused to postpone decree for the pursuers wages.
But the judgments make plain that the judges were weighing up the equities and that, in doing so, they were influenced by the fact that the pursuers claim was, in Lord Fullertons words, at p 266, a demand so liquid, so urgent, and even alimentary in its nature, as that for wages, while the defenders claims were problematical, to say the least.
In Stewart & Co v J & A Dennistoun (1854) 16 D 1061 the pursuers were the owners of a vessel chartered by Morton & Co. The defenders had undertaken to pay a specified sum, representing two thirds of the freight due by Morton & Co, on production of a certificate that a full cargo of flour had been loaded at New Orleans to be taken to Hobsons Bay in Victoria.
The certificate was produced.
Morton & Co ordered the defenders not to pay, however, on the ground that the pursuers had not, in fact, loaded a full cargo.
The pursuers sued the defenders for the specified sum and, of consent, Morton & Co were sisted as parties.
Morton & Co had meanwhile raised an action for damages against the pursuers in the Court of Session.
The defenders accepted that, in view of the certificate, the pursuers had a liquid claim against them, but submitted that the action should be allowed to lie over ex aequitate, pending the resolution of Morton & Cos action of damages against the pursuers.
The First Division held that the sum should be paid.
Lord President McNeill acknowledged, however, that the court had an equitable power to delay decree for payment, when he observed, at p 1064: Perhaps if the case had been set down for trial next week, and no risk as to the condition of parties, it would be a different matter.
But when the defence is in reference to an action of damages involving an inquiry into disputed facts in New Orleans and Hobsons Bay, it becomes a more serious question for the intervention of the Court.
Similarly, Lord Robertson said, also at p 1064, Had this action been with issues adjusted, and set down for the next sittings, one might have been induced to interfere ex equitate: but it will never do to suspend this liquid obligation till proofs are taken at New Orleans and Hobsons Bay.
In short, the circumstances favoured following the general rule.
Munro v Macdonalds Execs (1866) 4 M 687 shows the court exercising its jurisdiction in the defenders favour.
The pursuer sued executors for payment of a legacy of 100.
The executors did not dispute the legacy but pleaded that it had been compensated and extinguished by sums of money belonging to the deceased which the pursuer, who had been his servant, had received from him and retained.
The pursuer admitted that he had received 200 from the deceased, but said that it had been a gift.
The executors had raised an action of count, reckoning and payment against the pursuer for these sums about a week before he raised his action against them.
In his action the Lord Ordinary granted the pursuer decree for payment of the legacy.
The executors reclaimed.
When the reclaiming motion came before the Inner House, the jury trial in the executors action was due to take place the following week.
The First Division decided to supersede consideration of the reclaiming motion until the following term, by which time the result of the jury trial would be known.
Lord President Inglis said, at p 688: I do not like to disturb the maxim, that a liquid claim cannot be met by one that is illiquid.
Still the maxim is subject to exception, if the claim is in such a position that it may be immediately made liquid.
Lord Curriehill also noted, at p 688, that the rule that an illiquid claim cannot be pleaded by way of compensation to a liquid claim is not without exception.
If a claim is in the course of being made liquid, it may be pleaded by way of compensation.
The word statim in the rule, as expressed in Erskine, implies some discretion on the part of the Court.
A great deal of inquiry may be necessary in order to ascertain and make a claim liquid.
But if it is in the fair course of being made liquid by decree at an early date, and there is no allegation of unnecessary delay, I think that the Court is entitled to exercise a discretion.
The fact that the court resolved the problem simply by postponing consideration of the defenders reclaiming motion is a further illustration of the flexible approach that the court can adopt when dealing with such matters.
Much the same happened in Ross v Ross (1895) 22 R 461.
The pursuer was the widow of Sir Charles Ross who died in 1883 and was succeeded by his pupil son.
From then until 1893, when her son attained majority, the pursuer had acted as his sole tutor and curator.
She was entitled to an annuity of 2,000 under her marriage contract and certain bonds of provision.
In 1894 she raised an action against her son for payment of two instalments of the annuity.
Her son admitted that the pursuer was entitled to the instalments, but denied that the sums were due, under reference to an action of count, reckoning and payment which he had brought against her, concluding for payment of 70,000 as the balance of her intromissions as his sole tutor and curator and as an individual.
He had also raised an action against her, as executrix of the deceaseds moveable estate, for payment of legitim.
The son pleaded compensation and also that he was entitled to withhold payment of the annuity because of the pursuers failure to pay him legitim or to account for her intromissions with the estate.
The Lord Ordinary repelled the sons defences and granted decree for payment of the annuity.
He reclaimed.
In this case also, the First Division decided to supersede consideration of the reclaiming motion until there should be some change of circumstances.
They did so by sisting the action and leaving it open to either party to move therein.
Again, the judges appear to have been very much influenced by their appreciation of the particular circumstances especially, the huge sums which Lady Ross had apparently spent while tutor and curator, her complete inability to produce accounts for her spending, and the fact that she was simultaneously claiming payment of the annuity, while, in her capacity as executrix and sole intromitter with the moveable estate, claiming the right to retain the capital value of the same annuity.
In these exceptional circumstances Lord Adam did not think, 22 R 461, 464, it would be consonant with justice to give this lady immediate decree for the sum she claims.
Lord MLaren explained the position in this way, at pp 464 465: In disposing of the pleas in this case I think that the Lord Ordinary has rightly dealt with the plea of compensation, because that is a matter of statutory regulation, and the plea is confined to cases where both debts are liquid or capable of immediate ascertainment; but then there is another principle under which one obligation may be suspended until the performance of a counter obligation the principle of retention, and that, not being subject to the conditions of any statute, must be regarded as an equitable right to be applied by the Court according to the circumstances of each case as it shall arise.
The doctrine has received much extension in cases of bankruptcy and insolvency But the principle is not limited to bankruptcy cases, and it seems to me that the circumstances of the present case constitute a very clear ground for its application, because Lady Ross while in the management of her sons estates appears to have wholly neglected the duty of keeping strict accounts, which is incumbent upon every administrator of the property of others, and when she is called upon to account she states that the whole of the money has been expended, and that of a very large sum, amounting to nearly 4,000 a year, she is unable to give any particulars.
Now, that is a position which no guardian or administrator is entitled to assume, and upon the statement of these accounts, and also the claim of legitim, I cannot doubt that, if it appears to the Court that there is a probability that Lady Ross has already in her hands as much of her sons money as would satisfy this jointure, she would not be entitled to immediate decree.
The judgment which I understand your Lordship will pronounce will be one merely suspending the procedure in this case, and if it turns out, contrary to all the probabilities, that the whole of the sons income has been legitimately and properly expended by his mother, and also that there is no legitim due to him, then of course Lady Ross will be entitled to decree for her jointure.
Although Lord MLaren refers to the principle under which one obligation may be suspended until the performance of a counter obligation, he is not using counter obligation to refer to an obligation for which the defenders obligation to pay was the consideration.
In that case, after all, the defenders obligation to pay the annuities to the pursuer arose out of the marriage contract and bonds of annuity.
Any counter obligations on her part arose out of her administration of the estate between 1883 and 1893 and out of her interest as executrix and universal intromitter with the moveable estate from which the legitim would have to be paid. (It is unnecessary to consider whether all these alleged debts would have been debts owed by Lady Ross as an individual.)
Conclusions on retention for purposes of compensation
Ross v Ross illustrates the fundamental point that, in cases of this kind, the defender seeks to retain a sum of money which is actually due to the pursuer in that case, the instalments of his mothers annuity.
So, either the pursuer has performed the obligation for which the obligation to pay the sum is the consideration or else, as in the case of a legacy, the defenders obligation to pay the sum is not the consideration for any obligation on the pursuers part.
Moreover, in Ross v Ross the claims against Lady Ross arose out of quite different circumstances.
Yet the court had the equitable power to allow her son to retain the instalments of the annuity owed to her by sisting the action to see what happened in the other actions between the parties.
In the event, Lady Ross seems to have had the better of her son: Ross v Ross (1896) 23 R (HL) 67 (the accounting action); Ross v Ross (1896) 23 R 802 (the action for legitim) and 1024 (action for equitable compensation).
If the court has the power to allow retention of a sum due under a contract when the illiquid debts are alleged to arise out of wholly different circumstances, a fortiori, the court must have power, in an appropriate case, to allow the defender to retain a sum which is due under one clause of a contract against a claim of damages for the pursuers breach of a different clause of the contract.
The same must also apply where the illiquid claims on which the defender relies arise out of different clauses in related contracts which give effect to a single transaction.
Whether the court actually considers it right to exercise that power in the defenders favour will depend, however, on a consideration of all the circumstances.
Given that the court decides, on the application of an equitable test, whether to allow the defender to retain a sum which he would otherwise be bound to pay, the defender does not have any antecedent right to retain the debt.
Rather, a defender who has an illiquid claim against the pursuer must ask the court, in the exercise of its discretion or judgment, to allow him to retain the liquid debt pending the resolution of his claim against the pursuer.
For that reason, Tullis Russells seventh plea in law, that they are entitled to retain any sum found due to Inveresk, is inappropriate as are references, in this context, to a right of retention.
Since the defender has no right to retain the sum in the circumstances, he has to move the court to exercise its equitable power to allow him to do so.
For this reason, the subject is, in many ways, conveniently and appropriately treated in the chapter on motions to sist process in Ae J G M Mackay, The Practice of the Court of Session vol 1 (1877), p 509, and Manual of Practice in the Court of Session (1893), p 266.
While the court has this equitable power, the judges constantly remark that an illiquid claim cannot be set off against a liquid claim.
See, for example, McConnell & Reid v W & G Muir (1906) 14 SLT 79 and Niven v Clyde Fasteners 1986 SLT 344.
When they use this formula, the judges are really saying that the established general rule is that the court will not permit a defender to postpone payment of a liquid debt so as to have the opportunity to make liquid what is presently an illiquid claim against the pursuer and then to set that liquid debt off against the liquid debt which he presently owes to the pursuer.
A clear application of that rule is found, for instance, in Scottish North Eastern Railway Co v Napier (1859) 21 D 700.
The general rule simply reflects what is considered to be sound legal policy, and so what is usually the equitable course to pursue.
The reasons for the policy are outlined by the Lord Chancellor in National Exchange Company of Glasgow v Drew and Dick (1855) 2 Macq 103, 122 123, quoted at para 91 above, and by Lord Deas in the passage from Pegler v Northern Agricultural Implement Co (1877) 4 R 435, 439, quoted at para 93 above.
I would not weaken that general rule in any way.
I therefore emphasise that the court will depart from that general rule and allow retention, to give the defender the opportunity to make his illiquid claim against the pursuer liquid, only when, for some reason, that would be the just and equitable way to proceed in the particular circumstances.
The fact that the defenders claim against the pursuer arises out of the same contract is a relevant factor.
But Stewart & Co v J & A Dennistoun (1854) 16 D 1061, discussed at para 96 above, shows that the court would consider taking the same approach where the damages claim arose out of what could be regarded as a different aspect of the same transaction.
The Present Case
Obviously, given the decisions on the other points, there is no occasion for the Court to exercise its equitable power in the present case.
Had it been appropriate to do so, the Court would have required to consider the overall situation at the present time.
When the Extra Division gave judgment in June 2009, the proof in the action at the instance of Tullis Russell lay some months in the future.
We would have had to consider the position when the proof is partly heard and is due to be completed in June.
What the outcome will be we have, of course, no way of knowing.
The starting point would be that, as a general rule, payment of a liquid debt is not to be postponed just because the defender has an illiquid claim against the pursuer.
Here, however, the defenders have raised an action to enforce their claim.
The action has been sent for proof.
The defenders do not appear to have delayed in taking that action forward and it has reached an advanced stage.
Even assuming in Inveresks favour that the Assets Purchase Agreement and the Services Agreement are to be treated as separate contracts, they are unquestionably closely interlinked and form part of the same overall transaction.
Indeed, the Services Agreement is really ancillary to the Assets Acquisition Agreement in the sense that certain of Inveresks obligations under it are designed to forward the interests of Tullis Russell under the Assets Purchase Agreement.
The parties would never have entered into the Services Agreement if they had not been entering into the Assets Purchase Agreement at the same time.
So Tullis Russells claims for damages relate to breaches of an agreement which is inextricably linked with the agreement under which Inveresk are suing them for payment in the present action.
The sums sought are large.
Moreover whatever the technicalities as Lord Hope has explained, the reality is that, in substance, Tullis Russell are claiming damages for what they say was a reduction in the value of the assets which they bought, due to a breach by the sellers, Inveresk, of their undertaking, inter alia, to enable Tullis Russell to obtain the full benefit and value of those assets.
I would have regarded these circumstances as being, potentially, sufficiently special to justify a departure from the general rule that payment of a liquid debt is not to be postponed because the defender has an illiquid claim against the pursuer.
Depending on the position at the relevant time, it might well therefore have been just and equitable to postpone the requirement for Tullis Russell to pay any sum, due to Inveresk by way of Additional Consideration, pending the decision in Tullis Russells action against them.
But since the Court has concluded that Inveresk have still to establish the amount of any Additional Consideration, it is unnecessary, and would be unprofitable, to speculate on what method (e g, a sist) the Court would have adopted to achieve that end.
Conclusion
For these reasons, I would allow the appeal and make the order proposed by Lord Hope.
LORD COLLINS
I agree with Lord Hope and Lord Rodger that the appeal should be allowed for the reasons which they give.
I add only that, although the approach may be different, English law would reach a similar result.
In English law a cross claim may give rise to an equitable set off if it flows out of and is inseparably connected with the dealings and transactions which give rise to the claim: Bank of Boston Connecticut v European Grain & Shipping Co [1989] AC 1056, 1102.
There can be a sufficiently close connection even though the claim and cross claim arise out of two different contracts: BIM Kemi AB v Blackburn Chemicals Ltd (No 1) [2001] 2 Lloyds Rep 93 (CA).
Even where the strict requirements of set off are not fulfilled, for example because there is not the requisite identity of parties, the court may prevent injustice by granting a stay of execution of the judgment on the claim until resolution of the cross claim.
In Burnet v Francis Industries plc [1987] 1 WLR 802 (CA) it was held that where a judgment debt was owed by a subsidiary company to a third party, and where the subsidiarys parent company had a claim against the same third party, the court had jurisdiction to order a stay of execution of the judgment, applying Canada Enterprises Corp Ltd v Macnab Distilleries Ltd [1987] 1 WLR 813n (CA, decided in 1976), a case involving more complex facts.
LORD CLARKE
I also agree with Lord Hope and Lord Rodger that the appeal should be allowed for the reasons which they give.
I have read with great interest Lord Rodgers analysis of what he calls a second kind of retention.
His reasoning and conclusions both seem to me to be convincing, although I am reluctant to express a final view of my own on this aspect of the law of Scotland without hearing argument.
Finally, I agree with the views which Lord Collins has expressed about English law.
| UK-Abs | On 9 June 2005, Tullis Russell entered into an asset purchase agreement (the Asset Purchase Agreement) and related services agreement (the Service Agreement) with Inveresk for the acquisition of the property rights to the Gemini brand of paper.
To acquire these rights, Tullis Russell was to pay: (i) a fixed sum of 5 million as initial consideration; (ii) a sum of up to 2 million as additional consideration, depending upon the volume of products sold and invoiced by Tullis Russell between 8 November 2005 and 8 November 2006; and (iii) various payments under the Service Agreement.
To date, Tullis Russell has paid Inveresk 5 million as initial consideration under the Asset Purchase Agreement and 8 million under the Service Agreement.
The parties are now in dispute regarding various payments and sums in damages that are said to be due.
Inveresk claims that it is entitled to a further sum of 909,395 under the Asset Purchase Agreement.
Tullis Russell claims that Inveresk breached the Asset Purchase Agreement and Service Agreement by failing to maintain required product quality standards and dealing with customers so as to damage the goodwill of the business.
It seeks 5,358,032.90 in damages.
Two issues arise in the appeal: Firstly, whether the additional consideration claimed by Inveresk has become due and payable under the Asset Purchase Agreement.
Secondly, whether Tullis Russell is entitled to retain the sum it claims in damages, pending resolution of the claim, against any payment it is required to make to Inveresk.
The Court of Session held that the additional consideration sought by Inveresk was due and payable and that Tullis Russell had no right of retention.
The Supreme Court unanimously allows the appeal, holding that the additional consideration has not become due and payable pursuant to the Asset Purchase Agreement and that a right of retention may in principle arise.
The matter is remitted to the commercial judge for further procedure.
Lord Hope delivered the leading judgment of the Court.
The Additional Consideration The operative provisions of the Asset Purchase Agreement clearly direct that, having elected to exercise its right to require a tonnage audit, Inveresk is not entitled to change its position on this issue.
The terms of the agreement are perfectly intelligible, and the approach adopted accords with business sense.
The additional consideration does not become due and payable until the contractually required tonnage audit is completed [per Lord Hope, paras [21] [24]].
The matter is remitted to the commercial judge to determine how the conduct of the tonnage audit should proceed [per Lord Hope, para [25]; Lord Rodger, para [1]].
The Right of Retention A contractual right of retention can arise notwithstanding the fact that the relevant obligations are not recorded in a single agreement.
The critical question in determining whether a right of retention may apply is whether the relevant obligations can truly be said to be counterparts of one another [per Lord Hope, paras [35] [36]].
In the present case, the entire agreement clauses in both the Asset Purchase Agreement and the Service Agreement record the parties agreement that both documents form a single, indivisible transaction.
This is also emphasised by the recitals to the Service Agreement.
The agreements are expressly linked with each other.
The conclusion that they form part of a single transaction to which the principle of mutuality can apply is inescapable [per Lord Hope, paras [37] [38]; Lord Rodger, para [64]].
The Court of Session erred in concluding that the Asset Purchase Agreement and Service Agreement were not properly to be regarded as constituting two parts of a single transaction.
The guiding principle in such an assessment is that the unity of the overall transaction should be respected.
The analysis should commence form the starting point that all the obligations which the transaction embraces are to be regarded as mutual counterparts unless there is a clear indication to the contrary [per Lord Hope, para [42]].
While the current transaction did proceed in stages, it is unrealistic to suggest that these could be divided into a series of sub units or compartments.
The obligations undertaken by Inveresk were all inter related and served the same end.
This was to preserve the value of the intellectual property rights and other assets acquired by Tullis Russell as a result of the transaction.
Accordingly, Tullis Russells obligation to pay the initial and additional consideration are properly regarded as counterparts to Inveresks obligations under both the Asset Purchase Agreement and the Service Agreement [per Lord Hope, para [45]].
In the result, Tullis Russell are entitled to retain any additional consideration that becomes due pending the outcome of its claims for damages under the Asset Purchase Agreement and Service Agreement.
The matter is remitted to the commercial judge for further procedure [per Lord Hope, paras [46] [47]; Lord Rodger, para [65]].
|
On 7 February 2007, the principal of a school in County Antrim suspended the appellant from school for 5 days.
The appellant was a year 12 pupil.
The suspension was renewed for 3 further 5 day periods until 13 March.
Between 13 March and 20 April, the North Eastern Education and Library Board (the Board) provided him with home tuition.
He returned to the school in June to sit his GCSE examinations.
He issued these proceedings in April 2007 seeking judicial review of the principals decision to suspend him.
The case raises issues as to whether the principal had the power to suspend the appellant and, if he did, whether he exercised that power lawfully.
The facts
Much of the account that follows is derived from the affidavit sworn by the principal.
At the end of January 2007, the appellant was absent from the school on work experience.
On 31 January, the principal was approached by two female pupils at the school.
He was told that one of them was terrified of the appellant.
Like the Court of Appeal (Kerr LCJ, Higgins and Girvan LJJ), I shall refer to her as A. She made it clear that she did not want to make any formal complaint and did not wish the principal to tell the appellant that she had spoken to him about the appellants behaviour towards her.
Her complaint related to conduct both inside and outside the school.
She said that it was causing her deep distress.
The principal assured the two girls that he would help in whatever way he could.
Later that day, the other girl came on her own to see the principal for a second time.
She told him that A was suffering from deep distress, had extremely low self esteem and was thinking of ending it all.
She gave the principal further details of the nature of the appellants offending behaviour in the school.
She said that it was of a subtle and covert nature.
The principal regarded the report as being sincere and genuine and as extremely serious.
The principal spoke to As mother.
She told him that she too was concerned about her daughters state of mind and the possibility of suicide and that the appellant was the cause of the problem.
She said that A was very vulnerable and needed to be monitored closely.
The principal also spoke to Mrs OHare, the Child Protection Officer for the Board.
Mrs OHare said that efforts should be made to comfort A and boost her self esteem.
He therefore arranged to make a classroom available to A and her friends during breaks and lunchtime periods.
During the following days, the principal had daily meetings with A and some of her friends and monitored her progress.
He said that this served to confirm to him that the girls concerns were real and sincere.
He also received confirmation from some of As friends about the appellants behaviour which they had witnessed.
On 1 February, the vice principal attended a multi disciplinary case conference that had been arranged by Social Services to consider the appellant.
This conference was convened in view of the fact that allegations had been made against the appellant of criminal offences of a sexual and violent nature outside the school.
It was not in any way related to the complaint that had been made by A. Indeed, it seems that those who attended the conference, who included the appellants mother and grandmother and a representative of the police (PSNI), were not even aware of the complaint.
The outcome of the conference was that the family were advised that, if they did not adhere to the Care Plan, consideration would be given to placing the appellant on the Child Protection Register.
On 2 February, the vice principal informed the principal of what occurred at the conference and of the serious allegations that had been made against the appellant.
Mrs OHare advised the principal that a risk assessment meeting should take place in the school.
This meeting took place on 6 February.
Reference was made to the 4 alleged offences which had been the subject of discussion at the conference on 1 February.
The minutes record the following: Issues Discussed Given the principle of innocent until proven guilty how to assess any risk posed by [the appellant] to females in the school. [The appellants] Human Rights.
The balance of probability.
The concept of proportionality in any measures that may be undertaken.
The lack of any documented assessment of the alleged harm to [A].
The principle that Child Protection overrides rights of individuals.
The statutory duty on the Principal and Board of Governors to safeguard all the children in their school.
Action Plan 1.
Social Services to carry out an assessment of the alleged incident with [A] and of any impact on her emotions. 2. [The appellant] to be suspended from school for 5 days, with the possibility of extension, whilst the above assessment takes place.
The suspension to be viewed as a precautionary measure, not a presumption of guilt. 3.
PSNI to keep the other agencies informed of any developments in the justice system. 4.
Following the Social Services assessment, NEELB to convene a formal multi agency/multi disciplinary meeting to a) assess risk within the school and in transport to and from school b) plan the management of any perceived risk.
The principal says that it was agreed that, in order to protect As identity and prevent any further deterioration in her mental health, the appellant should not be informed about her complaint.
Two options were considered: (i) constant supervision of the appellant by a teacher or other member of staff and (ii) suspension of the appellant together with arrangements for his education off site.
He says that he was not satisfied that sufficient teaching and staff resources were available to ensure constant monitoring and supervision of the appellant while he was on the school premises.
Nor could he be satisfied that such an arrangement would ensure physical separation of the appellant from A.
He was particularly influenced by the nature of the alleged conduct, namely subtle and silent covert intimidation.
Accordingly, it was decided that the appellant would be suspended as a precautionary measure (para 9 of the principals affidavit).
Following the meeting of 6 February, the principal met Mr Freeman, the chairman of the Board.
He explained to Mr Freeman that the suspension was precautionary in nature and that it was based on the need to protect the girl who had made the report.
On 7 February, the principal asked for the appellant to attend at his office.
The principal explained that certain allegations had been made against him in relation to his behaviour, but that he could not go into them.
He said that it had been decided that it was in the interests of everybody that he should be suspended.
Following the meeting, the principal telephoned the appellants mother and told her that the appellant would be suspended until a meeting could be arranged by Mrs OHare.
On the same day, the principal wrote to the appellants grandparents a letter in these terms: Following the Case Conference on Thursday 1 February 2007, at which you were present, a Risk Assessment meeting with representatives from the school, Social Services, NEELB Child Protection Officer, and the PSNI took place in school on Tuesday 6 February 2007.
Based on the information presented at this meeting it was agreed that, in the circumstances, [the appellant] should not remain in school.
It must be emphasised that this is not an assumption of [the appellants] guilt in these matters but instead a precautionary strategy which has been taken, I believe, in everyones best interests, including [the appellants].
A further meeting will be arranged by the NEELB as soon as possible in order to consider the matter further.
In the meantime, [the appellant] is suspended from school for five days, i.e. Thursday 8 February Wednesday 14 February with a possible extension to follow.
Work will be made available for collection from the school office by an adult after 10.00 am on Thursday 8 February 2007 for [the appellant] to complete during this period of suspension.
Please contact me should you wish to discuss this matter or require any further information.
The principal had earlier drafted a letter of suspension whose opening paragraphs were: It has come to my attention that the PSNI is investigating a number of allegations outside of school of a serious nature which include sexual attacks on girls.
I have also had recent reports from girls who claim that he is deliberately intimidating them in school.
Following a meeting with representatives from Social Services, NEELB Child Protection Officer and the PSNI, I have decided that [the appellant] should not at this time remain in school.
The wording of the draft letter was changed following advice that the principal received from Mrs OHare.
During the succeeding weeks, the principal received no information from the Board or Social Services about the progress of the assessment of A.
On 14 February, he wrote another letter to the appellants grandparents saying that, in order to allow for further investigation of the matter referred to in my last letter, the suspension was to be extended for a further 5 days from 21 to 27 February.
The letter stated that this is not an assumption of [the appellants] guilt in the matters which we have discussed but instead a precautionary strategy.
On 23 February, he wrote a further letter to the grandparents in the same terms extending the suspension for a further 5 days from 28 February to 6 March.
Finally, on 5 March he wrote another letter to the grandparents in the same terms extending the suspension for a yet further 5 days from 7 to 13 March.
Following the initial decision to suspend the appellant, the principal had contacted the Boards Home Tuition Service and requested that a teacher be assigned to the appellant for tuition off site.
On 12 March, the principal wrote to the appellants parents informing them that home tuition had been arranged with effect from 14 March and that, consequently, the appellant would be marked on the school roll as educated off site.
In the period between 7 February and 14 March, the principal made arrangements for schoolwork to be prepared by the appellants teachers and left for collection at the school office.
Work was made available in the subjects of Mathematics, English, Science, Religion, Business and Communication Systems, Music and History.
Work was collected by or on behalf of the appellant in the first week only and it was not returned to the school for marking or guidance.
On 20 April, the principal wrote to the parents of all pupils within year 12 (including the appellants parents) saying that pupils could attend school to study for their examinations or stay at home if that was preferred.
He says that he decided to include the appellant because, since the school timetable had been completed, additional staff resources were now available to monitor the appellant within the school.
The appellant availed himself of facilities within the school on a number of occasions after 20 April, but he is shown on the School Registration Certificate as having been on study leave until late June.
On 4 May, a meeting was arranged at the school in order to discuss the situation with the appellants mother and grandparents.
It was noted that Social Services had not yet completed their assessment of A.
It was agreed that a multi agency risk assessment of the appellant may no longer be necessary and that, if the appellant availed himself of the school facilities, he would be escorted by a teacher to and from his allotted room; there would be close supervision of the year 12s at break times; and the appellant would sit all of his examinations in a room on his own.
There is no evidence as to whether the Social Services assessment of A was ever completed.
It would seem that the multi risk assessment of the appellant was never carried out.
Meanwhile, as I have said, the appellant had commenced these judicial review proceedings.
The claim was dismissed by Weatherup J and his appeal dismissed by the Court of Appeal.
The statutory framework
Suspension and expulsion of pupils
The school is a controlled school to which the Education and Libraries (NI) Order 1986 SI 1986/594 (NI 3) as amended by SI 1993/2810 (NI 12) (the 1986 Order) applies.
Article 49 provides: (1) Each board shall prepare a scheme specifying the procedure to be followed in relation to the suspension or expulsion of pupils from schools under its management. (4) A scheme prepared under paragraph (1)shall provide that a pupil may be expelled from a school only by the expelling authority and shall include provision for such other matters as may be prescribed.
Article 134 provides that the Department of Education Northern Ireland (the Department) may make regulations for the purpose of giving effect to the order.
Pursuant to article 134 of the 1986 Order, the Department made the Schools (Suspension and Expulsion of Pupils) Regulations (Northern Ireland) 1995 (1995 NI 99) (the Regulations) as amended by 1998 NI 255.
Regulation 3 provides: 3.
Without prejudice to the generality of Article 49(4) of the 1986 Order a scheme prepared under Article 49(1), (2) or (3) of that Order shall include provision for the following other matters, that is to say (a) a pupil may be suspended from school only by the principal; (b) an initial period of such suspension shall not exceed five school days in any one school term; (c) a pupil may be suspended from school for not more than forty five school days in any one school year; (d) where a pupil has been suspended from school, the principal shall immediately i. give written notification of the reasons for the suspension and the period of the suspension to the parent of the pupil, to the board and to the Chairman of the Board of Governors.; and ii. invite the parent of the pupil to visit the school to discuss the suspension; the principal shall not extend a period of suspension except (e) with the prior approval of the Chairman of the Board of Governors and shall in every such case give written notification of the reasons for the extension and the period of extension to the parent of the
pupil, to the board
The Board has prepared a scheme entitled Procedures for the Suspension and Expulsion of Pupils in Controlled Schools (the Scheme).
It provides: Principles 3.1 A pupil may be suspended only by the principal. 3.2 An initial period of suspension shall not exceed five school days in any one school term. 3.3 A pupil may be suspended from school for not more than forty five school days in any one school year. 3.4 The principal shall not extend a period of suspension except with the prior approval of the Chairman of the Board of Governors and shall in every such case give written notification of the reasons for the extension and the period of extension to the parent of the pupil and to the Board.
Steps to be followed prior to suspension 4.1 A schools disciplinary policy describes the standards of behaviour expected from pupils and outlines the procedures and sanction to be adopted when these guidelines are not adhered to. 4.2 The disciplinary policy will provide for the suspension of a pupil in certain circumstances.
The option of suspending a pupil for a prescribed period should only be considered: 4.2.1 after a period of indiscipline The school is required to maintain a written record of events and of the interventions of teachers, contacts with parents and any requests for external support from the Boards Educational Welfare and Educational Psychology services; and/or 4.2.2 after a serious incident of indiscipline The school is required to have investigated and documented the incident.
The investigation should include an opportunity for the pupil to be interviewed and his or her version of events given before the decision to suspend.
Instigating suspension 5.1 On taking the decision to suspend a pupil the principal must immediately notify the parents, in writing, of the suspension, its duration and the reasons for the suspension (for sample letter see Appendix 2).
The letter notifying the parents of the suspension must be sent out on the day of the suspension.
If the letter is sent home with the pupil this must be followed by a copy sent by 1st class post. 5.2 The letter must also invite the parents to visit the school to discuss the suspension.
Should the parents accept this invitation the principal may consider it appropriate to invite other parties such as Educational Welfare, Educational Psychology or Social Services.
The meeting should be chaired by the principal. 5.3 The school should keep full notes of the meeting.
The Schools Management powers
Article 9B(1) of the 1986 Order, inserted by 1989 NI 20, provides that it shall be the duty of a board to prepare a scheme or schemes of management for controlled schools under the management of the board.
The Board prepared a scheme for management of the schools under its control (the Management Scheme).
Article 26(1) of the Management Scheme provides that in addition to his statutory functions and subject to the provisions of the Education Orders and regulations, orders and directions made thereunder .and such directions as may, from time to time, be given to him by the Board of Governors, the Principal shall control the internal organisation, management and discipline of the school.
The background to the legislation
The background to the legislation is to be found in the Report of the Working Party on the Management of Schools in Northern Ireland (1979) otherwise known as the Astin Report.
The Astin Report was itself largely based on the report of the Committee of Enquiry appointed jointly by the Secretary of State for Education and Science and the Secretary of State for Wales entitled A New Partnership for Our Schools (1977) otherwise known as the Taylor Report.
The Taylor Report noted that there was a lack of authoritative definition of the terms exclusion, expulsion and suspension and that this had given rise to confusion in the minds of governors, teachers and parents (para 9.9).
The report stated that suspension should not be used as a punishment (para 9.12).
It said: Suspension should be seen as providing a breathing space to allow rational consideration, discussion and accommodation between the parties concerned, or depending on the seriousness of the problem, a search for more fundamental solutions, including, in an extreme case, the possibility of education elsewhere.
The report also stated that it was unsatisfactory that there were wide differences from area to area in the procedures for suspension.
There were stringent and carefully defined suspension procedures for students at further education institutions and the corresponding procedures for school pupils should be prescribed more carefully (para 9.15).
At para 9.18, it made the following recommendations: 1. the terms exclusion, suspension and expulsion, wherever they are used in statutory regulations or in local education authorities regulations or instructions, should be authoritatively defined and differentiated in the way we have suggested; 2. every local education authority should be required to make and publish arrangements for the procedures to be followed in its area with regard to the suspension of pupils from attendance at school which satisfy the following general requirements: i. when a pupils behaviour over a period gives rise to a real possibility that he will have to be suspended from attendance if it continues, opportunity for consultation and discussion should be accorded to his parents; it should be clearly known by all concerned who has the power to decide that a pupil should be suspended from attendance or should remain suspended after a specified period; a time limit of not more than three days should be fixed for the duration of any suspension by the head teacher; iii. ii. iv. provision should be made to avoid danger to the pupil concerned, or to others, as a result of his suspension; vs when a decision is made to suspend a particular pupil the parents should be informed by a quick and reliable means, should be told how long the suspension is to last and should be given full particulars of the reason for it.
A record should be made in a register kept specifically for the purpose within the school and available to the governing body. the governing body should be empowered to extend the suspension for a strictly limited period, specified by the local education vi. vii. viii. authority for all cases, during which the interested parties should be brought together to seek an acceptable solution; if no satisfactory solution is found within this period the case should be referred to the local education authority; there should be provision for appeal by the parents to the local education authority, to be heard within a specified period, against the continuation of a suspension beyond a specified period or against any other action proposed as an alternative to the childs resumption of attendance at the school.
Parents should be told how, and to whom they should appeal, when the appeal will be heard and what procedure will be followed; 3. legislative steps be taken to ensure that: i. ii. no registered pupil is debarred from attendance at his school, except on medical grounds, otherwise the in compliance with than suspension procedures arranged by the local education authority; no registered pupil is expelled from a school except by the decision of the local education authority responsible for maintaining the school, who should inform the governing body.
The Astin report in its turn stated that there was an urgent need for clarification and greater precision in legislation concerning suspensions and expulsions of pupils from grant aided schools (para 7.70).
Suspension and expulsion, though regrettably necessary on occasions, should be steps of last resort (para 7.71).
The recommendations of the Taylor Report were excellent and should be adopted for Northern Ireland: the key features included that a clear procedure should be laid down and made public (para 7.73).
At para 7.74, the report recommended inter alia that the stated period for which a principal was empowered to suspend a pupil should be 5 days (not 3 days as recommended by the Taylor Report).
The issues
Four issues arise on this appeal.
First, on what ground did the principal suspend the appellant? Secondly, did he have the power to suspend the appellant on that ground? Thirdly, if he did have the power to suspend the appellant, did he exercise that power lawfully? Fourthly, was there a breach of article 2 of the First Protocol of the European Convention on Human Rights (the Convention)? On what ground did the principal suspend the appellant: disciplinary or precautionary?
Both Weatherup J and the Court of Appeal held that the suspension in the present case was precautionary rather than disciplinary.
Weatherup J said, at para 43, that the school was not investigating a disciplinary offence, but was awaiting the assessment from Social Services.
The Court of Appeal said, at para 22: If an action such as exclusion is taken on disciplinary grounds, it surely takes place on the basis that disciplinary grounds exist i.e. that there is a reason associated with discipline for taking the action.
If a pupil is excluded or suspended in order to investigate whether an offence has been committed, this cannot, in our opinion, be said to have occurred on disciplinary groundsit is done in order to investigate whether disciplinary grounds exist.
In his affidavit, the principal makes it clear that he suspended the appellant as a precautionary measure based upon child protection issues (para 25).
That view is reflected in all the suspension letters: this is not an assumption of [the appellants] guilt in these matters, but instead a precautionary strategy.in everyones best interests.
The labels disciplinary grounds and precautionary grounds appear to derive from the House of Lords decision in A v Head Teacher and Governors of Lord Grey School [2006] UKHL 14, [2006] 2 AC 363.
In that case, the claimant pupil was excluded from school by the defendants following a fire at the school in respect of which he was investigated by the police and subsequently charged with arson.
There was a power to exclude (permanently or temporarily) on disciplinary grounds under section 64 of the School Standards and Framework Act 1998, but the limit for temporary exclusion was 45 days in any one school year.
The claimant had been suspended temporarily for more than 45 days in the school year pending the outcome of the criminal process.
It was, therefore, common ground that the exclusion was unlawful according to domestic law.
Lord Hoffmann said, at para 36, that the statutory code was well adapted to the use of exclusion as a punishment for a serious disciplinary offence, imposed in the interests of the education and welfare of the pupil and others in the school.
It was far less suitable for dealing with a case like the case under appeal in which the pupil was excluded on precautionary rather than penal grounds.
The dichotomy between disciplinary and precautionary grounds also appears in the speech of Baroness Hale.
At para 74, she said: Section 64 is concerned only with exclusion on disciplinary grounds.
The requirements all assume that it is imposed as a determinate sanction for a serious breach of discipline, rather than as an indeterminate precaution pending the resolution of what may or may not turn out to have been a serious breach of discipline.
In the context of the 1998 Act, therefore, the question was whether the suspension was on disciplinary grounds within the meaning of section 64.
If it was not, it was convenient to describe it as being on precautionary grounds.
The relevant question in the present case is whether the grounds on which the appellant was suspended were within the scope of the Scheme.
If they were not, then it is convenient to describe the suspension as having been made on precautionary grounds.
If paras 3 and 4 of the Scheme are read together, it is clear that a pupil may only be suspended under the Scheme on disciplinary grounds.
Para 4 specifies the steps that are to be followed prior to suspension.
It provides that the option of suspending a pupil should only be considered if the conditions stated in paras 4.2.1 or 4.2.2 (as the case may be) are satisfied.
These two paragraphs are concerned with indiscipline.
The present case has (rightly) proceeded on the basis that bullying or intimidation by one pupil of another in school is indiscipline within the meaning of the Scheme.
Thus, the assertion by the principal that he suspended the appellant on precautionary grounds necessarily implies the assertion that he did not suspend him on disciplinary grounds and that the Scheme did not apply to the case.
I cannot accept either the express or the implied assertion.
In my opinion, it is clear from the evidence that the principal suspended the appellant both because he considered that there was a prima facie case that the appellant was guilty of the misconduct which had been reported by A and her friends and because he wished to protect A (and others in the School) from the appellant.
These reasons were not mutually exclusive.
It is plain from the principals affidavit that he was of the view that there was a prima facie case against the appellant.
He said that he regarded the girls reports as both sincere and genuine (para 3) and his daily meetings with A and some of her friends served to confirm to me that the girls concerns were real and sincere (para 5).
Para 12 of the affidavit is also important: I also made an assessment as to the likelihood of the veracity of her complaints.
In this regard, the new information which I received about allegations of assault on females in the community provided an important context to my overall assessment but was not the motivating factor behind the decision.
I had previously refused to take action based upon unproven allegations of sexual assault by the [appellant] outside of school.
I was also conscious of advice from the Department of Education that in circumstances where there was a conflict between the interests of children, the needs of the victim should be paramount.
This is a revealing paragraph.
It is clear that the principal regarded the allegations of assaults on females outside the school as relevant to his decision.
They could only be relevant if he considered that they provided further support for his belief that there was a prima facie case that As complaint was true.
Otherwise it is difficult to see how these allegations provided an important context to his overall assessment.
It is also significant that he described A as the victim.
That could only have been on the footing that he believed the girls account.
It is clear that, as he says, the principal made an assessment as to the likelihood of the veracity of As complaints and concluded, for the reasons that he gave, that they were likely to be true.
The Court of Appeal, at para 26, rejected the submission made on behalf of the appellant that, although the suspension was avowedly for the purpose of obtaining a Social Services assessment of A, it proceeded on the assumption that the appellant was guilty.
In my opinion, it is clear that the decision to suspend was closely linked to the principals view that there was at least a prima facie case that the appellant was guilty of the conduct that had been alleged by the girls.
On the evidence of the principal, it is inconceivable that he would have suspended the appellant if he had disbelieved the account of his behaviour given by the girls, but had nevertheless believed that A was distressed for some other reason by the presence of the appellant in the School.
If he had not believed that there was at least a prima facie case that the appellant was guilty of the alleged indiscipline, he would not have suspended him.
In my opinion, the answer to the first question is that the appellant was suspended on disciplinary grounds within the scope of the Scheme.
Whether the suspension complied with the Scheme is a separate question which I deal with below.
The reasons for my opinion are: (i) despite his statements to the contrary (both at the time and in his affidavit), it is clear that the principal suspended the appellant because he considered that there was a prima facie case that the appellant had committed one or more acts of indiscipline; (ii) he did not suspend him as a holding or precautionary measure pending investigation of whether disciplinary grounds for suspension existed: he suspended him pending the Social Services assessment of A and there was no further investigation of whether disciplinary grounds existed; (iii) the principal had investigated the alleged incident or incidents of indiscipline before suspending the appellant (as required by para 4.2.2 of the Scheme), but the investigation was limited to speaking to A and the other girls and did not include an opportunity for the appellant to be interviewed; (iv) the suspensions of 5 days at a time were in accordance with para 3.2 of the Scheme; and (v) at para 11 of his affidavit, the principal states that he believes that his actions were in accordance with the [Scheme].
Was there power to suspend the appellant?
It is not in dispute that there was power to suspend the appellant under the Scheme on disciplinary grounds.
That is the short answer to the second issue.
I should add that it has (rightly) not been argued that there was power to suspend a pupil on disciplinary grounds outside the Scheme.
A question that was considered in the courts below was whether there is power to suspend a pupil on precautionary grounds or whether the Scheme is exhaustive of the power of a principal to suspend.
The Court of Appeal were of the view that the general management powers available to school authorities must include a power to suspend as a precautionary measure in appropriate circumstances.
In the case of Re Ms application [2004] NICA 32 the Court of Appeal (Kerr LCJ, Nicholson and Campbell LJJ) spoke of the practical need for a power to suspend as a precautionary measure.
At para 20, they said: we consider that it is entirely proper for a principal to suspend a pupil who may face the prospect of expulsion if the allegations made against him are substantiated for the purpose of having the case against the pupil explored.
One need only instance a simple example to demonstrate the inevitability of that conclusion.
If a pupil was alleged to have assaulted a teacher, it would be inconceivable that the principal should not be able to suspend the pupil pending a full investigation of the incident or a final decision as to what the ultimate punishment should be.
There is strong support for that view, which was replicated by the Court of Appeal in the present case, in the dicta of Lord Scott in the Lord Grey School case who said, at para 69: It seems to me clear that the management powers of a head teacher enable him or her to keep a pupil temporarily away from the school for reasons that have nothing to do with discipline.
An obvious example is that of a pupil who arrives at school one day suffering from some infectious disease.
It may be necessary, in order to safeguard the health of the other pupils and the school staff, for the pupil to be sent home until he or she is no longer infectious.
It is to be hoped that the pupils parents or guardians would agree with this course.
But if they did not, the head teacherwould, in my opinion, have power to impose it.
It would, in my opinion, be lamentable if, by an application of sections 64 68 to situations to which they could never have been intended to apply, managers of schools found themselves placed in a statutory straightjacket and prevented from taking sensible decisions to deal with unusual situations.
Thus it was that the Court of Appeal in the present case held that the principal was entitled to suspend the appellant under his general management powers.
These had to be exercised reasonably and in accordance with the common law rules of procedural fairness.
In my opinion, it is important to bear in mind the background to the 1986 Order and the schemes that were made under it.
As the Taylor and Astin Reports demonstrated, before the 1986 Order was made, the right to suspend and expel pupils was not subject to specific regulation.
Control was effected by invoking the common law.
This was unsatisfactory, because it gave rise to uncertainty.
The recommendations of the reports included that there should be clearly defined suspension procedures.
Parliament accepted these recommendations.
It considered that it was unacceptable to leave the question of suspension and exclusion of pupils to be regulated by general management powers and the common law.
The 1986 Order envisaged that each board would prepare a scheme specifying the procedure to be followed in relation to the suspension or expulsion of pupils from schools under their management.
Article 49(4) states that a scheme shall include provision for such other matters as may be prescribed.
It would have been open to the Board to prepare a scheme which allowed the suspension or expulsion of pupils on grounds other than disciplinary grounds.
Such a scheme would have been required to specify the procedure to be followed in relation to suspension or expulsion on those other grounds.
But the Board did not take that course.
Its response to article 49 of the 1986 Order was to produce a scheme which provided for suspension and expulsion of pupils on disciplinary grounds only.
I can see that it might well be convenient for a principal to have a power to suspend on precautionary grounds, for example, for the reasons given by the Court of Appeal in Ms case and by Lord Scott in the Lord Grey School case.
There is no evidence as to why the Board produced a scheme which limited the power to suspend and expel pupils in the way that it did.
It may be that it did not contemplate that there would be circumstances in which it would be expedient to suspend or expel a pupil on precautionary grounds.
On the other hand, it may be that, taking the view that a pupil should be suspended or expelled only as a last resort, the Board made a deliberate decision not to permit a principal to suspend or expel on precautionary grounds.
Support for the view that suspension and expulsion should be seen as a step of last resort is to be found at para 7.71 of the Astin Report.
Lord Bingham put the point crisply, at para 21, in the Lord Grey School case: The immense damage done to vulnerable children by indefinite, unnecessary or improperly motivated exclusions from state schools is well known, and none could doubt the need for tight control of the exercise of this important power.
In the light of the background to article 49 of the 1986 Order and the problems that had been exposed by the Taylor and Astin reports which it was intended to address, I consider that schemes prepared under article 49(1) should be interpreted as defining exhaustively the circumstances in which a power to suspend or expel a pupil may be exercised.
I would, therefore, hold that the Scheme defines exhaustively the circumstances in which a pupil may be suspended or expelled in a school under the control of the Board.
If the Board wishes to give school principals the power to suspend or expel on precautionary grounds, then it should amend the Scheme to provide for this expressly and to regulate the exercise of the power.
Was the suspension lawful?
The principal has not disclosed the details of the alleged misbehaviour of the appellant that resulted in the decision to suspend.
It is, therefore, not clear whether there was a single incident or a series of incidents of indiscipline which led to the decision.
But either way, it is clear that he was of the view that this was a case of one or more serious incidents of indiscipline within the meaning of para 4.2.2 of the Scheme.
The contrary has not been argued.
Para 4.2.2 requires that after a serious incident of indiscipline, the school is required to have investigated and documented the incident.
Crucially, it also provides that the investigation should include an opportunity for the pupil to be interviewed and his or her version of events given before the decision to suspend (emphasis added).
The principal communicated his decision to suspend the appellant at the meeting in his office on 7 February.
He told the appellant that certain allegations had been made against him, but he could not give any details.
Without more ado, he then told the appellant that he was being suspended.
There can be no doubt that the appellant was not given an opportunity to give his version of events before he was suspended.
There was, therefore, a clear breach of para 4.2.2 of the Scheme.
That breach fundamentally undermined the decision to suspend.
The right accorded by para 4.2.2 to a pupil to put his or her version of events before a decision to suspend is made is fundamental.
It reflects the fact that a persons right to have afforded to him a reasonable opportunity of learning what is alleged against him and of putting forward his own case in answer to it is one of the fundamental rights accorded by the common law rules of natural justice: see per Lord Diplock in OReilly v Mackman [1983] 2 AC 237, 279 F G.
There was also a breach of para 5.1 of the Scheme in that the letter of 7 February did not give the reasons for the suspension.
The letter stated that the decision was based on information presented at the meeting on the previous day and that there was no assumption of the appellants guilt.
It is true that the last sentence of the letter informed the grandparents that they should contact the principal if they wished to discuss the matter or required further information.
But para 5.1 requires the principal to notify the parents of the reasons for the suspension immediately on taking the decision to suspend.
Further, it is clear that, if the parents or grandparents had asked for more information, the principal would not have given them details of the allegations against A, because, on the advice of the Board, he had decided to respect As confidence and not to do so.
As I have already said, the principal had drafted a letter which included the sentence: I have also had recent reports from girls who claim that he is deliberately intimidating them in school.
That might not have been sufficient to satisfy the requirements of para 5.1 even if it had been sent before the decision had been made to suspend, but it would at least have given the appellant some idea of the nature of the allegations that were being made.
Unfortunately, on the advice of Mrs OHare this sentence was omitted from the letter that was sent.
The principal was undoubtedly faced with a very difficult situation on 1 February.
Understandably, he was extremely concerned for the well being of A.
He decided that he should respect her confidence.
This decision was bound to put him in conflict with para 4.2.2 of the Scheme and probably para 5.1 as well.
He decided to suspend the appellant without giving him an opportunity to give his version of events and without giving his parents/grandparents the reasons for his decision, and to suspend him until Social Services had completed their assessment of A.
It is not clear what assessment Social Services was being required to undertake, still less how the outcome of the assessment would impact on the decision to suspend the appellant.
Further, it is not clear what the principal would have done if (as proved to be the case) the assessment was not completed within the period available for suspensions (not more than 45 days in a school year).
One of the odd features of this case is that at para 11 of his affidavit the principal states that he believes that his actions were in accordance with the Boards Scheme for the suspension and expulsion of pupils.
Para 4.2.2 of the Scheme is uncompromising in its terms, reflecting the seriousness of a decision to suspend or expel a pupil on disciplinary grounds.
Neither the principal nor the Board seems to have appreciated that the course that they followed would necessarily involve a breach of the Scheme.
There were alternative avenues that the principal should have explored.
For example, he did not explore the possibility of investigating the allegations on the basis of evidence from As friends alone.
They claimed to have witnessed the alleged incident or incidents.
If this proved impossible, he could have asked A and her mother whether they would object to his investigating the alleged incidents using the evidence of the girls as well as her evidence.
He could have explained to them that he owed a duty to everybody at the school to decide whether the complaints that had been made by A and the other girls were true and that he was required by law to ask the appellant for his version of events before deciding what steps, if any, to take.
He says that at the meeting of 6 February, he considered whether it would be possible for a teacher or other member of staff to supervise the appellant and monitor his behaviour, but concluded that he was not satisfied that sufficient resources were available to ensure the physical separation of the appellant from A.
The appellant and A were not in the same school years and the need to ensure their physical separation would only have arisen during breaks and lunch periods.
There is nothing to indicate that the principal made an analysis of precisely what additional calls would be made on the schools resources if the appellant was to be monitored and supervised during the break and lunch periods.
No evidence has been produced to show what additional calls would have been made on the schools resources and why the schools existing resources could not have met them.
Furthermore, if the school had been unable to meet the additional calls from its existing resources, there is no evidence that consideration was given to the possibility of obtaining the necessary additional resources from the Board.
For the reasons that I have given, therefore, the suspension of the appellant was unlawful, since it was in breach of both paras 4.2.2 and 5.1 of the Scheme.
Was there a breach of article 2 of the First Protocol of the Convention?
It is submitted on behalf of the appellant that the conduct of the respondents amounted to a denial of his right to education in breach of article 2 of the First Protocol of the Convention.
So far as material, article 2 provides: No person shall be denied the right to education.
The extent of the right conferred by article 2 was considered by the House of Lords in the Lord Grey School case.
At para 24, Lord Bingham said: The Strasbourg jurisprudence, summarised above in paras 11 13, makes clear how article 2 should be interpreted.
The underlying premise of the article was that all existing member states of the Council of Europe had, and all future member states would have, an established system of state education.
It was intended to guarantee fair and non discriminatory access to that system by those within the jurisdiction of the respective states.
The fundamental importance of education in a modern democratic state was recognised to require no less.
But the guarantee is, in comparison with most other Convention guarantees, a weak one, and deliberately so.
There is no right to education of a particular kind or quality, other than that prevailing in the state.
There is no Convention guarantee of compliance with domestic law.
There is no Convention guarantee of education at or by a particular institution.
There is no Convention objection to the expulsion of a pupil from an educational institution on disciplinary grounds, unless (in the ordinary way) there is no alternative source of state education open to the pupil (as in Eren v Turkey (Application No 60856/00) (unreported), 7 February 2006).
The test, as always under the Convention, is a highly pragmatic one, to be applied to the specific facts of the case: have the authorities of the state acted so as to deny to a pupil effective access to such educational facilities as the state provides for such pupils? In this case, attention must be focused on the school, as the only public authority the respondent sued, and (for reasons already given) on the period from 7 June 2001 to 20 January 2002.
The question, therefore, is whether between 7 February and 20 April the school denied the appellant effective access to such educational facilities as were provided by the state.
Ms Quinlivan submits that the appellant suffered an unlawful restriction to his education and that in consequence there was a breach of article 2.
She relies on the decision of the ECtHR in ahin v Turkey (2005) 44 EHRR 99, para 154: In order to ensure that the restrictions that are imposed do not curtail the right in question to such an extent as to impair its very essence and deprive it of its effectiveness, the Court must satisfy itself that they are foreseeable for those concerned and pursue a legitimate aim.
However, unlike the position with respect to articles 8 to 11 of the Convention, it is not bound by an exhaustive list of legitimate aims under article 2 of Protocol No 1 Furthermore, a limitation will only be compatible with article 2 of Protocol No 1 if there is a reasonable relationship of proportionality between the means employed and the aim sought to be achieved.
She submits that the suspension of the appellant from the school was a restriction on his right to education and that the principals response to the allegations against him was disproportionate.
He could and should have explored alternatives to suspension such as those mentioned at paras 55 and 56 above and there was no review of the proportionality of the suspension as the weeks went by.
She also makes the point that the suspension came at a crucial time in the appellants education, coming as it did in his GCSE year.
In my view, there was no restriction on the appellants right to education under article 2 in this case.
It follows that the statement at para 154 in Sahins case has no application and no questions of proportionality arise.
It is true that (as I have held) the appellant was suspended from the school in breach of domestic law.
But it does not follow from this that there was any restriction on his right not to be denied effective access to such educational facilities as the state provides for pupils such as the appellant.
In the Lord Grey School case, the pupil had been excluded from the school in breach of domestic law, but the House of Lords nevertheless held that the exclusion did not, in the circumstances of that case, amount to a breach of his article 2 right.
As Lord Bingham said in the Lord Grey Case at para 24, there is no Convention right to education of a particular kind or quality, other than that prevailing in the state.
Thus, there is a breach of article 2 only if the person is denied effective access to such educational facilities as the state provides for such pupils.
Article 86 of the Education (Northern Ireland) Order 1998 (SI 1998/1759 (NI 13))provides: (1) Each board shall make arrangements for the provision of suitable education at school or otherwise than at school for those children of compulsory school age who by reason of illness, expulsion or suspension from school or otherwise, may not for any period receive suitable education unless such arrangements are made for them.
The state, therefore, provides educational facilities for pupils who are suspended from school and the appellant was not denied access to those facilities in this case.
The fact that the standard or quality of the education provided may have been low is not material.
What matters is that the appellant was given access to the alternative facilities provided for pupils who have been suspended.
Work was made available by the school for the appellant immediately following his suspension in all the principal subjects: see para 15 above.
From 14 March until 20 April, he received home tuition for 8 hours per week mainly in Mathematics and English.
Understandably, the appellants mother complains that this was inadequate.
But there is no evidence that the arrangements made available and provided by the school were different from those that the state made available and provided to any pupil such as the appellant who, for whatever reason, was not able to attend school.
I have little doubt that the facilities made available between 7 February and 13 March (which in the event were not accepted) were not as effective from an educational point of view as attendance in a classroom would have been.
It may be that the same can be said in relation to the merits of home tuition of 8 hours per week.
But for the reasons that I have given, there was no breach of article 2 of the First Protocol in this case.
Overall conclusion
I would, therefore, allow the appeal and declare that the appellant was unlawfully suspended from the school from 7 February until 20 April 2007.
But I would also declare that there was no breach of article 2 of the First Protocol of the Convention.
LORD PHILLIPS
Introduction
I have had the benefit of reading the judgment of Sir John Dyson.
I agree with his conclusions (i) that the appellant was unlawfully suspended from his school from 7 February until 20 April 2007, but (ii) that there was no breach of article 2 of the First Protocol of the Convention.
As to the second conclusion, I share Sir Johns reasoning and have nothing that I wish to add.
As to the first conclusion, I have reached it by a somewhat different route, both from that of Sir John and from that of Lord Rodger and Lord Brown.
I can summarise that route as follows: i) The Boards scheme entitled Procedures for the Suspension and Expulsion of Pupils in Controlled Schools (the Disciplinary Scheme) does not govern all circumstances in which the principal of a controlled school can lawfully deny a pupil access to the school. ii) The circumstances in which the principal suspended the appellant fell within the scope of the Disciplinary Scheme. iii) The principals actions did not comply with the requirements of the Disciplinary Scheme and were, in consequence, unlawful.
The scope of the Disciplinary Scheme.
Article 49 of the Education and Libraries (Northern Ireland) Order 1986 provides: (1) Each board shall prepare a scheme specifying the procedure to be followed in relation to the suspension or expulsion of pupils from
the schools under its management
The object and the scope of this provision can readily be deduced from the relevant recommendations of the Reports which, as is common ground, the provision was designed to implement, namely the Taylor Report and the Astin Report.
Sir John has summarised the relevant provisions of these Reports in paragraphs 24 to 27 of his judgment.
They deal with exclusion from a school, whether temporary or permanent, in a disciplinary context that is by way of reaction to aberrant behaviour on the part of the pupil.
The cause of such behaviour may or may not involve culpability on the part of the pupil.
The Court has recently heard an appeal in which evidence was given of the large number of pupils who have been excluded from school because of behaviour caused by autism spectrum disorders.
Sir John has quoted the statement at para 9.12 of the Taylor Report that suspension should not be used as a punishment but as providing a breathing space for rational consideration of the way ahead.
It follows that the scheme that Boards are required to prepare must deal with the procedure to be followed in relation to suspension or expulsion for disciplinary purposes.
If there is to be a power for a principal temporarily to exclude a pupil from the school while investigating alleged misbehaviour, provision for this should properly be included in the Disciplinary Scheme.
The respondents have drawn a distinction between disciplinary suspension and precautionary suspension.
Disciplinary suspension they define as suspension by way of sanction for established misconduct.
Precautionary suspension they define as suspension while investigations take place as to whether or not there has been misconduct.
It is their submission that the Disciplinary Scheme regulates only the former type of suspension, not the latter.
I do not agree.
The scheme required by article 49 of the 1986 Order should cover the investigatory stage of the disciplinary process.
If it makes no provision for temporary exclusion from school during this stage, then temporary exclusion is not permitted by the scheme.
The respondents found, for their distinction between disciplinary and precautionary suspension, on one decision of the Court of Appeal in Northern Ireland and one of the House of Lords.
The former is the case of Re Ms Application [2004] NICA 32, cited by Sir John at para 41 of his judgment.
In an earlier passage in the same paragraph the Court said: [20] We are satisfied that school principals must have the power, in appropriate cases, to suspend pupils before investigating the full circumstances of an alleged infringement of school rules or other misbehaviour.
In those circumstances suspension is not a form of punishment but merely a means of allowing the proper investigation of the allegations.
There are two schools of thought as to whether a principal should have power to exclude a pupil from the school while carrying out investigations of alleged misconduct by the pupil, but if he is to have such a power it must be part of the relevant Disciplinary Scheme.
I agree with all members of the Court that the 1986 Order requires a scheme that deals comprehensively and exclusively with all exclusions from school that fall properly within its scope.
The House of Lords decision relied upon by the respondents is the Lord Grey School case [2006] 2 AC 363.
In that case their Lordships made obiter comments on the scope of section 64 of the School Standards and Framework Act 1998.
That section provided that the power to exclude could only be taken on disciplinary grounds and the House questioned whether this could preclude exclusion of a pupil pending the result of a criminal trial.
I do not find the observations of the House support the suggestion that the scheme required by article 49 is not concerned with the investigatory stage of disciplinary proceedings.
The passage that Sir John has quoted at para 42 from the speech of Lord Scott is, however, illuminating.
I do not consider that article 49 has any bearing on the power of a principal to keep a pupil temporarily away from school for a reason that has nothing to do with discipline.
Such exclusion does not fall within the meaning of suspension or expulsion in article 49, which is dealing with the disciplinary context.
Miss Gibson QC for the respondents has helpfully drawn attention to circumstances which have nothing to do with discipline that may justify, indeed require, a principal to exclude a child from school.
One is where the lack of cleanliness of the pupil or the pupils clothes so requires section 34 of the Health and Personal Social Services (Northern Ireland) Order 1972 (SI 1972/1265 (NI 14)).
Another is where the pupil is infectious or contagious, or is in quarantine section 5 of the Public Health Act (Northern Ireland) 1967.
The Scheme of Management drawn up pursuant to article 3 of the Education (Northern Ireland ) Order 1998 provides: 26. (1) In addition to his statutory functions and subject to the provisions of the Education Orders and regulations, orders and directions made thereunder and to the provisions of this scheme and a financial scheme under the Education Orders and such directions as may, from time to time, be given to him by the Board of Governors, the Principal shall control the internal organisation, management and discipline of the school.
This gives the principal the power, and indeed the obligation, to exclude a pupil in circumstances that do not fall within the Disciplinary Scheme where the proper management of the school so requires.
Such circumstances are not likely to arise very often in practice.
The circumstances in which the principal suspended the appellant
It follows from the conclusions that I have set out above that it does not matter whether the appellants suspension or exclusion was disciplinary or precautionary.
The critical question is whether it was part of a disciplinary process or whether it was for a reason that had nothing to do with discipline.
If it formed part of the disciplinary process, it was only lawful if permitted by the Disciplinary Scheme.
If it was not part of the disciplinary process, then different questions arise in order to determine whether the appellants exclusion was pursuant to the proper exercise of the principals general managerial powers.
There is a problem as to how one approaches the purpose of the appellants suspension or exclusion.
Is it to be judged on what the principal told the appellant, his mother and his grandparents, or is it to be judged from the principals own viewpoint? This was not explored in argument and, at the end of the day I have concluded that it does not make any difference.
The information provided to the appellant, his mother and his grandparents is summarised at paragraphs 11 to 13 of Sir Johns judgment.
This makes it plain that the appellants suspension was part of a disciplinary process.
The appellant himself was told that he was being suspended because of allegations about his behaviour.
The letter sent to the grandparents on 7 February referred to the Case Conference on 1 February when allegations of serious criminal offending had been made against the appellant.
The reference to the fact that the suspension did not involve an assumption of guilt and that the matter would be considered further suggests that the suspension was in order to enable further consideration to be given to the allegations made.
That impression would have been reinforced by the subsequent letters stating that the suspension was being extended for further periods of five days in order to allow for further investigation of the matter referred to in the letter of 7 February.
The fact that the original suspension was for five days and that subsequent extensions were for the same period was also suggestive of suspension under the Disciplinary Scheme.
In these circumstances it is no cause for surprise that the grounds upon which the appellant sought relief in his judicial review proceedings included failure to comply with the Schools (Suspension and Expulsion of Pupils) Regulations (Northern Ireland) 1995 and taking into account irrelevant considerations, in particular unproven allegations made about the Applicant in relation to his conduct outside school.
The principals own understanding of the grounds on which he was suspending the appellant are less easy to analyse.
These seem to have been a combination of concern for the welfare of the anonymous pupil who had complained of the appellants treatment and a belief, at the least, that there was a prima facie case that the appellant had been guilty of serious misconduct.
Significantly the principal himself believed that he was acting under the Disciplinary Scheme.
For these reasons I have reached the firm conclusion that the circumstances under which the principal suspended the appellant fell within the scope of the Disciplinary Scheme.
I do not think that the principal was purporting to impose a disciplinary sanction.
Rather his action was precautionary in that it was provisional suspension in order to give further consideration to the allegations of misconduct made against the appellant and the consequential risk posed by his behaviour.
Failure to comply with the Disciplinary Scheme
The Disciplinary Scheme made no provision for precautionary suspension.
Whether this was as a matter of policy or oversight does not matter.
The consequence was that it was not open to the principal to suspend the appellant as a precautionary measure, rather than as a disciplinary sanction after following the procedure required by the Disciplinary Scheme.
The appellants suspension was unlawful.
I would end by expressing my agreement with those who have sympathised with the predicament in which the principal found himself.
Without the power of precautionary suspension his options were limited and he was not well advised as to how to proceed.
But for the reasons that I have given I agree that the appellants appeal must be allowed.
LORD RODGER
I agree with Sir John Dyson that the appeal should be allowed, but, like Lord Brown, I reach that conclusion on the basis that the Principal purported to suspend the appellant as a precautionary measure and that, under the Management Scheme which applied to the school, he had no power to do so.
On 31 January 2007 two girls spoke to the Principal and made an allegation of misconduct by the appellant.
While the Court has not been furnished with any details, it is accepted that the allegation was of some form of bullying, which was said to be of a subtle and covert nature.
It is clear that, having heard the initial account given by the female pupil and her friend, and having heard a further account from her friend later the same day, the Principal was inclined to believe what they said.
No doubt, even though it related to entirely separate matters, what he heard the next day after the multi disciplinary case conference would have tended to reinforce his view.
Indeed, as Sir John Dyson says, at para 38, on the Principals evidence, it is inconceivable that he would have suspended the appellant if he had disbelieved the girls account of his behaviour.
If he had not believed that there was at least a prima facie case that the appellant had done what they said, he would not have suspended him.
But it does not follow, in my view, that, because the Principal proceeded on the basis that there was a prima facie case against the appellant, he suspended him on disciplinary, rather than precautionary, grounds.
The fact that he accepted that there was a prima facie case against the appellant is entirely consistent with his proceeding on a precautionary basis.
In short, the Principal would never have taken any precautionary steps to protect the girls by suspending the appellant if, on the available information, he had not been inclined to accept their account.
That the suspension was, in fact, taken as a precautionary measure is confirmed not only by what the Principal says in his affidavit but by the minute of the risk assessment meeting which took place on 6 February.
The meeting decided that Social Services were to carry out an assessment of the alleged incident with the girl and of any impact on her emotions.
Also the appellant was to be suspended for 5 days, with the possibility of extension, while the assessment took place.
The minute included the words (in bold): The suspension to be viewed as a precautionary measure, not a presumption of guilt.
This approach was reflected in the (otherwise misleading) letter from the Principal to the appellants grandparents on 7 February.
I therefore see no basis for second guessing Weatherup J or the Court of Appeal, both of whom decided that the suspension was precautionary.
The girl who alleged that she was being bullied said that she did not want to make a formal complaint and did not wish the Principal to tell the appellant that she had spoken to him about his conduct towards her.
Everything that the Principal then did seems to have proceeded on the basis that he could not reveal the identity of the girl, and hence the detail of her allegations, to the appellant.
Even in his affidavit of 7 June 2007, he said I do not now wish to say or do anything which may betray the confidence of this pupil or which may assist in identifying her.
Pupils who are bullied will often worry in case the bully finds out that they have reported his conduct.
So they may well ask that what they have said should be kept confidential.
The Northern Ireland Department of Education policy recognises this, but adds that pupils should be told that if teachers are concerned about your safety, or someone elses, they may need to share this with others, but they will always tell you first: Pastoral Care in Schools: Promoting Positive Behaviour (2001), para 110.
Here, the Principal took a serious view of what the girls had told him.
He clearly thought that the matter could not be passed over without further investigation and without appropriate steps being taken if the allegation proved to be true.
But the Principal could never have properly concluded that the allegation was indeed true and taken action to deal with the situation without informing the appellant of the allegation against him and giving him an opportunity to give his version of events.
So this was a situation where, as envisaged in the policy paper, the girls complaint could not be kept confidential.
As it was, the school was already taking steps, in conjunction with the girls parents, to support and protect her.
If more steps were required because the complaint had been revealed to the appellant, doubtless the Principal would have taken them.
In fact, the Principal took no steps to investigate the allegation himself.
Instead, on 6 February, the risk assessment meeting decided that Social Services were to carry out an assessment of the alleged incident with the girl and of any impact on her.
It does not appear that any approach to the appellant was envisaged.
So this assessment was unlikely to be conclusive and certainly could never have resulted in any action against the appellant.
But, in the meantime, the appellant was to be suspended, initially for 5 days, while the assessment took place.
The following day, the Principal proceeded to suspend the appellant for 5 days without giving him any real account of the basis for the suspension even though, it appears, the appellant had an idea about who might have complained.
In fact, as we know, suspension succeeded suspension until 20 April and the appellant was not actually allowed to return to school until the beginning of May by which time Social Services had still not completed their assessment of the girl.
Indeed, the evidence does not show whether that assessment was ever completed.
The upshot is that, on the basis of an allegation of bullying, not involving physical violence, the appellant was suspended for many weeks.
This was, in all probability, a more severe consequence than would have been imposed on him even supposing that the incident had been investigated promptly, misconduct on his part had been established and he had been punished for it under the schools current discipline policy.
No doubt, all these steps were taken in a difficult situation and with the best of intentions.
But, at least with the benefit of hindsight, it is clear that the course adopted was misguided.
The Principals insistence on concealing the allegation from the appellant made it impossible for the school to carry out a proper investigation of the alleged misconduct.
Perhaps for that reason, instead of the school investigating and dealing with the incident within its disciplinary system, it outsourced the investigation of the girls account to Social Services, which never produced a report.
Given the insistence on confidentiality, it is in any event unclear what practical steps were envisaged as following from that investigation.
In the meantime, the same insistence on confidentiality appears to explain why the appellants grandparents were given a false and misleading reason for his suspension in the Principals letter of 7 February.
As Sir John Dyson has demonstrated, the Management Scheme which applied to the school actually makes no provision for precautionary suspension.
In other words, the only use of suspension which it contemplates is as a severe sanction (para 4.1), only short of expulsion, after a period of indiscipline (para 4.2.1) or after a serious incident of indiscipline (para 4.2.2).
In the latter case suspension can only be considered after the school has investigated and documented the incident, the investigation being one which should include an opportunity for the pupil to be interviewed and his or her version of events given before the decision to suspend.
Here, plainly, that stage was never reached.
The Court was not told why the Management Scheme does not include any provision for the use of suspension as a precautionary measure.
The simple fact is, however, that it does not.
Moreover, since the concern behind framing specific rules on suspension was to remove doubts about how it should be used, in respectful disagreement with the courts below, I see no room for implying into the general management powers of the Principal a power to suspend a pupil on a precautionary basis.
Whether the Scheme should be amended to include such a power in appropriate circumstances is a matter of policy for the Northern Ireland Executive and not for this Court.
appellant, as he did.
For these reasons, and in agreement with Lord Brown, I too would allow the appeal and declare that the appellant was unlawfully suspended from the school from 7 February until 20 April 2007.
For the reasons which Sir John Dyson gives, I would also declare that there was no breach of article 2 of the First Protocol to the Convention.
In that situation in February 2007 the Principal had no power to suspend the
LADY HALE
It is remarkable how quickly children pick up a basic sense of justice and fairness.
How often do we hear them complain rightly and wrongly that its not fair! Some of the injustices in their lives are not within the control of the adults around them but many of them are.
Where adults are in control of childrens lives they have a moral duty to be fair and sometimes this is also a legal duty.
If children are faced with a world which is arbitrary and unfair they may see little point in obeying the rules or being just and fair in their own dealings with others when they grow up.
Because we can all empathise with the Principal in his dilemma, we must also empathise with the appellant in the situation he faced.
Aged 15, he is coming up to his GCSE examinations.
He is away from school on work experience for a few days and due to return on Tuesday 6 February 2007.
On Wednesday 7 February he is summoned to the Principals office, told that allegations have been made against him and that he is being suspended as a result.
At first this does not sink in properly.
He is also handed a letter to take home to his grandparents, with whom he lives.
He opens this, which spells out that he is suspended for five school days (a whole week) with a possible extension to follow.
He is angry and upset (its not fair).
He returns to the Principals office and asks why he is being suspended.
He is told that there is nothing more the Principal can tell him.
The letter to his grandparents is misleading.
It implies that the reason for his suspension is the information about allegations outside school, which was shared at the case conference on 1 February.
It says nothing about the real reason, which was the allegations made by A and her friends.
The suspension is extended for four further weeks.
Once home tuition is arranged, from 14 March, there are no further formal extensions.
But the reality is that he is not free to come back to school and was not in fact allowed back in until the beginning of May.
This is unjust in two ways.
He has been away from school for nearly three months at a critical time.
His tutors reports indicate that he attended and co operated very well with the eight hours tuition he was offered each week but he was clearly a pupil who needed help to improve basic skills.
This looks like a more severe punishment than would have been warranted had the allegations against him been proved.
More seriously, he was not given any opportunity of explaining his side of the story in a way which would have made any difference.
The Principal left others to take the matter forward and made no further attempt to establish the truth or to negotiate a solution which would enable both the pupils concerned to continue their education in the school.
There can be no doubt that what the school did was not in accordance with the Boards scheme, prepared under article 49 of the Education and Libraries (Northern Ireland) Order 1986, and thus unlawful.
I agree with Lord Phillips that it is not helpful or necessary to decide whether the Principals action was disciplinary or precautionary.
Precautionary is not a term of article It is quite clear that what was done was done in a disciplinary context that is, because the appellant had been accused of indiscipline and not for any other reason.
The scheme is undoubtedly intended to be exhaustive of the grounds upon which a pupil can be suspended in a disciplinary context and the procedures which must be followed before he is.
It requires the indiscipline to be established and it requires the pupil to be given an opportunity of defending himself.
It also requires that his parents are told the right reason.
None of that happened: hence the unlawfulness.
Whether such schemes should provide for suspension while allegations of indiscipline are being investigated either by the school or (as in A v Head Teacher and Governors of Lord Grey School [2006] UKHL 14, [2006] 2 AC 363) by the police or some other body is, as Lord Rodger points out, a policy question and, I would venture to suggest, not an easy one.
Suspension is bound to have an adverse effect upon a pupils education, as well as on his self esteem and on his reputation with others.
It may well expose him to risks while he is not at school.
It is rightly regarded as a last resort.
If a scheme were to provide for suspension during investigations, as Lord Brown points out, it would still have to require that the pupil be told the reasons for it and given an opportunity to argue against it.
The Principals dilemma would remain.
Whether there is power to send a pupil home, or to require him not to come in, for reasons that have nothing to do with discipline is not a question that arises on the facts of this case.
There are arguments either way.
On the face of it, article 49 covers all involuntary exclusions from school for whatever reason.
Yet common sense might suggest that there should be some flexibility, for example if a pupil insists on attending school when clearly too ill to do so.
Improper dress, on the other hand, looks like a disciplinary matter.
And the answer to a dirty child might be quietly and tactfully to insist that he has a wash.
Usually, these situations can be dealt with by agreement rather than by coercion.
The scheme could address itself to such matters if it were thought appropriate to do so.
So I would prefer not to express a concluded view on the point.
As to article 2 of the First Protocol to the European Convention on Human Rights, the test is that laid down by Lord Bingham of Cornhill in the Lord Grey School case at para 24: have the authorities of the state acted so as to deny to a pupil effective access to such educational facilities as the state provides for such pupils? This is a question of fact and degree.
Left to myself, I might have thought that three months out of school in the run up to important public examinations was indeed to deny him effective access to the educational facilities which the state provides for year 12 pupils.
He should not have been relegated to eight hours tuition a week for six weeks.
But I appreciate that others think and have thought that it may be enough to be effective.
The appellant has achieved his major objective of establishing that he should not have been suspended in the way that he was.
Had this been recognised at an early stage, he might also have achieved his objective of being allowed back into school.
The only purpose of finding a violation of his Convention rights would be to pursue a claim for damages, which could only succeed if the court were satisfied that an award were necessary to afford him just satisfaction: see Human Rights Act 1998, s 8(3).
Miss Quinlivan rightly did not place this at the forefront of her submissions.
I see no point, therefore, in pressing my doubts to a dissent but, as a declaration is a discretionary matter, I would prefer to make no declaration at all on this issue, the appellant having achieved just satisfaction from his declaration on the first.
Finally, we should not forget the complainant either.
The Principal believed her friend and her mother about how upset she was and rightly took steps to help her.
But we shall never know precisely why she was so upset and whether she had good reason to be.
What lessons has she learned? It is good that the school was prepared to take her seriously and give her support.
It is not good that an anonymous report of complaints which could not be disclosed was seen to lead to sanctions against the alleged perpetrator.
In legal proceedings, children have to be reassured that they will be listened to and their complaints taken seriously.
They may also be given help and support to improve their lot.
But if adverse consequences are to be visited upon parents or others as a result of their complaints, they cannot be given a guarantee of confidentiality.
Those elementary principles of fairness are as applicable in the school disciplinary context as they are in legal proceedings.
In the words of Eleanor Roosevelt on the screen at the end of our courtroom, Justice cannot be for one side alone, but must be for both.
For these reasons, and in agreement with the other members of the court, I would allow the appeal and declare that the appellant was unlawfully suspended from school from 7 February until 20 April 2007.
I would refrain from making the second declaration.
LORD BROWN
I have had the advantage of reading in draft the judgment of Sir John Dyson and, like him, would allow the appeal and declare (1) that the appellant was unlawfully suspended from 7 February until 20 April 2007 but (2) that there was no breach here of article 2 of the First Protocol of the Convention.
I add a few short paragraphs only because I confess to very considerable sympathy for the Principal in this case and because I prefer to found my own judgment on the proposition that there is simply no power under the Boards Scheme to suspend a pupil as a precautionary measure rather than on the basis that the appellant was in fact suspended here on disciplinary grounds and unlawfully so because his suspension was in breach of paragraphs 4.2.2 and 5.1 of the Scheme.
I am sympathetic to the Principal both on the facts and because, quite understandably, he thought he was entitled as a matter of law to suspend the appellant on precautionary rather than disciplinary grounds.
So far as the facts are concerned it appears that the Principal was so concerned at As distress and state of mind (he thought she posed a real risk of suicide) that he felt unable to betray her confidence in making the complaint.
As to whether there exists a power of precautionary suspension, the Northern Ireland Court of Appeal had already decided in Re Ms application [2004] NICA 32 that such a power existed and strong support for such a view was to be found in the judgments of the House of Lords in A v Head Teacher and Governors of Lord Grey School [2006] 2AC 363.
True, the House of Lords was there concerned with sections 64 68 of the School Standards and Framework Act 1998 and not with any Scheme made under Northern Irelands (1986) Order and (1995) Regulations but it is difficult to see why these essentially similar provisions should be construed and applied differently.
At first blush the case for having a power of precautionary suspension appears strong to the point of irresistibility.
On reflection, however, even if such a power be regarded as desirable, I am not convinced that it is necessary, still less that such a power must inevitably exist (as the Court concluded in Re Ms application).
As Sir Johns judgment makes clear, there are strong policy reasons for treating all school exclusion (suspension as well as expulsion) as a remedy of last resort and for subjecting this power to the most rigorous controls.
Even in the case of an alleged assault on a teacher (the example given in Re Ms application) segregation within the school or other measures short of suspension are available to deal with the situation pending full investigation.
Sir John also explains (para 45) that if after all it is thought necessary or desirable to have a power of precautionary suspension, then the Board can amend their Scheme to provide for it.
The power would obviously need to be carefully regulated.
This very case, indeed, illustrates the problems of a power of precautionary suspension not subject to clear controls: essentially it assumes the right to suspend a pupil for an unlimited period (subject only to the nebulous constraint of reasonableness) provided only that the suspension is not characterised as disciplinary and steps are taken (as here they were, following the Court of Appeals judgment) to ensure that the pupils school records do not indicate a disciplinary breach.
The power would inevitably need to be subject to time limits (presumably of such length as to allow for a sufficient investigation of the disciplinary breach alleged) and that investigation would inevitably require the pupil to be notified of the nature of his alleged breach of discipline and given a proper opportunity to respond.
It is surely inconceivable that a Principal would be permitted to pretend (as here he did by his letter to the appellants grandparents of 7 February 2007) to be suspending the appellant because of various alleged offences outside school under investigation by the PSNI when in fact he was suspending him because of As complaint (about which he felt unable to notify the appellant and whose account of the matter, therefore, he would necessarily never learn).
All this, I readily accept, was undertaken by the Principal in the best of good faith.
In hindsight, however, it can be seen that even had a power of precautionary suspension existed, it could never properly have been exercised in this way.
The importance of this case, however, I repeat, is not that it illustrates a power being improperly exercised but rather that it establishes that no such power exists.
As to the article 2 question, there is really nothing I want to add to Sir Johns analysis.
The appellants suspension from school, unlawful though it was under domestic law, does not translate into a denial of the right to education.
As Lord Hoffmann made clear in the Lord Grey School case (para 61), the breach of such a public law duty, not giving rise to a private right of action, cannot be promoted to a breach of duty under section 6 of the Human Rights Act 1998 remediable by a claim for damages.
| UK-Abs | This is an appeal from the Court of Appeal of Northern Ireland.
The issue is whether a pupil was unlawfully suspended from his school in County Antrim.
His school fell within the area of the North Eastern Education and Library Board.
The Board had prepared a Scheme governing the suspension and expulsion of pupils.
It had done so pursuant to the requirement of the Education and Libraries (NI) Order 1986.
The appellant was suspended following a complaint by a girl pupil at the school of misconduct in relation to her which she insisted that the principal of the school should keep confidential.
The principal suspended the appellant to protect this pupil pending a risk assessment, stating that he did so as a precautionary measure.
Although he purported to suspend the pupil pursuant to the Scheme, he failed to comply with its requirements.
The appellant brought proceedings for judicial review, contending that his suspension was unlawful and denied him the right to education guaranteed by the European Convention on Human Rights, contrary to the Human Rights Act 1998.
The Court of Appeal held that the principal had lawfully exercised a common law power to suspend the appellant that existed, as part of his managerial powers, in parallel with the power conferred under the Scheme.
The Supreme Court reversed this finding to the extent of holding that the principal had had no such power.
Sir John Dyson, Lord Phillips and Lady Hale held that the suspension was disciplinary, or at least had been imposed in a disciplinary context, and that no common law power to suspend subsisted in these circumstances.
Lord Rodger and Lord Brown held that the suspension was a precautionary measure rather than a disciplinary sanction, but that there was no common law power to suspend outside the Scheme.
It followed that the suspension was unlawful.
The Court was unanimous in holding that the suspension did not amount to a denial of the right to education guaranteed by the Convention.
|
This appeal is concerned with the relevance and application of the principles of autrefois acquit, res judicata and abuse of process in the context of successive proceedings before a regulatory or disciplinary tribunal.
The background facts
The appellant is a chartered accountant and a member of the respondent institute (the Institute), which is responsible for the regulation of chartered accountants including the appellant.
At the relevant time he and his wife were directors and shareholders of a number of trust companies carrying out regulated financial services work in Jersey.
On 18 December 2002 the Jersey Financial Services Commission issued a direction (the direction) to the companies and their directors to cease to take on any new trust company business and to commence an orderly winding up of the companies affairs.
It also directed that no records or files in respect of the companies or any customers shall be removed from the offices of the companies.
On 22 December 2002, the appellant was stopped by the police at the St Helier ferry terminal, having checked his car on to the ferry to St Malo.
On examination of the car, the police found suitcases containing files relating to clients, computer equipment, network servers and back up tapes.
The documents included original trust deeds, trust and company documents, share certificates, company memoranda and articles, and letters of wishes.
The appellant and (later the same day) his wife were arrested and charged with the offence of failing to comply with the direction.
On 16 September 2003 they were both convicted of failing to comply with the direction, contrary to article 20(9) of the Financial Services (Jersey) Law 1998.
I will refer to the appellants conviction as the Jersey conviction.
On 22 October 2003 the appellant was fined 7,500.
The appellant and his wife sought leave to appeal to the Jersey Court of Appeal against their convictions but leave was refused in a fully reasoned judgment on 14 January 2004.
On 2 November 2004 the Institutes Investigation Committee preferred a complaint against the appellant.
In the course of these proceedings this has been called the conviction complaint but that does not seem to me to be an accurate description.
I shall call it the first complaint.
That complaint was heard by a disciplinary committee (the tribunal) on 19 April 2005 but was dismissed on the same day.
On 7 March 2006 the Investigation Committee preferred a second complaint, which has been referred to as the conduct complaint, but which I will refer to as the second complaint.
On 7 December 2006 a differently constituted tribunal held a hearing in order to determine a preliminary issue raised by an application made by the appellant, namely that the second complaint should be summarily dismissed on the ground that the same complaint had already been dismissed.
The appellants case was that the first and second complaints made the same allegations and that the second complaint should be dismissed on the grounds of autrefois acquit or res judicata or that it should be dismissed or stayed on the ground that, having regard to the dismissal of the first complaint, the second complaint was an abuse of process.
The tribunal dismissed the application.
On 7 March 2007 the appellant issued an application for judicial review of that decision on the basis that the tribunal had erred in law and that it should have summarily dismissed the second complaint on the grounds advanced before it.
On 6 November 2008 Owen J (the judge) dismissed the application for judicial review.
On 4 February 2009 Sullivan LJ granted permission to appeal to the Court of Appeal but on 15 July 2009 the Court of Appeal, comprising Sir Anthony May P, Arden LJ and Jacob LJ, dismissed the appeal.
The appellant lodged a petition for permission to appeal to the Supreme Court but, before the petition was determined, a disciplinary tribunal heard the complaint on 9 December 2009 at a hearing which the appellant chose not to attend.
It found the complaint proved, ordered that the appellant be excluded from membership of the Institute and made an order for costs against him.
Permission to appeal to the Supreme Court was subsequently granted and the sanctions imposed by the tribunal have been suspended pending the outcome of this appeal.
The issues
In this appeal the appellant raised the same issues as he had raised both before the tribunal and before the courts below, namely that the second complaint should have been summarily dismissed on one or other or all of the grounds of autrefois acquit, res judicata or abuse of process.
All of these grounds depend to a greater or lesser extent upon a comparison of the two complaints.
The appellants primary position throughout has been that the basis of the two complaints was the same and that the second complaint should have been dismissed on the ground of autrefois acquit or res judicata.
In short he relied upon the general principle that nemo debet bis vexari pro una et eadem causa, that is that nobody should be vexed twice in respect of one and the same cause.
In these circumstances it is convenient to begin by a comparison of the two complaints but, before doing so, it is necessary to set out the relevant provisions of the Institutes bye laws.
The resolution of the issues between the parties as to the correct comparison between the two complaints depends, at least in part, upon the true construction of bye laws 4 and 7.
The bye laws
Bye law 4 is entitled Liability of members and provisional members to disciplinary action.
Bye law 4(1) provides, so far as relevant: A member or provisional member shall be liable to disciplinary action under these bye laws in any of the following cases, whether or not he was a member or provisional member at the time of the occurrence giving rise to that liability (a) if in the course of carrying out professional work or otherwise he has committed any act or default likely to bring discredit on himself, the Institute or the profession of accountancy; (e) if any of the circumstances set out in paragraph (2) exist with respect to him.
Paragraph (2) sets out a number of specific circumstances.
They include, for example, failure to satisfy a judgment debt.
They do not, however, include conviction of a criminal offence.
Bye law 7, which is entitled Proof of certain matters, provides, so far as relevant: (1) The fact that a member, member firm or provisional member has, before a court of competent jurisdiction, pleaded guilty to or been found guilty of an indictable offence (or has, before such a court, outside England and Wales, pleaded guilty to or been found guilty of an offence corresponding to one which is indictable in England and Wales) shall for the purposes of these bye laws be conclusive evidence of the commission by him of such an act or default as is mentioned in bye law 4(1)(a) or 5(1)(a), as the case may be. (3) A finding of fact (b) in any civil or criminal proceedings before a court of competent jurisdiction in the United Kingdom or elsewhere; shall for the purposes of these bye laws be prima facie evidence of the facts found.
The Institute submitted both to this court and to the courts below that, on their true construction, bye laws 4 and 7 provided for two different charges.
The first was pleading guilty to or being convicted of an indictable offence of the kind identified in bye law 7(1) and the second was being guilty of the underlying conduct.
The underlying conduct on the part of the appellant relied upon in this case was that identified in bye law 4(1)(a), namely any act or default likely to bring discredit on himself, the Institute or the profession of accountancy.
In the Court of Appeal the President of the Queens Bench Division, with whom Arden LJ and Jacob LJ agreed, held at para 20 that the discreditable conduct alleged in the first complaint was the Jersey conviction, which was both conclusive evidence of the discreditable conduct and the discreditable conduct itself.
It was submitted on behalf of the appellant that so to conclude was to misconstrue the bye laws.
I agree.
Bye law 4(1) identifies the occurrence(s) giving rise to liability to disciplinary action.
The only relevant occurrence here was that the appellant had committed any act or default likely to bring discredit on himself, the Institute or the profession of accountancy.
Only bye law 4 identifies the occurrences giving rise to liability.
In my opinion, if the occurrence relied upon cannot be found in bye law 4 then the complaint must fail.
It was submitted that the Jersey conviction was such an occurrence.
However, there is nothing in bye law 4(1)(a) which supports the conclusion that such a conviction is itself an act or default of the kind specified.
Moreover, such a conviction is not one of the circumstances identified in bye law 4(1)(e), which are limited to the circumstances set out in bye law 4(2).
The bye laws could have included a conviction as one of those circumstances but they did not.
I do not see how bye law 7(1) can fill that lacuna.
It is not concerned with the nature of the occurrence but with proof of it.
This is clear from the heading and from the bye law itself.
Thus bye law 7(1) provides for what is to be conclusive proof of the commission of such an act or default as is mentioned in bye law 4(1)(a) or 5(1)(a) as the case may be.
Bye law 7(3)(b) provides for a fact found in any civil or criminal proceedings before a court of competent jurisdiction in the United Kingdom or elsewhere to be prima facie evidence of the fact so found.
There is nothing in bye law 7(1) or 7(3) that provides that a conviction is itself the act or default mentioned in bye law 4(1)(a).
In short, there is nothing in the bye laws which provides that a qualifying conviction itself amounts to the discreditable conduct.
It is simply conclusive proof of discreditable conduct.
The Institutes case involves treating a conviction within the meaning of bye law 7(1) as if it were one of the occurrences referred to in bye law 4(1)(e) and (2), which it is common ground that it is not.
Complaints 1 and 2 compared
The first complaint alleged that the appellant was liable to disciplinary action under bye law 4(1)(a), namely that: in the course of carrying out professional work or otherwise he has committed any act or default likely to bring discredit on himself, the Institute or the profession of accountancy IN THAT HE: was convicted upon indictment at the Royal Court of Jersey on 16 September 2003 of failing to comply with a direction issued on 18 December 2002 by the Jersey Financial Services Commission contrary to article 20(9) of the Financial Services (Jersey) Law 1998.
The complaint then set out a summary of the complaint, which referred to the Jersey conviction and set out the underlying facts which led to it in some detail.
The summary concluded by saying that the appellant had been convicted of failing to comply with the direction and that the conviction was conclusive evidence for the purposes of bye law 7(1) of the commission by him of such an act as is mentioned in bye law 4(1)(a).
The second complaint begins in identical terms to the first, alleging that the appellant was liable to disciplinary action under bye law 4(1)(a), namely that: in the course of carrying out professional work or otherwise he has committed any act or default likely to bring discredit on himself, the Institute or the profession of accountancy.
The complaint continues: IN THAT HE: On Sunday 22 December 2002, attempted to remove from Jersey, accounts books and records as listed in the witness statement of Peter Howard Beamish dated 18 February 2003 in contravention of the direction issued to him on 18 December 2002 by the Jersey Financial Services Commission in accordance with article 20(9) of the Financial Services (Jersey) Law 1998.
There follows a summary of the complaint.
It is correctly accepted that the substance of the underlying conduct was the same in the case of both complaints.
They both set out in the course of their respective summaries the facts that led to the Jersey prosecution and conviction.
Although the particulars on the face of the first complaint assert the conviction and the summary refers to it, the summary concludes by stating the submission of the Investigation Committee to be that the conviction was conclusive evidence for the purposes of bye law 7(1) of the commission by him of such an act as is mentioned in bye law 4(1)(a).
Thus, taken as a whole, I do not read the first complaint as meaning that the conviction was the act complained of as being contrary to bye law 4(1)(a).
The act complained of was the failure to comply with the direction based on the removal of documents and the like by hiding them in the car and trying to take them off the island.
If the conclusion expressed above is correct, namely that on the true construction of the bye laws the role of a conviction is only that expressly stated in bye law 7(1), namely as conclusive evidence of a breach of bye law 4(1)(a), the conviction was not capable of itself being the act complained of as being a breach of bye law 4(1)(a).
In these circumstances, on a fair view of the first complaint, the act complained of as a breach was not being convicted but failing to comply with the direction.
That is precisely the same complaint as is advanced in the second complaint.
Although it is spelt out in a little more detail on the face of the complaint, the alleged breach of bye law 4(1)(a) is the same in each complaint.
The question is what is the legal effect of the conclusion that the second complaint is the same as the first.
It was submitted on behalf of the appellant that the consequence is that the second complaint must be dismissed, either on the basis of autrefois acquit or on the basis of res judicata.
Autrefois convict
There is some support for the appellants case that the principles of autrefois convict apply to proceedings before non statutory disciplinary or regulatory tribunals of this kind.
It is the decision of the Judicial Committee of the Privy Council in Harry Lee Wee v Law Society of Singapore [1985] 1 WLR 362.
It is however of limited assistance because it appears to have been accepted by the appellant solicitor and the respondent, who was the Law Society of Singapore, that the principles of autrefois acquit applied to disciplinary proceedings of this kind.
Lord Bridge said at p 368G: No one would dispute that the doctrine of autrefois convict and acquit is applicable to disciplinary proceedings under a statutory code by which any profession is governed.
The Judicial Committee plainly thought that such principles should be applied in a case of this kind.
However, the proceedings before the tribunal were not criminal proceedings.
In the famous case of Connelly v Director of Public Prosecutions [1964] AC 1254 Lord Devlin said at p 1356 that the doctrine of res judicata occupies the same place in the civil law as the doctrine of autrefois acquit or convict does in the criminal law.
In these circumstances, while not conceding that the principles of autrefois acquit do not apply to disciplinary tribunals, it was submitted on behalf of the appellant that the underlying principle of nemo debet bis vexari pro una et eadem causa applies to both criminal and civil cases and extends to disciplinary proceedings.
The oral argument focused in particular upon the principles of res judicata.
In an outline summary of the Institutes submissions produced in the course of the oral argument by Mr Michael Beloff QC, the first two propositions were these.
First, in terms of the dividing line between criminal and civil proceedings drawn by Lord Devlin in Connelly v DPP for the purposes of the application of the Latin maxim now embodied in common law (nemo debet bis vexari), disciplinary proceedings fall on the civil side of the line.
Second, it follows that where the cause of action in the sets of proceedings is the same the relevant legal principle is res judicata not autrefois acquit.
I would accept those submissions.
In my opinion, if the appellant cannot succeed on the basis of res judicata, he will not succeed on the basis of autrefois acquit.
I therefore turn to res judicata.
Res judicata
It is important to note that this appeal is concerned only with the case where there have been two successive sets of disciplinary proceedings.
It is not concerned with a case in which either set of proceedings was either criminal or civil proceedings.
In the 4th edition of Spencer Bower and Handley on Res Judicata (2009) it is stated at para 1.05 that res judicata can either give rise to a cause of action estoppel or to an issue estoppel.
In this case the appellant relies upon cause of action estoppel, which is concisely defined in para 1.06 in this way: If the earlier action fails on the merits a cause of action estoppel will bar another.
The relationship between cause of action estoppel and issue estoppel was described, in terms that have been generally accepted, by Diplock LJ in Thoday v Thoday [1964] P 181, 197 198: The particular type of estoppel relied upon by the husband is estoppel per rem judicatam.
This is a generic term which in modern law includes two species.
The first species, which I will call cause of action estoppel, is that which prevents a party to an action from asserting or denying, as against the other party, the existence of a particular cause of action, the non existence or existence of which has been determined by a court of competent jurisdiction in previous litigation between the same parties.
If the cause of action was determined to exist, ie judgment was given upon it, it is said to be merged in the judgment, or, for those who prefer Latin, transit in rem judicatam.
If it was determined not to exist, the unsuccessful plaintiff can no longer assert that it does; he is estopped per rem judicatam.
This is simply an application of the rule of public policy expressed in the Latin maxim Nemo debet bis vexari pro una et eadem causa.
In this application of the maxim causa bears its literal Latin meaning.
Res judicata, or estoppel per rem judicatam, is thus a generic term of which cause of action estoppel and issue estoppel are two species.
The distinction between the two species is of potential importance because the former creates an absolute bar, whereas the latter does not: see para 47 below.
Although the point was not conceded on behalf of the Institute, it was not submitted in the course of the argument that the principle did not apply to non statutory disciplinary proceedings of this kind.
In any event, the principle does in my opinion apply to such proceedings.
There is no doubt that it applies to what may be called ordinary civil proceedings.
In Thrasyvoulou v Secretary of State for the Environment [1990] 2 AC 273, where an issue estoppel was held to arise out of a determination of a planning application, the principle was held to apply to public law proceedings.
Lord Bridge (with whom the other members of the appellate committee agreed) stated the general principle and emphasised its fundamental importance in this way at p 289C D: The doctrine of res judicata rests on the twin principles which cannot be better expressed than in terms of the two Latin maxims interest reipublicae ut sit finis litium and nemo debet bis vexari pro una et eadem causa.
These principles are of such fundamental importance that they cannot be confined in their application to litigation in the private law field.
They certainly have their place in criminal law.
In principle they must apply equally to adjudications in the field of public law.
In relation to adjudications subject to a comprehensive self contained statutory code, the presumption, in my opinion, must be that where the statute has created a specific jurisdiction for the determination of any issue which establishes the existence of a legal right, the principle of res judicata applies to give finality to that determination unless an intention to exclude that principle can properly be inferred as a matter of construction of the relevant statutory provisions.
The House of Lords thus stressed the importance of the res judicata principle in terms which in my opinion apply equally to cause of action estoppel and to issue estoppel.
The judge described the objects and powers of the Institute at paras 9 and 10 of his judgment.
The Institute was incorporated by Royal Charter in 1880 to promote the profession of accountancy by compelling the observance of strict rules of conduct for its members and by setting a high standard of professional education.
By a Supplemental Royal Charter of 1948 the principal objects of the Institute were declared to include the maintenance of high standards of practice and professional conduct by all its members.
The Institute is, at least for some purposes, a public body: see eg Andreou v Institute of Chartered Accountants in England and Wales [1998] 1 All ER 14.
The Institute has the power from time to time to make bye laws under para 15(a) of the Supplemental Charter.
By para 15(b) no new bye law or rescission or variation of a bye law shall have effect until approved by the Privy Council.
In these circumstances I see no reason why the principles of cause of action estoppel should not apply to proceedings before a disciplinary tribunal set up under the bye laws.
The provisions of the Charter and Supplemental Charter are akin to statutory provisions and it seems to me that similar principles to those identified by Lord Bridge in Thrasyvoulou apply to them.
It was not suggested in the course of the argument that there was anything in the Charter or Supplemental Charter to lead to the conclusion that the principles of cause of action estoppel should not apply to successive sets of disciplinary proceedings.
Indeed, even if the bye laws created only private rights as between the Institute and its members, I see no reason why the principle of cause of action estoppel should not apply.
In Meyers v Casey [1913] HCA 50, (1913) 17 CLR 90, where the High Court of Australia was considering a decision of the committee of the Victoria Racing Club, at p 114 Isaac J said this of objections considered by the committee: They are, by reason of the committees decision, res judicatae, as much as if instead of the committee it had been the Supreme Court unappealed from, that has so held.
That rests on the well known rule that a competent court or other tribunal has jurisdiction to give a wrong judgment, and if there is no appeal in the strict sense, then its decision, whether right or wrong, must stand, and cannot be questioned in any subsequent proceedings elsewhere.
See also Spencer Bower and Handley at para 2.05 where the editors say: Every domestic tribunal, including any arbitrator, or other person or body of persons invested with authority to hear and determine a dispute by consent of the parties, court order, or statute, is a judicial tribunal for present purposes, and its awards and decisions conclusive unless set aside.
In addition to Meyers v Casey and other cases, the editors cite Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630 per Diplock LJ at p 643C, where he said that, the parties having chosen an arbitration tribunal to determine the issues, they are bound by an interim arbitration award on specific issues under the principle of issue estoppel.
He added at p 643E that the power of an arbitrator to make an interim award was first conferred by the Arbitration Act 1934 and that, before then, the only kind of award he could make was a final award which determined all the issues between the parties.
It is implicit in Diplock LJs judgment that in such a case the principles of cause of action estoppel would apply.
None of the propositions in the Institutes outline summary challenged the applicability in principle of cause of action estoppel to decisions of the disciplinary tribunal.
I referred earlier to the first two submissions.
The third proposition relates to the case of Harry Lee Wee, to which it is not necessary further to refer.
The Institutes fourth proposition is that, for the purposes of res judicata the causes of action (or in the context of discipline, the charges) must be the same.
I would accept that that is so.
The fifth proposition is that in this case the charges were in fact different.
Attention is drawn to the distinction between the particulars of the discreditable conduct in the two complaints, which is said to reflect a distinction drawn in the bye laws themselves, one based on the fact of the Jersey conviction and the other based on the conduct which led to it.
I would not accept that submission.
I have already considered the two complaints in some detail.
For the reasons I have given, I have concluded that the alleged breach of bye law 4(1)(a) in each case was the same, namely the failure to comply with the direction by seeking to spirit the various documents off the island.
The alleged breach was not that the appellant was convicted of doing so.
Although the conviction is referred to in the particulars of the first complaint, a fair reading of the document as a whole is that the Institutes Investigation Committee (which was in effect the prosecutor) was seeking to rely upon the conviction as conclusive evidence of the underlying breach, which was of course the correct approach on the true construction of bye law 7(1) as explained above.
In para 1.02 Spencer Bower and Handley makes it clear that there are a number of constituent elements in a case based on cause of action estoppel.
They are that: (i) the decision, whether domestic or foreign, was judicial in the relevant sense; (ii) it was in fact pronounced; (iii) the tribunal had jurisdiction over the parties and the subject matter; (iv) the decision was (a) final; (b) on the merits; (v) it determined a question raised in the later litigation; and (vi) the parties are the same or their privies, or the earlier decision was in rem.
It is not in dispute that all those elements are established except (iv) and (v).
Even if any of the others were in dispute, I would hold that they are plainly satisfied.
As to (vi), it was not suggested that the first decision was in rem but it is plain that the parties to both sets of proceedings were the same.
As to (iv) and (v), the critical question is whether the first decision was final and on the merits.
If it was, since I have already concluded that the question raised in both sets of proceedings was the same, it follows that it determined a question raised in the second proceedings.
I therefore turn to the argument before and the decision of the tribunal in respect of the first complaint.
The hearing took place on 19 April 2005.
The appellant did not attend and was not represented but the Institute was represented by Ms L Peto.
The tribunal was advised by a legal assessor, Mr C Hopkinson.
In the days before the hearing the appellant had sent Ms Peto a considerable number of emails taking a variety of points and attaching a number of documents.
He was seeking an adjournment of the hearing.
Ms Peto very fairly put the documents before the tribunal, which considered them and, having done so, refused the application for an adjournment.
The particulars of the complaint were then read by the assessor and Ms Peto submitted to the tribunal that, if she was able to satisfy it that the conviction fell within bye law 7(1), that would be conclusive proof of an offence under bye law 4(1)(a).
She did not submit, in my opinion correctly, that the conviction itself was contrary to bye law 4(1)(a).
Ms Peto appreciated that, in order for the conviction to come within bye law 7(1), she had to show that the offence of which the appellant was convicted in Jersey was an offence corresponding to one which is indictable in England and Wales.
This point had been taken by the appellant in the course of the email exchanges prior to the hearing.
The only statutory provisions in England and Wales which Ms Peto initially suggested satisfied the bye law were sections 173 and 177 of the Financial Services and Markets Act 2000 (the 2000 Act).
Ms Peto explained the underlying facts as set out in the judgment of the Jersey Court of Appeal refusing the appellants application for leave to appeal against the Jersey conviction.
However, she then invited the tribunal to find the complaint proved on the basis of the conviction alone.
She submitted that the various points on the facts taken by the appellant went only to mitigation.
The legal assessor then said that he would like to see the corresponding offence in England.
There followed some discussion of sections 165, 173 and 177 of the 2000 Act.
After Ms Peto had concluded her submissions on this point the tribunal retired to consider the question whether the offence of which the appellant was convicted in Jersey was an offence corresponding to one which is indictable in England and Wales.
When they returned they announced their decision in these terms: We are satisfied that the defendant was convicted on indictment in the Royal Court of Jersey of failing to comply with a direction issued under the Financial Services (Jersey) Law 1998, prohibiting the removal of files and documents.
We note that it was alleged (and not disputed by the defendant) that, jointly with his wife, he was caught by the police removing from the jurisdiction of the Jersey authorities original documents and records concealed in the back of his car, in breach of this requirement.
This is not the sort of conduct that is to be expected of a member of this Institute.
However, we have to be satisfied that this offence corresponds to one which is indictable in England and Wales.
Our attention has been drawn to sections 165, 173 and 177 of the Financial Services and Markets Act 2000.
We are not satisfied that any of the offences set out in these sections corresponds to the offence of which he was convicted in Jersey.
We therefore dismiss the complaint.
The tribunal subsequently issued their decision in writing.
They set out the basis for the application for an adjournment and gave their reasons for refusing the application.
They said that they had proceeded with the hearing on the basis that the appellant denied the complaint.
They then made a number of findings of fact, which identified the direction and the circumstances of the appellants arrest and the search of his car.
They summarised the points on the merits made by the appellant and they stated at para 7 of their findings of fact that under bye law 7(1), the fact that a member has, before a court outside England and Wales, been found guilty of an offence corresponding to one which is indictable in England and Wales, shall for the purposes of the bye laws be conclusive evidence of the commission by him of such an act or default as is mentioned in bye law 4(1)(a).
The tribunal then repeated in identical or almost identical language to that quoted in para 38 above what they had said when announcing their decision orally on 19 April.
The written document concluded by stating in capital letters that the tribunal accordingly dismissed the complaint.
The question is whether the decision was final and on the merits.
In my opinion the answer is that it was both final and on the merits.
The hearing on 19 April had been fixed as a hearing of the complaint on the merits.
The appellant applied for an adjournment which was refused.
The hearing on the merits accordingly proceeded.
It was for the Institute to put whatever material it wished before the tribunal and to put its case as it thought fit.
It is plain from the transcript of the hearing to which I have referred that the Institute based its case on bye law 7(1) which made the Jersey conviction conclusive evidence of a breach of bye law 4(1)(a) provided that the Jersey offence corresponded to one which is indictable in England and Wales.
Although it could have done, it did not put its case in any other way.
It could have relied upon the findings of fact as prima facie evidence of the facts under bye law 7(3)(b) or it could have relied upon the underlying facts themselves.
All the relevant evidence was available to it.
It did not, however, do so.
Nor did it apply for an adjournment in order to do so.
It is plain on the evidence that a conscious decision was taken to rely only upon the Jersey conviction.
In her witness statement, Tracey Owen, Head of Legal Services in the Institutes Professional Standards Directorate, said that the investigation case manager proceeded on an assumption that there was a corresponding offence in England and Wales and that bye law 7(1) would apply.
She added that, to the extent that the issue was considered at all, the case manager would not have been inclined to proceed with a detailed and lengthy investigation gathering witness statements from officials in Jersey when he had the option of relying just on the fact that Mr Coke Wallis had been convicted.
In its written case the Institute relied upon that evidence in support of a submission that the respondents Investigation Committee considered that the case could be dealt with most economically and efficiently by framing the complaint by reference to bye law 7(1) rather than by reference to the appellants underlying conduct, which would have involved a time consuming and resource intensive process of gathering witness statements from officials and police officers in Jersey and potentially arranging the attendance of witnesses at a hearing.
The submission added that that short cut proved not to be possible because there was no corresponding indictable offence in England and Wales.
Notwithstanding its reference to findings of fact in their written decision, the tribunal understood the position as being that the Institute was relying on the conviction because, having set out their conclusion that the Jersey conviction was not for an offence which corresponded to an indictable offence in England and Wales, it expressly stated that the complaint was dismissed.
If it had reached the opposite conclusion and held that the Jersey conviction was based on an offence which corresponded to an indictable offence in England and Wales, it would have found the complaint proved because the conviction would have been conclusive evidence of a breach of bye law 4(1)(a).
There could have been no doubt that such a decision would have been final and on the merits.
In my judgment, the same is true of the decision to dismiss the complaint.
This conclusion is supported by the decision of the House of Lords in Workington Harbour & Dock Board v Trade Indemnity Co Ltd (No 2) [1938] 2 All ER 101, where the plaintiffs sued on a bond which the defendants had given to guarantee the performance of a contractor who had undertaken to build a dock for the plaintiffs.
The bond provided that a certificate which complied with certain criteria would prove the amount due.
In the action on the bond the plaintiffs relied upon a certificate which they said complied with the criteria and was thus conclusive evidence of the defendants liability under the bond.
The action failed because the certificate did not specify a relevant act or default as required by the bond.
The plaintiffs brought a second action relying, not upon the certificate, but upon the underlying facts, which they said amounted to breaches of the contract and thus triggered liability under the bond.
The action failed on the basis of res judicata.
Lord Atkin described the position concisely at pp 105 106: The question will always be open whether the second action is for the same breach or breaches as the first, in which case the ordinary principles governing the plea of res judicata will prevail.
In the present case, in my opinion, the plaintiffs are suing on precisely the same breaches as those in the first action, and for the same damages, though on different evidence.
I am satisfied that the first action raised the issue of all the contractors breaches, and treated, and meant to treat, the engineers certificate as conclusive proof of both the breaches and the losses arising therefrom.
The result is that the plaintiffs, who appear to have had a good cause of action for a considerable sum of money, fail to obtain it, and on what may appear to be technical grounds.
Reluctant, however, as a judge may be to fail to give effect to substantial merits, he has to keep in mind principles established for the protection of litigants from oppressive proceedings.
There are solid merits behind the maxim nemo bis vexari debet pro eadem causa.
That maxim states what Lord Bridge described in Thrasyvoulou as a fundamental principle in the law.
For the reasons I have given above, it is a fundamental principle which applies to successive disciplinary proceedings.
As I see it, the principle stated by Lord Atkin applies to the facts here.
In all the circumstances I have reached the conclusion that all the constituent elements of cause of action estoppel are established on the facts.
It was not suggested in argument that, unless there is some special exception which applies to disciplinary proceedings, the determination of the first complaint is not an absolute bar to the second complaint.
In this regard at para 7.04 Spencer Bower and Handley say that the bar created by a cause of action estoppel is absolute with no exception for special circumstances.
There is potentially such an exception in cases of issue estoppel: Arnold v National Westminster Bank plc [1991] 2 AC 93, 104.
On the second day of the appeal, the Institute introduced, for the first time in the course of this litigation, a novel proposition in the form of the seventh of its outline submissions.
The proposition is that in any event, given the disciplinary context the Supreme Court should recognise a public interest exception to the strict application of the doctrine of cause of action estoppel which is absent in the case of conventional civil litigation.
This was prompted by a suggestion made by Lord Phillips in the course of the argument that an absolute principle of the kind adverted to by Lord Keith in Arnold would or might put the safety of the public at risk.
So, for example, if such an absolute rule applied to doctors it might put the lives of patients at risk.
For my part, I see the force of the introduction of such a principle.
However, whether and in what circumstances to permit such an exception seems to me to be essentially a matter for Parliament and not for the courts.
Different considerations no doubt apply to different professions.
For example the risk to patients may be thought to be of a different order from the risks to the clients of accountants.
I note in this context that Parliament has taken action in the case of decisions made by a number of Fitness to Practise and Professional Committees, including those of the General Pharmaceutical Council, the General Medical Council, the General Dental Council, the General Optical Council, the General Osteopathic Council, the General Chiropractic Council and others.
Part II of the National Health Service Reform and Health Care Professions Act 2002 created the Council for Healthcare Regulatory Excellence to supervise the manner in which self regulation operates in the field of health care.
Section 29 of that Act gives that Council the right to refer to the High Court decisions made in disciplinary proceedings of a self regulatory body such as those identified above.
Thus Parliament has intervened in specific ways in order to ensure that the public interest is protected.
As I see it, very different considerations may arise in different contexts and what steps should be taken is a question of policy which may depend upon the profession concerned.
Parliament may think it appropriate to ensure that the relevant profession is consulted before introducing specific provisions.
It is perhaps noteworthy that it did not occur to the Institute to suggest that there should be an exception to the principles of res judicata identified above until the eleventh hour.
In these circumstances, for my part, I would not invent a public interest exception but leave it to Parliament to decide whether and in what circumstances to do so.
It follows that I would allow the appellants appeal on the basis that the first and second complaints relied upon the same conduct and that, once the first complaint was dismissed, it was contrary to the principles of res judicata to allow the Institute to proceed with the second complaint.
Abuse of process
The conclusions which I have reached so far make the question whether the second complaint should be dismissed or stayed on the ground of abuse of process academic.
The question of abuse of process raises points of some interest but I have reached the conclusion that it would not be appropriate for the Court to express an opinion on them.
This is in part because it would in all probability involve doing so on the hypothesis that the first and second complaints are different.
It does not seem to me to be sensible to embark on that exercise in circumstances in which I have concluded that they are the same.
I therefore express no opinion under this head.
Conclusion
For the reasons I have given, I would allow the appeal on the ground that the second complaint made the same complaint as the first complaint and that the dismissal of the first complaint, which was a final determination of the first complaint on the merits, made that complaint res judicata such that the Institute was not entitled to make or proceed with the second complaint.
LORD COLLINS
Mr Coke Wallis is a chartered accountant.
In flagrant breach of a specific direction from the Jersey Financial Services Commission that no records or files in respect of the companies or any customers were to be removed from the offices of the companies, he (and his wife) attempted, unsuccessfully, to take via the car ferry to St Malo suitcases containing files and digital material relating to the companies and their clients.
Mr Coke Wallis and his wife were convicted in Jersey on a charge of failing to comply with the direction, and the Jersey Court of Appeal refused leave to appeal against conviction.
For the reasons given by Lord Clarke, I agree that the appeal should be allowed, even though that leads to the thoroughly undesirable result that for purely technical and wholly unmeritorious reasons the second tribunals decision that he be excluded from membership of the Institute cannot stand.
The Institute accepted that the classic res judicata principles applied to professional disciplinary bodies.
If this had been a case for application of an abuse of process approach rather than the more rigid res judicata principles, then I would have had no hesitation in concluding that the second set of proceedings was not an abuse.
But the effect of the decision of this court is simply to reverse the Court of Appeals finding that the discreditable conduct alleged in the two complaints was different (a conviction complaint and a misconduct complaint), and to come to the almost inevitable conclusion that they were both misconduct complaints.
Consequently the decision of this court is that the Court of Appeal simply misapplied well settled res judicata principles, and does not raise a question of law of general public importance normally fit for consideration by this court.
As Lord Bingham said in R v Secretary of State for Trade and Industry, Ex p Eastaway [2000] 1 WLR 2222, 2228, it is not the role of the highest court to correct errors in the application of settled law.
It has been held or assumed in a number of decisions in other common law jurisdictions that res judicata principles apply to successive complaints before professional disciplinary bodies.
Many professional disciplinary bodies are established or regulated by legislation, but the principles apply equally irrespective of the status of the disciplinary body.
The reason is that from the earliest times it has been recognised that the principle of finality or res judicata applies to tribunals established by the parties, such as an arbitral tribunal: Dunn v Murray (1829) 9 B & C 780; Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630, 643, per Diplock LJ.
For example, in Canada it was accepted by the Manitoba Court of Appeal that principles of res judicata applied to a complaint by the College of Physicians against a doctor.
On the facts it was held that the College could take proceedings against the doctor for sexual misconduct notwithstanding that four years previously the College had rejected the complaint, but that was because the earlier decision was not regarded as a final decision: Holder v College of Physicians and Surgeons of Manitoba [2003] 1 WWR 19.
In Solicitor v Law Society of New Brunswick [2004] NBQB 95 the Law Society was held to be barred from bringing a complaint based on alleged fraudulent billing, when the solicitor had already been reprimanded for billing irregularities arising out of the same matters; and in Visser v Association of Professional Engineers & Geoscientists [2005] BCSC 1402 it was held that the Association was not entitled to bring successive disciplinary proceedings for different offences based on the same conduct.
In Australia it was held that a doctor who had been censured by a Medical Board could not subsequently be the object of a second inquiry into alleged infamous conduct: Basser v Medical Board of Victoria [1981] VR 953.
See also in New Zealand Dental Council of New Zealand v Gibson [2010] NZHC 912 (dentist bound by findings of disciplinary tribunal).
In some cases the same result has been achieved by finding that the disciplinary tribunal is functus officio after the first decision: Chandler v Alberta Association of Architects [1989] 2 SCR 848 (Canadian Supreme Court).
In the United States, in Florida Bar v St Louis, 967 So 2d 108 (Fla 2007) and Florida Bar v Rodriguez, 967 So 2d 150 (Fla 2007) the Supreme Court of Florida accepted that res judicata principles applied to successive complaints brought by the Bar, but held that on the facts the causes of action were different.
But it has also been said that res judicata or double jeopardy principles may not apply to disciplinary bodies because their disciplinary requirements serve purposes essential to the protection of the public, which are deemed remedial, rather than punitive: Spencer v Maryland State Board of Pharmacy, 846 A 2d 341, 352 (Maryland Court of Appeals, 2003); cf Re Fisher, 202 P 3d 1186, 1199 (Sup Ct, Colorado, 2009).
Although it may make no practical difference, it is not the principles of autrefois convict which apply to disciplinary proceedings, which are civil in nature.
Lord Bridge was in error, when, speaking for the Judicial Committee of the Privy Council in Harry Lee Wee v Law Society of Singapore [1985] 1 WLR 362, 368, he accepted that the principles of autrefois acquit applied to disciplinary proceedings.
The statement was obiter, and the point does not seem to have been argued.
The effect of the decision of this court is that a person who has shown by his discreditable conduct that he is not fit to practise may continue to do so.
The primary purpose of professional disciplinary proceedings is not to punish, but to protect the public, to maintain public confidence in the integrity of the profession, and to uphold proper standards of behaviour: see e.g.
Bolton v Law Society [1994] 1 WLR 512, 518, per Sir Thomas Bingham MR; Gupta v General Medical Council [2002] 1 WLR 1691, para 21, per Lord Rodger.
It is unfortunate that the Institutes procedural error should have had such far reaching (and absurd) consequences, but there is no principled basis for upholding the decision of the Court of Appeal.
LORD DYSON
I agree entirely with the conclusions and reasoning of Lord Clarke on all the issues that arise on this appeal.
I add a few words because it seems to me that the House of Lords decision in Workington Harbour & Dock Board v Trade Indemnity Co Ltd (No 2) [1938] 2 All ER 101 provides particularly illuminating support for the appellants case.
In that case, the defendant contractor had agreed to construct a new dock for the plaintiff board and had given a bond to guarantee the performance of the contract.
The defendant defaulted and the plaintiff made a claim on the bond.
In the first action, it relied on an engineers certificate showing that the defendant owed it 78,000 which it had failed to pay.
The construction contract provided that any certificate of the engineers should be final and binding on the contractor.
Thus in the first action the plaintiff relied on the certificate as conclusive evidence of all the defendants breaches of the construction contract as well as the amount of damages that it was liable to pay.
This claim was dismissed on the grounds that the certificate was technically defective.
The plaintiff then brought a second action in which it sought to prove its claim for damages for breach of the construction contract without recourse to the engineers certificate.
This claim was dismissed on the grounds of res judicata.
As Lord Atkin said at p 106D, the issues in the first action covered every breach by the contractor and all the damage suffered by the plaintiff in consequence.
These issues were therefore precisely the same as those in the second action.
In the present case, the first complaint alleged a breach of bye law 4(1)(a), namely that the appellant had committed an act or default likely to bring discredit on himself, the Institute or the profession of accountancy by failing to comply with the direction issued on 18 December 2002.
The Institute sought to prove this breach by relying on the conviction of 16 September 2003.
The second complaint alleged the same breach of the same bye law, but this time the Institute sought to prove the breach without recourse to the conviction.
The first and second complaints were closely analogous to the first and second actions in the Workington case.
The plaintiff in that case and the Institute in the present case both sought to prove on the second occasion by different means what they had failed to prove on the first.
The Institutes two complaints were the same, just as both proceedings issued by the plaintiff in Workington were in respect of the same cause of action.
The principle of res judicata is a bar to the second complaint as it was a bar to the second action in Workington.
| UK-Abs | This appeal concerns the relevance and application of the principles of autrefois acquit, res judicata and abuse of process in the context of successive proceedings before a regulatory or disciplinary tribunal.
In particular it concerns the application of the general principle that nemo debet bis vexari pro una et eadem causa, that is that nobody should be vexed twice in respect of one and the same cause.
The appellant, Mr Coke Wallis, is a chartered accountant and a member of the respondent Institute of Chartered Accountants in England and Wales (the Institute) which is responsible for the regulation of chartered accountants.
Mr Coke Wallis formerly practised in Jersey where he and his wife were directors and shareholders in a number of trust companies carrying out regulated financial services work.
In September 2003 Mr Coke Wallis and his wife were convicted in Jersey of failing to comply with a direction of the Jersey Financial Services Commission that no records or files in respect of the companies were to be removed from the offices of the companies, having been caught by police attempting to take via the ferry to St Malo suitcases containing documents and records relating to the companies from the jurisdiction of the Jersey authorities.
In November 2004, the Institutes Investigation Committee preferred a complaint (the first complaint) against Mr Coke Wallis, alleging that he was liable to disciplinary action under bye law (4)(1)(a) of the Institutes bye laws, relying on the Jersey conviction.
Bye law 4(1)(a) provides that a member was liable to disciplinary action if in the course of carrying out professional work or otherwise he has committed any act or default likely to bring discredit on himself, the Institute or the profession of accountancy.
Bye law 7(1) provided that a conviction outside England and Wales of an offence corresponding to one which was indictable in England and Wales was conclusive evidence of an act or default likely to bring discredit on the institute or profession.
The first complaint was dismissed by a disciplinary committee (the tribunal) in April 2005 on the basis that the tribunal was not satisfied that the offence of which Mr Coke Wallis was convicted in Jersey corresponded with any indictable offence in England and Wales.
In March 2006 the Investigation Committee preferred a second complaint (the second complaint) alleging discreditable conduct, relying on the conduct which had led to Mr Coke Wallis conviction in Jersey.
Mr Coke Wallis applied to have the second complaint summarily dismissed on the grounds of autrefois acquit, res judicata or abuse of process, arguing that the first and second complaints made the same allegations and so the same complaint had already been dismissed.
After a preliminary hearing the tribunal held that the two complaints did not allege the same thing: the first was based on the fact of the conviction, while the second was based on the underlying conduct.
The tribunal dismissed the application.
Mr Coke Wallis issued an application for judicial review of that decision.
On 6 November
2008 Owen J dismissed the application for judicial review, a decision which was upheld by the Court of Appeal.
Mr Coke Wallis appealed to the Supreme Court.
The Supreme Court unanimously allowed the appeal and held that the principle of res judicata required that the second complaint be dismissed.
The substantive judgment is given by Lord Clarke, with additional judgments from Lord Collins and Lord Dyson.
Lord Clarke (with whom all the members of the Court agreed) stated that the two complaints alleged the same breach of bye law 4(1)(a).
On the true construction of bye law 7(1) the role of a conviction was only to provide conclusive evidence of a breach of bye law 4(1)(a): [14] [16].
It followed that the conviction was not capable of itself being the act complained of as being a breach of bye law 4(1)(a).
In these circumstances the act complained of as being discreditable conduct in the first complaint was not being convicted but failing to comply with the direction of the Jersey Financial Services Commission.
That was precisely the same complaint as was advanced in the second complaint: [17] [20], [33].
The principles of res judicata and not those of autrefois convict apply to disciplinary proceedings, which are civil in nature: [22] [24], [27 [32]; [57] [59].
Res judicata is a generic term of which cause of action estoppel and issue estoppel are two species.
The distinction between the two species is of potential importance because the former creates an absolute bar whereas the latter does not.
In this case Mr Coke Wallis relied upon cause of action estoppel: [25] [26].
There are a number of constituent elements in a case based on cause of action estoppel.
They are that: (i) the decision, whether domestic or foreign, was judicial in the relevant sense; (ii) it was in fact pronounced; (ii) the tribunal had jurisdiction over the parties and the subject matter; (iv) the decision was (a) final; (b) on the merits; (v) it determined a question raised in the later litigation; and (vi) the parties are the same.
In the instant case it was not in dispute that all those elements were established except (iv) and (v): [34] [35].
As to (iv) and (v), the Court finds that the first decision of the tribunal was both final and on the merits.
If the tribunal had held that the Jersey conviction was based on an offence which corresponded to an indictable offence in England and Wales, it would have found the complaint proved because the conviction would have been conclusive evidence of a breach of bye law 4(1)(a).
There could have been no doubt that such a decision would have been final and on the merits.
The same was true of the decision to dismiss the complaint: [36] [43].
As a general principle, the bar created by a cause of action estoppel is absolute with no exception for special circumstances.
There was force in the Institutes submission that a public interest exception to the strict application of the doctrine of cause of action estoppel should be recognised in the disciplinary context where an application of the absolute principle might put the safety of the public at risk.
However, whether and in what circumstances to permit such an exception is essentially a matter for Parliament and not for the courts: [45] [51].
This conclusion makes the question of whether the second complaint should be dismissed or stayed on the ground of abuse of process academic and it would not be appropriate for the Court to express an opinion on this issue: [52].
|
The issue in this appeal is whether the conditions of entitlement to state pension credit prescribed by regulation 2 of the State Pension Credit Regulations 2002 (SI 2002/1792) (the 2002 Regulations) are compatible with EU law.
Regulation 2 is not easy to summarise in a few words, but its general effect is to restrict entitlement to state pension credit to those who have a right to reside in the United Kingdom, the Channel Islands, the Isle of Man or the Republic of Ireland (the Common Travel Area).
The question is whether this is compatible with article 3(1) of Council Regulation (EC) No 1408/71 (Regulation 1408/71).
Regulation 1408/71 was replaced on 1 May 2010 by Regulation (EC) No 883/2004, which need not be examined as all the relevant events preceded that date.
Article 2(1) of Regulation 1408/71 provides that the Regulation applies to employed persons or self-employed persons who are or have been subject to the social security legislation of a Member State as well as to members of their families.
Article 3(1) provides, in respect of those to whom the Regulation applies, for equality of treatment in the application of social security schemes.
They are to be entitled to the same benefits under the legislation of any Member State of the kind to which Regulation 1408/71 applies as the nationals of that State.
The general effect of the 2002 Regulations, on the other hand, is as stated above.
Entitlement to state pension credit depends on whether the person concerned has a right to reside in the United Kingdom or elsewhere in the Common Travel Area.
The problem arises because regulation 2(2) of the 2002 Regulations affects nationals of different Member States in different ways.
A citizen of the United Kingdom has a right to reside in the United Kingdom by virtue of his or her right of abode under section 2(1) of the Immigration Act 1971.
An Irish citizen has, by virtue of his or her Irish nationality, a right to reside in the Republic of Ireland.
In their case regulation 2 of the 2002 Regulations does not preclude entitlement to state pension credit.
But nationals of other Member States do not qualify for the same treatment unless they have a right to reside here, which they do not have simply on the grounds of their nationality.
The appellant was born in Latvia on 1 June 1938.
She came to the United Kingdom on 12 June 2000 before Latvia joined the European Union.
She claimed asylum on the ground that, as she is of Russian ethnic origin, she had a well founded fear of persecution if she were to return there.
Her claim to asylum was finally refused in January 2004, but no steps were taken to remove her from this country.
On 1 May 2004 Latvia joined the EU, so pursuant to derogations from article 39(3) of the EC Treaty the appellant became entitled to work here if she complied with the Workers Registration Scheme in the Accession (Immigration and Worker Registration) Regulations 2004: see Zalewska v Department for Social Development (Child Poverty Action Group and another intervening) [2008] UKHL 67; [2008] 1 WLR 2606.
She had worked in factories and as a kitchen assistant for about 40 years in Latvia.
She is in receipt of a retirement pension from the Latvian social security authorities which is worth between 50 and 170 a month, depending upon the rate of exchange for the time being.
But she has not worked at any time while she has been in this country, and she has no other income.
In August 2005 the appellant claimed state pension credit from the respondent, the Secretary of State for Work and Pensions.
Her claim was refused on 7 September 2005 on the ground that she lacked a right to reside in the United Kingdom.
She appealed against that refusal, asserting direct discrimination on grounds of her nationality contrary to article 3(1) of Regulation 1408/71.
Her case was that it was her Latvian nationality that precluded the entitlement to state pension credit which she would have had if she had been a United Kingdom national.
On 12 December 2005 the appeal tribunal allowed her appeal on the grounds of direct discrimination.
But on 11 June 2008 Commissioner Rowland allowed the respondents appeal against that decision.
He held that the imposition of the right to reside test was indirect discrimination, but that it was justified as a proportionate means of achieving the legitimate aim of protecting the public finances of the host member state.
There was, in his view, no obligation on the United Kingdom under Community law to afford access to social assistance to those who have no right of residence here.
On 25 June 2009 the Court of Appeal (Lord Clarke of Stone-cum-Ebony MR and Moses and Sullivan LJJ) dismissed the appellants appeal against the decision of the Commissioner: [2009] EWCA Civ 621.
State pension credit: the 2002 Regulations
State pension credit is a means tested non-contributory benefit.
The details of how it is calculated do not matter for present purposes.
But it is worth noting that it is made up of two elements, a guarantee credit and a savings credit, each of which have their own rules as to eligibility.
Section 2(2)(b) of the State Pension Credit Act 2002 provides that the guarantee credit is the difference between the prescribed amount and the claimants income.
Income includes retirement pension income, and an overseas arrangement such as a state pension from another Member State is retirement pension income for this purpose: sections 15(1)(c) and 16(1)(g).
Section 1(2)(a) provides that a claimant is entitled to state pension credit if he is in Great Britain.
Section 1(5)(a) provides that regulations may make provision as to the circumstances in which a person is to be treated as being in or not being in Great Britain for the purposes of the Act.
Regulation 2 of the 2002 Regulations was amended by regulation 5 of the Social Security (Habitual Residence) Amendment Regulations 2004 (the 2004 Amendment Regulations).
As so amended, it was in the form that was in force from 1 May 2004 to 29 April 2006.
This is the period during which the appellant made her claim.
In that form it provided as follows: (1) Subject to paragraph (2), a person is to be treated as not in Great Britain if he is not habitually resident in the United Kingdom, the Channel Islands, the Isle of Man or the Republic of Ireland, but for this purpose, no person is to be treated as not habitually resident in the United Kingdom who is (a) a worker for the purposes of Council Regulation (EEC) No 1612/68 or (EEC) No 1251/70 or a person with a right to reside in the United Kingdom pursuant to Council Directive No 68/360/EEC or No 73/148/EEC or a person who is an accession state worker requiring registration who is treated as a worker for the purpose of the definition of qualified person in regulation 5(1) of the Immigration (European Economic Area) Regulations 2000 pursuant to regulation 5 of the Accession (Immigration and Worker Registration) Regulations 2004; or (b) a refugee within the definition in article 1 of the Convention relating to the Status of Refugees done at Geneva on 28 July 1951, as extended by article 1(2) of the Protocol relating to the Status of Refugees done at New York on 31 January 1967; or (c) a person who has been granted exceptional leave to enter the United Kingdom by an immigration officer within the meaning of the Immigration Act 1971, or to remain in the United Kingdom by the Secretary of State; or (d) a person who is not a person subject to immigration control within the meaning of section 115(9) of the Immigration and Asylum Act 1999 and who is in the United Kingdom as a result of his deportation, expulsion or other removal by compulsion of law from another country to the United Kingdom; [or] (e) a person in Great Britain who left the territory of Montserrat after 1 November 1995 because of the effect on that territory of a volcanic eruption.
(2) For the purposes of treating a person as not in Great Britain in paragraph (1), no person shall be treated as habitually resident in the United Kingdom, the Channel Islands, the Isle of Man or the Republic of Ireland if he does not have a right to reside in the United Kingdom, the Channel Islands, the Isle of Man or the Republic of Ireland.
The persons referred to in regulation 2(1)(a) are various categories of persons who are afforded rights of residence by EU law.
Among these categories are nationals of other EU Member States who are workers (that is to say, in employment or looking for work with a genuine chance of being engaged) or who are self-employed.
They have a right to reside here and they are not to be treated as not habitually resident in the United Kingdom.
So if they are actually in this country too, they are in Great Britain for the purpose of entitlement to state pension credit under the statute.
Other nationals of EU Member States who have a right to reside in the United Kingdom or elsewhere in the Common Travel Area and are habitually resident in the United Kingdom or elsewhere in the Common Travel Area are also eligible to claim state pension credit if they are in Great Britain.
As they have a right to reside in the Common Travel Area, they are brought within the scope of the opening words of regulation 2(1) by regulation 2(2) which was inserted by regulation 5(c) of the 2004 Amendment Regulations.
All Irish nationals have a right to reside in the Republic of Ireland by virtue of their nationality.
As the Common Travel Area includes the Republic of Ireland they too are eligible to claim state pension credit if they are in Great Britain.
The appellant does not fall within any of the provisions listed in regulation 2(1)(a) to (e).
That being so, she can only qualify for entitlement to state pension credit if she is in Great Britain and habitually resident in the United Kingdom, the Channel Islands, the Isle of Man or the Republic of Ireland.
That is the effect of the opening words of regulation 2(1).
But regulation 2(2) provides that no person shall be treated as habitually resident in the United Kingdom or elsewhere in the Common Travel Area if he does not have a right to reside in the United Kingdom or elsewhere in the Common Travel Area.
As the appellant does not have that right, she is not to be treated as habitually resident in the United Kingdom (regulation 2(2)).
So she is to be treated as not in Great Britain for the purposes of section 1 of the 2002 Act (regulation 2(1)).
The Community law provisions
At the time when the appellant made her claim the Treaty Establishing the European Community (the EC Treaty) contained the general prohibition on discrimination to which, subject to the special provisions of the Regulation, article 3(1) of Regulation 1408/71 gave effect.
Article 12 (now, post-Lisbon, article 18 of the Treaty on the Functioning of the European Union) provided: Within the scope of application of this Treaty, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited.
The Council, acting in accordance with the procedure referred to in article 251, may adopt rules designed to prohibit such discrimination.
Article 18 (now article 21 TFEU) provided: 1.
Every citizen of the Union shall have the right to move and reside freely within the territory of the Member States, subject to the limitations and conditions laid down in this Treaty and by the measures adopted to give it effect.
2
the Council may adopt provisions with a view to facilitating the exercise of the rights referred to in paragraph 1; save as otherwise provided in this Treaty, the Council shall act in accordance with the procedure referred to in article 51.
The Council shall act unanimously throughout this procedure.
Article 39 (now article 45 TFEU) provided for free movement of workers.
It included, among other things, the following rights mentioned in article 39(3): (c) to stay in a Member State for the purpose of employment in accordance with the provisions governing the employment of nationals of that State laid down by law, regulation or administrative action; (d) to remain in the territory of a Member State after having been employed in that State, subject to conditions which shall be embodied in implementing regulations to be drawn up by the Commission.
Article 42 (now article 48 TFEU) of the EC Treaty provided: The Council shall, acting in accordance with the procedure referred to in article 251, adopt such measures in the field of social security as are necessary to provide freedom of movement for workers; to this end, it shall make arrangements to secure for migrant workers and their dependants: (a) aggregation, for the purpose of acquiring and retaining the right to benefit and of calculating the amount of benefit, of all periods taken into account under the laws of the several countries; (b) payment of benefits to persons resident in the territories of Member States.
The Council shall act unanimously throughout the procedure referred to in article 251.
Regulation 1408/71 contains a system for the coordination of the different social security schemes of the Member States, while respecting the different characteristics of the national legislation: see the fourth recital of its preamble.
It was made under article 42 EC.
Its object is to ensure that social security schemes governing workers in each Member State moving within the EU are applied in accordance with uniform EU criteria.
To this end it lays down a set of rules founded in particular upon the prohibition of discrimination on grounds of nationality or residence and upon the maintenance by a worker of his rights acquired by virtue of one or more social security schemes which are or have been applicable to him: Cases C-95/99, C-96/99 and C-97/99 Khalil, Chaaban and Osseili v Bundesanstalt fr Arbeit [2001] 3 CMLR 1246, para 67.
Article 2 provides as to the persons covered by the Regulation (the personal scope) as follows: 1.
This Regulation shall apply to employed or self-employed persons and to students who are or have been subject to the legislation of one or more Member States and who are nationals of one of the Member States or who are stateless persons or refugees residing within the territory of one of the Member States, as well as to the members of their families and their survivors.
It has been conceded for the purposes of these proceedings that the appellant falls within the personal scope of Regulation 1408/71 under article 2(1).
This is because she falls within the definition of employed person in article 1(a), which includes any person who is insured for one or more of the contingencies covered by the branches of a social security scheme for employed or self-employed persons.
The effect of the meaning that is given to employed person is that the Regulation applies to persons who have retired from employment in the EU but who remain insured because of contributions paid during their working life.
One of its main functions is to provide for retired workers who are living in a Member State which is different from that in which they worked.
The appellant remains insured under the Latvian social security scheme by virtue of the contributions paid during her working life there.
She did not come to this country to work here, but the basis of her residence in this country is irrelevant to the personal scope of Regulation 1408/71.
Its application is not limited to those whose current residence arises from an exercise of the right of free movement for the purpose of employment or other economic activity conferred by EU law.
Article 3 of Regulation 1408/71 addresses the issue of equality of treatment.
It was amended by Regulation (EC) No 647/2005 with effect from 13 April 2005.
As amended, it provides as follows: 1.
Subject to the special provisions of this Regulation, persons to whom this Regulation applies shall be subject to the same obligations and enjoy the same benefits under the legislation of any Member State as the nationals of the State.
The parties are agreed that article 3(1) prohibits both direct and indirect discrimination in respect of the appellants entitlement to state pension credit on grounds of nationality.
They are also agreed that it does not prohibit indirect discrimination if it is objectively justified by considerations independent of the nationality of the person concerned.
Article 4 sets out the matters covered by Regulation 1408/71 (the material scope).
Article 4(1) provides that the Regulation shall apply to all legislation concerning the branches of social security listed in that paragraph, including old- age benefits: paragraph (1)(c).
Article 4(2) provides as follows: 2.
This Regulation shall apply to all general and special social security schemes, whether contributory or non-contributory, and to schemes concerning the liability of an employer or shipowner in respect of the benefits referred to in paragraph 1.
General social benefits of a kind not listed in article 4(1) were held not to constitute a social security benefit within the meaning of Regulation 1408/71: Case 249/83 Vera Hoeckx v Centre Public dAide Sociale de Kalmthout [1987] 3 CMLR 638, para 14.
But article 4(2a), which was inserted by Regulation (EEC) No 1247/92 with effect from 1 June 1992, as amended by Regulation (EC) No 647/2005 with effect from 13 April 2005, now provides so far as relevant: This Article shall apply to special non-contributory cash benefits which are provided under legislation which, because of its personal scope, objectives and/or conditions for entitlement has characteristics both of the social security legislation referred to in paragraph 1 and of social assistance.
Special non-contributory cash benefits means those: (a) which are intended to provide either: (i) supplementary, substitute or ancillary cover against the risks covered by the branches of social security referred to in paragraph 1, and which guarantee the persons concerned a minimum subsistence income having regard to the economic and social situation in the Member State concerned; or (ii) , and (b) where the financing exclusively derives from compulsory taxation intended to cover general public expenditure and the conditions for providing and for calculating the benefits are not dependent on any contribution in respect of the beneficiary.
and (c) which are listed in Annex IIa.
Among the special non-contributory benefits listed in Annex IIa in respect of the United Kingdom is state pension credit: para Y(a).
The parties are agreed that state pension credit falls within the material scope of Regulation 1408/71 as a special non-contributory benefit to which it applies.
Article 4(4) of Regulation 1408/71 provides: This Regulation shall not apply to social and medical assistance, to benefit schemes for victims of war or its consequences.
State pension credit is a means tested non-contributory benefit.
As such, it would not previously have fallen within the definition of social security.
As a non- discretionary cash benefit, it does not fall within the concept of social assistance either, unlike a discretionary cash benefit or the provision of social services.
But it falls within the material scope of the Regulation because it is among the special non-contributory benefits listed in Annex IIa.
For this purpose it is classified as a social security benefit.
Issues
The appellant contends that the refusal of state pension credit to a Latvian because she did not have a right to reside in the United Kingdom is prohibited by article 3(1) of Regulation 1408/71.
Her case is that the refusal was on grounds of nationality, as the requirement to have a right to reside is met in the case of all UK nationals simply by virtue of their British nationality whereas nationals of the other Member States, other than Irish citizens (who can rely on their right to reside in Ireland), do not have that right.
The Secretary of State concedes, and the Court of Appeal held in paras 25-26 of its judgment [2009] EWCA Civ 621, that regulation 2 of the 2002 Regulations is covertly, or indirectly, discriminatory between Latvian and United Kingdom nationals in that fewer nationals of EU Member States other than the United Kingdom have or will acquire a right to reside in the United Kingdom or elsewhere in the Common Travel Area.
The appellants primary case, however, is that regulation 2 is overtly, or directly, discriminatory.
Mr Lewis QC for the Secretary of State said that, if the requirement constituted direct discrimination, he could not seek to justify it.
The following issues are therefore raised by this appeal: (1) Do the conditions of entitlement to benefit in regulation 2 of the 2002 Regulations give rise to direct discrimination for the purposes of article 3(1) of Regulation 1408/71? (2) If they give rise only to indirect discrimination, is that discrimination objectively justified on grounds independent of the appellants nationality? (3) If the indirect discrimination would otherwise be objectively justified, is that conclusion undermined by the favourable treatment that regulation 2(2) gives to Irish nationals?
In the Court of Appeal Moses LJ, with whom the other members of the Court agreed, held that the conditions for entitlement to state pension credit were not overtly based on the nationality of the claimant because nationals from other Member States might satisfy the right to reside test in other words, they did not discriminate on grounds of nationality so the conditions were not directly discriminatory: paras 24-25.
Addressing himself to the question whether the indirect discrimination was justified on grounds independent of the appellants nationality, he held that it was so justified: paras 52-53.
State pension credit had the characteristics of social assistance, despite its inclusion within the scope of Regulation 1408/71.
The prohibition on discrimination might be restricted in that context to those who were economically or socially integrated with the country whose social assistance they sought, for the purpose of protecting the finances of the country.
He said that this conclusion imposed no disadvantage on the appellant in the exercise of her rights under the Treaty, as she retained her Latvian pension.
He rejected the appellants argument that the justification for restricting entitlement to those economically or socially integrated within the United Kingdom was undermined by the special treatment of Irish nationals: para 54.
Discrimination
The fifth recital of the preamble to Regulation 1408/71 recognised that it was necessary, within the framework of the system of coordination that it laid down, to guarantee to workers living in the Member States within the Community equality of treatment under the various national legislations.
Article 3(1) gives effect to this aim by requiring that persons to whom the Regulation applies are to enjoy the same benefits under the legislation of any Member State as the nationals of that State.
The approach which the national court must adopt to this issue was described in Case C-124/99 Borawitz v Landesversicherungsanstalt Westfalen [2000] ECR I-7293: 23 In this respect, it must be borne in mind that the object of article 3(1) of Regulation No 1408/71 is to ensure, in accordance with [article 39 EC], equal treatment in matters of social security, without distinction based on nationality, for the persons to whom that regulation applies by abolishing all discrimination in that regard deriving from the national legislation of the Member States (Case C- 131/96 Mora Romero v Landesversicherungsanstalt Rheinprovinz [1997] ECR I-3659, paragraph 29.
24 It is settled case law that the principle of equal treatment, as laid down in that article, prohibits not only overt discrimination based on the nationality of the beneficiaries of social security schemes but also all covert forms of discrimination which, through the application of other distinguishing criteria, lead in fact to the same result (Mora Romero, paragraph 32).
25 Accordingly, conditions imposed by national law must be regarded as indirectly discriminatory where, although applicable irrespective of nationality, they affect essentially migrant workers or where the great majority of those affected are migrant workers, as well as conditions which are applicable without distinction but can more easily be satisfied by national workers than by migrant workers or where there is a risk that they may operate to the particular detriment of migrant workers (Case C-237/94 OFlynn v Adjudication Officer [1996] ECR I-2617, paragraph 18).
26 It is otherwise only if those provisions are justified by objective considerations independent of the nationality of the workers concerned, and if they are proportionate to the legitimate aim pursued by the national law (OFlynn, paragraph 19).
The European Court applied the adjectives overt and covert to the two forms of discrimination discussed in this passage.
As Mr Cox for the appellant explained, however, they are best described as direct and indirect discrimination.
Direct discrimination occurs where the discrimination is based on the nationality of the beneficiaries of social security schemes: Borawitz, para 24.
Indirect discrimination occurs where, through the application of other criteria, the legislation leads to the same result: Borawitz, para 25.
Advocate General Sharpston used the expressions direct and indirect when she analysed the Courts case law on discrimination in Case C-73/08 Bressol v Gouvernement de la Communaut Franaise [2010] 3 CMLR 559, as did the Court in paras 40-41 of its judgment.
In para 46 of her opinion the Advocate General said that the distinction between direct and indirect discrimination lacks precision, and in para 50 that the distinction between what is overt and covert does not necessarily always coincide with that between direct and indirect discrimination.
But I think that Mr Lewis identified the issue in this case correctly when he said that the key question on the discrimination issue is whether the conditions for entitlement to state pension credit are formulated in terms of the nationality of the claimants, or in terms of criteria other than nationality.
The basis of entitlement under section 1(2)(a) of the State Pension Credit Act 2002 is whether the claimant is in Great Britain.
Thus far, it appears to be based solely on physical presence in this country and to have nothing to do with nationality.
But the matter does not, of course, stop there.
Section 1(2)(a) must be read with the 2002 Regulations which, as required by section 1(5)(a) of the 2002 Act, set out the circumstances in which a person is to be treated as being in, or not being in, Great Britain.
This test appears, at a superficial level, to have nothing to do with nationality either.
It is expressed in terms of whether or not the person is habitually resident in the United Kingdom or elsewhere in the Common Travel Area.
But the rules as to when a person is or is not to be treated as habitually resident do introduce tests which raise issues about nationality.
They are also hard, at first reading, to assimilate.
They involve the use of not just one, but two double negatives.
In regulation 2(1) a list is given of five circumstances in which no person is not to be treated as habitually resident.
Then in regulation 2(2) a direction is given that no person shall be so treated if he does not have a right to reside there.
As Lord Walker said in the course of the argument, the wording of these provisions suggests that they may be trying to hide something.
It is necessary to look more closely at their effect.
Read in isolation, the right to reside requirement in regulation 2(2) sets out a test which no United Kingdom national could fail to meet.
And it puts nationals of other Member States at a disadvantage.
As already noted, a British citizen has, by virtue of his or her United Kingdom nationality, a right to reside in the United Kingdom by virtue of his right of abode under section 2(1) of the Immigration Act 1971.
Those who do not have United Kingdom nationality do not have that right automatically.
Nationals of other Member States of the EU who do not fall within the provisions of regulation 2(1) must do something else to acquire it.
Under EU law they must be economically active or self-sufficient, or must be a member of the family of an EU citizen who meets these requirements.
The disadvantage which nationals of other Member States will encounter in trying to meet the requirements of regulation 2(2) is due entirely to their nationality.
Had a right to reside in the United Kingdom or elsewhere in the Common Travel Area been the sole condition of entitlement to state pension credit, it would without doubt have been directly discriminatory on grounds of nationality.
The effect of regulation 2(2) of the 2002 Regulations must, however, be looked at in the context of section 1(2)(a) of the 2002 Act and regulation 2 as a whole.
The condition which all claimants must meet, if they are to be treated as in Great Britain for the purposes of section 1(2)(a) of the 2002 Act, is that they must be habitually resident in the United Kingdom or elsewhere in the Common Travel Area.
Everyone, including United Kingdom nationals, must meet this requirement.
But while all United Kingdom nationals have a right to reside in the United Kingdom, not all of them will be able to meet the test of habitual residence.
Most are, of course, habitually resident here.
Others are not.
They can all meet the right to reside requirement that regulation 2(2) sets out because of their nationality.
But nationality alone does not enable them to meet the requirement in regulation 2(1).
Katherine Fleay, an employee of the Department of Work and Pensions involved in formulating policy relating to access by people from abroad to income-related benefits, referred in para 17 of her witness statement to the Departments memorandum to the Social Security Advisory Committee in February 1994.
In that statement it was pointed out that some UK nationals returning to the UK after a long period of absence may be held not to be habitually resident in this country.
EU nationals who satisfy one of the conditions listed in regulation 2(1) do not need to meet the right to reside test, as they are to be treated as habitually resident here.
Mr Cox for the appellant submitted that the requirement to have a right to reside here discriminated directly between citizens of the United Kingdom on the one hand and citizens of other Member States on the other.
It was a clear case of discrimination on the basis of nationality: Vera Hoeckx v Centre Public dAide Sociale de Kalmthout [1987] 3 CMLR 638, para 24.
That being so, article 3(1) of Regulation 1408/71 required that discrimination to be eliminated by deeming the appellant to be a British citizen for the purposes of entitlement to state pension credit.
I do not think that it is as simple as that when regulation 2 of the 2002 Regulations is read as a whole.
The requirement which everyone must satisfy is that they are in Great Britain.
The test which regulation 2 lays down is a composite one.
Some United Kingdom citizens will be able to say that they are in Great Britain.
Some will not.
That is true also of nationals of other Member States.
No doubt it will be more difficult in practice for nationals of other Member States to meet the test.
But not all United Kingdom nationals will be able to meet the test either.
In James v Eastleigh Borough Council [1990] 2 AC 751 a rule that those who were not of pensionable age had to pay for admission to a public swimming pool was held to directly discriminate between men and women because their pensionable ages were different.
In that case there was an exact match between the difference in pensionable ages and the rule, as the right to free admission depended upon a single criterion an exact coincidence, as Lady Hale puts it: see para 91, below.
The statutory pensionable age alone determined whether the person had to pay or not.
As Lord Ackner put it at p 769, if you were a male you had, vis--vis a female, a five-year handicap.
This was true of every male, not just some or even most of them.
That is not so in the present case.
There is no such exact match.
The composite test is one that some UK nationals may fail to meet too because, although they have a right of residence, they are not habitually resident here.
Furthermore, we are not required in this case to say whether this amounts to direct discrimination in domestic law.
The question for us is whether it amounts to direct discrimination for the purposes of article 3(1) of Regulation 1408/71.
The approach which EU law takes to a composite test of this kind is indicated by the decision of the European Court of Justice in Bressol v Gouvernement de la Communaut Franaise [2010] 3 CMLR 559.
The Belgian legislation that was analysed in that case was similar in structure to that of regulation 2 of the 2002 Regulations.
It too involved a composite test, one element of which could be satisfied by a person who was not a national of the host Member State only if he met certain additional conditions but which every national of the host member state would automatically satisfy.
A restrictive French education policy had resulted in an influx of students from France to Belgium, whose system was based on free access to education.
This was thought to impose an excessive burden on public finances and to jeopardise the quality of the education provided in Belgium.
So the government sought, by a decree adopted in June 2006 by the Parliament of the French Community of Belgium, to limit the number of non-resident students who were entitled to enrol in certain programmes in the first two years of undergraduate studies in each university or school of higher education.
A resident student for the purposes of this decree was defined as a student who, at the time of registration in an institution of higher education, proved that his principal place of residence was in Belgium.
This was the first of two cumulative conditions which a prospective student had to satisfy.
He also had to fulfil one of eight other conditions, one of which was that he had the right to remain permanently in Belgium.
Belgians have that right by virtue of their Belgian nationality.
Citizens of other Member States have the right to remain permanently in Belgium only if they have a right to do so which is recognised by EU law.
Among the questions referred to the Court by the Belgian Constitutional Court was whether this measure was precluded by articles 12 and 18 EC read with articles 149 and 150 EC.
Advocate General Sharpston, in a powerful opinion, identified the issues that this question gave rise to as being whether the conditions, which had to be satisfied cumulatively, constituted direct or indirect discrimination.
She said that discrimination could be considered to be direct where the difference in treatment was based on a criterion which was either explicitly that of nationality or was necessarily linked to a characteristic indissociable from nationality: para 53.
She then examined each of the cumulative conditions separately.
She held that the first cumulative condition that the principal place of residence was in Belgium did not constitute direct discrimination.
This was because Belgians and non-Belgians alike could establish their principal place of residence in Belgium.
As this, apparently neutral, condition was likely to operate mainly to the detriment of nationals of other member states, it was indirectly discriminatory: paras 60-62.
It seemed to her, in contrast, that the second cumulative condition was necessarily linked to a characteristic indissociable from nationality.
Belgians automatically had the right to remain permanently in Belgium.
They therefore satisfied the second cumulative condition automatically.
Non-Belgians, on the other hand, had to fulfil additional criteria to acquire a right permanently to remain in Belgium or to satisfy one of the seven other conditions.
This discrimination was based on nationality and was therefore direct discrimination.
The answer to the question was that the measures in question were precluded by the articles of the EC Treaty that had been founded upon.
However the Court did not adopt the approach of the Advocate General.
As Lord Walker points out, it did not explain why it thought that the Advocate General was wrong to treat the case as direct discrimination.
But the contrast between her carefully reasoned approach and that of the Court is so profound that it cannot have been overlooked.
One must assume that her approach, which was to find that the measures were precluded because the second condition was directly discriminatory, was rejected by the Court as too analytical.
The Court looked at the conditions as a whole.
It referred to its judgment in Case C-212/05 Hartmann v Freistaat Bayern [2007] ECR I-6303, para 29, where it acknowledged that the principle of non-discrimination prohibits not only direct discrimination on grounds of nationality but also all indirect forms of discrimination which lead in fact to the same result by the application of other criteria of differentiation.
It said that a provision of national law was to be regarded as indirectly discriminatory if it was liable to affect nationals of other Member States more than nationals of the host State and there was a consequent risk that it would place the former at a particular disadvantage: paras 40-41.
It then proceeded in para 42 to make the following analysis, by looking at the residence conditions cumulatively: In the cases in the main proceedings, the decree of June 16, 2006 provides that unrestricted access to the medical and paramedical courses covered by that decree is available only to resident students, that is those who satisfy both the requirement that their principal residence be in Belgium and one of the eight other alternative conditions listed in points 1-8 of the first paragraph of article 1 of that decree.
[Emphasis added]
The Court concluded that, looked at in this way, the national legislation created a difference in treatment between resident and non-resident students.
A residence condition, such as that required by this legislation, was more easily satisfied by Belgian nationals, who more often than not reside in Belgium, than by nationals of other Member States, whose residence is generally in a Member State other than Belgium.
It followed that the national legislation affected nationals of Member States other than Belgium more than Belgian nationals and placed them at a particular disadvantage which was indirectly discriminatory.
The second cumulative condition as to the right to remain permanently in Belgium which the Advocate General said was necessarily linked to a characteristic indissociable from nationality and directly discriminatory, was subsumed into the first when the two conditions were treated cumulatively.
The fact that the Court then went on to consider whether the difference in treatment was objectively justified makes it plain beyond any doubt that it considered the case to be one of indirect, rather than direct, discrimination.
There is an obvious similarity between the provisions under consideration in Bressol and the circumstances in which a person is to be treated as being in Great Britain by regulation 2 of the 2002 Regulations.
The tests are of the same type and they can be analysed in the same way.
Just as in that case the specified courses were to be available to resident students only, here a person must be in Great Britain to be entitled to state pension credit.
The European Court did not follow the Advocate Generals invitation to concentrate exclusively on the second cumulative condition.
Nor did it pick up the point that she made in footnote 34 to her opinion, where she drew attention to Advocate General Jacobs opinion in Case C-79/99 Schnorbus v Land Hessen [2000] ECR I-10997, [2001] 1 CMLR 40, para 33 which has been discussed by Lord Walker (paras 66-68, below) and by Lady Hale (paras 88-91, below).
Instead it looked at the conditions cumulatively and treated them overall as importing a residence test which was indirectly discriminatory.
So it would be wrong in this case to concentrate exclusively on the regulation 2(2) right to reside test which is linked to nationality.
Looking at the regulation as a whole, in the context of section 1(2)(a) of the 2002 Act, the test which is laid down is that the claimant must be in Great Britain.
This test is constructed in a way that is more likely to be satisfied by a United Kingdom national than by a national of another Member State.
The Courts reasoning in Bressol tells us that it is not directly discriminatory on grounds of nationality.
But it puts nationals of other Member States at a particular disadvantage, so it is indirectly discriminatory.
As such, to be lawful, it has to be justified.
Justification
The test that must be applied is to be found in Case C-209/03 R (Bidar) v Ealing London Borough Council [2005] QB 812, para 54.
In that case the European Court held that the criteria in the Education (Student Support) Regulations 2001 for granting assistance to cover the maintenance of students risked placing primarily nationals of other Member States at a disadvantage, because the condition requiring them to have residence in the United Kingdom prior to their studies was likely to be more easily satisfied by United Kingdom nationals: para 53.
In para 54 the Court said that such a difference in treatment could be justified only if it was based on objective considerations independent of the nationality of the persons concerned and was proportionate to the legitimate aim of the national provisions.
Another source for this test is Case C-138/02 Collins v Secretary of State for Work and Pensions [2005] QB 145, para 66, where the same formula is set out; see also Case C-164/07 Wood v Fonds de Garantie des Victimes des Actes de Terrorisme et dAutres Infractions [2008] 3 CMLR 265, para 13.
The parties are agreed that article 3(1) of Regulation 1408/71 does not prohibit indirect discrimination if it is objectively justified by considerations that are independent of the nationality of the person concerned.
They are also agreed that the proportionality of the conditions for state pension credit under regulation 2 of the 2002 Regulations is not in issue.
As Mr Cox put it in his reply, what the Secretary of State has to show is that the difference in treatment of nationals of other member states is based on objective considerations independent of nationality.
If the Secretary of State can meet this requirement, there is no need to examine the question of proportionality.
If he cannot do so, it will not help him to say that the conditions for entitlement are proportionate.
There are, then, two questions that need to be addressed.
First, do the Secretary of States reasons for the difference in treatment provide an objective justification for it? Secondly, if they do, is that justification based on considerations that are independent of the nationality of the persons concerned? The jurisprudence of the European Court has consistently shown that these are matters for the national court to determine: Bressol v Gouvernement de la Communaut Franaise [2010] 3 CMLR 559, para 64.
The Secretary of States reasons for the introduction of the right to reside requirement in the 2002 Regulations were set out in a statement made in accordance with section 174(2) of the Social Security Administration Act 1992 in April 2004 in response to concerns raised by the Social Security Advisory Committee (Cm 6181).
As Katherine Fleay explained in her witness statement, para 4, it was made at the same time as regulations introducing the right to reside test were laid before Parliament.
The underlying purpose was said to be to safeguard the United Kingdoms social security system from exploitation by people who wished to come to this country not to work but to live off income- related benefits, while allowing those who come here genuinely to work to have access to them: para 4 of Cm 6181.
The purpose of the habitual residence test was to prevent benefit tourism.
It was believed to be not unreasonable to expect people who were not economically active, whatever their nationality, to show that they had decided to live indefinitely in the United Kingdom and had a right to reside here before being entitled to benefits funded by the UK tax-payer: paras 13-17.
In para 45 he gave this further explanation: As already explained, the Government considers that it is not unreasonable to concentrate benefits on people who have a particularly close connection with the UK or to expect people to have a right to reside in the UK before they become entitled to income-related benefits funded by the UK tax-payer.
The EC Directives governing the right of those who are economically inactive to reside in other member states have been in place since the early 1990s.
Before the current Immigration (European Economic Area) Regulations 2000, the Immigration (EEA) Order 1994 made clear in line with those Directives that EEA nationals who were economically inactive (for example, retired people) had to have sufficient resources to avoid their becoming a burden on our social assistance system in order to be entitled to reside in the UK without having leave to remain.
The Governments proposals merely seek to bring the income-related benefit rules into line with this long- standing requirement.
In para 57 of the statement the Secretary of State said that the government believed that its proposals were compatible with EU law as there would be no difference in treatment as between nationals of the eight accession states and other nationals.
In para 58 he added this further point: Moreover, the new requirement to have a right to reside in the UK as a condition of access to income-related benefits will apply to UK nationals as well as current EEA nationals and nationals of the acceding states.
It will thus apply equally to nationals of all Member States.
In para 61 he again stated that the government was concerned that some current EEA nationals had taken advantage of free movement within the European Economic Area to become an unreasonable burden on this countrys benefit system, even though this negated their right to reside in the United Kingdom.
It was reasonable to expect people to have a right to reside in the United Kingdom before they could have access to its income-related benefits, particularly as support might last for many years.
His proposals were expected to bring the United Kingdom into line with the broad approach of policy and practice in Europe.
It should be noted, in regard to that last observation, that by letter dated 4 June 2010 the European Commission invited the United Kingdom pursuant to article 258 TFEU to submit observations on the compatibility with EU law of the imposition of a right to reside test for benefits, including state pension credit, falling within the scope of Regulation 1408/71.
Under this procedure, if the Commission is not satisfied with the United Kingdoms observations, it will send a reasoned opinion to the Member State following which, if it does not remedy the alleged breach within the time-frame set by the Commission, the Commission may bring the matter before the Court of Justice of the European Union.
Mr Drabble QC for the intervener, the AIRE Centre (Advice on Individual Rights in Europe), submitted that the Commissions decision to issue a letter of formal notice supported the conclusion that it was at least not acte clair that right to reside test was compatible with EU law.
So far, no opinion has yet been issued by the Commission with reference to any alleged infringement of Regulation 1408/71.
In these circumstances I would not draw any conclusions either one way or the other from these developments.
The justification that was given in para 45 of the Secretary of States statement is repeated in the agreed Statement of Facts and Issues, para 33: The justification advanced by [the Secretary of State] for the discriminatory effect of regulation 2 of the 2002 Regulations is to protect the resources of the United Kingdom by refusing means- tested benefits to non-economic European Union migrants who cannot support themselves and that there is a principle of EU law that Member States were entitled not to grant social assistance to non-economically active nationals of other EU Member States.
Mr Lewis submitted that the requirements of regulation 2 of the 2002 Regulations were objectively justifiable.
He said that para 33 of the Statement of Facts and Issues was not meant to be a complete statement.
A person would be eligible to receive state pension credit if he could show economic integration in the United Kingdom or a sufficient degree of social integration here.
Where there was social integration, the person would be eligible.
What the regulation sought to do was to prevent exploitation of welfare benefits by people who came to this country simply to live off benefits without working or having worked here.
It was important to understand the nature of state pension credit.
As the Court of Appeal observed in para 41, Regulation 1408/71 draws a distinction between social security benefits within article 4(1) and hybrid benefits within article 4(2a).
Social security benefits, such as the appellants Latvian pension, could not be the subject of a residence condition.
They must be exportable to any state within the EU.
Hybrid benefits on the other hand, such as state pension credit, reflected the social and economic conditions in the country where they were paid.
They did not lose their character as social assistance simply because they were treated by the article as hybrid.
What mattered was the nature and function of the benefit.
State pension credit was social assistance despite the hybrid status that it was given by Regulation 1408/71.
It is an income-related benefit to help people in need.
So it was not inconsistent with the purpose of Regulation 1408/71 for access to this benefit to be refused to people who did not have right to reside in this country.
Mr Lewis submitted that this approach was supported by the judgment of the European Court in Case C-456/02 Trojani v Centre Public dAide Sociale de Bruxelles [2004] 3 CMLR 820 and various EU measures dealing with the right of residence in EU law and its consequences such as Council Directive 90/364 EEC, which made it a condition of the grant of a right of residence in a host Member State to nationals of other Member States that they have sufficient resources to avoid becoming a burden on its social assistance system during their period of residence.
Mr Trojani was a French national.
He moved to Belgium where he worked for a while without being registered.
He then sought social assistance in the form of a benefit known as the minimex.
One of the questions was whether he had a right of residence in Belgium, and was thus entitled to social assistance there, simply by virtue of being an EU citizen.
In para 17 of his opinion in Trojani Advocate General Geelhoed said that the differential treatment of economic and non-economic migrants, viewed historically, was based on the need to remove obstacles to inter-state trade and later to provide for the free movement of persons.
In para 18 he contrasted the historical position with what it is today: The difference in treatment now has a more pragmatic basis.
So long as social security systems have not been harmonised in terms of the level of benefits, there remains a risk of social tourism, ie moving to a Member State with a more congenial social security environment.
And that is certainly not the intention of the EC Treaty, which to a considerable extent leaves responsibility for social policy in the hands of the Member States.
The Community legislature has acted on the assumption that an economic migrant will not claim any subsistence allowance in the host Member State.
In para 70 he said that the basic principle of Community law is that persons who depend on social assistance will be taken care of in their own Member State.
There was no doubt that Mr Trojani was applying for the minimex because he did not have sufficient resources to provide for himself.
In these circumstances he could not claim a right of residence on the basis of article 18 EC.
The Court endorsed the approach of the Advocate General.
In paras 35-36 it said: 35 It follows from the judgment making the reference that a lack of resources was precisely the reason why Mr Trojani sought to receive a benefit such as the minimex. 36 In those circumstances, a citizen of the Union in a situation such as that of the claimant in the main proceedings does not derive from article 18 EC the right to reside in the territory of a Member State of which he is not a national, for want of sufficient resources within the meaning of Directive 90/364.
Mr Coxs response to these arguments was that the purpose of regulation 2 of the 2002 Regulations was simply to exclude other EU citizens.
This was plainly contrary to article 3(1) of Regulation 1408/71, whose effect was that the provisions of Regulation 1408/71 applied to all those who were within its personal scope without distinction as to whether they were lawfully resident in the host Member State.
When the Secretary of State used the word people in his statement (see paras 37-38, above) it was plain that he was referring to citizens of other Member States.
He was not seeking to impose additional conditions on United Kingdom nationals, as it was enough for them to prove British citizenship.
For those who were not United Kingdom or Irish nationals, habitual residence was no longer to be enough.
The Secretary of States purpose was not independent of nationality.
So the regulation could not be justified by objective considerations independent of the nationality of the persons concerned.
As for the nature of state pension credit, some benefits which had the characteristics of social assistance were properly characterised as social security.
That was what article 4(2a), inserted by Regulation (EC) No 647/2005, was designed to do.
There was consistent case law, starting with Case 1/72 Rita Frilli v The State (Minister for Social Security) [1973] CMLR 386, para 14, to the effect that benefits which had the dual characteristics of social assistance and social security, and which conferred upon beneficiaries a legally defined position giving them a right to benefit, are to be treated as social security.
This was significant because, if the principle which the Secretary of State relied upon (see para 40, above) did exist, it was only relevant to social assistance benefits and not in respect of social security.
As I understood Mr Coxs argument, he did not seriously question the proposition that the Secretary of States reasons are objectively justifiable.
The purpose of regulation 2 of the 2002 Regulations is to ensure that the claimant has achieved economic integration or a sufficient degree of social integration in the United Kingdom or elsewhere in the Common Travel Area as a pre-condition of entitlement to the benefit.
The effect of article 4(2a) of Regulation 1408/71 is that social assistance benefits such as state pension credit share features with social security.
But I agree with the Court of Appeal that the widening of the scope of Regulation 1408/71 does not preclude a justification of indirect discrimination which is based on the nature of the benefit: para 51.
The Secretary of States justification lies in his wish to prevent exploitation of welfare benefits by people who come to this country simply to live off benefits without working here.
That this is a legitimate reason for imposing the right of residence test finds support in Advocate General Geelhoeds opinion in Trojani v Centre Public dAide Sociale de Bruxelles [2004] 3 CMLR 820, para 70 that it is a basic principle of Community law that persons who depend on social assistance will be taken care of in their own Member State.
The more difficult question is whether this justification is independent of the nationality of the persons concerned.
A finding that the conditions in regulation 2 are indirectly discriminatory on grounds of nationality provides the context for a consideration of this question.
Inevitably the two questions are bound up together.
But the fact that the difference in treatment is based indirectly on grounds of nationality cannot be permitted to lead inevitably to the conclusion that a justification for it cannot be regarded as independent of the nationality of the persons concerned.
Otherwise the test for its justification which the court has laid down would be incapable of ever being met.
The approach which the test invites at this stage is to examine the justification on its own merits without regard to its indirect discriminatory consequences.
The justification is founded on the principle that those who are entitled to claim social assistance in the host Member State should have achieved a genuine economic tie with it or a sufficient degree of social integration as a pre-condition for entitlement to it.
In Kaczmarek v Secretary of State for Work and Pensions [2008] EWCA Civ 1310, [2009] 2 CMLR 85, para 2, Maurice Kay LJ said that if a citizen of one Member State who is lawfully present in another Member State can, without difficulty and whilst economically inactive, access the social security benefits of the host State, the implications for the more prosperous Member States with more generous social security provisions are obvious.
The rules that regulation 2 of the 2002 Regulations lays down are intended to meet this problem.
There are various ways in which the pre-condition for entitlement can be achieved under its provisions.
They are not exclusively dependent on the nationality of the persons concerned.
I think that there is force in Mr Coxs point that the persons to whom the Secretary of State was directing attention in his statement in response to concerns raised by the Social Security Advisory Committee were persons who were not nationals of the United Kingdom.
The context for the Secretary of States remarks was the perception that nationals of other Member States would take advantage of the right of free movement to access income-related benefits.
But even nationals of the United Kingdom must satisfy the test of habitual residence in order to be entitled to state pension credit: see para 26, above.
The same is true of Commonwealth citizens who have a right of abode here under section 2 of the Immigration Act 1971 and persons with a right of residence in the United Kingdom granted pursuant to that Act.
The principle on which the Secretary of States justification relies underlies the EU rules as to whether, and if so on what terms, a right of residence in the host Member State should be granted.
This is the issue to which Council Directive 90/364 EEC is directed.
In that context there is no prohibition on discrimination on grounds of nationality under EU law.
So there is no need to be concerned with the question whether the approach that is taken there can be justified on grounds that are independent of nationality.
Three questions then arise.
The first is whether the Secretary of States justification can be regarded as relevant in the present context.
The second is whether it is a sufficient justification given the effect of the rules that regulation 2 of the 2002 Regulations lays down.
The third is whether it is independent of the nationality of the person concerned.
The first and second questions can be taken together.
The justification is relevant because the issues that arise with regard to the grant of a right of residence are so closely related to the issues that are raised by the appellants claim to state pension credit.
They are, at heart, the same because they are both concerned with a right of access to forms of social assistance in the host Member State.
It is also a sufficient justification, in view of the importance that is attached to combating the risks of what the Advocate General in Trojani v Centre Public dAide Sociale de Bruxelles [2004] 3 CMLR 820, para 18 described as social tourism.
As for the third question, the answer to it depends not just on what the Secretary of State himself said in his statement (see paras 37-38, above), but also on the wording of the regulation and its effect.
They show that the Secretary of States purpose was to protect the resources of the United Kingdom against resort to benefit, or social tourism by persons who are not economically or socially integrated with this country.
This is not because of their nationality or because of where they have come from.
It is because of the principle that only those who are economical or socially integrated with the host Member State should have access to its social assistance system.
The principle, which I take from the decision in Trojani, is that it is open to Member States to say that economical or social integration is required.
A persons nationality does, of course, have a bearing on whether that test can be satisfied.
But the justification itself is blind to the persons nationality.
The requirement that there must be a right to reside here applies to everyone, irrespective of their nationality.
For these reasons I would hold that the Secretary of State has provided a sufficient justification, and that it is independent of the nationality of the person concerned.
It follows that the indirect discrimination that results from regulation 2 of the 2002 Regulations was not made unlawful by article 3(1) of Regulation 1408/71.
Irish nationals
Citizens of the Republic of Ireland have, as Irish nationals, a right to reside in the Republic of Ireland by virtue of their Irish citizenship.
So they meet the requirement of regulation 2(2) of the 2002 Regulations, even though they do not have a right to reside in the United Kingdom and are not habitually resident here.
It is enough that they are habitually resident in Ireland.
So, if they are in Great Britain too, they have the same right to state pension credit as United Kingdom nationals who are habitually resident in the United Kingdom and in Great Britain.
The appellant submits that, as entitlement to state pension credit is extended to Irish nationals, it is discriminatory not to extend it to nationals of all other Member States.
As regulation 2(2) treats Irish citizens as if they were United Kingdom citizens, Latvian citizens too should be so treated by the operation of Regulation 1408/71.
This is because that Regulation abolished all discrimination based on nationality and, in consequence, the domestic measure is to be disregarded.
Mr Cox summarised his point graphically in his closing submission.
He said that it was not open to the United Kingdom to give Irish nationals a free pass to state pension credit simply by showing their passports, while starving out nationals of the other Member States.
The provision for Irish citizens in regulation 2 is protected by article 2 of the Protocol on certain aspects of article 14 EC (now article 26 TFEU) to the United Kingdom and Ireland, commonly referred to as the Protocol on the Common Travel Area.
Having first been annexed to the Treaty of Amsterdam, it is now annexed to the Treaty on the Functioning of the European Union and the Treaty on European Union as Protocol (No 20).
It states that the United Kingdom and Ireland may continue to make arrangements between themselves relating to the movement of persons between their territories.
It also provides that nothing in articles 26 and 77 of the Treaty on the Functioning of the European Union or in any other provision of that Treaty or of the Treaty on European Union or in any other measure adopted under them shall affect any such arrangements.
Mr Lewis said that the appellants argument gave rise to four questions: (1) Does the fact that different arrangements are made for Irish nationals than for nationals of other Member States undermine the policy justification for not extending the benefit to the other Member States? (2) Is this permitted by the Protocol? (3) If not, is it unlawful because it is discriminatory and unjustified? (4) If it is unlawful, what can be done about this? He submitted that the answer to the first question was straightforward.
For economic, historical and social reasons Ireland is simply different from the other Member States.
Recognising these differences did not undermine the policy justification for treating the other Member States differently.
I do not think that Mr Cox had any answer to that submission.
Indeed he said that he did not seek in any way to affect the operation of regulation 2(2) in respect of Irish citizens.
The appellants case was that, as a citizen of Latvia, she was entitled to the same treatment as they receive under the arrangements that are protected by the Protocol.
The points in issue, therefore, are those focussed by the second, third and fourth questions.
The key words in the Protocol are those which indicate that the arrangements between the United Kingdom and Ireland that are protected by it are those relating to the movement of persons between their territories.
The principle of international law which precludes a State from denying its own nationals the right to enter its territory and reside there must be complied with in applying those arrangements: Case C-171/96 Roque v Lieutenant Governor of Jersey [1998] 3 CMLR 143, paras 38-39.
Mr Cox submitted that the arrangements with which the 2002 Regulations were concerned were not related to movement of persons between Ireland and the United Kingdom.
This was because an Irish citizen who had never set foot in Ireland and arrived in the United Kingdom could meet the requirement simply because he had a right to reside in Ireland.
Mr Lewis said that the situation referred to was wholly exceptional.
In any event, such a person would not, on arrival, satisfy the requirement as he would not be habitually resident either in the United Kingdom or in Ireland.
Looking at the matter realistically, it was plain that the arrangements with which the 2002 Regulations were concerned did facilitate free movement of persons between the two countries.
It did not limit the entitlement of Irish nationals to state pension credit to those who were economically active.
It facilitated the free movement of persons, not just workers.
Mr Cox submitted that there was no arrangement between the United Kingdom and Ireland protected by the Protocol because the provision made by each country for the others nationals was not reciprocal.
Mr Lewis accepted that different rules as to entitlement to social security applied in Ireland.
The Irish legislation does not provide an exemption for United Kingdom nationals or provide that residence in the United Kingdom is to be treated as residence in Ireland, as it is to be presumed unless the contrary is shown that a person is not habitually resident in the State unless he has been present in the State or any part of the Common Travel Area for a continuous period of two years: Social Welfare (Miscellaneous Provisions) Act 2004, section 17 and Schedule 1.
But he submitted that absolute reciprocity was not required for an arrangement to fall within the protection of the Protocol.
The arrangements could be one way only, so long as they related to the free movement of persons between the two countries.
I think that some measure of reciprocity is contemplated by the Protocol.
But, as these are arrangements between two sovereign States, it would be going too far to insist on a precise match between the arrangements on one side of the Irish Sea and the other.
The words of article 2 do not suggest that the arrangements must meet this test to attract its protection.
Mr Cox submitted that, as it derogated from fundamental Community law principles, the Protocol fell to be construed strictly.
But in my opinion the rather loose word arrangements indicates that it is for the two States themselves to determine what would best suit the overall objective of promoting free movement between their territories, while taking account of each countrys different economic and social circumstances.
I would hold therefore that there is sufficient reciprocity between the respective conditions for entitlement, and a sufficient connection between the social security arrangements on either side and the aim of promoting free movement between the two countries, for the arrangements in regulation 2 of the 2002 Regulations to attract the protection of article 2 of the Protocol.
The third and fourth questions on Mr Lewiss list do not need to be answered.
I would reject the appellants argument that she is entitled to be treated in the same way as Irish nationals.
Conclusion
I would hold that regulation 2 of the 2002 Regulations is indirectly discriminatory, but that the condition that it lays down is objectively justifiable on grounds independent of the appellants nationality.
I would dismiss the appeal.
Lord Hope has given a full and clear summary of the facts and the relevant national and EU legislation.
I can proceed at once to the three issues identified in para 20 of Lord Hopes judgment.
Direct or indirect discrimination?
The judgment of the Court of Appeal now under appeal was, by a strange coincidence, delivered on the same day (25 June 2009) as the opinion of Advocate General Sharpston in Bressol v Gouvernement de la Communaut Franaise (Case C73/08) [2010] 3 CMLR 559.
The Court of Appeal did not therefore have the opportunity of considering it.
The Advocate Generals opinion and the judgment of the Grand Chamber of the Court of Justice (delivered on 13 April 2010) are discussed in paras 30-34 of Lord Hopes judgment.
As he says, the difference between the Advocate Generals opinion and the Grand Chambers judgment is profound.
The opinion (paras 43-58) sets out a lengthy, scholarly and closely- reasoned discussion of the difference between direct and indirect discrimination.
The Grand Chamber made no reference to this discussion.
It treated the case as one of indirect (and therefore potentially justifiable) discrimination without explaining why the Advocate General was wrong to treat the case as direct discrimination.
Lord Hope (para 33) reads the judgment as treating the second cumulative condition (as to the right to remain permanently in Belgium) as having been subsumed into the first condition, but I confess that I cannot discern that subtlety in the judgment.
The Grand Chamber seems to have regarded it (para 45) simply as a residence condition more easily satisfied by Belgian nationals.
I regret that the Grand Chamber did not explain why they disagreed with the Advocate General.
She has, if I may respectfully say so, grappled with the real difficulties of this issue, although I do not agree with all her conclusions.
She has proposed a general definition of direct discrimination (para 56): I take there to be direct discrimination when the category of those receiving a certain advantage and the category of those suffering a correlative disadvantage coincide exactly with the respective categories of persons distinguished only by applying a prohibited classification.
In my view this is too narrow a definition.
As Lord Mance said in R (E) v Governing Body of JFS [2010] 2 AC 728, para 89, approving a submission from Miss Rose QC, an organisation which admitted all men but only women graduates would be engaged in direct discrimination on the grounds of sex.
The Advocate Generals proposed test works only if in this example the categories are limited to cohorts of non-graduates (or, in the well-known case of James v Eastleigh Borough Council [1990] 2 AC 751, to cohorts of men and women over 60 years but under 65 years of age).
It follows that in my opinion the Court of Appeal were wrong in adopting the reasoning in paras 22 to 24 of the judgment of Moses LJ.
He said in para 22: Article 3 [of Council Regulation (EC) No 1408/71] requires the conditions for entitlement to State Pension Credit, under the legislation of the United Kingdom, to be the same for Latvian nationals as for United Kingdom nationals.
Accordingly, it is necessary to focus on those conditions as a whole rather than one particular element of those conditions to the exclusion of others.
The right to reside condition does not by itself entitle a claimant to the benefit.
I do not see why the fact that there is more than one condition makes it necessary to focus on the conditions as a whole, if it is only one condition that produces unequal treatment.
The right to reside condition is not a sufficient condition for entitlement, but it is a necessary condition, and it is one that is automatically satisfied by every British national.
The fact that there is another cumulative condition (actual or deemed habitual residence) is irrelevant (Gravier v City of Lige (Case 293/83) [1985] ECR 593, para 14).
It might be different if there were alternative conditions, because neither condition would then be necessary (although one would be sufficient).
Returning to Bressol, I note that Advocate General Sharpston referred to the opinion of Advocate General Jacobs in Schnorbus v Land Hessen (Case C-79/99) [2000] ECR I-10997, para 33: It may be said that discrimination on grounds of sex arises where members of one sex are treated more favourably than the other.
The discrimination is direct where the difference in treatment is based on a criterion which is either explicitly that of sex or necessarily linked to a characteristic indissociable from sex.
It is indirect where some other criterion is applied but a substantially higher proportion of one sex than the other is in fact affected.
That is, to my mind, the best guidance that we have.
The second category (necessarily linked to a characteristic indissociable from sex) roughly corresponds to Advocate General Sharpstons proposed general definition, but is, I think, a better way of putting it.
Schnorbus was a case brought by a female law graduate whose progress to the final part of her professional training had been held up by a shortage of training places.
In the allocation of places some categories of applicants were given priority, including those (all male) who had completed a years compulsory national service.
This was, Advocate General Jacobs advised, potentially indirect discrimination on the ground of sex, but was justified as one in a list of cases where priority was appropriate (others were disability, adverse social or family circumstances, and being a mature student).
Advocate General Sharpston (para 67) sought to distinguish this case from Dekker v Stichting Vormingscentrum voor Jong Volwassenen (VJVCentrum) Plus (Case C-177/88) [1990] ECR I-3941 (the well-known case of a female refused a job because she was pregnant) on the ground that not all men actually completed national service (some were no doubt found medically unfit).
But by the same token not every woman applying for a job is capable of becoming pregnant: her age or medical history may make that impossible.
The true distinction was pointed out by Advocate General Jacobs in Schnorbus, that capacity for childbearing is a natural physical characteristic of women, whereas a mans liability to do national service was imposed by legislation (para 40): No amount of legislation can render men capable of bearing children, whereas legislation might readily remove any distinction between men and women in relation to compulsory national service.
The difference depended on a statutory obligation, and was not between men and women as such.
Advocate General Jacobs opinion in Schnorbus has other valuable insights.
He discussed whether there is some circularity in the rule that provisions potentially amounting to indirect discrimination can be justified only if those provisions are justified by objective considerations independent of the nationality of the workers concerned, a form of words frequently used by the Court of Justice (for instance in Borawitz v Landesversicherungsanstalt Westfalen (Case C-124/99) [2000] ECR I-7293, para 26, but not, as it happens, by the Grand Chamber in Bressol, paras 47-48).
In his opinion in Schnorbus Advocate General Jacobs observed (para 47): The Courts usual formulation may seem circular.
To say that there is no discrimination based on sex when a difference in treatment is justified by factors unrelated to discrimination based on sex appears self-evident.
In line with the definition in Directive 97/80, however, I take it to mean that (indirect) discrimination is not unlawful when the difference in treatment is justified by objective factors not in themselves (that is to say, not directly) related to sex.
(This question of circularity seems to have been also in the mind of the Social Security Commissioner, Mr Rowland, in his decision in this case, para 13).
As examples Advocate General Jacobs would, I think, have given those that he had already referred to: pregnancy (Dekker) is in itself related to sex, whereas liability to national service (Schnorbus) is not, although a national legislature may choose sex as a demarcation line.
But this test of seeing whether the suspect ground of discrimination is directly (in the sense, as I understand it, of centrally, or intrinsically) involved is more difficult to apply to the abstract juridical concept of nationality.
I agree with Lord Hope (para 33) that in Bressol the Grand Chamber must be taken to have regarded the Advocate Generals approach as too analytical.
I would like to be able to agree that her approach accords well with our domestic law, but I must say that it seems to me hard to reconcile with the approach of the Court of Appeal in R (Elias) v Secretary of State for Defence [2006] 1 WLR 3213, the case of Mrs Elias who was British enough to be interned (in Hong Kong between 1941 and 1945) but not British enough to be compensated (under an official scheme introduced in 2000).
In that case Mummery LJ, who gave the leading judgment, acknowledged (paras 104-113) the strength of the submissions made on behalf of Mrs Elias by Mr Rabinder Singh QC.
But he felt bound to reject them (paras 113 and 114): The powerful submissions of Mr Singh raised serious doubts in my mind about the correctness of the judges ruling on this point, which, as Mr Singh pointed out, focused more on the edges of the effects of the criteria than on their central purpose or effect.
In a general sense, discrimination with a discriminatory purpose, regardless of the particular form it takes, can be perceived as treating a person less favourably on racial grounds.
I am, however, clear that, in the present state of the law, the particular form of discrimination matters, even if there are present in the circumstances of the case a discriminatory purpose and discriminatory effects.
The 1976 Act, as amended, makes an important broad distinction between two different forms of discrimination.
This distinction is consistent with the [Race Equality] Directive [2000/43/EC] and this Court must observe it.
Discriminatory purpose?
Mummery LJs observations about discrimination with a discriminatory purpose make it appropriate to mention a point which is not, I think, controversial, but may be worth spelling out.
The dividing line between direct and indirect discrimination is emphatically not to be determined by some sort of mens rea on the part of one or more individual discriminators.
A discriminatory purpose is not necessary for direct discrimination, nor (as Mummery LJ recognised) is it inconsistent with a finding of indirect discrimination.
Where there is an allegation of direct discrimination of a systemic sort (embodied in legislation or rules, or in the settled practices and procedures of a public authority or an employer) it makes no difference whether or not the objectionable feature is in some way deliberately targeted at a particular group.
That has been clear since the decisions of the House of Lords in R v Birmingham City Council, Ex p Equal Opportunities Commission [1989] AC 1155 and James v Eastleigh Borough Council [1990] 2 AC 751.
Conversely, it seems that a discriminatory purpose does not, on the present state of the law, prevent unequal treatment being regarded as no more than indirect discrimination which is capable of justification.
It is hard to avoid the suspicion that legislators and government lawyers throughout the EU have become well aware of this.
There is an obvious temptation for governments, in the face of understandable popular feeling (in this case, against benefit tourism) to try to draft their way out of direct into indirect discrimination, with a view to avoiding having to distribute large sums out of public funds, or having to make some other commitment of national resources, to beneficiaries whom their electors would not regard as deserving.
Bressol and other cases concerned with the Belgian social security and education systems may be examples of this.
In the area of fishing rights Commission of the European Communities v Ireland [1978] ECR 417 seems to be a striking example, since the Irish legislations detailed prescription for exempted vessels coincided with characteristics of vessels used by the Irish fishing fleet and was not justified by the need of conservation.
In this country, Elias may be an example; and so may the amendments made in 2004 to the State Pension Credit Regulations 2002.
Having said all that, I recognise that this Court must follow the judgment of the Court of Justice of the EU in Bressol, even if some of us do not fully understand its reasoning.
This case must be treated as one of indirect discrimination.
But the correlation between British nationality and the right to reside in Great Britain is so strong that the issue of justification must in my view be scrutinised with some rigour.
Justification
The justification advanced in the Secretary of States printed case (para 54, an expanded version of the summary in para 33 of the statement of facts and issues) is that the provisions of regulation 2 (as amended) are indeed objectively justified, as they legitimately seek to identify either economic integration or a sufficient degree of social integration (an objective which applies equally to UK and other EU nationals, and indeed to nationals of third countries).
Reference is made to the Secretary of States formal statement under section 174(2) of the Social Security Administration Act 1992 laid before Parliament in April 2004.
Reference is also made to Zalewska v Department for Social Development [2008] 1 WLR 2602, 2617.
That was a split decision of the House of Lords on an issue as to the proportionality of measures taken in relation to economically active workers from A8 nations, and I find it of no assistance in this appeal.
Proportionality is not an issue here.
Nor are we concerned with economically active nationals of other EU States.
The issue is whether the objective of a sufficient degree of social integration is something for the attainment of which the provisions of regulation 2(2) are an appropriate test, independent of the nationality of the person whose social integration is in question.
This Court has had little assistance as to what social integration means in this context, as something separate from economic integration.
The Court of Appeal (paras 27 to 40) seem to have addressed only economic integration.
But I will assume in favour of the Secretary of State that it is a meaningful concept recognised by EU law, and that its precise content need not be defined.
The Secretary of States statutory statement is very largely concerned with the habitual residence test (introduced into social security legislation in 1994).
It had the legitimate purpose of discouraging benefit tourism.
The statement (para 16) indicates that the decision of the House of Lords in Chief Adjudication Officer v Wolke [1997] 1 WLR 1640 was perceived as creating a major difficulty in relation to economically inactive EU nationals.
That is the introduction to the explanation of the new right to reside requirement (para 17 of the statement): The Government believes that it is not unreasonable to expect that, whatever their nationality, people should show that they have a right to reside in the UK before being entitled to benefits funded by the UK taxpayer: indeed, correspondence that I and my Ministerial colleagues have received suggests that the public generally expects this.
The proposed regulations are thus intended to fill a gap in measures to safeguard the public purse against exploitation by people with no right to reside here, irrespective of nationality.
Their purpose is therefore different from the more limited purpose of the habitual residence test.
The appellants printed case (para 93) comments that the paragraph quoted above suggests that the Secretary of State may not have understood the effect of his amendment.
I have to say that I think this may be too kind: the Secretary of State and his advisers are unlikely to have misunderstood the effect of the amended regulation 2(2).
The reference to people with no right to reside here, irrespective of nationality may be regarded as a disingenuous description of a test which every British national passes automatically, by virtue of section 2 of the Immigration Act 1971, but which non-nationals will not pass unless they come within the special categories in regulation 2(1) (and are not excluded by regulation 2(2): under the amendment regulation 2(2) trumps regulation 2(1) in case of conflict; this particular point was not, I think, explored in argument).
The appellant, and anyone else in her position, is caught by regulation 2(2), and no amount of effort on her part to achieve social integration (whatever that means) will change the position (apart possibly from future marriage or naturalisation, which may be academic points so far as the appellant is concerned).
In the Court of Appeal Moses LJ (para 25) distinguished this case from R (Bidar) v Ealing London Borough Council [2005] QB 812, where the student applicant had to be not only ordinarily resident but also settled, a status which he could not obtain as a student (since students were not given permission to remain indefinitely).
But in my view the two cases are indistinguishable.
Other EU nationals were in a different position, but Mr Bidar and all other students in his position were excluded.
The same is true of the appellant and others in her position.
The fact that other EU nationals may be in a better position is irrelevant, for reasons already noted.
It is in the end a fairly short point.
In my opinion the provisions of regulation 2(2) are probably aimed at discriminating against economically inactive foreign nationals on the grounds of nationality.
Whether or not that was the intention of those who framed them, they have that effect.
That can, I think, be simply demonstrated.
If the appellant (who is now aged 72) had been a British national who had gone to Latvia 50 years ago, but was in all other respects in the same position that is, had come to England in 2000 with no family, friends or other human or financial resources here she would not be excluded, and the only reason for that difference is her nationality.
That difference of treatment is something to which the appellants nationality was central, intrinsic or (in the sense in which Advocate General Jacobs used it in Schnorbus) direct.
Even though classified as indirect discrimination, it is not capable of justification because the proposed justification, once examined, is founded on nationality.
In my view the third issue, raising the Irish element, does not arise.
But I am in full agreement with what Lord Hope says on that aspect of the matter.
There was a good deal of discussion about Trojani [2004] ECR I-7573, and in particular some general remarks made in the opinion of Advocate General Geelhoed.
It raises some difficult and interesting issues but I do not think it would be appropriate for me, in a dissenting judgment, to say more about them.
For my part I would allow this appeal.
Since I differ from the majority only on the issue of justification, which is for the domestic court, a reference to the Court of Justice would not be appropriate.
This is a difficult case.
It is difficult not only because of the mind-numbing complexity of the words used by the legislators but also because of the inherent complexity of the concepts developed in the pursuit of equal treatment.
As Lord Walker commented in the course of the argument in this case, the wording of regulation 2 of the State Pension Credit Regulations 2002 (SI 2002/1792) is so obscure that it looks as if it is trying to cover something up.
As Lord Walker has also commented, extra-judicially, Why does the topic of discrimination get so abstract and complicated as soon as it gets into the hands of the lawyers?.
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Why cannot the topic be left to the intuitive decency and common sense of the right- thinking citizen? The answer, he suggests, is that intuition and common sense are sufficient in clear cases, but cannot by themselves provide the answer in marginal cases (Treating like cases alike and unlike cases differently: Some problems of anti-discrimination law, Victoria University, Wellington, New Zealand, 2 September 2010, pp 2-3).
Another answer, I would suggest, is that the concepts of direct and indirect discrimination, justification and proportionality, become altogether more difficult to apply the greater the number of prohibited grounds of discrimination and the wider the circumstances in which discrimination is prohibited.
We are concerned with a rather different prohibition of discrimination from the more familiar domestic provisions, now contained in the Equality Act 2010, which aim to prohibit discrimination in the supply of employment, goods, services and the like on the grounds of protected characteristics such as race, sex or religion.
Its foundation rests in article 12 of the EC Treaty: Within the scope of application of this Treaty, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited.
This is not a general prohibition of discrimination on grounds of nationality.
Only the nationals of Member States are protected.
Discrimination against third country nationals is not prohibited.
Indeed it is positively expected.
The underlying purpose is to promote the objects of the Union and in particular the free movement of workers between the Member States and the free establishment of businesses within them.
The special provision made in Council Regulation (EEC) No 1408/71 is article 3.1.
This requires that: Subject to the special provisions of this Regulation, persons to whom this Regulation applies shall be subject to the same obligations and enjoy the same benefits under the legislation of any Member State as the nationals of the State.
Under article 2 of Regulation 1408/71, the persons covered by the Regulation must, among other things, be nationals of one of the Member States (or stateless persons or refugees residing within the territory of one of the Member States) or members of their families or their survivors.
Once again, therefore, this is not a general requirement of equal treatment irrespective of nationality.
It is there principally to protect the nationals of Member States.
Moreover, on the face of it, there is no breach of article 3.1 in the United Kingdoms State Pension Credit Regulations 2002.
Nationals of other Member States are subject to the same obligations and enjoy the same benefits under those Regulations as do the nationals of the United Kingdom.
The question, however, is whether the rules under which they do so discriminate against them in a way which is prohibited by article 12 of the Treaty.
The European jurisprudence on the interpretation of article 12 is not as clear cut as is the jurisprudence on sex discrimination.
Thus, for example, it tends to talk about overt and covert discrimination rather than direct and indirect and the concepts may not be precisely equivalent.
Also, there is no emphatic statement that direct discrimination can never be justified.
Commissioner Rowland referred, at para 16 of his decision in this case, to Martinez Sala v Freistaat Bayern (Case C-85/96) [1998] ECR I-2691, at para 64: Since the unequal treatment in question thus comes within the scope of the Treaty, it cannot be considered to be justified: it is discrimination directly based on the appellants nationality and, in any event, nothing to justify such unequal treatment has been put before the Court.
Commissioner Rowland commented that this certainly shows that the Court did not exclude the possibility that direct discrimination might in certain circumstances be justified, although he was inclined to agree that the paragraph was equivocal in that regard.
I mention these considerations only to suggest that we may here be dealing with a rather more flexible concept, designed for a particular purpose within the law of the European Union, than with the more familiar concepts in our domestic anti-discrimination law, based though they are upon European Union law, but with the rather different purpose of securing equality of treatment by suppliers irrespective of personal characteristics which are deemed immaterial to the transaction.
But with that small caveat, I agree that the questions are (i) whether there is here direct or indirect discrimination against nationals of other Member States; and (ii) whether any such discrimination is justified.
I have nothing to add to what Lord Hope has said on the Irish question.
The difference between direct and indirect discrimination assumes great importance if it controls what, if any, justification may be possible.
(In this respect, European Union and domestic anti-discrimination law is different from the European Convention on Human Rights, which does not draw this sharp distinction.) Yet it is by no means a straightforward question.
Lord Walker has drawn attention to the opinions of Advocate General Jacobs in Schnorbus v Land Hessen (Case C-79/99) [2001] 1 CMLR 1025 and Advocate General Sharpston in Bressol v Gouvernement de la Communaut Franaise (Case C-73/08) [2010] 3 CMLR 559, ostensibly applying the same test but doing so in a rather different way.
At para AG52 of Bressol, Advocate General Sharpston quoted Advocate General Jacobs statement at para A33 of Schnorbus: The discrimination is direct where the difference in treatment is based on a criterion which is either explicitly that of sex or necessarily linked to a characteristic indissociable from sex.
It is indirect where some other criterion is applied but a substantially higher proportion of one sex than the other is in fact affected.
The complaint in Schnorbus was that candidates who had completed their national service were given priority over other candidates in admission to the second stage of legal training but only men were eligible for national service.
Advocate General Jacobs took the view that this was indirect discrimination: eligibility for national service was a legal requirement rather than one, such as pregnancy, based on a physical characteristic which is indissociable from sex.
He went on to opine that the discrimination was justified.
The Court agreed with him on both points.
Yet this distinction between legal requirements and physical characteristics might come as something of a surprise, for example, to readers of James v Eastleigh Borough Council [1990] 2 AC 751, where the discrimination between male and female swimmers was linked to a legal requirement, the statutory retirement age, which was indissociable from sex.
But at least in Schnorbus, as in James, there was an exact coincidence between the requirement and the sex of those whom it advantaged or disadvantaged as the case might be: in Schnorbus all men were advantaged and all women were disadvantaged; in James all men were disadvantaged and all women were advantaged.
In Bressol Advocate General Sharpston took up the notion of a difference in treatment necessarily linked to a characteristic indisssociable from in her case nationality and formulated it thus, at para AG56: I take there to be direct discrimination when the category of those receiving a certain advantage and the category of those suffering a correlative disadvantage coincide exactly with the respective categories of persons distinguished only by applying a prohibited classification.
But she went on to opine that this test was fulfilled when there was no exact congruence between those advantaged and those disadvantaged by the requirement in question.
Thus she held it direct discrimination on grounds of nationality when both Belgians and other nationals might fulfil the requirement of a right to remain permanently in Belgium, but only Belgians could do so automatically.
This may be an attractive approach: it is, of course, the exact equivalent of the situation in this case.
But it is certainly a development of the principle established in Schnorbus.
It suggests that there can be direct discrimination even when some members of the disadvantaged group do fulfil the requirement in question even though others do not.
The equivalent in Schnorbus would have been if all men were eligible to do national service but only some women were eligible to do so.
At all events, it seems clear that the Grand Chamber in Bressol did not accept the Advocate Generals opinion on this point.
The Court expressly stated, at para 47, that this was indirect discrimination on the ground of nationality, which was prohibited unless it was objectively justified.
The Court then went on to discuss what might amount to objective justification in that case.
The Court must therefore have rejected the Advocate Generals view that this amounted to direct discrimination.
It follows, in my view, that we too should regard this case as a case of indirect, rather than direct, discrimination.
No-one doubts that it is indirect.
There have been many subtly different formulations of the test for indirect discrimination (Monaghan, for example, Equality Law, Oxford University Press, 2007, identifies four): but in essence it is the application of a criterion which is applied equally both to nationals and to non- nationals but which in fact places non-nationals at a particular disadvantage when compared with nationals.
The right to reside criterion obviously places non- nationals at a particular disadvantage when compared with nationals and has in fact placed Ms Patmalniece at that disadvantage.
Justification
The Grand Chamber stated the test thus in R (Bidar) v Ealing London Borough Council (Case C-209/03) [2005] QB 812, para 54: Such a difference in treatment can be justified only if it is based on objective considerations independent of the nationality of the persons concerned and is proportionate to the legitimate aim of the national provisions.
This is a rather less precise way of putting the test than the way in which it is put in other contexts.
The other formulations, for example in the Burden of Proof Directive (Council Directive 97/80/EC) or the Framework Directive on Equal Treatment (Council Directive 2000/78/EC), all make it clear that it is the provision, criterion or practice which has to be justified as a proportionate means of achieving a legitimate aim, ex hypothesi for reasons which are independent of the protected characteristic involved.
Although the concept of justification under article 12 has not been articulated in precisely this way, perhaps because it has not in itself been the subject of a Directive, it seems unlikely that the Court of Justice would approach it any differently.
The approach in the Directives mentioned is the product of its own jurisprudence.
If that is so, then it is the criterion of a right to reside which has to be objectively justified by considerations other than the nationality of those involved because it is that criterion which leads to the difference of treatment complained about.
There is no doubt about the broad aim which it is sought to pursue.
This is to protect the public purse, or more precisely, those who pay taxes in the United Kingdom, from the burden of relieving the poverty of everyone who is here, irrespective of the reasons why they are here.
When the welfare state was first established, this was not seen as a problem.
Everyone who was here could claim social assistance, in the shape of health and social services and also means-tested financial benefits.
But the state progressively withdrew that support.
That may be an explanation for the peculiar drafting technique of granting benefits to people in Great Britain and then defining the people who are, and are not, to be treated as in Great Britain for this purpose.
The general aim is to identify those who are, or rather those who are not, considered deserving of income-related, that is, means- tested benefits.
The Regulations contain two separate requirements, with two rather different aims.
The requirement of habitual residence has been there since 1994 to combat benefit tourism, people coming here with a view to claiming benefits, rather than with a view to working or establishing themselves in business or a profession here.
Thus certain categories of people who come here for other reasons are entitled to make claims even though they are not habitually resident here: these include people from other Member States who are workers or realistically looking for work, or have been workers but for a variety of reasons are so no longer, or people who have moved here to set up in self-employment, and members of the families of each of these, as well as people who have been granted refugee status here.
Other people, including UK nationals, have to show that they are habitually resident here.
However, as the Government said in its response to the Report of the Social Security Advisory Committee, which preceded the introduction of the right to reside test, the habitual residence test cannot and was never intended to restrict longer-term access to the income-related benefits payable out of general taxation among people who, for various reasons, may decide to live indefinitely in the UK without being economically active (2004, Cmnd 6181, para 14).
The right to reside test was introduced expressly for that purpose.
It is necessary to look at these aims in the context of what Regulation 1408/71 is trying to achieve.
As its recitals show, it is principally designed to co- ordinate national social security legislation in order to promote freedom of movement for employed and self-employed persons, while recognising that there are differences between the social security systems of the Member States.
It caters for three different kinds of benefit in three different ways.
At the top are those benefits described in article 4.1 as branches of social security.
Many of these are based upon contributory social insurance schemes but some are not.
Their main distinguishing feature is that they are paid as of right.
They are not designed to top up the income of people whose individual means of support fall short of the nationally set subsistence level.
Workers who move from one country to another must be allowed to participate in these social security schemes in the same way as workers in the host country.
Further, if they have accrued certain benefits, including old age pensions, in one country, article 10 requires that they cannot be denied these simply because they have moved to live in another country.
Thus Ms Patmalniece is entitled to have the Latvian authorities pay her her Latvian pension here.
At the bottom are social and medical assistance [and] benefit schemes for victims of war or its consequences.
Article 4.4 provides that these are excluded from the Regulation altogether.
Social assistance used to encompass the kinds of income-related benefits with which we are here concerned.
But now it appears to be limited to benefits in kind social and medical services along with discretionary cash benefits such as the grants and loans which are made by the United Kingdoms social fund.
In the middle are the special non-contributory cash benefits, financed out of general taxation to guarantee a minimum subsistence level or to cater for disabled people, and specifically listed in Annex IIa to the Regulation.
State pension credit is one of these.
So too are income-based jobseekers allowance, income support, and disability living allowance (mobility component).
Under article 10a, these are excluded from article 10 and are payable exclusively in the territory of the Member State in which they reside and under the legislation of that State.
The question is whether it is legitimate to limit these benefits, entitlement to which under the Regulation depends upon the Member State in which the claimant resides, to people who are entitled to reside in that Member State.
In answering that question, it is logical to look at the European law on the right to reside.
If nationals of one Member State have the right to move to reside in another Member State under European Union law, it is logical to require that they also have the right to claim these special non-contributory cash benefits there in other words that the State in which they reside should be responsible for ensuring that they have the minimum means of subsistence to enable them to live there.
But if they do not have the right under European Union law to move to reside there, then it is logical that that State should not have the responsibility for ensuring their minimum level of subsistence.
That is why the Court of Appeal in this case, as in the earlier cases of Abdirahman v Secretary of State for Work and Pensions [2007] EWCA Civ 657, [2008] 1 WLR 254, and Kaczmarek v Secretary of State for Work and Pensions [2008] EWCA 1310, [2009] PTSR 897, focussed on article 18.1 of the Treaty, coupled with Directive 90/364/EEC (since replaced by Directive 2004/38/EC), which restrict the right to reside (for people who do not have it under other provisions) to those who have sufficient resources to avoid becoming a burden on the social assistance system of the host member state during their period of residence.
As the Grand Chamber held in Trojani v Centre Public dAide Sociale de Bruxelles (Case C-456/02) [2004] 3 CMLR 820, a non-national citizen of the Union, applying for a benefit because of lack of resources, did not derive a right to reside from article 18 of the Treaty, because that very lack of resources took him outside the terms of Directive 90/364/EEC.
However, that is not the end of the story.
The Secretary of State understandably places weight on the observation of Advocate General Geelhoed, at para AG70 of Trojani: The basic principle of Community law is that persons who depend upon social assistance will be taken care of in their own Member State.
But the Court, having held that a person such as Mr Trojani did not derive a right to reside from European Union law, went on to say that a citizen of the Union who had been lawfully resident in the host Member State for a certain time or possessed a residence permit, and satisfied the conditions required of nationals of that Member State, could not be denied such benefits.
He was entitled, during his lawful residence in the host Member State, to benefit from the fundamental principle of equal treatment in article 12.
I take that to mean that, even where a national of another Member State does not have the right to reside in the host country under European Union law, if he has the right to reside under the national law of the host country, he is also entitled to claim these benefits on the same terms as nationals of the host country.
I do not find anything in Trojani to suggest that mere presence, without any right to reside in the host country, is sufficient.
All the emphasis in the relevant paragraphs 40 to 45 is on residence and not presence and moreover on formally approved residence.
The Courts answer to the question posed concludes, at para 46: However, once it is ascertained that a person in a situation such as that of the claimant in the main proceedings is in possession of a residence permit, he may rely on article 12 EC in order to be granted a social assistance benefit such as the minimex.
This is a fairly clear indication that it is open to Member States to make entitlement to such benefits dependent on the right to reside in the host country, even though, of necessity, such a right will be enjoyed by all nationals but only some non-nationals.
The AIRE Centre intervene in support of the appellant, essentially to argue that the correct mechanism to protect the public purse against non-economically active claimants from other European Union countries is, not to deny those who are lawfully present the basic means of subsistence, but to remove those who have no right to remain here: in other words, compulsorily to expel them rather than to starve them out.
The Court in Trojani pointed out at paragraph 45 that: it remains open to the host Member State to take the view that a national of another Member State who has recourse to social assistance no longer fulfils the conditions of his right of residence.
In such a case the host Member State may, within the limits imposed by Community law, take a measure to remove him.
However, recourse to the social assistance system by a citizen of the Union may not automatically entail such a measure.
Once again, the emphasis is on the right to reside.
I do not find there any suggestion that it is not open to the host Member State to make entitlement to such benefits conditional upon that right.
For that reason, and in agreement with Lord Hope, I would dismiss this appeal.
For the reasons given by Lord Hope and by Lady Hale, with which I fully agree, I too would dismiss this appeal.
For the reasons given by Lord Hope and by Lady Hale, with which I fully agree, I too would dismiss this appeal.
| UK-Abs | The issue in this appeal is whether the conditions of entitlement to State Pension Credit (SPC) are compatible with a rule of EU law which prohibits discrimination between nationals of different Member States.
State Pension Credit is a means tested non contributory benefit.
Section 1(2)(a) of the State Pension Credit Act 2002 provides that a claimant is entitled to SPC if he or she is in Great Britain.
The State Pension Credit Regulations 2002 (the Regulations) provide when someone is or is not to be treated as being in Great Britain.
This is not just a matter of where the person is.
In outline, a person is treated as not in Great Britain if he or she is not habitually resident in the United Kingdom, the Channel Islands, the Isle of Man or the Republic of Ireland (the Common Travel Area).
And no person is to be treated as habitually resident in the Common Travel Area if that person does not have a right to reside in the Common Travel Area. (Cumulatively, these are the conditions.) Regulation 1408/71 (EC) (the EU Regulation) provided for the application of social security schemes to employed persons and their families moving within the European Community. (It has now been replaced by other EU legislation.) The Regulation applies to SPC.
One of the categories of person to which it applies is employed person.
This includes EU nationals who have retired from employment but who remain insured by the social security system of a Member State because of contributions paid during their working life.
The dispute in this case relates to the effect of Regulation 3.
It provides that persons to whom this Regulation applies shall be subject to the same obligations and enjoy the same benefits under the legislation of any Member State as nationals of that State.
This prohibits both direct discrimination (in broad terms, where people are treated differently because of their nationality) and indirect discrimination (broadly, where an apparently neutral test is applied to nationals and non nationals and places non nationals at a particular disadvantage).
Mrs Patmalniece is Latvian pensioner, now 72 years of age and in receipt of a Latvian retirement pension.
She came to the UK in June 2000.
Her asylum claim was unsuccessful, but she was not removed from the UK.
She has never worked in the UK.
Latvia joined the EU on 1 May 2004.
In August 2005, Mrs Patmalniece claimed SPC.
But her claim was refused on the ground that she was not in Great Britain because she did not have a right to reside in the UK.
She appealed against the refusal of SPC, arguing that the requirement that she have a right to reside in the UK was directly discriminatory on the grounds of her nationality, in breach of Regulation 3 of the EU Regulation.
The Social Security Appeal Tribunal allowed her appeal.
However, the Social Security Commissioner allowed the Secretary of States appeal and held the conditions to be indirectly discriminatory but justified.
The Court of Appeal upheld that decision.
Mrs Patmalniece appealed to the Supreme Court.
The Supreme Court, by a majority, dismisses the appeal.
It holds unanimously that the conditions are indirectly discriminatory.
But the majority (Lord Walker dissenting) hold that this discrimination is justified because the Regulations are a proportionate response to the legitimate aim of protecting the
UK public purse and that this justification is independent of the claimants nationality.
The court also holds unanimously that the different treatment afforded to Irish nationals is protected by the Protocol on the Common Travel Area.
Lord Hope gives the main judgment, with which Lord Rodger agrees.
Lady Hale gives a separate judgment.
Lord Brown agrees with both Lord Hopes and Lady Hales judgments.
Lord Walker gives a dissenting judgment.
The court considers three issues: (1) do the conditions of entitlement for SPC give rise to direct discrimination? (2) If they give rise only to indirect discrimination, is that discrimination justified? (3) Is that conclusion undermined by the favourable treatment that the Regulation gives to Irish nationals? Direct/indirect discrimination All UK nationals would automatically satisfy the right to reside element of the test, whereas nationals of other Member States would not automatically do so.
However, UK nationals still had to satisfy the requirement of habitual residence.
The result is that the in Great Britain test would be satisfied by some, but not all, UK nationals, and some, but not all, nationals of other Member States.
It was more likely to be satisfied by UK nationals than nationals of other member states: [25] [28].
The court applies the decision of the Grand Chamber of the European Court of Justice in Bressol v Gouvernement de la Communaut Franaise (Case C 73/08).
In Bressol the ECJ had considered a Belgian law which set down eligibility criteria to study in Belgium which were similarly structured to the entitlement conditions for SPC.
Although Advocate General Sharpston in Bressol had proposed that the ECJ treat the provisions of the Belgian law as directly discriminatory on the grounds of nationality, the ECJ did not follow her approach.
Although the reasons for the ECJs position were not fully explained in its judgment, the court has decided that it should follow its conclusion and hold that the entitlement conditions for SPC were only indirectly discriminatory: [30] [35], [73], [89] [92].
Justification A difference in treatment which amounts to indirect discrimination can be justified only if it is based on objective considerations independent of the nationality of the persons concerned and is proportionate to a legitimate aim: [36], [94].
The parties were agreed that the measures here were proportionate.
The issues were whether the conditions pursued a legitimate aim and whether it was independent of the nationality of the persons affected.
The majority holds that both tests are satisfied.
The aim was to ensure that claimants were economically or socially integrated in the UK, or elsewhere in the Common Travel Area, thereby protecting the social security system against the risk of benefit or social tourism: [38], [46], [51] [52], [96] This justification was independent of nationality.
Lady Hale notes, additionally, that the Governments aims in introducing the right to reside test were consistent with the aims of Regulation 1408/72 and that it is logical that if a person does not have a right under EU law to reside in a particular state, that state should not have the responsibility under EU law for ensuring their minimum level of subsistence: [103].
Lord Walker dissents on the issue of justification.
He would have held that the provisions were probably aimed at discriminating against economically inactive foreign nationals on the grounds of their nationality: [79].
The relevance of the treatment of Irish nationals The Appellant argued that, as entitlement to SPC was extended to Irish nationals, it was discriminatory not to extend it to nationals of other Member States.
The court rejects that argument.
The provision for Irish nationals in the conditions is protected by Article 2 of the Protocol on the Common Travel Area, which provides that the UK and Ireland may continue to make arrangements between themselves relating to the movement of persons between their territories: [54] [60], [80].
|
This is the judgment of the court.
This case is about the proper approach to deciding who has been responsible for harming a child in proceedings taken to protect that child, and others in the family, from harm.
It raises profound issues: on the one hand, children need to be protected from harm; but on the other hand, both they and their families need to be protected from the injustice and potential damage to their whole futures done by removing children from a parent who is not, in fact, responsible for causing them any harm at all.
The facts of this case present us with that dilemma in an unusually stark form.
The facts
Because we have decided to allow this appeal and send the case back to be decided afresh, we should say only enough about the facts to explain how the dilemma arises.
We shall use pseudonyms for the two children concerned, one who has been harmed and one who has not.
Jason was born on 19 May 2007.
On 15 June 2007, when he was just four weeks old, he was found to have bruising on his arms and face, which the doctors immediately thought was caused non accidentally and not, as the mother suggested, by the baby pinching himself or sleeping on his dummy.
Jason has not lived with his family since then, although he has had frequent and good quality contact with his mother.
Jason was living with his mother and father at the time and described by the doctors as thriving.
Both parents said that it was the father who had got up to attend to the baby when he woke up on the morning when the bruises were noticed.
The mother took the baby to the clinic that morning and pointed them out to the health visitor.
It was not possible to give precise timing for the bruises but it was not suggested that they were old or of different ages.
They could have been inflicted by both parents, but the judge found it more likely that only one of them had inflicted them.
The bruises had not been there for so long, nor would they have caused the baby such pain and distress, that the other parent must have known that he was being harmed.
This was not, therefore, a case where one parent had failed to protect the child from harm caused by the other.
It was, colloquially, a pure whodunit.
The other child is William, born on 12 July 2008, while the proceedings to protect Jason were in train.
By then the parents had separated, although they were still in touch with one another.
The father had stopped visiting Jason, had withdrawn from co operation with the social workers and with his solicitors, and played no further part in the proceedings.
He has parental responsibility for Jason but not for William.
William was removed from his mother shortly after birth and placed with the same foster carer as his brother.
He has never been harmed.
The case for removing him from his mother rests on the likelihood of his being harmed in the future if he is returned to her.
The law
In this country we take the removal of children from their families extremely seriously.
The Children Act 1989 was passed almost a decade before the Human Rights Act 1998, but its provisions were informed by the United Kingdoms obligations under article 8 and article 6 of the European Convention on Human Rights.
These affect both the test and the process for intervening in the family lives of children and their parents.
As to the test, it is not enough that the social workers, the experts or the court think that a child would be better off living with another family.
That would be social engineering of a kind which is not permitted in a democratic society.
The jurisprudence of the European Court of Human Rights requires that there be a pressing social need for intervention and that the intervention be proportionate to that need.
Before the court can consider what would be best for the child, therefore, section 31(2) of the 1989 Act requires that it be satisfied of the so called threshold conditions: (a) that the child concerned is suffering, or is likely to suffer, significant harm; and (b) that the harm, or likelihood of harm, is attributable to (i) the care given to the child, or likely to be given to him if the order were not made, not being what it would be reasonable to expect a parent to give to him; or (ii) the childs being beyond parental control.
The leading case on the interpretation of these conditions is the decision of the House of Lords in Re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563.
Three propositions were established which have not been questioned since.
First, it is not enough that the court suspects that a child may have suffered significant harm or that there was a real possibility that he did.
If the case is based on actual harm, the court must be satisfied on the balance of probabilities that the child was actually harmed.
Second, if the case is based on the likelihood of future harm, the court must be satisfied on the balance of probabilities that the facts upon which that prediction was based did actually happen.
It is not enough that they may have done so or that there was a real possibility that they did.
Third, however, if the case is based on the likelihood of future harm, the court does not have to be satisfied that such harm is more likely than not to happen.
It is enough that there is a real possibility, a possibility that cannot sensibly be ignored having regard to the nature and gravity of the feared harm in the particular case (per Lord Nicholls of Birkenhead, at p 585F).
Thus the law has drawn a clear distinction between probability as it applies to past facts and probability as it applies to future predictions.
Past facts must be proved to have happened on the balance of probabilities, that is, that it is more likely than not that they did happen.
Predictions about future facts need only be based upon a degree of likelihood that they will happen which is sufficient to justify preventive action.
This will depend upon the nature and gravity of the harm: a lesser degree of likelihood that the child will be killed will justify immediate preventive action than the degree of likelihood that the child will not be sent to school.
The House of Lords was invited to revisit the standard of proof of past facts in Re B (Children) (Care Proceedings: Standard of Proof) [2008] UKHL 35, [2009] AC 11, where the judge had been unable to decide whether the alleged abuse had taken place.
The suggestion that it would be sufficient if there were a real possibility that the child had been abused was unanimously rejected.
The House also reaffirmed that the standard of proof of past facts was the simple balance of probabilities, no more and no less.
The problem had arisen, as Lord Hoffmann explained, because of dicta which suggested that the standard of proof might vary with the gravity of the misconduct alleged or even the seriousness of the consequences for the person concerned (para 5).
He pointed out that the cases in which such statements were made fell into three categories.
In the first were cases which the law classed as civil but in which the criminal standard was appropriate.
Into this category came sex offender orders and anti social behaviour orders: see B v Chief Constable of Avon and Somerset Constabulary [2001] 1 WLR 340 and R (McCann) v Crown Court at Manchester [2002] UKHL 39, [2003] 1 AC 787.
In the second were cases which were not about the standard of proof at all, but about the quality of evidence.
If an event is inherently improbable, it may take better evidence to persuade the judge that it has happened than would be required if the event were a commonplace.
This was what Lord Nicholls was discussing in Re H (Minors), above, at p 586.
Yet, despite the care that Lord Nicholls had taken to explain that having regard to the inherent probabilities did not mean that the standard of proof was higher, others had referred to a heightened standard of proof where the allegations were serious.
In the third category, therefore, were cases in which the judges were simply confused about whether they were talking about the standard of proof or the role of inherent probabilities in deciding whether it had been discharged.
Apart from cases in the first category, therefore, the time has come to say, once and for all, that there is only one civil standard of proof and that is proof that that the fact in issue more probably occurred than not (para 13).
This did, of course, leave a role for inherent probabilities in considering whether it was more likely than not that an event had taken place.
But, as Lord Hoffmann went on to point out at para 15, there was no necessary connection between seriousness and inherent probability: It would be absurd to suggest that the tribunal must in all cases assume that serious conduct is unlikely to have occurred.
In many cases, the other evidence will show that it was all too likely.
If, for example, it is clear that a child was assaulted by one or other of two people, it would make no sense to start ones reasoning by saying that assaulting children is a serious matter and therefore neither of them is likely to have done so.
The fact is that one of them did and the question for the tribunal is simply whether it is more probable that one rather than the other was the perpetrator.
Lady Hale made the same point, at para 73: It may be unlikely that any person looking after a baby would take him by the wrist and swing him against the wall, causing multiple fractures and other injuries.
But once the evidence is clear that that is indeed what has happened to the child, it ceases to be improbable.
Someone looking after the child at the relevant time must have done it.
The inherent improbability of the event has no relevance to deciding who that was.
The simple balance of probabilities test should be applied.
None of the parties in this case has invited the Supreme Court to depart from those observations, nor have they supported the comment made in the Court of Appeal that Re B was a sweeping departure from the earlier authorities in the House of Lords in relation to child abuse, most obviously the case of Re H ([2009] EWCA Civ 1048, para 14).
All are agreed that Re B reaffirmed the principles adopted in Re H while rejecting the nostrum, the more serious the allegation, the more cogent the evidence needed to prove it, which had become a commonplace but was a misinterpretation of what Lord Nicholls had in fact said.
Re B was not a new departure in any context.
Lord Hoffmann was merely repeating with emphasis what he had said in Secretary of State for the Home Department v Rehman [2001] UKHL 47, [2003] 1 AC 153, at para 55.
A differently constituted House of Lords applied the same approach in Re D (Secretary of State for Northern Ireland intervening) [2008] UKHL 33, [2008] 1 WLR 1499.
In Re B, the House also declined an invitation to overrule the decision of the Court of Appeal in Re M and R (Minors) (Sexual Abuse: Expert Evidence) [1996] 4 All ER 239.
This was concerned with the stage after the court is satisfied that the threshold has been crossed.
The court has then to decide what order, if any, to make.
The welfare of the child is the paramount consideration: 1989 Act, s 1(1).
In deciding whether or not to make a care or supervision order, the court must have regard in particular to the so called checklist of factors: 1989 Act, s 1(3), (4).
These include (e) any harm which he has suffered or is at risk of suffering.
In Re M and R, the Court of Appeal determined that section 1(3)(e) should be interpreted in the same way as section 31(2)(a).
The court must reach a decision based on facts, not on suspicion or doubts.
Butler Sloss LJ said this: [Counsels] point was that if there is a real possibility of harm in the past, then it must follow (if nothing is done) that there is a risk of harm in the future.
To our minds, however, this proposition contains a non sequitur.
The fact that there might have been harm in the past does not establish the risk of harm in the future.
The very highest it can be put is that what might possibly have happened in the past means that there may possibly be a risk of the same thing happening in the future.
Section 1(3)(e), however, does not deal with what might possibly have happened or what future risk there may possibly be.
It speaks in terms of what has happened or what is at risk of happening.
Thus, what the court must do (when the matter is in issue) is to decide whether the evidence establishes harm or the risk of harm.
In agreeing with this approach in Re B, at para 56, Lady Hale commented that in such a case, as indicated by Butler Sloss LJ , the risk is not an actual risk to the child but a risk that the judge has got it wrong.
We are all fallible human beings, very capable of getting things wrong.
But until it has been shown that we have, it has not been shown that the child is in fact at any risk at all.
Re M and R was also approved by Lord Nicholls in Re O and another (Minors) (Care: Preliminary Hearing) [2003] UKHL 18, [2004] 1 AC 523, a case to which we shall return.
The House in Re B also recognised that courts and local authorities have different roles to play in protecting children from harm.
It is worth re emphasising this, given the understandable concerns in the wake of the Baby P case that social workers and other professionals were not being sufficiently active in their protective role, and the resulting increase in the numbers of care proceedings.
Social workers are the detectives.
They amass a great deal of information about a child and his family.
They assess risk factors.
They devise plans.
They put the evidence which they have assembled before a court and ask for an order.
Article 6 of the European Convention on Human Rights requires that In the determination of his civil rights and obligations, . everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.
The court subjects the evidence of the local authority to critical scrutiny, finds what the facts are, makes predictions based upon the facts, and balances a range of considerations in deciding what will be best for the child.
We should no more expect every case which a local authority brings to court to result in an order than we should expect every prosecution brought by the CPS to result in a conviction.
The standard of proof may be different, but the roles of the social workers and the prosecutors are similar.
They bring to court those cases where there is a good case to answer.
It is for the court to decide whether the case is made out.
If every child protection case were to result in an order, it would mean either that local authorities were not bringing enough cases to court or that the courts were not subjecting those cases to a sufficiently rigorous scrutiny.
The whodunit problem
So far the position is plain.
But the threshold criteria do not in terms require that the person whose parental responsibility for the child is to be interfered with or even taken away by the order be responsible for the harm which the child has suffered or is likely to suffer in the future.
It requires simply that the harm, or likelihood of harm, is attributable to the care given to the child, or likely to be given to him if the order were not made, not being what it would be reasonable to expect a parent to give to him.
Clearly, the object is to limit intervention to certain kinds of harm harm which should not happen if a child is being looked after properly.
But is it also intended to limit intervention to cases where the person whose rights are to be interfered with bears some responsibility for the harm?
It cannot have been intended that a parent whose child has been harmed as a result of a lack of proper care in a hospital or at school should be at risk of losing her child.
The problem could be approached through the welfare test, because removal from home would not be in the best interests of such a child.
However, because of the risk of social engineering, the threshold criteria were meant to screen out those cases where the family should not be put at any risk of intervention.
Hence attention has focussed on the attributability criterion.
In the case confusingly reported in the Law Reports as Lancashire County Council v B [2000] 2 AC 147, but in the All England Law Reports as Lancashire County Council v A [2000] 2 All ER 97, the House of Lords considered what is meant by the care given to the child.
Does it mean only the care given by the parents or primary carers or does it mean the care given by anyone who plays a part in the childs care? Lord Nicholls, with whom Lord Slynn, Lord Nolan and Lord Hoffmann agreed, found that it referred primarily to the former.
But if, as in that case, the care of the child was shared between two households and the judge could not decide which was responsible for the harm suffered by the child, the phrase is apt to embrace not merely the care given by the parents or other primary carers; it is apt to embrace the care given by any of the carers (p 166).
Thus the criteria were satisfied in respect of a child, A, who had been injured, even though this might have been attributable to the care she had received from her childminder rather than from her parents.
Lord Clyde put the test in this helpful way, at p 169C, with the same result: That the harm must be attributable to the care given to the child requires that the harm must be attributable to the acts or omissions of someone who has the care of the child and the acts or omissions must occur in the course of the exercise of that care.
To have the care of a child comprises more than being in a position where a duty of care towards the child may exist.
It involves the undertaking of the task of looking after the child.
However, it is worth noting that the Court of Appeal had confirmed that the criteria were not satisfied in respect of the childminders child, B, because he had not been harmed at all.
The only basis for suggesting that there was any likelihood of harm to him was the possibility that his mother had harmed the other child and that had not been proved: Re H applied.
The local authority did not appeal against this.
Re O and another (Minors)(Care: Preliminary Hearing) [2003] UKHL 18, [2004] 1 AC 523 was concerned with the more common problem, where the child has been harmed at the hands of one of his parents but the court cannot decide which.
The attributability condition was satisfied.
Furthermore, when considering the welfare test, the court had to proceed on the basis that the child was at risk.
Lord Nicholls, with whom all other members of the Committee agreed, said this, at para 27: Quite simply, it would be grotesque if such a case had to proceed at the welfare stage on the footing that, because neither parent, considered individually, has been proved to be the perpetrator, therefore the child is not at risk from either of them.
This would be grotesque because it would mean the court would proceed on the footing that neither parent represents a risk even though one or other of them was the perpetrator of the harm in question.
Lord Nicholls went on, at para 32, to give the following guidance, on the assumption that the hearing would be split into a fact finding and a disposal stage and that each might be heard by a different judge: the . the judge at the disposal hearing will take into account any views expressed by the judge at the preliminary hearing on the likelihood that one carer was or was not the perpetrator, or a perpetrator, of injuries.
Depending on the inflicted circumstances, these views may be of considerable value in deciding the outcome of the application: for instance, whether the child should be rehabilitated with his mother.
In Re B, Lady Hale commented as follows at para 61: The decisions in In re H, Lancashire County Council v B [2000] 2 AC 147, and In re O [2004] 1 AC 523 fit together as a coherent whole.
The court must first be satisfied that the harm or likelihood of harm exists.
Once that is established, . ,the court has to decide what outcome will be best for the child.
It is very much easier to decide upon a solution if the relative responsibility of the childs carers for the harm which she or another child has suffered can also be established.
But the court cannot shut its eyes to the undoubted harm which has been suffered simply because it does not know who was responsible.
The real answers to the dilemma posed by those
cases lie elsewhere first, in a proper approach to the standard of
proof, and second, in ensuring that the same judge hears the whole case.
Split hearings are one thing; split judging is quite another.
We are told that practice has now changed and that, barring accidents, the same judge does conduct both parts of a split hearing.
Nevertheless, the main object of splitting the hearing is to enable facts to be found.
If the threshold is not crossed, the case can be dismissed at that stage.
If it is crossed, the professionals can base both their assessments and their further work with the family upon the facts found.
It is not at all uncommon for parents to become much more open with the professionals when faced with the judges clear findings based upon what the evidence shows.
Hence there should always be a judgment to explain his findings at that stage.
These proceedings
It was necessary to give the above account of the development of the law in order to understand what happened in these proceedings.
The case was originally identified as suitable for a split hearing; then it was decided to hold a composite hearing; but for regrettable practical reasons, the hearing was split once more.
By that stage, the father was playing no part, but for some unknown reason the local authority decided not to issue a witness summons to require his attendance.
That is regrettable because the judge might well have found it easier to make clear findings had he given evidence.
The mother played a full part in the proceedings and in the assessments, but only accepted that the bruises were non accidentally caused after the possibility of a blood disorder had effectively been ruled out.
The judge heard evidence over three days in January 2008 and three further days in March.
She handed down a detailed judgment in note form on 3 April.
This was before the House of Lords decision in Re B.
At the outset, under the heading Test, she directed herself as follows: The test I have applied in relation to these findings is that set out in the House of Lords case of [Re H] of 1996.
The standard of proof I apply is on the balance of probability.
The allegations in this case are very serious indeed and in many respects are also very unusual.
When I apply the appropriate standard of proof, it has to be based on evidence of reliability and cogency equivalent to the gravity of the allegations.
She then listed five questions, three of which are relevant to the issue before this Court: first, whether the child had suffered non accidental injury; second whether the perpetrator could be identified; and third even if the perpetrator cannot be identified, can either of the parents be excluded as a perpetrator? However, having concluded that the injuries were non accidental, she did not in terms ask herself whether she could identify the perpetrator.
She simply listed the various factors which she took into account in relation to each parent.
She indicated at the outset of her list relating to the father that there is a high index of suspicion in relation to the father and concluded that he could not be ruled out.
There was no such index in relation to the mother but for a variety of reasons the judge also concluded that the mother could not be ruled out.
The final hearing was listed for 5 June but could not proceed.
As suggested in Re O, the judge was invited to give an indication of the relative likelihood of father or mother being responsible for the injuries, in order to assist with the assessment process.
In oral exchanges she indicated that it was more likely that the father was the perpetrator than the mother.
In a written Adjunct to Judgment she explained that Invidious though it is to be too specific, but to help further assessments, I am prepared to say that I feel it 60% likely that the father injured the child and 40% likely that it was the mother.
The final hearing eventually took place before the same judge in December 2008 with judgment in January 2009.
Part of the reason for the delay was that the mother had been unwell following the birth of her second child, William, in July.
At the final hearing, the judge was invited to revisit her findings in the light of Re B, in which judgment was given on 11 June 2008.
She declined to say that her finding meant that the father was the perpetrator of the injuries.
She observed that: When one is deciding these issues, a judge frequently reluctantly comes to the conclusion that he cannot decide who is to blame between two parents or among more than two people who have had care of the child over the relevant period.
However, although unable to form a definitive decision to the requisite standard, a judge can still have an impression, falling short of a finding, that the propensity of the parties and the surrounding circumstances make it more likely that it was one party than another.
Hence the mother was not absolved as a really possible or likely perpetrator.
This meant that the threshold was crossed, not only in relation to the child who had suffered harm, but also in relation to the child who had not.
The fact that there was a real possibility that she had caused the injuries to Jason meant that there was a real possibility that she would injure William.
After considering the welfare factors she concluded that the mothers vulnerable personality was such that she would need therapy in order to make the necessary changes so that she could provide a safe and stable upbringing for the children.
Their lives could not be put on hold in the meantime.
Hence the judge approved the care plan to place them both for adoption and made care and placement orders in respect of both children.
She did, however, give the mother permission to appeal but this was not included in the original order drawn up by the court.
Lord Justice Wall also gave permission to appeal, observing that the case provides a useful opportunity for the Court of Appeal to resolve a point which has arisen following the decision of the House of Lords in Re B, namely (1) if only parents are in the frame for having injured a child but (2) the judge cannot as between parents identify the perpetrator of the injuries, can that judge (3) apportion likely responsibility between them? Before the Court of Appeal, however, this was not the main issue.
It was argued that, following Re B, the test for identifying the perpetrator was the balance of probabilities and that the effect of the Adjunct to judgment was that this judge had in fact identified the father.
The appeal was dismissed: [2009] EWCA Civ 1048.
Identifying the perpetrator: the standard of proof
The first question listed in the statement of facts and issues is whether it is now settled law that the test to be applied to the identification of perpetrators is the balance of probabilities.
The parties are agreed that it is and they are right.
It is correct, as the Court of Appeal observed, that Re B was not directly concerned with the identification of perpetrators but with whether the child had been harmed.
However, the observations of Lord Hoffmann and Lady Hale, quoted at paragraph 12 above, make it clear that the same approach is to be applied to the identification of perpetrators as to any other factual issue in the case.
This issue shows quite clearly that there is no necessary connection between the seriousness of an allegation and the improbability that it has taken place.
The test is the balance of probabilities, nothing more and nothing less.
Of course, it may be difficult for the judge to decide, even on the balance of probabilities, who has caused the harm to the child.
There is no obligation to do so.
As we have already seen, unlike a finding of harm, it is not a necessary ingredient of the threshold criteria.
As Lord Justice Wall put it in Re D (Care Proceedings: Preliminary Hearings) [2009] EWCA Civ 472, [2009] 2 FLR 668, at para 12, judges should not strain to identify the perpetrator as a result of the decision in Re B: If an individual perpetrator can be properly identified on the balance of probabilities, then . it is the judges duty to identify him or her.
But the judge should not start from the premise that it will only be in an exceptional case that it will not be possible to make such an identification.
There are particular benefits in making such a finding in this context, especially where there is a split hearing.
Miss Frances Judd QC, on behalf of the childrens guardian in this case, has stressed that the guardian would rather have a finding on the balance of probabilities than no finding at all.
There are many reasons for this.
The main reason is that it will promote clarity in identifying the future risks to the child and the strategies necessary to protect him from them.
For example, a different care plan may be indicated if there is a risk that the parent in question will ill treat or abuse the child from the plan that may be indicated if there is a risk that she will be vulnerable to relationships with men who may ill treat or abuse the child.
Another important reason is that it will enable the professionals to work with the parent and other members of the family on the basis of the judges findings.
As the Court of Appeal said in Re K (Non Accidental Injuries: Perpetrator: New Evidence) [2004] EWCA Civ 1181, [2005] 1 FLR 285, at para 55: It is paradigmatic of such cases that the perpetrator denies responsibility and that those close to or emotionally engaged with the perpetrator likewise deny any knowledge of how the injuries occurred.
Any process, which encourages or facilitates frankness, is, accordingly, in our view, to be welcomed in principle.
Often, it is not only the parents, but the grandparents and other members of the family, who may be the best resource to protect the child in the future but who are understandably reluctant to accept that someone close to them could be responsible for injuring a child.
Once that fact is brought home to them by a clear finding based upon the evidence, they may be able to work with the professionals to keep the child within the family.
Re K also suggested, at para 56, that there would be long term benefits for the child, whatever the outcome of the proceedings: . we are also of the view that it is in the public interest that children have the right, as they grow into adulthood, to know the truth about who injured them when they were children, and why.
Children who are removed from their parents as a result of non accidental injuries have in due course to come to terms with the fact that one or both of their parents injured them.
This is a heavy burden for any child to bear.
In principle, children need to know the truth if the truth can be ascertained.
If the judge cannot identify a perpetrator?
The second and third questions in the statement of facts and issues ask whether judges should refrain from seeking to identify perpetrators at all if they are unable to do so on the civil standard and whether they should now be discouraged from expressing a view on the comparative likelihood as between possible perpetrators.
These appear to be linked but they are distinct.
As to the second, if the judge cannot identify a perpetrator or perpetrators, it is still important to identify the pool of possible perpetrators.
Sometimes this will be necessary in order to fulfil the attributability criterion.
If the harm has been caused by someone outside the home or family, for example at school or in hospital or by a stranger, then it is not attributable to the parental care unless it would have been reasonable to expect a parent to have prevented it.
Sometimes it will desirable for the same reasons as those given above.
It will help to identify the real risks to the child and the steps needed to protect him.
It will help the professionals in working with the family.
And it will be of value to the child in the long run.
In North Yorkshire County Council v SA [2003] EWCA Civ 839, [2003] 2 FLR 849, the child had suffered non accidental injury on two occasions.
Four people had looked after the child during the relevant time for the more recent injury and a large number of people might have been responsible for the older injury.
The Court of Appeal held that the judge had been wrong to apply a no possibility test when identifying the pool of possible perpetrators.
This was far too wide.
Dame Elizabeth Butler Sloss P, at para 26, preferred a test of a likelihood or real possibility.
Miss Susan Grocott QC, for the local authority, has suggested that this is where confusion has crept in, because in Re H this test was adopted in relation to the prediction of the likelihood of future harm for the purpose of the threshold criteria.
It was not intended as a test for identification of possible perpetrators.
That may be so, but there are real advantages in adopting this approach.
The cases are littered with references to a finding of exculpation or to ruling out a particular person as responsible for the harm suffered.
This is, as the President indicated, to set the bar far too high.
It suggests that parents and other carers are expected to prove their innocence beyond reasonable doubt.
If the evidence is not such as to establish responsibility on the balance of probabilities it should nevertheless be such as to establish whether there is a real possibility that a particular person was involved.
When looking at how best to protect the child and provide for his future, the judge will have to consider the strength of that possibility as part of the overall circumstances of the case.
As to the third question, times have changed since Re O.
Barring unforeseen accidents, the same judge will preside over both parts of the hearing.
While it is helpful to have a finding as to who caused the injuries if such a finding can be made, the guardians view is that it is positively unhelpful to have the sort of indication of percentages that the judge was invited to give in this case.
Lord Justice Thorpe suggested, [2009] EWCA Civ 1048, para 17, that judges should be cautious about amplifying a judgment in which they have been unable to identify a perpetrator: better to leave it thus.
We agree.
The unasked question
If the judge can identify a perpetrator on the balance of probabilities, what is to be done about the risk that he may be wrong and that some one else was in fact responsible? We are indeed all fallible human beings.
We can make mistakes, however hard we try to pay careful attention to the quality of the evidence before us and reach findings which are rationally based upon it.
However, once the court has identified a perpetrator, the risk is not a proven risk to the child but a risk that the judge has got it wrong.
Logically and sensibly, although the judge cannot discount that risk while continuing to hear the case, he cannot use it to conclude that there is a proven risk to the child.
But all the evidence (if accepted by the judge) relating to all the risk factors that the judge has identified remains relevant in deciding what will be best for the child.
And he must remain alive to the possibility of mistake and be prepared to think again if evidence emerges which casts new light on the evidence which led to the earlier findings.
It is now well settled that a judge in care proceedings is entitled to revisit an earlier identification of the perpetrator if fresh evidence warrants this (and this Court saw an example of this in the recent case of Re I (A Child) [2009] UKSC 10).
The guardian also submits that the professionals will find it easier to work with this approach.
It is important not to exaggerate the extent of the problem.
It only really arises in split hearings, which were not originally envisaged when the Children Act was passed.
In a single hearing the judge will know what findings of fact have to be made to support his conclusions both as to the threshold and as to the future welfare of the child.
Moreover, cases rarely come as neatly packaged as this one does.
In most cases, the injuries are such that, even if one parent was not responsible for causing them, she was undoubtedly responsible for failing to protect the child from the person who did cause them.
In many cases, there are other risks to the child besides the risk of physical injury.
The evidence which is relevant to identifying the perpetrator will also be relevant to identifying the other risks to the child and to assessing what will be best for him in the future.
But clearly the steps needed to protect against some risks will be different from the steps needed to protect against others.
And the overall calculus of what will be best for the child in the future will be affected by the nature and extent of the identified risks.
There are many, many factors bearing upon the childs best interests and the identification of risks is only one of them.
The conclusion in this case
We have every sympathy for the judge, who was only repeating the mantra which many other judges at every level had repeated in the past.
But it is clear that she did misdirect herself on the standard of proof at the fact finding hearing.
Because she later said that she had simply been unable to decide, we do not think that we can accept the invitation of Mr Anthony Hayden QC, on behalf of the mother, to treat her Adjunct to judgment as a finding that the father was the perpetrator.
That was not what she thought she was doing.
However, that was an ex post facto rationalisation on her part.
We cannot know what finding she would have made had she directed herself correctly in the first place.
It is only right, for the sake of these children and their mother, that they should have the whole case put before a different judge who can decide the matter on the right basis.
There is a further reason to remit the case.
The judge found the threshold crossed in relation to William on the basis that there was a real possibility that the mother had injured Jason.
That, as already explained, is not a permissible approach to a finding of likelihood of future harm.
It was established in Re H and confirmed in Re O, that a prediction of future harm has to be based upon findings of actual fact made on the balance of probabilities.
It is only once those facts have been found that the degree of likelihood of future events becomes the real possibility test adopted in Re H. It might have been open to the judge to find the threshold crossed in relation to William on a different basis, but she did not do so.
The case may look very different now that the mothers life has moved on and in the mean time, thankfully, the children have been well protected from harm.
The appeal is therefore allowed and the case remitted for a complete rehearing before a different judge.
| UK-Abs | The case concerns the proper approach to deciding who has been responsible for harming a child in proceedings taken to protect that child, and others in the family, from harm and the consequences of such a decision.
At a fact finding hearing, the judge decided that either the mother or the father had injured their baby boy.
He had therefore suffered significant harm attributable to a lack of reasonable parental care, as required by section 31(2) of the Children Act 1989.
The judge did not ask herself which parent was responsible, although she expressed the view that it was 60% likely that the father had injured the child and 40% likely that the mother had.
The mother and father were separated and the father played no part in the proceedings.
At the later welfare hearing, the judge approved the placement of the child for adoption, together with his younger brother, who had been born during the proceedings and placed with foster parents soon after birth.
The mother, who had maintained contact and developed a good relationship with the children, appealed.
The Supreme Court unanimously allows the appeal and remits the case for a complete rehearing before a different judge.
The judgment of the Court was given by Lady Hale. [48] [50]
It is now settled law that the standard of proof in care proceedings is the balance of probabilities, as set out in Re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563 and confirmed in Re B (Children) (Care Proceedings: Standard of Proof) [2008] UKHL 35, [2009] AC 11. [8] [13] It is clear from the observations of Lord Hoffman and Lady Hale in Re B that the same approach is to be applied to the identification of perpetrators as to any other factual issue in the case.
It was incorrect to apply a heightened standard consistent with the gravity of the allegations. [34] There is no obligation for a judge to decide who has caused the harm to the child, as long as that harm is attributable to someone having care of the child, although he should do so if the evidence warrants this.
In a split hearing, there may be particular benefits of making such a finding, mainly because it will promote clarity in identifying the future risks to the child and the strategies necessary to protect him from them. [35] [38] Where a specific perpetrator cannot be identified, a judge should still, where possible, identify a pool of possible perpetrators.
The test for doing so is the likelihood or real possibility that a particular person was involved.
A person does not have to prove their innocence to be left out of account[40] [43] Where a judge has been unable to identify a perpetrator, it is positively unhelpful to have the sort of indication of percentages that the judge gave in this case. [44] If the judge is able to identify a perpetrator on the balance of probabilities, all the evidence accepted by the judge which is relevant to identifying the risks to the child remains relevant to deciding where his
best interests will lie.
The court must also be alive to the possibility that the finding who the perpetrator was is wrong and be prepared to revise it in the light of later evidence. [46] [47] In the circumstances of this case the judge had misdirected herself on the standard of proof in the fact finding hearing.
In those circumstances the case ought to be remitted in whole to a different judge who can decide the matter on the right basis. [48] The decision to remove the second child, who had never been harmed, must also be remitted for rehearing.
The judge had held that there was a risk of future harm to him because there was a real possibility that the mother had injured the older child.
It was held in Re H that this is not the correct approach: predictions of future harm must be based on proven findings of fact. [49]
|
The appellant is Nat Gordon Fraser who went to trial in January 2003 at the High Court of Justiciary in Edinburgh charged with the murder of his wife Arlene Fraser, who disappeared from her home at 2 Smith Street, New Elgin on 28 April 1998.
On 29 January 2003 he was found guilty of her murder and sentenced to life imprisonment, with a punishment part of 25 years.
By a note of appeal which was lodged on 18 December 2003 he appealed against his conviction and sentence.
He was granted leave to appeal.
The indictment on which the appellant went to trial included an allegation that, after the murder and with intent to defeat the ends of justice, he did (iii) on 7 May 1998 at said 2 Smith Street, place a wedding ring, engagement ring and eternity ring belonging to said Arlene Fraser in said house.
Although the Advocate Depute withdrew this charge at the end of the Crown case, he relied on the evidence that the rings had been discovered in the house on 7 May 1998 as a crucial part of the circumstantial evidence against the appellant that he had arranged for his wife to be killed.
In his address to the jury he said that the discovery of the rings was a most compelling piece of evidence.
He invited the jury to conclude that eight or nine days after Arlene Frasers death the appellant had removed the rings from her dead body, taken them to the house and placed them in the bathroom to make it look as though she had decided to walk away from the life that she had had there.
He described the return of the rings as the cornerstone of the case against the appellant, for which he had provided no explanation.
The trial judge directed the jury that, if they reached the view that they were not prepared to hold that it was the appellant who placed the rings in the bathroom on 7 May, it would not be open to them to convict the appellant.
The case was presented on the assumption, for which unchallenged evidence had been led, that the rings were not in the bathroom when Arlene Fraser disappeared.
But it came to the notice of Crown Office after the appeal was lodged that, when he was precognosced by a Crown precognition officer on 3 July 2002, PC Neil Lynch had stated that he had visited the house on three occasions during the night of 28 and 29 April 1998 and that on the final visit he was accompanied by WPC Julie Clark.
He said that on the night of 28 April and the morning of 29 April he had seen jewellery, including rings, in the house and that before the official search began he had thought he saw bracelets and rings in the bathroom which looked like a wedding ring, an engagement ring or an eternity ring.
This information had not been recorded in PC Lynchs notebook and it was not included in any statement provided by him prior to the trial.
It was not provided prior to or during the trial to the Advocate Depute, nor was it provided to the appellants representatives.
PC Lynch and WPC Clark had not been precognosced by the defence in the course of their preparations for the trial.
Inquiries were then instigated, in the course of which a further precognition was taken from PC Lynch and WPC Clark was also precognosced.
When he was precognosced on 8 February 2006 PC Lynch said that he first attended the house with WPC Clark around 10.30 pm to 11.00 pm on 28 April 1998 and that during this visit he saw jewellery in the bathroom.
His recollection was that there were two or three rings there and a chain necklace, or maybe two.
The rings were wedding, engagement or eternity type rings.
When she was precognosced on 2 March 2006 WPC Clark said that either on the night of 28 April or in the early hours of 29 April she saw jewellery in the bathroom.
There were at least two finger rings and a chain, and one of the rings could have been a ladys wedding ring or an eternity ring.
This information had not been recorded in her notebook and it was not included in any statement provided by her before the trial.
The information which had been obtained on precognition from PC Lynch and WPC Clark was disclosed to the appellant on 8 March 2006.
On 11 March 2006 a statement was issued by the Crown Office and Procurator Fiscal Service in which it was said that the Lord Advocate regarded it as a matter of serious concern that this evidence was not made available to the defence before the trial.
The Area Procurator Fiscal for Glasgow, Catherine Dyer, and the Deputy Chief Constable of Strathclyde, Richard Gray, were asked to carry out a full investigation.
They reported on 30 October 2006.
In the course of their investigation they interviewed the Advocate Depute, now the Hon Lord Turnbull.
He said that he thought at an early stage of his involvement in the case that the rings were the key piece of evidence, and that the information in PC Lynchs precognition was so inconsistent with his thinking that if it had come to light during the trial it would have had to have been deserted.
In the light of the information disclosed by the Crown the appellant lodged additional grounds of appeal in May 2006.
These were followed by revised additional grounds in February 2007, in which it was submitted that there had been a miscarriage of justice because the evidence of PC Lynch and WPC Clark was not heard at the trial and because the Crown had failed to disclose the information that PC Lynch had provided when he was precognosced on 3 July 2002.
The appeal was set down for hearing by the Appeal Court (the Lord Justice Clerk (Lord Gill), Lord Osborne and Lord Johnston) in November 2007.
On 13 November 2007, which was the first day of the appeal hearing, the appellant moved the Appeal Court to allow an additional ground of appeal and a devolution minute, which was in similar terms, to be received.
In the devolution minute it was stated that the appellant intended to raise a devolution issue on the following grounds: i. That the Crown was in possession of information from Police Constable Neil Lynch, regarding the presence of Arlene Frasers rings in the bathroom at the locus at the time of her disappearance, prior to and at the time of the trial of the minuter.
ii.
That said information was material evidence, which in the context of the trial, tended to undermine the Crown case and would have been of material assistance to the proper preparation or presentation of the minuters defence.
iii.
That the Crown was under a duty to disclose to the defence any information which undermined its case.
iv.
That, in breach of its duty, the Crown failed to disclose said information to the defence, thereby infringing the minuters rights under article 6(1) of the Convention.
v. That, irrespective of its duty to disclose said information, the Crown was under a duty to present the case against the minuter on an accurate premise, and in a manner which was consistent with the minuters right to a fair trial.
In making the cornerstone of its case the reappearance of Arlene Frasers rings on 7 May 1998 and incriminatory inferences to be drawn from that fact in circumstances where it knew or ought to have known of a body of evidence which would render the invitation to a jury to draw such inferences inappropriate, the Crown infringed the minuters rights in terms of article 6(1) of the Convention.
vi.
That accordingly the conviction should be quashed.
The Appeal Court refused the motion for the additional ground of appeal and the devolution minute to be received.
The reasons that it gave for this decision were that they came too late, that sufficient cause had not been shown and that the matters sought to be raised were adequately covered by the existing grounds of appeal.
In the course of the hearing, which occupied a total of 13 days, the appellants counsel restricted his argument to the question whether there had been a miscarriage of justice on the ground of fresh evidence within the meaning of section 106 of the Criminal Procedure (Scotland) Act 1995, and on the ground of non-disclosure which he accepted was in effect a duplication of the first ground.
The non-disclosure ground of appeal was therefore treated in the same way as the fresh evidence appeal.
On 6 May 2008 the Appeal Court refused the appeal against conviction and continued the appeal against sentence to a date to be afterwards fixed: [2008] HCJAC 26, 2008 SCCR 407.
The appeal against sentence was subsequently abandoned.
The appellant then sought leave of the Appeal Court to appeal to the Judicial Committee of the Privy Council against the Appeal Courts refusal to allow the devolution minute to be received.
Having heard argument on 31 October 2008, the Appeal Court (the Lord Justice Clerk, Lord Osborne and Lord Wheatley) refused the application for leave to appeal on 24 March 2009 as incompetent: [2009] HCJAC 27, 2009 SCCR 500.
Delivering the opinion of the court, Lord Osborne said in para 13 that the identification of the devolution issue depended on the content of the devolution minute which had been tendered and rejected on 13 November 2007.
It follows from that that, in any appeal for which leave might be granted by us, the appellant would seek to canvass exactly the same issues as were canvassed in his appeal under section 106 of the 1995 Act, but this time before the Judicial Committee of the Privy Council.
What decision they might or might not reach in any such appeal can only be a matter of conjecture at this stage.
However, what is clear is that the allowance of leave for such an appeal as this would authorise a procedure under which the Judicial Committee, in the circumstances of this case, would, quite simply, review the merits of the decision reached by this court on 6 May 2008.
Whatever was contemplated by Parliament in enacting paragraphs 1(c) and 13 of Schedule 6 to the Scotland Act 1998, we do not think that it was intended to achieve such a result as that.
Had it been the intention of Parliament to introduce, for the first time, a right of appeal to the Privy Council against the merits of decisions by the High Court of Justiciary determining appeals to it under section 106 of the 1995 Act, we are of the opinion that it would have made that intention clear.
That has not been done.
The appellant then lodged a petition with the Judicial Committee of the Privy Council in which he sought special leave of the Judicial Committee under para 13 of Schedule 6 to the Scotland Act 1998 to appeal against the determination by the Appeal Court of the devolution issue which he had raised in the devolution minute which he had tendered on 13 November 2007.
Consideration of his petition for special leave was deferred pending the determination by the Supreme Court (which by now had inherited the jurisdiction of the Judicial Committee in relation to devolution issues under section 40(4)(b) of and Schedule 9 to the Constitutional Reform Act 2005) of the appeals in Allison v HM Advocate [2010] UKSC 6, 2010 SLT 261 and McInnes v HM Advocate [2010] UKSC 7, 2010 SLT 266.
On 21 April 2010 the appellant lodged a supplementary submission in support of his application for special leave to appeal.
On 20 May 2010 the Court granted his application for special leave.
The devolution issue
As I recently sought to emphasise, this court must always be careful to bear in mind the fact that the High Court of Justiciary is the court of last resort in all criminal matters in Scotland: see section 124(2) of the Criminal Procedure (Scotland) Act 1995; McInnes v HM Advocate 2010 SLT 266, para 5.
Our appellate jurisdiction in relation to its decisions extends only to a consideration of a devolution issue which has been determined by two or more judges of that court: para 13 of Schedule 6 to the Scotland Act 1998.
It goes no wider than that.
If, therefore, the effect of the appellants application for special leave was that we were simply being asked to review the determination under section 106 of the 1995 Act of his appeal by the Appeal Court, as Lord Osborne indicated at 2009 SCCR 500, para 13, we would have been bound to refuse the application for special leave.
The appellants application for special leave was granted by this court for two reasons.
The first was that the decision by the Appeal Court to refuse to allow the devolution issue to be received amounted to a determination of that issue for the purposes of para 13 of Schedule 6 to the Scotland Act 1998: see McDonald v HM Advocate [2008] UKPC 46, 2009 SLT 993; Allison v HM Advocate [2010] UKSC 6, 2010 SLT 261, para 6 per Lord Rodger; Cadder v HM Advocate [2010] UKSC 43, 2010 SLT 1125, [2010] 1 WLR 2601, para 11.
The second was that it appeared to this court, applying the tests set out in McInnes v HM Advocate, 2010 SLT 266, paras 19-20 and 28-30, that it was seriously arguable that material had been withheld from the appellant which ought to have been disclosed to him and his advisers with the consequence the appellant did not receive a fair trial and that the unfairness had not been remedied by the approach taken by the Appeal Court.
The tests set out in McInnes fall into two parts which, as I said in para 19, must be considered and applied separately.
First, there is the test that is to be applied in order to decide whether the material which was withheld from the defence is material which ought to have been disclosed to it.
The test here is whether the material might have materially weakened the Crown case or might materially have strengthened the case for the defence.
As was explained in HM Advocate v Murtagh [2009] UKPC 35, 2010 SC (PC) 39, [2010] 3 WLR 816, para 11, this test was identified by Lord Justice General Rodger in McLeod v HM Advocate (No 2) 1998 JC 67.
He said that the duty of disclosure was an aspect of the role of the Crown as it had been understood since Slater v HM Advocate 1928 JC 94; see also Downie v HM Advocate 1952 JC 37, p 40 per Lord Justice General Cooper; Smith v HM Advocate 1952 JC 66, p 72 per Lord Justice Clerk Thomson.
As Lord Rodger said in McLeod at p 79F-G, our system of criminal procedure proceeds on the basis that the Crown have a duty at any time to disclose to the defence information in their possession which would tend to exculpate the accused.
This test is well settled in Scots law and in the jurisprudence of this court: see Sinclair v HM Advocate 2005 SC (PC) 28, para 33; Allison v HM Advocate 2010 SLT 261, paras 25-28.
There are, no doubt, various ways of expressing it.
In his Review of the Law and Practice of Disclosure in Criminal Proceedings in Scotland (Scottish Government, Edinburgh, 2007), para 5.46 Lord Coulsfield recommended that it should be the duty of the prosecutor to disclose to the defence all material evidence or information which would tend to exculpate the accused whether by weakening the Crown case or providing a defence to it.
But the way it was set out in McInnes, paras 19 and 28, can be taken to be the definitive way of expressing the test.
Then there is the test which is set out in McInnes, paras 20, 24 and 30.
It is directed to the consequences of the violation.
A failure by the Lord Advocate to disclose to the defence material which, applying the first test, ought to have been disclosed to it is incompatible with the accuseds article 6 Convention right to a fair trial: Rowe and Davis v United Kingdom (2000) 30 EHRR 1, para 60; Edwards v United Kingdom (1992) 15 EHRR 417, para 36; Dowsett v United Kingdom (2003) 38 EHRR 845, paras 42, 43.
At this stage the significance and consequences of the violation must be assessed.
The question is whether, given that there was a failure to disclose and having regard to what actually happened at the trial, the trial was nevertheless fair.
It was in order to indicate more precisely what fair means in this context that the court went on to give this further guidance.
The test that is to be applied to determine this issue is whether, taking all the circumstances of the trial into account, there is a real possibility that the jury would have arrived at a different verdict if the withheld material had been disclosed to the defence.
The decision of the Appeal Court (Lady Paton, Lord Hardie and Lady 00000000Smith) in Hay v HM Advocate [2010] HCJAC 125, 2011 SLT 293 provides a good illustration of a case where the application of that test may lead to the refusal of an appeal.
The question in this appeal, therefore, is whether the way the Appeal Court dealt with the non-disclosure aspects of the appeal satisfies the requirements of these two tests.
This is not an easy question to answer as, having refused to entertain the appellants devolution minute, the Appeal Court dealt with all aspects of the appeal as a fresh evidence appeal which was regulated by section 106 of the 1995 Act: 2008 SCCR 407, para 131.
The Lord Justice Clerk explained his approach in para 193 in this way: Since there is no devolution issue in this appeal, I need not consider the points that the advocate depute raised about the test in appeals to the Privy Council.
This appeal falls to be dealt with solely as an appeal under section 106 based on the contention that there has been a miscarriage of justice.
If I am right, the test set by Lord Justice General Emslie in Cameron v HM Advocate [1991 JC 252, at 262], and followed by this court for over 20 years, applies to both grounds of appeal.
The approach which the Appeal Court took requires this court to compare the tests set out in McInnes with those which are applied to appeals under section 106 in order to determine whether, having regard to the way the Appeal Court deal with the case, there is any difference between them.
If we can be satisfied that there is no material difference between the tests that the Appeal Court actually applied and the McInnes tests, that will be an end to the case.
That is because, as I said in McInnes, para 18, the jurisdiction of this court does not extend to the question whether, having identified the right tests, they were applied correctly by the Appeal Court.
But we cannot avoid looking at what the Appeal Court did to see whether the tests that it applied were so similar to what the McInnes tests require that it made no difference whether the appeal was decided as a fresh evidence appeal or under the Convention.
Section 106 of the 1995 Act
In McInnes, para 5, I said that it was not for this court to comment on the test applied by the Appeal Court in fresh evidence appeals which do not raise a devolution issue.
This must be so, as this court has no jurisdiction in appeals of that kind.
But in this case, as it is an appeal in which a devolution issue has been raised but which was determined by the Appeal Court solely by applying Lord Justice General Emslies test as if it were a fresh evidence appeal only, it is not possible to be so reticent.
A comparison of the kind that is required in this case cannot be carried out without first analysing that test and the tests that sections 106(3) and (3A) of the 1995 Act, as substituted by section 17 of the Crime and Punishment (Scotland) Act 1997, lay down.
Section 106 must, of course, be read and given effect in a way that is compatible with the Convention rights, so far as it is possible to do so: section 3(1) of the Human Rights Act 1998.
The relevant parts of the substituted section 106(3) are in these terms: (3) By an appeal under subsection (1) above a person may bring under review of the High Court any alleged miscarriage of justice, which may include such a miscarriage based on subject to subsections (3A) to (3D) below, the existence and significance of evidence which was not heard at the original proceedings; and the jurys having returned a verdict which no reasonable jury, properly directed, could have returned.
(3A) Evidence such as is mentioned in subsection (3)(a) above may found an appeal only where there is a reasonable explanation of why it was not so heard.
Subsection (3B) allows the court to admit evidence which was inadmissible at the time of the trial but which has become admissible under the law that is current at the time of the appeal.
Subsections (3C) and (3D) deal with the situation where a witness who gave evidence at the trial wishes to change his story.
As the Appeal Court said at 2008 SCCR 407, para 193, the test to be applied to an appeal on the ground of fresh evidence was laid down by Lord Justice General Emslie in Cameron v HM Advocate 1991 JC 252; see also Williamson v HM Advocate 1988 SCCR 56 at p 59.
It is first necessary for the court to find that the statutory tests set out in the amended section 106 are satisfied: that the additional evidence was evidence that was not heard at the original proceedings, and that there is a reasonable explanation of why it was not so heard.
If it so finds, the court must then direct its attention to the additional test which Lord Justice General Emslie laid down in Cameron.
He distinguished between cases where the court is satisfied that, if the original jury had heard the new evidence, its significance was such that the jury would have been bound to acquit and cases where the court cannot be so satisfied.
It was with regard to cases of the latter kind that he said at p 262: if the court is to find that a miscarriage of justice had occurred in an appeal such as this, it must be satisfied that the additional evidence is at least capable of being described as important and reliable evidence which would have been bound, or at least likely, to have had a material bearing upon, or a material part to play in, the jurys determination of a critical issue at the trial.
If the court is so satisfied, it will be open to it to hold that a conviction returned in ignorance of the existence of that evidence represents a miscarriage of justice and it may exercise its power to authorise the bringing of a new prosecution.
This test can, for the purposes of a comparison with the tests set out in McInnes, be divided into two parts.
First, there is what may be described as the threshold test: assuming that this is evidence that satisfies the statutory requirement that it was not heard at the original proceedings and there is a reasonable explanation of why it was not so heard, is it at least capable of being described as important and reliable evidence which would have been bound, or at least likely to have had a material bearing upon, or a material part to play in, the jurys determination of a critical issue at the trial? The comparison here is with the test for disclosure that is set out in McInnes, para 19.
Then there is what may be described as the consequences test, introduced by the words it will be open to it to hold: does a conviction returned in ignorance of the existence of that evidence represent a miscarriage of justice? The comparison here is with the test as to whether the trial was fair that is set out in McInnes, para 20.
This analysis fits with the approach that was taken to the Cameron test by the Lord Justice Clerk at 2008 SCCR 407, paras 132 and 133.
An alternative reading of it would be to read the words which I have quoted as setting out a threshold test which leads inevitably, if satisfied, to the conclusion that the verdict of the jury, reached in ignorance of the existence of the additional evidence, must be regarded as a miscarriage of justice.
On that view it will be enough to show that the test set out in the preceding words has been met.
In practice there may be little to choose between these two approaches.
For present purposes, however, I think that it is preferable to follow the Lord Justice Clerks approach.
It has the merit of giving weight to the words it will be open to it to hold, which suggest that the court should regard the reference to a miscarriage of justice in the concluding words of the Cameron test as raising a question that ought to be considered separately.
The tests compared
I take first what I have called the threshold test.
The context for its formulation by Lord Justice General Emslie, in the opinion which he delivered in Cameron on 23 October 1987, was the introduction of new statutory provisions governing appeals on indictment by section 33 of and Schedule 2 to the Criminal Justice (Scotland) Act 1980.
In its original form section 228 of the Criminal Procedure (Scotland) Act 1975 provided simply that a person convicted might appeal to the High Court against his conviction on any ground of appeal which involved a question of law alone or, with the leave of the High Court or upon the certificate of the trial judge that it was a fit case for appeal, on any ground of appeal which involved a question of fact or on a question of mixed law and fact on any other ground which appeared to the High Court or the trial judge to be a sufficient ground of appeal.
The statute did not refer to the possibility of relying on additional evidence, and the court had no power to allow a new trial.
In Gallacher v HM Advocate 1951 JC 38 it was held that the question for the court in such an appeal was whether it was reasonably satisfied that, if the additional evidence was before the jury, it would not have convicted: see also Elliott v HM Advocate 1995 JC 95, 104-105 where the history of the statutory provisions was reviewed.
The 1980 amendments introduced for the first time a statutory test for an appeal based on additional evidence, and it also conferred on the court a power to set aside a verdict and to authorise a new prosecution.
In the light of these amendments the test set out in Gallacher was no longer appropriate: Green v HM Advocate 1983 SCCR 42; Cameron v HM Advocate 1991 JC 251, 260.
Lord Justice General Emslies threshold test, as he explained at 1991 JC 251, 262, was intended to define the approach which the court must take for all cases where the appellant sought to rely on additional evidence.
He had already observed at p 262 that setting aside the verdict of a jury was no light matter: see also Megrahi v HM Advocate 2002 JC 99, para 219 where Lord Justice General Cullen repeated this observation in his summary of the Cameron test.
The availability of a right of appeal based on additional evidence was to be understood against that background.
So Lord Justice General Emslie introduced an additional, and quite stringent, consequences test which was not to be found in the words of the statute.
It remains the test which the High Court applies in these cases, as the Lord Justice Clerk explained in his opinion 2008 SCCR 407, para 193.
The threshold test as to whether the material on which the appellant seeks to rely in a non-disclosure case is admissible for the purposes of an appeal based on a violation of his article 6 Convention right is different from the threshold test which section 106(3)(a) and subsection (3A) lay down for an appeal that is to be founded on additional evidence.
It also differs from the additional threshold test set out in Cameron which was, of course, not designed for use in cases where the appellants ground of appeal is that there has been a violation of his article 6 Convention right to a fair trial because the Crown failed to disclose material which, applying the test in McInnes, para 19, ought to have been disclosed to the defence.
The Cameron test asks whether the disclosed evidence would have been likely to have had a material bearing upon the jurys determination of a critical issue at the trial.
That is a more stringent and more narrowly defined test than the McInnes test, which asks whether the material might have materially weakened the Crown case or materially strengthened the case for the defence.
Then there is what I have called the consequences test in Cameron: was the conviction which was returned in ignorance of the existence of the additional evidence a miscarriage of justice? Is this a different test from that set out in McInnes, para 20 of which asks whether, taking all the circumstances of the trial into account, there is a real possibility that the jury would have arrived at a different verdict? In answering this question we must bear in mind the rule as to interpretation that section 3 of the Human Rights Act 1998 lays down.
The words are obviously quite different.
But are the tests which they describe, in essence, the same test?
Section 106(3), like its predecessors, uses the phrase miscarriage of justice to identify the test which all appeals against conviction must satisfy.
But the statutory formula does not, and never has, provided a definition of what a miscarriage of justice is in law.
In his commentary on the Appeal Courts decision in 2008 SCCR 407, 465, para 4, Sir Gerald Gordon observed that just what is meant by a miscarriage of justice has always been a problem.
In R (Mullen) v Secretary of State for the Home Department [2004] UKHL 18, [2005] 1 AC 1, para 9 Lord Bingham of Cornhill said that it is an expression which, although very familiar, has no settled meaning.
So the statute leaves it to the court to adapt these words to the circumstances of each case.
The formula that was used in McInnes, para 20, was designed to provide a test as to whether, in cases where it is alleged that there was a violation of the appellants article 6 Convention right, the trial was or was not fair.
As was pointed out in that paragraph, in Kelly v HM Advocate [2005] HCJAC 126, 2006 SCCR 9, para 35 Lady Cosgrove said that, if the trial was found nevertheless to have been fair, there would in consequence have been no miscarriage of justice.
The two expressions were seen by her to have, in essence, the same meaning.
Section 3 of the Human Rights Act 1998 supports this approach.
Section 106(3) ought to be read and given effect in a way which is compatible with the article 6 Convention right to a fair trial.
In Coubroughs Executrix v HM Advocate [2010] HCJAC 32, 2010 SLT 755, para 47 the Appeal Court (Lords Carloway, Bonomy and Nimmo Smith) said that, if it had had to be satisfied that a miscarriage of justice had occurred in consequence of a misdirection by the trial judge, the court would have applied the test set out in McInnes: In carrying out that exercise, it would have applied the test of whether there was a real possibility that, had the direction been faultless, a different verdict would have been returned.
In this context, the court must look at whether a different verdict would have been returned by the particular jury that heard the case (McInnes v HM Advocate, Lord Hope at para 20 and para 24, Lord Brown at para 35, Lord Kerr concurring with both at para 41) rather than a hypothetical modern jury hearing all the evidence anew (Lord Rodger at para 30; cf Lord Walker who agreed with both Lord Hope and Lord Rodger).
In Black v HM Advocate [2010] HCJAC 126, 2011 SLT 287 a differently constituted Appeal Court (Lords Osborne and Turnbull and Lady Clark of Calton) said that it had some difficulty in seeing what bearing the test in McInnes had on the matter, as that case was concerned with the consequences of non-disclosure rather than any question of misdirection, and that it had doubts as to the reliance on that test in Coubroughs Executrix.
Similar observations are to be found in the opinion which Lord Osborne delivered in this case: see para 220.
It is, of course, exclusively a matter for the High Court of Justiciary to identify the test that is to be applied in appeals which do not raise a devolution issue: McInnes, para 5.
I very much hope that it may find it possible to resolve the differences of view that have emerged as to the use that may be made of the McInnes test.
We are, after all, both construing the same words in the same section of the same Act, and we are both required to read and give effect to those words in the way that section 3(1) of the Human Rights Act 1998 directs.
But that is not a problem that this court can solve.
Our concern is with the approach that must be taken to this case.
Our position on the matter is clear.
What the McInnes test does is to provide, for the assessment of whether or not there was a fair trial for the purposes of article 6, what was lacking in the Cameron test for appeals on the ground of additional evidence: a definition of what the expression miscarriage of justice in section 106(3) of the 1995 Act means in this context, by reading it in a way that is compatible with the Convention right.
The tests applied by the Appeal Court
Lord Osborne and Lord Johnston delivered separate opinions, but they both agreed with the Lord Justice Clerk who delivered the leading opinion and examined the circumstances of the case, as Lord Johnston said, comprehensively.
So I shall concentrate on what he said to see whether the tests that the Appeal Court applied were sufficiently similar to those that ought to be applied to an appeal on the ground that there had been a violation of the appellants convention rights.
The threshold test
The Lord Justice Clerk addressed himself first to the question whether the new evidence was important evidence of such a kind and quality that it was likely to have been found by a reasonable jury, under proper directions, to have been of material assistance in their consideration of a critical issue that emerged at the trial: the Cameron threshold test: para 132.
In para 134 he said that he was not persuaded that the proposed new evidence, if available to the defence at the trial, would in fact have been led.
In paras 139-144 he said that the appellant had failed to provide a reasonable explanation of why the evidence of PC Lynch and WPC Clark was not led at the trial, as their names were on the list of witnesses and the defence was not deprived of any opportunity to precognosce them thoroughly about the factual allegations in the indictment.
In para 147 he said that he was not persuaded that the recollections of either of them on the point at issue could be regarded as reliable.
In para 150 he rejected the argument that the evidence of PC Lynch and WPC Clark was incompatible with the cornerstone of the Crown case as having been based on an incomplete view of the case.
If they had given evidence about the presence of the rings in the house on the night of 28-29 April, the advocate depute would not have committed himself to his theory about the cornerstone of the Crown case.
It can be seen from this brief summary that it is impossible to reconcile the approach which the Appeal Court took to the threshold question that section 106 raises with the test for cases of non-disclosure in McInnes, para 19.
The Lord Justice Clerks acknowledgement at para 150 that, if the evidence of PC Lynch and WPC Clark had been led at the trial the advocate depute would not have committed himself to his theory, makes the point.
It is plain that this was information which might materially have weakened the Crown case as presented at the trial, or might materially have strengthened the case for the defence.
That was why the Crown, very properly, felt that it ought to have disclosed this material.
The situation in this case is quite different from that which will normally arise where the court is presented with an appeal on the ground of fresh evidence.
A fresh evidence case usually proceeds on the basis that, while there was nothing wrong with the trial as it was originally conducted, there was nevertheless something missing from it which ought now to be taken into account.
Had the material that was missing from this case been disclosed, however, the conduct of the trial by both the Crown and the defence would have quite different.
That is why the non-disclosure in this case goes to the root of the question whether the appellant received a fair trial.
It is no answer to the point that the material ought to have been disclosed to say that the defence had the opportunity to precognosce these witnesses.
The fact is that the Crown chose to present the case at the trial in a way that it would not have chosen to do if it had been aware at the time of the trial that there was evidence that the rings were in the house within hours of Arlenes disappearance.
Nor is it an answer to say that the obligation of disclosure does not extend to precognitions in the possession of the Crown: Sinclair v HM Advocate [2005] UKPC 3; 2005 SC (PC) 28, para 28.
This is because the evidence as to the presence of the rings in the house on that night had such an obvious bearing on a crucial part of the circumstantial case against the appellant.
It does not matter where the material was to be found.
It was information that ought to have been given to the defence, and the failure to do this was a breach of the appellants article 6 right.
The Crown accepted that this was so when it decided to disclose this material, and in his address to this court the learned Solicitor General did not seek to argue otherwise.
As for the observation in para 147 that the recollections of PC Lynch and WPC Clark on the point could not be regarded as reliable, it has to borne in mind that disclosure of this material before or during the trial would have opened up lines of cross-examination that were never pursued by the defence.
It would also have materially weakened the Crowns attack on the appellant that he had no explanation to give for bringing the rings back to the house on 7 May and the theory that he had retrieved them from Arlenes dead body.
He would not have had to provide an explanation if, as the evidence of PC Lynch and WPC Clark suggested, the rings were in the house all along.
Of course, the reliability of their evidence would have been called into question.
But so too would the reliability of the evidence for the Crown, including the video that was taken during the police search of the bathroom.
It seems to me to be plain that the threshold test, as identified in McInnes, is met in this case.
We must therefore consider the consequences.
The consequences test
The Lord Justice Clerk accepted at para 152 that the correct way to proceed was to consider the additional evidence.
But, as he had already explained at para 150, he had already decided that this was not to be done by judging its effect on the way the Crown presented its case to the jury.
At para 161 he concluded that the circumstantial evidence alone was sufficient to entitle the jury to convict.
At para 164 he said that the evidence of Hector Dick, if the jury believed it, transformed the Crown case as it made it much more compelling by providing directly incriminating evidence.
At para 166 he said that, on his interpretation of the evidence, it was not essential to a conviction that the jury should accept that the appellant left the rings in the bathroom.
At para 167 he said that, on that view of the evidence and leaving aside the speech for the Crown and the directions by the trial judge, he could not see how the proposed new evidence could be of such significance as to require the verdict to be set aside.
He acknowledged that, although his own view was that the evidence of the return of the rings was not crucial to the Crown case, the effect of the judges direction about the events of 7 May was to make it so.
But he said that this direction had the result of enabling the court to conclude with certainty that the jury found that the appellant put the rings in the bathroom on that day.
This approach too cannot be reconciled with the consequences test in McInnes, paras 20 and 24.
That test requires the court to assess the consequences of the non-disclosure in the light of what actually happened at the trial in order to determine whether what happened at the trial was unfair.
The approach which the Appeal Court took when it was applying the Cameron test was to assess the consequences on the assumption that, had the undisclosed material been available, the trial would have been conducted differently.
That, in itself, suggests that the trial that actually happened could be regarded as having been unfair because there was a real possibility that, taking all the circumstances of the trial into account, the jury would have arrived at a different verdict.
One cannot, of course, avoid making some assumptions as how the trial might have been conducted if the material had been disclosed to the defence.
It will always be a question of degree as to how far it is proper to go in carrying out that exercise.
But the purpose of doing this is to assess the extent to which, having regard to the way the case was conducted by the Crown, the material would have weakened the Crown case or strengthened the case for the defence.
It is on the case as presented at the trial that the court must concentrate, rather than the case as it might have been presented.
It is not for us to speculate as to what the case might have been, much less how the jury would have reacted to it.
What the Crown asks us to do, and what it persuaded the Appeal Court to do, was to consider the case on the basis that the discovery of the rings on 7 May was indicative of the appellants guilt for completely different reasons from those advanced at the trial.
In effect we were being asked to deal with the case as if we were a new jury trying the case for the first time.
This is not permissible.
Our task is quite different but entirely clear.
As the Appeal Court said in McCreight v H M Advocate [2009] HCJAC 69, 2009 SCCR 743, para 95, it is not the courts task to decide what the outcome of the trial would have been if the trial had been conducted on an entirely different basis.
We must ask ourselves whether, in the light of the undisclosed evidence, there is a real possibility that the jury at this trial would have arrived at a different verdict.
The proposition that the appellant had returned the rings to the bathroom on 7 May was, as the Advocate Depute said in his address to the jury, the cornerstone of the Crowns case.
It is clear, in view of the direction that was then given to them by the trial judge, that the jury must have concluded that the appellant put the rings in the bathroom on 7 May. This was the basis for the Crowns theory that he had obtained the rings from the deceaseds dead body and had placed them in the bathroom to create the impression that she had left the matrimonial home with the intention of turning her back on the life that she had had there.
This theory would have been undermined by the evidence of PC Lynch and WPC Clark.
It would have been challenged by lines of cross-examination of the Crown witnesses that were never developed at the trial, and by questions that were never put to the appellant in chief or in re-examination.
The point could have been made that it was improbable that, if the rings were in the bathroom on 28 and 29 April when the police visited the house, the appellant would have removed them and then chosen to return them on 7 May. The theory that he removed them from the dead body would, if the evidence of PC Lynch and WPC Clark were to be accepted, have been untenable.
These and other arguments that the defence would have been able to develop would have struck at the heart of the case that the Crown presented.
The trial would have been significantly different had the material that was not disclosed been available.
There is a real possibility that this would have been sufficient to raise a reasonable doubt about the Crowns case that the appellant returned the rings to the bathroom on 7 May. If that were so, the jurys verdict would be bound in view of the trial judges direction to have been different.
Taking all the circumstances of the trial into account, and the extent to which the way the Crown chose to present the case would have been affected by the disclosure, the conclusion that the consequences test as identified in McInnes has been satisfied seems to me to be inescapable.
Conclusion
The question, as I have said, is whether the tests which the Appeal Court applied when it decided to dismiss this appeal as if it were a fresh evidence appeal were in essence the same as it would have had to have applied if it had entertained the argument that there had been a violation of the appellants article 6 Convention rights.
For the reasons I have given, I think that this question must be answered in the negative.
This then raises the question as to what this court should do in order to determine the appeal.
This case has come before us as an appeal under paragraph 13 of Schedule 6 to the Scotland Act 1998.
Rule 29(1) of the Supreme Court Rules 2009 (SI 2009/1603) provides that, in relation to an appeal, the Supreme Court has all the powers of the court below and that it may, among other things, affirm, set aside or vary any order of judgment made or given by that court: see rule 29(1)(a).
Section 118 of the Criminal Procedure (Scotland) Act 1995 provides, among other things, that the High Court of Justiciary may dispose of a conviction by setting aside the verdict of the trial court and quashing the conviction and granting authority to bring a new prosecution in accordance with section 119 of the Act: see section 118(1)(c).
The effect of rule 29(1) is that these powers are available to this court too if, having considered the devolution issue, it is satisfied that the answer to it must be that there was a miscarriage of justice in the proceedings in which the appellant was convicted.
For the reasons I have given I would hold, applying the McInnes test, that there was a miscarriage of justice at the appellants trial and that the appeal must be allowed.
I would, however, remit the question whether authority should be granted to bring a new prosecution under section 119 of the Criminal Procedure (Scotland) Act 1995 for determination by the High Court of Justiciary.
As it is its practice not to quash a conviction until consideration has been given to the question whether there should be a retrial, I would remit the case to a differently constituted appeal court to determine that question and, having done so, to quash the conviction.
I very much regret any further delay that this decision may lead to in the final disposal of the case.
I regret too the distress that it will cause to Arlene Frasers relatives, who were present in court throughout the hearing of the appeal.
But it has to be recognised that the appellant was entitled to a fair trial.
Any unfairness at the trial may be put right at the stage of an appeal.
But for that to be achieved the right tests must be applied, so that the appeal too is fair.
The conclusion that I would reach as to what these tests lead to leaves us with no alternative but to make the orders which I have proposed.
I have read Lord Hopes judgment and gratefully adopt his account of the facts and the particular circumstances in which this appeal arises.
I recognise, of course, as Lord Hope more than once points out, that there is no appeal against the High Court of Justiciary in Scotland in respect of criminal matters and that this courts jurisdiction is limited to consideration of devolution issues only.
So far as devolution issues are concerned, however, we have no option but to exercise our jurisdiction and, as again Lord Hope points out, a devolution issue clearly does arise here.
Really there can be no doubt that the prosecutor was under a duty to disclose to the defence PC Lynchs precognition of 3 July 2002 (stating that he had seen the rings during the night of 28/29 April 1998) as, indeed, the Advocate Depute plainly would have done had he himself been aware of it.
On any possible view of the facts, that precognition was material which might have materially weakened the Crown case or materially strengthened the case of the defence see McInnes v HM Advocate 2010 SLT 266 at paras 19, 28 (and 29) and 39.
The accuseds article 6 Convention rights were therefore infringed.
The critical question for the Appeal Court was therefore whether, in the result, the trial had been unfair.
(It is, of course, clearly established on the cases that not every article 6 failure to disclose disclosable material automatically results in an unfair trial.) As to this, the test of such unfairness is that now authoritatively laid down by this Court in McInnes in short whether, taking into account all the circumstances of the trial, there is a real possibility that the jury would have arrived at a different verdict had the undisclosed material in fact been disclosed to the defence see particularly McInnes at paras 24, 30 and 35.
Is this the same test as the Appeal Court in fact applied here, treating the case as they did as a fresh evidence appeal under section 106 of the Criminal Procedure (Scotland) Act 1995 (the 1995 Act)? To this question there can only be one answer: clearly it is not, for all the reasons given by Lord Hope at paras 27-38 of his judgment.
As Lord Hope observes at para 29, it is exclusively a matter for the High Court of Justiciary what test to apply in appeals which do not raise a devolution issue.
As, however, that paragraph also suggests, it would be somewhat bizarre to apply different tests in deciding whether or not there has been a miscarriage of justice depending on whether the Appeal Court is concerned with undisclosed material which should have been disclosed (a devolution issue) or with fresh evidence (not a devolution issue).
As I indicated in McInnes (at paras 36 and 37), the test, which is ultimately one for the Appeal Court, is logically the same for fresh evidence appeals as for those involving undisclosed statements.
Lest it be suggested that undisclosed statements imply fault on the part of the prosecution (arguably, therefore, calling for a lower test to be applied to whether there has been a miscarriage of justice) whereas fresh evidence may not, I would point out that many fresh evidence cases operate at the very least to expose serious flaws in the prosecution evidence take, for example, the lying main prosecution witness in Dial v State of Trinidad and Tobago [2005] UKPC 4; [2005] 1 WLR 1660 (referred to in para 37 of my judgment in McInnes) or, indeed, the egregiously deficient expert evidence revealed by the fresh evidence in McCreight v HM Advocate 2009 SCCR 743 (a decision to which I shall shortly return).
Of course, the route by which the court arrives at the question has there been a miscarriage of justice? differs depending on whether the appeal is brought on undisclosed material or on fresh evidence grounds.
As explained in McInnes, the intermediate (article 6) issue arising in any undisclosed material case is: did the non-disclosure make the trial unfair? In a fresh evidence case, by contrast, the appellant must first establish not merely that the fresh evidence is important and reliable but also that there is a reasonable explanation for why it was not adduced at the original trial; only then does the question arise: without it, has there been a miscarriage of justice? Naturally, as Lord Hope points out at para 32, most fresh evidence cases involve no criticism of the original trial proceedings.
But ultimately they raise the same question as is raised by the undisclosed material cases.
So the McInnes test is, I suggest, equally applicable to both.
As I have observed, the McInnes test whether the relevant fresh material, if adduced at trial, might reasonably have affected the decision of the trial jury is one for the Appeal Court.
That statement, however, needs this qualification: in certain rare cases the fresh evidence (or, as the case may be, undisclosed statement) will be of such overwhelming overall import as to make it inappropriate for the Appeal Court simply to add it to the original evidence and ask itself whether the jury might still reasonably have convicted.
Instead, in such cases, the Appeal Court will have no alternative but to conclude that there has been a miscarriage of justice, and then decide simply whether or not to order a retrial.
Such indeed was the conclusion of the Board in Bain v The Queen [2007] UKPC 33 (referred to at para 36 of my judgment in McInnes) given the dramatically different state of the evidence on all the key factual questions in the case at the conclusion of the appeal hearing compared to how they had been presented to the jury at trial.
Perhaps more directly relevant to the present case, however, this was precisely the decision reached by the Appeal Court in McCreight to which I have already briefly referred.
McCreight concerned a murder appeal brought in the light of fresh expert evidence.
The victim had died from chloroform and the appellant was convicted specifically on the basis that he had held a chloroformed rag over her face, her death having been caused by the inhalation, not the ingestion, of chloroform.
The fresh evidence exposed a thousand-fold error in the reporting of one particular test originally relied upon and, put shortly, established that death by ingestion alone could no longer be excluded.
The Appeal Court rejected the Crowns case that it mattered not which way the chloroform entered the deceaseds body and held that, had the fresh evidence been known at the time, the whole trial would have been conducted entirely differently.
In such circumstances, said the court: It is not our task to decide what the outcome of the trial would have been: in a case such as this, that would involve fruitless speculation.
Amongst the authorities considered by the Appeal Court in McCreight was, it may be noted, that of the Lord Justice Clerk in the present case.
For my part I found the commentary on the case (at p 777 of the report) of assistance: It might be thought that this report is more suitable for publication in a medical journal than in a set of law reports, but although its content is largely medical or scientific and it depends to a large extent on its rather special facts, it is of some legal interest as an example of what might be called a Smith v HM Advocate case, rather than a Fraser v HM Advocate one . .
.. That is to say, the fresh evidence was such that the court could not simply add it to the original evidence and ask itself whether the jury would still have convicted.
It was not even such that it could be said that if it had been led at the trial the approach of the Crown would have taken account of it, and that the evidence as a whole would still have led the jury to convict.
The case does not depend on the terms of the advocate deputes speech or even of the judges charge to the jury.
It depends on the more fundamental consideration that the fresh evidence was so overwhelming that it would have affected the whole way in which the trial was conducted.
The problem for the Crown was not the approach of the trial depute, but the terms of the indictment, which referred exclusively to inhalation . . .. The resultant miscarriage of justice might be described as the failure to provide the accused with a trial based on the true position, and in that situation it seems that the court will not consider what the result of such a trial might have been.
That is an extreme situation unlikely to happen very often, and there are also very few cases in which the original expert evidence is so egregious or at least one hopes so.
For the reasons given earlier, we have no alternative but to allow this appeal: the Appeal Court applied the wrong test.
Left to myself, however, I should have been inclined to remit the whole matter to that court for reconsideration, leaving it to them to decide, first, whether, in the light of McCreight, PC Lynchs statement is of such overwhelming significance and would have had so fundamental an impact on the whole course of the trial that it is simply not open to the Appeal Court to decide what the outcome of the trial might have been; secondly, assuming that the Appeal Court concluded that PC Lynchs statement was not of such overwhelming significance as that, whether nonetheless, applying the McInnes test, there is a real possibility that the jury would have arrived at a different verdict if the withheld material had been disclosed to the defence.
In saying that, I am influenced by what I regard as the great strength of the Crowns evidence as a whole against the appellant.
Indeed, there seems to me force in the Appeal Courts own view that the Crowns case is logically stronger still in the light of PC Lynchs statement than without it.
Given, however, the view of the majority of this court that the application of the McInnes test here leads inescapably to the conclusion that there was a real possibility that the jury might have arrived at a different verdict ie that this would be the only rational view open to the Appeal Court I shall not carry my own doubts to the point of dissent.
In the result, all that will be left for decision by the Appeal Court under section 118 of the 1995 Act is the question whether authority should be granted to bring a new prosecution under section 119.
To this end I agree with Lord Hope that the case should be remitted to a different constitution of the Appeal Court to determine that question and having done so to quash the conviction.
Needless to say, I share to the full the regret expressed by Lord Hope both as to the delay our decision is likely to cause in the final disposal of the case and as to the distress it will cause to the deceaseds grieving relatives.
| UK-Abs | The immediate issue in this case is whether the trial at which the Appellant was convicted of murder was fair.
The point of law of broader significance is whether it is compatible with Article 6 of the European Convention on Human Rights for an appeal against a criminal conviction on the ground of the Crowns non disclosure of evidence to the defence to be determined by applying the test laid down by the High Court of Justiciary in Cameron v HMA 1991 JC 252 for fresh evidence appeals.
Arlene Fraser disappeared from her home in New Elgin on 28 April 1998.
Her body has never been found.
The Appellant stood trial for her murder in January 2003.
He was convicted and sentenced to life imprisonment.
The Crowns case was that the Appellant had arranged for his wife to be killed.
Part of the evidence against him was that his wifes rings had been discovered in the bathroom of her house on 7 May 1998 after he had visited the house.
There was unchallenged evidence that they had not been in the bathroom when the deceased had disappeared.
At the trial, the Crown placed considerable emphasis on the return of the rings.
In his speech to the jury, the prosecutor (the Advocate Depute) described the return of the rings as the cornerstone of the case against the Appellant.
He suggested to the jury that the Appellant had removed the rings from the dead body and placed them in the bathroom to make it look as though his wife had decided to walk away from her life.
The trial judge directed the jury that, if they were not prepared to hold that it was the Appellant who placed the rings in the bathroom on 7 May, it was not open to them to convict him.
After conviction, it came to light that the Crown had had evidence before the trial suggesting that the rings were in the house on the night of 28/29 April after all.
In preparing for the trial, a statement had been taken from PC Lynch on 3 July 2002 in which he had said that he had visited the house that night, before the official police search, and had seen rings in the bathroom.
He said that he had been accompanied by WPC Clark.
After this information came to light, the Crown carried out further inquiries.
Statements were taken in 2006 from PC Lynch and WPC Clark.
Both said that they had seen jewellery (including rings) in the bathroom on the night of Arlene Frasers disappearance.
The rings were not visible in a video which had been taken during the official search, but subsequent analysis of that video could not rule out the possibility that rings had been present.
The Appellant relied upon this information in his appeal against conviction.
He argued that it was new evidence which showed that his conviction was a miscarriage of justice.
He also sought to raise a devolution issue, arguing that the Crowns failure to disclosure the information obtained from PC Lynch on 3 July 2002 had infringed his right to a fair trial under Article 6 ECHR.
The Appeal Court refused to allow him to advance the devolution issue: among other reasons, it held that the points were already covered by the fresh evidence grounds of appeal.
The Appeal Court refused the Appellants appeal.
It treated the grounds of appeal relating to the Crowns non disclosure in the same way as those relating to new evidence and held that the new evidence was not such as to make the conviction a miscarriage of justice.
The Supreme Court granted the Appellant leave to appeal to the Supreme Court.
The Supreme Court unanimously allows the appeal.
It remits the case to a differently constituted Appeal Court to consider whether to grant authority for a new prosecution and then, having considered that point, to quash the conviction.
Lord Hope gives the main judgment, with which Lords Rodger, Kerr and Dyson agree.
Lord Brown gives a separate judgment indicating his reservations about allowing the appeal, but does not dissent.
The Supreme Court recognises that it has no jurisdiction to consider the test which applies in Scots law to fresh evidence appeals which do not involve a devolution issue.
This case, however, involves an issue of non disclosure, which raises the question whether the trial complied with Article 6 ECHR and which is a devolution issue.
By refusing the Appellants devolution minute, the Appeal Court did determine a devolution issue and the Supreme Court has jurisdiction to hear an appeal against that determination: [11], [12], [17].
The test which is to be applied to determine whether non disclosure of information by the Crown had resulted in an unfair trial, contrary to Article 6 ECHR, is now set down in the Supreme Courts decision in McInnes v HM Advocate ([2010] UKSC 7).
It can be analysed as comprising threshold and consequences components.
If the material might have materially weakened the Crown case or might have materially strengthened the case for the defence, it ought to have been disclosed by the Crown.
When assessing the consequences of non disclosure, McInnes provides that the trial was unfair and the verdict a miscarriage of justice if there is a real possibility that the jury would have arrived at a different verdict if the withheld material had been disclosed to the defence: [12] [14].
Because it dealt with all of the grounds of appeal as a fresh evidence appeal, the Appeal Court applied the test set down in Cameron v HMA 1991 JC 252.
In order to determine whether that approach complies with what McInnes requires in a non disclosure case, the Cameron test and the Appeal Courts application of it must be compared against the McInnes test: [15] [16].
The Cameron test is materially different from the McInnes test: [25], [29].
If fresh evidence is admissible on appeal, the threshold element of the Cameron test asks whether the evidence would have had a material bearing upon the jurys determination of a critical issue at trial.
That is more stringent than the threshold test in McInnes ([25]), which was clearly satisfied in this case: had the evidence of PC Lynch and WPC Clark been led at the trial the prosecution would not have committed itself to the theory of the case which it presented and the conduct of the trial by both parties would have been quite different: [32].
In relation to the consequences of the evidence not featuring at the trial, the Cameron test asks whether there has been a miscarriage of justice, which it does not define: [26] [27].
In this case, the Appeal Court considered that question on the assumption that, had the undisclosed material been available at the trial, it would have been conducted differently.
As a first stage of its analysis, it left out of account the Advocate Deputes speech to the jury and the judges direction and considered the evidence led at the trial.
It considered that the jury had been entitled to convict on the basis of that evidence and concluded that the new evidence was not of such significance as to require the verdict to be set aside: [36].
That approach cannot be reconciled with the McInnes test, which requires an appeal court to concentrate on the case as presented at trial, rather than as it might have been presented.
An appeal court is not to deal with the case as if it were a new jury trying the case for the first time.
There was a real possibility, in light of the undisclosed evidence, that the jury at this trial would have arrived at a different verdict: if the evidence of PC Lynch and WPC Clark were accepted, the Crowns theory of the case would have been untenable: [37] [39].
Lord Brown agreed that the Appeal Court applied the wrong test.
He would have been inclined to remit the whole matter to that court for reconsideration, leaving it to that court to apply the McInnes test.
In view of the majoritys decision, he did not carry his doubts to the point of dissent: [51] [52]
|
The appellant (Autoclenz) provides car cleaning services to motor retailers and auctioneers.
It has contracts with British Car Auctions (BCA) for cleaning vehicles at a number of different places.
The respondents (the claimants) are 20 individual valeters who at the relevant time provided car cleaning services at BCAs Measham site in Derbyshire.
In these proceedings the claimants say that they were workers within the meaning of the National Minimum Wage Regulations 1999 (NMWR) (SI 1999/584) and of the Working Time Regulations 1998 (WTR) (SI 1998/1833) and that, as workers, they were entitled to be paid in accordance with the NMWR and to receive statutory paid leave under the WTR.
Their case is that they were paid neither.
The question is whether the claimants were workers within regulation 2(1) of the NWMR, which adopted the definition in section 54(3) of the National Minimum Wage Act 1998, and in regulation 2(1) of the WTR.
The definition of worker is in materially identical terms in both sets of regulations as follows: . worker means an individual who has entered into or works under (a) a contract of employment; or (b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.
Materially identical definitions of employee and worker appear in various other statutes and regulations concerning employment rights and protection against unlawful discrimination in the employment field.
The proceedings to date
Proceedings were issued in the Employment Tribunal (ET) by the claimants on 19 November 2007.
The question whether the claimants were workers as so defined was determined by the ET as a preliminary issue.
In a judgment sent to the parties on 1 March 2008 the ET (Employment Judge Foxwell) held that the claimants were workers within the definition on the basis that they were employed under contracts of employment within limb (a) of the definition and that they were in any event working pursuant to contracts within limb (b).
Autoclenz appealed to the Employment Appeal Tribunal (EAT), which heard the appeal on 4 June 2008.
The EAT (Judge Peter Clark) held that they were not within (a) but that they were within (b).
Both sides appealed to the Court of Appeal.
The Court of Appeal (Sedley, Smith and Aikens LJJ) restored the judgment of the ET, holding that the claimants were within both (a) and (b).
Autoclenz was granted permission to appeal by this Court.
The written contract
In each case there was a written contract contained in or evidenced by two documents.
I take as an example the position of Paul Huntington.
His original contract was dated 18 June 1991, in which he was described as a sub contractor.
Clauses 1 to 3 of the contract provided: 1.
The Sub contractor shall perform the services which he agrees to carry out for Autoclenz within a reasonable time and in a good and workmanlike manner. 2.
The Sub contractor hereby confirms that he is a self employed independent contractor and that his tax affairs are handled by . tax office under Schedule D ref No . 3.
The Sub contractor and Autoclenz agree and acknowledge that the Sub contractor is not, and that it is the intention of the parties that the Sub contractor should not become, an employee of Autoclenz.
Accordingly, the Sub contractor is responsible for the payment of all income tax and national insurance contributions arising on or in respect of payments made to the Sub contractor by Autoclenz and the Sub contractor agrees that he shall indemnify Autoclenz in respect of any liability to tax and national insurance contributions for which Autoclenz may be held liable on or in respect of such payments.
That contract did not contain any clause permitting Mr Huntington to provide a substitute to perform the services he was contracted to perform.
Nor did it state that he was not obliged to perform services or that Autoclenz was not obliged to provide work under the agreement.
In 2004 the Inland Revenue carried out a review of the arrangements between Autoclenz and the valeters.
On 20 May 2004 it said, somewhat enigmatically, that it is felt that the balance of probability leans more towards self employment than PAYE.
In 2007 Autoclenz decided to produce two new documents, which formed the contract between it and the claimant in each case.
The first document, which was not itself signed by the claimant, included the following: For the purpose of providing car valeting services to its clients garages, Autoclenz wishes to engage the services of car valeters FROM TIME TO TIME on a sub contract basis.
We understand that YOU ARE AN EXPERIENCED CAR VALETER and might be prepared to offer your services to Autoclenz.
If so would you please complete and return to us the form of agreement set out below, which is intended to confirm that any contractual relationship between Autoclenz and yourself is one of client and independent contractor and not one of employer/employee and to protect Autoclenz against any claim on Autoclenz for Income Tax and/or National Insurance contributions in respect of payments made to yourself.
For the avoidance of doubt, as an independent contractor, you are entitled to engage one or more individuals to carry out the valeting on your behalf, provided that such an individual is compliant with Autoclenzs requirements of sub contractors as set out in this agreement Those requirements were, in short, that the individual was capable of providing the services, had been fully trained and held a current full UK driving licence which he would make available to Autoclenz, that he complied with health and safety guidance and that he had permission to work in the UK.
The document asked the claimant to note the following.
For security reasons the valeter would be obliged to wear protective overalls which would identify him as a contractor of Autoclenz and that such overalls could be purchased from Autoclenz.
The valeter would be required to provide cleaning materials for himself and those who worked for him.
Given the nature of the work it might be necessary for the valeter and those who worked for him to drive motor vehicles.
Accordingly the valeter would be required to hold a current valid driving licence.
The document concluded: If you wish to provide services to Autoclenz would you please sign and return to Autoclenz the form agreement attached.
YOU WILL NOT BE OBLIGED TO PROVIDE YOUR SERVICES ON ANY PARTICULAR OCCASION NOR, IN ENTERING INTO SUCH AGREEMENT, DOES AUTOCLENZ UNDERTAKE ANY OBLIGATION TO ENGAGE YOUR SERVICES ON ANY PARTICULAR OCCASION.
The second document was a contract which Mr Huntington signed on 21 May 2007.
A copy of the contract is annexed to this judgment marked A.
It can be seen that Mr Huntington was described as a sub contractor throughout.
Moreover, by clause 3 it was expressly agreed that it was the intention of the parties that the sub contractor was not and should not become an employee of Autoclenz.
Further, by clause 7(a) Mr Huntington promised that he would ensure that those who worked for him in providing services to Autoclenz held a current driving licence as set out in the clause.
The ET held that both documents were put in front of Mr Huntington and that he signed the contract set out in Annex A, although he was not provided with a copy.
The judge said that he strongly suspected that Mr Huntington signed it without reading it.
It is common ground that both documents formed part of the contract between the parties.
If the relevant contract was, as a matter of law, solely contained in those two documents, it would be impossible to bring the case within limb (a) of the definition and very difficult to bring it within limb (b).
However, the ET made certain further findings of fact, including the following.
If the valeters had not signed the revised contracts, they would not have been offered further work.
The valeters had no input into the negotiation of the terms, which were imposed by Autoclenz.
However, as the ET put it at para 32, the claimants went into their agreements . with their eyes open as Autoclenz has made no secret of the fact that it regards the claimants as self employed.
The operation
The ET made further findings of fact in respect of the operation carried on by Autoclenz as follows.
There was a relatively low turnover of personnel among the valeters.
Mr Huntington started with Autoclenz in 1991 and continued right through almost on a full time basis apart from a few weeks in 2002 and 2003 when he tried working for a competitor.
New valeters were recruited either by personal recommendation and word of mouth or through advertisements placed in the local press or at a job centre.
Examples of such advertisements seen by the ET invited applications for well paid full time work and emphasised that Autoclenz was looking for self employed people.
The claimants all knew that they were being offered a role which was described and intended by Autoclenz to be one of self employment.
The vehicles were required to be cleaned in accordance with a detailed specification set by BCA.
The valeters generally worked in teams of four, with one valeter as team leader.
Each team took a batch of six vehicles at a time and the members shared the task between them.
The more experienced valeters were able to get through more batches than others.
On most days there was enough work to keep a group of 14 valeters busy.
In the year before the hearing in the ET there was more work, although the ET also found that because of the fluctuations in the level of work there was occasionally no work to be done but that that was the exception rather than the rule.
The payments to the valeters were calculated on a piecework basis.
The valeters kept records which were then passed to Autoclenz, first locally and then to head office.
The valeters rendered weekly invoices which, although nominally from the valeters, were calculated and prepared by Autoclenz, being generated by Autoclenz at head office based on the information provided by the valeters.
The valeters undertook responsibility for payment of tax and national insurance.
This was done on a self employed basis.
The arrangements for the provision of equipment and materials varied over the years but at the time the ET was considering, Autoclenz provided all the equipment and materials used by the valeters including jet washers, vacuum cleaners, sponges and chemicals.
From 2007 Autoclenz introduced a 5 per cent charge for materials, which was contained in a separate invoice.
The valeters were supplied with overalls bearing BCAs logo for security reasons.
The first two sets of overalls were free of charge but the valeters had to pay for subsequent sets.
The critical findings of fact are set out in paragraphs 34 to 40 of the ETs judgment.
I will return to these after considering the correct approach in principle to issues of this kind.
The legal principles
It is common ground that the issues are (1) whether the ET was correct to find that the claimants were at all material times working under contracts of employment and were therefore workers within limb (a) of the definition and (2) whether in any event the ET was correct to find that they were at all material times within limb (b).
This involves consideration of whether and in what circumstances the ET may disregard terms which were included in a written agreement between the parties and instead base its decision on a finding that the documents did not reflect what was actually agreed between the parties or the true intentions or expectations of the parties.
As Smith LJ explained in the Court of Appeal at para 11, the classic description of a contract of employment (or a contract of service as it used to be called) is found in the judgment of MacKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497, 515C: A contract of service exists if these three conditions are fulfilled. (i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master. (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master. (iii) The other provisions of the contract are consistent with its being a contract of service.
Freedom to do a job either by ones own hands or by anothers is inconsistent with a contract of service, though a limited or occasional power of delegation may not be.
Three further propositions are not I think contentious: i) As Stephenson LJ put it in Nethermere (St Neots) Ltd v Gardiner [1984] ICR 612, 623, There must be an irreducible minimum of obligation on each side to create a contract of service. ii) If a genuine right of substitution exists, this negates an obligation to
perform work personally and is inconsistent with employee status: Express
& Echo Publications Ltd v Tanton (Tanton) [1999] ICR 693, per Peter Gibson LJ at p 699G. iii) If a contractual right, as for example a right to substitute, exists, it does not matter that it is not used.
It does not follow from the fact that a term is not enforced that such a term is not part of the agreement: see eg Tanton at p 697G.
The essential question in each case is what were the terms of the agreement.
The position under the ordinary law of contract is clear.
It was correctly summarised thus by Aikens LJ in the Court of Appeal: 87.
Express contracts (as opposed to those implied from conduct) can be oral, in writing or a mixture of both.
Where the terms are put in writing by the parties and it is not alleged that there are any additional oral terms to it, then those written terms will, at least prima facie represent the whole of the parties' agreement.
Ordinarily the parties are bound by those terms where a party has signed the contract: see eg L'Estrange v F Graucob Ltd [1934] 2 KB 394.
If a party has not signed a contract, then there are the usual issues as to whether he was made sufficiently aware of the clauses for a court to be able to conclude that he agreed to the terms in them.
That is not an issue in this case. 88.
Once it is established that the written terms of the contract were agreed, it is not possible to imply terms into a contract that are inconsistent with its express terms.
The only way it can be argued that a contract contains a term which is inconsistent with one of its express terms is to allege that the written terms do not accurately reflect the true agreement of the parties. 89.
Generally, if a party to a contract claims that a written term does not accurately reflect what was agreed between the parties, the allegation is that there was a continuing common intention to agree another term, which intention was outwardly manifested but, because of a mistake (usually a common mistake of the parties, but it can be a unilateral one) the contract inaccurately recorded what was agreed.
If such a case is made out, a court may grant rectification of a contract.
See, generally, the discussion in the speech of Lord Hoffmann, [48] to [66], in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 with whom all the other law lords agreed.
Nothing in this judgment is intended in any way to alter those principles, which apply to ordinary contracts and, in particular, to commercial contracts.
There is, however, a body of case law in the context of employment contracts in which a different approach has been taken.
Again, Aikens LJ put it correctly in the remainder of para 89 as follows: But in cases of contracts concerning work and services, where one party alleges that the written contract terms do not accurately reflect the true agreement of the parties, rectification principles are not in point, because it is not generally alleged that there was a mistake in setting out the contract terms as they were.
There may be several reasons why the written terms do not accurately reflect what the parties actually agreed.
But in each case the question the court has to answer is: what contractual terms did the parties actually agree?
In this context there are three particular cases in which the courts have held that the ET should adopt a test that focuses on the reality of the situation where written documentation may not reflect the reality of the relationship: Consistent Group Ltd v Kalwak (Kalwak) [2007] IRLR 560 in the EAT (but cf [2008] EWCA Civ 430, [2008] IRLR 505 in the Court of Appeal), Firthglow Ltd (t/a Protectacoat) v Szilagyi (Szilagyi) [2009] EWCA Civ 98, [2009] ICR 835 and the Court of Appeal decision in the present case.
Those cases must be set in their historical context, which includes Snook v London and West Riding Investments Ltd (Snook) [1967] 2 QB 786 and Tanton.
Although Snook was not an employment case but arose out of the hire purchase of a car, I refer to it because of the statement of Diplock LJ, which has been often referred to in the employment context.
He said this at p 802 with reference to the suggestion that the transaction between the parties was a sham.
I apprehend that, if it [ie the concept of sham] has any meaning in law, it means acts done or documents executed by the parties to the sham which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.
But one thing, I think, is clear in legal principle, morality and the authorities that for acts or documents to be a sham, with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.
I would accept the submission made on behalf of the claimants that, although the case is authority for the proposition that if two parties conspire to misrepresent their true contract to a third party, the court is free to disregard the false arrangement, it is not authority for the proposition that this form of misrepresentation is the only circumstance in which the court may disregard a written term which is not part of the true agreement.
That can be seen in the context of landlord and tenant from Street v Mountford [1985] AC 809 and Antoniades v Villiers [1990] 1 AC 417, especially per Lord Bridge at p 454, Lord Ackner at p 466, Lord Oliver at p 467 and Lord Jauncey at p 477.
See also in the housing context Bankway Properties Ltd v Pensfold Dunsford [2001] 1 WLR 1369 per Arden LJ at paras 42 to 44.
Those cases were examples of the courts concluding that relevant contractual provisions were not effective to avoid a particular statutory result.
The same approach underlay the reasoning of Elias J in Kalwak in the EAT, where the questions were essentially the same as in the instant case.
One of the questions was whether the terms of the written agreement relating to the right to refuse to work or to work for someone else were a sham.
Elias J referred to part of the judgment in Snook quoted above at para 53.
At para 56 he noted that in Tanton Peter Gibson LJ had recognised (at p 697G) that such terms might be a sham.
He also noted that the Court of Appeal had emphasised that the question whether there was an obligation personally to perform the work had to be determined by asking what legal obligations bound the parties rather than by asking how the contract was actually carried out.
The employers appeal in Tanton was allowed on the ground that the ET wrongly drew an inference from the way the contract was carried out.
At paras 57 59 Elias J said this: 57.
The concern to which tribunals must be alive is that armies of lawyers will simply place substitution clauses, or clauses denying any obligation to accept or provide work in employment contracts, as a matter of form, even where such terms do not begin to reflect the real relationship.
Peter Gibson LJ was alive to the problem.
He said this (p 697G) Of course, it is important that the industrial tribunal should be alert in this area of the law to look at the reality of any obligations.
If the obligation is a sham it will want to say so.
In other words, if the reality of the situation is that no one seriously expects that a worker will seek to provide a substitute, or refuse the work offered, the fact that the contract expressly provides for these unrealistic possibilities will not alter the true nature of the relationship.
But if these clauses 58. genuinely reflect what might realistically be expected to occur, the fact that the rights conferred have not in fact been exercised will not render the right meaningless. 59.
Tribunals should take a sensible and robust view of these
matters in order to prevent form undermining substance
There is in my opinion considerable force in the approach set out in those paragraphs.
Elias J dismissed the employers appeal from the ET but his decision was reversed by the Court of Appeal, comprising May, Rimer and Wilson LJJ.
The differences between the reasoning of Elias J and that of the Court of Appeal were discussed in some detail by the Court of Appeal in the later case of Szilagyi (comprising Sedley, Keene and Smith LJJ) and indeed by the Court of Appeal in this case.
In Szilagyi the court was considering similar questions.
The principal question was whether written partnership agreements were a sham.
The principal judgment was given by Smith LJ.
Smith LJ referred to the dicta of Diplock LJ in Snook.
She also referred in detail to Kalwak in the EAT and in the Court of Appeal, and to Tanton.
She quoted para 58 from Elias Js judgment in Kalwak which I have set out above.
At para 48 she noted that in the Court of Appeal Rimer LJ scrutinised Elias Js judgment and was critical of the reasoning by which he had upheld the ETs decision.
However, she added that the court allowed the appeal on the ground that the ETs decision was inadequately reasoned and remitted the case for rehearing.
She then said that it did not appear to her that the court was critical of Elias Js test and added that it seemed to her that Rimer LJ approved that test as being in compliance with Diplock LJs definition of a sham.
For my part, I am not persuaded that that is so.
It appears to me that the reasoning of Rimer LJ and that of Elias J are not consistent.
In this regard I agree with the view of Judge Clark to that effect in the EAT.
See also a valuable article by Alan Bogg in (2010) 126 LQR 166, 167 168.
Rimer LJ said at para 28 in Kalwak that a finding that the contract was in part a sham required a finding that both parties intended it to paint a false picture as to the true nature of their respective obligations.
He was there applying the approach of Diplock LJ in Snook to this situation.
In my opinion that is too narrow an approach to an employment relationship of this kind.
In this regard I agree with the views expressed by ACL Davies in an illuminating article entitled Sensible Thinking About Sham Transactions in (2009) 38 ILJ 318, which was a note on Szilagyi published before the decision of the Court of Appeal in the instant case.
However, the question for this court is not whether the two approaches are consistent but what is the correct principle.
I unhesitatingly prefer the approach of Elias J in Kalwak and of the Court of Appeal in Szilagyi and in this case to that of the Court of Appeal in Kalwak.
The question in every case is, as Aikens LJ put it at para 88 quoted above, what was the true agreement between the parties.
I do not perceive any distinction between his approach and the approaches of Elias J in Kalwak, of Smith LJ and Sedley LJ in Szilagyi and this case and of Aikens LJ in this case.
In para 57 of Kalwak (set out above) Elias J quoted Peter Gibson LJs reference to the importance of looking at the reality of the obligations and in para 58 to the reality of the situation.
In this case Smith LJ quoted (at para 51) para 50 of her judgment in Szilagyi: The kernel of all these dicta is that the court or tribunal has to consider whether or not the words of the written contract represent the true intentions or expectations of the parties, not only at the inception of the contract but, if appropriate, as time goes by.
She added in paras 52, 53 and 55: 52.
I regret that that short paragraph [ie para 51] requires some clarification in that my reference to 'as time goes by' is capable of misunderstanding.
What I wished to say was that the court or tribunal must consider whether or not the words of the written contract represent the true intentions or expectations of the parties (and therefore their implied agreement and contractual obligations), not only at the inception of the contract but at any later stage where the evidence shows that the parties have expressly or impliedly varied the agreement between them.
In my judgment the true position, consistent with Tanton, Kalwak and Szilagyi, is that where there is a dispute as to the genuineness of a written term in a contract, the focus of the enquiry must be to discover the actual legal obligations of the parties.
To carry out that exercise, the tribunal will have to examine all the relevant evidence.
That will, of course, include the written term itself, read in the context of the whole agreement.
It will also include evidence of how the parties conducted themselves in practice and what their expectations of each other were.
Evidence of how the parties conducted themselves in practice may be so persuasive that the tribunal can draw an inference that that practice reflects the true obligations of the parties.
But the mere fact that the parties conducted themselves in a particular way does not of itself mean that that conduct accurately reflects the legal rights and 53.
55. obligations.
For example, there could well be a legal right to provide a substitute worker and the fact that that right was never exercised in practice does not mean that it was not a genuine right.
It remains to consider whether the EJ directed himself correctly when he considered the genuineness of the written terms.
I am satisfied that he directed himself correctly in accordance with, although in advance of, Szilagyi.
In effect, he directed himself that he must seek to find the true nature of the rights and obligations and that the fact that the rights conferred by the written contract had not in fact been exercised did not mean that they were not genuine rights.
Aikens LJ stressed at paras 90 to 92 the importance of identifying what were the actual legal obligations of the parties.
He expressly agreed with Smith LJs analysis of the legal position in Szilagyi and in paras 47 to 53 in this case.
In addition, he correctly warned against focusing on the true intentions or true expectations of the parties because of the risk of concentrating too much on what were the private intentions of the parties.
He added: What the parties privately intended or expected (either before or after the contract was agreed) may be evidence of what, objectively discerned, was actually agreed between the parties: see Lord Hoffmann's speech in the Chartbrook case at [64] to [65].
But ultimately what matters is only what was agreed, either as set out in the written terms or, if it is alleged those terms are not accurate, what is proved to be their actual agreement at the time the contract was concluded.
I accept, of course, that the agreement may not be express; it may be implied.
But the court or tribunal's task is still to ascertain what was agreed.
I agree.
At para 103 Sedley LJ said that he was entirely content to adopt the reasoning of Aikens LJ: recognising as it does that while employment is a matter of contract, the factual matrix in which the contract is cast is not ordinarily the same as that of an arms length commercial contract.
I agree.
commercial dispute is identified by Aikens LJ in para 92 as follows: The critical difference between this type of case and the ordinary 92.
I respectfully agree with the view, emphasised by both Smith and Sedley LJJ, that the circumstances in which contracts relating to work or services are concluded are often very different from those in which commercial contracts between parties of equal bargaining power are agreed.
I accept that, frequently, organisations which are offering work or requiring services to be provided by individuals are in a position to dictate the written terms which the other party has to accept.
In practice, in this area of the law, it may be more common for a court or tribunal to have to investigate allegations that the written contract does not represent the actual terms agreed and the court or tribunal must be realistic and worldly wise when it does so.
So the relative bargaining power of the parties must be taken into account in deciding whether the terms of any written agreement in truth represent what was agreed and the true agreement will often have to be gleaned from all the circumstances of the case, of which the written agreement is only a part.
This may be described as a purposive approach to the problem.
If so, I am content with that description.
The facts
With characteristic clarity and brevity Sedley LJ described the factual position as follows: 104.
Employment judges have a good knowledge of the world of work and a sense, derived from experience, of what is real there and what is window dressing.
The conclusion that Autoclenz's valeters were employees in all but name was a perfectly tenable one on the evidence which the judge had before him.
The elaborate protestations in the contractual documents that the men were self employed were odd in themselves and, when examined, bore no practical relation to the reality of the relationship. 105.
The contracts began by spelling out that each worker was required to perform the services which he agrees to carry out for Autoclenz within a reasonable time and in a good and workmanlike manner an obligation entirely consistent with employment.
Notwithstanding the repeated interpolation of the word sub contractor and the introduction of terms inconsistent with employment which, as the judge found, were unreal, there was ample evidence on which the judge could find, as he did, that this was in truth an employment relationship. 106.
His finding did not seek to recast the contracts: it was a finding on the prior question of what the contracts were.
Rightly, it was uninfluenced by the fiscal and other consequences of the relationship, which were by no means all one way.
I entirely agree with those conclusions.
They are in my opinion justified by the critical findings of fact in paras 35 to 38 of the judgment of Employment Judge Foxwell in the ET.
They were these: 35.
In my judgment these claimants are employees.
I do not think it can be said that Mr Huntington and his colleagues are businessmen in business on their own account.
They have no control over the way in which they do their work.
They have no real control over the hours that they work, save and except that they can leave when their share of the work on site has been completed.
They do not have any real economic interest in the way in which the work is organised, other than the fact that the more work they do the more they earn.
They cannot source materials for themselves.
They are subject to the direction and control of the respondent's employees on site.
They work in teams and not as individuals.
It crossed my mind that each team might constitute a partnership, but it has never been suggested that these claimants are partners running businesses together and, whilst the makeup of each team seems to be fairly static, they can be adjusted to meet the respondent's needs.
The claimants have no say in the terms upon which they perform work, the contracts which are placed before them are devised entirely by the respondent and the services they provide are subject to a detailed specification.
The invoices which they submit are prepared by the respondent.
The respondent determines the deductions which are applied to those invoices and the amounts charged in respect of insurance and materials.
There has been no evidence to confirm that these deductions bear any real relation to the actual cost of the services to which they refer.
Rates of pay are determined by the respondent and the respondent has felt able to increase or reduce those rates 36. 37. unilaterally.
Really there is nothing that these claimants can do to make their putative businesses any more profitable by the way in which they organise themselves.
I have noted that the claimants are required to wear company overalls and some of these are supplied free.
I have also noted that they are provided with some training by the respondent.
I do not think that either of these factors is determinative in this case.
I accept that training must be provided to people who handle chemicals whatever their status for the purposes of health and safety.
Equally I accept that requiring some badge of identification, in this case a uniform, is simply an incident of the fact that valeters are permitted to drive high value goods, motorcars and vans.
That said, I accept the claimants' evidence that they are fully integrated into the respondent's business and that they have no real other source of work.
I accept that occasionally individual claimants might work elsewhere but only on days when the respondent has no work for them to do.
In Mr Huntington's case, for example, this occurred once in 17 years of service.
I am satisfied that the claimants are required to provide personal service under their agreements with the respondent notwithstanding the substitution clause that was introduced in 2007.
I do not find that this clause reflects what was actually agreed between the parties, which was that the claimants would show up each day to do work and that the respondent would offer work provided that it was there for them to do.
Mr Hassell confirmed in evidence that this was the true nature of the agreement between the parties and that his work could not have been done without an understanding that the valeters could be relied on to turn up and do the work put in front of them.
I have of course noted that in 2007 the respondent introduced a clause saying that there was no obligation on it to offer work or on the claimants to accept work.
I find that this clause was wholly inconsistent with the practice described in paragraph 18 of Mr Hassell's witness statement where he refers to a requirement for valeters to notify him in advance if they were unavailable for work.
This indicates that there was an obligation to attend for work unless a prior arrangement had been made.
In my judgment these factors place these new clauses within the proposition identified at paragraph 58 in the judgment [of Elias J] in Consistent Group Ltd v Kalwak (supra) and I find that the substitution clause and the right to refuse work were unrealistic possibilities that were not truly in the contemplation of the parties when they entered into their agreements.
Accordingly, I find that the claimants entered into contracts under which they provided personal service, where there were mutual obligations, namely the provision of work in return for money, that these obligations placed the contracts within the employment field and that the degree of control exercised by the respondent in the way that those contracts were performed placed them in the category of contracts of employment.
Mr Hassell was the Autoclenz manager at the Measham site. 38.
These are findings of fact which Autoclenz cannot sensibly challenge in this Court.
In short, they are findings which were open to the ET.
It is true that, as Smith and Aikens LJJ both observed, the reasoning of the ET could have been fuller, but I also agree with them (and Sedley LJ) that the ET was entitled to hold that the documents did not reflect the true agreement between the parties and that, on the basis of the ETs findings, four essential contractual terms were agreed: (1) that the valeters would perform the services defined in the contract for Autoclenz within a reasonable time and in a good and workmanlike manner; (2) that the valeters would be paid for that work; (3) that the valeters were obliged to carry out the work offered to them and Autoclenz undertook to offer work; and (4) that the valeters must personally do the work and could not provide a substitute to do so.
See in particular, per Aikens LJ at para 97.
It follows that, applying the principles identified above, the Court of Appeal was correct to hold that those were the true terms of the contract and that the ET was entitled to disregard the terms of the written documents, in so far as they were inconsistent with them.
CONCLUSION
Autoclenz and PAUL HUNTINGTON (Name of Sub contractor) HEREBY AGREE as follows: 1.
The Sub contractor shall perform the services, which he agrees to carry out for Autoclenz within a reasonable time and in a good and workmanlike manner. 2.
The Sub contractor hereby confirms that he is a self employed independent contractor and that he is responsible for payment of his National Insurance contributions and for making his returns to HM Inspector of Taxes paying his Income Tax under schedule D. 3.
The Sub contractor and Autoclenz agree and acknowledge that the Sub contractor is not, and it is the intention of the parties that the Sub contractor should not become, an employee of Autoclenz.
Accordingly, the Sub contractor is responsible for payments of all Income Tax and National Insurance contributions arising on or in respect of payments made to the Sub contractor by Autoclenz and the Sub contractor agrees that he shall indemnify Autoclenz in respect of any liability to Income Tax and National Insurance contributions for which Autoclenz may be held liable on or in respect of such payments.
Sums agreed to be paid by Autoclenz to the Sub contractor shall be net of VAT (if any).
For as long as the Sub contractor is, or becomes or remains liable to be, registered for VAT then Autoclenz shall, in addition, pay VAT on such sums. 5.
Autoclenz shall, if requested by the Inland Revenue or the Department of Social Security, provide to those government departments details of payments made to the Sub contractor. 6.
The Sub contractor confirms that he is not suffering and has never suffered from back trouble, skin rashes, eczema, dermatitis, asthma or epilepsy and has never been refused work or been terminated from work due to ill health.
EITHER: 4. 7. (a) The Sub contractor confirms that he holds a current valid Driving Licence, free of endorsements And that he will ensure that those who work for him, in providing services to Autoclenz, hold the same. (b) The Sub contractor confirms that he DOES NOT hold a current valid Driving Licence.
OR: PLEASE DELETE AS NECESSARY Although no deletions were made, details of Mr Huntingtons driving licence were included in clause 7(a).
The agreement was signed by both Autoclenz and Paul Huntington.
An agreement in the same or substantially the same form was signed between Autoclenz and each of the other claimants.
For the reasons given above, I agree with the Court of Appeal that the ET was entitled to hold that the claimants were workers because they were working under contracts of employment within the meaning of regulation 2(1) of each of the NWMR and the WTR.
They were within limb (a) of the definitions set out in para 2 above.
Since the question whether the claimants were workers within limb (b) would only arise if the claimants had not entered into a contract of employment, that question does not arise, although, like the ET, I would have held that they were in any event working under contracts within limb (b).
It follows that I would dismiss the appeal.
ANNEX A Agreement
| UK-Abs | This appeal concerns the correct approach to written contracts in the employment context where there is a dispute as to the genuineness of a written term.
The question arises in the context of a dispute as to whether individuals are workers within the meaning of the National Minimum Wage Regulations 1999 (NMWR) and of the Working Time Regulations 1998 (WTR).
The appellant (Autoclenz) provides car cleaning services to motor retailers and auctioneers.
The respondents (the claimants) are 20 individual valeters who all worked as car valeters for Auoclenz.
All signed similar contractual documents which contained statements to the effect that the claimants were self employed and the claimants were taxed on that basis.
In 2007, Autoclenz required the claimants to sign new contracts.
The new contract contained a clause which provided: For the avoidance of doubt, as an independent contractor, you are entitled to engage one or more individuals to carry out the valeting on your behalf, provided that such an individual is compliant with Autoclenzs requirements of sub contractors as set out in this agreement.
The contract also provided that: You will not be obliged to provide your services on any particular occasion nor, in entering such agreement, does Autoclenz undertake any obligation to engage your services on any particular occasion.
The claimants brought a claim in the employment tribunal (ET) seeking a declaration that they were workers as defined under the WTR and the NMWR and consequently entitled to holiday pay and to be paid in accordance with the NMWR.
Both sets of regulations define worker in materially identical terms as: an individual who has entered into or works under (a) a contract of employment; or (b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.
As a matter of law no obligations clauses and substitution clauses are inconsistent with contracts of employment or contracts of personal performance It was therefore common ground between the parties that if the terms of the written contract were valid then, as a matter of law, the valeters could not be said to be workers within the meaning of the WTR and the NMWR.
The ET held that these contractual terms did not reflect the true agreement between the parties and could be disregarded so that the claimants could be regarded as employed under contracts of employment within limb (a) of the definition.
The Employment Appeal Tribunal (EAT) allowed
Autoclenzs appeal on the basis that the claimants were not employees under limb (a) but held that they were workers under limb (b) of the definition.
It held that on the basis that the ET had applied the incorrect legal test for the identification of sham terms.
Both parties had to intend the contractual clause to mislead before it could be said to be a sham and there was insufficient evidence of such an intention.
Both sides appealed to the Court of Appeal which restored the judgment of the ET, holding that the claimants were workers within the meaning of (a) and (b).
The Supreme Court unanimously dismisses the appeal, holding that the ET had been entitled to find that the claimants were workers because they were working under contracts of employment within the meaning of the NWMR and the WTR.
The substantive judgment is given by Lord Clarke, with whom Lord Hope, Lord Walker, Lord Collins and Lord Wilson agree.
The ET had been entitled to disregard the terms included in the written agreement between the parties on the basis that the documents did not reflect what was actually agreed between the parties.
In the employment context the courts must be alive to the possibility that written documentation may not accurately reflect the reality of the relationship between the parties.
Employers may include terms aimed at avoiding a particular statutory result, even where such terms do not reflect the real relationship: [21] [25].
Where one party to an employment contract seeks to challenge the genuineness of the terms there is no need to show an intention to mislead anyone; it is enough that the written term does not represent the intentions or expectations of the parties.
The question in every case is what was the true agreement between the parties: [26] [29].
The correct approach to that is enquiry is that set out by the Court of Appeal in this case.
The focus must be to discover the actual legal obligations of the parties.
To carry out that exercise the tribunal will have to examine all the relevant evidence.
That will include the written term itself, read in the context of the whole agreement, as well as evidence of how the parties conducted themselves in practice and what their expectations of each other were: [31] [33].
Nothing in the judgment is intended in any way to alter those principles which apply to ordinary contracts, and in particular, to commercial contracts: [21].
However, the circumstances in which contracts relating to work or services are concluded are often very different from those in which commercial contracts between parties of equal bargaining power are agreed.
This must be taken into account in deciding whether terms of any written agreement in truth represent what was agreed: [34] [35].
In the present case the ET had been entitled to find that: (1) the valeters would perform the services defined in the contract for Autoclenz within a reasonable time and in a good and workmanlike manner; (2) that the valeters would be paid for that work; (3) that the valeters were obliged to carry out the work offered to them and Autoclenz undertook to offer work; and (4) that the valeters must personally do the work and could not provide a substitute to do so.
It follows that the Court of Appeal was entitled to hold that those were the true terms of the contract and that the ET was entitled to disregard the terms of the written documents: [37] [38].
|
This appeal is all about the Secretary of States right to recover certain social security benefits.
As everyone knows, a large amount of public money is spent upon a whole range of such benefits.
Entitlement to these in all cases requires first a claim and then an award.
Inevitably on occasion overpayments occur.
Sometimes more is paid than the sum awarded.
For example, following an award, say, of 60 a claimant may be sent by mistake a cheque for 120 or two cheques each for 60.
These cases present no difficulty.
Everyone agrees that unauthorised payments of this kind are recoverable by the Secretary of State as money paid by mistake.
The problem arises rather when overpayments are made in accordance with an award but the award itself is higher than it should be.
It is common ground that before any question can arise as to recovering the sums overpaid in these cases the mistaken award must first be revised.
And it is common ground too that following such revision the Secretary of State is entitled to recover any overpayment resulting from misrepresentation or the non disclosure of a material fact.
All this is expressly provided for by section 71 of the Social Security Administration Act 1992 (the 1992 Act).
But does section 71 provide an exclusive code for recovery? That is the question.
In short, what is in issue in this appeal is whether in other cases of mistakenly inflated awards most obviously in cases arising from official error (as it is called in Regulations to which I shall come) the Secretary of State is entitled to recover the sums overpaid.
This question arises, for example, where a claimant has notified a change of circumstances (such as that he has begun full time work or that his child has left the household) and by mistake the Department overlooks (or delays actioning) the notification and continues making benefit payments at the same rate; or, indeed, where there is simply an erroneous calculation of the award.
In cases like that is the Secretary of State permitted to seek recovery of such overpaid benefits at common law or is the exclusive route to recovery that provided by section 71 of the 1992 Act?
The judge at first instance, Michael Supperstone QC, sitting as a deputy High Court Judge, found in favour of the Secretary of State [2009] EWHC 341 (Admin), [2009] 3 All ER 633.
The Court of Appeal (Sedley, Lloyd and Wilson LJJ) [2009] EWCA Civ 1058, [2010] 1 WLR 1886 allowed the Child Poverty Action Groups appeal and declared: where a benefit falling within section 71(11) of the Social Security Administration Act 1992 is paid pursuant to the machinery contained in Part I Chapter II of the Social Security Act 1998, it can only be reclaimed from the claimant under section 71 of that Act (or some other specific statutory provision).
The Secretary of State now appeals to this Court.
The circumstances in which the question arose for decision can be briefly told.
At some unspecified date (seemingly in about 2006) the Secretary of State adopted a practice of writing to benefit claimants who he considered had been overpaid, but where there had been no misrepresentation or non disclosure, indicating that the Department had a common law right of action to recover the overpayment.
The letters were in substantially standard form accompanied by a document headed Questions you might have about the overpayment and asserted essentially that a mistake had been made, that too much of the relevant benefit had been paid and that the law allows us to ask you to pay back money that should not have been paid (or words to like effect).
From March 2006 to February 2007 some 65,000 such letters were sent.
Although no common law claim for repayment was ever in fact brought in the courts, the letters led, we are told, to the recovery of substantial sums for example, just over 4m in the year 2007/8.
The Child Poverty Action Group, however, an organisation with a long history of bringing legal test cases on behalf of social security claimants, thought the letters were based on a false legal premise and so brought this challenge to seek appropriate declaratory relief.
Thus it was that the issue came before the courts.
It is convenient at this point to set out the more material parts of section 71 of the 1992 Act (as amended).
Section 71 appears in Part III of the Act under the title Overpayments and Adjustments of Benefit Misrepresentation etc: 71.
Overpayments general. (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; or (b) any sum recoverable by or on behalf of the Secretary of State in connection with any such payment has not been recovered, the Secretary of State shall be entitled to recover the amount of any payment which he would not have made or any sum which he would have received but for the misrepresentation or failure to disclose. (2) Where any such determination as is referred to in subsection (1) above is made, the person making the determination shall in the case of the Secretary of State or the First tier Tribunal, and may in the case of the Upper Tribunal or a court (a) determine whether any, and if so what, amount is recoverable under that subsection by the Secretary of State, and (b) specify the period during which that amount was paid to the person concerned. (3) An amount recoverable under subsection (1) above is in all cases recoverable from the person who misrepresented the fact or failed to disclose it. (5A) Except where regulations otherwise provide, an amount shall not be recoverable under subsection (1) unless the determination in pursuance of which it was paid has been reversed or varied on an appeal or has been revised under section 9 or superseded under section 10 of the Social Security Act 1998. (8) Where any amount paid, other than an amount paid in respect of child benefit or guardians allowance, is recoverable under (a) subsection (1) above; it may, without prejudice to any other method of recovery, be recovered by deduction from prescribed benefits. (9) Where any amount paid in respect of a couple is recoverable as mentioned in subsection (8) above, it may, without prejudice to any other method of recovery, be recovered, in such circumstances as may be prescribed, by deduction from prescribed benefits payable to either of them. (10) Any amount recoverable under the provisions mentioned in subsection (8) above (a) if the person from whom it is recoverable resides in England and Wales and the county court so orders, shall be recoverable by execution issued from the county court or otherwise as if it were payable under an order of that court; .
Section 71(11) lists the various benefits to which the section applies.
It is unnecessary to reproduce it here.
It is important to note that when the 1992 Act was passed, indeed at all times before 1998, the adjudication of awards and the payment of awards were constitutionally separate functions.
Adjudication officers (and, before them, other independent officers) were responsible for all decisions concerning the making of awards, the Secretary of State for their payment.
By sections 1 and 8 of the Social Security Act 1998 (the 1998 Act), however, the functions of adjudication officers were transferred to the Secretary of State who thereupon became the primary decision maker in relation to the making of awards as well as remaining responsible for their payment.
Prior to this merger of functions there had been provision for the revision of awards on a review (as well as the reversal or variation of awards on appeal).
The 1998 Act introduced new provisions enabling the Secretary of State (by section 9) to revise, and (by section 10) to supersede, his section 8 decisions.
This explains the language of section 71(5A).
Essentially the same provision, however, had been made in section 71(5) which it replaced.
As already noted, there could be no question of the Secretary of State ever seeking to recover an overpayment until the relevant award in one way or another had been formally corrected.
These sections can be seen to reflect other provisions too in the governing legislation: regulation 17(1) of the Social Security (Claims and Payments) Regulations 1987 (SI 1987/1968) which imposes a statutory duty on the Secretary of State to pay the benefit awarded for an indefinite period, and section 17 of the 1998 Act by which the Secretary of States decision is declared to be final.
The next matter to note is that the 1992 Act was a consolidating statute.
The immediate forerunner of section 71 had been section 53 of the Social Security Act 1986 which in turn had replaced both section 20 of the Supplementary Benefits Act 1976 governing the recovery of overpayments of the main non contributory benefits and section 119 of the Social Security Act 1975 which governed the recovery of overpayments of contributory benefits.
Section 119 had provided a defence if the claimant showed that he had exercised due care and diligence to avoid overpayment.
All the other provisions had adopted the test of misrepresentation or failure to disclose that is now re enacted in section 71(1).
The final point to note from the statutory material is the express provision made by regulation 3(5)(a) of the Social Security and Child Support (Decisions and Appeals) Regulations 1999 (SI 1999/991) (the 1999 Regulations) for a decision of the Secretary of State under section 8 or 10 of the 1998 Act to be revised with retrospective effect at any time if, inter alia, it arose from an official error.
Against this basic statutory background the Court of Appeal reached essentially the following conclusions.
The statutory scheme provides for the revision of awards of benefit ab initio and once an award has been revised it is final in its revised form.
Downward revision shows that the claimant was not, in fact, entitled to the whole of the payments received.
It is rational for the legislature to make provision for the consequences and it is by section 71 alone that it has done so.
Under section 71 no amount is recoverable unless the relevant determination has been successfully appealed, revised under section 9 or superseded under section 10.
Section 71(1) then sets out the (sole) circumstances in which the Secretary of State is entitled to recover an overpayment made pursuant to an award.
These include only cases where the original award was obtained by misrepresentation or non disclosure, and exclude cases of receipt even knowing receipt of an overpayment due to a mistaken award.
When section 71 was enacted, adjudication was separate from administration.
The established statutory scheme had always been understood to be exhaustive of the rights, obligations and remedies of both the individual and the state, and both then and since, awards have been conclusive of the obligation to pay and of the right to receive payment.
In such a context it is unsurprising that the power of recovery when an award is modified should be prescribed by Parliament and not at large.
Section 71 has not excluded any power of recovery that was previously available but has created a power of recovery where otherwise there is none.
Mr Eadie QC for the Secretary of State disputes those conclusions.
He contends that the Crowns common law right to recover benefits overpaid by mistake of fact or law is not excluded by the legislation either expressly (so much is clear) or by necessary implication.
There is, submits Mr Eadie QC, nothing inconsistent between the express right of recovery in cases of misrepresentation and non disclosure provided for by section 71(1) and the common law right to seek recovery in other cases.
The statutory right applies only to a limited class of cases and, where it does apply, it confers greater rights on the Secretary of State than would be available at common law.
It does not allow the recipient of the benefit to rely (as would a common law claim) on a defence of change of position.
And it allows recovery (a) from the person who misrepresented the fact or failed to disclose it (section 71(3)), (b) by deduction from prescribed benefits (section 71(8)), and (c) in certain circumstances from the prescribed benefits payable to either member of a couple (section 71(9)).
All this is no doubt understandable: it is logical for Parliament to prescribe an easier route to recovery of overpayments against those actually responsible by misrepresentation or non disclosure for the making of the mistaken awards in the first place.
But non constat that this should be the only route to recovery.
After all, the misrepresentation or non disclosure might have been entirely innocent and the moral case for repayment against the recipient of an award inflated by official error might actually be stronger.
The error might have been plain, obvious and major and the recipient well aware of it but determined to take advantage of it none the less.
Such a view is supported too by regulation 3(5)(a) of the 1999 Regulations.
Why make provision for the retrospective revision of mistaken awards arising from official error if it is not possible then to remedy the mistake? True, if the error disadvantages the claimant and he is underpaid, the error can be remedied retrospectively.
But if the error leads to overpayment and the Child Poverty Action Group are right, there can be no recovery against the recipient.
This would represent a lacuna in the scheme.
Mr Eadie in addition seeks to pray in aid what he submits is the analogous decision of the House of Lords in Deutsche Morgan Grenfell Group plc v Inland Revenue Comrs [2006] UKHL 49, [2007] 1 AC 558 (DMG) by which the taxpayer was held entitled at common law to recover an overpayment of tax notwithstanding a statutory provision comprehensively dealing with overpayments in the case of anyone who has paid [income tax or capital gains] tax charged under an assessment (section 33 of the Taxes Management Act 1970).
Given that section 33 did not apply in that case because there had been no valid assessment, the taxpayer was held permitted to bring a common law restitution claim.
It is Mr Eadies submission that by the same token, given that the Secretary of State here cannot recover under section 71(1) save in cases of misrepresentation or non disclosure, he should in other cases be entitled to seek recovery at common law.
I have not found this an altogether easy case and, like Sedley LJ in the court below, regard the arguments as closely balanced.
In the end, however, with Mr Drabble QCs help, I have come to the same conclusion as the Court of Appeal, namely that section 71 constitutes a comprehensive and exclusive scheme for dealing with all overpayments of benefit made pursuant to awards.
Essentially my reasoning is as follows.
As everyone agrees, no question of the recovery of any overpayment can arise until the award has been corrected.
So far as recovery under section 71(1) is concerned, this indeed is expressly stipulated by section 71(5A) (and section 71(5) before it).
But it would be surprising to find a common law right to restitution on grounds of mistake to be similarly constrained and more surprising still to find no relevant provision (akin to section 71(1)) giving effect to such a right.
As already noted, when section 71 was enacted, there was a division of functions between the adjudication of awards and their payment.
Since the Secretary of State paid the benefit awarded pursuant to a statutory duty, there could be no question of his having made a mistake of fact or law in making the payment.
Thus, as the Court of Appeal noted, section 71 and its predecessor sections created a power of recovery when otherwise there would have been none.
This explains too why section 71 contains no express exclusion of any common law right of recovery: there simply was none and it is hardly surprising that no such exclusion was inserted in 1998 when the adjudicatory and payment functions merged.
What, in short, is striking about section 71 is not its omission of an express exclusion of common law rights but rather its omission of any provision recognising or giving effect to any such rights.
As is well known, common law restitution claims are, at the best of times, far from straightforward.
Not the least of their difficulties, a difficulty at its most pronounced in the context of social security benefit claimants, is the defence of change of position.
Part III of the 1992 Act provides, of course, not just for an express entitlement to recover overpaid benefits in cases of misrepresentation or non disclosure, but also for the whole process of determining the facts relevant to such entitlement, including making provision for appeals to a tribunal.
It seems to me inconceivable that Parliament would have contemplated leaving the suggested common law restitutionary route to the recovery of overpayments available to the Secretary of State to be pursued by way of ordinary court proceedings alongside the carefully prescribed scheme of recovery set out in the statute.
Such an arrangement, moreover, would seem to me to create well nigh insoluble problems.
Could there, for example, be parallel recovery proceedings against the maker of the misrepresentation under section 71(3) and against the recipient of the benefit at common law in the courts? And in the event of successful claims, could there then be deduction from prescribed benefits under section 71(8) against the misrepresentor (or possibly against the other member of a couple under section 71(9)) as well as execution against the actual recipient under the ordinary processes of law?
With regard to Mr Eadies point that a stronger moral argument for recovery of overpayments may exist in cases of the knowing receipt of mistaken awards than, say, in cases of innocent misrepresentation, I would pose these questions.
First, this being so, why would Parliament not prescribe the same stronger recovery powers for these cases as for cases of misrepresentation and non disclosure and include them within the statutory recovery scheme? Secondly, why would Parliament not make express provision for this separate category of cases, similarly prescribing the conditions for the Secretary of States entitlement to recovery, such as that the claimant knew that he had been overpaid and/or that he had not changed his position? The answer to both must surely be that in the case of recipients of social security benefits Parliament from first to last has taken the view that only those who themselves brought about the overpayments should be liable to reimburse them and that in their cases reimbursement should be made easily enforceable.
Such a scheme is entirely rational.
For better or for worse those benefiting from official errors are not subject to recovery proceedings.
I am persuaded that section 71 does indeed necessarily exclude whatever common law restitution rights the Secretary of State might otherwise have.
The title to Part III of the Act, Overpayments and Adjustments of Benefit, not merely suggests but to my mind provides for a comprehensive and exclusive scheme for both the correction and consequences of mistaken benefit awards.
As for Mr Eadies reliance on the DMG line of cases with regard to the tax regime, for my part I find the suggested analogy unconvincing.
This is not for the reasons suggested by the Court of Appeal (see in particular Lloyd LJs judgment at paras 33 35), namely that DMG involved an overpayment to the state whereas the present case involves an overpayment by the state; that, I would agree with Mr Eadie, is neither a logical nor a principled distinction.
Rather it is because, whereas section 33 of the Taxes Management Act 1970 only purported to deal with overpayments of tax charged under an assessment, leaving other overpayments to be dealt with outside the statutory scheme, section 71 deals with the overpayment of benefit pursuant to erroneous awards in all cases and, by necessary implication, deals too with the conditions for the recovery of such overpayments.
this appeal.
In the result, I would endorse the Court of Appeals declaration and dismiss
SIR JOHN DYSON SCJ
The issue that arises on this appeal is whether the Secretary of State is entitled to recover at common law overpaid social security payments that were made pursuant to a decision made under section 8(1)(a) of the Social Security Act 1998 (the 1998 Act), or whether the right to recovery provided for in section 71 of the Social Security Administration Act 1992 (the 1992 Act) is the exclusive route to recovery.
It is not in dispute that this raises a question of statutory interpretation.
The answer to the question requires in the first place an understanding of the relevant statutory history.
The salient features of the history are these.
The immediate precursor to section 71 of the 1992 Act (a consolidating Act) was section 53 of the Social Security Act 1986 (the 1986 Act) whose terms were not materially different from those of the later provision.
Before 1986, the rule governing the recovery of overpayments of contributory benefits was contained in section 119 of the Social Security Act 1975 and the rule governing the recovery of the main means tested non contributory benefit (supplementary benefit) was contained in section 20 of the Supplementary Benefits Act 1976.
Of critical importance is the fact that until the 1998 Act, there was a division between the adjudicating authorities responsible for fact finding, decisions on legal issues and the quantification of the award on the one hand, and the body responsible for payment on the other.
From 1986 onwards, the former was carried out by an adjudication officer and the latter by the Secretary of State.
It was only in the 1998 Act that the Secretary of State was made responsible for both the decision on the claim for benefit and the payment of the amount of the award.
It follows that the interpretation of section 53 of the 1986 Act and section 71 of the 1992 Act must be considered against the background that at the time of those enactments there was no possibility of mistake on the part of the Secretary of State in the calculation of the award, since he played no part in its calculation.
The only possibility of mistake on the part of the Secretary of State lay in the payment of the amount awarded to be paid.
It is common ground (and rightly so) that, if the Secretary of State overpaid by mistake, the amount of the overpayment could be recovered by a common law claim in restitution.
Section 53(4) of the 1986 Act and section 71(5A) as it now is of the 1992 Act show that the overpayments with which these statutes are concerned are those which result from changes to an award.
In deciding whether Parliament intended in 1986 and again in 1992 that the statutory provisions were to be an exhaustive code for recovery of overpayments by the Secretary of State, it is in my view relevant to recognise that at the time of those enactments there was no realistic possibility that the Secretary of State could recover overpayments of benefit in a common law action.
By 1986, the law of unjust enrichment or restitution was by no means in its infancy.
It was well understood that a person was in principle entitled to recover at common law money paid under a mistake of fact.
But under the statutory scheme then in force, there would have been no relevant mistake on which the Secretary of State could have founded such a claim.
Mr Eadie QC suggests that it might have been arguable in a case where there had been a mistake in the calculation of the award that a Secretary of State who paid such an award was operating under the mistake that the award was correct and/or that an analogy could properly be drawn with the position that applies where a court judgment is reversed.
I acknowledge that such arguments might be advanced today, although I doubt whether they would succeed even now, after the considerable developments that have taken place in recent years in this area of the law.
But it seems to me highly unlikely that Parliament would have had such arguments in mind in 1986 or 1992.
In my view, the correct premise on which to proceed is that section 53 of the 1986 Act and section 71 of the 1992 Act were drafted on the basis that, as the law then stood, the Secretary of State was not entitled at common law to recover overpayments resulting from errors in the calculation of the award.
At first sight, therefore, one might think that this should lead to the conclusion that the statutory provisions for recovery of overpayments were intended to be exhaustive of the right to recovery.
There was no common law right to recovery.
A statutory right to recovery was introduced.
By definition, therefore, the statutory right to recovery was intended to be exhaustive.
That was the view of the Court of Appeal as expressed at paras 25 and 27 of the judgment of Sedley LJ and I agree with it.
At para 27, he pithily summarised the argument that Mr Drabble QC has repeated in this court which is not that section 71 has excluded any power of recovery that was previously available, but that it has created a power of recovery where otherwise there is none.
But Mr Eadie has another string to his bow.
He submits that, even if at the time of the enactment of sections 53 and 71 the Secretary of State had no right to recover at common law, it does not follow that, if there were a change in circumstances so that such a right to recover were to arise in the future, it would be precluded by the statutory provisions.
As I understand it, Mr Eadie does not contend that the meaning of sections 53 and 71 could change over time.
In this context, that would obviously be an untenable proposition.
The position would of course be otherwise if section 71 were later amended expressly or by necessary implication.
But that is not suggested here.
Mr Eadies argument is directed to the true meaning of section 71 in its unamended form but he submits that it cannot be construed as having prospectively excluded by necessary implication a right which was not in contemplation at the time when it was enacted.
In other words, Parliament cannot be taken to have excluded the possibility of a common law right to recovery arising in the future under a differently framed decision making scheme.
I cannot accept this argument.
I proceed on the hypothesis that, as I have already said, at the time when the statutory scheme for recovery of overpayments was enacted, there was no non statutory route for recovery.
The statutory scheme was exhaustive at that time.
It carefully delineated the boundaries.
They were limited to recovery of payments made pursuant to an award by the adjudicating authorities which was in error by reason of a misrepresentation or failure to disclose any material fact.
Simple error on the part of the adjudicating authorities was excluded.
I would not go so far as to say that Parliament can be taken to have excluded the possibility of a common law right to recovery under a differently framed decision making scheme.
That would be to go too far, since it would depend on the terms of the differently framed scheme.
But I see no basis for holding that Parliament intended to allow a common law right of recovery in circumstances where the only material difference between the pre 1998 Act scheme and the 1998 scheme is that under the latter the Secretary of State determined the awards.
Under the pre 1998 Act scheme, the section 71 code precluded common law claims for mistake, so that the Secretary of State could not recover overpayments where an award was erroneous for one of the statutory reasons.
That code was continued after the 1998 Act without any material change.
The only difference now was that the Secretary of State was responsible for the calculation of the award.
The inevitable inference is that post the 1998 Act, Parliament intended the same exclusive code to continue.
There is no basis for holding that the change in the identity of the decision maker, which was not accompanied by any change in the statutory criteria for recovery of overpayments, was intended to open the door any wider to recovery than it previously had been.
In my view, that is sufficient to dismiss this appeal.
But I need to deal with a further argument advanced by Mr Eadie.
This proceeds on the basis that, contrary to the view that I have expressed, in 1986 and 1992 the Secretary of State had a common law right to recover overpayments under ordinary common law restitutionary principles.
He accepts that this right could be displaced by statute, but that could only be done expressly or by necessary implication.
It is common ground that there was no express abrogation of the right.
Nor, Mr Eadie submits, was it abrogated by necessary implication.
There are many examples of cases where the court has considered whether the provisions of a statute have impliedly overridden or displaced the common law.
In each case, it is a question of construction of the statute in question whether it has done so.
Deutsche Morgan Grenfell Group plc v Inland Revenue Commissioners [2006] UKHL 49, [2007] 1 AC 558 concerned a claim for compensation in respect of the payment of advance corporation tax which had been demanded contrary to the EC Treaty.
One of the issues was whether section 33 of the Taxes Management Act 1970 excluded any common law claim on the grounds of mistake.
Lord Hoffmann said at para 19: But the question is in the end one of construction.
When a special or qualified statutory remedy is provided, it may well be inferred that Parliament intended to exclude any common law remedy which would or might have arisen on the same facts.
To similar effect, at para 135 Lord Walker said: When Parliament enacts a special regime providing special rights and remedies, that regime may (but does not always) supersede and displace common law rights and remedies (or more general statutory rights and remedies).
Whether it has that effect is a question of statutory construction.
A similar issue arose in Revenue and Customs Commissioners v Total Network SL [2008] UKHL 19, [2008] AC 1174.
There the question was whether the statutory scheme for recovery of VAT under the Value Added Tax Act 1994 was exclusive so as to preclude the right at common law to claim damages for unlawful means conspiracy.
The House of Lords were split as to the result, but not, I think, as to the correct approach to the problem.
Lord Hope said at para 31 that the statutory scheme was comprehensive and does not admit the use by the commissioners of means for collecting VAT which are not provided for by the statute.
Lord Scott at para 60 said that an intention to bar common law claims could not be attributed to the legislature when enacting the VAT scheme.
Lord Walker (paras 105 to 110) did not agree that the statutory code was comprehensive and exhaustive of the commissioners powers of collection of VAT.
Lord Mance (para 130) said that for a statutory scheme to supersede or displace common law rights and remedies, the statute must positively be shown to be inconsistent with the continuation of the ordinary common law remedy otherwise available.
He concluded (para 136) that he saw no inconsistency or even incongruity between the statute and the common law remedy in tort.
Lord Neuberger identified a number of features of the statutory scheme which both substantively and procedurally were inconsistent with the position in relation to a common law claim.
In other words, he explicitly applied the same inconsistency criterion as Lord Mance but, on the facts, reached the opposite conclusion.
It will be seen that in these two cases, the court did not apply a test of necessary implication.
Mr Eadie derives that test from the context of human rights or the principle of legality explained by Lord Hoffmann and Lord Steyn in R v Secretary of State for the Home Department, Ex p Simms [2000] 2 AC 115.
He relies, for example, on R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2002] UKHL 21, [2003] 1 AC 563, where the question was whether section 20 of the Taxes Management Act 1970 overrode legal professional privilege.
The House of Lords held that it did not do so.
Lord Hoffmann emphasised that legal professional privilege was a fundamental human right long established in the common law.
At para 8 he said that an intention to override fundamental human rights must be expressly stated or appear by necessary implication.
He referred to the discussion of this principle by Lord Steyn and himself in Ex p Simms and other cases.
Lord Hobhouse made the same point.
Having referred to Ex p Simms, he said (at para 44) that the principle of statutory construction stated in that case was not new and had long been applied in relation to the question whether a statute is to be read as having overridden some basic tenet of the common law.
The protection given by the common law to those entitled to claim legal professional privilege is a basic tenet of the common law as had been reaffirmed by B (A Minor) v Director of Public Prosecutions [2000] 2 AC 428.
It is in the context of such a common law right that the passage at para 45 which is relied on by Mr Eadie is to be understood.
Lord Hobhouse said: A necessary implication is not the same as a reasonable implication as was pointed out by Lord Hutton in B (A Minor) v Director of Public Prosecutions [2000] 2 AC 428, 481.
A necessary implication is one which necessarily follows from the express provisions of the statute construed in their context.
It distinguishes between what it would have been sensible or reasonable for Parliament to have included or what Parliament would, if it had thought about it, probably have included and what it is clear that the express language of the statute shows that the statute must have included.
A necessary implication is a matter of express language and logic not interpretation.
In the case of B (A Minor), the question at issue was whether liability for an offence contrary to section 1(1) of the Indecency with Children Act 1960 was strict or required the proof of mens rea.
It was held by the House of Lords that mens rea was an essential element of every criminal offence unless Parliament expressly or by necessary implication provided to the contrary.
In so holding, they were doing no more than applying a well established common law presumption or requirement.
Lord Steyn explicitly referred at page 470F to this presumption as the paradigm of the principle of legality.
The context in the present case, however, is quite different.
The question whether the Secretary of State can recover overpayments of benefit does not involve any fundamental human rights of the Secretary of State nor does it engage the principle of legality.
I do not accept the submission that the respondents have to surmount the high hurdle erected by Lord Hutton in B (A Minor) or Lord Hobhouse in Morgan Grenfell.
Rather the question is whether, as a matter of statutory interpretation, section 71 is an exclusive code for recovery of overpayments.
That question is to be answered not by applying any presumptions or by saying that the common law remedy in restitution is not displaced unless, in Lord Hobhouses words, as a matter of logic, it cannot co exist with the statutory regime for recovery.
The importance of the tax cases is that they show that the test is whether in all the circumstances Parliament must have intended a common law remedy to co exist with the statutory remedy.
Lloyd LJ sought to distinguish the tax cases to which I have referred on the grounds that payments by the state to a person have nothing to do with the tax regime.
He said that the difference between recovery of a social security benefit wrongly paid to a claimant on the one hand and of tax paid by a taxpayer on the other is substantial and significant.
Of course, I accept that they are different, but like Lord Brown I do not consider that the difference is material to the question whether Parliament intended a statutory code to displace common law rights and remedies.
There is nothing in the reasoning in the tax cases to indicate that the courts were applying a rule which was peculiar to tax cases.
Indeed, for example, Lord Mance at para 130 of Total Network SL referred to non tax cases such as Marcic v Thames Water Utilities Ltd [2003] UKHL 66, [2004] 2 AC 42 and Johnson v Unisys Ltd [2001] UKHL 13, [2003] 1 AC 518 as being illustrative of the principle that he had articulated.
If the two remedies cover precisely the same ground and are inconsistent with each other, then the common law remedy will almost certainly have been excluded by necessary implication.
To do otherwise would circumvent the intention of Parliament.
A good example of this is Marcic where a sewerage undertaker was subject to an elaborate scheme of statutory regulation which included an independent regulator with powers of enforcement whose decisions were subject to judicial review.
The statutory scheme provided a procedure for making complaints to the regulator.
The House of Lords held that a cause of action in nuisance would be inconsistent with the statutory scheme.
It would run counter to the intention of Parliament.
The question is not whether there are any differences between the common law remedy and the statutory scheme.
There may well be differences.
The question is whether the differences are so substantial that they demonstrate that Parliament could not have intended the common law remedy to survive the introduction of the statutory scheme.
The court should not be too ready to find that a common law remedy has been displaced by a statutory one, not least because it is always open to Parliament to make the position clear by stating explicitly whether the statute is intended to be exhaustive.
The mere fact that there are some differences between the common law and the statutory positions is unlikely to be sufficient unless they are substantial.
The fact that the House of Lords was divided in Total Network SL shows how difficult it may sometimes be to decide on which side of the line a case falls.
The question is whether, looked at as a whole, a common law remedy would be incompatible with the statutory scheme and therefore could not have been intended by co exist with it.
I agree with Lord Brown that, for the reasons he has given, section 71 was intended to be an exhaustive code.
Some of the difficulties that he has highlighted at para 14 of his judgment are similar to those mentioned by Lord Neuberger in Total Network SL.
As Lord Millett put it in Unisys at para 80 of his speech, the co existence of two systems, overlapping but varying in matters of detailwould be a recipe for chaos.
That is a powerful reason for supposing that Parliament intended the statutory code contained in section 71 of the 1992 Act to be exhaustive.
For these reasons, as well as those given by Lord Brown, I would dismiss this appeal.
LORD RODGER
As Lord Brown and Sir John Dyson have explained, until 1998 there was no real possibility of the Secretary of State making a mistake in the calculation of an award that would have founded a common law claim for money paid under a mistake.
Precisely for that reason, when originally enacted, section 71 of the Social Security Administration Act 1992 (the 1992 Act) could never have been intended to exclude such a claim.
It is therefore, at first sight, surprising if that section has the effect of excluding a claim of that kind which might otherwise have become available when the system was altered in 1998.
When it enacted section 71 in 1992, Parliament intended it to be the only basis for the Secretary of State to recover a benefit payment that had been wrongly calculated.
The question is whether, when it enacted the Social Security Act 1998, it changed its view.
The only provision in that Act which suggests that Parliament may have changed its mind is section 9(3).
It provides that, where the Secretary of State revises a decision, the decision is to take effect as from the date on which the original decision took (or was to take) effect.
If the respondents approach is correct, in a case where the revision is downwards in favour of the Secretary of State, Parliaments decision to give the revision retroactive effect seems to have no practical effect.
That consideration has caused me real difficulties.
Section 9(3) creates the problem, however; it does not solve it.
If, by enacting section 9(3), Parliament intended the Secretary of State to be able to bring a common law claim for restitution, realistically, it could have been expected to amend section 71 of the 1992 Act.
It did not do so.
If, on the other hand, Parliament overlooked the possibility of such a claim, then the appropriate conclusion must be that section 71 was to continue to provide the only basis for recovering a benefit that had been wrongly calculated.
With some hesitation, therefore, I have come to the conclusion, for the reasons given by Lord Brown and Sir John Dyson, that section 71 should be interpreted as excluding a common law remedy in this situation.
Whether a remedy should be available in these cases is a matter for Parliament, not for this Court.
LORD PHILLIPS
For the reasons given by Lord Brown and Sir John Dyson, which are in perfect harmony, I would dismiss this appeal.
I have read and agree with the judgments of Lord Brown and Sir John
LORD KERR
Dyson.
For the reasons that they have given I too would dismiss the appeal.
| UK-Abs | This appeal concerns the question whether, in cases of social security benefit awards mistakenly inflated due to a calculation error, the Secretary of State is entitled to recover sums overpaid under the common law of unjust enrichment or whether section 71 of the Social Security Benefits Act 1992 (the 1992 Act) provides the only route to recovery.
Section 71 allows the Secretary of State to recover any overpayment resulting from misrepresentation or the non disclosure of a material fact by the benefits claimant.
The background to this appeal is the Secretary of States practice (adopted in about 2006) of writing to benefit claimants who he considered have been overpaid, but where there had been no misrepresentation or non disclosure, indicating that his Department had a common law right of action to recover the overpayment.
Although no common law claim for repayment was ever in fact brought in the courts, the letters led to the recovery of substantial sums, for example, just over 4m in 2007 8.
The Child Poverty Action Group brought this legal test case on behalf of social security claimants to challenge the Secretary of States practice on the basis that it is based on a false legal premise.
One of the salient features of the history of the social security benefits legislation is the fact that prior to the Social Security Act 1998 (the 1998 Act) there was a division between the functions of adjudication which involved the quantification of the award and the payment of the award.
Until the 1998 Act, the Secretary of State was responsible for the payment function only and therefore at the time of enactment of section 71 of the 1992 Act there was no possibility of mistake on the part of the Secretary of State in the calculation of the award, since he played no part in the calculation.
The only possibility of mistake lay in the payment of the award.
Since the 1998 Act the Secretary of State had been responsible both for the calculation and the payment of the awards.
Both parties agreed that where the Secretary of State overpays by mistake, for instance by sending a cheque for 120 following an award of 60, the amount of the overpayment can be recovered as money paid by mistake.
The overpayments with which this appeal is concerned are those made as a result of a mistake in calculating the award.
The Supreme Court unanimously dismissed the appeal.
Lord Brown and Sir John Dyson gave lead judgments; Lord Rodger gave a concurring judgment.
It held that section 71 of the 1992 Act provides the only route to recovery of social security benefits overpayments to the exclusion of any common law rights.
Both Lord Brown and Sir John Dyson agreed with the respondents argument that, rather than excluding any common law rights to recovery, section 71 and its predecessors created a power of recovery when otherwise, due to the division of adjudication and payment functions up until 1998, there would have been none: [13], [22].
Lord Brown noted that it would seem inconceivable that Parliament would have contemplated leaving the common law restitutionary recovery available to the Secretary of State alongside the carefully prescribed scheme of section 71.
He found it striking that Parliament had not made express provisions for recovery of mistaken overpayments alongside provisions for misrepresentation and non disclosure.
Lord Brown thus concluded that section 71 does necessarily exclude any common law restitutionary claim the Secretary of State might otherwise have: [14] [15].
Sir John Dyson dismissed the Secretary of States argument that section 71 cannot be taken to have excluded prospectively the possibility of a common law right to recovery arising in the future.
In his view, the change in the identity of adjudicator of the social security benefits awards in 1998, which was not accompanied by any change in the statutory criteria for recovery of overpayments, was not intended to open the door to recovery any wider than it previously had been: [23] [25].
Whilst noting that the appeal could be dismissed on that basis alone, Sir John Dyson went on to consider whether, if, contrary to the finding of the Court, the common law right to recovery did exist by the time section 71 and its predecessors were introduced, that right was impliedly displaced by statute.
Having discussed the authorities at [27] [30], Sir John Dyson concluded that the test is not one of necessary implication but instead that of statutory interpretation, namely, whether, looked at as a whole, a common law remedy would be incompatible with the statutory scheme and therefore could not have been intended to co exist with it: [31], [34].
Sir John Dyson concluded that, for the reasons given by Lord Brown, he too agreed that section 71 was intended to be an exhaustive route to recovery of wrongly calculated benefits: [35].
Lord Rodger noted that section 9(3) of the 1998 Act, which provides that any revision of the award takes effect from the date of the original award, would have no practical effect in cases of downward revisions resulting from a mistake in favour of the Secretary of State.
He concluded that while section 9(3) creates a problem, it does not solve it.
Thus the question of whether a remedy should be available in cases of mistaken awards is a matter for Parliament: [39].
|
The Political Parties, Elections and Referendums Act 2000 (the Act) introduced, for the first time in this country, restrictions on the donations that can be made to registered political parties.
All statutory references in this judgment are to the Act.
Part IV of the Act specifies those from whom it is permissible for political parties to accept donations.
Donations from an individual may only be accepted if the donor is on an electoral register.
The Act confers on a magistrates court the power, at the instigation of the Electoral Commission (the Commission), to forfeit from party funds a sum equal to a donation that has been accepted from an impermissible source.
This appeal raises the question of the criteria that should properly be applied by a magistrates court when exercising this power.
This question is of particular interest to the United Kingdom Independence Party (UKIP), a small registered political party which has yet to succeed in returning a member to Westminster.
UKIP has relied for the majority of its funding on a single supporter, Mr Alan Bown.
Since 2003 Mr Bown has made donations to the party, in one form or another, amounting to over 1 million.
By inadvertence, between 1 December 2004 and 2 February 2006, he ceased to be on any electoral register.
During this period his donations to UKIP amounted to 349,216.
On 16 March 2007 the Commission made an application to the Senior District Judge in the City of Westminster Magistrates Court for an order forfeiting the whole of this sum.
The Senior District Judge ordered the forfeiture of only a small proportion of this sum.
The Act gives a political party a right to appeal to the Crown Court against a forfeiture order but no right of appeal is given to the Commission.
UKIP did not appeal against the order of the Senior District Judge, but the Commission challenged his decision by an application for judicial review.
In a judgment delivered on 22 January 2009 [2009] EWHC 78 (Admin) Walker J identified a wide range of matters to which the Senior District Judge should have had regard when considering the forfeiture application.
He held that the Senior District Judge had failed to give adequate reasons for his decision and ordered that the case should be remitted to the magistrates court for further consideration.
The Commission appealed to the Court of Appeal, and was successful [2009] EWCA Civ 1078.
On 19 October 2009, giving the only reasoned judgment, Sir Paul Kennedy held that, on a true construction of the relevant provisions of the Act, the discretion of the Senior District Judge was very tightly circumscribed.
There was a strong presumption in favour of forfeiture.
Where a donation was received by a political party from an impermissible source a forfeiture order should follow as a matter of course in the absence of exceptional circumstances.
The magistrates court should, on remission, reconsider the matter in accordance with this approach.
Before this Court Mr Patrick Lawrence QC for UKIP has sought to uphold the approach of Walker J, whereas Mr Michael Beloff QC for the Commission has urged that the analysis of the Court of Appeal was correct.
The difference between the two has been described as the presumption issue.
The relevant provisions of the Act
Part I of the Act establishes the Commission which is given a wide range of regulatory powers and duties in relation to elections and political parties, including keeping under review the registration of political parties and the regulation of their income and expenditure (section 6(1)(e)).
Part IV deals with Control of Donations to Registered Parties and their Members etc.
Chapter II imposes restrictions on the receipt of donations.
Section 54(1) provides that a donation must not be accepted if the person seeking to make it is not, at the time of its receipt, a permissible donor, or if his identity cannot be ascertained.
Section 54(2) identifies those who are permissible donors.
These include an individual registered in an electoral register and a company registered under the Companies Act 2006, incorporated within the United Kingdom or another member state, and carrying on business in the United Kingdom.
Section 54(3) provides that a donation made in the form of a bequest will have been made by a permissible donor provided that he was registered in an electoral register at any time within the five year period that terminated with his death.
Section 56 imposes duties in relation to the acceptance or return of donations and imposes criminal sanctions for breach of those duties.
Where section 54 prohibits acceptance of a donation it must be returned within 30 days of receipt.
If it is not, both the party and the treasurer of the party are guilty of an offence, albeit that it is a defence to prove that all reasonable steps were taken to verify or ascertain whether the donor was a permissible donor and that, as a result, the treasurer believed that he was a permissible donor.
The effect of section 56(5) is that a donation will be deemed to have been accepted, even if it is returned within 30 days, unless a record can be produced of its receipt and its return.
Section 58 contains the provision that has given rise to this appeal.
It deals with forfeiture of donations that have been made by impermissible or unidentifiable donors.
Where these have been accepted, notwithstanding that their acceptance was prohibited, section 58(2) provides: The court may, on an application made by the Commission, order the forfeiture by the party of an amount equal to the value of the donation.
Section 58(4) makes it plain that such an order may be made whether or not proceedings are brought against any person for an offence connected with the donation.
Section 58(5) provides that in England and Wales the court is a magistrates court.
Section 60 provides that proceedings under section 58 shall be brought against the party in its own name and not in the name of any of its members and that any amount forfeited is to be paid out of the funds of the party.
It is notable that section 58 does not provide for the automatic forfeiture of any donation that is accepted from an impermissible source.
The provision that the court may order its forfeiture confers a discretion on the court.
Furthermore it has been common ground, rightly in my view, that the Commission also enjoys a discretion whether or not to make an application for forfeiture to the court.
The Act itself gives no indication of the criteria that should govern the exercise of either discretion.
It is the former discretion that is critical, but it would be strange if the courts discretion was narrower than that of the Commission.
The second issue of interpretation
The primary issue is the presumption issue.
Does section 58(2) confer a broad discretion on the court whether or not to make a forfeiture order, or is there a strong presumption in favour of forfeiture? But section 58(2) raises a secondary issue of interpretation.
It confers on the court a power to order forfeiture of an amount equal to the value of the donation.
Where the court exercises this power, does it have to order forfeiture of an amount equal to the total value of the donation, or is it implicit that the court has a discretion to order forfeiture of a lesser sum if it considers this appropriate? This has been described as the all or nothing issue.
There is a potential interrelationship between the presumption issue and the all or nothing issue.
The Commission argues that Parliament has deliberately chosen a stringent regime in order to ensure that political donations come from acceptable sources.
There is no half-way house.
Similar policy considerations support both a strong presumption in favour of forfeiture and a requirement that forfeiture should be total.
Conversely a wide discretion whether to forfeit or not sits better with a power to order partial forfeiture, so that the court has the flexibility to tailor its order to the particular facts.
The approach to interpretation
The answer to the all or nothing issue will not, however, determine the presumption issue.
This is demonstrated by the fact that both Walker J and the Court of Appeal held that the power conferred on the magistrates court by section 58(2) was an all or nothing power.
In these circumstances I have not found it helpful to try to answer the all or nothing issue first.
The more helpful approach is to consider the interpretation of section 58(2) having regard to the mischief at which it is aimed.
The parties are agreed that the discretion conferred by section 58(2) should be used to promote the policy and objects of the statute.
This proposition is supported by high authority see Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997 at 1030 per Lord Reid.
This principle led Lord Bridge to observe in R v Tower Hamlets London Borough Council, Ex p Chetnik Developments Ltd [1988] AC 858, at p 873: Thus, before deciding whether a discretion has been exercised for good or bad reasons, the court must first construe the enactment by which the discretion is conferred.
Some statutory discretions may be so wide that they can, for practical purposes, only be challenged if shown to have been exercised irrationally or in bad faith.
But if the purpose for which the discretion is intended to serve is clear, the discretion can only be validly exercised for reasons relevant to the achievement of that purpose.
In applying the Padfield principle in this case there are two questions to be asked.
The first is: what are the objects of the forfeiture permitted by section 58(2)? The second is: why has Parliament chosen to give the court a discretion whether or not to order forfeiture of a donation that has come from an impermissible source rather than to make such forfeiture automatic? To answer these questions it is necessary to look at the legislative history, which I believe provides the answer to each question.
The legislative history
The Labour Partys 1997 Election Manifesto announced the following intention: We will oblige parties to declare the source of all donations above a minimum figureForeign funding will be banned.
On 12 November 1997, shortly after taking up office, the Prime Minister extended the terms of reference of the Committee on Standards in Public Life to add: To review issues in relation to the funding of political parties, and to make recommendations as to any changes in present arrangements.
This led to the Fifth Report of the Committee, under the chair of Lord Neill of Bladen QC, on the Funding of Political Parties in the United Kingdom (the Neill Report), which was published in October 1998.
Chapter 4 of the Neill Report dealt with Donations: Transparency and Reporting.
It recommended the imposition on political parties of a duty to report the sources of donations, backed by criminal sanctions: 4.61 The reporting obligations of the political parties should be backed by criminal sanctions.
These should be so drafted as to distinguish between inadvertent and deliberate failure to report a disclosable donation.
In the latter case those responsible could be fined or imprisoned.
In both cases the court would have power to order the defaulting political party to forfeit a sum not exceeding the unreported donation.
Knowingly to make a false return should also be an offence.
Prosecutions would be put in the hands of the Director of Public Prosecutions and should not be the concern of the Election Commission.
Private prosecutions should be allowable.
Chapter 5 of the Neill Report dealt with Foreign Donations.
After setting out the arguments for and against a ban on foreign donations, the Committee reached the following conclusion: 5.16We have, therefore, concluded that, at a time when the whole question of the funding of political parties is being re-examined, it is right to take the opportunity to lay down the principle that those who live, work and carry on business in the United Kingdom should be the persons exclusively entitled to support financially the operation of the political process here.
The Report explained that the Committee had found it difficult to produce a definition of foreign donations for the purpose of banning these.
Accordingly they decided to approach the problem from the opposite direction by defining permissible sources from which alone donations could be received.
The Report explained: 5.20 We begin by considering those individuals from whom the political parties should be able to receive donations.
We believe that they come under two headings: those who are registered voters in the United (1) Kingdom; and (2) those who are eligible to be put on an electoral register in the United Kingdom.
5.21 As to the distinction between (1) and (2) above, we think that a donation could be properly received from a person who was eligible to be put on the electoral register because such a person already has, under existing legislation, the right to participate in the electoral process subject to taking the additional step of securing registration.
5.22 Categories (1) and (2) cover not only British subjects resident here, but extend to Commonwealth citizens resident here, citizens of the Republic of Ireland resident here, and citizens of the European Union resident here.
The categories also include persons known as overseas voters.
The test of entitlement to be entered on an electoral register was a rational basis for discriminating between donors with adequate connections with the United Kingdom and foreign donors.
British, Republic of Ireland, Commonwealth and European Union citizens are entitled to register on an electoral register in the electoral area in which they reside section 4 of the Representation of the People Act 1983.
If a donor is not qualified to be entered on an electoral register in the United Kingdom it is not unrealistic to treat that donor as lacking sufficient connection with the United Kingdom to be a desirable source of party funding.
The following paragraph of the Report dealt with enforcement and penalties in relation to the ban on foreign donations: 5.42 In essence, what we said in Chapter 4 at paras 4.60 and 4.61 should apply here too with necessary modifications.
Thus, the Election Commission will have statutory powers to call for information and to institute an investigation into any donation which it suspects has not come from a permissible source.
If a party were to be guilty of a deliberate acceptance of a donation from a source outside the definition of a permissible source, criminal sanctions should attach to all responsible, and a sum not less than the donation should be liable to forfeiture from the partys funds; in significant cases of attempted evasion of the rules a penalty of up to ten times the overspend might be levied.
A forfeiture power should also apply even if the receipt were innocent or inadvertent, although the courts would clearly take into account the degree of culpability in setting the level of forfeiture.
R30 The Election Commission should have wide powers to call for information and to institute investigations into any suspect foreign donations received by a political party or a sub-unit.
R31 Criminal sanctions should attach to a deliberate acceptance of a donation from a source falling outside the definition of a permissible source.
There should be a power for the court to order a defaulting political party to forfeit a sum of up to ten times the donation wrongfully accepted.
There is a contrast between the power of forfeiture recommended in para 4.61, a sum not exceeding the unreported donation, and that in para 5.42, a sum not less than the donation.
The reason for this contrast seems likely to be the following.
Para 4.61 was providing for a sanction for failure to report a donation from a permissible source.
Para 5.42 was dealing with the receipt of a donation from an impermissible and, under the Neill Committees scheme, a foreign source.
In the latter case the forfeiture of the entire donation was likely to be desirable, regardless of whether or not the breach of the regulations had been deliberate.
It is noteworthy that the Committee recommended that, where acceptance of an impermissible donation was innocent or inadvertent, there should still be a power of forfeiture but that the courts would take into account the degree of culpability when setting the level of forfeiture.
The Government published a White Paper (Cm 4413) to which was annexed a draft Bill dealing with the funding of political parties.
Clause 51 of the Bill does not differ significantly from section 58 of the Act.
At the beginning of Chapter 4, which dealt with the sources of funding, the Government welcomed the Neill Committees endorsement of the manifesto commitment to ban the foreign funding of political parties.
Dealing with permissible sources of funding the White Paper commented as follows: Individuals 4.5 The Neill Committee recommended (R26) that political parties should be able to receive donations both from those who are registered voters in the United Kingdom and from those who are entitled to register to vote in the United Kingdom.
Clause 50(2)(a) departs from this recommendation by providing that registered political parties may accept donations only from those individuals whose names appear on the electoral register.
Entitlement to register, whether as a resident or overseas elector, will not qualify an individual as a permissible source.
4.6 Checking that a particular donor appears on the electoral register offers a test that is both conclusive and simple to administer.
It would be far less straightforward for political parties to verify that a donor not appearing on the register was nevertheless entitled to do so.
It is in the interests of the parties to have available a test which offers certainty as to the eligibility of a donor.
With the introduction of rolling registration it would be open to anyone who was entitled to be registered as an elector, but was not on the register for whatever reason, to take the necessary steps at any time to secure his or her registration.
Once registered, it would then be open to a political party to accept a donation from such a person.
In practice, therefore, little is lost by the proposed departure from the Neill Committees recommendation.
The objects of the legislation
The legislative history provides a particularly clear picture of the objects of Chapter II of Part IV of the Act.
The primary object is to prevent donations to political parties from foreign sources.
From the Labour Party manifesto in 1997 the concern in relation to the source of funds has focussed exclusively on foreign donors.
The Neill Committee recommended that the exclusion of foreign funding should, in the case of individual donors, be achieved by prohibiting donations from anyone who was not a registered voter in the United Kingdom or eligible to be put on an electoral register in the United Kingdom.
As I have observed this test drew a realistic line between domestic and foreign donors.
Eligibility to be placed on an electoral register demonstrated a sufficient connection with the United Kingdom.
Ineligibility demonstrated a lack of such connection.
Parliament made a significant change in restricting permissible donors to those on an electoral register, excluding those eligible to be put on one.
This change was made not because there is anything intrinsically undesirable about parties being funded by those who are not on an electoral register, provided that they are eligible to be placed on one.
So far as connection with the United Kingdom is concerned there is no distinction between a person who is on an electoral register and one who is entitled to be placed on an electoral register.
The change was made for purely pragmatic reasons.
It is much easier to demonstrate that a person is not on an electoral register than it is to demonstrate that he is not entitled to be placed on an electoral register.
Two facts demonstrate that Parliament did not consider that entitlement to vote was, of itself, an essential quality in a donor, rather than a convenient test of the donors connection with the United Kingdom.
The first is that section 54 permits donations from corporations, trade unions, building societies, limited liability partnerships, friendly societies and unincorporated associations, provided that they have sufficient presence in the United Kingdom, notwithstanding that none of them can vote.
The second is that donations by bequest are permissible from anyone who was on an electoral register at any time during the period of five years before his death.
Such a person cannot, of course, cast a vote posthumously, but it is significant that it is permissible for his bequest to have been made at a time when he was not on the register, provided that he was registered to vote at some point during the five years before his death.
Had Mr Bown bequeathed, rather than bestowed, his donations during the period that he was off the electoral register, and then died, there would have been no objection to UKIP receiving the bequests.
The White Papers comments that I have quoted at para 24 above underline the fact that entry on an electoral register is not per se an essential attribute of a donor.
The comment that little is lost by the proposed departure from the Neill recommendations appears to recognise that depriving parties of donations from those entitled to be on an electoral register, but not actually registered, involves a degree of sacrifice, albeit one that is justified on grounds of practicality.
The secondary object of Chapter II of Part IV of the Act is to provide a scheme for achieving the primary object that is easy to apply, easy to police and that contains adequate sanctions for non-compliance.
The purposes of the power to forfeit
Mr Beloff submitted in his written case that there were three purposes of the power to forfeit.
The first was to deprive a political party of the wrongful gain acquired by accepting a donation from an impermissible source.
The second was to deter breaches of the Act.
The third was to provide simple and effective sanctions in the form of a rigorous civil enforcement scheme to enforce the prohibition on acceptance of impermissible donations.
The third object is, in fact, no more than a more detailed way of describing the second object.
I agree that there are two distinct objects of the power to forfeit.
As to the first, I do not find the description wrongful gain helpful.
The primary object of forfeiture is the direct prevention of the mischief that the legislation is designed to prevent the receipt by a political party of foreign funding.
This would normally dictate the forfeiture of the acceptance of any donation received by a party from a foreign source, regardless of whether or not that acceptance had come about as a result of a culpable fault on the part of the party.
As I have said, that is probably why the Neill Committee recommended that where a donation was received from a person who was not entitled to be placed on an electoral register, forfeiture from the party funds should be of not less than the amount of the donation.
The fact that the donor was not entitled to be placed on the register demonstrated that he had insufficient connection to the United Kingdom to be an acceptable source of funding.
The Act has radically changed the Neill Committees scheme.
A donor whose connection with the United Kingdom would entitle him to be placed on the electoral register and thus to vote is rendered an impermissible donor by reason of the simple fact that he is not on the register.
Under this scheme an unregistered donor may or may not be foreign.
If he is foreign, or if he is unable to prove that he is not foreign, then his donation is intrinsically undesirable.
It is the type of funding that the Act was designed to prevent.
His donation should, barring exceptional circumstances, be automatically subject to forfeiture in its entirety.
If it is not forfeited, the very mischief that the Act was designed to prevent will have occurred.
Whether or not the party accepting the donation exercised due care should not normally be relevant.
This may well be why the Act expressly provides that a forfeiture order may be made, whether or not proceedings have been brought against any person for an offence in connection with the donation.
I agree with Mr Beloff that the second object of the power to forfeit is to provide a deterrent or sanction against failure to comply with the requirements of the Act that are designed to make sure that donations are not received from an impermissible donor.
Thus the power to forfeit is intended to further both the primary and the secondary object of the legislation.
The nature and purpose of the discretion
I now come to the interrelated questions of whether the power to forfeit is all or nothing and how the discretion whether or not to exercise that power should be exercised.
If Parliament had enacted the Neill Committee scheme there would have been a strong presumption in favour of forfeiting the whole of a donation from an impermissible source.
It would, or would be likely to, be a foreign donation and objectionable as such.
Indeed there would have been a case for making forfeiture of such donations automatic.
But Parliament adopted a scheme under which impermissible donations may or may not be foreign.
Under this scheme the significance of an individual impermissible donation may vary widely.
At one extreme it may be a donation from a foreign source, accepted by a political party with full knowledge of its provenance.
At the other extreme it may be a donation from an individual who is entitled to be on an electoral register and has in the past been on an electoral register, been believed to be on an electoral register, but who, because of some administrative error for which he is not responsible, has been removed from the register at the time when he made his donation.
Parliament plainly made the power to forfeit discretionary with the intention that the magistrates court should discriminate between cases where forfeiture was warranted and cases where it was not.
It seems to me natural to assume that Parliament intended the court to consider whether forfeiture was a proportionate response to the facts of the particular case.
This involves considering whether forfeiture is necessary to achieve either the primary or the secondary object of the Act.
The most relevant consideration is whether forfeiture is necessary to prevent the retention of a foreign donation in the individual case.
Proof of acceptance of a donation from an impermissible source should raise a presumption that the donation is foreign.
If the party cannot rebut that presumption, forfeiture should follow.
If the party succeeds in demonstrating that the donor was entitled to be placed on an electoral register, forfeiture should then depend on whether it is an appropriate sanction for such shortcomings as led to the acceptance of the donation.
This will require consideration of culpability, the size of the donation and the effect that forfeiture will be likely to have on the political party.
Partial forfeiture, if permitted (as to which see below), will enable the court to impose an appropriate sanction where total forfeiture would be disproportionate.
The Court of Appeal held that the power to forfeit was all or nothing and that there was a presumption that it should be exercised in the absence of exceptional circumstances.
The Courts reasons for holding that there was a strong presumption that the power to forfeit should be exercised were as follows: i) Unless forfeiture was the normal consequence of the acceptance of an impermissible donation, parties would be free to disregard with impunity the obligations not to accept or to return impermissible donations.
ii) Forfeiture would never be disproportionate if it was limited to a donation which should never have been accepted.
iii) It was irrelevant whether or not the impermissible donor was a foreign donor, because Parliament had not made that the test.
Parliament had made being on an electoral register the test.
The Court should not re-introduce the Neill Committee test by the back door.
iv) The fact that a party might not know that the donation was impermissible was irrelevant.
Parliament had not made that a bar to forfeiture.
v) The fact that the state of the partys finances might make forfeiture particularly onerous was irrelevant.
The receipt of the donation was illegal and the full extent of the donation was an advantage that the party should not have had.
vi) Furthermore, if it was necessary to investigate a partys finances before making a forfeiture order, the sanction would be unwieldy.
Mr Beloff expanded this to a more general point.
If there was a wide discretion, this would give rise to complex factual inquiries that the simple scheme of the Act was designed to avoid.
I will deal with each of these points in turn.
I do not accept that almost automatic forfeiture of the totality of an impermissible donation is necessary to provide a realistic sanction against non- compliance with the requirements of the Act.
In the first place there are criminal sanctions for non-compliance.
In the second place, the mere risk of forfeiture of the entirety of a donation might be thought a sufficient incentive to carry out the relatively simple check that a donor is on an electoral register.
A party should not need much incentive to check that the position of anyone who wishes to make a donation is regularised.
The suggestion that forfeiture of a sum limited to the impermissible donation can never be disproportionate is founded on the premise that the party should never have received the donation in the first place.
But where a person within the United Kingdom wishes to make a donation to a party, there is nothing intrinsically wrong about the party receiving that donation.
Of course the party and the donor should make sure that the donor complies with the statutory requirement of being placed on an electoral register.
But if, by inadvertence, or even negligence, they fail to do so, it does not follow that it cannot be disproportionate for the donation to be forfeited.
Proportionality will depend on the degree of culpability, the size of the donation and its importance to the party.
I disagree that it is irrelevant whether or not the donor is a foreign donor.
If he is, then forfeiture is clearly appropriate.
Parliament has made electoral registration the test, but Parliament has also made forfeiture discretionary.
To allow the party to show that the donor could have been registered to vote is not to introduce the Neill test by the back door.
Parliaments scheme usefully transfers the burden of showing that the donation is not a foreign donation onto the donor and the party.
If this burden can be discharged, the primary object of the legislation has not been defeated, and this fact is highly relevant to the issue of whether the power to forfeit should be exercised.
The fact that Parliament has not made ignorance of the impermissibility of the donation a defence is no reason why it should not be a relevant extenuating circumstance when considering whether or not to forfeit the donation.
Once again the Court of Appeal has ignored the fact that Parliament has chosen to make forfeiture of the donation discretionary.
The argument that the effect of forfeiture on a party is irrelevant turns on the proposition that the party should never have had the donation in the first place.
This ignores the fact that where the impermissibility of the donation results simply from an inadvertent, or even negligent, failure to register there is nothing intrinsically undesirable about the source of the funding.
Finally I must deal with the point that, if there is a general discretion whether or not to forfeit, forfeiture proceedings will involve a lengthy investigation of all the material circumstances.
In the first place, this will not normally be true where the donor is, in fact a foreign donor.
The party will not be in a position to show that the donor was entitled to be placed on an electoral register.
If, where this is the case, forfeiture is virtually automatic, forfeiture proceedings are unlikely to be protracted in those cases where forfeiture is most readily justified.
Where, however, the donor is not a foreign donor, the fact that forfeiture is discretionary is likely to involve a significant investigation of the facts, whether the discretion is broad or narrow.
However narrow the discretion it will surely be necessary for the party or the donor to show that the donor was not a foreign donor and to demonstrate, insofar as steps were taken to comply with the statutory requirements, what was in fact done.
None of these arguments persuades me that where the donor is not foreign, but has for some reason failed to exercise his right to be placed on an electoral register, Parliament intended that forfeiture of the entire donation should be virtually automatic.
On the contrary, where the donor is shown not to be foreign, I consider that Parliament would have intended, by conferring a discretion whether or not to forfeit, that there would be a careful evaluation of all the circumstances in order to decide whether the draconian step of forfeiture was justified.
The Commissions approach to its discretion
My conclusions receive some, if modest, support from the Commissions own approach to the exercise of its discretion.
If Parliament had intended that a donation from an impermissible source should be forfeited unless there were exceptional circumstances, the Commission might have been expected automatically to make an application for forfeiture once satisfied that a donation was from an impermissible source.
There would seem to be no basis upon which the Commission could properly decide not to make an application in circumstances where Parliament intended that forfeiture should occur.
In the course of the hearing the Commission provided the Court with internal guidelines drawn up by the Commission in February 2007 in relation to the forfeiture of impermissible donations.
These included the following: 3.1 . . .
In all cases where the Commission is clear that section 58 applies the Commission will apply for a forfeiture order, unless there are reasons to conclude that on balance, the public interest is such that would lead us to exercise our discretion in favour of not seeking forfeiture.
3.2 The Commission will have regard to all relevant considerations, which may include: Steps taken by the regulated organisation or individual for the verification of permissibility Steps taken by the regulated organisation or individual in relation to acceptance or return of donations Any other extenuating circumstances that may be relevant.
These guidelines do not suggest that the Commission itself applies a strong presumption in favour of forfeiture where a party has accepted a donation from an impermissible source.
Conclusions
Where it is shown that a political party has accepted a donation from an impermissible source, there should be an initial presumption in favour of forfeiting the donation.
In order to prevent parties receiving funding from individuals who have insufficient connection with the United Kingdom, Parliament has chosen to lay down a simple test.
Donations must only be accepted from those who are on an electoral register.
The onus should be on the party concerned to show why a donation that has been received from an impermissible source should not be forfeited.
A first step in discharging this onus will normally be to show that the mischief against which the relevant part of the Act is directed did not occur that the donation in question was not, in fact, a foreign donation.
Where an individual is concerned this should require demonstration that the individual was entitled to be entered on an electoral register.
If this cannot be demonstrated, forfeiture should normally follow.
In such circumstances it can properly be assumed that retention of the funding would defeat the policy underlying the legislation.
If it is shown that the donor was in a position to qualify as a permissible donor by registering on an electoral register, the initial presumption in favour of forfeiture will have been rebutted.
The question will then be whether there have been failures to comply with those requirements of the Act that are designed to ensure that such donations are not accepted, and the nature of those failures.
Once again the onus will be on the party to explain how it was that the donation came to be accepted.
If the donation is large, and if the power to forfeit is an all or nothing power, significant shortcomings are likely to be required to make forfeiture of the donation a proportionate response.
It is in the light of that conclusion that I turn to consider whether the power to forfeit is all or nothing.
Is the power to forfeit all or nothing?
Both Walker J and the Court of Appeal concluded that the power to forfeit was an all or nothing power.
Walker J concluded that this was the only meaning that could properly be given to a power to forfeit an amount equal to the value of the donation (para 117).
This finding was not challenged in the Court of Appeal and was accepted by Sir Paul Kennedy as correct (para 49).
My initial inclination was to agree.
The language of section 58(2) suggests that there is only one amount that can be forfeited.
Furthermore, forfeiture normally relates to a specific fund, or right, not part of one.
But in this case, forfeit is used in an unusual way.
It was the Neill Committee that first used the word, in recommending that a sum not less than the donation should be liable to forfeiture from the partys funds.
It has been common ground that a forfeiture order will create a debt to be met from UKIPs funds, as and when monies are paid into them.
So the forfeiture in this case is more akin to a fine.
Furthermore, the Neill Committee contemplated that the amount to be forfeited would be variable when commenting that where the receipt was innocent or inadvertent the courts would clearly take into account the degree of culpability in setting the level of forfeiture.
Having regard to these considerations I have reached the conclusion that the better interpretation is to treat the power to order forfeiture of an amount equal to the value of an impermissible donation as implicitly including the power to order forfeiture of a lesser sum.
Such an interpretation is desirable to cope with the situation where the magistrates court is persuaded that the donor is not foreign.
In those circumstances, total forfeiture of the donation may be disproportionate.
If so, it should not be ordered, both under the ordinary principles that apply to the imposition of sanctions and having regard to the requirements of article 1 of the First Protocol to the European Convention on Human Rights.
The magistrates court should have the power to make a partial forfeiture order that reflects the facts of the particular case.
I would interpret section 58(2) as conferring that power.
Disposal
Walker J rightly held that the reasons given by the Senior District Judge were too brief.
He reached, however, decisions on the issues of principle which this Court has endorsed.
He concluded that, in circumstances where the donor was entitled to be on the electoral register, no presumption of total forfeiture should be applied, but forfeiture should reflect fault on the part of the party accepting the donation or donations.
As to the application of that principle to the facts of this case, he applied a very broad brush that effaced most of the detail of communications between the Commission and UKIP.
He allowed UKIP to retain all donations up to the point at which they learned that Mr Bown was not on the electoral register, and ordered forfeiture of all donations from that moment until Mr Bown was again on the register.
He erred however in stating that it was on 19 June 2005 that UKIP learned that Mr Bown was not on the register.
In fact they did not learn this until 13 December 2005.
On this erroneous basis he ordered forfeiture of donations totalling 14,481.
The parties were anxious, if possible, to avoid a further hearing before the Senior District Judge.
I have reached the conclusion that the amount of the forfeiture that was ordered adequately reflected the facts of this case and, accordingly, I would restore the order of the Senior District Judge.
In the 1990s there was considerable public unease about the funding of political parties.
The Committee on Standards in Public Life under the chairmanship of Lord Neill of Bladen QC looked into the matter and in 1998 they produced a report (Cm 4057) which contained many recommendations.
In particular, they formulated a principle to the effect that those who live, work and carry on business in the United Kingdom should be the persons exclusively entitled to give financial support to the operation of the political process here (para 5.16).
In order to create a workable system, they recommended that political parties should be able to receive donations from (1) people who are registered voters in the United Kingdom and (2) those who are eligible to be put on an electoral register in the United Kingdom (para 5.20).
In due course the government issued a White Paper giving their considered response to the Neill Committees recommendations (Cm 4413).
The government accepted the thrust of the committees recommendation on foreign donors, but they introduced a significant modification: only individuals who were registered voters should be permitted to make donations to political parties.
As the White Paper explained in para 4.6, in a very real sense this was in the parties interest: checking whether a particular donor appeared on the electoral register would offer a test of acceptability that was both conclusive and simple for the parties to operate.
It would be much less straightforward for parties to verify that a donor who did not appear on the register was nevertheless entitled to be registered.
Of course, the downside was that the new test excluded more potential donors than the Neill Committee test: those who were eligible to be registered, but who were not registered.
The White Paper pointed out, however, that, with the introduction of rolling registration, people in that position could readily apply to be registered and it would then be open to a political party to accept a donation from them.
In practice, therefore, little is lost by the proposed departure from the Neill Committees recommendation.
This was the scheme which was encapsulated in clause 50 of the draft Bill and was given effect in section 54 of the Political Parties, Elections and Referendums Act 2000 (the Act).
So far as relevant, that section provides: (1) A donation received by a registered party must not be accepted by the party if (a) the person by whom the donation would be made is not, at the time of its receipt by the party, a permissible donor.
(2) For the purposes of this Part the following are permissible donors (a) an individual registered in an electoral register.
Nothing could be clearer than the language used by Parliament and nothing could be clearer than the intention behind the language: political parties were not to accept donations from any individual who was not registered in an electoral register.
In particular, parties were not to accept donations from individuals who were entitled to be registered, but who were not on the register.
That situation would be adequately catered for by the simple expedient of the individual concerned getting himself registered: the party could then accept a donation from him.
Obviously, the Act envisages that, when they receive a donation, a political party must check the electoral register to ensure that the individual is registered.
If, as a result of that check, it appears that he is not on the register, then he is not a permissible donor and the party must return the donation, or a payment of an equivalent amount, within thirty days: section 56(2)(a).
The party must keep a record of the receipt of the donation and of its return within the thirty-day period.
In addition, the party must include a report of the receipt and return of the impermissible donation in their donation report to the Electoral Commission for the relevant period: section 62(9).
If they fail to do so, section 65(6) comes into play: Where the court is satisfied, on an application made by the Commission, that any failure to comply with any such requirements in relation to any donation to a registered party was attributable to an intention on the part of any person to conceal the existence or true amount of the donation, the court may order the forfeiture by the party of an amount equal to the value of the donation.
The present case concerns exactly the situation of a donor who was entitled to be registered but was not actually on the register.
Although he had previously been registered, Mr Alan Bown was not registered in any electoral register between 1 December 2004 and 2 February 2006.
During that period he made a number of donations to UKIP which amounted in total to almost 350,000.
Since Mr Bown was not registered to vote, by virtue of section 54(1)(a), UKIP were bound not to accept the donations.
In terms of section 56(2)(a), the party should therefore have returned them to Mr Bown within thirty days and pointed out to him that they could not accept the donations until he was on the register again.
When the party duly reported the donations to the Electoral Commission, the Commission drew their attention to the fact that Mr Bown did not appear to be on the register.
The party none the less retained the donations.
So they have made a gain of roughly 350,000 by accepting donations which they were prohibited from accepting under section 54(1)(a).
Lord Phillips deprecates the use of the phrase wrongful gain to describe this type of gain.
He would apparently confine any such description to gains made from donations by foreign donors who are not entitled to be on the electoral register in this country because the true object of section 54(1)(a) is to prevent parties receiving donations from such persons.
But that is to substitute the ultimate aim of the legislation for the means by which the legislation seeks to achieve that aim.
The ultimate aim is indeed to catch foreign donors.
But the legislature has chosen to pursue that aim by prohibiting parties from accepting donations from all except a narrowly defined class of permissible donors.
That class excludes foreign donors who are not entitled to be registered, but quite deliberately it also excludes donors, like Mr Bown, who are entitled to be, but are not, registered.
As the White Paper explained, there were good practical reasons for adopting that legislative approach.
In these circumstances it is not open to the courts to second- guess Parliament and to proceed on the footing that some impermissible donors are less impermissible than others.
Since UKIP kept the donations from Mr Bown which they were prohibited from accepting, the Electoral Commission eventually applied to the City of Westminster Magistrates Court in terms of section 58(1) and (2): (1) This section applies to any donation received by a registered party (a) which, by virtue of section 54(1)(a) or (b), the party are prohibited from accepting, but (b) which has been accepted by the party.
(2) The court may, on an application made by the Commission, order the forfeiture by the party of an amount equal to the value of the donation.
In the case of England and Wales the court in question is a magistrates court.
Where a party have accepted a donation which they are prohibited from accepting and they show no sign of being willing to return it, the starting point must surely be that the court will take steps to ensure that the party are deprived of the gain which they are determined to keep in defiance of the law.
In other words, an order will be made for the forfeiture of the whole value of the unlawful donation.
And that is exactly what section 58(2) says: the court may order the forfeiture of an amount equal to the value of the donation.
Had parliamentary counsel intended to give the court power to order the forfeiture of a lesser sum, as Lord Brown points out, there is a variety of other phrases which could have been used to embody that intention.
The same words are to be found in section 65(6) (quoted at para 59 above) and in para 12(4) of Schedule 7 to the Act.
Both of these provisions deal with a situation where there has been a deliberate failure to comply with the relevant reporting requirements in order to conceal the existence, or true amount, of a donation.
In such a situation, also, it is hard to see why forfeiture of a sum which is less than the donation would be appropriate.
So these provisions tend to confirm the straightforward interpretation of the equivalent words in section 58(2).
Like Lord Brown, I have no hesitation in agreeing with Walker Js conclusion on this issue.
Lord Phillips takes a different view.
He goes back to the report of the Neill Committee who first suggested the idea of forfeiture, but described the sum to be forfeited in various ways (a sum not exceeding the unreported donation and a sum not less than the donation).
The committee may well have envisaged the court selecting what it regarded as the appropriate sum to be forfeited in the particular circumstances.
On this basis, Lord Phillips considers that the better interpretation is to treat the words in section 58(2) as implicitly including the power to order forfeiture of a lesser sum.
The Neill Committee report stands, however, at two removes from the text of section 58(2) which embodies the law enacted by Parliament.
Moreover, as Lord Phillips himself points out, the Act radically changed the scheme envisaged by the committee.
In these circumstances their report cannot displace the plain meaning of Parliaments words.
The system is all or nothing: either the court orders the forfeiture of the value of the donation or it makes no order.
Having armed the court with a discretion to award a lesser sum, Lord Phillips proceeds to construct an elaborate scheme for the exercise of this discretion.
If the donation is not from a permissible donor, the onus will be on the party to show why it should not be forfeited.
If the donation is from a foreign donor, then the party will not normally be able to show this, since it can properly be assumed that retention of the funding would defeat the policy underlying the legislation.
But if the party can show that the donor was in a position to qualify as a permissible donor by registering on an electoral register, the initial presumption in favour of forfeiture will have been rebutted.
In that situation the court will have to see whether there have been failures to comply with the requirements of the Act that are designed to ensure that impermissible donations are not accepted and, if so, the nature of those failures.
If the donation is large, significant shortcomings are likely to be required to make forfeiture of the donation a proportionate response.
In other words apparently the larger the impermissible donation, the less likely it is that the party will have to give it up.
It seems to me unlikely to say the least that Parliament would have intended that a provision, which is designed to ensure compliance with the statutory scheme, should operate so as to make large impermissible donations harder to forfeit than small impermissible donations.
That apart, many may admire the scheme outlined by Lord Phillips which might have commended itself to the Neill Committee.
Indeed, had it been proposed to Parliament, it might well have been enacted.
But there is not the slightest hint of such a scheme in the wording of the provision which Parliament did enact and, in fact, as I have already explained, the wording of section 58(2) is inconsistent with a scheme of that kind.
Moreover, it would have been surprising if such a nuanced decision had been left to the magistrates court.
For these reasons I would respectfully reject Lord Phillips construction of the subsection.
If a party return an impermissible donation after the end of the thirty-day period, under section 56(5) they are treated as having accepted it for the purposes of section 58(2).
It might well be, however, that the Electoral Commission would often not make an application to the court in such a case.
And if it did, the context for the exercise of the courts discretion would be significantly different from the situation where the party had kept a donation.
Similarly, the rationale of any forfeiture order would be to mark some blameworthy failure to comply with the regulations and pour encourager les autres.
I would therefore reserve my opinion on whether there is room for the court to exercise its discretion differently in such cases.
In a case, like the present, however, where the party have held on to the donations, the real difficulty, as Lord Brown points out, is to see how the court could properly do other than make an order for forfeiture, since forfeiture so clearly promotes the statutory object of preventing parties from accepting donations from individuals who are not permissible donors.
Moreover, since the party had no right to the donations in the first place, there is no room for an argument that taking them away infringes article 1 of the First Protocol to the European Convention on Human Rights.
Consideration of the exact scope of the courts discretion is not made any easier by the lack of any real indication in the Act of how the forfeiture order takes effect.
As Lord Phillips points out, the discussion at the hearing proceeded on the (unexamined) premise that it would create a debt to be met out of the partys funds, as and when monies are paid into them.
Although it is tempting to think of the Act as concerned with the major parties, it actually applies to a large number of political parties, many of them very small.
Some may well have shaky finances.
It is therefore quite conceivable that a forfeiture order would tip a party into insolvency and so cause at least as much prejudice to the partys unsecured creditors as to the party.
So the creditors might argue that, for this reason, the court should exercise its discretion not to make an order.
In that connexion it may be worth noting that section 60(1)(b) and (c) envisage that rules of court may allow persons affected by any possible forfeiture order to be joined as parties to the proceedings in the magistrates court.
Since, however, the point does not arise for decision and was not argued in this case, I merely raise the possibility that such circumstances might have a bearing on the way that the court exercised its discretion under section 58(2).
For these reasons, and for those given by Lord Brown, with which I agree, I would dismiss the appeal.
I agree with the judgments of Lord Rodger and Lord Brown, and for the reasons which they give I would dismiss this appeal.
The funding of political parties has long been the subject of public and parliamentary concern.
In October 1998 the Commission on Standards in Public Life under the chairmanship of Lord Neill of Bladen QC reported on the matter to the Prime Minister.
The Governments response by way of a White Paper was presented to Parliament in July 1999 with a Draft Bill annexed.
There followed the Political Parties, Elections and Referendums Act 2000 (the Act), Part I of which provided for the establishment of the Electoral Commission (the Commission), Part IV for the control of donations to political parties.
This appeal centres on Chapter II of Part IV under the heading, Restrictions on Donations to Registered Parties, and more particularly on donations from people not permitted to donate which a party nevertheless accepts (impermissible donations as I shall henceforth refer to them).
Section 58 of the Act applies to such donations and by subsection (2) provides: The court may, on an application made by the Commission, order the forfeiture by the party of an amount equal to the value of the donation.
At the heart of this appeal is the proper construction and application of that provision.
Everyone agrees that it invests the court with a discretion: no one contends that may here means must.
There are, however, two core questions arising.
First, whether the court has power to forfeit part only rather than the whole of the value of any impermissible donation, i.e. can equal to be construed as up to? Secondly, how wide is the discretion conferred? Is there a presumption that impermissible donations will be forfeited and, if so, how strong is that presumption?
I put the two questions in that order because to my mind they are closely related: if the court has no option but to forfeit all or nothing, that seems to me to strengthen the argument for a presumption in favour of forfeiture.
That said, it may be noted that Walker J at first instance, despite holding that the courts power is to forfeit all or nothing, nevertheless decided that the discretion whether to order forfeiture is a wide one.
Walker Js holding that this is an all or nothing power was not contested before the Court of Appeal.
That Court, however, reversed his decision on the width of the discretion to exercise the power, holding that, for the legislative purpose to be served, the power should be exercised to order forfeiture of impermissible donations in all save truly exceptional cases.
It is against that decision that UKIP now appeal.
With those few introductory paragraphs let me turn next to the other provisions of the Act dealing most directly with impermissible donations received from known individual donors (as opposed to impermissible donations from corporate donors, unidentified donors or, indeed, by way of bequest).
Section 54, under the heading Permissible donors, provides that for the purposes of Part IV of the Act an individual registered in an electoral register is a permissible donor (section 54(2)(a)) and that: A donation received by a registered party must not be accepted by the party if - (a) the person by whom the donation would be made is not, at the time of its receipt by the party, a permissible donor (section 54(1)(a)).
In short, so far as identified individual donors are concerned, the party is prohibited from accepting any donation unless that donor is registered in an electoral register.
Section 56(1), under the heading Acceptance or return of donations: general, provides that where a donation is received and not immediately refused the party must forthwith take all reasonable steps to verify the donors identity and whether he is a permissible donor (and certain other details as to his address for the purpose of providing quarterly reports on donations under section 62).
Section 56(2) provides that if the party receives a donation which it is prohibited from accepting, it (or a payment of an equivalent amount) must be sent back to the donor within 30 days of when it was received.
(The mention of an equivalent amount is explicable by reference to the wide definition of donation in section 50 to include a variety of benefits such as the provision of property, services or facilities.) Section 56(3) provides that if a party fails to return an impermissible donation within 30 days (as required by section 56(2)) the party and its treasurer are each guilty of an offence.
Indeed, until the Act was amended by the Political Parties and Elections Act 2009, this was an absolute offence.
Now, by a freshly inserted subsection (3A), it is a defence to prove that (a) all reasonable steps were taken by or on behalf of the party to verify (or ascertain) whether the donor was a permissible donor, and (b) as a result, the treasurer believed the donor to be a permissible donor.
Although I have already (at para 74 above) summarised the effect of section 58 of the Act, the provision at the core of this appeal, I should perhaps set out subsection (1): This section applies to any donation received by a registered party - (a) which, by virtue of section 54(1)(a) .
.
.
, the party are prohibited from accepting, but (b) which has been accepted by the party.
And I should note that by section 56(5) For the purposes of this Part a donation received by a registered party shall be taken to have been accepted by the party unless - (a) the steps mentioned in paragraph (a) . . .
of subsection (2) are taken in relation to the donation within the period of 30 days mentioned in that subsection.
Section 58(4) provides that a forfeiture order can be made whether or not criminal proceedings are brought (most obviously under section 56(3)).
The one other provision of the Act which I would notice at this stage is section 65(6) which states: Where the court is satisfied, on an application made by the Commission, that any failure to comply with any such requirements in relation to any donation to a registered party was attributable to an intention on the part of any person to conceal the existence or true amount of the donation, the court may order the forfeiture by the party of an amount equal to the value of the donation.
The requirements here in question are those placed upon the party by section 62 to prepare quarterly donation reports (or under section 63 to prepare weekly such reports during general election periods) in respect of all relevant donations and benefits, and by section 65 to deliver such reports to the Commission within 30 days of the end of such reporting periods (7 days in the case of section 63 reports).
What, then, in the context of these legislative provisions is the nature of the discretion conferred upon the Court by section 58(2)? It is recognised by both parties that it is a discretion which the Court is bound to exercise having proper regard to the policy and objects of the Act.
This principle is, of course, established by high authority, most notably the judgments of the House of Lords in Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997.
A later illustration of the principle to my mind of some assistance in the present context is the Houses decision in R v Tower Hamlets London Borough Council, Ex p Chetnik Developments Ltd [1988] AC 858 (Chetnik) where (at 873G) Lord Bridge said: . . .
before deciding whether a discretion has been exercised for good or bad reasons, the court must first construe the enactment by which the discretion is conferred.
Some statutory discretions may be so wide that they can, for practical purposes, only be challenged if shown to have been exercised irrationally or in bad faith.
But if the purpose which the discretion is intended to serve is clear, the discretion can only be validly exercised for reasons relevant to the achievement of that purpose.
It is necessary, therefore, to consider what is the statutory purpose of Part IV of the Act and more particularly whether there is a clear purpose to be served by conferring on the court a power under section 58(2) to order the forfeiture of impermissible donations.
In large measure this purpose is to be discerned from the statutory provisions themselves.
To a limited extent, however, I would accept that some light may be thrown upon these by their legislative history, namely the Neill Report and the White Paper which followed it.
But it is unnecessary to spend much time on these.
So far as individual donations are concerned, the Neill Report recommended and the White Paper agreed that the underlying principle should be that only those with a stake in the United Kingdom should be permitted to donate; foreign donations were to be outlawed.
How then should that be achieved? Again, both agreed that this should be done by defining the permissible source of donations.
At that point, however, the two documents diverged.
Whereas the Neill Report recommended that the permissible source of individual donations should be defined to include not merely registered UK voters but also those who are eligible to be put on an electoral register in the United Kingdom, the White Paper proposed instead what is now section 54(2)(a) of the Act.
This provision, the White Paper noted (para 4.5), departs from [the Neill Reports] recommendation by providing that registered political parties may accept donations only from those individuals whose names appear on the electoral register.
Entitlement to register, whether as a resident or overseas elector, will not qualify an individual as a permissible source.
The White Paper then continued (para 4.6): Checking that a particular donor appears on the electoral register offers a test that is both conclusive and simple to administer.
It would be far less straightforward for political parties to verify that a donor not appearing on the register was nevertheless entitled to do so.
It is in the interests of the parties to have available a test which offers certainty as to the eligibility of a donor.
As for the section 58 forfeiture order itself, the White Paper said this (para 4.15): Clause 51 [enacted as section 58] provides a power for a magistrates court . . .
to order the forfeiture of a sum equal to the value of a donation received from other than a permissible source.
This will apply whether such a donation was accepted knowingly or not.
Under clause 51(2) [section 58(2)] it will be for the Electoral Commission to make an application to the court for a civil forfeiture order.
It will readily be seen that the forfeiture power exists in respect of an impermissible donation once the 30 days allowed for its return by section 56(2) are up even, indeed, if the donation was subsequently returned to the donor.
This is so, moreover, whether or not the donation was accepted knowingly there is no precondition of forfeiture (as under section 65(6)) that the party intended to conceal something, nor any defence (as now under section 56(3A)) that all reasonable steps were taken to verify that it came from a permissible donor.
It will also readily be seen that, unless by the time the court is called upon to exercise its section 58(2) discretion the donation has in fact been returned to the donor, it necessarily follows that the party will have received a donation which by virtue of section 54 it was prohibited from accepting, that it failed to return it within 30 days as section 56 required it to do, and that it continues to retain a benefit to which it is manifestly not entitled.
In these circumstances, the sole effect of a forfeiture order in respect of the whole of the donation is no more and no less than to require the party to disgorge that which the law plainly forbids it to have retained.
By the same token, were the court to refuse such an order, it would be allowing the party to retain that to which it is plainly not entitled and which the law long since required it to have surrendered.
With these considerations in mind let me return to Chetnik for the assistance it seems to me to provide.
Chetnik concerned the proper construction and application of section 9 of the General Rate Act 1967 which so far as material provides: . . .
where it is shown to the satisfaction of a rating authority that any amount paid in respect of rates . . .
could properly be refunded on the ground that . . .
(e) the person who made a payment in respect of rates was not liable to make that payment, the rating authority may refund that amount or a part thereof.
The Court of Appeal had said of that power ([1987] 1 WLR 593, 602): We think it clear that, in broad terms, the purpose of section 9 and its predecessor was to enable rating authorities to give redress and to remedy the injustice that would (at least prima facie) otherwise ordinarily arise, if they were to retain sums to which they had no right, in cases where persons had paid rates which they were not liable to pay.
Holding in the light of that purpose that the discretion to withhold repayment in such a case could only be exercised for some valid reason, the Court of Appeal had quashed the rating authoritys refusal to repay the overpaid rates and had directed them to reconsider the matter.
Affirming the Court of Appeals approach, Lord Bridge (with whom the other members of the Committee agreed) said: Parliament must have intended rating authorities to act in the same high principled way expected by the court of its own officers and not to retain rates paid under a mistake of law . . .
unless there were, as Parliament must have contemplated there might be in some cases, special circumstances in which a particular overpayment was made such as to justify retention of the whole or part of the amount overpaid.
(877D).
Later in his speech (880G), having said that the most difficult aspect of the problem was to give guidance as to the positive factors relevant to the exercise of the section 9 discretion which might be considered in whole or in part to displace the prima facie justice of refunding overpayments, and that such factors could only arise from the circumstances in which the overpayment had come to be made in any particular case, Lord Bridge suggested three possible (obviously exceptional) situations in which it might be proper to refuse a refund.
He then said (881E-F) that he had not found it an easy case and in particular cannot envisage circumstances which, on the principle I have indicated, would point to a partial refund of overpaid rates as just and appropriate.
On the latter point, however, (the express power of partial refund under section 9) Lord Goff drew on general principles of restitution law and wondered whether the fact that the rating authority will have, for example, employed a substantial part of its rate income to meet precepts by other authorities, would provide a good reason for denying, at least in part, a ratepayers claim for refund under section 9.
(882G).
Let me come, then, to the first of the two questions I posed at the outset: Has the court power under section 58(2) to order forfeiture of part only of an impermissible donation? UKIP contends that it does, essentially on the basis that the greater impliedly includes the lesser unless the context compels a different conclusion.
With the best will in the world, this seems to me an impossible contention.
Where, as here, the draftsman has explicitly chosen the words an amount equal to the value of the donation (words he then repeats in section 65(6)), it can hardly be thought he intended them to mean an amount up to that value, or an amount not exceeding that value, or (the words used by the draftsman of section 9 of the General Rate Act 1967) that amount or a part thereof.
Why would he not have used one of these expressions had he intended to provide a power of partial forfeiture? The words of section 58(2) seem to me clear and unambiguous.
I agree with Walker Js conclusion on this issue at first instance and am unsurprised that in the Court of Appeal counsel then appearing for UKIP did not seek to challenge that conclusion.
With regard to Mr Lawrence QCs subsidiary submission that such a construction amounts to an impermissible interference with article 1 of the First Protocol to the European Convention on Human Rights (para 69 of his case) I am at a loss to see how the forfeiture of a donation which by definition the party should never have accepted or kept could be said to violate that partys human rights.
Even assuming, however, that in certain circumstances it could, the court always has the option and on that hypothesis would be bound to make no forfeiture order at all.
These considerations apart, I find myself sharing Lord Bridges difficulty in Chetnik (although there, of course, the power to make partial refund was expressly provided for) in envisaging circumstances which would point to such an order as being just and appropriate at any rate where the party still retains the benefit of the impermissible donation.
Recognising, therefore, that the forfeiture power is an all or nothing power, I pass to the second core issue arising: Is there a presumption that impermissible donations should be forfeited and, if so, how strong is that presumption?
The Court of Appeal concluded (at para 50) that there was only a narrow discretion not to order forfeiture.
As Sir Paul Kennedy put it in the Courts only reasoned judgment: . . .
it might assist a party which, for reasons beyond its control, such as illness of staff, was unable to complete its inquiries within 30 days, or a party which was misled by an inaccurate entry in an electoral register [that perhaps refers to a fraudulent entry or an erroneous statement from some apparently responsible authority that the donor was on the register].
Maybe there would also be room for the exercise of discretion if a donation or its value were to be returned to the donor out of time but before any forfeiture was sought, because Parliament clearly did not intend a party to surrender the value of a donation more than once.
That essentially is my view too.
In most cases, certainly in any case where neither the benefit nor its value has ever been returned, it is difficult to see how the discretion could properly be exercised other than by an order for forfeiture.
How, in those circumstances, could a court properly allow a party to retain the value of a donation which Parliament has plainly ordained that it should never have accepted? How could this be thought consistent with the policy of the legislation? To my mind, indeed, given the ease with which electoral registers can be accessed and inspected the whole point of registration as the sole source of permissible individual donations being, as the White Paper said, to create a scheme both conclusive and simple to administer I question whether even staff illness could provide a proper basis for not forfeiting a donation.
If on account of staff illness a donation was returned late (after the 30 day limit), that no doubt could justify not making a forfeiture order.
But I am here considering cases like that presently before the Court where the donation has never been returned.
For my part I would accept that the discretion not to award forfeiture would arise altogether more readily in the final situation envisaged by Sir Paul, where a donation or its value is returned to the donor out of time but before any forfeiture was sought.
By the time forfeiture is sought, of course, it is almost inevitable that the party will have had ample opportunity (on the facts of the present case more than a year since the final impermissible donation was accepted) to discover its mistake (here, indeed, it had been several times alerted to it) and return the benefit.
Return after that time, therefore, might suggest no more than a naked attempt to escape the forfeiture provision.
One should note in this regard an obvious further purpose underlying the forfeiture power (besides its principal purpose of confiscating unlawfully retained benefits), namely as part of the mechanism for policing the control of political donations.
To allow the return of the benefit after forfeiture has been sought to save a party from an order, would, except perhaps in very special circumstances, more likely thwart than promote that additional purpose.
That question is, however, academic in the present case: quite simply UKIP still retains donations which it should never have accepted.
On the Commissions forfeiture application the Senior District Judge allowed UKIP to keep almost all of the 350,000 odd total of impermissible donations it had accepted from Mr Bown.
In common with the Court of Appeal although not, as now appears, with the majority of this Court I find that a surprising and unsatisfactory outcome to this regrettable affair.
In agreement with Lord Phillips and Lord Kerr, I consider that the appeal should be allowed.
Their reasoning and conclusions are broadly consistent, although, like Lord Kerr, I would be inclined to regard the question, whether forfeiture is possible of a sum less than the full amount of a donation, as central to the enquiry whether the discretion to order forfeiture is broad or narrow.
The discretion introduced by s.58(2) is on its face an open discretion, capable of responding to different circumstances, in particular the difference - important in the light of the mischief to which this Part of the Act was directed - between foreign donations and donations such as the present made irregularly by a person who was entitled to be on a United Kingdom register of electors but by mistake was not.
The words may .
order the forfeiture .
of an amount equal to the value of the donation are in my view capable of implying discretion to order forfeiture of part as well as all or nothing of the donation, rather than compelling a conclusion that the only discretion involved a blunt choice between all or nothing.
The use of the word may in s.58(2) is coupled with provisions in s.59(2) and (3) which permit an appeal by a registered party unhappy with a magistrates court decision under s.58(2) and which provide that any such appeal shall be by way of a rehearing, and the court hearing such an appeal may make such order as it considers appropriate.
These provisions to my mind also suggest a flexible power of appreciation in relation to the order made, according to the circumstances.
The provisions in s.60(1)(b) and (c) for rules to be made for the giving of notice to and joinder of persons affected also tend to suggest that it was understood that the exercise under s.58 and 59 might be a nuanced one, taking account of others interests.
The words any amount in s.60(3) and (5)(c) can of course be read consistently with either partys case.
A conclusion that partial forfeiture is possible and that discretion is broad, is in my view more consistent with the policy of the legislation than that adopted by the Court of Appeal or by Lord Rodger and Lord Brown.
Parliament preferred the simpler test of registration to a test including entitlement to register for pragmatic reasons: it would be simpler for parties to verify actual registration, simple for persons entitled to register to do so and little is lost by the proposed departure from the Neill Committees recommendation.
The underlying aim of the legislation remained to eliminate inappropriate foreign donations.
Lord Phillipss and Lord Kerrs analysis is in this light consistent with the principle that legislation should be construed to serve its statutory purpose: R v Tower Hamlets LBC ex parte Chetnik Developments Ltd. [1988] 1 AC 858.
The different analyses adopted in that case and the present flow from differences in context and in the nature of the issues.
The refunding by a rating authority of overpaid rates to the person paying them and the forfeiture to the state of an irregular donation made by a member of the public, who is eligible for registration but by mistake not registered, do not raise identical considerations.
The Commission submitted that, even if the law was as the majority of the Court now holds, any reasonable judge must inevitably order forfeiture of the whole of these donations.
I do not agree.
In my view and as Lord Phillips explains, it was appropriate for the level of forfeiture to reflect the circumstances.
These include the fact that Mr Bown was entitled to be on the electoral register, and would have corrected the position and made the same donations had he been aware of the mistake which led to him not being on the register (or had the donations, after being made, been returned to him, as should have occurred).
They also include the circumstances that it appears questionable, from what the Court was told, whether UKIP could find the monies to meet any order or survive, if the total sums donated were forfeited.
Walker J observed (in last two sentences of para 121) that the District Judge did not expressly deal with some factual aspects, most significantly for present purposes emails from the Commission dated 19 April and 13 May 2005 asking about Mr Bowns status, following which UKIP did not take steps eliciting and confirming the actual picture.
On the other hand, the picture presented by the correspondence between the Commission and UKIP throughout 2005 and into 2006 is not one suggesting any real urgency, still less a risk of any forfeiture; and it is also common ground that the District Judge erred to UKIPs disadvantage in taking 19 June 2005, instead of 13 December 2005, as the date when UKIP became aware that Mr Bown was not on the electoral register and so in ordering forfeiture of a larger sum than he would have done, but for such error.
UKIP did not appeal in respect of this error.
Both parties agreed before the Supreme Court that there should be no re-hearing of any save the most formal sort before the District Judge, and that the Court should if necessary make up its own mind.
On that basis, I agree with Lord Phillipss proposal that the order made by the District Judge should simply be restored.
There are three possible outcomes to the debate about the correct interpretation of section 58(2) of the Political Parties, Elections and Referendums Act 2000.
The first is that the discretion given to the court as to whether to order forfeiture is wide and that it is open to the court to make an order for forfeiture of less than the full amount of the donation.
The second is that the discretion is narrow and that an order of forfeiture, if made, should be for the entire amount of the donation.
The third is that the discretion is wide but if an order of forfeiture is made it must be for the total sum.
Of these three possible interpretations, the third seems to me to be the least likely.
A wide discretion to permit the making of an order that there should be no forfeiture of any sum whatever does not sit comfortably with what can be discerned to be the purpose of the legislation viz to eliminate the receipt by political parties of donations from sources considered to be unsuitable.
The debate must focus, therefore, I believe, on the first and second of the mooted interpretations outlined above.
Lord Phillips considered that the primary issue was what he described as the presumption issue i.e. whether section 58(2) conferred a broad discretion on the court as to whether it should make a forfeiture order, or whether there was a strong presumption in favour of forfeiture.
Although I agree with the outcome that Lord Phillips proposes, I have some reservations as to whether this is the primary issue in this case.
It appears to me that the matter of critical importance is whether forfeiture of a sum of less than the full amount of the donation is possible.
If it is, it seems to me to follow logically that the discretion should be wide; if it is not, for the reasons that I have given above, it is difficult to see how a broadly based discretion would be appropriate.
If one approaches the question whether it is possible under the legislation to order forfeiture of a lesser sum than the actual donation by concentrating exclusively on the language of section 58(2) (and section 65(6)), the answer given by the Court of Appeal and powerfully endorsed by Lord Rodger and Lord Brown is difficult to resist.
But, as a matter of general principle, the purpose of an item of legislation should inform ones approach to the interpretation of its constituent parts and I therefore believe that this is a case where it is clearly necessary to be guided in the construction of the relevant provisions not only by the language used but also by the underlying aim of the Act.
The central purpose of the legislation was to prohibit donations from those who did not have a stake in this country.
I do not accept Mr Beloff QCs argument that its purpose evolved from a desire to ban foreign donors to one of denying the right to give donations to those who could not vote.
The Act was the result of the governments commitment in its manifesto to ban foreign donors.
An examination of the materials that preceded its enactment reveal, I believe, that this was always the driver for the legislation.
Paras 4.5 and 4.6 of the White Paper (on which Mr Beloff relied to advance his evolution thesis) are concerned with devising a convenient and easy-to-apply means of enforcement.
They do not represent a change of direction in government thinking on the target for the restriction.
The means chosen to achieve the aim of banning foreign donors obviously has the potential to catch more than that category of persons.
Individual permissible donors are confined under section 54 to those who are registered in an electoral register and quite clearly this can include persons who have a stake in the country and people such as Mr Bown who are not registered in an electoral register possibly because of an administrative error.
A critical issue, therefore, is whether the fact that someone such as he is caught by the breadth of section 54 can affect the way in which section 58 is to be construed.
At first sight it does not appear that this should influence the interpretation of section 58(2).
The court is given the power to order the forfeiture of an amount equal to the value of the donation.
It is not empowered at least not on the face of the subsection to order that an amount up to the value of the donation be forfeit.
And Lord Brown has articulated a strong argument to the effect that if this was the intention of Parliament, it could easily have been achieved.
One might also recognise that the notion of forfeiture is traditionally the deprivation of a specific amount or object.
Forfeiture is defined in the Oxford English Dictionary as the fact of losing or becoming liable to deprivation of (an estate, goods, life, an office, right, etc) in consequence of a crime, offence, or breach of engagement or that which is forfeited; a pecuniary penalty, a fine.
One of the definitions of forfeit is something to which the right is lost by the commission of a crime or fault.
These definitions indicate, I think, that the use of the word forfeiture is commonly associated with the deprivation of a defined thing.
There are strong policy reasons for interpreting section 58(2) in the manner that the appellant contends for, however.
The culpability of the offender is more easily reflected in the penalty if one has a calibrated reaction to the gradations of impermissibility that will arise; the impact on the party of the proposed forfeiture order can be assessed; whether it is a foreign donation can be taken into account; and the inaction of the Electoral Commission after it has discovered the impermissible donation can also weigh in the balance.
But the strongest and, ultimately, for me, the most convincing - argument in favour of the interpretation advanced by the appellant is that it was never intended that there be forfeiture in the true sense of that term where the donor was someone who was entitled to be on the electoral register but who was not registered because of an administrative error.
The sense that one gets from the Neill Report is that what was intended was the devising of a range of penalties to deal with the various types of impermissible donation and that the word forfeiture was not used in the report in its conventional connotation.
This much is, I think, clear from para 5.42 of the report where it was proposed that a sum not less than the donation should be liable to forfeiture from the partys funds and that in significant cases a penalty of up to ten times the donation might be levied.
Notably, this paragraph also contained the suggestion that, while a forfeiture power should also apply even if the receipt were innocent or inadvertent, the courts would clearly take into account the degree of culpability in setting the level of forfeiture (emphasis added).
The use of the phrase level of forfeiture clearly contemplates, in my opinion, a sanction involving the payment of a sum less than the full amount of the donation.
There is nothing in the White Paper that signals a movement by the government away from the essential purpose identified by the Neill Report and the reasoning that underlay its recommendations.
The changes to the Neill proposals came about as a matter of administrative expediency rather than for reasons of principle.
It is therefore possible to hold that, since the primary function of the Act was to ban foreign donors, the legislature must have intended that where others were caught because of the simplicity and breadth of the provision that was actually adopted to achieve that aim, they would not be subject to the same draconian penalty as those to whom the legislation was principally directed.
Lord Diplock, in commenting on the decision of the House of Lords in Inland Revenue Comrs v Ayrshire Employers Mutual Insurance Association Ltd [1946] 1 All ER 637, said that if the courts can identify the target of legislation, their proper function is to see that it is hit; not merely to record that it has been missed (Courts and Legislators, Holdsworth Club Presidential Address 1965, referred to in the second footnote on p 955 of Bennion on Statutory Interpretation, 5th ed (2008)).
One might adapt that statement slightly to meet the circumstances of the present case by saying that courts should ensure that the target is not subject to greater fire than was intended.
Concluding, as I therefore do, that the court has power to make an order of forfeiture for less than the full amount of the donation, I am of the view that the discretion of the court as to the level at which to fix the sanction at less than full forfeiture must be wide.
But I agree with Lord Phillips that where it is shown that a donation has come from an impermissible source it should be presumed that this is a foreign donation and that if the presumption is not rebutted, forfeiture should follow.
If, however, it can be shown that the donation was not from a foreign donor but came from someone who was entitled to be in an electoral register, the level of forfeiture should reflect the particular circumstances of the case.
I would therefore allow the appeal.
As to disposal, I agree with the order that Lord Phillips proposes should be made.
| UK-Abs | The appeal concerns an order made by City of Westminster Magistrates Court for forfeiture of donations made to the United Kingdom Independence Party (UKIP), a registered political party.
Restrictions on donations to political parties are set out in Chapter II of Part IV of the Political Parties, Elections and Referendums Act 2000 ("PPERA").
Section 54 PPERA provides that a donation must not be accepted by a political party if the donor is not a permissible donor at the time of receipt.
Permissible donors are defined in section 54(2)(a) as individuals registered in an electoral register.
Under section 56(1) PPERA, a political party which receives a donation must take all reasonable steps to verify the identity of the donor and whether he is a permissible donor.
Under the terms of the statute, if a party is not satisfied that a donation is made by a permissible donor it can return the donation within thirty days.
Only if it fails to do so will it be regarded as having accepted the donation.
Sections 58 60 of PPERA provide for forfeiture in relation to donations made by impermissible donors.
In particular, section 58(2) provides that where a political party has accepted a donation which it is prohibited from accepting, the Electoral Commission may apply to a Magistrates Court for an order of forfeiture by the party of an amount equal to the value of the donation.
Mr Alan Bown, a member of UKIP, was entitled to be registered as an elector but, for the period 1 December 2004 2 February 2006, his name was not on any electoral register.
During that period Mr Bown made donations to UKIP amounting to 349,216.
UKIP did not return any of the donations within thirty days, or at all.
On 16 March 2007, the Electoral Commission applied to the City of Westminster Magistrates Court for an order of forfeiture of an amount equal to the donations.
The judge ordered the forfeiture of only 14,481, being the value of donations received by UKIP after the date of a meeting between the Electoral Commission and the party at which UKIP was aware that Mr Bown was not on the electoral roll.
Following judicial review proceedings challenging the decision of the Magistrates Court brought by the Electoral Commission, the Court of Appeal held that the Magistrates Court had erred in its construction of PPERA and had not made a valid exercise of discretion under s58(2): its decision was irrational and inadequately reasoned.
The Court held that (1) s.58(2) of PPERA required that an order for forfeiture of an unlawful donation must reflect the full sum of the donation, and (2) on the exercise of the discretion by the Magistrates Court, there is a strong presumption in favour of forfeiture.
UKIP appealed to the Supreme Court.
The appeal was allowed and the order of the Magistrates Court restored.
The majority of the Court (Lords Phillips, Mance, Kerr and Clarke) held that section 58(2) permitted the forfeiture of a sum less than the total donation and that the presumption in favour of forfeiture was displaced in the present case where the donor was eligible to be on the UK electoral register but had not been registered by reason of administrative oversight.
UKIP would be required to forfeit 14,481.
Three dissenting Justices (Lords Rodger, Brown and Walker) would have held that the full donation must be forfeited.
Lord Phillips, with whom Lords Mance, Kerr and Clarke agreed, decided that the appeal should be allowed.
Lord Phillips stated that the primary issue is whether section 58(2) confers a broad discretion on the court to choose to make an order for forfeiture or whether there is a strong presumption in favour of forfeiture (the presumption issue).
Related to the presumption issue is the issue of whether section 58(2) PPERA permits the court to make an order for partial forfeiture (the all or nothing issue).
In order to answer the questions raised in the appeal, it was necessary to look at the legislative history of PPERA, in particular the Fifth Report of the Committee on Standards in Public Life on the Funding of Political Parties in the United Kingdom, published in October 1998 (the Neill Report), and White Paper Cm4413.
That history provided a clear picture of the objects of Chapter II of Part IV of PPERA.
The primary object is to prevent donations to political parties from foreign sources.
Parliament made a significant change to the test proposed in the Neill Report in restricting permissible donors to those actually on an electoral register, excluding those eligible to be put on one.
The change was not due to the fact that there is anything undesirable about parties being funded by those who are not on an electoral register; rather, it was made for pragmatic reasons.
The secondary object of the Chapter II of Part IV of PPERA is to provide a scheme for achieving the primary object that is easy to apply, easy to police and that contains adequate sanctions for non compliance (paras [25] [26]).
There are two distinct objects of the power to forfeit in section 58(2).
The primary object of forfeiture is the direct prevention of the mischief that the legislation is designed to prevent the receipt by a political party of foreign funding.
The second object of the power to forfeit is to provide a deterrent or sanction against failure to comply with the requirements of the Act that are designed to make sure that donations are not received from an impermissible donor (paras [31] [35]).
Rather than following the eligibility test proposed by the Neill Report, Parliament chose to adopt a different scheme under which impermissible donations may or may not be foreign.
Under this scheme, the significance of an individual impermissible donation may vary widely.
It was clear that in making the power to forfeit discretionary, Parliament intended that the Magistrates Court should discriminate between cases where forfeiture was warranted and cases where it was not.
Parliament intended the court to consider whether forfeiture was a proportionate response to the facts of the particular case (paras [35] [36]).
Where a political party has accepted a donation from an impermissible source, there should be an initial presumption in favour of forfeiting the donation.
If the donor was eligible to be registered on the electoral roll, the initial presumption in favour of forfeiture will have been rebutted and the question will then be whether there have been failures to comply with those requirements of the Act that are designed to ensure that such donations are not accepted, and the nature of those failures (paras [47] [49]).
On the all or nothing issue, Lord Phillips noted that the language of section 58(2) suggests that there is only one amount that can be forfeited.
However, the word forfeit is used in an unusual way in the context of the statute, in a manner which is more akin to a fine.
Considering the context, the preferable interpretation is to treat the power to order forfeiture of an amount equal to the value of an impermissible donation as implicitly including the power to order forfeiture of a lesser sum (paras [50] [51]).
Lord Kerr (with whom Lord Mance agreed), whilst agreeing with the outcome proposed by Lord Phillips, held that the critical issue was the all or nothing issue.
If partial forfeiture is possible it follows that the courts discretion as to whether or not to order forfeiture should be wide; if not, a broad discretion is not likely to be appropriate.
As the primary aim of PPERA was to ban foreign donors, it was possible to hold that Parliament did not intend that where other donors were caught because of the simplicity and breadth of the provision that was adopted to achieve that aim, they would be subject to the same draconian penalty as those to whom the legislation was principally directed (para [114]).
The court has the power to make an order of forfeiture for less than the full amount of the donation, and its discretion as to the level at which to fix the sanction at less than full forfeiture must be wide.
Agreeing with Lord Phillips, where it is shown that a donation has come from an impermissible source it should be presumed that it is a foreign donation and, if that presumption is not rebutted, forfeiture should follow.
If, however, it can be shown that the donation came from someone who was entitled to be on an electoral register, the level of forfeiture should reflect the particular circumstances of the case (para [116]).
The dissenting judgments of Lord Rodger and Lord Brown (with whom Lord Walker agreed) held that the language of PPERA was clear.
UKIP was not permitted to retain money that it had not lawfully been entitled to receive.
Section 58(2) does not permit the forfeiture of a sum less than the donation.
In most cases, and certainly in this case where neither the benefit nor its value has ever been returned, it is difficult to see how the discretion could properly be exercised other than by order for forfeiture (paras [63] [64], [90] [95]).
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Mr David Price, the Solicitor Advocate acting for the defendants, who are the appellants, at one point described the claim as a storm in a teacup.
He was correct, but the storm is considerable.
It involves consideration of one of the most difficult areas of the law of defamation, the defence of fair comment.
Over 40 years ago Diplock LJ in Slim v Daily Telegraph Ltd [1968] 2 QB 157, 171 referred to the artificial and archaic character of the tort of libel.
Some 20 years on Parker LJ in Brent Walker Group plc v Time Out Ltd [1991] 2 QB 33, 46 commented on the absurdity of the tangled web of the law of defamation.
Little has occurred in the last twenty years to unravel the tangle, and this is particularly true of the defence of fair comment.
Statutory reform has been proposed in the form of Lord Lester of Herne Hills private members Defamation Bill and the Ministry of Justice has undertaken to publish a draft Defamation Bill early next year.
Both Mr Price, and Mr Caldecott QC, who has intervened on behalf of and with the support of important newspaper and broadcasting interests, have invited the court to use this appeal as a vehicle for developing the common law defence of fair comment in a manner which goes well beyond what is necessary to resolve the issues raised by this appeal.
What are currently the elements of the defence of fair comment?
Sitting in the Court of Final Appeal of Hong Kong in Tse Wai Chun Paul v Albert Cheng [2001] EMLR 777 Lord Nicholls of Birkenhead was concerned with the ingredients of malice that can defeat the defence of fair comment.
Before considering that question he set out at paras 16 21, under the heading Fair Comment: The Objective Limits what he optimistically described as five non controversial matters, which were well established in relation to the defence of fair comment: 16.
First, the comment must be on a matter of public interest.
Public interest is not to be confined within narrow limits today: see Lord Denning in London Artists Ltd v Littler [1969] 2 QB 375, 391. 17.
Second, the comment must be recognisable as comment, as distinct from an imputation of fact.
If the imputation is one of fact, a ground of defence must be sought elsewhere, for example, justification or privilege.
Much learning has grown up around the distinction between fact and comment.
For present purposes it is sufficient to note that a statement may be one or the other, depending on the context.
Ferguson J gave a simple example in the New South Wales case of Myerson vs Smiths Weekly (1923) 24 SR (NSW) 20, 26: To say that a mans conduct was dishonourable is not comment, it is a statement of fact.
To say that he did certain specific things and that his conduct was dishonourable is a statement of fact coupled with a comment. 18.
Third, the comment must be based on facts which are true or protected by privilege: see, for instance, London Artists Ltd v Littler [1969] 2 QB 375, 395.
If the facts on which the comment purports to be founded are not proved to be true or published on a privilege occasion, the defence of fair comment is not available. 19.
Next, the comment must explicitly or implicitly indicate, at least in general terms, what are the facts on which the comment is being made.
The reader or hearer should be in a position to judge for himself how far the comment was well founded. 20.
Finally, the comment must be one which could have been made by an honest person, however prejudiced he might be, and however exaggerated or obstinate his views: see Lord Porter in Turner v Metro Goldwyn Mayer Pictures Ltd [1950] 1 All ER 449, 461, commenting on an observation of Lord Esher MR in Merivale v Carson (1888) 20 QBD 275, 281.
It must be germane to the subject matter criticised.
Dislike of an artists style would not justify an attack upon his morals or manners.
But a critic need not be mealy mouthed in denouncing what he disagrees with.
He is entitled to dip his pen in gall for the purposes of legitimate criticism: see Jordan CJ in Gardiner v Fairfax (1942) 42 SR (NSW) 171, 174. 21.
These are the outer limits of the defence.
The burden of establishing that a comment falls within these limits, and hence within the scope of the defence, lies upon the defendant who wishes to rely upon the defence.
These five propositions relate to elements of the defence of fair comment in respect of which the burden of proof is on the defendant.
Cheng was primarily concerned with a sixth element absence of malice.
A defendant is not entitled to rely on the defence of fair comment if the comment was made maliciously.
The onus of proving malice lies on the claimant.
The second proposition.
This merits elaboration.
Jurists have had difficulty in defining the difference between a statement of fact and a comment in the context of the defence of fair comment.
The example in Myerson (1923) 24 SR (NSW) 20, 26 cited by Lord Nicholls is not wholly satisfactory.
To say that a mans conduct was dishonourable is not a simple statement of fact.
It is a comment coupled with an allegation of unspecified conduct upon which the comment is based.
A defamatory comment about a person will almost always be based, either expressly or inferentially, on conduct on the part of that person.
Judges and commentators have, however, treated a comment that does not identify the conduct on which it is based as if it were a statement of fact.
For such a comment the defence of fair comment does not run.
The defendant must justify his comment.
To do this he must prove the existence of facts which justify the comment.
The fifth proposition.
The requirement to show that the comment is germane to the subject matter criticised and is one that an honest person could have made, albeit that that person may have been prejudiced, or have had exaggerated or obstinate views, is one that is bizarre and elusive.
I am not aware of any action in which this has actually been an issue.
I shall describe this element as pertinence.
The fourth proposition.
It is this proposition that is directly in issue in this appeal.
The facts on which the defendants wish to rely in support of their plea of fair comment include a fact to which they made no reference in the publication complained of.
The claimants say that they cannot rely on this, for this would run foul of Lord Nicholls fourth proposition.
Mr Price submits that far from being well established, that proposition is contrary to authority and wrong.
Mr Caldecott supports that submission.
The important issue raised by this appeal is thus the extent to which, if at all, the defence of fair comment requires that the comment should identify the matter or matters to which it relates.
The facts
The claimants are members of the musical acts The Gillettes and Saturday Night at the Movies.
They perform in venues across the country, at wedding receptions and other events.
The first claimant is a singer in both acts and is their de facto manager.
The first defendant was at all relevant times one of the two directors (the other being his wife, Christina) of the second defendant, which at all relevant times provided entertainment booking services and advertised acts and performers on its website for weddings, drinks receptions, corporate entertainment and other events.
On 13 October 2004 the first claimant agreed that the claimants acts could be promoted by the defendants.
This involved completing an online agreement form.
The agreement simply permitted the defendants to promote the claimants.
It did not require the claimants to take up any booking that was offered to them.
The agreement form contained a link to the terms and conditions that would apply in the event that a booking was made.
Several performances were subsequently arranged by the defendants.
These included a booking at the Landmarc Hotel arranged in December 2005 (the Landmarc booking).
This was cancelled by the first claimant shortly after it was made.
The first claimant claims that this was because of the existence of a previous booking, which he had over looked.
This is denied by the defendants.
They contend that the claimants cancelled this booking because they had received a better offer.
On 19 April 2006 the first claimant signed a booking agreement in relation to a performance on 31 December 2006 at Bibis, a restaurant in Leeds (the Bibis booking).
The terms and conditions included a re engagement clause, which provided that any further bookings at the venue in the following 12 months should be through the second defendant.
The first claimant arranged a further performance at Bibis on 9 May 2007 directly with the venue.
He admits that he was aware of the re engagement clause.
He says that he deliberately decided not to inform the first defendant of the booking because the new manager of Bibis would not deal with the first defendant (the latter allegation is denied by the defendants).
When the first defendant discovered this on 27 March 2007 he sent an email to the first claimant in the following terms: Craig It appears you have taken a booking directly with Bibis.
We will be instructing our legal team to deal with this.
I will also be discussing this with the Musicians Union as it does appear that, aside from having no commitment to those that give you work, you are also not able to abide by the terms of your contract.
The client and artist agree that subsequent bookings within a 12 month period, from any artist provided by 1311 Events can only be booked directly with 1311 Events.
Forthwith, we will not be representing you any longer as we can only work with professional artists who can accept our terms and conditions.
Kind regards
The first claimants response on the same day prompted the first defendant to publish on the second defendants website the posting which is the subject of the claim (the posting).
Only a small part of the first claimants email was set out in the posting and it was partially misquoted.
The full email read as follows: Hi Jason It appears you do not know the meaning of freelance, that is what all my shows are.
You are part of a cog which supplies all agents and artitses [sic] alike with work, one does not work without the other.
You came to me Jason after viewing the quality of our show, your contract is mearly [sic] a formality and holds no water in legal terms.
You should consider looking after your clients/venueus[sic] better then maybe you would not lose them.
Do not be fooled into thinking you can lose venues and reep [sic] the benefits from others hard work, that does not hold any legal value any more.
You [sic] offer of work to my shows over the years was minimal and neither helped nor hindered our diary.
I am not performing in the show, and since your agreement and terms was with me there are no grounds for your terms and conditions.
Thers [sic] is one outstanding show with you guys Aug 4th o7 we will honour the show as we have all the other shows through your agency, providing you make sure the balance fee 900.00 + vat.
TOTAL =1057.50 is in our account 2 weeks prior to the show date, thus avoiding any cancellation [sic] of the show.
Please confirm this can be organised within 7 days or I will cancel the date.
I look forward to any legal trysts.
Kind regards Craig (On behalf of the Gillettes)
The words of the posting were: 1311 Events is no longer able to accept bookings for this artist as the Gillettes c/o Craig Joseph are not professional enough to feature in our portfolio and have not been able to abide by the terms of their contract.
What we say: The show is an enjoyable soul and Motown experience which is popular for many events throughout the UK.
However, following a breach of contract, Craig Joseph who runs The Gillettes and Saturday Night at the Movies has advised 1311 Events that the terms and conditions of contracts hold no water in legal terms (27.03.07).
For this reason, it may follow that the artists obligations for your booking may also not be met.
In essence, Craig Joseph who performs with/arranges bookings for the Gillettes and Saturday Night at the Movies may sign a contract for your booking but will not necessarily adhere to it.
We would recommend that you take legal advice before booking this artist to avoid any possible difficulties.
Instead we recommend any of the following professional bands and
artists
The posting was accessible for six weeks between April and May 2007 when it was removed following a letter from Equity on behalf of the claimants.
The claimants allege that they lost a booking as a result of it.
The defendants do not admit this.
On 4 August 2007 the claimants performed at the wedding of Michael Coombes (the Coombes booking).
This booking had been arranged by the defendants before the rupture between the parties in March.
Shortly before the wedding the first claimant agreed to play for a further 30 minutes for 275 (cash), without VAT or the defendants commission that was charged on the main fee.
The defendants allege that this was to evade their commission and tax.
The claimants allege that they did not, in the end, perform the extra 30 minutes, which is why it does not appear on their records.
In February 2008 the posting was inadvertently uploaded to a part of the defendants site where it could be accessed and it remained there until April 2008.
The posting was removed following a solicitors letter on behalf of the claimants.
The claimants allege that they lost a further booking in consequence.
The defendants allege that this claim has been manufactured by the claimants.
The claimants attach great significance to the difference between their email of 27 March 2007 and the brief summary of this in the defendants posting.
They submit that their email merely challenged the validity of the defendants re engagement clause and cast no doubt on the claimants respect for their bookings with their customers.
The defendants posting, however, suggested that the claimants had challenged the validity of contractual obligations in general, so that they could not be trusted to honour their engagements.
The claimants contend that this misrepresentation of their email was deliberate.
The pleadings
The amended particulars of claim allege that the defendants posting bore the following meaning: the claimants are grossly unprofessional and untrustworthy and will not, and/or are unlikely to, honour any bookings made for them to perform either as The Gillettes or as Saturday Night at the Movies. (para 8)
The amended defence pleads justification in relation to the following meaning: Meanings that the defendant alleges to be true 9.1 The first claimant on behalf of the claimants has : 9.1.1.
Conducted himself in such a manner so as to entitle the defendants to conclude that The Gillettes were not sufficiently professional to feature in the second defendants portfolio. 9.1.2.
Breached the terms of agreements with the second defendant. 9.1.3.
Demonstrated a contemptuous, cavalier and unprofessional attitude to the contractual obligations as evidenced by his email of 27 March 2007. 9.2 In the circumstances, the claimants may not necessarily adhere to the terms of booking agreements signed by the first claimant. (para 9)
The facts relied on in support of the plea of justification are: a) By passing the defendants when accepting a re engagement at Bibis; b) The first claimants email of 27 March 2007; c) The cancellation of the Landmarc booking when something better had come up.
The defence then pleads fair comment in relation to the following parts of the posting: The Gillettes c/o Craig Joseph are not professional enough to feature in our portfolioit may follow that the artists obligations for your booking may also not be met.
In essence, Craig Joseph who performs with/arranges bookings for The Gillettes and Saturday Night at the Movies may sign a contract for your booking but will not necessarily adhere to it.
The facts relied upon in relation to the plea of justification are equally relied on as facts upon which the comment was based.
The proceedings below
On 27 April 2009, just over one month before the date fixed for the trial, the claimants issued an application for summary judgment, alternatively for an order striking out the defences, on the basis that there were no issues to go to the jury.
Thus began the tortuous interlocutory proceedings that have culminated in this appeal.
With hindsight it is apparent, and with a little foresight it should have been apparent at the time, that this relatively modest dispute raised issues of complexity, some of which might not prove decisive, and that the best course would be to proceed with the substantive hearing before a judge alone.
In the event Eady J gave judgment on the claimants application on 22 May 2009.
One issue, which occupied much time before the judge and the Court of Appeal, but which is no longer live, related to the effect on the claimants contractual obligations of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (SI 2003/3319).
Neither party had been aware of these at the material time and it is not necessary to say any more about them.
The claimants sought to persuade Eady J to strike out the particulars of justification on the ground that those particulars could not possibly justify the defendants posting.
The judge declined to do so, holding that the plea of justification was sufficiently arguable to be a matter that had to be left to the jury.
He gave the defendants permission to add to their particulars of justification conduct of the claimants that post dated the defendants posting.
This related to the Coombes booking.
The allegation was that the claimants had offered to play for an additional 30 minutes for a cash payment in respect of which they intended to evade both VAT and the claimants commission.
The claimants were, however, successful in persuading Eady J to strike out the defence of fair comment.
He gave the following reasons for doing so: 58.
The defence of fair comment is attacked on three grounds.
First, it is said that no part of the words complained of is capable of being classified as comment; that is to say, a jury would be perverse to come to such a conclusion.
It is necessary to remember, in this context, that the defence is wide enough to embrace not only expressions of opinion in the more common sense but also, in some cases, inferences of fact where it is clear they are not objectively verifiable: see eg Gatley on Libel and Slander, 11th ed (2008), at para 12.7.
For example, where a conclusion is expressed by the commentator in circumstances where it is obvious to the reader that he cannot know the answer (eg in relation to someones secret motives), it would be taken as comment rather than fact. 59.
Here, the real sting of the libel (although this may well be for the jury to decide in due course) would appear to be the allegations that the claimants take a generally cavalier attitude to contractual obligations and are not to be trusted in business dealings.
It seems to me that they are factual in character rather than the expression of opinions.
All that is specifically relied upon is the allegation of a breach, which forms the subject matter of the justification defence.
It may be thought, therefore, to add very little. 60.
Also I cannot see that a (one sided) summary of a private contractual dispute can be said to constitute a matter of public interest. (I have already referred to the misquotation from the first claimants email of 27 March, where the impression was given that he was speaking of contracts in general rather than of the particular re engagement term sought to be imposed by the defendants.
This does not arise for consideration in the present context, although it would plainly be relevant if the plea of fair comment were to survive in determining whether or not it had been made with reference to facts truly stated.)
The Court of Appeal [2009] EWCA Civ 1075; [2010] ICR 642 declined to reinstate the defence of fair comment.
Pill LJ gave the only reasoned judgment, with which Hooper and Wilson LJJ agreed.
Pill LJ held that the words in their posting identified by the defendants as comment were, indeed, comment rather than allegations of fact (paras 29 to 31).
Pill LJ did not refer to authorities which indicate that, if there is an issue of whether words are fact or comment, this is a matter for the jury.
His finding can be upheld on the basis that the words in question are unarguably comment, and it has not been challenged in this court.
So far as concerns the question of whether the comment related to a matter of public interest, Pill LJ said this, at para 37: I see no merit in the argument that the comment cannot constitute a matter of public interest.
Those in the business of entertaining the public, a business in which many people are engaged, will be concerned, when serving the public, to know which artists can be relied on to perform their contracts and which cannot.
The comment is arguably in the public interest.
The last sentence suggests that Pill LJ considered that this issue was one for the jury, whereas the authorities indicate that it is a question of law for the judge.
The claimants have, however, treated Pill LJs ruling as a finding that the subject matter of the comment was a matter of public interest and have not challenged that finding.
Pill LJ accepted a point raised by the claimants by a respondents notice.
They contended that the defence of fair comment was bad because the comment was founded on the statement allegedly made by the claimants in their email of 27 March 2007, which was falsely described in the defendants posting.
They argued (i) that a defence of fair comment can only be founded on a comment which refers to or identifies the facts on which the comment is based and (ii) that those facts must be true.
The defendants argued that, by virtue of the provisions of section 6 of the Defamation Act 1952, they could also rely to support their comment on the breach by the claimants of the Landmarc contract in 2005.
In rejecting this submission Pill LJ applied the fourth proposition of Lord Nicholls in Cheng: 40.
The words complained of, however, do also allege that the claimants have not been able to abide by the terms of their contract and that the email was written following a breach of contract, thus possibly attracting an application of section 6 of the Defamation Act 1952.
Under the heading Fair Comment, the section provides: In an action for libel or slander in respect of words consisting partly of allegations of fact and partly of expressions of opinion, a defence of fair comment shall not fail by reason only that the truth of every allegation of fact is not proved if the expression of opinion is fair comment having regard to such of the facts alleged or referred to in the words complained of as are proved. 42.
Clearly, the defendants real complaint against the claimants was a breach by the claimants of the re engagement clause in the contract between the claimants and the second defendant.
There is no reference to that in the words complained of.
The contract is not identified in the publication, still less the term allegedly breached.
Moreover, the single specific allegation of fact in the words complained of is plainly untrue. 43.
Mr Price relied, in a section 6 context, on the more general allegations repeated above.
In paragraph 10.2 of the re amended defence, the defendants rely on the facts set out at in paragraph 9, other than in paragraph 9.16.
Paragraphs 9.1 to 9.12 refer to the contract between the claimant and the second defendant and to the re engagement term.
Paragraphs 9.13 and 9.14, however, refer to an alleged breach of a booking arrangement with Landmarc in Bournemouth in December 2005.
That alleged breach was sufficiently identified in the words complained of, it was submitted. 44.
As Lord Nicholls stated in Tse Wai Chun Paul, at para 19, the comment must explicitly or implicitly indicate, at least in general terms, what are the facts on which the comment is being made.
Does section 6 of the 1952 Act permit the defendants, in this context, to rely on the breach alleged in paragraphs 9.13 and 9.14 [breach of Landmarc booking] 45.
I have come to the conclusion that the defence of fair comment should not be permitted to stand, on an application of section 6, on the strength of an alleged breach of contract with a hirer in December 2005.
The dispute arose in March 2007 following an alleged breach by the claimants of the re engagement term in their contract with the second defendant.
That breach gave rise to the publication which led to the present action. 46.
The breach of contract relied on for present purposes is of a contract with a hirer in 2005.
As between the claimants and defendants, there were no repercussions in that contractual relations proceeded without complaint until March 2007.
The words following a breach of contract in the words complained of cannot be taken as referring to the December 2005 breach.
Nor, in my judgment, can the later words in the defendants comments.
In my judgment, a jury could not properly base a finding of fair comment against the claimants, given the nature of the comment, upon a breach of contract in December 2005 14 months before the breach which led to the publication.
On this ground, the judges decision to strike out the defence of fair comment is to be upheld.
The issues
The issues raised by this appeal are as follows: i) Can the defendants rely in support of their plea of fair comment on matters to which they made no reference in their comment? ii) Are the matters to which the defendants did refer in their comment capable of sustaining a defence of fair comment?
The development of the defence of fair comment
When citing from the relevant authorities I propose to place in italics passages that are of particular relevance to the issues on the appeal.
The history of the defence of fair comment is helpfully summarised by Paul Mitchell in Chapter 8 of The Making of the Modern Law of Defamation (2005).
It originated at a time when malice was an essential element in the tort of defamation but malice was normally implied unless rebutted.
Originally criticism of literary works and works of art was protected in so far as no presumption of malice arose in respect of such publications.
Of necessity such publications identified the subject matter of the comment and it was implicit in some judgments that the matter to which the criticism related would be set out before the criticism was made see Cooper v Lawson (1838) 8 Ad & E 746.
In the first half of the 19th century the subject matter that could found a defence of fair comment was extended to other matters of public interest and, in particular, to the acts of persons in public life Turnbull v Bird (1861) 2 F & F 508.
Campbell v Spottiswoode (1863) 3 B & S 769 is perhaps the most important foundation stone of the modern law of fair comment.
The plaintiff was a dissenting Protestant minister who had a scheme for advancing the propagation of the gospel in China by promoting the sales of a newspaper containing a series of letters emphasising the importance of this.
The defendant published an attack on the plaintiff in a rival newspaper alleging that the plaintiffs motive was not to take the gospel to the Chinese but to make money out of the sales of his newspaper, and that the names and descriptions of subscribers published in the newspaper were fictitious.
The publication made it plain that these allegations were no more than inferences, albeit that they were inferences of fact.
The court drew a distinction between attacking the scheme and attacking the character of its proponent.
Cockburn CJ said, at p 777: I think the fair position in which the law may be settled is this: that where the public conduct of a public man is open to animadversion, and the writer who is commenting upon it makes imputations on his motives which arise fairly and legitimately out of his conduct so that a jury shall say that the criticism was not only honest, but also well founded, an action is not maintainable.
But it is not because a public writer fancies that the conduct of a public man is open to the suspicion of dishonesty, he is therefore justified in assailing his character as dishonest.
Crompton Js judgment was to similar effect.
He observed, at p 778: Nothing is more important than that fair and full latitude of discussion should be allowed to writers upon any public matter, whether it be the conduct of public men, the proceedings in courts of justice or in Parliament, or the publication of a scheme or of a literary work.
But it is always to be left to a jury to say whether the publication has gone beyond the limits of a fair comment on the subject matter discussed.
A writer is not entitled to overstep those limits and impute base and sordid motives which are not warranted by the facts, and I cannot for a moment think that, because he has a bona fide belief that he is publishing what is true, that is any answer to an action for libel.
With respect to the publication of the plaintiffs scheme, the defendant might ridicule it and point out the improbability of its success; but that was all he had a right to do.
It is not entirely clear whether the court was holding that defamatory inferences in relation to motive could be justified provided that they were reasonable, or whether it considered that such inferences had to be justified by showing that they were true.
Certainly Mellor J, at pp 782 783, appears to have taken the latter view.
In Merivale v Carson (1887) 20 QBD 275, 280 281 Lord Esher MR cited the passage from Crompton Js judgment in Campbell v Spottiswoode and then addressed the question of what was meant by fair comment: What is the meaning of a fair comment? I think the meaning is this: is the article in the opinion of the jury beyond that which any fair man, however prejudiced or however strong his opinion may be, would say of the work in question? Every latitude must be given to opinion and to prejudice, and then an ordinary set of men with ordinary judgment must say whether any fair man would have made such a comment on the work .
Mere exaggeration, or even gross exaggeration, would not make the comment unfair.
However wrong the opinion expressed may be in point of truth, or however prejudiced the writer, it may still be within the prescribed limit.
The question which the jury must consider is this would any fair man, however prejudiced he may be, however exaggerated or obstinate his views, have said that which this criticism has said of the work which is criticised? If it goes beyond that, then you must find for the plaintiff; if you are not satisfied that it does, then it falls within the allowed limit, and there is no libel at all.
The nature of fair comment was further clarified by Collins MR in McQuire v Western Morning News Co Ltd [1903] 2 KB 100.
The subject of the action was a swingeing condemnation of the merits of a musical play.
The Master of the Rolls observed at p 108 that there was no evidence of actual malice, no personal imputations and no allegations of fact.
In these circumstances he held at p 112 that if comment was to be fair it had to be relevant and not such as to disclose in itself actual malice.
In Dakhyl v Labouchere, (Note) reported at [1908] 2 KB 325, the House of Lords was concerned not with literary criticism but with a publication that described a doctor as a quack of the rankest species.
Lord Atkinson, who made the most substantial speech, expressed the view, at p 329, that a personal attack could form part of a fair comment on facts stated provided that it was a reasonable inference from those facts.
His speech was cited at length by Fletcher Moulton LJ in Hunt v The Star Newspaper Co Ltd [1908] 2 KB 309.
That appeal concerned publications imputing to the plaintiff improper conduct in the discharge of his duties as a deputy returning officer at a municipal election.
Thus the complaint related to allegations of fact but the sting of the article was that the conduct of the plaintiff had been politically motivated.
The Court of Appeal in that case drew a distinction between the test of fair comment in relation to literary criticism, as laid down in Merivale v Carson 20 QBD 275, and the test of fair comment in relation to a personal attack on an individual.
In the present context, however, this decision is particularly significant for what was said in respect of the difference between comment and allegations of fact.
Because of the significance attached to this judgment in later cases, I shall set out at a little length the most significant extracts, at pp 319 321: The law as to fair comment, so far as is material to the present case, stands as follows: In the first place, comment in order to be justifiable as fair comment must appear as comment and must not be so mixed up with the facts that the reader cannot distinguish between what is report and what is comment: see Andrews v Chapman (1853) 3 C & K 286.
The justice of this rule is obvious.
If the facts are stated separately and the comment appears as an inference drawn from those facts, any injustice that it might do will be to some extent negatived by the reader seeing the grounds upon which the unfavourable inference is based.
But if fact and comment be intermingled so that it is not reasonably clear what portion purports to be inference, he will naturally suppose that the injurious statements are based on adequate grounds known to the writer though not necessarily set out by him.
In the one case the insufficiency of the facts to support the inference will lead fair minded men to reject the inference.
In the other case it merely points to the existence of extrinsic facts which the writer considers to warrant the language he uses.
Any matter, therefore, which does not indicate with a reasonable clearness that it purports to be comment, and not statement of fact, cannot be protected by the plea of fair comment.
In the next place, in order to give room for the plea of fair comment the facts must be truly stated.
If the facts upon which the comment purports to be made do not exist the foundation of the plea fails.
Finally, comment must not convey imputations of an evil sort except so far as the facts truly stated warrant the imputation.
To allege a criminal intention or a disreputable motive as actuating an individual is to make an allegation of fact which must be supported by adequate evidence.
I agree that an allegation of fact may be justified by its being an inference from other facts truly stated, but in order to warrant it the jury must be satisfied that such inference ought to be drawn from those facts.
Fletcher Moulton LJ, and the other members of the court, thus drew a distinction between (i) defamatory allegations of fact, which had to be clearly and fairly stated, and to be true; (ii) literary criticism, which need not be reasonable but had to be honest, and (iii) imputations of motive amounting to an attack on the character of the plaintiff, which had to be reasonably drawn from the facts.
The judgment of Fletcher Moulton LJ is the first that deals with the question of whether the publication must set out or identify the facts upon which the defamatory comment is based.
It is implicit in his judgment that it must and for a reason that he explains.
The injustice that an unjustified defamatory comment can cause to the plaintiffs reputation will be mitigated if the reader can see the basis of the comment and thus be in a position to appreciate that it is not justified.
The Lord Justice contrasted this position with one where the reader concluded that the facts upon which the comment was based were not set out in the article, but were within the personal knowledge of the writer.
The clear inference was that the defence of fair comment could not apply to the latter situation.
The defence of fair comment again received consideration by the House of Lords in Sutherland v Stopes [1925] AC 47.
That case was largely concerned with the implications of the rolled up plea, and I have not found it of much assistance in relation to the issues arising on this appeal.
A comment of Viscount Finlay, at p 64, is of interest for the light that it throws on the reason why the question of whether a comment is on a matter of public interest has been held to be one for the judge and not the jury: A jury, according to their individual views of religion or policy, might hold the church, the army, the navy, Parliament itself, to be of no national or general importance In so stating Viscount Finlay treated this question as if fair comment was a variety of qualified privilege.
Earlier, however, at p 62 he had summarised the law of fair comment as follows: The defendant who raises this defence does not take upon himself the burden of showing that the comments are true.
If the facts are truly stated with regard to a matter of public interest, the defendant will succeed in his defence to an action of libel if the jury are satisfied that the comments are fairly and honestly made.
To raise this defence there must, of course, be a basis of fact on which the comment is made.
This, then, was the state of the law when the important case of Kemsley v Foot [1951] 2 KB 34; [1952] AC 345 fell to be decided.
Lord Nicholls made no reference to this case in Cheng [2001] EMLR 777 and Mr Price and Mr Caldecott submit that his fourth proposition is not consistent with it.
The publication that was the subject of the claim in Kemsley v Foot was an article by Michael Foot in the Tribune that made a virulent attack on an article in the Evening Standard, a newspaper controlled by Lord Beaverbrook.
The plaintiff was not, however, Lord Beaverbrook, but Viscount Kemsley, a rival newspaper proprietor.
His claim was founded on three words that provided the heading to Michael Foots article.
The words were Lower than Kemsley.
The plaintiff pleaded that the meaning of these words, in their context, was that he used his position as a newspaper proprietor to procure the publication of statements that he knew to be false.
The defence included a plea of fair comment on a matter of public interest, said to be the control by the plaintiff of the newspapers of which he was proprietor.
Particulars of the specific facts upon which the said words are a fair comment were provided separately: [1951] 2 KB 34, 40 41.
These contained excerpts from the plaintiffs newspapers which were alleged to be inaccurate, untruthful or otherwise colourable.
The issue was whether the plea of fair comment should be allowed to stand in circumstances where the article itself set out no facts at all that related to the plaintiff or his newspapers.
The judge held that it should not, and struck out the plea of fair comment and the particulars pleaded in support of it.
The Court of Appeal reversed his decision and the House of Lords affirmed the decision of the Court of Appeal.
The judgments are not easily analysed and the author of the headnote to the decision of the Court of Appeal is to be congratulated on this concise statement of the effect of the judgments of Somervell and Birkett LJJ, with each of whom Jenkins LJ agreed: Criticism of a newspaper proprietor directed to the manner in which news is presented in papers controlled by him is to be treated on the same lines as criticism of a book or a play or other matter submitted to the judgment and taste of the public, and the critic is not to be shut out from the plea of fair comment because in his criticism he had not given or referred to examples of the conduct criticised, so long as the subject matter of the comment is plainly stated.
Somervell LJ, at p 42, identified two situations in which there was no need for a publication to set out details of the facts upon which the comment was based in order to found a defence of fair comment.
The first was where the comment was on a play, a book or a work of art, put before the public for its approval or disapproval.
The second was where the comment was on the actions of a public man that had been under such vigorous discussion that a bare comment would be taken by the reader as plainly referable to them.
The Lord Justice, at p 43, contrasted these with a third situation: At the other end of the scale one may imagine a comment reflecting on the integrity of a subordinate official, whose activities had so far received no publicity, where it might be held that the defence was not available unless the facts relied on were substantially set out or indicated.
He went on, at p 45, to hold that criticism directed at the manner in which a newspaper presented news was to be compared to criticism of a book.
Birkett LJ drew a similar distinction.
He held, at p 51: I do not think it is possible to lay down any rule of universal application.
If, for example, a defamatory statement is made about a private individual who is quite unknown to the general public, and who has never taken any part in public affairs, and the statement takes the form of comment only and is capable of being construed as comment and no facts of any kind are given, while it is conceivable that the comment may be made on a matter of public interest, nevertheless the defence of fair comment might not be open to a defendant in that case.
It is almost certain that a naked comment of that kind in those circumstances would be decided to be a question of fact and could be justified as such if that defence were pleaded.
But if the matter is before the public, as in the case of a book, a play, a film, or a newspaper, then I think different considerations apply.
Comment may then be made without setting out the facts on which the comment is based if the subject matter of the comment is plainly stated.
Lord Porter gave the leading speech in the House of Lords: [1952] AC 345.
At p 354 he described the question for the House as being whether a plea of fair comment is only permissible where the comment is accompanied by a statement of facts upon which the comment is made and to determine the particularity with which the facts must be stated.
At pp 355 356 Lord Porter rejected the suggestion that there was a difference in principle between literary criticism of a play, book or newspaper and criticism that implicitly attacked the character of the person responsible for the work in question.
He observed that in each case: the subject matter upon which criticism is made has been submitted to the public, though by no means all those to whom the alleged libel has been published will have seen or are likely to see the various issues.
Accordingly, its contents and conduct are open to comment on the ground that the public have at least the opportunity of ascertaining for themselves the subject matter upon which the comment is founded.
I am assuming that the reference is to a known journal: for the present purpose it is not necessary to consider how far criticism without facts upon which to base it is subject to the same observation in the case of an obscure publication.
Lord Porter then summarised his conclusions in the following passage, at pp 356 357: The question, therefore, in all cases is whether there is a sufficient substratum of fact stated or indicated in the words which are the subject matter of the action, and I find my view well expressed in the remarks contained in Odgers on Libel and Slander, 6th ed (1929), p 166.
Sometimes, however, he says, it is difficult to distinguish an allegation of fact from an expression of opinion.
It often depends on what is stated in the rest of the article.
If the defendant accurately states what some public man has really done, and then asserts that such conduct is disgraceful, this is merely the expression of his opinion, his comment on the plaintiffs conduct.
So, if with out setting it out, he identifies the conduct on which he comments by a clear reference.
In either case the defendant enables his readers to judge for themselves how far his opinion is well founded; and, therefore, what would otherwise have been an allegation of fact becomes merely a comment.
But if he asserts that the plaintiff has been guilty of disgraceful conduct, and does not state what that conduct was, this is an allegation of fact for which there is no defence but privilege or truth.
The same considerations apply where a defendant has drawn from certain facts an inference derogatory to the plaintiff.
If he states the bare inference without the facts on which it is based, such inference will be treated as an allegation of fact.
But if he sets out the fact correctly, and then gives his inference, stating it as his inference from those facts, such inference will, as a rule be deemed a comment.
But even in this case the writer must be careful to state the inference as an inference, and not to assert it as a new and independent fact; otherwise, his inference will become something more than a comment, and he may be driven to justify it as an allegation of fact.
But the question whether an inference is a bare inference in this sense must depend upon all the circumstances.
Indeed, it was ultimately admitted on behalf of the appellant that the facts necessary to justify comment might be implied from the terms of the impugned article and therefore the inquiry ceases to be Can the defendant point to definite assertions of fact in the alleged libel upon which the comment is made? and becomes Is there subject matter indicated with sufficient clarity to justify comment being made? and was the comment actually made such [as] an honest, though prejudiced, man might make?
Lord Porter went on to deal with a matter which did not arise directly on the appeal, at pp 357 358: One further matter on which some discussion took place does not, in my opinion, directly arise on this appeal, but as it may be raised in interlocutory proceedings later in the course of the action, I think it desirable to express an opinion on it.
In a case where the facts are fully set out in the alleged libel, each fact must be justified and if the defendant fails to justify one, even if it be comparatively unimportant, he fails in his defence.
Does the same principle apply where the facts alleged are found not in the alleged libel but in [the] particulars delivered in the course of the action? In my opinion, it does not.
Where the facts are set out in the alleged libel, those to whom it is published can read them and may regard them as facts derogatory to the plaintiff; but where, as here, they are contained only in particulars and are not published to the world at large, they are not the subject matter of the comment but facts alleged to justify that comment.
In the present case, for instance, the substratum of fact upon which comment is based is that Lord Kemsley is the active proprietor of and responsible for the Kemsley Press.
The criticism is that that press is a low one.
As I hold, any facts sufficient to justify that statement would entitle the defendants to succeed in a plea of fair comment. 20 facts might be given in particulars and only one justified, yet if that one fact were sufficient to support the comment so as to make it fair, a failure to prove the other 19 would not of necessity defeat the defendants plea.
The protection of the plaintiff in such a case would, in my opinion, be, as it often is in cases of the like kind, the effect which an allegation of a number of facts which cannot be substantiated would have upon the minds of a jury who would be unlikely to believe that the comment was made upon the one fact or was honestly founded upon it and accordingly would find it unfair.
At p 360 Lord Porter commented on the passage in the judgment of Fletcher Moulton LJ in Hunt v Star Newspaper Co Ltd [1908] 2 KB 309 that I have quoted at para 39 above: He was seeking to distinguish facts from comment and in effect saying that the facts alleged must be such as to warrant an honest mans making the comment complained of.
He had not to consider whether the facts must be set out in full or whether a reference to well known or easily ascertainable facts was a sufficient statement of those relied on.
Lord Oaksey gave a short concurring speech.
He said, at pp 360 361: The forms in which a comment on a matter of public importance may be framed are almost infinitely various and, in my opinion, it is unnecessary that all the facts on which the comment is based should be stated in the libel in order to admit the defence of fair comment.
It is not in my opinion, a matter of importance that the reader should be able to see exactly the grounds of the comment.
It is sufficient if the subject which ex hypothesi is of public importance is sufficiently and not incorrectly or untruthfully stated.
A comment based on facts untruly stated cannot be fair.
What is meant in cases in which it has been said comment to be fair must be on facts truly stated is, I think, that the facts so far as they are stated in the libel must not be untruly stated.
Lord Porters remark, at pp 357 358, that where the facts were fully set out in the alleged libel each fact had to be justified echoed an observation at paragraph 87 of the 1948 Report of the Committee on the Law of Defamation (Cmd 7536), which Lord Porter had chaired.
The Report made the following recommendations in relation to this, at paragraph 90: We accordingly recommend an amendment of the existing law analogous to that which we have recommended in relation to the defence of justification, namely that a defence of fair comment upon a matter of public interest should be entitled to succeed if (a) the defendant proves that so much of the defamatory statements of fact contained in the alleged libel is true as to justify the court in thinking that any remaining statement which has not been proved to be true does not add materially to the injury to the plaintiffs reputation, and (b) the court is also of opinion that the facts upon which the comment is based are matters of public interest and the comment contained in the alleged libel was honestly made by the defendant.
Effect was given to the recommendations of Lord Porters Committee by the following sections of the Defamation Act 1952: 5 Justification In an action for libel or slander in respect of words containing two or more distinct charges against the plaintiff, a defence of justification shall not fail by reason only that the truth of every charge is not proved if the words not proved to be true do not materially injure the plaintiffs reputation having regard to the truth of the remaining charges. 6 Fair Comment In action for libel or slander in respect of words consisting partly of allegations of fact and partly of expression of opinion a defence of fair comment shall not fail by reason only that the truth of every allegation of fact is not proved if the expression of opinion is fair comment having regard to such of the facts alleged or referred to in the words complained of as are proved.
It is significant that section 6 refers to facts alleged or referred to in the words complained of.
The section lends no support to the proposition that fair comment can be based on facts which are neither alleged nor referred to in the words complained of.
Weight was attached in argument before us to two observations of Lord Denning.
He made the first, as Denning LJ, at pp 359 360 in Adams v Sunday Pictorial Newspapers (1920) Ltd and Champion [1951] 1 KB 354.
The issue was whether interrogatories should be ordered in relation to the question of whether a defendant who was relying on the defence of fair comment had been activated by malice: The truth is that the burden on the defendant who pleads fair comment is already heavy enough.
If he proves that the facts were true and that the comments, objectively considered, were fair, that is, if they were fair when considered without regard to the state of mind of the writer, I should not have thought that the plaintiff had much to complain about; nevertheless it has been held that the plaintiff can still succeed if he can prove that the comments, subjectively considered, were unfair because the writer was actuated by malice.
The more relevant comment for present purposes was that made by Lord Denning MR in Cohen v Daily Telegraph Ltd [1968] 1 WLR 916.
In that case the defendant pleaded, as matters on which its publication was alleged to be fair comment, facts that had occurred some weeks after the publication.
These were struck out and the defendant appealed unsuccessfully to the Court of Appeal.
Lord Denning observed, in an ex tempore judgment, at pp 919 920: In order to make a good plea of fair comment, it must be a comment on facts existing at the time.
No man can comment on facts which may happen in the future.
There is a passage in Gatley on Libel and Slander, 6th ed (1967), p 723 which goes further.
It says: The facts which the defendant seeks to prove as the basis of his comment must have been known to him when he made the comment.
I do not know that I would go quite so far as that.
A man may comment on existing facts without having them all in the forefront of his mind at the time.
Nevertheless it must be a comment on existing facts.
If, which I doubt, Lord Denning intended to say that a defence of fair comment could be based on facts unknown to the defendant at the time of his comment, the other two members of the court did not agree.
Davies LJ stated, at p 920: If it is necessary for the man making the comment to know the facts at the time he makes it, it follows as the night follows the day that it is impossible for him to rely on events which at that time had not happened.
Russell LJ remarked, at p 921, that it was not disputed that the facts upon which a defence of fair comment were based could only be those known at the time of publication.
Subsequently, in London Artists Ltd v Littler [1969] 2 QB 375, 391, Lord Denning MR stated: In order to be fair, the commentator must get his basic facts right.
The basic facts are those which go to the pith and substance of the matter: see Cunningham Howie vs Dimbleby [1951] 1 KB 360,364.
They are the facts on which the comments are based or from which the inferences are drawn as distinct from the comments or inferences themselves.
The commentator need not set out in his original article all the basic facts: see Kemsley vs Foot [1952] AC 345; but he must get them right and be ready to prove them to be true.
Judicial opinion in relation to this area of the law did not change over the next 20 years.
In Brent Walker Group plc v Time Out Ltd [1991] 2 QB 33 the issue was whether the defence of fair comment could be based on unproven statements if these were made on a privileged occasion.
The Court of Appeal held that it could, but only if the publication set out a fair and accurate report of the proceedings in which the privileged statements were made.
Bingham LJ made the following summary of the law of fair comment, at p 44: The civil law of libel is primarily concerned to provide redress for those who are the subject of false and defamatory factual publications.
Thus in the simplest case A will be entitled to relief against B if B publishes a defamatory factual statement concerning A which B cannot show to be true.
The law is not primarily concerned to provide redress for those who are the subject of disparaging expressions of opinion, and freedom of opinion is (subject to necessary restrictions) a basic democratic right.
It is, however, plain that certain statements which might on their face appear to be expressions of opinion (as where, for example, a person is described as untrustworthy, unprincipled, lascivious or cruel) contain within themselves defamatory suggestions of a factual nature.
Thus the law has developed the rule already mentioned that comment may only be defended as fair if it is comment on facts (meaning true facts) stated or sufficiently indicated.
Failing that, the comment itself must be justified.
Bingham LJ went on to hold, at p 45, that fairness to the subject of a defamatory comment based on a privileged statement required that the commentator should at least base his comment on a fair and accurate account of the occasion on which the statement was made.
Part of the problem with the defence of fair comment relates to the identification of which, if any, elements of the defence are subjective and which are objective.
This question bears intimately on the question of burden of proof in relation to the various elements.
These questions received detailed consideration by the Court of Appeal and the House of Lords in Telnikoff v Matusevitch [1991] 1 QB 102; [1992] 2 AC 343.
The plaintiff complained of a letter published by the defendant about an article written by the plaintiff.
The primary issue was whether the defendant could refer to portions of the article not quoted in his letter in order to demonstrate that the letter consisted of comment rather than statements of fact.
Reversing the Court of Appeal, the majority of the House of Lords held that he could not.
A defence of fair comment could not be made out unless it was apparent from the publication itself that the matter complained of was comment rather than an allegation of fact.
In the course of a dissenting opinion, Lord Ackner remarked, at p 361: In my judgment the defence of fair comment is not based on the proposition that every person who reads a criticism should be in a position to judge for himself.
It would be absurd to suggest that a critic may not say what he thinks of a play performed only once, because the public cannot go and see it to judge for themselves.
The defence of fair comment is available to a defendant who has done no more than express his honest opinion on publications put before the public.
It is sufficient for him to have identified the publication on which he is commenting, without having set out such extracts there from as would enable his readers to judge for themselves whether they agreed with his opinion or not.
A subsidiary but important issue was what it was that a defendant had to prove in order to establish the defence of fair comment.
Counsel for the plaintiff submitted that the defendant had to establish that: (i) the words complained of were comment; (ii) the comment was on facts; (iii) the facts commented on constituted a matter of public interest; (iv) the comment was objectively fair; that is the comment was one that was capable of being honestly founded on the facts to which it related, albeit by someone who was prejudiced and obstinate; (v) the comment represented the defendants honest opinion.
If he discharged all these burdens, the defence could none the less be defeated by proof of malice on the part of the defendant, but the onus of proving malice lay on the plaintiff.
Both the Court of Appeal and the House of Lords held that there was no burden on the defendant to establish the fifth element.
The defendants honesty was assumed unless the plaintiff could disprove it by establishing malice.
The most significant development of the common law of defamation in recent times has been the creation of Reynolds privilege.
In the course of his speech in Reynolds v Times Newspapers Ltd [2001] 2 AC 127 Lord Nicholls made some comments in relation to the defence of fair comment which were a precursor to what he subsequently said in Cheng [2001] EMLR 777.
At p 193, he said: It is important to keep in mind that this defence is concerned with the protection of comment, not imputations of fact.
If the imputation is one of fact, a ground of defence must be sought elsewhere.
Further, to be within this defence the comment must be recognisable as comment, as distinct from an imputation of fact.
The comment must explicitly or implicitly indicate, at least in general terms, what are the facts on which the comment is being made see the discussion in Duncan & Neill on Defamation, 2nd ed (1983), pp 58 62.
At p 201 he referred to the fact that proof of malice denied protection to defamatory statements, whether of comment or fact.
He added: In the case of statements of opinion on matters of public interest, that is the limit of what is necessary for protection of reputation.
Readers and viewers and listeners can make up their own minds on whether they agree or disagree with defamatory statements which are recognisable as comment and which, expressly or implicitly, indicate in general terms the facts on which they are based.
I cited at the outset of this judgment the five propositions in relation to fair comment advanced by Lord Nicholls in Cheng under the heading Fair Comment: The Objective Limits.
At para 41 of that case he returned to the fourth proposition under the heading Motive: Proof of malice is the means whereby a plaintiff can defeat a defence of fair comment where a defendant is abusing the defence.
Abuse consists of using the defence for a purpose other than that for which it exists.
The purpose for which the defence of fair comment exists is to facilitate freedom of expression by commenting on matters of public interest.
This accords with the constitutional guarantee of freedom of expression.
And it is in the public interest that everyone should be free to express his own, honestly held views on such matters, subject always to the safeguards provided by the objective limits mentioned above.
These safeguards ensure that defamatory comments can be seen for what they are, namely, comments as distinct from statements of fact.
They also ensure that those reading the comments have the material enabling them to make up their own minds on whether they agree or disagree.
Lord Nicholls broke new ground in holding that malice in the context of fair comment had a different meaning from malice in the context of qualified privilege.
In the former context, the motive for making the comment was irrelevant.
All that mattered was whether or not the commentator honestly believed in the truth of his comment.
This was an evolution of the view that Lord Nicholls had expressed in Reynolds at [2001] 2 AC 127, 201: Freedom of speech does not embrace freedom to make defamatory statements out of personal spite or without having a positive belief in their truth.
The authors of Gatley, 11th ed, comment, at para 12.25: Formerly, it was widely believed that the idea of malice was essentially the same in fair comment [as in qualified privilege] and that the cases were essentially interchangeable.
It has now been demonstrated that this is incorrect.
In holding that not even spite or ill will constituted malice, Lord Nicholls The last sentence is a remarkable tribute to the standing of the Court of Final Appeal of Hong Kong and, more particularly, of Lord Nicholls.
[2001] EMLR 777, para 48 once again returned to his fourth proposition: Thus, the comment is one which is based on fact; it is made in circumstances where those to whom the comment is addressed can form their own view on whether or not the comment was sound; and the comment is one which can be held by an honest person.
Lord Nicholls fourth proposition has come under attack before that launched in the present action.
It is questioned in Duncan & Neill 3rd ed at para 13.20 and in Gatley at para 12.8.
Eady J dissented from it at para 57 of his judgment in Lowe v Associated Newspapers Ltd [2006] EWHC 320 (QB); [2007] QB 580.
That decision merits attention, for it contains the carefully considered views of a judge who has great experience of the law of defamation on the subject matter of the present appeal.
The publication complained of in that case was a short paragraph about matters that will have been of interest to a large number of football supporters: the replacement of the Manager of Southampton Football Club and the claimants acquisition of ownership of the Club by a reverse takeover.
The defendants primary case was that the paragraph complained of contained comment and was protected by the defence of fair comment.
In the alternative, in case the publication should be held to consist of fact rather than comment, there was a plea of justification.
The defendant pleaded some 19 pages of facts which were claimed to support both the plea of fair comment and the plea of justification.
No less than 16 interlocutory applications were listed before the judge, but the issues to which his judgment was essentially directed were: i) To what extent is it necessary for a defendant relying upon fair comment to be able to demonstrate that the facts upon which the comment was based are to be found in the text of the words complained of? ii) How far must the author of the words complained of be aware at the time of publication of the facts sought to be relied upon to support the comment? Eady J carried out a detailed analysis of many of the authorities to which I have referred and reached the following conclusions: (1) Any fact pleaded to support fair comment must have existed at the time of publication. (2) Any such facts must have been known, at least in general terms, at the time the comment was made, although it is not necessary that they should all have been in the forefront of the commentators mind. (3) A general fact within the commentators knowledge (as opposed to the comment itself) may be supported by specific examples even if the commentator had not been aware of them (rather as examples of previously published material from Lord Kemsleys newspapers were allowed). (4) Facts may not be pleaded of which the commentator was unaware (even in general terms) on the basis that the defamatory comment is one he would have made if he had known them. (5) A commentator may rely upon a specific or a general fact (and, it follows, provide examples to illustrate it) even if he has forgotten it, because it may have contributed to the formation of his opinion. (6) The purpose of the defence of fair comment is to protect honest expressions of opinion, or inferences honestly drawn from, specific facts. (7) The ultimate test is the objective one of whether someone could have expressed the commentators defamatory opinion (or drawn the inference) upon the facts known to the commentator, at least in general terms, and upon which he was purporting to comment.
I have some difficulty with propositions (3) and (5).
I do not understand the nature of the support for facts within the commentators knowledge that can be derived from facts of which he was not aware.
Nor is it easy to understand how a commentator can know that a fact is one that he has forgotten.
Dissenting from Lord Nicholls fourth proposition in Cheng Eady J said this, at para 57: Whilst it is necessary for readers to distinguish fact from comment, it is not necessary for them to have before them all the facts upon which the comment was based for the purpose of deciding whether they agree with the comment (or inference).
I draw that conclusion with all due diffidence, since Lord Nicholls has twice expressed the opposite view, but it does seem consistent with principle and, in particular, with the undoubted rule that people are free to express perverse and shocking opinions and may nevertheless succeed in a defence of fair comment without having to persuade reasonable readers, or the jurors who represent such persons, to concur with the opinions.
It is difficult to see why it should matter whether a reader agrees; what matters is whether he or she can distinguish fact from comment.
Sometimes that will be possible, as it was in Kemsley v Foot, without any facts being stated expressly, because either they are referred to or they are sufficiently widely known for the readers to recognise the comment as comment.
This concludes my summary of the authorities which form the basis of the discussion that is to follow.
Before proceeding to that discussion it is necessary, however, to consider the Strasbourg jurisprudence, for Mr Price invoked article 10 of the European Convention on Human Rights (the Convention) and it is necessary for this court, when considering suggested developments of the common law of defamation, to take account of the Convention and the jurisprudence of the Strasbourg Court.
The Strasbourg jurisprudence
Article 10 of the Convention provides: Freedom of Expression 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.
In Karako v Hungary (Application No 39311/05) (unreported) given 28 April 2009, where the applicant invoked article 10, the Strasbourg Court held at para 23 that there was no conflict between this article and article 8, which protects the right to respect for private life.
Reputation was only the external evaluation of the individual and damage to reputation would not necessarily impact on the inner integrity which article 8 protects.
In Pfeifer v Austria (2007) 48 EHRR 175, however, where the applicant invoked article 8, another section of the Court held at para 35 that a persons reputation formed part of his or her personal identity and psychological integrity, and thus fell within the scope of private life to which article 8 applied.
I think that it is obvious that the right to freedom of expression is in potential conflict with the right to private life and that the fact that each right is qualified means that the law must strike an appropriate balance between the two.
As to the striking of that balance it is possible to draw a number of principles from the Strasbourg jurisprudence.
The relevant principles are helpfully summarised at paras 28 and 29 of Sorguc v Turkey (Application No 17089/03) (unreported) given 23 June 2009.
Freedom of speech may be restricted in order to protect reputation where this is necessary in a democratic society to meet a pressing social need.
Thus a test of proportionality has to be applied.
In applying that test there is a significant distinction between a statement of fact and a value judgment.
A statement of fact will be true or untrue and the law can properly place restrictions on making statements of fact that are untrue.
A value judgment is not susceptible of proof so that a requirement to prove the truth of a value judgment is impossible to fulfil, and thus infringes article 10.
However, even where a statement amounts to a value judgment, the proportionality of an interference may depend on whether there exists a sufficient factual basis for the impugned statement, since even a value judgment may be excessive if it has no factual basis to support it Jerusalem v Austria (2003) 37 EHRR 567, para 43.
In Lindon.
Otchakovsky Laurens and July v France (2007) 46 EHRR 761 the Grand Chamber went further, stating at para 55: The classification of a statement as a fact or as a value judgment is a matter which in the first place falls within the margin of appreciation of the national authorities, in particular the domestic courts.
However, even where a statement amounts to a value judgment, there must exist a sufficient factual basis to support it, failing which it will be excessive.
In Nilsen and Johnsen v Norway (1999) 30 EHRR 878, para 50 the court equated the imputation of improper motives or intentions with value judgments rather than statements of fact, having regard to the fact that from the wording of the statements and their context it was apparent that they were intended to convey the applicants own opinions.
The Strasbourg Court also attaches importance to the extent to which the subject of a publication is a matter of public interest.
The limits of acceptable criticism are wider in relation to politicians acting in their public capacity than in relation to private individuals Jerusalem v Austria (2001) 37 EHRR 567, para 38.
In Hrico v Slovakia (2004) 41 EHRR 300, para 40g the court observed that there was little scope under article 10(2) of the Convention for restrictions on political speech or on debate on questions of public interest.
These expressions of principle are in general consonant with the English law of defamation.
If anything they suggest that the restrictions on the right to express opinion imposed under the law of fair comment may be over exacting.
They do not, however, afford assistance with the question of the extent to which it is a proportionate element of the law of fair comment to require that a statement of defamatory opinion should include or identify the facts upon which the opinion is based.
The defendants submissions
Mr Prices submissions on behalf of the defendants fall into two parts.
The first part of the submissions address the law as it is.
Mr Price relies on section 6 of the 1952 Act.
He submits that the facts alleged or referred to for the purpose of section 6 were: a. the claimants email of 27 March 2007 (a fact alleged); b. the breach of contract in relation to the Bibis booking (a fact referred to); c. the breach of contract in relation to the Landmarc booking (a fact referred to).
Mr Price submits that it does not matter that the readers of the posting had no knowledge of the facts in relation to the two breaches of contract referred to, so that they were unable to judge for themselves how far the comment was well founded.
In suggesting to the contrary in his fourth proposition in Cheng [2001] EMLR 777, para 19 Lord Nicholls had fallen into error.
The error in misreporting the terms of the claimants email did not invalidate the defence of fair comment because the comment could be fairly founded on those of the facts alleged or reported that were accurate.
Taken overall the three facts on which the comment was based were substantially true.
Alternatively, Mr Price invites the Court to develop the common law of fair comment so that it is simplified and liberalised.
He submits that the Court should: sweep away the requirement that the comment should relate to matter of public interest; hold that the subjective state of mind of the defendant is wholly irrelevant; restrict the requirements of the defence to (a) a requirement that the words complained of should be comment and (b) a requirement that there should be shown to exist one or more facts (or privileged statement) on which an honest person could have founded the relevant comment.
Those facts could even come into existence after the date of the publication.
Thus reliance could be placed on the claimants conduct in relation to the Coombes wedding.
In short the existence of a defence of fair comment should depend on an entirely objective appraisal of the relevant facts in the same way as the defence of justification.
Mr Price submitted that the defence should be renamed simply comment or opinion.
The interveners submissions
The submissions made by Mr Caldecott on behalf of the interveners were not so radical.
He advanced six suggested principles: 1.
To qualify for the protection of the defence of honest opinion a statement must be recognisable in its context as opinion.
A statement of opinion may in context be an inference of fact drawn by the commentator from facts stated or indicated by him.
Mr Caldecott submitted that even a statement of a fact that is verifiable can amount to a comment if the commentator makes it plain that he is merely expressing an opinion about the existence of the fact on the basis of an inference from other facts. 2.
The opinion will qualify for protection if any person, however prejudiced, exaggerated or obstinate his views, could have honestly expressed it on proved facts or on alleged facts protected by privilege.
Mr Caldecott submitted that this principle should apply to all opinions there should not be a more stringent test for opinions imputing dishonourable motives. 3.
The opinion must be expressed on a matter of public interest.
The interveners have not sought to abolish this requirement on the basis that such a change in the law should receive very close examination and detailed submission. 4.
The defendant may rely on any proved facts or privileged material in existence at the time of publication, provided those facts relate to the subject matter of the comment.
This answers the central issue of principle that arises on this appeal.
It is the interveners case that the comment must identify its subject matter, but need not allege or refer to particular facts as the basis for the comment.
There is no need to place the reader in a position to form his own view on the validity of the comment Lord Nicholls erred in so holding in Cheng [2001] EMLR 777, para 19.
If facts exist at the time of the comment the commentator can rely upon them as the foundation for his comment, even if he was unaware of them when he made his comment.
Events subsequent to the comment cannot, however, be relied upon. 5.
If the defendant proves sufficient facts to satisfy the objective test set out in principle 2, then (subject to malice) the defence succeeds irrespective of whether facts referred to in the publication or facts relied on extrinsic to the publication are not proved or are misstated.
This principle does not absolve a defendant from the obligation to prove defamatory statements of fact to be true (subject to section 5 of the 1952 Act). 6.
The defence of opinion is lost where a claimant proves that the defendant did not act honestly in publishing the opinion complained of.
The interveners do not seek to remove this residual element of subjectivity in relation to the defence of fair comment.
They do, however, adopt Lord Nicholls removal from the malice that defeats fair comment the element of improper motive such as spite or ill will.
Finally Mr Caldecott suggests that the description fair comment should be replaced by honest comment.
Discussion
The issue that has arisen in this case results from a change of emphasis in relation to the elements of the defence of fair comment.
Those elements were, and still are: The statement in issue is comment and not fact; The matter in respect of which the comment is made is a matter of public interest; Where that matter consists of facts alleged to have occurred, the facts are true; The comment is fair; The statement is not made maliciously.
The defence originated in respect of comments about work products such as: books, plays, theatrical performances, musical compositions and concerts.
Comments in relation to such matters necessarily identified the work product to which they related, or they would have been meaningless.
The matters commented on were matters of public interest.
They had been placed by their authors or performers in the public domain.
Where what was criticised was the artistic merit of the work product, the only issue that could arise was as to the fifth element.
There was no question but that the statement made was comment.
There was no doubt about the matter to which the comment related.
No issue arose as to the truth of facts, for there were none.
No issue was likely to arise as to whether the comment was fair, for beauty is in the eye of the beholder.
The critic was doing no more than purporting to express his subjective reaction to what he had seen or heard.
The only issue was malice.
Was the critic fairly expressing his honest opinion, or was the opinion that he expressed dishonest, or motivated by spite or ill will?
Where the criticism did not relate to the artistic merit of the work product, but the comments made amounted to an attack on the character of the author, then the fourth element might be in issue in as much as some cases identified a requirement that the inferences drawn by the comments made should be reasonable.
Criticism of work products could, of course, cause considerable damage to the professional reputations of those responsible for them, and cause them financial loss.
The right to make honest but derogatory expressions of opinion on such matters was and is an important safeguard for freedom of expression.
A number of developments complicated the defence of fair comment.
It was extended to cover the conduct of individuals, where this was of public interest.
It thus became possible to make a pejorative or derogatory comment about a person which was inferentially based on his conduct, without expressly identifying the facts upon which the comment was based.
Sometimes the conduct was notorious and thus in the public domain.
Then the comment might inferentially identify the conduct on which it was based and no difficulty would arise in relation to evaluating the various elements of the defence.
But it might not be possible to identify by inference the conduct in relation to which the comment was made.
Indeed that conduct might not even be in the public domain.
It might be known only to the person making the comment.
The common law had to decide how to deal with a general or bare comment, which inferred discreditable conduct of some kind without giving any particulars of the conduct.
The damage that such a comment can do is relatively limited.
Actions speak louder than words.
Most people judge their fellow men by the way that they behave, not on the basis of general opinions expressed by others.
The common law might have held that bare comments were not actionable at all.
Or it might have held that a defence of fair comment would lie in respect of a bare comment provided that the defendant could identify the factual basis for his comment by giving evidence of what it was that he had had in mind.
It did not, however, take either course.
It held that the defence of fair comment could not be invoked in relation to a comment that inferred that the claimant had conducted himself in some unspecified discreditable way.
The ground for so holding was sometimes not happily expressed.
In the 11th edition of Winfield and Jolowicz on Tort, (1979) p 304 the editors stated: To say that A is a disgrace to human nature is an allegation of fact, but if the words were A murdered his father and is therefore a disgrace to human nature, the latter words are plainly a comment on the former.
Lord Walker commented in argument on the fallacy of the first part of this proposition.
See also my comments at para 5 above.
The courts have always held that the only defence to a bare comment which infers the existence of discreditable conduct but does not identify it is justification see for example Bingham LJ in Brent Walker [1991] 2 QB 33, 44H.
In justifying a bare defamatory comment the defendant is entitled, in accordance with the principles that govern that defence, to plead any fact, whether or not it was known to him when he made the comment in order to show that the comment was justified.
So far as the defence of fair comment is concerned, apart from some puzzling dicta by Bankes and Scrutton LJJ in Aga Khan v Times Publishing Co. [1924] 1 KB 675 at pp 679 680 and 681 682, until the decision in Kemsley v Foot [1951] 2 KB 34; [1952] AC 345 no authority to which this court has been referred put in doubt the fact that the defence of fair comment required the facts upon which the comment was made to be stated or identified in or from the comment itself.
Kemsley v Foot is a difficult case.
It was, of course, an absurd libel action.
It was not about vindicating the reputation of Viscount Kemsley but about amour propre.
Both the nature of the defamatory comment and the subject matter to which it related had to be inferred from the three words Lower than Kemsley.
The issue was whether the defence of fair comment could be maintained when the comment did not specify any particular matters to which it related.
The House of Lords followed the Court of Appeal in treating the relevant criticism as being an attack on a work product, the Kemsley Press, and to that extent an attack on the person responsible for it, Viscount Kemsley.
In these circumstances it was held sufficient that the comment, by inference, identified generically the Kemsley Press as the subject matter of the criticism there was no need for the comment to identify specific extracts from Kemsley publications as the subject of the criticism.
The passage from Lord Porters judgment that I have quoted at para 52 is not easy to analyse.
As he observed, this dealt with a question that did not arise directly on the appeal.
He was not dealing with whether the facts upon which the comment was based had to be identified by the comment, but on whether all the facts relied upon to support the comment had to be true.
This was a strange question to ask in the context of criticism of journalistic material and the language used was appropriate to an issue of justification, rather than pertinence (see my explanation of this term at para 6 above).
The distinction that Lord Porter drew between the subject matter of the comment and facts alleged to justify that comment is particularly elusive.
The particulars pleaded in that case were expressly stated to be the specific facts upon which the said words are a fair comment: [1951] 2 KB 34, 40 41.
They were the most significant parts of the subject matter of the comment.
My reading of the position is as follows.
The House had held that the defence of fair comment could be raised where the comment identified the subject matter of the comment generically as a class of material that was in the public domain.
There was no need for the commentator to spell out the specific parts of that material that had given rise to the comment.
The defendant none the less had quite naturally given particulars of these in order to support the comment.
Lord Porter held that it was not necessary to prove that each of these facts was accurate provided that at least one was accurate and supported the comment.
This passage does not support the proposition that a defendant can rely in support of the defence of fair comment on a fact that does not form part of the subject matter identified generically by the comment.
Even less does it support the proposition that a defendant can base a defence of fair comment on a fact that was not instrumental in his forming the opinion that he expressed by his comment.
The last sentence of the passage that I have cited makes this plain.
I can summarise the position as follows.
Where, expressly or by implication, general criticism is made of a play, a book, an organ of the press or a notorious course of conduct in the public domain, the defendant is likely to wish in his defence to identify particular aspects of the matter in question by way of explanation of precisely what it was that led him to make his comment.
These particular aspects will be relevant to establishing the pertinence of his comment and to rebutting any question of malice, should this be in issue.
Lord Porters speech indicates that the comment does not have to refer to these particular aspects specifically and that it is not necessary that all that are pleaded should be accurate, provided that the comment is supported by at least one that is.
Can Lord Nicholls fourth proposition in Cheng [2001] EMLR 777, para 19 be reconciled with these propositions? The passage in Odgers, 6th ed (1929), p 166 that was cited with approval by Lord Porter (see para 51 above) suggested that where conduct is identified by a clear reference the defendant thereby enables his readers to judge for themselves how far his opinion is well founded.
As Lord Ackner pointed out, however, in Telnikoff [1992] 2 AC 343, 361, it is fallacious to suggest that readers will be able to form their own view of the validity of the criticism of a matter merely because in the past it was placed in the public domain.
Readers of The Tribune who did not read the Kemsley Press could no doubt have gained access to a representative sample of this, but this will not be possible where the criticism is of an ephemeral matter such as a concert, or the single performance of a play, or a football match, all of which can give rise to general criticism that is protected by the defence of fair comment.
For these reasons I do not consider that Lord Nicholls fourth proposition in Cheng can be reconciled with Kemsley v Foot.
Lord Nicholls proposition echoed what Fletcher Moulton LJ had said in Hunt v Star Newspaper Co Ltd [1908] 2 KB 309 see para 39 above, but each observation was obiter.
There is no case in which a defence of fair comment has failed on the ground that the comment did not identify the subject matter on which it was based with sufficient particularity to enable the reader to form his own view as to its validity.
For these reasons, where adverse comment is made generally or generically on matters that are in the public domain I do not consider that it is a prerequisite of the defence of fair comment that the readers should be in a position to evaluate the comment for themselves.
What of a case where the subject matter of the comment is not within the public domain, but is known only to the commentator or to a small circle of which he is one? Today the internet has made it possible for the man in the street to make public comment about others in a manner that did not exist when the principles of the law of fair comment were developed, and millions take advantage of that opportunity.
Where the comments that they make are derogatory it will often be impossible for other readers to evaluate them without detailed information about the facts that have given rise to the comments.
Frequently these will not be set out.
If Lord Nicholls fourth proposition is to apply the defence of fair comment will be robbed of much of its efficacy.
The cases have none the less emphasised repeatedly the requirement that the comment should identify the subject matter on which it is based, as is demonstrated by the passages in the judgments that I have emphasised by placing them in italics.
If the requirement that the comment should identify the subject matter on which it is based is not imposed in order to enable the reader of the comment to form his own view of its validity, what is the object of the requirement? Bingham LJ in Brent Walker [1991] 2 QB 33, 44 said that the true facts must be stated or sufficiently indicated sufficiently for what?
There are a number of reasons why the subject matter of the comment must be identified by the comment, at least in general terms.
The underlying justification for the creation of the fair comment exception was the desirability that a person should be entitled to express his view freely about a matter of public interest.
That remains a justification for the defence, albeit that the concept of public interest has been greatly widened.
If the subject matter of the comment is not apparent from the comment this justification for the defence will be lacking.
The defamatory comment will be wholly unfocussed.
It is a requirement of the defence that it should be based on facts that are true.
This requirement is better enforced if the comment has to identify, at least in general terms, the matters on which it is based.
The same is true of the requirement that the defendants comment should be honestly founded on facts that are true.
More fundamentally, even if it is not practicable to require that those reading criticism should be able to evaluate the criticism, it may be thought desirable that the commentator should be required to identify at least the general nature of the facts that have led him to make the criticism.
If he states that a barrister is a disgrace to his profession he should make it clear whether this is because he does not deal honestly with the court, or does not read his papers thoroughly, or refuses to accept legally aided work, or is constantly late for court, or wears dirty collars and bands.
Such considerations are, I believe, what Mr Caldecott had in mind when submitting that a defendants comments must have identified the subject matter of his criticism if he is to be able to advance a defence of fair comment.
If so, it is a submission that I would endorse.
I do not consider that Lord Nicholls was correct to require that the comment must identify the matters on which it is based with sufficient particularity to enable the reader to judge for himself whether it was well founded.
The comment must, however, identify at least in general terms what it is that has led the commentator to make the comment, so that the reader can understand what the comment is about and the commentator can, if challenged, explain by giving particulars of the subject matter of his comment why he expressed the views that he did.
A fair balance must be struck between allowing a critic the freedom to express himself as he will and requiring him to identify to his readers why it is that he is making the criticism.
Conclusion
For the reasons that I have given I would endorse Lord Nicholls summary of the elements of fair comment that I have set out at para 3 above, save that I would re write the fourth proposition: Next the comment must explicitly or implicitly indicate, at least in general terms, the facts on which it is based.
Change of emphasis and the case for reform
Should this court apply the law as it now is, or should it adopt the invitation to develop or reform the law?
The right of fair comment has been said to be one of the fundamental rights of free speech and writing per Scott LJ in Lyon v The Daily Telegraph Ltd [1943] 1 KB 746, 753.
Lord Denning MR echoed that comment in Slim v Daily Telegraph Ltd [1968] 2 QB 157, adding that the right must not be whittled down by legal refinements.
He described the right of fair comment in terms which emphasised the importance of the subjective appreciation of the writer.
The concept was a simple one.
The writer had to be expressing his honest opinion on a matter of public interest.
He had to get his facts right.
The area of inquiry was relatively limited.
What were the facts on which the writer had made his comment? Were they matters of public interest? Were they accurate? The important thing is to determine whether or not the writer was actuated by malice.
If he was an honest man expressing his genuine opinion on a subject of public interest, then no matter that his words conveyed derogatory imputations; no matter that his opinion was wrong or exaggerated or prejudiced; and no matter that it was badly expressed so that other people read all sorts of innuendos into it; nevertheless, he has a good defence of fair comment.
His honesty is the cardinal test.
He must honestly express his real view. (p 170)
In recent cases the area of inquiry in relation to the defence of fair comment has been expanded.
The scope of public interest has been greatly widened.
If Cheng [2001] EMLR 777 is accepted as correctly setting out the test of malice, the scope of malice has been significantly narrowed.
The fact that the defendant may have been motivated by spite or ill will is no longer material.
The only issue is whether he believed that his comment was justified.
In practice this issue is seldom likely to be explored, for the burden is on the claimant and how can he set about proving that the defendant did not believe what he said? The subjective nature of the defence of fair comment has diminished.
The issue is no longer the subjective one did the defendant honestly believe that the facts on which he commented justified his comment? Instead the focus has been on the objective question: could an obstinate and prejudiced person have honestly based the comment made by the defendant on the facts on which the defendant commented? Mr Price and Mr Caldecott suggest that it should be expanded to embrace facts which were not known to the defendant, or (according to Mr Price) even in existence when he made his comment.
The horrific pleadings and interlocutory warfare in Lowe [2007] QB 580, referred to in para 70 above exemplify the confusion that can now develop where a defence of justification is run in harness with a defence of fair comment.
Where, as is usually the case, an action is brought in relation to a statement that mixes fact and comment I question how often any value is added to the defendants case by the addition of a plea of fair comment.
The reforms suggested by Mr Price and Mr Caldecott would radically alter the nature of the defence of fair comment.
No longer would it be a personal defence based on the defendants honest opinion on facts identified by him.
The defendants state of mind would be wholly irrelevant under Mr Prices scheme and almost wholly irrelevant under Mr Caldecotts.
Instead fair comment would depend upon an objective test, applied in a similar way to the defence of justification.
Did facts exist that might have led a prejudiced and obstinate commentator to express the derogatory opinion expressed by the defendant?
I am not persuaded that reforms of this nature would do anything to simplify defamation actions.
The scope of the defence of fair comment would be widened, but at the price of continued complexity of process.
In any event the proposed reforms go beyond changes that could properly be made by this court in the orderly development of the common law.
There is a case for reform.
Would it not be more simple and satisfactory if, in place of the objective test, the onus was on the defendant to show that he subjectively believed that his comment was justified by the facts on which he based it? The Faulks Committee Report on Defamation 1975 (Cmnd 5909) recommended the retention of the objective test, but the New Zealand Defamation Act 1992 has placed the burden on the defendant of proving honest opinion (section 10).
There may be a case for widening the scope of the defence of fair comment by removing the requirement that it must be on a matter of public interest.
Careful consideration needs to be given to Mr Caldecotts first proposition that the defence of fair comment should extend to inferences of fact.
Jurisprudence both in this jurisdiction and at Strasbourg see Nilsen and Johnsen v Norway (1999) 30 EHRR 878, para 50 has held that allegations of motive, which is inherently incapable of verification, can constitute comment.
Some decisions have gone further and treated allegations of verifiable fact as comment, see for instance the Privy Council in Jeyaretnam v Goh Chok Tong [1989] 1 WLR 1109.
It is questionable whether this is satisfactory.
Prejudiced commentators can draw honest inferences of fact, such as that a man charged with fraud is guilty of fraud.
Should the defence of fair comment apply to such inferences? Allegations of fact can be far more damaging, even if plainly based on inference, than comments on true facts.
Eady J has twice held that the defence of fair comment cannot apply where the defamatory sting is a matter of verifiable fact Hamilton v Clifford [2004] EWHC 1542 (QB) and British Chiropractic Association v Singh [2009] EWHC 1101 (subsequently reversed by the Court of Appeal).
The repetition rule raises problems in relation to fair comment.
It has been stated that fair comment can be based on a statement protected by Reynolds privilege see Eady J in Galloway v Telegraph Group Ltd [2005] EMLR 115, paras 174 176, but the commentator may well not be in a position to assess whether the statement in question is so protected.
Finally, and fundamentally, has not the time come to recognise that defamation is no longer a field in which trial by jury is desirable? The issues are often complex and jury trial simply invites expensive interlocutory battles, such as the one before this court, which attempt to pre empt issues from going before the jury.
These are difficult questions.
Some may have to be resolved judicially, but the whole area merits consideration by the Law Commission, or an expert committee.
There is only one reform that I would seek to make by this judgment it is one that has already received judicial approval see Lord Nicholls in Reynolds [2001] 2 AC 127, 165.
The defence of fair comment should be renamed honest comment.
The application of the law to the facts of this case
The defendants primary defence is justification of their comments that the claimants were unprofessional, that they demonstrated a contemptuous and cavalier approach to their contractual obligations and that they would not necessarily adhere to the terms of their booking arrangements see para 20 above.
They rely in support of this defence on the Landmarc breach, which they contend was attributable to a subsequent better offer, on the Bibis breach, on the first claimants email of 27 March 2007 and on the claimants approach to the Coombes booking.
If this defence fails the defendants seek to show that their comments were fair comment, albeit unjustified.
Had Lord Nicholls fourth proposition in Cheng [2001] EMLR 777, para 19 been valid it would have been necessary to consider whether the defendants posting contained sufficient detail to enable the readers to form their own views of whether the defendants comments were justified.
For the reasons that I have explained I do not consider that this is something that the defendants have to establish.
The defendants seek to rely upon three matters to support their plea of fair comment: i) The Landmarc breach of contract; ii) The Bibis breach of contract; iii) The first claimants email of 27 March 2007.
Mr Price submitted that the Landmarc breach of contract was referred to in the defendants posting inasmuch as this stated that the claimants have not been able to abide by the terms of their contract and following a breach of contract.
Pill LJ [2010] ICR 642, para 46 held that these statements could not be read as referring to the Landmarc breach in 2005.
I agree.
They referred to the Bibis breach and not to the Landmarc breach.
The Landmarc breach was not referred to in the defendants posting, nor did it form part of a generic allegation of misconduct.
Alternatively Mr Price sought to persuade the House to extend the common law so as to permit a defendant to rely in support of the defence of fair comment on matters that were not referred to, even in general terms, by the comment.
I have declined that invitation.
It follows that the defendants cannot rely upon the Landmarc breach to support their defence of fair comment.
This leaves them with the Bibis breach and the first claimants email as potential support for their comment.
Pill LJ held, at para 38, that the defendants could not rely on the first claimants email because this had been misquoted by the defendants in their posting.
I do not agree.
That email had, arguably, evidenced a contemptuous and cavalier approach to the claimants contractual obligations to the defendants.
The email as quoted, arguably, evidenced a contemptuous and cavalier approach to contracts in general.
So far as concerns the basis of the defendants comments about the claimants attitude to their contractual obligations, a jury might take the view that there was no significant difference between the email as sent and the email as quoted.
The jury should be directed that if they thought that the email as quoted differed significantly from the email as sent they should disregard it but that otherwise they can have regard to it when considering the defence of fair comment.
Pill LJ held, at para 42, that the defendants could not rely on the Bibis breach.
He said that there was no reference to it in the words complained of.
That is not correct.
The statement that the claimants had not been able to abide by the terms of their contract and the reference to following a breach of contract were references to the Bibis breach.
As I understand it, however, the reason why Pill LJ held that this could not be relied on was that the posting did not identify the contract that had been broken, still less the term allegedly breached, so that the reader was not in a position to evaluate whether the breach justified the comment.
For the reasons that I have given I do not consider that this was necessary.
The posting sufficiently identified the breach as part of the subject matter of the comment, albeit that the breach was not particularised.
It follows that the defendants are entitled to rely upon the Bibis breach to support their defence of fair comment.
For these reasons I have reached the conclusion that this appeal should be allowed and the defence of fair comment reinstated.
LORD RODGER
I have had the advantage of reading the judgments prepared by Lord Phillips and Lord Walker in draft.
I agree with them and, for the reasons they give, I too would allow the appeal.
LORD WALKER
I agree with the judgment of Lord Phillips.
I add some brief comments of my own.
Lord Phillips shows how the defence of fair comment (now to be called honest comment) originated in a narrow form in a society very different from todays.
It was a society in which writers, artists and musicians were supposed to place their works, like wares displayed at market, before a relatively small educated and socially elevated class, and it was in the context of published criticism of their works that the defence developed.
It has expanded enormously as the law has extended its view of what is of public interest and the nature of the comment that the defence may cover.
Kemsley v Foot [1952] AC 345 was an important milestone.
In some ways it was, as Lord Phillips observes (para 91) an absurd libel action, but sometimes it is the atypical case that brings about developments in the common law.
In the half century or more since Kemsley v Foot society and its concerns have continued to change.
The creation of a common base of information shared by those who watch television and use the internet has had an effect which can hardly be overstated.
Millions now talk, and thousands comment in electronically transmitted words, about recent events of which they have learned from television or the internet.
Many of the events and the comments on them are no doubt trivial and ephemeral, but from time to time (as the present appeal shows) libel law has to engage with them.
The test for identifying the factual basis of honest comment must be flexible enough to allow for this type of case, in which a passing reference to the previous nights celebrity show would be regarded by most of the public, and may sometimes have to be regarded by the law, as a sufficient factual basis.
As Lord Phillips points out in para 76, the Grand Chamber at Strasbourg has recently approved the general proposition that even where a statement amounts to a value judgment, there must exist a sufficient factual basis to support it.
The defence of honest comment requires the commentator to identify, at least in general terms, the nature of that factual basis.
LORD BROWN
I have read the judgment of Lord Phillips and for the reasons he gives I too would allow this appeal.
I agree also with Lord Walkers brief comments.
SIR JOHN DYSON SCJ
I would allow this appeal for the reasons given by Lord Phillips.
| UK-Abs | BACKGROUND TO THE APPEAL This appeal required the Supreme Court to consider the defence of fair comment in defamation proceedings, in particular the extent to which the factual background giving rise to the comment had to be referred to with the comment itself and be accurately stated.
The respondents are members of a musical group known as The Gillettes or Saturday Night at the Movies.
The appellants provide entertainment booking services.
The respondents appointed the appellants to promote their acts, entering into a contract which included a re engagement clause, under which any further bookings at the same venue in the following 12 months had to be made through the appellants.
The appellants arranged a booking for the respondents at Bibis restaurant in Leeds.
The respondents agreed to perform again at Bibis three weeks later without reference to the appellants.
The first appellant emailed the first respondent to complain of the breach of the re engagement clause.
The first respondent replied, contending that the contract was mearly (sic) a formality and holds no water in legal terms and that the other respondents were not bound by the re engagement clause as they had not signed the contract.
The appellants thereafter posted a notice on their website announcing that they were no longer representing the respondents as they were not professional enough to feature in our portfolio and have not been able to abide by the terms of their contract and that following a breach of contract Craig Joseph who runs The Gillettes and Saturday Night at the Movies has advised 1311 Events that the terms and conditions of contracts hold no water in legal terms (27.03.07).
For this reason it may follow that the artists obligations for your booking may also not be met.
The respondents issued proceedings for libel, alleging that the posting meant that they were unprofessional and unlikely to honour any bookings made for them to perform.
The appellants relied principally on the defences of justification and fair comment.
Both were struck out in the High Court.
The Court of Appeal reinstated the defence of justification but upheld the striking out of fair comment.
The Supreme Court unanimously allows the appeal and holds that the defence of fair comment should be open to the appellants.
The substantive judgment is given by Lord Phillips (President), with some additional comments from Lord Walker.
The elements of the defence of fair comment had been set out by Lord Nicholls in the Hong Kong case of Tse Wai Chun Paul v Albert Cheng [2001] EMLR 777.
His fourth proposition, namely that the comment must indicate in general terms the facts on which the comment is based, so that the reader was in a position to judge for himself how far the comment was well founded, had attracted criticism and was challenged by the appellants in this appeal [para 70].
The defence had originated in respect of comments about work products such as books and plays, which necessarily identified the product.
It had been complicated by developments which extended the defence to cover the conduct of individuals, where this was of public interest.
Sometimes the facts underlying the comment were notorious; at other times they might be only known to the person making the comment.
The only defence to a bare comment which implied the existence of unidentified discreditable conduct was justification [para 89].
Fair comment could however be raised where the comment identified the subject matter general terms.
Particulars could then be given in the defence which identified the features which led to the formation of the view expressed [para 96].
Lord Nicholls requirement, that readers should be in a position to evaluate the comments for themselves, could not be reconciled with the authorities [para 98].
This was so, even where the subject matter was not within the public domain.
Today many people take advantage of the internet to make public comments and the defence would be robbed of much of its efficacy if readers had to be given detailed information to enable evaluation of the comment [para 99].
The fourth proposition should be re written as follows: Next, the comment must explicitly or implicitly indicate, at least in general terms, the facts on which it is based.
The Supreme Court agreed that there was a case for reform of a number of aspects of the defence of fair comment which did not arise directly in this case [paras 112 116].
The whole area merited consideration by the Law Commission or an expert committee.
The only more general reform being made by this judgment was the re naming of the defence from fair comment to honest comment [para 117].
Applying the law to the facts of this case, the posting by the appellants referred to the breach of contract relating to the Bibis restaurant, and to the respondents email, and these facts could be relied on.
The email arguably evidenced a contemptuous approach to the respondents contractual obligations to the appellants.
The email as quoted arguably evidenced a contemptuous attitude to contracts in general.
It would be a matter for the jury to decide whether the inaccuracy in the quotation made a significant difference [para 124].
The defence should therefore be reinstated.
|
The issue that arises on this appeal is whether the Financial Services Authority (the FSA) has power to prosecute offences of money laundering contrary to sections 327 and 328 of the Proceeds of Crime Act 2002 (POCA).
The appellant contends that the FSAs powers to prosecute criminal offences are limited to the offences referred to in sections 401 and 402 of the Financial Services and Markets Act 2000 as amended (FSMA), which do not include offences under POCA.
The Court of Appeal (Richards LJ, Irwin J and HH Judge Baker QC) held that the FSAs powers were not limited in that way and that it had the power to bring prosecutions in respect of other offences.
The appellant faces charges for (i) offences of insider dealing contrary to section 52 of the Criminal Justice Act 1993 and (ii) offences of money laundering contrary to sections 327 and 328 of POCA.
The former offences relate to the sale of shares in a company by which he was employed.
The latter relate to the transfer of part of the proceeds of the sale from his bank account to a bank account in his fathers name.
He does not challenge the FSAs power to prosecute the insider dealing offences, since this is expressly provided for by section 402(1) of FSMA.
But he does challenge the FSAs power to prosecute the money laundering offences, since this is not provided for by section 402(1) of FSMA.
The FSA
The FSA is a company limited by guarantee.
It was incorporated in June 1985 under the name of The Securities and Investments Board (the SIB).
Its name was changed to the FSA in October 1997.
The April 2000 version of its memorandum and articles of association, reflecting various amendments since the original incorporation of the company as the SIB, expressed the companys objects and powers in broad terms.
For example, by clause 3(A)(i)(a) of the memorandum its objects included to promote and maintain high standards of integrity and fair dealing in the carrying on of investment business, deposit taking business, insurance business, business carried on by building societies, friendly societies, industrial and provident societies and credit unions and the provision of other financial services.
More specifically, but without prejudice to the generality of paragraph (i), by clause 3(A)(ii)(a) its objects included to do anything with a view to or arising in connection with the transfer to the Company of all or any of the functions to which section 114 of the Financial Services Act 1986 applies or the vesting in the Company of powers or functions pursuant to any other law or any regulation from time to time having effect in any part of the United Kingdom.
As to powers, clause 3(B) provided as follows: With respect to the foregoing objects the powers of the Company shall include (but not be limited to) powers to do any of the following where the directors of the Company consider the same to be incidental or conducive to the objects of the Company: . (vi) to institute legal or arbitration proceedings or itself to establish and operate procedures for the settlement of disputes.
In February 2001, following the enactment of FSMA, clause 3 was
amended and simplified.
In its amended form it reads: The Authoritys objects are: (A) to carry out any functions conferred on the Authority by or under any provision of any legislation, as amended from time to time, and to carry out such other functions or exercise such powers as, from time to time, may be carried out or exercisable by the Authority; (B) to carry out any other function or exercise any other power as may, in the Authoritys view, assist or enable it to carry out the functions and powers referred to above or which the Authority considers incidental, desirable or expedient.
The relevant provisions of FSMA (as amended)
So far as material, FSMA (as amended) provides: 1.
The Financial Services Authority 2.
The Authoritys general duties (1) The body corporate known as the Financial Services Authority (the Authority) is to have the functions conferred on it by or under this Act. (2) The Authority must comply with the requirements as to its constitution set out in Schedule 1. (3) Schedule 1 also makes provision about the status of the Authority and the exercise of certain of its functions. (4) Section 249 of the Banking Act 2009 provides for references to functions of the Authority (whether generally or under this Act) to include references to functions conferred on the Authority by that Act (subject to any order under that section). (1) In discharging its general functions the Authority must, so far as is reasonably possible, act in a way (a) which is compatible with the regulatory objectives; and (b) which the Authority considers most appropriate for the purpose of meeting those objectives. (2) The regulatory objectives are (a) market confidence; (ab) financial stability; (b) public awareness; (c) the protection of consumers; and (d) the reduction of financial crime. 401.
Proceedings for offences (1) In this section offence means an offence under this Act or subordinate legislation made under this Act. (2) Proceedings for an offence may be instituted in England and Wales only (a) by the Authority or the Secretary of State; or (b) by or with the consent of the Director of Public Prosecutions. (3) Proceedings for an offence may be instituted in Northern Ireland only (a) by the Authority or the Secretary of State; or (b) by or with the consent of the Director of Public Prosecutions for Northern Ireland. (4) Except in Scotland, proceedings for an offence under section 203 may also be instituted by the Office of Fair Trading. (5) In exercising its power to institute proceedings for an offence, the Authority must comply with any conditions or restrictions imposed in writing by the Treasury. 402.
Power of the Authority to institute proceedings for certain other offences (6) Conditions or restrictions may be imposed under subsection (5) in relation to (a) proceedings generally; or (b) such proceedings, or categories of proceedings, as the Treasury may direct. (1) Except in Scotland, the Authority may institute proceedings for an offence under (a) Part V of the Criminal Justice Act 1993 (insider dealing); (b) prescribed regulations relating to money laundering; or (c) Schedule 7 to the Counter Terrorism Act 2008 (terrorist financing or money laundering). (2) In exercising its power to institute proceedings for any such offence, the Authority must comply with any conditions or restrictions imposed in writing by the Treasury. (3) Conditions or restrictions may be imposed under subsection (2) in relation to (a) proceedings generally; or (b) such proceedings or categories of proceedings, as the Treasury may direct.
The FSAs powers to prosecute before the enactment of FSMA
The central submission of Mr Miskin QC is that sections 1(1), 401 and 402 of FSMA provide a complete code within which the FSA must operate and that its only powers to prosecute are those referred to in sections 401 and 402.
As we shall explain, before the enactment of FSMA the FSA could initiate criminal proceedings for any offence which fell within its objects as defined by its memorandum and articles of association, subject to any restriction or condition that was imposed by the statute which created the offence.
Every person has the right to bring a private prosecution: see, for example Gouriet v Union of Post Office Workers [1978] AC 435, 497H per Lord Diplock.
The right to bring private prosecutions has been expressly preserved by section 6 of the Prosecution of Offences Act 1985 which provides: (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 Directors duty to take over the conduct of proceedings does not apply.
Nothing in section 6(1) excludes bodies corporate from the definition of any person.
A corporation may therefore bring a prosecution provided that it is permitted to do so by the instrument that gives it the power to act.
As Lord Mance noted in Jones v Whalley [2007] 1 AC 67 at para 38, private prosecutions may be initiated by private bodies such as high street stores, by charities such as NSPCC and RSPCA, or by private individuals.
In Broadmoor Special Health Authority v Robinson [2000] QB 775 at para 25, Lord Woolf MR said: The statutes only rarely provide expressly that a particular public body may institute proceedings in protection of specific public interests.
It is usually a matter of implication.
If a public body is given responsibility for performing public functions in a particular area of activity, then usually it will be implicit that it is entitled to bring proceedings seeking the assistance of the courts in protecting its special interests in the performance of those functions.
In R (Hunt) v Criminal Cases Review Commission [2001] QB 1108 at para 20, Lord Woolf CJ said in relation to the common law power of the Inland Revenue Commissioners to bring prosecutions: Great importance has always been attached to the ability of an ordinary member of the public to prosecute in respect of breaches of the criminal law.
If an ordinary member of the public can bring proceedings for breaches of the criminal law, it would be surprising if the Inland Revenue were not in a similar position.
The general position, therefore, is that the FSA has always been able to bring any prosecution subject to statutory restrictions and conditions and provided that it is permitted to do so by its memorandum and articles of association.
Most statutes which create offences do not specify who may prosecute or on what conditions.
Typically, they simply state that a person who is guilty of the offence in question shall be liable to a specified maximum penalty, it being assumed that anybody may bring the prosecution.
Examples of this technique of statutory drafting are to be found in the provisions of POCA which are in play in the present case.
Section 327(1) provides that a person commits an offence if he (a) conceals criminal property; (b) disguises criminal property etc.
Section 328 provides that a person commits an offence if he enters into or becomes concerned in an arrangement which .
A person guilty of an offence under section 327 or 328 is liable to the maximum penalties specified in section 334.
It follows that before the enactment of FSMA, the FSA could have prosecuted the appellant for offences contrary to sections 327 and 328 of POCA, if POCA had been in force at that time.
But some statutes specify who may prosecute and impose restrictions and conditions on their power to prosecute.
These are often statutes which create technical or financial offences.
An example of such a statute which affected the FSA before FSMA was enacted was the Financial Services Act 1986.
Section 201(1) of that Act provided that proceedings in respect of an offence under any provision of that Act (other than section 133 or 185) should not be instituted in England and Wales except by or with the consent of the Secretary of State or the Director of Public Prosecutions (DPP).
Section 114 provided that the Secretary of State could transfer certain functions to other bodies.
Section 201(4) provided that these functions included the institution of proceedings but any transfer of that function shall be subject to a reservation that it is to be exercisable by him concurrently with the designated authority and so as to be exercisable by the agency subject to such conditions or restrictions as the [Secretary of State] may from time to time impose.
By article 7 of the Financial Services Act 1986 (Designation) Order 1987, the function of the Secretary of State under section 201(1) of the 1986 Act to institute proceedings with respect to any offence specified in Schedule 3 to the Order was transferred to the SIB subject to a reservation that it is to be exercisable by the Secretary of State concurrently with the [SIB] and so as to be exercisable by the [SIB] subject to such conditions or restrictions as the Secretary of State may from time to time impose.
The general position before the enactment of FSMA was that the FSA had the power of a private individual to prosecute provided that this fell within the scope of its objects and prosecution was not precluded or restricted by the terms of the relevant statute.
It is against that background that the true construction of FSMA falls to be considered.
The particular question that arises is whether the effect of sections 1(1), 401 and 402(1) was to deprive the FSA of the general power it previously enjoyed to bring prosecutions and confine it to the power to bring prosecutions falling within sections 401 and 402(1).
The true construction of FSMA
Section 401 deals with the prosecution of offences under FSMA itself or any subordinate legislation made under it.
Section 401(2) provides that proceedings for such an offence may be instituted in England and Wales only by the FSA or the Secretary of State or by or with the consent of the Director of Public Prosecutions.
We agree with the Court of Appeal that the purpose of this provision is not to confer the power to prosecute, but to limit the persons who may prosecute for such offences.
If the statute had not specified who could prosecute, then any individual could have prosecuted as could any corporate body, provided that it was authorised by its constitution to do so.
As for section 402(1), Mr Miskin submits that it defines exhaustively the other offences which the FSA may prosecute.
If that is not its purpose, he asks: what is its purpose?
Before we turn to the detail of section 402, it is legitimate to ask why Parliament should have intended to deprive the FSA (but no one else) of the power it previously enjoyed to bring prosecutions for offences other than those mentioned in sections 401 and 402.
Mr Miskin was unable to identify any policy reason why Parliament should have intended to do this.
No mischief has been identified which required such action.
Far from there being any reason why Parliament would have intended to remove from the FSA a power to prosecute which it previously enjoyed, there are reasons internal to FSMA itself which suggest that Parliament would not have intended to deprive the FSA of the power to prosecute for offences of financial crime (of which sections 327 and 328 of POCA are examples).
One of the functions of the FSA is, so far as is reasonably practicable, to act in a way which it considers most appropriate for the purpose of meeting the regulatory objectives which include the reduction of financial crime: see section 2 of FSMA.
One of the ways that the FSA might reasonably consider that this objective can be met is by prosecuting those who commit offences of a financial nature.
It would have been perverse of Parliament to impose on the FSA the general duties set out in section 2 of FSMA and yet at the same time deprive it of the power it previously enjoyed to prosecute financial offences.
It would have been even more perverse not to remove the power to bring prosecutions for offences (other than those under FSMA and its subordinate legislation itself) from anyone else, including private individuals.
It is most unlikely that Parliament would have intended to create such a regime.
Further, if the power of the FSA is limited to the prosecution of offences under sections 401 and 402 then, as Mr Perry QC points out, there are consequences which it is unlikely that Parliament intended.
For example, it means that, if in the course of its investigations, the FSA discovers evidence which would support a prosecution under section 401 or 402 of FSMA and a prosecution for other offences, it has to refer the question whether to prosecute those other offences to the DPP.
This is a most inefficient and unsatisfactory way of prosecuting crime.
It also means that, if the evidence given at trial does not support a count on the indictment which is being prosecuted by the FSA, but it does support a different offence which ex hypothesi the FSA cannot prosecute, an application for leave to amend the indictment to add a new count to reflect the evidence cannot be made by the FSA, even though a prosecutor would ordinarily make such an application.
Parliament cannot have intended to create such an absurd state of affairs.
Finally, it also means that the FSA cannot prosecute an offence of conspiracy to commit offences under FSMA, since the offence of conspiracy, whether under section 1 of the Criminal Law Act 1977 or at common law, falls outside the powers of prosecution expressly conferred by sections 401 and 402.
As to this last point, Mr Miskin responds that the substantive offence of insider dealing may be committed by encouraging another to deal or disclosing information to another: see section 52(2) of the Criminal Justice Act 1993.
But a conspiracy to deal is different from encouraging another to deal or disclosing information to another, not least because it may be committed at an earlier stage of the enterprise.
Mr Miskin also makes the point that offences under the prescribed regulations relating to money laundering (section 402(1)(b)), Schedule 7 to the Counter Terrorism Act 2008 (section 402(1)(c)) and under FSMA and its subordinate legislation (section 401(1)) are all conduct offences or regulatory compliance offences.
But that does not mean that it is impossible for one person to conspire with another to commit such an offence.
In these circumstances, it is unlikely that Parliament would have intended to restrict the power of the FSA to the prosecution of the offences mentioned in sections 401 and 402.
The technique usually employed by the legislature to indicate an intention to limit the class of persons who may prosecute a particular offence is the obvious one of stating expressly that a particular offence may only be prosecuted by a specified person or persons.
That is the technique that was employed in section 401(2).
It is striking that it was not employed in section 402(1).
Other forms of words are sometimes used, but to the same effect.
Thus section 66(1) of the Industrial and Provident Societies Act 1965 provides that proceedings for the recovery of a fine which is recoverable under that Act on summary conviction may be instituted by the persons specified (these include the FSA) and (except in Scotland) no other person may institute such proceedings.
Another example is to be found in section 96(5) of the Banking Act 1987 which provides that no proceedings for an offence under that Act shall be instituted in England and Wales except by or with the consent of the Director of Public Prosecutions or the Bank.
There is no such provision in FSMA excluding the power of the FSA to prosecute offences which are not mentioned in section 401 or 402.
So what purpose is served by section 402(1)? It is necessary to consider each paragraph separately.
In order to understand the reason for section 402(1)(a), regard must be had to section 61 of the Criminal Justice Act 1993 which provides for penalties and prosecutions in relation to the offence of insider dealing.
Section 61(1) specifies the maximum penalties that may be imposed.
Section 61(2) provides that proceedings for offences under this Part shall not be instituted in England and Wales except by or with the consent of the Secretary of State or the DPP.
The effect of section 402(1)(a) and (2) in relation to prosecutions for insider dealing by the FSA is twofold.
First, where a prosecution for the offence is instituted by the FSA, the need for the consent of the Secretary of State or DPP is dispensed with.
It was correctly held by the Divisional Court in R (Uberoi and another) v City of Westminster Magistrates Court [2009] 1 WLR 1905 at para 29 that the effect of section 402(1)(a) is that the FSA can prosecute offences of insider dealing without first obtaining consent of the Secretary of State or the DPP.
Sir Anthony May P reached this conclusion by construing may institute in section 402(1) as having the same meaning as may be instituted by in section 401(2).
But the better view is simply that the effect of the plain language of section 402(1)(a) is to dispense with the requirement for consent imposed by section 61(2) of the 1993 Act.
Secondly, in prosecuting for this (and any other offence under section 402(1)), the FSA must comply with any conditions or restrictions imposed in writing by the Treasury.
As regards section 402(1)(b), it is true that its purpose is not to dispense with the need for the consent of the Secretary of State or the DPP.
It is also true that the Money Laundering Regulations 1993 (SI 1993/1933) which, by the Financial Services and Markets Act 2000 (Regulations Relating to Money Laundering) Regulations 2001 (SI 2000/1819), were prescribed regulations for the purposes of section 402(1)(b) of FSMA, contained no restriction on who could prosecute offences created by those regulations and imposed no requirement that the consent of the Secretary of State or the DPP be obtained for such a prosecution.
But section 402(1)(b) envisaged that there might be other prescribed regulations in the future and it provided in advance that the FSA would have the power to prosecute offences under those regulations.
Indeed, the Money Laundering Regulations 2007 (SI 2007/2157), which came into force on 15 December 2007, were such prescribed regulations.
Regulation 45 of these regulations created the offences of failing to comply with the requirements specified in various of the regulations.
Regulation 46(1) provided that proceedings for an offence under regulation 45 may be instituted by a number of specified persons or bodies.
These did not include the FSA, no doubt because section 402(1)(b) had already conferred that power on the FSA.
But perhaps the main reason for section 402(1)(b) is that in this way Parliament ensured that any prosecution by the FSA of offences under the prescribed regulations relating to money laundering would be subject to the conditions and restrictions imposed by the Treasury.
Section 402(1)(c) was inserted by paragraph 33(4) to Schedule 7 to the Counter Terrorism Act 2008.
Paragraph 33(1) provides that proceedings for an offence under Schedule 7 may be instituted in England and Wales only by and there follows a list of five bodies including the FSA and the DPP.
It is true, therefore, that there was no need to state in section 402(1) of FSMA (by amendment) that the FSA has the power to institute proceedings for an offence under Schedule 7 to the 2008 Act.
This is not, however, the only place in FSMA where, oddly, one finds a cross reference to and statement of the effect of the provision of another statute: see section 1(4).
But section 402(1)(c) also serves the important purpose of ensuring that any prosecution for offences under Schedule 7 to the 2008 Act is subject to the conditions and restrictions imposed by the Treasury.
It follows that there are rational reasons for the inclusion in FSMA of section 402(1)(a), (b) and (c).
There is no need to infer that Parliament must have intended to limit the FSAs power to the prosecution of the offences stated in those three paragraphs on the ground that there is no other explanation for their inclusion in the statute.
In support of their view that FSMA did not provide a complete code, the Court of Appeal relied on section 1(4) of the Act: see para 20 of their judgment.
They said that section 1(4), which refers in the context of the Banking Act 2009 to functions of the FSA whether generally or under this Act contemplates that the FSA has wider functions than those under FSMA.
Mr Miskin submits that the Court of Appeal placed undue weight on the wording of section 1(4) as an aid to the construction of FSMA, since it was a later amendment introduced by the Banking Act 2009 and, in the absence of clear language, section 1(4) cannot widen the functions of the FSA if they were otherwise limited.
We consider that at most section 1(4) is consistent with what we consider to be the true meaning and effect of sections 401 and 402.
If it stood alone, it would not carry any weight.
But there is a yet further reason why the complete code theory must be rejected.
The effect of the Financial Services and Markets Act (Mutual Societies) Order 2001/2617 was to confer on the FSA powers (including the power to prosecute) previously enjoyed by other bodies.
Examples are the power to prosecute for the recovery of a fine under section 66(1) of the Industrial and Provident Societies Act 1965; the power to take proceedings under section 111 of the Building Societies Act 1986; and the power to take proceedings under section 107 of the Friendly Societies Act 1992.
The way this was done by the 2001 Order was to amend the earlier legislation by substituting the FSA for the body previously designated as the prosecuting authority.
Thus, for example, para 190 of Schedule 3 to the 2001 Order provided that in section 111 of the Building Societies Act 1986 the FSA was substituted for the Commission.
It did not provide that the power to prosecute conferred by these statutes was now deemed to be conferred by FSMA.
It follows that the powers of the FSA under these statutes were not derived from FSMA and were not treated as being so derived.
It is clear, therefore, that sections 401 and 402 do not exhaustively define the prosecutorial powers of the FSA.
The force of this point is not weakened by the fact that there are provisions in other enactments on which Mr Miskin relies which provide that functions performed by the FSA under those other statutes are deemed to be performed under FSMA.
For example, section 15(2) of the Insolvency Act 2000 provides that For the purposes of the Financial Services and Markets Act 2000, the functions conferred on the Financial Services Authority by virtue of Schedules 1 and 2 are to be treated as conferred by that Act.
Other examples are para 38 of Schedule 11 to POCA and para 41(1) of Schedule 7 to the Counter Terrorism Act 2008.
The latter provides that the functions of the FSA under this Schedule shall be treated for the purposes of Parts 1, 2 and 4 of Schedule 1 to the Financial Services and Markets Act 2000. as if they were functions conferred on the FSA under that Act.
It is only if all functions performed by the FSA under other statutes were deemed to be performed under FSMA that these deeming provisions could be relied on in support of the argument that sections 401 and 402 create a complete code.
But as has been seen, that is not the case.
We should briefly refer to some of the other arguments advanced by Mr Miskin.
He relies on paras 710 to 713 of the Explanatory Notes to FSMA which, we are prepared to accept, arguably suggest that the draftsman of the Notes believed that section 401 and 402 provides an exhaustive code.
Para 712 states that section 402 allows the Authority to prosecute in England, Wales or Northern Ireland two criminal offences which are not in this Act (section 402(1)(c) was added in 2008).
It is unnecessary to dwell on this point.
The Notes, prepared by the Treasury, indicate the intention and belief of the Treasury.
They cannot be relied on to determine the intention of Parliament: see R (Westminster City Council) v National Asylum Support Service [2002] 1 WLR 2956 per Lord Steyn at para 6.
Mr Miskin also relies on section 1(1) as showing that the FSAs functions are limited to those conferred by FSMA.
He submits that, unless it is so construed, the subsection is superfluous, since no purpose is served by providing that the functions conferred on the FSA by FSMA are the functions of the FSA.
This is a weak argument as arguments based on superfluity usually are.
But section 1(1) is not superfluous.
Its purpose is to make clear at the outset that it is the FSA, rather than any other person or body, who is to have the functions that are conferred on it by FSMA.
It neither states nor implies that the FSA is to have only those functions conferred on it by FSMA.
As has been seen, the FSA unquestionably has other functions too.
The next argument is that there is a symmetry between the FSAs prosecutorial powers contained in sections 401 and 402 and its investigative powers under Part XI, for example its powers to require information of authorised persons (section 167); its power to appoint persons to carry out investigations in particular cases (section 168); its power to require any person to attend and provide information or documents and to provide assistance (section 173); and to obtain warrants for entry of premises on a failure to comply with information requirements etc (section 176).
It is also submitted that there is a symmetry between the FSAs prosecutorial powers in sections 401 and 402 and its powers under Part XXV to seek injunctions and restitution.
It is said that all these particular powers, tailored to the offences in sections 401 and 402, support the complete code interpretation.
But in the light of all the other factors which we have mentioned, it is impossible to infer from the inclusion of these powers that Parliament intended that the FSAs power to prosecute should be limited to offences under sections 401 and 402.
As the Court of Appeal said at para 32, the right of private prosecution does not depend on the enjoyment of corresponding powers of investigation, and it will frequently be the case that a private prosecutor lacks relevant statutory powers of investigation.
The fact that the FSA does not have statutory powers of investigation in relation to offences under POCA tells one nothing about its power to prosecute those offences.
It is also to be noted that, in so far as FSMA applies to Scotland, the FSA has the powers of investigation but the Lord Advocate prosecutes the offences referred to in sections 401 and 402.
Thus, there is no symmetry in Scotland.
This provides further support for the view that the lack of symmetry in England and Wales is of no significance.
Finally, Mr Miskin advanced, albeit faintly, the argument that a prosecution of offences contrary to sections 327 and 328 of POCA fell outside the objects of the FSAs memorandum and articles of association.
But in view of the wide language of clause 3 of the amended memorandum of association and the general duties of the FSA imposed by section 2 of FSMA, this argument is hopeless.
Overall conclusion
For all these reasons, we would hold that the FSA has the power to prosecute offences of money laundering contrary to sections 327 and 328 of POCA.
| UK-Abs | The Financial Services Authority (the FSA) had brought a criminal prosecution against the Appellant, Mr Neil Rollins, for (i) offences of insider dealing contrary to section 52 of the Criminal Justice Act 1993 and (ii) offences of money laundering contrary to sections 327 and 328 of the Proceeds of Crime Act 2002 (POCA).
The allegations under (i) related to the sale of shares in a company by which he was employed.
The allegations under (ii) related to the transfer of part of the proceeds of the sale from his bank account to a bank account in his fathers name.
The Appellant contended that the FSAs powers to prosecute criminal offences were limited to the offences referred to in sections 401 and 402 of the Financial Services and Markets Act 2000 (FSMA).
He conceded that the FSA had power to prosecute the insider dealing offences under section 402 of FSMA.
However, he challenged the FSAs power to prosecute the money laundering offences, since this had not been provided for by section 402.
He argued that FSMA set out a complete code within which the FSA had to operate and that its only powers to prosecute were those referred to in sections 401 and 402.
The Crown Court and the Court of Appeal rejected the Appellants arguments.
The Appellant appealed to the Supreme Court.
The Supreme Court unanimously dismisses the appeal.
It holds that the Financial Services Authority does have the power to prosecute the money laundering offences.
Sir John Dyson SCJ gave judgment on behalf of the Court.
The Financial Services Authority, like other corporate bodies, was entitled to bring a prosecution for any offence subject to statutory restrictions and conditions and provided that it was permitted to do so by its memorandum and articles of association [paragraphs 11, 14].
Section 401 (2) of Financial Services and Markets Act 2000 provided that offences created by FSMA itself or any subordinate legislation made under the Act could be instituted only by the FSA or the Secretary of State or by the consent of the Director of Public Prosecutions.
If section 401 (2) had the effect of conferring the power to prosecute such offences on the FSA, that would support the argument that its power to prosecute was limited to those offences set out in the Act.
However, the true effect of section 401 (2) was to limit the power to prosecute
to those listed in the section to the FSA, the Secretary of State and the Director of Public Prosecutions and not to limit which offences could be prosecuted [paragraph 15].
There was no policy reason which could have led Parliament to deprive the FSA of the power it previously enjoyed to bring prosecutions for offences other than those listed in sections 401 and 402.
The policy considerations pointed the other way.
One of the objectives of the FSA as defined by FSMA was to reduce financial crime.
It would therefore have been perverse for Parliament to deprive the FSA of its previous power to prosecute financial offences.
Similarly the Appellants argument would have the effect of requiring multiple prosecutions in some cases and prevent the FSA from amending charges in other cases where the sought amendment concerned an offence which was not contained within section 401 or 402. [paragraphs 17, 18].
The Appellant had submitted that Parliament must have intended to limit the FSAs power to prosecute offences not created by FSMA itself to those listed in section 402, as there was no other explanation for their inclusion in the statute.
This was not correct there were rational reasons [paragraphs 23, 24].
FSMA cannot have set out a complete code within which the FSA to operate.
For example, the FSA had powers under other statutes which were not derived from FSMA [paragraph 26].
|
The appeal arises in another case which involves the meaning of credit, the amount of credit and the charge for credit in the Consumer Credit Act 1974 (the Act).
The case for the appellant borrowers is that the respondent lender failed correctly to state the amount of credit in the loan agreement.
If that case is accepted, it follows that the loan agreement is wholly unenforceable under the Act.
This point was not taken before District Judge Gilham, who made a suspended order for possession on terms that the borrowers made the payments as and when due and paid off what were substantial arrears by monthly instalments.
The borrowers appealed to the Circuit Judge and were permitted to take the point that the agreement was unenforceable.
They succeeded before His Honour Judge Halbert on 27 April 2009, with the result that he ordered the discharge of the charge registered on the property.
However, the Court of Appeal allowed the lenders appeal on 12 November 2009.
This appeal by the borrowers is brought with the permission of the Supreme Court.
The agreement
The borrowers are Mr and Mrs Walker.
They completed an application form for a loan from the lender, Southern Pacific Personal Loans Limited (SPPL).
The respondent is the successor in title to SPPL.
The parties signed a credit agreement which it is common ground is regulated by the Act.
On the front the agreement contains a number of boxes under the heading FINANCIAL MATTERS, some NOTES in smaller but legible print, some warnings in capital letters and the parties signatures.
The borrowers signed it on 26 March 2005 and SPPL signed it on 20 April 2005.
On the reverse there appear 46 LENDING CONDITIONS and some definitions.
The boxes are set out in this way: FINANCIAL MATTERS: A Loan B Payment Protection Insurance (Optional) C Amount of Credit (A+B) Single Joint 17500 Current Margin Rate at: Above LIBOR We may change the interest rate (see below) Single & Joint & Single Life Joint Life 0 17500 The rate of interest payable is\: Repayment term: 9 % 13.98 % 180 months 244.46 D Broker Administration Fee 875 Monthly payment: We may change the Monthly Payment under the Terms and Conditions E Total Amount Financed (C+D) 18375 The APR applicable to the credit as shown in both A&B is 16 %
The NOTES make it clear that all the terms, including the LENDING CONDITIONS, form part of the agreement, and also include this: Payments You must repay the Amount of Credit together with any amounts financed under this Agreement with interest by making the Monthly Payments.
Clause 15 of the LENDING CONDITIONS provides: We will charge interest on the money you owe us (which includes the Loan, interest and Expenses) at the Interest Rate.
The issue
The issue in this appeal is whether the Amount of Credit is incorrectly stated in box C.
The borrowers case is that the true amount of credit was not 17,500 as stated in box C but 18,375, which is the amount stated in box E, where it is described as Total Amount Financed.
It is common ground that the amount of 875, which is described in box D as the Broker Administration Fee was advanced to the borrowers and that interest was payable on it at the same rate as on the sum of 17,500.
Thus the Total Amount Financed is shown as 17,500 plus 875, namely 18,375, and interest is shown to be payable at 13.98 per cent per annum on that total figure.
It is submitted on behalf of the borrowers that it follows from the fact that the total amount of the loan was 18,375 that the Amount of Credit was 18,375.
It is said that, applying the principle of truth in lending, it is wrong to describe the Amount of Credit as only 17,500 because SPPL lent the borrowers the total sum of 18,375 and charged interest on that total.
So expressed, that submission seems to us to have some attraction.
However, it was rejected by the Court of Appeal in an admirably succinct judgment given by Mummery LJ, with whom Sullivan LJ and Owen J agreed.
The issue is whether the Court of Appeal was correct.
All depends upon the true construction of section 9 of the Act.
The Act and the Regulations
By section 8(2) of the Act, as amended as at the relevant time, a consumer credit agreement is a personal credit agreement by which the creditor provides the debtor with credit not exceeding 25,000.
Sections 9 and 20 of the Act provide, so far as relevant, as follows: 9 Meaning of Credit (1) In this Act credit includes a cash loan, and any other form of financial accommodation. (4) For the purposes of this Act, an item entering into the total charge for credit shall not be treated as credit even though time is allowed for its payment. 20 Total charge for credit (1) The Secretary of State shall make provisions containing such regulations as appear to him to be appropriate for determining the true cost to the debtor of the credit provided or to be provided under an actual or prospective consumer credit agreement (the total charge for credit), and regulations so made shall prescribe (a) what items are to be treated as entering into the total charge for credit, and how their amount is to be ascertained; the method of calculating the rate of the total charge for credit. (b) By section 189, unless the context otherwise requires, credit is to be construed in accordance with section 9.
The relevant regulations under the Act were the Consumer Credit (Total Charge for Credit) Regulations 1980 (the TCC Regulations) and the Consumer Credit (Agreements) Regulations 1983 (the Agreements Regulations).
We will refer to them together as the Regulations.
They have been amended over time, both before and after the agreement.
For present purposes both the Act and the Regulations in the form in which they were in April 2005 apply.
The TCC Regulations were made under section 20 of the Act.
Regulation 4 of them is entitled Items included in total charge for credit and provides, so far as relevant: Except as provided by regulation 5 below, the amounts of the following charges are included in the total charge for credit in relation to an agreement: (a) the total of the interest on the credit which may be provided under the agreement; (b) other charges at any time payable under the transaction by or on behalf of the debtor or a relative of his whether to the creditor or any other person.
Section 60 of the Act requires the Secretary of State to make regulations as to the form and content of documents embodying regulated agreements.
He made the Agreements Regulations under that section.
Section 61(1)(a) of the Act provides that, among other things, a regulated agreement is not properly executed unless a document containing all the prescribed terms is signed by the debtor.
The Act and the Regulations distinguish between prescribed terms and required terms.
In the case of an agreement predating 6 April 2007 such as the agreement which is the subject of this appeal, by section 127(3) of the Act a failure properly to include a prescribed term in the agreement renders the agreement wholly unenforceable, whereas a failure properly to include a required term merely means that the agreement is enforceable only by court order under section 65(1) of the Act.
In the case of the agreement in this case, the prescribed terms were: a term stating the amount of credit (Agreements Regulations reg 6(1) and Sch 6, para 2), a term stating the rate of any interest on the credit to be provided under the agreement (ibid Sch 6, para 4) and a term stating how the debtor is to discharge his obligations under the agreement to make the repayments (ibid Sch 6, para 5).
In the instant case it is common ground that, if the agreement contains a term correctly stating the amount of the credit, it complies with Schedule 6, para 2 of the Agreements Regulations and is enforceable, whereas if it does not, it is irredeemably unenforceable.
Discussion
But for the provisions of section 9 of the Act, there would be a strong case for saying that, since the total amount advanced was 18,350, that was the amount of credit and, since that sum was not stated in the agreement to be the amount of the credit, it follows that it does not contain a prescribed term and is unenforceable.
The problem is that section 9(4) provides that an item entering into the total charge for credit shall not be treated as credit.
It follows that if an item is part of the total charge for credit, it cannot form part of the amount of credit, even if it would otherwise be regarded as credit.
That conclusion, which, in our judgment, follows from the plain meaning of subsection (4), is supported by the authorities: see in particular Wilson v First County Trust Ltd [2001] QB 407, Watchtower Investments Ltd v Payne [2001] EWCA Civ 1159, [2001] GCCR 3055 and Wilson v Robertsons (London) Ltd [2005] EWHC 1425 (Ch), [2006] 1 WLR 1248.
In each of those cases it was stressed that the first step is to assess the total charge for credit because, as Mummery LJ put it at para 15 of his judgment in this case, those items financed by the creditor which form part of the charge for credit must be identified and stripped out before the amount of credit can be determined.
He took that phrase from para 35 of the judgment of Laddie J in the Robertsons (London) case, where the judge quoted from para 24.144 of the then edition of Professor Goodes work Consumer Credit Law and Practice.
In Wilson v First County it was held that the agreement was unenforceable because the amount of credit was not correctly stated in it.
The lender had agreed a loan of 5,000, to which was added a document fee of 250, which itself bore interest.
The agreement stated that the amount of the loan was 5,250.
So indeed in one sense it was.
However, the Court of Appeal held that the amount of the credit was 5,000 and was incorrectly stated as 5,250.
The reason was that the document fee was part of the charge for credit, that is the cost of the credit, and that, under section 9(4) of the Act, it could not be treated as, and thus form part of, the amount of the credit.
As Mummery LJ observed at para 16, the Act does not define charge for credit.
At para 52 of his judgment in the Watchtower case Peter Gibson LJ noted that it is not always easy to draw the line between an item forming part of the total charge for credit and an item forming part of the credit itself.
He concluded that, in order to identify the total charge for credit, the purpose of the courts consideration is to arrive at what in reality is the true cost to the debtor of the credit provided.
See also the judgment of Clarke LJ in that case at para 63, where it is noted that section 20 of the Act (quoted above) points the way.
The question is thus what was the true cost to the borrowers of the credit provided under the agreement.
There are two items which have been the subject of debate.
The first is the Broker Administration Fee and the second is the interest on that fee.
As to the fee, there cannot, in our judgment, be any doubt that it was part of the total cost of the credit.
It was a fee paid to intermediary brokers and, as such, was a cost to the borrowers of borrowing the 17,500 from SPPL.
That is plainly so, even though it was itself borrowed from SPPL.
Once it is accepted that it was part of the total charge for credit, it follows that it must be stripped out of the amount of credit and, by section 9(4) of the Act shall not be treated as credit.
It is analogous to the document fee in the Wilson v First County case.
If it had been expressed as part of the amount of credit, like the document fee, so that amount of credit was expressed as 18,375, the agreement would have been unenforceable for the same reason as the Court of Appeal held the agreement, which stated the amount of credit as 5,250, to be unenforceable in that case.
There seems little doubt that the form in which the agreement was drafted in the instant case owed much to the decision and reasoning of the Court of Appeal in the Wilson v First County case.
The question remains whether that conclusion is affected by the fact that SPPL was lending the fee at the same rate of interest as that on the sum of 17,500, or indeed at any rate of interest.
The answer must be no. Section 9(4) does not prohibit the charging of interest.
If the fee itself was part of the total charge for credit, it seems to us to follow that interest on that fee was also part of the total charge for credit and not therefore to be treated as credit.
As the court sees it, both the fee and interest on the fee are other charges within regulation 4(b) of the TCC Regulations quoted above and are thus included in the total charge for credit.
Even if, for some reason, the interest were not so included in the charge for credit, we do not see how the interest could itself be credit.
The borrowers argument involves saying that, whereas in the case of, say, a loan of 1,000 repayable with interest and a document fee of 50 repayable without interest, the amount of credit is 1,000, nevertheless in the case of such a loan but with a document fee of 50 repayable with interest, the amount of credit is 1,050.
That seems to us to be nonsensical.
Either the credit is 1,050 in both cases or in neither.
For the reasons we have given we conclude that the answer in both cases is 1,000.
The borrowers submission is that so to conclude is to infringe the principle of truth in lending.
The argument is essentially that the true position here is that the total amount lent was 18,375 and that to describe the amount of the credit as 17,500 was therefore misleading and wrong.
It is true that the total amount financed was 18,375 and that, in ordinary parlance, that was indeed the total amount of the loan or the total amount of the credit.
So to conclude would, however, be to disregard the provisions of the Act, especially section 9(4).
As the court sees it, the borrowers case involves construing section 9(4) as if it read: For the purposes of this Act, an item entering into the total charge for credit shall not be treated as credit even though time is allowed for payment (unless interest is charged, in which case it shall be treated as credit).
There is in our judgment no warrant for the addition of the words in italics.
We agree with the conclusions of Mummery LJ at paras 34 and 35: in particular that the borrowers submissions treat interest as a necessary feature or indicator of credit, which it is not, and that it was not the function of section 9 to prohibit anything but rather to supply a special statutory meaning to the core concept of credit in the Act and to distinguish it from the charge for, or cost of, credit.
For the reasons we have given, which are based both on the language of the statute and the authorities cited above, we hold that, although it too was advanced to the borrowers and repayable with interest, the fee of 875 was part of the total cost of, or charge for, credit and therefore cannot be treated as part of the credit.
Once that is appreciated, it can be seen that there is no infringement of the principle of truth in lending.
The agreement is in clear terms.
In the box on the front it draws a distinction between Amount of Credit, which in this case is the amount of the Loan namely 17,500 and the Total Amount Financed, namely the Amount of the Credit plus the Broker Administration Fee of 875, which makes 18,375.
Moreover the boxes, together with the provision quoted at para 4 above, make it clear that the rate of interest of 13.98 per cent is payable on the whole of the Total Amount Financed and that the Monthly Payment was 244.46.
There was no basis for confusion as to what sum was to be paid each month or as to what made up the Amount of Credit and what was the Broker Administration Fee.
Nor was there any basis for confusion as to the calculation of the APR shown in the bottom right hand box of 16 per cent.
As the description states, it was applicable to the credit shown in both A&B, namely the Amount of Credit of 17,500, but taking into account the interest chargeable on both that sum and the 875 Broker Administration Fee.
It is not suggested that the APR was incorrectly calculated.
For these reasons, which are essentially the same as those more concisely set out by Mummery LJ in the Court of Appeal, we dismiss the appeal.
We merely note by way of postscript that, if the fee had been included in the amount of credit, so that the Amount of Credit was stated as 18,375, the borrowers would no doubt have said that the loan was unenforceable on the ground that the fee was part of the cost of the credit and should not therefore have been treated as part of the credit.
Such an argument would have succeeded on the basis of the decision and reasoning in Wilson v First County.
As we see it, in order to succeed in this appeal, the borrowers would have to persuade the court that Wilson v First County was wrongly decided.
However, in our opinion it was not.
Finally, some reliance was placed upon the last sentence of para 19 of Sir Andrew Morritt V Cs judgment in Wilson v First County, which was in these terms: It is apparent from these two considerations that section 9(4) must be applied without too narrow an interpretation of the word item.
If a charge for credit is correctly recognised in accordance with the detailed regulations to which I have referred then any cash loan or other financial accommodation made or afforded by the creditor to the debtor for the purpose of discharging the liability for that charge should not be treated as part of that credit to which the total charge for credit relates.
It may be, though it is unnecessary to any decision in this case, that the loan made to pay the charge is itself a separate credit which should be made the subject of a regulated agreement to which the Act applies, whether as a linked transaction within section 19 or otherwise.
We can see that there might be cases in which, on analysis of the facts, it might be held that the loan to pay a charge was a separate credit which should be made the subject of a regulated agreement but it is not easy to envisage such a case.
In any event there is no question that this is such a case.
Here the Broker Administration Fee was simply part of the cost of the credit and thus not to be treated as part of the credit.
It is perhaps important to note for the future that section 127(3) of the Act was repealed by sections 15, 70 and Schedule 4 of the Consumer Credit Act 2006 and does not apply to agreements made after 5 April 2007.
Further, when the Consumer Credit (Agreements) Regulations 2010 come into force, they will require documentation of the total amount of credit, which is defined as the credit limit or the total sums made available under a consumer credit agreement.
CONCLUSION
The appeal is dismissed, essentially for the reasons given by the Court of Appeal.
| UK-Abs | The parties entered into a fixed sum credit agreement on 20 April 2005 whereby Southern Pacific Securities (the respondent) loaned Mr and Mrs Walker (the appellants), the sum of 17,500.
In addition to the loan a Broker Administration Fee of 875 was advanced to the appellants to enable them to pay for the arrangement of the loan.
Interest was payable on the Broker Administration Fee at the same rate as on the loan of 17,500.
The credit agreement set out the Amount of Credit as 17,500 (being the loan) and the Total Amount Financed as 18,375 (being the loan together with the Broker Administration Fee).
Under the Consumer Credit Act 1974 (the Act) agreements predating 6 April 2007 are only enforceable if they contain certain prescribed terms (section 127(3)).
The prescribed terms for agreements such as the one entered into by the parties in this case included a term stating the amount of credit.
Section 9 of the Act defines credit as including a cash loan, and any other form of financial accommodation (section 9(1)) and provides that for the purposes of the Act an item entering into the total charge for credit shall not be treated as credit even though time is allowed for its payment (section 9(4)).
The appellants are in arrears on the loan payments, owing at least 40,000, and risk losing their home.
On 21 June 2007, a District Judge granted a suspended order for possession of the property.
They appealed to the Circuit Judge, arguing that the credit agreement incorrectly states the amount of credit and therefore, by section 127(3) of the Act, the credit agreement is unenforceable.
The appellants case is that the true amount of credit was not 17,500 but 18,375, which is the amount shown in the agreement as the Total Amount Financed.
The Appellants succeeded in the Chester County Court on 27 April 2009, and the judge ordered the discharge of the charge registered on their property.
The Court of Appeal allowed the respondents appeal on 12 November 2009.
The issue in the appellants appeal to the Supreme Court is the correct definition of an amount of credit under the Act, and whether the Act permits interest to be charged on a sum (such as the Broker Administration Fee) which is not part of the total amount of credit but rather is a charge for credit.
The Supreme Court unanimously dismisses the appeal, essentially for the reasons given by the Court of Appeal.
Although the Broker Administration Fee of 875 was advanced to the appellants
and repayable with interest, it was part of the total cost of, or charge for, credit and therefore cannot be treated as part of the credit.
Lord Clarke delivered the judgment of the Court.
Section 9(4) of the Act provides that an item entering into the total charge for credit shall not be treated as credit.
It follows that if an item is part of the total charge for credit, it cannot form part of the amount of credit.
The relevant authorities stress that the first step is to assess the total charge for credit so that those items financed by the creditor which form part of the charge for credit can be identified and stripped out before the amount of credit is determined (paras [14] [16]).
The Act does not define charge for credit.
Following Watchtower Investments Ltd v Payne [2001] EWCA Civ 1159, in determining the charge for credit, the court must decide the true cost to the appellants of the credit provided under the agreement.
In this case, two items were the subject of debate: the Broker Administration Fee and the interest charged on that fee.
In the courts judgment there was no doubt that the Broker Administration Fee was part of the total cost of the credit.
It was a fee paid to intermediary brokers and, as such, was a cost to the appellants of borrowing the 17,500.
Once it is accepted that the fee was part of the total charge for credit, it follows that it must be stripped out of the amount of credit and, by section 9(4) of the Act, cannot be treated as credit.
If the fee had been expressed in the agreement as part of the amount of credit so that the amount of credit was shown as 18,375, the agreement would have been unenforceable, as was held in Wilson v First County Trust Ltd [2001] QB 407 (paras [18] [19]).
The court then considered whether that conclusion is affected by the fact that the respondent was lending the fee at a rate of interest.
The court concluded it is not.
Section 9(4) does not prohibit the charging of interest.
If the fee itself was part of the total charge for credit, it follows that interest on the fee was also part of the total charge for credit and cannot be treated as credit.
Contrary to the Appellants submissions, interest is not a necessary feature or indicator of credit (paras [20] [24]).
|
Mesothelioma is a hideous disease that is inevitably fatal.
In most cases, indeed possibly in all cases, it is caused by the inhalation of asbestos fibres.
Unusual features of the disease led the House of Lords to create a special rule governing the attribution of causation to those responsible for exposing victims to asbestos dust.
This was advanced for the first time in Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22; [2003] 1 AC 32 and developed in Barker v Corus UK Ltd [2006] UKHL 20; [2006] 2 AC 572.
Parliament then intervened by section 3 of the Compensation Act 2006 further to vary this rule.
The rule in its current form can be stated as follows: when a victim contracts mesothelioma each person who has, in breach of duty, been responsible for exposing the victim to a significant quantity of asbestos dust and thus creating a material increase in risk of the victim contracting the disease will be held to be jointly and severally liable for causing the disease.
These two appeals involve cases where the defendant was the sole known source of occupational exposure to asbestos dust.
In each case the extent of the exposure found was very small.
In each case, the Court of Appeal, applying the special rule, held the defendant liable for causing the disease.
In Willmore v Knowsley Metropolitan Borough Council the Council contends that the trial judge erred in finding that it was responsible for exposing Mrs Willmore to sufficient asbestos dust to cause a material increase in risk.
The appeal involves an attack on findings of fact by the judge, which were upheld by the Court of Appeal, but no issue of principle, albeit that it nicely illustrates the effect of the special rule of causation.
I agree that this appeal must be dismissed for the reasons given by Lord Rodger and I have nothing to add to these.
In Sienkiewicz v Greif (UK) Ltd (Greif) the respondent is the daughter of Mrs Enid Costello and sues as administratrix of her estate.
The appellant, Greif, raises two separate, albeit interrelated, grounds of appeal.
The exposure for which the judge found Greif to have been responsible only increased the total amount of exposure which Mrs Costello would have experienced as a result of environmental exposure to asbestos, that is exposure to asbestos in the atmosphere, by 18%.
Greif submits that in these circumstances the respondent failed to prove on balance of probability that Greif caused Mrs Costellos mesothelioma; to do this she would have had to prove that the exposure for which Greif was responsible had more than doubled the environmental exposure.
This submission raises the following important issue of principle.
Does the special rule of causation that applies in cases of mesothelioma leave any room for applying a test of balance of probability to causation? It also raises a general issue as to the applicability as proof of causation in personal injury cases of a test usually applied to epidemiological evidence that I shall call the doubles the risk test.
Shortly stated this test attributes causative effect to any factor that more than doubled a risk that would otherwise have been present of the injury that occurred.
Greifs alternative submission is that occupational exposure to asbestos dust will only constitute a material increase in risk for the purpose of the special rule of causation if it more than doubles the environmental exposure to such dust to which the victim was subject.
It did not do so in the case of Mrs Costello.
Methods of proving causation
Most claims for death or personal injury result from accidents.
In such cases the cause of death or personal injury will seldom be in issue.
A body of knowledge which I shall call medical science will enable a witness, expert in that science, to describe the precise mechanism by which the accident brought about the death or injury.
I shall describe this as the biological cause of death or injury.
It is sometimes referred to by the more general description of the cause in fact.
In some cases, however, medical science will not yet have identified the precise mechanism by which an injury gives rise to a particular physical consequence.
In such cases it may be possible to deduce that there was a causative link between the two by evidence of what usually happens.
Epidemiological evidence that a particular injury or disease usually follows a particular type of bodily insult may enable a court to conclude in a particular case, on balance of probability, that the former was caused by the latter.
Post hoc ergo propter hoc.
A finding of causation based on such evidence is sometimes described as the cause in law.
Where the court is concerned with a speculative question what would have happened but for a particular intervention it is likely to need to have regard to what normally happens.
A good example of such a situation is the task of estimating the loss of expectation of life of a person whose death has been caused by negligence or breach of duty.
In such a situation the evidence upon which the court will reach its conclusion is likely to be provided, at least in part, by a statistician or an epidemiologist.
Medical science will identify whether the deceased had any physical characteristic relevant to his life expectancy.
Epidemiology will provide statistical evidence of life expectancy of the group or cohort to which the deceased belonged.
With this material the court answers the hypothetical question of the length of the life that the victim would have enjoyed but for the breach of duty of the defendant.
Epidemiology can also provide a court with assistance in deciding what actually happened, when the cause of a disease or injury is not clear.
For one remarkable example of the use, and ultimate rejection, of epidemiological evidence see Loveday v Renton [1990] 1 MLR 1.
Another remarkable case, to which I shall make further reference was XYZ v Schering Health Care Ltd [2002] EWHC 1420 (QB); 70 BMLR 88.
When a scientific expert gives an opinion on causation, he is likely to do so in terms of certainty or uncertainty, rather than probability.
Either medical science will enable him to postulate with confidence the chain of events that occurred, ie the biological cause, or it will not.
In the latter case he is unlikely to be of much assistance to the judge who seeks to ascertain what occurred on a balance of probability.
This reality was expressed by Lord Prosser in Dingley v The Chief Constable, Strathclyde Police 1998 SC 548, 603 with a clarity that merits quotation: In ordinary (non lawyers) language, to say that one regards something as probable is by no means to say that one regards it as established or proved.
Yet in the civil courts, where we say that a pursuer must prove his case on a balance of probabilities, what is held to be probable is treated as proved.
I do not suggest that any lawyer will be confused by this rather special meaning of the word proved.
But speaking very generally, I think that the civil requirement of a pursuer that he satisfy the court that upon the evidence his case is probably sound would in ordinary language be regarded as very different from, and less stringent than, a requirement that his case be established or proved.
More importantly in the context of such a case as the present, the fact that the two concepts are distinct in ordinary language, but the same in this legal context, seems to me to give rise to a risk of ambiguity or misunderstanding in the expressed opinions of expert witnesses.
And this risk will be increased if the expert in question would normally, in the exercise of his profession, adopt an approach to such issues starkly different from that incumbent upon a court.
Whether one uses the word scientific or not, no hypothesis or proposition would be seen as proved or established by anyone with any form of medical expertise merely upon the basis that he had come to regard it as probably sound. (Indeed, I think even the word probable would be reserved for situations where the likelihood is thought to be much more than marginal).
And even if, in relation to any possible proposition or hypothesis, such an expert even troubled to notice that he had come to the point of regarding it as not merely possible but on balance probable, then I think he would regard that point as one from which he must set off on further inquiry, and by no means as being (as it is in the courts) a point of arrival.
Mere marginal probability will not much interest him.
But it must satisfy a court.
The issue in Dingley was whether the development of multiple sclerosis had been caused by physical injury sustained in a motor accident.
Medical science was not able to demonstrate the connection between the two, and reliance was placed on epidemiological evidence.
Lord Prosser, at pp 604 605, had this to say about this method of proof: I am not much impressed by one argument advanced for the defender to the effect that the pursuers argument is essentially post hoc, ergo propter hoc, and therefore unsound.
Plainly, one will more readily conclude that B is caused by A, or probably caused by A, if one can identify, or at least envisage, some kind of mechanism whereby B might be caused by A. Equally, if one simply cannot identify or envisage such a mechanism, the mere fact that on one occasion B happened after A (and perhaps very quickly after A) would not, in the absence of other indications, lead one easily to conclude that B was caused by A. But no one, certainly in this case, suggests that such a single coincidence is to be interpreted as involving a causal relationship.
And once one moves from single coincidence to a number of occasions when B follows (perhaps quickly) upon A, dismissiveness of post hoc, ergo propter hoc reasoning seems to me to become less and less appropriate.
Indeed, unless and until one can identify or envisage a connecting mechanism, countless conclusions as to causal relationship are reached precisely upon a form of post hoc, ergo propter hoc reasoning: if B is observed never to occur except shortly after A, the conclusion may be relatively easy but if B is observed to occur frequently after A, then even if each sometimes occurs without the other, the frequency with which B occurs after A may nonetheless well justify a more or less firm conclusion that A, in certain circumstances, causes B. I do not regard such conclusions as based on false (or indeed simple) logic.
The approach is in my opinion inherent not only in conclusions drawn from ones general experience or anecdotal evidence.
It is inherent also in much experimental research, and also, as it seems to me, in epidemiology.
And while it may always seem somewhat insufficient, until one can find an identifiable possible mechanism, as a basis for claiming that the causal link is proved or established, in either ordinary or scientific terms, that feeling of insufficiency strikes me as much less appropriate if one stops short of such claims and contents oneself with saying that the causal relationship is marginally probable (or is proved or established only as required in civil litigation).
Knowledge about mesothelioma is based in part on medical science and in part on statistical analysis or epidemiology.
These appeals raise the question of whether, and if so to what extent, the court can satisfactorily base conclusions about causation on the latter, both in mesothelioma cases and more generally.
Principles of causation in relation to disease
Many diseases are caused by the invasion of the body by an outside agent.
Some diseases are caused by a single agent.
Thus malaria results from a single mosquito bite.
The extent of the risk of getting malaria will depend upon the quantity of malarial mosquitoes to which the individual is exposed, but this factor will not affect the manner in which the disease is contracted nor the severity of the disease once it is contracted.
The disease has a single, uniform, trigger and is indivisible.
The contraction of other diseases can be dose related.
Ingestion of the agent that causes the disease operates cumulatively so that, after a threshold is passed, it causes the onset of the disease.
Lung cancer caused by smoking is an example of such a disease, where the disease itself is indivisible.
The severity of the disease, once it has been initiated, is not related to the degree of exposure to cigarette smoke.
More commonly, diseases where the contraction is dose related are divisible.
The agent ingested operates cumulatively first to cause the disease and then to progress the disease.
Thus the severity of the disease is related to the quantity of the agent that is ingested.
Asbestosis and silicosis are examples of such diseases, as are the conditions of vibration white finger and industrial deafness, although the insults to the body that cause these conditions are not noxious agents.
For this reason it is important to distinguish between asbestosis and mesothelioma when considering principles of causation.
Mesothelioma is an indivisible disease.
As I shall explain there is uncertainty as to whether its contraction is related to the amount of asbestos fibres ingested.
It is a basic principle of the law of tort that the claimant will only have a cause of action if he can prove, on balance of probabilities, that the defendants tortious conduct caused the damage in respect of which compensation is claimed.
He must show that, but for the defendants tortious conduct he would not have suffered the damage.
This broad test of balance of probabilities means that in some cases a defendant will be held liable for damage which he did not, in fact, cause.
Equally there will be cases where the defendant escapes liability, notwithstanding that he has caused the damage, because the claimant is unable to discharge the burden of proving causation.
There is an important exception to the but for test.
Where disease is caused by the cumulative effect of the inhalation of dust, part of which is attributable to breach of duty on the part of the defendant and part of which involves no breach of duty, the defendant will be liable on the ground that his breach of duty has made a material contribution to the disease Bonnington Castings Ltd v Wardlaw [1956] AC 613.
The disease in that case was pneumoconiosis.
That disease is divisible.
The severity of the disease depends upon the quantity of silica inhaled.
The defendant did not, however, argue that, if held liable, this should only be to the extent that the dust for which it was responsible had contributed to the plaintiffs symptoms.
It was held liable for 100% of the disease.
There have, however, been a series of cases at first instance and in the Court of Appeal in which it has been recognised that where there has been a number of exposures of a claimant to bodily insults that have cumulatively caused a divisible disease, responsibility should be apportioned so that an individual defendant is liable for no more than his share of the disease.
This apportionment may necessarily be a rough and ready exercise: see Mustill Js analysis in Thompson v Smiths Shiprepairers (North Shields) Ltd [1984] QB 405 at pp 437 444 and the cases cited in McGregor on Damages, 18th ed (2010) at 8 010 to 8 016
What is known about mesothelioma
The special rule of causation applied to mesothelioma was devised because of ignorance about the biological cause of the disease.
It was accepted in Fairchild and Barker that this rendered it impossible for a claimant to prove causation according to the conventional but for test and this caused injustice to claimants.
It is not possible properly to consider the issues raised by this appeal without reference to what is known about mesothelioma.
This has been summarised in many cases, and much of my own summary in Bryce v Swan Hunter Group plc [1988] 1 All ER 659 of what was known 25 years ago remains true today.
The cases under appeal did not involve the introduction of detailed evidence of what is known today about mesothelioma, proceeding on the basis that findings in previous cases could be taken as read.
There was, however, introduced in evidence a case control study by Peto and Rake, published in 2009 by the Health and Safety Executive, on Occupational, Domestic and Environmental Mesothelioma risks in Britain (the Peto Report), which is said to be the first representative study to quantify the relationship between mesothelioma risk and lifetime occupational and residential history in this country.
In these circumstances I have turned to recent judicial authority in order to augment the information contained in Peto and Rakes study.
It has not been necessary to look further than the collation of data about mesothelioma set out by Rix LJ in his judgment in the series of appeals collectively described as Employers Liability Insurance Trigger Litigation [2010] EWCA Civ 1096.
I shall set out in an annex to this judgment details of the current knowledge about mesothelioma that I have obtained from these sources.
I can summarise the effect of the material in the Annex as follows: i) Mesothelioma is always, or almost always, caused by the inhalation of asbestos fibres. ii) A significant proportion of those who contract mesothelioma have no record of occupational exposure to asbestos.
The likelihood is that in their case the disease results from inhalation of asbestos dust that is in the environment.
There is, however, a possibility that some cases of mesothelioma are idiopathic, ie attributable to an unknown cause other than asbestos.
Mr Stuart Smith QC for Greif submitted that the Peto Report indicates that this is more than a possibility, but I do not so read it.
I do not, however, think that it matters whether some cases of the disease are idiopathic. iii) The more fibres that are inhaled, the greater the risk of contracting mesothelioma. iv) There is usually a very long period between the exposure to asbestos and the development of the first malignant cell.
Typically this can be at least 30 years. v) There will be a lengthy period between the development of the first malignant cell and the point at which the disease can be diagnosed.
At the time of Fairchild this was thought to be 10 years, but is now thought to be at least 5 years.
During this period, further exposure to asbestos fibres will have no causative effect. vi) The mechanism by which asbestos fibres cause mesothelioma is still not fully understood.
It is believed that a cell has to go through 6 or 7 genetic mutations before it becomes malignant, and asbestos fibres may have causative effect on each of these.
It is also possible that asbestos fibres have a causative effect by inhibiting the activity of natural killer cells that would otherwise destroy a mutating cell before it reaches the stage of becoming malignant. vii)
These propositions are based in part on medical science and in part on epidemiological studies.
They represent the current understanding of a disease about which much remains to be discovered.
The development of the special rule of causation that applies to mesothelioma
The starting point in tracing the development of the special rule of causation is the decision of the House of Lords in McGhee v National Coal Board [1973] 1 WLR 1, an appeal from the First Division of the Court of Session.
The pursuer claimed against his employers for dermatitis which he alleged had been caused by breaches of their common law duties.
He was employed in a brick kiln, where he got covered in brick dust.
This, so it was held, involved no breach of duty on the part of the defenders.
They were, however, held in breach of duty for failure to provide a shower which would have enabled him to wash off the dust as soon as he finished work.
He had to cycle home covered in dust and sweat.
Two medical experts were called.
The effect of their evidence was that the brick dust caused the dermatitis but that the precise mechanism whereby it did so was not known.
It was agreed, however, that the risk of contracting the disease would have been reduced had the pursuer been able to wash off the dust before he cycled home.
The cycle ride home in his unwashed state increased his risk of getting dermatitis.
Lord Reid at p 4 summarised this evidence as follows: The medical evidence is to the effect that the fact that the man had to cycle home caked with grime and sweat added materially to the risk that this disease might develop.
It does not and could not explain just why that is so.
But experience shows that it is so.
The nature of the evidence of that experience is not apparent.
It does not appear to have been based on epidemiological research.
Neither witness was able to quantify the extent to which failure to wash increased the risk, and one said that it was not possible to do so.
If epidemiological data had existed it might have been possible to make a quantitative assessment based upon it of the extent to which delay in washing off brick dust increased the risk of dermatitis.
On the very limited evidence available it was possible that the dermatitis had already been triggered by the time that the pursuer stopped work.
It is equally possible that the additional exposure while he cycled home caked in dust had a critical incremental effect in triggering the disease.
The defenders failure to provide showers increased the hazard posed to their workforce by brick dust and it was impossible on the evidence to determine whether this increase in hazard was or was not the critical factor in causing the pursuers dermatitis.
Thus the facts of McGhee were not on all fours with those of Bonnington.
In Bonnington it was possible to say that the inhalation of the silica attributable to breach of duty had contributed to causing the plaintiffs pneumoconiosis.
In McGhee it was not possible to say whether or not the lack of a shower had in fact contributed to the contraction of the dermatitis.
I have not found it possible to identify in McGhee reasoning that is common to all members of the House.
The analysis of the decision that is now generally accepted is that the majority of their Lordships adapted the approach in Bonnington to the facts of McGhee by equating contribution to the risk of contracting dermatitis with contribution to the disease itself.
They did so in circumstances where it was impossible to say whether, on balance of probability, the absence of shower facilities had been critical.
What four of their Lordships did not consider was what the position would have been if there had been epidemiological evidence that gave a negative answer to that question.
Lord Salmon did, however, expressly confront this question at p 12.
After observing that the expert evidence did not enable one to place a percentage figure on the extent to which the lack of shower facilities had increased the risk of contracting dermatitis, he added: It is known that some factors materially increase the risk and others materially decrease it.
Some no doubt are peripheral.
Suppose, however, it were otherwise and it could be proved that men engaged in a particular industrial process would be exposed to a 52 per cent risk of contracting dermatitis even when proper washing facilities were provided.
Suppose it could also be proved that that risk would be increased to, say, 90 per cent when such facilities were not provided.
It would follow that if the decision appealed from is right, an employer who negligently failed to provide the proper facilities would escape from any liability to an employee who contracted dermatitis notwithstanding that the employers had increased the risk from 52 per cent to 90 per cent.
The negligence would not be a cause of the dermatitis because even with proper washing facilities, ie without the negligence, it would still have been more likely than not that the employee would have contracted the disease the risk of injury then being 52 per cent.
If, however, you substitute 48 per cent for 52 per cent the employer could not escape liability, not even if he had increased the risk to, say, only 60 per cent.
Clearly such results would not make sense; nor would they, in my view, accord with the common law.
In the example given by Lord Salmon the lack of shower facilities did not quite double the risk of contracting dermatitis.
Thus, if one applies the doubles the risk test, the lack of shower facilities could not be shown to be the cause of any individual workmans dermatitis.
I can understand why Lord Salmon considered that to base a finding of causation on such evidence would be capricious, but not why he considered that to do so would be contrary to common law.
The balance of probabilities test is one that is inherently capable of producing capricious results.
Nor do I understand his cryptic comment: I think that the approach by the courts below confuses the balance of probability test with the nature of causation.
The doubles the risk test is one that, as I shall show in due course, has been adopted in subsequent cases as a valid method of deciding causation on balance of probabilities, and one which Mr Stuart Smith has sought to apply on these appeals.
In Hotson v East Berkshire Area Health Authority [1987] AC 750 causation again caused a problem.
The plaintiff, aged 13, had fallen out of a tree and sustained injury which reduced the flow of blood to cartilage in his hip joint.
In breach of duty the defendants failed to diagnose this for five days.
He suffered permanent disability of the hip joint.
The issue was whether the injury itself was so severe that the subsequent disability of the hip joint was inevitable or whether, but for the five day delay, it would have been possible to prevent that disability.
The medical evidence was that there was a 75% likelihood that the former was the case, but a 25% possibility that the delay in treatment was critical.
At first instance [1985] 1 WLR 1036 Simon Brown J held that the defendants breach of duty had robbed the plaintiff of a 25% chance of avoiding the disability.
The House of Lords held that this analysis was erroneous.
The plaintiff was not robbed of a chance of avoiding the disability.
The die was cast as soon as he had sustained his injury.
Either the disability was inevitable or it could, with due skill and care, have been avoided.
On balance of probability, estimated at 75/25, the former was the position, so the plaintiff had failed to prove causation.
The particular interest of Hotson in the present context is the consideration given by Lord Mackay of Clashfern to McGhee, a case in which he had appeared as leading counsel for the employers.
Like Lord Salmon, he took an epidemiological example.
He said, at p 786: In McGhee v National Coal Board [1973] 1 WLR 1 this House held that where it was proved that the failure to provide washing facilities for the pursuer at the end of his shift had materially increased the risk that he would contract dermatitis it was proper to hold that the failure to provide such facilities was a cause to a material extent of his contracting dermatitis and thus entitled him to damages from his employers for their negligent failure measured by his loss resulting from dermatitis.
Material increase of the risk of contraction of dermatitis is equivalent to material decrease in the chance of escaping dermatitis.
Although no precise figures could be given in that case for the purpose of illustration and comparison with this case one might, for example, say that it was established that of 100 people working under the same conditions as the pursuer and without facilities for washing at the end of their shift 70 contracted dermatitis: of 100 people working in the same conditions as the pursuer when washing facilities were provided for them at the end of the shift 30 contracted dermatitis.
Assuming nothing more were known about the matter than that, the decision of this House may be taken as holding that in the circumstances of that case it was reasonable to infer that there was a relationship between contraction of dermatitis in these conditions and the absence of washing facilities and therefore it was reasonable to hold that absence of washing facilities was likely to have made a material contribution to the causation of the dermatitis.
In contrast to Lord Salmons figures, Lord Mackays figures demonstrate that, statistically, the lack of washing facilities more than doubled the risk of contracting dermatitis.
Had evidence supporting such figures been given, it would have enabled the House, by application of the doubles the risk test, to conclude that the lack of shower facilities had, on balance of probabilities, caused Mr McGhee to contract dermatitis.
I do not at this stage comment on whether or not it would have been appropriate for the House to apply that test.
Lord Mackay went on to comment: Although neither party in the present appeal placed particular reliance on the decision in McGhee since it was recognised that McGhee is far removed on its facts from the circumstances of the present appeal your Lordships were also informed that cases are likely soon to come before the House in which the decision in McGhee will be subjected to close analysis.
Obviously in approaching the matter on the basis adopted in McGhee much will depend on what is know of the reasons for the differences in the figures which I have used to illustrate the position.
In these circumstances I think it unwise to do more than say that unless and until this House departs from the decision in McGhee your Lordships cannot affirm the proposition that in no circumstances can evidence of loss of a chance resulting from the breach of a duty of care found a successful claim of damages, although there was no suggestion that the House regarded such a chance as an asset in any sense.
Once again I find this comment cryptic.
Lord Mackay seems to be treating epidemiological evidence as evidence of loss of a chance, but it is not clear whether he is suggesting that such evidence might lead to a partial recovery rather than a full recovery in a case such as McGhee.
The next step in the story is Wilsher v Essex Area Health Authority [1988] AC 1074.
A baby boy, born three months prematurely, developed a condition of the retina which rendered him blind.
There were five possible causes of the condition.
One was the negligent administration of an excessive quantity of oxygen.
The other four involved no fault on the part of the defendants medical staff.
The expert witnesses were unable to say which caused the disease.
The Court of Appeal, purporting to apply the principle in McGhee, held in favour of the infant.
Mustill LJ expressed the principle, as he understood it, as follows [1987] QB 730, 771 772: If it is an established fact that conduct of a particular kind creates a risk that injury will be caused to another or increases an existing risk that injury will ensue; and if the two parties stand in such a relationship that the one party owes a duty not to conduct himself in that way; and if the first party does conduct himself in that way; and if the other party does suffer injury of the kind to which the risk related; then the first party is taken to have caused the injury by his breach of duty, even though the existence and extent of the contribution made by the breach cannot be ascertained.
This analysis of McGhee was principled and coherent, but it was of wide general application and fundamentally rewrote the law of causation.
It opened the floodgates and, I suspect, this may, in part, be the reason why it was subsequently rejected.
Appeal at p 779, did not accept Mustill LJs analysis: In Wilsher, Sir Nicolas Browne Wilkinson V C, dissenting in the Court of To apply the principle in McGhee v National Coal Board [1973] 1 WLR 1 to the present case would constitute an extension of that principle.
In the McGhee case there was no doubt that the pursuers dermatitis was physically caused by brick dust: the only question was whether the continued presence of such brick dust on the pursuers skin after the time when he should have been provided with a shower caused or materially contributed to the dermatitis which he contracted.
There was only one possible agent which could have caused the dermatitis, viz, brick dust, and there was no doubt that the dermatitis from which he suffered was caused by that brick dust.
In the present case the question is different.
There are a number of different agents which could have caused the RLF.
Excess oxygen was one of them.
The defendants failed to take reasonable precautions to prevent one of the possible causative agents (eg excess oxygen) from causing RLF.
But no one can tell in this case whether excess oxygen did or did not cause or contribute to the RLF suffered by the plaintiff.
The plaintiffs RLF may have been caused by some completely different agent or agents, eg hypercarbia, intraventricular haemorrhage, apnoea or patent ductus arteriosus.
In addition to oxygen, each of those conditions has been implicated as a possible cause of RLF.
This baby suffered from each of those conditions at various times in the first two months of his life.
There is no satisfactory evidence that excess oxygen is more likely than any of those other four candidates to have caused RLF in this baby.
To my mind, the occurrence of RLF following a failure to take a necessary precaution to prevent excess oxygen causing RLF provides no evidence and raises no presumption that it was excess oxygen rather than one or more of the four other possible agents which caused or contributed to RLF in this case.
The position, to my mind, is wholly different from that in the McGhee case [1973] 1 WLR 1, where there was only one candidate (brick dust) which could have caused the dermatitis, and the failure to take a precaution against brick dust causing dermatitis was followed by dermatitis caused by brick dust.
In such a case, I can see the common sense, if not the logic, of holding that, in the absence of any other evidence, the failure to take the precaution caused or contributed to the dermatitis.
To the extent that certain members of the House of Lords decided the question on inferences from evidence or presumptions, I do not consider that the present case falls within their reasoning.
A failure to take preventative measures against one out of five possible causes is no evidence as to which of those five caused the injury.
In the House of Lords, Lord Bridge of Harwich, reversing, with the agreement of the other members of the House, the decision of the Court of Appeal, approved the Vice Chancellors analysis.
He went on to hold at p 1090 that McGhee laid down no new principle of law whatever.
On the contrary, it affirmed the principle that the onus of proving causation lies on the pursuer or plaintiff.
Adopting a robust and pragmatic approach to the undisputed primary facts of the case, the majority concluded that it was a legitimate inference of fact that the defenders negligence had materially contributed to the pursuers injury.
The decision, in my opinion, is of no greater significance than that and to attempt to extract from it some esoteric principle which in some way modifies, as a matter of law, the nature of the burden of proof of causation which a plaintiff or pursuer must discharge once he has established a relevant breach of duty is a fruitless one.
This analysis of McGhee has fared no better than that of Mustill LJ, cited at para 31.
Bryce v Swan Hunter Group plc [1988] 1 All ER 659 was heard after the decision of the Court of Appeal and before the decision of the House of Lords in Wilsher.
It was a claim in respect of mesothelioma against three defendants who, as successive employers, had tortiously exposed the plaintiff to asbestos dust.
He had had other exposure to this less than 10 years before the onset of the disease and those responsible for this had not been joined as defendants.
McGhee, as explained by Mustill LJ in Wilsher, was applied, resulting in a finding that each of the defendants was liable.
I understand that after this decision insurers of employers who had consecutively subjected workmen to asbestos dust tended to accept joint and several liability for mesothelioma and to agree apportionment.
At all events, this Court was not referred to any decision where such an approach was challenged until Fairchild.
Fairchild involved three separate mesothelioma claims, which had been heard together by the Court of Appeal [2002] 1 WLR 1052.
In each case the victim had been employed by a series of employers, each of which had wrongly exposed him to asbestos dust.
No attempt had been made to prove, by epidemiology or otherwise, that on balance of probabilities, any particular employer had caused the victim to contract the disease.
The Court of Appeal ruled against each claim on the ground that it had not been shown on balance of probability that any defendant had caused the disease.
Reliance on McGhee was rejected on the ground that Lord Bridge in Wilsher had held that it established no new principle of causation and that, in McGhee, there had been no doubt that the defendant had caused the dermatitis the only question was whether the defendant had done so in breach of duty.
If McGhee was applied in the Fairchild situation there was a risk that a defendant would be held liable for a disease that it had not caused at all.
The House of Lords reversed the Court of Appeal, holding that the principle in McGhee was applicable.
Lord Bingham at paras 21 and 22 held that Lord Bridge had been wrong in Wilsher to hold that McGhee represented no more than a robust finding of fact that the defenders negligence had materially contributed to the pursuers injury.
The opinions of at least the majority in McGhee could not be read as decisions of fact or orthodox applications of settled law.
The House had adapted (rather than adopted) the orthodox test to meet the problem of proving causation that had arisen on the facts of that case.
Lord Nicholls of Birkenhead put the matter this way at para 44: Given the medical evidence in McGhee, it was not open to the House, however robustly inclined, to draw an inference that the employers negligence had in fact caused or materially contributed to the onset of the dermatitis in the sense that, but for that negligence, the dermatitis would not have occurred.
Instead, a less stringent causal connection was regarded as sufficient.
It was enough that the employer had materially increased the risk of harm to the employee.
There is room for debate, and there has been debate, as to the precise basis upon which the House in Fairchild applied the McGhee principle to the mesothelioma claims under consideration.
I do not propose to enter that debate, for it was overtaken by the decision of the House in Barker.
At this point it suffices to note the following.
The House was agreed that the application of the McGhee principle was circumscribed by a number of conditions, though not agreed as to what these were.
Lord Bingham at para 2 identified 6 relevant factors that applied to the cases under consideration, before going on to hold that they brought into play the McGhee principle: (1) C was employed at different times and for differing periods by both A and B, and (2) A and B were both subject to a duty to take reasonable care or to take all practicable measures to prevent C inhaling asbestos dust because of the known risk that asbestos dust (if inhaled) might cause a mesothelioma, and (3) both A and B were in breach of that duty in relation to C during the periods of C's employment by each of them with the result that during both periods C inhaled excessive quantities of asbestos dust, and (4) C is found to be suffering from a mesothelioma, and (5) any cause of C's mesothelioma other than the inhalation of asbestos dust at work can be effectively discounted, but (6) C cannot (because of the current limits of human science) prove, on the balance of probabilities, that his mesothelioma was the result of his inhaling asbestos dust during his employment by A or during his employment by B or during his employment by A and B taken together.
At para 7 Lord Bingham explained the shortcomings of medical science: It is not known what level of exposure to asbestos dust and fibre can be tolerated without significant risk of developing a mesothelioma, but it is known that those living in urban environments (although without occupational exposure) inhale large numbers of asbestos fibres without developing a mesothelioma.
It is accepted that the risk of developing a mesothelioma increases in proportion to the quantity of asbestos dust and fibres inhaled: the greater the quantity of dust and fibre inhaled, the greater the risk.
But the condition may be caused by a single fibre, or a few fibres, or many fibres: medical opinion holds none of these possibilities to be more probable than any other, and the condition once caused is not aggravated by further exposure.
So if C is employed successively by A and B and is exposed to asbestos dust and fibres during each employment and develops a mesothelioma, the very strong probability is that this will have been caused by inhalation of asbestos dust containing fibres.
But C could have inhaled a single fibre giving rise to his condition during employment by A, in which case his exposure by B will have had no effect on his condition; or he could have inhaled a single fibre giving rise to his condition during his employment by B, in which case his exposure by A will have had no effect on his condition; or he could have inhaled fibres during his employment by A and B which together gave rise to his condition; but medical science cannot support the suggestion that any of these possibilities is to be regarded as more probable than any other.
There is no way of identifying, even on a balance of probabilities, the source of the fibre or fibres which initiated the genetic process which culminated in the malignant tumour.
Lord Bingham identified at para 23 the problem raised by the facts of Fairchild as follows: The problem of attributing legal responsibility where a victim has suffered a legal wrong but cannot show which of several possible candidates (all in breach of duty) is the culprit who has caused him harm is one that has vexed jurists in many parts of the world for many years.
He justified his decision by the following policy considerations set out at para 33: It can properly be said to be unjust to impose liability on a party who has not been shown, even on a balance of probabilities, to have caused the damage complained of.
On the other hand, there is a strong policy argument in favour of compensating those who have suffered grave harm, at the expense of their employers who owed them a duty to protect them against that very harm and failed to do so, when the harm can only have been caused by breach of that duty and when science does not permit the victim accurately to attribute, as between several employers, the precise responsibility for the harm he has suffered.
I am of opinion that such injustice as may be involved in imposing liability on a duty breaking employer in these circumstances is heavily outweighed by the injustice of denying redress to a victim.
Lord Bingham did not expressly consider the approach to be adopted where a claimant had been exposed to asbestos dust both from employers in breach of duty and from sources that did not involve fault, or which involved fault on the part of the claimant himself.
At para 34 he expressly limited the special rule of causation that he was endorsing to a situation where all six of the factors that he had identified at the start of his speech were present.
At para 22 he underlined why the special rule did not apply on the facts of Wilsher: It is plain, in my respectful opinion, that the House was right to allow the defendants' appeal in Wilsher, for the reasons which the Vice Chancellor had given and which the House approved.
It is one thing to treat an increase of risk as equivalent to the making of a material contribution where a single noxious agent is involved, but quite another where any one of a number of noxious agents may equally probably have caused the damage.
The other members of the House did not circumscribe the special rule of causation as tightly as Lord Bingham.
In McGhee itself the causal competition had been between exposure to dust that involved no fault and exposure that involved fault on the part of the employers, a point made by Lord Rodger at para 153.
He also held that Mustill LJ had illegitimately extended the special causation test in Wilsher.
He held, at para 149: Mustill LJs extension of the approach in McGhee to a situation where there were all kinds of other possible causes of the plaintiff's condition, resulted in obvious injustice to the defendants.
In particular, there was nothing to show that the risk which the defendants' staff had created that the plaintiff would develop retrolental fibroplasia because of an unduly high level of oxygen had eventuated.
That being so, there was no proper basis for applying the principle in McGhee.
As [Sir Nicolas Browne Wilkinson V C] decisively observed, a failure to take preventive measures against one of five possible causes was no evidence as to which of those five had caused the injury.
The reasoning of the Vice Chancellor, which the House adopted, provided a sound and satisfactory basis for distinguishing McGhee and for allowing the appeal.
Lord Rodger set out his conclusions at para 170: First, the principle is designed to resolve the difficulty that arises where it is inherently impossible for the claimant to prove exactly how his injury was caused.
It applies, therefore, where the claimant has proved all that he possibly can, but the causal link could only ever be established by scientific investigation and the current state of the relevant science leaves it uncertain exactly how the injury was caused and, so, who caused it.
McGhee and the present cases are examples.
Secondly, part of the underlying rationale of the principle is that the defendant's wrongdoing has materially increased the risk that the claimant will suffer injury.
It is therefore essential not just that the defendant's conduct created a material risk of injury to a class of persons but that it actually created a material risk of injury to the claimant himself.
Thirdly, it follows that the defendant's conduct must have been capable of causing the claimant's injury.
Fourthly, the claimant must prove that his injury was caused by the eventuation of the kind of risk created by the defendant's wrongdoing.
In McGhee, for instance, the risk created by the defenders' failure was that the pursuer would develop dermatitis due to brick dust on his skin and he proved that he had developed dermatitis due to brick dust on his skin.
By contrast, the principle does not apply where the claimant has merely proved that his injury could have been caused by a number of different events, only one of which is the eventuation of the risk created by the defendants wrongful act or omission.
Wilsher is an example.
Fifthly, this will usually mean that the claimant must prove that his injury was caused, if not by exactly the same agency as was involved in the defendant's wrongdoing, at least by an agency that operated in substantially the same way.
A possible example would be where a workman suffered injury from exposure to dusts coming from two sources, the dusts being particles of different substances each of which, however, could have caused his injury in the same way.
Without having heard detailed argument on the point, I incline to the view that the principle was properly applied by the Court of Appeal in Fitzgerald v Lane [1987] QB 781.
Sixthly, the principle applies where the other possible source of the claimant's injury is a similar wrongful act or omission of another person, but it can also apply where, as in McGhee, the other possible source of the injury is a similar, but lawful, act or omission of the same defendant.
I reserve my opinion as to whether the principle applies where the other possible source of injury is a similar but lawful act or omission of someone else or a natural occurrence.
The conundrum
Neither Lord Bingham nor Lord Rodger explained the nature of the principle that justifies restricting the application of McGhee to the situation where the competing causes of the injury suffered by the claimant involve the same or a similar noxious substance or agency.
There is, however, a more significant conundrum raised by Fairchild which is particularly relevant to this appeal.
Lord Bingham observed (see para 40 above) that it is accepted that the risk of developing mesothelioma increases in proportion to the quantity of asbestos dust and fibres inhaled.
If this is so why should one not determine the probability that a particular defendant caused a claimants mesothelioma by analysing the extent to which he wrongfully contributed to the exposure of the claimant to asbestos dust and fibres? This conundrum is highlighted by the decision of the House in Barker.
Barker
The question that Lord Rodger had expressly left open at the end of his speech in Fairchild was raised directly in Barker, one of three appeals that were heard together.
The claimant was the widow of a man who had died of mesothelioma.
He had been exposed to asbestos dust on three occasions in his working life.
Once when working for a company which had since become insolvent, once when working for the defendant and once when working for himself.
On the last occasion he had failed to take reasonable precautions for his own safety.
In the courts below the defendant had been held jointly and severally liable with the insolvent company, but the claimants damages had been reduced by 20% to reflect her husbands contributory negligence.
The other two appeals involved employees who had been exposed to asbestos dust by a series of employers, many of whom had since been held insolvent.
In the courts below the solvent employers who had been sued were held jointly and severally liable.
In each appeal the defendants argued that the special rule of causation that the House had applied in Fairchild should be further refined so as to render each employer liable only for that proportion of the damages which represented his contribution to the risk that the employee would contract mesothelioma.
This submission was accepted by all members of the Committee with the exception of Lord Rodger, who dissented.
Lord Hoffmann gave the leading speech for the majority.
He dealt first with the question of whether the Fairchild principle could apply in a case where part of the exposure was non tortious.
At para 17 he gave a positive answer to that question: The purpose of the Fairchild exception is to provide a cause of action against a defendant who has materially increased the risk that the claimant will suffer damage and may have caused that damage, but cannot be proved to have done so because it is impossible to show, on a balance of probability, that some other exposure to the same risk may not have caused it instead.
For this purpose, it should be irrelevant whether the other exposure was tortious or non tortious, by natural causes or human agency or by the claimant himself.
These distinctions may be relevant to whether and to whom responsibility can also be attributed, but from the point of view of satisfying the requirement of a sufficient causal link between the defendant's conduct and the claimant's injury, they should not matter.
Lord Hoffmann then turned to deal with apportionment.
He did so on the premise that mesothelioma is an indivisible injury caused by a single exposure to asbestos dust.
The greater the overall exposure, the greater the risk of an individual fatal exposure: see paras 2 and 26.
If, under the Fairchild principle exposure had been treated as if it had actually contributed to the disease, the conventional approach would have resulted in all those responsible for exposure being held jointly and severally liable for the injury caused.
Lord Hoffmann did not consider it fair to impose such liability on employers in cases in which there is merely a relatively small chance that they caused the injury (paras 43 and 46).
He avoided this consequence by interpreting the Fairchild principle as one that rendered a defendant liable for contributing to risk, not contributing to injury.
The risk created was itself the damage, albeit that the principle only applied where injury had been caused.
As risk or chance was infinitely divisible, each defendant could be held liable for his contribution to the risk.
At the end of his consideration of the issue of causation, Lord Hoffmann made the following finding as to the limit of the Fairchild principle or exception: 24.
In my opinion it is an essential condition for the operation of the exception that the impossibility of proving that the defendant caused the damage arises out of the existence of another potential causative agent which operated in the same way.
It may have been different in some causally irrelevant respect, as in Lord Rodger's example of the different kinds of dust, but the mechanism by which it caused the damage, whatever it was, must have been the same.
So, for example, I do not think that the exception applies when the claimant suffers lung cancer which may have been caused by exposure to asbestos or some other carcinogenic matter but may also have been caused by smoking and it cannot be proved which is more likely to have been the causative agent.
In considering how apportionment would work in practice, Lord Hoffmann
said this: 36.
Treating the creation of the risk as the damage caused by the defendant would involve having to quantify the likelihood that the damage (which is known to have materialised) was caused by that particular defendant.
It will then be possible to determine the share of the damage which should be attributable to him.
The quantification of chances is by no means unusual in the courts.
For example, in quantifying the damage caused by an indivisible injury, such as a fractured limb, it may be necessary to quantify the chances of future complications.
Sometimes the law treats the loss of a chance of a favourable outcome as compensatable damage in itself.
The likelihood that the favourable outcome would have happened must then be quantified: see, for example, Chaplin v Hicks [1911] 2 KB 786 and Kitchen v Royal Air Force Association [1958] 1 WLR 563. 37.These are of course cases in which there is uncertainty as to what will be, or would have been, the outcome of a known event; for example, the consequences of a fractured ankle, a beauty contest or a lawsuit.
The present case involves uncertainty as to the cause of a known outcome, namely, the mesothelioma.
But in principle I can see no reason why the courts cannot quantify the chances of X having been the cause of Y just as well as the chance of Y being the outcome of X.
He returned to this theme under the heading of quantification at para 48: But when the damage is apportioned among the persons responsible for the exposures to asbestos which created the risk, it is known that those exposures were together sufficient to cause the disease.
The damages which would have been awarded against a defendant who had actually caused the disease must be apportioned to the defendants according to their contributions to the risk.
It may be that the most practical method of apportionment will be according to the time of exposure for which each defendant is responsible, but allowance may have to be made for the intensity of exposure and the type of asbestos.
These questions are not before the House and it is to be hoped that the parties, their insurers and advisers will devise practical and economical criteria for dealing with them.
These passages raise the conundrum to which I have referred in para 45 above in an acute form.
If it is possible, on the basis of responsibility for exposure, to deduce the relative likelihood of a defendant being the employer who actually caused the injury, why should one not resolve liability according to the normal test of balance of probability.
If one can determine that there was a relatively small chance that a particular employer caused the injury, why should that employer not be absolved from liability on the ground that he can prove, on balance of probability, that he was not responsible?
Lord Scott agreed with the reasoning and the result reached by Lord Hoffmann.
He recognised, however, that the limitations on medical knowledge rendered it impossible to say whether mesothelioma was caused by a single exposure, and thus a single employer, or by a combination of more than one exposures and thus, possibly, by more than one employer: para 51.
His speech also implicitly raised the conundrum.
When dealing with apportionment he said this, at para 62: Ascertainment of the degree of risk would be an issue of fact to be determined by the trial judge.
The issue would depend upon the duration of the exposure for which each negligent defendant was responsible compared with the total duration of the claimant's exposure to the injurious agent in question.
It might depend also on the intensity of the exposure for which the defendant was responsible compared with the intensity of the exposure for which the defendant was not responsible.
The exact type of agent might be a relevant factor in assessing the degree of risk.
I have in mind that there are different types of asbestos and some might create a greater risk than others.
Other factors relevant to the degree of risk might come into the picture as well.
The assessment of the percentage risk for which an individual defendant was responsible, and therefore the percentage of the total damage for which that defendant could be held liable, would, as I have said, be an issue of fact to be decided on the evidence in each case.
Why could one not assess the probability of having caused the injury on the same basis as that used to apportion contribution to the risk of causing the injury?
The same question is raised by the speech of Lord Walker, who also agreed with the reasoning and result reached by Lord Hoffmann.
He observed, at para 109: A rule of law by which exposure to risk of injury is equated with legal responsibility for that injury entails the possibility that an employer may be held liable for an injury which was not in fact caused by that exposure (though in the present state of medical science, that fact can be neither proved nor disproved).
This possible unfairness cannot be eliminated, as the House recognised in Fairchild, but it is considerably reduced if each employer's liability is limited in proportion to the fraction of the total exposure (measured by duration and intensity) for which each is responsible.
The underlying premise of all three speeches, as of the speeches in Fairchild, is that it is not possible to determine causation unless medical science enables one to do so with certainty.
But the law of causation does not deal in certainties; it deals in probabilities.
Lady Hale agreed in general with the majority, but she did not accept that the gist of the actions was the risk created rather than the mesothelioma.
To that extent she shared the reasoning that had led Lord Rodger to dissent.
The result of the decision in Barker was that, where not all those who were responsible for an employees mesothelioma were before the court, only a proportion of the relevant damages would be recoverable.
This was highly significant having regard to the very long latency period of the disease, for in most cases there was a high likelihood that there would be employers who had contributed to exposure and who had gone into liquidation.
Apportionment also dealt with the problem of contributory negligence.
The rejoicing with which the insurance industry must have greeted this result was short lived as Parliament intervened.
The Compensation Act 2006
The preamble to the 2006 Act includes among its objects to make provision about damages for mesothelioma.
The relevant parts of the provision made are as follows: 3.
Mesothelioma: damages (1)This section applies where (a) a person (the responsible person) has negligently or in breach of statutory duty caused or permitted another person (the victim) to be exposed to asbestos, (b) the victim has contracted mesothelioma as a result of exposure to asbestos, (c) because of the nature of mesothelioma and the state of medical science, it is not possible to determine with certainty whether it was the exposure mentioned in paragraph (a) or another exposure which caused the victim to become ill, and (d) the responsible person is liable in tort, by virtue of the exposure mentioned in paragraph (a), in connection with damage caused to the victim by the disease (whether by reason of having materially increased a risk or for any other reason). (2) The responsible person shall be liable (a) in respect of the whole of the damage caused to the victim by the disease (irrespective of whether the victim was also exposed to asbestos (i) other than by the responsible person, whether or not in circumstances in which another person has liability in tort, or (ii) by the responsible person in circumstances in which he has no liability in tort), and (b) jointly and severally with any other responsible person.
This provision has grafted onto the Fairchild/Barker principle a special rule in relation to liability in damages that applies only to mesothelioma.
The 2006 Act, coupled with Fairchild, has draconian consequences for an employer who has been responsible for only a small proportion of the overall exposure of a claimant to asbestos dust, or his insurers, but it would be wrong to have regard to that fact when considering the issues raised by these appeals.
Parliament has willed it so.
The facts in Greif as found by the judge
Mrs Costello died of mesothelioma in January 2006 at the age of 74.
She had worked for Greif or their predecessors at their factory at Ellesmere Port, Cheshire, between 1966 and 1984.
Greif exposed those working at that factory to asbestos dust in breach of duty.
The greatest exposure was on the factory floor, but to a much lesser extent asbestos dust permeated to other parts of the factory.
Mrs Costellos exposure was in those other parts as she moved around the factory.
This occupational exposure was very light.
The judge, His Honour Judge Main QC, heard expert evidence which quantified this exposure and compared it to the environmental exposure that would be experienced by everyone.
While he held that he could only use the broadest sorts of estimates as to Mrs Costellos asbestos exposure he none the less based some very specific findings on this expert evidence.
He held that her exposure to asbestos over her working life at Greifs factory increased the risk to which environmental exposure subjected her from 24 cases per million to 28.39 cases per million an increase of risk of 18%.
It was on the basis of this finding that the judge held that the claimants case on causation had not been made out.
His starting point was that the special rule in Fairchild had no application where there was only one tortfeasor and where the competition as to causation was between an innocent and a tortious source of dust.
In that situation he adopted an approach to causation which had been adopted, by agreement between the parties, in an earlier case on similar facts in the Cardiff County Court decided by HH Judge Hickinbottom: Jones v Metal Box Ltd (unreported) 11 January 2007: 53. (ii) It was common ground that, in order to succeed with the claim, the claimant must show that as a result of her exposure to asbestos dust at work as I have described, Mrs Jones risk of mesothelioma at least doubled from that which it would have been without that exposure.
That in my judgment is a correct analysis of the position with regard to medical causation: because unless the claimant can show that the risk was doubled, then it is more likely than not that the mesothelioma had an idiopathic rather than an occupational cause Thus Judge Hickinbottom applied the doubles the risk test.
Applying that test Judge Main held: On the facts of this case, the claimant could only succeed if she were able to prove that all Mrs Costellos exposure to asbestos was within the Oil Sites premises, cumulatively, over her 18 years employment exceeded her environmental risks.
Here environmental risks are the same as those idiopathic risks referred to by Judge Hickinbottom.
This in my judgment regrettably, she failed to do.
Whilst Mrs Costellos risk of contracting mesothelioma increased by 18% the bottom line is that it was caused by her environmental exposure to asbestos.
Her claim against the defendants accordingly must be dismissed.
In the Court of Appeal Smith LJ gave the leading judgment.
In discussing the legal principles applicable she first referred to McGhee and Fairchild.
She then considered the doubles the risk test in relation to cases of diseases other than mesothelioma.
She reached the following conclusion of general principle: 20.
The theory that causation could be proved on the balance of probabilities by reference to a doubling of the risk of injury was first applied by Mackay J in the oral contraceptive litigation XYZ v Schering Health Care Ltd (2002) 70 BMLR 88.
As a preliminary issue, the parties agreed that the judge should examine the epidemiological evidence relating to the risk of deep vein thrombosis arising from two different types of oral contraceptive.
The claimant group could succeed only if the epidemiology showed that the risk of harm arising from the type of contraceptive they had been taking (which it was assumed they had not been warned about and would not have taken if warned) was at least twice that arising from the type which they had formerly been taking (which it was assumed they had been warned about and which risk they had accepted).
The logic behind this was that, if the risk from potential cause A is x% and the risk from the other potential cause B is 2.1x%, it is more likely than not that the condition which has eventuated has been caused by B. 21.
Since the oral contraceptive case, this method of proving causation has been applied in cases of lung cancer where the claimant has been tortiously exposed to asbestos and non tortiously exposed to cigarette smoke, both of which are potent causes of the condition.
Expert evidence is received as to the relative risks created by the two forms of exposure and, if, on the individual facts of the case, the risk from the asbestos exposure is more than double the risk from smoking, the claimant succeeds. 22.
The only case of which I am aware in which this approach has been applied or approved in the Court of Appeal is Novartis Grimsby Ltd v Cookson [2007] EWCA Civ 1261.
That was a case of bladder cancer, in which the claimant had been tortiously exposed to carcinogens in the course of his employment in a dye works.
He had also been a regular smoker.
Both were potential causes of bladder cancer.
At trial, the defendants case was that the tortious exposure at work had been minimal.
The recorder held that it was not minimal and applied the Bonnington case [1956] AC 613; he held that the tort had made a material contribution to the disease.
On appeal, the appellant employer argued, correctly, that that was wrong as the tort could not be said to have made a contribution to the disease, only to the risk of the disease developing.
The claimant argued that the case ought to come within the Fairchild exception so that all that was necessary was to prove a material increase in risk.
The appellant employer contended that the Fairchild case [2003] 1 AC 32 should not be extended to cover such a case.
In the event, the Court of Appeal observed that there was expert evidence, which the recorder had accepted, to the effect that the tortious exposure had more than doubled the risk arising from smoking.
The court held that that was sufficient for the claim to succeed. 23.
In my view, it must now be taken that, saving the expression of a different view by the Supreme Court, in a case of multiple potential causes, a claimant can demonstrate causation by showing that the tortious exposure has at least doubled the risk arising from the non tortious cause or causes.
Smith LJ went on to consider whether the doubles the risk test could be applied in relation to mesothelioma.
She held that it could not.
She did so on the basis that by enacting section 3(1)(d) of the Compensation Act 2006 Parliament had laid down a rule that causation in a mesothelioma case could be established by proof of a material increase in risk: para 34.
This precluded a defendant from averring, in a case of mesothelioma, that the claimant had to satisfy the doubles the risk test.
She held, at para 27, that the judge should have applied the test of material increase of risk, ie the Fairchild/Barker rule, and in consequence the appeal should be allowed: it is not now possible for this court to consider whether, at common law, the Fairchild exception should be limited in application to cases in which it is quite impossible for a claimant to prove causation by reference to a more than twofold increase in risk.
That is because Parliament has intervened by enacting section 3 of the Compensation Act 2006 so that the common law simpliciter no longer governs claims for damages in mesothelioma cases.
Had Smith LJ held that the doubles the risk test could be applied to mesothelioma, she would not have allowed the decision of the judge to stand.
She held that the doubles the risk test had been advanced without adequate notice, so that Sienkiewicz had been wrong footed and denied a fair chance to deal with the expert evidence.
The case would have to be remitted for a new trial. i)
Scott Baker LJ and Lord Clarke agreed with the judgment of Smith LJ.
Lord Clarke held that the Fairchild test had to be applied by reason both of common law and the construction of section 3 of the 2006 Act.
Submissions
I can summarise the arguments advanced by Mr Stuart Smith on behalf of Greif as follows, adopting a different order to that adopted in his printed case: The Court of Appeal erred in holding that section 3 of the 2006 Act mandated the application of the Fairchild/Barker rule of causation in mesothelioma cases. ii) The Fairchild/Barker rule does not apply in this case because this is a single exposure case. iii) It is possible in this case to adopt a conventional approach to causation by applying the doubles the risk test.
This approach demonstrates that Mrs Costello contracted mesothelioma as a result of environmental exposure and not as a result of the slight additional exposure to which she was subjected by Greif. iv) The claim also fails because the exposure to which Greif subjected Mrs Costello was not material.
Occupational exposure is not material unless it more than doubles the amount of environmental exposure to which a claimant is subject.
In the case of Mrs Costello the exposure for which Greif was responsible was insignificant.
The findings of exposure made by the trial judge could not be supported by the evidence and there was no justification for a fresh trial.
Mr Melton QC for Mrs Costellos estate challenged all these submissions.
He submitted that the Fairchild test was applicable and attacked the application of the doubles the risk test.
He further submitted that the asbestos dust to which Mrs Costello was subjected materially increased the risk that she would contract mesothelioma and that, applying the Fairchild test and section 3 of the 2006 Act, the Court of Appeal had properly held the claim to be made out in full.
Discussion
five headings: I propose to discuss the problems raised by this appeal under the following involving diseases other than mesothelioma? i) The effect of section 3 of the Compensation Act 2006. ii) Epidemiology and the nature of the doubles the risk test. iii) Can the doubles the risk test be applied in multiple cause cases iv) Can the doubles the risk test be applied to mesothelioma cases. v) What constitutes a material increase in risk? vi) The result in this case.
The effect of section 3 of the Compensation Act 2006
The Court of Appeal treated section 3(1) as enacting that, in cases of mesothelioma, causation can be proved by demonstrating that the defendant wrongfully materially increased the risk of a victim contracting mesothelioma.
This was a misreading of the subsection.
Section 3(1) does not state that the responsible person will be liable in tort if he has materially increased the risk of a victim of mesothelioma.
It states that the section applies where the responsible person is liable in tort for materially increasing that risk.
Whether and in what circumstances liability in tort attaches to one who has materially increased the risk of a victim contracting mesothelioma remains a question of common law.
That law is presently contained in Fairchild and Barker.
Those cases developed the common law by equating materially increasing the risk with contributing to the cause in specified and limited circumstances, which include ignorance of how causation in fact occurs.
The common law is capable of further development.
Thus section 3 does not preclude the common law from identifying exceptions to the material increase of risk test, nor from holding, as more is learned about mesothelioma, that the material increase of risk test no longer applies.
The Fairchild/Barker rule was adopted in order to cater for the ignorance that existed at the time of those decisions about the way in which mesothelioma is caused.
Section 3 does not preclude the courts from reverting to the conventional approach of balance of probabilities in mesothelioma cases should advances in medical science in relation to this disease make such a step appropriate.
Greif contend that the Court should identify an exception to the Fairchild/Barker rule where there has been only one occupational exposure to risk and that, in those circumstances, the Court can and should apply the doubles the risk test.
Section 3 poses no bar to that contention; it must be considered on its merits.
Epidemiology and the nature of the doubles the risk test
The doubles the risk test is one that applies epidemiological data to determining causation on balance of probabilities in circumstances where medical science does not permit determination with certainty of how and when an injury was caused.
The reasoning goes as follows.
If statistical evidence indicates that the intervention of a wrongdoer more than doubled the risk that the victim would suffer the injury, then it follows that it is more likely than not that the wrongdoer caused the injury.
I propose first to consider the authorities to which Smith LJ referred to see the extent to which they support the general proposition that she stated at para 23 of her judgment.
Smith LJ founded the general proposition in para 23 of her judgment (see para 63 above) on one decision of Mackay J, one decision of the Court of Appeal and on unspecified cases of exposure both to asbestos and to cigarette smoke.
When these are examined it becomes apparent that they exemplify the application of the doubles the risk test in three quite different circumstances.
I propose to look at these before considering the nature of the epidemiological principle applied in each of them.
XYZ is a lengthy and complex judgment devoted exclusively to a preliminary issue on the effect of epidemiological evidence.
The issue was whether a second generation of oral contraceptives more than doubled the risk of causing deep vein thrombosis (DVT) that was created by the first generation of oral contraceptives.
It was common ground that, if the claimants in this group litigation could not establish this, their claims under the Consumer Protection Act 1987 were doomed to failure.
I do not believe that Smith LJ has correctly identified the relevance of this issue.
It was not whether the DVT suffered by the claimants had been caused by the second generation of oral contraceptives which they had taken.
It was whether the second generation of contraceptives created a significantly greater risk than the first.
The experts appear to have been in agreement that the doubles the risk test was the proper one to apply in order to resolve this issue.
Thus I do not believe that that decision affords any direct assistance to the question of whether the doubles the risk test is an appropriate test for determining causation in a case of multiple potential causes.
It does, however, contain a detailed and illuminating discussion of epidemiology and I shall revert to it when considering that topic.
Shortell v BICAL Construction Ltd (Liverpool District Registry, 16 May 2008), another decision of Mackay J, was a claim in relation to a death caused by lung cancer where there were two possible causes of the cancer.
One was occupational exposure to asbestos and the other was cigarette smoke.
The defendant was responsible for the former but not for the latter.
Applying the Bonnington test of causation, the issue was whether the asbestos to which the victim had been exposed had made a material contribution to the cause of the victims lung cancer.
The expert evidence, given by both medical and epidemiological experts, but based in the case of each, I suspect, on epidemiological data, was that asbestos and cigarette smoke not merely combined cumulatively to cause lung cancer, but that they had a synergistic effect in doing so.
This evidence was enough, as I see it, to satisfy the Bonnington test of causation, as the victim had been exposed both to significant quantities of asbestos fibres and to significant cigarette smoke.
judgment: In these circumstances, I am puzzled by the following passages in the 49.The causation of lung cancer as opposed to mesothelioma is dependent on an aggregate dose either of asbestos fibre or smoke.
Mr Feeny for the defendants rightly in my view concedes that if the claimant proves on a balance of probabilities that the risk factor created by his clients breach of duty more than doubled the deceaseds relative risk of contracting lung cancer then the claimants case is proved, and the only remaining issue is contributory negligence.
For the reasons I have advanced above I am satisfied on the balance of probabilities that once the estimate of 99 fibre/ml years is accepted as I have accepted it the relative risk is on any view more than doubled. 51.
Where, as here, it is the case that the claimant has proved causation against this defendant by showing a more than doubled relative risk it is not relevant as between the claimant and the defendant to argue that another agent (tortious or otherwise) may also have contributed to the occurrence of the disease.
Epidemiological evidence indicated that, had the victim not been a smoker, his exposure to asbestos would have more than doubled the risk that he would get lung cancer.
I do not, however, see that it was essential for the claimant to prove this.
For this reason I question whether Smith LJs endorsement of the doubles the risk test is correct in cases where asbestos and tobacco smoke have combined to cause lung cancer.
Novartis Grimsby Ltd v Cookson [2007] EWCA Civ 1261, which was the third case to which Smith LJ referred, was an appeal in which she gave the only reasoned judgment.
The claimant sought damages against his employers for causing him bladder cancer.
It is known that bladder cancer is caused by exposure to amines and the claimant had been so exposed from two sources.
One was his employment, which wrongfully exposed him to amines used in the manufacture of dyes.
The other was smoking, for cigarette smoke contains amines.
There was expert evidence, which the recorder accepted, that the occupational exposure had more than doubled the risk caused by smoking.
There was an issue as to whether Bonnington applied or whether the claimant had to prove that but for the occupational exposure he would not have suffered the cancer.
Smith LJ did not find it necessary to resolve this issue, for at para 74 she held that the but for test was satisfied: In terms of risk, if occupational exposure more than doubles the risk due to smoking, it must, as a matter of logic, be probable that the disease was caused by the former.
On analysis, it is only this last proposition that supports Smith LJs general statement that a claimant can prove causation where there are a number of potential causes of a disease or injury by showing that the tortious exposure had at least doubled the risk arising from the non tortious cause or causes.
I agree with her that, as a matter of logic, if a defendant is responsible for a tortious exposure that has more than doubled the risk of the victims disease, it follows on the balance of probability that he has caused the disease, but these are statistical probabilities and the issue in this case is whether a statistical approach to determining causation should be applied in place of the Fairchild/Barker test.
I have derived assistance in relation to the next section of this judgment from the judgment of Mackay J in XYZ.
He there set out a careful and detailed introduction into the discipline of epidemiology and I shall gratefully borrow some of the clear language that he used.
Epidemiology is the study of the occurrence and distribution of events (such as disease) over human populations.
It seeks to determine whether statistical associations between these events and supposed determinants can be demonstrated.
Whether those associations if proved demonstrate an underlying biological causal relationship is a further and different question from the question of statistical association on which the epidemiology is initially engaged.
Epidemiology may be used in an attempt to establish different matters in relation to a disease.
It may help to establish what agents are capable of causing a disease, for instance that both cigarette smoke and asbestos dust are capable of causing lung cancer, it may help to establish which agent or which source of an agent, was the cause, or it may help to establish whether or not one agent combined with another in causing the disease.
Epidemiological data can be obtained by comparing the relevant experience (eg contraction of a disease) of a group or cohort that is subject to exposure to a particular agent with the experience of a group or cohort that is not.
Where an agent is known to be capable of causing a disease, the comparison enables the epidemiologist to calculate the relevant risk (RR) that flows from the particular exposure.
An RR of 1 indicates that there is no association between the particular exposure and the risk.
An RR of 2 indicates that the particular exposure doubled the chance that the victim would contract the disease.
Statistically the likelihood that the victim would have contracted the disease without the particular exposure is then equal to the likelihood that the victim would not have contracted the disease but for that exposure.
Where the RR exceeds 2 the statistical likelihood is that the particular exposure was the cause of the disease.
The greater the RR the greater the statistical likelihood that the particular exposure caused the disease.
An RR of just over 2 is a tenuous basis for concluding that the statistical probable cause of a disease was also the probable biological cause, or cause in fact.
The greater the RR the greater the likelihood that the statistical cause was also the biological cause.
One reason why an RR of just over 2 is a tenuous basis for determining the biological cause is that the balance of that probability is a very fine one.
Another is that the epidemiological data may not be reliable.
One reason for this may be that the relevant survey or surveys have been insufficiently extensive to produce data that is truly representative.
Epidemiologists conventionally seek to indicate the reliance that can be placed on an RR by determining 95% confidence limits or intervals (C1) around it.
The approach that I have been describing focuses on one specific causal agent or a number of specific causal agents.
There may well, however, be other causal factors that operate in conjunction with the agent exposure to which is the particular object of investigation, eg the age or genetic susceptibility of the victim.
The identification of one probable cause of a disease does not preclude the possibility that there are other contributory causes.
Mr Stuart Smith in his printed case helpfully referred us to a number of foreign authorities which demonstrate that the weight to be attached to epidemiological evidence can vary significantly according to judicial policy.
In America the test of causation in toxic tort cases varies from state to state.
The most helpful case in the present context is Merrell Dow Pharmaceuticals Inc v Havner (1997) 953 SW 2d 706, a decision of the Supreme Court of Texas, for this gives detailed consideration to the doubles the risk test.
The claim was one of a large number brought against the manufacturer of the prescription drug Bendectin.
The parents of a child born with a limb reduction birth defect alleged that the cause of this was Bendectin, taken by the mother when she was pregnant.
The parents sought to establish causation by epidemiological evidence which they contended demonstrated that taking this drug more than doubled the risk of such birth defects.
Giving the judgment of the court Phillips CJ remarked, at p 716, that the doubling of the risk issue in toxic tort cases had provided fertile ground for the scholarly plow.
He proceeded to refer to much of this, summarising the position as follows, at p 717: Some commentators have been particularly critical of attempts by the courts to meld the more than 50% probability requirement with the relative risks found in epidemiological studies in determining if the studies were admissible or were some evidence that would support an award for the claimant.
But there is disagreement on how epidemiological studies should be used.
Some commentators contend that the more than 50% probability requirement is too stringent, while others argue that epidemiological studies have no relation to the legal requirement of more likely than not.
The Chief Justice went on to hold that, although there was not a precise fit between science and legal burdens of proof, properly designed and executed epidemiological studies could form part of evidence supporting causation in a toxic tort case and that there was a rational basis for relating the requirement that there be more than a doubling of the risk to the more likely than not burden of proof.
At p 718 the Chief Justice commented: But the law must balance the need to compensate those who have been injured by the wrongful actions of another with the concept deeply imbedded in our jurisprudence that a defendant cannot be found liable for an injury unless the preponderance of the evidence supports cause in fact.
The use of scientifically reliable epidemiological studies and the requirement of more than a doubling of the risk strikes a balance between the needs of our legal system and the limits of science.
We do not hold, however, that a relative risk of more than 2.0 is a litmus test or that a single epidemiological test is legally sufficient evidence of causation.
Other factors must be considered.
As already noted, epidemiological studies only show an association.
He then emphasised the need for the design and execution of epidemiological studies to be examined in order to identify possible bias.
At pp 720 721 he made a comment that is particularly pertinent in the context of this appeal: Finally, we are cognizant that science is constantly re evaluating conclusions and theories and that over time, not only scientific knowledge but scientific methodology in a particular field may evolve.
We have strived to make our observations and holdings in light of current, generally accepted scientific methodology.
However, courts should not foreclose the possibility that advances in science may require re evaluation of what is good science in future cases.
Can the doubles the risk test be applied in multiple cause cases involving diseases other than mesothelioma?
For reasons that I have already explained, I see no scope for the application of the doubles the risk test in cases where two agents have operated cumulatively and simultaneously in causing the onset of a disease.
In such a case the rule in Bonnington applies.
Where the disease is indivisible, such as lung cancer, a defendant who has tortiously contributed to the cause of the disease will be liable in full.
Where the disease is divisible, such as asbestosis, the tortfeasor will be liable in respect of the share of the disease for which he is responsible.
Where the initiation of the disease is dose related, and there have been consecutive exposures to an agent or agents that cause the disease, one innocent and one tortious, the position will depend upon which exposure came first in time.
Where it was the tortious exposure, it is axiomatic that this will have contributed to causing the disease, even if it is not the sole cause.
Where the innocent exposure came first, there may be an issue as to whether this was sufficient to trigger the disease or whether the subsequent, tortious, exposure contributed to the cause.
I can see no reason in principle why the doubles the risk test should not be applied in such circumstances, but the court must be astute to see that the epidemiological evidence provides a really sound basis for determining the statistical probability of the cause or causes of the disease.
McGhee may have been such a case.
The facts were puzzling, for no other workman had ever contracted dermatitis at the defendants brick kiln, so one wonders what the basis was for finding that the lack of shower facilities was potentially causative.
Had there been epidemiological evidence it seems unlikely that this would have demonstrated that the extra ten or fifteen minutes that, on the evidence, the pursuer took to cycle home doubled his risk of contracting dermatitis, or came anywhere near doing so.
Where there are competing alternative, rather than cumulative, potential causes of a disease or injury, such as in Hotson, I can see no reason in principle why epidemiological evidence should not be used to show that one of the causes was more than twice as likely as all the others put together to have caused the disease or injury.
Can the doubles the risk test be applied in mesothelioma cases?
This question calls for consideration of the conundrum that I identified when considering the decisions in Fairchild and Barker.
In the course of argument I put the conundrum to Mr Stuart Smith.
Why, if it was possible to equate increasing exposure to increasing risk, could one not postulate that, on balance of probabilities, where one employer had caused over 50% of a victims exposure, that employer had caused the victims mesothelioma? Why could one not, by the same token, postulate that where over 50% of the victims exposure was not attributable to fault at all, on balance of probability, the victims mesothelioma had not been caused tortiously? In short, why was there any need to apply the Fairchild/Barker rule where epidemiological evidence enabled one to use statistics to determine causation on balance of probability?
Mr Stuart Smith replied that this was a question which puzzled him also.
He believed that the answer could be found in consideration given in earlier cases to a hypothetical injury caused by either a blue or a red taxi cab.
This led to some inconsequential discussion as to the colours of the cabs involved.
The example in question can be traced, via the speech of Lord Mackay in Hotson [1987] AC 750, 789 to the dissenting judgment of Brachtenbach J in Herskovits v Group Health Cooperative of Puget Sound (1983) 664 P 2d 474, a decision of the Supreme Court of Washington: Brachtenbach J dissented.
He warned against the danger of using statistics as a basis on which to prove proximate cause and indicated that it was necessary at the minimum to produce evidence connecting the statistics to the facts of the case.
He gave an interesting illustration of a town in which there were only two cab companies, one with three blue cabs and the other with one yellow cab.
If a person was knocked down by a cab whose colour had not been observed it would be wrong to suggest that there was a 75 per cent chance that the victim was run down by a blue cab and that accordingly it was more probable than not that the cab that ran him down was blue and therefore that the company running the blue cabs would be responsible for negligence in the running down.
He pointed out that before any inference that it was a blue cab would be appropriate further facts would be required as, for example, that a blue cab had been seen in the immediate vicinity at the time of the accident or that a blue cab had been found with a large dent in the very part of the cab which had struck the victim.
This example is an extreme example of the fact that statistical evidence may be an inadequate basis upon which to found a finding of causation.
Keeping to that example, it was not possible to postulate that the risk of being knocked down by a negligent driver of a taxi cab was proportional to the number of taxi cabs in the town.
Much more significant would have been the care taken by the rival taxi firms in employing competent drivers, and the past accident record of the firms in question.
Thus the first answer to the conundrum may be that, in the case of mesothelioma, epidemiological evidence alone has not been considered by the courts to be an adequate basis for making findings of causation: that so long as medical science is unable to demonstrate, as a matter of fact, the aetiology of mesothelioma, data relating incidence to exposure is not a satisfactory basis for making findings of causation.
Not only is the adequacy of epidemiological evidence relevant to the weight to be attached to it.
So is its reliability.
A helpful description of the factors that can limit the reliability of epidemiological evidence is to be found in an article by C E Miller on Causation in personal injury: legal or epidemiological common sense? in 26 Legal Studies No 4, December 2006, pp 544 569.
Deducing causation in relation to mesothelioma on the basis of epidemiological evidence requires a comparison between the statistical relationship between exposure and the incidence of the disease and the experience of the victim who has sustained the disease.
A number of factors make this exercise particularly problematic.
The first is the difficulty in collating sound epidemiological data.
The second is the difficulty of obtaining reliable evidence as to the relevant experience of the victim.
The third is uncertainty as to the adequacy of the epidemiological evidence that is available as a guide to causation.
The epidemiological data that has been collated in relation to mesothelioma relates largely to the exposure of victims to asbestos dust.
It must be gathered from the histories of those who, tragically, have succumbed to mesothelioma.
Because of the very long latency of the disease and the limited time between the first experience of its symptoms and death, obtaining the necessary data is difficult.
Most of the data relates to victims who were subjected to substantial occupational exposure to dust.
This data has been extrapolated to cover victims who have had very light exposure, but there is no certainty that this extrapolation is reliable.
The same difficulty arises in relation to obtaining details of the relevant experience of the particular victim.
That difficulty is illustrated by the two appeals before the Court.
The most significant inhibition on the use of epidemiological evidence to determine causation in cases of mesothelioma is uncertainty as to the adequacy of the data.
The data is relied on as establishing that the risk of contracting mesothelioma is proportional to exposure to asbestos dust.
It used to be thought that mesothelioma was probably triggered by a single asbestos fibre and that the cause of the disease could be attributed exclusively to that one fibre.
Were that the case it would be reasonable to postulate that the risk of contracting the disease was proportional to the exposure.
In the words of Lord Hoffmann in Barker at para 26, referring to the decision of Moses J at first instance: the more you are exposed, the more likely you are to get it, in the same way as the more you spin the roulette wheel, the more is a given number likely to come up.
The single fibre theory has, however, been discredited.
The amount of exposure does not necessarily tell the whole story as to the likely cause of the disease.
There may well be a temporal element.
The Peto Report also raised the possibility (but no more) of synergistic interaction between early and later exposures.
Causation may involve a cumulative effect with later exposure contributing to causation initiated by an earlier exposure.
Applying the conventional test of causation, the relevant question is, on balance of probability, which exposures in an individual case may have contributed to causing the disease? Epidemiology does not enable one to answer that question by considering simply the relative extent of the relevant exposures.
The House of Lords was not, in Fairchild nor in Barker invited to consider the possibility that it might be possible in an appropriate case to demonstrate by epidemiological evidence that, on balance of probabilities, the mesothelioma had been caused by exposure that was not wrongful, or alternatively that such evidence might demonstrate that one particular employer had, on balance of probabilities, caused the disease.
Had it been I do not believe that the House would have been persuaded that epidemiological evidence was sufficiently reliable to base findings as to causation upon it.
I believe that the cumulative effect of the various factors that I have set out above justifies the adoption of the special rule of causation that the House of Lords applied in Fairchild and Barker.
The justification for that rule may diminish or vanish as the aetiology of the disease is revealed by scientific research.
Nor does the rule wholly displace a conventional approach to causation.
Epidemiological data and medical science show that exposure once a cell has become malignant is not causative and thus exposure once that point is probably passed, can be discounted as a potential contributor to the disease.
The possibility that mesothelioma may be caused as the result of the cumulative effect of exposure to asbestos dust provides a justification, even if it was not the reason, for restricting the Fairchild/Barker rule to cases where the same agent, or an agent acting in the same causative way, has caused the disease, for this possibility will not exist in respect of rival causes that do not act in the same causative way.
I would add that even if one could postulate with confidence that the extent of the contribution of a defendant to the victims exposure to asbestos precisely reflected the likelihood that his breach of duty had caused the victims disease, there would still be justification for the application of the Fairchild rule where all the exposure was wrongful.
Imagine four defendants each of whom had contributed 25% to the victims exposure so that there was a 25% likelihood in the case of each defendant that he had caused the disease.
The considerations of fairness that had moved the House in Fairchild would justify holding each of the defendants liable, notwithstanding the impossibility of proving causation on balance of probability.
Thus the conundrum is answered by saying that there are special features about mesothelioma, and the gaps in our knowledge in relation to it, that render it inappropriate to decide causation on epidemiological data as to exposure.
So far as concerns apportionment between tortfeasors jointly liable for causing mesothelioma it is likely to be necessary to use epidemiological evidence faute de mieux.
What constitutes a material increase in risk?
Liability for mesothelioma falls on anyone who has materially increased the risk of the victim contracting the disease.
What constitutes a material increase of risk? The parties were, I think, agreed that the insertion of the word material is intended to exclude an increase of risk that is so insignificant that the court will properly disregard it on the de minimis principle.
Mr Stuart Smith submitted that there should be a test of what is de minimis, or immaterial, which can be applied in all cases.
Exposure should be held immaterial if it did not at least double the environmental exposure to which the victim was subject.
It does not seem to me that there is any justification for adopting the doubles the risk test as the bench mark of what constitutes a material increase of risk.
Indeed, if one were to accept Mr Stuart Smiths argument that the doubles the risk test establishes causation, his de minimis argument would amount to saying that no exposure is material for the purpose of the Fairchild/Barker test unless on balance of probability it was causative of the mesothelioma.
This cannot be right.
I doubt whether it is ever possible to define, in quantitative terms, what for the purposes of the application of any principle of law, is de minimis.
This must be a question for the judge on the facts of the particular case.
In the case of mesothelioma, a stage must be reached at which, even allowing for the possibility that exposure to asbestos can have a cumulative effect, a particular exposure is too insignificant to be taken into account, having regard to the overall exposure that has taken place.
The question is whether that is the position in this case.
The result in this case.
Despite Judge Mains heroic endeavours, the nature of the exercise on which he embarked must raise doubts over his precise finding that Greifs wrongful exposure to asbestos dust increased the environmental exposure to which Mrs Costello was subject by 18%.
Having made that finding, Judge Main wrongly applied the doubles the risk test rather than the Fairchild/Barker test.
He did not expressly consider whether the exposure to which Greif wrongly subjected Mrs Costello was so insignificant that it could be disregarded as de minimis.
None the less, had he thought it de minimis, he might well have said so.
He did describe the very small quantities of fibres that might have been on furniture in Greifs offices as of statistically insignificant effect and de minimis: para 50.
I do not think that Judge Main would have dismissed the addition that Greifs wrongful exposure made to the risk that Mrs Costello would contract mesothelioma as statistically insignificant or de minimis.
If one assumes, as is likely, that Mrs Costellos disease was asbestos induced, it is plain that a very low level of exposure sufficed to cause the disease.
This accords with the expert evidence that there is no known lower threshold of the exposure that is capable of causing mesothelioma.
No one could reasonably conclude that there was no significant possibility that the incremental exposure to which Greif subjected Mrs Costello was instrumental in causing her to contract the disease.
I am in no doubt that the wrongful exposure to which she was subjected materially increased her risk of contracting mesothelioma.
The reality is that, in the current state of knowledge about the disease, the only circumstances in which a court will be able to conclude that wrongful exposure of a mesothelioma victim to asbestos dust did not materially increase the victims risk of contracting the disease will be where that exposure was insignificant compared to the exposure from other sources.
I note that in Rolls Royce Industrial Power (India) Ltd v Cox [2007] EWCA Civ 1189 counsel for the employer conceded that exposure to asbestos dust for a period of one week would not be de minimis.
For these reasons I would dismiss the appeal in Greif.
ANNEX A.
In the Trigger litigation Rix LJ set out the following extract from the judgment of Longmore LJ in Bolton Metropolitan Borough Council v Municipal Mutual Insurance Ltd [2006 EWCA Civ 50, [2006] 1 WLR 1492: 7 There are three forms of asbestos: brown (amosite), blue (crocidolite) and white (chrysotile).
Their fibres have different bio persistence: 20 years after exposure to fibres about half the inhaled amosite fibres remain in the body, a smaller proportion of the crocidolite fibres remains and, relatively, few chrysotile fibres remain. 8 The human body is composed of cells of various types.
Of the fibres which reach the lungs many are engulfed by macrophages (scavenger cells).
The macrophages may then be expelled by the mucosiliary process or may die within the lungs.
All cells can and do die for various reasons, but cells are in communication with each other and the death of one can cause another to divide so, with some exceptions such as men losing their hair with age, the number of cells remains approximately the same throughout a person's life.
When macrophages die in the lungs they release various chemicals, some of which attract neutrophils, another type of cell, which can engulf fibres.
A different mechanism which destroys fibres in the lungs is that they are dissolved in tissue fluids.
Another mechanism, by which the body protects itself, is that some fibres become coated by proteinaceous material containing iron which, it is believed, renders them less likely to produce fibrosis. 9 The division of cells in human tissue is important for understanding how mesothelioma occurs.
Each cell in the body contains all the genetic information necessary for the construction and functioning of the entire body.
This information is contained in the form of DNA, a molecule consisting of two intertwining strands.
The different structure and function of the various types of cell in the body occurs because in each cell only some of the genes contained in the DNA are active and in different cells different genes are active.
The coded information in a DNA molecule is in the form of about 3,000,000,000 base pairs.
Each pair consists of two collections of atoms called nucleotides.
There is one half of each pair in each of the two intertwining strands.
When cell division occurs the strands unravel and two daughter double helices are created.
Normally the daughters are identical with each other but sometimes they are not.
Dr Rudd uses the word mutation for an imperfect copy.
This word mutation thus means a thing a cell and not a process, and is not a synonym of change; for change Dr Rudd uses the term generic alteration.
I shall adopt this usage.
The word mutation does not have any derogatory connotations.
A mutation is different from, but not necessarily worse than, the cell from which it is derived or otherwise undesirable.
The body contains what can be described as a repair mechanism which sometimes corrects the discrepancy between a daughter and its parent.
This repair mechanism is vital to normal health, and people whose repair system lacks some components (a very rare condition) will die early, often of cancer.
Sometimes, however, a perfectly normal repair and correction mechanism fails to correct a mutation.
Such failure can lead to any of three possibilities.
First, the mutation may be unable to survive and die.
Secondly it may be better fitted for its purpose than the cell from which it is derived, and this is the cause of evolution.
As Dr Moore Gillon put it Without the normal process of imperfect copying, mankind (and indeed all other species) would not have emerged. 10 It is the third possibility with which this case is concerned.
A mutation which does not die, which is not repaired and which does not perform its purpose better than the cell from which it was derived may itself divide, and the daughter cells or (to continue the parental analogy) the grand daughter or more distant descendants may in turn die, be repaired or be mutations from the cell from which they are derived.
Eventually there may be a mutation which is malignant, i e a cell which divides in an uncontrolled manner, as opposed to maintaining the normal balance between cells dying and cells dividing.
It normally takes a heredity of six or seven genetic alterations before a malignant cell occurs.
The body has natural killer cells which, as their name indicates, can target and destroy mutations, possibly even after they have become malignant.
A tumour is a growth consisting of a number of cells dividing in that uncontrolled manner.
Mesothelioma is a tumour in the pleura.
B. Rix LJ then summarised the findings of Burton J in the Trigger litigation, which brought the findings of Longmore LJ up to date: 11 Asbestos fibres in the pleura increase the likelihood of genetic mutation.
It is now thought likely that, if there is a series of genetic alterations which ends with a malignant cell in the pleura, fibres will have acted in causing several of those genetic alterations, rather than just one genetic alteration.
However the final genetic alteration which results in a malignant cell is not necessarily caused by fibres directly.
Fibres may also inhibit the activity of natural killer cells.
Pre cancerous genetic alterations in cells do not give rise to any symptoms or signs.
They cannot be detected by any routine clinical or radiological examination.
It would be possible to detect them by examining in a laboratory tissue taken from a part of the body containing cells which have become genetically modified, but the exercise would be pointless because pre cancerous genetic alterations do not necessarily or even usually lead to mesothelioma. 12 It is furthermore important to note that there may be a long time lapse not only between exposure and the first formation of a malignant cell but that there may be a similarly lengthy lapse of time between first malignancy and the onset of noticeable symptoms such as breathlessness. 50.
The judge heard evidence from five internationally recognised experts in the field: Dr Rudd and Dr Moore Gillon, who have between them given evidence in most if not all of the cases involving mesothelioma in recent years including Fairchild and Bolton itself; Professor Geddes, on whose pioneering work the first two experts have based their own theories (see his crucial 1979 paper concerning the rate of tumour growth, published in volume 73 of the British Journal of Diseases of the Chest, The Natural History of Lung Cancer: a Review based on Rates of Tumour Growth (the Geddes article)); and Professor Phillips of the Institute of Cancer Research and Professor Heintz of the Vermont Cancer Centre.
The last two are biochemists, the first three are respiratory consultants.
The judge observed that the evidence of the biochemistry experts is a new feature of such litigation. 51.
On the basis of this expert evidence, the judge remarked on two matters which were common ground between the parties.
One is that it is the exposure to quantities of fibres which is causative of mesothelioma, and the risk increases with the dosage.
This was recognised already in Fairchild (see Lord Bingham at para 7; and Lord Rodger at para 122, where the latter observed: the greater the number of asbestos fibres taken into the body, the greater are the chances that one of them will trigger a malignant transformation).
The second matter is that once the mesothelioma tumour is present and assured of growth (ie has passed the stage where a malignant mutation may die off), further asbestos exposure and indeed further asbestos fibres in the body can make no difference and are not causative. 52.
Burton J also described the unknowability and indescribability of much of the pathogenesis of mesothelioma as being common ground (at para 30).
Subject to that caution, the judge made the following findings about the disease.
He described asbestos fibre as a complete carcinogen, ie no other agent or co agent is required to cause the ultimate malignancy (at para 130).
Unlike a normal cancer of spherical or similar shape which sooner or later can be seen on a scan or x ray, the mesothelioma tumour grows along the surface of the lungs rather like a fungus and is thus practically undetectable, and only becomes diagnosable when the symptoms of impaired breathing bring it to the patient's and his doctor's attention.
As the details of actions 1 3 illustrate, that is only shortly before death.
The average time between manifestation/diagnosis and death is some fourteen months. 53.
The judge described the normal process of cell mutations in healthy bodies and lungs.
Even in a person who has not been exposed to asbestos as part of his occupation, the lungs will typically contain millions of asbestos fibres, albeit not the hundreds of millions to be found in the occupationally exposed and with far less proportionately of the more dangerous blue and brown asbestos varieties.
He said: 108The mesothelial cells, like all cells in the body, are constantly dividing: Dr Rudd told us that there are 10 trillion cells in the body and 50 billion are replicated every day.
Cell division, or mitosis, by which the cell divides, duplicates its chromosomes and passes on a complete set to each of its "daughters", is the norm; but there can be mutations again Dr Rudd told us that incorrect copying can take place in one in a million cell divisions and thus possibly 5,000 times per day in the human body, or every 17 seconds.
The body's repair mechanisms are quick to correct and abort the mutations, but even if there are mutations there are four possible consequences.
The incorrect copy may be unable to survive, and die; the mutation can make no difference; the mutation can positively improve the cell hence evolution; or the mutated cell can survive and can itself divide, passing on the genetic alterations, eventually after many generations and with further mutations creating a malignant cell. 54.
What then makes the difference between a normal and a diseased process? The judge continued: 109.
There will or may be thousands of mutations, only one of which may have any deleterious effect on successive mitosis.
But, the experts gave evidence that there are six or seven genetic alterations which are required, not necessarily occurring in the same or any particular order, which, when they are all in place, can lead to a malignant cell.
The characteristics of a malignant cell are (i) self sufficiency of growth signals (ii) insensitivity to growth inhibitory signals (iii) evasion of programmed cell death (apoptosis) (iv) limitless replicative potential (v) the ability to invade tissues and to metastasise ie to transfer to other parts of the body (vi) the availability of its own blood supply obtained by a process which is called angiogenesis 111.
Once a cell has acquired what Dr Rudd calls a full house of the necessary 6/7 mutations, and has evaded all the bodily defences (described by Dr Rudd as full house plus), then it can be described as a malignant cell, and can and does begin a period of uncontrolled by multiplication.
Notwithstanding what Dr Rudd has called evasion of the bodily defences, Professors Phillips and Heintz [the biochemists] conclude that many full house cells with malignant potential may fail to grow into tumours.
It appears to be common ground, at any rate so far as the biochemists are concerned, that such cell or cells at this stage are still at risk from natural killer cells, although they apparently develop a method of switching off the signals which summon the natural killer cells or put them on notice.
There is also, despite the characteristic of limitless replication, the possibility or probability, of periods of dormancy.
Professor Phillips points out that the norm of 40 years from exposure to diagnosability growth suggests either that the mutation period lasts a long time or that there are periods of tumour dormancy (or both). 55.
The judge then described the growth of a malignant cell towards the status of a mesothelioma tumour, premised on the figures to be derived from the Geddes article concerning the more normal type of spherical tumour.
Professor Geddes found that the average rate of doubling of cells was 102 days (albeit that was a speculative average, which could vary between 45 and 130 days).
It is only at a tumour size of 106 cells (1 million cells) that it becomes unlikely for the bodily defences, still until then available, to be able to neutralise it.
Angiogenesis then occurs at somewhere between 106 and 109 (1 billion cells).
Symptoms of breathlessness will begin to be experienced when the tumour is between 109 and 1012 (1 trillion cells).
In the biochemists' view, angiogenesis occurred about 5 years or so before death.
The Peto and Rake study led the authors to the following conclusions: 1.
Mesothelioma risk is determined largely by asbestos exposure before age 30, and ranges from a lifetime risk of 1 in 17 for ten or more years of carpentry before age 30 to less than 1 in 1,000 in apparently unexposed men and women.
Our results suggest that the predicted total of 90,000 mesotheliomas in Britain between 1970 and 2050 will include approximately 15,000 carpenters. 2.
The risk of lung cancer caused by asbestos is likely to be of the same order as the mesothelioma risk.
This would imply that more than 1 in 10 of British carpenters born in the 1940s with more than 10 years of employment in carpentry before age 30 will die of a cancer caused by asbestos. 3.
Asbestos exposure was widespread, with 65% of male and 23% of female controls having worked in occupations that were classified as medium or higher risk. 4.
Britain was the largest importer of amosite (brown asbestos), and there is strong although indirect evidence that this was a major cause of the uniquely high mesothelioma rate.
The US imported far less amosite than Britain but used similar amounts of chrysotile (white asbestos) and more crocidolite (blue asbestos), and US mesothelioma death rates in middle age are now 3 to 5 times less than British rates.
British carpenters frequently worked with asbestos insulation board containing amosite. 5.
We found no evidence of increased risk associated with non industrial workplaces or those that were classified as low risk, including motor mechanics and workers handling gaskets and mats that may have contained asbestos. 6.
The only potential non occupational exposure associated with increased risk was living with an exposed worker. 7.
The increasing trend in female rates in Britain and a comparison between British and US female rates both suggest that a substantial proportion of mesotheliomas with no known occupational or domestic exposure were probably caused by environmental asbestos exposure.
The sources of this presumably included construction, building maintenance and industrial activities but may also include release of asbestos from buildings due to normal occupation and weathering.
LORD RODGER
Defendants whose breaches of duty expose someone to asbestos and so materially increase the risk that he will develop mesothelioma are liable jointly and severally for the damage which he suffers if he does in fact develop mesothelioma.
The fundamental question in these two appeals is whether this special rule the so called Fairchild exception, as it applies to mesothelioma applies in cases where only one defendant is proved to have exposed the victim to asbestos, but she was also at risk of developing the disease from low level exposure to asbestos in the general atmosphere (environmental exposure).
I would hold that the special rule does apply in such cases.
Karen Sienkiewicz v Greif (UK) Ltd
In these proceedings the claimant, Mrs Karen Sienkiewicz, is the daughter, and administratrix of the estate of, the late Mrs Enid Costello who died of mesothelioma on 21 January 2006.
From 1966 until 1984 Mrs Costello worked for the defendants predecessors in title at their factory premises in Ellesmere Port where they manufactured steel drums.
The process involved the release of asbestos dust into the factory atmosphere.
Although Mrs Costello worked mostly in an office, she spent time in areas of the factory which were, from time to time, contaminated with asbestos.
The trial judge held that Mrs Costellos exposure to asbestos on the defendants premises was very light and that it would have been through the inhalation of the general factory atmosphere, as she moved about.
The judge also held that this exposure was in breach of the relevant legal duties owed by the defendants to Mrs Costello.
It was common ground that, like anyone else, Mrs Costello would have been subject to environmental exposure to low levels of asbestos in the atmosphere in the areas where she lived.
The trial judge found that the defendants exposure of Mrs Costello to asbestos over her working life at their premises increased her background risk (of contracting mesothelioma) from 24 cases per million to 28.39 cases per million, an increase of risk of 18%.
Putting the point slightly more precisely, the environmental risk of contracting mesothelioma was 24 cases per million; exposure of the level of the occupational exposure in Mrs Costellos case would increase the risk of contracting mesothelioma to 28.39 cases per million an increase of 18%.
The trial judge concluded that the claimant had failed to establish that any exposure by the defendants had caused Mrs Costellos mesothelioma because once there is only one occupational cause for the mesothelioma the claimant has to prove that it is the likely cause.
On this basis he held that the special rule of law laid down by the House of Lords in Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32 did not apply and that the claimant could therefore not succeed on the basis that, on the balance of probability, Mrs Costellos exposure to asbestos in the course of her employment with the defendants had materially increased the risk that she would contract mesothelioma.
She could only succeed by proving, on the balance of probability, that the defendants breach of duty had caused Mrs Costellos mesothelioma.
The Court of Appeal (Lord Clarke of Stone cum Ebony, Scott Baker and Smith LJJ) allowed the claimants appeal: Sienkiewicz v Greif (UK) Ltd [2009] EWCA 1159; [2010] QB 370.
They held that the decision of the House of Lords in Fairchild applied.
The defendants breach of duty had materially increased the risk of Mrs Costello developing mesothelioma.
So they were liable.
The defendants appeal against that decision.
Although the Court of Appeal ultimately held that the rule in Fairchild applied to mesothelioma cases of this kind because of section 3 of the Compensation Act 2006 (the 2006 Act), in the course of her judgment, [2010] QB 370, 379, at para 23, Smith LJ made a very general statement about the approach which courts should adopt to issues of causation: In my view, it must now be taken that, saving the expression of a different view by the Supreme Court, in a case of multiple potential causes, a claimant can demonstrate causation by showing that the tortious exposure has at least doubled the risk arising from the non tortious cause or causes.
An important issue in the present appeals is whether this guidance is sound.
Willmore v Knowsley Metropolitan Borough Council
In these proceedings the claimant is Mr Barr Willmore.
He is the husband, and administrator of the estate, of the late Mrs Dianne Willmore who died of mesothelioma on 15 October 2009 at the age of 49.
Prior to her death, Mrs Willmore had raised proceedings for damages for her illness against Knowsley Metropolitan Borough Council (the Council).
After her condition was diagnosed, Mrs Willmore made a number of different allegations as to her possible exposure to asbestos.
Initially she alleged that she had been exposed to asbestos dust in the course of her employment with the Army & Navy Stores in Liverpool between 1979 and 1981.
But when she raised her proceedings against the Council in February 2008 she alleged that she had been exposed to asbestos when some prefabricated houses near her childhood home in Huyton were demolished.
She also alleged that she had been exposed to asbestos while a pupil at her primary school run by the Council.
On 14 February 2008, however, Mrs Willmore read an article in the Liverpool Echo referring to a report prepared by the Council which identified the presence of asbestos in a number of secondary schools, including Bowring Comprehensive, where she had been a pupil.
On 27 November 2008 Mrs Willmore amended the particulars of claim to allege, in essence, that when she first attended Bowring Comprehensive, the construction of the school had not been completed and she and other pupils had been exposed to asbestos as a result of workmen using materials containing asbestos.
She also alleged that she had been exposed to asbestos as a result of other disturbance of asbestos materials at the school.
She subsequently abandoned all her allegations of exposure to asbestos except those relating to Bowring Comprehensive.
Following a trial in July 2009, Nicol J found that, while a pupil at Bowring Comprehensive, Mrs Willmore had been exposed to the type of asbestos known as amosite in three separate ways: (1) as a result of work involving the removal, handling and disturbance of ceiling tiles in a corridor along which pupils, including Mrs Willmore, passed; (2) as a result of pupils misbehaviour, which caused ceiling tiles containing asbestos to be damaged or broken; (3) as a result of asbestos ceiling tiles, including broken tiles, being stored in a girls lavatory which had been used by Mrs Willmore on many occasions.
The judge held that each of these exposures to asbestos fibres had materially increased the risk of Mrs Willmore contracting mesothelioma later in life.
In so concluding, he found that none of these exposures was de minimis.
He awarded Mrs Willmore the agreed gross sum of 240,000 as damages.
The Council appealed to the Court of Appeal.
The Court of Appeal held, [2009] EWCA Civ 1211, that the judge had been wrong to hold that she had been exposed to asbestos as a result of pupils misbehaviour.
But they confirmed that the judge had been entitled to find that Mrs Willmore had suffered significant exposure to asbestos from the other two sources.
On that basis the Court upheld his judgment and his award of damages.
The Council now appeal to this Court.
Since the lower courts applied the Fairchild exception, obviously the same point as to its application in this type of case arises.
But the Council also challenge the judges findings in fact.
The Defendants Legal Argument
As already indicated, the feature of both the cases under appeal to which the defendants attach importance is that the proceedings are directed against only one defendant.
In this respect they are different from the leading authorities, Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32 and Barker v Corus UK Ltd [2006] 2 AC 572, in both of which the claimants alleged that the victims had been exposed to asbestos as a result of a breach of duty by more than one employer.
In Barker, however, one of the three material exposures had occurred when Mr Barker was working as a self employed plasterer.
On behalf of the defendants in both of the appeals, Mr Stuart Smith QC characterised the present cases as single exposure cases: the claimants alleged only one possible tortious source for the exposure.
In both cases the exposure could be regarded as slight.
In addition, the victims had been exposed to asbestos in the general atmosphere in the areas where they lived.
Counsel renewed the argument that in such cases the special rule in Fairchild did not apply and that, in order to establish liability, the claimant required to prove, on the balance of probability, that the victims mesothelioma is to be attributed to her exposure to asbestos as a result of the defendants breach of duty.
The claimant could do this by leading epidemiological evidence to show that the exposure by the defendant had doubled the risk of the victim developing mesothelioma.
This was essentially the argument which the trial judge had accepted in Sienkiewicz: the claimant failed because the defendants breach of duty had merely increased the risk of her developing mesothelioma by 18% far short of doubling the environmental risk.
Section 3 of the 2006 Act
In the Court of Appeal in Sienkiewicz [2010] QB 370, 379, para 26, Smith LJ saw considerable force in the view that in Fairchild and Barker the House of Lords had not been considering a single exposure case and that, if they had done so, they would not have included such a case within the scope of the rule.
But she held that such speculation was now pointless since Parliament had intervened by enacting section 3 of the 2006 Act, which had the effect that the common law simpliciter no longer governed claims for damages in mesothelioma cases.
In this regard Smith LJ observed, [2010] QB 370, 381 382, at paras 34 and 35: 34.
However, in my view, Parliament used clear words which provide that, in all mesothelioma cases, a claimant can take advantage of section 3(2) provided that he or she can satisfy the four conditions in section 3(1) and the fourth condition can, in my judgment, be satisfied by proof of causation by reference to a material increase in risk. 35.
I conclude therefore that, in a mesothelioma case, it is not open to a defendant to put the claimant to proof of causation by reference to a twofold increase in risk.
The judge was therefore wrong to require the claimant in this case to attempt to cross that hurdle.
If he had applied the correct test on causation, namely whether or not the tortious exposure had materially increased the risk, the answer was plainly yes.
In my view, the claimant should have succeeded and the appeal must be allowed.
Scott Baker LJ agreed with Smith LJ, as did Lord Clarke of Stone cum Ebony.
Lord Clarke considered, [2010] QB 370, 387, at para 57, that it was plain from the terms of section 3 and from the analysis of the common law that the respondent was liable for the mesothelioma which caused Mrs Costellos death.
Subsection (1) of section 3 of the 2006 Act describes the circumstances in which the section is to apply in actions of damages for mesothelioma.
According to subsection (1)(d), it applies where the responsible person is liable in tort, by virtue of the exposure mentioned in paragraph (a) in connection with damage caused to the victim by the disease (whether by reason of having materially increased a risk or for any other reason).
Smith LJ appears to have considered that, by referring to the defendant being held liable in tort by reason of having materially increased a risk, Parliament had precluded any argument that, in particular circumstances, a defendant could not be held liable on that basis.
I would not read the provision in that way.
Section 3 was not concerned with prescribing the basis for defendants being held responsible for claimants mesothelioma.
Rather, its purpose was to reverse the decision of the House of Lords in Barker v Corus UK Ltd [2006] 2 AC 572.
The House had held that, where more than one defendant had materially increased the risk that an employee would contract mesothelioma, liability was to be attributed, not jointly and severally, but according to each defendants degree of contribution to the risk.
In section 3 Parliament laid down that, on the contrary, where a defendant was held liable in a mesothelioma case, he was to be liable for the whole of the damage caused to the victim and, if anyone else was held responsible, they were to be liable jointly and severally.
The reference to the defendant having been held liable by reason of having materially increased a risk is simply designed to show that the statutory rule applies in cases where the defendant is held liable (as in Barker) on the basis of materially increasing the risk to the claimant.
But the concluding words, or for any other reason, show that Parliament envisages that a defendant might be held liable on some other basis.
In that eventuality also he is to be liable for the whole of the damage and, if anyone else is held responsible, they are to be liable jointly and severally.
It follows that section 3 of the 2006 Act does not shut out the appellants argument that in a single exposure case a defendant should not be held liable unless the claimant proves on the balance of probability that his breach of duty caused the victims mesothelioma.
That argument and the more particular argument, that the claimant must show that the defendant more than doubled the risk of the victim developing mesothelioma, have therefore to be addressed on their merits.
The Rock of Uncertainty
The discussion and decision in Fairchild proceeded on the basis described by Lord Bingham, [2003] 1 AC 32, 43, at para 7: There is no way of identifying, even on a balance of probabilities, the source of the fibre or fibres which initiated the genetic process which culminated in the malignant tumour.
This was what he described as the rock of uncertainty: [2003] 1 AC 32, 43G H.
On behalf of the appellants, Mr Stuart Smith accepted that this remains the position in cases where a victim has been exposed to asbestos in the course of his employment with a number of employers.
The same would presumably apply if the victim had been exposed to asbestos, say, when visiting a number of cinemas run by different companies.
But he submitted that, where the claimant alleges that only one defendant wrongfully exposed her to asbestos and environmental exposure is also a possible source of the asbestos which affected her, the claimant must prove on the balance of probability that her disease was caused by the defendant rather than by environmental exposure.
In Fairchild, as can be seen from Lord Binghams speech, at p 40, para 2, it was common ground that any cause of [the claimants] mesothelioma other than the inhalation of asbestos dust at work can be effectively discounted (emphasis added).
At the time, some commentators indeed found this surprising, since exposure can occur in a variety of ways.
Most obviously, perhaps, a factory may pollute the surrounding area and lead to the residents inhaling asbestos fibres in the atmosphere.
But fibres are actually widespread in the atmosphere throughout most of the country.
One European study suggested that one person in seven shows lung damage of a kind caused by exposure to asbestos.
See the examples in Jane Stapleton, Lords aleaping evidentiary gaps, (2002) 10 Torts Law Journal 276, 277 279.
But, for some reason, only certain people develop mesothelioma as a result of being exposed to asbestos.
The issue in the present appeals arises because both parties accept that Mrs Costello and Mrs Willmore, who did develop mesothelioma, might have developed it as a result of being exposed to asbestos in the general atmosphere.
At first sight it is somewhat surprising that the defendants should submit that in these cases the claimant must prove, on the balance of probability, that the defendants breach of duty caused her illness, since Fairchild proceeded on the basis that there is no way of identifying, on the balance of probability, the source of the fibre or fibres which initiated the genetic process that culminated in the victims malignant tumour.
Medical science has not advanced significantly in this respect in the intervening eight years.
So counsels argument is and must be that, in a case where the only possible source of the fibre or fibres which caused the disease is either environmental exposure to asbestos or exposure by the defendant, a claimant could always have proved, on the balance of probability, that the defendant was the source of the relevant fibre or fibres by leading appropriate epidemiological evidence to show that the exposure by the defendant more than doubled the background risk of the victim developing mesothelioma.
So the Fairchild exception would never have applied.
Take Sienkiewicz as an example.
The defendants argue that the claim fails since, on the basis of the expert evidence, the judge found that the exposure due to their breach of duty increased Mrs Costellos risk of developing mesothelioma by only 18%.
By contrast, it is said, if the expert evidence had shown that their exposure had doubled the background risk, Mrs Costello would have proved that, on the balance of probability, her mesothelioma had been caused by the defendants breach of duty rather than by any environmental exposure.
In that event the claim would have succeeded.
There is no rock of uncertainty and so no room for the Fairchild exception.
By applying Fairchild, the Court of Appeal had erred in law and the appeal should therefore be allowed.
Unpacking the Defendants Legal Argument
The defendants argument appears simple, but it would actually involve a major change in the law.
Usually, in English or Scots law, a court awards a claimant or pursuer damages for his injuries only if the judge is satisfied, on the balance of probability, that the wrongful act of the defendant or defender actually caused, or materially contributed to, his injury.
Unless he proves this, his claim will fail.
In the case of a disease like mesothelioma the claimant will be able to prove on the balance of probability that he is suffering from mesothelioma and that he has suffered loss as a result.
He may also be able to prove, on the balance of probability, that a defendant or a number of defendants negligently exposed him to asbestos in the course of his employment with them, or while as in Mrs Willmores case she was a pupil in a school run by the Council.
What, however, the claimant will be quite unable to prove, on the balance of probability, in the present state of medical knowledge, is that he developed mesothelioma as a result of inhaling any particular fibre or fibres and that, therefore, a particular defendant was responsible for exposing him to the fibre or fibres that caused his illness.
Moreover, medical experts are no more able to tell whether the fibre or fibres which triggered the claimants mesothelioma came from the general atmosphere than they can tell whether they came from exposure during the claimants work with one or other of a number of employers.
Faced with the problem that, in the present state of medical science, a claimant can never prove his case to the standard that the law usually requires, a legal system may react in a variety of ways.
It may simply adhere to its usual stance and say that, since the claimant has not proved on the balance of probability that the defendant actually caused his disease, the claim must fail.
That was, in effect, what the Court of Appeal decided in Fairchild v Glenhaven Funeral Services Ltd [2002] 1 WLR 1052.
Alternatively, if that approach seems to be unduly harsh on victims, a system may hold that, if the claimant proves on the balance of probability that the defendants breach of duty has exposed him to asbestos, an evidential burden falls on the defendant to show that this exposure did not play any part in the claimants illness.
Menne v Celotex Corp 861 F 2d 1453 (10 Cir 1988) is a case in point.
Another possibility would be that a system would choose to hold a defendant liable because his breach of duty doubled the risk that his employee would develop mesothelioma.
The decision of the Supreme Court of Texas in Merrell Dow Pharmaceuticals Inc v Havner (1997) 953 SW 2d 706 is an example of that approach being carefully applied in relation to proof that a mothers consumption of a drug caused a birth defect in her baby.
As I point out at para 154 below, the court was conscious that it was deliberately applying a special rule to deal with the particular evidential difficulties facing plaintiffs in that kind of case.
Or else a system may adopt a (different) rule to the effect that, if the claimant proves, on the balance of probability, that the defendant materially increased the risk that he would develop mesothelioma, then the defendant is to be held to have contributed materially to the development of the claimants illness.
That is what the House of Lords appeared to do in Fairchild.
In Barker v Corus UK Ltd [2006] 2 AC 572, however, the approach in Fairchild was refined: it was now said that a defendant was liable simply on the basis that his breach of duty had materially increased the risk that his employee would contract mesothelioma and the employee had done so.
The response of English law to the problem posed by the rock of uncertainty in mesothelioma cases is therefore to be found in the combination of the common law, as laid down in Fairchild and Barker, and section 3 of the 2006 Act.
Defendants whose breaches of duty materially increase the risk that the victim will develop mesothelioma are liable jointly and severally for the damage which the victim suffers if he does in fact develop mesothelioma.
This is the current version of the Fairchild exception, as it applies in cases of mesothelioma.
Of course, the Fairchild exception was created only because of the present state of medical knowledge.
If the day ever dawns when medical science can identify which fibre or fibres led to the malignant mutation and the source from which that fibre or those fibres came, then the problem which gave rise to the exception will have ceased to exist.
At that point, by leading the appropriate medical evidence, claimants will be able to prove, on the balance of probability, that a particular defendant or particular defendants were responsible.
So the Fairchild exception will no longer be needed.
But, unless and until that time comes, the rock of uncertainty which prompted the creation of the Fairchild exception will remain.
Proof of a Fact and Proof of a Probability
Although a claimant cannot prove what happened, in any given case his illness has a determinate cause.
In other words, his mesothelioma was actually caused by a particular fibre or fibres and so a particular defendant either did or did not materially contribute to his contraction of the disease.
Whether a defendant did so is a matter of fact, but one which, in the present state of medical science, we can never know.
In Hotson v East Berkshire Area Health Authority [1987] AC 750 the plaintiff fell from a tree and sustained an acute traumatic fracture of the left femoral epiphysis.
He was taken to hospital, but his injury was not correctly diagnosed or treated for five days.
In the event, he suffered avascular necrosis of the epiphysis, involving disability of the hip joint and the virtual certainty that he would later develop osteoarthritis.
The health authority admitted negligence.
The trial judge, Simon Brown J, found that, even if the hospital had diagnosed the injury and treated the plaintiff promptly, there was a 75% chance that the necrosis would still have developed.
He held that the plaintiff was entitled to damages for the loss of the 25% chance that he would have made a full recovery if treated promptly: [1985] 1 WLR 1036.
The Court of Appeal upheld the trial judge: [1987] AC 750.
The House of Lords allowed the health authoritys appeal.
The House of Lords emphasised that what had happened to the plaintiff by the time he reached hospital was a matter of fact albeit one as to which there was no direct evidence and as to which the medical experts who gave evidence were divided.
As a matter of fact, by the time he reached hospital, the plaintiff either did or did not have sufficient intact blood vessels to keep the affected epiphysis alive.
In the words of Lord Mackay of Clashfern, [1987] AC 750, 785A B, on that matter, having regard to all the evidence, including the conflicting medical evidence, the trial judge took the view that it was more probable than not that insufficient vessels had been left intact by the fall to maintain an adequate blood supply to the epiphysis .
Lord Mackay went on to say, at p 785C E: It is not, in my opinion, correct to say that on arrival at the hospital he had a 25 per cent chance of recovery.
If insufficient blood vessels were left intact by the fall he had no prospect of avoiding complete avascular necrosis whereas if sufficient blood vessels were left intact on the judges findings no further damage to the blood supply would have resulted if he had been given immediate treatment, and he would not have suffered the avascular necrosis.
In Hotson therefore not only was the plaintiffs condition by the time he reached hospital a matter of fact, but it was one which, the House held, the trial judge had been able to determine, on the balance of probability: insufficient vessels were left intact to maintain an adequate blood supply to maintain the epiphysis.
Here, by contrast, although as a matter of fact, for instance, the defendants exposure of Mrs Costello to asbestos dust either did or did not materially contribute to her contraction of the disease, in the present state of medical science we can never know and the claimant can never prove whether it did or did not.
Lord Hoffmann made the same point in Gregg v Scott [2005] 2 AC 176, 196, at para 79, when he said that, for the law Everything has a determinate cause, even if we do not know what it is.
The blood starved hip joint in Hotsons case, the blindness in Wilshers case, the mesothelioma in Fairchilds case; each had its cause and it was for the plaintiff to prove that it was an act or omission for which the defendant was responsible.
The narrow terms of the exception made to this principle in Fairchilds case only serves to emphasise the strength of the rule.
The fact that proof is rendered difficult or impossible because no examination was made at the time, as in Hotsons case, or because medical science cannot provide the answer, as in Wilshers case, makes no difference.
There is no inherent uncertainty about what caused something to happen in the past or about whether something which happened in the past will cause something to happen in the future.
Everything is determined by causality.
What we lack is knowledge and the law deals with lack of knowledge by the concept of the burden of proof.
It appears that in the House of Lords in Hotson there was some argument about the use of statistical evidence, but most members of the appellate committee did not find it necessary to deal with it.
Lord Mackay did address the issue, however while making it clear that his comments were obiter.
At the hearing of the present appeals counsel made some reference to Lord Mackays comments and Lord Phillips has referred to them in his judgment.
It may therefore be worthwhile to look a little more closely at what Lord Mackay said in order to see whether it has any application in the present case.
Lord Mackay put forward a hypothetical example loosely based on McGhee v National Coal Board [1973] 1 WLR 1.
He supposed a case in which an employer had negligently failed to provide washing facilities at the end of their shift for men who had been exposed to brick dust in the course of their work.
One of the men developed dermatitis and sued his employer.
He led epidemiological evidence which showed that of 100 men working in the same conditions 30 would develop dermatitis even though they had showered after their shift.
But the evidence also indicated that, if the men did not shower, 70 would develop dermatitis.
Lord Mackay observed, [1987] AC 750, 786D E: Assuming nothing more were known about the matter than that, the decision of this House [in the McGhee case] may be taken as holding that in the circumstances of that case it was reasonable to infer that there was a relationship between contraction of dermatitis in these conditions and the absence of washing facilities and therefore it was reasonable to hold that absence of washing facilities was likely to have made a material contribution to the causation of the dermatitis.
Two comments are appropriate.
First, the decision of the House of Lords in McGhee actually goes much further than holding that, in such circumstances, it is reasonable to infer that the absence of washing facilities was likely to have made a material contribution to the causation of the dermatitis.
As Lord Mackay himself pointed out, in McGhee there were no statistics.
The House had to deal with the appeal on the basis of the evidence of Dr Hannay, a dermatologist led by the pursuer, which the Lord Ordinary had accepted.
Dr Hannay, who was not cross examined on the point, said that the provision of showers would have materially reduced the risk of the pursuer contracting dermatitis: 1973 SC (HL) 37, 42.
So the lack of showers materially increased the risk of the pursuer contracting dermatitis.
In these circumstances, from a broad and practical viewpoint, Lord Reid could see no substantial difference between saying that what the defender did materially increased the risk of injury to the pursuer and saying that what the defender did made a material contribution to his injury: McGhee v National Coal Board [1973] 1 WLR 1, 5B C.
From his previous reference, at p 4D F, to Bonnington Castings Ltd v Wardlaw [1956] AC 613 it is evident that Lord Reid was thinking of any increase in the risk that could not be regarded as de minimis.
There would, for example, have been a material (20%) increase in the risk in a case like McGhee, if 30 out of the population of 100 workmen would have been expected to develop dermatitis even after showering, but 36 would have been expected to develop it if no showers were provided.
On that basis the House would have held the defenders liable.
Secondly, as Lord Phillips points out, Lord Mackay must be supposed to have chosen the figures in his hypothetical example because, among the population of 100 workmen exposed to brick dust, more than twice as many (70) would be expected to develop dermatitis if no showers were provided, as would be expected to develop it even if showers were provided (30).
In terms of the defendants argument in the present appeals, failure to provide showers would more than double the risk.
In that situation, assuming that nothing more were known, Lord Mackay thought that the House might be taken as holding that it was reasonable to infer that there was a relationship between contraction of dermatitis in these conditions and the absence of washing facilities and therefore it was reasonable to hold that absence of washing facilities was likely to have made a material contribution to the causation of the claimants dermatitis.
Lord Mackays introductory words (assuming nothing more were known) show that he was conscious that, if the House did indeed reason in that way, it would be reasoning, from statistics about the situation in a population of 100 workmen in the same conditions, to the case of the individual claimant.
Obviously, care has to be taken in doing so.
For example, if the claimant had some underlying condition which made him particularly sensitive to brick dust, that would affect any reliance that could be placed on the statistics in his case.
More fundamentally, however, it is necessary to see what the epidemiological evidence would actually show in Lord Mackays hypothetical case.
Suppose the claimant, who had not been able to shower, developed dermatitis.
As a matter of fact, he either developed the dermatitis because of the lack of a shower or he developed it simply because of his exposure to the dust.
In other words, either he was one of 30 who would have developed dermatitis anyway, or he was one of the additional 40 who, the epidemiological evidence suggested, would have developed it only because there were no showers.
Ex hypothesi, however, general medical science is incapable of saying into which category the claimant falls.
And epidemiological science is equally incapable of determining that particular question indeed it is no part of its function to do so.
In that situation a court could simply say that the claimants case failed since he had not proved that he was among the 40 who would have developed dermatitis only because there were no showers, rather than among the 30 who would have developed it even if they had showered.
Alternatively, a court might say that it was more likely that the claimants dermatitis was caused by the lack of showers.
And, in fact, various courts have adopted an approach based on doubling the risk as their way of dealing with the problems of proof in toxic tort cases.
As already mentioned at para 140 above, an example is the decision of the Supreme Court of Texas in Merrell Dow Pharmaceuticals Inc v Havner (1997) 953 SW 2d 706 which Lord Phillips discusses at paras 85 89.
It should be noticed, however, that the starting point for the courts discussion was that epidemiological studies cannot establish the actual cause of an individuals injury or condition.
The court explained the basis of its approach in this way: In the absence of direct, scientifically reliable proof of causation, claimants may attempt to demonstrate that exposure to the substance at issue increases the risk of their particular injury.
The finder of fact is asked to infer that because the risk is demonstrably greater in the general population due to exposure to the substance, the claimant's injury was more likely than not caused by that substance.
Such a theory concedes that science cannot tell us what caused a particular plaintiff's injury.
It is based on a policy determination that when the incidence of a disease or injury is sufficiently elevated due to exposure to a substance, someone who was exposed to that substance and exhibits the disease or injury can raise a fact question on causation.
The court acknowledged that it was adopting a particular policy on what counted as raising a question on causation in such circumstances.
On the basis of McGhee Lord Mackay envisaged that in an appropriate case the House of Lords would take a somewhat similar approach.
Lord Mackay first suggests that in his hypothetical case the House could be taken as holding that, on the basis of the statistics, it would be reasonable to infer that there was a relationship between contraction of dermatitis in these conditions and the absence of washing facilities.
Assuming that the epidemiological evidence is reliable, that is plainly so.
He goes on to suggest that, on the basis of that inference, it might be reasonable to hold that the absence of washing facilities was likely to have made a material contribution to the causation of the dermatitis by which he means the claimants dermatitis.
This is the critical step.
It is important to recognize that in such a case the claimant would not have proved, on the balance of probability, that his exposure to the brick dust by the defendant actually caused his dermatitis.
Indeed the starting point of the entire hypothetical example is that, in the present state of medical knowledge, the claimant could not prove this.
Assuming that the epidemiological study is reliable, the statistics in Lord Mackays example would simply indicate that, if you took 100 workmen who developed dermatitis after working in the same conditions, you would expect to find that 30 developed it after having showered and 70 developed it when they had not been able to shower.
So, by leading the epidemiological evidence, the only fact that the claimant can prove and offers to prove, on the balance of probability, is that in most cases the dermatitis would have been related to the lack of showers.
So, if the judge accepts the evidence, it may legitimately satisfy him, on the balance of probability, not that the claimants dermatitis was caused by the lack of showers, but that, in the absence of any evidence that the claimant is atypical, it is more probable than not that his dermatitis was caused by the lack of showers.
In short, the chances are that it was.
Whether, in any particular case, the claimants dermatitis was actually caused by the lack of showers is a matter of fact and one that remains unknown, if the only available evidence is statistical.
See Steve Gold, Causation in Toxic Torts: Burdens of Proof, Standards of Persuasion, and Statistical Evidence (1986) 96 Yale LJ 376, 382 384.
Where the claimant led only statistical evidence, a court could simply say that his case failed.
Alternatively, as Lord Mackay envisaged, the court might have held, exceptionally, that, where no other proof was possible, the defendant should be held liable on the basis of Lord Mackays rule.
Of course, it is possible to conceive of a legal system which chose, as a matter of policy, to make defendants liable for all the damage which a court was satisfied, on the balance of probability, they had probably caused.
But only the legislature could alter English or Scots law so as to introduce a general rule to that effect, which would change the very nature of the system and completely alter its balance, in favour of claimants and against defendants and their insurers.
In Hotson Lord Mackay was not suggesting that English law operated, or should operate, generally on that basis.
On the contrary, he had just been at pains, along with the other members of the appellate committee, to emphasise that in civil proceedings for damages the role of the judge is to decide, on the balance of probability, what actually happened.
He introduced his discussion of the hypothetical case by saying, [1987] AC 750, 786A B, that he considered that it would be unwise, however, to lay it down as a rule that a plaintiff could never succeed by proving loss of a chance in a medical negligence case.
He then referred to McGhee.
So he seems to have envisaged that the court might adopt such an approach in an exceptional case like McGhee where, because of the state of medical knowledge, the claimant could not prove his case on the usual approach.
There is now no room, however, for Lord Mackays rule in cases of that kind in English or Scots law since, in Fairchild, the House dealt with the problem of proof which they present by adopting a different and for claimants much less stringent rule.
With Lord Mackays rule, the claimant would succeed if he showed, on the balance of probability, that it was more likely than not that the defendants breach of duty had materially contributed to the causation of his dermatitis; under the rule in Fairchild, the claimant succeeds if he shows, on the balance of probability, that the defendants breach of duty materially increased the risk that he would contract dermatitis.
Indeed, the rule in Fairchild is more generous to claimants precisely because it is modelled on the rule which the House had adopted in McGhee and which was itself more generous to pursuers than the rule described by Lord Mackay.
Put shortly, if the House had applied Lord Mackays rule, the claimants in Fairchild would unquestionably have failed since there was no evidence, whether epidemiological or of any other kind, to show that, on the balance of probability, it was more probable than not that the breach of duty of any of the individual defendants had materially contributed to the causation of the victims disease.
All that the claimants could show was that, on the balance of probability, each of the defendants had materially increased the risk that the victims would develop mesothelioma.
For the policy reasons which it gave, the House of Lords held that this was enough.
Single Exposure Mesothelioma Cases
Similarly, in my view, there is now no room for introducing the doubling of the risk approach in single exposure mesothelioma cases.
As already explained, in these cases, because of the state of medical knowledge, it is impossible to prove whether the victims mesothelioma was actually caused by the defendants breach of duty or by asbestos fibres in the general atmosphere.
The claimant comes up against the same rock of uncertainty.
In that respect single exposure cases are no different from multiple defendant cases and the same approach should be applied.
The point is covered by what Lord Hoffmann said in Barker v Corus UK Ltd [2006] 2 AC 572, 584H 585B, at para 17, in a short passage with which all the members of the appellate committee agreed: The purpose of the Fairchild exception is to provide a cause of action against a defendant who has materially increased the risk that the claimant will suffer damage and may have caused that damage, but cannot be proved to have done so because it is impossible to show, on a balance of probability, that some other exposure to the same risk may not have caused it instead.
For this purpose, it should be irrelevant whether the other exposure was tortious or non tortious, by natural causes or human agency or by the claimant himself.
These distinctions may be relevant to whether and to whom responsibility can also be attributed, but from the point of view of satisfying the requirement of a sufficient causal link between the defendant's conduct and the claimant's injury, they should not matter.
The position accordingly is that in single exposure cases the Fairchild exception applies and a claimant succeeds if he proves, on the balance of probability, that the defendants breach of duty materially increased the risk that he would develop mesothelioma.
Since that is the rule which applies in cases where the state of medical knowledge makes it impossible for a claimant to prove whether a defendants breach of duty actually caused his disease, there is no reason why a claimant needs to prove anything more than that the defendants breach of duty materially increased the risk that he would develop the disease.
So in such cases the doubling of the risk approach is irrelevant.
And there is no room for Mr Stuart Smiths fall back suggestion that, in single exposure cases, a material increase in risk should be equated with doubling the risk.
That would be utterly inconsistent with the established law that, for these purposes, a risk is material if it is more than de minimis.
See the discussion of the hypothetical use of statistics in McGhee at para 150 above.
It also follows that there is no room in such cases for applying the approach laid down by Smith LJ in the Court of Appeal in the passage quoted at para 121 above.
The purported guidance to courts in that passage should not be followed.
Finally, nothing which I have said is intended to discourage the use of epidemiological evidence or to depreciate its value in cases where a claimant has to prove his case on the balance of probabilities.
Far from it.
Obviously, for example, epidemiology is likely to lie behind much of the evidence on which a court determines whether an exposure has materially increased the risk of the claimant developing a disease.
Epidemiological evidence may also be relevant when deciding whether it would have been reasonable for a defendant to take precautions to avoid the risk of the claimant suffering a particular injury say, the side effect of a drug.
And, of course it must be emphasised once more epidemiological and statistical evidence may form an important element in proof of causation.
I have simply emphasised the point made by Phipson on Evidence,17th ed (2010), para 34 27, that, unless a special rule applies, Where there is epidemiological evidence of association, the court should not proceed to find a causal relationship without further, non statistical evidence.
In other words, since, by its very nature, the statistical evidence does not deal with the individual case, something more will be required before the court will be able to reach a conclusion, on the balance of probability, as to what happened in that case.
For example, where there is a strong epidemiological association between a drug and some condition which could have been caused in some other way, that evidence along with evidence that the claimant developed the condition immediately after taking the drug may well be enough to allow the judge to conclude, on the balance of probability, that it was the drug that caused the claimants condition.
Of course, in any actual dispute, the epidemiological evidence may be contested.
The judge will then have to decide which expert view he accepts and how reliable the evidence is whether, for example, the study has been properly constructed and, in particular, what the confidence intervals are.
In that respect epidemiological evidence is no different from other evidence.
Disposal
Since the Fairchild exception applies in single exposure cases, the claimants in the present appeals were entitled to succeed if they proved that the defendants breach of duty materially increased the risk that Mrs Costello and Mrs Willmore would develop mesothelioma.
There was therefore no error of law on the part of the Court of Appeal.
The defendants appeal in Sienkiewicz must accordingly be dismissed.
So far as the law is concerned, the same applies to Willmore.
In that case the Council also appealed on the facts.
The Court of Appeal reviewed the evidence and the judges reasoning.
Having rejected his finding on one point, they accepted that he had been entitled to find that she had been exposed to asbestos in two other ways and that those exposures had been material.
It is important that judges should bear in mind that the Fairchild exception itself represents what the House of Lords considered to be the proper balance between the interests of claimants and defendants in these cases.
Especially having regard to the harrowing nature of the illness, judges, both at first instance and on appeal, must resist any temptation to give the claimants case an additional boost by taking a lax approach to the proof of the essential elements.
That could only result in the balance struck by the Fairchild exception being distorted.
Mr Feeny made a number of plausible criticisms of the findings of Nicol J and of the approach of the Court of Appeal and suggested that they had been unduly favourable to Mrs Willmore.
Some of the inferences which Nicol J drew in Mrs Willmores favour from the evidence relating to her exposure at Bowring Comprehensive can properly be regarded as very generous.
With considerable hesitation, however, I have concluded that the criticisms would not justify this Court in taking the exceptional step of disturbing the concurrent findings of fact of the courts below.
I would accordingly dismiss the Councils appeal on the facts.
In the result, the appeal in Willmore must also be dismissed.
LADY HALE
I pity the practitioners as well as the academics who have to make sense of our judgments in difficult cases.
But these cases are hard rather than difficult.
We are here concerned with one case of relatively light but long term exposure and one case of very slight and short term exposure, both set against a lifetime of environmental and other possible exposures about which nothing much is known.
As Lord Brown implies, Fairchild kicked open the hornets nest.
The House of Lords were confronted with several employers, each of which had wrongly exposed their employees to asbestos, but none of which exposure could be shown to have caused the disease.
I find it hard to believe that their Lordships there foresaw the logical consequence of abandoning the but for test: that an employer or occupier whose wrongful exposure might or might not have led to the disease would be liable in full for the consequences even if it was more likely than not that some other cause was to blame (let alone that it was not more likely than not that he was to blame).
But, as Lord Rodger has explained, that is the logical consequence and there is nothing we can do about it without reversing Fairchild.
Even if we thought it right to do this, Parliament would soon reverse us, and it is easy to understand why.
Asbestos has long been known to be a dangerous (as well as a useful) substance, employers and occupiers turned a blind eye to those dangers long after they knew or should have known about them, and mesothelioma is a dreadful disease.
In Barker, Mr Stuart Smith tried very hard to persuade the House of Lords that the Fairchild exception applied only where all the exposure was in breach of duty.
He failed in that, although he succeeded in persuading the majority that the price to be paid for abandoning conventional rules of causation was aliquot liability.
Parliament swiftly disagreed.
The Compensation Act 2006 restored the principle that any tortfeasor is liable in full for an indivisible injury.
But that leaves us with the result that a defendant who may very well not have caused the claimants disease indeed probably did not do so is fully responsible for its consequences.
I do not see any answer to that.
It is the inevitable result of Barker, made even more severe through the intervention of Parliament, but inevitable none the less.
That means that in cases where the Fairchild exception applies, there is no room for the more than doubles the risk approach to causation: it is not necessary in order to establish causation and it is not an appropriate test of what is a more than de minimis increase in risk.
So we do not need to go into the relevance of statistical probabilities to the finding of causation for the purpose of deciding these cases.
Nor, in the event, did the Court of Appeal need to do so.
The reason why Lord Phillips and Lord Rodger have discussed the subject at such length is the obiter observation of Smith LJ, at para 23 of her judgment in Sienkiewicz, that in a case of multiple potential causes, a claimant can demonstrate causation by showing that the tortious exposure has at least doubled the risk arising from the non tortious cause or causes.
Anything we say on the subject, therefore, is also obiter.
However, I do agree with Lord Rodger that doubling the risk is not an appropriate test of causation in cases to which the Fairchild exception does not apply.
Risk is a forward looking concept what are the chances that I will get a particular disease in the future? Causation usually looks backwards what is the probable cause of the disease which I now have? Epidemiology studies the incidence and prevalence of particular diseases and the associations between both of these and particular variables in the diseased population.
From these it is possible to predict that a particular percentage of the population, for example of women aged between 60 and 70, will contract a particular disease, for example, breast cancer.
It is also possible to say that certain variables, such as life style or age of first child bearing, are associated with a greater chance of developing the disease.
So a doctor will sensibly advise her patient to behave in a way which will reduce the risks.
But if the disease materialises, the existence of a statistically significant association between factor X and disease Y does not prove that in the individual case it is more likely than not that factor X caused disease Y.
The same applies to less sophisticated calculations.
The fact that there are twice as many blue as yellow taxis about on the roads may double the risk that, if I am run over by a taxi, it will be by a blue rather than a yellow one.
It may make it easier to predict that, if I am run over by a taxi, it will be by a blue rather than a yellow one.
But when I am actually run over it does not prove that it was a blue taxi rather than a yellow taxi which was responsible.
Likewise, if I actually develop breast cancer, the fact that there is a statistically significant relationship between, say, age at first child bearing and developing the disease does not mean that that is what caused me to do so.
But as a fact finder, how can one ignore these statistical associations? Fact finding judges are told that they must judge a conflict of oral evidence against the overall probabilities coupled with the objective facts and contemporaneous documentation: see, for example, Robert Goff LJ in Armagas Ltd v Mundogas SA (The Ocean Frost) [1985] 1 Lloyds Rep 1, 57.
Millions of pounds may depend upon their decision.
Yet judges do not define what they mean by the overall probabilities other than their own particular hunches about human behaviour.
Surely statistical associations are at least as valuable as hunches about human behaviour, especially when the judges are so unrepresentative of the population that their hunches may well be unreliable? Why should what a (always middle aged and usually middle class and male) judge thinks probable in any given situation be thought more helpful than well researched statistical associations in deciding where the overall probabilities lie? As it seems to me, both have a place.
Finding facts is a difficult and under studied exercise.
But I would guess that it is not conducted on wholly scientific lines.
Most judges will put everything into the mix before deciding which account is more likely than not.
As long as they correctly direct themselves that statistical probabilities do not prove a case, any more than their own views about the overall probabilities will do so, their findings will be safe.
So in my view it would be wrong for judges to change their fact finding behaviour because of anything said in this case.
On the issues of law, the Fairchild exception has to apply to these single tortious exposure cases, no matter how unjust it may seem to the defendants.
Even if I were convinced of the merits of the more than doubling the risk approach to causation in other contexts, which I am not, it does not apply in these cases.
That is enough to dispose of the appeal in the case of the late Mrs Costello.
In the case of Mrs Willmore, the judges findings of fact were truly heroic, and I would endorse what Lord Rodger says about this, but I do not think that it is open to us to disturb them.
I would dismiss both appeals.
LORD BROWN
Mesothelioma claims are in a category all their own, so special indeed that Parliament in 2006 chose to legislate specifically for them: section 3 of the Compensation Act 2006.
Whilst entertaining no doubt that the position now reached in respect of such claims is precisely as Lord Phillips and Lord Rodger have explained and that these appeals must accordingly fail, I think it only right to indicate just how unsatisfactory I for my part regard this position to be and how quixotic the path by which it has been arrived at.
The present position, exemplified by the facts of these very appeals, can be simply stated as follows: any person who negligently or in breach of duty exposes another more than minimally to the inhalation of asbestos fibres will be liable to make full compensation if that other develops mesothelioma more than five years later (five years being now thought to be the minimum period between the development of the first malignant cell and the diagnosis of the disease see Lord Phillips judgment at para 19(v)).
That statement of the position holds true irrespective of whether the victim was exposed by others to even longer and more intensive inhalation (and indeed inhalation of more noxious fibres), whether negligently or not, and irrespective too of any environmental or other exposure (again, however intensive).
It requires qualification only if and to the extent that the victim negligently exposed himself to the inhalation of asbestos fibres (when there may be a finding of contributory fault).
One need hardly stress how radically different such an approach to compensation represents from that followed in all other cases of physical injury.
All other cases require that the claimant satisfies the but for test of causation.
True, in the case of cumulative injuries, the law holds a negligent employer liable even if his negligence is responsible for part only of the victims condition (provided only that it made a material, ie more than de minimis, contribution to the development of the condition).
I have difficulty, however, in seeing this as a true exception to the but for test: although the claimant in Bonnington Castings Ltd v Wardlaw [1956] AC 613, the case which first established the principle, recovered full damages for his condition (pneumoconiosis from the inhalation of silica), that appears to have been because the defendants took no point on apportionment; in a series of subsequent such cases damages have been apportioned, however broadly for example, as between negligent and non negligent exposure respectively in dust inhalation cases, in noise cases and in cases of vibration white finger, and, in respiratory disease cases, between the damage caused by the inhalation of fumes or other noxious agents on the one hand and the claimants habit of cigarette smoking on the other.
It therefore seems to me that there is just one single authority that needs to be noticed before one turns to the three stage process by which the present approach to compensation in mesothelioma cases came to be dictated, namely, of course, McGhee v National Coal Board [1973] 1 WLR 1.
McGhee is undoubtedly a problematic case.
The House of Lords was later in Wilsher v Essex Area Health Authority [1988] AC 1074 to regard it as not having laid down any principle of law at all; rather it was described by Lord Bridge of Harwich, at p 1090, as merely a robust and pragmatic approach to the undisputed primary facts of the case on the basis that, as in Bonnington Castings, the negligent prolongation of the claimants contact with (in McGhee) brick dust had materially contributed to his development (in McGhee) of dermatitis.
Rightly or wrongly, however (and whether rightly or wrongly now matters nothing), the House of Lords in Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32 found altogether greater force in McGhee.
As was pointed out, for example by Lord Nicholls, it had really not been open to the House in McGhee to infer from the established facts that the employers negligence had caused or materially contributed to the onset of his condition.
In short, the House in Fairchild regarded McGhee as authority for the application to certain cases of a less stringent test than the usual but for test for establishing the necessary causal connection between the employers negligence and the claimants condition.
That said, however, the judgments in Fairchild provided no support whatever for a general principle of compensation in mesothelioma cases remotely as wide as I have described the present position to be today.
Quite the contrary.
The circumstances in which the more relaxed approach to causation said to have been adopted in McGhee were held to apply to mesothelioma cases were narrowly circumscribed.
One should note particularly Lord Binghams six relevant factors (conveniently set out at para 39 of Lord Phillips judgment), all of which had to be present before the special rule of causation was to apply.
Note too the agreement between the parties in Fairchild that any cause of [the claimants] mesothelioma other than the inhalation of asbestos dust at work can be effectively discounted (Lord Binghams speech at para 2).
Consider also the rationale identified by Lord Bingham as justifying this special rule: the strong policy argument in favour of compensating those who have suffered grave harm, at the expense of their employers who owed them a duty to protect them against that very harm and failed to do so, when the harm can only have been caused by breach of that duty and when science does not permit the victim accurately to attribute, as between several employers, the precise responsibility for the harm he has suffered (Lord Bingham at para 33).
Lord Bingham was there positing a situation where, for example, a mesothelioma victim had worked for three successive employers each, say, for fifteen years, all of whom had negligently exposed him to the inhalation of asbestos fibres.
Faced with the rock of uncertainty Lord Binghams graphic characterisation of sciences inability to establish on a balance of probabilities which particular source(s) of asbestos fibre exposure had caused mesothelioma to develop one can readily see how the House came unanimously to endorse this new principle.
I am not, of course, suggesting that their Lordships in Fairchild were intent on confining the application of this new principle quite so narrowly as that.
Lord Rodger, for example, expressly recognised (at para 170 of his speech) that it can also apply where, as in McGhee, the other possible source of the injury is a similar, but lawful, act or omission of the same defendant.
But he immediately then reserve[d] [his] opinion as to whether the principle applies where the other possible source of injury is a similar but lawful act or omission of someone else or a natural occurrence.
The point I make is that it is hardly to be thought that had the House, on the occasion of the Fairchild hearing, been considering not the facts of those three appeals but instead the facts of the present appeals the claimants would have succeeded and the law have developed as it has.
Before parting from Fairchild it is, I think, worth noting that, just as in Bonnington Castings half a century before, the respondent defendants in Fairchild similarly took no point on apportionment: their stance now as then was one of all or nothing doubtless in the hope (and perhaps even the expectation) of defeating the claims in their entirety.
Coming then to stage two of the three stage process, by which the present position with regard to mesothelioma cases came to be established, Barker v Corus UK Ltd [2006] 2 AC 572, one finds the House having to face up to some of the problems it had left open with Fairchild and, as it seems to me, beginning to have second thoughts both as to the juristic basis for this special rule of causation which Fairchild held to apply in certain toxic tort cases and as to where the abandonment of the but for principle was taking the law.
In the result, the Fairchild approach was (as Lord Rodger now puts it at para 140 of his judgment) refined; Lord Hoffmann explained that Fairchild had recognised a new tort, that of negligently increasing the risk of personal injury (although, of course, the injury had to eventuate before any tort was committed), and logically it followed that any liable defendant should be liable only for his aliquot share of the victims loss, not for its entirety.
The damage was no longer to be treated as the indivisible mesothelioma but rather as the readily divisible creation of the risk of developing mesothelioma.
Damages, therefore, were to be apportioned according to the contribution made by any particular defendant to the overall risk.
On that basis, of course, the special rule whereby the but for test of causation is relaxed applies equally whether or not other exposures are partly tortious and partly non tortious, or indeed wholly non tortious, and whether they result from natural causes or indeed, from the employees own negligence.
It is to my mind quite clear that the preparedness of the majority of the court in Barker to extend the reach of the Fairchild principle this far was specifically dependent upon there being aliquot liability only.
Lord Rodger alone thought that liability under the Fairchild exception to the but for rule should be for full compensation (in solidum).
But he made clear that had that been the view of the majority, then in a case where the victim had himself been solely responsible for a material exposure especially where, as in one of the three appeals before the court in Barker, the victim had himself been at fault he would have applied the normal but for rule for proof of causation.
The third and final stage of the process by which the law with regard to compensation in mesothelioma cases came to reach its present position was, of course, Parliaments enactment of section 3 of the Compensation Act 2006.
I have no doubt that Lord Rodger is right (at paras 131 and 132 of his judgment) in saying that the sole effect of section 3 is to reverse the Houses decision in Barker on the issue of quantum; in no way does it pre empt or dictate the proper approach of the common law to questions of causation and liability.
On the other hand it would be a remarkable thing for this Court now in effect to reverse the decision in Fairchild and revert, in mesothelioma cases as in all others, to the normal, but for, rule of causation the principle, vindicated periodically down the years in cases of indivisible no less than of cumulative injury (Gregg v Scott [2005] 2 AC 176 being the latest such decision in point), that to establish liability the claimant must show that but for the defendants negligence he would probably not have suffered his injury (or at least not have suffered it to the full extent that he has).
In my judgment it could only be by reversing Fairchild and allowing no exception whatever to the normal rule of causation that this Court could now avoid what Lord Phillips (at para 58 of his judgment) rightly describes as the draconian consequences of coupling section 3 to the Fairchild/Barker principle: the liability in full even of someone responsible for only a small proportion of the overall exposure of a claimant to asbestos dust.
There is in my opinion simply no logical stopping place between the case of successive negligent employers dealt with in Fairchild itself (apparently circumscribed though that decision was) and the extreme (draconian) position now arrived at, well exemplified as it seems to me by the facts of these very appeals.
If, because of the rock of uncertainty, the law is to compensate by reference to negligence which merely increases the risk of such injury as then develops, why should not that relaxation of the normal rule of causation apply equally when, as here, there is but one negligent employer (or negligent occupier) as when there are several? As Barker recognised, there can be no rational basis for confining the special rule within narrow bounds, whatever may have been contemplated by the House in Fairchild.
In short, the die was inexorably cast in Fairchild although, as already suggested, it is doubtful if that was then recognised and it is noteworthy too that, even when in Barker it came to be recognised, it was then thought palatable only assuming that compensation was going to be assessed on an aliquot basis.
Parliament, however, then chose although, of course, only in mesothelioma cases to go the whole hog.
The result must surely be this.
As I began by saying, mesothelioma cases are in a category all their own.
Whether, however, this special treatment is justified may be doubted.
True, as Lord Phillips observes at the outset of his judgment, mesothelioma is indeed a hideous disease. (And it is perhaps also the case, as Lord Phillips suggests at para 104, that mesothelioma, after all, may result from the cumulative effect of exposures to asbestos dust.) The unfortunate fact is, however, that the courts are faced with comparable rocks of uncertainty in a wide variety of other situations too and that to circumvent these rocks on a routine basis let alone if to do so would open the way, as here, to compensation on a full liability basis would turn our law upside down and dramatically increase the scope for what hitherto have been rejected as purely speculative compensation claims.
Although, therefore, mesothelioma claims must now be considered from the defendants standpoint a lost cause, there is to my mind a lesson to be learned from losing it: the law tampers with the but for test of causation at its peril.
There is a rough justice about the law of personal injury liability as a whole.
To compensate a claimant in full for a lost finger because there was a 60:40 chance that he would have worn protective gloves had they been made available to him may be regarded as rough justice for defendants.
But it is balanced by the denial of compensation to a claimant who cannot establish that he would probably have worn the gloves or whose finger the judge concludes was probably already doomed because of frostbite.
Save only for mesothelioma cases, claimants should henceforth expect little flexibility from the courts in their approach to causation.
Since Fairchild and Barker there has been much academic focus on a supposedly critical distinction between so called single agent and multiple agent cases, the suggestion being that the former more readily lend themselves to special rules of causation than the latter.
For my part I have difficulty even in recognising the distinction between these categories, at any rate in some cases.
But I have greater difficulty still in accepting that the courts should now, whether on this or any other basis, be thinking of creating any further special rules regarding the principles governing compensation for personal injury.
The same logic which requires that the claims of these respondents succeed to my mind requires also that the courts should in future be wary indeed before adding yet further anomalies in an area of law which benefits perhaps above all from clarity, consistency and certainty in its application.
LORD MANCE
Cases of mesothelioma are subject to the special rule of causation established in Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22; [2003] 1 AC 32 and developed in Barker v Corus UK Ltd [2006] UKHL 20; [2006] 2 AC 572, but significantly amended by the Compensation Act 2006.
I agree that this special rule is applicable to both the appeals before this court, although in each (a) only one person (an employer in one case, a school in the other) is shown to have exposed the victim of mesothelioma to asbestos, the only other such exposure being the general low level atmospheric exposure incurred by members of the public at large, and (b) the exposure by that person did no more than increase the sufferers general low level atmospheric exposure to asbestos materially (or, more specifically, in the case of Mrs Costello represented by Mrs Sienkiewicz, by some 18%).
The submission that causation can be shown by proving a doubling of the ambient risk, or can be negatived by disproving this, is inconsistent with, or would make a radical and uncertain inroad into, the special rule.
I reach this conclusion in agreement with the reasoning on this aspect of Lord Phillips, Lord Rodger, Lady Hale and Lord Dyson, on the basis that our understanding of the aetiology of mesothelioma remains as incomplete and inadequate as ever.
I also concur with the further remarks of Lady Hale in her first paragraph and of Lord Brown in his judgment about the impossibility of going back on Fairchild, as well as on the lesson of caution that the history may teach in relation to future invitations to depart from conventional principles of causation.
I too would therefore dismiss the appeal in Mrs Costellos case.
An interesting debate has, somewhat unexpectedly, developed about the significance or value of epidemiological or statistical evidence relating to a population or group in the context of decision making in particular cases.
I share a reluctance to place too much weight on such evidence.
This is not because statistics are lies, or because truth can be stranger than fiction.
It is because the law is concerned with the rights or wrongs of an individual situation, and should not treat people and even companies as statistics.
Despite the intense sympathy which can arise in particular cases like the present, an attribution of liability based substantially on statistical evidence, that, viewing the relevant population or group as a whole, it is more likely than not that the particular defendant was negligent or causatively responsible, appears to me most undesirable.
That epidemiological evidence used with proper caution, can be admissible and relevant in conjunction with specific evidence related to the individual circumstances and parties is, however, common ground and clearly right.
What significance a court may attach to it must depend on the nature of the epidemiological evidence, and of the particular factual issues before the court.
Whether and if so when epidemiological evidence can by itself prove a case is a question best considered not in the abstract but in a particular case, when and if that question arises.
If it can, then, I would hope and expect that this would only occur in the rarest of cases.
In other cases, there will be continuing good sense in the House of Lords reminder to fact finders in Rhesa Shipping Co SA v Edmunds (the Popi M) [1985] 1 WLR 948 that it is not their duty to reach conclusions of fact, one way or the other, in every case.
There are cases where, as a matter of justice and policy, a court should say that the evidence adduced (whatever its type) is too weak to prove anything to an appropriate standard, so that the claim should fail.
The American material which we have seen, particularly Smith v Rapid Transit Inc (1945) 58 NE 754, Merrell Dow Pharmaceuticals Inc v Havner (1997) 953 SW 2d 706 and Causation in Toxic Torts: Burdens of Proof, Standards of Persuasion, and Statistical Evidence by Steve Gold (1986) 96 Yale LJ 376, demonstrates, with innumerable further references, the detailed and extensive thought which has been given across the Atlantic to the significance and use of epidemiological or statistical evidence.
In that light and without hearing fuller argument, as well as because it raises fact specific issues and is unnecessary for the resolution of these appeals, I think it inappropriate to say more about the use of epidemiological evidence.
On the material before us, I would myself see Willmore v Knowsley Metropolitan Borough Council as a case where there was no sufficient proof that the defendant exposed the claimant to asbestos.
The judge found exposure on a slender and speculative basis which Lady Hale describes as heroic.
But, the concurrent findings below on two of the three bases of exposure found by the judge are entitled to some weight, and on that basis I do not dissent from the general view that the appeal on fact in Willmore should also be dismissed.
LORD KERR
What has been called the Fairchild exception was described in a variety of ways in Barker v Corus UK Ltd [2006] 2 AC 572 but common to all the various formulations is the proposition that where employers through breach of duty expose their employee to asbestos and thereby materially increase the risk to the employee of developing mesothelioma, they will be jointly and severally liable if he or she develops that condition.
This involved a modification of the previously applicable legal rules in relation to the causation element in employers liability claims.
That alteration was thought necessary in order to cater for the particular difficulties that asbestos related disease presents.
Implicit in the modification of the normal rule is the acceptance that an employer thus found liable may, in truth and in fact, not have been responsible for the damage at all.
This is the price that it was deemed necessary to pay in order to hold the balance of justice between the parties.
Because of the limitations of medical and scientific knowledge, it was recognised that it would be unjust to enforce a rigorous requirement of proof that a particular employment had actually caused or contributed to the damage.
A potent factor in this equation was that the insidious nature of asbestos and the calamitous consequences that exposure to it can cause, allied to the current lack of scientific knowledge about the aetiology of mesothelioma, warrant a different approach to the conventional burden of proof.
To insist on its stringent application would set what would in many instances prove an impossible practical difficulty in the way of a claimant.
These considerations viz the constraints that arise from the unavailability of scientific proof and the dreadful illnesses that can result from asbestos exposure are just as relevant in the approach to so called single exposure cases as they are in cases of multiple employment exposure cases.
The use of the expression single exposure may be misleading in this context.
In Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32 the defendants had argued that the claims should be dismissed because there were various exposures each of which could have caused the mesothelioma and each of which might not have done so.
In the present cases the appellants argument resolves to essentially the same proposition.
They suggest that there were two possible sources of exposure in each case in Mrs Costellos case exposure while employed by the defendant and environmental exposure and in Mrs Willmores case exposure while at school and environmental exposure.
It is argued that each of these exposures might have caused the mesothelioma but each of them might not have done so.
In effect, therefore, the appellants submit that there is more than one possible source for the mesothelioma that both women suffered.
The difference in these cases is not that they involved a single exposure but that each had a tortious and a non tortious source of exposure.
But the same difficulties as to proof as arose in Fairchild and Barker afflict the present cases.
And it was those difficulties that prompted the modification of the causation rules.
It might be suggested that it is easier to accept that several employers, none of whom could be positively identified as having caused or contributed to the condition, should have to participate in the compensation package, on the basis that one of them (at least) had actually caused the mesothelioma and because each of the employers had, in any event, been prepared to have their employee run the risk of contracting the disease.
But that is not the basis on which the adjustment to the requirements of proof was made.
That adjustment was made precisely because, as a matter of policy, it was considered that it would be unfair to impose on a claimant a requirement of proof which in most cases, because of the limitations of scientific knowledge, was quite incapable of fulfilment.
In so far as such considerations might be considered relevant, however, the fact remains that both defendants in the present appeals were prepared to countenance a material increase in the risk to Mrs Costello and Mrs Willmore.
The circumstance that the other possible source of mesothelioma in these cases was non tortious should make no difference.
Nor did it in Barker.
In that case it was expressly accepted by Lord Hoffmann, Lord Scott of Foscote and Lord Rodger of Earlsferry that the Fairchild exception did apply to a non tortious source of risk.
At para 17 Lord Hoffmann said: The purpose of the Fairchild exception is to provide a cause of action against a defendant who has materially increased the risk that the claimant will suffer damage and may have caused that damage, but cannot be proved to have done so because it is impossible to show, on a balance of probability, that some other exposure to the same risk may not have caused it instead.
For this purpose, it should be irrelevant whether the other exposure was tortious or non tortious, by natural causes or human agency or by the claimant himself.
These distinctions may be relevant to whether and to whom responsibility can also be attributed, but from the point of view of satisfying the requirement of a sufficient causal link between the defendants conduct and the claimants injury, they should not matter.
Lord Scott stated that he was in complete agreement not only with Lord Hoffmanns conclusions but also with his reasons for reaching them (para 50) and at para 97 Lord Rodger said: Starting from the McGhee extension, counsel considered whether Fairchild would apply where one or more of the sources of exposure to asbestos dust had been lawful but unconnected with any wrongdoer.
For instance, the victim had been employed for a period before the dangers of exposure to asbestos dust should have been known in the industry and there had been no fault on the part of the employer.
Having reserved my opinion on the point in Fairchild, I would now hold that the rule should apply in that situation.
For the reasons given by Lord Phillips and Lord Rodger in the present appeals, therefore, I agree that there is no basis on which the Fairchild exception should not be applied in these cases and, on that account, that the appeals should be dismissed.
The policy reason for introducing the modified rule in that case applies with equal force here and it would be anomalous and arbitrary to require these respondents to establish that it was twice as likely that the indicted exposure was the cause of the mesothelioma, while not imposing such a requirement on a claimant in a multiple employer exposure case.
In all relevant respects the appellants are in an exactly similar position to a defendant in such a case.
In both instances none of the defendants can be proved to have caused the mesothelioma but all have materially increased the risk by wrongfully exposing Mrs Costello and Mrs Willmore to asbestos.
In these circumstances the interesting debate that has been had between Lord Phillips and Lord Rodger as to the use to which epidemiological evidence might be put is, at this stage certainly, academic.
But I wish to say that I share the misgivings that have been expressed about the capacity of this type of evidence to prove that mesothelioma is more likely to have been caused by a particular exposure, even if advances in medical and scientific knowledge erode the rock of uncertainty.
Epidemiology is the branch of medical science which normally deals with the incidence and prevalence of disease in large populations and with the detection of the sources and causes of disease.
It involves the collection of data, usually over significant periods.
Unless these coincide with periods of relevant exposure or replicate conditions of exposure experienced by individual claimants, the use of such data to seek to establish any specific proposition in an individual case requires to be treated with great caution, in my opinion.
It is an essential and minimum requirement, as Brachtenbach J said in Herskovits v Group Health Cooperative of Puget Sound (1983) 664 P 2d 474, that there be evidence connecting avowedly relevant statistical information produced by the epidemiological studies to the facts of the case.
In my view, no such connection was made in the present appeals.
The epidemiological evidence which was adduced consisted of a series of assumptions and speculations rather than actual data which could be related to the experience of those who developed mesothelioma.
What the testimony amounted to was the promotion of a theory rather than the establishment of facts and it did not constitute evidence on which reliable conclusions could be reached.
There is a real danger that so called epidemiological evidence will carry a false air of authority.
It is necessary to guard against treating a theory based on assumptions as a workable benchmark against which an estimate of the increase in risk could be measured.
Whether and in what circumstances epidemiological evidence can assist in the determination of whether a particular case of mesothelioma is likely to have been caused by a particular exposure will have to be decided according to the particular circumstances of an individual case.
In my view, the epidemiological material adduced in evidence in the present case could not have assisted in the determination of that issue.
LORD DYSON
The central question that arises in these appeals is whether the so called Fairchild exception applies in a single exposure case, that is to say a case where a victim has been exposed to asbestos by a single defendant in breach of duty and has also been exposed to asbestos in the general atmosphere.
In Fairchild itself, the victims had been exposed to asbestos by a number of defendants in breach of their duty of care.
The limitations of medical knowledge prevented them from being able to prove on the balance of probability which exposure had caused their mesothelioma.
In order to avoid injustice, the House of Lords held that proof on the balance of probability that each defendants wrongdoing had materially increased the risk of contracting the disease was sufficient to satisfy the causal requirements for liability.
For understandable reasons, the Court of Appeal had applied a conventional approach and had dismissed the claims because the claimants had been unable to prove on the balance of probability that their wrongful exposure to asbestos by any particular defendant had caused their disease.
Each defendant was able to say that the offending asbestos might have been the result of exposure caused during the claimants employment by a different defendant.
Thus it was that the claims were rejected by the Court of Appeal on what Lord Bingham called this rock of uncertainty.
The Fairchild exception was created to circumvent the rock of uncertainty.
It is implicit in the reasoning in Fairchild (repeated in Barker) that, if the rock of uncertainty were to disappear in the light of increased medical knowledge, then the rationale for the Fairchild exception would disappear and claimants would be required to prove their cases on the balance of probability in the usual way.
It is common ground that medical knowledge about the aetiology of mesothelioma has not materially advanced since Fairchild.
Mr Stuart Smith QC accepts that, if this were a multiple exposure case, the claimants would not be required to prove on the balance of probability (whether by the doubling of the risk test or otherwise) that their mesothelioma had been caused by wrongful exposure to asbestos.
All that they would have to prove was that the defendant or defendants had materially contributed to the risk of mesothelioma.
There has been no previous decision on a single exposure case.
In Barker, the House of Lords held that the Fairchild exception applied even where not all the exposures to asbestos which could have caused the claimant employees mesothelioma involved breaches of duty by his employers (in that case, the employee was also exposed to asbestos during a period when he was self employed).
At para 17, Lord Hoffmann said that the purpose of the Fairchild exception was: to provide a cause of action against a defendant who has materially increased the risk that the claimant will suffer damage and may have caused that damage, but cannot be proved to have done so because it is impossible to show, on a balance of probability, that some other exposure to the same risk may not have caused it instead.
For this purpose, it should be irrelevant whether the other exposure was tortious or non tortious, by natural causes or human agency or by the claimant himself.
These distinctions may be relevant to whether and to whom responsibility can also be attributed, but from the point of view of satisfying the requirement of a sufficient causal link between the defendants conduct and the claimants injury, they should not matter.
Lord Scott expressed the same view at para 59.
But Barker was not a single exposure case.
So why should the Fairchild exception not be applied in a single exposure case? Mr Stuart Smith advances a number of reasons.
He submits that there is no suggestion in any previous case that exposure to asbestos in the general atmosphere should be taken into account as a relevant exposure for the purposes of the Fairchild exception.
The breathing of ambient air, which should merely be regarded as part of the ordinary vicissitudes of life, is not under the control of any single person or group of persons and should not be treated in the same way as exposures to a carcinogen controlled and caused by an identifiable individual.
In my view, these are not good reasons for disapplying the Fairchild exception in a single exposure case.
In view of the present state of medical knowledge, a single exposure claim would founder on the same rock of uncertainty as a multiple exposure claim.
The exception was devised as a matter of policy to overcome the injustice that claimants would suffer if they were prevented by the rock of uncertainty from establishing causation in mesothelioma cases.
This policy justification for the exception is articulated in a number of the speeches in both Fairchild and Barker: see, for example, per Lord Bingham at para 33 and Lord Nicholls at paras 41 and 42 in Fairchild.
There is no reason in policy or principle why the exception should not apply to a single exposure claim just as it does to a multiple exposure claim.
It is true that none of the previous decisions involves a single exposure claim.
But that is not a good reason for refusing to apply the Fairchild exception if there is no material difference between single and multiple exposure claims.
It is also true that the breathing of ambient air is a vicissitude of life.
But that is not a good reason for distinguishing Fairchild either.
On the present state of medical knowledge, the rock of uncertainty is as much of a problem for victims of single exposure as for victims of multiple exposure.
It is implicit in Fairchild and Barker that, if it were possible for a victim of mesothelioma to establish causation on the balance of probability in the conventional way, then the rationale for the Fairchild exception would disappear.
Mr Stuart Smith submits that causation can be established in the conventional way in a single exposure case (but, he accepts, not yet in a multiple exposure case).
He says that a claimant can prove causation on a balance of probability by proving that the tortious exposure has at least doubled the risk arising from the non tortious cause.
This was the approach adopted by Judge Main in Sienkiewicz and adopted as a correct statement of the law by Smith LJ at para 23 of her judgment.
In fact, Smith LJ seems to have considered that it was a legitimate approach even in multi exposure cases, since she referred to a doubling of the risk arising from the non tortious cause or causes (emphasis added).
Lord Phillips and Lord Rodger are in agreement that there is no scope in single exposure mesothelioma cases for the application of a doubling of the risk test based entirely on epidemiological evidence.
But their reasoning differs to some extent.
Lord Phillips considers that it is not possible to prove causation on the basis of epidemiological evidence alone because first it is not sufficiently reliable (paras 97 to 101), and secondly there continue to be gaps in our understanding of the aetiology of mesothelioma (paras 102 to 105).
If these shortcomings in our understanding were made good, then it is implicit in the first reason that, if epidemiological data were to become sufficiently reliable, victims of mesothelioma would be able (and therefore required) to prove causation on the balance of probability on the basis of epidemiological evidence alone.
Lord Rodger agrees with Lord Phillipss second reason.
But his objection to proof on the basis of epidemiological evidence alone is not based on the unreliability of epidemiological data.
It is more fundamental than that.
Lord Rodger draws a distinction between claimant A, who proves on the balance of probability that a defendant probably injured him, and claimant B, who proves on the balance of probability that a defendant actually injured him.
He says that, as a matter of law, claimant B will succeed but claimant A will fail.
A claimant who seeks to prove his case on the balance of probability in reliance entirely on statistical evidence will inevitably fail, since he is able to do no more than prove on the balance of probability that the defendant probably injured him.
I am grateful to Lord Rodger for drawing attention to the article by Steve Gold, Causation in Toxic Torts: Burdens of Proof, Standards of Persuasion, and Statistical Evidence (1986) 96 Yale LJ 376.
The article distinguishes between fact probability and belief probability.
The former is a more than 50% statistical probability of an event having occurred.
An illustration of this is the 75% probability that the victim was run down by a blue cab in the example given by Brachtenbach J in Herskovits v Group Health Cooperative of Puget Sound (1983) 664 P 2d 474 (see para 95 of Lord Phillipss judgment).
The latter is a more than 50% belief in the decision maker that a knowable fact has been established.
Mr Gold points out that, particularly in toxic tort cases, US courts have often collapsed the distinction between fact probability and belief probability and simply asked the question whether the fact that the claimant seeks to prove has been established as more likely than not.
In my view, this is an important distinction and it is of particular relevance in relation to causation in toxic torts.
It is often the basic impossibility of proving individual causation which distinguishes toxic tort cases from ordinary personal injury cases.
As Mr Gold points out, epidemiology is based on the study of populations, not individuals.
It seeks to establish associations between alleged causes and effects.
With proper scientific interpretation, these correlations lend great weight to an inference of causation.
However, in an individual case, epidemiology alone cannot conclusively prove causation.
At best, it can establish only a certain probability that a randomly selected case of disease was one that would not have occurred absent exposure.
Ultimately, questions of burden and standard of proof are policy matters for any system of law.
It is trite law that our system requires a civil claim to be proved by a claimant on the balance of probability.
It is a matter of policy choice whether and, if so, in what circumstances the courts are willing to find causation proved on the balance of probability on the basis of epidemiological evidence alone.
In the United States, some courts have been willing to find causation established on the balance of probability on the basis of epidemiological evidence alone.
They have been criticised by Mr Gold for collapsing the distinction to which I have referred.
As I have said, the House of Lords produced in the Fairchild exception a particular policy response to the causation problems created by the lack of scientific knowledge about the aetiology of mesothelioma.
This response has been confirmed by the 2006 Act.
In these circumstances, I agree with Lord Phillips and Lord Rodger that there is no room for the application of a different test which would require a claimant to prove (whether on the basis of doubling of the risk or otherwise) that on the balance of probability the defendant caused or materially contributed to the mesothelioma.
It follows that I do not find it necessary to decide whether there are any circumstances in which, as a matter of English law, causation can be proved on the basis of epidemiological evidence alone.
I am unaware of any English authority in which the question whether causation can be proved in a straightforward personal injury case on the basis of epidemiological evidence alone has been the subject of decision.
Toxic torts, such as mesothelioma, give rise to particular causation problems.
That is why special rules sometimes have been devised so as to avoid injustice.
Such problems are not inherent in straightforward personal injury cases where it must be rare for a claimant to rely exclusively on epidemiological evidence to prove his or her claim.
The claimant will almost always also be able to point to some specific evidence relating to the particular circumstances of the case.
I note that in Smith v Rapid Transit Inc (1945) 317 Mass 469, 58 NE 2d 754 it was held on the facts of that case that statistical likelihood alone was insufficient to support a finding that the bus that injured the plaintiff was the defendants.
But ultimately, as I have said, it is not necessary for the resolution of the present appeal to decide whether epidemiological evidence alone suffices, since Lord Phillips and Lord Rodger are agreed that there has been no material change in the understanding of the aetiology of mesothelioma and there is no basis for distinguishing single exposure cases from multiple exposure cases.
It seems to me, however, that there is no a priori reason why, if the epidemiological evidence is cogent enough, it should not be sufficient to enable a claimant to prove his case without more.
Our civil law does not deal in scientific or logical certainties.
The statistical evidence may be so compelling that, to use the terminology of Steve Gold, the court may be able to infer belief probability from fact probability.
To permit the drawing of such an inference is not to collapse the distinction between fact probability and belief probability.
It merely recognises that, in a particular case, the fact probability may be so strong that the court is satisfied as to belief probability.
Whether an inference of belief probability should be drawn in any given case is not a matter of logic.
The law does not demand absolute certainty in this context or indeed in any context.
Judges are frequently called upon to decide difficult and finely balanced questions on the balance of probability and sometimes say that they have reached their conclusions after much anxious consideration of the facts.
It is true that, once the facts have been determined, they are treated as having been established and, subject to any appeal, they cannot be challenged.
But the judge may even acknowledge in his judgment that he cannot be certain that the facts are as he found them to be.
He cannot exclude another possibility.
But he is satisfied on the balance of probability as to the facts and that is all that the law requires.
I would in any event endorse what Lord Phillips has said about the limits of epidemiological evidence at paras 97 to 101 and also what he has said about what constitutes a material increase in risk at paras 107 and 108.
I also agree with what Lord Rodger has said at paras 130 to 132 about the observations by Smith LJ about the effect of section 3 of the 2006 Act.
For these reasons, I would dismiss these appeals.
| UK-Abs | A special rule has been developed for cases brought by persons who contract mesothelioma after being wrongly exposed to asbestos, known as the Fairchild exception after the decision of the House of Lords in Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22.
This provides that defendants whose breaches of their duty of care materially increase the risk of mesothelioma are jointly and severally liable for the damage suffered if mesothelioma does in fact develop.
The rule relaxes the usual requirement that a claimant must show that it is more likely than not that the harm he has suffered has been caused by the defendants breach, in order to reflect the fact that medical science cannot presently determine which asbestos fibre or fibres has caused the mesothelioma to develop, often decades later.
The issue in these two appeals was whether this special rule applies in cases where only one defendant is proved to have exposed the victims to asbestos, but where the victims were also at risk of developing the disease from environmental exposure to asbestos in the general atmosphere.
Mrs Karen Sienkiewicz is the daughter and administratrix of the estate of the late Mrs Enid Costello, who died of mesothelioma on 21 January 2006 at the age of 74.
Mrs Costello had worked in an office at factory premises manufacturing steel drums for employers who were found to have wrongly exposed her to asbestos, although the level of that exposure was very light.
This was calculated by the trial judge to have increased her total level of exposure, over the general environmental exposure, by 18%.
Mr Barre Willmore is the husband and administrator of the estate of the late Dianne Willmore who died of mesothelioma on 15 October 2009 aged 49.
She was found to have been exposed to asbestos at her secondary school.
In Mrs Costellos case, the judge held that the Fairchild exception did not apply and that she had failed to establish that her occupational exposure to asbestos was the likely cause of her disease.
This decision was reversed by the Court of Appeal, which entered judgment on liability with damages to be assessed.
The judge in Mrs Willmores case applied the Fairchild exception and awarded her damages of 240,000.
The Court of Appeal upheld his decision.
The defendants in each case appealed to the Supreme Court, arguing that the Fairchild exception should have been held to be inapplicable when proceedings are directed against one defendant.
They submitted that, in such cases, liability could only be established if a claimant could prove on the balance of probability that the mesothelioma was caused by the defendants exposure ie that such exposure had at least doubled the risk of the victim developing mesothelioma.
The Supreme Court unanimously dismisses the appeals.
It holds that the Fairchild exception applies to cases of mesothelioma involving a single defendant and that there is no requirement for a claimant to show that the defendants breach of duty doubled the risk of developing the disease.
The main judgment is given by Lord Phillips, with each of the other justices adding shorter judgments concurring in the result.
Numbers in square brackets below are to paragraphs in the judgment.
Knowledge about mesothelioma is based in part on medical science and in part on statistical analysis or epidemiology.
It is summarised at [19] and in the annex after [112].
Much remains still to be discovered.
The courts may revert to the conventional causation test if advances in medical science in relation to this disease make such a step appropriate [70][142][208].
The decision in Fairchild was made in the context of claims against multiple employers who had each been found to be in breach of duty.
It left open the question of whether the principle applied where other possible sources of injury were similar but lawful acts of someone else or a natural occurrence.
In the subsequent case of Barker v Corus [2006] UKHL 20 the House of Lords answered this question by refining the exception so as to render each employer liable only for the proportion of damages which represented his contribution to the risk.
Parliament then intervened to overturn this apportionment of damages, by providing in section 3 of the Compensation Act 2006 that where a person was liable under the common law in tort to a victim who had contracted mesothelioma, that liability was for the whole of the damage caused by the disease, jointly and severally with any other responsible person.
Parliament has therefore legislated to impose draconian consequences on an employer or his insurers who has been responsible for only a small proportion of the overall exposure of a claimant to asbestos and the court had to have regard to this when considering the issues in these appeals [58][131][167][185].
The Fairchild exception did apply to single defendant cases [103][113].
The doubles the risk test for causation was therefore only potentially relevant in connection with the question of what constituted a material increase of risk.
There was no justification for adopting the test as a benchmark for this.
Whether exposure was too insignificant to be taken into account, having regard to the overall exposure, was a matter for the judge on the facts of the particular case [107 108].
Epidemiological evidence alone is not a satisfactory basis for making findings of causation.
The exercise of comparing the statistical relationship between exposure and the incidence of the disease with the experience of the individual victim is particularly problematic in mesothelioma cases because of the very long latency of the disease [97 102][163][172] Accordingly the appeals must be dismissed.
Even though the judge in Mrs Costellos case did not expressly consider whether the exposure in her case materially increased the risk, if he had thought it insignificant he would have said so [109].
In Mrs Willmores case, the challenges to the judges findings of fact also failed.
The court considered that they had been very generous to Mrs Willmore but that it was not justified in taking the exceptional step of disturbing them [166]
|
The anti deprivation rule and the rule that it is contrary to public policy to contract out of pari passu distribution are two sub rules of the general principle that parties cannot contract out of the insolvency legislation.
Although there is some overlap, they are aimed at different mischiefs: Goode Perpetual Trustee and Flip Clauses in Swap Transactions (2011) 127 LQR 1, 3 4.
The anti deprivation rule is aimed at attempts to withdraw an asset on bankruptcy or liquidation or administration, thereby reducing the value of the insolvent estate to the detriment of creditors.
The pari passu rule reflects the principle that statutory provisions for pro rata distribution may not be excluded by a contract which gives one creditor more than its proper share.
The anti deprivation rule
What is now described as the anti deprivation principle dates from the 18th century, although the expression deprivation has been in use in this context only since the decision of Neuberger J in Money Markets International Stockbrokers Ltd v London Stock Exchange Ltd [2002] 1 WLR 1150.
In 1812 Lord Eldon LC confirmed that a term which is adopted with the express object of taking the case out of reach of the Bankrupt Laws is a direct fraud upon the Bankrupt Laws from which a party cannot benefit: Higinbotham v Holme (1812) 19 Ves Jun 88, 92.
Classic statements of the principle include these: the law is too clearly settled to admit of a shadow of doubt that no person possessed of property can reserve that property to himself until he shall become bankrupt, and then provide that, in the event of his becoming bankrupt, it shall pass to another and not to his creditors. (Whitmore v Mason (1861) 2 J & H 204, 212, per Sir William Page Wood V C) a simple stipulation that, upon a mans becoming bankrupt, that which was his property up to the date of the bankruptcy should go over to some one else and be taken away from his creditors, is void as being a violation of the policy of the bankrupt law (Ex p Jay; In re Harrison (1880) 14 Ch D 19, 25, per James LJ).
In the case of personal bankruptcy, section 306(1) of the Insolvency Act 1986 Act (the 1986 Act) provides that a bankrupts estate vests in the trustee in bankruptcy immediately upon his appointment and section 283(1) provides that a bankrupts estate comprises all property belonging to or vested in the bankrupt at the commencement of the bankruptcy; andany property which by virtue of any of the following provisions of this Part is comprised in that estate or is treated as falling within the preceding paragraph.
In the case of corporate insolvency, the insolvent company continues to be owner of its property but holds it on trust for the creditors in accordance with the provisions of the 1986 Act: Ayerst v C & K (Construction) Ltd [1976] AC 167.
For companies, section 436 defines Property so that it: includes money, goods, things in action, land and every description of propertyand also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property
The pari passu principle
In the case of personal bankruptcy, by section 328 of the 1986 Act, subject to preferential payments, and with the exception of certain deferred debts, all other debts are to be paid equally.
For companies, section 107 provides that, subject to the provisions relating to preferential payments, the companys property in a voluntary winding up [should] on the winding up be applied in satisfaction of the companys liabilities pari passu.
By rule 4.181 of the Insolvency Rules 1986 (SI 1986/1925) similar provision is made for a winding up by the court.
In such a winding up, the liquidator must secure that the assets of the company are got in, realised and distributed to the companys creditors and, subject to that, he must take into his custody or under his control all the property and things in action to which the company is entitled (sections 143 and 144 of the 1986 Act).
In British Eagle International Airlines Ltd v Cie Nationale Air France [1975] 1 WLR 758 the House of Lords by a bare majority (reversing Templeman J and a unanimous Court of Appeal [1974] 1 Lloyds Rep 429, with Russell LJ delivering the judgment of the court) decided that a clearing house arrangement between a large number of airline companies relating to debts arising as between them was ineffective as against the liquidator of one of the companies, British Eagle.
All members of the House upheld the principle that contracting out of the pari passu provisions of what was then section 302 of the Companies Act 1948 was contrary to public policy and void.
The difference between the majority and minority related largely (but not exclusively) to the question whether the arrangement resulted in no debt being due.
The conclusion of the majority in the House of Lords was that, insofar as the arrangement purported to apply to debts which existed when the members of the company passed the resolution to go into creditors voluntary liquidation, it would have amounted to contracting out of the statutory requirement that the assets owned by the company at the date of its liquidation should be available to its liquidator, who should use them to meet the companys unsecured liabilities pari passu, under what is now section 107 of the 1986 Act.
The ratio of the decision was accurately stated by Peter Gibson J in Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd [1985] Ch 207, 226, as being that where the effect of a contract is that an asset which is actually owned by a company at the commencement of its liquidation would be dealt with in a way other than in accordance with [the statutory pari passu rule] . then to that extent the contract as a matter of public policy is avoided.
The distinction between the two sub rules is by no means clear cut.
Several decisions which are regarded as decisions on the anti deprivation rule could also be characterised as cases in which the parties sought to disturb pari passu distribution.
Ex p Mackay; Ex p Brown; In re Jeavons (1873) LR 8 Ch App 643 is usually regarded as an anti deprivation case.
It involved two transactions: the first was the sale of a patent for improvements in the manufacture of armour plates by Mr Jeavons to Brown & Co and Cammell & Co in consideration of the companies paying royalties; the second was a secured loan of 12,500 from the companies to Mr Jeavons.
The parties agreed that (1) the companies would keep half the royalties towards satisfying the debt, and (2) in the event of Mr Jeavons bankruptcy, they could also keep the other half of the royalties until the debt had been fully paid.
It was held that provision (1) was valid against Mr Jeavons trustee, but provision (2) was not.
James LJ said (at p 647) that provision (1) represented a good charge upon one moiety of the royalties, because they are part of the property and effects of the bankrupt, but provision (2) is a clear attempt to evade the operation of the bankruptcy laws as it provide[d] for a different distribution of his effects in the event of bankruptcy from that which the law provides.
Mellish LJ said (citing Higginbotham v Holme 19 Ves Jun 88, 92) that the case fell within the principle that: . a person cannot make it a part of his contract that, in the event of bankruptcy, he is then to get some additional advantage which prevents the property being distributed under the bankruptcy laws . (p 648)
What James and Mellish LJJ said cannot be applied unconditionally, since a different distribution and additional advantage can be obtained by lawful charges between debtor and creditor and by subordination agreements between creditors, and the same applies to what Lord Cross of Chelsea said about contracting out generally.
The reference, therefore, by James LJ to a different distribution of his effects in the event of bankruptcy from that which the law provides is an early expression of the pari passu principle.
That is perhaps why the decision was the only prior relevant decision discussed in Lord Cross sole speech for the majority in British Eagle.
He said (at 780): In Ex p Mackay 8 Ch App 643, the charge on [the] second half of the royalties wasan animal known to the law which on its face put the charge[e] in the position of a secured creditor.
The court could only go behind it if it was satisfied as was indeed obvious in that case that it had been created deliberately in order to provide for a different distribution of the insolvents property on his bankruptcy from that prescribed by the law.
Lord Morris of Borth y Gest, in his dissenting speech, agreed that Ex p Mackay was a case where the relevant provisions were a clear attempt to evade the operation of the bankruptcy laws, or a device for defeating the bankruptcy laws (p 770).
By the time that International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3, (2008) 234 CLR 151 was decided by the High Court of Australia the rules of the clearing house scheme had been modified following the British Eagle decision so as to exclude any liability or right of action for payment between member airlines.
The High Court decided by a majority (Kirby J dissenting) that the rule changes were effective to make the IATA the sole creditor of Ansett, and that the revised system did not have the effect of administering debts due to an insolvent company otherwise than in accordance with the mandatory pari passu rule.
In their joint judgment Gummow, Hayne, Heydon, Crennan and Kiefel JJ also referred to Ex p Mackay and suggested that Lord Cross speech in British Eagle was based in part on the anti deprivation principle; and that there was no need for recourse to the rule that a contract which is contrary to public policy is void, because the statute was an overriding one which applied according to its terms: at paras 74 and 76.
There is much to be said for the observation that recourse to public policy is unnecessary for the application of the mandatory statutory pari passu principle.
There is little difference in practice between declaring a contractual provision invalid or ineffective because it is inconsistent with the statute and declaring it contrary to public policy for the same reason, but this is not the occasion for the decision in British Eagle to be reconsidered.
Although it must be said that the decision of the minority and of the lower courts makes more sense commercially than that of the majority, there was no real disagreement on the applicable principles.
But it does not follow from the fact that it is difficult in some cases to draw the line between the two categories that there are no relevant differences.
The anti deprivation rule applies only if the deprivation is triggered by bankruptcy, and has the effect of depriving the debtor of property which would otherwise be available to creditors.
The pari passu rule applies irrespective of whether bankruptcy or liquidation is the trigger.
There is a question whether the bona fides of the parties is equally relevant to the application of the two principles.
These points will be taken up below.
This is a case in which only the anti deprivation principle is potentially applicable.
The Noteholders are creditors of the Issuer.
There is no question of disturbance of the pari passu rule as between the creditors of Lehman Brothers Special Financing Inc (LBSF).
What is said, in effect, is that the parties have unlawfully extracted an asset belonging to LBSF, namely its first charge on the Collateral, and passed it to the Noteholders.
Anti avoidance provisions
There are anti avoidance provisions for personal and corporate insolvency.
They are relevant on this appeal because of an argument that the anti deprivation rule dates from a time when there were anti avoidance provisions which, if they existed at all, were in their infancy, and that consequently the need for the rule needs to be re visited in the light of legislative developments.
For personal bankruptcies, section 284 of the 1986 Act provides that where a person is adjudged bankrupt, any disposition of property made by that person in the period from the day of the presentation of the petition for the bankruptcy order is void except to the extent that it is or was made with the consent of the court, or is or was ratified by the court.
There are claw back provisions dealing with the setting aside of transactions at an undervalue and preferences in sections 339 340 of the Act.
For companies, section 127 provides that any disposition of the companys property made after the commencement of the winding up is, unless the court otherwise orders, void.
Sections 238 and 239 enable a liquidator to apply to the court for an order to restore the position where the company has entered into a transaction at an undervalue, or has done anything which, in the event of the companys insolvent liquidation, would put a creditor (or guarantor) of the company in a better position than he would otherwise be in.
By section 423 the court may set aside transactions entered into at an undervalue at any time if they were entered into for the purpose of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or of otherwise prejudicing the interests of such a person in relation to the claim.
II Background
Prior to the events which form the background to this appeal, the Lehman Brothers group was the fourth largest investment bank in the United States.
On 15 September 2008, Lehman Brothers Holdings Inc (LBHI), the parent company of the Lehman Brothers group, applied to the US Bankruptcy Court for the Southern District of New York for protection under Chapter 11 of the United States Bankruptcy Code.
This appeal concerns the effect of the security arrangements in a complex series of credit swap transactions under which, in effect, investors gave credit protection to Lehman Brothers by reference to the performance of a basket of underlying obligations.
The Lehman Brothers vehicles used for what was called the Dante Programme (named after the first special purpose vehicle (SPV) used in the programme) were LBSF and SPVs incorporated in jurisdictions chosen for tax reasons.
The programme was what was called a synthetic debt repackaged note issuance programme.
At the time of the Lehman Brothers collapse in September 2008 there were 19 SPVs being used as Note issuers in the programme with a total of about 180 series of Notes with an aggregate principal amount of $12.5 billion.
LBSF filed for Chapter 11 protection in the United States Bankruptcy Court for the Sothern District of New York on 3 October 2008.
The documentation is complex, but, in broadest outline, the transactions in the representative example series before the court on this appeal were these: (1) Lehman Brothers set up an SPV (the Issuer) in a suitable jurisdiction (in the representative example, Saphir Finance plc, incorporated in the Republic of Ireland). (2) Investors (the Noteholders) subscribed for Notes issued by the Issuer.
The Notes were floating rate medium term Notes (with a seven year maturity) with a margin of 1.3% over Australian dollar denominated 3 month bills. (3) The Issuer used the subscription moneys to purchase government bonds or other secure investments (in the representative, triple A rated floating rate Rabo Australia Ltd Notes guaranteed by Rabobank Nederland) (the Collateral). (4) The Collateral was vested in a Trustee (in the present case BNY Corporate Trustee Services Ltd) (the Trustee). (5) LBSF entered into a credit default swap agreement with the Issuer under which LBSF would pay the Issuer the amounts due by the Issuer to the Noteholders in exchange for the payment by the Issuer to LBSF of sums equal to the interest received on the Collateral. (6) The amount by which the sum payable under the swap agreement by LBSF exceeded the yield on the Collateral represented what has been described as the premium for credit protection insurance provided by the Noteholders. (7) The amount payable by LBSF to the Issuer on the maturity of the Notes (or on early redemption or termination) was the initial principal amount subscribed by the Noteholders less amounts (if any) calculated by reference to the Credit Events occurring during a specified period by reference to one or more reference entities.
In return, LBSF would receive the proceeds of the Collateral. (8) The payment due from LBSF at maturity of the swap agreement (and also the outstanding principal amount of the Notes) could be reduced (in extreme circumstances to zero) during the term of the swap agreement (and the Notes) if Credit Events occurred and were notified in accordance with the terms of the swap agreement. (9) Credit protection or insurance is a misnomer because there was no requirement for LBSF to have any direct exposure to the reference portfolio (substantially the same 260 reference entities in the two tranches before the Court on the appeal): it was expressly provided that the swap did not constitute a contract of insurance and that payments would be due in the event of Credit Events without proof of economic loss to LBSF. (10) There was in effect an excess because the notified Credit Events would lead to a reduction only if they exceeded a stated subordination amount.
In the representative example before the Court A$70m was the amount of the issue, the subordination amount was A$126m, and the Offering Circular indicated that the Notes would be reduced to zero when the cumulative losses on the reference portfolio reached A$196m. (11) If Credit Events did not occur the Noteholders were due to receive the full amount of the Notes, and LBSF was to put the Issuer in funds to redeem the Notes. (12) If Credit Events occurred, the amounts payable by LBSF and the principal amount due on the Notes were to be reduced from time to time as and when such Credit Events occurred and were notified. (13) Consequently the performance of the Notes was linked to the performance of the obligations of the reference entities.
In effect, LBSF was speculating that sufficient Credit Events would occur for it to be required to pay less than the Noteholders had invested and to net a substantial part of the Collateral; and the Noteholders were speculating that the credit reference portfolio was safe and that any Credit Events within it would not burn through the net amount of the subordination amount. (14) The Collateral was charged by the Issuer in favour of the Trustee to secure its obligations to LBSF under the swap agreement and to the Noteholders under the terms and conditions of the Notes. (15) The claims of LBSF and the Noteholders were limited to the Collateral and they had no right of recourse against the Issuer. (16) The respective priorities of LBSF under the swap agreement and the Noteholders were described as Swap Counterparty Priority and Noteholder Priority. (17) The respective priorities of LBSF and the Noteholders depended on whether there had been an Event of Default under the swap agreement, which included the institution by LBSF (or LBHI as LBSFs Credit Support Provider under the swap agreement) of proceedings in insolvency or bankruptcy (such as filing for Chapter 11 protection). (18) If there were no such Event of Default, then LBSF would have priority in relation to the Collateral, but if there were an Event of Default in respect of which LBSF (or LBHI) was the Defaulting Party, the Noteholders would have priority over LBSF.
The central issue in the proceedings and the appeal is the validity of those provisions for alteration of priority.
The practical importance of the question is that under the terms of the swap, in the event of its early termination, it was to be unwound with certain Unwind Costs payable either to LBSF or to the Issuer.
The Unwind Costs represented the market assessment of the amount either LBSF or the Issuer were expected to receive under the swap were it to run to maturity.
The commercial purpose was to reflect the value of the swap in the market place as at the point of termination.
Since, following the financial crisis, many more Credit Events were expected to occur in the future, the Unwind Costs (representing a payment for the future losses) would be due to LBSF.
If Swap Counterparty Priority subsists LBSF would be entitled to recourse to the Collateral towards satisfaction of its claims.
But if the Noteholders have priority, the Collateral would be exhausted in repayment of the Notes where Credit Events did not occur before termination so as to reduce the amount due on the Notes and to make some of the Collateral available to LBSF.
III The litigation
The first 29 respondents (which will for convenience be called the Belmont respondents after the first respondent, Belmont Park Investments Pty Ltd, or the Noteholders, depending on the context) are Australian companies, institutions, authorities and charities who are Noteholders in ten series of Notes, nine of which are involved in this appeal.
After 15 September 2008, periodic payments due to the Noteholders were not made.
The same applied in respect of other Note series under the Dante Programme, including two series held by Perpetual Trustee Co Ltd (Perpetual).
The total outstanding under those nine series of Notes is approximately A$250.23m (approximately 155m) of which the Belmont respondents account for approximately A$91.1m.
The contractual documentation differs between the various Belmont series, but the parties are content for the court to consider the Saphir 2004 4 Note documentation as, for relevant purposes, representative, and the documentation before the court has included the documents relating to two tranches.
The facts set out below relate to those tranches.
There are minor differences in relation to some other series, but they are immaterial for present purposes.
On 15 September 2008, LBHI filed for Chapter 11 protection under the US Bankruptcy Code, and on 3 October 2008, LBSF filed for Chapter 11 protection.
Later in 2008 or in March/April 2009, following directions by the Noteholders, the Trustee caused the Issuer to terminate the swap agreement.
The swap termination notices served in respect of the Notes relied on the event of default constituted by LBSFs Chapter 11 filing and reserved all rights, claims and defences in relation to all other Events of Default.
On 6 May 2009, the Trustee issued Condition 10 notices declaring the Notes to be due and payable at their Early Redemption Amount.
LBSFs position was that the effect of the provisions for a change in priority on default was unlawfully to deprive LBSF of property to which it is entitled in its bankruptcy, because they purported to modify the priority which was enjoyed over Collateral by LBSF in favour of the Noteholders after an insolvency event; and changed the allocation of Unwind Costs in favour of the Noteholders to exclude payment to LBSF.
In May and June 2009 respectively Perpetual and the Belmont respondents issued Part 8 Claims in England against the Trustee for orders designed to procure the realisation of the Collateral held by the Trustee in respect of each of the series of Notes held by them respectively and the application of the Collateral and its proceeds in favour of the Noteholders in priority to any claim of LBSF as Swap Counterparty in accordance with the contractual provisions.
LBSF was subsequently joined as a party.
Proceedings were also commenced (but not by the Belmont respondents) against the Trustee by LBSF (and other Lehman entities) in the United States Bankruptcy Court for the Southern District of New York claiming a declaration that the provisions in the Note issues held by Perpetual modifying LBSFs rights to a priority distribution solely as a result of a Chapter 11 filing were unenforceable because they were clauses which sought, in breach of the United States Bankruptcy Code, to modify contractual relationships due to a filing of a bankruptcy petition (ipso facto clauses).
On 28 July 2009 Sir Andrew Morritt C found that the contractual provisions were effective as a matter of English law and, in particular, did not offend the anti deprivation rule; alternatively, if the provisions were capable of offending the anti deprivation rule, the rule was not engaged because an alternative Event of Default (the Chapter 11 filing by LBHI) had occurred prior to the Chapter 11 filing by LBSF, and consequently the Chapter 11 filing did not deprive LBSF of any property: Perpetual Trustee Co Ltd v BNY Corporate Trustee Services Ltd [2009] EWHC 1912 (Ch), [2009] 2 BCLC 400.
On 6 November 2009 Sir Andrew Morritt Cs judgment was upheld by the Court of Appeal ([2009] EWCA Civ 1160, [2010] Ch 347).
Following communications between the High Court in England and the Bankruptcy Court in New York, it was agreed that, in order to limit potential conflict between decisions in the two jurisdictions, relief would be limited to declaratory relief: Perpetual Trustee Co Ltd v BNY Corporate Trustee Services Ltd [2009] EWHC 2953 (Ch), [2010] 2 BCLC 237; Re Lehman Brothers Holdings Inc, 422 BR 407 (US Bankruptcy Court, SDNY, 2010).
In January 2010 Judge Peck, sitting in the US Bankruptcy Court for the Southern District of New York, granted summary judgment in favour of LBSF on its application for a declaration that the provisions in the Perpetual documentation were ineffective because they were in breach of the US Bankruptcy Code: Re Lehman Brothers Holdings Inc, 422 BR 407 (US Bankruptcy Court, SDNY, 2010).
Permission was granted by this court to LBSF to appeal from the decision of the Court of Appeal.
The Trustee was given leave by the United States District Court to appeal from Judge Pecks decision.
But before the appeal to the United States District Court, or the appeal to this court, were heard, the proceedings in relation to the Notes held by Perpetual were settled and the appeals were withdrawn.
This appeal consequently concerns the Notes held by the Belmont respondents only.
IV The contractual provisions
All of the documents are expressly governed by English law.
The relevant provisions of the documentation are set out in an appendix to the judgments on this appeal, but for present purposes the following account of the crucial provisions should be sufficient.
The Notes are governed by: (1) a Principal Trust Deed (the Principal Trust Deed) between Dante Finance plc (Dante), the first issuer under the programme, and the Trustee under which the Dante Programme was established, which has effect in relation to any specific Note issue as amended by the Supplemental Trust Deed and Drawdown Agreement relating to that issue; (2) a Supplemental Trust Deed and Drawdown Agreement (the Supplemental Trust Deed) made between the Issuer, the Trustee (together with its associated custodian and paying agent), LBSF (described as the swap counterparty) and the Lehman company which arranged the Dante Programme, Lehman Brothers International (Europe); and (3) the Terms and Conditions of the Notes (the Terms and Conditions) which appeared in a schedule to the Principal Trust Deed and which were also supplemented or amended by additional terms were attached to the prospectus sent to potential investors.
The credit default swap agreement (the Swap Agreement) is constituted by: (1) an ISDA Master Agreement, including the Schedule (and Credit Support Annex) (the ISDA Master Agreement) between Dante and LBSF (to which the Issuer subsequently acceded); and (2) a Swap Confirmation between LBSF and the relevant Issuer.
The Principal Trust Deed
Clause 5.5 of the Principal Trust Deed provides that: . the security . shall become enforceable if (i) any amount due in respect of the Notes is not paid or delivered when due or (ii) a Swap Agreement terminates with sums due to the Swap Counterparty [ie, LBSF].
Clause 6.1 of the Principal Trust Deed provides that moneys received, otherwise than in connection with the realisation or enforcement of the security, are to be held by the Trustee, after payment of the Trustees costs, on trust to pay, first, the amounts due to LBSF, the Noteholders and others pari passu, and, secondly, the amounts due to the Issuer.
Clause 6.2 of the Principal Trust Deed directs the Trustee: . [to] apply all moneys received by it under the Principal Trust Deed and the relevant Supplemental Trust Deed in connection with the realisation or enforcement of the security as follows and goes on to provide that Swap Counterparty Priority means that the claims of LBSF are payable in priority to the claims of the Noteholders, whereas Noteholder Priority means the converse, in each case after providing for payment of certain specified costs and charges.
The priority which is to apply in any particular case is that specified in the Supplemental Trust Deed.
The Supplemental Trust Deed
Clause 5.2 contains a charge by the Issuer as continuing security in favour of the Trustee over the Collateral and other property representing it from time to time.
Clause 5.3 provides that such security is granted to the Trustee as trustee for itself and/or the holders of Notes and [LBSF] the Custodian and the Paying Agents as continuing security (i) for the payment of all sums due under the Trust Deed and the Notes, (ii) for the performance of the Issuer's obligations (if any) under the Swap Agreement .
Clause 5.5 provides that: The Trustee shall apply all moneys received by it under this Deed in connection with the realisation or enforcement of the Mortgaged Property as follows: Swap Counterparty Priority unless an Event of Default (as defined in the Swap Agreement) occurs under the Swap Agreement and the Swap Counterparty is the Defaulting Party (as defined in the Swap Agreement) . in which case Noteholder Priority shall apply.
Clause 8.3 provides: [LBSF] hereby agrees that, if an Event of Default (as defined in the ISDA Master Agreement) occurs under the Swap Agreement and [LBSF] is the Defaulting Party (as defined in the ISDA Master Agreement) . and Unwind Costs are payable by the Issuer to [LBSF], the Issuer shall apply the net proceeds from the sale or realisation of the Collateral (1) first in redeeming the Notes in an amount as set out in the Conditions and (2) thereafter, in payment of such Unwind Costs to [LBSF].
Terms and Conditions
The second paragraph of Condition 44 (Condition 44.2) provides: if an Event of Default (as defined in the ISDA Master Agreement ) occurs under the Swap Agreement and [LBSF] is the Defaulting Party (as defined in the ISDA Master Agreement) , the Early Redemption Amount payable on each Note is to be equal to: (i) such Notes pro rata share of the proceeds from the sale or realisation of the Collateral plus (ii) (but only if payable to the Issuer) the amount of any applicable Unwind Costs divided by the total number of Notes outstanding; provided that if the amount determined pursuant to sub paragraphs (i) and (ii) above results in an Excess Amount (as defined above), such Excess Amount shall be payable by way of an additional payment of interest on each Note.
In the event that Unwind Costs are payable by the Issuer to the Swap Counterparty, the Issuer shall apply the net proceeds from the sale or realisation of the Collateral as aforesaid (1) first in redeeming each Note in an amount equal to its Outstanding Principal Amount as of the Early Redemption Date plus the Accrued Early Redemption Interest Amount and (2) thereafter, in payment of such Unwind Costs to the Swap Counterparty.
The ISDA Master Agreement
Section 5 of the ISDA Master Agreement defines an Event of Default as being: [t]he occurrence [of certain specified events] at any time with respect to [LBSF], or if applicable, any Credit Support Provider of LBSF.
According to paragraph 9(iv) of the Swap Confirmation, the Credit Support Provider is LBHI, the ultimate parent of LBSF.
The defined Events of Default include (i) failure to pay any sums due under the ISDA Master Agreement (if such failure is not remedied after three local business days notice of such failure), and (ii) the institution by LBSF or by LBHI of any proceedings seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors rights .
Section 6 of the ISDA Master Agreement deals with early termination and provides that: If at any time an Event of Default with respect to a party (the Defaulting Party) has occurred and is then continuing, the other party . may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions .
V The decisions of Sir Andrew Morritt C and the Court of Appeal
LBSFs position
LBSFs position is, in summary, that the rights under the Swap Agreement and the rights created over the Collateral to secure them were property of LBSF within the meaning of the Insolvency Act 1986 and formed part of LBSFs insolvent estate.
At the time of its filing for bankruptcy on 3 October 2008 (and at the Early Termination Date), LBSF was in the money under each of the Swap Agreements.
LBSF had existing contractual rights which, on final maturity or if the Issuer elected to terminate the Swap Agreement early, would result in a right to payment to LBSF from the Issuer.
That was so whether or not LBSF was the Defaulting Party under the Swap Agreement.
It was illegitimate to provide for the alteration of those rights in reliance on LBSFs bankruptcy so as to deprive LBSF of the benefit of its first priority right of recourse to the Collateral.
When the Issuer elected to terminate the Swap Agreements it did so expressly in reliance upon LBSF having filed for bankruptcy on 3 October 2008.
That termination gave rise to a debt payable by the Issuer to LBSF and which is charged on the Collateral.
The effect of the disputed clauses was to deprive LBSF of property to which it was entitled in its bankruptcy: Clause 5.5 of the Supplemental Trust Deed removed the senior ranking rights which LBSF had to the proceeds of sale of the Collateral and instead LBSF was given second ranking rights which ranked behind the claims of the Noteholders in some instances, and even further behind the Portfolio Manager in other transactions; by Condition 44.2 of the Terms and Conditions of the Notes, the amount due to LBSF in respect of its claim under the terminated Swap Agreement was disregarded when determining what the Issuer should pay to Noteholders on early redemption of the Notes.
The result of the offending provisions was that the Collateral was treated as being freed from the charge to secure the debt to LBSF and was simply divided up among the Noteholders in proportion to their original subscriptions.
The fundamental change brought about by the operation of these clauses depends upon the Issuer having elected to terminate the Swap Agreement in reliance on LBSFs bankruptcy.
The security for the obligations owed to LBSF under the Swap Agreement cannot validly be altered in reliance on LBSFs bankruptcy, and offends against the anti deprivation rule.
Consequently, the provisions are void and unenforceable under English law.
On the Noteholders alternative case, that the Event of Default occurred on 15 September 2008, when LBHI filed for Chapter 11 protection, LBSF says that Clause 5.5 and the concepts of Swap Counterparty Priority and Noteholder Priority only have relevance in relation to events taking place after the Collateral has been sold.
The parties could not have intended any permanent changes in the operation of Clause 5.5 and Condition 44.2 to have occurred unless and until the service of a notice by the Non defaulting Party to terminate the Swap Agreement.
Sir Andrew Morritt C
Sir Andrew Morritt C decided that Clause 5.5 of the STD was not contrary to public policy.
The Collateral was bought by the Issuer with the money subscribed by the Noteholders.
It was not derived directly or indirectly from LBSF.
The court should not be astute to interpret commercial transactions so as to invalidate them, particularly when doubt might be cast on other long standing commercial arrangements.
As long as the Swap Agreement was being performed it was appropriate for LBSF to have security for the obligations of the Issuer in priority to security in respect of the Issuer's obligations to the Noteholders, but the intention of all parties was that the priority afforded to LBSF was conditional on LBSF continuing to perform the Swap Agreement.
Such beneficial interest by way of security as LBSF had in the Collateral was, as to its priority, always limited and conditional, and could never have passed to a liquidator or trustee in bankruptcy free from those limitations and conditions as to its priority.
Alternatively, LBSF was a Defaulting Party on 15 September 2008 when LBHI filed for Chapter 11 protection, and the anti deprivation rule was not engaged if deprivation occurred on a ground other than bankruptcy of the entity alleged to be unlawfully deprived.
Court of Appeal
In the Court of Appeal [2009] EWCA Civ 1160, [2010] Ch 347 Lord Neuberger of Abbotsbury MRs conclusion that the provisions were valid relied to a large extent on the fact that the Collateral was acquired with money provided by the Noteholders and that the change in priorities was included to ensure that the Noteholders were repaid out of those assets: at para 67.
In particular he relied on these matters (at para 61 et seq): (a) so long as there was no risk of default, the Noteholders were prepared for LBSF to have priority when it came to unwinding the transaction; (b) the scheme provided, and was sold on the basis that, if LBSF or LBHI defaulted so that they could not, or did not, pay the interest and the capital on the Notes, then it would be the Noteholders who would have priority both in relation to repayment and in relation to the Unwind Costs; (c) the effect of the flips would not be to entitle the Noteholders to more than they had subscribed, and, if there was no shortfall, LBSF would not have been out of pocket as a result of the flips.
The right granted to LBSF was a security right over assets purchased with the Noteholders money, and, from the very inception, the priority, and the extent of the benefits, enjoyed by LBSF in respect of the security were contingent upon there being no Event of Default.
He agreed with Sir Andrew Morritt Cs conclusion on the LBHI point.
Longmore LJ agreed with Lord Neuberger MR.
Patten LJ thought that the anti deprivation rule did not apply because (at paras 135 136): The reversal of the order of priority under clause 5.5 was always a facet of the security designed to regulate the competing interests over the collateral of LBSF and the noteholders.
To say that its operation in the event of the company's bankruptcy constitutes the removal of an asset from the liquidation is to confuse the security itself with the operation of its terms in the events prescribed by the charge.
LBSF retains the same asset as it had before its bankruptcy and is free to deal with any recoveries for the benefit of its general creditors in accordance with the applicable statutory regime.
Condition 44 is said to have the effect of increasing the amount payable to noteholders in the event of LBSF being the defaulting party under the swap agreement by diverting to the noteholders moneys which would otherwise have been payable to it in order to discharge the issuers' liability for unwind costs.
Although the amount of the security available to meet LBSFs claims is obviously reduced in the event of a shortfall in the value of the security over what it would have been had no event of default occurred, that is simply a function of the change in priority which was always a feature of the security which the company enjoyed.
Lord Neuberger MR, while not disagreeing, had some reservations about this approach (paras 66 68), particularly because the authorities did not support the view that arrangements which were an original feature of the transaction were insulated from the anti deprivation rule.
VI The principles
Lord Neuberger MR rightly pointed out in his judgment (at para 32) in these proceedings that it was not easy to identify the precise nature or limits of the anti deprivation rule.
He was echoing what he had said as Neuberger J in Money Markets International Stockbrokers Ltd v London Stock Exchange Ltd [2002] 1 WLR 1150, para 87, a decision which contained the first full judicial analysis of the principles: at paras 117 118.
The rule has existed for nearly 200 years, and it is therefore necessary to look at the development of the rule to see what its nature and limits are.
All but one of the relevant cases prior to the decision of the House of Lords in British Eagle International Airlines Ltd v Cie Nationale Air France [1975] 1 WLR 758 on the pari passu principle are cases of personal bankruptcy.
The principal decisions are Whitmore v Mason (1861) 2 J & H 204 (Sir William Page Wood V C); Ex p Mackay; Ex p Brown; In re Jeavons (1873) LR 8 Ch App 643 (CA); Ex p Jay; In re Harrison (1880) 14 Ch D 19 (CA); Ex p Newitt; In re Garrud (1881) 16 Ch D 522 (CA); Ex p Barter; Ex p Black; In re Walker (1884) 26 Ch D 510 (CA); In re Detmold; Detmold v Detmold (1889) 40 Ch D 585 (North J); Borlands Trustee v Steel Bros & Co Ltd [1901] 1 Ch 279 (Farwell J); In re Johns, Worrell v Johns [1928] Ch 737 (Tomlin J); Bombay Official Assignee v Shroff (1932) 48 TLR 443 (PC); and In re Apex Supply Co Ltd [1942] Ch 108 (Simonds J) (the sole liquidation case).
The anti deprivation rule applied
The anti deprivation rule was applied to invalidate contractual provisions in the following decisions.
In none of them did it matter whether the provision was in a contract from the inception of the relationship.
Whitmore v Mason 2 J & H 204 is a classic case of the application of the anti deprivation rule.
It was concerned with a provision in a partnership deed that, in the event of the bankruptcy or insolvency of a partner, an account was to be taken, and the bankrupt partner was to lose his interest in the partnership assets (mines in Portugal) at a market valuation (save that his interest in a mining lease was to be excluded from the valuation).
Sir William Page Wood V C accepted the assignees argument ( at p 207) that the exclusion of the lease was void because it was an attempt to evade the rule in bankruptcy, which provides that, upon an act of bankruptcy being committed, all the property of the bankrupt vests in his assignees, and held that, insofar as it related to the lease, the provision was void as being in fraud of the bankrupt laws (at p 213), because the law is too clearly settled to admit of a shadow of doubt that no person possessed of property can reserve that property to himself until he shall become bankrupt, and then provide that, in the event of his becoming bankrupt, it shall pass to another and not to his creditors. (p 212)
So also in Ex p Mackay LR 8 Ch App 643, 648, discussed above, the agreement that the lender could keep the royalties in the event of the borrowers bankruptcy was an unlawful additional advantage.
This, like several of the other decisions, is really about an unsuccessful attempt to create a charge.
It was applied in Ex p Williams; In re Thompson (1877) LR 7 Ch D 138 (sham rent intended to give lender additional security of distraining on chattels).
In Ex p Jay 14 Ch D 19 a clause in an agreement for a lease between a landowner and a builder (under which the builder was to build 40 houses on land in Waltham Cross) provided that, until the lease had actually been granted, in the event that the builder was in default of any of his obligations or became bankrupt, any materials on the land should be forfeited to the landowner.
A few weeks later the builder granted a charge over the materials, but it was not registered as a bill of sale.
At a time before the builder had completed the development or any lease had been granted, and when the builder was not in default of any of his obligations, he was made bankrupt.
A dispute arose between his trustee in bankruptcy and the landowner over a quantity of building materials which the builder had brought onto the land.
The Court of Appeal held that the provisions of the agreement purporting to forfeit such building materials to the landowner were void as being a violation of the policy of the bankruptcy law, and that the building materials were the property of the trustee.
In Ex p Barter 26 Ch D 510 a shipbuilding contract provided that, if at any time the builder should cease working on the ship for 14 days, or should allow the time for completion and delivery of the ship to expire for one month without it having been completed and ready for delivery, or in the event of the bankruptcy or insolvency of the builder, the buyer could cause the ship to be completed, and could employ materials belonging to the builder as should be then on his premises.
It was held that the clause was void as against the trustee in his bankruptcy as being an attempt to control the user after bankruptcy of property vested in the bankrupt at the date of the bankruptcy, and as depriving the trustee of the right to elect whether he would complete the ship or not as might seem most advantageous for the creditors under the bankruptcy.
This decision is an application of a general principle that the bankrupts property vests in the trustee, and its user cannot be contractually controlled.
In re Johns, Worrell v Johns [1928] Ch 737, concerned an arrangement between mother and son, whereby the amount repayable by the son in respect of periodic loans made by the mother (which could not exceed 650, and might be as little as 10, in all) was to increase from 650 to 1,650 (plus interest) in the event of the sons bankruptcy.
Tomlin J said that the principle was that a person cannot make it a part of his contract that, in the event of bankruptcy, he is then to get some additional advantage which prevents the property being distributed under the bankruptcy laws (quoting Ex p Williams; In re Thompson 7 Ch D 138, 143) and described the agreement as a deliberate device to secure that more money should come to the mother if the son went bankrupt, than would come to her if he did not; and, that being so, the device is bad (p 748).
The agreement would also have offended the pari passu principle, because the claim of the mothers estate in the insolvent estate would have increased.
The principle not infringed
The anti deprivation principle did not apply in the following decisions.
These decisions are particularly important for the light which they throw on the limits of the principle.
Ex p Newitt 16 Ch D 522 was decided by the same Court of Appeal which had decided Ex p Jay a year earlier.
This was also a case of a bankrupt builder.
The provision for forfeiture operated on breach and not on bankruptcy, and was held to be valid.
The bankrupt builder had broken the terms of his agreement with the landowner and it was provided in the agreement that the chattels would be forfeited to the landowner as and for liquidated damages, whereas in Ex p Jay the builder was not in breach of contract, and the right to forfeit was expressed to be triggered, inter alia, on the builder becoming bankrupt.
James LJ said (at p 531) Another point taken before us, which does not appear to have been really argued before the judge of the county court, was this that the seizure was not made in sufficient time, that it was not made before the filing of the liquidation petition.
To my mind it is immaterial at what particular moment the seizure was made.
The broad general principle is that the trustee in a bankruptcy takes all the bankrupts property, but takes it subject to all the liabilities which affected it in the bankrupts hands, unless the property which he takes as the legal personal representative of the bankrupt is added to by some express provision of the bankrupt law.
There is no such provision applicable to the present case.
The building agreement provides, in effect, that in a certain event certain property of the builder may be taken by the landowner in full satisfaction of the agreement.
It appears to me analogous to a sale of property with a power of repurchase in a certain event.
The relevance of this decision lies in the effect of a provision for forfeiture on an event other than bankruptcy which takes place after bankruptcy, and it will be necessary to revert to it.
In In re Detmold 40 Ch D 585 a marriage settlement provided that income on the property in the settlement (originating from the husband) should pass to the wife for life in the event of an alienation by, or the bankruptcy of, the husband.
The provision was held valid against the husbands trustee in bankruptcy, on the ground that it had been triggered by the alienation effected as the result of the appointment of a judgment creditor as receiver (by way of equitable execution) of the income on the property in the settlement, prior to the commencement of the bankruptcy two months later.
In re Detmold is an illustration of a provision held valid because, though it worked a deprivation, it did so prior to the onset of bankruptcy even though it was also expressed to operate on bankruptcy.
In Borlands Trustee v Steel Bros & Co Ltd [1901] 1 Ch 279 Mr Borland was a shareholder in Steel Brothers & Co Ltd. Its articles of association contained pre emption rights, the effect of which was that on a shareholder becoming bankrupt, he had, on receiving a transfer notice from the directors, to transfer his shares to a manager or assistant at a fair value calculated in accordance with the articles.
Mr. Borlands trustee in bankruptcy claimed that the transfer articles were void because, among other reasons, the articles constituted a fraud upon the bankruptcy laws, and could not prevail when bankruptcy had supervened, since the effect was that the trustee in bankruptcy was forced to part with the shares at something less than their true value, with the result that the asset was not fully available for creditors.
The argument was rejected.
Farwell J started with the principle that a simple stipulation that upon a mans becoming bankrupt that which was his property up to the date of the bankruptcy should go over to some one else and be taken away from his creditors, is void as being a violation of the policy of the bankrupt law (at p 290, quoting Ex p Jay 14 Ch D 19, 25).
The basis of the decision was that there was a commercial arrangement.
The provisions were inserted bona fide and constituted a fair agreement for the purposes of the business of the company and were binding equally upon all persons who came in as shareholders.
There was no suggestion of fraudulent preference of one over another.
There was nothing obnoxious to the bankruptcy law in a clause which provided that if a man became bankrupt he should sell his shares.
The price was a fixed sum for all persons alike, and no difference in price arose in the case of bankruptcy.
The purpose was that there should be in the company, if it were so desired, none but managers and workers in Burma.
There was nothing repugnant in the way in which the value of the shares was to be ascertained.
It would have been different if there were any provision in the articles compelling persons to sell their shares in the event of bankruptcy at something less than the price that they would have otherwise obtained, since such a provision would be repugnant to the bankruptcy law (p 291).
In Bombay Official Assignee v Shroff 48 TLR 443 the bankrupt had been a registered broker in the Bombay Brokers Hall, an unincorporated association.
The rules of that association permitted only those holding a card to enter the hall and conduct business.
The rules also allowed the directors to declare a member a defaulter.
Following the bankrupts failure to pay funds owing to other members, he was declared a defaulter, his card and right of membership was forfeited.
About a week later, he was declared bankrupt.
The official assignee contended (relying on Whitmore v Mason 2 J & H 204 and In re Borlands Trustee [1901] 1 Ch 279) that his card and/or right of membership of the association or the value thereof vested in him as the assignee in the insolvency, because among other reasons, if the effect of the rules be that the proceeds of sale of the insolvent's card do not enure for the benefit of the general body of his creditors the rules are contrary to the law of insolvency.
Lord Blanesburgh, speaking for the Board, said (at p 446): It being agreed that the rules of this association are entirely innocent of any design to evade the law of insolvency, it may be that even these cases, although cases of a company and a partnership, are more favourable to the [association] than to the [official assignee] [T]he real answer to this contention of the [official assignee] [is] in the nature and character of the association as they have described it whereby in the case of a defaulting member who is expelled from the association no interest in his card remains in himself, and none can pass to his assignee, whether his expulsion does or does not take place before the commencement of his insolvency.
The decision of the Privy Council was applied by Neuberger J in Money Markets International Stockbrokers Ltd v London Stock Exchange Ltd [2002] 1 WLR 1150.
The claimant was a member of the stock exchange and defaulted on its obligations.
Under provisions in the articles of association of the stock exchange its share was transferred away and the claimant lost its membership.
Neuberger J held the anti deprivation rule did not apply because the share was incapable of uncontrolled transfer and was closely connected with a right in respect of which a deprivation provision was effective, viz membership of the exchange.
In In re Apex Supply Co Ltd [1942] Ch 108 a hire purchase agreement provided that if the hirer should go into liquidation, and the owner should retake possession, the hirer would pay a sum by way of compensation for depreciation.
Applying Ex p Mackay and In re Johns, Simonds J held that the provision for the payment of compensation was not a fraud on the bankruptcy laws as giving the owner company an undue advantage in the event of the hirer company going into liquidation.
The provision was not a deliberate device to secure that more money went to the creditor: it would be extravagant to suggest that this clause is aimed at defeating the bankruptcy laws or at providing for a distribution differing from that which the bankruptcy laws permit (at p 114).
The limits of the anti deprivation rule
Good faith and commercial arrangements
The first question is whether absence of good faith, or an intention to obtain an advantage over creditors in the bankruptcy, is an essential element for application of the principle.
From the earliest days of the rule, it has been based on the notion of a fraud, or a direct fraud (Lord Eldon LC in Higinbotham v Holme 19 Ves Jun 88, 92), on the bankruptcy laws, and that decision was taken to be authority for the proposition that where a person settles property in such a way that his interest determines on his bankruptcy that is evidence of an intention to defraud his creditors: In re Stephenson; Ex p Brown [1897] 1 QB 638, 640, per Vaughan Williams J.
The overall effect of the authorities is that, where the anti deprivation rule has applied, it has been an almost invariably expressed element that the party seeking to take advantage of the deprivation was intending to evade the bankruptcy rules; but that where it has not applied, the good faith or the commercial sense of the transaction has been a substantial factor.
By contrast, in the leading pari passu principle case, British Eagle [1975] 1 WLR 758, it was held by the majority that it did not matter that the clearing transaction was a sensible commercial arrangement not intended to circumvent the pari passu principle.
Although Lord Morris of Borth y Gest (at p 763) placed weight in his dissenting speech on the fact that there was no trace in the scheme of any plan to divert money in the event of a liquidation his conclusion was not based on the absence of bad faith.
The basis of his reasoning was that transactions had taken place and services had been rendered on the basis that clearance would follow; it was not open to the liquidator to seek to alter ex post facto the contractual arrangements pursuant to which the airlines had supplied services to British Eagle; and the effect of the clearing was that no sum was due: p 763 764.
To take first the cases in which the anti deprivation rule was held to apply: in Whitmore v Mason 2 J & H 204 the exclusion of the lease on bankruptcy of the partner was void and Sir William Page Wood V C said that no one can be allowed to derive benefit from a contract that is in fraud of the bankrupt laws (p 213).
In Ex p Mackay LR 8 Ch App 643, 647, James LJ said that the provision was an ineffective charge and was a clear attempt to evade the operation of the bankruptcy laws as it provide[d] for a different distribution of his effects in the event of bankruptcy from that which the law provides.
As Lord Cross of Chelsea said of Ex p Mackay in British Eagle [1975] 1 WLR 758, 780: The court could only go behind [the transaction] if it was satisfied as was indeed obvious in that case that it had been created deliberately in order to provide for a different distribution of the insolvents property on his bankruptcy from that prescribed by the law; and Lord Morris agreed that Ex p Mackay was a case where the relevant provisions were a clear attempt to evade the operation of the bankruptcy laws, or a device for defeating the bankruptcy laws (p 770).
In Ex p Jay 14 Ch D 19, the case of the housebuilders materials, there was no mention of evasive intent, but that was probably because it was obvious that the intention was to ensure that the property did not go to the trustee.
In In re Johns, Worrell v Johns (the case of the increase of the debt on bankruptcy) the agreement was described [1928] Ch 737, 748) as a deliberate device to secure that more money should come to the mother,
if the son went bankrupt, than would come to her if he did not
By contrast, where the anti deprivation rule was held not to apply, good faith and the commercial sense of the transaction have been important factors.
In Borlands Trustee v Steel Bros & Co Ltd [1901] 1 Ch 279 (the case of pre emption rights on bankruptcy) Farwell J relied specifically on the fact that the provisions were inserted bona fide and constituted a fair agreement for the purposes of the business of the company, and that there was no suggestion of fraudulent preference.
So also in Bombay Official Assignee v Shroff 48 TLR 443 (forfeiture of membership of the Bombay Brokers Hall) Lord Blanesburgh (at p 446) referred to the fact that it had been agreed that the rules of the association were entirely innocent of any design to evade the law of insolvency Again, in In re Apex Supply Co Ltd [1942] Ch 108 (the hire purchase case) Simonds J accepted that the provision was not a deliberate device to secure that more money went to the creditor and that it would be extravagant to suggest that this clause is aimed at defeating the bankruptcy laws or at providing for a distribution differing from that which the bankruptcy laws permit. (p 114).
Thus there is an impressive body of opinion from some of the most distinguished judges that, in the case of the anti deprivation rule, a deliberate intention to evade the insolvency laws is required.
That conclusion is not affected by the decision in British Eagle [1975] 1 WLR 758.
The pari passu rule is clear.
Parties cannot contract out of it.
That is why, by contrast with the anti deprivation cases, Lord Cross was able to accept (p 772) that the clearing house was a commercial arrangement which was for the mutual advantage of the airlines, but that the power to go behind agreements, the result of which were repugnant to the insolvency legislation, was not confined to cases in which the dominant purpose was to evade its operation.
It was irrelevant that the airlines had good business reasons for entering into the arrangements and did not direct their minds to the question how the arrangements might be affected by the insolvency of one or more of [them] (p 780).
That does not mean, of course, that a subjective intention is required, or that there will not be cases so obvious that an intention can be inferred, as in Ex p Jay.
But it does suggest that in borderline cases a commercially sensible transaction entered into in good faith should not be held to infringe the anti deprivation rule.
Although he did not accept that absence of good faith was a necessary element, Neuberger J suggested in Money Markets International Stockbrokers Ltd v London Stock Exchange Ltd [2002] 1 WLR 1150, para 103 that if a deprivation provision, which might otherwise be held to be valid, could be shown to have been entered into by the parties with the intention of depriving creditors of their rights on an insolvency, then that might be sufficient to justify holding invalid the provision when it would not otherwise have been held invalid.
Anti deprivation rule does not apply if the deprivation takes place for reasons
other than bankruptcy
By contrast with the pari passu principle, it is well established that if the deprivation takes place for reasons other than bankruptcy, the anti deprivation rule does not apply.
In British Eagle [1975] 1 WLR 758 the clearing house system was ineffective to avoid the pari passu principle, even though it applied throughout irrespective of whether the airlines went into liquidation.
But the position is different with regard to the anti deprivation rule, which is intended to operate only where provision is made for deprivation on bankruptcy.
Thus in Ex parte Jay 14 Ch D 19 (the case of the builders materials) both Brett and Cotton LJJ accepted (p 26) that if forfeiture had taken place on the builders breach (as the provision envisaged) then it would have been valid: It appears that there was no default on the debtors part up to the filing of the petition, and the [owner] cannot, therefore, succeed except by virtue of the provision for forfeiture on bankruptcy, and according to the authorities such a stipulation is void (Brett LJ) and One of the two events is not hit by the decided cases(Cotton LJ).
In Ex p Barter 26 Ch D 510 (shipbuilding materials) the contract provided for events other than bankruptcy in which the property could be seized, but it was held that it was the bankruptcy which was the basis of the powers of control exercised by the buyers: p 519.
So also in In re Detmold 40 Ch D 585 (marriage settlement providing that income on the property in the settlement, originating from the husband, should pass to the wife for life in the event of an alienation by, or the bankruptcy of, the husband) the provision was held valid against the husbands trustee in bankruptcy, on the ground that it had been triggered by the alienation effected as the result of the appointment of a judgment creditor as receiver (by way of equitable execution) of the income on the property in the settlement: [T]he limitation of the life interest to the settlor was validly determined by the fact that, in consequence of the order appointing the receiver, he ceased to be entitled to receive the income.
This took place before the commencement of the bankruptcy, and, therefore, the forfeiture is valid as against the trustee in the bankruptcy (p 588 per North J).
In Ex p Newitt 16 Ch D 522 (as has been seen, like Ex p Jay, a case of a bankrupt builder) the provision for forfeiture was on breach and not on bankruptcy and was held to be valid.
The controversial point in the case is that the forfeiture took place after bankruptcy, but it is not clear when the breach occurred.
In the present case the Court of Appeal expressed the view (obiter) that the anti deprivation rule would apply in such circumstances and that once bankruptcy commences, deprivation on any grounds would be impermissible: paras 93 94 and 161 163 per Lord Neuberger MR and Patten LJ.
They considered (echoing what Neuberger J had said in Money Markets International Stockbrokers Ltd v London Stock Exchange Ltd [2002] 1 WLR 1150, para 105) that the decision in Ex p Newitt 16 Ch D 522 could not survive British Eagle.
Whether Ex p Newitt was correctly decided does not arise for decision on this appeal.
It was cited, with apparent approval, by Harman J in Jennings Trustee v King [1952] Ch 899, 911.
It was not mentioned in any of the phases of the litigation in British Eagle [1975] 1 WLR 758 other than in the dissenting speech of Lord Morris (at p 771), who used it in support of the proposition that a right in a contract is not defeated by the commission of an act of bankruptcy before the contractual right is exercised.
The view of the majority was that the netting off in the clearing house which occurred after the liquidation was ineffective, and consequently the majority must be taken to have rejected the proposition.
But it does not follow that the principle identified by Lord Morris is no longer good law in the context of the anti deprivation rule.
On the facts of Ex p Newitt, however, the pari passu principle as well as the anti deprivation principle may have been engaged, and it may be that the right to forfeiture after bankruptcy or liquidation was not the type of equity to which a trustee or liquidator would take subject.
In either of those cases, the forfeiture would not have been effective.
Determinable and defeasible interests and flawed assets
The law reporter, Mr Clement Swanston, summarised some of the early cases in a note to his report of the decision of Lord Eldon LC in Wilson v Greenwood (1818) 1 Swans 471, 485, and his summary was quoted with approval in Whitmore v Mason 2 J & H 204, 209 210 by Sir William Page Wood V C, by the Court of Appeal in Ex p Barter 26 Ch D 510, 519, and by Stirling J in Mackintosh v Pogose [1895] 1 Ch 505, 511.
Mr Swanston said: The general distinction seems to be, that the owner of property may, on alienation, qualify the interest of his alienee, by a condition to take effect on bankruptcy; but cannot, by contract or otherwise, qualify his own interest by a like condition, determining or controlling it in the event of his own bankruptcy, to the
disappointment or delay of his creditors
In Whitmore v Mason 2 J & H 204, 212 Sir William Page Wood V C distinguished the exclusion of the lease on the partnership account to be taken on bankruptcy from the ordinary condition in a demise of land, that in the event of the tenant becoming bankrupt the land shall revert to the landlord.
This reflected the old rule that a provision for forfeiture of a lease on winding up did not contravene the principle since it was merely a qualification of the lessees estate: Roe d Hunter v Galliers (1787) 2 Term Rep 133.
A provision of this kind is common form in most leases and is recognised by sections 146(7), (9) and (10) of the Law of Property Act 1925.
By providing for limited relief against the operation of such clauses, the legislation implicitly endorses the validity of such provisions at common law.
The lease cases show that such a provision is regarded by the law as effective to bring the lease to an end whether the lease is expressed (a) to run until bankruptcy or (b) as a lease with a proviso for forfeiture in that event.
The result has not depended upon linguistic differences of expression, and section 146(7) of the 1925 Act proceeds on the basis that no difference is to be drawn between the two situations.
So also licences of intellectual property expressed to determine (or to be determinable on notice) on bankruptcy of the licensee are valid; and interests under protective trusts granted by the settlor to a beneficiary until the beneficiarys bankruptcy: Lewin on Trusts, 18th ed (2008), para 5 135; and section 33 of the Trustee Act 1925.
The distinction for the purposes of insolvency law is between an interest determinable on bankruptcy/liquidation and an absolute interest which is made defeasible on bankruptcy/liquidation by a condition subsequent.
A determinable interest is an interest the quantum of which is limited by the stipulated event, so that the occurrence of that event marks the end of the duration of the interest, whereas a defeasible interest is one which is granted outright and then forfeited.
As Professor Sir Roy Goode points out in his comment (2011) 127 LQR 1, 8 on the decision of the Court of Appeal in this case, the difference between a determinable interest, limited to last until bankruptcy, and an interest forfeitable on bankruptcy as a condition subsequent, turning as it does on fine verbal distinctions, has been categorised as little short of disgraceful to our jurisprudence when applied to a rule professedly founded on considerations of public policy (quoting In re Kings Trust (1892) 29 LR Ir 401, 410, per Porter MR, a case on the rule against repugnancy, which is offended by forfeiture but not by termination).
Professor Sir Roy Goode rightly accepts (ibid) that the principle that a determination clause is not an attempt to remove an asset from the company but simply a delineation of the quantum of the asset or the duration of the transferees entitlement is too well established to be dislodged otherwise than by legislation.
That is particularly so for these reasons.
It would go far beyond the judicial function to hold that the distinction is indefensible.
To hold that both types of determination are contrary to the anti deprivation principle would be thoroughly destructive of commercial expectations in many areas.
So also to say that both types of determination are valid would at a stroke do away with a 200 year old principle, which could only be justified if the mischief which the anti deprivation rule seeks to remedy were adequately covered by statute.
No doubt to some extent the anti avoidance provisions go some way to dealing with the mischief, but they cover different ground and contain time limitations which do not constrain the common law rule.
But it does not follow that any proprietary right which is expressed to determine or change on bankruptcy is outside the anti deprivation rule, still less that a deprivation which has been provided for in the transaction from the outset is valid.
If it were so, then the anti deprivation rule would have virtually no content.
This is the flawed asset theory, the idea that, where it is an inherent feature of an asset from the inception of its grant that it can be taken away from the grantee (whether in the event of his insolvency or otherwise), the law will recognise and give effect to such a provision.
If that theory were generally applicable, it would represent such an easy way of avoiding the application of the principle, that the principle would be left with little value: Money Markets International Stockbrokers Ltd v London Stock Exchange Ltd [2002] 1 WLR 1150, at paras 91 92, per Neuberger J.
The theory is also inconsistent with most of the cases in which the principle has been applied: see especially Whitmore v Mason 2 J & H 204; Ex p Mackay LR 8 Ch App 643; Ex p Jay 14 Ch D 19; Ex p Barter 26 Ch D 510.
To the extent that this idea underpins Patten LJs judgment in the present case (which is by no means certain), it should not be accepted because it would empty the basic rule of any substantive content.
For the same reason the answer cannot be found by characterising or describing the right as limited by the condition.
If it were possible to characterise LBSFs right as a right to be repaid in priority to the Noteholders when there was not at the date of termination an Event of Default in relation to which it was the Defaulting Party then it would have been possible so to characterise the rights in cases in which the rule has been applied: eg an interest in the partnership mine if not bankrupt (Whitmore v Mason); or a right to royalties if not bankrupt (Ex p Mackay).
Acquisition of property with own assets
said: In Whitmore v Mason 2 J & H 204, 214 215 Sir William Page Wood V C If his co partners had advanced a definite sum of money on account of his share, then the property might have been considered to the extent of the money so advanced by them, as identically their money; but this has not been done.
Sir William Page Wood V Cs statement was based on a marriage settlement case, Lester v Garland (1832) 5 Sim 205, which confirmed a long line of cases which had established that the wifes portion would be protected in the event of the husbands bankruptcy: A variety of cases, beginning with the case of Lockyer vs Savage [(1732) 2 Str 947], which was decided about 100 years ago, have established that, though there cannot be a settlement of the husbands own estates so as to make his life interest cease in the event of his becoming a bankrupt, in order that the benefit of the estate might be given to the wife or children of the marriage, yet the wifes estate may be so settled. (p 222)
As Stirling J put it in Mackintosh v Pogose [1895] 1 Ch 505, 511: it has long been established that if husband and wife both bring property into such a settlement [viz, a marriage settlement], a trust of the income of the wifes property in favour of the husband until his bankruptcy is good, while a similar trust of the income of the husbands property is bad .
The basis of the rule was that the courts treated the property of the husband as being in substance the property of the wife [and] as the identical property brought by her into settlement (at 514 515).
In Higinbotham v Holme 19 Ves Jun 88, 92 93, Lord Eldon LC distinguished the case of the settlement by the bankrupt husband on himself of a life interest, from, firstly, the case of the wifes property limited until the bankruptcy of her husband; that is, where she reserves a power over her own property, and, secondly, the case of a lease made determinable by the bankruptcy of the lessee: that is a reservation by the owner of the property of a power over it.
The marriage settlement cases are not far removed from the category of determinable and defeasible interests or flawed assets, but they do suggest that the source of the assets is an important element in determining whether there has been a fraud on the bankruptcy laws.
Lord Neuberger MRs conclusion [2010] Ch 347, para 64 was that Whitmore v Mason is authority for the view that the anti deprivation rule may have no application to the extent that the person in whose favour the deprivation of the asset takes effect can show that the asset, or the insolvent persons interest in the asset, was acquired with his money.
That conclusion is supported by the very frequent formulation of the anti deprivation rule in terms of the bankrupts own property.
Thus in Holmes v Penney (1863) 3 K & J 90, 102, Sir William Page Wood V C stated the general principle as being that a trader cannot, even for valuable consideration, settle his own property in such a manner as that he should take an interest in it until his bankruptcy, and afterwards, it should be held in trust for his wife and children. (emphasis added) and there are many similar references in the older cases to the settlement or disposition of the bankrupts own property: eg In re Detmold 40 Ch D 585, 588 per North J; In re Stephenson [1897] 1 QB 638, 640 per Vaughan Williams J; In re Halstead, Ex P Richardson [1917] 1 KB 695, 709 per Warrington LJ.
The anti deprivation rule of course only applies where the bankrupts own property is in issue, and these dicta do not show that the rule has no application where the source of the bankrupts asset is the person to whom it is to go on bankruptcy.
Nor would it be right for there to be a general and universally applicable exception to the general rule based simply on the source of the assets.
But if the source of the assets is the person to whom they are to go on bankruptcy that may well be an important, and sometimes decisive, factor in a conclusion that the transaction was a commercial one entered into in good faith and outside the scope of the anti deprivation rule.
Provision operating on insolvency (as distinct from bankruptcy/liquidation)
This point does not arise for decision on this appeal.
The only potentially relevant Events of Default are the Chapter 11 filings by LBSF and LBHI.
The point was considered in Whitmore v Mason 2 J & H 204, where it was held that it did not matter that under the partnership deed the account was to be taken in the event of bankruptcy or insolvency, and insolvency had occurred before any act of bankruptcy: A bankrupt is usually insolvent before he commits an act of bankruptcy.
First he becomes insolvent, and then bankrupt; and if that construction were to prevail the bankrupt laws might, in all cases, be defeated. (p 215)
Executory contracts
It is a very common provision in commercial contracts that performance may be withheld in the case of the other partys bankruptcy or liquidation.
In Lomas v JFB Firth Rixson Inc [2010] EWHC 3372 (Ch) interest swap counterparties withheld payments due to Lehman Brothers International (Europe) in reliance on a provision of the ISDA Master Agreement that a partys payment obligations were subject to the condition precedent that there was no continuing Event of Default with respect to the other party.
On the question whether the anti deprivation principle applied, Briggs J considered that the authorities justified a distinction between (a) cases where the asset of the insolvent company was a chose in action representing the quid pro quo for something already done, sold or delivered before the onset of insolvency; and (b) cases where the right in question consists of the quid pro quo (in whole or in part) for services yet to be to be rendered or something still to be supplied by the insolvent company in an ongoing contract.
He held that in the former situation the court would more readily hold that the anti deprivation rule applied.
This decision was distinguished in Folgate London Market Ltd v Chaucer Insurance plc [2011] EWCA Civ 328, where there was a contractual provision for a right of indemnity to be terminated in the event of liquidation: it was a naked attempt to provide that the obligation to pay was to be extinguished if payment would be available for creditors generally in the event of insolvency: para 22.
The Swap Agreement in the present case is subject to the same provision, but its effect is not in issue in these proceedings.
Accordingly the important and difficult question of the extent to which payment obligations in executory contracts are affected by the anti deprivation rule does not arise on this appeal, and since it is a live issue in other proceedings it is best not to express a view on it, except to say that accrued property rights such as debts must be at least capable of being caught by the rule.
VII Conclusions
It would go well beyond the proper province of the judicial function to discard 200 years of authority, and to attempt to re write the case law in the light of modern statutory developments.
The anti deprivation rule is too well established to be discarded despite the detailed provisions set out in modern insolvency legislation, all of which must be taken to have been enacted against the background of the rule.
As has been seen, commercial sense and absence of intention to evade insolvency laws have been highly relevant factors in the application of the anti deprivation rule.
Despite statutory inroads, party autonomy is at the heart of English commercial law.
Plainly there are limits to party autonomy in the field with which this appeal is concerned, not least because the interests of third party creditors will be involved.
But, as Lord Neuberger stressed [2010] Ch 347, para 58, it is desirable that, so far as possible, the courts give effect to contractual terms which parties have agreed.
And there is a particularly strong case for autonomy in cases of complex financial instruments such as those involved in this appeal.
No doubt that is why, except in the case of a blatant attempt to deprive a party of property in the event of liquidation (Folgate London Market Ltd v Chaucer Insurance plc [2011] EWCA Civ 328), the modern tendency has been to uphold commercially justifiable contractual provisions which have been said to offend the anti deprivation rule: Money Markets International Stockbrokers Ltd v London Stock Exchange Ltd [2002] 1 WLR 1150; Lomas v JFB Firth Rixson Inc [2010] EWHC 3372 (Ch); and the judgments of Sir Andrew Morritt C and the Court of Appeal in these proceedings.
The policy behind the anti deprivation rule is clear, that the parties cannot, on bankruptcy, deprive the bankrupt of property which would otherwise be available for creditors.
It is possible to give that policy a common sense application which prevents its application to bona fide commercial transactions which do not have as their predominant purpose, or one of their main purposes, the deprivation of the property of one of the parties on bankruptcy.
Except in the case of well established categories such as leases and licences, it is the substance rather than the form which should be determinant.
Nor does the fact that the provision for divestment has been in the documentation from the beginning give the answer, nor that the rights in property in question terminate on bankruptcy, as opposed to being divested.
Nor can the answer be found in categorising or characterising the property as property subject to divestment on bankruptcy.
If the anti deprivation principle is essentially directed to intentional or inevitable evasion of the principle that the debtors property is part of the insolvent estate, and is applied in a commercially sensitive manner, taking into account the policy of party autonomy and the upholding of proper commercial bargains, these conclusions on the present appeal follow.
The answer is not to be found in the Noteholders argument that (a) LBSFs property was a beneficial interest under a trust, of which it was one of a number of beneficiaries (Clause 5.3 of the STD) and that (b) LBSF retains its beneficial interest under the trust to this day.
The fact that the security interests were held by the Trustee is not determinative.
The court has to look to the substance of the matter, which is that LBSF had a security interest, the content and extent of which altered when it filed for Chapter 11 protection.
Nor is it to be found in the fact that the potential for change in priority was in the documentation from the beginning, nor in the flawed asset argument or variant of it, that the security interest, or the right under the trust to have the trust property administered in accordance with Swap Counterparty Priority, was inherently qualified or limited, because it applied only for so long as there had been no Event of Default under the Swap Agreement for which the Swap Counterparty was the Defaulting Party.
The answer is to be found in the fact that this was a complex commercial transaction entered into in good faith.
Although, as a matter of law, the security was provided by the Issuer out of funds raised from the Noteholders, the substance of the matter is that the security was provided by the Noteholders and subject to a potential change in priorities.
The security was in commercial reality provided by the Noteholders to secure what was in substance their own liability, but subject to terms, including the provisions for Noteholder Priority and Swap Counterparty Priority, in a complex commercial transaction entered into in good faith.
There has never been any suggestion that those provisions were deliberately intended to evade insolvency law.
That is obvious in any event from the wide range of non insolvency circumstances capable of constituting an Event of Default under the Swap Agreement.
The Offering Circular Supplement emphasised that, in addition to the Notes being credit linked to the reference portfolio, Noteholders would also have exposure to the Collateral, and impairment of the Collateral might result in a negative rating action on the Notes.
The document went on: Purchasers of Notes should conduct such independent investigation and analysis regarding the Issuer, the security arrangements and the Notes as they deem appropriate to evaluate the merits and risks of an investment in the Notes.
In particular, purchasers should note that the credit risk of the Notes includes that of the Collateral, the Swap Counterparty and the Reference Entities and that the Notes allow a purchaser to obtain the stated coupon in exchange for assuming such credit risk.
The coupon and Initial Principal Amount may be at risk if one or more Credit Events occur and in certain circumstances the Notes may redeem at zero.
There were three main risks for Noteholders: (1) Credit Event risk, that is, the risk that Credit Events might occur and be notified under the Swap Agreement, reducing the amount payable by the Issuer; (2) Collateral risk, being the risk that the Collateral might default or decline in value (a more likely eventuality in modern conditions than it might have seemed in 2004); and (3) LBSF risk, being the risk that LBSF might not be in a position to provide sufficient funds to the Issuer for it to pay the Noteholders interest or principal.
The documents were intended to regulate the delicate relationship between Noteholders risk and LBSFs risk.
The Noteholder Priority provisions were intended to deal with LBSF risk.
The fact that, in certain circumstances, the change in priority would lead to a (possibly unanticipated) benefit to the Noteholders and to the loss of LBSFs security rights in the Collateral in respect of Unwind Costs does not unravel this highly complex transaction.
These transactions were designed, arranged and marketed by the Lehman group.
The investors who bought the Notes were in the main not banks.
In the case of the Belmont Noteholders they were Australian local authorities, pension funds, private investment companies and private individuals.
There was evidence that the fact that the Noteholders would have priority over the Collateral in the event of LBSFs insolvency was a very material factor in obtaining Triple A credit ratings which enabled Lehman to market the Notes.
For these reasons Sir Andrew Morritt C and the Court of Appeal were right to find that the key provisions were valid and enforceable.
VIII The LBHI point
This point does not arise in view of the conclusion that the Noteholders are right on the main point.
LBHI filed for Chapter 11 relief on 15 September 2008.
If that was an Event of Default on that date for the purposes of Clause 5.5 of the STD and Condition 44 of the Terms and Conditions, then Noteholder Priority replaced Swap Counterparty Priority and Condition 44.2 replaced Condition 44.1.
If that occurred before, and not because of, LBSFs filing for Chapter 11 relief, the anti deprivation rule would not be engaged because the change in LBSFs priority would not have been because of its filing, but because of LBHIs filing.
The anti deprivation rule has no application where an entity is deprived by a person of its property prior to bankruptcy and on grounds which do not depend upon bankruptcy.
Sir Andrew Morritt C and the Court of Appeal accepted that the Noteholders were right on this point.
LBSFs position was as follows: (1) Clause 5.5 of the STD and Condition 44.2 of the Terms and Conditions, and the concepts of Swap Counterparty Priority and Noteholder Priority, only had relevance in relation to events taking place after the Collateral has been sold. (2) Condition 44.2 of the Notes prescribed how the Early Redemption Amount payable to Noteholders on an Early Redemption Date was to be calculated. (3) But Early Redemption could only take place after service of a notice by the Issuer following termination of the swap transaction or service of a notice by the Issuer to accelerate the Notes following an Event of Default. (4) On the true interpretation of the arrangement, the parties could not have intended any permanent changes in the operation of Clause 5.5 and Condition 44.2 to have occurred unless and until the service of a notice by the non Defaulting Party to terminate the Swap Agreement. (5) Clause 5.5 and Condition 44.2 operated with respect to the payments which would be due to LBSF and the Noteholders on early termination of the swap transaction and Early Redemption of the Notes. (6) Neither of those events would occur automatically upon an Event of Default occurring under the Swap Agreement: each required the service of a notice by the Issuer terminating the Swap Agreement. (7) Part 1(h) of the Schedule to the ISDA Master Agreement contained the option for the contracting parties to select Automatic Early Termination (AET) of their Swap Agreement. (8) If AET was selected, termination of the swap was deemed to occur automatically on the occurrence of a specified number of Events of Default, including bankruptcy. (9) The AET option was not taken in respect of any of the Swap Agreements in issue in this case. (10) The result was that the mere happening of an Event of Default based upon bankruptcy was plainly not intended to, and did not, result in the automatic termination of the Swap transaction. (11) Parties to a swap agreement need to know, with certainty, a number of fundamental matters.
They need, for example, to know whether or not the transaction is still operative or has been terminated; if it has been terminated, they need to know with certainty when it terminated, and which of them is the Defaulting Party and which is not. (12) In the absence of AET, it is the service of a notice under section 6(a) which fixes those rights and obligations.
In my judgment, Sir Andrew Morritt C and the Court of Appeal were right on this point.
The combined effect of section 5 of the ISDA Master Agreement and paragraph 9(iv) of the Swap Confirmation is that the institution by LBHI (a Credit Support Provider) of proceedings for Chapter 11 relief is an Event of Default.
The direction to the Trustee in Clause 5.5 of the STD is to apply Noteholder Priority if an Event of Default has occurred under the Swap Agreement and the Swap Counterparty is the Defaulting Party.
For this purpose LBSF is the Defaulting Party: section 6(a) of the ISDA Master Agreement.
Condition 44.2 of the Terms and Conditions provides that if an Event of Default has occurred under the Swap Agreement and the Swap Counterparty is the Defaulting Party, then, where Unwind Costs are payable by the Issuer to the Swap Counterparty, the Issuer is to apply the Collateral proceeds first in redeeming the Notes.
Consequently the priorities were fixed on the happening of the Event of Default.
There is nothing in the documents to require a notice of termination for this purpose, by contrast with the procedure in clause 6(a) of the ISDA Master Agreement for early termination.
Under clause 5.5 of the Principal Trust Deed the security became enforceable when any amount due in respect of the Notes was not paid.
LBSF in effect asks the court to write in a further condition that notice of termination has been given in respect of that Event of Default.
This would be unnecessary and contrary to principle.
The fact that it might make more commercial sense (to LBSFs benefit) should yield to the following considerations: first, the documents were prepared and marketed by Lehman Brothers, who could reasonably have been expected to ensure that their interests were adequately protected.
Secondly, the Notes were bearer instruments intended to be widely marketed, and it is particularly important in such circumstances for the documents themselves to be capable of being relied on in the market.
In this connection it is worthy of note that the Offering Circular Supplement itself (under Security Arrangements) substantially repeated clause 5.5 of the STD.
Noteholders were entitled to rely on the documents as presented to them.
I would therefore dismiss the appeal.
LORD WALKER
I gratefully acknowledge Lord Collins summary of the complicated documentation in this case, and his comprehensive survey of the authorities on the anti deprivation rule.
Between them Lord Collins in his judgment in this Court, and Lord Neuberger of Abbotsbury MR in his judgment in the Court of Appeal (Perpetual Trustee Co Ltd v BNY Corporate Trustee Services Ltd [2010] EWCA Civ 1160, [2010] Ch 347) have analysed the cases most thoroughly.
What emerges from the analysis is that the rule is a general principle of public policy which (in the traditional phrase) prevents a fraud on the insolvency statutes: as Lord Rodger of Earlsferry put it in R v J [2004] UKHL 42, [2005] 1 AC 562, para 64, The notion of a fraud upon an Act, acting in fraudem legis, is ancient.
Although the outer limits of the doctrine remain notoriously difficult to define, this case at least falls squarely within its scope.
There is a good deal of common ground between Lord Collins and Lord Neuberger.
Where they differ in their analysis I respectfully prefer the view taken by Lord Collins, and I am hesitant about adding anything that might in any way obscure the clarity of his judgment.
What follows should be read as no more than footnotes.
The outer limits of the anti deprivation rule are indeed difficult to define.
There are some reasonably well demarcated areas in which it is clear that the principle does not apply.
One is the grant of a lease, in which the reservation of a power of re entry and forfeiture in the event of bankruptcy is standard practice, is unquestionably valid, and is recognised by statute.
This is noted by Lord Collins (paras 84 and 85) and Lord Neuberger MR (para 64), citing Whitmore v Mason (1861) 2 J & H 204, 209 210, and Ex p Barter; Ex p Black; In re Walker (1884) 26 Ch D 510, 519 520.
Another area in which the principles are well established is in the law of trusts.
This was, in the early days of the anti deprivation rule, the area in which most of the relevant cases were decided, the earliest notable decision being that of Lord Eldon LC in Higinbotham v Holme (1812) 19 Ves Jun 88, where by a marriage settlement the husband conveyed land which he owned to trustees in trust for himself for life unless he shall embark in trade, and in the life of his wife become bankrupt (as happened a few years later).
Lord Eldon LC stated (at pp 92 93), It is not competent to a party, giving a consideration for a contract, that is a direct fraud upon the Bankrupt Laws, to have the benefit of it.
I cannot assimilate this to the case of the wifes property limited until the bankruptcy of her husband; that is, where she reserves a power over her own property; or to the case of a lease made determinable by the bankruptcy of the lessee: that is a reservation by the owner of the property of a power over it .
But (as Lord Eldon implies in that passage) a settlor can validly settle his own property so as to confer on another person an interest terminable on the bankruptcy of that other person.
That also has received statutory recognition in the statutory protective trusts in section 33 of the Trustee Act 1925, subsection (3) of which provides that the section does not operate to validate any trust which would, if contained in the instrument creating the trust, be liable to be set aside.
A further much more limited exception has been made for assets (in particular, shares in an incorporated professional or business association) which are closely linked with professional or business activities for which bankruptcy is a disqualification: Bombay Official Assignee v Shroff (1932) 48 TLR 443; Money Markets International Stockbrokers Ltd v London Stock Exchange Ltd [2002] 1 WLR 1150.
It is hard to see how much of the old learning about marriage settlements can be applied to a highly sophisticated commercial transaction such as that now before the court.
But the old cases leave us in no doubt that among the landed gentry in the 18th and 19th centuries (especially before the Married Womens Property Act 1882) marriage, if not a commercial transaction, had financial implications which were taken very seriously.
In Lester v Garland (1832) 5 Sim 205, for instance, the wife (who was under 21) was entitled under her uncles will to a legacy of 1,000 contingently on attaining full age, and the legacy would on her marriage vest in her husband; this legacy, and a further 4,000 paid by her father to her husband, was treated as if it had been settled by the wife, and not by the husband, so as to accelerate the wifes interest in that part of the settled property on his bankruptcy.
The Court of Chancery was there looking at what happened as a matter of substance rather than form.
Lester v Garland was considered in a commercial context in Whitmore v Mason 2 J & H 204.
In that case the bankrupt, Mr Smith, had been a partner in a firm that had a 50 year lease of mines in Portugal.
Mr Smith had paid in one thirteenth of the firms capital of 6,500.
The impugned provision of the partnership deed directed that on a partners bankruptcy his interest in the lease should be discounted in the taking of a partnership account.
It is instructive to look at the report of counsels arguments.
The argument for the partners was that partnership deeds were exceptional, and that such a provision was frequently inserted in them.
Mr Rolt QC argued In forming a partnership each partner is making a bargain with the rest, and is entitled to stipulate for such advantages as he can obtain from the rest; and he referred by way of analogy to a lease (p 209).
After the Vice Chancellor had made a discouraging reference to Wilson v Greenwood (1818) 1 Swans 471 Mr Giffard QC, following, argued that even on the rule as stated in Mr Swanstons note to Wilson v Greenwood (at p 485) the rule would allow two co partners, part owners of a mine, to limit their shares to each other until bankruptcy, and then over; and the limitation over would be valid. (p 210)
That is the context of the Vice Chancellors dictum at pp 214 215: If his co partners had advanced a definite sum of money on account of his share, then the property might have been considered to the extent of the money so advanced by them, as identically their money; but this has not been done.
The Vice Chancellor had already rejected Mr Giffards over ingenious argument.
His dictum implies that it might have been different if Mr Smith had introduced no partnership capital of his own, and had merely covenanted to perform his partnership obligations, including paying off the initial advance of capital from his partners.
This suggests, putting it more generally, that even in fully commercial transactions, if the bankrupt was not in substance the provider of the asset of which he is to be divested, the anti deprivation rule may not apply.
If a party to a transaction brings to it nothing but his own covenant, like a tenant under a lease, the property interest which he takes is what the landlord agrees to grant him.
The maxim cujus est dare ejus est disponere (mentioned by the Vice Chancellor 2 J & H 204, 212 213 in relation to a lease) is not restricted to gratuitous dispositions.
Briggs J, who has wide experience of litigation relating to interest rate swaps, seems to have taken a similar view in Lomas v JFB Firth Rixson Inc (International Swaps and Derivatives Association Inc Intervening) [2010] EWHC 3372 (Ch), 21 December 2010 (a case on facts very much closer to those of this appeal).
Having referred to Ex p Mackay; Ex p Brown; In re Jeavons (1873) LR 8 Ch App 643, British Eagle International Airlines Ltd v Cie Nationale Air France [1975] 1 WLR 758 and the judgment of the Court of Appeal in this case as each concerned with a chose in action with a built in flaw triggered by bankruptcy, Briggs J observed (paras 108 110): Where the asset of the insolvent company is a chose in action representing the quid pro quo for something already done, sold or delivered before the onset of insolvency, then the court will be slow to permit the insertion, even ab initio, of a flaw in that asset triggered by the insolvency process.
By contrast, where the right in question consists of the quid pro quo (in whole or in part) for services yet to be rendered or something still to be supplied by the insolvent company in an ongoing contract, then the court will readily permit the insertion, ab initio, of such a flaw, there being nothing contrary to insolvency law in permitting a party either to terminate or adjust what would otherwise be an ongoing relationship with the insolvent company, at the point when it goes into an insolvency process.
Examples of the former type are the royalty stream in Ex p Mackay, which was the quid pro quo for a patent sold outright by the person who later became bankrupt, and the debt owed by Air France to British Eagle, which was for services already rendered by British Eagle to Air France prior to the commencement of its winding up.
Familiar examples of the latter category are leases and licences, where the right to enjoy the underlying asset accrues over time, in exchange, also over time, for payment of rent or fees, and which have always been terminable on bankruptcy without infringing the rule: see Perpetual [2010] Ch 347, para 64.
Briggs J then went on to refer to the security right enjoyed by LBSF.
This proposed test inevitably lacks precision, but it is in my respectful opinion a valuable contribution to the search for principle in this area.
Moreover the more contrived and unconventional the chose in action is (unconventional, that is, outside the bizarre world of swaps) the stronger are the arguments for taking the chose in action as the parties have fashioned it.
I am therefore inclined to give some weight to asking what it is that the bankrupt has brought to the transaction, so long as that is looked at as a matter of substance, and contrived arrangements or analyses (such as that suggested by counsel in Whitmore v Mason) are disregarded.
In this case the noteholders were, as a matter of substance, the only party who contributed real assets in many cases the pension funds of hard working Australian citizens.
LBSF contributed only promises, and then proved unable to perform them.
Its only proprietary interest was under a charge to secure sums that might become due to it on due performance of its obligations.
But these are, as I have said, only footnotes.
The essential ground of the decision is set out in para 108 of the judgment of Lord Collins, with which I am in full agreement.
I also agree with Lord Collins on what he refers to as the LBHI point.
I would therefore dismiss this appeal on both grounds.
LORD MANCE
Introduction
This appeal concerns a Lehman Brothers product called the Dante Programme.
Sir Andrew Morrit C outlined its essential elements ([2009] EWHC 1912 (Ch); [2009] 2 BCLC 400, para 1) in a description adopted by the Court of Appeal ([2009] EWCA Civ 1160; [2010] Ch 347, para 5): (l) the issue of notes [the notes] to investors by a special purpose vehicle (the issuer) formed by a Lehman company in a tax friendly jurisdiction; (2) the purchase by the issuer with the subscription money paid for the notes of government bonds or other secure investments (the collateral) vested in a trust corporation; (3) a swap agreement entered into by a Lehman company and the issuer under which the Lehman company paid the issuer the amounts due by the issuer to the noteholders in exchange for sums equal to the yield on the collateral; (4) the amount by which the sum payable under the swap agreement by the Lehman company exceeded the yield on the collateral represented the premium for the, in effect, credit insurance provided by the noteholders; (5) the amount payable by the Lehman company to the issuer on the maturity of the notes (or on early redemption or termination) was the initial principal amount subscribed by the investors less amounts calculated by reference to events defined as credit events occurring during a specified period by reference to one or more reference entities, thereby giving effect to the effective insurance aspect of the programme; (6) the collateral was charged by the issuer in favour of the trust corporation to secure its obligations to the noteholders and the Lehman company on terms which changed their respective priorities on the occurrence of certain specified events, including the insolvency of the Lehman company, (7) each of the transactions summarised above (except the purchase of the collateral) is governed by English law.
In the absence of any insurable interest, the description credit insurance is, on any view, colloquial or commercial rather than strictly legal.
Under the particular tranche of the representative series put before the Supreme Court, the issuer was Saphir Finance plc (Saphir), the Lehman company which was Saphirs counter party in the swap was Lehman Brothers Special Financing Inc (LBSF) and the trust corporation was BNY Corporate Trustee Services Ltd (BNY).
The notes were issued in July 2004 and were due to mature after seven years.
The amount expressed to be payable by the issuer to LBSF on their maturity was an amount equal to the amount realised from the collateral (which would be netted off against the amount payable by LBSF to the issuer as mentioned in point (5) above, giving a net sum payable one way or the other).
As a result of non recourse clauses, Saphir was not itself liable to either the Noteholders or LBSF beyond the amount realised by the collateral.
The collateral was highly secure, consisting of A$40m triple A rated floating notes issued by Rabo Australia Ltd and guaranteed by Rabobank Nederland.
Due to its floating rate, the value of the collateral would not alter significantly, upwards or downwards.
The reference entities were at least double A rated, the credit events which might trigger a reduction in the amounts (capital, and as a result interest) due under the notes were of some severity, and the Noteholders had the further protection of a subordination amount of A$72m (over 50% higher than the Standard & Poors recommended level): only after that amount had been burned through by losses resulting from credit events would the amounts outstanding under the notes reduce, leading also to a reduction in the total payable thereon by way of interest.
The reference entities were not entities with which LBSF necessarily had any financial relation, and the extent to which the programme or this tranche covered, directly or indirectly, any actual market exposure of LBSF is unclear.
The attraction for Noteholders was an interest rate on their notes of 1.30% above that earned by the Rabo collateral.
If there were no credit events at all, then during the period of their notes the Noteholders would receive interest at this uplifted rate on the notes face value (their only effective security in respect of the 1.30% uplift being LBSF), and on the notes maturity they would receive repayment in full via Saphir from LBSF.
In return, LBSF would receive via Saphir during the period of the notes an amount equivalent to the interest payable on the Rabo collateral and on maturity the value of the collateral (less minor trustee, etc. fees).
If there were duly notified credit events giving rise to losses above the subordination level, the downside for Noteholders was that the amount outstanding on their notes, and so also the interest payable from time to time, would be reduced (even to zero).
In that event, LBSF would on maturity receive credit in the full value of the collateral, while crediting correspondingly less to Saphir for the benefit of the Noteholders, thereby making a credit insurance recovery.
With the hindsight of the credit crisis of 2007 onwards, it can be seen that, however safe a bet the transaction may have appeared in July 2004, its timing was unfortunate.
The contract documentation is of a purgatorial complexity fitting the programmes name.
The judgments below have set out many detailed provisions, and the Appendix contains the most salient.
These defined and regulated, in particular, the consequences of an Event of Default in respect of which LBSF was the Defaulting Party, and provided for early termination (clauses 5 and 6 of the ISDA Master Agreement).
In the event, there were two relevant Events of Default, one consisting of the commencement on 15 September 2008 of Chapter 11 proceedings involving Lehman Brothers Holdings Inc (LBHI LBSFs parent and guarantor in the transaction) and the second consisting of the commencement on 3 October 2008 of such proceedings in respect of LBSF itself.
The latter Event of Default led Saphir on 24 March 2009 to give notice specifying that Event of Default only and designating 24 March 2009 as an early termination date in respect of the swap.
This appeal concerns the provisions governing an Event of Default and/or Early Termination.
In summary, on Early Termination, the Noteholders were to be paid by Saphir their share of the outstanding amount of the notes, that is the face value reduced by reference to any credit events which had already occurred and had been duly notified after they had burned through the subordination amount.
The swap was to be unwound by making a market based estimation of any credit events likely to occur during the remaining period of the notes, and by taking into account on the other side the future interest payments which LBSF would have had to make, had the transaction run to maturity.
A balance, described as Unwind Costs, was thus to be struck, one way or the other, to unwind the swap (clauses 5.5 and 8.3 of the Supplemental Trust Deed (STD), read with condition 44 of the Offering Circular Supplement (OCS)).
In the absence of any Event of Default involving LBSF as the Defaulting Party, the result on early termination was to mirror in effect that which it was estimated would exist on maturity (clauses 5.5 and 8.3 of the STD and condition 44 of the OCS).
In the case of a balance due to the issuer (which would in practice only occur, as a result of the interest rate uplift of 1.30%, where there were no or few credit event losses above the subordination amount), the Noteholders would receive its benefit.
In the event of a balance due to LBSF, the Noteholders would suffer diminution in their recovery by reference to both past and estimated further credit events in excess of the subordinated amount; on the other side of the coin, LBSF would be covered and secured via Saphir out of the collateral in respect of losses from both past and estimated future credit events.
In the case of an Event of Default where LBSF was the Defaulting Party, a different scheme was to apply.
The Noteholders were to continue to be entitled to be paid their share of the outstanding amount of the notes, that is their face value reduced by reference to any credit events which had already occurred and been duly notified.
The swap was to be unwound, and a balance of Unwind Costs struck, in the same way as where there had been no default.
In the case of a balance struck favouring Saphir, the Noteholders position was to be as before.
In the case of a balance struck in favour of LBSF, the Noteholders were to be entitled to first recovery.
LBSF was to remain entitled to the balance struck in its favour, but only after Saphir had, out of the collateral, satisfied the Noteholders prior claim to recovery of their share of the outstanding value of the notes (STD, clauses 5.5 and 8.3 and OCS, condition 44).
Since the value of the collateral was not envisaged or intended to increase, and since there was no recourse against Saphir itself, LBSFs entitlement to the balance struck in its favour was more theoretical than practical.
The collateral would be exhausted in (a) meeting any past credit losses in excess of the subordination amount incurred prior to early termination and (b) paying the Noteholders the outstanding amount of their notes.
There would be nothing left to meet estimated future credit losses (reflected in the Unwind Costs), if they were not deducted by Saphir from the amount payable to Noteholders and passed on by way of a correspondingly increased payment out of the collateral to LBSF.
The present dispute
This change (or flip as it has been called), between the positions where there has not been and where there has been an Event of Default with LBSF the Defaulting Party, gives rise to the present appeal.
LBSF is the appellant.
The respondents are Belmont Park Investments Pty Ltd, a Noteholder, 28 other Australian charities and public bodies who are also Noteholders, and BNY.
The primary issue is whether the loss by LBSF in such an event of its priority in respect of future estimated credit losses is invalidated by a principle (which I can conveniently call an anti deprivation principle), preventing a person from being deprived of his, her or its property upon insolvency.
There is a further issue whether, on the facts of this case, the loss did occur upon LBSFs insolvency, bearing in mind that there was an Event of Default affecting its parent, LBHI, which occurred some two weeks before LBSF was subject to Chapter 11 proceedings.
In this connection, the parties disagree as to whether the occurrence of an Event of Default (here, that involving LBHI on 15 September 2008) automatically introduces Noteholder Priority as opposed to Swap Counterparty Priority, or whether priority depends upon the giving of notice, and the realisation or enforcement of the collateral, pursuant to a particular Event of Default (here, the notice given on 24th March 2009 relying on the Event of Default relating to LBSF).
The starting point of LBSFs case is the wide definition of property in section 436 of the Insolvency Act 1986 to include: money, goods, things in action, land and every description of property and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property.
LBSFs case is that, prior to its insolvency, it had property in the form of a present, future or contingent interest in the collateral, securing a prior claim to Unwind Costs due to it on termination, that it was deprived of the claim and/or collateral upon or by reason of its insolvency, and that such a deprivation is invalid as contrary to the policy of the insolvency legislation.
Neither of the courts below has accepted LBSFs case.
Sir Andrew Morritt C noted five points ([2009] 2 BCLC 400, para 45): the money used by the issuer to buy the collateral derived from the Noteholders, not LBSF; the courts should not be astute to upset commercial transactions; it was appropriate for LBSF to have prior security over the collateral only so long as it continued to perform the swap; LBSFs priority had never extended to a time after the event of default in respect of which it was the defaulting party; and LSBFs prior security was thus always limited and conditional.
In the Court of Appeal, Patten LJ [2010] Ch 347, para 135 considered that, whether or not the date for determining priority under clause 5.5 of the STD was 15 September 2008 or 24 March 2009: the only interest or property which [LBSF] ever enjoyed in the collateral was a charge granted by [Saphir] on the terms of the [STD].
That security interest remains part of the property of [LBSF] unchanged by the event of its bankruptcy.
The reversal of the order of priority under clause 5.5 was always a facet of the security designed to regulate the competing interests over the collateral of LBSF and the Noteholders.
To say that its operation in the event of the companys bankruptcy constitutes the removal of an asset from the liquidation is to confuse the security itself with the operation of its terms in the events prescribed by the charge.
LBSF retains the same asset as it had before its bankruptcy and is free to deal with any recoveries for the benefit of its general creditors in accordance with the applicable statutory regime.
Patten LJ applied similar reasoning (in para 136) to condition 44 of the Offering Supplementary Circular, holding that the operation of condition 44 does not give to the Noteholders more than the right to recover the whole of the sums due under the Notes in priority to any claim over the collateral by LBSF for the Unwind Costs.
It simply adjusts the balances on early termination to ensure that the Noteholders are paid the whole of what is due to them in priority to the sums payable to LBSF.
If there is no shortfall in the security LBSF will recover the sums due to it in full.
Condition 44 does not therefore remove an asset from LBSF.
Nor does it give to the Noteholders security over an asset in which they previously had no interest.
It merely regulates the order in which the company and the Noteholders are entitled to be recouped out of the security.
Although the amount of the security available to meet LBSF's claims is obviously reduced in the event of a shortfall in the value of the security over what it would have been had no Event of Default occurred, that is simply a function of the change in priority which was always a feature of the security which the company enjoyed.
In para 174, Patten LJ summarised his view as being that: it is not possible to strike down the provisions of clause 5.5 and condition 44 merely because their operation may affect the value of the security available to LBSF in the event of a shortfall.
There is nothing in the English authorities which supports the extension of the anti deprivation principle to encompass transactions which do not alter the property of the insolvent company in the asset in question .
He also expressed doubt (paras 171 173) whether, in the light of the statutory provisions for setting aside transactions in insolvency, there was any scope for any anti deprivation principle, apart from that applied by the House of Lords in British Eagle International Airlines Ltd v Cie Nationale Air France [1975] 1 WLR 758 which precludes a disposition of property in insolvency otherwise than pari passu in accordance with the legislative scheme.
Lord Neuberger of Abbotsbury MR, with whose reasoning Longmore LJ concurred, identified a number of features as supporting the Chancellors decision: first, and it appears most importantly in his view, he stressed that the collateral has been funded by the Noteholders money (paras 61 64); second, from the very outset the scheme provided and was marketed on the basis that, if LBSF or LBHI defaulted, the Noteholders would have priority; third, LBSF retained their right to be paid, did not lose any vested asset and would merely rank behind rather than ahead of the Noteholders in relation to the collateral, and not be out of pocket if there was no shortfall (paras 61 and 63 64); fourth, a charge or provision for repayment, while not identical to a lease or licence, has features of similarity and differs from ownership (para 64).
The Master of the Rolls saw Patten LJ as having decided the case on the simple basis that the flip, that is, the reversal of the order of priority against a company as the holder of a charge, in favour of another chargee over the same assets, cannot be caught by the rule, even if it operates after the liquidation of the company, at least if such a reversal was an original feature of the company's charge when it was granted. (para 66) He said that he had considerable sympathy with that view, but preferred to rest his conclusion on a more limited ground, namely that: in addition to the facts relied on by Patten LJ, the assets over which the charge exists were acquired with money provided by the chargee in whose favour the flip operates, and that the flip was included merely to ensure, as far as possible, that that chargee is repaid out of those assets all that he provided (together with interest), before the company receives any money from those assets pursuant to its charge.
He thought that, without these additional facts: there may be room for argument that, in the absence of these additional facts, the arrangement in this case would have fallen foul of the analysis in Ex p Mackay 8 Ch App 643 (which was arguably approved in the British Eagle case ), on the basis that the right in that case to retain the second half of the royalties in the event of bankruptcy was, like the flip provisions here, an original feature of the contractual arrangement, and the right to recoup money under a change in priority to another chargee is every bit as much of an asset as the right to moneys (in the form of royalties) arising in the future.
There is also a danger that the simple analysis adopted by Patten LJ could, in the light of the very limited circumstances in which the court will hold a transaction to be a sham, make it very easy to dress up sale transactions in such a way as to enable the rule to be circumvented. (para 67) An anti deprivation principle?
I am satisfied that there are, and ought to be, two principles in this area.
One is the principle applied in British Eagle, which precludes a bankrupt from agreeing to distribute his, her or its property other than pari passu in bankruptcy (although it does not preclude creditors from agreeing inter se on the distribution inter se of their pari passu shares: In re Maxwell Communications Corpn plc [1993] 1 WLR 1402).
The other is a concurrent principle, whereby dispositions of property on bankruptcy may be invalidated as being in fraud or an evasion of the bankruptcy laws.
The only challenge to the former principle has been in written submissions made by The Premier League as interveners (closely related to pending proceedings brought against it by Her Majestys Revenue and Customs).
I see no basis for any fundamental challenge to the principle, and I shall in view of the pending proceedings say nothing about particular issues which may arise there about the scope of the principle or its application to direct payment clauses such as those discussed in paragraph 6 11 of Professor Sir Roy Goodes Principles of Corporate Insolvency Law, 3rd ed (2005).
It is the latter principle which is in issue on this appeal.
This, an anti deprivation principle, was examined and applied by Lord Eldon in Higinbotham v Holme (1812) 19 Ves Jun 88, and in a series of later cases, such as Lester v Garland (1832) 5 Sim 205, Whitmore v Mason (1861) 2 J & H 204, Ex p Mackay; Ex p Brown; In re Jeavons (1873) LR 8 Ch App 643 (CA), Ex p Jay; In re Harrison (1880) 14 Ch D 19 (CA), Ex p Barter; Ex p Black; In re Walker (1884) LR 26 Ch D 510 (CA) and In re Johns; Worrell v Johns [1928] Ch 737 and, more recently, Mayhew v King [2010] EWHC 1121 (Ch).
It was recognised and considered, without adverse comment, by the Privy Council in Bombay Official Assignee v Shroff (1932) 48 TLR 443 and by the House of Lords in British Eagle [1975] 1 WLR 758.
Section 33(1)(ii) of the Trustee Act 1925 also assumes the existence of such a principle.
While the two principles are conceptually distinct, they are quite closely allied.
British Eagle addresses what happens in bankruptcy.
An anti deprivation principle addresses what happens on bankruptcy.
If contracting out of the statutory rule requiring pari passu distribution in bankruptcy is impermissible, it would be surprising if there were no concurrent principle capable of invalidating certain dispositions which, by removing property from the bankrupt on bankruptcy, had the same ultimate effect.
The general principle of pari passu distribution in bankruptcy would otherwise easily be evaded, as the court observed in Ex p Mackay LR 8 Ch App 643.
It is also unsurprising that the facts of some of the authorities (eg Whitmore v Mason 2 J & H 204 and Ex p Mackay) might plausibly have been analysed as falling within either principle.
Further, it is clear that there is no conceptual difference between removing specific property from the bankrupt estate for no consideration (Whitmore v Mason), increasing the security given to a particular creditor (Ex p Mackay) and increasing the bankrupt estates liability to a particular creditor (In re Johns [1928] Ch 737).
All these fall within the anti deprivation principle.
The existence in the Insolvency Act 1986 of other provisions protecting the interests of creditors in bankruptcy does not supersede or make redundant an anti deprivation principle.
First, the 1986 Act must have been enacted against the background of the case law establishing that certain deprivations on bankruptcy are impermissible and void.
Second, the statutory provisions cover different ground.
Section 127 concerns dispositions after the commencement of the winding up, section 238 transactions at an undervalue and section 239 preferences.
Sections 238 and 239 only avoid transactions within specified periods ending with the onset of insolvency (from six months to two years).
Section 423 requires proof of both a transaction at an undervalue and a specific intent to put assets beyond the reach of or prejudice a potential claimant.
These provisions have their own historical antecedents, dating back to the Fraudulent Conveyances Act 1571 (13 Eliz 1, c 5) and the doctrine of fraudulent preference formulated by Lord Mansfield in 1768 (see Alderson v Temple (1768) 4 Burr 2235 and later incorporated in statutory form in the Companies Act 1862 (25 & 26 Vict, c 89)).
The more difficult question concerns the character of transaction and the state of mind which will attract the operation of the anti deprivation principle.
In my opinion, the court has to make an objective assessment of the purpose and effect of the relevant transaction or provision in bankruptcy, when considering whether it amounts to an illegimate evasion of the bankruptcy law or has a legitimate commercial basis in other considerations.
The references in the cases to fraud of the bankruptcy law are not to fraud in a strict sense or even to conduct which is morally opprobrious.
Equity took a broader approach to fraud: Snells Equity, 32nd ed (2010), para 8 001; and see eg the cases on fraudulent concealment preventing the running of a limitation period: Kitchen v Royal Air Force Association [1958] 1 WLR 563; Tito v Waddell (No 2) [1977] Ch 106, 245B C. Counsel for the unsuccessful wife in Higinbotham v Holme 19 Ves Jun 88 made the distinction between actual and other fraud clear when he said, at p 90, that the settlement being free from objection for want of consideration or upon actual fraud could only be represented as a fraud upon the bankruptcy law in one of two ways, either on the basis of (the then existing, but in that case irrelevant and since the Insolvency Act 1985 finally abolished) doctrine of reputed ownership or by considering it as a subtraction from the creditors of his estate, which he enjoys and possesses for every other purpose.
In a number of the old authorities, a conclusion that the anti deprivation principle applied was expressed in terms referring to an express or deliberate object of evading the bankruptcy law.
Lord Eldon LC in Higinbotham v Holme and the Court of Appeal in Ex p Mackay LR 8 Ch App 643 based themselves on an analysis of the transaction which led them to conclude that the express object was to take the case out of the reach of the bankruptcy laws.
The palpably artificial scheme in In re Johns [1928] Ch 737 was described as a deliberate device to secure that more money should come to the mother, if the son went bankrupt, than would come to her if he did not (p 748).
In dicta in British Eagle [1975] 1 WLR 758, 780, Lord Cross of Chelsea said that existences of a charge in Ex p Mackay meant that The court could only go behind it if it was satisfied as was indeed obvious in that case that it had been created deliberately in order to provide for a different distribution of the insolvents property on his bankruptcy from that prescribed by the law.
Other cases have however stated an anti deprivation principle in terms focusing on the character of the transaction or provision, identified objectively.
In a note to Wilson v Greenwood (1818) 1 Swans 471 (another decision of Lord Eldon) which was subsequently quoted by Lord Hatherley LC in argument in Whitmore v Mason 2 J & H 204, 209 210 and by Fry LJ in Ex p Barter LR 26 Ch D 510, 519 520, Mr Swanston stated simply that the owner of property may, on alienation, qualify the interest of his alienee by a condition to take effect on bankruptcy; but cannot by contract or otherwise qualify his own interest by a like condition, determining or controlling it in the event of his own bankruptcy, to the disappointment or delay of his creditors.
That is an objective test.
In Ex p Jay 14 Ch D 19 a building owner demised land to a builder for 99 years, with detailed covenants to build thereon within certain times and subject to a power of distress and entry in case of either default in performance or bankruptcy or insolvency on the part of the builder, in either of which cases all the builders improvements, plant and chattels on site were to be forfeited to the building owner.
There was a commercial advantage behind the forfeiture provision, and Bacon CJ in fact said at first instance that There was no fraud, but a transaction perfectly consistent with the speculation into which both parties had entered, that the materials brought upon the land were to be used in constructing the buildings (p 23).
But the Court of Appeal held that (there having been, prior to the bankruptcy, no default which could by itself have triggered the forfeiture) the forfeiture was void in the event that happened, of its being triggered by the builders bankruptcy.
In Ex p Barter 26 Ch D 510, a similar point arose under a shipbuilding contract, which entitled the owners, in various events including the builders cessation of work for 14 days or bankruptcy or insolvency, to take possession of the vessel and complete it using such of the builders materials as were on their premises intended for use in completion.
The builders went bankrupt and the owners claimed the right to use their materials.
In justification, they argued strenuously the question was whether at the time when the contract was entered into the parties intended to defeat the bankruptcy law; whether it was an honest or a dishonest contract (p 515), and the clause was for the builders benefit since completion of the ship would reduce their bankrupt estates liability.
The Court of Appeal noted that the latter argument was fallacious, since the effect of the clause was to transfer to the owner the trustees right to elect whether or not to complete.
The court went on to reject the owners case without reference to any state of mind, on the simple basis of the rule stated by Mr Swanston.
To similar effect is, as Neuberger J noted in Money Markets International Stockbrokers Ltd v London Stock Exchange Ltd [2002] 1 WLR 1150, para 102, a passage in the judgment of Farwell J in Borlands Trustee v Steel Bros & Co Ltd [1901] 1 Ch 279, 291.
In the Borlands case, Farwell J, while accepting that the second principle did not apply to provisions compelling sale of shares on bankruptcy at their fair value, added that a provision compelling their sale at something less than the price they would otherwise obtain would be repugnant to the bankruptcy law.
The reasoning of Lord Blanesburgh in Bombay Official Assignee v Shroff 48 TLR 443, 446, to which Neuberger J also referred is, as I see it, equivocal and the judgment went off on another point.
An objective approach is also consistent with authorities which show that what matters is whether the deprivation was triggered by bankruptcy, and that, if it is, it is irrelevant that there was also events other than bankruptcy, which if they had occurred would have triggered deprivation, but which did not in fact occur.
In Higinbotham v Holme 19 Ves Jun 88 there was a settlement by a prospective husband of moneys on trust for the husband unless and until he should, during his wifes lifetime, die or become bankrupt in which case she should receive an annuity.
The annuity in favour of the wife was held void as regards the period between the husbands bankruptcy and death, but Lord Eldon made clear that it would still be payable as and from the date when her husband later died.
In Ex p Jay 14 Ch D 19 and Ex p Barter 26 Ch D 510 the relevant clauses authorised forfeiture of the builders materials on certain defaults in performance as well as on bankruptcy, but no such other events had occurred prior to the builders bankruptcy, upon which the clauses were actually operated.
In re Detmold; Detmold v Detmold (1889) 40 Ch D 585, a settlor made a marriage settlement settling income on himself for life or until he shall become bankrupt, or shall assign, charge, or incumber the said income, or shall do or suffer something whereby the same would through his act, default, or by operation or process of law become vested in or payable to some other person .
A judgment creditor obtained the appointment of a receiver over the income on 19 July 1888 and on 29 July 1888 the settler was adjudicated bankrupt.
The wifes interest vested on the appointment of the receiver and was held valid as against the creditors.
In Whitmore v Mason 2 J & H 204, the fact that the trigger for the anti deprivation principle is bankruptcy was ingeniously invoked in an argument that, since the clause purportedly removing property from the bankrupt partners estate was expressed to take effect in the event of bankruptcy or insolvency, it therefore took effect in this case immediately the partner was unable to pay his debts, and consequently before any act of bankruptcy under which his assignees could claim; but Page Wood V C gave the argument short shrift, saying that a bankrupt is usually insolvent before he commits an act of bankruptcy and if that construction were to prevail, the bankrupt laws might, in all cases, be defeated (p 215).
In contrast, in Ex p Newitt; In re Garrud (1881) 16 Ch D 522 the clause in a building lease entitled the building owner to re enter, and provided for forfeiture on re entry of the builders materials by way of liquidated damages, if the builder defaulted in fulfilling the agreement.
The builder defaulted but, on one view of the facts, there was no re entry and forfeiture prior to bankruptcy.
The Court of Appeal held that, since the trustee in bankruptcy took possession subject to any pre existing rights, the right to re enter and forfeit could be exercised even after the bankruptcy.
In the present case, Lord Neuberger MR and Patten LJ [2010] Ch 347, paras 93, 163 thought that the decision in In re Newitt cannot survive British Eagle [1975] 1 WLR 758, in so far as it held that a right to forfeit could be exercised after bankruptcy.
But it is unnecessary in this case to consider whether that is correct.
A further point is that it may be possible to sever a transaction or provision which infringes the anti deprivation principle, avoiding it only to the extent that it has this character.
This is indicated by Lester v Garland 5 Sim 205 (where a husbands provision that moneys settled on himself should on his bankruptcy go to his wife and children was held valid as to 15 sixty sixths, on the basis that so much of the moneys derived from her father and could be treated as coming from her, and void as to the rest).
Lord Eldons indication in Higinbotham v Holme 19 Ves Jun 88 that it was only in the period between the settlors bankruptcy and death that the creditors would take priority over the wife is in the same sense.
Mr Swanstons note to Wilson v Greenwood 1 Swans 471 covers two categories of situation: first, the owner of property may, on alienation, qualify the interest of his alienee by a condition to take effect on bankruptcy; the anti deprivation principle does not prevent that; but, secondly, he cannot by contract or otherwise qualify his own interest by a condition, determining or controlling it in the event of his own bankruptcy.
A straightforward instance of the first situation is provided by the protective trust, within the meaning of section 33 of the Trustee Act 1925, created by a third party: Money Markets International Stockbrokers Ltd [2002] 1 WLR 1150, paras 47 49, and Sir Roy Goode, Perpetual Trustee and Flip Clauses in Swap Transactions [2011] LQR 1, 8.
Provisions for the forfeiture of leases on a tenants bankruptcy were seen as falling within the same category (Whitmore v Mason, 2 J & H 204, 212 213).
This was despite their mutual aspect (perhaps because it was assumed that landlords could dictate their own terms).
Such provisions are now recognised as valid in section 146(9) of the Law of Property Act 1925.
A straightforward instance of the second situation is the settlement by a person of his own property on terms depriving him (and so his creditors) of it upon his bankruptcy.
Early examples are Higinbotham v Holme 19 Ves Jun 88 and Lester v Garland 5 Sim 205.
Contractual situations present more difficulty.
As Mr Swanstons note makes clear, the fact that two contracting parties have agreed a provision does not make it valid.
The autonomy of contracting parties cannot axiomatically prevail over the interests of third party creditors in bankruptcy.
By the same token, it can be no answer to a suggestion of evasion of the bankruptcy law that the provision for deprivation was in the contractual arrangements from the outset.
That will commonly be the case (and was so in many of the cases, eg Whitmore v Mason 2 J & H 204, Ex p Mackay LR 8 Ch App 643, Ex p Jay 14 Ch D 19 and Ex p Barter LR 26 Ch D 510).
However, it is reasonably clear that Mr Swanstons note was focusing on contracts affecting a pre existing property interest.
Even in that connection, the note would, read literally and generally, go too far, as the position regarding leases shows.
Where the property interest arises out of or in close connection with the relevant contract providing for its determination on bankruptcy, it may be easier to suggest a real commercial or other basis for the deprivation provision, and correspondingly more difficult to invoke the anti deprivation principle.
Thus, in Borlands Trustee [1901] 1 Ch 279 the purpose of the requirement, that any holder of the companys shares who became bankrupt should sell them at a specified price, was that the company should remain under the control of its managers and workers in Burma.
There was, Farwell LJ said, at p 291, nothing repugnant to any bankruptcy law in such a provision as that.
Turning to the price, he said that there was also nothing repugnant in that, since it was a fair value, although there would have been, had the obligation been to sell the shares at a lesser price (p 291).
In the Money Markets International Stockbrokers Ltd case [2002] 1 WLR 1150, Neuberger J identified deprivation provisions operating on bankruptcy in relation to valueless assets or to assets ownership of which depends upon the personal characteristics of their owner as likely also to fall outside the second principle.
He noted that it was presumably on this basis that the loss of membership of the relevant stock exchange on bankruptcy had not been challenged in Bombay Official Assignee v Schroff 48 TLR 443 or in Money Markets.
In the former case, Lord Blanesburgh said, at p 445, that if such an organisation is to attain its ends membership must plainly be a personal thing, incapable of uncontrolled transfer: expulsion from membership must normally follow default or misconduct: upon expulsion all interest of the defaulting member in the property of the organisation must cease.
In Money Markets, Neuberger J extended this approach to an ancillary asset in the form of a share in the London Stock Exchange which was liable to rescission for no consideration on bankruptcy.
It is unnecessary to engage with the detail of the case or its outcome, but the conclusion that assets which are ancillary to a personal right may be forfeited on bankruptcy is understandable, although I believe that the terms of forfeiture might require particular consideration if there was nothing personal about the assets themselves and they were detachable and separately alienable.
The existence of a contractual scheme, which is said to create the relevant property interest, but at the same time to include provisions providing for its illegitimate deprivation on bankruptcy, raises several questions: First, how far did the scheme confer any property interest on the subsequently bankrupt party? Second, how far did it deprive him of any such property on bankruptcy? Third, in so far as it did deprive him of any such property on bankruptcy, did this amount to an illegitimate evasion of the anti deprivation principle? The first question is exemplified by the difference between the majority and minority in British Eagle as to whether the International Air Transport Association (IATA) arrangements then in force had given rise to any indebtedness between IATA members, and by the conclusion of the majority of the High Court of Australia in International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3, (2008) 234 CLR 151 that the modified IATA arrangements did not do so.
The parallel issue in the present case is whether the swap between Saphir and LBSF gave LBSF any property in the form of either or both of a contractual right to priority in respect of Unwind Costs and a proprietary interest in the collateral to secure such Unwind Costs.
In answering that question, it is necessary to examine the terms and effect of the contractual arrangements, summarised above.
There can be a fine distinction between arrangements conferring a limited or determinable benefit and arrangements conferring a larger benefit but making it forfeitable in circumstances including bankruptcy.
Such a distinction has also been examined in the context of the common law rule of repugnancy which prevents a condition subsequent from being attached to an outright gift.
The court was invited to sweep away any such distinction, at least in the present context.
Mr Snowden made the invitation on the basis that limited or determinable interests should be assimilated with conditions subsequent, rendering the termination potentially invalid in all cases; Mr Salter and Mr Howard made it on the opposite basis that conditions subsequent should be assimilated with limited or determinable interests, and party autonomy given effect in all such situations.
In the context of the rule against repugnancy, the distinction between limited or determinable interests and conditions subsequent has been regularly criticised although, one notes, with few positive suggestions as to what might replace it.
Porter MR In re Kings Trust (1892) 29 LR Ir 401, 410 thought it little short of disgraceful to our jurisprudence that in reference to a rule professedly founded on public policy there should be a distinction between a gift of an annuity for life coupled with a proviso for cessation if the donee married (treated as giving a life interest) and a gift until he marries (treated as giving an interest only until marriage).
Porter MRs criticism appealed, in similar contexts, to Pennycuick V C In re Sharps Settlement Trusts [1973] Ch 331, 340G and to Rattee J In re Scientific Investment Pension Plan Trusts [1999] Ch 53, 59F G, as well as to Professor Sir Roy Goode (Principles of Corporate Insolvency Law, 3rd ed, pp 186 187 and (2011) 127 LQR 1, 8.
However, all of these authorities have taken the distinction as well established and one which has to be accepted, and either of the extremes embraced by Mr Snowden on the one hand and Mr Salter and Mr Howard on the other could have far reaching implications.
But I think that there is some scope for looking at the substance, rather than the form, when considering whether an agreement confers a limited or determinable interest or amounts to a condition subsequent depriving the bankrupt of property on bankruptcy.
This would be consistent with the first instance decision in Mayhew v King [2010] EWHC 1121 (Ch), which no one challenged before the Supreme Court, and which was upheld by the Court of Appeal after the hearing before the Supreme Court, sub nom Folgate London Market Ltd (formerly Towergate Stafford Knight Co Ltd) v Chaucer Insurance plc [2011] EWCA Civ 328.
The brokers undertaking by the settlement agreement in that case to indemnify the lorry owners (Millbank Trucks Ltd) against their liability to Mr Mayhew as to 85% up to 1 m, and as to 100% above 1 m clearly reflected effective acceptance of a pre existing exposure to the lorry owners in negligence, and the clause limiting or terminating that agreement upon the lorry owners bankruptcy can have had no commercial or other object, except to prevent the lorry owners continuing to have the benefit of the indemnity to meet the claims of Mr Mayhew and/or their other creditors in whatever way would ordinarily follow in the event of such a bankruptcy. (In fact the lorry owners administrators had assigned the benefit of the indemnity to the lorry owners insurance company which had had under section 151 of the Road Traffic Act 1988 to meet Mr Mayhews claim against the lorry owners.)
Professor Worthington in Insolvency Deprivation, Public Policy and Priority Flip Clauses (2010) 7 International Corporate Rescue 28, 36 also criticises a distinction which hangs on the form of words or wafer thin differences in language, but herself advances a more substantive distinction between necessarily time limited interests (like leases) and others.
I do not accept that distinction, which would have its own incongruities: a 999 year lease is to all practical intents a permanent interest, and it is hard to see, in its potential termination in say 900 years, any relevance to the question whether its termination on the tenants bankruptcy should be permissible; a distinction between such a lease and a permanent licence is equally unconvincing.
In Ansett (2008) 234 CLR 151, paras 151 to 179 Kirby J (dissenting) was, if necessary, prepared to look behind or through the parties actual contractual arrangements, in order to identify a deprivation of property in a contractual scheme which as a matter of law eliminated any indebtedness between IATA members at any time.
That must, I think, also go too far and appears to me inconsistent with the assumption of both the majority and the minority in British Eagle.
Courts cannot rewrite or review contractual arrangements to give them an effect contrary to the substance of what the parties have agreed, even though this means that the bankrupt has less property than would otherwise be the case before and when he becomes bankrupt.
Analysis
In the present case, the first question is whether LBSF had, under the contractual arrangements, any relevant property, whether limited and determinable or forfeitable.
The parties submissions have focused on the difference in priorities in relation to the collateral between the situations of Swap Counterparty Priority and Noteholder Priority.
As a matter of contract, as Patten LJ noted, LBSF retained the right to recover any Unwind Costs payable to it in either situation.
But the priority accorded to this right, as against both Saphir and the collateral, depended upon which form of priority applied: see in particular clauses 5.5 and 8.3 of the Supplemental Trust Deed, as well as the Conditions of the OCS referred to in clause 8.3.
Since there was by agreement no recourse against Saphir except to the extent covered by the collateral, the real right was against the collateral, to the extent that the collateral was sufficient to enable payment.
Since the collaterals value would remain stable, priority was essential to the effectiveness of the right.
References in the Court of Appeal judgments (see paras 144 and 146 above) to there being no shortfall in the collateral might suggest that the present dispute arises from some problem with the collateral and its performance.
Far from it.
The expectation of notified credit events in excess of the subordination amount, giving rise to Unwind Costs payable to LBSF, coupled with provision that no deduction should be made for such Unwind Costs from the amounts payable to Saphir and the Noteholders, simply meant that the total claims against the collateral exceeded any value that it was ever contemplated that the collateral could or would have.
The reality is therefore that, if Unwind Costs were payable to LBSF, but the transaction was closed by payment to Saphir and so the Noteholders out of the collateral of the current value of the notes, without reduction for such Unwind Costs, LBSF would have no effective right to recover such Unwind Costs.
The difference between Swap Counterparty Priority and Noteholder Priority is a difference between different priority contractual rights against Saphir secured by different priority rights against the collateral held by BNY.
In reality, however, it amounts to a difference between having a right and having no effective right.
The collateral on which most of the argument in this case has focused is a more visible form of property than a bare claim, but a bare contractual claim is also a form of property.
If Saphir, as LBSFs contractual counterparty, had been liable without limit and good financially, the difference in priority over the collateral would have had no significance.
But here there was an effective limit on Saphirs liability as counterparty, consisting of the value of the collateral.
Hence, the focus on the significance of priority in respect of the collateral.
On one reading of paras 135, 136 and 174 of his judgment, Patten LJ took the view that the only asset that LBSF ever had was security over the collateral, and that Swap Counterparty Priority did not involve a different form of property interest to Noteholder Priority.
For the reasons I have given, I do not accept that analysis.
The two types of priority over the collateral involve different property interests, but so too do the two types of contractual priority created by the parties arrangements.
However, these paragraphs in Patten LJs judgment also point towards a different truth.
The collateral was acquired by Saphir and given to BNY as trustee expressly to await events.
All the relevant provisions relating to priority are expressly relevant only in connection with the realisation or enforcement of the collateral: clause 6.2 of the Principal Trust Deed, clauses 5.5 and 8.3 of the STD and condition 44 of the OCS.
What events occurred determined who acquired priority.
As it happened, the relevant event was one of default, with LBSF the Defaulting Party, and priority fell accordingly to be given to the Noteholders.
Prior to the occurrence of an event determining which form of priority was to apply, I do not consider that LBSF could be said to enjoy either.
This is a conclusion which is equally applicable to the question whether LBSF could be regarded as having been deprived of property in the form of a contractual right to priority.
It follows that the occurrence of an event determining that Noteholder Priority applied did not deprive LBSF of any previous property in the form of Swap Counterparty Priority.
The event prevented LBSF from acquiring Swap Counterparty Priority, rather than deprived it of such Priority.
I add that, even if it were right to regard LBSF as having enjoyed property in the form of Swap Counterparty Priority unless an event of default occurred with LBSF being the defaulting party, the case would fall within the category of interests limited to last until a certain event, rather than that of interests forfeitable upon a certain event.
These conclusions also correspond, as I see it, with the Chancellors pithy reasoning: see para 143 above.
If a contrary answer were given to the first question identified in paragraph 161 above, the second question, how far LBSF was deprived of such property on bankruptcy, would arise.
That involves in this case the issue about the trigger and timing of any deprivation identified in paragraph 141 above.
I will leave that issue for the moment, and assume that there was a deprivation by reason of a switch in priority on LBSFs bankruptcy.
The third question is then whether this amounted to an illegitimate evasion of the anti deprivation principle.
In answering this third question in the Court of Appeal [2010] Ch 347, Lord Neuberger attached considerable significance to the fact that the Noteholders put up the money with which Saphir purchased the collateral held by BNY as trustee.
Lord Neuberger referred to Whitmore v Mason 2 J & H 204, where partners had agreed that, on the bankruptcy of any one of them, his interest in partnership mines and premises, except for one specified lease, grant and concession, should be valued and paid to him.
The exception was held invalid, but Page Wood V C, after referring to Lester v Garland, said that If his co partners had advanced a definite sum of money on account of his share, then the property might have been considered to the extent of the money so advanced by them, as identically their money (pp 214 215).
This generous dictum, derived from old authority decided in an era in which wives could not own separate property, is a tenuous basis for enabling a particular creditor to stipulate for priority in his debtors bankruptcy, without having previously taken any security.
In any event, the dictum is in my view difficult to apply to the facts of the present case, involving not an out and out contribution to marriage or another venture, but security in respect of complex contractual arrangements.
First, it was the essence of the transaction that the collateral should stand as neutral security for (indeed as the limit of) potential indebtedness of Saphir to either LBSF or the Noteholders.
The case cannot be approached on the basis that the Noteholders had an inherent or pre existing right either to contractual priority or to the collateral.
Their rights depended upon the terms agreed in the documentation.
Secondly, although the reality in this case is that LBSF would never be paid unless it retained priority over the collateral, one can imagine a case where there was no collateral, but a simple contractual provision depriving LBSF of the right to payment (or subordinating its right to payment to those of others, in such a way that it would not in practice be paid) in the case of a default where LBSF was the defaulting party.
The present problem could not then be solved by enquiring into the source of the collateral, since there would be none.
Yet it is difficult to think that the answer to the present problem turns on whether or not there was collateral.
For these reasons, I would not subscribe to the line of reasoning suggested in paragraphs 92 98 of Lord Collins judgment.
If one is assuming, as I presently am, that LBSF had a first priority property right to recover Unwind Costs payable to it and that it was deprived of this and the collateral securing it upon its bankruptcy, some other justification for this deprivation must be found than the fact that the Noteholders funded the security.
Accordingly, bearing in mind the reality that the difference in priority over the collateral amounts to a difference between having and not having any right to recover Unwind Costs, it is I think instructive to start by considering to what extent English bankruptcy law permits contracting parties to agree that one shall have the right to terminate or vary the priority of rights, as well as security in respect of rights, under a contract upon the bankruptcy of the other.
In Principles of Corporate Insolvency Law, para 7.11, Professor Sir Roy Goode notes that it is generally assumed that provisions for termination of leases or the hiring of chattels or, indeed, of any kind of agreement, upon the bankruptcy or liquidation of a party are valid.
However, he also suggests that the general American bankruptcy rule, that ipso facto termination clauses are ineffective, is one which English law could sensibly follow.
He adds that it is a matter for some astonishment that the validity of contractual provisions for termination of rights on winding up has yet to be authoritatively determined.
It is relevant to note that the American bankruptcy rule invalidating ipso facto termination clauses is a product of legislation: section 365(e) of the Bankruptcy Code 1978, which was considered by The Hon James M Peck, United States Bankruptcy Judge, in his ruling in the parallel United States litigation concerning the Dante Programme.
Section 365(e)) provides that: an executory contract . may not be terminated or modified , and any right or obligation under such contract . may not be terminated or modified, at any time after the commencement of the case solely because of a provision in such contract . that is conditioned on . the commencement of a case under this title .
This is complemented by section 541(c) which provides that any interest of the debtor in property becomes property of the estate . notwithstanding any provision in an agreement . that is conditioned on the commencement of a case under this title and that effects or gives an option to effect a forfeiture, modification, or termination of the debtors interest in property.
The anti deprivation principle recognised in English case law finds a parallel in section 541.
But the English case law has to date focused on deprivation of property, and has not recognised any equivalent principle to that enacted in section 365(e).
Further, section 365(e) is itself qualified by the safe harbour provisions of section 560, which specifically protect a non defaulting swap participants contractual rights to liquidate, terminate or accelerate a swap agreement because of a condition of the kind specified in section 365(e)(1), that is the insolvency or financial condition of the debtor and the commencement of a bankruptcy case.
District Judge Peck considered section 560 inapplicable because, he concluded, there was nothing in the ISDA Master Agreement or the Swap Agreement referring to the STD or Noteholder Priority or condition 44 of the OCS; and the provisions of the latter documentation, while dictating the means by which the proceeds of each swap agreement would be distributed, were not part of the swap agreement.
It is not for this court to go further into that conclusion, which may yet be challenged in further United States litigation.
What it does suggest is that any general rule invalidating ipso facto termination clauses ought to be a matter for legislative attention, rather than novel common law development.
How far contracting parties may validly agree to one party terminating further performance on the bankruptcy of another was recently considered at first instance in Lomas v JFB Firth Rixson Inc [2010] EWHC 3372 (Ch).
The case was decided after the present Court of Appeal decision.
It concerned five fixed rate/floating rate swaps to which another Lehman company (LBIE) was party.
An event of default as defined in the contract documentation occurred on 15 September 2008 consisting of LBIEs entry into administration.
Under section 2(a)(iii) of the ISDA Master Agreement, each partys obligation to make payment or delivery under the swaps was subject to (1) the condition precedent that no Event of Default . with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant transaction has occurred or been effectively designated .
LBIE would have benefited from the continuation of the swaps to their natural expiry dates.
LBIEs counterparties relied upon clause 2(a)(iii) to withhold further performance, netting off against amounts owed by LBIE the amounts they owed to LBIE but for LBIEs default.
LBIE argued that the power to withhold further performance infringed the second principle.
Briggs J rejected the submission.
He distinguished between an asset in the form of a chose in action, representing the quid pro quo for something already done, sold or delivered before the onset of insolvency and a right consisting of the quid pro quo (in whole or in part) for services yet to be rendered or something still to be supplied by the insolvent company in an ongoing contract.
He held that there is nothing contrary to insolvency law in permitting a party either to terminate or adjust what would otherwise be an ongoing relationship with the insolvent company, at the point when it goes into an insolvency process (para 108), and that: Reduced to its bare essentials, the condition precedent that there should be (inter alia) no bankruptcy event of default was a provision designed to ensure that LBIE would only receive its quid pro quo for providing an interest rate hedge for as long as it was in a financial condition to be able to do so. (para 112) In Lehman Brothers Special Financing Inc v Carlton Communications Ltd [2011] EWHC 718 (Ch), Briggs J followed his previous decision and applied similar reasoning to an interest rate swap on the basis that the condition precedent in section 2(a)(iii) of the ISDA Master Agreement was valid to relieve the non defaulting party from payment obligations for as long as the defaulting party is, by reason of the bankruptcy, incapacitated from providing the promised hedge, whenever during the life of the transaction such incapacity arose (para 38).
I would accept that the forfeiture of contractual rights on the bankruptcy of the party enjoying them is in some circumstances capable of constituting a deprivation of property within the principle precluding evasion of the bankruptcy law.
This is so not only with accrued rights, but may also be the case with other rights, as, for example, where the bankrupt has performed his part before going bankrupt or the right can fairly be treated as independent of any as yet unperformed obligation.
I question, even at common law, whether an insured who enjoys third party liability cover for a period on a claims made basis and goes bankrupt part way through that period could properly be deprived of the benefit of such cover in respect of claims arising from his activities prior to his bankruptcy.
To that extent, section 1(3) of the Third Parties (Rights against Insurers) Act 1930 may well have done no more than reflect what would have been held to be the common law.
However, Mr Snowden advanced propositions which would mean that any provision for termination on bankruptcy, which would deprive the trustee or liquidator of the opportunity of continuing the contract and so the bankrupt estate of future potential advantage, would infringe the principle.
There is in my opinion no basis for any such rule.
Where a contract provides for the performance in the future of reciprocal obligations, the performance of each of which is the quid pro quo of the other, I see nothing objectionable or evasive about a provision entitling one party to terminate if the other becomes bankrupt.
That is particularly so, having regard to the purpose and character of the present transaction, viewed rather more broadly than the Court of Appeal did in its detailed reasoning.
As Sir Andrew Morritt C stated, in the passage quoted in paragraph 135 of this judgment, the transaction provided LBSF with a benefit, which can loosely be described as credit insurance, in return for which LBSF was to pay interest to Saphir for the benefit of the Noteholders at a rate higher than the Rabo Bank rate.
Under an insurance in return for the payment periodically of premium, it is natural that the one should be made conditional upon the other.
Just so, under the present transaction, it is natural that payment of the interest should be made a condition of LBSF benefitting.
Mr Snowden submits that this raises no problem, since LBSF could only obtain continuing benefit under the present transaction by confirming it and continuing to credit Saphir with the full amount of the interest due until expiry.
No doubt that is so.
It is what LBSF would have wished to be able to do, since the transaction was probably already profitable from its viewpoint, it could not become less so and it was certainly predicted that it would become more so.
Hence the present litigation.
But the submission misses the point.
Had the transaction neither given rise, nor appeared likely to give rise, to credit events exceeding the subordination amount, LBSF could and would have disclaimed it.
Saphir would then have been left to prove in LBSFs liquidation for the benefit of the Noteholders for such percentage of the already outstanding and future interest payments as they could recover.
In LBSFs liquidation, therefore, the position would be one way.
Saphir (and through it the Noteholders) could only lose.
That is a risk that no insurer would ordinarily run.
Nor is a conventional right to determine on LBSFs default of assistance to Saphir or Noteholders in this situation.
There will be no default unless LBSF would lose money by continuing the contract.
I see no reason therefore why the law should preclude a commercial party in the position of Saphir (acting for the benefit of Noteholders) from insisting that it would only provide the desired cover so long as LBSF was able, whatever the predicted outcome of the transaction, to perform its part in full.
The purpose and effect of such a provision is not to evade the bankruptcy law.
It is to protect the natural interest of any contracting party, and particularly someone who is providing in effect credit insurance, that it should not find itself having to perform to its disadvantage, without being able to enforce performance if this would be to its advantage.
It is a prudent limitation on the duration and operation of the contract.
The result reached by Briggs J in Lomas v JFB Firth Rixson Inc was correct in relation to the mutual contractual obligations with which he was concerned.
For reasons I have already explained, no different result can follow in the present case, where, although a prior right over the collateral may be more obviously identifiable as property within the principle precluding evasion of the bankruptcy law, it is no more than collateral for (and indeed the measure of liability under) a chose in action.
It would be curious if termination of the right to future performance of the chose in action was itself permissible, but became impermissible if collateral had been provided for its performance.
This is particularly so in the present case where the collateral and the cause of action are effectively indistinguishable.
Timing
The further question (the second identified in paragraph 161 above) is whether, in this case, the loss did occur upon LBSFs insolvency, bearing in mind that there was an event of default affecting its parent, LBHI, which occurred some two weeks before LBSF was subject to Chapter 11 proceedings.
In view of the conclusions I have already reached, this question does not require decision.
Saphir and BNY submit that the replacement of Swap Counterparty Priority by Noteholder Priority was and is, under clause 5.5, the automatic result of the occurrence of any Event of Default.
Whether anyone acts on the Event of Default, and whether the collateral is realised or enforced in relation to the Event of Default is immaterial.
Even though the event of default passes unnoticed and even if it is cured, Noteholder Priority persists.
Here, there was an event of default, consisting of LBHIs Chapter II bankruptcy on 15 September 2008, that no one had ever acted upon.
Nonetheless, they submit, that is sufficient to ensure Noteholder Priority in respect of the event of default which was acted upon, LBSFs Chapter 11 bankruptcy, which occurred on 3 October 2008.
I prefer to reserve my position on the correctness of these submissions.
The contrary argument is that they do not marry with the general scheme effected by the documentation as a whole.
As already emphasised, clauses 5.5 and 8.3 and condition 44 of the OCS are all expressly and solely concerned with situations where Saphir or BNY is applying moneys received in connection with the realisation or enforcement of the collateral.
It is in that context only that it is agreed that, if an Event of Default . occurs under the Swap Agreement and the Swap Counterparty is the Defaulting Party . or a tax event occurs, then Noteholder rather than Swap Counterparty Priority will apply.
Mr Salter accepts that the only situation in which the difference between Swap Counterparty and Noteholder Priority is relevant or comes into operation is where there has been early termination.
The sole purpose of the flip is to deal with Unwind Costs in the manner indicated in clause 8.3 and condition 44, in other words to avoid Saphir and through it the Noteholders having actually to bear the burden of any future credit events in excess of the subordination amount which might on Early Termination be taken into account to their disadvantage in calculating the Unwind Costs.
A past event of default which has not been acted upon will have no connection with any early termination or with the realisation or enforcement of the collateral in any circumstances.
The natural inference of clause 5.5 and especially clause 8.3, confirmed by the present tense occurs, is that they contemplate an Event of Default connected with the realisation and enforcement of the collateral.
The reference in clause 5.5 to a Defaulting Party is a reference to clause 6(a) of the ISDA Master Agreement, which deals with Early Termination following an Event of Default, and requires not more than 20 days notice specifying the relevant Event of Default and designating a day not earlier than the day such notice is effective as an Early Termination Event in respect of all outstanding Transactions.
The requirement to specify the relevant Event of Default suggests that Early Termination is to work itself out by reference to the Event of Default so specified.
Condition 44, one of the conditions to which clause 8.3 refers, is concerned with Early Redemption Amounts payable under the notes in various circumstances, but its second paragraph makes specific provision for the Early Redemption Amount payable when an Event of Default occurs under the swap and LBSF is the Defaulting Party, as well as for Unwind Costs.
These are defined as meaning the value of the termination payment due from or to LBSF under the swap.
Again, the inference is that Early Termination under the swap works itself out by reference to a specific Event of Default.
The alternative is that an Event of Default which has perhaps not even been detected and certainly has not been acted upon can dictate priority if there should at any subsequent date be Early Termination not involving any further default on the part of the Swap Counterparty.
On the actual termination, Saphir and the Noteholders could then avoid having to credit any Unwind Costs otherwise due to LSBF in respect of anticipated future credit events.
The justification for such an analysis would seem questionable, when the swap will, by definition, have been satisfactorily performed in the meanwhile and LBSF will not have been responsible for its actual termination.
Accordingly, since it is unnecessary for the decision in this case, I prefer not to express any view on the second issue.
Conclusion
For the reasons I have given in relation to the first issue, I would dismiss the appeal.
LORD PHILLIPS, LORD HOPE, LADY HALE AND LORD CLARKE
The Issuer with full title guarantee and as continuing security grants in favour of the Trustee such charge and/or security interest as set out in the relevant Supplemental Trust Deed in respect of the relevant Series. 2.
Clause 5.2: For each Series, the charges and/or security interest created pursuant to sub Clause 5.1 are granted to the Trustee as continuing security (i) for the payment of all sums due under the Trust Deed and the Notes and the Coupons of such Series, and (ii) for the performance of the Issuer's obligations (if any) under certain agreements as set out in the relevant Supplemental Trust Deed in respect of such Series.
The Trustee shall release from such charges any part of the Mortgaged Property when it becomes payable or deliverable to the extent that payment or delivery of it may be obtained and duly paid or made (as the case may be) to a Swap Counterparty under a Swap Agreement and/or to the holders of Notes, Coupons and Receipts . 3.
Clause 5.5: . the security . shall become enforceable if (i) any amount due in respect of the Notes is not paid or delivered when due or (ii) a Swap Agreement terminates with sums due to the Swap Counterparty [ie LBSF]. 4.
Clause 5.6 provides that: at any time after any security . shall have become enforceable . the Trustee shall (. subject to it having been indemnified to its satisfaction . ) enforce the security over the Mortgaged Property if so directed by the Noteholders in certain specified circumstances, or otherwise at its discretion. 5.
Clause 6.1 provides that moneys, received otherwise than in connection with the realisation or enforcement of the security, are to be held by the Trustee, after payment of the Trustees costs, on trust to pay, first, the amounts due to LBSF, the Noteholders and others pari passu, and, secondly, the amounts due to the issuer. 6.
Clause 6.2 directs the Trustee: . [to] apply all moneys received by it under this Principal Trust Deed and the relevant Supplemental Trust Deed in connection with the realisation or enforcement of the security as follows and went on to provide that Swap Counterparty Priority means that the claims of LBSF are payable in priority to the claims of the Noteholders, whereas Noteholder Priority means the converse, in each case after providing for payment of certain specified costs and charges.
The priority which is to apply in any particular case is that specified in the Supplemental Trust Deed. 7.
Clause 7.2: In relation to any Series in respect of which there is a Swap Counterparty, such Swap Counterparty shall, by execution of the relevant Supplemental Trust Deed, covenant and agree: 7.2.1: that its recourse in respect of its claims under the Swap Agreement is limited to the proceeds of the Mortgaged Property in relation to such Series as it is entitled to, as provided in the Trust Deed and no debt shall be owed by the Issuer in respect of any shortfall 8.
Schedule 2 Part C contains terms and conditions of the Notes to be applied to all Notes of any series, subject to the terms of the relevant Supplemental Trust Deed and the Terms and Conditions in the Note series prospectus. 9.
Condition 10 of Part C of Schedule 2 provides that in certain events (including default for a specified period by the issuer in payment under the Notes) the Trustee may, and if requested by holders of at least one fifth in principal amount of the Notes or if directed by an Extraordinary Resolution of the Noteholders must, give notice to the issuer that the Notes are, and shall immediately become, due and payable at their Early Redemption Amount (a Condition 10 notice). 10.
Condition 6(d)(ii) of Part C of Schedule 2 also provides for the early redemption of the Notes if a Swap Agreement is terminated.
In that event, the issuer is required to give the Trustee, the Noteholders and LBSF notice, at the expiration of which the Notes are to be redeemed at their Early Redemption Amount.
Condition 6(d)(ii) was amended by Condition 38 in the Terms and Conditions (below, para 17) The Supplemental Trust Deed 11.
Clause 5.2 contains a charge by the issuer as continuing security in favour of the Trustee over the Collateral and other property representing it from time to time. 12.
Clause 5.3 provides that such security is granted to the Trustee as trustee for itself and/or the holders of Notes, and [LBSF], the Custodian and the Paying Agents as continuing security (i) for the payment of all sums due under the Trust Deed and the Notes, (ii) for the performance of the Issuer's obligations (if any) under the Swap Agreement . 13.
Clause 5.5: The Trustee shall apply all moneys received by it under this Deed in connection with the realisation or enforcement of the Mortgaged Property as follows: Swap Counterparty Priority unless an Event of Default (as defined in the Swap Agreement) occurs under the Swap Agreement and the Swap Counterparty is the Defaulting Party (as defined in the Swap Agreement) . in which case Noteholder Priority shall apply. 14.
Clause 8.3: [LBSF] hereby agrees that, if an Event of Default (as defined in the ISDA Master Agreement) occurs under the Swap Agreement and [LBSF] is the Defaulting Party (as defined in the ISDA Master Agreement) . and Unwind Costs are payable by the Issuer to [LBSF], the Issuer shall apply the net proceeds from the sale or realisation of the Collateral (1) first in redeeming the Notes in an amount as set out in the Conditions and (2) thereafter, in payment of such Unwind Costs to [LBSF].
Terms and Conditions 15.
The prospectus to which the Terms and Conditions are attached points out that the Notes are credit linked to the reference entities (ie the securities whose credit was being, in effect, insured).
The prospectus also points out that the Noteholders have exposure to the value of the Collateral so that Impairment of the Collateral may result in a negative rating action on the Notes. 16.
Condition 6 of the Terms and Conditions as set out in Schedule 2 to the Supplemental Trust Deed contains the details of how and by how much the principal amount due on the Notes is reducible in the event of credit events affecting a reference entity. 17.
Condition 38 in the Terms and Conditions specifies or refers to certain events which can give rise to early redemption of the Notes including termination in whole or in part of the relevant Swap Agreement (see Condition 6(d)(ii) in Part C of Schedule 2 to the Principal Trust Deed) and default in payment of any interest due for the period specified in the Condition (which period varies from each series of Notes).
If any such event occurs, Condition 38 requires the relevant issuer to serve a notice notifying the Trustee, the relevant rating agency and the Noteholders, of the occurrence of the event and giving notice of the date fixed for redemption of the Notes.
In the event of such a notice being served the Notes become redeemable at their Early Redemption Amount. 18.
Condition 40 (ii), headed Security Arrangements, provides for the Trustee to apply all moneys received by it in the following order of priorities: Swap Counterparty Priority unless (i) an Event of Default (as defined in the ISDA Master Agreement) occurs under the Swap Agreement and the Swap Counterparty is the Defaulting Party (as defined in the ISDA Master Agreement) or (ii) a Tax Event (as defined in the ISDA Master Agreement) occurs under the Swap Agreement and the Swap Counterparty is the sole Affected Party (as defined in the ISDA Master Agreement), in which case Noteholder Priority shall apply. 19.
Condition 44 deals with the determination of the Early Redemption Amounts referred to in Conditions 6(d) and 10 of Part C of Schedule 2 to the Principal Trust Deed.
It also includes a definition of Unwind Costs, being the amount due to or, as the case may be, from LBSF, by way of termination payment under the relevant Swap Agreement at its early termination.
That amount is to be assessed in accordance with the provisions of the relevant Swap Agreement including by reference to quotations taken in the market, when the relevant Swap Agreement terminates, for what a third party would pay to enter into a swap arrangement on similar terms, or, alternatively, what the issuer would have to pay a third party to enter into such a swap arrangement. 20.
The first paragraph of Condition 44 (Condition 44.1) provides that Subject to the immediately succeeding paragraph below the Early Redemption Amount payable on each Note is to be the amount equal to: (i) such Notes pro rata share of the proceeds from the sale or realisation of the Collateral plus (if payable to the Issuer) or minus (if payable to [LBSF]) (ii) the amount of any applicable Unwind Costs 21.
Under Condition 44.1, if termination occurs early, an Early Redemption Amount is to be calculated, and if Unwind Costs are payable under the swap to LBSF on termination, they are to be deducted when calculating any amount which would be due to the Noteholders, and if such Unwind Costs are payable to the Issuer, they are to be added to the amount payable to the Noteholders.
Condition 44.1 continues: provided that if the amount determined pursuant to sub paragraphs (i) and (ii) above exceeds (the amount of any such excess being the Excess Amount) such Notes Outstanding Principal Amount as of the Early Redemption Date together with interest accrued from, and including, the immediately preceding Interest Payment Date to, but excluding, such Early Redemption Date (such interest being the Accrued Early Redemption Interest Amount) and, such Excess Amount shall be payable by way of an additional payment of interest on each Note. 22.
The second paragraph of Condition 44 (Condition 44.2) provides: Notwithstanding the above, if an Event of Default (as defined in the ISDA Master Agreement) occurs under the Swap Agreement and [LBSF] is the Defaulting Party (as defined in the ISDA Master Agreement) , the Early Redemption Amount payable on each Note was to be equal to: (i) such Notes pro rata share of the proceeds from the sale or realisation of the Collateral plus (ii) (but only if payable to the Issuer) the amount of any applicable Unwind Costs divided by the total number of Notes outstanding; provided that if the amount determined pursuant to sub paragraphs (i) and (ii) above results in an Excess Amount (as defined above), such Excess Amount shall be payable by way of an additional payment of interest on each Note.
In the event that Unwind Costs are payable by the Issuer to the Swap Counterparty, the Issuer shall apply the net proceeds from the sale or realisation of the Collateral as aforesaid (1) first in redeeming each Note in an amount equal to its Outstanding Principal Amount as of the Early Redemption Date plus the Accrued Early Redemption Interest Amount and (2) thereafter, in payment of such Unwind Costs to the Swap Counterparty.
The ISDA Master Agreement 23.
Section 5 of the ISDA Master Agreement defines an Event of Default as being: [t]he occurrence [of certain specified events] at any time with respect to [LBSF], or if applicable, any Credit Support Provider of [LBSF].
According to paragraph 9(iv) of the Swap Confirmation, the Credit Support Provider is LBHI, the ultimate parent of LBSF. 24.
The defined Events of Default include (i) failure to pay any sums due under the ISDA Master Agreement (if such failure is not remedied after three Local Business Days notice of such failure), and (ii) the institution by LBSF or by LBHI of any proceedings seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights . 25.
Section 6 of the ISDA Master Agreement deals with early termination and provides that: (a) Right to Terminate Following Event of Default.
If at any time an Event of Default with respect to a party (the Defaulting Party) has occurred and is then continuing, the other party . may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions . 26.
In all cases, the parties selected Second Method and Market Quotation as the valuation mechanisms for the Swaps.
In addition, in all cases, the parties did not select Automatic Early Termination (AET) of the Swap Agreements under Part 1(h) of the Schedule to the ISDA Master Agreement, which would have resulted in the Swaps being deemed automatically to have terminated on the occurrence of specified Events of Default, including bankruptcy.
However, in the Swap Confirmations for all cases the parties did specify certain events (such as the Notes being declared due and payable) which would be Additional Termination Events upon the occurrence of which an Early Termination Date for the Swap would immediately occur. 27.
Part 5(g) of the Schedule to the ISDA Master Agreement provides: In relation to each Transaction, each party confirms that it is bound by the terms of the Trust Deed and that the terms of such Trust Deed prevail to the extent they conflict with terms relating to such Transaction. [LBSF] agrees that its recourse against [the Issuer] in respect of the relevant Transaction is limited to the assets on which the liabilities of [the Issuer] under the relevant Transaction are secured pursuant to the Trust Deed and that its right to enforce the Security created by [the Issuer] over those assets is limited as provided in the Trust Deed.
If the net proceeds of realisation of the Security are insufficient to meet all claims secured thereon, the obligations of [the Issuer] in respect thereof will be limited to such net proceeds and accordingly no debt shall be owed by [the Issuer] in respect of any shortfall remaining after realisation of the Security and application of the proceeds in accordance with the Trust Deed Swap confirmation 28.
Paragraph 9 of the Swap Confirmation includes an acknowledgment by the issuer and LBSF that the transaction was not intended to constitute insurance business so that payments by each party under the transaction were independent and not dependent on proof of economic loss of the other. 29.
The credit protection provided to LBSF under the Swap Agreement related to the occurrence of Credit Events in relation to the Reference Entities set out in the Swap Confirmation. 30.
The payment obligations of the Buyer (LBSF) and Seller (issuer) are specified in paragraphs 3 and 4 of the Swap Confirmation.
For the reasons given by Lord Collins and Lord Walker, with which we are in agreement, we too would dismiss this appeal.
Appendix The Principal Trust Deed 1.
Clause 5.1:
| UK-Abs | This appeal concerns the application of the anti deprivation rule, a principle of insolvency law that contractual terms purporting to dispose of property on bankruptcy may be invalid as being in fraud or an evasion of the bankruptcy law.
This appeal arises out of the insolvency of the Lehman Brothers group, including the Appellant group company, Lehman Brothers Special Financing Inc (LBSF).
The commercial context of the dispute is complicated.
In October 2002 Lehman Brothers International (Europe) (LBIE) established a synthetic debt repackaged note issuance programme, called the Dante programme.
The purpose of the Dante programme was to provide or mimic a form of credit insurance to LBSF against credit events (such as failure to pay, bankruptcy and restructuring) which occurred within the reference portfolio of obligations owed by specified reference entities (the reference portfolio).
The commercial purpose of the transaction was achieved through the issue of the so called synthetic credit linked notes by special purpose vehicles (the issuer) set up in tax friendly jurisdictions.
The investors in the notes (the noteholders), including the Respondents, were Australian local authorities, pension funds, private investment companies and private individuals.
The subscription proceeds paid by the investors for the notes were used by the issuer to purchase secure investments (the collateral) which was then vested in a trust corporation (the trustee).
In order to service the interest payments under the notes, the issuer entered into a swap agreement with LBSF under which LBSF received the income (or yield) on the collateral and, in return, paid the issuer the amount of interest due to the noteholders under the terms of the notes.
The amount by which the sum payable under the swap agreement by LBSF exceeded the yield on the collateral represented the premium for the, in effect, credit insurance provided by the noteholders.
It was further agreed that on maturity of the notes (or on early redemption or termination), LBSF would pay the issuer an amount equal to the initial principal amount subscribed by the investors less amounts calculated by reference to credit events occurring in the reference portfolio and in return would receive the sum equal to the proceeds of sale of the collateral, thereby giving effect to the insurance aspect of the programme.
To ensure LBSFs recovery, the trustee was instructed to apply all proceeds from the collateral, first, in meeting the issuers obligations to LBSF and only then in meeting the issuers obligations to the noteholders.
However, LBSF would loose its priority claim to the collateral if it was in default under the swap, triggering a change in priority in favour of the noteholders, the so called flip.
The events of default under the swap were numerous and, for present purposes, included filing for Chapter 11 protection by Lehman Brothers Holdings Inc (LBHI) on 15 September 2008 and by LBSF on 3 October 2008.
In reliance on the latter event, and following a direction from the noteholders, the trustee caused the issuer to terminate the swap with LBSF.
This early termination triggered the payment of unwind costs (the market assessment of the net amount either party to the swap would have received were it to run to maturity) to LBSF.
At the same time, LBSFs event of default caused the priority of claims against the collateral to change in favour of the noteholders.
Given that the issuers obligations to the noteholders and to LBSF were limited to the value of the collateral and that the total claims by the noteholders and LBSF exceeded the value of the collateral, this change in priority effectively deprived LBSF of a chance to recover its unwind costs.
As a result, LBSF sought to challenge the validity of the flip on the basis that it breached the anti deprivation principle.
LBSFs position was that its rights to the unwind costs and the priority it enjoyed over the collateral formed part of LBSFs insolvent estate of which it was deprived on change of priority following LBSFs bankruptcy.
Both the High Court and the Court of Appeal upheld the contractual arrangements.
Sir Andrew Morritt C found that the contractual provisions did not offend the anti deprivation rule; or, alternatively, that the rule was not engaged since the flip was triggered by an earlier LBHI Chapter 11 filing and thus LBSFs Chapter 11 filing did not deprive it of any property.
In the Court of Appeal, Lord Neuberger MR (with whom Longmore LJ agreed) found the flip provisions valid in reliance, to a large extent, on the fact that the collateral was acquired with money provided by the noteholders.
Patten LJ thought that the rule did not apply because a change of priority was always a feature of the security arrangements.
The Supreme Court unanimously dismissed LBSFs appeal and upheld the validity of contractual provisions.
The lead judgment was given by Lord Collins, with whom Lord Phillips, Lord Hope, Lord Walker, Lady Hale and Lord Clarke agreed.
Lord Mance agreed with the majoritys conclusion but for different reasons.
Issue 1 the anti deprivation rule Having examined the application of the anti deprivation rule over the last 200 years, Lord Collins held that the rule is too well established to be discarded despite the detailed provisions set out in insolvency legislation, all of which must be taken to have been enacted against the background of the anti deprivation rule: [102].
Lord Collins identified the following limits of the rule.
First, a deliberate intention to evade insolvency laws is required, although such intention need not be subjective.
Thus a commercially sensible transaction entered into in good faith should not be held to infringe the anti deprivation rule: [78] [79].
Secondly, the anti deprivation rule does not apply if the deprivation takes place for reasons other than bankruptcy: [80].
Thirdly, the distinction between an interest determinable on bankruptcy (the so called flawed asset), which is outside the anti deprivation rule, and an absolute interest defeasible on bankruptcy by a condition subsequent, which falls foul of the rule, is too well established to be dislodged otherwise than by legislation: [87] [88].
However, not every proprietary right expressed to determine or change on bankruptcy is valid, still less a deprivation which has been provided for in the transaction from the outset: [89].
Fourthly, the source of the assets is an important element in determining whether there had been a fraud on the bankruptcy laws: [96].
However, there is no general exception to the anti deprivation rule based simply on the source of the assets: [98].
Lord Collins concluded that commercial sense and absence of intention to evade insolvency laws are highly relevant factors in the application of the anti deprivation rule and that the rule does not apply to bona fide commercial transactions which do not have as their predominant purpose, or one of their main purposes, the deprivation of the property of one of the parties on bankruptcy: [103] [104].
Since the contractual provisions challenged in the present appeal were part of a complex commercial transaction entered into in good faith, the collateral was in substance provided by the noteholders and there was no suggestion that the flip provisions were deliberately intended to evade insolvency law, they did not offend the anti deprivation rule: [108] [113].
Lord Mance agreed that the insolvency legislation has not made redundant the common law anti deprivation principle: [150] [151].
However, he would have dismissed this appeal on the basis that LBSF could not be regarded as having been deprived of any property.
On his reading of the documentation, LBSF could not be said to enjoy the contractual priority until the occurrence of certain events.
Thus once an event of default under the swap occurred, LBSF was not deprived of the priority but simply prevented from acquiring it in the first place: [168].
Even if LBSF was deprived of its property, the flip simply amounted to a contractual termination of the future reciprocal obligations of the parties, the performance of each of which is the quid pro quo of the other, and thus did not constitute an illegitimate evasion of the bankruptcy laws: [178] [180].
Issue 2 the timing of the deprivation Given the conclusion on issue 1, the question of whether LBHIs earlier bankruptcy (as argued by the Respondents) rather than LBSFs bankruptcy constituted the relevant event of default which triggered the operation of the flip did not arise.
Lord Collins would have dismissed the Appellants argument on this point: [118] [120].
Lord Mance, although sceptical of the Respondents argument, preferred not to express a view on this issue: [181] [183].
|
Both sides agree that the transactions before the Court on this appeal may give rise to taxable interest under three actual or notional loan transactions (the cautious may in the statement of facts and issues, paragraph 30, reflects the Revenues ultimate fall-back position that two of the transactions produce no debit or credit at all).
The three loan transactions are as follows: (1) The actual loan transaction between the United Kingdom government and the holder of United Kingdom Government securities (gilts); (2) A loan transaction between DCC Holdings (UK) Ltd (DCC) as lender and Ulster Bank Ireland Ltd (the Bank) as borrower deemed to exist under section 730A of the Income and Corporation Taxes Act 1988 (ICTA 1988); and (3) A loan transaction between the Bank as lender and DCC as borrower deemed to exist under section 737A(5) of ICTA 1988 and section 97(2) and (4) of the Finance Act 1996 (FA 1996).
Counsel on both sides put this analysis in the forefront of their written cases.
The two sides have now been arguing for over six years about DCCs tax return for the relevant period (1 April 2001 to 31 March 2002), and they are now extremely familiar with the arguments.
For them the arena is already well-trodden.
But for those who are less familiar with the arguments it is unhelpful to be confronted at once with these three abstract relationships, two of which are statutory constructs.
It is more helpful to start with the general nature of the problems which Parliament was trying to address, first in sections 730A and 737A of ICTA 1988 and then in Part IV, Chapter II of FA 1996, and the general nature of the solutions which Parliament adopted to deal with those problems.
One source of taxable income is interest payable by a debtor to a creditor.
Traditionally that was taxed under Schedule D, Case III under the simple rubric of interest of money, whether yearly or otherwise.
The rule was that even though under the general law most interest accrues from day to day, that was not the right treatment for the purposes of Schedule D, Case III.
The tax rule was (as the Special Commissioner observed in this case, echoing Rowlatt J in Leigh v Inland Revenue Commissioners [1928] 1 KB 73, 77 and Lord Hanworth MR in Dewar v Inland Revenue Commissioners [1935] 2 KB 351, 366) that receivability without receipt is nothing.
Apart from anti-avoidance provisions the Revenue could not charge income tax on a holder of gilts who, by a well-timed sale just before payment of a half-yearly instalment of interest, in effect turned accrued income into a capital gain (Wigmore v Thomas Summerson & Sons Ltd [1926] 1 KB 131).
Nor could a purchaser of short-dated gilts pregnant with interest escape liability to tax on the whole of the interest payment, even if he had paid an extra sum expressed to be for the accrued interest, as an aggrieved litigant in person discovered in Schaffer v Cattermole [1980] STC 650.
The traditional rule opened up opportunities for tax avoidance.
In Wigmore v Thomas Summerson & Sons Ltd [1926] 1 KB 131, 145, Rowlatt J observed, The result is that nobody on the super tax level, who has not more money than appreciation of income tax law, will ever buy a security that is full of dividend, because in doing so he is buying super tax; and that a man on the super tax level, if he wants to sell a security, had better sell when it is full of dividend, because then he is selling super tax.
Anti-avoidance provisions were in due course enacted.
They were supplemented and elaborated at frequent intervals in response to the development of increasingly sophisticated avoidance schemes, some of which were popularly called dividend stripping and bond washing.
When the law of income tax and corporation tax was consolidated in ICTA 1988, Part XVII (headed Tax Avoidance) comprised 85 sections, and Part XVII, Chapter II (headed Transfers of Securities) contained 29 sections.
That is the context of the first set of provisions with which this appeal is concerned, sections 730A and 737A of ICTA 1988.
Those new sections were inserted into Part XVII, Chapter II by section 80(1) of the Finance Act 1995 and section 122 of the Finance Act 1994 respectively, to apply (in each case) to transactions entered into on or after 1 May 1995.
(It is a little surprising that section 737A preceded section 730A in its enactment, but the former provision was initially intended to apply to section 730, a more general provision than section 730A.) It should also be mentioned in passing that section 736A, introducing Schedule 23A, was enacted by section 58 of the Finance Act 1991.
I draw attention to the different provenance of these provisions because it is relevant to the resolution of this appeal to see that it depends on the construction, not of a single set of statutory rules addressed to a single problem, but to a patchwork of legislation; and its difficulty lies not only in the language of particular sections, subsections and paragraphs, but in seeing how Parliament must be taken to have intended them to operate together.
I respectfully disagree with the comment of Rix LJ [2010] STC 80, para 94 that the statutory provisions were always seeking one goal.
In this context, the special provisions about repos in sections 730A, 730B, 737A, 737B and 737C can be seen as making a relatively modest extension in the existing battery of anti-avoidance provisions already contained in Part XVII, Chapter II of ICTA 1988.
They were also intended to make the tax treatment of repos correspond to their economic substance, so as to be more in line with modern accounting theory and practice as set out in FRS 4 and FRS 5.
In legal form a repo is a preordained sale and purchase at prices fixed in advance, but in economic substance it is a short-term secured loan, as was explained in the written evidence of the only expert witness, Mr Holgate.
These sections were in force in their original form for only about a year before the introduction of the new loan relationships code, for corporation tax purposes, by FA 1996.
With hindsight, it might have been better if Parliament had waited a year in order to produce a more integrated legislative scheme for the tax treatment of repos.
Part IV Chapter II of FA 1996 effected a fundamental change in the taxation of loan interest for the purposes of corporation tax (but not for the purposes of income tax).
The changes were aimed at bringing the tax treatment of all interest onto an authorised basis of accounting (in many cases, including this case an accruals basis), and went far beyond mere counteraction of tax avoidance.
They involved a new head of charge for corporation tax purposes in section 18(3A) of ICTA 1988, as inserted by section 105 of, and para 5 of Schedule 14 to, FA 1996: profits and gains which, as profits and gains arising from loan relationships, are to be treated as chargeable under this Case by virtue of Chapter II of Part IV of the Finance Act 1996.
The provisions most relevant to this appeal are summarised below.
But first it is necessary to give a brief account of repos and the way in which they were taxed under sections 730A and 737A of ICTA 1988.
Repo transactions
Mr Holgate, a chartered accountant of the highest standing, gave written and oral evidence to the Special Commissioner.
He was careful to distinguish between matters of accounting theory and practice on which he could speak as an expert, and matters of statutory interpretation which were questions of law beyond his competence as an expert.
In his written report dated 18 December 2006 Mr Holgate set out the basic definition of a repo in the Stock Lending and Repo Committees Gilt Repo Code of Best Practice: A transaction, carried out under an agreement, in which one party sells securities to another, and at the same time and as part of the same transaction, commits to repurchase equivalent securities on a specified future date, or at call, at a specified price.
He then continued (paragraphs 4.3, 4.4 and part of 4.5): By using the term fixed price repo, I am referring to a sale and repurchase agreement, whereby one party (the seller) sells securities to another party (the buyer) for an agreed amount of cash and simultaneously agrees to repurchase the same or an identical security at a specified future date for a fixed amount of cash.
Therefore, under such an arrangement, the cash flows and the timings of those cash flows are fixed in advance and hence the return under the arrangement for the repo buyer is fixed.
Although legally a sale and subsequent repurchase of securities, the seller retains the risks and benefits of market price fluctuations of the securities, rather than passing them to the buyer.
Hence, such arrangements are economically similar to a secured loan providing a fixed rate of return, with the security acting as collateral.
FRS 5 The relevant accounting standard under UK GAAP which was in force for the year ended 31 March 2002 is FRS 5 Reporting the substance of transactions, which was issued in April 1994.
The key requirement of FRS 5 is given in paragraph 14 as follows: A reporting entitys financial statements should report the substance of the transactions into which it has entered.
In determining the substance of a transaction, all its aspects and implications should be identified and greater weight given to those more likely to have a commercial effect in practice.
A group or series of transactions that achieves or is designed to achieve an overall commercial effect should be viewed as a whole.
FRS 5 therefore tells us to account for the repo transaction in accordance with its substance, rather than its legal form, if the two do not accord.
In paragraph 4.8 Mr Holgate explained (without actually using those terms) a gross paying repo and net paying repo: Under a fixed price repo, the seller has an unconditional commitment to repurchase the security from the buyer at the sale price plus interest, which represents a lenders return.
Furthermore, if during the term of the repo arrangement, a coupon or dividend is paid to the buyer (as the legal holder of the security) on the underlying security, then the buyer is often obliged to immediately pass an equivalent amount of cash back to the seller.
Alternatively, if, under the arrangement, the buyer is able to retain the cash coupon or dividend received under the security, then instead the repurchase price is reduced, in effect passing the benefit of the coupon or dividend back to the seller.
In either case, the substance of the repo transaction will be that of a secured loan, whereby the buyer lends cash to the seller.
Although the buyer has legal ownership of the security for the repo term, the seller retains all significant benefits and risks relating to the security (ie movements in market price and the benefits of any coupon or dividend payments on the security) over the term of the repo.
In this case there were five separate repos, effected under a single master repurchase agreement and a master custody agreement to which The Northern Trust Co was a party.
They were closely consecutive on each other, the purchase price on the second and subsequent transactions being set off against the repurchase sum receivable under the previous transaction.
Each transaction involved a different issue of gilts, and in each case a half-yearly interest payment was made on the last day of the repo period (the longest period was 42 days, and the shortest 11 days).
It was agreed that each of the repos would be a net paying repo.
It is common ground that the transactions were arms length transactions and that DCC entered into the transactions otherwise than for the purposes of a trade carried on by it.
In argument below, and in this Court, counsel have used a simplified version of the facts which aggregates the sums paid on the respective sales and repurchases under the five consecutive transactions, aggregates the half-yearly payments of interest made on the last day of each repo period, and takes an average length of that period.
This process produces figures, when rounded, of 812.2m, 785.2m, 28.8m and 18 days, and it is convenient to use those figures.
It will be seen that if 28.8m (the gilts interest retained by DCC) is added to 785.2m (the repurchase sum paid to DCC) it exceeds 812.2m (the sale price paid by DCC) by 1.8m.
That figure of 1.8m is the only one agreed by both sides (and by the Special Commissioner and all the judges who have so far considered the matter) as an element in the tax computations.
Sections 730A, 737A and 737C of ICTA 1988
Section 730A of ICTA 1988 (Treatment of price differential on sale and repurchase of securities) is the starting point in understanding the tax treatment of repos as it was in 2001-2002.
Section 730A provided a self-sufficient code for the simple case in which either no coupon was paid during the repo period, or a coupon was paid and was receivable (the expression in section 737A(2)(a)) by the original owner (the expression used in section 730A(1) for Mr Holgates seller).
This might occur if the gilts were throughout registered in the name of a nominee.
That is the simple case because it did not involve any manufactured interest or deemed manufactured interest (explained in para 16 below).
In the simple case the operative provision was section 730A(2)(a): The difference between the sale price and the repurchase price shall be treated for the purposes of the Tax Acts - (a) where the repurchase price is more than the sale price, as a payment of interest made by the repurchaser on a deemed loan from the interim holder of an amount equal to the sale price; With any gross paying repo the repurchase price would naturally be higher than the original sale price, and section 730A(2) operated, through section 730A(6) in its original form, to charge the interim holder (Mr Holgates buyer) with tax under Schedule D Case III on the difference.
This corresponded to the economic reality, that the interim holder had made a secured loan, at interest, to the original owner.
In less simple cases section 730A operated not as a self-sufficient code, but in conjunction with sections 737A and 737C. Parliament seems to have proceeded on the basis that when a coupon is paid during the repo period, there are three possible situations: (1) a gross paying repo under which the coupon goes to the original owner without reaching the interim holder at all (this is the simple case, already noted); (2) a gross paying repo where the coupon is received by the interim holder but is passed on, under a contractual obligation, to the original owner; and (3) a net paying repo where the coupon is paid to and retained by the interim holder.
In the second of these situations the payment on by the interim holder was termed manufactured interest.
In the third situation there was no actual payment on by the interim holder, but the interim holder was treated for tax purposes as making a payment on, termed deemed manufactured interest.
The rationale seems to be that the original owner had made use of the accruing coupon as part of the repo bargain, since by opting for a net paying repo he could negotiate a much lower repurchase price.
His turning it to account in this way was treated for tax purposes as equivalent to an actual receipt of it.
The relevant statutory provisions in relation to (actual) manufactured interest were principally section 736A of, and paragraph 3 of Schedule 23A to, ICTA 1988.
They are not directly relevant to this appeal.
Indeed, because of paragraph 3(12) (introduced by an amendment made in the Finance Act 1997) they really do no more than explain the expression manufactured interest.
The statutory provisions in relation to deemed manufactured interest, by contrast, are of central importance.
They are section 737A (Sale and repurchase of securities: deemed manufactured payments), subsections (7) and (9) of section 737C (Deemed manufactured payments: further provisions) and section 730A(9).
Most of section 737A needs to be set out in full: 737A Sale and repurchase of securities: deemed manufactured payments (1) This section applies where on or after the appointed day a person (the transferor) agrees to sell any securities, and under the same or any related agreement the transferor or another person connected with him (a) is required to buy back the securities, or (b) acquires an option, which he subsequently exercises, to buy back the securities; but this section does not apply unless the conditions set out in subsection (2) below are fulfilled.
(2) The conditions are that (a) as a result of the transaction, a dividend which becomes payable in respect of the securities is receivable otherwise than by the transferor, (b) [repealed] (c) there is no requirement under any agreement mentioned in subsection (1) above for a person to pay to the transferor on or before the relevant date an amount representative of the dividend, and (d) it is reasonable to assume that, in arriving at the repurchase price of the securities, account was taken of the fact that the dividend is receivable otherwise than by the transferor.
(3) For the purposes of subsection (2) above the relevant date is the date when the repurchase price of the securities becomes due.
(5) Where this section applies, [words repealed] Schedule 23A and dividend manufacturing regulations shall apply as if (6) (a) the relevant person were required, under the arrangements for the transfer of the securities, to pay to the transferor an amount representative of the dividend mentioned in subsection (2)(a) above, (b) a payment were made by that person to the transferor in discharge of that requirement, and (c) the payment were made on the date when the repurchase price of the securities becomes due.
In subsection (5) above the relevant person means (a) where subsection (1)(a) above applies, the person from whom the transferor is required to buy back the securities; Section 737C(7) and (9) provided that the repurchase price for a gilts repo was to be increased by the gross amount of the deemed manufactured interest, and for good measure section 730A(9) was to just the same effect.
I have already explained the legislative purpose, as I understand it, of these provisions for deemed manufactured interest.
These provisions are not easy reading (and it has to be said that they are no more than the prologue to the difficult issues that have to be decided in this appeal).
It may be helpful to give some simple examples by way of recapitulation of the legislation as it stood before the coming into force of FA 1996.
The examples assume a sale price of 1,000, a coupon of 35, and a repurchase price of 1,020 for a gross paying repo and 985 for a net paying repo.
(1) No coupon during repo period interim holder taxed on differential of 20 as interest original owner taxed on coupon of 35 (received later) and has trading or non-trading debit of 20 (2) Gross paying repo, coupon direct to original owner interim holder taxed on differential of 20 as interest original owner taxed on coupon of 35 and has debit as above (3) Gross paying repo, interim holder receives coupon and makes representative payment-on interim holder taxed on differential of 20, coupon netted off against manufactured interest original owner taxed on coupon of 35 (as manufactured interest) and has debit as above (4) Net paying repo interim holder taxed on differential of 20 (985+35-1,000), coupon netted off against deemed manufactured interest original owner taxed on coupon of 35 (as deemed manufactured interest) and has debit as above In this way, cumbersome as it was, the provisions achieved the apparent legislative purpose of taxing every type of repo uniformly, and in line with its economic substance.
The change to an accruals basis
Part IV, Chapter II of FA 1996 introduced for corporation tax purposes a new statutory source of income, profits and gains from loan relationships, with concomitant changes in the computations of debits and credits, so as to put them on an authorised basis of accounting.
These represented an important development in tax law.
They were presented by the Revenue as a simplification that would make life easier for companies: Details of a simpler and more coherent tax regime for borrowers and lenders were announced today with the proposed repeal of a variety of complex rules for different types of bond and their replacement with a single set of rules covering all debts.
This is a major deregulatory initiative which will simplify decisions for companies and lead to a substantial reduction in the amount of tax legislation on debt.
That is from the Inland Revenue Budget Day release in 1996, quoted in a note on the Finance Bill in 1996 BTR 349, 356.
The official claims were not groundless, but may nevertheless be regarded with some scepticism by those involved in this particular appeal.
The opening sections of Chapter II are sections 80 (Taxation of loan relationships), 81 (Meaning of loan relationship etc) and 82 (Method of bringing amounts into account).
They are important machinery but it is not necessary to set out the text.
Section 83 (Non-trading deficit on loan relationships) is technical and it is not necessary to set it out.
It is however of crucial importance to DCC, which seeks to surrender a non-trading deficit (by way of relief) against profits earned by its subsidiaries of over 28m (the precise figures of the original claim appear in form CT600 (2001) in Appendix Part IV and also at [2009] STC 77, 122).
In Section 84 (Debits and credits brought into account) subsection (1) is of crucial importance to this appeal: The credits and debits to be brought into account in the case of any company in respect of its loan relationships shall be the sums which, in accordance with an authorised accounting method and when taken together, fairly represent, for the accounting period in question (a) all profits, gains and losses of the company, including those of a capital nature, which (disregarding interest and any charges or expenses) arise to the company from its loan relationships and related transactions; and (b) all interest under the companys loan relationships and all charges and expenses incurred by the company under or for the purposes of its loan relationships and related transactions.
Subsection (5) defines related transaction as meaning, in relation to a loan relationship, any disposal or acquisition (in whole or in part) of rights or liabilities under that relationship.
But paragraph 15 of Schedule 9 to FA 1996 makes it unnecessary, as is common ground, to consider the related transaction provisions in this case.
Paragraph 13 of Schedule 9 contains an anti-avoidance provision (loan relationships for unallowable purposes) which the Revenue has not invoked in this case, partly it seems because of doubts (since removed by an amendment) as to its efficacy.
Section 85 (Authorised accounting methods) provides as follows: (1) Subject to the following provisions of this Chapter, the alternative accounting methods that are authorised for the purposes of this Chapter are (a) an accruals basis of accounting; and (b) a mark to market basis of accounting under which any loan relationship to which that basis is applied is brought into account in each accounting period at a fair value.
(2) An accounting method applied in any case shall be treated as authorised for the purposes of this Chapter only if (a) it conforms (subject to paragraphs (b) and (c) below) to normal accountancy practice, as followed in cases where such practice allows the use of that method; (b) it contains proper provision for allocating payments under a loan relationship to accounting periods; and (c) where it is an accruals basis of accounting, it does not contain any provision (other than provision comprised in authorised arrangements for bad debt) that gives debits by reference to the valuation at different times of any asset representing a loan relationship.
Subsection (3) contains further provisions as to accruals.
The accruals basis is the only permitted method for computations under section 730A of ICTA 1988, that being the effect of the new subsection (6) inserted into section 730A by section 104 of, and paragraph 37 of Schedule 14 to, FA 1996.
Section 97 (Manufactured interest) must be set out (as amended by the Finance Act 1997) in full: (1) This section applies where (a) any amount (manufactured interest) is payable by or on behalf of, or to, any company under any contract or arrangements relating to the transfer of an asset representing a loan relationship; and (b) that amount is, or (when paid) will fall to be treated as, representative of interest under that relationship (the real interest).
In relation to that company the manufactured interest shall be (2) treated for the purposes of this Chapter (a) as if it were interest under a loan relationship to which the company is a party; and (b) where that company is the company to which the manufactured interest is payable, as if that relationship were the one under which the real interest is payable.
(3) Any question whether debits or credits falling to be brought into account in the case of any company by virtue of this section (a) are to be brought into account under section 82(2) above, or (b) are to be treated as non-trading debits or non- trading credits, shall be determined according to the extent (if any) to which the manufactured interest is paid for the purposes of a trade carried on by the company or is received in the course of activities forming an integral part of such a trade.
(4) Where section 737A(5) of [ICTA 1988] (deemed manufactured payments) has effect in relation to a transaction relating to an asset representing a loan relationship so as, for the purposes of Schedule 23A to that Act, to deem there to have been a payment representative of interest under that relationship, this section shall apply as it would have applied if such a representative payment had in fact been made.
The resolution of this appeal depends on the correct interpretation and inter- relation of sections 730A(2) and 737A(5) of ICTA 1988 and sections 84(1) and 97(2) and (4) of FA 1996.
Argument has focused, in particular, on whether and how far the words in section 84(1) the sums which, in accordance with an authorised accounting method and when taken together, fairly represent . . .
can be stretched (or need to be stretched) in order to avoid the absurd result of DCCs deemed income receipt in respect of the coupon being different from its deemed interest payment as a borrower which is party to a loan relationship under section 737A(5) of ICTA 1988 and section 97(4) of FA 1996.
The absurdity of that asymmetrical result has been recognised in the Special Commissioners decision [2009] STC 77 (paras 164-166 and numerous other passages) and in the Court of Appeal [2010] STC 80, especially by Rimer LJ at para 85 (Moses LJs reasoning . . .
clothes the relevant legislation with a garb of commercial sanity) and Rix LJ at para 92 (a most unfortunate, uncommercial, and no doubt unintended result).
Moses LJ referred at para 69 to the deemed income flow under section 97(4) as retaining its essential function, which is to cancel out, but not to exceed, the amount which it represents.
Norris J, by contrast, was scathing about the statutory drafting (para 22) and unwilling to make any presupposition about its intended effect (para 42).
In my opinion the need for a symmetrical solution lies at the heart of this appeal.
The need for symmetry comes from the statutory purpose of the deemed income flows provided for in the provisions of sections 730A, 737A and 737C of ICTA 1988, which I have already analysed at tedious length.
They are intended to have a cancelling effect so that DCC is taxed on the repo as if it had made a secured loan at interest, and the coupon is taxed as income of the Bank, whether it reaches the Bank directly, or in the form of a representative payment, or not at all.
Some sort of case can be made out for each of the three pairs of symmetrical answers: (1) credit 28.8m, debit 28.8m; (2) credit 2.9m, debit 2.9m; (3) credit nil, debit nil.
The Special Commissioner (Mr Charles Hellier), in a long and closely-reasoned decision, concluded that credit nil, debit nil was the right answer.
Neither side has treated this conclusion with any enthusiasm, but the Revenue have adopted it as their second and final fall-back position.
Norris J reached the asymmetrical answer of credit 2.9m, debit 28.8m.
Rimer LJ agreed with Norris J. Rix and Moses LJJ concluded that the correct answer was the symmetrical credit 28.8m, debit 28.8m.
Mr Holgates evidence as to the accruals basis
I have already summarised Mr Holgates evidence about the nature of repos and the proper accounting treatment which recognises their economic substance.
I must also give a brief account of his evidence about the accruals basis.
This part of his written evidence is in section 6 (My understanding of the legislative assumptions), section 7 (The exercise posed by section 84 Finance Act 1996) and section 8 (Conclusions).
In section 6 he considers section 84 at some length and concludes that the expression fairly represent is, from an accounting perspective, not significantly different from giving a true and fair view.
He also states his assumptions as to the effects of section 737A of ICTA 1988 and section 97 of FA 1996 (paragraph 6.18) and of section 730A of ICTA 1988 (paragraph 6.20).
Paragraph 7.11 is in the following terms: Furthermore, in order to prepare financial statements that show a true and fair view of the transactions undertaken by the entity, full knowledge of the transactions and arrangements undertaken by an entity must first be understood, both from a legal and an economic perspective.
Accordingly, accounting standards and GAAP are based on real, economic transactions and therefore determining the most appropriate accounting treatment without the full facts or based on transactions which do not make economic sense is difficult, if not impossible.
At paragraphs 7.16 to 7.19 Mr Holgate set out his views on the issue of DCCs credit.
On one view (paragraph 7.16) it should be nil, since in substance DCC never had beneficial ownership of the gilts.
The alternative view (paragraphs 7.18 and 7.19) was as follows: DCC held the gilts at the coupon date and so was entitled to receive an interest payment from the government in respect of its investment.
From an accounting perspective, applying the accruals basis (as defined in FRS 18 paragraph 27), it is appropriate to bring into account the interest accruing on the gilts only in respect of the period those gilts are held by DCC, ie the proportion of the interest received by DCC.
This is because any other party holding the gilts before and after the term of the repo transaction would expect to be compensated by receiving the proportion of the coupon relating to their period of ownership of the gilts.
Therefore under this assumption, in my opinion the sum which fairly represents the interest arising on the gilts held by DCC (ignoring any purchase and sale proceeds) is the accrued portion of the coupon for the period of the repo transaction.
In accordance with an accruals basis of accounting, it could be no more; specifically, DCC could not recognise the receipt of the full interest coupon unless the gilts had been held for the full period to which the coupon relates.
Coupons on gilts are typically paid every six months; accordingly, it would be appropriate to recognise as income the full amount of a coupon received only if the gilts in question had been held for the full six- month period.
At paragraphs 7.22 and 7.23 Mr Holgate set out his views on the proper treatment of DCCs debit in respect of deemed manufactured interest.
I have emphasised a passage which takes a preliminary view on a point of statutory construction: From an accounting perspective it is not possible to determine the debits and credits to be brought into account in respect of any deemed cash payment that fairly represent the loan relationship, unless one has more information about the transaction.
For example the premium on redemption of a deeply discounted bond would be taken into account in determining the interest accruing on such a bond for an accounting period.
However, without knowing the full terms of the transaction, it is not possible to determine whether the deemed interest does fairly represent the interest accruing under the loan relationship and related transactions (if any) for the accounting period.
However, if there is a legislative need to determine the debits to be brought into account on an accruals basis that fairly represents the loan relationship, then I would understand the legislation may be making an assumption that the deemed interest, which is to be treated as paid by DCC under a loan relationship to which DCC is a party, was payable in respect of a period for which DCC was a party to that loan relationship.
If that is the case, then, from an accounting perspective, a debit for the whole amount relating to that period should be recognised in respect of that accrued interest payable.
In paragraph 8 Mr Holgate summarised his conclusions.
Most relevantly for present purposes, he stated that DCCs credit should be either nil or an apportioned amount of 2.9m (paragraph 8.5) and that DCCs debit should be the whole of the deemed interest payment, or could not be determined from accounting principles, on the basis of the information given (paragraph 8.9).
The judgments below
I have already made some reference to the judgments below, and I do not think that it would be helpful to attempt to analyse them at length.
But I would add a few more comments.
I respectfully think that Norris J was wrong to criticise the Revenues case (as put by Mr Furness QC) as based on a presupposition.
I would have said that it was based on a careful analysis of sections 730A, 737A and 737C, to which Norris J seems to have been at least partly receptive at para 44 of his judgment.
It was not an unreasonable presupposition, but a reasonable expectation, that Parliament intended to preserve, rather than to destroy, the essentials of those provisions when enacting Part IV, Chapter II of FA 1996.
As it was Norris J went along with the assumption put forward in paragraph 7.23 of the report, putting it like this (para 48): So far as the deemed manufactured interest is concerned this is treated as an interest payment made by DCC on the repurchase date.
What sums under the accruals method will, when taken together fairly represent the gains or losses under this deemed loan relationship? The answer will not be found in any accounts because the transaction is entirely fictional.
The answer seems to me to be 28.8m.
This is the amount of the deemed interest and it cannot relate to any period other than the period for which the relationship between DCC and [the Bank] existed under which the deemed interest is deemed to be paid ie the period of the repo transaction.
Rimer LJ agreed with Norris J on this point (indeed he seems to have agreed with him on all points, but reluctantly because he was more concerned about the lack of commercial sanity: para 85).
Moses LJ also agreed (para 51: [t]he deemed expense incurred as a result of the deemed manufactured payments could only be incurred by DCC and thus only accrued to DCC).
So did Rix LJ, although it is not clear whether his reasoning was precisely the same.
It may be significant that Moses LJ disposed of this issue of DCCs debit before grappling with the issue of its credit, and he did not revisit it in the context of his observations on the cancelling function of the deemed income flows (which I regard as an important insight).
I respectfully doubt Moses LJs analysis of section 84(1) as containing two criteria, one of which he required to yield to the other (para 71 Moses LJ had put down markers about these criteria in paras 13, 22 and 34).
I agree with the proposition (finally, I think, adopted by both sides in argument) that the crucial words in section 84(1) must be construed as a composite whole.
Statutory hypotheses
As DCCs printed case notes (paragraph 34), Parliament has now swept away the statutory provisions with which the Court is concerned in this appeal.
There is a new code, introduced by the Finance Act 2007 and now re-enacted as Part 6 of the Corporation Tax Act 2009.
DCCs printed case suggests that one of the reasons for the new code was to get away from the almost inevitable problems arising from [statutory] fictions.
It is in fact the problems raised by statutory fictions that give this appeal such general importance as it has, despite the repeal of the legislation.
It is therefore appropriate to refer to some well-known authorities on that topic.
In the courts below Mr Furness cited several authorities on the construction of statutes, including the decisions of the Court of Appeal (1993) 67 TC 56 and the House of Lords [1995] 1 AC 148 in Marshall v Kerr.
That was a case about the effect of a deed of family arrangement varying (within two years of his death) the will of a testator who died domiciled and ordinarily resident overseas.
Section 24(11) of the Finance Act 1965 provided that in such a case the earlier provisions of the section should apply as if the variations made by the deed . . .
were effected by the deceased A settlement made by an overseas testators will would have had tax advantages, which the deed of variation was trying to obtain.
In the Court of Appeal Peter Gibson J considered a number of authorities, including at p 76 some observations by Nourse J in Inland Revenue Comrs v Metrolands (Property Finance) Ltd [1981] 1 WLR 637, 646: When considering the extent to which a deeming provision should be applied, the court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to.
It will not always be clear what those purposes are.
If the application of the provision would lead to an unjust, anomalous or absurd result then, unless its application would clearly be within the purposes of the fiction, it should not be applied.
If, on the other hand, its application would not lead to any such result then, unless that would clearly be outside the purposes of the fiction, it should be applied.
Peter Gibson J (with whom Balcombe and Simon Brown LJJ agreed) then stated this principle 67 TC 56, 79 (the same passage also appears at p 92 but with five words accidentally omitted): For my part, I take the correct approach in construing a deeming provision to be to give the words used their ordinary and natural meaning, consistent so far as possible with the policy of the Act and the purposes of the provisions so far as such policy and purposes can be ascertained; but if such construction would lead to injustice or absurdity, the application of the statutory fiction should be limited to the extent needed to avoid such injustice or absurdity, unless such application would clearly be within the purposes of the fiction.
I further bear in mind that, because one must treat as real that which is only deemed to be so, one must treat as real the consequences and incidents inevitably flowing from or accompanying that deemed state of affairs, unless prohibited from doing so.
In the House of Lords (which reversed the Court of Appeal on a point not taken below) Lord Browne-Wilkinson approved this passage as the correct approach: [1995] 1 AC 148, 164.
Neuberger J developed this reasoning in a passage in Jenks v Dickinson [1997] STC 853, 878 that I find helpful: It appears to me that the observations of Peter Gibson J, approved by Lord Browne-Wilkinson, in Marshall indicate that, when considering the extent to which one can do some violence to the words and whether one can discard the ordinary meaning, one can, indeed one should, take into account the fact that one is construing a deeming provision.
This is not to say that normal principles of construction somehow cease to apply when one is concerned with interpreting a deeming provision; there is no basis in principle or authority for such a proposition.
It is more that, by its very nature, a deeming provision involves artificial assumptions.
It will frequently be difficult or unrealistic to expect the legislature to be able satisfactorily to [prescribe] the precise limit to the circumstances in which, or the extent to which, the artificial assumptions are to be made.
Conclusions
I must try to follow these principles in applying section 737A(5) of ICTA 1988 and sections 97(2) and (4) and 84(1) of FA 1996.
But it may be helpful to consider a less abstract example.
If a 40-something woman says to her teenage daughter, If you were my age you would see things differently, you could not be sure that the mother was referring to anything more specific than the experience or disillusionment that is supposed to come with the advance of middle age.
Of course, if she added something like Because then you would have lived through the miners strike (or other words giving some real-life context) the hypothesis becomes more specific.
But there would almost certainly be no contextual grounds for taking the mothers hypothesis as implying that they would no longer be seeing things as mother and daughter (as they were hypothetically the same age) or alternatively that the mother herself must have been born a generation before her actual birth.
Either implication would be taking the hypothesis further than was warranted.
The language of an enactment may be expected to be considered more carefully than informal family exchanges.
But the hypothesis in section 737A(5), as applied by section 97, is puzzling.
Under section 737A(5) DCC is to be supposed to make a payment on the last day of the repo period representative of the coupon that has accrued during that period.
Section 97(4) repeats the reference to a payment representative of interest under [the gilts] relationship, and in effect applies section 97(2).
It is therefore to be treated (under subsection (2)(a)) as interest under a new, hypothetical relationship (under which DCC is the debtor and the creditor is unidentified).
That is all we can get from the statute.
But Norris J and the Court of Appeal all seem to have supposed that the only possible conclusion, even if it made commercial nonsense, was to treat this hypothetical payment under a hypothetical relationship as accruing (in its entirety) during the repo period of 18 days (see especially Norris J at para 48 and Moses LJ at para 51, adopting Norris J).
They seem to have overlooked that section 84(1) of FA 1996, as applied to deemed interest by section 730A(6)(b) of ICTA 1988, requires the uniform application of an accruals basis, and on that basis only a small part of the coupon had accrued during the repo period.
Mr Holgate seems to have recognised that the result reached in the courts below was not inevitable.
In paragraph 7.23 of his report he made it clear that his view was based on his understanding that the legislation may be making an assumption that the deemed interest . .
.
was payable in respect of a period for which DCC was a party to that loan relationship.
That assumption may have been warranted, but it was unwarranted to assume that the hypothetical section 97(2)(a) loan relationship lasted no longer than the repo period.
What we do get from the statute is that the payment was representative of a gilts coupon, and what we get from the real world is that that coupon accrued during a period of six months, but that DCCs interest in it, on an accruals basis, lasted (in the averaged model) for only 18 days.
Mr Gardiner QC submitted that para 51 of Moses LJs judgment was a complete answer to the Revenues reliance (as its first fall-back position) on DCC being treated, under section 84(1), as having a debit of an apportioned sum of 2.9m.
He submitted that this position was unacceptable because it involved 25.9m (the balance of the deemed manufactured interest) as having simply vanished into the ether.
I do not see that as a convincing argument.
Under section 84(1) the concern is to identify the sums, whether credits or debits, in respect of all DCCs loan relationships, actual or hypothetical, which in accordance with an authorised accounting method [the accruals basis] and when taken together, fairly represent . . .
(b) all interest under the companys loan relationships If the credit from an actual relationship under which DCC is a creditor is a time- apportioned sum, the debit under a hypothetical relationship under which DCC is a debtor making a payment representative of interest must also be a time- apportioned sum, with the apportionment carried out in the same way.
The language of section 84(1) is in my view amply wide enough to enable that to be done, and unless it is done, the subsections requirement of fair representation cannot be satisfied.
The spare 25.9m may vanish into the ether as a hypothetical sum, but 25.9m is (or would be but for its non-residence) taxable in the hands of the Bank (see paragraphs 7.30 and 8.7 of Mr Holgates report).
In short, I consider that the majority of the Court of Appeal were right to see the overwhelming need for a symmetrical solution: that is the essential statutory function of the deemed flows of income referred to in paras 69 and 71 of the judgment of Moses LJ.
If the statutory wording had been such that it was impossible to argue that DCCs credit under section 84(1) was any sum other than 28.8m, I might have been able to struggle to the same conclusion as Rix and Moses LJJ, although with a good deal more difficulty than they encountered.
But it seems to me that the correct answer is that on the accruals basis mandated by section 84(1) (as affected by section 730A(6)(b)), both the credit and the debit should be 2.9m the former by a simple process of time-apportionment of the coupon, the latter by a corresponding time-apportionment of DCCs notional payment representative of the coupon, so that only 18 days out of the 182 days deemed manufactured interest (very slightly more than one-tenth, producing the figure of 2.9m as an apportioned part of 28.8m) is brought into account as a debit.
For these reasons I would dismiss the appeal and affirm the order of the Court of Appeal, although on different grounds.
| UK-Abs | This appeal concerns complex statutory provisions relating to corporation tax on financial transactions known as repos.
These provisions have now been replaced.
The general interest of the appeal lies in the approach to be taken to deeming provisions in statutes, namely those which create statutory hypotheses.
A repo is a financial transaction under which shares or securities are sold at one price and are later repurchased by the seller at a different price, fixed in advance.
Although in legal theory a sale and repurchase, in economic substance a repo is a secured loan by the buyer to the seller.
The payment of the purchase price by buyer to seller is the advance of the loan; the shares or securities act as security for the loan; and the repurchase price is the repayment of the loan.
A dividend or instalment of interest may become payable during the period of the repo.
In a gross paying repo, the contract will provide for the interim holder (i.e. the buyer under the repo) to pay that dividend or interest over to the seller.
Such a payment is, for tax purposes, called manufactured interest.
In a net paying repo, the dividend or interest is retained by the interim holder, and the repurchase price adjusted to take account of the receipt.
The Appellant (DCC) and a Bank entered into five consecutive net paying repo transactions in respect of UK government gilts.
For the purposes of this case, these were treated as one composite transaction.
The Bank sold gilts to DCC for 812m.
During the 18 day period when DCC held the gilts, interest of 28.8m (payable half yearly) was received.
The Bank repurchased the gilts for 785m.
The Finance Act 1996 (the 1996 Act) made major changes in the taxation of interest for corporation tax purposes.
Companies are now chargeable to corporation tax on the profits and gains from their loan relationships.
In terms of section 84(1) of the 1996 Act, the credits and debits to be brought into account in respect of a companys loan relationships shall be the sums which, in accordance with an authorised accounting method, and when taken together, fairly represent . all interest under the companys loan relationships.
Because of the approach of the tax legislation, the repos gave rise to three loan relationships.
The question in this appeal was what debits and credits should be brought into account for DCC in respect of three loans relationships.
They were: (1) the actual loan relationship between the UK government and the holder of the gilts.
The payment of interest under the gilts created a credit in DCCs favour, as the holder of the gilts. (2) a deemed loan relationship between DCC (as lender) and the Bank (as borrower).
Section 730A of the Income and Corporation Taxes Act 1988 (the 1988 Act) provided that the difference between the sale price and the repurchase price was to be treated as interest paid by the repurchaser (the Bank) on a deemed loan from the interim holder (DCC).
This deemed payment gave rise to a credit for DCC. (3) a deemed loan relationship between the Bank (as lender) and DCC (as borrower) under which DCC was treated as making a payment of deemed manufactured interest: section 737A(5) of the 1988 Act & 97(2) & (4) of the 1996 Act.
This deemed payment gave rise to a debit for DCC.
The parties agreed that the second loan relationship created a credit to DCC of 1.8m (i.e. the repurchase price of 785m plus the gilt interest of 28.8m minus the purchase price of 812m.) There was no agreement as to the credit in respect of the first loan relationship (the interest on the gilts received by DCC) and the debit in respect of the third loan relationship (the payment of deemed manufactured interest deemed to have been made by DCC).
The Special Commissioner and High Court reached different results.
By a majority, the Court of Appeal concluded that the answer was credit 28.8m, debit 28.8m.
DCC appealed to the Supreme Court.
It argued that the answer was credit 2.9m; debit 28.8m, which would produce an overall debit.
That would be to DCCs advantage, as it could set this against group profits to reduce the group overall tax bill.
The Supreme Court unanimously dismisses the appeal, but adopts different reasoning to the Court of Appeal.
It holds that the credit in respect of the interest on the gilts is 2.9m.
The purpose of the deemed payment of manufactured interest by DCC being to cancel out that receipt and to allow it to be taxed as income in the hands of the Bank, the debit for that payment was also 2.9m.
Lord Walker gives the judgment of the Court.
Lord Walker examines the history of the tax treatment of repos.
Under the regime prior to the 1996 Act, in the simple case where no gilt interest was payable during the period of the repo, the interim holder was treated as having made a loan of the sale price to the seller and was taxed on the interest he received on the loan, namely the difference between the repurchase price and the sale price.
This corresponded to the economic reality of a repo.
In a net paying repo, where interest was received by the interim holder during the period of the repo, the interim holder was deemed to make a payment representative of that interest to the seller: [14] [19].
There was a need for symmetry between these two payments.
They were intended to cancel each other out, so that the buyer could be taxed on the repo as if it had made a secured loan at interest, and also to allow the gilts interest to be taxed as income of the seller: [26].
The 1996 Act effected a major change in the taxation of loan interest for corporation tax.
Interest was to be computed in accordance with an authorised accounting method, in this case an accruals basis: [7], [23].
It was reasonable to expect that, when effecting this change, Parliament intended to preserve rather than to destroy the essentials of the existing provisions: [33].
Applying an accruals basis of accounting, DCCs credit in respect of interest on the gilts was 2.9m: the total payment of 28.8m accrued over a 6 month period, and DCC held the gilts for only 18 days: [30], [32], [44].
DCC submitted that applying an accruals basis of accounting to the deemed third loan relationship, the appropriate debit was 28.8m.
No other result was possible, because it would mean that the balance of that payment vanished into the ether.
Lord Walker emphasises that it is important when interpreting a deeming provision not to take the hypothesis further than is warranted: [40].
The payment which section 737A(5) of the 1988 Act deems DCC to make is said to be representative of the interest on the gilts received during the repo period.
Section 97(2)(a) of the 1996 Act provides that this deemed payment is to be treated as interest paid under a hypothetical loan relationship.
It was unwarranted to assume that this hypothetical loan relationship lasted no longer than the repo period, so that the entire payment needed to be treated as accruing during the 18 days during which DCC held the gilts.
The interest on the gilts accrued during a period of six months but DCCs interest in the gilts lasted only 18 days: [42].
Its receipt of interest was therefore apportioned.
The debit under a hypothetical relationship under which DCC was making a payment representative of that interest should also be a time apportioned sum, with the apportionment carried out in the same way: [43].
|
What does article 5 of the European Convention on Human Rights mean by deprivation of liberty in the context of control orders made under the Prevention of Terrorism Act 2005 (the 2005 Act)? This was the central question before the House of Lords in Secretary of State for the Home Department v JJ [2008] 1 AC 385 and, by a majority of three to two, it was held that deprivation of liberty might take a variety of forms other than classic detention in prison or strict arrest; . the courts task was to consider the concrete situation of the particular individual and, taking account of a whole range of criteria including the type, duration, effects and manner of implementation of the measures in question, to assess their impact on him in the context of the life he might otherwise have been living .
So states the head note to the report, to my mind entirely accurately.
Lord Hoffmanns view, shared by Lord Carswell, that the concept of deprivation of liberty [should be confined] to actual imprisonment or something which is for practical purposes little different from imprisonment (para 44) did not prevail.
Nevertheless, as Lord Bingham pointed out in Secretary of State for the Home Department v E [2008] 1 AC 499, 553 (para 11) one of the two associated appeals also then before the House what principally must be focused on is the extent to which the suspect is actually confined: other restrictions (important as they may be in some cases) are ancillary and [can] not of themselves effect a deprivation of liberty if the core element of confinement . is insufficiently stringent.
The Committee in both cases recognised that Guzzardi v Italy (1980) 3 EHRR 333 was still the leading Strasbourg authority on the question and so it remains to this day; no subsequent decision of the ECtHR casts the least doubt upon the correctness of the majority view in JJ.
In the context of control orders, it therefore follows that within what has been described as the grey area between 14 hour and 18 hour curfew cases, other restrictions than mere confinement can tip the balance in deciding, as in every case the judge has to decide as a matter of judgment, whether the restrictions overall deprive the controlee of, rather than merely restrict, his liberty.
It is true that some passages in my own opinion in JJ notably those stating (para 105) that, [p]ermanent home confinement beyond 16 hours a day on a long term basis necessarily to my mind involves the deprivation of physical liberty, and (para 108) that provided the core element of confinement does not exceed 16 hours a day, it is insufficiently stringent as a matter of law to effect a deprivation of liberty suggest that (subject to any future Strasbourg ruling on the point (para 106)) a curfew up to and including 16 hours will always be permissible, a longer curfew never.
The fact is, however, that neither Lord Bingham nor Lady Hale, the other members of the Committee constituting the majority, subscribed to this suggestion and, indeed, my own express acceptance of the relevance of a whole range of criteria such as the type, duration [and] effects of the order was hardly consistent with the curfew length being the sole criterion of loss of liberty.
I nevertheless remain of the view that for a control order with a 16 hour curfew (a fortiori one with a 14 hour curfew) to be struck down as involving a deprivation of liberty, the other conditions imposed would have to be unusually destructive of the life the controlee might otherwise have been living.
Mitting J suggested how that might be in Secretary of State for the Home Department v AH [2008] EWHC 1018 (Admin), in a summary of the principles emerging from JJ which Keith J adopted in his judgment in the present case: Social isolation is a significant factor, especially if it approaches solitary confinement during curfew periods.
Quite how to balance on the one hand the precise length of curfew and on the other hand the degree of social isolation involved in any particular case presents a difficulty: the two are essentially incommensurable.
But that problem, the inescapable consequence of the majority view having prevailed in JJ, is not, in fact, the particular problem arising in the present appeal.
Rather the issues for the Courts determination here have been formulated as follows: (a) Whether conditions which are proportionate restrictions upon article 8 rights can tip the balance in relation to article 5, ie whether they can be taken into account in holding that a control order is a deprivation of liberty when, absent those restrictions, it would not have been held to be such. (b) Whether the judge can take into account subjective and/or person specific factors, such as the particular difficulties of the subjects family in visiting him in a particular location, when considering whether or not a control order amounts to a deprivation of liberty. (c) Whether it was permissible for the Court of Appeal to interfere with the first instance judgment on the ground that the judge had relied on findings of fact in respect of article 5 which were inconsistent with his findings of fact in respect of article 8.
With those few introductory paragraphs let me turn to the facts of the present appeal although not in any great detail.
Where, as here, no appeal lies from the judge at first instance except on a question of law (section 11(3) of the 2005 Act), it is seldom necessary to explore the facts in detail.
Still less is that necessary where not only are the few nominated judges who hear control order appeals properly to be regarded as expert tribunals in this difficult and sensitive field (and so not readily open to challenge see the judgment of Lord Phillips at para 118 and that of Lord Hope at paras 218 219, in RB (Algeria) v Secretary of State for the Home Department [2009] 2 WLR 512) but (rather like SIAC in the context of expulsion cases) they are vested with particular powers and procedures above all the use of closed material under the special advocate scheme which make [their] determinations peculiarly inappropriate for further factual reappraisal and appeal (para 253 of my judgment in RB (Algeria)).
This very case was the subject of a six day hearing before Keith J. Anyone interested in its detailed facts will find them in his open judgment [2008] EWHC 2001 (Admin); his closed judgment is not, of course, in the public domain.
Put shortly the facts are these.
The appellant (AP) is an Ethiopian national.
He came to this country with other members of his family in 1992 at the age of 14.
On 6 October 1999 he, his siblings and their mother were granted indefinite leave to remain.
In May 2005 he travelled to Somalia and then Ethiopia.
On 22 December 2006, upon his detention by the authorities in Ethiopia, the Secretary of State decided to exclude him from the UK: he was by then suspected of involvement in terrorism.
On APs return to the UK on 28 December 2006 he was duly refused leave to enter and, pending removal, detained under immigration powers until July 2007 when he was released on bail under stringent conditions.
The Secretary of State, however, withdrew her decision to exclude AP from the UK when, on 10 January 2008, she was granted permission to make a control order against him.
The control order subjected AP to a 16 hour curfew and electronic tagging, together with a number of other restrictions on association and communication such as are usually imposed in these cases, and at first required AP to live at an address in Tottenham, North London.
APs family, friends and associates had always lived in the London area.
Subsequently, on 21 April 2008, the Secretary of State modified the terms of the control order, requiring AP to move to an address in a Midlands town some 150 miles away.
It was that modification and APs appeal against it which has given rise to these proceedings.
Even when the matter was before the Court of Appeal there was no dispute about the need for a control order, only about its terms.
On 12 August 2008 Keith J allowed APs appeal against the modification and, pursuant to section 10(7)(b) of the 2005 Act, quashed the obligation to live in the Midlands [2008] EWHC 2001 (Admin).
On 15 July 2009 the Court of Appeal (Wall and Maurice Kay LJJ, Carnwath LJ dissenting) allowed the Secretary of States appeal against Keith Js determination [2009] EWCA Civ 731.
As it happens, the appeal was by then academic.
Not only had the Secretary of State, on the very day after Keith Js order, served a modified control order on AP reducing his curfew from 16 to 14 hours albeit maintaining the obligation to reside in the Midlands but, on 2 July 2009, she had actually revoked the control order having in the meantime decided once again that AP should be deported on national security grounds and until then detained under immigration powers.
In fact, since 20 July 2009, AP has been on bail pending deportation on conditions, including residence in the Midlands, similar to those of the control order save that the curfew period is now 18 hours.
Whilst, however, the outcome of the appeal is no longer relevant for AP himself, the points it raises are said to be of some general importance with regard to control orders.
This further appeal is brought by leave of the Supreme Court granted on 4 March 2010.
Such additional facts as are material to the issues now arising appear from the following critical paragraphs in Keith Js determination (quoted also by the Court of Appeal): 86.
The justification for relocating him outside London was to make it more difficult for him to see his extremist associates .
Given that there has been a concentration of Islamist extremists in London, there is a need to remove AP from that milieu. 87.
This justification has to be balanced against the incontestable hardship for AP in being isolated from his mother and his brother.
His evidence was that while he was in Tottenham, they would visit him about twice a week, and that every week he would see his sisters three children who he would take to the park.
His move has had a profound impact on how often he sees them.
His mother has not visited him at all, and his brother has visited him just the twice.
That is just as upsetting for his mother as it is for him, because at present she needs AP around more than ever.
That is compounded by the fact that he does not know anyone in the town where he now lives, and sometimes speaks to no one in the course of the day other than short calls to his solicitors or to his mother and his brother. 88.
It is true that the town where he now lives is not that far from London.
The journey by rail takes about 1 hours, and trains travel every half hour or so.
It is also true that there is no limit on the length of time APs mother and brother can spend with him if they choose to visit him, and there is . no need for them to seek prior Home Office approval.
But the practical difficulties of visiting him are not inconsiderable, bearing in mind that his mother now looks after his sisters three young children.
She cannot go to the town where AP now lives on those days when she has to take the children to, or collect them from, school, and if she was to go to that town, she would have to take the children with her.
It is said that she cannot go to that town without APs brother, because she has never left London alone.
The only day of the week he could go when the children are not at school would be on Sundays.
But these practical difficulties are not insuperable.
The fact is that they could visit AP en famille on Sundays, as well as on other days of the week outside the school terms, and they could travel at off peak times to get the advantage of lower fares. 89.
Having said that, there is unquestionably another significant hardship for AP in having to live in the town where he now lives.
It is difficult for him to feel part of the local community.
He claims that the local Muslim population comes for the most part from Bengal and Pakistan.
They are a close knit and closed culture.
No one in the mosque has welcomed him into the community, or asked him how he finds the area or even what his name is.
The Imam shows no interest in him, though that may be the product of language differences.
The mosque has simply become a place to pray.
It has not become either the spiritual or social focus of his life.
He has spotted the occasional Ethiopian or Eritrean, but he has not tried to befriend them because he does not want to burden them with his problems.
He goes to the gym, but people there see his tag and naturally think that he is a criminal.
Although he has tried to explain what a control order is, that tends to make things worse.
All in all, these experiences merely serve to reinforce his sense of alienation. 93.
At the end of the day, the issue boils down simply to a matter of judgment.
Moving him out of London altogether is the most effective way of reducing the chances of him maintaining personal contact with those of his associates in London who are or may be Islamist extremists.
Giving due, but not undue, deference to the view of the Secretary of State on the topic, my opinion is that, but for the view I have reached on the impact of article 5 of the Convention, the need to ensure that AP does not maintain personal contact with those of his associates in London who are or may be Islamist extremists would have made it necessary, in order to prevent or restrict his involvement in terrorism related activity, for him to be removed from London altogether.
Balancing that need against the undoubted hardship which AP experiences as a result of having to live in the town where he now lives, the view I would have reached is that the move was not a disproportionate response to that need. 95. although the paradigm examples of deprivation of liberty are detention in prison and house arrest, deprivation of liberty can take many other forms, and the courts function is to look at the package of measures as a whole . a sense of social isolation would be felt particularly acutely where the controlled person was required to live in an area unfamiliar to him in which he had no family, friends or contacts.
If he was cut off from his old haunts and acquaintances, his ability to lead any kind of normal life during non curfew hours as well as curfew ones would be affected .
I would characterise it as a form of internal exile . 97.
It is the combination of the equivalent of house arrest up to the maximum period identified by Lord Brown [viz 16 hours], and the equivalent of internal exile which makes AP so socially isolated during the relatively few hours in the day when he is not under house arrest, coupled with his inability to make even social arrangements because pre arranged meetings (otherwise than with his mother and his brother) are prohibited, which lead me to conclude that the obligations imposed on him fall on the side of the line which involves the deprivation of liberty rather than the restriction of movement . [Had] he remained in London, so that he could still see and be visited by his mother, his brother and his sisters three children, my view would have been different.
In summary, Keith J rejected APs case under article 8 on the ground that the interference with his family life was justified and proportionate in the interests of national security but decided that the overall effect of a 16 hour curfew and APs social isolation (particularly through his being separated from his family) constituted an article 5 deprivation of liberty.
As Maurice Kay LJ was later to note, the element of social isolation . is rather greater in the present case than in the JJ cases, where the relocations were within or close to London.
But for the difficulties of the family visiting AP in the Midlands, the judge made plain, he would not have found that the control order involved a deprivation of liberty.
Maurice Kay LJ, giving the leading judgment in the Court of Appeal, held Keith J to have been wrong in law to permit the issue of family visits to tip the balance. [H]e was wrong . to allow the failed article 8 case to prove decisive in the article 5 case (para 32). Wall LJ agreed with that and (para 37) described it as the contradiction at the heart of the judgment.
Whilst recognising (para 38) that it was established law that a restriction relevant to an article 8 claim, even if not such as to establish a breach of that article, may be relevant to a claimed breach of article 5, he nevertheless concluded (para 39): There is, in my judgment, a substantial difference between taking article 8(1) factors into account when discussing article 5 on the one hand, and, on the other, of treating them as determinative of, or, as Maurice Kay LJ puts it, as tipping the balance in relation to an article 5 determination.
In my judgment, the judge has done the latter, and it is principally for this reason that I find myself in respectful disagreement with him.
It is these holdings of the majority which give rise to the first of the issues now identified for decision (para 4(a) above) and with the best will in the world the answer to it is surely an obvious yes.
If an article 8 restriction is a relevant consideration in determining whether a control order breaches article 5, then by definition it is capable of being a decisive factor capable of tipping the balance.
The weight to be given to a relevant consideration is, of course, always a question of fact and entirely a matter for the decision maker subject only to a challenge for irrationality which neither has nor could have been advanced here.
All this is trite law and indeed the contrary was not argued before us.
Issue 2 asks whether the judge can take into account subjective and/or person specific factors, such as the particular difficulties of the subjects family in visiting him.
Oddly, this was not a question addressed by the Court of Appeal although it had been touched on in the Secretary of States grounds of appeal before them.
As I understand Mr Tam QCs submission for the Secretary of State, it is that in assessing the weight to be given to the restrictive effects of a condition such as that imposed on AP here to reside in the Midlands, the judge should ignore everything that depends on the individual circumstances of the family for example, on the facts of this case, that APs mother has never left London alone and that during term time, because of the children, Sunday is the only day the family can travel.
Any health problems suffered by the family (frailty to use Mr Tams word) must be ignored; so too poverty.
If a differently organised and wealthier family could readily have visited, runs the argument, it cannot avail the controlee that his own particular family could not.
Mr Tam sought to find support for this argument in the judgments of the majority in JJ such as Lord Binghams statement (para 15) that the Courts task is to assess the impact of the measures in question on a person in the situation of the person subject to them.
The point Lord Bingham was making there, however, as the immediately following citation from Engel v The Netherlands (No 1) (1976) 1 EHRR 647 showed, was that certain people in Engels case soldiers are in an inherently different situation from others: A disciplinary penalty or measure which on analysis would unquestionably be deemed a deprivation of liberty were it to be applied to a civilian may not possess this characteristic when imposed upon a serviceman.
That passage says nothing about ignoring the controlees or his familys individual circumstances and, indeed, Lord Bingham earlier in the paragraph had stated that what has to be considered is the concrete situation of the particular individual.
There is nothing in the Secretary of States argument.
By the same token that it is relevant that, whilst AP must live in the Midlands, his family are in London, so too it is relevant whether their circumstances are such that their distance away so disrupts contact between them as to cause or substantially contribute to APs social isolation.
Plainly the family could not be allowed to thwart what would otherwise be an appropriate residential requirement by unreasonably failing to take the opportunities open to them to visit AP and so save him from social isolation.
The correct analysis, however, is that in those circumstances it would be the familys unreasonable conduct and not the residence condition which was the operative cause of APs isolation.
In short, the judge must disregard not the particular difficulties of the subjects family in visiting him but rather any lack of contact resulting from the familys unreasonable failure to overcome these difficulties in order to visit him.
It is not suggested here that the family behaved unreasonably in failing to overcome more effectively the practical difficulties they faced in visiting AP on a more regular basis, only that their particular difficulties should have been ignored.
That submission cannot be accepted.
The third and final issue for our determination arises from the apparent conclusion of the majority in the Court of Appeal that Keith J had committed a second error of law in making inconsistent findings of fact.
Maurice Kay LJ (para 30) contrasted the judges finding (para 88) that The fact is that they could visit AP en famille on Sundays, as well as on other days of the week outside the school terms, and they could travel at off peak times to get the advantage of lower fares. with his conclusion (para 97) that . had [AP] remained in London, so that he could still see and be visited by his mother, his brother and his sisters three children, my view would have been different. and in the result held: On that basis, the judge erred in law in treating as decisive something that was at variance with his earlier finding of fact.
Wall LJ expressly agreed with all of Maurice Kay LJs reasoning.
For my part, however, I see no contradiction between the quoted two paragraphs from Keith Js judgment.
Of course, as Maurice Kay LJ pointed out, AP could [original emphasis] still see and be visited by those members of his family, although there were logistical and, no doubt, financial difficulties.
But to suggest that this is inconsistent with paragraph 97 of Keith Js judgment is to my mind to place altogether too much weight upon the word could in the latter paragraph.
To understand paragraph 97 as suggesting that, now that AP had left London, it was impossible for him to see and be visited by his family, is not to give it a fair reading.
It is hardly to be thought that by paragraph 97 the judge had forgotten what he had said in paragraph 88.
The former must be understood as merely encapsulating in shorthand the judges findings as to the practical difficulties in visiting which he had made in paragraph 88.
It follows that all three issues fall to be determined in the appellants favour and that his appeal succeeds.
Carnwath LJ was in my opinion right in his analysis of the House of Lords judgments in JJ and the other two associated cases, right as to how they applied to the present case, and right also to emphasise (as, indeed, Wall LJ had done) the importance of respecting the decisions of the judges in the Administrative Court dealing with these difficult cases.
They have developed, as he put it, special expertise and experience, not generally shared by members of the Appellate Courts and are also much better placed to develop consistent practice for dealing with orders of this kind, and to provide continuing supervision of their making, variation, and implementation.
We were shown a series of first instance decisions in control order cases following the JJ trilogy: Secretary of State for the Home Department v AH [2008] EWHC 1018 (Admin) (where Mitting J just upheld a 14 hour curfew notwithstanding that AH was required to reside in a wholly unfamiliar city and was subject to a high degree of social isolation); Keith Js determination in the present case; Secretary of State for the Home Department v AU [2009] EWHC 49 (Admin) (where Mitting J upheld a 16 hour curfew albeit indicating that he would have reached the same conclusion as Keith J on the facts of the present case); and Secretary of State for the Home Department v GG [2009] EWHC 142 (Admin) (where Collins J upheld a 16 hour curfew where a relocation from Derby to Chesterfield presented no difficulties for family visits).
It would be inappropriate to discuss here the detailed reasoning in each of these determinations; suffice it to say that they seem to me to justify Carnwath LJs confidence in the nominated I would allow this appeal, set aside the decision of the Court of Appeal and Administrative Court judges and the wisdom of generally not interfering with their decisions in control order cases.
restore the order of Keith J at first instance.
At the start of the hearing the court raised the question of whether to maintain the respondents anonymity in this case.
Following the hearing written submissions on this question were made by the parties.
The court has considered these and decided that there are good reasons for preserving the respondents anonymity.
These will be the subject of a further judgment of the court.
LORD RODGER
Given the rejection of Lord Hoffmanns approach by the majority of the House of Lords in Secretary of State for the Home Department v JJ [2008] 1 AC 385, the question whether someone has been deprived of his liberty for the purposes of article 5 depends on the evaluation of a host of different factors.
Keith J carried out the exercise of weighing these factors.
For the reasons given by Lord Brown, I am satisfied that there was no proper basis for the majority of the Court of Appeal interfering with his conclusion.
I also agree with Sir John Dyson that the Secretary of States argument, supposedly based on Shtukaturov v Russia (Application No 4409/05), 27 March 2008, is without foundation.
I would accordingly allow the appeal.
SIR JOHN DYSON SCJ
I agree that this appeal should be allowed for the reasons given by Lord Brown.
I only wish to add a few words on the second issue identified at para 4.
As Lord Brown has said, the courts task is to consider the concrete situation of the particular individual taking account of a whole range of criteria such as the type, duration, effects and manner of implementation of the measure in question: see Guzzardi at para 92 and, for example, paras 15 and 18 of Lord Binghams speech in JJ.
Mr Tam submits that the reference to an individuals concrete situation is a reference to those factors which are the necessary consequences of the measures concerned, rather than factors which may or may not be present depending on the individuals personality or choices, or on the personality or choices of his family or friends (Case for the Secretary of State at para 9.6).
What is required is an objective and not a subjective approach when one considers the effects or impact of the measures on the individual.
It is the objective impact of the measures on a person in the situation of the controlee that is relevant, not the consequences of his subjective response or that of his family and friends.
In support of his submissions he relies on the decision of the ECtHR in Shtukaturov v Russia (Application No 44009/05), 27 March 2008.
I can find no support for Mr Tams approach in the jurisprudence.
Shtukaturov does not provide it.
In that case, the applicant was placed in a locked facility, tied to his bed, given sedative medication and not permitted to communicate with the outside world.
Consent was relevant because it could have prevented those measures from being a deprivation of liberty within the meaning of article 5 of the Convention.
At para 106, the ECtHR said: The Court further recalls that the notion of deprivation of liberty within the meaning of article 5.1 does not only comprise the objective element of a persons confinement in a particular restricted space for a not negligible length of time.
A person can only be considered to have been deprived of his liberty if, as an additional subjective element, he has not validly consented to the confinement in question (see, mutatis mutandis, HM v Switzerland, no 39187/98, para 46, ECHR 2002 II).
In this paragraph, the court was not saying that no subjective elements other than lack of consent could be relevant.
Indeed, it is clear from Guzzardi and JJ that the objective element of a persons confinement may not be enough to give rise to a deprivation of liberty within the meaning of article 5.1.
The other elements, when considered in conjunction with the confinement, may make all the difference.
In Shtukaturov, absent consent, the core element of confinement was sufficient to establish a breach of article 5.1.
I do not find it helpful to use the subjective/objective terminology in the present context.
Take this case.
APs mother chose to look after her daughters young children.
Practically speaking, she was faced with the choice of not visiting AP or of taking the children on her visits.
She chose not to visit AP at all.
No doubt, that was a difficult choice for her to make.
In a sense, it was a subjective decision as are all choices.
But that does not mean that the isolating effect of the choice made by APs mother is to be disregarded when an assessment is made of the effect on AP of the modification of the control order.
The focus of the article 5 inquiry is on the actual effect of the measures on the controlee in the circumstances in which he finds himself.
Prima facie, the actual isolating effect resulting from choices made by the controlee, his family and friends in response to the measures should be taken into account.
But I agree with Lord Brown that isolation attributable to unreasonable conduct on the part of the controlee or his family or friends should be disregarded because unreasonable conduct cannot be said to be caused by the measures.
To use the language of Guzzardi, in such a case the measures do not have the isolating effect on the controlee.
In further support of his argument, Mr Tam submits that, if the question of whether or not a measure constitutes a deprivation of liberty turned on the effect of personal choices, the answer to the question would vary unpredictably and would turn on matters outside the control and knowledge of the Secretary of State at the time of imposing the control order, such as what child care arrangements the family members of an individual subject to a control order might prefer or how those family members might feel about travelling outside their home area.
But the Secretary of State must always seek to find out what the likely effect will be of the control order (or the modification) that she is proposing to make.
She cannot make or modify control orders without considering their effect.
It is now clearly established that in a case where the confinement is not sufficiently long of itself to amount to a deprivation of liberty, an assessment of the effect of the measures on the controlee may be decisive.
If the Secretary of State fails to ascertain what the effect of an order will be, she runs the risk that there will be breach of article 5.1.
This is the price that she must pay if she wishes to impose a control order.
In some cases, there may be practical difficulties in finding out in advance what the effect of an order (or modification of an order) is likely to be.
But that is not a good reason for saying that the Secretary of State is free to make an order without regard to its effect on the controlee.
To return to the facts of the present case, it is not suggested that AP or his family have behaved unreasonably.
It follows that the judge was right to take into account the isolating effect, in particular, of the lack of contact between AP and his mother.
JUDGMENT Secretary of State for the Home Department (Respondent) v AP (Appellant) (no. 2) before Lord Phillips, President Lord Saville Lord Rodger Lord Walker Lord Brown Lord Clarke Sir John Dyson SCJ JUDGMENT GIVEN ON 23 June 2010 Heard on 5 May 2010 Appellant Edward Fitzgerald QC Kate Markus (Instructed by Wilson Solicitors LLP) Respondent Robin Tam QC Tim Eicke Rory Dunlop (Instructed by Treasury Solicitor) LORD RODGER (with whom all members of the court agree) 1.
On 16 June 2010 the Court gave judgment in Secretary of State for the Home Department v AP [2010] UKSC 24.
As Lord Brown explained, the appeal concerned a control order imposed on AP under the Prevention of Terrorism Act 2005.
In April 2008 the Secretary of State had modified the order to include a condition that AP, who had previously lived in London, should now live in a town some 150 miles away.
In August 2008 Keith J quashed the residence requirement and the following day the Secretary of State served a modified control order in similar terms, except that the curfew had been reduced to 14 hours.
By a majority, the Court of Appeal allowed the Secretary of States appeal against Keith Js order.
In its judgment of 16 June, this Court allowed APs appeal and restored the order of Keith J quashing the residence requirement. 2.
In fact, as Lord Brown also explained, the appeal was academic, so far as AP himself was concerned, since on 2 July 2009 the Secretary of State had revoked the control order and decided that AP should be deported on national security grounds.
AP appealed to the Special Immigration and Asylum Commission (SIAC) against the decision to make the deportation order.
On 20 July 2009 AP was granted bail pending deportation, on conditions, including residence in the Midlands, broadly similar to those of the previous control order, except that the curfew period is 18 hours. 3.
It appears that an anonymity order was made at the outset of the proceedings in the Administrative Court and has been in force ever since.
A similar anonymity order was made in APs appeal to SIAC and it remains in force pending the Commissions decision. 4.
At the outset of the hearing of APs appeal to this Court, the Court made an order continuing the anonymity order for the duration of the hearing.
The Court also invited submissions from AP and the Secretary of State as to whether the anonymity order should cover the publication of its judgment.
No submissions were invited from the media and they did not seek to intervene to make submissions.
In their submissions counsel for AP informed the Court that there had been press interest in the proceedings before SIAC and that a representative of a national newspaper had attended those proceedings to make submissions about the exclusion of the press and public from parts of the proceedings.
It had not been suggested, however, that SIAC should reveal APs identity in its judgment or that it should be open to the media to reveal his identity in any report of the proceedings or judgment. 5.
In the present case the submissions for both AP and the Secretary of State favour the continuation of the anonymity order.
That is by no means conclusive, however: on the contrary, the Court has borne in mind Sir Christopher Staughtons warning, in R v Westminster City Council, Ex p P (1998) 31 HLR 154, 163, that when both sides agreed that information should be kept from the public, that was when the court had to be most vigilant. 6.
In In re Guardian News and Media Ltd [2010] 2 WLR 325 an application was successfully made by various media to set aside anonymity orders in proceedings relating to orders freezing the assets of suspected terrorists.
In that case counsel made some reference to anonymity orders in proceedings relating to control orders.
While not making any ruling on control orders none of which was before it the Court observed, at p 348, para 78: Many of the same issues would obviously arise if an application were made to set aside the anonymity orders made in any outstanding control order proceedings.
The same principles would also have to be applied, but there may be arguments and considerations in those cases which were not explored at the hearing in this case.
Conceivably, also, the position might not be the same in all of the cases. 7.
In In re Guardian News and Media Ltd the Court heard full submissions from both the media and the parties involved in the substantive proceedings.
The Court reviewed the relevant authorities on the application of articles 8 and 10 of the European Convention on Human Rights and Fundamental Freedoms.
There is no call to repeat that exercise in the present case.
Rather, so far as articles 8 and 10 are concerned, applying Lord Hoffmanns guidance in Campbell v MGN Ltd [2004] 2 AC 457, 473 474, paras 55 and 56, and the conclusions reached in In re Guardian News and Media Ltd, at pp 340 341, paras 50 52, the Court must ask itself whether there is sufficient general, public interest in publishing a report of the proceedings which identifies [AP] to justify any resulting curtailment of his right and his familys right to respect for their private and family life.
The Court emphasised that the answer will depend on the facts of the particular case.
No issue under article 3 arose in that case. 8.
In the present case both the Secretary of State and AP pointed out that, where proceedings are taken to challenge a control order, the person affected may well wish to argue that, for particular reasons, his identity should not be revealed.
He may require time to muster the relevant information and evidence.
It therefore makes sense for an interim anonymity order to be made at the ex parte permission stage.
Reference was made to the observations of Ouseley J in Times Newspapers Ltd v Secretary of State for the Home Department and AY [2008] EWHC 2455 (Admin) to that effect.
I refer to those observations in para 11 below.
The Court accepts that, at least as a general rule, an interim anonymity order will indeed be appropriate at that initial stage.
It is important, however, that such an order should not just be continued automatically, but that the need for the order in the particular circumstances should be reviewed at the earliest suitable opportunity. 9.
The submissions on behalf of the Secretary of State relied to a considerable extent on rather generalised assertions about the effect of setting aside an anonymity order: for example, it might result in harassment of the controlled person or his family, they might be threatened with violence, there might be disorder in the local community and friends and relatives might be reluctant to associate with the controlled person for fear of being identified with an extremist, publicity might prejudice any future prosecution.
Experience with the freezing order cases suggests that, when the anonymity order is set aside, these hypothetical fears may well turn out to be exaggerated in the particular case.
In line with the approach outlined in In re Guardian News and Media Ltd, the Court has therefore preferred to concentrate on the available information about the circumstances of this particular case. 10.
The Secretary of State put forward an argument which did not arise in connexion with freezing orders.
She pointed out that, when a control order is imposed, the police have to take steps to monitor and enforce the order, for instance, by visiting and searching the persons residence.
Other officials, such as those involved in providing housing and in electronic monitoring, may also have to attend.
The Secretary of State argues that an anonymity order allows the police and the other officials to carry out their duties without attracting significant attention or any possible hostility from the local community.
In this way the officials can perform their duties more effectively. 11.
It is not altogether easy to know just how much weight to attach in any given case to these somewhat general points.
But the Court notes that, with his experience of the jurisdiction, in Times Newspapers Ltd v Secretary of State for the Home Department and AY [2008] EWHC 2455 (Admin) Ouseley J was prepared to give some weight to them, in the context of other general considerations.
He said, at para 5: Such public identification may lead to harassment of and the risk of violence to the individual and his family by groups or individuals.
The individual may continue to live where he was living already, and may remain in his job which could be put at risk.
A media thirst for detailed and accurate news, in the public interest, may generate persistent investigative reporting alongside highly intrusive watching and besetting.
There may be a risk of disorder in any given local community.
The knowledge that he is subject to a Control Order may conversely make him attractive to extremists in the area where he lives.
It may make the provision of a range of services, including housing, to the individual or his family rather more difficult.
If the individual believes that he faces these sorts of problems, he has a greater incentive to disappear, to live elsewhere in the UK or abroad.
All of this can make monitoring and enforcement of the obligations more difficult, and increase significantly the call on the finite resources which the police or Security Service have to devote to monitoring the obligations.
This all occurs in circumstances where the Secretary of State has been satisfied that serious criminal prosecution is not presently realistically possible, though not permanently excluded.
There may therefore be an impact on other proceedings not yet underway.
In his view, such considerations justified the making of an interim anonymity order at the application stage.
In the absence of any competing view, the Court considers that some weight should indeed be given to the Secretary of States submissions that anonymity helps to make the administration of control orders more effective. 12.
But the Court has been more influenced by the submissions of counsel for AP about the particular circumstances in this case.
It would be counter productive to go into the detail of the submissions which might serve to identify the town where AP is required to live. 13.
In brief, counsel point out that the town where AP has to live is one where there are already considerable community tensions.
There is organised racist activity in the town which has achieved not insignificant local support.
There have been racist attacks, including physical violence, on members of the Muslim community in the town.
There have also been attempts by racist groups to associate Muslims with terrorism. 14.
Given these particular circumstances, the Court considers that there is force in APs submission that, if he were revealed to be someone who was formerly subject to a control order and is now subject to deportation proceedings for alleged matters relating to terrorism, then he would be at real risk not only of racist and other extremist abuse but of physical violence.
In other words there is at least a risk that APs article 3 Convention rights would be infringed. 15.
AP also makes the point that he has been forced to live in a town where he has no friends and no real social life.
A difficult situation would be made very much worse if the anonymity order were lifted and he found that he was ostracised by members of his mosque and subjected to abuse by members of the public.
Again, it is hard to assess the precise risk of this happening.
But the Court has to weigh that risk in the context of the isolated situation in which AP finds himself due to the requirement that he should live in this particular town. 16.
Finally, the Court has had regard to medical evidence to the effect that the bail conditions represent a significant and constant challenge to [AP]s psychological and emotional integrity.
Again, this is a matter which has to be taken into account when considering the impact on AP of setting aside the anonymity order. 17.
The absence of any submissions on behalf of the media means that, unlike in In re Guardian News and Media Ltd, the Court is not aware of any special circumstances which might point to a particular public interest in publishing a report of the proceedings which identifies AP.
On the other hand and, again, unlike in the Guardian News case for the reasons which it has given, the Court is unable to discount the risk that AP might indeed be subjected to violence if his identity were revealed.
The Court also has regard to the potential impact on his private life. 18.
For all these reasons, the Court has concluded that, in this particular case, the public interest, in publishing a full report of the proceedings and judgment which identifies AP, has to give way to the need to protect AP from the risk of violence.
Similarly, in this particular case, that public interest would not justify curtailing APs right to respect for his private and family life.
The anonymity order should accordingly be maintained and the Courts judgment, and any reports of that judgment, should not reveal the appellants identity.
He should continue to be referred to as AP. 19.
The Court is conscious that it has reached this decision without hearing submissions from the media which might, conceivably, have cast a different light on the situation.
Therefore, except in relation to interim orders at the application stage, the judgment should not be regarded as laying down any general rule as to the way that applications for anonymity orders should be determined in control order cases.
For these reasons, as well as those given by Lord Brown, I would allow the appeal.
Trinity Term [2010] UKSC 26 On appeal from: [2009] EWCA Civ 731
| UK-Abs | The Appellant is an Ethiopian national who was the subject of a control order.
This confined him to a flat for 16 hours a day in a Midlands town away from his family in London.
AP came to this country with other members of his family in 1992 at the age of 14.
On 6 October 1999, he, his siblings and their mother were granted indefinite leave to remain.
In May 2005 he travelled to Somalia and then Ethiopia.
On 22 December 2006, upon his detention by the authorities in Ethiopia, the Secretary of State decided to exclude him from the UK.
He was then suspected of involvement in terrorism.
On APs return to the UK on 28 December 2006 he was duly refused leave to enter and, pending removal, detained under immigration powers until July 2007.
He was then released on bail under stringent conditions.
The Secretary of State, however, withdrew her decision to exclude AP from the UK when, on 10 January 2008, she was granted permission to make a control order against him.
The control order subjected AP to a 16 hour curfew and electronic tagging, together with a number of other restrictions on association and communication such as are usually imposed in these cases.
This control order at first required AP to live at an address in North London.
APs family, friends and associates had always lived in the London area.
On 21 April 2008 the Secretary of State modified the terms of the control order, requiring AP to move to an address in a Midlands town some 150 miles away.
It was this modification that led to APs appeal.
On 12 August 2008 the High Court allowed APs appeal against the modification, quashing the obligation to live in the Midlands.
It rejected APs case under article 8 of the European Convention on Human Rights (ECHR) on the ground that the interference with his family life was justified and proportionate in the interests of national security but decided that the overall effect of a 16 hour curfew and APs social isolation (particularly through his being separated from his family) constituted an article 5 deprivation of liberty.
When the matter was before the Court of Appeal there was again no dispute about the need for a control order, only about its terms.
The Court of Appeal by a majority reversed the decision of the High Court.
AP appealed.
The outcome of this appeal is no longer currently relevant to AP himself.
APs control order was revoked on 2 July 2009.
The Secretary of State has again decided that AP should be deported on
national security grounds and since 20 July 2009 he has been on bail pending deportation on conditions, including residence in the Midlands, similar to those of the control order save that the curfew period is now 18 hours.
However the points of law raised by APs appeal were said to be of some general importance with regard to control orders.
The three issues the Supreme Court had to reach a decision on in this appeal were as follows: Whether conditions which are proportionate restrictions upon article 8 rights to respect for private and family life can tip the balance in relation to article 5 (which guarantees the right to liberty and security), ie whether they can be taken into account in holding that a control order is a deprivation of liberty when, absent those restrictions, it would not have been held to be such.
Whether the judge can take into account subjective and/or person specific factors, such as the particular difficulties of the subjects family in visiting him in a particular location, when considering whether or not a control order amounts to a deprivation of liberty.
Whether it was permissible for the Court of Appeal to interfere with the first instance judgment on the ground that the judge had relied on findings of fact in respect of article 5 which were inconsistent with his findings of fact in respect of article 8.
The Supreme Court unanimously allowed the appeal, set aside the decision of the Court of Appeal and restored the High Courts order.
Lord Brown gave the leading judgment.
Lord Rodger and Sir John Dyson SCJ delivered concurring judgments.
By way of introduction, Lord Brown noted that the majority in the House of Lords in Secretary of State for the Home Department v JJ [2008] 1 AC 385 held that deprivation of liberty might take a variety of forms other than classic detention in prison or strict arrest.
The courts task was to consider the concrete situation of the particular individual and, taking account of a whole range of criteria including the type, duration, effects and manner of implementation of the measures in question, to assess their impact on him in the context of the life he might otherwise have been living. (para [1]) In relation to the first issue, Lord Brown considered that the answer was surely an obvious yes.
If an article 8 restriction is a relevant consideration in determining whether a control order breaches article 5, then by definition it is capable of being a decisive factor capable of tipping the balance.
The weight to be given to a relevant consideration is, of course, always a question of fact and entirely a matter for the decision maker subject only to a challenge for irrationality which neither has nor could have been advanced in this case. (para [12]) Lord Brown was of the view that the Secretary of State was wrong to contend that, in assessing the weight to be given to the restrictive effects of a condition such as that imposed on AP here to reside in the Midlands, the judge should ignore everything that depends on the individual circumstances of the family for example, on the facts of this case, that APs mother has never left London alone and that during term time, because of the children, Sunday is the only day the family can travel.
By the same token that it is relevant that, whilst AP must live in the Midlands, his family are in London, so too it is relevant whether their circumstances are such that their distance away so disrupts contact between them as to cause or substantially contribute to APs social isolation.
Plainly the family could not be allowed to thwart what would otherwise be an appropriate residential requirement by unreasonably failing to take opportunities open to them to visit AP and save him from social isolation.
The correct analysis, however, is that in those circumstances it would be the familys unreasonable conduct and not the residence condition which was the operative cause of the APs isolation.
It is not
suggested by the Secretary of State that APs family behaved unreasonably in failing to overcome more effectively the practical difficulties they faced in visiting AP on a more regular basis, only that their particular difficulties should have been ignored.
That submission cannot be accepted. (para [15]) In relation to the third issue, having considered the relevant parts of the High Courts judgment, Lord Brown held that there was no contradiction between them. (paras [1618])
|
The appellants, Mr Francis John Wilson and his wife, Mrs Annette Wilson, are the proprietors of a house at 100 Dalum Grove, Loanhead, which is also now their home.
On 12 July 1991 they granted a standard security over the house in favour of the respondent, the Royal Bank of Scotland (the Bank).
The standard security was recorded in the Register of Sasines on 3 December of the same year.
The appellants, Mr John Patrick McCormack Wilson and Mrs Norma Wilson, are the proprietors of the neighbouring house at 98 Dalum Grove, Loanhead, which is also now their home.
On 28 November 1991 they granted a standard security over the house in favour of the Bank.
The standard security was recorded in the Register of Sasines on 4 December 1991.
Since it is accepted that material circumstances in the two appeals are the same, for the sake of convenience, I shall concentrate on the appeal by Mr Francis John Wilson and Mrs Annette Wilson (Mr and Mrs Wilson), the result in which will be determinative of the appeal by Mr John McCormack Wilson and his wife.
The standard security granted by Mr and Mrs Wilson included the personal obligation in respect of which it was granted, in accordance with Form A in Schedule 2 to the Conveyancing and Feudal Reform (Scotland) Act 1970 (the 1970 Act).
The personal obligation was in these terms: WE, FRANCIS JOHN WILSON and MRS ANNETTE WILSON, residing at Sixty Three Park Avenue, Loanhead, Midlothian (hereinafter referred to as the Obligant) hereby undertake to pay to THE ROYAL BANK OF SCOTLAND plc (hereinafter referred to as the Bank, which expression includes its successors and assignees whomsoever) on demand all sums of principal, interest and charges which are now and which may at any time hereafter become due to the Bank by the Obligant whether solely or jointly with any other person, corporation, firm or other body and whether as principal or surety.
The deed went on to declare that the interest was to be at the rate(s) agreed between the Bank and the Obligant or (failing such agreement) determined by the Bank and shall be payable at such dates as may be so agreed or determined by the Bank.
After further declarations, the deed continued: For which sums the said Francis John Wilson and Mrs Annette Wilson hereby grant a Standard Security in favour of the Bank over the house at Dalum Grove.
It is worth noting that the deed contained a declaration in terms of which the expression, the Obligant, was to mean both the persons who granted the security together and/or any one or more of them; and in all cases the obligations hereby undertaken by the Obligant shall bind all person(s) included in the expression the Obligant and his, her or their executors and representatives whomsoever all jointly and severally without the necessity of discussing them in their order.
It follows that Mr Wilson, as an individual, and Mrs Wilson, as an individual, were undertaking both a joint and a several obligation to pay the sums in question.
In particular, Mrs Wilson was undertaking to pay any indebtedness of her husband to the Bank.
I refer to the discussion by the House of Lords of a comparable term in AIB Group (UK) Ltd v Martin [2002] 1 WLR 94.
But, in addition, together with her husband, Mrs Wilson was granting the standard security in respect of both her own indebtedness under the personal obligation and the indebtedness of her husband under that obligation.
By a partnership letter dated 8 October 1992 Mr Wilson, along with his brother and his son, became jointly and severally responsible to the Bank for the repayment of any indebtedness or liability of the firm of F J Wilson Associates, and interest and charges thereon.
By a further partnership letter dated 15 October 1993 Mr Wilson, along with his brother, became jointly and severally responsible to the Bank for the repayment of any indebtedness or liability of the firm of Wilson Brothers, and interest and charges thereon.
On 20 June 1995 Mr Alistair Henderson, Assistant Recoveries Manager in the Banks Insolvency Unit, wrote to Mr Wilson in these terms: Our Penicuik Branch I regret to learn that your indebtedness to the Bank as undernoted at our above Branch is not being repaid in accordance with arrangements and I have therefore to advise that unless within ten days from the date of this letter you effect repayment of the whole sums due to the Bank or, alternatively, make a substantial payment to account within that period coupled with acceptable proposals to take care of the remaining indebtedness I shall have no alternative but to institute proceedings against you for recovery.
Such proceedings will involve expense for which you will be liable and it is therefore in your own interest to give this matter your immediate attention.
The note showed that the Business Current Account of Wilson Brothers was overdrawn in the sum of 22,250.61 excluding accrued interest and charges, while the equivalent sum for the Business Current Account of F J Wilson Associates was 26,211.88.
There was a further indebtedness of 854.07 on a Business Term Loan to F J Wilson Associates.
Mr McIlvride, who appeared for the Bank, accepted that, when they sent this letter, the Bank were demanding payment of Mr Wilsons debt under his personal obligation in the standard security and were intending to exercise their powers under the standard security, to take possession of the house at Dalum Grove and to eject Mr Wilson and his family, if the debt were not paid.
But the sheriff found that, when Mr Wilson received and read the letter, he did not understand this.
He thought that the Bank were merely seeking the sums of money from him.
Mrs Wilson did not see the letter until early in 2007 and no similar letter was ever sent to her.
No part of any of the sums mentioned in the letter of 20 June 1995 has been repaid to the Bank.
A certificate of default dated 3 February 2006 indicates that, by then, the indebtedness in respect of Wilson Brothers had reached 141,247.52, including accrued interest of 1,865.85, and in respect of F J Wilson Associates it had reached 99,172.81, including accrued interest of 1,310.05.
These proceedings
In April 1998 the Bank began proceedings in Edinburgh Sheriff Court against Mr and Mrs Wilson.
Besides the usual crave for expenses, the initial writ contained two craves.
In the first crave, which constituted an application under section 24(1) of the 1970 Act, the Bank asked the court: To grant warrant to the pursuers in terms of section 24(1) of the Conveyancing and Feudal Reform (Scotland) Act 1970 to enter into possession of [the house at Dalum Grove] being the subjects described in the Standard Security by Francis John Wilson and Mrs Annette Wilson for all sums of money due and that may become due to The Royal Bank of Scotland plc and to exercise in relation to the said subjects all powers competent to a creditor in lawful possession of the security subjects including the power of sale of the said security subjects.
In the initial writ as originally drafted the Bank went on to crave removing of Mr and Mrs Wilson with a view to selling the subjects.
But in the course of the hearing of an earlier appeal relating to a defence raised by Mrs Wilson, the Second Division granted leave to Mr McIlvride for the Bank to amend the crave to one for ejection: Royal Bank of Scotland v Wilson 2004 SC 153, 157, para 14.
The second crave is now in these terms: To grant warrant to officers of court summarily to eject the defenders, and their family, goods, gear, and effects, from the said subjects, and to make the same void and redd, that the pursuers, or others in their name, may enter thereto and peaceably possess and enjoy the same.
On 27 April 1998 the initial writ was served on Mr and Mrs Wilson.
This was the first time that she became aware that the Bank were seeking to repossess her home and eject herself and the family.
The action has been in one court or another for over twelve years.
After Mrs Wilsons particular defence was rejected by the Second Division in Royal Bank of Scotland v Wilson 2004 SC 153, a proof before answer was allowed.
Eventually, it took place in February 2007 and on 2 May 2007 Sheriff Stoddart assoilzied Mr and Mrs Wilson.
The Bank appealed to the Court of Session and on 5 May 2009 an Extra Division (Lord Nimmo Smith, Lord Reed and Lord Drummond Young) allowed the appeal and granted decree as craved: Royal Bank of Scotland Plc v Wilson 2009 SLT 729.
In effect, therefore, the Bank were granted a decree for the ejection of Mr and Mrs Wilson from their home.
The Wilsons appeal against that interlocutor.
As is immediately apparent from the fact that Mr and Mrs Wilson have not paid any of their indebtedness to the Bank, the appeal relates to rather technical legal issues which are said to stand in the way of the Bank enforcing their security.
Moreover, both Mr and Mrs Wilson have for many years been aware of the debt and of the steps which the Bank are taking to enforce their security.
But a striking feature of the case is that the letter which the Bank sent to Mr Wilson on 20 June 1995 did not make any express reference to the standard security.
Indeed, as already mentioned, at the time Mr Wilson did not realise that the Bank were indicating that they would, if necessary, take steps to enforce their security.
The steps taken to alert Mrs Wilson were even less satisfactory.
Although, by virtue of the personal obligation in the standard security, she was personally liable for her husbands indebtedness under the partnership letters, the Bank have never sought to enforce that liability against her.
Had they done so, they would have required to demand payment from her and she would have become aware of the situation.
But presumably the Bank thought that there would be no point in trying to enforce her liability to pay the debt since she would not have had the resources to do so.
What the Bank did, however, was to take steps which they considered would be sufficient to enforce the standard security that she and Mr Wilson had granted as proprietors of their home at Dalum Grove.
The Bank wrote to Mr Wilson to demand payment.
When he did not pay, they treated him as being in default and chose to enforce their security by applying to the court under section 24(1).
This meant that the Bank did not contact Mrs Wilson at any stage before they launched these proceedings by serving the initial writ.
This Court has to decide whether the Bank were entitled to enforce their standard security and obtain a decree of ejection of Mr and Mrs Wilson in this way.
The 1970 Act
In Multi-Link Leisure Developments v North Lanarkshire Council 2010 SC 302, 308, para 24, Sir David Edward QC, giving the opinion of an Extra Division of the Inner House, indicated that their Lordships were more familiar with the mindset of the Scots conveyancer than with the mindset of the man on the Jubilee line on his way to Canary Wharf.
But even if the man on the Glasgow underground on his way to Buchanan Street were familiar with the mindset of the Scots conveyancer, he would often find his language and approach somewhat challenging.
As its title suggests, the 1970 Act deals with matters of conveyancing.
Moreover, it does so in a manner which makes few concessions to those not steeped in the article Indeed, even Professor Gretton and Professor Reid have felt moved to warn that The law about the enforcement of standard securities is a subject of great and unnecessary complexity: it is a veritable maze: Conveyancing (third edition, 2004), para 19-32.
The Court must try to find a way through that maze.
Part II of the 1970 Act created a brand new form of security over heritable property, the standard security.
Although securities granted in the old forms remained valid, all new securities had to take the form of a standard security.
But, as Mr Summers QC emphasised on behalf of Mr and Mrs Wilson, Part II of the 1970 Act did not create a comprehensive code to regulate the way that the standard security was to operate.
Rather, Parliament created the new form of security and laid down certain rules as to its operation but, for the rest, slotted it into a modified version of the existing statutory and common law regulating heritable securities.
To see this, it is sufficient to refer to section 20(1), which provides that the creditors rights are to be in addition to any right conferred by any enactment or by any rule of law, and to section 32: The provisions of any enactment relating to a bond and disposition or assignation in security shall apply to a standard security, except in so far as such provisions are inconsistent with the provisions of this Part of this Act, but, without prejudice to the generality of that exception, the enactments specified in Schedule 8 to this Act shall not so apply.
It may therefore be necessary to travel outside the 1970 Act to see how the standard security works in particular situations.
The scheme of the 1970 Act is sometimes confusing, since it requires the reader to go backwards and forwards between the provisions contained in the body of Part II and the contents of Schedules 2 to 9.
For example, section 9(2) provides that it is to be competent to grant and record a standard security to be expressed in conformity with one of the forms prescribed in Schedule 2 to the Act.
Schedule 2 contains two forms of standard security, Form A, to be used where the personal obligation is included in the deed, and Form B, which is to be used where the personal obligation is constituted in a separate instrument or instruments.
Appended to Schedule 2 are various notes telling the conveyancer what to do in certain situations.
But, in order to discover the meaning of Form A, the reader has to return to section 10.
That section explains what is meant by the personal obligation in Form A, thus avoiding the need for the draftsman of the standard security to spell it all out.
The technique is familiar from, say, section 119 of the Titles to Land Consolidation (Scotland) Act 1868, with its (1594-word) commentary on Form No 1 of Schedule FF to that Act.
The effect of recording a standard security under section 9(2) is to be found in section 11.
But, to discover the conditions which are to regulate the standard security (subject to any variations validly agreed by the parties), section 11(2) directs the reader to Schedule 3.
This schedule contains the Standard Conditions, the first six of which impose various obligations on the debtor, e g, to maintain and repair the security subjects and to insure them.
Conditions 7 to 10 relate to powers of the creditor, while 11 concerns the exercise of the debtors right of redemption.
For present purposes conditions 8, 9 and 10 are of importance.
They must therefore be set out, so far as relevant: 8.
The creditor shall be entitled, subject to the terms of the security and to any requirement of law, to call-up a standard security in the manner prescribed by section 19 of this Act.
9.
(1) The debtor shall be held to be in default in any of the following circumstances, that is to say (a) where a calling-up notice in respect of the security has been served and has not been complied with; (b) where there has been a failure to comply with any other requirement arising out of the security; (c) where the proprietor of the security subjects has become insolvent.
10.
(1) Where the debtor is in default, the creditor may, without prejudice to his exercising any other remedy arising from the contract to which the standard security relates, exercise, in accordance with the provisions of Part II of this Act and of any other enactment applying to standard securities, such of the remedies specified in the following sub-paragraphs of this standard condition as he may consider appropriate.
(2) He may proceed to sell the security subjects or any part thereof.
(3) He may enter into possession of the security subjects and may receive or recover feuduties, ground annuals or, as the case may be, the rents of those subjects or any part thereof.
(4) Where he has entered into possession as aforesaid, he may let the security subjects or any part thereof.
(5) Where he has entered into possession as aforesaid there shall be transferred to him all the rights of the debtor in relation to the granting of leases or rights of occupancy over the security subjects and to the management and maintenance of those subjects.
(6) He may effect all such repairs and may make good such defects as are necessary to maintain the security subjects in good and sufficient repair, and may effect such reconstruction, alteration and improvement on the subjects as would be expected of a prudent proprietor to maintain the market value of the subjects, and for the aforesaid purposes may enter on the subjects at all reasonable times.
(7) He may apply to the court for a decree of foreclosure.
It is not the practice of conveyancers to set out these conditions in the standard security itself.
So the debtor cannot discover the conditions regulating the security simply from reading it.
To set them out would, of course, increase the length of the deed and so defeat one of Parliaments aims in devising this form of shorthand deed.
But, further than that, listing the contents of standard condition 10 would be potentially misleading, unless, at the very minimum, various sections in Part II of the Act were also reproduced.
For example, it is only by consulting section 20 that the reader finds confirmation that, when a debtor fails to comply with a calling-up notice under section 19, the creditor can indeed exercise any appropriate power under standard condition 10.
Equally, it is only by consulting section 23 that the reader discovers that by contrast if the debtor fails to comply with any other requirement arising out of the security after the service of a notice of default under section 21, the creditor can actually only exercise his powers under standard condition 10(2), (6) and (7) unless he makes an application to the court under section 24 for a warrant giving him other powers.
Bearing in mind the structure of Part II of the Act, I turn to look more closely at the way that the legislation operates in the present case.
The application under section 24(1)
As already explained, the Bank set events in train by writing to Mr Wilson in June 1995.
Although he did not understand their letter in this way, by sending it, the Bank intended to warn him that they would take steps to enforce their standard security if he did not pay.
Since his personal obligation under the standard security was to pay on demand, his liability to pay was not triggered until this demand was made.
In other words he was not in default until he failed to comply with the demand.
The question is: what steps does the 1970 Act envisage that a creditor in the position of the Bank will take in those circumstances?
As Lord Walker pointed out at an early stage in the hearing, subsections (1) and (2) of section 19 seem to provide a clear answer, that the creditor shall serve a calling-up notice: (1) Where a creditor in a standard security intends to require discharge of the debt thereby secured and, failing that discharge, to exercise any power conferred by the security to sell any subjects of the security or any other power which he may appropriately exercise on the default of the debtor within the meaning of standard condition 9(1)(a), he shall serve a notice calling-up the security in conformity with Form A of Schedule 6 to this Act (hereinafter in this Act referred to as a calling-up notice), in accordance with the following provisions of this section.
(2) Subject to the following provisions of this section, a calling-up notice shall be served on the person last infeft in the security subjects and appearing on the record as the proprietor, and should the proprietor of those subjects, or any part thereof, be dead then on his representative or the person entitled to the subjects in terms of the last recorded title thereto, notwithstanding any alteration of the succession not appearing in the Register of Sasines.
Form A in Schedule 6 is in these terms: TAKE NOTICE that CD (designation) requires payment of the principal sum of with interest thereon at the rate of .................. per centum per annum from the .................. day of ........................ (adding if necessary, subject to such adjustment of the principal sum and the amount of interest as may subsequently be determined) secured by a standard security by you (or by EF) in favour of the said CD (or of GH to which the said CD has now right) recorded in the Register for .................. on .................. And that failing full payment of the said sum and interest thereon (adding if necessary, subject to any adjustment as aforesaid), and expenses within two months after the date of service of this demand, the subjects of the security may be sold.
If the Bank had served a calling-up notice, by virtue of section 19(2), it would have had to be served on Mrs Wilson, as one of the proprietors of the security subjects.
Under a calling-up notice Mr Wilson would have had two months in which to pay the full amount due to the Bank after which he would have been in default within the meaning of standard condition 9(1)(a).
By virtue of section 20(1) and (2), the Bank would then have been entitled to exercise any of their rights under the security and, in particular, their right to enter into possession and to sell the house.
In fact, however, the Bank did not proceed under section 19, but took an entirely different course.
The Bank treated Mr Wilson as having failed to comply with a requirement arising out of the security, other than a requirement under a calling-up notice.
So they treated him as being in default under standard condition 9(1)(b).
Assuming, for the moment, that this was permissible, when Mr Wilson failed to comply with the demand to pay the debt, the Bank would have been entitled to serve a notice of default under section 21, calling on him to purge his default by paying the debt within one month.
If Mr Wilson had been aggrieved by the requirement to pay, he could have applied to the court under section 22.
If he had not objected, or his objection had been rejected and the notice of default upheld, then Mr Wilson would have been required to comply with the requirement in the notice.
Failing which, the Bank would have been entitled to exercise their powers under standard condition 10(2), (6) and (7).
As explained already, the Bank did not go down this route.
Instead, eventually, in April 1998 still on the basis that Mr Wilson was in default under standard condition 9(1)(b) they made an application to the court under section 24, which provides: (1) Without prejudice to his proceeding by way of notice of default in respect of a default within the meaning of standard condition 9(1)(b), a creditor in a standard security, where the debtor is in default within the meaning of that standard condition or standard condition 9(1)(c), may apply to the court for warrant to exercise any of the remedies which he is entitled to exercise on a default within the meaning of standard condition 9(1)(a).
(2) For the purposes of such an application as aforesaid in respect of a default within the meaning of standard condition 9(1)(b), a certificate which conforms with the requirements of Schedule 7 to this Act may be lodged in court by the creditor, and that certificate shall be prima facie evidence of the facts directed by the said Schedule to be contained therein.
As the first crave (at para 9 above) shows, the Bank asked the court to grant warrant to enter into possession of the house at Dalum Grove (standard condition 10(3)) and to exercise in relation to the house all powers competent to a creditor in lawful possession, including the power of sale (standard condition 10(2)).
By granting decree in terms of the first crave, the Extra Division granted the Bank warrant to exercise those powers.
The Banks crave for ejection
In the Inner House and in the hearing before this Court much of the argument was directed, however, to the Banks second crave as amended, which, it will be recalled, is a crave for the ejection of Mr and Mrs Wilson and their family from their home.
Assuming that the Bank were granted the power under standard condition 10(3) to enter into possession of the subjects, under standard condition 10(1) they could only exercise this power in accordance with the provisions of Part II and of any other enactment applying to standard securities.
Paragraphs 18 to 24 of Schedule 8 to the 1970 Act show that section 5 of the Heritable Securities (Scotland) Act 1894 (the 1894 Act) is among the provisions of that Act which apply to standard securities.
Section 5 provides: Where a creditor desires to enter into possession of the lands disponed in security, and the proprietor thereof is in personal occupation of the same, or any part thereof, such proprietor shall be deemed to be an occupant without a title, and the creditor may take proceedings to eject him in all respects in the same way as if he were such occupant: Provided that this section shall not apply in any case unless such proprietor has made default in the punctual payment of the interest due under the security, or in due payment of the principal after formal requisition.
As counsel for the Bank accepted, this section applies in the present case where the Bank wish to enter into possession of security subjects which are in the personal occupation of the proprietors, Mr and Mrs Wilson.
In that situation section 5 allows the creditor to take summary proceedings for ejection, provided that the proprietor has made default in the punctual payment of the interest due under the security, or in due payment of the principal after formal requisition.
(The language of the section is not well adapted to a case where only one of the proprietors is in default.)
Mr McIlvride acknowledged that the Bank had not established that Mr Wilson had failed to make punctual payment of any interest due under the security.
So they have to show that there has been default by Mr Wilson in due payment of the principal after formal requisition (emphasis added).
For his part, Mr Summers accepted that, if the Bank had served a calling-up notice in Form A in Schedule 6, this would have met the requirement of a formal requisition.
He pointed out that the terms of such a calling-up notice were comparable in their material respects to the Form of Schedule of Intimation, Requisition, and Protest, which is Form No 2 in Schedule FF to the Titles to Land Consolidation (Scotland) Act 1868 the form that would have been in use at the time when section 5 of the 1894 Act was enacted.
But, he submitted, since the Bank had proceeded under section 24 of the 1970 Act, they had never served any kind of notice which could constitute a formal requisition for purposes of section 5 of the 1894 Act.
So they were not entitled to ask the court for decree of eviction.
The Extra Division dealt with this point in para 44 of their judgment, 2009 SLT 729, 738: We agree with the submission by counsel for the Bank that the Sheriff erred in holding that warrant for ejection can only be granted if a formal requisition of payment has been made in terms of section 5 of the 1894 Act.
For the reasons given above, warrant for ejection may competently be granted where the debtor in a standard security is in default in terms of standard condition 9(1)(b).
The only voucher that is required is a Schedule 7 certificate.
No separate requisition is required.
The effect of section 24 of the 1970 Act is that such a certificate constitutes a formal requisition for the purposes of section 5.
In any event, there is no difference between these provisions.
The requirement in a notice of default is the same as a requisition.
The word formal means no more than that it must be made in the statutory form.
Moreover, the comma in the proviso to section 5, and the absence of further words such as in either case, make it clear that the phrase after formal requisition only applies to payment of principal and not to interest.
As already explained, the point about payment of interest does not arise in this case since the Bank have not established that there has been a failure in that respect.
So far as the Division proceeded on the basis that a Schedule 7 certificate can constitute a formal requisition for the purposes of section 5 of the 1894 Act, Mr McIlvride explained that he had not advanced that argument before the Division and felt unable to support this aspect of their reasoning.
A Schedule 7 certificate contains no requirement of any kind: it is simply a piece of evidence which is created for, and used in, the proceedings.
It cannot therefore constitute the formal requisition which must precede the proceedings for ejection.
Moreover, even if the requirement in a notice of default in the form in Form B in Schedule 6 would count as a formal requisition, as the Extra Division argued, that is irrelevant in the present case since the Bank did not serve such a notice.
It respectfully appears to me that the reasoning of the Extra Division on this point cannot be upheld.
Counsel preferred to base his argument on part of the wording of section 24(1) of the 1970 Act.
He argued that, if the court did indeed grant the Bank warrant to exercise any of the remedies which a creditor is entitled to exercise on a default within the meaning of standard condition 9(1)(a), then the Bank would be in the same position as if they had served a calling-up notice with which Mr Wilson had not complied.
In other words, the Bank must be treated as having, in effect, served a calling-up notice which as Mr Summers accepted would constitute a formal requisition for purposes of section 5 of the 1894 Act.
So the court could grant decree to eject Mr and Mrs Wilson, who had no substantive defence to the Banks claim.
The argument certainly has its attractions, not least because as Mr McIlvride stressed Mr and Mrs Wilson know perfectly well what they have been asked to pay and they have had ample opportunity to put forward their defence.
Nevertheless, I would not accept the argument since the simple fact is that section 5 of the 1894 Act only allows the creditor to take proceedings for ejection if they have been preceded by a formal requisition.
Mr Summers referred to a number of authorities, including Inglis Trs v Macpherson 1911 2 SLT 176, to show that section 5 was passed in order to introduce a new summary procedure for obtaining the drastic remedy of ejection.
Mr McIlvride accepted this.
That being so, it would, in my view, be wrong to water down the precondition imposed by Parliament for using that summary procedure.
In more concrete terms, if a formal notice had been given, Mrs Wilson would have been warned about the situation and about the danger of being ejected from her home, before any proceedings were started.
Which seems only reasonable.
Approaching the matter on this footing, I would have allowed the appeal.
Mr McIlvrides cri de coeur that to impose a requirement on the Bank to make a formal requisition is tantamount to requiring them to serve a calling-up notice really brings us back to the fundamental point.
Were the Bank actually, all along, obliged to serve a calling-up notice if they wanted to require payment of the debt and, failing payment, to sell the Wilsons house? I must retrace my steps to see if there is another way through the maze.
Must a creditor serve a calling-up notice when section 19(1) applies?
The terms of section 19(1) are quoted at para 23 above.
It is not disputed that the subsection applies to the situation in this case: undoubtedly, therefore, the Bank could have served a calling-up notice, with the result that any default would be under standard condition 9(1)(a).
The question is: were they bound to do so? Section 19(1) (he shall serve a notice calling up the security) appears to say that they were.
But, in practice, it has not been treated as requiring a creditor to serve a calling-up notice in these circumstances.
Rather, it has been treated as permitting a creditor to use the calling-up procedure, but as also permitting him, in the alternative, to treat the debtor as being in default within the meaning of standard condition 9(1)(b).
On that approach, the creditor can serve a calling-up notice under section 19, or serve a notice of default under section 21, or simply apply to the court for a warrant under section 24.
Section 19(1) is simply one option for the creditor: he can use it if he wants, but he can also choose to use one of the other remedies, if he wants.
Such, we were told, is the way the legislation has been interpreted in practice.
Counsel mentioned that at the hearing in the Inner House one of the judges questioned whether this was the correct interpretation of these sections.
But, understandably, the point was not pursued after their Lordships were referred to the decision of the Extra Division (Lord Sutherland, Lord MacLean and Lord Allanbridge) in Bank of Scotland v Millward 1999 SLT 901.
This decision would certainly have been well known to Lord Drummond Young who had been counsel for the Bank of Scotland.
It is not binding on this Court, however, and its reasoning must be scrutinised.
A footnote to another report of the case, 1998 SCLR 577, 585, suggests that an appeal to the House of Lords may have been contemplated.
If so, it was not pursued.
In Millward Lord MacLean gave the courts decision, which is summarised at p 903H-I: In our opinion the law is correctly stated in Hallidays Conveyancing Law and Practice (2nd ed), that the creditor may serve a calling up notice where a creditor in a standard security intends to require repayment of the principal sum and interest, but he is not required to do so.
He may, alternatively, serve a notice of default.
As this summary suggests, their Lordships appear to have been much influenced by their perception that the late Professor Halliday, whom they rightly described as the architect of the Act, considered that a creditor who intends to require repayment of the principal sum and interest is not obliged to serve a calling-up notice under section 19(1) and has the alternative of serving a notice of default under section 21(1).
It is noticeable that they make no mention of an application to the court under section 24(1).
Before looking more closely at what Professor Halliday said, I must examine an assumption that apparently underlies the Extra Divisions approach in Millward.
In outlining the parties arguments Lord MacLean recorded, 1999 SLT 901, 903B-C, that counsel for the Bank had acknowledged that section 19 of the Act applied only when there was a requirement of discharge of the entire debt.
In the present case the Bank required Mr Wilson to repay the entire debt and so it is strictly speaking unnecessary to decide whether that view is correct.
Moreover, the point may be unlikely to arise very often in practice since most banks and building societies will include an acceleration clause entitling them to require repayment of the entire loan if the debtor fails to pay any part of the total debt when it becomes due.
Nevertheless, it should not be assumed that it is only where the creditor requires repayment of the entire sum that serving a calling-up notice under section 19(1) is competent.
Presumably no reasoning is given in Millward the view that this is the position is based on the opening words of section 19(1): Where a creditor in a standard security intends to require discharge of the debt thereby secured.
The suggestion must be that the combination of the debt thereby secured and discharge indicates that Parliament is referring to the situation where the creditor requires the debtor to pay the whole of the debt or perform the whole of the obligation ad factum praestandum for which the security has been granted.
As Lord Clarke pointed out in the course of the argument, however, section 9(8)(c) provides that debt means any obligation due, or which will or may become due, to repay or pay money and any obligation ad factum praestandum.
An obligation to repay 50K of a loan of 100K must fall within the words any obligation due to repay money and the debtor who repays 50K discharges that obligation, which is secured by the standard security.
Moreover, where Parliament wishes to refer to the whole of the debt due from the debtor, it uses the expression whole amount due.
See sections 18(4), 27(1)(c), 28(2) and 30(1) and standard condition 11(4) and (5) in Schedule 3.
For these reasons, it seems difficult to restrict the scope of section 19(1) to situations where the creditor intends to recover the entire debt.
It may be worth mentioning another point about the opening words of section 19(1).
They refer to the creditor in a standard security intending to require discharge of the debt thereby secured.
That expression aptly describes the debtors liability under any personal obligation, irrespective of whether it is constituted by a separate instrument (Form B in Schedule 2) or in the deed itself (Form A).
So a calling-up notice applies to both.
It is much less clear that the same can be said of a notice of default or of the procedure in section 24(1).
Both of those procedures apply where the debtor is in default within the meaning of standard condition 9(1)(b) and, reading short, that standard condition applies where there has been a failure to comply with a requirement arising out of the security.
Where the debtor fails to comply with a personal obligation constituted by a separate instrument, he fails to comply with a requirement under that instrument.
But it is hard to see how he can properly be said to have failed to comply with a requirement arising out of the security.
It is true that, when Parliament refers to the whole amount due under the security in section 28(4), for example, this must refer to standard securities in Form B as well as Form A. But, by section 30(2), that expression has to be read in the light of the definition of whole amount due in section 18(4).
So read, the expression provides no basis for ignoring the specific words used in standard condition 9(1)(b).
There is therefore a difficulty in holding that a notice of default could apply to a failure to pay a sum due under a separate instrument.
This tends to support the view that serving a calling-up notice under section 19(1) is the only competent route in the circumstances, since it is hard to see why Parliament would have intended to distinguish between Form A and Form B standard securities in this respect.
Other complications can be envisaged, but it is unnecessary to explore them.
I can now return to the reasoning of the court in Bank of Scotland v Millward 1999 SLT 901.
The Extra Division appear to have been influenced by their perception that conveyancing practitioners used notices of default even in situations where they could use calling up notices: 1999 SLT 901, 903G. In particular, they had been told, at p 903C-D, that the Bank of Scotland tended to use calling-up notices for residential property and notices of default for commercial property, apparently on the view that commercial debtors did not need to be given so long to pay.
But the facts of this case suggest that other financial institutions do not follow that policy.
In any event the practice of even the most distinguished conveyancers cannot prevail if it is irreconcilable with the provision enacted by Parliament.
Against the background of the perceived practice of conveyancers, the Extra Division suggested, at p 903G-H, that, if a creditor had to use the calling-up procedure in section 19(1), this would mean that the creditor could use a notice of default where 99% of the debt had been demanded, but would have to use a calling-up notice where 100% had been demanded.
They did not consider that the statutory framework in sections 19 to 22 necessarily led to that conclusion.
Indeed it does not: the substance of the supposed objection dissolves if, contrary to the Divisions assumption, a calling-up notice can be served in cases where the creditor has asked for payment of less than the whole debt.
The Extra Division really based their conclusion, that a calling-up notice and a notice of default are alternatives, on their understanding of Professor Hallidays view.
They referred to his Conveyancing Law and Practice Vol 2 (second edition, 1997), para 54-05: Where a creditor in a standard security intends to require repayment of the debt thereby secured and, failing such repayment, to exercise any of his powers in respect of a security, he may serve a calling up notice.
The court emphasised the word may.
But the simple fact is that Parliament used the word shall in section 19(1).
Although their Lordships must have accepted the submission of counsel for the bank that shall had to be read in a permissive and not a mandatory sense, they do not explain what there is in the Act, or indeed in authority, to justify that interpretation of section 19(1).
For my part, I can see nothing.
Moreover, I very much doubt whether Professor Halliday actually intended to say otherwise.
It is noticeable that, while the Division emphasised the word may in the passage which they quoted, the author did not.
Nor did he say that, alternatively, the creditor may serve a notice of default in such cases.
The Division cited the second (posthumous) edition of his Conveyancing Law and Practice (revised by Mr I J S Talman), but the same applies to the first edition, published during his lifetime: Conveyancing Law and Practice Vol 3 (first edition, 1987), paras 39-03, and 39-19 and 39-20.
The same also goes for his commentary on the 1970 Act, the first edition of which was published very shortly after the Act was passed.
In The Conveyancing and Feudal Reform (Scotland) Act (first edition, 1970), para 1-27; (second edition, 1977), para 1-26, Professor Halliday who was in a position to know said that the provisions for the enforcement of the standard security had posed the most difficult questions of policy for the legislature.
In his view sections 19 to 29 incorporated a compromise solution which permits considerable flexibility in procedures but affords reasonable protection to the debtor on essential matters.
He went on to describe the calling-up procedure (first edition, para 1-28; second edition, para 1-27), before continuing in the next paragraph: A new additional remedy is provided which permits the creditor to proceed in certain circumstances by way of serving a notice of default.
While Professor Halliday was pointing to the wider range of remedies which the new statute made available to the creditor to cater for different situations, there is nothing to show that he considered that serving a notice of default was an alternative to serving a calling-up notice far less, that the section 24(1) procedure was also such an alternative.
What Professor Halliday did emphasise and rightly emphasise was the quite different point that a calling-up notice and a notice of default are not mutually exclusive.
In other words, a creditor can use both, if that is appropriate.
Lord MacLean refers, 1999 SLT 901, 903E-F, to the relevant passage in Professor Hallidays Conveyancing Law and Practice Vol 2, para 54-22.
Passages to a similar effect are found in his earlier works.
There may indeed be situations where the creditor will want to exercise both rights at the same time and, as section 21(1) shows, there is nothing to prevent this.
For example, if the security subjects were deteriorating, the creditor might well wish to serve both a calling-up notice requiring the debtor to pay the debt and a notice of default requiring him to fulfil his repairing obligation.
Although the Extra Division drew attention to this point, it does nothing to support their view that a notice of default can be used as an alternative to the calling-up notice.
That is an altogether different matter.
The auctoritas of Professor Halliday among conveyancers was, and is, immense.
But, for judges at least, in the end even a word from Professor Halliday would have to yield to the words of Parliament.
In that event it would also be worth bearing in mind the observation of the Earl of Halsbury LC, that the worst person to construe a statute is the person who was responsible for its drafting, since he is very much disposed to confuse what he intended to do with the effect of the language which in fact has been employed: Hilder v Dexter [1902] AC 474, 477.
Happily, however, in my view there is no sufficient reason to conclude that Professor Halliday intended to say anything that is inconsistent with the text of the statute.
Finally, it is noticeable that serving a calling-up notice under section 19 entitles the creditor to exercise a wider range of powers on default than those that are available on default after service of a notice of default under section 21.
Compare section 20(1) with section 23(2).
The disparity is instructive: if Parliament had really intended that the two remedies should operate as alternatives in this particular situation, it might have been expected to align the rights and powers available to the creditor to deal with it.
For these reasons I would overrule the decision in Bank of Scotland v Millward 1999 SLT 901 on this point and hold that, in a case falling within the scope of section 19(1), the creditor must serve a calling-up notice.
That interpretation ensures that all debtors are treated alike and, in particular, that they are all given the two-month period in which to pay, that is specified in the calling- up notice.
Professor Halliday stressed that, in enacting the enforcement powers, Parliament had been concerned to strike the right balance between creditors and debtors.
Interpreting section 19(1) in this way ensures that Parliaments policy on this important matter is given effect.
Conclusion
In these cases case the Bank did not serve a calling-up notice back in 1998.
Mr McIlvride was unable to say why.
He was also unable to say why they had not done so at some later stage when the cases had become bogged down in technical arguments about section 24 of the 1970 Act and section 5 of the 1894 Act.
Unfortunately, for all the reasons which I have given, the Bank have pursued the wrong course.
I would therefore allow the appeals, recall the interlocutor of the Extra Division, sustain the first plea-in-law for the first defender and the plea-in- law for the second defender and assoilzie both defenders in each of the appeals.
It is only right that I should acknowledge the assistance that I have derived from the excellent submissions of counsel on both sides.
I agree with Lord Rodger that these appeals must be allowed and I would make the orders that he proposes.
I also agree with him that, on a correct analysis of the relevant provisions of the Conveyancing and Feudal Reform (Scotland) Act 1970 (the 1970 Act), the Bank pursued the wrong course when they decided to enforce these securities.
It has to be recognised however that this conclusion runs counter to the way these provisions have been widely understood and applied in practice for the past four decades.
So I should add some words of my own to explain why I too have come to be of that view.
The 1970 Act was the product of a movement for reform of conveyancing law and practice which had been embodied in a series of reports, of which the relevant one for present purposes was the Report of the Halliday Committee (Cmnd 3118) which was published in December 1966.
It contained proposals for the modernisation and simplification of the existing system which formed the basis for the measures enacted in Parts II to IV of the 1970 Act.
Among the proposals in the Halliday Report was the introduction of a new statutory security.
It was to be incompetent to create a heritable security by any other means after 29 November 1970, when the relevant provisions were to come into force six months after the Act was passed: section 54(2)(a).
The new standard security was to follow one of the forms prescribed in Schedule 2.
Form A was for use where the personal obligation was included in the deed.
It contains an obligation to pay the debt.
Form B was for use where the personal obligation was included in a separate instrument or instruments.
It contains no obligation to pay the debt and is limited to creating the security, but the nature of the debt and the instrument or instruments constituting it must be referred to and sufficiently identified.
The introduction to the commentary on the Act in Current Law Statutes noted that a valuable innovation under section 11 was the incorporation in the new security of the standard conditions prescribed in Schedule 3, unless conventionally varied.
They were to regulate every standard security.
The import of the form of bond and disposition in security prescribed was much more limited.
Absent special agreement to the contrary, the creditor could insure the subjects against all loss by fire and recover the premiums from the debtor, but it was not until he had entered into possession that he was given any statutory powers of management: Conveyancing (Scotland) Act 1924, section 25(1)(a).
It has been suggested that the creditor was entitled to object to any act which diminished the security: Gordon, Scottish Land Law (2nd ed, 1999), para 20- 12.
Where the security was constituted by way of ex facie absolute disposition, a back letter would typically contain obligations on the debtor such as to keep the subjects in good repair or to observe title conditions.
It would also set out the terms on which the ex facie absolute owner was entitled to enter into possession in the event of the debtors default in the fulfilment of any of his obligations: Gordon, para 20-100.
But the benefit of incorporating the standard conditions was that everything that was relevant to the maintenance and enforcement of the security was set out in the statute.
It is plain that much thought was given to the design of the forms, which were supplemented by the seven notes annexed to Schedule 2, and to the content of the standard conditions.
These were matters of particular interest to the conveyancer, whose expertise lies the framing of deeds that give effect to the transaction that the client wishes to enter into and will meet the requirements for registration.
A conveyancer in practice deals mainly with the sale and purchase of heritable property: Sinclair, Handbook of Conveyancing Practice in Scotland (3rd ed, 1995), para 1.1.
His task is usually complete when the deed that transfers title to the purchaser or the deed that creates the heritable security is registered.
What to do if a creditor has to enforce his security because the debtor has failed to perform his obligations under it has normally passed to someone else.
The draftsman of the 1970 Act had to consider this problem, however, and the relevant provisions are to be found in sections 19 to 28 and in standard conditions 8 to 11.
Section 19 provides for the calling-up of the security, and section 20 sets out the rights of the creditor if the debtor is in default in failing to comply with the calling-up notice.
Section 21 introduces what the commentator in Current Law Statutes described as an entirely new remedy, the notice of default.
These provisions need to be read in the light of standard condition 9(1), which provides: The debtor shall be held to be in default in any of the following circumstances, that is to say (a) where a calling-up notice in respect of the security has been served and has not been complied with; (b) where there has been a failure to comply with any other requirement arising out of the security; (c) where the proprietor of the security subjects has become insolvent.
The circumstances listed in standard condition 9(1) are not presented as alternatives which are exclusive of each other.
Necessarily so, as all three circumstances could be present in the event of the debtors insolvency.
But, as the wording indicates, they are distinct circumstances.
The question that these appeals give rise to is whether a creditor who wishes to enforce the security to obtain performance of the debt for which security was given can choose whether to proceed by way of a calling-up notice or may proceed instead on the basis that the debtor is in default under standard condition 9(1)(b).
Finding the right answer to this question is important if the creditor wishes, as the Bank does in this case, to obtain an order to eject a debtor who is in personal occupation of the subjects of the security under section 5 of the Heritable Securities (Scotland) Act 1894, which applies to standard securities by virtue of section 32 of the 1970 Act.
That section applies if the debtor has made default in due payment of the principal after formal requisition.
It is not in doubt that a calling-up notice which is served under section 19 of the 1970 Act is a formal requisition for the purposes of section 5 of the 1894 Act.
But the kind of default referred to in standard condition 9(1)(b), which is the route that the Bank has chosen to enforce the securities in this case, does not require the service of a calling-up notice.
The requirements of section 5 could have been met by serving a notice of default which was appropriately worded, but the Bank did not regard this as a step that needed to be taken.
Mr Summers QCs case for Mr and Mrs Wilson was that the Bank had failed to serve on them a document that could be described as a formal requisition for the purposes of section 5 of the 1894 Act.
He set out his argument in this way.
Summary ejection by a heritable creditor of a proprietor with a valid and subsisting title is not possible apart from section 5: Inglis's Trustees v Macpherson 1911 2 SLT 176, 177-178, per Lord President Dunedin; Craigie, Scottish Law of Conveyancing; Heritable Rights (1899), p 949.
If there is no formal requisition within the meaning of that section, the proprietor cannot be ejected.
The word formal is not defined in the 1894 Act, but it should be understood as requiring the creditor to provide full details of the security to the proprietor so that the basis for the demand is made clear.
What will be required to achieve that clarity will depend on the circumstances of the case.
In this case the absence of any reference to the security in the Banks demand letters gave the misleading impression that this was a demand that was made of the husbands only, in respect of their obligations as partners for partnership debt: see para [6] where their terms are set out by Lord Rodger.
No such letter was sent to the wives, and there was no mention in the letters of their obligations under the standard securities.
In the Inner House this argument was rejected by the Extra Division (Lords Nimmo Smith, Reed and Drummond Young): 2009 SLT 729, paras 39-44.
In para 44, delivering the opinion of the court, Lord Nimmo Smith said: We agree with the submission by counsel for the bank that the sheriff erred in holding that warrant for ejection can only be granted if a formal requisition of payment has been made in terms of section 5 of the 1894 Act.
For the reasons given above, warrant for ejection may competently be granted where the debtor in a standard security is in default in terms of standard condition 9(1)(b).
The only voucher that is required is a Schedule 7 certificate.
No separate requisition is required.
The effect of section 24 of the 1970 Act is that such a certificate constitutes a formal requisition for the purposes of section 5.
In any event there is no difference between these provisions.
The requirement in a notice of default is the same as a requisition.
The Schedule 7 certificate referred to in this passage is the certificate that the creditor may lodge in court under section 24(2) of the 1970 Act.
If it contains the information required by the Schedule, which includes specification of the standard security in respect of which the default is alleged to have occurred and full details of the default, it will be prima facie evidence of the facts founded on as the default.
These details were given in the certificates of default that the Bank lodged in January and February 2006, long after the actions were served in April 1998.
They were not to be found in the demand letters which were sent to the husbands in June 1995.
The propositions which I have quoted from the Extra Divisions opinion do not fit easily with the concept of a formal requisition as an essential preliminary for the taking of proceedings for ejection under section 5 of the 1894 Act.
This was explained by Gloag and Irvine, Law of Rights in Security (1897), p 98.
After noting that a creditor was entitled to remove the debtor by an action of removing in the Court of Session (see, eg, Blair v Galloway 1853 16 D 291), the authors said that no-one was entitled to make rules by contract which tend to establish a diligence different from that established by law and that extreme powers in a bond, although consented to by the debtor, will not be enforced: Thus where it was stipulated that in the event of the debtor falling into arrears for two months with monthly instalments of the debt it should be in the power of the creditor to remove him without any warning or legal process whatever, it was held that such extreme powers could not be legally enforced, and that a petition to the sheriff for summary removal of the debtor from the occupation of the subjects was incompetent.
But the powers of a creditor in this respect have been enlarged by the Heritable Securities Act, 1894.
It is there provided that where a debtor is in the natural possession of the lands covered by the security, or a part thereof, and has made default in payment of the interest under the security, or of the principal after a formal requisition for payment, the creditor may take proceedings to eject him as if he were an occupant without title.
That is to say, it is presumed, he may bring a summary action of removing in the sheriff court.
The requirement that there should be a formal requisition or demand for payment was not new.
Section 119 of the Titles to Land Consolidation (Scotland) Act 1868 made provision for the service of a demand for payment in the form of No 2 of Schedule FF, which is headed Form of Schedule of Intimation, Requisition and Protest.
The essential requirement of the formal requisition referred to in section 5 of the 1894 Act is that the proprietor should be put on notice before summary proceedings for possession are brought against him that the principal sum due under the bond and disposition in security is due for payment and that, in the event of non-payment by a given date, the creditor may proceed to take proceedings against him.
The reference to default in payment after formal requisition in section 5 makes it clear that the requisition must come first.
The default occurs if, and only if, the demand that it sets out is not complied with.
The Extra Divisions conclusion that the requirement for a formal requisition was met by the lodging of the Schedule 7 certificates eight years after the raising of these actions seems hard to understand in the light of that background.
But the point is the same however long or short the interval was between the raising of the actions and the lodging in court of the certificates.
Unless there was clear wording in the 1970 Act to support it, it would seem that the Extra Division ought to have held that the statutory requirement was not satisfied because Mr and Mrs Wilson were not put on notice before the actions were raised that the Bank was proposing to enforce the security.
Section 5 of the 1894 Act was not amended by the 1970 Act, so that section is left to speak for itself.
It cannot be said that the change in the timing of the requirement that follows from the Extra Divisions decision has been addressed directly.
Section 32 of the 1970 Act provides, however, that the provisions of any enactment relating to a bond and disposition or assignation in security shall apply to a security, except in so far as such provisions are inconsistent with the provisions of Part II of that Act.
This makes it necessary to look more closely at the wording of these provisions.
It has to be said that it was no part of Mr Summerss argument that the Bank had pursued the wrong course by relying on a standard condition 9(1)(b) default and applying to the sheriff court under section 24 instead of serving a calling-up notice.
He concentrated on the Banks failure to serve a further document which could be regarded as a formal requisition before the actions were raised.
It was Mr McIlvrides attempt, in a very able argument, to answer this point that led to the scrutiny of the provisions of Part II which has led in turn to the conclusion that the Banks error can be traced back to their choice of remedy and to the conclusion, too, that the passage in Lord MacLeans opinion in Bank of Scotland v Millward 1999 SLT 901, 903 on which the Extra Division relied to the effect that there was a choice of remedies was unsound.
It is perhaps worth noting that the point that Lord MacLean made in Bank of Scotland v Millward had already been considered in the sheriff court.
In United Dominions Trust Ltd v Site Preparations Ltd (No 1) 1978 SLT (Sh Ct) 14 and United Dominions Trust Ltd v Site Preparations (No 2) 1978 SLT (Sh Ct) 21 it was argued that a failure to pay interest was not a failure to comply with any other requirement arising out of the security as required by standard condition 9(1)(b).
It was said that the liability to pay interest arose out of the existence of the debt and that the appropriate procedure to follow was the calling-up procedure.
In the first case Sheriff DB Smith said at p 16 that it would be a very strained interpretation of standard condition 9(1)(b) to hold that a failure to pay interest was not a failure to comply with the requirement arising out of the security.
In the second Sheriff Wm C Henderson said at p 23 that the requirements to pay interest and/or capital were every bit as much requirements arising out of the security as the other standard conditions incorporated by reference in the security documents.
These cases are cited in Gloag and Henderson, Law of Scotland (12th ed, 2007), para 37-09, fn 137 for the proposition that failure to pay interest under a loan secured is a failure to comply with a requirement of the security for the purposes of standard condition 9(1)(b): see also Cusine and Rennie, Standard Securities (2nd ed, 2002), para 8.21.
The Extra Division in Bank of Scotland v Millward 1999 SLT 901 relied for its conclusion that standard conditions 9(1)(a) and 9(1)(b) were alternative and not mutually exclusive on Professor Hallidays statements in his Conveyancing Law and Practice (2nd ed, 1997), para 54-05 that where a creditor in a standard security intends to require repayment of the debt thereby secured and, failing such payment, to exercise any of his powers in respect of a security he may serve a calling up notice and in para 54.22 that the remedies of serving a calling-up notice and serving a notice of default were not mutually exclusive.
It also relied on a passage in the latter paragraph where Professor Halliday said that where there was serious default in payment of interest and capital and the debtor has abandoned the subjects, which are deteriorating, service of a notice of default may be the quickest approach to a sale of the security subjects.
Lord Rodger doubts whether, when he used the word may, Professor Halliday intended to indicate that the word shall in section 19(1) was to be read in a permissive, and not a mandatory, sense.
But a further indication that it was indeed Professor Hallidays view that this word was to be read in the permissive sense is to be found in a passage from his commentary on the 1970 Act, The Conveyancing and Feudal Reform (Scotland) Act 1970 (2nd ed, 1977), at para 10.19, where he discussed the circumstances in which a notice of default could be used: Any failure by the debtor to implement an obligation enforceable under a standard security will entitle the creditor to serve a notice of default.
Default in payment of interest or of a periodical instalment of capital and interest, or breach of an obligation under standard conditions 1, 2, 3 or 5, or failure to implement an obligation undertaken in the personal obligation or in a variation of the standard conditions, are obvious examples.
The only qualification is that the failure should be remediable.
Professor Halliday is not alone in failing to notice the distinction between circumstances in which a calling-up notice is required and those where recourse must be had instead to a notice of default or a section 24 application to the sheriff court.
Cusine and Rennie say in their introduction to para 8.14 that there is some doubt about what condition 9(1)(b) means, the question being whether a failure to comply with any other requirement arising out of the security is wider than a failure to comply with something mentioned in a notice of default.
In their view this phrase means a failure to comply with any condition of the standard security, or the standard conditions, ie anything except failure to comply with a calling-up notice.
But I understand them to accept that the passage which they quote from Professor Hallidays Commentaries is an accurate statement of the effect of the 1970 Act.
This is certainly the predominant view that is taken in the textbooks.
The approach is to view the Act as providing the creditor with a basket of remedies and then providing him with the calling-up notice, the notice of default and the application to the sheriff court for a warrant as different routes by which they can be obtained.
In The Laws of Scotland: Stair Memorial Encyclopaedia: Conveyancing (2005), paras 223-224 it is stated that a calling-up notice is to be used where the creditor wants payment of all the debt, and that a notice of default is used where there has been failure to comply with any requirement of a security.
The word other which the statute uses in standard condition 9(1)(b) is omitted from the reference to the notice of default, suggesting that this is a mechanism that can be used for any failure to comply with a requirement of the security.
Cusine and Rennie, Standard Securities, para 8.03 say that a creditor who wishes the debt to be discharged by payment of the amount due or performance of an obligation ad factum praestandum may serve a calling-up notice, but that it would also be appropriate to serve a calling-up notice in respect of a default which cannot be remedied.
The editors of the 12th edition of Gloag and Henderson, Law of Scotland, in their carefully re-written chapter on Rights in Security, para 37.09 say that where the creditor in a standard security intends to require discharge of the debt secured and, failing discharge, to exercise any power conferred by the security to sell the subjects, the creditor may serve a calling-up notice.
They too omit the word other before the word requirement when they summarise the circumstances when a notice of default may be used.
Gretton and Reid, Conveyancing (3rd ed, 2004), para 19.36, referring to Bank of Scotland v Millward 1999 SLT 901, say that the calling-up procedure and the notice of default procedure are often alternatives, and that in practice there is a certain tendency amongst institutions to use the former for residential standard securities and the latter for commercial ones.
They do however note that the law in this area is of labyrinthine complexity: Conveyancing 2009, p 179.
There may indeed be cases where the calling-up procedure and the notice of default procedure are both available as alternatives.
The example given by Professor Halliday in Conveyancing Law and Practice, para 54.22, where there has been serious default in payment of interest and capital and the debtor has abandoned the subjects, which are deteriorating, may be such a case.
But a case such as the present, where the creditor is faced with a defaulting debtor who is in personal possession of the subjects and intends to seek an order for the debtors summary ejection under section 5 of the 1894 Act, cannot be dismissed so easily.
Treating a calling-up notice and a notice of default as alternatives between which the creditor may choose at his option runs into serious difficulty when this is tested against the section 5 requirement that ejection is a remedy that may only be sought where the debtor is in default after formal requisition.
The calling-up procedure satisfies that requirement.
The notice of default procedure and the warrant procedure referred to in section 24, without more, do not.
The answer to the problem is to be found in the words of the statute, to which all too frequently insufficient attention appears to have been given.
The word default is used in standard condition 9 to describe three quite different circumstances.
In Laird v Securities Insurance Co Ltd 1895 22 R 452,461 Lord Adam said that this meant nothing more or less than that the debtor had failed to pay.
But the word takes its meaning from its context.
Each of the circumstances referred to in standard condition is treated as a default for the purposes of Part II of the 1970 Act.
There is a default for these purposes where the proprietor of the subjects has become insolvent, even though there has not yet been any failure in payment of any part of the debt which is secured by the standard security: standard condition 9(1)(c).
That there is a difference between the defaults contemplated by standard conditions 9(1)(a) and 9(1)(b) is indicated by the word other which appears before the words requirement arising out of the security in standard condition 9(1)(b).
In other words, standard condition 9(1)(a) refers to the kind of requirement which is to be dealt with by serving a calling-up notice.
Standard condition 9(1)(b) refers to any requirement which is not to be so dealt with.
To understand the difference between them it is necessary to refer back to section 19, in which the calling-up procedure is described.
Section 19(1) states that when a creditor in a standard security intends to require discharge of the debt thereby secured and, failing that, to exercise any of the powers which he may appropriately exercise on the default of the creditor within the meaning of standard condition 9(1)(a), he shall serve a notice calling- up the security.
The word debt is widely defined in section 9(8)(c), which must be read together with section 9(3) which provides that the grant of any right over land or an interest in land for the purpose of securing any debt by way of a heritable security shall only be capable of being effected by standard security.
It includes any obligation due, or which will become due, to pay or repay money.
It also includes any obligation ad factum praestandum.
No distinction is drawn between obligations to pay the whole or part of the principal, the payment of the principal by instalments or the payment of interest or capital.
So the word debt in section 19(1) refers to anything and everything that is secured by the grant of the interest referred to in the standard security.
Where the Act means to refer to the whole amount due it says so: see section 18(4).
The word debt is not so limited.
Section 21(1) introduces the valuable innovation referred to in the introduction to the commentary on the Act in Current Law Statutes.
It applies where the debtor is in default within the meaning of standard condition 9(1)(b) and the default is remediable.
As standard condition 9(1)(b) refers to a failure to comply with any other requirement arising out of the security, this section must be taken to refer to defaults other than in respect of the debt secured by the standard security.
Content for its application is to be found in the requirements that are set out in standard condition 1 (maintenance and repair), standard condition 2 (completion of buildings), standard condition 3 (observance of conditions in title) and standard condition 5 (insurance) and any other similar conditions that may have been included by way of variation to maintain the value of the security subjects.
It was a weakness of the previous law that the steps that might be taken to achieve this were not clearly spelled out in the statutes.
The innovation is broadened by giving the creditor the right under section 24(1) to apply to the court for a warrant to exercise any of the remedies which he is entitled to exercise on a default within the meaning of standard condition 9(1)(a).
The Bank is this case has been seeking all along to require discharge of the debt secured by the standard security.
Mr McIlvride said that its position was that a calling-up notice was appropriate for use where the property had been abandoned and the creditor could exercise the powers referred to in standard condition 10 immediately.
If the debtor was still in occupation it was preferable to proceed under section 24 and apply to the court for a warrant to exercise them.
Unfortunately this approach overlooks the fact that the summary process of ejection, to which resort may be needed in these circumstances, is available only under section 5 of the 1894 Act and then only if the proprietor is in default after a formal requisition has been served on him.
Section 19(1), properly understood according to its own terms and read together with standard condition 9(1)(a), addresses this problem.
The route that standard condition 9(1)(b) indicates does not, as it is designed to deal with requirements arising under the standard security other than the discharge of the debt secured by it.
So even if the Bank had taken the further step of serving a notice that met the requirements of section 5, it would not have been entitled to the order it seeks as it did not serve a calling-up notice as required by section 19(1).
I agree with the judgments of Lord Hope and Lord Rodger.
I agree that this appeal should be allowed, for two reasons.
The first formed no part of counsel for the appellants argument but emerged during the hearing before us.
Section 19(1) of the Conveyancing and Feudal Reform (Scotland) Act 1970 requires that a creditor in a standard security who intends to require the discharge of the debt secured and, failing that, to exercise any of his enforcement powers shall serve a calling up notice.
Although we were referred to textbooks and authorities since the Act which have assumed that shall means may, we were not referred to anything in the Report of the Halliday Committee (Cmnd 3118), which led to the Act, suggesting that it was intended that a creditor could by-pass the calling up procedure required by section 19(1), either by serving a notice of default under section 21 or by applying to the court for a warrant under section 24.
If practice south of the border is anything to go by, the policy makers whose decisions lead to legislation are not actually responsible for the words which Parliamentary counsel use in translating their instructions into statutory language.
I would therefore be surprised if Professor Halliday were responsible for the words used in the Act.
This makes the absence of any prior recommendations on this point the more telling.
Without them, we need only focus on the actual language of the Act.
Although section 24 says that a creditor may apply to the court for a warrant if the debtor is in default within the meaning of standard condition 9(1)(b) or (c), it does not say that a default within the meaning of standard conditions 9(1)(b) or (c) is to be equated with a default within the meaning of standard condition 9(1)(a) or vice versa.
In other words, it does not displace the requirements of section 19(1).
In policy terms, it would be very surprising if it did.
Why provide for the calling up procedure at all, if it can simply be got round by going to court under section 24? There is obvious good sense in a policy which requires prior notice to the proprietors that a creditor intends to call in his security if the debt is not paid.
This case is a good example.
We do not know whether these debtors could have found a way of discharging their debts had they and their wives been told at the outset that their homes were at risk.
In some cases, no doubt, it would be quite impossible.
But in others, there might be enough surplus value (what we south of the border would call equity) in the home to raise alternative finance to pay off the loan or the home might be sold to do this before the debt had escalated to astronomical proportions as it has done here.
The Bank, of course, has every interest in allowing the debt to mount up until it gets close to the value of the home.
Without the calling up procedure the creditor can simply allow the debt to escalate without suffering any disadvantage.
There has to be something to make him declare his hand at a time when the debtor may be able to do something about it.
Secondly, in cases like this, there has to be power actually to get the occupiers out of the premises.
Without this the other remedies, such as the power of sale, will not work.
As I understand it, the only way in which this can now be done is under section 5 of the Heritable Securities (Scotland) Act 1894.
This requires a formal requisition, at least for repayment of the principal.
The calling up procedure supplies this, although no doubt there are other ways.
The policy is the same.
A debtor should be given an opportunity of remedying his default before he is dispossessed.
It is not much to ask.
Who knows whether these wives had sums in their own bank accounts which might have enabled them to discharge these debts had they been told? It is sexist simply to assume that they did not.
It is such an injustice to deprive these wives of their homes without even asking whether they might have had the resources to discharge their husbands debts that I cannot believe that, even in 1970, Parliament could have contemplated it.
We have been given no reason to think that it did.
These reasons are simply a supplement to the reasons given by Lord Hope and Lord Rodger.
In agreement with them both, therefore, I would allow this appeal.
I agree that this appeal should be allowed on the simple basis that, as Lord Rodger has demonstrated, Bank of Scotland v Millward 1999 SLT 901 was wrongly decided.
The effect of section 19(1) of the Conveyancing and Feudal Reform (Scotland) Act 1970 is that a creditor in a standard security who intends to require discharge of the secured debt and, failing that discharge, intends to exercise any power conferred by the security to sell any subjects of the security or any other power which he may appropriately exercise on the default of the debtor within the meaning of standard condition 9(1)(a) shall serve a calling up notice.
(My emphasis.)
In Bank of Scotland v Millward the Inner House construed shall as if it said may.
However, it gave no convincing reason for doing so and there is in my opinion no warrant for construing the word shall in that way in the context of the Act.
As I see it, the purpose of the subsection was to ensure that the proprietors of secured property should be given proper notice of the creditors intention to take possession of or to sell the property.
The giving of such a notice is a simple step and would have saved years of litigation in this case.
The Bank did not give such a notice on the facts of this case.
It follows that, although this point was not taken on behalf of the appellants until it arose in the course of the argument in this appeal, for the reasons given by Lord Rodger, I would allow the appeal on that ground.
| UK-Abs | This appeal raises questions as to the proper construction of provisions of the Conveyancing and Feudal Reform (Scotland) Act 1970 (the 1970 Act) which establish and regulate the form of security over heritable property known as a standard security.
In particular, the appeal addresses the circumstances in which a creditor is entitled to eject the debtor from the property over which the security was granted.
The Appellants, two married couples, are proprietors and occupiers of their homes, which are subject to a standard security granted by each couple to the respondent bank in 1991.
In each case the amount secured was any sum which the husband and wife owed or might owe to the bank, whether jointly or as individuals.
In 1992 and 1993, the husbands, who are brothers, undertook to repay to the bank any indebtedness of the two firms in which they were involved.
In 1995 the bank wrote to each of the brothers demanding repayment of the amounts which were then overdrawn on current accounts of the firms.
When the sums were not paid, the bank took steps which were intended to allow it to sell the couples homes.
In particular, in 1998 the bank treated the debtors as being in default and applied for, and was granted, warrant to exercise the powers available to creditors under standard condition 10 in Schedule 3 to the 1970 Act.
This was the first time that the wives knew that their homes were at risk of repossession by the bank.
The bank then applied to Edinburgh Sheriff Court for an order to eject the couples from their homes.
Under section 5 of the Heritable Securities (Scotland) Act 1894 (section 5), however, a creditor can only do so if the proprietor has failed to repay the sum in question after formal requisition.
The sheriff declined to grant an order for ejection, on the basis that the bank had not made a formal requisition for payment.
The bank appealed to the Court of Session.
An Extra Division held that a certificate of default which the bank had lodged in court, in accordance with section 24(2), constituted such formal requisition.
The couples appealed to the Supreme Court.
The Supreme Court unanimously allowed the appeal and held that the bank is not entitled to the remedies sought.
Lord Rodger held that a certificate of default is simply a piece of evidence created for use in proceedings and, contrary to the opinion of the Extra Division, cannot constitute a formal requisition for the purposes of section 5, since that requisition has to be made before any proceedings are begun: [31].
Having observed that service of a calling up notice would satisfy section 5 ([30]), Lord Rodger also rejected the banks argument that,
on a proper interpretation of section 24(1) of the 1970 Act, the bank should be treated as if it had served a calling up notice.
In Lord Rodgers opinion such an interpretation of section 24(1) would water down an important precondition to the ejection procedure, which was intended as a protection for debtors: [32] [33].
Lord Rodger further held that the language of section 19(1) of the 1970 Act is mandatory, not permissive: [46] [47].
Therefore a creditor, like the bank in this case, who seeks repayment of the debt and, failing repayment, to sell the security subjects must serve a calling up notice: [51].
The bank had not done so and, for that reason also, Lord Rodger would have allowed the appeal.
Lord Clarke agreed with Lord Rodger on this point: [85].
Lord Hope said that he agreed with Lord Rodger, but that the decision that the bank had pursued the wrong course when they decided to enforce these securities ran counter to the way the provisions of the Act had been understood and applied for decades: [54].
A certificate of default lodged eight years after raising the action cannot satisfy section 5 because, logically, a formal requisition must occur before any default by the debtor: [63] [64].
Where a creditor seeks discharge of the debt (in whole or in part), the section 19(1) procedure has to be followed and a calling up notice must be served: [73] [74], so that even if the bank had met the requirements of section 5, it would not have been entitled to the remedies sought as it had not served the calling up notice: [75].
Both Lord Rodger and Lord Hope held that a calling up notice and a notice of default are not mutually exclusive and that in certain circumstances a creditor can serve both: [48], [71].
Lord Walker agreed with Lord Rodger and Lord Hope: [76].
Lady Hale held that section 19(1) procedure is mandatory, observing that the policy of requiring a creditor to give notice of its intention to call in the security to all proprietors makes good sense: [80].
Lady Hale also held that the formal requisition requirement under section 5 had not been complied with as the wives did not have notice of the banks repayment demand until the proceedings began and thus were not given an opportunity to remedy their husbands default until it was too late: [81].
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Mesothelioma is a hideous disease that is inevitably fatal.
In most cases, indeed possibly in all cases, it is caused by the inhalation of asbestos fibres.
Unusual features of the disease led the House of Lords to create a special rule governing the attribution of causation to those responsible for exposing victims to asbestos dust.
This was advanced for the first time in Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22; [2003] 1 AC 32 and developed in Barker v Corus UK Ltd [2006] UKHL 20; [2006] 2 AC 572.
Parliament then intervened by section 3 of the Compensation Act 2006 further to vary this rule.
The rule in its current form can be stated as follows: when a victim contracts mesothelioma each person who has, in breach of duty, been responsible for exposing the victim to a significant quantity of asbestos dust and thus creating a material increase in risk of the victim contracting the disease will be held to be jointly and severally liable for causing the disease.
These two appeals involve cases where the defendant was the sole known source of occupational exposure to asbestos dust.
In each case the extent of the exposure found was very small.
In each case, the Court of Appeal, applying the special rule, held the defendant liable for causing the disease.
In Willmore v Knowsley Metropolitan Borough Council the Council contends that the trial judge erred in finding that it was responsible for exposing Mrs Willmore to sufficient asbestos dust to cause a material increase in risk.
The appeal involves an attack on findings of fact by the judge, which were upheld by the Court of Appeal, but no issue of principle, albeit that it nicely illustrates the effect of the special rule of causation.
I agree that this appeal must be dismissed for the reasons given by Lord Rodger and I have nothing to add to these.
In Sienkiewicz v Greif (UK) Ltd (Greif) the respondent is the daughter of Mrs Enid Costello and sues as administratrix of her estate.
The appellant, Greif, raises two separate, albeit interrelated, grounds of appeal.
The exposure for which the judge found Greif to have been responsible only increased the total amount of exposure which Mrs Costello would have experienced as a result of environmental exposure to asbestos, that is exposure to asbestos in the atmosphere, by 18%.
Greif submits that in these circumstances the respondent failed to prove on balance of probability that Greif caused Mrs Costellos mesothelioma; to do this she would have had to prove that the exposure for which Greif was responsible had more than doubled the environmental exposure.
This submission raises the following important issue of principle.
Does the special rule of causation that applies in cases of mesothelioma leave any room for applying a test of balance of probability to causation? It also raises a general issue as to the applicability as proof of causation in personal injury cases of a test usually applied to epidemiological evidence that I shall call the doubles the risk test.
Shortly stated this test attributes causative effect to any factor that more than doubled a risk that would otherwise have been present of the injury that occurred.
Greifs alternative submission is that occupational exposure to asbestos dust will only constitute a material increase in risk for the purpose of the special rule of causation if it more than doubles the environmental exposure to such dust to which the victim was subject.
It did not do so in the case of Mrs Costello.
Methods of proving causation
Most claims for death or personal injury result from accidents.
In such cases the cause of death or personal injury will seldom be in issue.
A body of knowledge which I shall call medical science will enable a witness, expert in that science, to describe the precise mechanism by which the accident brought about the death or injury.
I shall describe this as the biological cause of death or injury.
It is sometimes referred to by the more general description of the cause in fact.
In some cases, however, medical science will not yet have identified the precise mechanism by which an injury gives rise to a particular physical consequence.
In such cases it may be possible to deduce that there was a causative link between the two by evidence of what usually happens.
Epidemiological evidence that a particular injury or disease usually follows a particular type of bodily insult may enable a court to conclude in a particular case, on balance of probability, that the former was caused by the latter.
Post hoc ergo propter hoc.
A finding of causation based on such evidence is sometimes described as the cause in law.
Where the court is concerned with a speculative question what would have happened but for a particular intervention it is likely to need to have regard to what normally happens.
A good example of such a situation is the task of estimating the loss of expectation of life of a person whose death has been caused by negligence or breach of duty.
In such a situation the evidence upon which the court will reach its conclusion is likely to be provided, at least in part, by a statistician or an epidemiologist.
Medical science will identify whether the deceased had any physical characteristic relevant to his life expectancy.
Epidemiology will provide statistical evidence of life expectancy of the group or cohort to which the deceased belonged.
With this material the court answers the hypothetical question of the length of the life that the victim would have enjoyed but for the breach of duty of the defendant.
Epidemiology can also provide a court with assistance in deciding what actually happened, when the cause of a disease or injury is not clear.
For one remarkable example of the use, and ultimate rejection, of epidemiological evidence see Loveday v Renton [1990] 1 MLR 1.
Another remarkable case, to which I shall make further reference was XYZ v Schering Health Care Ltd [2002] EWHC 1420 (QB); 70 BMLR 88.
When a scientific expert gives an opinion on causation, he is likely to do so in terms of certainty or uncertainty, rather than probability.
Either medical science will enable him to postulate with confidence the chain of events that occurred, ie the biological cause, or it will not.
In the latter case he is unlikely to be of much assistance to the judge who seeks to ascertain what occurred on a balance of probability.
This reality was expressed by Lord Prosser in Dingley v The Chief Constable, Strathclyde Police 1998 SC 548, 603 with a clarity that merits quotation: In ordinary (non lawyers) language, to say that one regards something as probable is by no means to say that one regards it as established or proved.
Yet in the civil courts, where we say that a pursuer must prove his case on a balance of probabilities, what is held to be probable is treated as proved.
I do not suggest that any lawyer will be confused by this rather special meaning of the word proved.
But speaking very generally, I think that the civil requirement of a pursuer that he satisfy the court that upon the evidence his case is probably sound would in ordinary language be regarded as very different from, and less stringent than, a requirement that his case be established or proved.
More importantly in the context of such a case as the present, the fact that the two concepts are distinct in ordinary language, but the same in this legal context, seems to me to give rise to a risk of ambiguity or misunderstanding in the expressed opinions of expert witnesses.
And this risk will be increased if the expert in question would normally, in the exercise of his profession, adopt an approach to such issues starkly different from that incumbent upon a court.
Whether one uses the word scientific or not, no hypothesis or proposition would be seen as proved or established by anyone with any form of medical expertise merely upon the basis that he had come to regard it as probably sound. (Indeed, I think even the word probable would be reserved for situations where the likelihood is thought to be much more than marginal).
And even if, in relation to any possible proposition or hypothesis, such an expert even troubled to notice that he had come to the point of regarding it as not merely possible but on balance probable, then I think he would regard that point as one from which he must set off on further inquiry, and by no means as being (as it is in the courts) a point of arrival.
Mere marginal probability will not much interest him.
But it must satisfy a court.
The issue in Dingley was whether the development of multiple sclerosis had been caused by physical injury sustained in a motor accident.
Medical science was not able to demonstrate the connection between the two, and reliance was placed on epidemiological evidence.
Lord Prosser, at pp 604 605, had this to say about this method of proof: I am not much impressed by one argument advanced for the defender to the effect that the pursuers argument is essentially post hoc, ergo propter hoc, and therefore unsound.
Plainly, one will more readily conclude that B is caused by A, or probably caused by A, if one can identify, or at least envisage, some kind of mechanism whereby B might be caused by A. Equally, if one simply cannot identify or envisage such a mechanism, the mere fact that on one occasion B happened after A (and perhaps very quickly after A) would not, in the absence of other indications, lead one easily to conclude that B was caused by A. But no one, certainly in this case, suggests that such a single coincidence is to be interpreted as involving a causal relationship.
And once one moves from single coincidence to a number of occasions when B follows (perhaps quickly) upon A, dismissiveness of post hoc, ergo propter hoc reasoning seems to me to become less and less appropriate.
Indeed, unless and until one can identify or envisage a connecting mechanism, countless conclusions as to causal relationship are reached precisely upon a form of post hoc, ergo propter hoc reasoning: if B is observed never to occur except shortly after A, the conclusion may be relatively easy but if B is observed to occur frequently after A, then even if each sometimes occurs without the other, the frequency with which B occurs after A may nonetheless well justify a more or less firm conclusion that A, in certain circumstances, causes B. I do not regard such conclusions as based on false (or indeed simple) logic.
The approach is in my opinion inherent not only in conclusions drawn from ones general experience or anecdotal evidence.
It is inherent also in much experimental research, and also, as it seems to me, in epidemiology.
And while it may always seem somewhat insufficient, until one can find an identifiable possible mechanism, as a basis for claiming that the causal link is proved or established, in either ordinary or scientific terms, that feeling of insufficiency strikes me as much less appropriate if one stops short of such claims and contents oneself with saying that the causal relationship is marginally probable (or is proved or established only as required in civil litigation).
Knowledge about mesothelioma is based in part on medical science and in part on statistical analysis or epidemiology.
These appeals raise the question of whether, and if so to what extent, the court can satisfactorily base conclusions about causation on the latter, both in mesothelioma cases and more generally.
Principles of causation in relation to disease
Many diseases are caused by the invasion of the body by an outside agent.
Some diseases are caused by a single agent.
Thus malaria results from a single mosquito bite.
The extent of the risk of getting malaria will depend upon the quantity of malarial mosquitoes to which the individual is exposed, but this factor will not affect the manner in which the disease is contracted nor the severity of the disease once it is contracted.
The disease has a single, uniform, trigger and is indivisible.
The contraction of other diseases can be dose related.
Ingestion of the agent that causes the disease operates cumulatively so that, after a threshold is passed, it causes the onset of the disease.
Lung cancer caused by smoking is an example of such a disease, where the disease itself is indivisible.
The severity of the disease, once it has been initiated, is not related to the degree of exposure to cigarette smoke.
More commonly, diseases where the contraction is dose related are divisible.
The agent ingested operates cumulatively first to cause the disease and then to progress the disease.
Thus the severity of the disease is related to the quantity of the agent that is ingested.
Asbestosis and silicosis are examples of such diseases, as are the conditions of vibration white finger and industrial deafness, although the insults to the body that cause these conditions are not noxious agents.
For this reason it is important to distinguish between asbestosis and mesothelioma when considering principles of causation.
Mesothelioma is an indivisible disease.
As I shall explain there is uncertainty as to whether its contraction is related to the amount of asbestos fibres ingested.
It is a basic principle of the law of tort that the claimant will only have a cause of action if he can prove, on balance of probabilities, that the defendants tortious conduct caused the damage in respect of which compensation is claimed.
He must show that, but for the defendants tortious conduct he would not have suffered the damage.
This broad test of balance of probabilities means that in some cases a defendant will be held liable for damage which he did not, in fact, cause.
Equally there will be cases where the defendant escapes liability, notwithstanding that he has caused the damage, because the claimant is unable to discharge the burden of proving causation.
There is an important exception to the but for test.
Where disease is caused by the cumulative effect of the inhalation of dust, part of which is attributable to breach of duty on the part of the defendant and part of which involves no breach of duty, the defendant will be liable on the ground that his breach of duty has made a material contribution to the disease Bonnington Castings Ltd v Wardlaw [1956] AC 613.
The disease in that case was pneumoconiosis.
That disease is divisible.
The severity of the disease depends upon the quantity of silica inhaled.
The defendant did not, however, argue that, if held liable, this should only be to the extent that the dust for which it was responsible had contributed to the plaintiffs symptoms.
It was held liable for 100% of the disease.
There have, however, been a series of cases at first instance and in the Court of Appeal in which it has been recognised that where there has been a number of exposures of a claimant to bodily insults that have cumulatively caused a divisible disease, responsibility should be apportioned so that an individual defendant is liable for no more than his share of the disease.
This apportionment may necessarily be a rough and ready exercise: see Mustill Js analysis in Thompson v Smiths Shiprepairers (North Shields) Ltd [1984] QB 405 at pp 437 444 and the cases cited in McGregor on Damages, 18th ed (2010) at 8 010 to 8 016
What is known about mesothelioma
The special rule of causation applied to mesothelioma was devised because of ignorance about the biological cause of the disease.
It was accepted in Fairchild and Barker that this rendered it impossible for a claimant to prove causation according to the conventional but for test and this caused injustice to claimants.
It is not possible properly to consider the issues raised by this appeal without reference to what is known about mesothelioma.
This has been summarised in many cases, and much of my own summary in Bryce v Swan Hunter Group plc [1988] 1 All ER 659 of what was known 25 years ago remains true today.
The cases under appeal did not involve the introduction of detailed evidence of what is known today about mesothelioma, proceeding on the basis that findings in previous cases could be taken as read.
There was, however, introduced in evidence a case control study by Peto and Rake, published in 2009 by the Health and Safety Executive, on Occupational, Domestic and Environmental Mesothelioma risks in Britain (the Peto Report), which is said to be the first representative study to quantify the relationship between mesothelioma risk and lifetime occupational and residential history in this country.
In these circumstances I have turned to recent judicial authority in order to augment the information contained in Peto and Rakes study.
It has not been necessary to look further than the collation of data about mesothelioma set out by Rix LJ in his judgment in the series of appeals collectively described as Employers Liability Insurance Trigger Litigation [2010] EWCA Civ 1096.
I shall set out in an annex to this judgment details of the current knowledge about mesothelioma that I have obtained from these sources.
I can summarise the effect of the material in the Annex as follows: i) Mesothelioma is always, or almost always, caused by the inhalation of asbestos fibres. ii) A significant proportion of those who contract mesothelioma have no record of occupational exposure to asbestos.
The likelihood is that in their case the disease results from inhalation of asbestos dust that is in the environment.
There is, however, a possibility that some cases of mesothelioma are idiopathic, ie attributable to an unknown cause other than asbestos.
Mr Stuart Smith QC for Greif submitted that the Peto Report indicates that this is more than a possibility, but I do not so read it.
I do not, however, think that it matters whether some cases of the disease are idiopathic. iii) The more fibres that are inhaled, the greater the risk of contracting mesothelioma. iv) There is usually a very long period between the exposure to asbestos and the development of the first malignant cell.
Typically this can be at least 30 years. v) There will be a lengthy period between the development of the first malignant cell and the point at which the disease can be diagnosed.
At the time of Fairchild this was thought to be 10 years, but is now thought to be at least 5 years.
During this period, further exposure to asbestos fibres will have no causative effect. vi) The mechanism by which asbestos fibres cause mesothelioma is still not fully understood.
It is believed that a cell has to go through 6 or 7 genetic mutations before it becomes malignant, and asbestos fibres may have causative effect on each of these.
It is also possible that asbestos fibres have a causative effect by inhibiting the activity of natural killer cells that would otherwise destroy a mutating cell before it reaches the stage of becoming malignant. vii)
These propositions are based in part on medical science and in part on epidemiological studies.
They represent the current understanding of a disease about which much remains to be discovered.
The development of the special rule of causation that applies to mesothelioma
The starting point in tracing the development of the special rule of causation is the decision of the House of Lords in McGhee v National Coal Board [1973] 1 WLR 1, an appeal from the First Division of the Court of Session.
The pursuer claimed against his employers for dermatitis which he alleged had been caused by breaches of their common law duties.
He was employed in a brick kiln, where he got covered in brick dust.
This, so it was held, involved no breach of duty on the part of the defenders.
They were, however, held in breach of duty for failure to provide a shower which would have enabled him to wash off the dust as soon as he finished work.
He had to cycle home covered in dust and sweat.
Two medical experts were called.
The effect of their evidence was that the brick dust caused the dermatitis but that the precise mechanism whereby it did so was not known.
It was agreed, however, that the risk of contracting the disease would have been reduced had the pursuer been able to wash off the dust before he cycled home.
The cycle ride home in his unwashed state increased his risk of getting dermatitis.
Lord Reid at p 4 summarised this evidence as follows: The medical evidence is to the effect that the fact that the man had to cycle home caked with grime and sweat added materially to the risk that this disease might develop.
It does not and could not explain just why that is so.
But experience shows that it is so.
The nature of the evidence of that experience is not apparent.
It does not appear to have been based on epidemiological research.
Neither witness was able to quantify the extent to which failure to wash increased the risk, and one said that it was not possible to do so.
If epidemiological data had existed it might have been possible to make a quantitative assessment based upon it of the extent to which delay in washing off brick dust increased the risk of dermatitis.
On the very limited evidence available it was possible that the dermatitis had already been triggered by the time that the pursuer stopped work.
It is equally possible that the additional exposure while he cycled home caked in dust had a critical incremental effect in triggering the disease.
The defenders failure to provide showers increased the hazard posed to their workforce by brick dust and it was impossible on the evidence to determine whether this increase in hazard was or was not the critical factor in causing the pursuers dermatitis.
Thus the facts of McGhee were not on all fours with those of Bonnington.
In Bonnington it was possible to say that the inhalation of the silica attributable to breach of duty had contributed to causing the plaintiffs pneumoconiosis.
In McGhee it was not possible to say whether or not the lack of a shower had in fact contributed to the contraction of the dermatitis.
I have not found it possible to identify in McGhee reasoning that is common to all members of the House.
The analysis of the decision that is now generally accepted is that the majority of their Lordships adapted the approach in Bonnington to the facts of McGhee by equating contribution to the risk of contracting dermatitis with contribution to the disease itself.
They did so in circumstances where it was impossible to say whether, on balance of probability, the absence of shower facilities had been critical.
What four of their Lordships did not consider was what the position would have been if there had been epidemiological evidence that gave a negative answer to that question.
Lord Salmon did, however, expressly confront this question at p 12.
After observing that the expert evidence did not enable one to place a percentage figure on the extent to which the lack of shower facilities had increased the risk of contracting dermatitis, he added: It is known that some factors materially increase the risk and others materially decrease it.
Some no doubt are peripheral.
Suppose, however, it were otherwise and it could be proved that men engaged in a particular industrial process would be exposed to a 52 per cent risk of contracting dermatitis even when proper washing facilities were provided.
Suppose it could also be proved that that risk would be increased to, say, 90 per cent when such facilities were not provided.
It would follow that if the decision appealed from is right, an employer who negligently failed to provide the proper facilities would escape from any liability to an employee who contracted dermatitis notwithstanding that the employers had increased the risk from 52 per cent to 90 per cent.
The negligence would not be a cause of the dermatitis because even with proper washing facilities, ie without the negligence, it would still have been more likely than not that the employee would have contracted the disease the risk of injury then being 52 per cent.
If, however, you substitute 48 per cent for 52 per cent the employer could not escape liability, not even if he had increased the risk to, say, only 60 per cent.
Clearly such results would not make sense; nor would they, in my view, accord with the common law.
In the example given by Lord Salmon the lack of shower facilities did not quite double the risk of contracting dermatitis.
Thus, if one applies the doubles the risk test, the lack of shower facilities could not be shown to be the cause of any individual workmans dermatitis.
I can understand why Lord Salmon considered that to base a finding of causation on such evidence would be capricious, but not why he considered that to do so would be contrary to common law.
The balance of probabilities test is one that is inherently capable of producing capricious results.
Nor do I understand his cryptic comment: I think that the approach by the courts below confuses the balance of probability test with the nature of causation.
The doubles the risk test is one that, as I shall show in due course, has been adopted in subsequent cases as a valid method of deciding causation on balance of probabilities, and one which Mr Stuart Smith has sought to apply on these appeals.
In Hotson v East Berkshire Area Health Authority [1987] AC 750 causation again caused a problem.
The plaintiff, aged 13, had fallen out of a tree and sustained injury which reduced the flow of blood to cartilage in his hip joint.
In breach of duty the defendants failed to diagnose this for five days.
He suffered permanent disability of the hip joint.
The issue was whether the injury itself was so severe that the subsequent disability of the hip joint was inevitable or whether, but for the five day delay, it would have been possible to prevent that disability.
The medical evidence was that there was a 75% likelihood that the former was the case, but a 25% possibility that the delay in treatment was critical.
At first instance [1985] 1 WLR 1036 Simon Brown J held that the defendants breach of duty had robbed the plaintiff of a 25% chance of avoiding the disability.
The House of Lords held that this analysis was erroneous.
The plaintiff was not robbed of a chance of avoiding the disability.
The die was cast as soon as he had sustained his injury.
Either the disability was inevitable or it could, with due skill and care, have been avoided.
On balance of probability, estimated at 75/25, the former was the position, so the plaintiff had failed to prove causation.
The particular interest of Hotson in the present context is the consideration given by Lord Mackay of Clashfern to McGhee, a case in which he had appeared as leading counsel for the employers.
Like Lord Salmon, he took an epidemiological example.
He said, at p 786: In McGhee v National Coal Board [1973] 1 WLR 1 this House held that where it was proved that the failure to provide washing facilities for the pursuer at the end of his shift had materially increased the risk that he would contract dermatitis it was proper to hold that the failure to provide such facilities was a cause to a material extent of his contracting dermatitis and thus entitled him to damages from his employers for their negligent failure measured by his loss resulting from dermatitis.
Material increase of the risk of contraction of dermatitis is equivalent to material decrease in the chance of escaping dermatitis.
Although no precise figures could be given in that case for the purpose of illustration and comparison with this case one might, for example, say that it was established that of 100 people working under the same conditions as the pursuer and without facilities for washing at the end of their shift 70 contracted dermatitis: of 100 people working in the same conditions as the pursuer when washing facilities were provided for them at the end of the shift 30 contracted dermatitis.
Assuming nothing more were known about the matter than that, the decision of this House may be taken as holding that in the circumstances of that case it was reasonable to infer that there was a relationship between contraction of dermatitis in these conditions and the absence of washing facilities and therefore it was reasonable to hold that absence of washing facilities was likely to have made a material contribution to the causation of the dermatitis.
In contrast to Lord Salmons figures, Lord Mackays figures demonstrate that, statistically, the lack of washing facilities more than doubled the risk of contracting dermatitis.
Had evidence supporting such figures been given, it would have enabled the House, by application of the doubles the risk test, to conclude that the lack of shower facilities had, on balance of probabilities, caused Mr McGhee to contract dermatitis.
I do not at this stage comment on whether or not it would have been appropriate for the House to apply that test.
Lord Mackay went on to comment: Although neither party in the present appeal placed particular reliance on the decision in McGhee since it was recognised that McGhee is far removed on its facts from the circumstances of the present appeal your Lordships were also informed that cases are likely soon to come before the House in which the decision in McGhee will be subjected to close analysis.
Obviously in approaching the matter on the basis adopted in McGhee much will depend on what is know of the reasons for the differences in the figures which I have used to illustrate the position.
In these circumstances I think it unwise to do more than say that unless and until this House departs from the decision in McGhee your Lordships cannot affirm the proposition that in no circumstances can evidence of loss of a chance resulting from the breach of a duty of care found a successful claim of damages, although there was no suggestion that the House regarded such a chance as an asset in any sense.
Once again I find this comment cryptic.
Lord Mackay seems to be treating epidemiological evidence as evidence of loss of a chance, but it is not clear whether he is suggesting that such evidence might lead to a partial recovery rather than a full recovery in a case such as McGhee.
The next step in the story is Wilsher v Essex Area Health Authority [1988] AC 1074.
A baby boy, born three months prematurely, developed a condition of the retina which rendered him blind.
There were five possible causes of the condition.
One was the negligent administration of an excessive quantity of oxygen.
The other four involved no fault on the part of the defendants medical staff.
The expert witnesses were unable to say which caused the disease.
The Court of Appeal, purporting to apply the principle in McGhee, held in favour of the infant.
Mustill LJ expressed the principle, as he understood it, as follows [1987] QB 730, 771 772: If it is an established fact that conduct of a particular kind creates a risk that injury will be caused to another or increases an existing risk that injury will ensue; and if the two parties stand in such a relationship that the one party owes a duty not to conduct himself in that way; and if the first party does conduct himself in that way; and if the other party does suffer injury of the kind to which the risk related; then the first party is taken to have caused the injury by his breach of duty, even though the existence and extent of the contribution made by the breach cannot be ascertained.
This analysis of McGhee was principled and coherent, but it was of wide general application and fundamentally rewrote the law of causation.
It opened the floodgates and, I suspect, this may, in part, be the reason why it was subsequently rejected.
Appeal at p 779, did not accept Mustill LJs analysis: In Wilsher, Sir Nicolas Browne Wilkinson V C, dissenting in the Court of To apply the principle in McGhee v National Coal Board [1973] 1 WLR 1 to the present case would constitute an extension of that principle.
In the McGhee case there was no doubt that the pursuers dermatitis was physically caused by brick dust: the only question was whether the continued presence of such brick dust on the pursuers skin after the time when he should have been provided with a shower caused or materially contributed to the dermatitis which he contracted.
There was only one possible agent which could have caused the dermatitis, viz, brick dust, and there was no doubt that the dermatitis from which he suffered was caused by that brick dust.
In the present case the question is different.
There are a number of different agents which could have caused the RLF.
Excess oxygen was one of them.
The defendants failed to take reasonable precautions to prevent one of the possible causative agents (eg excess oxygen) from causing RLF.
But no one can tell in this case whether excess oxygen did or did not cause or contribute to the RLF suffered by the plaintiff.
The plaintiffs RLF may have been caused by some completely different agent or agents, eg hypercarbia, intraventricular haemorrhage, apnoea or patent ductus arteriosus.
In addition to oxygen, each of those conditions has been implicated as a possible cause of RLF.
This baby suffered from each of those conditions at various times in the first two months of his life.
There is no satisfactory evidence that excess oxygen is more likely than any of those other four candidates to have caused RLF in this baby.
To my mind, the occurrence of RLF following a failure to take a necessary precaution to prevent excess oxygen causing RLF provides no evidence and raises no presumption that it was excess oxygen rather than one or more of the four other possible agents which caused or contributed to RLF in this case.
The position, to my mind, is wholly different from that in the McGhee case [1973] 1 WLR 1, where there was only one candidate (brick dust) which could have caused the dermatitis, and the failure to take a precaution against brick dust causing dermatitis was followed by dermatitis caused by brick dust.
In such a case, I can see the common sense, if not the logic, of holding that, in the absence of any other evidence, the failure to take the precaution caused or contributed to the dermatitis.
To the extent that certain members of the House of Lords decided the question on inferences from evidence or presumptions, I do not consider that the present case falls within their reasoning.
A failure to take preventative measures against one out of five possible causes is no evidence as to which of those five caused the injury.
In the House of Lords, Lord Bridge of Harwich, reversing, with the agreement of the other members of the House, the decision of the Court of Appeal, approved the Vice Chancellors analysis.
He went on to hold at p 1090 that McGhee laid down no new principle of law whatever.
On the contrary, it affirmed the principle that the onus of proving causation lies on the pursuer or plaintiff.
Adopting a robust and pragmatic approach to the undisputed primary facts of the case, the majority concluded that it was a legitimate inference of fact that the defenders negligence had materially contributed to the pursuers injury.
The decision, in my opinion, is of no greater significance than that and to attempt to extract from it some esoteric principle which in some way modifies, as a matter of law, the nature of the burden of proof of causation which a plaintiff or pursuer must discharge once he has established a relevant breach of duty is a fruitless one.
This analysis of McGhee has fared no better than that of Mustill LJ, cited at para 31.
Bryce v Swan Hunter Group plc [1988] 1 All ER 659 was heard after the decision of the Court of Appeal and before the decision of the House of Lords in Wilsher.
It was a claim in respect of mesothelioma against three defendants who, as successive employers, had tortiously exposed the plaintiff to asbestos dust.
He had had other exposure to this less than 10 years before the onset of the disease and those responsible for this had not been joined as defendants.
McGhee, as explained by Mustill LJ in Wilsher, was applied, resulting in a finding that each of the defendants was liable.
I understand that after this decision insurers of employers who had consecutively subjected workmen to asbestos dust tended to accept joint and several liability for mesothelioma and to agree apportionment.
At all events, this Court was not referred to any decision where such an approach was challenged until Fairchild.
Fairchild involved three separate mesothelioma claims, which had been heard together by the Court of Appeal [2002] 1 WLR 1052.
In each case the victim had been employed by a series of employers, each of which had wrongly exposed him to asbestos dust.
No attempt had been made to prove, by epidemiology or otherwise, that on balance of probabilities, any particular employer had caused the victim to contract the disease.
The Court of Appeal ruled against each claim on the ground that it had not been shown on balance of probability that any defendant had caused the disease.
Reliance on McGhee was rejected on the ground that Lord Bridge in Wilsher had held that it established no new principle of causation and that, in McGhee, there had been no doubt that the defendant had caused the dermatitis the only question was whether the defendant had done so in breach of duty.
If McGhee was applied in the Fairchild situation there was a risk that a defendant would be held liable for a disease that it had not caused at all.
The House of Lords reversed the Court of Appeal, holding that the principle in McGhee was applicable.
Lord Bingham at paras 21 and 22 held that Lord Bridge had been wrong in Wilsher to hold that McGhee represented no more than a robust finding of fact that the defenders negligence had materially contributed to the pursuers injury.
The opinions of at least the majority in McGhee could not be read as decisions of fact or orthodox applications of settled law.
The House had adapted (rather than adopted) the orthodox test to meet the problem of proving causation that had arisen on the facts of that case.
Lord Nicholls of Birkenhead put the matter this way at para 44: Given the medical evidence in McGhee, it was not open to the House, however robustly inclined, to draw an inference that the employers negligence had in fact caused or materially contributed to the onset of the dermatitis in the sense that, but for that negligence, the dermatitis would not have occurred.
Instead, a less stringent causal connection was regarded as sufficient.
It was enough that the employer had materially increased the risk of harm to the employee.
There is room for debate, and there has been debate, as to the precise basis upon which the House in Fairchild applied the McGhee principle to the mesothelioma claims under consideration.
I do not propose to enter that debate, for it was overtaken by the decision of the House in Barker.
At this point it suffices to note the following.
The House was agreed that the application of the McGhee principle was circumscribed by a number of conditions, though not agreed as to what these were.
Lord Bingham at para 2 identified 6 relevant factors that applied to the cases under consideration, before going on to hold that they brought into play the McGhee principle: (1) C was employed at different times and for differing periods by both A and B, and (2) A and B were both subject to a duty to take reasonable care or to take all practicable measures to prevent C inhaling asbestos dust because of the known risk that asbestos dust (if inhaled) might cause a mesothelioma, and (3) both A and B were in breach of that duty in relation to C during the periods of C's employment by each of them with the result that during both periods C inhaled excessive quantities of asbestos dust, and (4) C is found to be suffering from a mesothelioma, and (5) any cause of C's mesothelioma other than the inhalation of asbestos dust at work can be effectively discounted, but (6) C cannot (because of the current limits of human science) prove, on the balance of probabilities, that his mesothelioma was the result of his inhaling asbestos dust during his employment by A or during his employment by B or during his employment by A and B taken together.
At para 7 Lord Bingham explained the shortcomings of medical science: It is not known what level of exposure to asbestos dust and fibre can be tolerated without significant risk of developing a mesothelioma, but it is known that those living in urban environments (although without occupational exposure) inhale large numbers of asbestos fibres without developing a mesothelioma.
It is accepted that the risk of developing a mesothelioma increases in proportion to the quantity of asbestos dust and fibres inhaled: the greater the quantity of dust and fibre inhaled, the greater the risk.
But the condition may be caused by a single fibre, or a few fibres, or many fibres: medical opinion holds none of these possibilities to be more probable than any other, and the condition once caused is not aggravated by further exposure.
So if C is employed successively by A and B and is exposed to asbestos dust and fibres during each employment and develops a mesothelioma, the very strong probability is that this will have been caused by inhalation of asbestos dust containing fibres.
But C could have inhaled a single fibre giving rise to his condition during employment by A, in which case his exposure by B will have had no effect on his condition; or he could have inhaled a single fibre giving rise to his condition during his employment by B, in which case his exposure by A will have had no effect on his condition; or he could have inhaled fibres during his employment by A and B which together gave rise to his condition; but medical science cannot support the suggestion that any of these possibilities is to be regarded as more probable than any other.
There is no way of identifying, even on a balance of probabilities, the source of the fibre or fibres which initiated the genetic process which culminated in the malignant tumour.
Lord Bingham identified at para 23 the problem raised by the facts of Fairchild as follows: The problem of attributing legal responsibility where a victim has suffered a legal wrong but cannot show which of several possible candidates (all in breach of duty) is the culprit who has caused him harm is one that has vexed jurists in many parts of the world for many years.
He justified his decision by the following policy considerations set out at para 33: It can properly be said to be unjust to impose liability on a party who has not been shown, even on a balance of probabilities, to have caused the damage complained of.
On the other hand, there is a strong policy argument in favour of compensating those who have suffered grave harm, at the expense of their employers who owed them a duty to protect them against that very harm and failed to do so, when the harm can only have been caused by breach of that duty and when science does not permit the victim accurately to attribute, as between several employers, the precise responsibility for the harm he has suffered.
I am of opinion that such injustice as may be involved in imposing liability on a duty breaking employer in these circumstances is heavily outweighed by the injustice of denying redress to a victim.
Lord Bingham did not expressly consider the approach to be adopted where a claimant had been exposed to asbestos dust both from employers in breach of duty and from sources that did not involve fault, or which involved fault on the part of the claimant himself.
At para 34 he expressly limited the special rule of causation that he was endorsing to a situation where all six of the factors that he had identified at the start of his speech were present.
At para 22 he underlined why the special rule did not apply on the facts of Wilsher: It is plain, in my respectful opinion, that the House was right to allow the defendants' appeal in Wilsher, for the reasons which the Vice Chancellor had given and which the House approved.
It is one thing to treat an increase of risk as equivalent to the making of a material contribution where a single noxious agent is involved, but quite another where any one of a number of noxious agents may equally probably have caused the damage.
The other members of the House did not circumscribe the special rule of causation as tightly as Lord Bingham.
In McGhee itself the causal competition had been between exposure to dust that involved no fault and exposure that involved fault on the part of the employers, a point made by Lord Rodger at para 153.
He also held that Mustill LJ had illegitimately extended the special causation test in Wilsher.
He held, at para 149: Mustill LJs extension of the approach in McGhee to a situation where there were all kinds of other possible causes of the plaintiff's condition, resulted in obvious injustice to the defendants.
In particular, there was nothing to show that the risk which the defendants' staff had created that the plaintiff would develop retrolental fibroplasia because of an unduly high level of oxygen had eventuated.
That being so, there was no proper basis for applying the principle in McGhee.
As [Sir Nicolas Browne Wilkinson V C] decisively observed, a failure to take preventive measures against one of five possible causes was no evidence as to which of those five had caused the injury.
The reasoning of the Vice Chancellor, which the House adopted, provided a sound and satisfactory basis for distinguishing McGhee and for allowing the appeal.
Lord Rodger set out his conclusions at para 170: First, the principle is designed to resolve the difficulty that arises where it is inherently impossible for the claimant to prove exactly how his injury was caused.
It applies, therefore, where the claimant has proved all that he possibly can, but the causal link could only ever be established by scientific investigation and the current state of the relevant science leaves it uncertain exactly how the injury was caused and, so, who caused it.
McGhee and the present cases are examples.
Secondly, part of the underlying rationale of the principle is that the defendant's wrongdoing has materially increased the risk that the claimant will suffer injury.
It is therefore essential not just that the defendant's conduct created a material risk of injury to a class of persons but that it actually created a material risk of injury to the claimant himself.
Thirdly, it follows that the defendant's conduct must have been capable of causing the claimant's injury.
Fourthly, the claimant must prove that his injury was caused by the eventuation of the kind of risk created by the defendant's wrongdoing.
In McGhee, for instance, the risk created by the defenders' failure was that the pursuer would develop dermatitis due to brick dust on his skin and he proved that he had developed dermatitis due to brick dust on his skin.
By contrast, the principle does not apply where the claimant has merely proved that his injury could have been caused by a number of different events, only one of which is the eventuation of the risk created by the defendants wrongful act or omission.
Wilsher is an example.
Fifthly, this will usually mean that the claimant must prove that his injury was caused, if not by exactly the same agency as was involved in the defendant's wrongdoing, at least by an agency that operated in substantially the same way.
A possible example would be where a workman suffered injury from exposure to dusts coming from two sources, the dusts being particles of different substances each of which, however, could have caused his injury in the same way.
Without having heard detailed argument on the point, I incline to the view that the principle was properly applied by the Court of Appeal in Fitzgerald v Lane [1987] QB 781.
Sixthly, the principle applies where the other possible source of the claimant's injury is a similar wrongful act or omission of another person, but it can also apply where, as in McGhee, the other possible source of the injury is a similar, but lawful, act or omission of the same defendant.
I reserve my opinion as to whether the principle applies where the other possible source of injury is a similar but lawful act or omission of someone else or a natural occurrence.
The conundrum
Neither Lord Bingham nor Lord Rodger explained the nature of the principle that justifies restricting the application of McGhee to the situation where the competing causes of the injury suffered by the claimant involve the same or a similar noxious substance or agency.
There is, however, a more significant conundrum raised by Fairchild which is particularly relevant to this appeal.
Lord Bingham observed (see para 40 above) that it is accepted that the risk of developing mesothelioma increases in proportion to the quantity of asbestos dust and fibres inhaled.
If this is so why should one not determine the probability that a particular defendant caused a claimants mesothelioma by analysing the extent to which he wrongfully contributed to the exposure of the claimant to asbestos dust and fibres? This conundrum is highlighted by the decision of the House in Barker.
Barker
The question that Lord Rodger had expressly left open at the end of his speech in Fairchild was raised directly in Barker, one of three appeals that were heard together.
The claimant was the widow of a man who had died of mesothelioma.
He had been exposed to asbestos dust on three occasions in his working life.
Once when working for a company which had since become insolvent, once when working for the defendant and once when working for himself.
On the last occasion he had failed to take reasonable precautions for his own safety.
In the courts below the defendant had been held jointly and severally liable with the insolvent company, but the claimants damages had been reduced by 20% to reflect her husbands contributory negligence.
The other two appeals involved employees who had been exposed to asbestos dust by a series of employers, many of whom had since been held insolvent.
In the courts below the solvent employers who had been sued were held jointly and severally liable.
In each appeal the defendants argued that the special rule of causation that the House had applied in Fairchild should be further refined so as to render each employer liable only for that proportion of the damages which represented his contribution to the risk that the employee would contract mesothelioma.
This submission was accepted by all members of the Committee with the exception of Lord Rodger, who dissented.
Lord Hoffmann gave the leading speech for the majority.
He dealt first with the question of whether the Fairchild principle could apply in a case where part of the exposure was non tortious.
At para 17 he gave a positive answer to that question: The purpose of the Fairchild exception is to provide a cause of action against a defendant who has materially increased the risk that the claimant will suffer damage and may have caused that damage, but cannot be proved to have done so because it is impossible to show, on a balance of probability, that some other exposure to the same risk may not have caused it instead.
For this purpose, it should be irrelevant whether the other exposure was tortious or non tortious, by natural causes or human agency or by the claimant himself.
These distinctions may be relevant to whether and to whom responsibility can also be attributed, but from the point of view of satisfying the requirement of a sufficient causal link between the defendant's conduct and the claimant's injury, they should not matter.
Lord Hoffmann then turned to deal with apportionment.
He did so on the premise that mesothelioma is an indivisible injury caused by a single exposure to asbestos dust.
The greater the overall exposure, the greater the risk of an individual fatal exposure: see paras 2 and 26.
If, under the Fairchild principle exposure had been treated as if it had actually contributed to the disease, the conventional approach would have resulted in all those responsible for exposure being held jointly and severally liable for the injury caused.
Lord Hoffmann did not consider it fair to impose such liability on employers in cases in which there is merely a relatively small chance that they caused the injury (paras 43 and 46).
He avoided this consequence by interpreting the Fairchild principle as one that rendered a defendant liable for contributing to risk, not contributing to injury.
The risk created was itself the damage, albeit that the principle only applied where injury had been caused.
As risk or chance was infinitely divisible, each defendant could be held liable for his contribution to the risk.
At the end of his consideration of the issue of causation, Lord Hoffmann made the following finding as to the limit of the Fairchild principle or exception: 24.
In my opinion it is an essential condition for the operation of the exception that the impossibility of proving that the defendant caused the damage arises out of the existence of another potential causative agent which operated in the same way.
It may have been different in some causally irrelevant respect, as in Lord Rodger's example of the different kinds of dust, but the mechanism by which it caused the damage, whatever it was, must have been the same.
So, for example, I do not think that the exception applies when the claimant suffers lung cancer which may have been caused by exposure to asbestos or some other carcinogenic matter but may also have been caused by smoking and it cannot be proved which is more likely to have been the causative agent.
In considering how apportionment would work in practice, Lord Hoffmann
said this: 36.
Treating the creation of the risk as the damage caused by the defendant would involve having to quantify the likelihood that the damage (which is known to have materialised) was caused by that particular defendant.
It will then be possible to determine the share of the damage which should be attributable to him.
The quantification of chances is by no means unusual in the courts.
For example, in quantifying the damage caused by an indivisible injury, such as a fractured limb, it may be necessary to quantify the chances of future complications.
Sometimes the law treats the loss of a chance of a favourable outcome as compensatable damage in itself.
The likelihood that the favourable outcome would have happened must then be quantified: see, for example, Chaplin v Hicks [1911] 2 KB 786 and Kitchen v Royal Air Force Association [1958] 1 WLR 563. 37.These are of course cases in which there is uncertainty as to what will be, or would have been, the outcome of a known event; for example, the consequences of a fractured ankle, a beauty contest or a lawsuit.
The present case involves uncertainty as to the cause of a known outcome, namely, the mesothelioma.
But in principle I can see no reason why the courts cannot quantify the chances of X having been the cause of Y just as well as the chance of Y being the outcome of X.
He returned to this theme under the heading of quantification at para 48: But when the damage is apportioned among the persons responsible for the exposures to asbestos which created the risk, it is known that those exposures were together sufficient to cause the disease.
The damages which would have been awarded against a defendant who had actually caused the disease must be apportioned to the defendants according to their contributions to the risk.
It may be that the most practical method of apportionment will be according to the time of exposure for which each defendant is responsible, but allowance may have to be made for the intensity of exposure and the type of asbestos.
These questions are not before the House and it is to be hoped that the parties, their insurers and advisers will devise practical and economical criteria for dealing with them.
These passages raise the conundrum to which I have referred in para 45 above in an acute form.
If it is possible, on the basis of responsibility for exposure, to deduce the relative likelihood of a defendant being the employer who actually caused the injury, why should one not resolve liability according to the normal test of balance of probability.
If one can determine that there was a relatively small chance that a particular employer caused the injury, why should that employer not be absolved from liability on the ground that he can prove, on balance of probability, that he was not responsible?
Lord Scott agreed with the reasoning and the result reached by Lord Hoffmann.
He recognised, however, that the limitations on medical knowledge rendered it impossible to say whether mesothelioma was caused by a single exposure, and thus a single employer, or by a combination of more than one exposures and thus, possibly, by more than one employer: para 51.
His speech also implicitly raised the conundrum.
When dealing with apportionment he said this, at para 62: Ascertainment of the degree of risk would be an issue of fact to be determined by the trial judge.
The issue would depend upon the duration of the exposure for which each negligent defendant was responsible compared with the total duration of the claimant's exposure to the injurious agent in question.
It might depend also on the intensity of the exposure for which the defendant was responsible compared with the intensity of the exposure for which the defendant was not responsible.
The exact type of agent might be a relevant factor in assessing the degree of risk.
I have in mind that there are different types of asbestos and some might create a greater risk than others.
Other factors relevant to the degree of risk might come into the picture as well.
The assessment of the percentage risk for which an individual defendant was responsible, and therefore the percentage of the total damage for which that defendant could be held liable, would, as I have said, be an issue of fact to be decided on the evidence in each case.
Why could one not assess the probability of having caused the injury on the same basis as that used to apportion contribution to the risk of causing the injury?
The same question is raised by the speech of Lord Walker, who also agreed with the reasoning and result reached by Lord Hoffmann.
He observed, at para 109: A rule of law by which exposure to risk of injury is equated with legal responsibility for that injury entails the possibility that an employer may be held liable for an injury which was not in fact caused by that exposure (though in the present state of medical science, that fact can be neither proved nor disproved).
This possible unfairness cannot be eliminated, as the House recognised in Fairchild, but it is considerably reduced if each employer's liability is limited in proportion to the fraction of the total exposure (measured by duration and intensity) for which each is responsible.
The underlying premise of all three speeches, as of the speeches in Fairchild, is that it is not possible to determine causation unless medical science enables one to do so with certainty.
But the law of causation does not deal in certainties; it deals in probabilities.
Lady Hale agreed in general with the majority, but she did not accept that the gist of the actions was the risk created rather than the mesothelioma.
To that extent she shared the reasoning that had led Lord Rodger to dissent.
The result of the decision in Barker was that, where not all those who were responsible for an employees mesothelioma were before the court, only a proportion of the relevant damages would be recoverable.
This was highly significant having regard to the very long latency period of the disease, for in most cases there was a high likelihood that there would be employers who had contributed to exposure and who had gone into liquidation.
Apportionment also dealt with the problem of contributory negligence.
The rejoicing with which the insurance industry must have greeted this result was short lived as Parliament intervened.
The Compensation Act 2006
The preamble to the 2006 Act includes among its objects to make provision about damages for mesothelioma.
The relevant parts of the provision made are as follows: 3.
Mesothelioma: damages (1)This section applies where (a) a person (the responsible person) has negligently or in breach of statutory duty caused or permitted another person (the victim) to be exposed to asbestos, (b) the victim has contracted mesothelioma as a result of exposure to asbestos, (c) because of the nature of mesothelioma and the state of medical science, it is not possible to determine with certainty whether it was the exposure mentioned in paragraph (a) or another exposure which caused the victim to become ill, and (d) the responsible person is liable in tort, by virtue of the exposure mentioned in paragraph (a), in connection with damage caused to the victim by the disease (whether by reason of having materially increased a risk or for any other reason). (2) The responsible person shall be liable (a) in respect of the whole of the damage caused to the victim by the disease (irrespective of whether the victim was also exposed to asbestos (i) other than by the responsible person, whether or not in circumstances in which another person has liability in tort, or (ii) by the responsible person in circumstances in which he has no liability in tort), and (b) jointly and severally with any other responsible person.
This provision has grafted onto the Fairchild/Barker principle a special rule in relation to liability in damages that applies only to mesothelioma.
The 2006 Act, coupled with Fairchild, has draconian consequences for an employer who has been responsible for only a small proportion of the overall exposure of a claimant to asbestos dust, or his insurers, but it would be wrong to have regard to that fact when considering the issues raised by these appeals.
Parliament has willed it so.
The facts in Greif as found by the judge
Mrs Costello died of mesothelioma in January 2006 at the age of 74.
She had worked for Greif or their predecessors at their factory at Ellesmere Port, Cheshire, between 1966 and 1984.
Greif exposed those working at that factory to asbestos dust in breach of duty.
The greatest exposure was on the factory floor, but to a much lesser extent asbestos dust permeated to other parts of the factory.
Mrs Costellos exposure was in those other parts as she moved around the factory.
This occupational exposure was very light.
The judge, His Honour Judge Main QC, heard expert evidence which quantified this exposure and compared it to the environmental exposure that would be experienced by everyone.
While he held that he could only use the broadest sorts of estimates as to Mrs Costellos asbestos exposure he none the less based some very specific findings on this expert evidence.
He held that her exposure to asbestos over her working life at Greifs factory increased the risk to which environmental exposure subjected her from 24 cases per million to 28.39 cases per million an increase of risk of 18%.
It was on the basis of this finding that the judge held that the claimants case on causation had not been made out.
His starting point was that the special rule in Fairchild had no application where there was only one tortfeasor and where the competition as to causation was between an innocent and a tortious source of dust.
In that situation he adopted an approach to causation which had been adopted, by agreement between the parties, in an earlier case on similar facts in the Cardiff County Court decided by HH Judge Hickinbottom: Jones v Metal Box Ltd (unreported) 11 January 2007: 53. (ii) It was common ground that, in order to succeed with the claim, the claimant must show that as a result of her exposure to asbestos dust at work as I have described, Mrs Jones risk of mesothelioma at least doubled from that which it would have been without that exposure.
That in my judgment is a correct analysis of the position with regard to medical causation: because unless the claimant can show that the risk was doubled, then it is more likely than not that the mesothelioma had an idiopathic rather than an occupational cause Thus Judge Hickinbottom applied the doubles the risk test.
Applying that test Judge Main held: On the facts of this case, the claimant could only succeed if she were able to prove that all Mrs Costellos exposure to asbestos was within the Oil Sites premises, cumulatively, over her 18 years employment exceeded her environmental risks.
Here environmental risks are the same as those idiopathic risks referred to by Judge Hickinbottom.
This in my judgment regrettably, she failed to do.
Whilst Mrs Costellos risk of contracting mesothelioma increased by 18% the bottom line is that it was caused by her environmental exposure to asbestos.
Her claim against the defendants accordingly must be dismissed.
In the Court of Appeal Smith LJ gave the leading judgment.
In discussing the legal principles applicable she first referred to McGhee and Fairchild.
She then considered the doubles the risk test in relation to cases of diseases other than mesothelioma.
She reached the following conclusion of general principle: 20.
The theory that causation could be proved on the balance of probabilities by reference to a doubling of the risk of injury was first applied by Mackay J in the oral contraceptive litigation XYZ v Schering Health Care Ltd (2002) 70 BMLR 88.
As a preliminary issue, the parties agreed that the judge should examine the epidemiological evidence relating to the risk of deep vein thrombosis arising from two different types of oral contraceptive.
The claimant group could succeed only if the epidemiology showed that the risk of harm arising from the type of contraceptive they had been taking (which it was assumed they had not been warned about and would not have taken if warned) was at least twice that arising from the type which they had formerly been taking (which it was assumed they had been warned about and which risk they had accepted).
The logic behind this was that, if the risk from potential cause A is x% and the risk from the other potential cause B is 2.1x%, it is more likely than not that the condition which has eventuated has been caused by B. 21.
Since the oral contraceptive case, this method of proving causation has been applied in cases of lung cancer where the claimant has been tortiously exposed to asbestos and non tortiously exposed to cigarette smoke, both of which are potent causes of the condition.
Expert evidence is received as to the relative risks created by the two forms of exposure and, if, on the individual facts of the case, the risk from the asbestos exposure is more than double the risk from smoking, the claimant succeeds. 22.
The only case of which I am aware in which this approach has been applied or approved in the Court of Appeal is Novartis Grimsby Ltd v Cookson [2007] EWCA Civ 1261.
That was a case of bladder cancer, in which the claimant had been tortiously exposed to carcinogens in the course of his employment in a dye works.
He had also been a regular smoker.
Both were potential causes of bladder cancer.
At trial, the defendants case was that the tortious exposure at work had been minimal.
The recorder held that it was not minimal and applied the Bonnington case [1956] AC 613; he held that the tort had made a material contribution to the disease.
On appeal, the appellant employer argued, correctly, that that was wrong as the tort could not be said to have made a contribution to the disease, only to the risk of the disease developing.
The claimant argued that the case ought to come within the Fairchild exception so that all that was necessary was to prove a material increase in risk.
The appellant employer contended that the Fairchild case [2003] 1 AC 32 should not be extended to cover such a case.
In the event, the Court of Appeal observed that there was expert evidence, which the recorder had accepted, to the effect that the tortious exposure had more than doubled the risk arising from smoking.
The court held that that was sufficient for the claim to succeed. 23.
In my view, it must now be taken that, saving the expression of a different view by the Supreme Court, in a case of multiple potential causes, a claimant can demonstrate causation by showing that the tortious exposure has at least doubled the risk arising from the non tortious cause or causes.
Smith LJ went on to consider whether the doubles the risk test could be applied in relation to mesothelioma.
She held that it could not.
She did so on the basis that by enacting section 3(1)(d) of the Compensation Act 2006 Parliament had laid down a rule that causation in a mesothelioma case could be established by proof of a material increase in risk: para 34.
This precluded a defendant from averring, in a case of mesothelioma, that the claimant had to satisfy the doubles the risk test.
She held, at para 27, that the judge should have applied the test of material increase of risk, ie the Fairchild/Barker rule, and in consequence the appeal should be allowed: it is not now possible for this court to consider whether, at common law, the Fairchild exception should be limited in application to cases in which it is quite impossible for a claimant to prove causation by reference to a more than twofold increase in risk.
That is because Parliament has intervened by enacting section 3 of the Compensation Act 2006 so that the common law simpliciter no longer governs claims for damages in mesothelioma cases.
Had Smith LJ held that the doubles the risk test could be applied to mesothelioma, she would not have allowed the decision of the judge to stand.
She held that the doubles the risk test had been advanced without adequate notice, so that Sienkiewicz had been wrong footed and denied a fair chance to deal with the expert evidence.
The case would have to be remitted for a new trial. i)
Scott Baker LJ and Lord Clarke agreed with the judgment of Smith LJ.
Lord Clarke held that the Fairchild test had to be applied by reason both of common law and the construction of section 3 of the 2006 Act.
Submissions
I can summarise the arguments advanced by Mr Stuart Smith on behalf of Greif as follows, adopting a different order to that adopted in his printed case: The Court of Appeal erred in holding that section 3 of the 2006 Act mandated the application of the Fairchild/Barker rule of causation in mesothelioma cases. ii) The Fairchild/Barker rule does not apply in this case because this is a single exposure case. iii) It is possible in this case to adopt a conventional approach to causation by applying the doubles the risk test.
This approach demonstrates that Mrs Costello contracted mesothelioma as a result of environmental exposure and not as a result of the slight additional exposure to which she was subjected by Greif. iv) The claim also fails because the exposure to which Greif subjected Mrs Costello was not material.
Occupational exposure is not material unless it more than doubles the amount of environmental exposure to which a claimant is subject.
In the case of Mrs Costello the exposure for which Greif was responsible was insignificant.
The findings of exposure made by the trial judge could not be supported by the evidence and there was no justification for a fresh trial.
Mr Melton QC for Mrs Costellos estate challenged all these submissions.
He submitted that the Fairchild test was applicable and attacked the application of the doubles the risk test.
He further submitted that the asbestos dust to which Mrs Costello was subjected materially increased the risk that she would contract mesothelioma and that, applying the Fairchild test and section 3 of the 2006 Act, the Court of Appeal had properly held the claim to be made out in full.
Discussion
five headings: I propose to discuss the problems raised by this appeal under the following involving diseases other than mesothelioma? i) The effect of section 3 of the Compensation Act 2006. ii) Epidemiology and the nature of the doubles the risk test. iii) Can the doubles the risk test be applied in multiple cause cases iv) Can the doubles the risk test be applied to mesothelioma cases. v) What constitutes a material increase in risk? vi) The result in this case.
The effect of section 3 of the Compensation Act 2006
The Court of Appeal treated section 3(1) as enacting that, in cases of mesothelioma, causation can be proved by demonstrating that the defendant wrongfully materially increased the risk of a victim contracting mesothelioma.
This was a misreading of the subsection.
Section 3(1) does not state that the responsible person will be liable in tort if he has materially increased the risk of a victim of mesothelioma.
It states that the section applies where the responsible person is liable in tort for materially increasing that risk.
Whether and in what circumstances liability in tort attaches to one who has materially increased the risk of a victim contracting mesothelioma remains a question of common law.
That law is presently contained in Fairchild and Barker.
Those cases developed the common law by equating materially increasing the risk with contributing to the cause in specified and limited circumstances, which include ignorance of how causation in fact occurs.
The common law is capable of further development.
Thus section 3 does not preclude the common law from identifying exceptions to the material increase of risk test, nor from holding, as more is learned about mesothelioma, that the material increase of risk test no longer applies.
The Fairchild/Barker rule was adopted in order to cater for the ignorance that existed at the time of those decisions about the way in which mesothelioma is caused.
Section 3 does not preclude the courts from reverting to the conventional approach of balance of probabilities in mesothelioma cases should advances in medical science in relation to this disease make such a step appropriate.
Greif contend that the Court should identify an exception to the Fairchild/Barker rule where there has been only one occupational exposure to risk and that, in those circumstances, the Court can and should apply the doubles the risk test.
Section 3 poses no bar to that contention; it must be considered on its merits.
Epidemiology and the nature of the doubles the risk test
The doubles the risk test is one that applies epidemiological data to determining causation on balance of probabilities in circumstances where medical science does not permit determination with certainty of how and when an injury was caused.
The reasoning goes as follows.
If statistical evidence indicates that the intervention of a wrongdoer more than doubled the risk that the victim would suffer the injury, then it follows that it is more likely than not that the wrongdoer caused the injury.
I propose first to consider the authorities to which Smith LJ referred to see the extent to which they support the general proposition that she stated at para 23 of her judgment.
Smith LJ founded the general proposition in para 23 of her judgment (see para 63 above) on one decision of Mackay J, one decision of the Court of Appeal and on unspecified cases of exposure both to asbestos and to cigarette smoke.
When these are examined it becomes apparent that they exemplify the application of the doubles the risk test in three quite different circumstances.
I propose to look at these before considering the nature of the epidemiological principle applied in each of them.
XYZ is a lengthy and complex judgment devoted exclusively to a preliminary issue on the effect of epidemiological evidence.
The issue was whether a second generation of oral contraceptives more than doubled the risk of causing deep vein thrombosis (DVT) that was created by the first generation of oral contraceptives.
It was common ground that, if the claimants in this group litigation could not establish this, their claims under the Consumer Protection Act 1987 were doomed to failure.
I do not believe that Smith LJ has correctly identified the relevance of this issue.
It was not whether the DVT suffered by the claimants had been caused by the second generation of oral contraceptives which they had taken.
It was whether the second generation of contraceptives created a significantly greater risk than the first.
The experts appear to have been in agreement that the doubles the risk test was the proper one to apply in order to resolve this issue.
Thus I do not believe that that decision affords any direct assistance to the question of whether the doubles the risk test is an appropriate test for determining causation in a case of multiple potential causes.
It does, however, contain a detailed and illuminating discussion of epidemiology and I shall revert to it when considering that topic.
Shortell v BICAL Construction Ltd (Liverpool District Registry, 16 May 2008), another decision of Mackay J, was a claim in relation to a death caused by lung cancer where there were two possible causes of the cancer.
One was occupational exposure to asbestos and the other was cigarette smoke.
The defendant was responsible for the former but not for the latter.
Applying the Bonnington test of causation, the issue was whether the asbestos to which the victim had been exposed had made a material contribution to the cause of the victims lung cancer.
The expert evidence, given by both medical and epidemiological experts, but based in the case of each, I suspect, on epidemiological data, was that asbestos and cigarette smoke not merely combined cumulatively to cause lung cancer, but that they had a synergistic effect in doing so.
This evidence was enough, as I see it, to satisfy the Bonnington test of causation, as the victim had been exposed both to significant quantities of asbestos fibres and to significant cigarette smoke.
judgment: In these circumstances, I am puzzled by the following passages in the 49.The causation of lung cancer as opposed to mesothelioma is dependent on an aggregate dose either of asbestos fibre or smoke.
Mr Feeny for the defendants rightly in my view concedes that if the claimant proves on a balance of probabilities that the risk factor created by his clients breach of duty more than doubled the deceaseds relative risk of contracting lung cancer then the claimants case is proved, and the only remaining issue is contributory negligence.
For the reasons I have advanced above I am satisfied on the balance of probabilities that once the estimate of 99 fibre/ml years is accepted as I have accepted it the relative risk is on any view more than doubled. 51.
Where, as here, it is the case that the claimant has proved causation against this defendant by showing a more than doubled relative risk it is not relevant as between the claimant and the defendant to argue that another agent (tortious or otherwise) may also have contributed to the occurrence of the disease.
Epidemiological evidence indicated that, had the victim not been a smoker, his exposure to asbestos would have more than doubled the risk that he would get lung cancer.
I do not, however, see that it was essential for the claimant to prove this.
For this reason I question whether Smith LJs endorsement of the doubles the risk test is correct in cases where asbestos and tobacco smoke have combined to cause lung cancer.
Novartis Grimsby Ltd v Cookson [2007] EWCA Civ 1261, which was the third case to which Smith LJ referred, was an appeal in which she gave the only reasoned judgment.
The claimant sought damages against his employers for causing him bladder cancer.
It is known that bladder cancer is caused by exposure to amines and the claimant had been so exposed from two sources.
One was his employment, which wrongfully exposed him to amines used in the manufacture of dyes.
The other was smoking, for cigarette smoke contains amines.
There was expert evidence, which the recorder accepted, that the occupational exposure had more than doubled the risk caused by smoking.
There was an issue as to whether Bonnington applied or whether the claimant had to prove that but for the occupational exposure he would not have suffered the cancer.
Smith LJ did not find it necessary to resolve this issue, for at para 74 she held that the but for test was satisfied: In terms of risk, if occupational exposure more than doubles the risk due to smoking, it must, as a matter of logic, be probable that the disease was caused by the former.
On analysis, it is only this last proposition that supports Smith LJs general statement that a claimant can prove causation where there are a number of potential causes of a disease or injury by showing that the tortious exposure had at least doubled the risk arising from the non tortious cause or causes.
I agree with her that, as a matter of logic, if a defendant is responsible for a tortious exposure that has more than doubled the risk of the victims disease, it follows on the balance of probability that he has caused the disease, but these are statistical probabilities and the issue in this case is whether a statistical approach to determining causation should be applied in place of the Fairchild/Barker test.
I have derived assistance in relation to the next section of this judgment from the judgment of Mackay J in XYZ.
He there set out a careful and detailed introduction into the discipline of epidemiology and I shall gratefully borrow some of the clear language that he used.
Epidemiology is the study of the occurrence and distribution of events (such as disease) over human populations.
It seeks to determine whether statistical associations between these events and supposed determinants can be demonstrated.
Whether those associations if proved demonstrate an underlying biological causal relationship is a further and different question from the question of statistical association on which the epidemiology is initially engaged.
Epidemiology may be used in an attempt to establish different matters in relation to a disease.
It may help to establish what agents are capable of causing a disease, for instance that both cigarette smoke and asbestos dust are capable of causing lung cancer, it may help to establish which agent or which source of an agent, was the cause, or it may help to establish whether or not one agent combined with another in causing the disease.
Epidemiological data can be obtained by comparing the relevant experience (eg contraction of a disease) of a group or cohort that is subject to exposure to a particular agent with the experience of a group or cohort that is not.
Where an agent is known to be capable of causing a disease, the comparison enables the epidemiologist to calculate the relevant risk (RR) that flows from the particular exposure.
An RR of 1 indicates that there is no association between the particular exposure and the risk.
An RR of 2 indicates that the particular exposure doubled the chance that the victim would contract the disease.
Statistically the likelihood that the victim would have contracted the disease without the particular exposure is then equal to the likelihood that the victim would not have contracted the disease but for that exposure.
Where the RR exceeds 2 the statistical likelihood is that the particular exposure was the cause of the disease.
The greater the RR the greater the statistical likelihood that the particular exposure caused the disease.
An RR of just over 2 is a tenuous basis for concluding that the statistical probable cause of a disease was also the probable biological cause, or cause in fact.
The greater the RR the greater the likelihood that the statistical cause was also the biological cause.
One reason why an RR of just over 2 is a tenuous basis for determining the biological cause is that the balance of that probability is a very fine one.
Another is that the epidemiological data may not be reliable.
One reason for this may be that the relevant survey or surveys have been insufficiently extensive to produce data that is truly representative.
Epidemiologists conventionally seek to indicate the reliance that can be placed on an RR by determining 95% confidence limits or intervals (C1) around it.
The approach that I have been describing focuses on one specific causal agent or a number of specific causal agents.
There may well, however, be other causal factors that operate in conjunction with the agent exposure to which is the particular object of investigation, eg the age or genetic susceptibility of the victim.
The identification of one probable cause of a disease does not preclude the possibility that there are other contributory causes.
Mr Stuart Smith in his printed case helpfully referred us to a number of foreign authorities which demonstrate that the weight to be attached to epidemiological evidence can vary significantly according to judicial policy.
In America the test of causation in toxic tort cases varies from state to state.
The most helpful case in the present context is Merrell Dow Pharmaceuticals Inc v Havner (1997) 953 SW 2d 706, a decision of the Supreme Court of Texas, for this gives detailed consideration to the doubles the risk test.
The claim was one of a large number brought against the manufacturer of the prescription drug Bendectin.
The parents of a child born with a limb reduction birth defect alleged that the cause of this was Bendectin, taken by the mother when she was pregnant.
The parents sought to establish causation by epidemiological evidence which they contended demonstrated that taking this drug more than doubled the risk of such birth defects.
Giving the judgment of the court Phillips CJ remarked, at p 716, that the doubling of the risk issue in toxic tort cases had provided fertile ground for the scholarly plow.
He proceeded to refer to much of this, summarising the position as follows, at p 717: Some commentators have been particularly critical of attempts by the courts to meld the more than 50% probability requirement with the relative risks found in epidemiological studies in determining if the studies were admissible or were some evidence that would support an award for the claimant.
But there is disagreement on how epidemiological studies should be used.
Some commentators contend that the more than 50% probability requirement is too stringent, while others argue that epidemiological studies have no relation to the legal requirement of more likely than not.
The Chief Justice went on to hold that, although there was not a precise fit between science and legal burdens of proof, properly designed and executed epidemiological studies could form part of evidence supporting causation in a toxic tort case and that there was a rational basis for relating the requirement that there be more than a doubling of the risk to the more likely than not burden of proof.
At p 718 the Chief Justice commented: But the law must balance the need to compensate those who have been injured by the wrongful actions of another with the concept deeply imbedded in our jurisprudence that a defendant cannot be found liable for an injury unless the preponderance of the evidence supports cause in fact.
The use of scientifically reliable epidemiological studies and the requirement of more than a doubling of the risk strikes a balance between the needs of our legal system and the limits of science.
We do not hold, however, that a relative risk of more than 2.0 is a litmus test or that a single epidemiological test is legally sufficient evidence of causation.
Other factors must be considered.
As already noted, epidemiological studies only show an association.
He then emphasised the need for the design and execution of epidemiological studies to be examined in order to identify possible bias.
At pp 720 721 he made a comment that is particularly pertinent in the context of this appeal: Finally, we are cognizant that science is constantly re evaluating conclusions and theories and that over time, not only scientific knowledge but scientific methodology in a particular field may evolve.
We have strived to make our observations and holdings in light of current, generally accepted scientific methodology.
However, courts should not foreclose the possibility that advances in science may require re evaluation of what is good science in future cases.
Can the doubles the risk test be applied in multiple cause cases involving diseases other than mesothelioma?
For reasons that I have already explained, I see no scope for the application of the doubles the risk test in cases where two agents have operated cumulatively and simultaneously in causing the onset of a disease.
In such a case the rule in Bonnington applies.
Where the disease is indivisible, such as lung cancer, a defendant who has tortiously contributed to the cause of the disease will be liable in full.
Where the disease is divisible, such as asbestosis, the tortfeasor will be liable in respect of the share of the disease for which he is responsible.
Where the initiation of the disease is dose related, and there have been consecutive exposures to an agent or agents that cause the disease, one innocent and one tortious, the position will depend upon which exposure came first in time.
Where it was the tortious exposure, it is axiomatic that this will have contributed to causing the disease, even if it is not the sole cause.
Where the innocent exposure came first, there may be an issue as to whether this was sufficient to trigger the disease or whether the subsequent, tortious, exposure contributed to the cause.
I can see no reason in principle why the doubles the risk test should not be applied in such circumstances, but the court must be astute to see that the epidemiological evidence provides a really sound basis for determining the statistical probability of the cause or causes of the disease.
McGhee may have been such a case.
The facts were puzzling, for no other workman had ever contracted dermatitis at the defendants brick kiln, so one wonders what the basis was for finding that the lack of shower facilities was potentially causative.
Had there been epidemiological evidence it seems unlikely that this would have demonstrated that the extra ten or fifteen minutes that, on the evidence, the pursuer took to cycle home doubled his risk of contracting dermatitis, or came anywhere near doing so.
Where there are competing alternative, rather than cumulative, potential causes of a disease or injury, such as in Hotson, I can see no reason in principle why epidemiological evidence should not be used to show that one of the causes was more than twice as likely as all the others put together to have caused the disease or injury.
Can the doubles the risk test be applied in mesothelioma cases?
This question calls for consideration of the conundrum that I identified when considering the decisions in Fairchild and Barker.
In the course of argument I put the conundrum to Mr Stuart Smith.
Why, if it was possible to equate increasing exposure to increasing risk, could one not postulate that, on balance of probabilities, where one employer had caused over 50% of a victims exposure, that employer had caused the victims mesothelioma? Why could one not, by the same token, postulate that where over 50% of the victims exposure was not attributable to fault at all, on balance of probability, the victims mesothelioma had not been caused tortiously? In short, why was there any need to apply the Fairchild/Barker rule where epidemiological evidence enabled one to use statistics to determine causation on balance of probability?
Mr Stuart Smith replied that this was a question which puzzled him also.
He believed that the answer could be found in consideration given in earlier cases to a hypothetical injury caused by either a blue or a red taxi cab.
This led to some inconsequential discussion as to the colours of the cabs involved.
The example in question can be traced, via the speech of Lord Mackay in Hotson [1987] AC 750, 789 to the dissenting judgment of Brachtenbach J in Herskovits v Group Health Cooperative of Puget Sound (1983) 664 P 2d 474, a decision of the Supreme Court of Washington: Brachtenbach J dissented.
He warned against the danger of using statistics as a basis on which to prove proximate cause and indicated that it was necessary at the minimum to produce evidence connecting the statistics to the facts of the case.
He gave an interesting illustration of a town in which there were only two cab companies, one with three blue cabs and the other with one yellow cab.
If a person was knocked down by a cab whose colour had not been observed it would be wrong to suggest that there was a 75 per cent chance that the victim was run down by a blue cab and that accordingly it was more probable than not that the cab that ran him down was blue and therefore that the company running the blue cabs would be responsible for negligence in the running down.
He pointed out that before any inference that it was a blue cab would be appropriate further facts would be required as, for example, that a blue cab had been seen in the immediate vicinity at the time of the accident or that a blue cab had been found with a large dent in the very part of the cab which had struck the victim.
This example is an extreme example of the fact that statistical evidence may be an inadequate basis upon which to found a finding of causation.
Keeping to that example, it was not possible to postulate that the risk of being knocked down by a negligent driver of a taxi cab was proportional to the number of taxi cabs in the town.
Much more significant would have been the care taken by the rival taxi firms in employing competent drivers, and the past accident record of the firms in question.
Thus the first answer to the conundrum may be that, in the case of mesothelioma, epidemiological evidence alone has not been considered by the courts to be an adequate basis for making findings of causation: that so long as medical science is unable to demonstrate, as a matter of fact, the aetiology of mesothelioma, data relating incidence to exposure is not a satisfactory basis for making findings of causation.
Not only is the adequacy of epidemiological evidence relevant to the weight to be attached to it.
So is its reliability.
A helpful description of the factors that can limit the reliability of epidemiological evidence is to be found in an article by C E Miller on Causation in personal injury: legal or epidemiological common sense? in 26 Legal Studies No 4, December 2006, pp 544 569.
Deducing causation in relation to mesothelioma on the basis of epidemiological evidence requires a comparison between the statistical relationship between exposure and the incidence of the disease and the experience of the victim who has sustained the disease.
A number of factors make this exercise particularly problematic.
The first is the difficulty in collating sound epidemiological data.
The second is the difficulty of obtaining reliable evidence as to the relevant experience of the victim.
The third is uncertainty as to the adequacy of the epidemiological evidence that is available as a guide to causation.
The epidemiological data that has been collated in relation to mesothelioma relates largely to the exposure of victims to asbestos dust.
It must be gathered from the histories of those who, tragically, have succumbed to mesothelioma.
Because of the very long latency of the disease and the limited time between the first experience of its symptoms and death, obtaining the necessary data is difficult.
Most of the data relates to victims who were subjected to substantial occupational exposure to dust.
This data has been extrapolated to cover victims who have had very light exposure, but there is no certainty that this extrapolation is reliable.
The same difficulty arises in relation to obtaining details of the relevant experience of the particular victim.
That difficulty is illustrated by the two appeals before the Court.
The most significant inhibition on the use of epidemiological evidence to determine causation in cases of mesothelioma is uncertainty as to the adequacy of the data.
The data is relied on as establishing that the risk of contracting mesothelioma is proportional to exposure to asbestos dust.
It used to be thought that mesothelioma was probably triggered by a single asbestos fibre and that the cause of the disease could be attributed exclusively to that one fibre.
Were that the case it would be reasonable to postulate that the risk of contracting the disease was proportional to the exposure.
In the words of Lord Hoffmann in Barker at para 26, referring to the decision of Moses J at first instance: the more you are exposed, the more likely you are to get it, in the same way as the more you spin the roulette wheel, the more is a given number likely to come up.
The single fibre theory has, however, been discredited.
The amount of exposure does not necessarily tell the whole story as to the likely cause of the disease.
There may well be a temporal element.
The Peto Report also raised the possibility (but no more) of synergistic interaction between early and later exposures.
Causation may involve a cumulative effect with later exposure contributing to causation initiated by an earlier exposure.
Applying the conventional test of causation, the relevant question is, on balance of probability, which exposures in an individual case may have contributed to causing the disease? Epidemiology does not enable one to answer that question by considering simply the relative extent of the relevant exposures.
The House of Lords was not, in Fairchild nor in Barker invited to consider the possibility that it might be possible in an appropriate case to demonstrate by epidemiological evidence that, on balance of probabilities, the mesothelioma had been caused by exposure that was not wrongful, or alternatively that such evidence might demonstrate that one particular employer had, on balance of probabilities, caused the disease.
Had it been I do not believe that the House would have been persuaded that epidemiological evidence was sufficiently reliable to base findings as to causation upon it.
I believe that the cumulative effect of the various factors that I have set out above justifies the adoption of the special rule of causation that the House of Lords applied in Fairchild and Barker.
The justification for that rule may diminish or vanish as the aetiology of the disease is revealed by scientific research.
Nor does the rule wholly displace a conventional approach to causation.
Epidemiological data and medical science show that exposure once a cell has become malignant is not causative and thus exposure once that point is probably passed, can be discounted as a potential contributor to the disease.
The possibility that mesothelioma may be caused as the result of the cumulative effect of exposure to asbestos dust provides a justification, even if it was not the reason, for restricting the Fairchild/Barker rule to cases where the same agent, or an agent acting in the same causative way, has caused the disease, for this possibility will not exist in respect of rival causes that do not act in the same causative way.
I would add that even if one could postulate with confidence that the extent of the contribution of a defendant to the victims exposure to asbestos precisely reflected the likelihood that his breach of duty had caused the victims disease, there would still be justification for the application of the Fairchild rule where all the exposure was wrongful.
Imagine four defendants each of whom had contributed 25% to the victims exposure so that there was a 25% likelihood in the case of each defendant that he had caused the disease.
The considerations of fairness that had moved the House in Fairchild would justify holding each of the defendants liable, notwithstanding the impossibility of proving causation on balance of probability.
Thus the conundrum is answered by saying that there are special features about mesothelioma, and the gaps in our knowledge in relation to it, that render it inappropriate to decide causation on epidemiological data as to exposure.
So far as concerns apportionment between tortfeasors jointly liable for causing mesothelioma it is likely to be necessary to use epidemiological evidence faute de mieux.
What constitutes a material increase in risk?
Liability for mesothelioma falls on anyone who has materially increased the risk of the victim contracting the disease.
What constitutes a material increase of risk? The parties were, I think, agreed that the insertion of the word material is intended to exclude an increase of risk that is so insignificant that the court will properly disregard it on the de minimis principle.
Mr Stuart Smith submitted that there should be a test of what is de minimis, or immaterial, which can be applied in all cases.
Exposure should be held immaterial if it did not at least double the environmental exposure to which the victim was subject.
It does not seem to me that there is any justification for adopting the doubles the risk test as the bench mark of what constitutes a material increase of risk.
Indeed, if one were to accept Mr Stuart Smiths argument that the doubles the risk test establishes causation, his de minimis argument would amount to saying that no exposure is material for the purpose of the Fairchild/Barker test unless on balance of probability it was causative of the mesothelioma.
This cannot be right.
I doubt whether it is ever possible to define, in quantitative terms, what for the purposes of the application of any principle of law, is de minimis.
This must be a question for the judge on the facts of the particular case.
In the case of mesothelioma, a stage must be reached at which, even allowing for the possibility that exposure to asbestos can have a cumulative effect, a particular exposure is too insignificant to be taken into account, having regard to the overall exposure that has taken place.
The question is whether that is the position in this case.
The result in this case.
Despite Judge Mains heroic endeavours, the nature of the exercise on which he embarked must raise doubts over his precise finding that Greifs wrongful exposure to asbestos dust increased the environmental exposure to which Mrs Costello was subject by 18%.
Having made that finding, Judge Main wrongly applied the doubles the risk test rather than the Fairchild/Barker test.
He did not expressly consider whether the exposure to which Greif wrongly subjected Mrs Costello was so insignificant that it could be disregarded as de minimis.
None the less, had he thought it de minimis, he might well have said so.
He did describe the very small quantities of fibres that might have been on furniture in Greifs offices as of statistically insignificant effect and de minimis: para 50.
I do not think that Judge Main would have dismissed the addition that Greifs wrongful exposure made to the risk that Mrs Costello would contract mesothelioma as statistically insignificant or de minimis.
If one assumes, as is likely, that Mrs Costellos disease was asbestos induced, it is plain that a very low level of exposure sufficed to cause the disease.
This accords with the expert evidence that there is no known lower threshold of the exposure that is capable of causing mesothelioma.
No one could reasonably conclude that there was no significant possibility that the incremental exposure to which Greif subjected Mrs Costello was instrumental in causing her to contract the disease.
I am in no doubt that the wrongful exposure to which she was subjected materially increased her risk of contracting mesothelioma.
The reality is that, in the current state of knowledge about the disease, the only circumstances in which a court will be able to conclude that wrongful exposure of a mesothelioma victim to asbestos dust did not materially increase the victims risk of contracting the disease will be where that exposure was insignificant compared to the exposure from other sources.
I note that in Rolls Royce Industrial Power (India) Ltd v Cox [2007] EWCA Civ 1189 counsel for the employer conceded that exposure to asbestos dust for a period of one week would not be de minimis.
For these reasons I would dismiss the appeal in Greif.
ANNEX A.
In the Trigger litigation Rix LJ set out the following extract from the judgment of Longmore LJ in Bolton Metropolitan Borough Council v Municipal Mutual Insurance Ltd [2006 EWCA Civ 50, [2006] 1 WLR 1492: 7 There are three forms of asbestos: brown (amosite), blue (crocidolite) and white (chrysotile).
Their fibres have different bio persistence: 20 years after exposure to fibres about half the inhaled amosite fibres remain in the body, a smaller proportion of the crocidolite fibres remains and, relatively, few chrysotile fibres remain. 8 The human body is composed of cells of various types.
Of the fibres which reach the lungs many are engulfed by macrophages (scavenger cells).
The macrophages may then be expelled by the mucosiliary process or may die within the lungs.
All cells can and do die for various reasons, but cells are in communication with each other and the death of one can cause another to divide so, with some exceptions such as men losing their hair with age, the number of cells remains approximately the same throughout a person's life.
When macrophages die in the lungs they release various chemicals, some of which attract neutrophils, another type of cell, which can engulf fibres.
A different mechanism which destroys fibres in the lungs is that they are dissolved in tissue fluids.
Another mechanism, by which the body protects itself, is that some fibres become coated by proteinaceous material containing iron which, it is believed, renders them less likely to produce fibrosis. 9 The division of cells in human tissue is important for understanding how mesothelioma occurs.
Each cell in the body contains all the genetic information necessary for the construction and functioning of the entire body.
This information is contained in the form of DNA, a molecule consisting of two intertwining strands.
The different structure and function of the various types of cell in the body occurs because in each cell only some of the genes contained in the DNA are active and in different cells different genes are active.
The coded information in a DNA molecule is in the form of about 3,000,000,000 base pairs.
Each pair consists of two collections of atoms called nucleotides.
There is one half of each pair in each of the two intertwining strands.
When cell division occurs the strands unravel and two daughter double helices are created.
Normally the daughters are identical with each other but sometimes they are not.
Dr Rudd uses the word mutation for an imperfect copy.
This word mutation thus means a thing a cell and not a process, and is not a synonym of change; for change Dr Rudd uses the term generic alteration.
I shall adopt this usage.
The word mutation does not have any derogatory connotations.
A mutation is different from, but not necessarily worse than, the cell from which it is derived or otherwise undesirable.
The body contains what can be described as a repair mechanism which sometimes corrects the discrepancy between a daughter and its parent.
This repair mechanism is vital to normal health, and people whose repair system lacks some components (a very rare condition) will die early, often of cancer.
Sometimes, however, a perfectly normal repair and correction mechanism fails to correct a mutation.
Such failure can lead to any of three possibilities.
First, the mutation may be unable to survive and die.
Secondly it may be better fitted for its purpose than the cell from which it is derived, and this is the cause of evolution.
As Dr Moore Gillon put it Without the normal process of imperfect copying, mankind (and indeed all other species) would not have emerged. 10 It is the third possibility with which this case is concerned.
A mutation which does not die, which is not repaired and which does not perform its purpose better than the cell from which it was derived may itself divide, and the daughter cells or (to continue the parental analogy) the grand daughter or more distant descendants may in turn die, be repaired or be mutations from the cell from which they are derived.
Eventually there may be a mutation which is malignant, i e a cell which divides in an uncontrolled manner, as opposed to maintaining the normal balance between cells dying and cells dividing.
It normally takes a heredity of six or seven genetic alterations before a malignant cell occurs.
The body has natural killer cells which, as their name indicates, can target and destroy mutations, possibly even after they have become malignant.
A tumour is a growth consisting of a number of cells dividing in that uncontrolled manner.
Mesothelioma is a tumour in the pleura.
B. Rix LJ then summarised the findings of Burton J in the Trigger litigation, which brought the findings of Longmore LJ up to date: 11 Asbestos fibres in the pleura increase the likelihood of genetic mutation.
It is now thought likely that, if there is a series of genetic alterations which ends with a malignant cell in the pleura, fibres will have acted in causing several of those genetic alterations, rather than just one genetic alteration.
However the final genetic alteration which results in a malignant cell is not necessarily caused by fibres directly.
Fibres may also inhibit the activity of natural killer cells.
Pre cancerous genetic alterations in cells do not give rise to any symptoms or signs.
They cannot be detected by any routine clinical or radiological examination.
It would be possible to detect them by examining in a laboratory tissue taken from a part of the body containing cells which have become genetically modified, but the exercise would be pointless because pre cancerous genetic alterations do not necessarily or even usually lead to mesothelioma. 12 It is furthermore important to note that there may be a long time lapse not only between exposure and the first formation of a malignant cell but that there may be a similarly lengthy lapse of time between first malignancy and the onset of noticeable symptoms such as breathlessness. 50.
The judge heard evidence from five internationally recognised experts in the field: Dr Rudd and Dr Moore Gillon, who have between them given evidence in most if not all of the cases involving mesothelioma in recent years including Fairchild and Bolton itself; Professor Geddes, on whose pioneering work the first two experts have based their own theories (see his crucial 1979 paper concerning the rate of tumour growth, published in volume 73 of the British Journal of Diseases of the Chest, The Natural History of Lung Cancer: a Review based on Rates of Tumour Growth (the Geddes article)); and Professor Phillips of the Institute of Cancer Research and Professor Heintz of the Vermont Cancer Centre.
The last two are biochemists, the first three are respiratory consultants.
The judge observed that the evidence of the biochemistry experts is a new feature of such litigation. 51.
On the basis of this expert evidence, the judge remarked on two matters which were common ground between the parties.
One is that it is the exposure to quantities of fibres which is causative of mesothelioma, and the risk increases with the dosage.
This was recognised already in Fairchild (see Lord Bingham at para 7; and Lord Rodger at para 122, where the latter observed: the greater the number of asbestos fibres taken into the body, the greater are the chances that one of them will trigger a malignant transformation).
The second matter is that once the mesothelioma tumour is present and assured of growth (ie has passed the stage where a malignant mutation may die off), further asbestos exposure and indeed further asbestos fibres in the body can make no difference and are not causative. 52.
Burton J also described the unknowability and indescribability of much of the pathogenesis of mesothelioma as being common ground (at para 30).
Subject to that caution, the judge made the following findings about the disease.
He described asbestos fibre as a complete carcinogen, ie no other agent or co agent is required to cause the ultimate malignancy (at para 130).
Unlike a normal cancer of spherical or similar shape which sooner or later can be seen on a scan or x ray, the mesothelioma tumour grows along the surface of the lungs rather like a fungus and is thus practically undetectable, and only becomes diagnosable when the symptoms of impaired breathing bring it to the patient's and his doctor's attention.
As the details of actions 1 3 illustrate, that is only shortly before death.
The average time between manifestation/diagnosis and death is some fourteen months. 53.
The judge described the normal process of cell mutations in healthy bodies and lungs.
Even in a person who has not been exposed to asbestos as part of his occupation, the lungs will typically contain millions of asbestos fibres, albeit not the hundreds of millions to be found in the occupationally exposed and with far less proportionately of the more dangerous blue and brown asbestos varieties.
He said: 108The mesothelial cells, like all cells in the body, are constantly dividing: Dr Rudd told us that there are 10 trillion cells in the body and 50 billion are replicated every day.
Cell division, or mitosis, by which the cell divides, duplicates its chromosomes and passes on a complete set to each of its "daughters", is the norm; but there can be mutations again Dr Rudd told us that incorrect copying can take place in one in a million cell divisions and thus possibly 5,000 times per day in the human body, or every 17 seconds.
The body's repair mechanisms are quick to correct and abort the mutations, but even if there are mutations there are four possible consequences.
The incorrect copy may be unable to survive, and die; the mutation can make no difference; the mutation can positively improve the cell hence evolution; or the mutated cell can survive and can itself divide, passing on the genetic alterations, eventually after many generations and with further mutations creating a malignant cell. 54.
What then makes the difference between a normal and a diseased process? The judge continued: 109.
There will or may be thousands of mutations, only one of which may have any deleterious effect on successive mitosis.
But, the experts gave evidence that there are six or seven genetic alterations which are required, not necessarily occurring in the same or any particular order, which, when they are all in place, can lead to a malignant cell.
The characteristics of a malignant cell are (i) self sufficiency of growth signals (ii) insensitivity to growth inhibitory signals (iii) evasion of programmed cell death (apoptosis) (iv) limitless replicative potential (v) the ability to invade tissues and to metastasise ie to transfer to other parts of the body (vi) the availability of its own blood supply obtained by a process which is called angiogenesis 111.
Once a cell has acquired what Dr Rudd calls a full house of the necessary 6/7 mutations, and has evaded all the bodily defences (described by Dr Rudd as full house plus), then it can be described as a malignant cell, and can and does begin a period of uncontrolled by multiplication.
Notwithstanding what Dr Rudd has called evasion of the bodily defences, Professors Phillips and Heintz [the biochemists] conclude that many full house cells with malignant potential may fail to grow into tumours.
It appears to be common ground, at any rate so far as the biochemists are concerned, that such cell or cells at this stage are still at risk from natural killer cells, although they apparently develop a method of switching off the signals which summon the natural killer cells or put them on notice.
There is also, despite the characteristic of limitless replication, the possibility or probability, of periods of dormancy.
Professor Phillips points out that the norm of 40 years from exposure to diagnosability growth suggests either that the mutation period lasts a long time or that there are periods of tumour dormancy (or both). 55.
The judge then described the growth of a malignant cell towards the status of a mesothelioma tumour, premised on the figures to be derived from the Geddes article concerning the more normal type of spherical tumour.
Professor Geddes found that the average rate of doubling of cells was 102 days (albeit that was a speculative average, which could vary between 45 and 130 days).
It is only at a tumour size of 106 cells (1 million cells) that it becomes unlikely for the bodily defences, still until then available, to be able to neutralise it.
Angiogenesis then occurs at somewhere between 106 and 109 (1 billion cells).
Symptoms of breathlessness will begin to be experienced when the tumour is between 109 and 1012 (1 trillion cells).
In the biochemists' view, angiogenesis occurred about 5 years or so before death.
The Peto and Rake study led the authors to the following conclusions: 1.
Mesothelioma risk is determined largely by asbestos exposure before age 30, and ranges from a lifetime risk of 1 in 17 for ten or more years of carpentry before age 30 to less than 1 in 1,000 in apparently unexposed men and women.
Our results suggest that the predicted total of 90,000 mesotheliomas in Britain between 1970 and 2050 will include approximately 15,000 carpenters. 2.
The risk of lung cancer caused by asbestos is likely to be of the same order as the mesothelioma risk.
This would imply that more than 1 in 10 of British carpenters born in the 1940s with more than 10 years of employment in carpentry before age 30 will die of a cancer caused by asbestos. 3.
Asbestos exposure was widespread, with 65% of male and 23% of female controls having worked in occupations that were classified as medium or higher risk. 4.
Britain was the largest importer of amosite (brown asbestos), and there is strong although indirect evidence that this was a major cause of the uniquely high mesothelioma rate.
The US imported far less amosite than Britain but used similar amounts of chrysotile (white asbestos) and more crocidolite (blue asbestos), and US mesothelioma death rates in middle age are now 3 to 5 times less than British rates.
British carpenters frequently worked with asbestos insulation board containing amosite. 5.
We found no evidence of increased risk associated with non industrial workplaces or those that were classified as low risk, including motor mechanics and workers handling gaskets and mats that may have contained asbestos. 6.
The only potential non occupational exposure associated with increased risk was living with an exposed worker. 7.
The increasing trend in female rates in Britain and a comparison between British and US female rates both suggest that a substantial proportion of mesotheliomas with no known occupational or domestic exposure were probably caused by environmental asbestos exposure.
The sources of this presumably included construction, building maintenance and industrial activities but may also include release of asbestos from buildings due to normal occupation and weathering.
LORD RODGER
Defendants whose breaches of duty expose someone to asbestos and so materially increase the risk that he will develop mesothelioma are liable jointly and severally for the damage which he suffers if he does in fact develop mesothelioma.
The fundamental question in these two appeals is whether this special rule the so called Fairchild exception, as it applies to mesothelioma applies in cases where only one defendant is proved to have exposed the victim to asbestos, but she was also at risk of developing the disease from low level exposure to asbestos in the general atmosphere (environmental exposure).
I would hold that the special rule does apply in such cases.
Karen Sienkiewicz v Greif (UK) Ltd
In these proceedings the claimant, Mrs Karen Sienkiewicz, is the daughter, and administratrix of the estate of, the late Mrs Enid Costello who died of mesothelioma on 21 January 2006.
From 1966 until 1984 Mrs Costello worked for the defendants predecessors in title at their factory premises in Ellesmere Port where they manufactured steel drums.
The process involved the release of asbestos dust into the factory atmosphere.
Although Mrs Costello worked mostly in an office, she spent time in areas of the factory which were, from time to time, contaminated with asbestos.
The trial judge held that Mrs Costellos exposure to asbestos on the defendants premises was very light and that it would have been through the inhalation of the general factory atmosphere, as she moved about.
The judge also held that this exposure was in breach of the relevant legal duties owed by the defendants to Mrs Costello.
It was common ground that, like anyone else, Mrs Costello would have been subject to environmental exposure to low levels of asbestos in the atmosphere in the areas where she lived.
The trial judge found that the defendants exposure of Mrs Costello to asbestos over her working life at their premises increased her background risk (of contracting mesothelioma) from 24 cases per million to 28.39 cases per million, an increase of risk of 18%.
Putting the point slightly more precisely, the environmental risk of contracting mesothelioma was 24 cases per million; exposure of the level of the occupational exposure in Mrs Costellos case would increase the risk of contracting mesothelioma to 28.39 cases per million an increase of 18%.
The trial judge concluded that the claimant had failed to establish that any exposure by the defendants had caused Mrs Costellos mesothelioma because once there is only one occupational cause for the mesothelioma the claimant has to prove that it is the likely cause.
On this basis he held that the special rule of law laid down by the House of Lords in Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32 did not apply and that the claimant could therefore not succeed on the basis that, on the balance of probability, Mrs Costellos exposure to asbestos in the course of her employment with the defendants had materially increased the risk that she would contract mesothelioma.
She could only succeed by proving, on the balance of probability, that the defendants breach of duty had caused Mrs Costellos mesothelioma.
The Court of Appeal (Lord Clarke of Stone cum Ebony, Scott Baker and Smith LJJ) allowed the claimants appeal: Sienkiewicz v Greif (UK) Ltd [2009] EWCA 1159; [2010] QB 370.
They held that the decision of the House of Lords in Fairchild applied.
The defendants breach of duty had materially increased the risk of Mrs Costello developing mesothelioma.
So they were liable.
The defendants appeal against that decision.
Although the Court of Appeal ultimately held that the rule in Fairchild applied to mesothelioma cases of this kind because of section 3 of the Compensation Act 2006 (the 2006 Act), in the course of her judgment, [2010] QB 370, 379, at para 23, Smith LJ made a very general statement about the approach which courts should adopt to issues of causation: In my view, it must now be taken that, saving the expression of a different view by the Supreme Court, in a case of multiple potential causes, a claimant can demonstrate causation by showing that the tortious exposure has at least doubled the risk arising from the non tortious cause or causes.
An important issue in the present appeals is whether this guidance is sound.
Willmore v Knowsley Metropolitan Borough Council
In these proceedings the claimant is Mr Barr Willmore.
He is the husband, and administrator of the estate, of the late Mrs Dianne Willmore who died of mesothelioma on 15 October 2009 at the age of 49.
Prior to her death, Mrs Willmore had raised proceedings for damages for her illness against Knowsley Metropolitan Borough Council (the Council).
After her condition was diagnosed, Mrs Willmore made a number of different allegations as to her possible exposure to asbestos.
Initially she alleged that she had been exposed to asbestos dust in the course of her employment with the Army & Navy Stores in Liverpool between 1979 and 1981.
But when she raised her proceedings against the Council in February 2008 she alleged that she had been exposed to asbestos when some prefabricated houses near her childhood home in Huyton were demolished.
She also alleged that she had been exposed to asbestos while a pupil at her primary school run by the Council.
On 14 February 2008, however, Mrs Willmore read an article in the Liverpool Echo referring to a report prepared by the Council which identified the presence of asbestos in a number of secondary schools, including Bowring Comprehensive, where she had been a pupil.
On 27 November 2008 Mrs Willmore amended the particulars of claim to allege, in essence, that when she first attended Bowring Comprehensive, the construction of the school had not been completed and she and other pupils had been exposed to asbestos as a result of workmen using materials containing asbestos.
She also alleged that she had been exposed to asbestos as a result of other disturbance of asbestos materials at the school.
She subsequently abandoned all her allegations of exposure to asbestos except those relating to Bowring Comprehensive.
Following a trial in July 2009, Nicol J found that, while a pupil at Bowring Comprehensive, Mrs Willmore had been exposed to the type of asbestos known as amosite in three separate ways: (1) as a result of work involving the removal, handling and disturbance of ceiling tiles in a corridor along which pupils, including Mrs Willmore, passed; (2) as a result of pupils misbehaviour, which caused ceiling tiles containing asbestos to be damaged or broken; (3) as a result of asbestos ceiling tiles, including broken tiles, being stored in a girls lavatory which had been used by Mrs Willmore on many occasions.
The judge held that each of these exposures to asbestos fibres had materially increased the risk of Mrs Willmore contracting mesothelioma later in life.
In so concluding, he found that none of these exposures was de minimis.
He awarded Mrs Willmore the agreed gross sum of 240,000 as damages.
The Council appealed to the Court of Appeal.
The Court of Appeal held, [2009] EWCA Civ 1211, that the judge had been wrong to hold that she had been exposed to asbestos as a result of pupils misbehaviour.
But they confirmed that the judge had been entitled to find that Mrs Willmore had suffered significant exposure to asbestos from the other two sources.
On that basis the Court upheld his judgment and his award of damages.
The Council now appeal to this Court.
Since the lower courts applied the Fairchild exception, obviously the same point as to its application in this type of case arises.
But the Council also challenge the judges findings in fact.
The Defendants Legal Argument
As already indicated, the feature of both the cases under appeal to which the defendants attach importance is that the proceedings are directed against only one defendant.
In this respect they are different from the leading authorities, Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32 and Barker v Corus UK Ltd [2006] 2 AC 572, in both of which the claimants alleged that the victims had been exposed to asbestos as a result of a breach of duty by more than one employer.
In Barker, however, one of the three material exposures had occurred when Mr Barker was working as a self employed plasterer.
On behalf of the defendants in both of the appeals, Mr Stuart Smith QC characterised the present cases as single exposure cases: the claimants alleged only one possible tortious source for the exposure.
In both cases the exposure could be regarded as slight.
In addition, the victims had been exposed to asbestos in the general atmosphere in the areas where they lived.
Counsel renewed the argument that in such cases the special rule in Fairchild did not apply and that, in order to establish liability, the claimant required to prove, on the balance of probability, that the victims mesothelioma is to be attributed to her exposure to asbestos as a result of the defendants breach of duty.
The claimant could do this by leading epidemiological evidence to show that the exposure by the defendant had doubled the risk of the victim developing mesothelioma.
This was essentially the argument which the trial judge had accepted in Sienkiewicz: the claimant failed because the defendants breach of duty had merely increased the risk of her developing mesothelioma by 18% far short of doubling the environmental risk.
Section 3 of the 2006 Act
In the Court of Appeal in Sienkiewicz [2010] QB 370, 379, para 26, Smith LJ saw considerable force in the view that in Fairchild and Barker the House of Lords had not been considering a single exposure case and that, if they had done so, they would not have included such a case within the scope of the rule.
But she held that such speculation was now pointless since Parliament had intervened by enacting section 3 of the 2006 Act, which had the effect that the common law simpliciter no longer governed claims for damages in mesothelioma cases.
In this regard Smith LJ observed, [2010] QB 370, 381 382, at paras 34 and 35: 34.
However, in my view, Parliament used clear words which provide that, in all mesothelioma cases, a claimant can take advantage of section 3(2) provided that he or she can satisfy the four conditions in section 3(1) and the fourth condition can, in my judgment, be satisfied by proof of causation by reference to a material increase in risk. 35.
I conclude therefore that, in a mesothelioma case, it is not open to a defendant to put the claimant to proof of causation by reference to a twofold increase in risk.
The judge was therefore wrong to require the claimant in this case to attempt to cross that hurdle.
If he had applied the correct test on causation, namely whether or not the tortious exposure had materially increased the risk, the answer was plainly yes.
In my view, the claimant should have succeeded and the appeal must be allowed.
Scott Baker LJ agreed with Smith LJ, as did Lord Clarke of Stone cum Ebony.
Lord Clarke considered, [2010] QB 370, 387, at para 57, that it was plain from the terms of section 3 and from the analysis of the common law that the respondent was liable for the mesothelioma which caused Mrs Costellos death.
Subsection (1) of section 3 of the 2006 Act describes the circumstances in which the section is to apply in actions of damages for mesothelioma.
According to subsection (1)(d), it applies where the responsible person is liable in tort, by virtue of the exposure mentioned in paragraph (a) in connection with damage caused to the victim by the disease (whether by reason of having materially increased a risk or for any other reason).
Smith LJ appears to have considered that, by referring to the defendant being held liable in tort by reason of having materially increased a risk, Parliament had precluded any argument that, in particular circumstances, a defendant could not be held liable on that basis.
I would not read the provision in that way.
Section 3 was not concerned with prescribing the basis for defendants being held responsible for claimants mesothelioma.
Rather, its purpose was to reverse the decision of the House of Lords in Barker v Corus UK Ltd [2006] 2 AC 572.
The House had held that, where more than one defendant had materially increased the risk that an employee would contract mesothelioma, liability was to be attributed, not jointly and severally, but according to each defendants degree of contribution to the risk.
In section 3 Parliament laid down that, on the contrary, where a defendant was held liable in a mesothelioma case, he was to be liable for the whole of the damage caused to the victim and, if anyone else was held responsible, they were to be liable jointly and severally.
The reference to the defendant having been held liable by reason of having materially increased a risk is simply designed to show that the statutory rule applies in cases where the defendant is held liable (as in Barker) on the basis of materially increasing the risk to the claimant.
But the concluding words, or for any other reason, show that Parliament envisages that a defendant might be held liable on some other basis.
In that eventuality also he is to be liable for the whole of the damage and, if anyone else is held responsible, they are to be liable jointly and severally.
It follows that section 3 of the 2006 Act does not shut out the appellants argument that in a single exposure case a defendant should not be held liable unless the claimant proves on the balance of probability that his breach of duty caused the victims mesothelioma.
That argument and the more particular argument, that the claimant must show that the defendant more than doubled the risk of the victim developing mesothelioma, have therefore to be addressed on their merits.
The Rock of Uncertainty
The discussion and decision in Fairchild proceeded on the basis described by Lord Bingham, [2003] 1 AC 32, 43, at para 7: There is no way of identifying, even on a balance of probabilities, the source of the fibre or fibres which initiated the genetic process which culminated in the malignant tumour.
This was what he described as the rock of uncertainty: [2003] 1 AC 32, 43G H.
On behalf of the appellants, Mr Stuart Smith accepted that this remains the position in cases where a victim has been exposed to asbestos in the course of his employment with a number of employers.
The same would presumably apply if the victim had been exposed to asbestos, say, when visiting a number of cinemas run by different companies.
But he submitted that, where the claimant alleges that only one defendant wrongfully exposed her to asbestos and environmental exposure is also a possible source of the asbestos which affected her, the claimant must prove on the balance of probability that her disease was caused by the defendant rather than by environmental exposure.
In Fairchild, as can be seen from Lord Binghams speech, at p 40, para 2, it was common ground that any cause of [the claimants] mesothelioma other than the inhalation of asbestos dust at work can be effectively discounted (emphasis added).
At the time, some commentators indeed found this surprising, since exposure can occur in a variety of ways.
Most obviously, perhaps, a factory may pollute the surrounding area and lead to the residents inhaling asbestos fibres in the atmosphere.
But fibres are actually widespread in the atmosphere throughout most of the country.
One European study suggested that one person in seven shows lung damage of a kind caused by exposure to asbestos.
See the examples in Jane Stapleton, Lords aleaping evidentiary gaps, (2002) 10 Torts Law Journal 276, 277 279.
But, for some reason, only certain people develop mesothelioma as a result of being exposed to asbestos.
The issue in the present appeals arises because both parties accept that Mrs Costello and Mrs Willmore, who did develop mesothelioma, might have developed it as a result of being exposed to asbestos in the general atmosphere.
At first sight it is somewhat surprising that the defendants should submit that in these cases the claimant must prove, on the balance of probability, that the defendants breach of duty caused her illness, since Fairchild proceeded on the basis that there is no way of identifying, on the balance of probability, the source of the fibre or fibres which initiated the genetic process that culminated in the victims malignant tumour.
Medical science has not advanced significantly in this respect in the intervening eight years.
So counsels argument is and must be that, in a case where the only possible source of the fibre or fibres which caused the disease is either environmental exposure to asbestos or exposure by the defendant, a claimant could always have proved, on the balance of probability, that the defendant was the source of the relevant fibre or fibres by leading appropriate epidemiological evidence to show that the exposure by the defendant more than doubled the background risk of the victim developing mesothelioma.
So the Fairchild exception would never have applied.
Take Sienkiewicz as an example.
The defendants argue that the claim fails since, on the basis of the expert evidence, the judge found that the exposure due to their breach of duty increased Mrs Costellos risk of developing mesothelioma by only 18%.
By contrast, it is said, if the expert evidence had shown that their exposure had doubled the background risk, Mrs Costello would have proved that, on the balance of probability, her mesothelioma had been caused by the defendants breach of duty rather than by any environmental exposure.
In that event the claim would have succeeded.
There is no rock of uncertainty and so no room for the Fairchild exception.
By applying Fairchild, the Court of Appeal had erred in law and the appeal should therefore be allowed.
Unpacking the Defendants Legal Argument
The defendants argument appears simple, but it would actually involve a major change in the law.
Usually, in English or Scots law, a court awards a claimant or pursuer damages for his injuries only if the judge is satisfied, on the balance of probability, that the wrongful act of the defendant or defender actually caused, or materially contributed to, his injury.
Unless he proves this, his claim will fail.
In the case of a disease like mesothelioma the claimant will be able to prove on the balance of probability that he is suffering from mesothelioma and that he has suffered loss as a result.
He may also be able to prove, on the balance of probability, that a defendant or a number of defendants negligently exposed him to asbestos in the course of his employment with them, or while as in Mrs Willmores case she was a pupil in a school run by the Council.
What, however, the claimant will be quite unable to prove, on the balance of probability, in the present state of medical knowledge, is that he developed mesothelioma as a result of inhaling any particular fibre or fibres and that, therefore, a particular defendant was responsible for exposing him to the fibre or fibres that caused his illness.
Moreover, medical experts are no more able to tell whether the fibre or fibres which triggered the claimants mesothelioma came from the general atmosphere than they can tell whether they came from exposure during the claimants work with one or other of a number of employers.
Faced with the problem that, in the present state of medical science, a claimant can never prove his case to the standard that the law usually requires, a legal system may react in a variety of ways.
It may simply adhere to its usual stance and say that, since the claimant has not proved on the balance of probability that the defendant actually caused his disease, the claim must fail.
That was, in effect, what the Court of Appeal decided in Fairchild v Glenhaven Funeral Services Ltd [2002] 1 WLR 1052.
Alternatively, if that approach seems to be unduly harsh on victims, a system may hold that, if the claimant proves on the balance of probability that the defendants breach of duty has exposed him to asbestos, an evidential burden falls on the defendant to show that this exposure did not play any part in the claimants illness.
Menne v Celotex Corp 861 F 2d 1453 (10 Cir 1988) is a case in point.
Another possibility would be that a system would choose to hold a defendant liable because his breach of duty doubled the risk that his employee would develop mesothelioma.
The decision of the Supreme Court of Texas in Merrell Dow Pharmaceuticals Inc v Havner (1997) 953 SW 2d 706 is an example of that approach being carefully applied in relation to proof that a mothers consumption of a drug caused a birth defect in her baby.
As I point out at para 154 below, the court was conscious that it was deliberately applying a special rule to deal with the particular evidential difficulties facing plaintiffs in that kind of case.
Or else a system may adopt a (different) rule to the effect that, if the claimant proves, on the balance of probability, that the defendant materially increased the risk that he would develop mesothelioma, then the defendant is to be held to have contributed materially to the development of the claimants illness.
That is what the House of Lords appeared to do in Fairchild.
In Barker v Corus UK Ltd [2006] 2 AC 572, however, the approach in Fairchild was refined: it was now said that a defendant was liable simply on the basis that his breach of duty had materially increased the risk that his employee would contract mesothelioma and the employee had done so.
The response of English law to the problem posed by the rock of uncertainty in mesothelioma cases is therefore to be found in the combination of the common law, as laid down in Fairchild and Barker, and section 3 of the 2006 Act.
Defendants whose breaches of duty materially increase the risk that the victim will develop mesothelioma are liable jointly and severally for the damage which the victim suffers if he does in fact develop mesothelioma.
This is the current version of the Fairchild exception, as it applies in cases of mesothelioma.
Of course, the Fairchild exception was created only because of the present state of medical knowledge.
If the day ever dawns when medical science can identify which fibre or fibres led to the malignant mutation and the source from which that fibre or those fibres came, then the problem which gave rise to the exception will have ceased to exist.
At that point, by leading the appropriate medical evidence, claimants will be able to prove, on the balance of probability, that a particular defendant or particular defendants were responsible.
So the Fairchild exception will no longer be needed.
But, unless and until that time comes, the rock of uncertainty which prompted the creation of the Fairchild exception will remain.
Proof of a Fact and Proof of a Probability
Although a claimant cannot prove what happened, in any given case his illness has a determinate cause.
In other words, his mesothelioma was actually caused by a particular fibre or fibres and so a particular defendant either did or did not materially contribute to his contraction of the disease.
Whether a defendant did so is a matter of fact, but one which, in the present state of medical science, we can never know.
In Hotson v East Berkshire Area Health Authority [1987] AC 750 the plaintiff fell from a tree and sustained an acute traumatic fracture of the left femoral epiphysis.
He was taken to hospital, but his injury was not correctly diagnosed or treated for five days.
In the event, he suffered avascular necrosis of the epiphysis, involving disability of the hip joint and the virtual certainty that he would later develop osteoarthritis.
The health authority admitted negligence.
The trial judge, Simon Brown J, found that, even if the hospital had diagnosed the injury and treated the plaintiff promptly, there was a 75% chance that the necrosis would still have developed.
He held that the plaintiff was entitled to damages for the loss of the 25% chance that he would have made a full recovery if treated promptly: [1985] 1 WLR 1036.
The Court of Appeal upheld the trial judge: [1987] AC 750.
The House of Lords allowed the health authoritys appeal.
The House of Lords emphasised that what had happened to the plaintiff by the time he reached hospital was a matter of fact albeit one as to which there was no direct evidence and as to which the medical experts who gave evidence were divided.
As a matter of fact, by the time he reached hospital, the plaintiff either did or did not have sufficient intact blood vessels to keep the affected epiphysis alive.
In the words of Lord Mackay of Clashfern, [1987] AC 750, 785A B, on that matter, having regard to all the evidence, including the conflicting medical evidence, the trial judge took the view that it was more probable than not that insufficient vessels had been left intact by the fall to maintain an adequate blood supply to the epiphysis .
Lord Mackay went on to say, at p 785C E: It is not, in my opinion, correct to say that on arrival at the hospital he had a 25 per cent chance of recovery.
If insufficient blood vessels were left intact by the fall he had no prospect of avoiding complete avascular necrosis whereas if sufficient blood vessels were left intact on the judges findings no further damage to the blood supply would have resulted if he had been given immediate treatment, and he would not have suffered the avascular necrosis.
In Hotson therefore not only was the plaintiffs condition by the time he reached hospital a matter of fact, but it was one which, the House held, the trial judge had been able to determine, on the balance of probability: insufficient vessels were left intact to maintain an adequate blood supply to maintain the epiphysis.
Here, by contrast, although as a matter of fact, for instance, the defendants exposure of Mrs Costello to asbestos dust either did or did not materially contribute to her contraction of the disease, in the present state of medical science we can never know and the claimant can never prove whether it did or did not.
Lord Hoffmann made the same point in Gregg v Scott [2005] 2 AC 176, 196, at para 79, when he said that, for the law Everything has a determinate cause, even if we do not know what it is.
The blood starved hip joint in Hotsons case, the blindness in Wilshers case, the mesothelioma in Fairchilds case; each had its cause and it was for the plaintiff to prove that it was an act or omission for which the defendant was responsible.
The narrow terms of the exception made to this principle in Fairchilds case only serves to emphasise the strength of the rule.
The fact that proof is rendered difficult or impossible because no examination was made at the time, as in Hotsons case, or because medical science cannot provide the answer, as in Wilshers case, makes no difference.
There is no inherent uncertainty about what caused something to happen in the past or about whether something which happened in the past will cause something to happen in the future.
Everything is determined by causality.
What we lack is knowledge and the law deals with lack of knowledge by the concept of the burden of proof.
It appears that in the House of Lords in Hotson there was some argument about the use of statistical evidence, but most members of the appellate committee did not find it necessary to deal with it.
Lord Mackay did address the issue, however while making it clear that his comments were obiter.
At the hearing of the present appeals counsel made some reference to Lord Mackays comments and Lord Phillips has referred to them in his judgment.
It may therefore be worthwhile to look a little more closely at what Lord Mackay said in order to see whether it has any application in the present case.
Lord Mackay put forward a hypothetical example loosely based on McGhee v National Coal Board [1973] 1 WLR 1.
He supposed a case in which an employer had negligently failed to provide washing facilities at the end of their shift for men who had been exposed to brick dust in the course of their work.
One of the men developed dermatitis and sued his employer.
He led epidemiological evidence which showed that of 100 men working in the same conditions 30 would develop dermatitis even though they had showered after their shift.
But the evidence also indicated that, if the men did not shower, 70 would develop dermatitis.
Lord Mackay observed, [1987] AC 750, 786D E: Assuming nothing more were known about the matter than that, the decision of this House [in the McGhee case] may be taken as holding that in the circumstances of that case it was reasonable to infer that there was a relationship between contraction of dermatitis in these conditions and the absence of washing facilities and therefore it was reasonable to hold that absence of washing facilities was likely to have made a material contribution to the causation of the dermatitis.
Two comments are appropriate.
First, the decision of the House of Lords in McGhee actually goes much further than holding that, in such circumstances, it is reasonable to infer that the absence of washing facilities was likely to have made a material contribution to the causation of the dermatitis.
As Lord Mackay himself pointed out, in McGhee there were no statistics.
The House had to deal with the appeal on the basis of the evidence of Dr Hannay, a dermatologist led by the pursuer, which the Lord Ordinary had accepted.
Dr Hannay, who was not cross examined on the point, said that the provision of showers would have materially reduced the risk of the pursuer contracting dermatitis: 1973 SC (HL) 37, 42.
So the lack of showers materially increased the risk of the pursuer contracting dermatitis.
In these circumstances, from a broad and practical viewpoint, Lord Reid could see no substantial difference between saying that what the defender did materially increased the risk of injury to the pursuer and saying that what the defender did made a material contribution to his injury: McGhee v National Coal Board [1973] 1 WLR 1, 5B C.
From his previous reference, at p 4D F, to Bonnington Castings Ltd v Wardlaw [1956] AC 613 it is evident that Lord Reid was thinking of any increase in the risk that could not be regarded as de minimis.
There would, for example, have been a material (20%) increase in the risk in a case like McGhee, if 30 out of the population of 100 workmen would have been expected to develop dermatitis even after showering, but 36 would have been expected to develop it if no showers were provided.
On that basis the House would have held the defenders liable.
Secondly, as Lord Phillips points out, Lord Mackay must be supposed to have chosen the figures in his hypothetical example because, among the population of 100 workmen exposed to brick dust, more than twice as many (70) would be expected to develop dermatitis if no showers were provided, as would be expected to develop it even if showers were provided (30).
In terms of the defendants argument in the present appeals, failure to provide showers would more than double the risk.
In that situation, assuming that nothing more were known, Lord Mackay thought that the House might be taken as holding that it was reasonable to infer that there was a relationship between contraction of dermatitis in these conditions and the absence of washing facilities and therefore it was reasonable to hold that absence of washing facilities was likely to have made a material contribution to the causation of the claimants dermatitis.
Lord Mackays introductory words (assuming nothing more were known) show that he was conscious that, if the House did indeed reason in that way, it would be reasoning, from statistics about the situation in a population of 100 workmen in the same conditions, to the case of the individual claimant.
Obviously, care has to be taken in doing so.
For example, if the claimant had some underlying condition which made him particularly sensitive to brick dust, that would affect any reliance that could be placed on the statistics in his case.
More fundamentally, however, it is necessary to see what the epidemiological evidence would actually show in Lord Mackays hypothetical case.
Suppose the claimant, who had not been able to shower, developed dermatitis.
As a matter of fact, he either developed the dermatitis because of the lack of a shower or he developed it simply because of his exposure to the dust.
In other words, either he was one of 30 who would have developed dermatitis anyway, or he was one of the additional 40 who, the epidemiological evidence suggested, would have developed it only because there were no showers.
Ex hypothesi, however, general medical science is incapable of saying into which category the claimant falls.
And epidemiological science is equally incapable of determining that particular question indeed it is no part of its function to do so.
In that situation a court could simply say that the claimants case failed since he had not proved that he was among the 40 who would have developed dermatitis only because there were no showers, rather than among the 30 who would have developed it even if they had showered.
Alternatively, a court might say that it was more likely that the claimants dermatitis was caused by the lack of showers.
And, in fact, various courts have adopted an approach based on doubling the risk as their way of dealing with the problems of proof in toxic tort cases.
As already mentioned at para 140 above, an example is the decision of the Supreme Court of Texas in Merrell Dow Pharmaceuticals Inc v Havner (1997) 953 SW 2d 706 which Lord Phillips discusses at paras 85 89.
It should be noticed, however, that the starting point for the courts discussion was that epidemiological studies cannot establish the actual cause of an individuals injury or condition.
The court explained the basis of its approach in this way: In the absence of direct, scientifically reliable proof of causation, claimants may attempt to demonstrate that exposure to the substance at issue increases the risk of their particular injury.
The finder of fact is asked to infer that because the risk is demonstrably greater in the general population due to exposure to the substance, the claimant's injury was more likely than not caused by that substance.
Such a theory concedes that science cannot tell us what caused a particular plaintiff's injury.
It is based on a policy determination that when the incidence of a disease or injury is sufficiently elevated due to exposure to a substance, someone who was exposed to that substance and exhibits the disease or injury can raise a fact question on causation.
The court acknowledged that it was adopting a particular policy on what counted as raising a question on causation in such circumstances.
On the basis of McGhee Lord Mackay envisaged that in an appropriate case the House of Lords would take a somewhat similar approach.
Lord Mackay first suggests that in his hypothetical case the House could be taken as holding that, on the basis of the statistics, it would be reasonable to infer that there was a relationship between contraction of dermatitis in these conditions and the absence of washing facilities.
Assuming that the epidemiological evidence is reliable, that is plainly so.
He goes on to suggest that, on the basis of that inference, it might be reasonable to hold that the absence of washing facilities was likely to have made a material contribution to the causation of the dermatitis by which he means the claimants dermatitis.
This is the critical step.
It is important to recognize that in such a case the claimant would not have proved, on the balance of probability, that his exposure to the brick dust by the defendant actually caused his dermatitis.
Indeed the starting point of the entire hypothetical example is that, in the present state of medical knowledge, the claimant could not prove this.
Assuming that the epidemiological study is reliable, the statistics in Lord Mackays example would simply indicate that, if you took 100 workmen who developed dermatitis after working in the same conditions, you would expect to find that 30 developed it after having showered and 70 developed it when they had not been able to shower.
So, by leading the epidemiological evidence, the only fact that the claimant can prove and offers to prove, on the balance of probability, is that in most cases the dermatitis would have been related to the lack of showers.
So, if the judge accepts the evidence, it may legitimately satisfy him, on the balance of probability, not that the claimants dermatitis was caused by the lack of showers, but that, in the absence of any evidence that the claimant is atypical, it is more probable than not that his dermatitis was caused by the lack of showers.
In short, the chances are that it was.
Whether, in any particular case, the claimants dermatitis was actually caused by the lack of showers is a matter of fact and one that remains unknown, if the only available evidence is statistical.
See Steve Gold, Causation in Toxic Torts: Burdens of Proof, Standards of Persuasion, and Statistical Evidence (1986) 96 Yale LJ 376, 382 384.
Where the claimant led only statistical evidence, a court could simply say that his case failed.
Alternatively, as Lord Mackay envisaged, the court might have held, exceptionally, that, where no other proof was possible, the defendant should be held liable on the basis of Lord Mackays rule.
Of course, it is possible to conceive of a legal system which chose, as a matter of policy, to make defendants liable for all the damage which a court was satisfied, on the balance of probability, they had probably caused.
But only the legislature could alter English or Scots law so as to introduce a general rule to that effect, which would change the very nature of the system and completely alter its balance, in favour of claimants and against defendants and their insurers.
In Hotson Lord Mackay was not suggesting that English law operated, or should operate, generally on that basis.
On the contrary, he had just been at pains, along with the other members of the appellate committee, to emphasise that in civil proceedings for damages the role of the judge is to decide, on the balance of probability, what actually happened.
He introduced his discussion of the hypothetical case by saying, [1987] AC 750, 786A B, that he considered that it would be unwise, however, to lay it down as a rule that a plaintiff could never succeed by proving loss of a chance in a medical negligence case.
He then referred to McGhee.
So he seems to have envisaged that the court might adopt such an approach in an exceptional case like McGhee where, because of the state of medical knowledge, the claimant could not prove his case on the usual approach.
There is now no room, however, for Lord Mackays rule in cases of that kind in English or Scots law since, in Fairchild, the House dealt with the problem of proof which they present by adopting a different and for claimants much less stringent rule.
With Lord Mackays rule, the claimant would succeed if he showed, on the balance of probability, that it was more likely than not that the defendants breach of duty had materially contributed to the causation of his dermatitis; under the rule in Fairchild, the claimant succeeds if he shows, on the balance of probability, that the defendants breach of duty materially increased the risk that he would contract dermatitis.
Indeed, the rule in Fairchild is more generous to claimants precisely because it is modelled on the rule which the House had adopted in McGhee and which was itself more generous to pursuers than the rule described by Lord Mackay.
Put shortly, if the House had applied Lord Mackays rule, the claimants in Fairchild would unquestionably have failed since there was no evidence, whether epidemiological or of any other kind, to show that, on the balance of probability, it was more probable than not that the breach of duty of any of the individual defendants had materially contributed to the causation of the victims disease.
All that the claimants could show was that, on the balance of probability, each of the defendants had materially increased the risk that the victims would develop mesothelioma.
For the policy reasons which it gave, the House of Lords held that this was enough.
Single Exposure Mesothelioma Cases
Similarly, in my view, there is now no room for introducing the doubling of the risk approach in single exposure mesothelioma cases.
As already explained, in these cases, because of the state of medical knowledge, it is impossible to prove whether the victims mesothelioma was actually caused by the defendants breach of duty or by asbestos fibres in the general atmosphere.
The claimant comes up against the same rock of uncertainty.
In that respect single exposure cases are no different from multiple defendant cases and the same approach should be applied.
The point is covered by what Lord Hoffmann said in Barker v Corus UK Ltd [2006] 2 AC 572, 584H 585B, at para 17, in a short passage with which all the members of the appellate committee agreed: The purpose of the Fairchild exception is to provide a cause of action against a defendant who has materially increased the risk that the claimant will suffer damage and may have caused that damage, but cannot be proved to have done so because it is impossible to show, on a balance of probability, that some other exposure to the same risk may not have caused it instead.
For this purpose, it should be irrelevant whether the other exposure was tortious or non tortious, by natural causes or human agency or by the claimant himself.
These distinctions may be relevant to whether and to whom responsibility can also be attributed, but from the point of view of satisfying the requirement of a sufficient causal link between the defendant's conduct and the claimant's injury, they should not matter.
The position accordingly is that in single exposure cases the Fairchild exception applies and a claimant succeeds if he proves, on the balance of probability, that the defendants breach of duty materially increased the risk that he would develop mesothelioma.
Since that is the rule which applies in cases where the state of medical knowledge makes it impossible for a claimant to prove whether a defendants breach of duty actually caused his disease, there is no reason why a claimant needs to prove anything more than that the defendants breach of duty materially increased the risk that he would develop the disease.
So in such cases the doubling of the risk approach is irrelevant.
And there is no room for Mr Stuart Smiths fall back suggestion that, in single exposure cases, a material increase in risk should be equated with doubling the risk.
That would be utterly inconsistent with the established law that, for these purposes, a risk is material if it is more than de minimis.
See the discussion of the hypothetical use of statistics in McGhee at para 150 above.
It also follows that there is no room in such cases for applying the approach laid down by Smith LJ in the Court of Appeal in the passage quoted at para 121 above.
The purported guidance to courts in that passage should not be followed.
Finally, nothing which I have said is intended to discourage the use of epidemiological evidence or to depreciate its value in cases where a claimant has to prove his case on the balance of probabilities.
Far from it.
Obviously, for example, epidemiology is likely to lie behind much of the evidence on which a court determines whether an exposure has materially increased the risk of the claimant developing a disease.
Epidemiological evidence may also be relevant when deciding whether it would have been reasonable for a defendant to take precautions to avoid the risk of the claimant suffering a particular injury say, the side effect of a drug.
And, of course it must be emphasised once more epidemiological and statistical evidence may form an important element in proof of causation.
I have simply emphasised the point made by Phipson on Evidence,17th ed (2010), para 34 27, that, unless a special rule applies, Where there is epidemiological evidence of association, the court should not proceed to find a causal relationship without further, non statistical evidence.
In other words, since, by its very nature, the statistical evidence does not deal with the individual case, something more will be required before the court will be able to reach a conclusion, on the balance of probability, as to what happened in that case.
For example, where there is a strong epidemiological association between a drug and some condition which could have been caused in some other way, that evidence along with evidence that the claimant developed the condition immediately after taking the drug may well be enough to allow the judge to conclude, on the balance of probability, that it was the drug that caused the claimants condition.
Of course, in any actual dispute, the epidemiological evidence may be contested.
The judge will then have to decide which expert view he accepts and how reliable the evidence is whether, for example, the study has been properly constructed and, in particular, what the confidence intervals are.
In that respect epidemiological evidence is no different from other evidence.
Disposal
Since the Fairchild exception applies in single exposure cases, the claimants in the present appeals were entitled to succeed if they proved that the defendants breach of duty materially increased the risk that Mrs Costello and Mrs Willmore would develop mesothelioma.
There was therefore no error of law on the part of the Court of Appeal.
The defendants appeal in Sienkiewicz must accordingly be dismissed.
So far as the law is concerned, the same applies to Willmore.
In that case the Council also appealed on the facts.
The Court of Appeal reviewed the evidence and the judges reasoning.
Having rejected his finding on one point, they accepted that he had been entitled to find that she had been exposed to asbestos in two other ways and that those exposures had been material.
It is important that judges should bear in mind that the Fairchild exception itself represents what the House of Lords considered to be the proper balance between the interests of claimants and defendants in these cases.
Especially having regard to the harrowing nature of the illness, judges, both at first instance and on appeal, must resist any temptation to give the claimants case an additional boost by taking a lax approach to the proof of the essential elements.
That could only result in the balance struck by the Fairchild exception being distorted.
Mr Feeny made a number of plausible criticisms of the findings of Nicol J and of the approach of the Court of Appeal and suggested that they had been unduly favourable to Mrs Willmore.
Some of the inferences which Nicol J drew in Mrs Willmores favour from the evidence relating to her exposure at Bowring Comprehensive can properly be regarded as very generous.
With considerable hesitation, however, I have concluded that the criticisms would not justify this Court in taking the exceptional step of disturbing the concurrent findings of fact of the courts below.
I would accordingly dismiss the Councils appeal on the facts.
In the result, the appeal in Willmore must also be dismissed.
LADY HALE
I pity the practitioners as well as the academics who have to make sense of our judgments in difficult cases.
But these cases are hard rather than difficult.
We are here concerned with one case of relatively light but long term exposure and one case of very slight and short term exposure, both set against a lifetime of environmental and other possible exposures about which nothing much is known.
As Lord Brown implies, Fairchild kicked open the hornets nest.
The House of Lords were confronted with several employers, each of which had wrongly exposed their employees to asbestos, but none of which exposure could be shown to have caused the disease.
I find it hard to believe that their Lordships there foresaw the logical consequence of abandoning the but for test: that an employer or occupier whose wrongful exposure might or might not have led to the disease would be liable in full for the consequences even if it was more likely than not that some other cause was to blame (let alone that it was not more likely than not that he was to blame).
But, as Lord Rodger has explained, that is the logical consequence and there is nothing we can do about it without reversing Fairchild.
Even if we thought it right to do this, Parliament would soon reverse us, and it is easy to understand why.
Asbestos has long been known to be a dangerous (as well as a useful) substance, employers and occupiers turned a blind eye to those dangers long after they knew or should have known about them, and mesothelioma is a dreadful disease.
In Barker, Mr Stuart Smith tried very hard to persuade the House of Lords that the Fairchild exception applied only where all the exposure was in breach of duty.
He failed in that, although he succeeded in persuading the majority that the price to be paid for abandoning conventional rules of causation was aliquot liability.
Parliament swiftly disagreed.
The Compensation Act 2006 restored the principle that any tortfeasor is liable in full for an indivisible injury.
But that leaves us with the result that a defendant who may very well not have caused the claimants disease indeed probably did not do so is fully responsible for its consequences.
I do not see any answer to that.
It is the inevitable result of Barker, made even more severe through the intervention of Parliament, but inevitable none the less.
That means that in cases where the Fairchild exception applies, there is no room for the more than doubles the risk approach to causation: it is not necessary in order to establish causation and it is not an appropriate test of what is a more than de minimis increase in risk.
So we do not need to go into the relevance of statistical probabilities to the finding of causation for the purpose of deciding these cases.
Nor, in the event, did the Court of Appeal need to do so.
The reason why Lord Phillips and Lord Rodger have discussed the subject at such length is the obiter observation of Smith LJ, at para 23 of her judgment in Sienkiewicz, that in a case of multiple potential causes, a claimant can demonstrate causation by showing that the tortious exposure has at least doubled the risk arising from the non tortious cause or causes.
Anything we say on the subject, therefore, is also obiter.
However, I do agree with Lord Rodger that doubling the risk is not an appropriate test of causation in cases to which the Fairchild exception does not apply.
Risk is a forward looking concept what are the chances that I will get a particular disease in the future? Causation usually looks backwards what is the probable cause of the disease which I now have? Epidemiology studies the incidence and prevalence of particular diseases and the associations between both of these and particular variables in the diseased population.
From these it is possible to predict that a particular percentage of the population, for example of women aged between 60 and 70, will contract a particular disease, for example, breast cancer.
It is also possible to say that certain variables, such as life style or age of first child bearing, are associated with a greater chance of developing the disease.
So a doctor will sensibly advise her patient to behave in a way which will reduce the risks.
But if the disease materialises, the existence of a statistically significant association between factor X and disease Y does not prove that in the individual case it is more likely than not that factor X caused disease Y.
The same applies to less sophisticated calculations.
The fact that there are twice as many blue as yellow taxis about on the roads may double the risk that, if I am run over by a taxi, it will be by a blue rather than a yellow one.
It may make it easier to predict that, if I am run over by a taxi, it will be by a blue rather than a yellow one.
But when I am actually run over it does not prove that it was a blue taxi rather than a yellow taxi which was responsible.
Likewise, if I actually develop breast cancer, the fact that there is a statistically significant relationship between, say, age at first child bearing and developing the disease does not mean that that is what caused me to do so.
But as a fact finder, how can one ignore these statistical associations? Fact finding judges are told that they must judge a conflict of oral evidence against the overall probabilities coupled with the objective facts and contemporaneous documentation: see, for example, Robert Goff LJ in Armagas Ltd v Mundogas SA (The Ocean Frost) [1985] 1 Lloyds Rep 1, 57.
Millions of pounds may depend upon their decision.
Yet judges do not define what they mean by the overall probabilities other than their own particular hunches about human behaviour.
Surely statistical associations are at least as valuable as hunches about human behaviour, especially when the judges are so unrepresentative of the population that their hunches may well be unreliable? Why should what a (always middle aged and usually middle class and male) judge thinks probable in any given situation be thought more helpful than well researched statistical associations in deciding where the overall probabilities lie? As it seems to me, both have a place.
Finding facts is a difficult and under studied exercise.
But I would guess that it is not conducted on wholly scientific lines.
Most judges will put everything into the mix before deciding which account is more likely than not.
As long as they correctly direct themselves that statistical probabilities do not prove a case, any more than their own views about the overall probabilities will do so, their findings will be safe.
So in my view it would be wrong for judges to change their fact finding behaviour because of anything said in this case.
On the issues of law, the Fairchild exception has to apply to these single tortious exposure cases, no matter how unjust it may seem to the defendants.
Even if I were convinced of the merits of the more than doubling the risk approach to causation in other contexts, which I am not, it does not apply in these cases.
That is enough to dispose of the appeal in the case of the late Mrs Costello.
In the case of Mrs Willmore, the judges findings of fact were truly heroic, and I would endorse what Lord Rodger says about this, but I do not think that it is open to us to disturb them.
I would dismiss both appeals.
LORD BROWN
Mesothelioma claims are in a category all their own, so special indeed that Parliament in 2006 chose to legislate specifically for them: section 3 of the Compensation Act 2006.
Whilst entertaining no doubt that the position now reached in respect of such claims is precisely as Lord Phillips and Lord Rodger have explained and that these appeals must accordingly fail, I think it only right to indicate just how unsatisfactory I for my part regard this position to be and how quixotic the path by which it has been arrived at.
The present position, exemplified by the facts of these very appeals, can be simply stated as follows: any person who negligently or in breach of duty exposes another more than minimally to the inhalation of asbestos fibres will be liable to make full compensation if that other develops mesothelioma more than five years later (five years being now thought to be the minimum period between the development of the first malignant cell and the diagnosis of the disease see Lord Phillips judgment at para 19(v)).
That statement of the position holds true irrespective of whether the victim was exposed by others to even longer and more intensive inhalation (and indeed inhalation of more noxious fibres), whether negligently or not, and irrespective too of any environmental or other exposure (again, however intensive).
It requires qualification only if and to the extent that the victim negligently exposed himself to the inhalation of asbestos fibres (when there may be a finding of contributory fault).
One need hardly stress how radically different such an approach to compensation represents from that followed in all other cases of physical injury.
All other cases require that the claimant satisfies the but for test of causation.
True, in the case of cumulative injuries, the law holds a negligent employer liable even if his negligence is responsible for part only of the victims condition (provided only that it made a material, ie more than de minimis, contribution to the development of the condition).
I have difficulty, however, in seeing this as a true exception to the but for test: although the claimant in Bonnington Castings Ltd v Wardlaw [1956] AC 613, the case which first established the principle, recovered full damages for his condition (pneumoconiosis from the inhalation of silica), that appears to have been because the defendants took no point on apportionment; in a series of subsequent such cases damages have been apportioned, however broadly for example, as between negligent and non negligent exposure respectively in dust inhalation cases, in noise cases and in cases of vibration white finger, and, in respiratory disease cases, between the damage caused by the inhalation of fumes or other noxious agents on the one hand and the claimants habit of cigarette smoking on the other.
It therefore seems to me that there is just one single authority that needs to be noticed before one turns to the three stage process by which the present approach to compensation in mesothelioma cases came to be dictated, namely, of course, McGhee v National Coal Board [1973] 1 WLR 1.
McGhee is undoubtedly a problematic case.
The House of Lords was later in Wilsher v Essex Area Health Authority [1988] AC 1074 to regard it as not having laid down any principle of law at all; rather it was described by Lord Bridge of Harwich, at p 1090, as merely a robust and pragmatic approach to the undisputed primary facts of the case on the basis that, as in Bonnington Castings, the negligent prolongation of the claimants contact with (in McGhee) brick dust had materially contributed to his development (in McGhee) of dermatitis.
Rightly or wrongly, however (and whether rightly or wrongly now matters nothing), the House of Lords in Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32 found altogether greater force in McGhee.
As was pointed out, for example by Lord Nicholls, it had really not been open to the House in McGhee to infer from the established facts that the employers negligence had caused or materially contributed to the onset of his condition.
In short, the House in Fairchild regarded McGhee as authority for the application to certain cases of a less stringent test than the usual but for test for establishing the necessary causal connection between the employers negligence and the claimants condition.
That said, however, the judgments in Fairchild provided no support whatever for a general principle of compensation in mesothelioma cases remotely as wide as I have described the present position to be today.
Quite the contrary.
The circumstances in which the more relaxed approach to causation said to have been adopted in McGhee were held to apply to mesothelioma cases were narrowly circumscribed.
One should note particularly Lord Binghams six relevant factors (conveniently set out at para 39 of Lord Phillips judgment), all of which had to be present before the special rule of causation was to apply.
Note too the agreement between the parties in Fairchild that any cause of [the claimants] mesothelioma other than the inhalation of asbestos dust at work can be effectively discounted (Lord Binghams speech at para 2).
Consider also the rationale identified by Lord Bingham as justifying this special rule: the strong policy argument in favour of compensating those who have suffered grave harm, at the expense of their employers who owed them a duty to protect them against that very harm and failed to do so, when the harm can only have been caused by breach of that duty and when science does not permit the victim accurately to attribute, as between several employers, the precise responsibility for the harm he has suffered (Lord Bingham at para 33).
Lord Bingham was there positing a situation where, for example, a mesothelioma victim had worked for three successive employers each, say, for fifteen years, all of whom had negligently exposed him to the inhalation of asbestos fibres.
Faced with the rock of uncertainty Lord Binghams graphic characterisation of sciences inability to establish on a balance of probabilities which particular source(s) of asbestos fibre exposure had caused mesothelioma to develop one can readily see how the House came unanimously to endorse this new principle.
I am not, of course, suggesting that their Lordships in Fairchild were intent on confining the application of this new principle quite so narrowly as that.
Lord Rodger, for example, expressly recognised (at para 170 of his speech) that it can also apply where, as in McGhee, the other possible source of the injury is a similar, but lawful, act or omission of the same defendant.
But he immediately then reserve[d] [his] opinion as to whether the principle applies where the other possible source of injury is a similar but lawful act or omission of someone else or a natural occurrence.
The point I make is that it is hardly to be thought that had the House, on the occasion of the Fairchild hearing, been considering not the facts of those three appeals but instead the facts of the present appeals the claimants would have succeeded and the law have developed as it has.
Before parting from Fairchild it is, I think, worth noting that, just as in Bonnington Castings half a century before, the respondent defendants in Fairchild similarly took no point on apportionment: their stance now as then was one of all or nothing doubtless in the hope (and perhaps even the expectation) of defeating the claims in their entirety.
Coming then to stage two of the three stage process, by which the present position with regard to mesothelioma cases came to be established, Barker v Corus UK Ltd [2006] 2 AC 572, one finds the House having to face up to some of the problems it had left open with Fairchild and, as it seems to me, beginning to have second thoughts both as to the juristic basis for this special rule of causation which Fairchild held to apply in certain toxic tort cases and as to where the abandonment of the but for principle was taking the law.
In the result, the Fairchild approach was (as Lord Rodger now puts it at para 140 of his judgment) refined; Lord Hoffmann explained that Fairchild had recognised a new tort, that of negligently increasing the risk of personal injury (although, of course, the injury had to eventuate before any tort was committed), and logically it followed that any liable defendant should be liable only for his aliquot share of the victims loss, not for its entirety.
The damage was no longer to be treated as the indivisible mesothelioma but rather as the readily divisible creation of the risk of developing mesothelioma.
Damages, therefore, were to be apportioned according to the contribution made by any particular defendant to the overall risk.
On that basis, of course, the special rule whereby the but for test of causation is relaxed applies equally whether or not other exposures are partly tortious and partly non tortious, or indeed wholly non tortious, and whether they result from natural causes or indeed, from the employees own negligence.
It is to my mind quite clear that the preparedness of the majority of the court in Barker to extend the reach of the Fairchild principle this far was specifically dependent upon there being aliquot liability only.
Lord Rodger alone thought that liability under the Fairchild exception to the but for rule should be for full compensation (in solidum).
But he made clear that had that been the view of the majority, then in a case where the victim had himself been solely responsible for a material exposure especially where, as in one of the three appeals before the court in Barker, the victim had himself been at fault he would have applied the normal but for rule for proof of causation.
The third and final stage of the process by which the law with regard to compensation in mesothelioma cases came to reach its present position was, of course, Parliaments enactment of section 3 of the Compensation Act 2006.
I have no doubt that Lord Rodger is right (at paras 131 and 132 of his judgment) in saying that the sole effect of section 3 is to reverse the Houses decision in Barker on the issue of quantum; in no way does it pre empt or dictate the proper approach of the common law to questions of causation and liability.
On the other hand it would be a remarkable thing for this Court now in effect to reverse the decision in Fairchild and revert, in mesothelioma cases as in all others, to the normal, but for, rule of causation the principle, vindicated periodically down the years in cases of indivisible no less than of cumulative injury (Gregg v Scott [2005] 2 AC 176 being the latest such decision in point), that to establish liability the claimant must show that but for the defendants negligence he would probably not have suffered his injury (or at least not have suffered it to the full extent that he has).
In my judgment it could only be by reversing Fairchild and allowing no exception whatever to the normal rule of causation that this Court could now avoid what Lord Phillips (at para 58 of his judgment) rightly describes as the draconian consequences of coupling section 3 to the Fairchild/Barker principle: the liability in full even of someone responsible for only a small proportion of the overall exposure of a claimant to asbestos dust.
There is in my opinion simply no logical stopping place between the case of successive negligent employers dealt with in Fairchild itself (apparently circumscribed though that decision was) and the extreme (draconian) position now arrived at, well exemplified as it seems to me by the facts of these very appeals.
If, because of the rock of uncertainty, the law is to compensate by reference to negligence which merely increases the risk of such injury as then develops, why should not that relaxation of the normal rule of causation apply equally when, as here, there is but one negligent employer (or negligent occupier) as when there are several? As Barker recognised, there can be no rational basis for confining the special rule within narrow bounds, whatever may have been contemplated by the House in Fairchild.
In short, the die was inexorably cast in Fairchild although, as already suggested, it is doubtful if that was then recognised and it is noteworthy too that, even when in Barker it came to be recognised, it was then thought palatable only assuming that compensation was going to be assessed on an aliquot basis.
Parliament, however, then chose although, of course, only in mesothelioma cases to go the whole hog.
The result must surely be this.
As I began by saying, mesothelioma cases are in a category all their own.
Whether, however, this special treatment is justified may be doubted.
True, as Lord Phillips observes at the outset of his judgment, mesothelioma is indeed a hideous disease. (And it is perhaps also the case, as Lord Phillips suggests at para 104, that mesothelioma, after all, may result from the cumulative effect of exposures to asbestos dust.) The unfortunate fact is, however, that the courts are faced with comparable rocks of uncertainty in a wide variety of other situations too and that to circumvent these rocks on a routine basis let alone if to do so would open the way, as here, to compensation on a full liability basis would turn our law upside down and dramatically increase the scope for what hitherto have been rejected as purely speculative compensation claims.
Although, therefore, mesothelioma claims must now be considered from the defendants standpoint a lost cause, there is to my mind a lesson to be learned from losing it: the law tampers with the but for test of causation at its peril.
There is a rough justice about the law of personal injury liability as a whole.
To compensate a claimant in full for a lost finger because there was a 60:40 chance that he would have worn protective gloves had they been made available to him may be regarded as rough justice for defendants.
But it is balanced by the denial of compensation to a claimant who cannot establish that he would probably have worn the gloves or whose finger the judge concludes was probably already doomed because of frostbite.
Save only for mesothelioma cases, claimants should henceforth expect little flexibility from the courts in their approach to causation.
Since Fairchild and Barker there has been much academic focus on a supposedly critical distinction between so called single agent and multiple agent cases, the suggestion being that the former more readily lend themselves to special rules of causation than the latter.
For my part I have difficulty even in recognising the distinction between these categories, at any rate in some cases.
But I have greater difficulty still in accepting that the courts should now, whether on this or any other basis, be thinking of creating any further special rules regarding the principles governing compensation for personal injury.
The same logic which requires that the claims of these respondents succeed to my mind requires also that the courts should in future be wary indeed before adding yet further anomalies in an area of law which benefits perhaps above all from clarity, consistency and certainty in its application.
LORD MANCE
Cases of mesothelioma are subject to the special rule of causation established in Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22; [2003] 1 AC 32 and developed in Barker v Corus UK Ltd [2006] UKHL 20; [2006] 2 AC 572, but significantly amended by the Compensation Act 2006.
I agree that this special rule is applicable to both the appeals before this court, although in each (a) only one person (an employer in one case, a school in the other) is shown to have exposed the victim of mesothelioma to asbestos, the only other such exposure being the general low level atmospheric exposure incurred by members of the public at large, and (b) the exposure by that person did no more than increase the sufferers general low level atmospheric exposure to asbestos materially (or, more specifically, in the case of Mrs Costello represented by Mrs Sienkiewicz, by some 18%).
The submission that causation can be shown by proving a doubling of the ambient risk, or can be negatived by disproving this, is inconsistent with, or would make a radical and uncertain inroad into, the special rule.
I reach this conclusion in agreement with the reasoning on this aspect of Lord Phillips, Lord Rodger, Lady Hale and Lord Dyson, on the basis that our understanding of the aetiology of mesothelioma remains as incomplete and inadequate as ever.
I also concur with the further remarks of Lady Hale in her first paragraph and of Lord Brown in his judgment about the impossibility of going back on Fairchild, as well as on the lesson of caution that the history may teach in relation to future invitations to depart from conventional principles of causation.
I too would therefore dismiss the appeal in Mrs Costellos case.
An interesting debate has, somewhat unexpectedly, developed about the significance or value of epidemiological or statistical evidence relating to a population or group in the context of decision making in particular cases.
I share a reluctance to place too much weight on such evidence.
This is not because statistics are lies, or because truth can be stranger than fiction.
It is because the law is concerned with the rights or wrongs of an individual situation, and should not treat people and even companies as statistics.
Despite the intense sympathy which can arise in particular cases like the present, an attribution of liability based substantially on statistical evidence, that, viewing the relevant population or group as a whole, it is more likely than not that the particular defendant was negligent or causatively responsible, appears to me most undesirable.
That epidemiological evidence used with proper caution, can be admissible and relevant in conjunction with specific evidence related to the individual circumstances and parties is, however, common ground and clearly right.
What significance a court may attach to it must depend on the nature of the epidemiological evidence, and of the particular factual issues before the court.
Whether and if so when epidemiological evidence can by itself prove a case is a question best considered not in the abstract but in a particular case, when and if that question arises.
If it can, then, I would hope and expect that this would only occur in the rarest of cases.
In other cases, there will be continuing good sense in the House of Lords reminder to fact finders in Rhesa Shipping Co SA v Edmunds (the Popi M) [1985] 1 WLR 948 that it is not their duty to reach conclusions of fact, one way or the other, in every case.
There are cases where, as a matter of justice and policy, a court should say that the evidence adduced (whatever its type) is too weak to prove anything to an appropriate standard, so that the claim should fail.
The American material which we have seen, particularly Smith v Rapid Transit Inc (1945) 58 NE 754, Merrell Dow Pharmaceuticals Inc v Havner (1997) 953 SW 2d 706 and Causation in Toxic Torts: Burdens of Proof, Standards of Persuasion, and Statistical Evidence by Steve Gold (1986) 96 Yale LJ 376, demonstrates, with innumerable further references, the detailed and extensive thought which has been given across the Atlantic to the significance and use of epidemiological or statistical evidence.
In that light and without hearing fuller argument, as well as because it raises fact specific issues and is unnecessary for the resolution of these appeals, I think it inappropriate to say more about the use of epidemiological evidence.
On the material before us, I would myself see Willmore v Knowsley Metropolitan Borough Council as a case where there was no sufficient proof that the defendant exposed the claimant to asbestos.
The judge found exposure on a slender and speculative basis which Lady Hale describes as heroic.
But, the concurrent findings below on two of the three bases of exposure found by the judge are entitled to some weight, and on that basis I do not dissent from the general view that the appeal on fact in Willmore should also be dismissed.
LORD KERR
What has been called the Fairchild exception was described in a variety of ways in Barker v Corus UK Ltd [2006] 2 AC 572 but common to all the various formulations is the proposition that where employers through breach of duty expose their employee to asbestos and thereby materially increase the risk to the employee of developing mesothelioma, they will be jointly and severally liable if he or she develops that condition.
This involved a modification of the previously applicable legal rules in relation to the causation element in employers liability claims.
That alteration was thought necessary in order to cater for the particular difficulties that asbestos related disease presents.
Implicit in the modification of the normal rule is the acceptance that an employer thus found liable may, in truth and in fact, not have been responsible for the damage at all.
This is the price that it was deemed necessary to pay in order to hold the balance of justice between the parties.
Because of the limitations of medical and scientific knowledge, it was recognised that it would be unjust to enforce a rigorous requirement of proof that a particular employment had actually caused or contributed to the damage.
A potent factor in this equation was that the insidious nature of asbestos and the calamitous consequences that exposure to it can cause, allied to the current lack of scientific knowledge about the aetiology of mesothelioma, warrant a different approach to the conventional burden of proof.
To insist on its stringent application would set what would in many instances prove an impossible practical difficulty in the way of a claimant.
These considerations viz the constraints that arise from the unavailability of scientific proof and the dreadful illnesses that can result from asbestos exposure are just as relevant in the approach to so called single exposure cases as they are in cases of multiple employment exposure cases.
The use of the expression single exposure may be misleading in this context.
In Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32 the defendants had argued that the claims should be dismissed because there were various exposures each of which could have caused the mesothelioma and each of which might not have done so.
In the present cases the appellants argument resolves to essentially the same proposition.
They suggest that there were two possible sources of exposure in each case in Mrs Costellos case exposure while employed by the defendant and environmental exposure and in Mrs Willmores case exposure while at school and environmental exposure.
It is argued that each of these exposures might have caused the mesothelioma but each of them might not have done so.
In effect, therefore, the appellants submit that there is more than one possible source for the mesothelioma that both women suffered.
The difference in these cases is not that they involved a single exposure but that each had a tortious and a non tortious source of exposure.
But the same difficulties as to proof as arose in Fairchild and Barker afflict the present cases.
And it was those difficulties that prompted the modification of the causation rules.
It might be suggested that it is easier to accept that several employers, none of whom could be positively identified as having caused or contributed to the condition, should have to participate in the compensation package, on the basis that one of them (at least) had actually caused the mesothelioma and because each of the employers had, in any event, been prepared to have their employee run the risk of contracting the disease.
But that is not the basis on which the adjustment to the requirements of proof was made.
That adjustment was made precisely because, as a matter of policy, it was considered that it would be unfair to impose on a claimant a requirement of proof which in most cases, because of the limitations of scientific knowledge, was quite incapable of fulfilment.
In so far as such considerations might be considered relevant, however, the fact remains that both defendants in the present appeals were prepared to countenance a material increase in the risk to Mrs Costello and Mrs Willmore.
The circumstance that the other possible source of mesothelioma in these cases was non tortious should make no difference.
Nor did it in Barker.
In that case it was expressly accepted by Lord Hoffmann, Lord Scott of Foscote and Lord Rodger of Earlsferry that the Fairchild exception did apply to a non tortious source of risk.
At para 17 Lord Hoffmann said: The purpose of the Fairchild exception is to provide a cause of action against a defendant who has materially increased the risk that the claimant will suffer damage and may have caused that damage, but cannot be proved to have done so because it is impossible to show, on a balance of probability, that some other exposure to the same risk may not have caused it instead.
For this purpose, it should be irrelevant whether the other exposure was tortious or non tortious, by natural causes or human agency or by the claimant himself.
These distinctions may be relevant to whether and to whom responsibility can also be attributed, but from the point of view of satisfying the requirement of a sufficient causal link between the defendants conduct and the claimants injury, they should not matter.
Lord Scott stated that he was in complete agreement not only with Lord Hoffmanns conclusions but also with his reasons for reaching them (para 50) and at para 97 Lord Rodger said: Starting from the McGhee extension, counsel considered whether Fairchild would apply where one or more of the sources of exposure to asbestos dust had been lawful but unconnected with any wrongdoer.
For instance, the victim had been employed for a period before the dangers of exposure to asbestos dust should have been known in the industry and there had been no fault on the part of the employer.
Having reserved my opinion on the point in Fairchild, I would now hold that the rule should apply in that situation.
For the reasons given by Lord Phillips and Lord Rodger in the present appeals, therefore, I agree that there is no basis on which the Fairchild exception should not be applied in these cases and, on that account, that the appeals should be dismissed.
The policy reason for introducing the modified rule in that case applies with equal force here and it would be anomalous and arbitrary to require these respondents to establish that it was twice as likely that the indicted exposure was the cause of the mesothelioma, while not imposing such a requirement on a claimant in a multiple employer exposure case.
In all relevant respects the appellants are in an exactly similar position to a defendant in such a case.
In both instances none of the defendants can be proved to have caused the mesothelioma but all have materially increased the risk by wrongfully exposing Mrs Costello and Mrs Willmore to asbestos.
In these circumstances the interesting debate that has been had between Lord Phillips and Lord Rodger as to the use to which epidemiological evidence might be put is, at this stage certainly, academic.
But I wish to say that I share the misgivings that have been expressed about the capacity of this type of evidence to prove that mesothelioma is more likely to have been caused by a particular exposure, even if advances in medical and scientific knowledge erode the rock of uncertainty.
Epidemiology is the branch of medical science which normally deals with the incidence and prevalence of disease in large populations and with the detection of the sources and causes of disease.
It involves the collection of data, usually over significant periods.
Unless these coincide with periods of relevant exposure or replicate conditions of exposure experienced by individual claimants, the use of such data to seek to establish any specific proposition in an individual case requires to be treated with great caution, in my opinion.
It is an essential and minimum requirement, as Brachtenbach J said in Herskovits v Group Health Cooperative of Puget Sound (1983) 664 P 2d 474, that there be evidence connecting avowedly relevant statistical information produced by the epidemiological studies to the facts of the case.
In my view, no such connection was made in the present appeals.
The epidemiological evidence which was adduced consisted of a series of assumptions and speculations rather than actual data which could be related to the experience of those who developed mesothelioma.
What the testimony amounted to was the promotion of a theory rather than the establishment of facts and it did not constitute evidence on which reliable conclusions could be reached.
There is a real danger that so called epidemiological evidence will carry a false air of authority.
It is necessary to guard against treating a theory based on assumptions as a workable benchmark against which an estimate of the increase in risk could be measured.
Whether and in what circumstances epidemiological evidence can assist in the determination of whether a particular case of mesothelioma is likely to have been caused by a particular exposure will have to be decided according to the particular circumstances of an individual case.
In my view, the epidemiological material adduced in evidence in the present case could not have assisted in the determination of that issue.
LORD DYSON
The central question that arises in these appeals is whether the so called Fairchild exception applies in a single exposure case, that is to say a case where a victim has been exposed to asbestos by a single defendant in breach of duty and has also been exposed to asbestos in the general atmosphere.
In Fairchild itself, the victims had been exposed to asbestos by a number of defendants in breach of their duty of care.
The limitations of medical knowledge prevented them from being able to prove on the balance of probability which exposure had caused their mesothelioma.
In order to avoid injustice, the House of Lords held that proof on the balance of probability that each defendants wrongdoing had materially increased the risk of contracting the disease was sufficient to satisfy the causal requirements for liability.
For understandable reasons, the Court of Appeal had applied a conventional approach and had dismissed the claims because the claimants had been unable to prove on the balance of probability that their wrongful exposure to asbestos by any particular defendant had caused their disease.
Each defendant was able to say that the offending asbestos might have been the result of exposure caused during the claimants employment by a different defendant.
Thus it was that the claims were rejected by the Court of Appeal on what Lord Bingham called this rock of uncertainty.
The Fairchild exception was created to circumvent the rock of uncertainty.
It is implicit in the reasoning in Fairchild (repeated in Barker) that, if the rock of uncertainty were to disappear in the light of increased medical knowledge, then the rationale for the Fairchild exception would disappear and claimants would be required to prove their cases on the balance of probability in the usual way.
It is common ground that medical knowledge about the aetiology of mesothelioma has not materially advanced since Fairchild.
Mr Stuart Smith QC accepts that, if this were a multiple exposure case, the claimants would not be required to prove on the balance of probability (whether by the doubling of the risk test or otherwise) that their mesothelioma had been caused by wrongful exposure to asbestos.
All that they would have to prove was that the defendant or defendants had materially contributed to the risk of mesothelioma.
There has been no previous decision on a single exposure case.
In Barker, the House of Lords held that the Fairchild exception applied even where not all the exposures to asbestos which could have caused the claimant employees mesothelioma involved breaches of duty by his employers (in that case, the employee was also exposed to asbestos during a period when he was self employed).
At para 17, Lord Hoffmann said that the purpose of the Fairchild exception was: to provide a cause of action against a defendant who has materially increased the risk that the claimant will suffer damage and may have caused that damage, but cannot be proved to have done so because it is impossible to show, on a balance of probability, that some other exposure to the same risk may not have caused it instead.
For this purpose, it should be irrelevant whether the other exposure was tortious or non tortious, by natural causes or human agency or by the claimant himself.
These distinctions may be relevant to whether and to whom responsibility can also be attributed, but from the point of view of satisfying the requirement of a sufficient causal link between the defendants conduct and the claimants injury, they should not matter.
Lord Scott expressed the same view at para 59.
But Barker was not a single exposure case.
So why should the Fairchild exception not be applied in a single exposure case? Mr Stuart Smith advances a number of reasons.
He submits that there is no suggestion in any previous case that exposure to asbestos in the general atmosphere should be taken into account as a relevant exposure for the purposes of the Fairchild exception.
The breathing of ambient air, which should merely be regarded as part of the ordinary vicissitudes of life, is not under the control of any single person or group of persons and should not be treated in the same way as exposures to a carcinogen controlled and caused by an identifiable individual.
In my view, these are not good reasons for disapplying the Fairchild exception in a single exposure case.
In view of the present state of medical knowledge, a single exposure claim would founder on the same rock of uncertainty as a multiple exposure claim.
The exception was devised as a matter of policy to overcome the injustice that claimants would suffer if they were prevented by the rock of uncertainty from establishing causation in mesothelioma cases.
This policy justification for the exception is articulated in a number of the speeches in both Fairchild and Barker: see, for example, per Lord Bingham at para 33 and Lord Nicholls at paras 41 and 42 in Fairchild.
There is no reason in policy or principle why the exception should not apply to a single exposure claim just as it does to a multiple exposure claim.
It is true that none of the previous decisions involves a single exposure claim.
But that is not a good reason for refusing to apply the Fairchild exception if there is no material difference between single and multiple exposure claims.
It is also true that the breathing of ambient air is a vicissitude of life.
But that is not a good reason for distinguishing Fairchild either.
On the present state of medical knowledge, the rock of uncertainty is as much of a problem for victims of single exposure as for victims of multiple exposure.
It is implicit in Fairchild and Barker that, if it were possible for a victim of mesothelioma to establish causation on the balance of probability in the conventional way, then the rationale for the Fairchild exception would disappear.
Mr Stuart Smith submits that causation can be established in the conventional way in a single exposure case (but, he accepts, not yet in a multiple exposure case).
He says that a claimant can prove causation on a balance of probability by proving that the tortious exposure has at least doubled the risk arising from the non tortious cause.
This was the approach adopted by Judge Main in Sienkiewicz and adopted as a correct statement of the law by Smith LJ at para 23 of her judgment.
In fact, Smith LJ seems to have considered that it was a legitimate approach even in multi exposure cases, since she referred to a doubling of the risk arising from the non tortious cause or causes (emphasis added).
Lord Phillips and Lord Rodger are in agreement that there is no scope in single exposure mesothelioma cases for the application of a doubling of the risk test based entirely on epidemiological evidence.
But their reasoning differs to some extent.
Lord Phillips considers that it is not possible to prove causation on the basis of epidemiological evidence alone because first it is not sufficiently reliable (paras 97 to 101), and secondly there continue to be gaps in our understanding of the aetiology of mesothelioma (paras 102 to 105).
If these shortcomings in our understanding were made good, then it is implicit in the first reason that, if epidemiological data were to become sufficiently reliable, victims of mesothelioma would be able (and therefore required) to prove causation on the balance of probability on the basis of epidemiological evidence alone.
Lord Rodger agrees with Lord Phillipss second reason.
But his objection to proof on the basis of epidemiological evidence alone is not based on the unreliability of epidemiological data.
It is more fundamental than that.
Lord Rodger draws a distinction between claimant A, who proves on the balance of probability that a defendant probably injured him, and claimant B, who proves on the balance of probability that a defendant actually injured him.
He says that, as a matter of law, claimant B will succeed but claimant A will fail.
A claimant who seeks to prove his case on the balance of probability in reliance entirely on statistical evidence will inevitably fail, since he is able to do no more than prove on the balance of probability that the defendant probably injured him.
I am grateful to Lord Rodger for drawing attention to the article by Steve Gold, Causation in Toxic Torts: Burdens of Proof, Standards of Persuasion, and Statistical Evidence (1986) 96 Yale LJ 376.
The article distinguishes between fact probability and belief probability.
The former is a more than 50% statistical probability of an event having occurred.
An illustration of this is the 75% probability that the victim was run down by a blue cab in the example given by Brachtenbach J in Herskovits v Group Health Cooperative of Puget Sound (1983) 664 P 2d 474 (see para 95 of Lord Phillipss judgment).
The latter is a more than 50% belief in the decision maker that a knowable fact has been established.
Mr Gold points out that, particularly in toxic tort cases, US courts have often collapsed the distinction between fact probability and belief probability and simply asked the question whether the fact that the claimant seeks to prove has been established as more likely than not.
In my view, this is an important distinction and it is of particular relevance in relation to causation in toxic torts.
It is often the basic impossibility of proving individual causation which distinguishes toxic tort cases from ordinary personal injury cases.
As Mr Gold points out, epidemiology is based on the study of populations, not individuals.
It seeks to establish associations between alleged causes and effects.
With proper scientific interpretation, these correlations lend great weight to an inference of causation.
However, in an individual case, epidemiology alone cannot conclusively prove causation.
At best, it can establish only a certain probability that a randomly selected case of disease was one that would not have occurred absent exposure.
Ultimately, questions of burden and standard of proof are policy matters for any system of law.
It is trite law that our system requires a civil claim to be proved by a claimant on the balance of probability.
It is a matter of policy choice whether and, if so, in what circumstances the courts are willing to find causation proved on the balance of probability on the basis of epidemiological evidence alone.
In the United States, some courts have been willing to find causation established on the balance of probability on the basis of epidemiological evidence alone.
They have been criticised by Mr Gold for collapsing the distinction to which I have referred.
As I have said, the House of Lords produced in the Fairchild exception a particular policy response to the causation problems created by the lack of scientific knowledge about the aetiology of mesothelioma.
This response has been confirmed by the 2006 Act.
In these circumstances, I agree with Lord Phillips and Lord Rodger that there is no room for the application of a different test which would require a claimant to prove (whether on the basis of doubling of the risk or otherwise) that on the balance of probability the defendant caused or materially contributed to the mesothelioma.
It follows that I do not find it necessary to decide whether there are any circumstances in which, as a matter of English law, causation can be proved on the basis of epidemiological evidence alone.
I am unaware of any English authority in which the question whether causation can be proved in a straightforward personal injury case on the basis of epidemiological evidence alone has been the subject of decision.
Toxic torts, such as mesothelioma, give rise to particular causation problems.
That is why special rules sometimes have been devised so as to avoid injustice.
Such problems are not inherent in straightforward personal injury cases where it must be rare for a claimant to rely exclusively on epidemiological evidence to prove his or her claim.
The claimant will almost always also be able to point to some specific evidence relating to the particular circumstances of the case.
I note that in Smith v Rapid Transit Inc (1945) 317 Mass 469, 58 NE 2d 754 it was held on the facts of that case that statistical likelihood alone was insufficient to support a finding that the bus that injured the plaintiff was the defendants.
But ultimately, as I have said, it is not necessary for the resolution of the present appeal to decide whether epidemiological evidence alone suffices, since Lord Phillips and Lord Rodger are agreed that there has been no material change in the understanding of the aetiology of mesothelioma and there is no basis for distinguishing single exposure cases from multiple exposure cases.
It seems to me, however, that there is no a priori reason why, if the epidemiological evidence is cogent enough, it should not be sufficient to enable a claimant to prove his case without more.
Our civil law does not deal in scientific or logical certainties.
The statistical evidence may be so compelling that, to use the terminology of Steve Gold, the court may be able to infer belief probability from fact probability.
To permit the drawing of such an inference is not to collapse the distinction between fact probability and belief probability.
It merely recognises that, in a particular case, the fact probability may be so strong that the court is satisfied as to belief probability.
Whether an inference of belief probability should be drawn in any given case is not a matter of logic.
The law does not demand absolute certainty in this context or indeed in any context.
Judges are frequently called upon to decide difficult and finely balanced questions on the balance of probability and sometimes say that they have reached their conclusions after much anxious consideration of the facts.
It is true that, once the facts have been determined, they are treated as having been established and, subject to any appeal, they cannot be challenged.
But the judge may even acknowledge in his judgment that he cannot be certain that the facts are as he found them to be.
He cannot exclude another possibility.
But he is satisfied on the balance of probability as to the facts and that is all that the law requires.
I would in any event endorse what Lord Phillips has said about the limits of epidemiological evidence at paras 97 to 101 and also what he has said about what constitutes a material increase in risk at paras 107 and 108.
I also agree with what Lord Rodger has said at paras 130 to 132 about the observations by Smith LJ about the effect of section 3 of the 2006 Act.
For these reasons, I would dismiss these appeals.
| UK-Abs | A special rule has been developed for cases brought by persons who contract mesothelioma after being wrongly exposed to asbestos, known as the Fairchild exception after the decision of the House of Lords in Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22.
This provides that defendants whose breaches of their duty of care materially increase the risk of mesothelioma are jointly and severally liable for the damage suffered if mesothelioma does in fact develop.
The rule relaxes the usual requirement that a claimant must show that it is more likely than not that the harm he has suffered has been caused by the defendants breach, in order to reflect the fact that medical science cannot presently determine which asbestos fibre or fibres has caused the mesothelioma to develop, often decades later.
The issue in these two appeals was whether this special rule applies in cases where only one defendant is proved to have exposed the victims to asbestos, but where the victims were also at risk of developing the disease from environmental exposure to asbestos in the general atmosphere.
Mrs Karen Sienkiewicz is the daughter and administratrix of the estate of the late Mrs Enid Costello, who died of mesothelioma on 21 January 2006 at the age of 74.
Mrs Costello had worked in an office at factory premises manufacturing steel drums for employers who were found to have wrongly exposed her to asbestos, although the level of that exposure was very light.
This was calculated by the trial judge to have increased her total level of exposure, over the general environmental exposure, by 18%.
Mr Barre Willmore is the husband and administrator of the estate of the late Dianne Willmore who died of mesothelioma on 15 October 2009 aged 49.
She was found to have been exposed to asbestos at her secondary school.
In Mrs Costellos case, the judge held that the Fairchild exception did not apply and that she had failed to establish that her occupational exposure to asbestos was the likely cause of her disease.
This decision was reversed by the Court of Appeal, which entered judgment on liability with damages to be assessed.
The judge in Mrs Willmores case applied the Fairchild exception and awarded her damages of 240,000.
The Court of Appeal upheld his decision.
The defendants in each case appealed to the Supreme Court, arguing that the Fairchild exception should have been held to be inapplicable when proceedings are directed against one defendant.
They submitted that, in such cases, liability could only be established if a claimant could prove on the balance of probability that the mesothelioma was caused by the defendants exposure ie that such exposure had at least doubled the risk of the victim developing mesothelioma.
The Supreme Court unanimously dismisses the appeals.
It holds that the Fairchild exception applies to cases of mesothelioma involving a single defendant and that there is no requirement for a claimant to show that the defendants breach of duty doubled the risk of developing the disease.
The main judgment is given by Lord Phillips, with each of the other justices adding shorter judgments concurring in the result.
Numbers in square brackets below are to paragraphs in the judgment.
Knowledge about mesothelioma is based in part on medical science and in part on statistical analysis or epidemiology.
It is summarised at [19] and in the annex after [112].
Much remains still to be discovered.
The courts may revert to the conventional causation test if advances in medical science in relation to this disease make such a step appropriate [70][142][208].
The decision in Fairchild was made in the context of claims against multiple employers who had each been found to be in breach of duty.
It left open the question of whether the principle applied where other possible sources of injury were similar but lawful acts of someone else or a natural occurrence.
In the subsequent case of Barker v Corus [2006] UKHL 20 the House of Lords answered this question by refining the exception so as to render each employer liable only for the proportion of damages which represented his contribution to the risk.
Parliament then intervened to overturn this apportionment of damages, by providing in section 3 of the Compensation Act 2006 that where a person was liable under the common law in tort to a victim who had contracted mesothelioma, that liability was for the whole of the damage caused by the disease, jointly and severally with any other responsible person.
Parliament has therefore legislated to impose draconian consequences on an employer or his insurers who has been responsible for only a small proportion of the overall exposure of a claimant to asbestos and the court had to have regard to this when considering the issues in these appeals [58][131][167][185].
The Fairchild exception did apply to single defendant cases [103][113].
The doubles the risk test for causation was therefore only potentially relevant in connection with the question of what constituted a material increase of risk.
There was no justification for adopting the test as a benchmark for this.
Whether exposure was too insignificant to be taken into account, having regard to the overall exposure, was a matter for the judge on the facts of the particular case [107 108].
Epidemiological evidence alone is not a satisfactory basis for making findings of causation.
The exercise of comparing the statistical relationship between exposure and the incidence of the disease with the experience of the individual victim is particularly problematic in mesothelioma cases because of the very long latency of the disease [97 102][163][172] Accordingly the appeals must be dismissed.
Even though the judge in Mrs Costellos case did not expressly consider whether the exposure in her case materially increased the risk, if he had thought it insignificant he would have said so [109].
In Mrs Willmores case, the challenges to the judges findings of fact also failed.
The court considered that they had been very generous to Mrs Willmore but that it was not justified in taking the exceptional step of disturbing them [166]
|
The over arching issue in this case is the weight to be given to the best interests of children who are affected by the decision to remove or deport one or both of their parents from this country.
Within this, however, is a much more specific question: in what circumstances is it permissible to remove or deport a non citizen parent where the effect will be that a child who is a citizen of the United Kingdom will also have to leave? There is, of course, no power to remove or deport a person who is a United Kingdom citizen: see Immigration Act 1971, section 3(5) and (6).
They have a right of abode in this country, which means that they are free to live in, and to come and go into and from the United Kingdom without let or hindrance: see 1971 Act, sections 1 and 2.
The consistent stance of the Secretary of State is that UK citizens are not compulsorily removed from this country (eg Phil Woolas, Hansard, Written Answers, 15 June 2009).
However if a non citizen parent is compulsorily removed and agrees to take her children with her, the effect is that the children have little or no choice in the matter.
There is no machinery for consulting them or giving independent consideration to their views.
The facts
The facts of this case are a good illustration of how these issues can arise.
The mother is a national of Tanzania who arrived here in December 1995 at the age of 20.
She made three unsuccessful claims for asylum, one in her own identity and two in false identities.
In 1997 she met and formed a relationship with a British citizen.
They have two children, a daughter, T, born in 1998 (who is now 12 years old) and a son, J, born in 2001 (who is now nine).
The children are both British citizens, having been born here to parents, one of whom is a British citizen.
They have lived here with their mother all their lives, nearly all of the time at the same address.
They attend local schools.
Their parents separated in 2005 but their father continues to see them regularly, visiting approximately twice a month for 4 to 5 days at a time.
In 2007 he was diagnosed with HIV.
He lives on disability living allowance with his parents and his wife and is reported to drink a great deal.
The tribunal nevertheless thought that there would not necessarily be any particular practical difficulties if the children were to go to live with him.
The Court of Appeal very sensibly considered this open to criticism as having no rational basis.
Nevertheless, they upheld the tribunals finding that the children could reasonably be expected to follow their mother to Tanzania: [2009] EWCA Civ 691, para 27.
They also declined to hold that there was no evidence to support the tribunals finding that the father would be able to visit them in Tanzania, despite his fragile health and limited means: para 32.
As it happens, this Court has seen another illustration of how these issues may arise, in the case of R (WL) (Congo) v Secretary of State for the Home Department [2010] 1 WLR 2168 (Supreme Court judgment pending).
Both father and mother are citizens of the Democratic Republic of Congo.
Their child, however, is a British citizen.
The Secretary of State intends to deport the father under section 3(5) of the 1971 Act and also served notice of intention to deport both mother and child.
There is power to deport non citizen family members of those deported under section 3(5) but there is no power to deport citizens under that or any other provision of the 1971 Act.
It is easy to see how a mother served with such a notice might think that there was such a power and that she had no choice.
Fortunately, it appears that the notice was not followed up with an actual decision to deport in that case.
These proceedings
This mothers immigration history has rightly been described as appalling.
She made a claim for asylum on arrival in her own name which was refused in 1997 and her appeal was dismissed in 1998, shortly after the birth of her daughter.
She then made two further asylum applications, pretending to be a Somali, both of which were refused.
In 2001, shortly before the birth of her son, she made a human rights application, claiming that her removal would be in breach of article 8 of the European Convention on Human Rights.
This was refused in 2004 and her appeal was dismissed later that year.
Also in 2004 she and the children applied for leave to remain under the one off family concession which was then in force.
This was refused in 2006 because of her fraudulent asylum claims.
Meanwhile in 2005 she applied under a different policy known as the seven year child concession.
This too was refused, for similar reasons, later in 2006 and her attempts to have this judicially reviewed were unsuccessful.
After the fathers diagnosis in 2007, fresh representations were made.
The Secretary of State accepted these as a fresh claim but rejected it early in 2008.
The mothers appeal was dismissed in March 2008.
However an application for reconsideration was successful.
In May 2008, Senior Immigration Judge McGeachy held that the immigration judge had not considered the relationship between the children and their father (it being admitted that there was no basis on which he could have found that they could live here with him), the fact that they had been born in Britain and were then aged nine and seven and were British.
It was a material error of law for the immigration judge not to have taken into account the rights of the children and the effect of the mothers removal upon them.
Nevertheless at the second stage of the reconsideration, the tribunal, having heard the evidence, dismissed the appeal: Appeal Number IA/01284/2008.
They found that there was family life between the mother and the children and between the father and the children, although not between the parents, and also that the mother had built up a substantial private life in this country (para 5.3).
Removal to Tanzania, if the children accompanied the Appellant, would substantially interfere with the relationship with their father; staying behind would substantially interfere with the relationship with their mother (para 5.4).
Removing the mother would be in accordance with the law for the purpose of protecting the rights and freedoms of others.
The only question was whether it would be proportionate (para 5.5).
The Tribunal found the mother to be seriously lacking in credibility.
She had had the children knowing that her immigration status was precarious.
Having her second child was demonstrably irresponsible (para 5.8).
However, the children were innocent of their parents shortcomings (para 5.9).
The parents now had to choose what would be best for their children: We do not consider that it can be regarded as unreasonable for the respondents decision to have that effect, because the eventual need to take such a decision must have been apparent to them ever since they began their relationship and decided to have children together. (para 5.10).
The Tribunal found it a distinct and very real possibility that the children might remain here with their father (para 5.11).
This might motivate him to overcome his difficulties.
People with HIV can lead ordinary lives.
The daughter was of an age when many African children were separated from their parents and sent to boarding schools.
The son, had he been a Muslim, would have been regarded as old enough to live with his father rather than his mother.
Hence the tribunal could not see any particular practical difficulties if the children were to go and live with their father (para 5.15).
Equally, it would be a very valid decision for the children to go and live with their mother in Tanzania (para 5.16).
It is not an uncivilised or an inherently dangerous place.
Their mother must have told them about it.
There were no reasons why their father should not from time to time travel to see the children there.
They did not accept that either his HIV status or his financial circumstances were an obstacle.
Looking at the circumstances in the round, therefore, neither of the potential outcomes of the appellants removal which we have outlined above would represent such an interference with the family life of the children, or either of them, with either their mother on the one hand or their father on the other as to be disproportionate, again having regard to the importance of the removal of the appellant in pursuance of the system of immigration control in this country (para 5.20).
They had earlier said that this was of very great importance and considerable weight must be placed upon it (para 5.19).
Permission to appeal was initially refused on the basis that, even if the Tribunal had been wrong to think that the children could stay here with their father, they could live in Tanzania with their mother.
Ward LJ eventually gave permission to appeal because he was troubled about the effect of their leaving upon their relationship with their father: how are we to approach the family rights of a broken family like this? Before the Court of Appeal, however, it was argued that the British citizenship of the children was a trump card preventing the removal of their mother.
This was rejected as inconsistent with the authorities, and in particular with the principle that there is no hard edged or bright line rule, which was enunciated by Lord Bingham of Cornhill in EB (Kosovo) v Secretary of State for the Home Department [2008] UKHL 41, [2009] 1 AC 1159, and is quoted in full at para 15 below.
Mr Manjit Gill QC, on behalf of the appellant mother, does not argue in this Court that the citizenship of the children should be dispositive in every case.
But he does argue that insufficient weight is given to the welfare of all children affected by decisions to remove their parents and in particular to the welfare of children who are British citizens.
This is incompatible with their right to respect for their family and private lives, considered in the light of the obligations of the United Kingdom under the United Nations Convention on the Rights of the Child.
Those obligations are now (at least partially) reflected in the duty of the Secretary of State under section 55 of the Borders, Citizenship and Immigration Act 2009.
The Secretary of State now concedes that it would be disproportionate to remove the mother in the particular facts of this case.
But she is understandably concerned about the general principles which the Border Agency and appellate authorities should apply.
The domestic law
This is the mothers appeal on the ground that her removal will constitute a disproportionate interference with her right to respect for her private and family life, guaranteed by article 8 of the European Convention on Human Rights: 1.
Everyone has the right to respect for his private and family life, his home and his correspondence. 2.
There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.
However, in Beoku Betts v Secretary of State for the Home Department [2008] UKHL 39, [2009] AC 115, the House of Lords held that both the Secretary of State and the immigration appellate authorities had to consider the rights to respect for their family life of all the family members who might be affected by the decision and not just those of the claimant or appellant in question.
Lord Brown of Eaton under Heywood summarised the argument which the House accepted thus, at para 20: Together these members enjoy a single family life and whether or not the removal would interfere disproportionately with it has to be looked at by reference to the family unit as a whole and the impact of removal upon each member.
If overall the removal would be disproportionate, all affected family members are to be regarded as victims.
I added this footnote at para 4: To insist that an appeal to the Asylum and Immigration Tribunal consider only the effect upon other family members as it affects the appellant, and that a judicial review brought by other family members considers only the effect upon the appellant as it affects them, is not only artificial and impracticable.
It also risks missing the central point about family life, which is that the whole is greater than the sum of its individual parts.
The right to respect for the family life of one necessarily encompasses the right to respect for the family life of others, normally a spouse or minor children, with whom that family life is enjoyed.
When dealing with the relevant principles in EB (Kosovo) v Secretary of State for the Home Department [2008] UKHL 41, [2009] AC 1159, Lord Bingham of Cornhill said this, at para 12: Thus the appellate immigration authority must make its own judgment and that judgment will be strongly influenced by the particular facts and circumstances of the particular case.
The authority will, of course, take note of factors which have, or have not, weighed with the Strasbourg court.
It will, for example, recognise that it will rarely be proportionate to uphold an order for removal of a spouse if there is a close and genuine bond with the other spouse and that spouse cannot reasonably be expected to follow the removed spouse to the country of removal, or if the effect of the order is to sever a genuine and subsisting relationship between parent and child.
But cases will not ordinarily raise such stark choices, and there is in general no alternative to making a careful and informed evaluation of the facts of the particular case.
The search for a hard edged or bright line rule to be applied in the generality of cases is incompatible with the difficult evaluative exercise which article 8 requires.
Thus, of particular importance is whether a spouse or, I would add, a child can reasonably be expected to follow the removed parent to the country of removal.
Miss Monica Carss Frisk QC, for the Secretary of State, was content with the way I put it in the Privy Council case of Naidike v Attorney General of Trinidad and Tobago [2004] UKPC 49, [2005] 1 AC 538, at para 75: The decision maker has to balance the reason for the expulsion against the impact upon other family members, including any alternative means of preserving family ties.
The reason for deporting may be comparatively weak, while the impact on the rest of the family, either of being left behind or of being forced to leave their own country, may be severe.
On the other hand, the reason for deporting may be very strong, or it may be entirely reasonable to expect the other family members to leave with the person deported.
The Strasbourg cases
These questions tend to arise in two rather different sorts of case.
The first relates to long settled residents who have committed criminal offences (as it happens, this was the context of WL (Congo) v Secretary of State for the Home Department, above).
In such cases, the principal legitimate aims pursued are the prevention of disorder and crime and the protection of the rights and freedoms of others.
The Strasbourg court has identified a number of factors which have to be taken into account in conducting the proportionality exercise in this context.
The leading case is now ner v The Netherlands (2007) 45 EHRR 421.
The starting point is, of course, that states are entitled to control the entry of aliens into their territory and their residence there.
Even if the alien has a very strong residence status and a high degree of integration he cannot be equated with a national.
Article 8 does not give him an absolute right to remain.
However, if expulsion will interfere with the right to respect for family life, it must be necessary in a democratic society and proportionate to the legitimate aim pursued.
At para 57, the Grand Chamber repeated the relevant factors which had first been enunciated in Boultif v Switzerland (2001) 33 EHRR 50 (numbers inserted): the length of the applicants stay in the country from which he the time elapsed since the offence was committed and the the nature and seriousness of the offence committed by the [i] applicant; [ii] or she is to be expelled; [iii] applicants conduct during that period; the nationalities of the various persons concerned; [iv] the applicants family situation, such as the length of the [v] marriage, and other factors expressing the effectiveness of a couples family life; [vi] whether the spouse knew about the offence at the time when he or she entered into a family relationship; [vii] whether there are children of the marriage, and if so, their age; and [viii] the seriousness of the difficulties which the spouse is likely to encounter in the country to which the appellant is to be expelled.
Significantly for us, however, the Grand Chamber in ner went on, in para 58, to make explicit two criteria which may already be implicit in the above (again, numbers inserted): [ix] the best interests and well being of the children, in particular the seriousness of the difficulties which any children of the applicant are likely to encounter in the country to which the applicant is to be expelled; and the solidity of social, cultural and family ties with the host [x] country and with the country of destination.
The importance of these is reinforced in the recent case of Maslov v Austria [2009] INLR 47, para 75 where the Grand Chamber emphasised that for a settled migrant who has lawfully spent all or the major part of his or her childhood and youth in the host country, very serious reasons are required to justify expulsion.
This is all the more so where the person concerned committed the offences underlying the expulsion measure as a juvenile.
The second sort of case arises in the ordinary immigration context, where a person is to be removed because he or she has no right to be or remain in the country.
Once again, the starting point is the right of all states to control the entry and residence of aliens.
In these cases, the legitimate aim is likely to be the economic well being of the country in controlling immigration, although the prevention of disorder and crime and the protection of the rights and freedoms of others may also be relevant.
Factors (i), (iii), and (vi) identified in Boultif and ner are not relevant when it comes to ordinary immigration cases, although the equivalent of (vi) for a spouse is whether family life was established knowing of the precariousness of the immigration situation.
It was long ago established that mixed nationality couples have no right to set up home in whichever country they choose: see Abdulaziz v United Kingdom (1985) 7 EHRR 471.
Once they have done so, however, the factors relevant to judging the proportionality of any interference with their right to respect for their family lives have quite recently been rehearsed in the case of Rodrigues da Silva, Hoogkamer v Netherlands (2007) 44 EHRR 729, at para 39: .
Article 8 does not entail a general obligation for a state to respect immigrants choice of the country of their residence and to authorise family reunion in its territory.
Nevertheless, in a case which concerns family life as well as immigration, the extent of a states obligations to admit to its territory relatives of persons residing there will vary according to the particular circumstances of the person involved and the general interest [the reference is to Gl v Switzerland (1996) 22 EHRR 93, at [38]].
Factors to be taken into account in this context are the extent to which family life is effectively ruptured, the extent of the ties in the contracting state, whether there are insurmountable obstacles in the way of the family living in the country of origin of one or more of them, whether there are factors of immigration control (eg a history of breaches of immigration law) or considerations of public order weighing in favour of exclusion [the reference is to Solomon v The Netherlands, App No 44328/98, 5 September 2000].
Another important consideration will also be whether family life was created at a time when the persons involved were aware that the immigration status of one of them was such that the persistence of that family life within the host state would from the outset be precarious.
The Court has previously held that where this is the case it is likely only to be in the most exceptional circumstances that the removal of the non national family member will constitute a violation of Article 8 [the reference is to Mitchell v United Kingdom, App No 40447/98, 24 November 1998; Ajayi v United Kingdom, App No 27663/95, 22 June 1999].
Despite the apparent severity of these words, the Court held that there had been a violation on the facts of the case.
A Brazilian mother came to the Netherlands in 1994 and set up home with a Dutch national without ever applying for a residence permit.
In 1996 they had a daughter who became a Dutch national.
In 1997 they split up and the daughter remained with her father.
It was eventually confirmed by the Dutch courts that it was in her best interests to remain with her father and his family in the Netherlands even if this meant that she would have to be separated from her mother.
In practice, however, her care was shared between the mother and the paternal grandparents.
The court concluded at para 44 that, notwithstanding the mothers cavalier attitude to Dutch immigration rules, In view of the far reaching consequences which an expulsion would have on the responsibilities which the first applicant has as a mother, as well as on her family life with her young daughter, and taking into account that it is clearly in Rachaels best interests for the first applicant to stay in the Netherlands, the Court considers that in the particular circumstances of the case the economic well being of the country does not outweigh the applicants rights under article 8, despite the fact that the first applicant was residing illegally in the Netherlands at the time of Rachaels birth.
It is worthwhile quoting at such length from the Courts decision in Rodrigues de Silva because it is a relatively recent case in which the reiteration of the courts earlier approach to immigration cases is tempered by a much clearer acknowledgement of the importance of the best interests of a child caught up in a dilemma which is of her parents and not of her own making.
This is in contrast from some earlier admissibility decisions in which the Commission (and on occasion the Court) seems to have concentrated more on the failings of the parents than upon the interests of the child, even if a citizen child might thereby be deprived of the right to grow up in her own country: see, for example, O and OL v United Kingdom, App No 11970/86, 13 July 1987; Sorabjee v United Kingdom, App No 23938/94, 23 October 1995; Jaramillo v United Kingdom, App No 24865/94, 23 October 1995, and Poku v United Kingdom, App No 26985/95, 15 May 1996.
In Poku, the Commission repeated that in previous cases, the factor of citizenship has not been considered of particular significance.
These were, however, cases in which the whole family did have a real choice about where to live.
They may be contrasted with the case of Fadele v United Kingdom, App No 13078/87, in which British children aged 12 and 9 at the date of the decision had lived all their lives in the United Kingdom until they had no choice but to go and live in some hardship in Nigeria after their mother died and their father was refused leave to enter.
The Commission found their complaints under articles 3 and 8 admissible and a friendly settlement was later reached (see Report of the Commission, 4 July 1991).
The UNCRC and the best interests of the child
It is not difficult to understand why the Strasbourg Court has become more sensitive to the welfare of the children who are innocent victims of their parents choices.
For example, in Neulinger v Switzerland (2010) 28 BHRC 706, para 131, the Court observed that the Convention cannot be interpreted in a vacuum but must be interpreted in harmony with the general principles of international law.
Account should be taken . of any relevant rules of international law applicable in the relations between the parties and in particular the rules concerning the international protection of human rights.
The Court went on to note, at para 135, that there is currently a broad consensus including in international law in support of the idea that in all decisions concerning children, their best interests must be paramount.
The Court had earlier, in paras 49 to 56, collected references in support of this proposition from several international human rights instruments: from the second principle of the United Nations Declaration on the Rights of the Child 1959; from article 3(1) of the Convention on the Rights of the Child 1989 (UNCRC); from articles 5(b) and 16(d) of the Convention on the Elimination of All Forms of Discrimination against Women 1979; from General Comments 17 and 19 of the Human Rights Committee in relation to the International Covenant on Civil and Political Rights 1966; and from article 24 of the European Unions Charter of Fundamental Rights.
All of these refer to the best interests of the child, variously describing these as paramount, or primordial, or a primary consideration.
To a United Kingdom lawyer, however, these do not mean the same thing.
For our purposes the most relevant national and international obligation of the United Kingdom is contained in article 3(1) of the UNCRC: In all actions concerning children, whether undertaken by public or private social welfare institutions, courts of law, administrative authorities or legislative bodies, the best interests of the child shall be a primary consideration.
This is a binding obligation in international law, and the spirit, if not the precise language, has also been translated into our national law.
Section 11 of the Children Act 2004 places a duty upon a wide range of public bodies to carry out their functions having regard to the need to safeguard and promote the welfare of children.
The immigration authorities were at first excused from this duty, because the United Kingdom had entered a general reservation to the UNCRC concerning immigration matters.
But that reservation was lifted in 2008 and, as a result, section 55 of the Borders, Citizenship and Immigration Act 2009 now provides that, in relation among other things to immigration, asylum or nationality, the Secretary of State must make arrangements for ensuring that those functions are discharged having regard to the need to safeguard and promote the welfare of children who are in the United Kingdom.
Miss Carss Frisk acknowledges that this duty applies, not only to how children are looked after in this country while decisions about immigration, asylum, deportation or removal are being made, but also to the decisions themselves.
This means that any decision which is taken without having regard to the need to safeguard and promote the welfare of any children involved will not be in accordance with the law for the purpose of article 8(2).
Both the Secretary of State and the tribunal will therefore have to address this in their decisions.
Further, it is clear from the recent jurisprudence that the Strasbourg Court will expect national authorities to apply article 3(1) of UNCRC and treat the best interests of a child as a primary consideration.
Of course, despite the looseness with which these terms are sometimes used, a primary consideration is not the same as the primary consideration, still less as the paramount consideration.
Miss Joanna Dodson QC, to whom we are grateful for representing the separate interests of the children in this case, boldly argued that immigration and removal decisions might be covered by section 1(1) of the Children Act 1989: When a court determines any question with respect to (a) the upbringing of a child; or (b) the administration of a childs property or the application of any income arising from it, the childs welfare shall be the courts paramount consideration.
However, questions with respect to the upbringing of a child must be distinguished from other decisions which may affect them.
The UNHCR, in its Guidelines on Determining the Best Interests of the Child (May 2008), explains the matter neatly, at para 1.1: The term best interests broadly describes the well being of a child.
The CRC neither offers a precise definition, nor explicitly outlines common factors of the best interests of the child, but stipulates that: the best interests must be the determining factor for specific actions, notably adoption (Article 21) and separation of a child from parents against their will (Article 9); the best interests must be a primary (but not the sole) consideration for all other actions affecting children, whether undertaken by public or private social welfare institutions, courts of law, administrative authorities or legislative bodies (Article 3).
This seems to me accurately to distinguish between decisions which directly affect the childs upbringing, such as the parent or other person with whom she is to live, and decisions which may affect her more indirectly, such as decisions about where one or both of her parents are to live.
Article 9 of UNCRC, for example, draws a distinction between the compulsory separation of a child from her parents, which must be necessary in her best interests, and the separation of a parent from his child, for example, by detention, imprisonment, exile, deportation or even death.
Nevertheless, even in those decisions, the best interests of the child must be a primary consideration.
As Mason CJ and Deane J put it in the case of Minister for Immigration and Ethnic Affairs v Teoh [1995] HCA 20, (1995) 183 CLR 273, 292 in the High Court of Australia: A decision maker with an eye to the principle enshrined in the Convention would be looking to the best interests of the children as a primary consideration, asking whether the force of any other consideration outweighed it.
As the Federal Court of Australia further explained in Wan v Minister for Immigration and Multi cultural Affairs [2001] FCA 568, para 32, [The Tribunal] was required to identify what the best interests of Mr Wans children required with respect to the exercise of its discretion and then to assess whether the strength of any other consideration, or the cumulative effect of other considerations, outweighed the consideration of the best interests of the children understood as a primary consideration.
This did not mean (as it would do in other contexts) that identifying their best interests would lead inexorably to a decision in conformity with those interests.
Provided that the Tribunal did not treat any other consideration as inherently more significant than the best interests of the children, it could conclude that the strength of the other considerations outweighed them.
The important thing, therefore, is to consider those best interests first.
That seems, with respect, to be the correct approach to these decisions in this country as well as in Australia.
However, our attention was also drawn to General Comment No 6 of the United Nations Committee on the Rights of the Child (2005), on the Treatment of Unaccompanied and Separated Children Outside their Country of Origin.
The context, different from ours, was the return of such children to their countries of origin even though they could not be returned to the care of their parents or other family members (para 85).
At para 86, the Committee observed: Exceptionally, a return to the home country may be arranged, after careful balancing of the childs best interests and other considerations, if the latter are rights based and override best interests of the child.
Such may be the case in situations in which the child constitutes a serious risk to the security of the State or to the society.
Non rights based arguments such as those relating to general migration control, cannot override best interests considerations.
A similar distinction between rights based and non rights based arguments is drawn in the UNHCR Guidelines (see, para 3.6).
With respect, it is difficult to understand this distinction in the context of article 8(2) of the ECHR.
Each of the legitimate aims listed there may involve individual as well as community interests.
If the prevention of disorder or crime is seen as protecting the rights of other individuals, as it appears that the CRC would do, it is not easy to see why the protection of the economic well being of the country is not also protecting the rights of other individuals.
In reality, however, an argument that the continued presence of a particular individual in the country poses a specific risk to others may more easily outweigh the best interests of that or any other child than an argument that his or her continued presence poses a more general threat to the economic well being of the country.
It may amount to no more than that.
Applying these principles
Applying, therefore, the approach in Wan to the assessment of proportionality under article 8(2), together with the factors identified in Strasbourg, what is encompassed in the best interests of the child? As the UNHCR says, it broadly means the well being of the child.
Specifically, as Lord Bingham indicated in EB (Kosovo), it will involve asking whether it is reasonable to expect the child to live in another country.
Relevant to this will be the level of the childs integration in this country and the length of absence from the other country; where and with whom the child is to live and the arrangements for looking after the child in the other country; and the strength of the childs relationships with parents or other family members which will be severed if the child has to move away.
Although nationality is not a trump card it is of particular importance in assessing the best interests of any child.
The UNCRC recognises the right of every child to be registered and acquire a nationality (Article 7) and to preserve her identity, including her nationality (Article 8).
In Wan, the Federal Court of Australia, pointed out at para 30 that, when considering the possibility of the children accompanying their father to China, the tribunal had not considered any of the following matters, which the Court clearly regarded as important: (a) the fact that the children, as citizens of Australia, would be deprived of the country of their own and their mothers citizenship, and of its protection and support, socially, culturally and medically, and in many other ways evoked by, but not confined to, the broad concept of lifestyle (Vaitaiki v Minister for Immigration and Ethnic Affairs [1998] FCA 5, (1998) 150 ALR 608, 614); (b) the resultant social and linguistic disruption of their childhood as well as the loss of their homeland; (c) the loss of educational opportunities available to the children in Australia; and (d) their resultant isolation from the normal contacts of children with their mother and their mothers family.
Substituting father for mother, all of these considerations apply to the children in this case.
They are British children; they are British, not just through the accident of being born here, but by descent from a British parent; they have an unqualified right of abode here; they have lived here all their lives; they are being educated here; they have other social links with the community here; they have a good relationship with their father here.
It is not enough to say that a young child may readily adapt to life in another country.
That may well be so, particularly if she moves with both her parents to a country which they know well and where they can easily re integrate in their own community (as might have been the case, for example, in Poku, para 20, above).
But it is very different in the case of children who have lived here all their lives and are being expected to move to a country which they do not know and will be separated from a parent whom they also know well.
Nor should the intrinsic importance of citizenship be played down.
As citizens these children have rights which they will not be able to exercise if they move to another country.
They will lose the advantages of growing up and being educated in their own country, their own culture and their own language.
They will have lost all this when they come back as adults.
As Jacqueline Bhaba (in The Mere Fortuity of Birth? Children, Mothers, Borders and the Meaning of Citizenship, in Migrations and Mobilities: Citizenship, Borders and Gender (2009), edited by Seyla Benhabib and Judith Resnik, at p 193) has put it: In short, the fact of belonging to a country fundamentally affects the manner of exercise of a childs family and private life, during childhood and well beyond.
Yet children, particularly young children, are often considered parcels that are easily movable across borders with their parents and without particular cost to the children.
We now have a much greater understanding of the importance of these issues in assessing the overall well being of the child.
In making the proportionality assessment under article 8, the best interests of the child must be a primary consideration.
This means that they must be considered first.
They can, of course, be outweighed by the cumulative effect of other considerations.
In this case, the countervailing considerations were the need to maintain firm and fair immigration control, coupled with the mothers appalling immigration history and the precariousness of her position when family life was created.
But, as the Tribunal rightly pointed out, the children were not to be blamed for that.
And the inevitable result of removing their primary carer would be that they had to leave with her.
On the facts, it is as least as strong a case as Edore v Secretary of State for the Home Department [2003] 1 WLR 2979, where Simon Brown LJ held that there really is only room for one view (para 26).
In those circumstances, the Secretary of State was clearly right to concede that there could be only one answer.
Consulting the children
Acknowledging that the best interests of the child must be a primary consideration in these cases immediately raises the question of how these are to be discovered.
An important part of this is discovering the childs own views.
Article 12 of UNCRC provides: 1.
States Parties shall assure to the child who is capable of forming his or her own views the right to express those views freely in all matters affecting the child, the views of the child being given due weight in accordance with the age and maturity of the child. 2.
For this purpose, the child shall in particular be provided the opportunity to be heard in any judicial and administrative proceedings affecting the child, either directly, or through a representative or an appropriate body, in a manner consistent with the procedural rules of national law.
There are circumstances in which separate representation of a child in legal proceedings about her future is essential: in this country, this is so when a child is to be permanently removed from her family in her own best interests.
There are other circumstances in which it may be desirable, as in some disputes between parents about a childs residence or contact.
In most cases, however, it will be possible to obtain the necessary information about the childs welfare and views in other ways.
As I said in EM (Lebanon) v Secretary of State for the Home Department [2008] UKHL 64, [2009] 1 AC 1198, at para 49: Separate consideration and separate representation are, however, two different things.
Questions may have to be asked about the situation of other family members, especially children, and about their views.
It cannot be assumed that the interests of all the family members are identical.
In particular, a child is not to be held responsible for the moral failures of either of his parents.
Sometimes, further information may be required.
If the Child and Family Court Advisory and Support Service or, more probably, the local childrens services authority can be persuaded to help in difficult cases, then so much the better.
But in most immigration situations, unlike many ordinary abduction cases, the interests of different family members are unlikely to be in conflict with one another.
Separate legal (or other) representation will rarely be called for.
The important thing is that those conducting and deciding these cases should be alive to the point and prepared to ask the right questions.
We have been told about a pilot scheme in the Midlands known as the Early Legal Advice Project (ELAP).
This is designed to improve the quality of the initial decision, because the legal representative can assist the caseowner in establishing all the facts of the claim before a decision is made.
Thus cases including those involving children will be offered an appointment with a legal representative, who has had time to collect evidence before the interview.
The Secretary of State tells us that the pilot is limited to asylum claims and does not apply to pure article 8 claims.
However, the two will often go hand in hand.
The point, however, is that it is one way of enabling the right questions to be asked and answered at the right time.
In this case, the mothers representatives did obtain a letter from the childrens school and a report from a youth worker in the Refugee and Migrant Forum of East London (Ramfel), which runs a Childrens Participation Forum and other activities in which the children had taken part.
But the immigration authorities must be prepared at least to consider hearing directly from a child who wishes to express a view and is old enough to do so.
While their interests may be the same as their parents this should not be taken for granted in every case.
As the Committee on the Rights of the Child said, in General Comment No 12 (2009) on the Right of the Child to be Heard, at para 36: in many cases . there are risks of a conflict of interest between the child and their most obvious representative (parent(s)).
If the hearing of the child is undertaken through a representative, it is of utmost importance that the childs views are transmitted correctly to the decision maker by the representative.
Children can sometimes surprise one.
Conclusion
For the reasons given, principally in paragraphs 26 and 30 to 33 above, I would allow this appeal.
I am in full agreement with the reasons that Lady Hale has given for
LORD HOPE
allowing this appeal.
It seems to me that the Court of Appeal fell into error in two respects.
First, having concluded that the childrens British citizenship did not dispose of the issues arising under article 8 (see [2010] EWCA Civ 691, paras 16 22), they did not appreciate the importance that was nevertheless to be attached to the factor of citizenship in the overall assessment of what was in the childrens best interests.
Second, they endorsed the view of the tribunal that the question whether it was reasonable to expect the children to go with their mother to Tanzania, looked at in the light of its effect on the father and the mother and in relation to the children, was to be judged in the light of the fact that both children were conceived in the knowledge that the mothers immigration status was precarious: para 26.
The first error may well have been due to the way the mothers case was presented to the Court of Appeal.
It was submitted that the fact that the children were British citizens who had never been to Tanzania trumped all other considerations: para 16.
That was, as the court recognised, to press the point too far.
But there is much more to British citizenship than the status it gives to the children in immigration law.
It carries with it a host of other benefits and advantages, all of which Lady Hale has drawn attention to and carefully analysed.
They ought never to be left out of account, but they were nowhere considered in the Court of Appeals judgment.
The fact of British citizenship does not trump everything else.
But it will hardly ever be less than a very significant and weighty factor against moving children who have that status to another country with a parent who has no right to remain here, especially if the effect of doing this is that they will inevitably lose those benefits and advantages for the rest of their childhood.
The second error was of a more fundamental kind, which lies at the heart of this appeal.
The tribunal found that the mother knew full well that her immigration status was precarious before T was born.
On looking at all the evidence in the round, it was not satisfied that her decisions to have her children were not in some measure motivated by a belief that having children in the United Kingdom of a British citizen would make her more difficult to remove.
It accepted that the children were innocent of the mothers shortcomings.
But it went on to say that the eventual need to take a decision as to where the children were to live must have been apparent both to the father and the mother ever since they began their relationship and decided to have children together.
It was upon the importance of maintaining a proper and efficient system of immigration in this respect that in the final analysis the tribunal placed the greatest weight.
The best interests of the children melted away into the background.
The Court of Appeal endorsed the tribunals approach.
When it examined the effect on the family unit of requiring the children to go with the mother to Tanzania, it held that this had to be looked at in the context of the fact that the children were conceived when the mothers immigration status was precarious: para 26.
It acknowledged that what was all important was the effect upon the children: para 27.
But it agreed with the tribunal that the decision that the children should go with their mother was a very valid decision.
The question whether this was in their best interests was not addressed.
There is an obvious tension between the need to maintain a proper and efficient system of immigration control and the principle that, where children are involved, the best interests of the children must be a primary consideration.
The proper approach, as was explained in Wan v Minister for Immigration and Multicultural Affairs [2001] FCA 568, para 32, is, having taken this as the starting point, to assess whether their best interests are outweighed by the strength of any other considerations.
The fact that the mothers immigration status was precarious when they were conceived may lead to a suspicion that the parents saw this as a way of strengthening her case for being allowed to remain here.
But considerations of that kind cannot be held against the children in this assessment.
It would be wrong in principle to devalue what was in their best interests by something for which they could in no way be held to be responsible.
I have read and agree with the judgments of Lady Hale and Lord Hope.
LORD KERR
the reasons they have given, I too would allow the appeal.
It is a universal theme of the various international and domestic instruments to which Lady Hale has referred that, in reaching decisions that will affect a child, a primacy of importance must be accorded to his or her best interests.
This is not, it is agreed, a factor of limitless importance in the sense that it will prevail over all other considerations.
It is a factor, however, that must rank higher than any other.
It is not merely one consideration that weighs in the balance alongside other competing factors.
Where the best interests of the child clearly favour a certain course, that course should be followed unless countervailing reasons of considerable force displace them.
It is not necessary to express this in terms of a presumption but the primacy of this consideration needs to be made clear in emphatic terms.
What is determined to be in a childs best interests should customarily dictate the outcome of cases such as the present, therefore, and it will require considerations of substantial moment to permit a different result.
The significance of a childs nationality must be considered in two aspects.
The first of these is in its role as a contributor to the debate as to where the childs best interests lie.
It seems to me self evident that to diminish a childs right to assert his or her nationality will not normally be in his or her best interests.
That consideration must therefore feature in the determination of where the best interests lie.
It was also accepted by the respondent, however, (and I think rightly so) that if a child is a British citizen, this has an independent value, freestanding of the debate in relation to best interests, and this must weigh in the balance in any decision that may affect where a child will live.
As Lady Hale has said, this is not an inevitably decisive factor but the benefits that British citizenship brings, as so aptly described by Lord Hope and Lady Hale, must not readily be discounted.
| UK-Abs | This is a mothers appeal to the Supreme Court on the ground that her removal from the United Kingdom will constitute a disproportionate interference with her right to respect for her private and family life, guaranteed by article 8 of the European Convention on Human Rights.
The over arching issue is the weight to be given to the best interests of children who are affected by the decision to remove or deport one or both of their parents from this country.
Within this is a more specific question: in what circumstances is it permissible to remove or deport a non citizen parent where the effect will be that a child who is a citizen of the United Kingdom will also have to leave? There is no power to remove or deport a person who is a United Kingdom citizen: see Immigration Act 1971, section 3(5) and (6).
They have a right of abode in this country, which means that they are free to live in, and to come and go into and from the United Kingdom without let or hindrance: see 1971 Act, sections 1 and 2.
The consistent stance of the Secretary of State is that UK citizens are not compulsorily removed from this country.
However, if a non citizen parent is compulsorily removed and agrees to take her children with her, the effect is that the children have little or no choice in the matter.
There is no machinery for consulting them or giving independent consideration to their views.
The mother is a national of Tanzania who arrived in the UK in December 1995.
She made three unsuccessful claims for asylum, one in her own identity and two in false identities.
In 1997 she formed a relationship with a British citizen.
They have two children, now aged 12 and 9, who are both British citizens and have lived here all their lives.
The parents separated in 2005 but the father continues to see the children regularly.
After the fathers diagnosis with HIV in 2007, the mother made further representations to the Secretary of State.
These representations were accepted as a fresh claim but were rejected.
The mothers appeal was dismissed by the Asylum and Immigration Tribunal and by the Court of Appeal.
The Court of Appeal upheld the tribunals finding that the children could reasonably be expected to follow their mother to Tanzania.
The Supreme Court unanimously allows the appeal.
Lady Hale gives the leading judgment.
The best interests of the child broadly means the well being of the child.
A consideration of where these best interests lie will involve asking whether it is reasonable to expect the child to live in another country.
An important part of discovering the best interests of the child is to discover the childs own views. [29], [34] [37]
Although nationality is not a trump card it is of particular importance in assessing the best interests of any child.
The children in this case are British not just through the accident of being born here, but by descent from a British parent; they have an unqualified right of abode here; they have lived here all their lives; they are being educated here; they have other social links with the community here; they have a good relationship with their father here.
It is not enough to say that a young child may readily adapt to life in another country. [30] [31] The intrinsic importance of citizenship should not be played down.
As citizens these children have rights which they will not be able to exercise if they move to another country.
They will lose the advantages of growing up and being educated in their own country, their own culture and their own language.
They will have lost all this when they come back as adults. [32] In making the proportionality assessment under article 8, the best interests of the child must be a primary consideration.
This means that they must be considered first.
They can, of course, be outweighed by the cumulative effect of other considerations.
In this case, the countervailing considerations were the need to maintain firm and fair immigration control, coupled with the mothers appalling immigration history and the precariousness of her position when family life was created.
But the children were not to be blamed for that.
And the inevitable result of removing their primary carer would be that they had to leave with her.
In those circumstances, the Secretary of State was clearly right to concede that there could only be one answer. [33] Lord Hope observed that the fact of British citizenship will hardly ever be less than a very significant and weighty factor against moving children who have that status to another country with a parent who has no right to remain here, especially if the effect of doing this is that they will inevitably lose the benefits and advantages of this citizenship for the rest of their childhood.
The fact that the mothers immigration status was precarious when the children were conceived cannot be held against the children in the assessment of whether their best interests are outweighed by the strength of any other considerations.
It would be wrong in principle to devalue what was in their best interests by something for which they could in no way be held to be responsible. [41], [44] Lord Kerr stated that the fact that a child is a British citizen also has an independent value, freestanding of the debate in relation to best interests, and this must weigh in the balance in any decision that may affect where a child may live. [46] [47]
|
The appellant and his brother, Daniel Mansell, were convicted of murder and two robberies at Leeds Crown Court on 27 February 1998.
The appellants tariff in respect of his life sentence for murder was set at 18 years.
On 1 December 2009, the Court of Appeal (Criminal Division) (Hooper LJ, Cooke and Swift JJ) quashed the convictions following a reference on 25 November 2008 by the Criminal Cases Review Commission (CCRC) on the ground that the convictions had been procured by gross prosecutorial misconduct on the part of the police.
The Court of Appeal then had to decide whether to order a retrial.
Section 7(1) of the Criminal Appeal Act 1968 as amended by the Criminal Justice Act 1988 provides: Where the Court of Appeal allow an appeal against conviction and it appears to the Court that the interests of justice so require, they
may order the appellant to be retried
After balancing the public interest in convicting those guilty of murder against the public interest in maintaining the integrity of the criminal justice system, the court decided to order a retrial.
The question that arises on this appeal is whether they were right to do so.
Outline of the facts
What follows is the barest outline of the facts.
A fuller account appears at paras 65 to 90 of the judgment of Lord Brown.
The main prosecution witness at the trial was Karl Chapman.
He is a professional criminal and a supergrass.
In late 1995 and early 1996, Chapman and the appellant were together in prison.
The appellant was serving an 8 year sentence for a series of robberies and Chapman was awaiting sentence, having pleaded guilty to more than 200 offences of robbery.
On 3 June 1996, the appellant was released from prison.
On 11 June 1996, a robbery took place at the home of two elderly brothers, Bert Smales aged 67 and Joe Smales aged 85.
The incident was not reported to the police, but it was later established that the robbers were masked, used violence to extract money from the Smales brothers and stole more than 1,000.
On 13 October 1996, the Smales brothers were the victims of a second robbery committed in similar circumstances to the first.
Both brothers were subjected to physical violence.
Joe Smales sustained injuries to the head which resulted in a fractured jaw, internal bleeding and a fracture of the cervical spine.
He died in hospital on 7 November 1996 from pneumonia and deep vein thrombosis which were the direct consequence of the attack.
Between December 1996 and April 1997, Chapman provided the police with information and witness statements implicating the appellant and Mansell.
The appellant and Mansell were charged with the robberies of both of the Smales brothers and the murder of Joe Smales.
At the trial, Chapmans evidence (which occupied one week) was central to the prosecution case.
The defence sought to discredit him by suggesting that he was expecting benefits of some kind from the police and that he therefore had an interest in securing the convictions of the appellant and Mansell.
Chapman vigorously denied these suggestions.
Following the convictions, there were allegations in the local press that the police were planning to pay Chapman a large sum of money upon his release from prison.
On the basis of these allegations, the appellant and Mansell applied for leave to appeal their convictions.
Leave was refused by a single judge on 30 July 1998.
The applications for leave to appeal were renewed in early February 1999 and adjourned on two occasions to allow the CPS to supply further information.
On 5 November 1999, an ex parte hearing was held on a public interest immunity application by the prosecution.
In the course of the hearing, senior police officers gave evidence to the effect that a reward of 10,000 had been set aside for Chapman, but that he was not aware of it.
The Court of Appeal accepted this evidence and on 13 December 1999 dismissed the renewed applications for leave to appeal.
The next significant event was the decision by the CCRC to investigate the case.
The North Yorkshire Police carried out detailed investigations into the activities of the police.
Their report formed the basis of the CCRC report in November 2008.
The findings of the report, which have not been challenged, reveal that the police systematically misled the court, the CPS and counsel by concealing and lying about a variety of benefits received by Chapman and his family.
These included not only financial reward, but, inter alia, visits to brothels and permission to consume drugs in police company.
Furthermore, allegations of violent attacks by Chapman were not investigated, still less the subject of prosecutions.
The clear conclusion of the investigation by North Yorkshire Police was that a number of senior police officers involved in the Smales investigation had conspired to pervert the course of justice.
They had deliberately concealed information from the court; they had colluded in Chapmans perjury at trial; they had lied in response to enquiries following conviction; and they had perjured themselves in the ex parte leave hearing in the Court of Appeal.
It was in the light of its findings that on 25 November 2008 the CCRC referred the case back to the Court of Appeal.
The appellant had meanwhile made a series of important admissions of guilt to different persons between October 1998 and September 2004.
These are summarised by Lord Brown at paras 85 to 90 of his judgment.
The Court of Appeal said that these admissions provided clear and compelling evidence of the appellants guilt of the murder and the robberies.
That assessment has not been challenged in the present appeal.
As I have said, the Court of Appeal allowed the appellants appeal against conviction.
They concluded that, if during the trial it had become clear that the trial court had been deliberately deceived about the circumstances relating to Chapman, the trial judge might well have stayed the prosecution as an abuse of process.
Alternatively, the judge might have applied section 78 of the Police and Criminal Evidence Act 1984, and excluded the evidence of Chapman altogether, in which case the appellant and Mansell would have been acquitted.
In these circumstances, the decision to quash the convictions was inevitable.
More difficult was the question whether or not to order a retrial.
The question for the Court of Appeal was whether, in the light of the unchallenged findings of the CCRC and the clear and compelling evidence of the appellants guilt of a shocking murder, the interests of justice required a retrial.
In particular, the Court of Appeal had to decide whether the police misconduct so tainted the criminal process that it would on that account not be in the interests of justice to order a retrial.
The arguments before us proceeded on the basis that, in substance, the issue for the Court of Appeal was whether a retrial would be an abuse of process analogous to the question whether a trial at first instance should be stayed on the grounds of abuse of process.
Retrials following prosecutorial misconduct
It is well established that the court has the power to stay proceedings in two categories of case, namely (i) where it will be impossible to give the accused a fair trial, and (ii) where it offends the courts sense of justice and propriety to be asked to try the accused in the particular circumstances of the case.
In the first category of case, if the court concludes that an accused cannot receive a fair trial, it will stay the proceedings without more.
No question of the balancing of competing interests arises.
In the second category of case, the court is concerned to protect the integrity of the criminal justice system.
Here a stay will be granted where the court concludes that in all the circumstances a trial will offend the courts sense of justice and propriety (per Lord Lowry in R v Horseferry Road Magistrates Court, Ex p Bennett [1994] 1 AC 42, 74G) or will undermine public confidence in the criminal justice system and bring it into disrepute (per Lord Steyn in R v Latif and Shahzad [1996] 1 WLR 104, 112F).
category of case was settled.
As he put it: In Latif at page 112H, Lord Steyn said that the law in relation to the second The law is settled.
Weighing countervailing considerations of policy and justice, it is for the judge in the exercise of his discretion to decide whether there has been an abuse of process, which amounts to an affront to the public conscience and requires the criminal proceedings to be stayed: Reg. vs Horseferry Road Magistrates Court, Ex parte Bennett [1994] 1 A.C. 42 Ex parte Bennett was a case where a stay was appropriate because a defendant had been forcibly abducted and brought to this country to face trial in disregard of extradition laws.
The speeches in Ex parte Bennett conclusively establish that proceedings may be stayed in the exercise of the judges discretion not only where a fair trial is impossible but also where it would be contrary to the public interest in the integrity of the criminal justice system that a trial should take place.
An infinite variety of cases could arise.
General guidance as to how the discretion should be exercised in particular circumstances will not be useful.
But it is possible to say that in a case such as the present the judge must weigh in the balance the public interest in ensuring that those that are charged with grave crimes should be tried and the competing public interest in not conveying the impression that the court will adopt the approach that the end justifies any means.
The same principles have also been applied by the Court of Appeal when quashing a conviction on the grounds that it considers the conviction to have been unlawful by reason of an abuse of process.
An example of such a case is R v Mullen [2000] QB 520 where the defendant was tried and convicted following his illegal deportation to England.
There has been some debate in academic literature about the scope and true rationale for the second category of abuse of process.
I refer, for example, to the writings of distinguished commentators such as Professor Ashworth (Exploring the Integrity Principle in Evidence and Procedure in Essays for Colin Tapper, 2003) and Professor L T Choo (Abuse of Process and Judicial Stays of Proceedings, 2nd edition, 2008).
Moreover, Mr Perry QC urged the court to adopt the approach taken by the majority of the Canadian Supreme Court to abuse of process applications in R v Regan [2002] 1 SCR 297.
Like Lord Brown, I see no reason to depart from the settled law as expounded by Lord Steyn in Latif.
The present case is not, however, an appeal against a refusal to stay criminal proceedings for abuse of process nor is it an appeal against the dismissal by the Court of Appeal of an appeal against conviction on the grounds that the conviction was unlawful by reason of an abuse of process.
The Court of Appeal quite rightly allowed the appellants appeal.
The appeal to this court is against the decision to order a retrial.
The use of the words may order in section 7 of the 1968 Act shows that the Court of Appeal has a discretion to order a retrial following the quashing of a conviction on appeal if it appears to the court that the interests of justice so require.
It is noteworthy that Parliament has not specified any of the factors that the Court of Appeal may (or indeed may not) take into account when deciding whether or not to order a retrial.
Instead, Parliament has propounded a broad and uncomplicated test and has entrusted to the good sense of the Court of Appeal the task of deciding whether the interests of justice require a retrial, having regard to all the circumstances of the particular case.
That is hardly surprising since the Criminal Division of the Court of Appeal is a specialist criminal court whose judges have considerable experience and expertise in criminal procedural and substantive law.
All of them have had experience of conducting criminal trials and of making rulings in accordance with the law, fairness and justice.
The interests of justice is not a hard edged concept.
A decision as to what the interests of justice requires calls for an exercise of judgment in which a number of relevant factors have to be taken into account and weighed in the balance.
In difficult borderline cases, there may be scope for legitimate differences of opinion.
I do not believe it to be controversial that a decision under section 7 of the 1968 Act as to whether the interests of justice require a retrial calls for an exercise of judgment which should only be upset on appeal if it was plainly wrong in the sense that it is one which no reasonable court could have made or if the court took into account immaterial factors or failed to take into account material factors.
It seems very likely that the reason why there has been no other appeal to the House of Lords or Supreme Court from a decision under section 7 is because of the expertise that the Court of Appeal has in deciding questions such as whether the interests of justice require a retrial and the difficulty of challenging such decisions on appeal.
Most appeals to the Court of Appeal where the court has to decide whether the interests of justice require a retrial do not raise any issue of prosecutorial misconduct.
Typically, the court considers questions which include (but are not limited to) whether the alleged offence is sufficiently serious to justify a retrial; whether, if re convicted, the appellant would be likely to serve a significant period or further period in custody; the appellants age and health; and the wishes of the victim of the alleged offence.
I do not believe it to be controversial that the gravity of the alleged offence is an important relevant factor for the court to take into account when deciding whether to order a retrial in a case which is not complicated by prosecutorial misconduct.
In a case where the issue of prosecutorial misconduct is raised by an appellant as a reason for refusing a retrial, the Court of Appeal may treat the case as to some extent analogous to a second category application to stay a case.
But the analogy should not be pressed too far.
The question whether the interests of justice require a retrial is broader than the question whether it is an abuse of process to allow a prosecution to proceed (whether or not by retrial).
I do not, therefore, agree with Lord Brown (para 98) that in each case the question is the same: what do the interests of justice require?
The gravity of the alleged offence is plainly a factor of considerable weight for the court to weigh in the balance when deciding whether to stay proceedings on the grounds of abuse of process.
At page 534D in Mullen, giving the judgment of the court Rose LJ said: As a primary consideration, it is necessary for the court to take into account the gravity of the offence in question.
It is unnecessary to engage with the academic criticism of this approach: see, for example, Professor Ashworths article already cited at page 120.
That is because, whatever the position may be in relation to an application to stay proceedings for abuse of process, it seems to me beyond argument that, when the court is deciding whether the interests of justice require a retrial, the gravity of the alleged offence must be a relevant factor.
Society has a greater interest in having an accused retried for a grave offence than for a relatively minor one.
No case has been cited to us where the court has had to consider the relevance of prosecutorial misconduct in the original proceedings to the question whether the interests of justice require a retrial.
It goes without saying that, when allowing the appeal in the present case essentially on the grounds of prosecutorial misconduct, the Court of Appeal could not rationally have concluded that the interests of justice required a retrial if the retrial would be substantially based on evidence which was the product of that very misconduct.
But the prosecution say that their case at the retrial would not be based on that evidence at all.
They rely on the admissions made on various occasions by the appellant and contend that this evidence is not tainted by the prosecutorial misconduct.
It is helpful to start by asking whether the interests of justice would require a retrial in circumstances where the prosecution evidence at the new trial would be incontestably free of taint.
Let us suppose DNA evidence comes to light after the appellant has been convicted which strongly points to his guilt; or an apparently credible independent witness comes forward and makes a statement implicating the appellant.
Let us further suppose that the prosecution say that, if there were a retrial, they would only rely on the fresh evidence and would not adduce the tainted evidence.
In deciding whether or not the interests of justice require a retrial, it is surely clear that the Court of Appeal would be entitled to disregard the earlier misconduct since it would have no effect at the retrial.
The only justification for refusing a retrial on the grounds of the misconduct in such a case would be to mark the courts disapproval of that historical misconduct and to discipline the police.
But that is not the function of the criminal courts.
Thus, for example, in relation to a stay on the grounds of abuse of process where there has been prosecutorial misconduct, in Bennett at page 74H Lord Lowry said: The discretion to stay is not a disciplinary jurisdiction and ought not to be exercised in order to express the courts disapproval of official conduct.
Accordingly, if the prosecuting authorities have been guilty of culpable delay but the prospect of a fair trial has not been prejudiced, the court ought not to stay the proceedings merely pour encourager les autres.
The same approach was recommended by the majority of ten (of twelve) members of the Royal Commission on Criminal Justice chaired by Viscount Runciman (July 1993).
At paras 47 to 50 of chapter 10, there is a section headed Appeals based on pre trial malpractice or procedural irregularity.
They said: 48.
We are not unanimous on what should happen in cases of malpractice, ranging from serious breaches of PACE to fabricating a confession, where there is nevertheless other strong evidence of the defendants guilt.
Two of us think that if the pre trial irregularity or defect is sufficiently serious materially to affect the trial but not to render the conviction unsafe, the Court of Appeal should retain the power to order a retrial or to quash the conviction depending on its view of the gravity of the defect.
The rest of us believe that the Court of Appeal should not quash convictions on the grounds of pre trial malpractice unless the court thinks that the conviction is or may be unsafe. 49.
In the view of the majority, even if they believed that quashing the convictions of criminals was an appropriate way of punishing police malpractice, it would be nave to suppose that this would have any practical effect on police behaviour.
In any case it cannot in their view be morally right that a person who has been convicted on abundant other evidence and may be a danger to the public should walk free because of what may be a criminal offence by someone else.
Such an offence should be separately prosecuted within the system.
It is also essential, if confidence in the criminal justice system is to be maintained, that police officers involved in malpractice should be disciplined.
Does it make a material difference that (as in the present case) the evidence without which there would be no order for a retrial consists of admissions which the appellant would not have made but for the original misconduct which led to his conviction and failed appeal? The Court of Appeal considered that the fact that the admissions would not have been made but for the conviction which had been obtained by prosecutorial misconduct was a factor militating against a retrial; but it was no more than one of a number of relevant factors to be taken into account in the overall decision of whether the interests of justice required a retrial.
In my view, the court was right to consider that the but for factor was no more than a relevant factor and that it was not determinative of the question whether a retrial was required in the interests of justice.
It should not be overlooked that the appellant made the admissions entirely voluntarily, no doubt because he considered that it was in his interests to do so.
As the court said, there were several relevant factors which had to be weighed in the balance before a final decision could be reached on the question of whether or not the interests of justice required a retrial.
The weighing of the balance is fact sensitive and ultimately calls for an exercise of judgement.
Appellants criticisms of the Court of Appeals decision
I now turn to the criticisms that Mr OConnor makes of the approach of the Court of Appeal.
I accept that a criticism can properly be made of para 62 where the court said: 62.
Grant is not a case in which, to use Lord Browns words in Basdeo Panday, but for an abuse of executive power, he would never have been before the court at all.
Putting the misconduct to one side, the appellant could have a fair trial (and probably did).
Whilst helpful to the appellants, it should be remembered that Grant involved, as Laws LJ said a deliberate violation of a fundamental condition on which the administration of justice as a whole rests.
The statement in para 62 in relation to R v Grant [2006] QB 60, [2005] 2 Cr App R 28 that it involved a deliberate violation of a fundamental condition on which the administration of justice as a whole rests (ie legal professional privilege) suggests that the Court of Appeal considered that the present case involved no deliberate violation of such a fundamental condition.
If that is what the Court of Appeal meant, they were wrong.
The conduct of the police in the present case was a gross violation of the appellants right to a fair trial and a far worse case than Grant (like Lord Brown, I have considerable reservations as to whether that case was correctly decided).
But the real complaint in this case is that the court failed to take properly into account the fact that the proposed retrial evidence was the product of the misconduct.
As Mr OConnor QC he puts it in his written case, the court would therefore be acting upon the fruit of the very misconduct at the heart of the case, which would be unconscionable and incompatible with the integrity of the court process.
He also submits that the decision reached by the Court of Appeal was plainly wrong and should therefore be set aside by this court.
As one would expect, this experienced court carried out the balancing exercise precisely and with great care.
At para 66, they identified the reasons why a retrial should not be ordered in the following terms: There a good reasons why a retrial should not be ordered.
They are: (i) the nature and scale of the prosecutorial misconduct; (ii) the fact that the misconduct infected both the trial and the first (iii) (iv) appeal; the fact that the prosecution case was based more or less entirely on the evidence of Chapman and the appellants would not have been charged or tried in its absence; the strong possibility that the trial would not have proceeded (being either aborted by the prosecution or stayed by the judge) if the circumstances of Chapmans treatment by the police had been made known to the prosecuting team; (v) the circumstances in which Maxwells admissions were made, namely: the first admission (to his solicitor) would not have been made had it not been for the conviction obtained by prosecutorial (a) (b) (vi) misconduct.
Having been made, it would never have come to light had it not been for the fact that, due to prosecutorial misconduct, the appeal failed and a subsequent investigation by the CCRC was necessary, in the course of which Maxwell waived privilege; the admissions made subsequently would not have been made had it not been for the unsuccessful appeal and (in the case of admissions to the North Yorkshire Police) the CCRC investigation necessitated by the prosecutorial misconduct; both appellants have served 12.5 years in prison, a longer term than they would receive if they were found guilty of manslaughter, the offence which Maxwell is admitting.
At para 67, they said that they accepted the strength of these reasons.
In other words, they were not merely reasons militating against a retrial, but they were strong reasons.
But in carrying out the balancing exercise that they were required to carry out, they concluded that the public interest in convicting those guilty of murder outweighed the public interest in maintaining the integrity of the criminal justice system on the facts of this case.
They acknowledged that the balancing exercise was difficult.
That was because on the one hand, as Lord Brown has described in graphic detail, there had been appalling misconduct by the police.
Had it been known at the time of the trial, it is almost certain that the appellant would not have been convicted.
On the other hand, the court said, (i) the alleged offence, involving as it did the beating to death of an innocent and defenceless 85 year old man at his home in the course of a planned robbery, was particularly shocking and fully merited the minimum term of 18 years that was imposed by the trial judge and (ii) there was new and compelling evidence untainted by the prosecutorial misconduct.
It is (rightly) accepted by Mr OConnor that the proposed retrial evidence, if accepted, amounts to clear prima facie evidence of the appellants guilt of the murder.
He also accepts that the evidence is untainted by the misconduct except in the sense that the admissions would probably not have been made but for the misconduct.
Mr OConnor suggests that (ii) indicates that the court lost sight of the fact that the new and compelling evidence would not have come into being but for the misconduct of the police.
But I cannot accept this.
In the immediately preceding paragraph, the court had carefully set out in para 66(v) the circumstances in which the admissions had come into being.
In using the phrase untainted by the prosecutorial misconduct in para 67, what the court meant was that the evidence was not the product of the misconduct and it was not the intended result of that conduct.
It is obvious that it could not have been in the contemplation of the police that the appellant would make the admissions that he made.
He made the admissions of his own free will for his own purposes.
It is in that sense that the evidence was untainted.
It is important to note the limited scope of the criticisms that Mr OConnor makes of the courts approach.
He accepts that the court was right to carry out a balancing exercise and that all of the factors set out in para 66 of the judgment of the court were relevant factors to be set in the scale against ordering a retrial.
He does not contend that there were other relevant factors which the court left out of account.
He also accepts that the public interest in convicting those guilty of grave crimes such as murder was an important factor in favour of a retrial.
Apart from the point which I have dealt with at para 32 above, his sole criticisms are that the case against a retrial was so strong that no reasonable court could have ordered a retrial and that the court did not properly take into account that the admissions to be relied on at the retrial were the product of the misconduct.
I do not accept that the conclusion that was reached by the Court of Appeal was plainly wrong.
They were faced with a difficult balancing exercise.
In deciding what the interests of justice required, the Court of Appeal were right to respect the strength of the public interest in seeing that that those against whom there is prima facie admissible evidence that they are guilty of crimes, especially very serious crimes, are tried.
This public interest is all the greater where, as in the present case, there is compelling evidence of guilt.
As regards the criticism that the court did not properly take into account the fact that the admissions were the product of the misconduct, in substance this is a complaint that the court did not place sufficient weight on this fact.
But the court did identify it as a separate factor at para 66(v) of the judgment.
This court, like any appellate court, is always slow to allow an appeal on the ground that the decision maker failed to place sufficient weight on a relevant fact which it rightly took into account.
It must be a rare case where this court would interfere with the exercise by the Court of Appeal of its power to order a retrial.
It is possible that a differently constituted Court of Appeal would have arrived at a different conclusion from that reached by the court in the present case.
Different courts can legitimately differ as to the weight they accord to relevant factors.
But this court should not interfere with the Court of Appeals decision to order a retrial in this case on the grounds that they failed to accord sufficient weight to the but for factor unless we are satisfied that their decision was plainly wrong.
This was a difficult case because on the one hand the police misconduct was so egregious and on the other hand the alleged offence was so shocking.
I am in no doubt that this court should not interfere with the way the balance was struck by the court in this case.
The decision was not plainly wrong.
There was a strong case for concluding that the interests of justice would be served on the facts of this case by requiring the appellant to face trial for the most serious of crimes and requiring the offending police officers to face disciplinary and possibly criminal proceedings.
On the face of it, there is a strong case of conspiracy to pervert the course of justice and forgery.
No explanation has been provided to the court as to why there have been no such disciplinary or criminal proceedings.
I cannot help but think that, if the offending police officers had been disciplined and indeed prosecuted, the argument that a retrial based on the appellants admissions would have been offensive to the courts sense of justice and propriety would have lost much of its force.
In that way, the interests of justice would have been served.
Society would have signalled its intense disapproval of the behaviour of the police.
But the interests of society in having a fair trial of those against whom there is new and compelling evidence untainted by the misconduct would have been served by a retrial.
To put it at its lowest, this was a tenable view to hold as to what the interests of justice required on the facts of this case.
I do not consider that the question of whether the interests of justice required a retrial of this appellant should depend on the fortuity of whether the offending police officers were disciplined and/or prosecuted for their appalling misconduct.
In my view, the Court of Appeal were right to say that the balancing exercise in this case was difficult.
But for the reasons that I have given, there was a strong case for ordering a retrial.
More importantly, however, it has not been shown that that they erred in law in deciding to order a retrial.
I would dismiss this appeal.
LORD RODGER
At the end of the hearing I inclined to the view that the appeal should be allowed.
Having considered the matter further, I now agree with Lord Dyson that, for the reasons he gives, the appeal should be dismissed.
I put the matter briefly in my own words only because the Court is divided.
Lord Brown and Lord Dyson have outlined the appalling history of misconduct by officers of West Yorkshire Police when the witness Karl Chapman was a resident informant of that force and right up until Mr Maxwells first appeal to the Court of Appeal.
That misconduct can be described as prosecutorial misconduct, but it is important to notice that the Crown Prosecution Service and prosecuting counsel were lied to and duped just as much as the defence, the trial court and the Court of Appeal at the hearing of Mr Maxwells first appeal.
So this is not a case where the Crown Prosecution Service or prosecuting counsel abused their power, or indeed were in any way at fault in conducting the prosecution.
Given the catalogue of events, it is at first sight surprising that none of the police officers involved has been prosecuted or disciplined for his or her part in these events.
The true position was uncovered only as a result of an investigation which was set in motion by the CCRC acting under section 19 of the Criminal Appeal Act 1995.
The investigating officer carried out a parallel criminal and disciplinary investigation, the results of which were submitted to the Crown Prosecution Service and to the relevant police disciplinary authority.
No proceedings of either kind were taken.
The Court does not know the reasons for this, but it would be quite wrong to assume that they were anything other than entirely proper.
The investigating officer had to penetrate a closed world where police officers had been prepared to conceal the true position from the prosecuting authorities and the courts and where they had every incentive to conceal it from the CCRC investigation.
Not surprisingly, therefore, at various points the Statement of Reasons indicates that evidence was obtained only in exchange for a waiver of any potential disciplinary action based on what the witness told the investigating officer.
Waivers of disciplinary and prosecution proceedings as a result of statements made to the inquiry are a familiar feature of public inquiries into disasters of various kinds.
They are the price that has to be paid for finding out what happened and learning the lessons for the future.
Here such waivers may well have been necessary if the investigating officer was to achieve the purpose for which he had been appointed, viz, to discover whether there had been misconduct on the part of the police which would be a basis for referring Mr Maxwells conviction to the Court of Appeal.
In other words, Mr Maxwells appeal may well have been made possible only because the investigating officer gave those waivers.
So it would not be surprising if, as a result of the investigation, there were grounds for the Commission making the reference to the Court of Appeal, but there was no proper basis for the prosecuting or disciplinary authorities taking action against individual police officers.
Assuming as the Court surely must that the prosecuting and disciplinary authorities have acted properly, I am satisfied that the lack of action against the police officers concerned was not a relevant factor for the Court of Appeal to take into account in deciding whether to direct that Mr Maxwell should be retried.
As Lord Dyson emphasises, this appeal is only against the decision of the Court of Appeal to order a retrial.
Lord Brown quotes the language of section 7(1) of the Criminal Appeal Act 1968 at para 62 of his judgment.
Comparable language is to be found in section 6(1) of the Criminal Appeal (Northern Ireland) Act 1980 but nowhere else.
The language has been very carefully chosen to make it clear that the whole matter is one for the determination of the Court of Appeal.
For my part, I would not gloss the crucial words of the test (and the interests of justice so require): the Court of Appeal is to ask itself whether it appears that the interests of justice require it to order a retrial.
As Lord Dyson observes, the assumption must be that Parliament left the question of a retrial to be decided on this broad basis by members of the Court of Appeal who could be expected to have knowledge and experience in these matters and who, moreover, could be expected to be familiar with the relevant facts of the particular case from the proceedings which had led them to allow the appeal.
Of course, if the Court of Appeal reached a decision on retrial which no reasonable Court of Appeal could have reached, then doubtless this Court could intervene to put matters right.
But that is not the position in this case.
The Court of Appeal admitted that it had found the decision difficult.
In para 66 it set out the factors against ordering a retrial and then went on, in paras 67 to 83, to describe what it saw as the new and compelling evidence against Mr Maxwell.
Having done so, the Court of Appeal did not explicitly weigh the competing considerations.
Initially, I was inclined to think that this was a flaw in the courts approach.
But, on reflection, I am satisfied that it would be quite unfair to impute such a failure to the experienced members of the court when they have carefully alluded to the rival considerations.
In the absence of any indication to the contrary, it must be assumed that the Court of Appeal duly weighed them and so reached the view that it should order that Mr Maxwell should be retried, even though no retrial was to be ordered in Mr Mansells case.
Of course, if differently constituted, the Court of Appeal might have come to a different conclusion.
And, clearly, Lord Brown would have done so on the narrow ground that the present case falls within what he describes as the but for category of cases: but for executive misconduct, the defendant would not have been brought to this country and placed before the court; but for executive misconduct, the defendant would not have committed the crime for which he was to stand trial.
Here, but for the misconduct of the police officers, the chances are that Chapman would not have given evidence against Mr Maxwell or that, if he had, he would have been discredited.
So, but for their misconduct, Mr Maxwell would not have been convicted and so would not have made the statements on which the prosecution intends to rely in any retrial.
In my view, however, that would be to take this line of reasoning too far.
The statements were made by Mr Maxwell voluntarily and for his own purposes.
Indeed, one of them was made for the purposes of the very investigation by the CCRC which led to his appeal being allowed.
The use of those statements by the prosecution would involve no abuse of the trial court.
The fact that the statements would not have been made but for the antecedent misconduct of the police is not enough to taint them any more than it would taint, say, DNA evidence which was now available only by reason of advances made in research since Mr Maxwell was charged, or evidence of a witness who had come forward as a result of reading reports of the investigation into the misconduct of the West Yorkshire Police.
The fact that the statements would not have been made but for the police misconduct was a factor to be taken into account by the Court of Appeal in deciding whether the interests of justice required that it should order a retrial.
That is precisely how the Court of Appeal treated it in para 66.
Having taken that factor into account, it still appeared to the Court that the interests of justice required it to order a retrial.
That was a decision which the Court of Appeal was entitled to reach and with which, accordingly, this Court is not entitled to interfere.
LORD MANCE
There was in this case the gravest police misconduct both before and at trial, and it was persisted in during the first set of appellate proceedings.
Once revealed, it was inevitable that the appellants conviction should be set aside on a further reference to the Court of Appeal.
That does not resolve the question whether, having allowed the appeal, the Court of Appeal was justified in ordering a retrial.
Under Criminal Appeal Act 1968, section 7, it was for the Court of Appeal to decide as a matter of discretion whether there should be a retrial.
The Court of Appeal, when allowing a conviction, has the power to order a trial, if it appears to the Court that the interests of justice so require.
It is common ground that the exercise of discretion involved a balancing exercise.
It is also common ground that the Court in its full and clear judgment on the point identified all relevant factors.
Lord Dyson sets out the courts reasoning in paras 30 to 35.
Like him, I consider that it is clear (in particular from the language of para 67 of the courts judgment) that the court weighed all of these factors in reaching its decision.
Essentially, the criticisms made of the Courts decision focus on (a) the seriousness of the police misconduct, (b) the fact that, but for such misconduct, there would have been no original trial and so the context in which the appellant made the admissions on which reliance is now placed would never have existed and (c) the submission that the Crown in proceeding against the appellant on the basis of those admissions is and would be, or be seen as, condoning or taking advantage of the polices misconduct.
On behalf of the appellant, it is argued that the Court of Appeal must either have failed to take such considerations sufficiently into account when performing the relevant balancing exercise or for some other reason simply reached a decision not open to it in their light.
The latter (and as I see it probably also the former) submission amounts to saying that the courts exercise of its discretion was one which no reasonable court could reach in the circumstances.
This is not an easy case.
The egregious and persistent nature of the police misconduct involved invites a forceful response.
But it is common ground that it is not the courts role to refuse a retrial under section 7 of the 1968 Act in order to discipline the Crown for the polices misconduct, and the fact that the police misconduct has not received the sanction it deserved is not a reason to depart from this stance.
The court is however entitled to take into account the effects of ordering a re trial, including any perception that might be created that the Crown condoned misconduct and any general discouragement of future misconduct that might be achieved.
It is not suggested that the admissions on which the Crown wishes to rely were made other than freely and voluntarily; and I do not myself see any basis for regarding the Crown, or for thinking that right minded people would regard the Crown, in relying on them as condoning misconduct or as adopting the approach that the end justifies any means (see R v Latif [1996] 1 WLR 104, 113, per Lord Steyn).
I also find unconvincing any suggestion that refusal to order a retrial in the present case would have any real incentive effect on police behaviour.
Further, the court is entitled to bear in mind the effect on public confidence in the administration of justice if persons who have on their face of it admitted to very serious crimes (and who, if their admissions are true, perjured themselves at the original trial) are not retried (as they in fact said they wished when making the admissions) in order to establish the truth.
I have had the benefit of reading in draft all four of the judgments which my colleagues have prepared.
Lord Brown in para 105 concludes that Given, however, the but for character of this case and the enormity of the unpunished police misconduct involved, it seems to me quite simply inappropriate that it should now be retried on fresh evidence and that Unless one is to say that in relation to serious crimes the but for approach is to apply only in the context of wrongful extradition, it is difficult to think of any case where the stay principle would properly be invoked if not here.
However, I consider the present case to be significantly different from those involving extradition and entrapment to which Lord Brown refers.
In R v Horseferry Road Magistrates Court Ex p Bennett [1994] 1 AC 42 and again R v Mullen [2000] QB 520, the governments wrongful act in bringing the relevant defendant within the jurisdiction was the very direct cause of his standing in the dock.
In an entrapment case, the police act is one which leads directly to the commission of the alleged crime itself.
In the present case, the alleged crime was independent of any police act, and the admissions were made voluntarily of the appellants own choice and for his own purposes.
It is true that the context in which the admissions were made would not have existed but for the police misconduct.
But the voluntary element is important; it breaks the directness of the chain of causation and it relegates the police misconduct to the status of background.
Indeed, in respect of one of the admissions, if the prior trial was part of the background at all, it appears to have been very remote background.
The appellants letter to Detective Inspector Steele of West Yorkshire Police dated 9 February 2000 making the admission describes how it came about: Dear Mr Steele, We met some time ago at armley prison when you came to eliminate me from enquiries into the death of isabel grey.
As you are no doubt aware I am currently serving a life sentence for the murder of Joe Smales and the robbery of Joes brother Bert.
I initially denied these offences, however I now fully admit my guilt.
I watched you on television last night and decided to write and offer any help that I can give you, in your Quest to protect the old and vulnerable I have no ulterior motives for doing this and want nothing in return.
If you could compile a detailed Questionaire I will willingly supply you with detailed answers.
Best wishes
Paul Maxwell
I am not sure that I share Lord Browns difficulty in conceiving of cases other than the wrongful extradition cases in which a but for link with a proposed trial might require the court to refuse a fresh trial.
Suppose in the present case that the police or prison authorities had improperly recorded conversations between the appellant and his solicitors after his original conviction, and had as a result discovered independent evidence (e.g. DNA evidence or another third party witness) linking the appellant to the crime.
In those circumstances, a re trial could well be refused.
I would also reject any suggestion that the Supreme Court should treat the Court of Appeal as having reached a decision not reasonably open to any court on the present facts.
On this aspect, as on others, I find compelling the judgment and conclusions of Lord Dyson.
I also agree with Lord Rodgers supplementary observations.
For these reasons, I am unable to accept that the Court of Appeal erred in any way entitling the Supreme Court to interfere with its decision to order a re trial.
LORD BROWN
Few of those urging upon the court a vindication of the rule of law could be less deserving of its benefits than this appellant.
A professional criminal with a history of violent crime, he is almost certainly guilty of the murder and the two robberies of which he was convicted (together with his brother, Daniel Mansell) by the Crown Court at Leeds on 27 February 1998.
These were shocking offences indeed, callous attacks upon elderly reclusive brothers in their own home, the second involving injuries of such severity as to occasion the elder brothers death within the month.
The appellants tariff (in respect of his life sentence for murder, imposed concurrently with twelve year terms for the robberies) was set at eighteen years.
It was not a day too long.
The 1998 convictions were, however, as later investigations by the North Yorkshire Police and the Criminal Cases Review Commission (CCRC) were all too clearly to demonstrate, procured by tainted evidence and prosecutorial misconduct of the gravest kind.
Following a reference by the CCRC, the Court of Appeal (Criminal Division) (Hooper LJ, Cooke and Swift JJ) accordingly had no alternative but to quash them: [2009] EWCA Crim 2552, judgment of 1 December 2009.
So much was by then undisputed.
What was in dispute, however, and remains the central issue upon this further appeal, was whether or not the appellant should be retried pursuant to section 7(1) of the Criminal Appeal Act 1968.
Section 7(1) provides: Where the Court of Appeal allow an appeal against conviction and it appears to the Court that the interests of justice so require, they may order the appellant to be retried.
In the course of a thoughtful and thorough reserved judgment given by Hooper LJ the Court of Appeal: reached the conclusion (not without difficulty) that the public interest in convicting those guilty of murder outweighs the public interest in maintaining the integrity of the criminal justice system.
This was a shocking case and if there is new and compelling evidence untainted by the prosecutorial misconduct revealed by the findings of the North Yorkshire Police and the CCRC, we should order a new trial.
In particular we bear in mind that the new and compelling evidence relied upon by the respondent as against Maxwell consists of admissions made to the North Yorkshire Police by Maxwell with the benefit of legal advice during the course of an investigation into the safety of his convictions and that Maxwell said to the police that he would like a retrial and that he would plead guilty to the robberies and manslaughter. (para 67) The Court of Appeal accordingly ordered that the appellant be retried and meantime remain in custody.
No such order was made in respect of Mansell (who had made no post conviction admissions of guilt and against whom, therefore, there was no new and compelling evidence) and he was accordingly set free.
The point of law of general public importance subsequently certified by the Court of Appeal was this: May the Court of Appeal order a retrial having quashed a conviction on the grounds of serious executive or prosecutorial misconduct, and, if so, in what circumstances? In reality what the Court must now decide is whether, having regard to all the circumstances of this case, the Court of Appeal could properly reach their conclusion that the interests of justice require this appellants retrial based substantially upon his post conviction admissions of guilt.
As the Court of Appeal recognised, plainly there is a public interest in convicting those guilty of murder.
Plainly too there is a public interest in maintaining the integrity of the criminal justice system.
No less plainly, each interest is of a high order.
Where, as here, these interests appear to conflict, how should that conflict be resolved? This is by no means an easy area of the law.
Obviously, however, it is an important one.
With that brief introduction let me at once turn to the facts, critical as ultimately these must be to the determination of this appeal.
The two robberies
The robberies took place respectively on 11 June 1996 and 13 October 1996, on each occasion at the Yorkshire home of two vulnerable and reclusive brothers, Bert Smales aged 67 and Joe Smales aged 85.
They were known to keep substantial sums of money in the house and had more than once been burgled in the past although this had never been reported to the police (as similarly the June 1996 robbery went unreported).
On both occasions the robbers were masked; on both they used violence in demanding to know where they brothers kept their money; on both they stole a few thousand pounds.
It appears, however, that substantially greater violence was used in the October robbery.
On that occasion Bert Smales suffered a fractured nose and forehead, his injuries leaving him with little recollection of the robbery beyond opening the door to his attackers.
Joe Smales was punched in the face so severely that he suffered not only a fractured jaw and internal bleeding to the head but in addition a fracture of the cervical spine (broken neck); from his resultant prolonged immobility in hospital he developed pneumonia and a deep vein thrombosis from which on 7 November 1996 he died.
Although it is unclear which of the robbers attacked which victim, the level of violence used in the October robbery and, indeed, the admissions that the appellant came to make in his post conviction statements clearly supported a conviction for murder on the basis of joint enterprise and it is unsurprising that Mr OConnor QC has never submitted on his behalf that any retrial should only be on a charge of manslaughter.
Karl Chapman
Chapman is a central figure in this case and it will be necessary to say more about him later.
It is convenient, however, to introduce him briefly at this stage, he having been the main prosecution witness at the appellants trial, without whose information and evidence, indeed, the appellant (and Mansell) would never have been indicted, tried or convicted at all.
Chapman (like the appellant) is a professional criminal.
In late 1995 and early 1996 both men were together in prison.
The appellant was serving an eight year sentence (from which he was finally released on 3 June 1996) for a series of robberies; Chapman was a remand prisoner having pleaded guilty on 31 July 1995 to no fewer than 267 offences (including 256 similar offences taken into consideration), mostly bogus official robberies targeting frail and elderly victims.
Chapman eventually came to be sentenced on 23 December 1997 to a term of 9 years imprisonment, a sentence to be contrasted with the 25 year term imposed for comparable offences committed by an erstwhile associate of his named Ford against whom Chapman had earlier (in November 1996) given evidence, as indeed he was to give evidence (in February 1998) against the appellant and Mansell.
As already stated, the appellant was released from prison on 3 June 1996, just eight days before the first Smales robbery.
It now seems clear that it was from Chapman that the appellant learned of the address and vulnerability of, amongst others, the Smales brothers and it is clear too that during the period when these robberies were committed the appellant and Chapman remained in touch.
In December 1996 Chapman began to provide the police with information pointing to the appellants involvement in these robberies, a process leading in April 1997 to him making a series of witness statements, on the basis of which the appellant and Mansell were on 28 April 1997 arrested, charged and ultimately, on 27 February, 1998, convicted.
As stated in the agreed statement of facts and issues: without Chapmans evidence, there could have been no prosecution at all.
The February 1998 trial and conviction
The trial lasted three weeks, Chapmans evidence occupying five days: 5, 6, 9, 10 and 11 February 1998.
Not surprisingly, his evidence was fiercely challenged by both defendants.
As the judge later put it in his summing up, it was the defence case that Chapman was bent as a fourteen pound note.
More particularly the defendants were alleging that by giving incriminating evidence against them, Chapman, notwithstanding that he had already been sentenced the previous December, was still expecting benefits of one sort or another, whether by way of earlier release on parole or otherwise.
All this Chapman resolutely and persistently denied as appears from a number of passages in the summing up, for example: Now, he knows what date he is due to be released and that that will happen whether or not he gives evidence in this case.
He has got his date in the year 2000.
That cannot be delayed beyond that time.
He says he has nothing to gain by giving false evidence against the defendants. (Chapman was, in fact, released in August 1999.) The whats in it for him line was pursued and I will remind you again of it briefly .
He says, Theres nothing.
I am putting myself at risk for the rest of my life.
He was then taken through the privileges that he had enjoyed as a supergrass, and what the wing was like.
Well, there is no suggestion that he was accorded privileges that were any greater than those accorded to other supergrasses.
Chapmans evidence was, there can be no doubt, damning against both defendants.
It did not, however, stand entirely alone.
Rather, as the (263 page) CCRC report was later to say, it was supported by a jigsaw of other pieces of evidence.
In particular there was evidence (i) of telephone calls between Chapman and the appellant on key dates, (ii) of Mansells arrest for a driving offence on his way back to Lancashire from Yorkshire on the day of the June robbery, (iii) of the appellant having reconnoitred the home of another of Chapmans previous victims, Miss Bell, (iv) of the appellant being in Leeds and attempting to contact Chapman on the day of the October robbery, (v) of an A Z map given to the police by Chapman bearing the appellants fingerprints and containing various markings seemingly connecting the appellant to the addresses of other Chapman victims in the Yorkshire area, (vi) of a letter from the appellant to Chapman in July 1996 referring to coming over to Leeds for a days work, apparently alluding to the burglary of another of Chapmans previous victims, (vii) of Mansells identification by a neighbour of the Smale brothers as one of two men she had observed hurrying by on the afternoon of the October robbery, (viii) of a footwear mark found at the scene of the October robbery consistent with the size and brand of Mansells boots, (ix) of lies told by the appellant and Mansell about their movements on the days of the robberies in the course of police interviews, and (x) of the appellants creation of a false alibi for the time of the October robbery (as he was later to admit).
some 9 hours and 40 minutes after the jury first retired.
The 1999 appeal
Within days of the appellants conviction press reports in the Yorkshire Evening Post suggested that 100,000 had been set aside to provide Chapman with assistance on his release from prison.
Those then acting for the appellant and Mansell immediately sought clarification of this from the CPS but made little headway, their initial application for leave to appeal against conviction being refused by the single judge on 30 July 1998.
In February 1999, however, fresh solicitors and counsel were instructed and extensive further enquiries were then made of the CPS both as to any payment promised to Chapman and more generally as to his treatment by the police.
The appellants and Mansells renewed leave applications to the Court of Appeal were adjourned on account of these enquiries first from 30 April 1999 and then again from 8 July 1999, on each occasion for the CPS to supply the further information being sought.
In the event both defendants were convicted by majority verdicts of 10:2
Finally, following a detailed series of questions from Birnberg Peirce & Partners dated 15 October 1999 and letters in response dated 3 November 1999 respectively from Detective Superintendent Rennison (Director of Intelligence responsible for the management and use of informants in West Yorkshire) and Detective Chief Superintendent Taylor (Senior Investigating Officer on the Chapman operation), the Court of Appeal (Otton LJ, Potts J and the Recorder of Liverpool) on 5 November 1999 held first an ex parte hearing on a PII application by the prosecution and then an inter partes hearing on other grounds of appeal unrelated to the handling of Chapman.
During the ex parte hearing evidence was given by Detective Sergeant Grey (an officer of the Major Crime Unit attached to the Chapman operation) and Chief Superintendent Holt (the Senior Investigating Officer on the appellants case), in particular with regard to a statement in Mr Rennisons letter of 3 November that: a reward of 10,000 was agreed by the West Yorkshire Police Command Team without discussion with Chapman, to be paid after completion of his sentence.
In the course of his evidence D S Grey said that the agreement was reached possibly three or four months before the end of [Chapmans] sentence [August 1999] and that when Chapman had given his evidence he [was not] told at all that he was to receive any form of reward.
Chief Superintendent Holt similarly confirmed that before Chapman gave his evidence there was no discussion or agreement with him whatever in relation to any reward or any benefit for his involvement in this particular case.
The Court of Appeal thereupon expressed themselves satisfied that when the informant, Chapman, came to give evidence nothing had been done or said to give him any expectation of reward for his evidence in this murder trial. any arrangements for reward or change of identity to Chapman were made a long time after the [appellants] conviction was recorded.
In the result, in a judgment given on 13 December 1999 dismissing the appellants and Mansells renewed leave application, the Court of Appeal noted in respect of Ground 1 The financial reward of the supergrass: At the outset of the hearing before us we considered the public interest immunity application by the Crown.
As a result of our ruling this ground was not pursued on behalf of the applicants.
There matters lay until, some nine years later, on 25 November 2008, the CCRC referred the case back to the Court of Appeal following an investigation by the North Yorkshire Police under section 19 of the Criminal Appeal Act 1995, an investigation which had painstakingly examined the integrity of Chapmans treatment as a prosecution witness.
The CCRC Report
The unchallenged findings of this report are not just disturbing but quite frankly astonishing.
They reveal that, as a result of his cooperation with the police, Chapman and other members of his family received a variety of benefits which were not merely undisclosed to the CPS or counsel but were from first to last carefully concealed from them.
They were benefits which both contravened the controls designed to preserve the integrity of Chapmans evidence and were in addition inherently improper.
Amongst the more surprising were that whilst in police custody Chapman was at various times permitted to visit a brothel, to engage in sexual relations with a woman police constable, to visit public houses, to consume not merely alcohol but also cannabis and even heroin, to socialise at police officers homes, to enjoy unsupervised periods of freedom, and indeed, throughout the actual period of the appellants trial, whilst threatening not to give evidence after all, he was permitted long periods of leisure (hours at a time) in places of his choice, ostensibly as exercise, and in addition phone calls and visits from his own solicitor.
Without suggesting that it typifies Chapmans relations with every police officer involved in this operation, some colour is lent to all this by a letter written to him in prison by DC Dunham (one of Chapmans regular escorting officers) on 18 December 1996, shortly after Chapman had given evidence at the Ford trial and on the very day he made his first statement implicating the appellant and Mansell, an event celebrated by a visit to a brothel (shown in the custody record as an outing to assist in the locations of crime).
DC Dunham wrote: . really glad you enjoyed the night.
Truth to tell I quite enjoyed it myself.
Little bit of this, little bit of that.
Variety, they say, is the spice of life.
What a spicey night! Lets hope there is a second leg in March.
I am demob happy now and disinclined to dip out on any good times that may be up for grabs.
BT [another officer] told me to tell you that if you were serious about a literary venture at some time in the future he can put you in touch with some top class author types who can assist in ghost writing.
Sometime later, Dunham having mentioned the brothel outing to the female police officer with whom Chapman was enjoying sexual relations, Chapman wrote to her apologising: I was drunk and stoned on weed, they paraded a dozen beautiful women in front of me and said take your pick.
As for financial benefits, the report states blandly: North Yorkshire Police found that the information provided to the court at trial and appeal did not accurately reflect the financial benefits and rewards given to Mr Chapman by the police or his expectations when he gave evidence at the trial of Mr Maxwell and Mr Mansell.
The fact is that large sums had been expended on Chapman, far exceeding his entitlement under the rules governing the treatment of informants and prisoner witnesses.
Luxury items had been purchased for him and substantial sums from time to time handed to him in cash (for example 475 on the occasion of the December 1996 brothel visit with DC Dunham, less than 7 remaining on Chapmans return to the police station at 1 a.m. the following morning).
This expenditure, totalling several thousand pounds, was financed by claims on a variety of police funds, with no proper records, accounting, supervision or control and various steps taken to conceal the level of payments made.
None of this was disclosed either at trial or on appeal.
With regard to the 10,000 reward itself, the report concluded, flatly contrary to the senior officers evidence to the Court of Appeal, that the polices intention to reward Chapman had long since been communicated to him so that his as yet unfulfilled expectation of reward may have been a factor affecting [his] cooperation and evidence at the appellants trial.
Nor were these favours and financial benefits the only advantages secured by Chapman as the price of his cooperation.
He was not proceeded against in respect of a number of violent incidents which in the ordinary way would have been expected to result in prosecution: a vicious attack on a fellow prisoner called Jennings in March 1994, repeatedly stabbing him with a piece of broken glass bound with twine; an alleged rape of his cellmate (buggery whilst holding a razor to the victims throat) in August 1994, reported sometime later; an assault in November 1999 on the WPC with whom by then Chapman had split up.
Nor was action taken against him for various drug offences.
Similarly a caution received by Chapmans mother in July 1995 for handling stolen property was not properly recorded, nor were steps taken against her for attempting to supply heroin both to Chapman in prison in September 1996 and to Chapmans girlfriend (also a prisoner) in October 1996.
Chapmans brother too was not arrested when he should have been.
All these various benefits and indulgences were conferred on Chapman to ensure his continuing cooperation with the police and not least to persuade him to give evidence as he did at the February 1998 trial of the appellant and Mansell.
To quote just four short passages from the CCRC report: In the Commissions view those benefits may have acted as an inducement and their non disclosure denied the defence the opportunity to explore their possible impact on the credibility of Mr Chapman and also on the fairness of the trial.
The omission of [certain of these benefits] from Mr Chapmans custody records ensured that those records offered no hint of the reality of his treatment whilst in police custody.
The circumstances in which Mr Chapman provided information to the police in the murder investigation were therefore obscured.
The failure to reveal what could reasonably have been considered inducements surrounding Mr Chapmans evidence left the prosecution unable to assess his reliability as a witness and precluded appropriate disclosure to the court and the defence.
It also caused the trials involving Mr Chapman as a prosecution witness to proceed on the incorrect basis that he had not been the recipient of favours or privileges.
In contrast to the appearance of legitimacy in his treatment, the undisclosed information would have supported an argument that Mr Chapmans evidence against Mr Maxwell and Mr Mansell was tainted by a sustained catalogue of improper inducements and an ongoing expectation that he would be favourably treated in every aspect of his relationship with the police.
Those representing Mr Maxwell and Mr Mansell were denied the opportunity to deploy this material in support of a tenable argument that the proceedings against them were an abuse of process and to have this issue determined by the court.
In the light of these various findings it is now possible to summarise the position really quite shortly.
A large number of police officers involved in the investigation and prosecution of the Smales robbery and murder case, including several of very high rank, engaged in a prolonged, persistent and pervasive conspiracy to pervert the course of justice.
They colluded in conferring on Chapman a variety of wholly inappropriate benefits to secure his continuing cooperation in the appellants prosecution and trial.
They then colluded in Chapmans perjury at that trial, intending him throughout his evidence to lie as to how he had been treated and as to what promises he had received.
They ensured that Chapmans police custody records and various other official documents presented a false picture of the facts, on one occasion actually forging a custody record when its enforced disclosure to the defence would otherwise have revealed the truth.
They lied in their responses to enquiries made of the CPS after the appellants conviction and, in the case of the two senior officers who gave evidence to the Court of Appeal, perjured themselves so as to ensure that the appellants application for leave to appeal against his conviction got nowhere.
To describe police misconduct on this scale merely as shocking and disgraceful is to understate the gravity of its impact upon the integrity of the prosecution process.
It is hard to imagine a worse case of sustained prosecutorial dishonesty designed to secure and hold a conviction at all costs.
Scarcely less remarkable and deplorable than this catalogue of misconduct, moreover, is the fact that, notwithstanding its emergence through the subsequent investigation, not a single one of the many police officers involved has since been disciplined or prosecuted for what he did.
The appellants post conviction admissions
For my part I have no doubt that the series of admissions which the appellant came to make to various bodies following his conviction constitutes compelling evidence upon which, certainly when taken together with the supporting evidence already summarised (para 70 above), a jury would be highly likely to find him guilty both of the two robberies and of Joe Smaless murder (although just possibly the verdict on that count could be one of manslaughter).
I must nevertheless briefly summarise this evidence to indicate the circumstances in which these admissions came to be made.
An altogether fuller account of all this can be found at paragraphs 68 81 of the Court of Appeals judgment below.
The appellants first recorded admission was made on 12 October 1998 to his then solicitor, retained to advise him on the appeal against conviction.
The solicitors file note records: To my great surprise Paul confessed that he and his brother did do the murder .
He explained that at no stage did he ever anticipate any injury would be caused to Mr Smales.
At the time of the murder, he was in fact inside the house, whilst his brother carried it out in the garden.
I told Paul that on the basis of what he had told me, I felt that he could have a possible appeal on the authority of R v English and R v Powell.
Told by his solicitor that he would have to prepare a detailed and persuasive confession for there to be any chance of a successful appeal, the appellant wrote a lengthy statement on 21 February 1999 detailing his involvement in both robberies and asking that the statement be placed on his prison file.
A Local Prison Assessment (Life Sentence Plan) Report noted on 24 February 1999 that the appellant: accepts the guilty part he played but states the deceased did not die at his hands and indeed admits that he used as much violence on the victim who survived as his brother did on the victim who died.
In February and March 2000 the Home Office sponsored a research project into offences committed against the old and vulnerable by offenders pretending to be officials.
In the course of this research, whilst Detective Chief Superintendent Steele of West Yorkshire Police was interviewing a number of convicted offenders, the appellant wrote to him on 9 February 2000 offering to assist the project and stating: As you are no doubt aware I am currently serving a life sentence for the murder of Joe Smales and the robbery of Joes brother Bert.
I initially denied these offences, however I now fully admit my guilt.
When the appellant was interviewed by Mr Steele and other officers on 2 March 2000, he admitted his involvement and explained how in relation to the October robbery he had used violence against Bert Smales whilst his brother had used violence against Joe.
An Initial Sentence Plan Summary prepared by the prison on 1 August 2000 included a note from the Sentence Management Unit stating: Maxwell admitted, for the first time outside confidential counselling, that he admitted the offence openly and despite finding it difficult to talk about, accepted culpability for the death of the victim.
He claims that he did not attack the victim who died, but in no way tried to minimise his role in the offence saying that he planned the robbery and was co perpetrator, so that made him just as guilty of the murder as his co accused.
This was a violent attack and Maxwell finally admits he attacked the surviving victim, probably more viciously than his co defendant attacked the murder victim.
A prison report dated 23 May 2001 noted that the appellant continued to accept responsibility for his crimes.
A prison probation officer reported on 11 January 2002: Mr Maxwell told me he is ashamed of what he did and although he claims not to have assaulted Joe Smales he admits to assaulting his brother.
He does not deny that his actions were instrumental in the death of Mr Smales and admits to planning the burglary and involving his brother in the crime.
Mr Maxwell told me he is appealing the conviction, not because he does not accept responsibility for the death of Mr Smales but because he does not think he and his brother were given a fair trial.
It is his hope he will be able to enter a guilty plea to manslaughter at a re trial.
In the course of the investigation by the North Yorkshire Police the appellant was interviewed on a number of occasions in relation to his admissions, several times maintaining that he had made false admissions of guilt out of expediency.
However, in a statement dated 14 September 2004 he said this: I now admit the robberies of the Smales brothers in June and October of 1996.
My brother was with me on both occasions.
No one else was present.
I was not involved in the death of Joe Smales and had no intention to cause serious injury to either of the brothers.
In a statement dated 23 September 2004 the appellant said: I would like a retrial and I would plead guilty to robbery and manslaughter.
The Law
The power of a criminal court to stay proceedings as an abuse of process in order to safeguard an accused person from injustice and oppression has long been recognised see, for example, Connelly v Director of Public Prosecutions [1964] AC 1254 and R v Humphrys [1977] AC1.
The more recent decision of the House of Lords in R v Horseferry Road Magistrates Court Ex p Bennett [1994] 1 AC 42, however, can be seen as the foundation of much of the modern law regarding the Courts approach to abuse of process applications, more particularly in cases where, as here, no question arises of the defendant being unable to receive a fair trial were the case against him to proceed.
Bennett concerned an appellant unlawfully brought to this country as a result of collusion between the South African and British police and on arrival here arrested and brought before magistrates to be committed for trial.
The House held by a majority of four to one that in those circumstances the English court should refuse to try the defendant.
For present purposes the following brief citations from the speeches will suffice: In the present case there is no suggestion that the appellant cannot have a fair trial, nor could it be suggested that it would have been unfair to try him if he had been returned to this country through extradition procedures.
If the court is to have the power to interfere with the prosecution in the present circumstances it must be because the judiciary accept a responsibility for the maintenance of the rule of law that embraces a willingness to oversee executive action and to refuse to countenance behaviour that threatens either basic human rights or the rule of law. (Lord Griffiths at pp 61 62) [T]he court, in order to protect its own process from being degraded and misused, must have the power to stay proceedings which have come before it and have only been made possible by acts which offend the courts conscience as being contrary to the rule of law.
Those acts by providing a morally unacceptable foundation for the exercise of jurisdiction over the suspect taint the proposed trial and, if tolerated, will mean that the courts process has been abused. (Lord Lowry at p76 C D) It may be said that a guilty accused finding himself in the circumstances predicated is not deserving of much sympathy, but the principle involved goes beyond the scope of such a pragmatic observation and even beyond the rights of those victims who are or may be innocent.
It affects the proper administration of justice according to the rule of law and with respect to international law. (Lord Lowry at p76 G)
Bennett was directly applied by the Court of Appeal (Criminal Division) in R v Mullen [2000] QB 520 where it was held that the British authorities, in securing Mullens deportation from Zimbabwe, had been guilty of a blatant and extremely serious failure to adhere to the rule of law with regard to the production of a defendant for prosecution in the English courts (p.535H) so that when, some eight years later, this came to light, his conviction fell to be quashed.
This was so, moreover, notwithstanding Mullens concession that he had been properly convicted by the jury and that, as Rose LJ giving the Courts judgment observed, The sentence of 30 years imprisonment reflects the gravity of the offence (involvement in an IRA conspiracy to cause explosions).
The principle which the court there derived from Bennett was that certainty of guilt cannot displace the essential feature of this kind of abuse of process, namely the degradation of the lawful administration of justice. (p534 C).
The Bennett principle was similarly applied in the context of entrapment in R v Latif [1996] 1 WLR 104 where, at pp112 113, Lord Steyn put it thus: The law is settled.
Weighing countervailing considerations of policy and justice, it is for the judge in the exercise of his discretion to decide whether there has been an abuse of process, which amounts to an affront to the public conscience and requires the criminal proceedings to be stayed .
The speeches in ex parte Bennett conclusively establish that proceedings may be stayed in the exercise of the judges discretion not only where a fair trial is impossible but also where it would be contrary to the public interest in the integrity of the criminal justice system that a trial should take place. in a case such as the present the judge must weigh in the balance the public interest in ensuring that those that are charged with grave crimes should be tried and the competing public interest in not conveying the impression that the court will adopt the approach that the end justifies any means.
Just how that approach should apply in any particular entrapment case was further considered by the House of Lords in R v Looseley [2001] 1 WLR 2060 which decided that to lure, incite or pressurise a defendant into committing a crime which he would not otherwise have committed would be unfair and an abuse of process but not so if the law enforcement officer, behaving as an ordinary member of the public would behave, had merely given the defendant an unexceptional opportunity to commit a crime of which he had freely taken advantage.
Although sometimes in such circumstances a stay is said to be on abuse of process grounds, Lord Hoffmann thought with Lord Griffiths in Bennett that the jurisdiction was more broadly and accurately described as a jurisdiction to prevent abuse of executive power. (p2073E)
This line of authority has since been followed in two much publicised Court of Appeal decisions: R v Early [2003] 1 Crim App.
R.288 (judgment of Rose LJ) and R v Grant [2006] QB 60 (judgment of Laws LJ).
Although both cases were cited and discussed at some length by the court below, I propose to consider them comparatively briefly.
Early concerned a number of appellants charged with fraud offences arising out of the improper diversion to the UK market of large quantities of duty suspended alcohol from bonded warehouses, some of 30 or 40 separate such scams involving the Inland Revenue in an overall loss of some 300m.
The defendants case was essentially that they had been encouraged and facilitated in their offending by customs officers working in collusion with the warehouse manager (one Allington, a registered informant), a defence therefore somewhat akin to entrapment.
Put very shortly, having failed in abuse of process applications following voir dire evidence from various customs officers and from Allington and others during lengthy PII and disclosure hearings, the defendants on advice pleaded guilty.
Subsequently Allington admitted having lied, lies which he said had been approved by Customs and for which he had received benefits.
Allowing the appeals, Rose LJ said (para 18): It is a matter of crucial importance to the administration of justice that prosecution authorities make full relevant disclosure prior to trial and that prosecuting authorities should not be encouraged to make inadequate disclosure with a view to defendants pleading guilty.
When inadequate disclosure is sought to be supported by dishonest prosecution evidence to a trial judge, this Court is unlikely to be slow to set aside pleas of guilty following such events, however strong the prosecution case might appear to be.
He then added, however, in the very next paragraph: In the ordinary way we would have ordered a retrial so that a trial judge, on the basis of honest evidence, could have had the opportunity of deciding about disclosure and about whether or not a stay should be granted.
However, as the appellant has already served his sentence and it is nearly six years since the offence is alleged to have taken place, we make no such order, as it would not be in the interests of justice to do so.
Those passages in the judgment related specifically to Earlys appeal; the other appellants appeals, however, were similarly disposed of.
In short, despite the courts understandably harsh condemnation of the misconduct there, but for the passage of time it would nevertheless have ordered a re trial to see whether in truth the case was one of entrapment.
In Grant [2006] QB 60, the appellant had been convicted of conspiracy to murder, his wifes lover having been shot dead whilst answering a knock at the door.
The appellants case on appeal was that the trial judge should have allowed his abuse of process application and stayed the prosecution because of police misconduct: following the appellants arrest the police had deliberately eavesdropped upon and tape recorded privileged conversations between him and his solicitor in the police station exercise yard.
Notwithstanding that this eavesdropping had in no way prejudiced the appellants trial, his appeal was allowed and his conviction quashed.
The Court of Appeal said this: True it is that nothing gained from the interception of solicitors communications was used as or (however indirectly) gave rise to evidence relied on by the Crown at the trial.
Nor, as we understand it, did the intercepts yield any material which the Crown might deploy to undermine the defence case.
But we are in no doubt but that in general unlawful acts of the kind done in this case, amounting to a deliberate violation of a suspected persons right to legal professional privilege, are so great an affront to the integrity of the justice system, and therefore the rule of law, that the associated prosecution is rendered abusive and ought not to be countenanced by the court. (para 54) Where the court is faced with illegal conduct by police or State prosecutors which is so grave as to threaten or undermine the rule of law itself, the court may readily conclude that it will not tolerate, far less endorse, such a state of affairs and so hold that its duty is to stop the case. (para 56) We are quite clear that the deliberate interference with a detained suspects right to the confidence of privileged communications with his solicitor, such as we have found was done here, seriously undermines the rule of law and justifies a stay on grounds of abuse of process, notwithstanding the absence of prejudice consisting in evidence gathered by the Crown as the fruit of police officers unlawful conduct. (para 57) It may be noted that the Court of Appeal later certified the following point of law of general public importance in the case: Where an accused person has been properly arrested and brought before the court but during the course of the investigation there is significant impropriety by some or all of the investigating officers in relation to the accused person, but the evidence that will be presented to the court is untainted by such impropriety so that the accused person can have a fair trial, when considering the interests of all parties, including the victim of the crime, is the greater public interest in having the accused person tried, it therefore being fair to try him, or in staying the indictment which is therefore a method of disciplining the investigating authority thereby overriding the rights of the victim? Whether the House of Lords then refused leave to appeal or the Crown chose not to pursue an appeal we have not been told.
But I have to say that for my part I have the gravest doubts as to the correctness of the courts decision in Grant.
True it is that Lord Taylor of Gosforth CJ had described legal professional privilege in R v Derby Magistrates Court, Ex p B [1996] AC 487, 507 as much more than an ordinary rule of evidence, limited in its application to the facts of a particular case.
It is a fundamental condition on which the administration of justice as a whole rests.
But that is not to say that its every violation must result in a quashed conviction.
The law against perjury may equally be described as fundamental to the whole administration of justice but no one has ever suggested that perjury by a prosecution witness (even a police officer) must in all circumstances, irrespective of whether it prejudices the defendant, necessarily preclude a defendants conviction or, if discovered later, result in its quashing.
Deeply regrettable though police perjury must always be, the law reports are replete with examples of convictions nonetheless being upheld on appeal on the basis that, the perjured evidence (sometimes in relation to purported confessions statements) aside, ample evidence remains to sustain the convictions safety.
The Court of Appeal in the present case distinguished Grant on the basis that, [w]hilst helpful to the appellants, it should be remembered that Grant involved, as Laws LJ said, a deliberate violation of a fundamental condition on which the administration of justice as a whole rests: para 62.
I too would distinguish Grant from the present case but on the very different basis that the police misconduct there constituted an altogether lesser, rather than a materially greater, threat to the administration of justice than the prolonged prosecutorial misconduct here misconduct without which this appellant would never have been prosecuted or convicted in the first place.
All the cases I have been considering are cases where, whatever executive or prosecutorial misconduct may have occurred in the past, there is no impediment to a fair trial of the defendant in future.
The central question for the Court in all these cases is as to where the balance lies between the competing public interests in play: the public interest in identifying criminal responsibility and convicting and punishing the guilty on the one hand and the public interest in the rule of law and the integrity of the criminal justice system on the other.
Which of these interests is to prevail? It is, of course, as the cases show, a question which may arise in a number of different circumstances.
It may arise before trial or in the course of trial, where the question for the court is whether or not to grant a stay and so halt the process short of verdict.
Or it may arise on appeal against conviction when the question for the court is, first, should the conviction be quashed, and, if so, secondly, as in the present case, should a re trial be ordered.
In each case, as it seems to me, the question is the same: what do the interests of justice require (the interests of justice, of course, clearly encompassing both the conflicting public interests in play)?
As the court below noted, not long ago the Privy Council in Panday v Virgil [2008] 1 AC 1386 had occasion to consider this area of the law, including in particular what may be called the wrongful extradition and entrapment cases, in the context of a disputed order for a fresh trial following the quashing of the appellants conviction by the Trinidad and Tobago Court of Appeal the conviction there having been quashed for apparent (although, for the purposes of the further appeal to the Board, assumed actual) bias.
In the course of giving the Boards judgment dismissing the appeal I said this (at para 28): It will readily be seen that the factor common to all these cases, indeed the central consideration underlying the entire principle, is that the various situations in question all involved the defendant standing trial when, but for an abuse of executive power, he would never have been before the court at all.
In the wrongful extradition cases the defendant ought properly not to have been within the jurisdiction; only a violation of the rule of law had brought him here.
Similarly, in the entrapment cases, the defendant only committed the offence because the enforcement officer wrongly incited him to do so.
True, in both situations, a fair trial could take place, but, given that there should have been no trial at all, the imperative consideration became the vindication of the rule of law.
In that case, however, there was no question of the appellant not having been properly before the court at all.
As we said: the quashing of his conviction restores the defendant to the position he was in before the unfair trial.
Why should his success gain him immunity from what is conceded to be the position he now faces under the Court of Appeals order: a fair trial upon charges properly brought? We therefore upheld the order for a retrial.
In the great majority of cases apart, of course, from those like the wrongful extradition and entrapment cases where the defendant would not have stood trial at all but for the violation of the rule of law which had brought him before the court in the first place that would seem to me the appropriate outcome.
The balance will ordinarily fall in favour of the fair trial of those rightly charged with serious crimes rather than in favour of the suspects absolute discharge from the criminal justice system supposedly in the wider interests of the integrity of that system as a whole.
All that said, however, I have come to the conclusion that on the particular facts of the present case the balance falls the other way.
In a real sense, indeed, this case can be seen to come within the same category of but for situations as the wrongful extradition and entrapment cases: but for the prosecutorial misconduct which initially secured the appellants conviction and then ensured the failure of his appeal, he would never have made the series of admissions upon the basis of which it is now sought to prosecute him afresh.
There can be little doubt that these admission statements were made generally with a view to advancing the appellants interests following conviction.
For the most part it seems that he made them in the hope that his murder conviction would be replaced by a conviction for manslaughter, but perhaps also in the hope of appearing contrite and securing his earlier release on parole.
Either way, the likelihood is that were a trial now to take place and a conviction to be obtained on the basis of these admissions, those responsible for corrupting the original process would still be seen thereby to have achieved their ends and in the long term to have engineered the appellants conviction.
That to my mind is the critical consideration in this case.
The court should be astute to avoid giving the impression that it is prepared, even in this limited way, to condone such unforgivable executive misconduct as occurred here.
It is essentially on this narrow basis that for my part I would allow the appeal here.
Had, say, the appellant unambiguously confessed his guilt, not before but after successfully overturning his original conviction, I would see no objection whatever to an order for his retrial on the basis of new and compelling evidence pursuant to Part 10 of the Criminal Justice Act 2003.
In such circumstances it would obviously not then be open to the defence to suggest that realistically the confession was the product of the executives misconduct.
In this context I should perhaps say a word about the emphasis given by the court below to their view that the appellants post conviction admissions here did indeed constitute new and compelling evidence within the meaning of the 2003 Act.
As Mr Perry QC for the Crown rightly points out, that concept is not to be found in section 7(1) of the Criminal Appeal Act 1968 itself the section specifically providing for the possibility of a retrial on the quashing of a conviction (see para 62 above).
Indeed, it is plain that a retrial will often be appropriate without any of the evidence upon which it is proposed to base it being new and compelling. (In deciding whether a person should be retried, the so called double jeopardy principle clearly carries altogether less weight when the decision arises on the same occasion as the conviction is being quashed than when it arises subsequently i.e. following acquittal either by the jurys verdict or by an earlier successful appeal.) To my mind, however, where, as here, the question whether the interests of justice require a retrial arises in the context of a conviction quashed because of serious executive misconduct, it will always be relevant and may on occasion be decisive to consider whether indeed new and compelling evidence of guilt exists.
This will be so in cases where, despite the but for test not being satisfied (as I judge it to be satisfied here), a balance nevertheless has to be struck between the competing interests in play.
In cases of this sort the nature and extent of the executive misconduct will obviously be highly relevant.
But so too will a number of other considerations including not least the seriousness of the defendants alleged criminality and the strength of the case against him and that will be so no less when an abuse of process application is being made before or during trial than when the question arises on appeal.
It therefore seems to me understandable that in the present case, the extent of police misconduct notwithstanding, the Court of Appeal placed very considerable weight not only upon the gravity of the appellants offending but also upon the strength of the fresh evidence now available against him (although more countervailing importance might perhaps have been attached to the length of time he had already spent in prison as in Early (see para 94 above) and, indeed, to the disparity of outcome of the appeal as between the appellant and his brother).
Certainly, had this not been what I regard as akin to a but for case, I would not myself have been inclined to overturn the judgment below merely by reference to the general question whether the appellants retrial can now properly be regarded to be in the public interest.
Given, however, the but for character of this case and the enormity of the unpunished police misconduct involved, it seems to me quite simply inappropriate that it should now be retried on fresh evidence.
Of course the crime was a grave one.
But so too was Mullens crime.
Unless one is to say that in relation to serious crimes the but for approach is to apply only in the context of wrongful extradition, it is difficult to think of any case where the stay principle would properly be invoked if not here.
Exceptionally, therefore, I would in this case regard the Court of Appeal as having erred in law in their approach to the section 7 power.
I should at this stage note that in the course of argument counsel introduced the Court to a good deal of international jurisprudence and academic commentary on the whole question of abuse of process applications.
I shall not, however, dwell on this: none of it seemed to me especially helpful.
Take the line of Canadian authority, culminating in the Supreme Courts judgments (five justices in the majority, four dissenting) in R v Regan [2002] 1 SCR 297, urged upon us by Mr Perry for the Crown.
I confess to sharing the view about Regan expressed by H A Kaiser in a 2002 article (49 Crim Reps (5th) 74, 85 86) noted by Professor Andrew L T Choo in the second edition (2008) of his work, Abuse of Process and Judicial Stays of Criminal Proceedings, at p132 that: Neither [the majority nor the minority] judgment advances the comprehensibility and predictability of abuse of process and stays of proceedings, especially with regard to the residual category of cases where trial fairness is not implicated. (Though it was perhaps a little harsh of Mr Kaiser at the outset of his article, p74, to describe the judgments in Regan as the Courts recent meanderings.)
So far as this countrys approach is concerned, Professor Choos conclusion (p132) is that: The courts would appear to have left the matter at a general level, requiring a determination to be made in particular cases of whether the continuation of the proceedings would compromise the moral integrity of the criminal justice system to an unacceptable degree.
Implicitly at least, this determination involves performing a balancing test that takes into account such factors as the seriousness of any violation of the defendants (or even a third partys) rights; whether the police have acted in bad faith or maliciously, or with an improper motive; whether the misconduct was committed in circumstances of urgency, emergency or necessity; the availability or otherwise of a direct sanction against the person(s) responsible for the misconduct; and the seriousness of the offence with which the defendant is charged.
It is difficult to disagree.
It may however be possible and helpful to summarise the position a little more specifically as follows. (1) Whenever, executive misconduct notwithstanding, it remains possible to ensure that the defendant can be fairly tried (or, as the case may be, retried), this ordinarily is the result for which the court should aim, making whatever orders short of a permanent stay are necessary to achieve it (or as the case may be, by ordering a retrial). (2) In certain particular kinds of case, however, the but for cases as I have sought to describe and categorise them, even though it would be possible to try (or retry) the defendant fairly, it will usually be inappropriate to do so.
It will be inappropriate essentially because, but for the executive misconduct, either there would never have been a trial at all (as in the wrongful extradition and entrapment cases) or (as in the present case) because the situation would never have arisen whereby the all important incriminating evidence came into existence (which is not, of course, to say that the fruit of the poison tree is invariably inadmissible).
Obviously this is not an exhaustive definition of the but for category of cases and, as the word usually is intended to denote, whether in any particular case a trial (or retrial) has in fact become inappropriate may still depend in part on other considerations too.
Essentially, however, it is the executive misconduct involved in this category of cases which, I suggest, most obviously threatens the integrity of the criminal justice system and where a trial (or retrial) would be most likely to represent an affront to the public conscience. (3) Exceptionally, even in cases of executive misconduct not within the but for category, it may be that the balance will tip in favour of a stay (or, as the case may be, a quashed conviction with no order for retrial), notwithstanding that a fair trial (retrial) remains possible.
With regard to cases of this sort, and as to whether (in Professor Choos language) a trial (retrial) would unacceptably compromise the moral integrity of the criminal justice system, a whole host of considerations is likely to be relevant, including most obviously those which Professor Choo himself lists.
I repeat, however, in my judgment only exceptionally will the court regard the system to be morally compromised by a fair trial (retrial) in a case which cannot be slotted into any but for categorisation.
The risk of the court appearing to condone the misconduct (appearing to adopt the approach that the end justifies the means) prominent in the but for category of cases, is simply not present in the great majority of abuse cases.
Rather, as the Board put it in Panday v Virgil [2008] 1 AC 1386, executive misconduct ought not generally to confer on a suspect immunity from a fair trial (or retrial).
Beyond this general statement of what I believe to be the governing principles in play it is not, I think, possible to go.
For the reasons given earlier in this judgment, however, for my part I would allow this appeal and quash the Court of Appeals order for the appellants retrial.
LORD COLLINS
I agree with Lord Brown that the appeal should be allowed.
Public confidence that the police will act properly and lawfully is one of the cornerstones of democracy.
Without proper police conduct and without public confidence in the honesty of the police, the rule of law and the integrity of the criminal justice system would be seriously undermined.
The certified point of law is whether the Court of Appeal may order a re trial having quashed a conviction on the grounds of serious executive or prosecutorial misconduct, and, if so, in what circumstances.
There is no doubt about the answer to the first part of the question since section 7(1) of the Criminal Appeal Act 1968 gives a discretion to the Court of Appeal to order a re trial if it appears to the Court that the interests of justice so require.
It is not suggested that in the present case the Court of Appeal took into account any irrelevant or impermissible factors, or failed to take into account relevant factors.
The only question is whether in the light of all the circumstances the misconduct is such that the Court of Appeal could have been justified in deciding that the interests of justice required a re trial.
At trial DC Daniels and DC Dunham perjured themselves.
Each of them told the court that all payments to Chapman had been disclosed.
Each of them told the court that Chapman had been quarantined from the case officers.
In 1999 the full Court of Appeal (Criminal Division) adjourned the applications for leave to appeal against conviction to enable the Crown to respond to the grounds of appeal alleging non disclosure, in particular that Chapman had been promised a substantial sum to establish a new identity as part of his reward for giving information and evidence against Maxwell and Mansell.
On the day of the substantive hearing, after hearing evidence on an ex parte PII hearing, the court ruled that it was satisfied that when Chapman came to give evidence in the trial he had no expectation of reward, and consequently his evidence was not tainted in that regard.
That ruling was procured by false evidence.
Two letters were written to the Court of Appeal by senior police officers after consultation with the officers closely involved with the case.
The first letter stated: No discussions were ever made [sic] concerning any monies to be paid to [Chapman] for giving evidence in the Maxwell/Mansell trial.
The second letter stated: A reward of 10,000 was agreed by the West Yorkshire Police Command Team without discussion with Chapman, to be paid after completion of his sentence The Crowns skeleton argument for the Court of Appeal stated: Neither the Crown prosecution Service nor the Police Officers in the case were aware of any reward being paid to Mr Chapman for his evidence in this case.
Detective Sergeant Gray gave evidence that the decision to pay the 10,000 reward to Chapman had been reached without consultation with Chapman and more than a year after he had last given evidence at the trial; and that when Chapman had given his evidence he was not aware of any factor which might have affected the content or quality of his evidence.
Chief Superintendent Holt confirmed that before Chapman gave his evidence there was no discussion or agreement with him in relation to any reward or any benefit for his involvement in this case.
He also gave evidence that he had no idea when the agreement for a reward had been arrived at.
In fact the police had communicated to Chapman their intention to make a substantial payment to him for his co operation in the Yew II investigation (an operation in relation to his allegations against a man called Ford, Maxwell, Mansell, and others) once he had been released from prison.
In addition, as a result of the investigation by the North Yorkshire Police, it turned out that: (1) As a result of his co operation with the police, Chapman and other members of his family received benefits which were concealed from the CPS and counsel. (2) Whilst in police custody Chapman was permitted to visit a brothel, to engage in sexual relations with a woman police constable, to visit public houses, to consume alcohol, cannabis and heroin, to socialise at police officers homes, to enjoy unsupervised periods of freedom, and long periods of leisure in places of his choice as exercise. (4) Luxury items were purchased for him and substantial sums handed to him in cash. (5) He was not proceeded against in respect of a number of violent incidents, including a vicious attack on a fellow prisoner; an alleged rape of his cellmate; an assault in November 1999 on the WPC from whom by then he had split up. (6) Police officers ensured that his police custody records presented a false picture of the facts, and forged a custody record when its enforced disclosure to the defence would otherwise have revealed the truth. (7) Police officers colluded in Chapmans perjury at that trial, intending him throughout his evidence to lie as to how he had been treated and as to what promises he had received, and they lied in their responses to enquiries made of the CPS after conviction.
Of course, the power not to order a re trial should not be used as a form of discipline.
But the interests of justice are not limited to the individual case.
The police misconduct must be seen in the wider context of the preservation of the rule of law, and of public confidence in the criminal justice system.
This is an extreme case.
The murder was indeed a shocking crime.
In my judgment, the level of misconduct is such that the interests of justice demand that, after a conviction procured by such misconduct, and after the accused has served a substantial sentence, and would not have made the admissions but for the conviction so procured, there be no retrial.
I would find that the interests of justice demand the application of the integrity principle.
In this case it means that there should be no re trial on evidence which would not have been available but for a conviction obtained (and upheld) as a result of conduct so fundamentally wrong that for the criminal process to act on that evidence would compromise its integrity.
| UK-Abs | The issue in this appeal is whether the Court of Appeal was right to order a retrial in respect of the appellant.
The circumstances in which a court may order a retrial are set out in section 7(1) of the Criminal Appeal Act 1968, as amended by the Criminal Justice Act 1988, which provides: Where the Court of Appeal allows an appeal against conviction and it appears to the Court that the interests of justice so require, they may order the appellant to be retried.
The appellant and his brother were convicted of murder and two robberies at Leeds Crown Court on 27 February 1998.
The appellant was sentenced to life imprisonment for murder to be served with concurrent twelve year terms for the robberies.
The main prosecution witness was Karl Chapman, a professional criminal and a supergrass.
On 11 June and 13 October 1996 robberies took place at the home of two elderly brothers.
On both occasions the robbers used violence and took money.
On the second occasion, the elder brother sustained injuries to the head which later resulted in his death.
In the ensuing police investigation Chapman provided the police with information and witness statements implicating the appellant and his brother.
They were charged with robbery and murder.
Chapmans evidence was central to the prosecutions case at trial.
He vigorously denied that he was expecting or receiving any benefits from the police for his evidence.
Following the convictions there were allegations in the local press that the police were planning to pay Chapman a large sum of money upon his release from prison.
Subsequently, the Criminal Cases Review Commission (CCRC) decided to investigate.
North Yorkshire Police carried out detailed investigations into the activities of the police which formed the basis of the CCRC report in November 2008.
The findings of the report showed that the police had conspired to pervert the course of justice in concealing and lying about a variety of rewards and benefits received by Chapman.
It was revealed, for example, that the police had paid him sums of money, taken him to brothels, allowed him to consume drugs in their company and not investigated allegations that he had committed violent attacks.
On 25 November 2008 the CCRC made a reference to the Criminal Division of the Court of Appeal on the ground that the convictions had been procured by gross prosecutorial misconduct on the part of the police.
The appellant and his brother remained in prison during this period.
Between October 1998 and September 2004, whilst in prison, the appellant had made a series of admissions of guilt freely and voluntarily to various persons.
On 1 December 2009, the Court of Appeal quashed the convictions of the appellant and his brother.
The findings of the CCRC relating to the gross police misconduct were not challenged.
The court held that had the findings been revealed during the trial, the trial judge might have stayed the prosecution as an abuse of process or applied section 78 of the Police and Criminal Evidence Act 1984 to exclude Chapmans evidence altogether, in which case the appellant and his brother would have been acquitted.
However, the court also held that the admissions made by the appellant between 1998 and 2004 constituted clear and compelling evidence of his guilt.
In light of this the Court of Appeal found that it was in the interests of justice to order a retrial of the appellant.
The Supreme Court dismisses the appeal by a majority of 3:2.
Lord Dyson gives the lead judgment.
Lords Rodger and Mance give short concurring judgments.
Lords Brown and Collins dissent.
On 17 November 2010 the Supreme Court handed down its decision but withheld its reasoning until the completion of the retrial.
On 16 June 2011, in Leeds Crown Court Paul Maxwell pleaded guilty.
By section 7 of the Criminal Appeal Act 1968, as amended, Parliament has given the Criminal Division of the Court of Appeal the power to order a retrial where, having regard to all the circumstances of the particular case, in its view the interests of justice so require.
The interests of justice is not a hard edged concept.
Rather, it requires an exercise of judgment in which a number of relevant factors have to be balanced against each other.
A decision of the Court of Appeal as to whether the interests of justice require a retrial should only be upset on appeal if it was plainly wrong in the sense that it is one which no reasonable court could have made or if the court took into account immaterial factors or failed to take into account material factors: [18] [19].
The majority of cases under section 7 of the 1968 Act do not involve any issue of prosecutorial misconduct.
Indeed, no case was cited where the court had to consider the relevance of prosecutorial misconduct in the original proceedings to the question of whether the interests of justice require a retrial.
Usually, under section 7 the court will consider the gravity of the offence, the length of time the appellant is likely to serve in custody if reconvicted, the appellants age and health, and the wishes of the victim of the alleged offence: [20].
Where prosecutorial misconduct is involved the Court of Appeal may treat the case as to some extent analogous to an application to stay proceedings as an abuse of process where it offends the courts sense of justice and propriety to try the accused.
However, the tests for when the court should stay proceedings for abuse of process and when it should order a retrial are not coterminous.
The question of whether the interests of justice require a retrial is broader than the considerations involved in an application for a stay: [21], [44].
It is common ground that the prosecutions case at a retrial would not be based on any evidence which was the product of the misconduct.
However, the new evidence constitutes admissions made by the appellant which would not have been made but for the original misconduct which led to his conviction.
The Court of Appeal was right to consider that the but for factor was no more than a relevant factor and that it was not determinative of the question whether a retrial was required in the interests of justice.
In deciding whether to order a retrial, there were several relevant factors which had to be weighed in the balance.
The balancing act is fact sensitive and ultimately requires an exercise of judgment.
The Court of Appeal carried out the balancing exercise precisely and with great care.
They held that there were strong reasons for not ordering a retrial given the egregious misconduct by the police.
However, they concluded that the public interest in convicting those guilty of murder prevailed on the facts of this case.
In particular this was because of the gravity of the alleged offence and the existence of new and compelling evidence untainted by the police misconduct.
The fact that a differently constituted Court of Appeal might have come to a different conclusion is not material.
Accordingly, the decision of the Court of Appeal was not plainly wrong and its judgment should not be interfered with: [23] [38], [45] [47], [50] [60].
Lord Brown, with whom Lord Collins agrees, would have allowed the appeal.
They would have held that since the appellant would not have made the admissions but for the prosecutorial misconduct and in light of the enormity of the police misconduct, it is inappropriate that that the case should be retried on new evidence: [102] [105].
|
This case is concerned with a marine insurance policy on cargo dated 5 July 2005, which incorporated the Institute Cargo Clauses (A) of 1 January 1982.
The policy covered all risks of loss or damage to the subject matter insured except as provided in Clauses 4, 5, 6 and 7 Clause 4.4 excluded loss, damage or expense caused by inherent vice or nature of the subject matter insured from the cover provided by the policy.
The subject matter of the insurance was the oil rig Cendor MOPU.
This oil rig had been laid up in Galveston, Texas.
In May 2005 it was purchased by the respondents (the assured under the policy) for conversion into a mobile offshore production unit (MOPU) for use in the Cendor Field off the coast of East Malaysia.
The insurance covered the loading, carriage and discharge of the oil rig on the towed barge Boabarge 8 from Galveston in the United States to Lumut in Malaysia.
The total sum covered was Malaysian Ringgits 38m (US$10m) with a deductible of US$1m.
The premium was US$378,000.
The oil rig, originally called the Odin Liberty, was built in Singapore in 1978.
It is what is called a self elevating mat supported jack up rig, consisting of a watertight working platform called the jackhouse, which can be moved (jacked) up and down three legs extending to the seabed, according to the sea depth at the drilling location.
There is a mat at the bottom of the legs that sits on the seabed when the rig is in operation.
The legs are massive tubular structures, made of welded steel cylindrically shaped, with an outside diameter of 12 feet and a length of 312 feet.
Each weighed 404 tons.
The jacking system worked by engaging steel pins into what were called pinholes in the legs.
These pinholes were apertures some 16 inches wide and 10 inches high.
Each leg had 45 sets of pinholes at 6 foot intervals.
The rig was carried on the barge with its legs in place above the jackhouse, so that the legs extended some 300 feet into the air.
The voyage began on 23 August 2005.
On 10 October 2005 the tug and barge arrived at Saldanha Bay, just north of Cape Town.
There some repairs were made to the legs and the voyage resumed on 28 October.
North of Durban on the evening of 4 November 2005, the starboard leg broke off at the 30 foot level and fell into the sea.
The following evening the forward leg broke off at the same level, and some 30 minutes later the port leg broke off at the 18 foot level.
Both these legs also fell into the sea.
It is the loss of the three legs that is the subject matter of the claim under the policy.
The loss resulted from metal fatigue in the three legs.
Fatigue is a progressive cracking mechanism resulting from repeated or fluctuating (cyclic) stresses each at a level lower than that required to cause fracture of an uncracked component.
Generally, there are three stages to the fatigue failure of any component, namely initial cracking, propagation of the cracking and finally complete fracture.
The initial cracking occurs in regions of stress raising features, such as corners or notches, where stresses are concentrated.
In the present case, the corners of the pinholes were stress raising features.
The initial fatigue cracks occurred there and then propagated until they reached a point where they were subjected to what was described as a leg breaking stress that completely fractured the weakened leg.
Once the first leg had failed, the stresses on the remaining legs increased.
The stresses in the present case were generated from the effect that the height and direction of the waves had on the pitching and rolling motion of the barge and thus on the legs.
It was common ground that what the barge experienced was within the range of weather that could reasonably have been contemplated for the voyage.
That the legs of the rig were at risk of fatigue cracks during the voyage was known from the outset and the legs were inspected at Galveston by experts appointed by the assured and approved by the insurers.
It was a condition of the policy that the appointed surveyors Noble Denton approved the arrangements for the tow.
These surveyors issued a Certificate of Approval on 23 August 2005.
In this certificate they required that the legs be reinspected when the barge reached Cape Town (roughly the half way point) for crack initiation in way of the six levels of pinholes above the mat; so that remedial work could be undertaken should it be found necessary.
When the rig was examined at Saldanha Bay it was found that there had occurred a considerable degree of fatigue cracking around the pinholes; and some repairs were made in order to reduce the stress concentrations in these areas.
Self evidently, however, the repairs did not prevent the final failure of the legs a few days later.
The insurers rejected the claim for the loss of the legs and the matter came for trial before the Commercial Court.
At the trial one of the arguments advanced by the insurers was that the loss was the inevitable consequence of the voyage, and that since insurance was against risks, not certainties, they were under no liability for the loss of the legs.
The judge, Blair J, [2009] 2 All ER (Comm) 795, rejected this argument, concluding at para 87 that the failure of the legs as this rig was towed round the Cape was very probable, but it was not inevitable.
As he put it: a developed crack would not, on its own, have been sufficient to cause one of the legs to come off.
That required in addition a leg breaking or final straw stress that finally fractured the weakened steel.
As Mr Colman [one of the experts called at the trial] put it, youve got to catch it just right, if you want to make it actually fail all the way round.
The insurers do not challenge the judges conclusion.
One of the arguments advanced by the assured at the trial was that the loss resulted from the failure to effect adequate repairs at Saldanha Bay.
This argument too was rejected by the trial judge, on the grounds that the loss occurred despite the repairs and not because of them.
The assured does not challenge this conclusion.
What Blair J decided was that the insurers had proved that the proximate cause of the loss was the fact that the legs were not capable of withstanding the normal incidents of the insured voyage from Galveston to Lumut, including the weather reasonably to be expected.
In his judgment this meant that the cause of the loss was inherent vice within the meaning of the policy and that accordingly the insurers were not liable for the claim.
The Court of Appeal [2010] 1 Lloyds Rep 243, para 64 took a different view and concluded that the proximate cause of the loss was an insured peril in the form of the occurrence of a leg breaking wave, which resulted in the starboard leg breaking off, leading to greater stresses on the remaining legs, which then also broke off.
The insurers now appeal to the Supreme Court.
Both at first instance and in the Court of Appeal, the judges expressed their task as seeking to find the proximate cause of the loss.
The reason for this is to be found in the Marine Insurance Act 1906, which was entitled An Act to codify the Law relating to Marine Insurance.
Section 55(1) of this Act provides that: Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but, subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against.
In general terms therefore, whether or not a loss is covered by a marine
policy depends on ascertaining its proximate cause.
Although there were some authorities before the Marine Insurance Act 1906 that appeared to proceed upon the basis that the relevant cause was that closest in time to the loss, it is now well settled that this is not the test for proximate cause: Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350.
The proximate cause is that which is proximate in efficiency; and, as Bingham LJ put it in T M Noten BV v Harding [1990] Lloyds Rep 283, 286 287: Unchallenged and unchallengeable authority shows that this is a question to be answered applying the common sense of a business or seafaring man.
It was common ground between the parties that it was for the insurers to prove that the loss was proximately caused by inherent vice or nature of the subject matter insured.
The central issue before this court was as to the meaning of this exception to the cover.
Although in the present case, as pointed out above, this exception is spelt out in the Institute Cargo Clauses, it also appears in section 55(2)(c) of the Marine Insurance Act 1906, which provides: Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject matter insured, or for any loss proximately caused by rats or vermin, or for any injury to machinery not proximately caused by maritime perils.
It is not suggested that the exception under consideration bears a different meaning from that in the Marine Insurance Act 1906, though if there are two proximate causes, one of which is covered and the other which is (as here) specifically excepted, it appears settled that the loss is not recoverable under the insurance: Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corpn Ltd [1974] QB 57; J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987] 1 Lloyds Rep 32.
In the present case the two remaining candidates for proximate cause are perils of the seas, in the form of the stresses put upon the rig by the height and direction of the waves encountered by the barge, and inherent vice or nature of the subject matter insured.
Both parties to this appeal relied upon the definition of inherent vice or nature of the subject matter insured given by Lord Diplock in Soya GmbH Mainz Kommanditgesellschaft v White [1983] 1 Lloyds Rep 122.
In that case a cargo of soya beans was insured against risks of heating, sweating and spontaneous combustion.
The goods arrived in a heated and deteriorated condition.
The insurers denied liability on the grounds that the proximate cause of the damage was inherent vice or nature of the subject matter insured, for which they were not liable under section 55(2)(c) of the Marine Insurance Act 1906; and that the cover only extended to heating, sweating or spontaneous combustion brought about by some external cause.
The House of Lords decided that as a matter of construction the policy did otherwise provide within the meaning of the opening words of section 55(2)(c) so that the perils of heating, sweating and spontaneous combustion arising from inherent vice or nature of the subject matter insured were covered.
It was in this context that Lord Diplock, at p 126, stated that: This phrase (generally shortened to inherent vice) where it is used in section 55(2)(c) refers to a peril by which a loss is proximately caused; it is not descriptive of the loss itself.
It means the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty.
The insurers submitted that applying this definition to the present case, the first question was whether at Galveston, assuming the ordinary course of the contemplated voyage, without any intervening adverse fortuity, the rig had within itself internally the risk of deterioration, which they described as the inherent vice at Galveston; while the second question was whether the inherent vice at Galveston was the proximate or one of the proximate causes of the loss.
They submitted that Lord Diplock had made it clear that it was not enough to negative inherent vice to have some external fortuity.
The external fortuity had to intervene so that it negatived causation of the loss by the unfitness of the goods which existed on shipment.
In the present case, it was submitted, the actual sea conditions, albeit themselves fortuities, were within the range that could reasonably have been contemplated for the voyage.
In other words, it was submitted that those sea conditions occurred in and as part of the ordinary course of the contemplated voyage.
The submission was, therefore, that there had been no intervention of any fortuitous external accident or casualty, so that the loss was proximately caused by the inherent vice at Galveston.
The insurers sought support for these submissions from some passages from the judgment of Donaldson LJ in the court below in the same case ([1982] 1 Lloyds Rep 136, 150); from the decision of the Court of Appeal in T M Noten BV v Harding [1990] 2 Lloyds Rep 283; and from the decision of the British Columbia Court of Appeal in Nelson Marketing International Inc v Royal and Sun Alliance Insurance Co of Canada (2006) 57 BCLR (4th) 27.
There is nothing to suggest that Lord Diplock was in agreement with the definition of inherent vice suggested by Donaldson LJ, namely that a loss is proximately caused by inherent vice if the natural behaviour of the goods is such that they suffer a loss in circumstances in which they are expected to be carried.
Such a definition pays scant regard as to how and in what circumstances the loss occurred.
In T M Noten BV v Harding [1989] 2 Lloyds Rep 527; [1990] Lloyds Rep 283 industrial leather gloves were shipped from Calcutta to Rotterdam.
On arrival the good were found to be wet, stained, mouldy and discoloured.
The judge at first instance (Phillips J) decided that the damage had been caused by moisture, which had been absorbed by the goods in the humid atmosphere of Calcutta and had then evaporated and condensed on the top of the container, before falling back on the goods and damaging them.
Phillips J decided that the proximate cause of the damage was external to the goods, even if a characteristic of the goods had helped to create that external cause; and that accordingly the defence of inherent vice failed.
The Court of Appeal overruled this decision.
As already observed, it was in this case that Bingham LJ made clear that the ascertainment of the proximate cause was a question to be answered applying the common sense of a business or seafaring man.
The answer that the Court of Appeal gave was that the goods deteriorated as a result of their natural behaviour in the ordinary course of the contemplated voyage, without the intervention of any fortuitous external accident or casualty.
The damage was caused because the goods were shipped wet.
It is noteworthy that in that case it was accepted on behalf of the assured that if the damage complained of had been caused by excessive moisture in the gloves, but without the intervening process of condensation on the roof of the containers, the position would have been different.
Bingham LJ described this suggested distinction as owing more to the subtlety of the legal mind than to the commonsense of the mercantile.
This case therefore is one where, applying commonsense, the proximate cause of the damage was the moisture in the cargo, and the fact that it evaporated from the cargo before condensing and falling back on the cargo was neither here nor there.
There was, as Bingham LJ pointed out, no untoward or unusual event of any kind.
It was not unusually hot in Calcutta or particularly cold in Rotterdam.
There was, on the evidence, no combination of fortuitous events, and the defendant never undertook to insure the plaintiffs against the occurrence of hot and humid weather in Calcutta during the monsoon.: p 289.
The British Columbia Court of Appeal in Nelson Marketing International Inc. v Royal and Sun Alliance Insurance Co of Canada 57 BCLR (4th) 27 followed this decision in a case where shipments of laminated truck flooring were damaged by moisture absorbed by the flooring in the course of manufacture, which on the voyage had evaporated and condensed in circumstances which were not established to be other than what was expected in the ordinary course of the voyages in question.
There was no fortuitous external occurrence causing the deterioration.
As Lowry JA put it, at p 35: Rather, on the evidence adduced, it was attributable to the nature of the subject matter of the insurance.
In the two cases under discussion, there was simply no external fortuitous event or series of events which could sensibly be described as the proximate cause of the damage.
In my judgment these cases do not provide authority for the proposition that inherent vice or nature of the subject matter insured is established by showing that the goods in question were not capable of withstanding the normal incidents of the insured voyage, including the weather reasonably to be expected.
What they do establish is that where the only fortuity operating on the goods comes from the goods themselves, the proximate cause of the loss can properly be said to be the inherent vice or nature of the subject matter insured and so (in the absence of provisions to the contrary) falls outside the cover.
However, the case that is authority for the proposition contended for by the insurers is the decision of Moore Bick J in Mayban General Insurance v Alstom Power Plants Ltd [2004] 2 Lloyds Rep 609.
In that case the cargo was a transformer, which was seriously damaged by the violent movements of the vessel due to the action of the wind and sea.
However, Moore Bick J held that goods tendered for shipment must be capable of withstanding the forces that they can ordinarily be expected to encounter in the course of the voyage and that if the conditions encountered by the vessel were no more severe than could reasonably have been expected, the conclusion must be that the real cause of the loss was the inherent inability of the goods to withstand the ordinary incidents of the voyage.
The judge went on to find that the conditions encountered were neither extreme nor unusual in the sense that they were encountered often enough for mariners to regard them as a normal hazard.
He accordingly held that the insurers were not liable for the damage, since the cover excluded loss damage or expense caused by inherent vice or nature of the subject matter insured.
In the present case Blair J regarded this case as applying the correct test; the Court of Appeal declined to do so.
In my judgment Mayban General Insurance v Alstom Power Plants was wrongly decided.
It should be noted that it was apparently common ground between the parties to that case that an inability of the cargo to withstand the ordinary perils of the seas amounted to inherent vice, so that the meaning of inherent vice was not argued out.
Furthermore, none of the authorities on the meaning of perils of the seas was cited to the judge.
The assured submitted, in my judgment correctly, that the effect of applying the test adopted by Blair J would be to reduce much of the purpose of cargo insurance, for the cover would then only extend to loss or damage caused by perils of the seas that were exceptional, unforeseen or unforeseeable, and not otherwise.
This, it was submitted, would go far to frustrate the very purpose of all risks cargo insurance, which is to provide an indemnity in respect of loss or damage caused by, among other things, all perils of the seas.
Blair J rejected this submission on the grounds that the real question was as to the proximate cause of the loss; and that the approach of Moore Bick J did not entail that in order to qualify as a peril of the sea, the weather had to be extraordinary.
However, although of course the proximate cause of the loss or damage is indeed the real question, this does not to my mind answer the point made by the assured, which is that on the test adumbrated by Moore Bick J, the assured is not covered in respect of loss or damage to cargo caused by unexceptional or foreseen or foreseeable perils of the seas.
Put another way, the ordinary form of all risks cargo insurance would, if Moore Bick J was right, not provide cover for losses attributable to the unseaworthiness of the cargo ie loss or damage caused by the inability of the cargo to withstand the ordinary perils of the seas.
The reasons for this are as follows.
According to section 39 of the Marine Insurance Act 1906, seaworthiness means reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured.
The meaning of perils of the seas in the Act is contained in the Rules for construction of policy contained in Schedule 1, where the phrase is defined as referring only to fortuitous accidents or casualties of the seas.
It does not include the ordinary action of the winds and waves.
Thus section 55(2)(c) of the 1906 Act (and the Institute Cargo Clauses) make clear that ordinary wear and tear caused by the sea (or otherwise) is something for which the insurer does not provide cover.
It is to be noted that the word ordinary attaches to action not to wind and waves, so that if the action of the wind or sea is the proximate cause of the loss, a claim lies under the policy notwithstanding that the conditions were within the range which could reasonably have been anticipated: the Miss Jay Jay [1985] 1 Lloyds Rep 264, 271.
Section 39 of the 1906 Act implies a warranty into a policy covering a vessel for a voyage, that at the beginning of the voyage the vessel shall be seaworthy for the purpose of the particular adventure insured.
The effect of the warranty is that if the vessel is not seaworthy the insurer is not liable for any loss or damage, whether or not that was proximately caused by the unseaworthiness.
In a time policy there is no such implied warranty, though under section 39(5) where the ship is sent to sea in an unseaworthy state with the privity of the assured, the insurer is not liable for any loss attributable to unseaworthiness.
Of course, as Mustill J pointed out in the Miss Jay Jay, at p 272, where an unseaworthy vessel sinks entirely through its own inherent weakness, rather than from the operation of a peril of the seas which it should have been able to withstand, the insurer will also not be liable.
As to goods, section 40(1) of the 1906 Act provides that in a policy on goods or other moveables there is no implied warranty that the goods or moveables are seaworthy.
Although seaworthiness is not defined in this section, there is no reason to suppose that it bears a different meaning from that in section 39: E D Sassoon & Co v Western Assurance Co [1912] AC 561.
Under the 1906 Act therefore, the fact that the goods are not reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured, does not automatically deprive the assured of cover.
There is no equivalent to the provisions relating to time policies, where loss or damage attributable to unseaworthiness at the outset known to the assured is excluded.
The provisions of the 1906 Act do not fit easily with the proposition that inherent vice or nature of the subject matter insured means that unseaworthy goods are not covered against loss or damage attributable to that unseaworthiness.
The effect of that proposition would be that whereas the ship owner under a time policy would be covered against loss attributable to the unseaworthiness of the vessel at the outset to which he was not privy, the cargo owner would not be covered against loss attributable to unseaworthiness of the cargo, whether or not he was privy to the fact that the cargo was unseaworthy.
There is nothing in the 1906 Act or in the preceding authorities which to my mind lends support to such a distinction.
Furthermore, if inherent vice or nature of the subject matter insured did include unseaworthiness, then, contrary to section 39(5), the insurer could escape liability under a time policy for loss and damage attributable to unseaworthiness even if the assured was not privy to that unseaworthiness.
Our attention was drawn to a number of authorities relating to the meaning of perils of the seas, as well as other cases relating to the question of inherent vice or nature of the subject matter insured.
I can find nothing in those authorities which lend support to the test applied by Blair J.
On the contrary, cases such as Canada Rice Mills Ltd v Union Marine and General Insurance Co Ltd [1941] AC 55 and the Miss Jay Jay make clear that perils of the seas are not confined to cases of exceptional weather or weather that was unforeseen or unforeseeable; while inherent vice or nature of the subject matter insured has never (before the decision in Mayban [2004] 2 Lloyds Rep 609) previously been defined as encompassing any fortuitous external accident or casualty that was unexceptional or foreseen or foreseeable.
In these circumstances I do not accept the construction put by the insurers on the definition given by Lord Diplock in Soya v White [1983] 1 Lloyds Rep 122, 126.
In my judgment what Lord Diplock was saying, as the assured submitted, was that where goods deteriorated, not because they had been subjected to some external fortuitous accident or casualty, but because of their natural behaviour in the ordinary course of the voyage, then such deterioration amounted to inherent vice or nature of the subject matter insured.
As already noted, Blair J held that the real question was as to the proximate cause of the loss.
In this he was correct.
The question is one of fact, to be decided on common sense principles.
Where in my view the judge erred was in giving the phrase inherent vice or nature of the subject matter insured too wide a meaning and, as the other side of the coin, giving the risk of perils of the seas too narrow a meaning, by in effect including in the former and excluding from the latter external fortuities that were unexceptional or which were foreseen or foreseeable; and then answering the question of fact on this erroneous basis.
All or virtually all goods are susceptible to loss or damage from the fortuities of the weather on a voyage; this does not mean that such loss or damage arises from the nature of the goods; it arises from the fact that the goods have encountered one of the perils of the seas.
In my judgment in the present case the proximate cause of the loss, applying commonsense principles, was not inherent vice nor indeed ordinary wear or tear or the ordinary action of the wind and waves, but an external fortuitous accident or casualty of the seas.
This took the form of the rolling and pitching of the barge in the sea conditions encountered catching the first leg at just the right moment to produce stresses sufficient to cause the leg to break off, thereby leading to increased stresses on the remaining legs and their subsequent breakage.
It remains to note that if, as the insurers submitted, and Blair J held, the proximate cause of the loss was inherent vice because the legs were not capable of withstanding the normal incidents of the insured voyage from Galveston to Lumut, including the weather reasonably to be expected, it difficult to see how the case could be one where there were two proximate causes, since ex hypothesi it would be the inability of the legs to withstand the stresses, not the stresses themselves, that would be the proximate cause.
Thus in my judgment this is not a case in which it could be concluded that there was more than one proximate cause of the loss.
For these reasons I would dismiss this appeal.
LORD MANCE
Introduction
In the Victorian era, the proximate cause in marine insurance was readily associated with the last cause in point of time: see eg Thompson v Hopper (1856) 6 E & B 172, 937; Dudgeon v Pembroke (1877) 2 App Cas 284; in the parallel bill of lading context, Thomas Wilson, Sons & Co v Owners of the cargo per the Xantho (The Xantho) (1887) 12 App Cas 503, 514, per Lord Bramwell; J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987] 1 Lloyds Rep 264, 271 per Mustill J, as well as Fault and Marine Losses [1988] LMCLQ 310 (Sir Michael Mustill).
The modern focus on the real efficient cause was finally established at the highest level after the enactment of the Marine Insurance Act 1906, in Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350.
From that moment, the proximate cause became a matter of judgment and less easy to identify with certainty.
Lord Saville has outlined the facts.
On the present appeal, the rival candidates as cause of the loss of the three legs of the oil rig Cendor MOPU are, on the one hand, a fortuitous external accident or casualty falling within the concept of all risks of loss or damage in clause 1 of the relevant Institute Cargo Clauses (A) (the respondent insureds case) and, on the other hand, inherent vice of the rig within clause 4.4 of the Clauses (the appellant insurers case).
In the alternative, if both can and should be regarded as concurrent causes, insurers submit that the respondents claim must fail, because clause 4.4 is a specific exclusion.
This point may not have been clearly identified below, but it is essentially one of law, and insurers are in my view entitled to argue it.
By inherent vice, insurers do not mean some characteristic of the rig which was bound to lead to the loss of its legs.
Inevitability is not the test of inherent vice, just as lack of inevitability is no proof of a fortuitous external accident or casualty.
Inevitability is excluded in this case by Blair Js finding that the failure and consequent loss of the legs was, although very probable, . not inevitable ([2009] 2 All ER (Comm) 795, paras 89 and 104).
So it is unnecessary to discuss whether and to what extent there exists a further principle of insurance law, that loss which is inevitable is irrecoverable.
If both parties know that loss is inevitable, there may be no risk or insurance at all, although in endowment insurance the risk lies in the uncertainty when death will occur.
If the assured alone knows that the loss is inevitable, one would expect him to fail, if only on grounds of non disclosure.
If neither party knows, then inevitability resulting from inherent characteristics of the goods will, in the absence of express provision, bar recovery on the grounds of inherent vice.
Whether inevitability resulting from outside causes will do so seems an open question.
Would it be an answer to war risks insurers to prove that an insurance on cargo was placed at a time when the cargo was already on an aircraft in flight with a timed bomb due to go off in ten minutes in its cargo hold? Such questions do not require further examination here.
Putting insurers case at its highest, it may be argued that, because the insured rig was unable to withstand all bad weather conditions which it would foreseeably meet during the insured venture, the assured cannot recover in respect of the resulting loss of or damage to the rig legs.
If presented as a rule of law or even of evidence, this would make lack of fitness for the insured venture (or lack of cargoworthiness) a condition precedent to recovery for loss or damage which would not have been suffered had the goods been fit for the venture.
This would be a coherent thesis, but it finds possible support in only one decision, and that recent: Mayban General Insurance Bhd v Alstom Power Plants Ltd [2004] 2 Lloyds Rep 609 (Moore Bick J).
Its acceptance would place a stringent limit on the scope of marine insurance cover, which could not infrequently lead to disputes about the fitness of cargo to travel, and leave CIF buyers in doubt about whether to look to their insurers or sellers or both, quite possibly in different fora.
Mindful no doubt of this, Mr Steven Gee QC does not advance any so definite proposition of law.
In his submission, unfitness for the foreseeably bad weather conditions on the voyage is no more than a powerful pointer towards a conclusion that loss or damage occurring as a result of such conditions was proximately caused by inherent vice.
When Moore Bick J said in Mayban, at para 21, that, if the conditions encountered by the vessel were no more severe than could reasonably have been expected, then the conclusion must be that the real cause of the loss was the inherent inability of the goods to withstand the ordinary incidents of the voyage, he had in context only been stating a commonsense conclusion.
In every such case, it was a matter of evidence and judgment whether the loss or damage was due to the peril of the sea or the inherent characteristic or vice of the cargo or both.
Here, Blair J had taken that approach and had found that, Taking the evidence as a whole, . the proximate cause of the loss was the fact that the legs were not capable of withstanding the normal incidents of the insured voyage , including the weather reasonably to be expected (para 111).
There was no basis upon which to disturb this assessment of the facts.
The Marine Insurance Act 1906
The statutory background includes provisions dealing directly with the fitness of the vessel in the case of hull insurance (section 39) and of the goods and carrying vessel in the case of cargo insurance (section 40).
Section 40(1) provides that that there is no implied warranty that the goods or moveables insured are seaworthy, while section 40(2) provides that there is an implied warranty that the carrying ship is, at the commencement of the voyage, not only seaworthy as a ship, but also reasonably fit to carry the goods or moveables to the contemplated destination.
The historical origins and rationale of these differing approaches need not detain us, though, looking at them through modern eyes, one could suggest reasons why they might have been framed in a reverse sense, ie to have provided for a warranty of the goods seaworthiness and no warranty of the ships seaworthiness.
However that may be, modern cargo clauses very substantially modify section 40(2), providing (in the case of the present Clauses) by clause 5(2) that insurers waive any breach of the implied warranties which section 40(2) contains, unless the assured or their servants are privy to such [un]seaworthiness or unfitness, and for good measure also excluding by clause 5(1) any loss or damage arising from unseaworthiness or unfitness of the vessel at the time of loading of the insured goods where the assured or their servants are so privy.
In circumstances where the Act addresses the subject of initial unseaworthiness or unfitness of both the goods and the carrying vessel by express provisions, but leaves the parties free to vary and supplement such provisions as they may wish, it might be thought odd if such unseaworthiness or unfitness could also be a direct test of insurers liability for any particular loss or damage under the separate heading of inherent vice, dealt with in section 55(2)(c).
The answer advanced by Mr Gee for the insurers is that there is a great difference between a warranty, which, from the moment of its breach, discharges from all liability for any loss or damage whether or not causatively linked (Bank of Nova Scotia v Hellenic Mutual War Risks Underwriting Association (Bermuda) Ltd (The Good Luck) [1992] 1 AC 233) and a qualification or exclusion which only affects loss or damage arising from the matters covered by the qualification or exclusion.
A historical riposte might then be that the famously and sometimes unfairly stringent principles governing insurance warranties were themselves the product of the Victorian view of causation referred to in para 56 of this judgment.
If the only relevant cause is the last cause in time, then a prior breach of a simple contractual obligation regarding fitness could have been regarded as irrelevant.
Hence, the development of the concept of a warranty which, if broken, automatically discharged from liability for loss or damage, irrespective of how such loss or damage was in law to be regarded as caused.
Even prior to the 1906 Act, however, it is clear that thinking had developed in at least some areas.
In case of deliberate casting away, the law looked behind the immediate cause of loss.
Another, more relevant here, instance is crystallised in section 39(5), providing that, in a time policy on a ship, there is no implied warranty of seaworthiness at any stage of the adventure, but that, where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness.
The Act thus recognised in relation to hull insurance the possibility of excluding liability for what would otherwise have been loss or damage by the immediate cause of a peril of the sea, where the loss or damage could, more remotely, be attributed to unseaworthiness of the vessel to which the assured was privy.
When the Act was passed, the language loss attributable to unseaworthiness catered for the Victorian reluctance to look behind the last cause in time to any previous cause.
How far the word attributable now allows regard to be had to causes which would, under modern conceptions, not be regarded as proximate appears undecided, and may in turn depend upon how far modern conceptions of proximity can, in cases of unseaworthiness, lead the eye back beyond the immediate cause to initial unseaworthiness as the real, dominant or effective cause.
That is of course the essential issue in this case.
However, it can, I think, still be said that the express treatment of the subject of seaworthiness in hull insurance in section 39(5) highlights the absence of any like provision in respect of cargo insurance and so the oddity of treating section 55(2)(c) as, in effect, containing such a provision when it refers to inherent vice.
The oddity is further highlighted under the present Clauses, when one considers the careful restriction in clauses 5.1 and 5.2 of the relevance of breaches of the implied warranties of seaworthiness and fitness of the vessel to circumstances where the assured was privy to such breaches.
Under the rules for the construction of an SG policy in the form set out in Schedule 1 to the 1906 Act or other like form: The term perils of the seas refers only to fortuitous accidents or casualties of the seas.
It does not include the ordinary action of the winds and waves.
The present policy was not in or in like form to the SG policy form, but it covered only fortuitous accidents or casualties, not the ordinary action of the winds and waves or other elements: T M Noten BV v Harding [1990] 2 Lloyds Rep 283 (see further paras 62 63 below).
The term inherent vice, introduced in section 55(2)(c) to define the scope of marine cover, is not statutorily defined, but Mr Gee relies upon the definition advanced by Lord Diplock in Soya GmbH Mainz Kommanditgesellschaft v White [1983] 1 Lloyds Rep 122, 126: It means the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty.
Under this definition, the critical questions are what are meant by the ordinary course of the contemplated voyage and the intervention of any fortuitous external accident or casualty.
Mr Gee submits that the ordinary course of the contemplated voyage includes all foreseeable weather conditions; on this basis, the triggering by foreseeably bad weather of goods unfitness for the insured adventure, giving rise to loss or damage of the goods, occurs in the ordinary course of the voyage, and there is nothing that can or should be described as a fortuitous external accident or casualty.
Mr Gordon Pollock QC for the assured submits, in contrast, that, if goods are lost by what would otherwise be an insured peril, in particular a peril of the seas, then there is a fortuitous external accident or casualty and, by the same token, an event outside the ordinary course of the contemplated voyage.
It is, he submits, no answer to this that the fortuity consisted in weather conditions of a foreseeably unfavourable kind, which the goods were not fit to withstand.
It will be observed that, applied to Lord Diplocks definition: (i) Mr Gees submission would effectively reintroduce the idea of a condition precedent of fitness, which (as I have noted in paras 52 53 above) Mr Gee actually disclaims, while (ii) Mr Pollocks submission effectively means that any intervening fortuitous external accident or casualty will preclude a conclusion that inherent vice was the cause of loss, a submission which does not reconcile with the Court of Appeal authority of J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987] 1 Lloyds Rep 32.
The danger of treating judicial dicta as if they constituted statutory definitions is well known, and it will be necessary to consider intermediate possibilities between these two positions.
The case law
It is clear from Lord Diplocks language (risk of deterioration) in Soya v White, [1983] 1 Lloyds Rep 122, 126, from the subject matter of that case and from authority cited to the House in it (identified by Mr Gees diligent research from the printed case prepared by Robert Alexander QC and Bernard Rix for insurers) that the focus there was on the simple case of cargo having some inherent tendency on shipment which simply manifested itself under ordinary conditions of carriage, for example a tendency to effervesce and generate the fire which consumed it (Boyd v Dubois (1811) 3 Camp 133).
In such a case, there is nothing more than the development of the cargos inherent characteristic.
Such a case was clearly also in the forefront of the courts mind in Koebel v Saunders (1864) 17 CB (NS) 71, where Willes J said, at p 78, that in the case of an insurance on goods, it is no answer to say that they were in an unfit condition to be shipped, unless it is shewn that the loss arose from that unfitness.
Byles J, at p 79, described the more ordinary instances of loss of goods by some inherent vice or weakness as consisting of fruit, flour, or rice, which are liable to heat or perish on the voyage.
But he also referred to the less ordinary instances of tender animals unfit to bear the agitation of the sea, gun cotton, or the like.
Mr Gee relies upon Byles Js reference to tender animals unfit to bear the agitation of the sea as indicating that inherent vice includes unfitness to withstand foreseeably unfavourable weather conditions.
This puts too much weight on a passing reference.
It is not clear that by the agitation of the sea, Byles J had anything in mind beyond the ordinary action of the wind and waves.
If he did, his dictum stands in contrast with the decisions in Lawrence v Aberdein (1821) 5 B & Ald 107 and Gabay v Lloyd (1825) 3 B & C 793.
In both cases, recovery was allowed in respect of death of or injury to animals violently occasioned by storm and consequent agitation of the seas.
An exception warranted free from mortality was interpreted as excluding only indirect loss from natural causes which could, but for such a warranty, have been treated as produced by perils of the seas, for example being driven off course with consequent exhaustion of the ships provisions leading to the animals starvation.
The court noted that insurers contrary suggestion largely undermined the point of taking out any insurance on the animals at all.
Not surprisingly, there was no suggestion in either of these cases that the death was due to the animals own inability to withstand the voyage.
Each side can draw some possible support for their respective positions from N E Neter & Co Ltd v Licenses and General Insurance Co Ltd [1944] 1 All ER 341.
A cargo of casks and bags of china clay out turned damaged, as a result of the stoving in of the casks on a voyage during which there had been heavy weather.
Tucker J dismissed the claim on the ground that the plaintiffs had not proved that the proximate cause of the loss was the rough weather.
It appeared to him equally consistent with defects in the casks, accidents during loading, bad stowage, rough weather, or accidents during or after discharge (p.343).
But he went on to say that, had it been shown to be the heavy weather, he would have held there to have been a loss by perils of the sea, even though there was nothing abnormal or unexpected in the weather on such a voyage in the month in which it occurred.
He said: Having regard to Thames and Mersey Marine Insurance Co Ltd v Hamilton, Fraser & Co (1887) 12 App Cas 484, the Xantho case (1887) 12 App Cas 503, and Hamilton, Fraser & Co v Pandorf & Co (1887) 12 App Cas 518, and the recent Privy Council decision in Canada Rice Mills, Ltd v Union Marine and General Insurance Co Ltd [1941] AC 55, I think it is clearly erroneous to say that, because the weather was such as might reasonably be anticipated, there can be no peril of the seas.
There must, of course, be some element of the fortuitous or unexpected to be found somewhere in the facts and circumstances causing the loss, and I think such an element exists when you find that properly stowed casks, in good condition when loaded, have become stoved in as a result of the straining and labouring of a ship in heavy weather.
It is not the weather by itself that is fortuitous; it is the stoving in due to the weather, which is something beyond the ordinary wear and tear, of the voyage.
This appears to me to be something which could not be foreseen as one of the necessary incidents of the adventure.
It was an accident which might happen, not an event which must happen, to quote the language of Lord Herschell in the Xantho.
The general description of perils of the sea assists Mr Pollock, but the dictum that on the facts the stoving in of the casks was due to such a peril, they being in good condition when loaded is consistent with Mr Gees case for insurers.
It may be regarded as a precursor of the reasoning and decision in Mayban [2004] 2 Lloyds Rep 609.
In contrast, I do not think that Donaldson LJs remarks about inherent vice in Soya v White [1982] 1 Lloyds Rep 136, 150 on which Mr Gee also relied, bear or assist on the present issue.
I agree in this respect with what Lord Clarke says in paras 123 125.
Insurers rely strongly on T M Noten BV v Harding [1990] 2 Lloyds Rep 283, a case of all risks insurance on the Institute Cargo Clauses (All Risks).
The decision shows that inherent vice can embrace a predisposition to injury by a train of events that is, firstly, not purely internal and, secondly, depends upon a combination of external events that it foreseeable, but by no means certain to occur.
Lack of inevitability is, as I have said (para 51 above), no proof that there was in the insurance sense a fortuitous external accident or casualty.
The damage to the gloves in Noten occurred because, on loading in their cartons into their container, they had a moisture content reflecting the humidity of the Calcutta atmosphere, and because the container was in Rotterdam discharged into a markedly colder atmosphere, where it cooled, setting up convection currents within the container which carried moist air from the gloves to the container roof where the air condensed, falling back down in droplets onto the cartons of gloves and damaging them.
The Court of Appeal held that there was no untoward or unusual event of any kind, no combination of fortuitous events, and the defendant never undertook to insure the plaintiffs against the occurrence of hot and humid weather in Calcutta during the monsoon (p 289, per Bingham LJ).
The same thought was expressed by Roche J in Whiting v New Zealand Insurance Co Ltd (1932) 44 Lloyds Rep 179, 180, when he said: Moist atmosphere is not an accident or incident that is covered.
It is more or less a natural test or incident which the goods have to suffer and which the underwriter has not insured against.
That being so, the insurers submit that there was also nothing unusual about the weather conditions or leg breaking wave in this case, and the real cause of the loss of the three legs was their unfitness to withstand weather conditions which were ordinary and foreseeable incidents of the insured voyage.
In Noten v Harding [1990] 2 Lloyds Rep 283 the damage occurred in conditions and a way which were both foreseeable and entirely ordinary.
The damage was not covered because the conditions under which it occurred were entirely ordinary atmospheric conditions, the gloves essentially damaged themselves under such conditions through their own moisture content, and it was not sensible to describe them as having sustained any fortuitous external accident or casualty at all in the sense required under all risks cover.
In the present case, the gradual exhaustion of the legs fatigue strength under the ordinary action of wind and waves during the voyage and the consequent development of cracking can be analysed in similar fashion (see further at para 81 below).
In contrast, the sudden breakage of the first leg, followed by that of the other two legs, is much more readily understood as involving a marine accident or casualty.
It was neither expected nor contemplated.
It only occurred under the influence of a leg breaking wave of a direction and strength catching the first leg at just the right moment, leading to increased stress on and collapse of the other two legs in turn.
Each of the three legs was lost in turn overboard to the bottom of the sea.
Such a combination of events was, the judge found, very probable, but it was not inevitable (para 87).
The chain of events has many of the characteristics of a loss by perils of the sea.
The questions which remain bearing on the appropriateness of such a classification relate to (i) the evident probability that the rig would meet a leg breaking wave and (ii) the undoubted fact, on the judges findings, that the root problem was the unfitness of the legs for the insured venture, in that they lacked sufficient fatigue strength to withstand the stresses imposed by the ordinary motion of the seas and were thus exposed to the very considerable risk of a leg breaking wave hitting the rig at the right moment.
I will return to these questions later in this judgment (paras 81 86 below).
In Thames and Mersey Marine Insurance Co Ltd v Hamilton, Fraser & Co (1887) 12 App Cas 484, 502 Lord Macnaghten noted that: In marine insurance it is above all things necessary to abide by settled rules and to avoid anything like novel refinements or a new departure.
This rule of conservatism can be carried too far.
Nevertheless, the absence of any clear authority for insurers approach prior to Mayban [2004] 2 Lloyds Rep 609 is striking.
It seems unlikely to have been due to unquestioning acceptance, by insurers and assureds alike, of the correctness of that approach.
This is, I think, even less likely when one examines the hull insurance and carriage by sea cases, upon which the court received instructive submissions.
The hull insurance and carriage by sea cases
In Dudgeon v Pembroke (1877) 2 App Cas 284, a vessel insured under a time policy from 22 January 1872 sailed on 3 February 1872 from London for Gothenburg, arriving on 7 February but taking on more water than would be expected.
She set out again for London with a cargo of oats on 11 February, but started to labour and take on so much water in a heavy rolling sea on 12 February that her fires had to be put out and, when her pumps eventually became clogged with oats, she grounded on the Yorkshire coast and was lost.
The defendant underwriter argued that she went to sea without being fit to encounter the ordinary risks of going to sea, not the extraordinary risks of storms, that a policy of insurance was only a contract of indemnity against risks which could not be foreseen, or by ordinary care be provided against and that there was on this basis no loss by perils of the sea: pp 289 290.
Lord Penzance, after recording that in a time policy there is no implied warranty of seaworthiness, turned to the argument that the vessels unfitness to encounter the perils of the sea prevented the loss being regarded as one by perils of the sea.
Dismissing it, he said, at pp 295 296: It will at once occur to your Lordships, upon the raising of such a question, that it applies as much and as fully to a voyage policy as to a time policy.
If a loss proximately caused by the sea, but more remotely and substantially brought about by the condition of the ship, is a loss for which the underwriters are not liable, then, quite independently of the warranty of seaworthiness, which applies only to the commencement of the risk (in its several gradations, as Erle J in Thompson v Hopper 6 E & B 172, 181 called them), the underwriters would be at liberty, in every case of a voyage policy to raise and litigate the question whether, at the time the loss happened, the vessel was, by reason of any insufficiency at the time of last leaving a port where it might have been repaired, unable to meet the perils of the sea, and was lost by reason of that inability.
If that be the law, my Lords, the underwriters have been signally supine in availing themselves of it.
The materials for such a defence must have existed in countless instances, and yet there is no trace of it in any case which has been brought to your Lordships notice, still less any decision upholding such a doctrine.
Mr Pollock, understandably, relies on this passage.
In Dudgeon v Pembroke, counsel for the underwriter relied before the House, as Mr Gee does before the Supreme Court, upon Fawcus v Sarsfield (1856) 6 E & B 192.
In that case, the vessel, leaking water, put into a port to be repaired in circumstances where she had, on sailing from Liverpool, been unseaworthy and unsound, and did not encounter any more severe weather than is usual and ordinary on such a voyage or than a ship reasonably fit for the voyage could have encountered without damage or injury: and . the necessity for her going into port to be repaired arose from the defective state of the ship when she sailed (p 204).
The vessels owner sought to recover the expense occasioned by reason of putting into the port for repairs.
The Court of Queens Bench accepted the defendant underwriters plea and dismissed the claim.
Mr Gee relies upon this as indicating that unseaworthiness can outweigh in significance the impact of subsequent perils of the seas.
That in my view reads too much into the decision.
The Court of Queens Bench was at pains to emphasise that the arbitrator had found most explicitly that [the loss] did not arise from any peril insured against, but from the vice of the subject of insurance and that the only answer attempted by the plaintiff was that the unseaworthiness might have arisen from some peril in an antecedent voyage , part of an adventure of which the voyage stated in the declaration and plea was a continuation.
Rejecting this latter suggestion, the court said that it was quite clear, from the finding of the arbitrator, that the adventure did begin at Liverpool: that this was the first voyage; and that the unseaworthiness arose from the vice of the thing insured, and not from the perils of the sea in any antecedent part of the adventure (p 205).
Lord Penzance must, as Mr Gee points out, have been familiar with Fawcus v Sarsfield, having been counsel in it for the underwriter in his earlier incarnation as Mr Wilde.
In Dudgeon v Pembroke he was exact in his loyalty to the basis on which it was decided.
He noted that it was a case of partial loss in which the decision followed from the arbitrators finding, and that there was therefore a total absence . of all authority for the proposition advanced by the underwriter in Dudgeon v Pembroke.
At first instance in Dudgeon v Pembroke (1874) LR 9 QB 581, 596 Blackburn J had understood underwriters plea in Fawcus v Sarsfield as an allegation that the loss was from wear and tear, aggravated by the original bad state of the vessel and said that, on that basis, the plea was no doubt good.
In J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1985] 1 Lloyds Rep 264 (Mustill J) and [1987] 1 Lloyds Rep 32 (CA), Fawcus v Sarsfield has been treated as a case of debility or loss disassociated from any peril of wind or water, even if these form the immediate context of the loss, and constitute the immediate agency (for example, the percolation of water through an existing flaw in the hull) by which the loss takes place (per Mustill J, p 272); and see per Slade LJ, p 41.
But, whether the case is described as wear and tear or inherent vice, the arbitrators finding in Fawcus v Sarsfield was treated as the end of the matter, and is explicable on the basis that nothing that occurred during the voyage could be called a peril of the sea, accident or fortuity.
The case does not help insurers on the present appeal.
Thomas Wilson, Sons & Co v Owners of the cargo per the Xantho (The Xantho) (1887) 12 App Cas 503 involved a claim under a bill of lading for non delivery of goods lost by reason of a collision between the Xantho as carrying vessel and another vessel.
The owners of the Xantho relied upon an exception of perils of the sea.
Cargo owners maintained that To bring a case within perils of the sea, there must be some extraordinary violence of the elements, something inevitable or overwhelming (p 507), so that, even if the only cause of the collision was the negligence of the other vessel, the owners of the Xantho could have no defence.
The House emphatically rejected this submission, saying that it was beyond question that if a vessel strikes upon a sunken rock in fair weather and sinks, this is a loss by perils of the sea and that every loss by incursion of the sea, due to a vessel coming accidentally (using that word in its popular sense) into contact with a foreign body, which penetrates it and causes a leak, is a loss by a peril of the sea (p 509, per Lord Herschell).
It said that in this respect the meaning of the phrase was the same in the case of a bill of lading as in a marine policy (p 510), although in the case of a bill of lading fault of the shipowner leading to the vessel succumbing to a peril of the sea may, depending upon the terms of carriage, disentitle the shipowner to the protection of such an exception.
There are statements in the speech of Lord Bramwell which may be taken to suggest that any entry of water in sufficient quantities to sink a vessel is axiomatically a peril of the sea (see eg pp 513 514).
These go too far, as illustrated by E H Sassoon & Co v Western Assurance Co [1912] AC 561, where an insurance claim for damage to a cargo of opium failed because the damage was due the percolation of sea water through the rotten hull of a wooden hulk moored in a river and used as a store, as well as, more recently, Rhesa Shipping SA v Edmunds (the Popi M) [1985] 1 WLR 948.
A fortuitous external accident or casualty, whether identified or inferred, is necessary, but it need not be associated with extraordinary weather.
Lord Buckmaster put the matter as follows in the Privy Council in Grant, Smith and Co v Seattle Construction and Dry Dock Co [1920] AC 162, 171 172: It is not desirable to attempt to define too exactly a marine risk or a peril of the sea, but it can at least be said that it is some condition of sea or weather or accident of navigation producing a result which but for these conditions would not have occurred. .
It is just as though a vessel, unfit to carry the cargo with which she was loaded, through her own inherent weakness, and without accident or peril of any kind, sank in still water.
In such a case recovery under the ordinary policy of insurance would be impossible.
An insurance against the perils of the sea or other perils is not a guarantee that a ship will float, and in the same way in the present case had such a policy been effected it would not have covered a loss inevitable in the circumstances due to the unfitness of the structure, and entirely disassociated from any peril by wind or water.
In Mountain v Whittle [1921] AC 615, the insured vessel, a houseboat, was towed alongside a tug some seven and half miles to Northam.
Her topside seams were leaky and defective.
The breast wave thrown up by the two vessels caused water to mount up against the seams and enter and sink the houseboat.
Some four feet of water entered in 100 minutes towing at a moderate speed.
Mountain v Whittle establishes that it is no necessary answer to a claim for loss by perils of the sea that the loss only occurred because the vessel was unseaworthy.
Indeed, after negativing the existence of any warranty or defence under section 39(5) of the 1906 Act, Lord Birkenhead LC, with whose speech Viscount Haldane and Viscount Cave agreed, turned without further consideration of unseaworthiness to the question whether the vessel had met with any peril of the sea (p 618 619).
On this point, it was noted that the fact that loss caused by the entrance of sea water is not necessarily a loss by perils of the seas (p 626, per Viscount Finlay).
In the event, the House upheld concurrent decisions of the courts below that the breast wave amounted to a peril of the seas just as must as if it had been occasioned by a high wind (p 626), and that sinking by such a wave was a fortuitous casualty; whether formed by passing steamers or between tug and tow, it was beyond the ordinary action of wind and wave, or the ordinary incidents of such towage (pp 630 631, per Lord Sumner).
But the speeches also describe the breast wave as of unusual size (p 619, per Lord Birkenhead), as wash of an extraordinary character (pp 626 627, per Viscount Finlay) and as exceptional (p 630, per Lord Sumner), and Viscount Finlay delivered a dictum that There must be some special circumstance such as heavy waves causing the entrance of the sea water to make it a peril of the seas (p 626).
The extent to which a peril of the sea must involve extraordinary weather was considered in Skandia Insurance Co Ltd v Skoljarev (1979) 142 CLR 375.
The High Court of Australia was concerned with a loss which occurred a few hours after leaving port in calm seas and for no apparent reason, after rapid entry of water into the insured vessels engine room.
The judge had found that there was no latent defect (eg in the pipe work) and that the vessel was seaworthy on leaving port.
The High Court held that, in these circumstances, there was an inference of some unidentified accident or fortuitous event.
Since Rhesa Shipping Co SA v Edmunds (The Popi M), more attention might have been given, in this jurisdiction at all events, to a finding that no cause had been shown to be more probable than not.
Leaving that aside, in a judgment with which all other members of the High Court concurred, Mason J rejected Visc Finlays dictum as a statement of principle, saying (p 385): The old view that some extraordinary action of the wind and waves is required to constitute a fortuitous external accident or casualty is now quite discredited (The Xantho (1887) 12 App Cas, 509).
It is true that in Mountain v Whittle [1921] 1 AC 615, 626 Viscount Finlay spoke of the need for the insured to show some special circumstance such as heavy waves causing the entrance of the sea water to make it a peril of the sea, but his Lordships remark was directed to the facts of that case.
Had it not been for the magnitude of the tugs breast wave, the loss would have been attributed to wear and tear or to the ordinary action of the wind and waves.
The severity of the weather required for a loss by perils of the sea was further considered, at first instance, in Frangos v Sun Insurance Office Ltd (1934) 49 Ll L Rep 354.
A 36 year old vessel insured under a time policy sank en route from Cardiff to Istanbul.
Insurers alleged that unseaworthiness was a, if not the sole, cause, relying on the fact that really the weather was not very severe and that there was a series of happenings with regard to this old ship which were not naturally accounted for by the weather which prevailed (p 358).
Roche J accepted that the vessel may not have been seaworthy in various respects, including in the area of the afterpeak tank and/or No 4 hold (p 368).
However, being satisfied that there was weather prevailing which, although not extraordinary, was nothing like the calm weather of a harbour, or anything of that sort, he found that the immediate cause of the springing of the leak was the labouring of the ship, that water then entered the hold and afterpeak, causing the coal cargo to shift and the vessel to list, and leading to the entry of water into the engine room which sank the vessel.
He regarded the case as governed by Dudgeon v Pembroke, because even though it is doubtful in this case, as in that case, whether the vessel was, in fact, seaworthy or not, yet a loss caused by perils of the sea is within the policy, though it might not have occurred but for the concurrent action of some other cause which is not within the policy, the other cause which is not within the policy being unseaworthiness (p 359).
Finally, in J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987] 1 Lloyds Rep 32, a yacht insured under a time policy suffered damage due to delamination of her hull on a voyage from Deauville to Hamble in sea conditions markedly worse than average, but not so bad as to be exceptional (p 270).
She had been ill designed and ill made (p 272).
If properly designed and built according to the manufacturers description, she would have made the passage without damage (p 270).
It was hard to look at the facts without being struck by the idea that the root of all the trouble was the act of [her manufacturers] in putting into circulation a boat which was wholly unfit for its purpose (p 270).
Nevertheless, the owner recovered for the hull damage both before Mustill J and in the Court of Appeal.
In a key, but controversial, passage on the law, Mustill J said this, at p 271: Second, as to causation.
It may be that the doctrine of proximate cause has undergone some reassessment since the days when the most important cases on the present topic were decided.
In those days the ultimate cause was more readily identified as the proximate cause than might be the case today.
Nevertheless, it is clearly established that a chain of causation running (i) initial unseaworthiness, (ii) adverse weather; (iii) loss of watertight integrity of the vessel; (iv) damage to the subject matter insured is treated as a loss by perils of the seas, not by unseaworthiness: see, for example, Dudgeon v Pembroke . and Frangos v Sun Insurance Office .
Mustill J went to say that: . the immediate cause was the action of adverse weather conditions on an ill designed and ill made hull.
The cases show that this is sufficient to bring the loss within the words of a time policy in the standard form (p 272).
In Fault and Marine Losses [1988] LMCLQ 310, 350 footnote 101, Sir Michael Mustill later commented extra judicially that A severe critic might wonder whether the trial judge had in mind just what had happened to the doctrine of causation since Dudgeon v Pembroke.
This itself may however be too severe, in view of Mustill Js express mention of that change in the passage at p 271 cited above.
Further, it might be thought relevant that the 1906 Act, crystallising statutorily the concepts of perils of the seas and inherent vice, was enacted against the background of the Victorian authorities, and before the definitive emergence of the modern conception of proximity (see para 49 above).
In the Court of Appeal in the Miss Jay Jay the legal position was, however, analysed in different terms.
The court rejected a submission that any prior unseaworthiness could be disregarded as irrelevant, but it interpreted the passage on p 271 in Mustill Js judgment consistently with that rejection.
It understood him as having been concerned simply to identify whether perils of the sea were a proximate cause of the loss, not as suggesting that unseaworthiness, followed by a loss due to a peril of the seas, can never be relevant: [1987] 1 Lloyds Rep 32, 37, 41 per Lawton and Slade LJJ.
The question on this basis was whether on the evidence the unseaworthiness of the cruiser due to the design defects was such a dominant cause that a loss caused by the adverse sea [conditions] could not fairly and on commonsense principles be considered a proximate cause at all (p 37, per Lawton LJ).
Slade LJ took the same view, regarding it as clear on a commonsense view of the facts that both these two causes were . equal, or at least nearly equal, in their efficiency in bringing about the damage (p 40).
That being so, the court referred to the general principle of insurance law that, where there are two proximate causes of a loss, one insured under and the other not expressly excluded from the policy, the assured will be able to recover: see p 40, per Slade J. Slade LJ (at p 41) also distinguished cases of debility, where the ordinary action of wind and waves leads to damage, as cases where the action of wind and waves is treated as the sole proximate cause of the damage, citing in this connection Fawcus v Sarsfield 6 E & B 192.
Another way of looking at such cases is that there is no accident or fortuity.
Analysis law
Standing back, it is clear that the hull cases lend no support by analogy to a submission that, where a cargo is unfit for the insured venture, then loss or damage which would have been avoided but for such unfitness, falls to be regarded as a loss due to inherent vice, rather than due to any marine peril which may have triggered and exploited the unfitness.
Mr Gee submits that Lord Diplocks reference [1983] 1 Lloyds Rep 122, 126 to the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage is wide enough to cover any case where the goods are unfit to withstand any weather conditions which may foreseeably be encountered on the voyage.
Only extraordinary weather conditions overwhelming goods fit to withstand all foreseeable vicissitudes would on this basis attract cover.
This is clearly not the law in hull insurance, as all the cases show; and, if that is right, then I see no reason why it should be the law in cargo insurance, particularly when the concept of inherent vice is introduced into the 1906 Act by section 55(2)(c) covering both types of marine cover.
Mr Gees more developed submission is more difficult to meet, and has support in the Court of Appeals approach in the Miss Jay Jay [1987] 1 Lloyds Rep 32.
It is that it is in any case a matter of common sense judgment, whether initial unfitness or the intervention of a subsequent peril or both is or are the proximate cause(s) of loss.
Despite Slade LJs differentiation of pure debility cases, the Court of Appeal was not presumably suggesting that, where initial unseaworthiness or unfitness and unfavourable weather conditions beyond the ordinary action of wind and waves have both played a role, the court must always treat both as equal or nearly equal proximate causes.
That would have been to recognise a rule of law different in formulation, but nonetheless of a type that the court held that Mustill J would have been wrong to introduce.
There is high authority for the proposition that the real or dominant cause is to be ascertained by applying the common sense of a business or seafaring man: see eg T M Noten BV v Harding [1990] 2 Lloyds Rep 283, 287 per Bingham LJ.
In Noten v Harding, common sense was applied to identify the point in a single process, not involving any obvious fortuity, which represented the cause.
In circumstances like those in the Miss Jay Jay or the present case, two separate causes may be identified, initial unfitness and a peril of the seas through which it works, and it is unclear how in practice they would be weighed and balanced.
This is highlighted by Mustill Js comment in the Miss Jay Jay [1985] 2 Lloyds Rep 264, 270, cited in para 69 above, that it was hard to look at the facts without being struck by the idea that the root of all the trouble was the act of [her manufacturers] in putting into circulation a boat which was wholly unfit for its purpose.
Yet, in the Miss Jay Jay the finding that the weather was markedly worse than average but not so bad as to be exceptional sufficed to make perils of the sea an equal cause: see p 41 [1987] 1 Lloyds Rep 32, 41 per Slade J.
I am not attracted to a solution which depends upon identifying gradations of adverse weather conditions.
More fundamentally, if Lord Diplocks formulation in Soya v White [1983] 1 Lloyds Rep 122, 126 is correct, then it is difficult to find in it any place for the weighing exercise that is suggested by the Court of Appeals approach in the Miss Jay Jay.
If inability to withstand foreseeably bad weather conditions does not prevent damage sustained as a result being attributed to perils of the sea, (i) that must be because Lord Diplocks reference to the ordinary course of the contemplated voyage was not intended to embrace the weather conditions foreseeable on such a voyage, but was rather used as a counterpoint to a voyage on which some fortuitous external accident or casualty occurred and (ii) there is no apparent limitation in Lord Diplocks qualification without the intervention of any fortuitous external accident or casualty in other words, on the face of it, anything that would otherwise count as a fortuitous external accident or casualty will suffice to prevent the loss being attributed to inherent vice.
On this interpretation, Lord Diplock was laying down a test which appears to me consistent with the reasoning in Dudgeon v Pembroke 2 App Cas 284, the Xantho 12 App Cas 503, Grant Smith and Co and McDonnell Ltd v Seattle Construction and Dry Dock Co [1990] AC 162 and of Mustill J in the Miss Jay Jay [1985] 2 Lloyds Rep 264.
It fits with Tucker Js identification in Neter [1944] All ER 341, 343 of the stoving in due to the weather, which is something beyond the ordinary wear and tear, of the voyage as something which could not be foreseen as one of the necessary incidents of the adventure.
It fits with the definition in the 1906 Act of perils of the seas as not including the ordinary action of the winds and waves, a definition which draws attention to the question whether the winds and waves have had some extraordinary effect, rather than whether they were extraordinary in themselves.
On this basis, it would only be if the loss or damage could be said to be due either to uneventful wear and tear (or debility) in the prevailing weather conditions or to inherent characteristics of the hull or cargo not involving any fortuitous external accident or casualty that insurers would have a defence.
In the scheme of the 1906 Act, that would not appear to me surprising, bearing in mind the case law against the background of which the Act was enacted and the juxtaposition in section 55(2)(c) of ordinary wear and tear, ordinary leakage and breakage with inherent vice or nature of the subject matter insured as well as with any injury to machinery not proximately caused by maritime perils.
While not myself attempting any exact definition, ordinary wear and tear and ordinary leakage and breakage would thus cover loss or damage resulting from the normal vicissitudes of use in the case of a vessel, or of handling and carriage in the case of cargo, while inherent vice would cover inherent characteristics of or defects in a hull or cargo leading to it causing loss or damage to itself in each case without any fortuitous external accident or casualty.
Ultimately, I am persuaded that authority and principle do point to the correctness of Lord Diplocks definition, and that it bears the meaning indicated by points (i) and (ii) in the preceding paragraph.
If this exposes insurers to risks which they are not prepared to accept, they may of course seek to provide otherwise, either by special provision or by amendment of the standard clauses upon which most hull and cargo insurance is now underwritten.
Analysis the facts
My real concern on the present appeal has been whether the loss claimed did not fall within even the restricted test which I have stated in the previous two paragraphs.
The case comes close to the line.
It is helpful to start with the position before the first leg fell.
Mr Pollock went so far as to submit that, even the cracking of the legs which occurred on passage across the Atlantic and which necessitated repair in South Africa constituted a fortuitous external accident or casualty outside the ordinary course of the contemplated voyage, for which the assured could have sought to recover under the insurance, apart from the deductible of RM 3.8m each and every loss.
I would not accept that there could have been any such insurance claim, any more than the Court of Appeal did: see the reference in this connection to normal wear and tear in para 64 of Waller LJs judgment.
So far as appears, the cracking was the simple product of the exhaustion of the fatigue life of the legs on passage under the influence of the ordinary action of the wind and waves, and did not therefore involve any fortuitous external accident or casualty.
It was also a risk that was expected as likely to materialise during the voyage (see paras 85 86 below), and one which it cannot sensibly have been thought that insurers would take on.
The critical question is therefore whether the sudden fracturing and loss of the three legs overboard into the Pacific falls into a different category or was no more than a loss due to their inherent vice.
Mr Gee is entitled to say that, on this point, considerable respect is due to Blair Js assessment of the facts, so long as he directed himself by reference to the right test and considerations.
Blair J formed a judgment about the proximate cause, treating the facts as raising two possible candidates.
On the one hand, he recorded that once a lot of the fatigue life had been used up and there were cracks everywhere, then all you need is probably the two, three, four metre sea states that the Cape waters can provide, and that the agreed range of wave heights demonstrates that waves in excess of three metres were in fact regularly experienced during the second stage of the voyage (para 49).
On the other hand, he noted that a developed crack would not itself have been sufficient to cause one of the 300 feet high legs to come off, but that that required in addition a leg breaking or final straw stress that finally fractured the weakened steel.
As Mr Colman [insurers expert] put it: . remember we have a leg which is 12 feet in diameter, a circumference of about 40 feet.
So even quite a lot of these little cracks still leave a very large amount of good steel an inch and a half thick.
This isnt light plate; this is very heavy steel, and thats an enormously strong structure.
So youve got to catch it just right, if you want to actually make it fail all the way round (paras 48 and 87).
Once one leg failed, the circular motions of the others and the stresses to which they were subjected increased, and their failure was accelerated.
Blair J also described the weather as being within the range that could reasonably have been contemplated (albeit the claimants expert puts it at the upper end) (para 110), a description covering all foreseeable weather conditions, including those sufficient to give rise to a loss by perils of the sea.
Finally, Blair J chose as the relevant proximate cause the unfitness of the rig for the voyage, because in his view (para 111): The real problem lay with the inherent inability of the legs to withstand the normal incidents of the voyage.
As [Mr Colman] put it I dont think that these legs were ever going to make it round the Cape.
That in my opinion is the reality of this case.
Close though these statements come to it, the judge was not actually addressing the question how far the emergence of a leg breaking wave striking at just the right moment in the first legs circular movement and leading to fracture and loss of a leg could be regarded as an entirely normal event, still less how far the resulting loss of any of the legs could be regarded as an equivalent to wear and tear or debility.
To my mind, however, the bare recital of what happened is difficult to fit into any normal conception of what Lord Diplock [1983] 1 Lloyds Rep 122, 126 described as deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage.
As I noted earlier in this judgment (para 64), the loss had many obvious characteristics which one would associate with a fortuitous marine accident or casualty, and that, in my opinion, is how the loss of the rigs three legs can and should be seen.
I add this.
Although, as Mr Gee urged, the meaning of inherent vice will, at least normally, be the same in principle under all marine policies, its application in any particular case must depend upon the nature and characteristics of the goods being insured and of the insured venture.
Here, I note that the assured was asked, before the policy was placed, to state, under the heading Rig History, whether the rig had previously experienced any buckling of its legs, and it disclosed that the port aft leg had indeed experienced buckling during a previous dry tow in 1996 (also in fact off South Africa).
Originally, insurers maintained and pleaded that this had not been disclosed, but the plea was abandoned.
It appears that insurers sight of the relevant email disclosing the information was in fact noted on the placement slip.
It was, furthermore, made an express condition of the insurance that Survey Clause or Pre Shipment Survey including Loading and Unloading, Tow Out to be supervised by approved and nominated Surveyor.
Noble Denton has been nominated and approved.
Noble Denton duly surveyed the rig for insurers before it sailed on the voyage from Galveston.
It was well recognised that stresses would be imposed on the legs by virtue of the motion of the waves, and Noble Denton sought to establish the legs remaining fatigue life.
In a report on 23 August 2005, Noble Denton concluded that the legs in way of the pinholes might have insufficient fatigue live left to undertake the full tow to Lumut, and required that the legs be re inspected in South Africa and remedial work be undertaken there as found necessary.
Fatigue life is assumed to be expended when a damage ratio of unity (1.0) is achieved.
At the time of the 23 August report, the damage ratio was thought to be well below unity.
But before the rig arrived in South Africa, experts acting for the assured had completed calculations which led to a spectral analysis dated 21 September 2005, in which the damage ratio was now put at 2.13, well above unity.
An unsatisfactory feature of this case, as the judge said (para 28) is that this report never reached Noble Denton, before they concluded that the rig could commence the second stage of its voyage from South Africa.
The judge also found that the joint inspection in South Africa did not cover the set of pinholes at the 18 foot level, and that the only repairs were to pinhole corners where a crack had actually initiated (para 78).
However, he found that the latter omissions were not relevant, in that, whatever repairs were or could practicably have been carried out in South Africa would have made no difference (para 83).
Whether disclosure of the spectral analysis of 21 September to Noble Denton could and would have made any difference does not appear.
No suggestion has in any event been made that this is of any relevance to the scope or validity of the cover.
What does appear from the above is that the parties appreciated both the need to put into a South African port for inspection and the likelihood that some cracking would there be found and some repairs would have to be undertaken.
That reinforces the conclusion which I have already drawn that the cost of such inspection and repairs could not be covered.
But it also appears that the parties attention was closely focused on the overall risk of carrying the rig with its three legs protruding over 300 foot into the air in circumstances which could, depending upon a range of uncertainties, lead to the loss of one or more of the legs.
In the event, the rig suffered the further loss of all three legs, not just because cracking appears to have developed further or sooner than expected, but ultimately only after the first, and then each other, leg was caught, in just the right way, by a leg breaking wave.
To hold that the insurance did not cover such a loss, if it materialised, would seem to deprive it of much of its utility.
These considerations support a conclusion that there is no incongruity in treating the loss of the three legs overboard which the rig actually experienced as involving fortuitous external accidents or casualties insured under this all risks insurance, rather than as due to inherent vice.
In common with the Court of Appeal, although not entirely for the same reasons, I would therefore reach that conclusion.
Concurrent causes
I add some words with regard to the submission made by insurers to meet the hypothesis, which I have not accepted, that the loss should be attributed to two equal or nearly equal proximate causes, in the form of both inherent vice and perils of the seas.
Assuming that to be possible, the question would then have arisen as to the effect of the express exception of inherent vice contained in clause 4.4 of the Institute Cargo Clauses (A).
It was said in the Miss Jay Jay [1987] 1 Lloyds Rep 32, 40 that, if there were two causes, one of which was expressly excluded, then the assured would fail; and reference was made in this connection to dicta in P Samuel & Co Ltd v Dumas [1924] AC 431, 467 per Lord Sumner and to Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corpn Ltd [1974] QB 57, 75.
I would wish to leave open the applicability of this approach in the present context.
First, clause 4.4 on the face of it simply makes clear the continuing relevance in the context of all risks cover of the limitation on cover against perils of the sea provided by section 55(2)(c).
There seems to me some oddity in treating clause 4.4 as leading to a fundamentally different result from that which would have applied had section 55(2)(c) alone been in question.
Second, the focus of the cases cited in the Miss Jay Jay and of the more recent case of Midland Mainline Ltd v Eagle Star Insurance Co Ltd [2004] 2 Lloyds Rep 604 was upon true exceptions which took out of cover against an insured risk a specific type of situation giving rise to such risk.
The present hypothesis is of two concurrent risks arising independently but combining to cause a loss.
While it may be that the same principle applies (as the Court of Appeals dicta in the Miss Jay Jay suggest), I would at least wish to hear argument on that.
I need not go further into this aspect, upon which I have formed no concluded views.
Conclusion
For the reasons I have given, I would also dismiss this appeal.
LORD COLLINS
I agree that the appeal should be dismissed for the reasons given by Lords Saville, Mance and Clarke.
The policy covered all risks of loss or damage to the subject matter insured except as provided in clauses 4, 5, 6 and 7 The exclusion from cover in clause 4.4 was loss, damage or expense caused by inherent vice or nature of the subject matter insured.
Section 55(1) of the Marine Insurance Act 1906 provides: Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but, subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against.
By section 55(2)(c) of the Act: Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject matter insured, or for any loss proximately caused by rats or vermin, or for any injury to machinery not proximately caused by maritime perils.
The two inter related questions are whether the loss was proximately caused by a peril insured against, namely perils of the seas, or whether cover is excluded because the failure occurred as a result of the inherent vice in the rig.
The excessive sophistication of the argument on this appeal has been caused by treating Lord Diplocks definition of in Soya GmbH Mainz Kommanditgesellschaft v White [1983] 1 Lloyds Rep 122, 126, as if it were a statutory provision.
In that case a cargo of soya beans arrived in a heated and inherent vice deteriorated condition.
It was insured against risks of heating, sweating and spontaneous combustion.
It was held by the House of Lords that the policy did otherwise provide within section 55(2)(c) so that the perils of heating, sweating and spontaneous combustion arising from inherent vice or nature of the subject matter insured were covered.
Lord Diplock said (at p 126) that: This phrase (generally shortened to inherent vice) refers to a peril by which a loss is proximately caused; it is not descriptive of the loss itself.
It means the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty.
It would seem that this definition was derived in part (without attribution) from British and Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41: see p 47 per Lord Birkenhead LC, quoting from the unreported judgment of Rowlatt J at first instance, which was reversed on the facts.
The question of the effect of weather conditions did not arise in Soya GmbH Mainz Kommanditgesellschaft v White and the printed cases on that appeal suggest that they did not form any part of the argument.
In this case the policy was for all risks, which included perils of the seas.
At common law and under rule 7 of Schedule 1 to the Marine Insurance Act 1906, perils of the seas refers only to fortuitous accidents or casualties of the seas.
It does not include the ordinary action of the winds and waves.
The reason is that the purpose of insurance is to afford protection against contingencies and dangers which may or may not occur; it cannot properly apply to a case where the loss or injury must inevitably take place in the ordinary course of things: Paterson v Harris (1861) 1 B & S 336, 353, per Cockburn CJ.
The purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen: Thomas Wilson Sons & Co v Owners of the Cargo per the Xantho (1887) 12 App Cas 503, 509, per Lord Herschell.
Prior to the abolition of juries in civil cases, the question whether the loss was caused by perils of the sea or inherent vice would have been a question for the jury: see, eg, Dudgeon v Pembroke (1874) LR 1 QB 581.
Today what was the real or dominant cause or proximate cause is a question to be answered applying the common sense of a business or seafaring man: T M Noten BV v Harding [1990] 2 Lloyds Rep 283, 286 287, per Bingham LJ.
In that case industrial leather gloves shipped from Calcutta to Rotterdam were found on arrival to be wet, stained, mouldy and discoloured.
It was held, applying Lord Diplocks formula, that the gloves deteriorated as a result of their natural behaviour in the ordinary course of the contemplated voyage, without the intervention of any fortuitous external accident or casualty (at p 288).
The damage was caused because the gloves were shipped wet, and on the evidence there was no combination of fortuitous events, and the insurers never undertook to insure the plaintiffs against the occurrence of hot and humid weather in Calcutta during the monsoon (at p 289).
A comparable case (involving unseaworthiness in hull insurance) on the other side of the line was J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1985] 1 Lloyds Rep 264, affd [1987] 1 Lloyds Rep 32.
A yacht was insured under a marine policy for loss or damage directly caused by (inter alia) external accidental means (which was treated as being materially the same as perils of the seas: p 272).
The yacht suffered damage in the Seine estuary on a voyage from Deauville to Hamble.
The sea conditions in the Seine estuary were such as a person navigating in those waters could have anticipated that he might find and the conditions were markedly worse than average, but not so bad as to be exceptional (p 270).
The yacht was in such a condition, by reason of defects in design and construction (which were held to be latent defects), as to be unseaworthy for the passage, but it would have been able to survive if the sea conditions had been no worse than usual.
If properly designed and built according to the manufacturers description, the yacht would have made the passage without suffering damage.
Mustill J held that the loss was due to the fortuitous action of the wind and waves.
The weather was not exceptional but the immediate cause was the action of adverse weather conditions on an ill designed and ill made hull (p 272).
The decision was affirmed in the Court of Appeal on the basis that there were two proximate causes, namely unseaworthiness due to design defects and an adverse sea.
Where there were two concurrent and effective causes, and one was within the policy, the insurers had to pay.
Both Lawton and Slade LJJ treated the exercise as one of the application of a commonsense view of the facts: pp 37, 39 40.
Slade LJ approved (at 38) Mustill Js statement that the word accidental made explicit what was in any event implicit, namely that there was no recoverable loss in the absence of a fortuitous event.
There is nothing in the decision of the Court of Appeal which is inconsistent with Mustill Js approach or (making due allowance for the fact that it was not an inherent vice case) with Lord Diplocks formulation.
In the present case the failure of the legs happened as a result of the effect of the height and direction of the waves on the pitching and rolling motion of the barge and therefore on the steel legs.
It was known from the outset that the legs of the rig were at risk of fatigue cracks during the voyage.
The weather which the barge experienced was within the range of weather which could reasonably have been contemplated for the voyage.
The sudden breakage of the first leg, followed by that of the other two legs occurred under the influence of a leg breaking wave of a direction and strength catching the first leg at just the right moment, leading to increased stress on and collapse of the other two legs in turn.
The failure was, Blair J found, very probable, but it was not inevitable.
Even though the failure occurred, in Lord Diplocks phrase, in the ordinary course of the contemplated voyage the way in which it occurred was fortuitous.
The proximate cause was the result of a fortuity, and not the susceptibility of the legs to crack as a result of metal fatigue.
LORD CLARKE
Lord Saville has set out the relevant facts and I will not repeat them.
I agree with him that the appeal should be dismissed.
I set out the essential reasons which have led me to that conclusion because this is an unusual case on the facts and raises an issue of some general importance in the law of marine insurance.
The question is whether on the facts found by the judge, the (or a) proximate cause of the loss of the rig was inherent vice or nature of the subject matter insured within the meaning of clause 4.4 of the Institute Cargo Clauses (A).
That is because loss so caused is specifically excluded by clause 4.4.
The same expression is used in section 55 of the Marine Insurance Act 1906 (the Act), which provides, so far as material: (1) Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but, subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against. (2) In particular, (c) Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject matter insured, or for any loss proximately caused by rats or vermin, or for any injury to machinery not proximately caused by maritime perils.
It is common ground that, if the loss was proximately caused by inherent vice or nature of the subject matter insured, the insurers are not liable even if the loss was also proximately caused by a peril insured against: see eg the cases referred to by Lord Saville at para 19 above.
On the facts, there were as I see it, two physical causes of the loss, the physical state of the rig and the leg breaking stress caused by the state of the sea at the time the first leg fractured.
The judge held that the state of the sea was within the range of weather that could reasonably have been contemplated on the voyage.
It was thus an ordinary incident of the voyage.
However, the judge also held that, although the failure of the legs was probable, what the Court of Appeal called a leg breaking wave was not inevitable.
The insurers do not challenge this finding.
As I read his judgment, the judge held (or would have held) that, but for his conclusion that the proximate cause of the loss was inherent vice, the loss was proximately caused by a fortuity and was thus within the all risks cover in the policy.
The Court of Appeal expressly considered whether, even if the loss was not inevitable, the loss was caused by ordinary wear and tear and thus not recoverable under the policy.
It held that, on the judges findings of fact, the loss was not caused by ordinary wear and tear but by a fortuity and thus (subject to the correct approach to inherent vice) by a peril insured against, the cover in this case being against all risks.
As Waller LJ (with whom Carnwath and Patten LJJ agreed) put it at [2010] 1 Lloyds Rep 243, para 64, it was not that the legs simply suffered severe metal fatigue and cracking, which would be fair wear and tear, but that the rig met what proved to be a leg breaking wave which was not bound to occur in the way that it did on any normal voyage round the Cape of Good Hope.
The fortuity was the occurrence of the leg breaking stress which caused the loss of the legs.
For my part, I would accept that analysis.
As Lord Mance puts it at para 64, the sudden breakage of the first leg only occurred under the influence of a leg breaking wave of a direction and strength catching the first leg at just the right moment, leading to increased stress on and collapse of the other two legs in turn.
It is common ground that all risks cover includes cover in respect of loss or damage caused by perils of the seas.
On the approach of the Court of Appeal, the leg breaking stress and the loss of the legs were proximately caused by a peril of the seas because the expression perils of the seas is defined in para 7 of the Rules for Construction of Policy in Schedule 1 to the Act as follows: The term perils of the seas refers only to fortuitous accidents or casualties of the seas.
It does not include the ordinary action of the winds and waves.
Mustill J made the position clear in J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1985] 1 Lloyds Rep 264, 271 in these terms: The cases make it quite plain that if the action of the wind or sea is the immediate cause of the loss, a claim lies under the policy notwithstanding that the conditions were within the range which could reasonably have been anticipated.
All that is needed is (in the words of Lord Buckmaster in Grant, Smith & Co v Seattle Construction and Dry Dock Co [1920] AC 162, 171: some condition of sea or weather or accident of navigation producing a result which but for these conditions would not have occurred.
Mustill J then referred to a number of well known cases to the same effect: Hamilton, Fraser & Co v Pandorf & Co (1887) 12 App Cas 518, 527, Canada Rice Mills Ltd v Union Marine and General Insurance Co Ltd [1941] AC 55 and N E Neter & Co Ltd v Licenses and General Insurance Co Ltd (1944) 77 Ll L Rep 202, 205.
The Miss Jay Jay went to the Court of Appeal but these principles were not affected by its decision: see [1987] 1 Lloyds Rep 32.
Thus, on the facts of a particular case, the loss or damage may be caused by ordinary wear and tear or by the ordinary action of the wind and waves, as those expressions are used section 55(2)(c) of the Act and in para 7 of Schedule 1 to the Act respectively.
In such a case the loss or damage may not be inevitable but will nevertheless be irrecoverable.
The cases make it clear that, at any rate in a perils of the seas case, the critical question is whether or not the conditions of the sea were such as to give rise to a peril of the seas which caused some fortuitous accident or casualty.
It is important to note that the cases show that it is not the state of the sea itself which must be fortuitous but rather the occurrence of some accident or casualty due to the conditions of the sea.
Some of the cases and, indeed, some of the academic writings discuss how adverse the sea conditions have to be to be capable of amounting to a peril of the seas: see, for example Mustill J in the Miss Jay Jay and Professor Howard Bennetts article entitled Fortuity in the Law of Marine Insurance [2007] LMCLQ 315, 330 331.
It seems to me that such a discussion is rarely fruitful, since the question in each case is whether the sea conditions were such as to have caused a fortuitous accident or casualty.
It is not necessary to discuss this issue further in the instant case because the effect of the judges findings of fact as interpreted by the Court of Appeal was that the failure of the legs was not inevitable or caused by ordinary wear and tear or the ordinary action of the winds and waves but, subject to his conclusions on inherent vice, fortuitous.
As I see it, the above analysis is entirely consistent with that of Lord Mance.
It follows from it that the insured are entitled to recover under the policy unless the damage was caused by inherent vice or nature of the subject matter insured within the meaning of section 55(2)(c) of the Act and clause 4.4 of the Institute Cargo Clauses (A).
Put another way, the question is whether the physical condition of the leg constitutes inherent vice or nature of the subject matter insured.
Both parties rely upon the meaning given to that expression by Lord Diplock in Soya Gmbh Mainz Kommanditgesellschaft v White [1983] 1 Lloyds Rep 122, where the issue was whether inherent vice was a peril insured against, in so far as it consisted of a tendency for the cargo to become hot, to sweat or to combust spontaneously.
It was held that it was.
It was further held that deterioration from heat and sweat in the course of the voyage was not inevitable.
Lord Diplocks summary of the facts included the statement that no incident was shown to have occurred upon the voyage whereby the moisture content present in the bulk on shipment had been increased from any external source.
Lord Diplock said, at pp 125 126: The facts as I have summarized them for the purpose of determining the question of construction of the HSSC policy in the instant case, assume that the loss resulting from the deterioration of the soya beans during the voyage was proximately caused by the inherent vice or nature of the subject matter insured.
This phrase (generally shortened to inherent vice) where it is used in section 55(2)(c) refers to a peril by which a loss is proximately caused; it is not descriptive of the loss itself.
It means the risk of the deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous accident or casualty.
By HSSC policy Lord Diplock meant a policy covering heat, sweat and spontaneous combustion: p 124.
It was submitted by the insured that the last few words of that quotation at pp 125 126 are critical to the definition of inherent vice.
It was submitted that it follows from Lord Diplocks definition that, where a peril of the seas is a proximate cause of the damage, there is no inherent vice because inherent vice refers to the inherent condition of the goods that is the sole cause of loss or damage.
Otherwise the words without the intervention of any fortuitous external accident or casualty would be given no meaning.
It would have been sufficient to say that inherent vice means the risk of the deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage.
By contrast, it was submitted by the insurers that Lord Diplock was distinguishing between (1) a loss caused by the internal state of the goods initially on shipment and (2) a loss caused by an external accident or fortuity in the course of the voyage.
They emphasized Lord Diplocks references to (1) the risk of deterioration of the goods shipped and (2) without the intervention of any fortuitous external accident or casualty (emphases added).
It was submitted that, applying Lord Diplocks definition, two questions arise on the facts of this case: first, whether at Galveston, assuming the ordinary course of the contemplated voyage, without any intervening adverse fortuity (including weather, wind and waves), the rig had within itself internally the risk of deterioration, which the insurers called the inherent vice at Galveston; and second, whether the inherent vice at Galveston was the or a proximate cause of the loss of the legs, which they called the causation issue.
The insurers invited an affirmative answer to both questions.
They submitted in essence that there was here inherent vice because the rig was not fit to withstand the wind and waves which might reasonably be contemplated on the voyage.
They submitted that on the causation issue there were to be taken into account the nature and severity of the unfitness and whether there was some external accident or fortuity which (a) caused the loss of the legs and (b) prevented the inherent vice at Galveston from being causative, as either the sole proximate cause or one of two proximate causes.
It was accepted that the stress caused by the leg breaking wave was a fortuity but it was submitted it was no more than a fortuity to be expected in the ordinary course of the contemplated voyage and thus, as it was put in the insurers case a fortuity within the risk of inherent vice.
For my part, I prefer the approach of the insured.
In my opinion, there are a number of problems with the insurers approach.
The first is that their approach fails to give effect to the natural meaning of the words without the intervention of any fortuitous external accident or casualty (emphasis added).
The distinction between different types of external fortuity, namely on the one hand fortuities to be expected in the ordinary course of the contemplated voyage or fortuities within the risk of inherent vice and on the other hand exceptional fortuities, is in my view inconsistent with the use of the word any in Lord Diplocks definition of inherent vice.
The second problem with the insurers approach is that it appears to me that the natural meaning to be given to Lord Diplocks definition is that, if there is an intervention of any fortuitous external accident or casualty the law treats the loss as caused by that fortuitous external accident or casualty and not by inherent vice.
In referring to any fortuitous accident or casualty, Lord Diplock must I think have had in mind the definition of perils of the seas in Schedule 1 to the Act which I have quoted above, namely that it refers only to fortuitous accidents or casualties of the seas.
Moreover, there is no reason to think that he did not fully appreciate that perils of the seas include perils caused, as Mustill J put it [1985] 1 Lloyds Rep 259, 271, by conditions within the range which could reasonably have been anticipated.
Although the statutory definition of perils of the seas was not referred to in Soya v White [1983] 1 Lloyds Rep 122, which did not involve perils of the seas, Lord Diplock would clearly have had it in mind in formulating his definition.
As I see it, by in effect invoking the statutory definition of perils of the seas, he was defining inherent vice in opposition to perils of the seas, thereby avoiding any overlap between the insured risk and the excluded risk.
Thus where, as here, a proximate cause of the loss was perils of the seas, there was no room for the conclusion that the loss was caused by inherent vice.
To my mind that conclusion is supported by the authorities, with the exception of certain dicta of Donaldson LJ in the Court of Appeal in Soya GmbH v White [1982] 1 Lloyds Rep 136 and of the decision of Moore Bick J in Mayban v General Insurance BHD v Alstom Power Plants Ltd [2004] 2 Lloyds Rep 609.
In para 70 of his judgment in the Court of Appeal in the instant case Carnwath LJ quoted this passage from the second edition of Arnoulds Treatise on the Law of Marine Insurance and Average (1857), vol II, pp 782 783: the underwriter is not liable for that loss or deterioration which arises solely from a principle of decay or corruption inherent in the subject insured, or, as the phrase is, from its proper vice As Carnwath LJ observed, such views remain relevant because of the fact that the Act was a codifying statute and Arnoulds approach, with its emphasis on something inherent in the subject matter insured, as opposed to the impact of external factors, has proved remarkably resilient over the ensuing 150 years.
This is not to say that external factors are entirely irrelevant when determining whether there was inherent vice, as for example (as Carnwath LJ said at para 70) atmospheric conditions hastening the deterioration of the gloves in T M Noten BV v Harding [1990] 2 Lloyds Rep 283.
I agree with Waller LJ (at para 56) that inherent vice can be a cause even though some outside agency may have played a part, as for example the motion of the waves in Byles Js example (in Koebel v Saunders (1864) 17 CB(NS) 71, 79) of a cargo of tender animals which were unfit to bear the agitation of the sea.
I also agree with Waller LJ that Arnould almost certainly intended his definition to be understood as meaning that inherent vice would be the sole cause where any other outside causative factor would not be a peril insured against.
That is in essence what Lord Diplocks definition amounts to, at any rate in the context of perils of the seas.
Both parties relied upon the decision of the Court of Appeal in Noten [1990] 2 Lloyds Rep 283 but in my opinion it provides support for the submissions made on behalf of the insured.
The issue in Noten arose out of wet damage to gloves stowed in containers.
The claim was under an all risks warehouse to warehouse policy.
The gloves had been stowed in the containers in a wet condition.
The cause of the damage was the condensation on the inside of the top of the containers and falling on to the gloves.
The gloves had absorbed moisture from the humid atmosphere in Calcutta, had either lost or gained a little moisture within the containers in the course of the voyage to Rotterdam and were damaged in Rotterdam as a result of the containers being discharged into a temperature markedly colder than the temperature in the mass of the gloves.
The containers then cooled which in turn caused a convection of air currents which led to the condensation and thus to moisture falling on the gloves.
The judge, Phillips J [1989] 2 Lloyds Rep 527, held that the insured were entitled to recover on the basis that the damage was caused by the dropping of water from an external source.
The Court of Appeal [1990] 2 Lloyds Rep 283, in which Bingham LJ gave the only substantive judgment, allowed the insurers appeal.
His reasoning may be summarised in this way.
The question was what was the real or dominant cause of the damage, which was to be answered applying the common sense of a business or seafaring man, whom Bingham LJ described as a hypothetical oracle: p 287.
Such a person would not understand how the water which caused the damage could be regarded as coming from a source external to the goods but would regard the gloves as the obvious and sole source of the water.
He asked himself this question.
If, then, the damage was proximately caused by the excessively moist condition of the gloves when shipped, given the conditions in which they were and were expected to be carried, was that caused by an insured peril or was it within the exception of inherent vice or nature of the goods?
Bingham LJ directed himself by reference to section 55(2)(c) of the Act and set out Lord Diplocks definition of inherent vice in Soya v White and then quoted from para 782 of volume II of 16th edition of Arnoulds Law of Marine Insurance and Average (1981), which has echoes of the second edition quoted above, as follows: Upon the same ground, the underwriter is not liable for that loss or deterioration which arises solely from a principle of decay or corruption inherent in the subject insured, or, as the phrase is, from its proper vice; as when fruit becomes rotten, or flour heats, or wine turns sour, not from external damage, but entirely from internal decomposition.
Accordingly, where meat shipped at Hamburg became putrid through delay on the voyage occasioned by tempestuous weather, and was necessarily thrown into the sea, it was held to be no loss within the meaning of the policy.
So, if spontaneous combustion is generated by the effervescence or other chemical change of the thing insured, arising from its having been put on board wet or otherwise damaged, the underwriter is not liable; but it lies upon him to show clearly that the fire really arose from this cause.
The suggestion has sometimes been made that inherent vice means the same thing as damage that must inevitably happen, but this is not so.
The distinction is between damage caused by any external occurrence, and damage resulting solely from the nature of the thing itself.
Damage from inherent vice may be just as capricious in its incidence as damage caused by perils of the seas.
Bingham LJ then expressed his conclusion thus at p 288: If the factual cause of the damage to these gloves has been correctly identified, then I think it plain that that was an excepted peril under these policies.
The goods deteriorated as a result of their natural behaviour in the ordinary course of the contemplated voyage, without the intervention of any fortuitous external accident or casualty.
The damage was caused because the goods were shipped wet.
For the reasons already given I regard it as immaterial that the moisture travelled round the containers before doing the damage complained of.
Those conclusions seem to me to support the insureds case in this appeal.
As Arnould put it, the distinction is between damage caused by any external occurrence and damage resulting solely from the thing itself.
On the facts Bingham LJ concluded that the goods deteriorated as a result of their natural behaviour in the ordinary course of the contemplated voyage, without the intervention of any fortuitous external accident or casualty.
He was there applying Lord Diplocks definition and it is plain that, if he had held, as the judge had done, that there was such a fortuitous event, the defence would have failed because it could not then have been said that the damage resulted, in Arnoulds phrase, solely from the nature of the thing itself.
Bingham LJ, in rejecting an alternative basis upon which the claim was put, further emphasized (at p 289) the importance of establishing a fortuity if the insured was to succeed.
It seems plain that Bingham LJ and (through him) the Court of Appeal were adopting Arnoulds test, so that if damage resulted from the fortuity there could be no inherent vice.
An application to the instant case of the analysis of the Court of Appeal in Noten would in my opinion lead to the conclusion that the insured are entitled to succeed on the basis of the fortuitous leg breaking stress found by the judge.
Both parties placed some reliance on the decision of the Court of Appeal of British Columbia in Nelson Marketing International Inc v Royal & Sun Alliance Insurance Co of Canada (2006) 57 BCLR (4th) 27.
The facts are similar to those in Noten.
The claim was under an all risks marine insurance in respect of wet damage to a shipment of laminated hardwood flooring.
The laminated wood had absorbed moisture while awaiting shipment in Malaysia.
The heat to which the flooring was exposed during the course of the voyage caused the moisture to escape from within the wood and to condense on the surface of the flooring under the plastic covering.
The judge at first instance held that the insured were entitled to recover on the basis that, although the moisture that damaged the flooring was internal to the flooring, the external environmental conditions in the holds of the vessels caused the damage.
The Court of Appeal allowed the insurers appeal.
In setting out the relevant principles to be applied, Lowry JA, who gave the only substantive judgment, referred to the passages in Noten set out above.
He then summarised the correct approach at para 13 of his judgment as follows: Thus, to succeed on a claim under an all risks cargo policy, the insured must establish, by direct evidence or by inference to be drawn from the available evidence, that an external fortuitous occurrence caused the deterioration of the cargo as distinct from the cargo having simply succumbed to the ordinary incidents of the voyage because of the cargos inherent nature or susceptibility.
It followed from this, he continued at para 23, that the issue is only whether what did cause the loss was fortuitous and not attributable to the inherent nature of the flooring.
There being no evidence that the conditions in the vessels constituted a fortuitous occurrence, he concluded that the loss was attributable to the nature of the wood cargo.
As I see it, Nelson provides further support for the insureds case that the critical distinction is between damage caused by an external fortuity and damage resulting solely from the intrinsic nature of the insured goods.
Reliance was however placed on the obiter dicta of Donaldson LJ in Soya v White [1982] 1 Lloyds Rep 136.
They appear in a part of his judgment in which he gave reasons for differing from the judgment of Lloyd J [1980] 1 Lloyds Rep 491 at first instance on causation.
At p 150, Donaldson LJ set out part of that judgment and said this: I fully accept his finding that the cause of the loss was the condition under which the soya beans were carried, but I disagree with his conclusion that this does not constitute a loss proximately caused by inherent vice.
As I have said, in my judgment a loss is proximately caused by inherent vice if the natural behaviour of the goods is such that they suffer a loss in the circumstances in which they are expected to be carried.
This is the test under a contract of affreightment and the shipowner in this case could have pleaded inherent vice in answer to a claim for damage to the cargo.
In holding that inherent vice is only proved if the soya beans could not withstand any normal voyage of that duration, the judge was introducing a different concept, namely that of certainty of loss.
That is [a] quite different defence.
It is in any event subject to the qualification that it must be a certainty which is, or should be, known at least to the assured.
The insurers relied upon the proposition that inherent vice was proved if the natural behaviour of the cargo was such that it suffered a loss in the circumstances in which it was expected to be carried.
Lord Diplock did not express a view upon that proposition, save to say that the only point of difference between the judgments at first instance and in the Court of Appeal related to an issue of causation which, on the view taken by the House of Lords, did not arise and upon which no argument was heard.
In these circumstances Lord Diplock did not express a view upon the above passage one way or the other.
As it seems to me, Donaldson LJ was not considering the issue which arises on this appeal.
He was not considering a definition of inherent vice in the terms subsequently stated by Lord Diplock, with the agreement of the other members of the House.
In so far as his approach is inconsistent with Lord Diplocks definition as explained above, I would not accept it.
The same is true of the reasoning of Moore Bick J in Mayban [2004] 2 Lloyds Rep 609, in which cargo in the form of a transformer was damaged in the course of a voyage.
The transformer was insured under a policy which, like this one, covered all risks and was subject to the Institute Cargo Clauses (A) terms.
As the judge observed at para 97 in a passage quoted by Waller LJ at para 21, Moore Bick J said at his para 21: It was common ground that the immediate cause of the damage to the transformer in the present case was the violent movement of the vessel due to the actions of the wind and sea.
These in themselves were certainly events of a fortuitous nature and they were external to the cargo, but were they the real cause of the loss? The action of the winds and waves is, of course, an inevitable incident of any voyage and is therefore a hazard to which all goods carried by sea are necessarily exposed.
Goods tendered for shipment must therefore be capable of withstanding the forces that they can ordinarily be expected to encounter in the course of the voyage and these may vary greatly depending on the route and the time of year.
In a case such as the present, therefore, the competing causes, namely, perils of the sea and inherent vice, are to a large extent opposite sides of the same coin.
If the conditions encountered by the vessel were more severe than could reasonably have been expected, it is likely that the loss will have been caused by perils of the sea (though even then there might be evidence that the goods would have suffered the same degree of damage under normal conditions).
If, however, the conditions encountered by the vessel were no more severe than could reasonably have been expected, the conclusion must be that the real cause of the loss was the inherent inability of the goods to withstand the ordinary incidents of the voyage.
Moore Bick J further said, at para 26, that the relatively short periods of high wind encountered on the passage were neither extreme nor even unusual in the sense that they are encountered often enough for mariners to regard them as a normal hazard, concluding that a cargo that could not withstand exposure to conditions of that kind could not be regarded as fit for the voyage.
In the result, he held that the loss was caused by the inability of the transformer to withstand the ordinary conditions of the voyage rather than by the occurrence of conditions which it could not reasonably have been expected to encounter.
The insured submitted that Moore Bick J was wrong to hold that, if the conditions encountered by the vessel were no more severe than could reasonably have been expected, the conclusion must be that the real cause of the loss was the inherent inability of the goods to withstand the ordinary incidents of the voyage and was thus inherent vice.
I would accept that submission.
It does not appear that the principles were in issue before the court and the only cases cited were British and Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41, Soya v White [1983] 1 Lloyds Rep 122 and Noten [1990] 1 Lloyds Rep 283.
In particular, the cases which examine the correct approach to perils of the seas, notably the Miss Jay Jay [1985] 1 Lloyds Rep 264 and the cases referred to by Mustill J (see above), were not referred to.
If they had been, I am confident that Moore Bick J would have held that the damage was caused by perils of the seas, that it was not a case of inherent vice and that it was within the scope of the all risks cover.
The 16th edition of Arnoulds Law of Marine Insurance and Average was published in 1981 and referred, at para 782, to the decision of Lloyd J in Soya v White [1980] 1 Lloyds Rep 491.
A third volume of the 16th edition was published in 1997 and contained a discussion of both Soya v White and Noten, at paras 217 224.
It noted at para 222 that Donaldson LJ and Lord Diplock attached significantly different meanings to inherent vice.
As I read the text, it preferred the approach of Lord Diplock.
The 17th edition was published in 2008.
In the first two paras of para 22 25 it reproduced the paras from volume II of the 16th edition quoted above (para 116).
It then quoted the parts both of the speech of Lord Diplock and of the judgment of Donaldson LJ referred to above and stated that the concept of inherent vice was defined in somewhat different terms but this time said that there was no reason to suppose that Lord Diplock disagreed with Donaldson LJs approach or that he intended to give the concept of inherent vice a narrower meaning than had been indicated in the Court of Appeal.
Para 22 25 concluded by saying that Arnould's view, which had been supported in subsequent editions, that a loss can only be said to be caused by inherent vice when it is solely due to the nature or condition of the insured property had, therefore, now to be qualified.
Para 22 26 was in these terms: After Soya v White (above), inability to withstand the ordinary incidents of the voyage is clearly an appropriate test of inherent vice.
It can no longer be said that inherent frailty is to be distinguished from inherent vice, or that the concept of inherent vice is necessarily inapplicable where external factors have contributed to the loss or damage to the insured.
Inherent vice will afford a defence where the sole cause of loss is the internal decomposition or deterioration of the subject matter insured, unless the policy otherwise provides.
This is the case envisaged under section 55(2)(c) of the Act.
Where the loss results both from the inability of the insured ship or cargo to withstand ordinary incidents of the voyage and from some fortuitous but not unusual external occurrence, it may sometimes be appropriate to conclude that inherent vice was so much the dominant cause that it ought to be viewed as the sole proximate cause of loss; but, in many cases, the appropriate conclusion will be that the loss was due to a combination of causes of approximate equal efficiency.
In those circumstances, if the external cause is an insured peril and if there is no express exclusion of inherent vice, the assured will be able to recover; if there is an express exclusion of inherent vice, the claim under the policy will be defeated.
Those conclusions undoubtedly support the case for the insurers in this appeal, although it is right to say that in a footnote to the first part of the passage that I have italicised, Arnould refers to Mayban [2004] 1 Lloyds Rep 609, contrasts the hull cases which it notes were not cited in Mayban and says that the controversial result of the case, if applied generally, is that it would restrict the scope of cover in respect of heavy weather damage under the Institute Cargo Clauses (A) to wholly exceptional weather conditions.
In doing so it quotes from Bennett, Law of Marine Insurance 2nd ed (2006), para 15.54.
The footnotes also refer to the Miss Jay Jay [1985] 1 Lloyds Rep 264.
Like the Court of Appeal, I have reached the conclusion that the analysis in para 22 26 of the 17th edition is wrong and that the analysis in volume II of the 16th edition (and in earlier editions) is to be preferred.
In reaching my conclusions I have been much assisted by the article by Professor Bennett [2007] LMCLQ 315 referred to above, especially at p 346, where he said that section 55(2)(c) of the Act operates not as an implied contractual exclusion but as a clarification on the scope of cover.
As he put it, it amplifies the proximate cause rule articulated in section 55(1) and provides an example of a circumstance of a loss not proximately caused by a peril insured against.
If the approach of the insurers is correct, there is loss as a result of inherent vice where loss or damage is caused by the inability of the cargo to withstand the ordinary perils of the sea, or put another way, by the unseaworthiness of the cargo, since (as Lord Saville has noted at para 38) seaworthiness is defined by section 39 of the Act as being reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured.
I agree with Lord Saville, for the reasons he gives at paras 40 to 43 above, that the provisions of sections 39 and 40 of the Act do not sit easily with the insurers submissions.
There was some discussion in the course of argument about what were called the hull cases.
However they were cases of hull insurance in which the issue was usually whether the unseaworthiness of the vessel or an insured peril was the proximate cause of the loss or damage.
The meaning of inherent vice was not addressed.
So they are of no assistance on the issue in this appeal, save perhaps to note that they support the approach to perils of the seas discussed above.
In so far as they are relevant, I agree with the analysis of Lord Mance at para 66 et seq.
The approach of the insured seems to me to have the virtue of simplicity.
The sole question in a case where loss or damage is caused by a combination of the physical condition of the insured goods and conditions of the sea encountered in the course of the insured adventure is whether the loss or damage is proximately caused, at least in part, by perils of the seas (or, more generally, any fortuitous external accident or casualty).
If that question is answered in the affirmative, it follows that there was no inherent vice, thereby avoiding the causation issues that arise where there are multiple causes of loss, one of which is an insured risk and one of which is an uninsured or excluded risk.
The approach also seems to me to accord with commonsense, at any rate in a case like this.
It would be commercially unacceptable if cover for loss arising as a result of the interaction of perils of the seas and the nature of the goods were reduced to situations where the conditions of the sea were not reasonably foreseeable.
As Professor Bennett puts it, at p 348 of his article: assureds do not procure insurance against losses that they consider fanciful.
Rather, it is precisely because commercial experience indicates a certain level of probability of a particular type of loss that the reasonable person considers insurance a sensible and prudent investment.
If, however, goods have to be fit to withstand reasonably foreseeable perils or the loss will be considered to be proximately caused by the inherent vice of the goods, or at least not by a risk within the meaning of the all risks insuring clause, much of the point of cargo insurance disappears.
All risks cover would be confined to loss or damage occasioned only by wholly unusual perils or wholly unusual examples of known perils.
This can be seen on the facts of this case.
Both the insured and the insurers appreciated that there were potential risks of fatigue failure as a result of a combination of the fatigue strength of the rigs legs and the stresses induced by the sea conditions, which would of course depend upon the weather conditions.
It was because of such risks that the insurers insisted upon the rig being inspected by Noble Denton at Galveston and being subsequently inspected at Cape Town, where (as Lord Saville explains) fatigue cracking was found and repairs carried out.
Fatigue failure was thus one of the risks which both parties had in mind and which it seems to me to be fair to say that both parties intended should be the subject of the insurance.
I mention this not as part of a conclusion which depends upon the particular arrangements made in this case but as an indication of what commercial men would have expected.
For these reasons I too would dismiss this appeal.
In doing so, I would stress two matters.
The first is that this seems to me to be a most unusual case.
The critical finding of the judge was that the leg breaking stress was fortuitous and was caused by a peril of the seas.
It is important to note that if, in this case and contrary to the findings of the judge, the casualty had been bound to occur the insured would have failed. (I express no view on the interesting questions raised by Lord Mance at the end of para 51 above).
The second is that, as I see it, the insured would not have been entitled to recover in respect of the cost of repairing every fatigue crack but only in respect of the loss of the legs because only the latter has been held to be caused by a peril insured against.
It is a reasonable inference that some cracking was bound to occur.
This point is not however relevant to the issues between the parties if, as the judge noted, quantum is not in dispute.
CONCLUSION
For the reasons I have given, I agree with Lord Saville and Lord Mance that the appeal should be dismissed.
LORD DYSON
For the reasons given by Lord Saville, Lord Mance, Lord Collins and Lord Clarke, I agree that this appeal should be dismissed.
| UK-Abs | This appeal concerns the scope of the exclusion in a marine insurance policy for loss caused by inherent vice in the subject matter insured.
The oil rig Cendor MOPU had been laid up in Galveston, Texas.
In May 2005, it was purchased by the Respondents for conversion into a mobile offshore production unit for use off the coast of Malaysia.
The Respondents obtained insurance from the Appellant for carriage of the oil rig on a towed barge from Texas to Malaysia.
The policy covered all risks of loss or damage to the subject matter insured except as provided in Clauses 4 .
Clause 4.4 excluded loss, damage or expense caused by inherent vice or nature of the subject matter insured.
The oil rig consisted of a platform and three legs extending down to the seabed.
The legs were massive tubular structures, made of welded steel and cylindrically shaped, with a diameter of 12 feet and a length of 312 feet.
Each weighed 404 tons.
The rig was carried on the barge with its legs in place above the platform, so that the legs extended some 300 feet into the air.
The tug and barge set off from Galveston in August 2005 and arrived at Saldanha Bay, just north of Cape Town, in October 2005 where some repairs were made to the legs.
The voyage then resumed but on the evening of 4 November 2005 one leg broke off and fell into the sea.
The following evening the other two legs fell off.
The breakages were the result of metal fatigue caused by the motion of the waves.
In addition, the impact of a leg breaking wave was required to generate the final fracture.
The weather experienced on the voyage was within the range that could reasonably have been contemplated.
The Respondents made a claim under the policy for the loss of the three legs.
The Appellant rejected the claim and the matter came for trial before the Commercial Court.
The Judge held that the proximate cause of the loss was the fact that the legs were not capable of withstanding the normal incidents of the insured voyage, including the weather reasonably to be expected.
Therefore the cause was inherent vice within the meaning of Clause 4.4 and the Appellant was not liable.
The Court of Appeal reversed the decision, holding that the proximate cause of the loss was an insured peril in the form of the leg breaking wave.
The Appellant appealed to the Supreme Court.
The Supreme Court unanimously dismisses the appeal.
The Court finds that the cause of the loss was an insured peril rather than inherent vice.
The issue before the Supreme Court was whether the proximate cause of the loss was an insured peril, in the form of the stresses put upon the oil rig by the height and direction of the waves encountered on the voyage, or inherent vice in the subject matter insured.
The reason for the focus on the proximate cause is to be found in section 55 of the Marine Insurance Act 1906, which provides that an insurer is liable for any loss proximately caused by a peril insured against.
The proximate cause is not the cause closest in time to the loss, but that which is proximate in efficiency.
The 1906 Act also contains provision regarding inherent vice: section 55(2)(c) provides that an insurer is not liable for inherent vice in the subject matter insured.
It was not suggested that the exception in Clause 4.4 for inherent vice bore any different meaning to that in the 1906 Act: [17] [23].
The classic definition of inherent vice is that of Lord Diplock in Soya GmbH Mainz Kommanditgesellschaft v White [1983] 1 Lloyds Rep 122: It means the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty.
The Supreme Court relied and expanded upon that definition.
Lord Mance noted that the reference to the ordinary course of the contemplated voyage was not intended to embrace weather conditions foreseeable on such a voyage.
Further, there is no apparent limitation in the qualification without the intervention of any fortuitous external accident or casualty.
Thus anything that would otherwise count as a fortuitous external accident or casualty will suffice to prevent the loss being attributed to inherent vice: [80].
The Supreme Court also emphasised that the question of the proximate cause is to be answered, as Bingham LJ noted in T M Noten BV v Harding [1990] Lloyds Rep 283, applying the common sense of a business or seafaring man: [19].
Applying these principles, it was not possible to fit the facts of the current case into any normal conception of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage.
The loss had many obvious characteristics which one would associate with a fortuitous marine accident or casualty and that was how it should be seen.
In particular, the breaking of the legs was neither expected nor contemplated.
It only occurred under the influence of a wave of a direction and strength catching the first leg right at the right moment, leading to increased stress on and collapse of the other two legs in turn: [46]; [65]; [84].
The fact that the legs were not capable of withstanding the normal incidents of the insured voyage, in particular the weather reasonably to be expected, did not make inherent vice the proximate cause.
If that were the case, the cover would only extend to loss or damage caused by perils of the sea that were exceptional, unforeseen or unforeseeable.
That would frustrate the purpose of all risks cargo insurance, which is to provide an indemnity in respect of loss or damage caused by, among other things, all perils of the sea: [35].
The Court therefore held that the proximate cause of the loss was a peril of the sea, for which the insurers were liable, and not inherent vice.
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It is not often that, as in this case, the question of the construction of a charterparty arises in the Chancery Division.
The issue between the parties is whether one of them is an Affiliate of the charterer for the purposes of provisions in a charterparty by which both the owner and the charterer agreed to indemnify and hold each other harmless (including in the case of the charterer its Affiliates) in relation to certain liabilities.
The charterparty provides (in clause 1): In this Charter Agreement the following words and expressions shall have the meanings hereby assigned to them except where the context otherwise requires: a) Affiliate means any subsidiary of the Charterer or a company of which the Charterer [is] a Subsidiary or a company which is another Subsidiary of a company of which the Charterer is a Subsidiary.
For the purposes of this definition Subsidiary shall have the meaning assigned to it in Section 736 of the Companies Act 1985.
By clause 1.2 a reference to any statute or statutory provision is to include a reference to any amendment, extension, consolidation or replacement thereof.
Although for the purposes of this dispute the relevant provisions are to be found in the Companies Act 1985 (as amended by the Companies Act 1989) identical provisions are re enacted by the Companies Act 2006, and the issue on this appeal is of some general importance.
The statutory definition of subsidiary is incorporated by reference in other legislation (e.g. Transport Act 2000, section 65; Enterprise Act 2002, section 223; Energy Act 2004, section 196).
Incorporation of the statutory definition in commercial contracts (of which this case is an example) is very common.
In this case it has had an unexpected result which has arisen through a combination of two factors.
The first factor is that, as will be seen, the statutory definition of subsidiary in important respects uses the term member which normally connotes the person on the share register.
The second factor flows from a difference between English and Scots law and practice relating to the holding of shares by way of security: under Scots law and practice the mortgagee is registered as the holder of the shares, by contrast with the position in England, where commonly an equitable charge by way of deposit of the share certificate will constitute the security.
As Lord Hope and Lord Rodger explain fully in their judgments, under Scots law the only way in which a fixed security over shares can be taken is by fiduciary transfer of the shares to the creditor (fiducia cum creditore).
The security is known as a share pledge, under which registration of the creditor as holder of the shares constitutes the security.
The unexpected result may be (if the Court of Appeal was right) that, in the somewhat unusual circumstances of this case, a company which would otherwise undoubtedly be the subsidiary of another company ceased to be so when the shares in the former company were charged by the latter company to a Scottish bank.
To oversimplify considerably, a major question on the appeal is whether, for the purposes of the statutory provision and the contract, the putative holding company remained a member notwithstanding that the shares which it owned were charged to, and registered in the name of, the mortgagees nominee company.
The facts
The charterparty was entered into on February 4, 1994.
The owner was Farstad Shipping A/S (Farstad) and the charterer was then called Aberdeen Service Company (North Sea) Ltd (Asco UK Ltd or the Charterer).
The chartered vessel was the Far Service (the Vessel) and the charter was, initially, for 5 years with an option to extend for up to a further 5 years.
The Vessel was to supply and/or assist and/or service offshore installations.
The charter in fact continued until at least December 2005.
The charterparty contained mutual exceptions and indemnities to lay out a regime allocating risk and responsibility in respect of the main types of liability situations that might arise as between Farstad and the Charterer.
In particular Farstad was to defend and hold harmless the Charterers, its Affiliates and Customers, in respect of any loss or damage to the Vessel or to other property of Farstad (clause 33.5).
Asco UK Ltd is a wholly owned subsidiary of what is now called ASCO plc, formerly ASCO Group plc (ASCO), a major oil and gas logistics company.
Enviroco Ltd (Enviroco) carries on business (inter alia) in the industrial cleaning of ships.
Until 1999 it too was a wholly owned subsidiary of ASCO.
In November 1999, in connection with a joint venture with Stoneyhill Waste Management Ltd (Stoneyhill), the shares in Enviroco were converted into equal numbers of A and B ordinary shares with ASCO retaining the A shares and Stoneyhill holding the B shares.
The effect of the amended Articles of Association was that ASCO had the right to appoint a majority of directors.
In addition, pursuant to an agreement with Stoneyhill, ASCO was entitled to exercise a majority of the voting rights in Enviroco.
The A shares were registered in the name of ASCO and the B shares were registered in the name of Stoneyhill.
ASCO and Enviroco are both registered in Scotland, and in May 2000 ASCO executed a Deed of Pledge, governed by Scots law, in favour of the Bank of Scotland (the Bank), for itself and as agent and Security Trustee for a syndicate of banks, to secure facilities granted or to be granted by some of the banks.
By the Deed of Pledge ASCO pledged, charged and assigned to the Bank the A ordinary shares held by it in Enviroco, and agreed to register, or procure the registration of the shares in the name of the Bank or its nominees until the secured liabilities were repaid.
The shares were then registered in the name of Bank of Scotland Branch Nominees Ltd (the Nominee).
The Deed of Pledge provided that until the security became enforceable the full voting and other rights and powers in respect of the Shares were exercisable by ASCO and that ASCO would be appointed as proxy in relation to the voting of the shares until the security was enforced.
No voting rights or other powers were exercised by the Bank or the Nominee, all dividends were paid to ASCO and the security was never enforced.
The proceedings
On July 7, 2002 Enviroco was employed to clean the oil tanks of the Vessel.
While the tanks were being cleaned by Envirocos employees, a fire occurred in the engine room causing substantial damage to the Vessel and the death of an Enviroco employee.
On March 26, 2007 Farstad issued proceedings in Scotland claiming damages from Enviroco amounting to approximately 2.7 million in respect of losses allegedly suffered by Farstad as a consequence of the incident in 2002.
Enviroco sought to rely on the mutual exception and indemnity clauses on the basis that it was an Affiliate of Asco UK Ltd because each of them was a subsidiary of ASCO.
The principal issue is whether the fact that, in accordance with Scottish practice, the shares in Enviroco were registered in the name of the Banks nominee company has the result that Enviroco was not a subsidiary of ASCO at the relevant time and therefore not an Affiliate for the purposes of the charterparty.
In December 2007 Enviroco issued these proceedings in England seeking a declaration that on the true and proper construction of the charterparty Enviroco was an Affiliate of the Charterer.
Subsidiaries: the statutory definitions
There are many situations in which company law takes account of groups of companies: see Gower and Davies, Principles of Modern Company Law, 8th ed. 2008, para 9 16.
They include financial reporting, the control of transactions between a company and its directors, or of the purchase of a companys own shares.
It is plainly important and necessary to define what is meant by a subsidiary for these and other purposes.
There is a special definition for accounting purposes in section 1162 and schedule 7 of the 2006 Act, previously in section 258 and schedule 10A of the 1985 Act (inserted by the Companies Act 1989).
The definition for general purposes is in section 1159 and schedule 6 of the 2006 Act, previously in sections 736 and 736A of the 1985 Act as amended by the Companies Act 1989.
Greene Committee and the Companies Acts 1928 and 1929
The Companies Act 1928 was the first to deal with the definition of subsidiary, by amending the Companies Acts 1908 to 1917 prior to their consolidation into the Companies Act 1929.
The terms holding company and subsidiary were defined for the purpose of new accounting provisions in sections 122 to 128 of the 1929 Act, which gave effect to the recommendations of the Company Law Amendment Committee (the Greene Committee), 1926, Cmd 2657.
Section 127 of the 1929 Act (re enacting section 40 of the 1928 Act) provided that a company would be deemed to be a subsidiary company of another company if the latter held shares, directly or through a nominee, and (a) the amount of the shares so held was more than 50% such as to entitle the shareholder to more than 50% of the voting power; or (b) the shareholder had power (other than under security documents) to appoint the majority of the board.
Where a company the ordinary business of which included lending held shares in another company as security only, no account was to be taken of the shares so held in determining if that other company was a subsidiary: section 127(2).
The provisions made no use of the concept of member.
Cohen Committee in 1945 and the Companies Acts 1947/1948
The Cohen Committee on Company Law Amendment recommended in 1945 (Cmd 6659) a revised definition of holding company and subsidiary, where there existed either (a) control of the subsidiary through the board of directors and ownership (direct or indirect) of shares in the subsidiary, or (b) beneficial ownership (direct or indirect or through subsidiaries) of more than half of the subsidiarys equity share capital.
The recommendations also envisaged that, as before, shares held as security only by a company the ordinary business of which included lending would continue to be left out of account.
The Committees focus was on the beneficial ownership of shares and not on the status of membership.
The changes made by the Companies Act 1947 (consolidated in the Companies Act 1948) were in terms different from those proposed by the Cohen Committee, and introduced the concept of membership into that part of the definition which related to control of composition of the board.
By section 154(1)(a) of the 1948 Act a company was deemed to be a subsidiary of another if, but only if, (a) that other either (i) is a member of it and controls the composition of its board of directors, or (ii) holds more than half in nominal value of its equity
share capital
Special provision was made to deal with shares held by nominees or by way of security in section 154(3)(b),(c),(d), the broad effect of which was that shares held or powers exercisable were to be treated as held or exercisable by the beneficial owner or by the grantor of the security.
The Jenkins Committee, the Companies Act 1967, and the Companies Act 1985 as
originally enacted
The Jenkins Committee (Company Law Committee, 1962, Cmnd 1749) recommended that there should be an amended definition of subsidiary based solely on membership and control (i.e. the first part of the formula in the 1948 Act) because the definition in the 1948 Act could result in a company being a subsidiary of two other companies, and because non voting and restricted voting equity shares had become more common with the result that a company might own a majority of shares without controlling the composition of the board: paras 149 150 and 156.
But this part of the Jenkins Committees proposals was not adopted in the Companies Act 1967, with the consequence that the definition in the 1948 Act continued to apply.
As originally enacted, section 736(1) of the original 1985 Act was in the same terms as section 154(1) of the 1948 Act, with the provisions dealing with nominees and mortgagees now in section 736(4).
The European Communitys Seventh Council Directive on consolidated accounts
and the changes to the 1985 Act
The Seventh Council Directive on consolidated accounts (83/349/EEC of June 13, 1983) required changes in the subsidiary/holding company definition used for accounting purposes.
The Companies Act 1989, which implemented the Directive, introduced a new subsidiary/holding company definition for accounting purposes in sections 258 and 259 and schedule 10A (now section 1162 and schedule 7 of the 2006 Act).
Section 258(2) defined the parent undertaking/subsidiary undertaking by reference to four alternative criteria, two of which used the concept of membership: section 258(2)(b) (it is a member of the undertaking and has the right to appoint or remove a majority of its board of directors) and section 258(2)(d) (it is a member of the undertaking and controls alone, pursuant to an agreement with other shareholders or members, a majority of the voting rights in the undertaking).
Section 258(3) provided that an undertaking was to be treated as a member of another undertaking (b) if any shares in that other undertaking are held by a person acting on behalf of the undertaking or any of its subsidiary undertakings.
Schedule 10A contained provisions explaining and supplementing those in section 258.
They included provisions (paras 7 and 8) that rights held by a person as nominee for another were to be treated as held by that other and that rights attached to shares held by way of security were to be treated as held by the person providing the security.
The 1989 Act also amended the subsidiary/holding company definition in section 736, with supplementary provisions in section 736A (now section 1159 and schedule 6 of the 2006 Act).
Sections 736 and 736A were similar, but not identical, to section 258 and schedule 10A.
In particular, with some minor drafting differences, section 736 contained three of the four criteria in section 258(2) (that is, all except the criterion of dominant influence by virtue of the memorandum or articles or of a control contract: section 258(2)(c), and see also section 258(4) for the criteria of actual dominant interest and unified management).
Section 736A contained provisions which were similar to (in the case of nominees) or identical to (in the case of shares held as security) to those in schedule 10A.
But one important difference for the purposes of this appeal is that sections 736 and 736A contained no equivalent to section 258(3) deeming an undertaking to be a member if shares in the putative subsidiary were held by a person acting on behalf of the undertaking.
So far as material to this appeal, sections 736 and 736A of the 1985 Act provide: 736 Subsidiary, holding company and wholly owned subsidiary (1) A company is a subsidiary of another company, its holding company, if that other company (a) holds a majority of the voting rights in it, or is a member of it and has the right to appoint or (b) remove a majority of its board of directors, or (c) is a member of it and controls alone, pursuant to an agreement with other shareholders or members, a majority of the voting rights in it, (3) 736A Provisions supplementing section 736 In this section company includes any body corporate. (1) The provisions of this section explain expressions used in section 736 and otherwise supplement that section. (2) In section 736(1)(a) and (c) the references to the voting rights in a company are to the rights conferred on shareholders in respect of their shares to vote at general meetings of the company on all, or substantially all, matters. (3) In section 736(1)(b) the reference to the right to appoint or remove a majority of the board of directors is to the right to appoint or remove directors holding a majority of the voting rights at meetings of the board on all, or substantially all, matters; and for the purposes of that provision a company shall be treated as having the right to (a) appoint to a directorship if (i) a persons appointment to it follows necessarily from his appointment as director of the company, or (ii) the directorship is held by the company itself; and (b) a right to appoint or remove which is exercisable only with the consent or concurrence of another person shall be left out of account unless no other person has a right to appoint or, as the case may be, remove in relation to that directorship. (5) Rights held by a person in a fiduciary capacity shall be treated as not held by him. (6) Rights held by a person as nominee for another shall be treated as held by the other; and rights shall be regarded as held as nominee for another if they are exercisable only on his instructions or with his consent or concurrence. (7) Rights attached to shares held by way of security shall be treated as held by the person providing the security (a) where apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights are exercisable only in accordance with his instructions; (b) where the shares are held in connection with the granting of loans as part of normal business activities and apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights are exercisable only in his interests. (12) In this section company includes any body corporate.
The decisions below and the appeal
No reliance was placed by Enviroco on section 736(1)(a) or (b), but it was common ground that ASCO controls alone, pursuant to an agreement with other shareholders or members [i.e. Stoneyhill], a majority of the voting rights in Enviroco, which would therefore be a subsidiary of ASCO within section 736(1)(c) if ASCO were a member of Enviroco.
Mr Gabriel Moss QC sitting as a Deputy Judge in the Chancery Division held that: (a) as a matter of contractual interpretation, Enviroco was an Affiliate of the Charterer notwithstanding that ASCOs shares in Enviroco had been pledged to the Bank of Scotland by a method which involved the registration of the shares in the name of the Nominee as a member of Enviroco by way of security; and (b) a company remained a holding company of its subsidiary within the meaning of section 736(1)(b) and 736(1)(c) even after it had given all of its shares as security to a lender and the lender or its nominee had been registered as holder of the shares as part of the perfection, protection or enforcement of its security.
The Court of Appeal (Mummery, Longmore and Patten LJJ) allowed an appeal by Farstad and held that the definition provision in clause 1(a) of the charterparty was an unequivocal direction that the statutory definition was to be applied, and that Enviroco was not a subsidiary of ASCO within sections 736 and 736A of the 1985 Act, because: (1) by providing that the putative holding company is to be a member of the subsidiary, both sections 736(1)(b) and (c) require the putative holding company actually to be a member of the subsidiary within the definition of member of a company in section 22 of the 1985 Act, that is, to be registered as a member; (2) that requirement could not be satisfied by virtue of the attribution provisions in sections 736A(6) and 736A(7); and (3) sections 736 and 736A had to have the same meaning when applied to the charterparty so that no different construction was available in the commercial context.
Envirocos arguments on the appeal to this Court are these.
It puts at the forefront an argument on policy.
It says that the version of section 736 introduced by the 1989 Act was intended to bring the definition of holding company and subsidiary into line with the new definitions of parent undertaking and subsidiary undertaking introduced by section 258.
It cannot have been the intention of Parliament, in enacting a new and stricter definition of holding company and subsidiary, to enable easy evasion of the statutory restrictions imposed on holding and subsidiary companies by the use of nominees, or to displace those restrictions by the use of ordinary security arrangements with ordinary lending institutions.
From that basis Enviroco goes on to put two separate arguments for the conclusion that Enviroco is a subsidiary of ASCO.
The first is that ASCO is a member within the meaning of section 736(1)(c).
The second is that the attribution provisions of section 736A(6) and (7) have the same effect.
The first argument is developed in this way.
The reference to member in section 736(1)(c) (and in section 736(1)(b)) does not require the putative parent company to be named in the subsidiarys register of members since sections 736 and 736A expressly apply not only to companies (companies formed and registered under the Companies Acts) which have a register of members, but also to all other forms of body corporate, whether or not incorporated in Great Britain, and whether or not they have any register of members or equivalent, and so the use of the word member in the two subsections could not have been intended to denote or require entry on a register of members.
The effect of the original section 736 of the 1985 Act was that the putative parent company was not required to be on the register, and Parliament did not intend, and did not legislate for, any change in that regard in 1989.
The reference to member is intended to refer to the holding of rights of membership (as distinct from the holding of shares, a concept of no application in the case of bodies corporate without any share capital, such as companies limited by guarantee) rather than actual entry on the register.
The second argument is that the attribution provisions in sections 736A(6) and (7) attribute to the putative holding company the membership rights enjoyed by a nominee for the holding company (section 736A(6)) or by a chargee holding shares charged by the putative holding company (section 736A(7)), so that it is the holding company which has those rights and is thereby the member for the purposes of section 736.
The meaning of member and the attribution provisions
Members
Section 22 of the 1985 Act (now section 112 of the 2006 Act), provides: Definition of member (1) The subscribers of a companys memorandum are deemed to have agreed to become members of the company, and on its registration shall be entered as such in its register of members. (2) Every other person who agrees to become a member of a company, and whose name is entered in its register of members, is a member of the company.
That definition applies to all bodies corporate which are formed and registered under the legislation.
Enviroco is a company formed and registered under the 1985 Act.
The starting point is that the definition of member in what is now section 112 of the 2006 Act (section 22 of the 1985 Act for the purposes of this appeal) reflects a fundamental principle of United Kingdom company law, namely that, except where express provision is made to the contrary, the person on the register of the members is the member to the exclusion of any other person, unless and until the register is rectified: In re Sussex Brick Company [1904] 1 Ch 598 (retrospective rectification of register did not invalidate notices).
Ever since the Companies Clauses Consolidation Act 1845 and the Companies Act 1862 membership has been determined by entry on the register of members.
The companies legislation proceeds on that basis and would be unworkable if that were not so.
Among the many provisions relating to members are these: (1) a member will be bound by alterations in the companys articles, subject to specified exceptions (section 25, 2006 Act); (2) there are elaborate provisions relating to the register of members (sections 113 et seq), including a duty to keep an index of members (section 115) and rights to inspect and require copies (sections 116 121), and documents in hard copy form must be sent to a member at his address as shown in the register of members (schedule 5, Part 2); (3) a subsidiary cannot be a member of its holding company (section 136); (4) elaborate provision is made for voting by members, by proxies appointed by members, and by joint holders (sections 281 et seq); (5) the company must send its annual accounts and report to every member (section 423); (6) unlawful distributions may be recovered from a member who knows or has reasonable grounds for believing that it is unlawfully made (section 847(2)).
For those and other purposes the legislation makes it clear that the member is the person on the register, and where it is necessary to apply the legislation to persons who are not on the register, special provision is made.
Thus where the shares are bearer shares, special provision is made to allow the bearer to be deemed to be a member (section 122(3)).
So also the right of a member to bring a derivative claim or present an unfair prejudice petition is expressly extended to a person who is not a member of a company but to whom shares in the company have been transferred or transmitted by operation of law (sections 260(5) and 994(2)).
There is no basis for construing section 736(1)(c) (or section 736(1)(b)), taken alone, in any different sense.
There is no equivalent, either in section 736 or section 736A, to the deeming provision in section 258(3)(b) where, for accounting purposes, an undertaking is to be treated as a member of another undertaking if shares in the latter are held on its behalf.
The absence of such a provision is indicative, although not decisive, and, as will be seen, the reason for its absence is a matter for conjecture only.
The attribution provisions
The second argument is that the effect of attribution provisions in sections 736A(6) and (7) is to attribute to ASCO the membership rights enjoyed by the Nominee.
In effect this argument amounts to much the same thing as saying that they are to be read as if section 258(3)(b) were part of section 736A.
Section 736A(6) provides that rights held by a person as nominee for another shall be treated as held by the other, and section 736A(7) provides in principle that rights attached to shares held by way of security shall be treated as held by the person providing the security.
These are in substantially the same terms as schedule 10A, paras 7 and 8, supplementing section 258.
Neither of these provisions says anything about membership.
They are concerned with rights, not status, and plainly refer back to the voting rights and the right to appoint or remove the board in section 736(1)(a) (c), and their elaboration in sections 736A(2) and (3), which provide, respectively, that in section 736(1)(a) and (c) the references to voting rights are to rights conferred on shareholders in respect of their shares, and in section 736(1)(b) the reference to appoint or remove a majority of the board is to the right to appoint or remove directors holding a majority of voting rights.
Those are the rights held or rights attached to shares.
The fact that the similar provisions in schedule 10A, paras 7 and 8 were supplemented by section 258(3) is a strong, but not decisive, additional reason for not construing sections 736A(6) and (7) in the way for which Enviroco contends.
The argument from history
Nor is there anything in the history of the legislation to affect these conclusions.
It is true that from the 1947 Act until the 1985 Act special attribution provisions dealt with nominees and mortgagees in such a way as to treat the beneficial owner/person providing the security as a member where necessary, but there is no secure basis for using those provisions to interpret the amendments made by the 1989 Act.
Enviroco uses the Parliamentary history of the 1989 Act relating to what became sections 258 and 736 736A in two ways, the second much more elaborate than the first.
The first argument is that the fact that it was never suggested that the introduction of the requirement of membership in section 736(1) was a change in the law supports an inference that no change was intended.
The second argument is based on what happened in the passage of the 1989 Companies Bill through its committee stages in the House of Lords and the House of Commons.
In the House of Lords amendments were made in the Bill both to what became section 258 and sections 736 and 736A, which included a provision (draft section 736(5)(d)), which was identical to what became section 258(3) (undertaking shall be treated as a member of another undertaking (b) if any shares in that other undertaking are held by a person acting on behalf of the undertaking . ).
Then substantial amendments were introduced at the committee stage in the House of Commons to include provisions which became the attribution provisions in schedule 10A (supplementing section 258) and sections 736A(6) and (7).
At that time the deemed membership provision in what became section 736A was deleted, but not the equivalent provision in what became section 258(3).
Nevertheless, speaking for the Government, Mr Maude in the House of Commons and Lord Fraser of Carmyllie in the House of Lords said that the definition of subsidiary in what became sections 258 and 736 overlapped, and that the amendments were designed to ensure that where they overlapped, they do so perfectly: see Hansard (HC Debates), 22 June 1989, Standing Committee D, col 473 and Hansard (HL Debates), 9 November 1989, col 1020.
Enviroco argues that the overall effect is that the draftsman took the view that the membership deeming provision in both the earlier drafts of sections 258 and 736/736A was unnecessary in the light of the attribution provisions in what became schedule 10A, paras 7 and 8 and (in the same terms) section 736A(6), (7), but by oversight it was not deleted from what became section 258(3).
It is true that, in the unusual situation of the present case, where ASCO has turned Enviroco into a joint venture company and where it has charged the shares to a Scottish bank, the legislation does lead to a result which is certainly odd and possibly absurd.
But there is no relevant ambiguity in section 736 and no clear statement which casts any light on any question of interpretation which arises on this appeal.
The ministerial statements fall far short of a case for the application of even the most generous application of Pepper v Hart [1993] AC 593.
The drafting history (to the extent it may be looked at: cf Ward v Commissioner of Police of the Metropolis [2005] UKHL 32, [2006] 1 AC 23, at 27) does not throw any light on the reason for the omission from section 736 or section 736A of a provision equivalent to section 258(3).
It does seem likely that there was an error.
The ministerial statements do not assist on the question whether the deeming provision was incorrectly omitted from sections 736 and 736A, or incorrectly retained in section 258(3).
The more likely explanation is that it was incorrectly omitted from section 736A.
There is therefore no clear basis on which the court must be abundantly sure that there is a drafting error of the nature which the Court can correct: Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586 at 592.
The exercise which Enviroco would require from the Court would be an impermissible form of judicial legislation.
Enviroco has made much of the danger of evasion of statutory regulation which could occur if the Court of Appeals construction were right, and the Deputy Judge and Longmore LJ were troubled by this.
The problem of construction has been recognised by textwriters for some time (especially Gore Browne on Companies, 44th ed (1986), vol 1, Supplement 45, pp 1.019 1.020, para 1.6.1), but no material was put forward to suggest that advantage had been taken, in the 20 years or so since the provisions were enacted, of what was described by Enviroco as a loophole.
If there were such material, or if there had been an error, then the relevant provisions of the 2006 Act, section 1159 and schedule 6, could be amended by regulation, subject to negative resolution, under the power given to the Secretary of State in section 1160.
That would be a legitimate route, by contrast with the exercise, which Enviroco in effect asks this Court to undertake, of judicial re drafting of sections 736 and 736A.
Contractual construction
Nor is there any basis for construing the definition differently because it is incorporated in a contract.
The starting point is that if the terms of a statute are incorporated into a contract by reference, the contract has to be read as if the words of the statute are written out in the contract and construed, as a matter of contract, in their contractual context: see Adamastos Shipping Co Ltd v Anglo Saxon Petroleum Co Ltd [1959] AC 133, 152, 184.
It is true that it is likely that, if they had addressed their minds to it, the parties would not have envisaged that a subsidiary would cease to be so merely because the shares in it were charged to a Scottish bank.
But the Court is in no position to re write the contract for the parties.
Thus if the parties had been alive to the possibility and had been presented with it, it is by no means clear that Farstad would have been willing to exempt from liability a sister company of the Charterer which was only 50% owned by ASCO.
This is not a case in which it can be said that applying the wording of section 736 flouts business commonsense: The Antaios [1985] AC 191, 201.
Nor is it a case in which it could be said that something must have gone wrong with the language: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 913; Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, at [15].
Nor is there anything in the factual matrix to suggest that the words of section 736 and 736A have a different meaning or construction in the charterparty from the meaning that they would have in the statutory context.
For those reasons I would dismiss the appeal.
LORD HOPE
I agree with Lord Collins and Lord Rodger that the appeal must be dismissed.
I wish to add only a brief footnote to what Lord Rodger has said about the position in Scots law.
The question whether there was any room for a difference of view between English and Scots law as to the effect of the entry of a person on the register of a company as a member was considered in Elliot v Mackie & Sons Ltd; Elliot v Whyte 1935 SC 81.
In that case the trustees and executors of the deceased founder of a well known private company had executed transfers of shares in favour of two of their number and a third party to enable them to qualify as directors of the company under the articles.
This was because the trustees and executors wished to have an adequate representation on the board of directors of the company.
The certificates were endorsed to make it plain that the transfers were purely nominal and done only in order to enable the transferees to qualify as directors, the beneficial interest remaining in the transferors.
This initiative was objected to by some of the beneficiaries under the deceaseds testamentary settlement.
They maintained, among other things, that registration of the transfers was ultra vires of the company because the companys articles provided that shares must be held by a director in his own name and right, and that the register should be rectified because the transferees names had without sufficient cause been entered in the register.
The argument that registration of the transfers was ultra vires of the company because the shares were not held in the transferees own right as they had no beneficial interest in them was rejected.
It was still the practice in Scotland at that time for notice of trusts to be taken in company registers.
But Lord President Clyde did not think that this made the relation between the registered trustee and the company in any way different from that which existed in the case of other shareholders.
Applying the law as summarised by Lord President Inglis in Muir v City of Glasgow Bank (1878) 6 R 392, 399, he said that the trustee has the full right of property in the shares and consequently incurs personally the full liabilities of a shareholder: 1935 SC 81, 90.
He then added these words, at pp 90 91: The matter is one in which it is most undesirable to have different interpretations, north and south of the Border, of an expression in common use in the articles of companies whose affairs are regulated by a legislative system which is intended to apply, generally, to both countries; and, whatever view might have been taken had the matter arisen rebus integris I think it is too late to open a question which (in England) authority and practice, and (in Scotland) practice conform to that authority, has closed.
The expression in common use to which this passage refers is the provision in the companys articles that the qualification was the holding of a certain number of shares in the directors own name and right.
But the underlying point which determined the issue was the effect of the entry of the transferees names on the register as members of the company, as to which the law on both sides of the Border is the same.
The fact that the certificates on the back of the transfers disclosed that the transfers were purely nominal was insufficient to prevent shares that were actually held in trust from constituting a directors qualification.
As Lord Morison said, at p 92, it was of no concern to the company whether the shareholder was the owner of the shares which he held, or whether third parties were the owners or had interests in them.
These statements of the law have never been questioned, and I am in no doubt that the same reasoning must be applied in this case.
The transaction which led to the entry of Bank of Scotland Branch Nominees Ltd on the register of members of Enviroco Limited in place of Asco Group plc was the agreement between Asco and the Bank of Scotland which led to the transfer to the Bank by Asco of all its shares in Enviroco in security of its obligations to the Bank.
The terms of that agreement were set out in the Deed of Pledge, which makes it plain that as between the parties to it this was a transaction in security.
But so far as Enviroco itself and all third parties are concerned, Asco must be taken to have transferred to the Bank absolutely and without any qualification all the rights of membership attached to the shares that were previously vested in Asco.
It was deprived of those rights as soon as the entry of its name on the register was replaced by that of Nominees.
The problem that the Charterpartys use of the statutory definition of subsidiary to define the word affiliate has given rise to is due to the fact that Scots law insists that, to create a security over shares, the holder of the security the mortgagee, in other words must be entered as a member in the register of shareholders of the company.
This requirement can be traced back to the rule expressed in the Latin brocard traditionibus, non nudis pactis, transferuntur rerum dominia.
Equitable transfers are not recognised in Scots law.
A mere agreement will not do.
Something more is needed to make the agreement effective in a question with third parties.
As a general rule this consists of the taking of possession of the security subjects in a way that is appropriate to their nature and characteristics.
Enviroco was a company incorporated in Scotland with its registered office in Aberdeen.
The lex situs of its shares was Scotland: Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1996] 1 WLR 387, per Staughton LJ at p 405.
So Scots law governed what was required to create a security over them.
The Bank was entitled to insist upon the delivery into its hands of an instrument of transfer, so that Nominees could be entered in the register of members of Enviroco in place of Asco.
The fact that the way the law of Scotland works as to the granting of rights in security over shares in a Scottish company is different from the way security rights may be created over shares under English law must be taken together with its consequences.
However much one might have wished that effect might be given in Scots law to the fact that the entry of the Nominees in the companys register as a member of the company although ex facie absolute was truly in security only, this is no longer if it ever was possible.
I have not been able to trace any Scots authority that would support such an argument and, for the reasons referred to in Elliot v Mackie & Sons, I think that it would stand no chance of being successful.
I agree with the judgment of Lord Collins.
I add a short comment on the
LORD RODGER
effect of the form of security granted by Asco over its shares in Enviroco.
As Lord Collins has explained, the critical question is whether, on 7 July 2002, when the fire occurred on the MV Far Service, Enviroco was a subsidiary of Asco plc (Asco) in terms of section 736(1)(c) of the Companies Act 1985 (the 1985 Act).
For subsection (1)(c) to apply, Asco had to be a member of Enviroco on that date.
Unquestionably, Asco had at one time been a member of Enviroco, but on 11 May 2000 Asco entered into a Deed of Pledge with the Bank of Scotland (the Bank) in order to secure certain obligations and liabilities of Asco to the Bank and certain other lenders.
Although the agreement was described as a Deed of Pledge, the security which it created did not depend on the transfer of possession of the security subjects.
Rather, in terms of clause 2(A), Asco pledged, charged and assigned all its shares in Enviroco to the Bank.
By clause 3(A), until the relevant liabilities had been discharged in full, Asco had to register, or procure the registration of, the shares in the name of the Bank or its nominees and it had to procure that the Bank or its nominees remained the registered holder of the shares until the relevant liabilities had been so discharged.
In short, the security was to be created by transferring title in the shares to the Banks nominees.
This would give the Banks nominees a real right in the shares in the event of Ascos insolvency.
Asco took the steps required by clause 3(B) of the Deed of Pledge, with the result that on 18 May 2000 the register of members of Enviroco was amended to remove the name of Asco and to add the name of the nominees of the Bank as a member.
When this was done, Bank of Scotland Branch Nominees Ltd (Nominees) appeared on the register as a member, holding the shares which had previously been held by Asco when it was a member.
Ex facie the register, therefore, Asco was no longer a member of Enviroco and had been replaced by Nominees.
Of course, if and when Asco discharged its relevant liabilities, under clause 11 of the Deed, the Bank was required to transfer or cause its nominees to transfer all of the shares in Enviroco back to Asco.
At that point which had not been reached by 7 July 2002 Asco would have been restored to the register of members and the register would have been altered to show Asco as holding the shares in Enviroco.
As at 7 July 2002, however, Asco did not appear on the register of members of Enviroco and Nominees did.
Prima facie, therefore, Enviroco was not a subsidiary of Asco in terms of section 736(1)(c) of the 1985 Act since Asco was not a member of Enviroco.
I respectfully agree with Lord Collins analysis, at paras 4143, of section 736A and with his conclusion that nothing in that section expands the expression member in section 736(1)(c) or supplements, or in any way affects, the requirement that the parent should be a member of the subsidiary.
It follows that the appeal must fail for the reasons which Lord Collins gives, unless it can be said that, since the purpose of Ascos transfer of the shares to Nominees was to make Nominees holder of the shares in security only, according to Scots law Asco was to be regarded as remaining, in substance, a member of Enviroco for all purposes except giving effect to the security.
It is only right to point out that no such argument was advanced by counsel for Enviroco at the hearing of the appeal rightly, in my view.
It is, of course, the case that, under clause 5(A) of the Deed of Pledge, for the most part Asco retained the right to exercise all the powers pertaining to the shares.
But the mechanism adopted to achieve this confirms that the powers themselves were actually vested in Nominees.
For instance, so far as the voting rights are concerned, the arrangement was that, until the security became enforceable, the Bank was to secure that Nominees appointed Asco to act as its proxy in relation to the voting of the shares.
Asco was, in effect, to be constituted a procurator in rem suam for this purpose.
This arrangement had to be made precisely because Asco was not a member of Enviroco and so could not vote at general meetings of the company; by contrast, Nominees was a member and so would be entitled to vote in respect of the shares.
The arrangement ensured that Asco was able to exercise the right to vote, as agreed in clause 5(A), even though it was not a member of Enviroco.
There do not appear to be any Scottish cases which discuss the position of a creditor to whom shares have been transferred in security.
But in Gloag and Irvine, Law of Rights in Security Heritable and Moveable and Cautionary Obligations (1897), p 505, Mr Irvine pointed out that, by going upon the register, the security holder renders himself liable in all the obligations of a member of the company in terms of the articles of association.
The security holder is registered individually, and individually he is liable.
The author went on, at p 506, to refer to the well known decisions of the First Division and of the House of Lords as to the position of trustees who were members of the City of Glasgow Bank when it went into liquidation, due to the fraud of its directors, in October 1878.
The liability of members was unlimited.
Under reference to the decision of the House of Lords in Lumsden v Buchanan (1865) 4 Macq 950, Lord President Inglis summarised the relevant law in Muir v City of Glasgow Bank (1878) 6 R 392, 399: Persons becoming partners of a joint stock company, such as the Western Bank, and being registered as such, cannot escape from the full liabilities of partners either in a question with creditors of the company or in the way of relief to their copartners, by reason of the fact that they hold their stock of the company in trust for others, and are described as trustees in the register of partners and the other books and papers of the company. (At that time, under Scots law it was permissible in certain cases for entries on the register to describe members as trustees.) The decision of the First Division holding the trustees fully liable as contributories was upheld by the House of Lords: (1879) 6 R (HL) 21.
Mr Irvine rightly saw that the same reasoning must apply to a security holder who is entered on the register of members of a company in respect of the shares transferred to him.
The decisions in Muir and similar cases arising out of the liquidation of the City of Glasgow Bank brought ruin on many people who had merely held shares as trustees.
The decisions therefore indicate with remorseless clarity that anyone who is entered on the register of a company as a member in any capacity is quite simply a member, with all the relevant rights and liabilities.
That being so, on July 7 2002 Nominees was in all respects the relevant member of Enviroco holding the shares transferred to it.
There is therefore no room for the view that, somehow, under Scots law Asco rather than Nominees should be regarded as the member of Enviroco because Asco had transferred its shares to Nominees in security only.
Mr Irvine went on, Law of Rights in Security, pp 506 507, to identify a number of corresponding drawbacks for the debtor that result from granting a security which depends on transferring the shares to the security holder.
The present case draws attention to another drawback for certain companies which grant such a security.
In all the circumstances the appeal must fail for the reasons given by Lord Collins.
LORD MANCE
For the reasons given by Lord Collins, supplemented by those given by Lord Hope and Lord Rodger, I agree that this appeal should be dismissed.
LORD CLARKE
I was initially attracted by the appellants case.
On any sensible view of the facts Enviroco was throughout a subsidiary of Asco.
However, I have reluctantly concluded that there is no escape from the conclusion stated by Lord Hope at para 58 that, when Asco transferred its shares to Nominees, it must be taken to have transferred them absolutely and without any qualification of all the rights of membership attached to the shares that were previously vested in Asco.
It was deprived of those rights as soon as the entry of its name on the register was replaced by that of Nominees.
I am persuaded by Lord Hope and Lord Rodger that under Scots law, as Lord Rodger puts it at para 69, anyone who is entered on the register of a company is quite simply a member, with all the relevant rights and liabilities.
Moreover, that is so, even where, as here the shares have been transferred to Nominees in security only.
I also agree with Lord Collins for the reasons he gives that, try as one might, there is no basis upon which it is legally possible to reach any other conclusion as a matter of construction of sections 736 or 736A of the 1985 Act as amended.
While I agree with him that it looks likely that the omission from those sections of a provision equivalent to section 258(3) was an error, I also agree with him that the correction of it would amount to impermissible judicial legislation.
As Lord Collins explains at para 50, it could have been done in the 20 years or more since the 1989 Act and it could now be done by regulation.
For the reasons given by Lord Collins, Lord Hope and Lord Rodger I too would dismiss the appeal.
| UK-Abs | Farstad Supply A/S owned a vessel called the Far Service.
On 4 February 1994, Aberdeen Service Company (North Sea) Ltd (Asco UK Ltd) chartered the Far Service from Farstad.
Asco UK Ltd is a wholly owned subsidiary of ASCO plc, a major oil and gas logistics company registered in Scotland.
They wished to use the Far Service to supply and service offshore installations.
Enviroco Ltd cleans ships on an industrial scale among other things and is also registered in Scotland.
Until 1999 it too, like Asco UK Ltd, was a wholly owned subsidiary of ASCO plc.
In November 1999, in connection with a joint venture with Stoneyhill Waste Management Ltd, Envirocos shares were converted into equal numbers of A and B ordinary shares.
ASCO plc held the A Shares whereas Stoneyhill held the B Shares.
By their 1994 contract, known as a charterparty, both Farstad and Asco UK Ltd agreed to indemnify and hold each other harmless in relation to certain liabilities.
Importantly, Farstad further agreed to indemnify Asco UK Ltds Affiliates, who were defined by reference to the meaning of subsidiary in section 736 of the Companies Act 1985, including any amendments.
On 7 July 2002, Enviroco was employed to clean the oil tanks of the Far Service.
While the tanks were being cleaned, a fire occurred causing the death of one of Envirocos employees and substantial damage to the Far Service.
Farstad, the owner of the Far Service, brought a claim in Scotland against Enviroco for losses it allegedly suffered as a consequence of the fire.
Farstad claimed approximately 2.7 million.
Enviroco sought to rely on the indemnity clauses in the 1994 charterparty on the basis that it was an Affiliate of Asco UK Ltd because each of them was a subsidiary of ASCO plc.
Prior to the fire, ASCO plc had entered into a Deed of Pledge with the Bank of Scotland in order to secure some of its obligations.
By a Scottish share pledge, ASCO plc gave the Bank of Scotland security over the A ordinary shares held by it in Enviroco by re registering the shares in the name of the banks nominee company.
Whether or not Enviroco could rely on the indemnity depended on whether the fact that the shares in Enviroco were registered in the nominees name meant that Enviroco was not a subsidiary of ASCO plc at the time of the fire and therefore not an Affiliate for the purposes of the 1994 charterparty.
Whether or not Enviroco was a subsidiary of ASCO plc in turn depended on whether ASCO plc was a member of Enviroco at the relevant time.
The Court of Appeal decided that because the shares were registered in the name of the banks nominee company at the time of the fire, ASCO plc was not a member of Enviroco.
Thus Enviroco was not a subsidiary of ASCO plc so it could not rely upon the indemnity clauses.
The Supreme Court unanimously dismisses Envirocos appeal and holds that Enviroco was not a subsidiary because ASCO plc was not a member of Enviroco.
Lord Collins gives the main judgment.
Lord Hope and Lord Rodger give shorter judgments elucidating the position in Scots law.
The legislation makes clear that a member of a company is the person on the register.
Where it is necessary to apply the legislation to persons who are not on the register, special provisions are made [35] [39].
This is an unusual case.
ASCO plc turned Enviroco into a joint venture company and then charged the shares to a Scottish bank by following the necessary Scots law procedure.
However, to find in Envirocos favour would have required the Court to engage in an impermissible form of judicial legislation [49].
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Subsets and Splits